Consolidated Statements of ~~Shareholders’~~Shareholders’ Equity (Unaudited)

~~For the twelve months ended December 31, 2016 and nine months ended September 30, 2017~~ ~~(Unaudited)~~

Consolidated Statements of Shareholders’ Equity (Unaudited) (Continued)

~~For the~~ ~~nine months ended September 30, 2017 and September 30, 2016~~(Unaudited)

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

~~Consolidated Statements of Cash Flows (Unaudited) (Continued)~~

~~For the~~ ~~nine months ended September 30, 2017 and September 30, 2016~~

For the Nine Months Ended

September 30,

(Amounts in thousands)

2017

2016

Supplemental disclosures of cash flow activity:

Cash paid during the period for:

Income taxes
$ 2,521 $ 3,444
Interest
$ 3,233 $ 3,884
Supplemental disclosures of non cash investing activities:

Transfer of loans to other real estate owned
$ 946 $ 110

Unrealized gain on investment securities available-for-sale
$ 1,973 $ 669
Changes in net deferred tax asset related to changes in unrealized gain on investment securities available-for-sale
(812 ) (276 )
Changes in accumulated other comprehensive income due to changes in unrealized gain on investment securities available-for-sale
$ 1,161 $ 393

Accretion of held-to-maturity investment securities from other comprehensive income to interest income
$ (52 ) $ (79 )
Changes in deferred tax related to accretion of held-to-maturity investment securities
21 33
Changes in accumulated other comprehensive income due to accretion of held-to-maturity investment securities
$ (31 ) $ (46 )

Changes in unrealized loss on derivatives
$ — $ (348 )
Changes in net deferred tax asset related to changes in unrealized loss on derivatives
— 143
Changes in accumulated other comprehensive income due to changes in unrealized loss on derivatives
$ — $ (205 )

Reclassification of losses on derivatives
$ — $ 2,721
Changes in net deferred tax asset related to reclassification of losses on derivatives
— (1,120 )
Changes in accumulated other comprehensive income due to reclassification of losses on derivatives
$ — $ 1,601
Supplemental disclosures of non cash financing activities:

Vested restricted stock issued under employee plans
$ 41 $ 84
Cash dividend declared on common shares and payable after period-end
$ 486 $ 401
Transactions Related to Acquisition:

Assets acquired - fair value
$ — $ 155,230
Goodwill
$ — $ 665
Liabilities assumed - fair value
$ — $ 149,239

~~See accompanying notes to consolidated financial statements.~~

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~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~

Notes to Consolidated Financial Statements (Unaudited)

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for ~~Redding~~Merchants Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) ~~which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce, a division of Redding Bank of Commerce)~~ and for Bank of Commerce Mortgage (inactive). The ~~Company has~~Bank, which previously operated under three separate names, changed its name for all operations to Merchants Bank of Commerce effective May 20, 2019. As previously announced, we entered into an Agreement and Plan of Merger with Columbia Banking System, Inc. with Columbia as the surviving entity. The transaction is expected to close during the fourth quarter of 2021. See Note 11Merger in the Notes to Consolidated Financial Statements in this document. We have an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The ~~consolidated~~Consolidated Balance Sheets ~~as of September 30, 2017 and December 31, 2016~~ are derived from the unaudited interim consolidated financial statements ~~and~~as of June 30, 2021 or the audited consolidated financial statements as of December 31, 2020, and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information not misleading.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Consolidated Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of ~~investments and impairments of~~investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are not considered material and have no effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings ~~2016~~2020 Annual Report on Form ~~10-K.~~10-K. The consolidated results of operations and cash flows for the ~~2017~~2021 interim ~~periods~~period shown in this report are not necessarily indicative of the results for any future interim period or the entire fiscal year.

The accompanying consolidated financial statements include the accounts of the Holding Company and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. As of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, the Company had one wholly-owned trust ~~(“Trust”)~~ formed in 2005 to issue ~~trust-preferred~~trust preferred securities and related common securities. ~~The Company has~~ We have not consolidated the accounts of the Trust in ~~its Consolidated Financial Statements~~our consolidated financial statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ~~ASC 810,~~, Consolidation (“ASC 810”). We are not considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issued by the Holding Company to the Trust are reflected on the Company’s Consolidated Balance Sheets.

In June 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-13,Measurement of Credit Losses on Financial Instruments. The ASU introduces a new impairment model based on current expected credit losses (“CECL”) in substitution for our current “incurred loss” methodology. Amendments to ASU 2016-13 permit us to delay implementation of CECL until January 1, 2023. As discussed in Note 11Merger in the Notes to Consolidated Financial Statements, the Company has entered into an Agreement and Plan of Merger with Columbia Banking System, Inc. with Columbia as the surviving entity. The transaction is expected to close during the fourth quarter of 2021; therefore, we do not anticipate adopting ASU No.2016-13.

We determine if an arrangement is a lease at inception. Operating leases are included in Other Assets and Other Liabilitiesin our Consolidated Balance Sheets. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do not provide an incremental borrowing rate, we use borrowing rates available under our existing line of credit with the FHLB for periods similar to the lease terms as our incremental borrowing rate to determine the present value of future lease payments. Our lease terms may include options to extend or terminate the lease which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Table of ~~new accounting guidance~~

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~In January of 2017, the Company adopted the Financial Accounting Standards Board's (“FASB”) Accounting Standard Update ("ASU") No. 2016-09, Compensation -~~ ~~Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting~~. ASU 2016-09, seeks to simplify several aspects of the accounting for employee share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the consolidated statement of cash flows. By applying this ASU, the Company no longer adjusts common stock for the tax impact of shares released, instead the tax impact is recognized as tax expense in the period the shares are released. This simplifies the tracking of the tax benefits and deficiencies, but could cause volatility in tax expense for the periods presented. The consolidated statement of cash flows has been adjusted to reflect the provisions of this ASU. The application of this ASU did not have a material impact on the financial statements.

On May 10, 2017, the Company announced the closing of its underwritten public offering, at the public offering price of $10.50 per share. The total number of shares of common stock sold by the Company was 2,738,096 shares. Net proceeds raised in the offering, after underwriting discounts and expenses of the offering, were $26.8 million.

Basic earnings per share excludes dilution and is computed by dividing ~~net~~ income by the ~~weighted average~~weighted-average number of common shares outstanding for the period, excluding unvested restricted stock awards which do not have voting rights or share in dividends. Diluted earnings per share reflects the potential dilution that ~~could~~would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that ~~subsequently~~then shared in the earnings of the Holding Company. The computation of diluted earnings per share does not assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

The following is a computation of basic and diluted earnings per share for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~ 2021 and ~~2016.~~2020.

In late 2020, we announced a new share repurchase program to repurchase up to 1.0 million shares of common stock over a period ending December 31, 2021. As of June 30, 2021, 0 shares have been repurchased under this program. Given the recent announcement of the merger with Columbia, management will not be purchasing shares under the program.

In late 2019, we announced a program to repurchase 1.0 million shares of common stock, which was later increased to 1.5 million shares of common stock. Between October of 2019 and April of 2020, all 1.5 million shares were repurchased at a total cost of $13.6 million including commissions, or an average of $9.11 per share.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following ~~table presents~~tables present the amortized costs, unrealized gains, unrealized losses and estimated fair values of our investment securities as of ~~September~~June 30, ~~2017,~~ 2021, and December 31, ~~2016.~~2020.

The following table presents the ~~expected~~contractual maturities of investment securities at ~~September~~June 30, ~~2017.~~2021. Actual maturities may differ from contractual maturities if the issuers of the securities have the right to call or prepay obligations with or without call or prepayment penalties.

The amortized ~~cost~~costs and fair ~~value~~values of residential mortgage-backed securities, collateralized mortgage obligations and commercial mortgage securities are presented by their expected average life, rather than contractual maturity, because the underlying loans may be repaid without prepayment penalties.

At September 30, 2017 and December 31, 2016 securities with a fair value of $65.6 million and $39.2 million, respectively, were pledged as collateral to secure public fund deposits, Federal Home Loan Bank of San Francisco borrowings and for other purposes as required by law.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents the cash proceeds from sales of investment securities and the associated gross realized gains and gross realized losses that have been included in earnings for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~ 2021 and ~~2016.~~2020.

Investment securities that were in an unrealized loss position as of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016~~ 2020 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of December 31, 2016

Less Than 12 Months

12 Months or More

Total

Fair

Unrealized

Fair

Unrealized

Fair

Unrealized

(Amounts in thousands)

Value

Loss

Value

Loss

Value

Loss

Available-for-sale securities:

U.S. government & agencies
$ 9,139 $ (83 ) $ — $ — $ 9,139 $ (83 )
Obligations of states and political subdivisions
20,329 (420 ) — — 20,329 (420 )
Residential mortgage-backed securities and collateralized mortgage obligations
52,345 (1,396 ) 4,108 (101 ) 56,453 (1,497 )
Corporate securities
8,908 (140 ) — — 8,908 (140 )
Commercial mortgage-backed securities
12,041 (191 ) 2,849 (90 ) 14,890 (281 )
Other asset-backed securities
2,280 (28 ) 1,346 (59 ) 3,626 (87 )
Total temporarily impaired securities
$ 105,042 $ (2,258 ) $ 8,303 $ (250 ) $ 113,345 $ (2,508 )

Held-to-maturity securities:

Obligations of states and political subdivisions
$ 11,639 $ (425 ) $ 933 $ (98 ) $ 12,572 $ (523 )

At ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, the number of securities ~~were~~ in an unrealized loss position was 99113 and ~~119,~~47, respectively. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. Our investment policy requires securities at the time of purchase to be rated A3/A- or higher by Moody’s, S&P and Fitch rating agencies. Management monitors the published credit ratings of our ~~available-for-sale~~ investment securities portfolio for material rating or outlook changes. For all private-label securities collateralized by mortgages, management also monitors the credit characteristics of the underlying mortgages to identify potential credit losses, if any, in the portfolio. Because the decline in fair value is not due to credit quality concerns, ~~and~~ because we have no plans to sell the securities before the recovery of their amortized cost, and ~~we believe~~because the ~~bank~~Bank has the ability to hold the securities to maturity, these investments are not considered other-than-temporarily impaired.

~~Our Investment Policy requires that at the time of purchase,~~ ~~securities purchased to be rated A3/A- or higher by Moody’s, S&P and Fitch rating agencies.~~

The following table presents the characteristics of our securities that ~~are~~were in unrealized loss positions at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016.~~2020.

F~~or the nine months ended September~~At June 30, ~~2017, we did not recognize any other-than-temporary impairment losses. We recognized one impairment loss of $546 thousand during the second quarter of 2016 related to our investment in AgriBank~~ 2021 and ~~there were no other impairment losses recognized during the year ended~~ December 31, ~~2016.~~2020, securities with a fair value of $95.7 million and $67.8 million, respectively, were pledged as collateral to secure public fund deposits, FHLB borrowings and for other purposes as required by law.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Outstanding loan balances ~~consist~~edconsisted of the following at ~~September~~June 30, ~~2017,~~ 2021, and December 31, ~~2016.~~2020.

Gross loan balances in the table above include discounts on purchased loans and fair value adjustments made to acquired loans using the acquisition method of accounting.

Discounts on purchased loans - Gross loan balances include net purchase discounts of $680 thousand and $879 thousand as of June 30, 2021, and December 31, 2020, respectively. When we purchase loans, they are typically purchased at a discount to enhance yield and compensate for credit risk. We have no purchased credit impaired loans as of June 30, 2021, and December 31, 2020.

Fair value adjustment -Gross loan balances ~~in the table above~~ include a net ~~purchase discounts~~fair value discount of ~~$2.9 million as of~~ ~~September~~$694 thousand and $920 thousand at June 30, ~~2017,~~ 2021 and December 31, ~~2016.~~2020, respectively, for loans acquired in conjunction with our acquisition of Merchants National Bank of Sacramento during the first quarter of 2019. We recorded $115 thousand and $216 thousand in accretion of the discount for these loans during the three months ended June 30, 2021 and 2020, respectively. We recorded $225 thousand and $379 thousand in accretion of the discount for these loans during the six months ended June 30, 2021 and 2020, respectively.

Certain loans are pledged as collateral for lines of credit with the FHLB and the Federal Reserve Bank. Pledged loans totaled $616.8 million and $523.5 million at June 30, 2021 and December 31, 2020, respectively.

At June 30, 2021, payment deferrals were extant for 16 loans totaling $4.1 million compared to 82 loans totaling $9.5 million at December 31, 2020. In accordance with the CARES Act and regulatory guidance, these modified loans are not troubled debt restructurings and are not considered to be past due or non-performing. We have granted payment deferrals ranging from one to six months determined on a case-by-case basis considering the nature of the business and the impact of COVID-19. For some borrowers who were initially granted a payment deferral of less than six months, we have granted an additional payment deferral period on a case-by-case basis. Without these deferrals, past due loan totals might have been higher at June 30, 2021.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Past due loans (gross), segregated by ~~class,~~loan portfolio were as follows, as of ~~September~~June 30, ~~2017,~~ 2021, and December 31, ~~2016, was as follows~~.2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Nonaccrual loans, segregated by loan ~~class,~~portfolio, were as follows as of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016~~.2020.

Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, as shown in the following table.

Table of ~~approximately $75 thousand and $93 thousand for the three months ended September 30, 2017 and 2016, respectively.~~ ~~We would have recognized additional interest income, net of tax, of approximately $222 thousand and $249 thousand for the nine months ended September 30, 2017 and 2016, respectively.~~Contents

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. The following tables summarize impaired loans by loan ~~class~~portfolio as of ~~September~~June 30, ~~2017,~~ 2021 and December 31, ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of December 31, 2016

(Amounts in thousands)

Recorded

Principal

Related

Impaired Loans

Investment

Balance

Allowance

With no related allowance recorded:

Commercial
$ 1,573 $ 2,438 $ —
Commercial real estate:

Real estate - commercial non-owner occupied
1,196 1,196 —
Real estate - commercial owner occupied
784 841 —
Residential real estate:

Real estate - residential - ITIN
6,047 7,685 —
Real estate - residential - 1-4 family mortgage
1,914 2,722 —
Real estate - residential - equity lines
917 1,342 —
Consumer and other
210 216 —
Total with no related allowance recorded
$ 12,641 $ 16,440 $ —

With an allowance recorded:

Commercial
$ 1,952 $ 1,957 $ 641
Commercial real estate:

Real estate - commercial non-owner occupied
808 808 21
Real estate - commercial owner occupied
337 337 64
Residential real estate:

Real estate - residential - ITIN
2,562 2,617 494
Real estate - residential - equity lines
454 454 227
Consumer and other
40 40 14
Total with an allowance recorded
$ 6,153 $ 6,213 $ 1,461

By loan class:

Commercial
$ 3,525 $ 4,395 $ 641
Commercial real estate
3,125 3,182 85
Residential real estate
11,894 14,820 721
Consumer and other
250 256 14
Total impaired loans
$ 18,794 $ 22,653 $ 1,461

The following ~~table~~tables summarize~~s our~~ average recorded investment and interest income recognized on impaired loans by loan ~~class~~portfolio for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~ 2021 and ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The impaired loans on which these interest income amounts were recognized are primarily accruing troubled debt restructured loans. Loans are reported as troubled debt restructurings when we grant a concession(s) to a borrower experiencing financial difficulties that we would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) ~~significantly,~~, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement.

At ~~September~~The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $106 thousand and $80 thousand at June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, respectively.

As of June 30, 2021, we had $5.8 million in troubled debt restructurings compared to $6.1 million as of December 31, 2020. Troubled debt restructurings represented 0.53% of gross loans as of June 30, 2021 and December 31, 2020. As of June 30, 2021, 89 loans were classified as troubled debt restructurings, of which 88 were performing according to their restructured terms. Of the 89 troubled debt restructurings, 81 were ITIN loans totaling $4.6 million which are serviced by a third party. At June 30, 2021 and December 31, 2020, impaired loans of ~~$6.6~~$3.9 million and ~~$7.1~~$4.1 million, respectively, were classified as performing troubled debt restructured loans.

For a troubled debt restructured loan to be on accrual status, the ~~loan~~’sloan’s collateral coverage must generally be greater than or equal to 100% of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. As of ~~September~~June 30, ~~2017,~~ 2021andDecember 31, 2020, we had ~~one restructured commercial line of credit in nonaccrual status that had $261 thousand in available credit. We had~~ no obligations to lend additional funds on any troubled debt restructured ~~loans as of December 31, 2016.~~

~~As of~~ ~~September 30, 2017, we had $11.0 million in~~loans. We do not have any new troubled debt restructurings ~~compared to $12.1 million as of December 31, 2016. As of September~~for the six months ended June 30, ~~2017, we had 118 loans that qualified as~~2021. There was one new troubled debt ~~restructurings, of which 111 loans were performing according~~restructuring on one $654 thousand commercial real estate loan during the six months ended June 30, 2020. The borrower was impacted by COVID-19 but the loan did not qualify to ~~their restructured terms. Troubled debt restructurings represented 1.33% of gross loans as of September 30, 2017, compared to 1.50% at December 31, 2016.~~

~~Notes to Consolidated Financial Statements (Unaudited)~~be exempt from TDR status under the new TDR guidance issued by the financial institution regulators or under the CARES Act.

The types of modifications offered can generally be described in the following categories:

Payment deferral – A modification in which a portion of the principal is deferred.

Principal reduction – A modification in which a portion of the owing principal is decreased.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables present the period end balances of newly restructured loans and the types of modifications that occurred during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016.~~2020.

~~For the three and nine months ended September 30, 2017 and 2016, the tables below provide information regarding the number of loans where the contractual terms have been restructured.~~

There were no0 loans modified as a troubled debt restructuring ~~during~~within the 12previous twelve months ~~ended~~ ~~September 30, 2017 and 2016,~~ for which there was a ~~subsequent~~ payment default (after restructuring) during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017 and 2016.~~2021 or 2020.

~~The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $374 thousand at September 30, 2017.~~Performing and Nonperforming Loans

We define a performing loan as a loan where any installment of principal or interest is not90 days or more past due, and management believes the ultimate collection of original contractual principal and interest is likely. We define a nonperforming loan as an impaired loan, which may be on nonaccrual, or is 90 days past due and still accruing, or has been restructured and does not comply with its modified terms, and our ultimate collection of original contractual principal and interest is uncertain.

Performing and nonperforming loans, segregated by ~~class of loans,~~loan portfolio, were as follows at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Management assigns a credit quality rating (risk grade) to each loan. The foundation or primary factor in determining the appropriate credit quality rating is the degree of a ~~debtor~~’sdebtor’s willingness and ability to perform as agreed. In conjunction with evaluating the performing versus nonperforming nature of our loan portfolio, management evaluates the following credit risk and other relevant factors in determining the appropriate credit quality indicator (rating) for each loan ~~class:~~

Pass Grade: A Pass loan is a strong credit with no existing or known weaknesses that may require management’s close attention. Some pass loans require short-term enhanced monitoring to determine when the credit relationship would merit either an upgrade or a downgrade. Loans classified as Pass Grade specifically demonstrate:

Those borrowers who qualify for unsecured loans must fully demonstrate above average cash flows and strong secondary sources of repayment to mitigate the lack of unpledged collateral.

Watch Grade: The credit is acceptable but the borrower has experienced a temporary setback or adverse information has been received, and may exhibit one or more of the characteristics shown in the list below. This risk grade could apply to credits on a temporary basis pending a full review. Credits with this risk grade will require more handling time and increased management. The list below contains characteristics of this risk grade, but individually do not automatically cause the loan to be assigned a Watch Grade.

Special Mention Grade: Credits in this grade are potentially weak and deserve management's close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects of the credit. Special Mention credits are not adversely classified and do not expose the Bank to sufficient risk to warrant adverse classification. The list below exhibits the characteristics of this grade, but individually do not automatically cause the borrower to be assigned a grade of Special Mention:

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

Substandard Grade: A Substandard credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard credits have a well-defined weakness or weaknesses that jeopardize the liquidation or timely collection of the debt. Substandard credits are characterized by the distinct possibility that we will sustain some loss if the deficiencies are not corrected. However, a potential loss does not have to be recognizable in an individual credit for it to be considered a substandard credit. As such, substandard credits may or may not be graded as impaired.

The following represents, but is not limited to, the potential characteristics of a Substandard Grade and do not necessarily generate automatic reclassification into this loan grade:

Doubtful Grade: A Doubtful loan has all the weaknesses inherent in one classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, ~~based~~ on the basis of currently existing facts, conditions and values, highly questionable and improbable. The possibility of loss is extremely high, but because of certain pending factors that may work to the advantage and strengthening of the credit, its classification as an estimated loss is deferred until its more exact status may be determined. Pending factors may include, but are not limited to:

Generally, a Doubtful Grade does not remain outstanding for a period greater than six months. Within six months, the pending events should have been resolved. Based on resolution of the pending events, the credit grade should have improved or the ~~principa~~lprincipal balance charged against the ALLL.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following ~~table summarizes~~tables summarize loans by internal risk grades and by loan ~~class~~portfolio as of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016.~~ 2020.

2224

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize the ALLL by portfolio for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~ 2021 and ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs may occur, actual amounts may differ. The unallocated portion of the ALLL provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component, or in the specific impairment reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of June 30, 2021, the unallocated allowance amount represented 5% of the ALLL compared to 4% at December 31, 2020. The following tables summarize the ALLL and the recorded investment in loans and leases as of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016.~~2020.

⁽¹⁾ PPP loans are fully guaranteed by SBA and no allowance is provided for them.

The ALLL totaled ~~$11.7~~$17.2 million or ~~1.42%~~1.58% of total gross loans at ~~September~~June 30, ~~2017~~ 2021 and ~~$11.5~~$16.9 million or ~~1.44%~~1.48% of total gross loans at December 31, ~~2016.~~ 2020. As of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, we had commitments to extend credit of ~~$231.0~~$301.8 million and ~~$229.4~~$267.8 million, respectively. The reserve for unfunded commitments recorded in Other Liabilities in the Consolidated Balance Sheets at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016~~ 2020 was ~~$695~~$800 thousand.

We believe that the ALLL was adequate as of June 30, 2021. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company, may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review.

We have lending policies and procedures in place with the objective of optimizing loan income within an accepted risk tolerance level. We review and approve these policies and procedures annually. Monitoring and reporting systems supplement the review process with regular frequency as related to loan production, loan quality, concentrations of credit, potential problem loans, loan delinquencies, and nonperforming loans.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

We formally assess the adequacy of the ALLL on a quarterly basis. The ALLL is based upon estimates of future loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan and lease portfolio. Our ALLL methodology incorporates ~~management~~’smanagement’s current judgments, and reflects ~~management~~’smanagement’s estimate of future loan and lease losses and risks inherent in the loan portfolio in accordance with ASC Topic 450 Contingencies(“ASC 450”)and ASC Topic 310 ~~Receivables.~~Receivables (“ASC 310”).

Management’s assessment of the ALLL is based on our continuing evaluation of all known relevant quantitative and qualitative internal and external risk factors provides the foundation for the four major components of the ALLL:

All four components are aggregated and constitute the ALLL; while portions of the allowance may be allocated to specific credits, the allowance net of specific reserves is available for the remaining credits that management deems as “loss.” It is our policy to classify a credit as loss with a concurrent charge-off when management considers the credit uncollectible and of such little value that its continuance as a bankable asset is not warranted. A loss classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer recognizing the likely credit loss of a valueless asset even though partial recovery may occur in the future.

The allowance is increased by provisions charged to expense and reduced by net charge-offs. In periodic evaluations of the adequacy of the allowance balance, management considers past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect a ~~borrower~~’sborrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors. ~~We formally assess~~

Our assessment of the adequacy of the ALLL ~~on a monthly basis. These assessments include~~includes the periodic re-grading of classified loans based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment and other factors as warranted. Loans are initially rated when originated. They are reviewed as they are renewed, when there is a new loan to the same borrower and/or when identified facts demonstrate heightened risk of default. ~~Confirmation~~

Our loan portfolio is evaluated by general loan class including commercial, commercial real estate (which includes construction and other real estate), residential real estate (which includes 1-4 family and home equity loans), consumer and other loans. In accordance with ASC 450, historical valuation allowances are established for loan pools with similar risk characteristics common to each loan grouping. These loan pools are similarly risk-graded and each portfolio is evaluated by identifying all relevant risk characteristics that are common to these segmented groups of loans. These characteristics include a significant emphasis on historical losses within each loan group, inherent risks for each, and specific loan class characteristics such as trends related to nonaccrual loans, past due loans, criticized loans, net charge-offs or recoveries, among other relevant credit risk factors. We periodically review and update our historical loss ratios based on net charge-off experience for each loan and lease class. Other credit risk factors are also reviewed periodically and adjusted as necessary to account for any changes in potential loss exposure.

General valuation allowances, as prescribed by ASC 450, are based on qualitative factors such as changes in asset quality trends, concentrations of credit or changes in concentrations of credit, changes in underwriting standards, changes in experience or depth of lending staff or management, the effectiveness of loan grading and the internal loan review function, changes in economic conditions, and any other relevant factors. Management evaluates each qualitative component quarterly to determine the associated risks to the quality of our ~~grading process is obtained by independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatory agencies.~~loan portfolio.

Management monitors delinquent loans continuously and identifies problem loans to be evaluated individually for impairment testing. For loans that are determined impaired, a formal impairment measurement is performed at least quarterly on a loan-by-loan basis.

Our method for assessing the appropriateness of the allowance includes specific allowances for identified problem loans, an allowance factor for categories of credits and allowances for changing environmental factors (e.g., portfolio trends, concentration of credit, growth, economic factors). Allowances for identified problem loans are based on specific analysis of individual credits. Loss estimation factors for loan categories are based on analysis of local economic factors applicable to each loan category. Allowances for changing environmental factors are management~~’s best estimate of the probable impact these changes have had on the loan portfolio as a whole.~~

We believe that the ALLL was adequate as of September 30, 2017. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company, may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review.

As of September 30, 2017, approximately 76% of our gross loan portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the ALLL. Deterioration in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan and lease losses.

~~All impaired loans are individually evaluated for impairment.~~ If the measurement of each impaired ~~loans~~’loans’ value is less than the recorded investment in the loan, we recognize this impairment and adjust the carrying value of the loan to fair value through the ALLL. For collateral dependent loans, this can be accomplished by charging off the impaired portion of the loan based on the underlying value of the collateral. For non-collateral dependent loans, we establish a specific component within the ALLL based on the present value of the future cash flows. If we determine the sources of repayment will not result in a reasonable probability that the carrying value of a loan can be recovered, the amount of a loan’s specific impairment is ~~charged off~~charged-off against the ALLL. Impairment reserves on non-collateral dependent restructured loans are measured by comparing the present value of expected future cash flows on the restructured loans discounted at the interest rate of the original loan agreement to the loan’s carrying value. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

Table of the ALLL provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component, or in the specific impairment reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of September 30, 2017 and December 31, 2016, the unallocated allowance amount represented 3% ~~and 4% of the ALLL, respectively. While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs may occur, actual amounts may differ.~~

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

~~We have lending policies~~Risk Characteristics and procedures in place with the objective of optimizing loan income within an accepted risk tolerance level. We review and approve these policies and procedures annually. Monitoring and reporting systems supplement the review process with regular frequency as related to loan production, loan quality, concentrations of credit, potential problem loans, loan delinquencies, and nonperforming loans.Underwriting

The following is a brief summary, by loan type, of ~~management~~’smanagement’s evaluation of the general risk characteristics and underwriting standards:

Commercial Loans – Commercial loans are underwritten after evaluating the borrower’s financial ability to maintain profitability including future expansion objectives. In addition, the borrower’s qualitative qualities are evaluated, such as management skills and experience, ethical traits, and overall business acumen. Commercial loans are primarily extended based on the cash flows of the borrower and secondarily on the underlying collateral provided by the borrower. The borrower’s cash flow may deviate from initial projections, and the value of collateral securing these loans may ~~vary.~~change.

Most commercial loans are generally secured by the assets being financed and other business assets such as accounts receivable or inventory. Management may also incorporate a personal guarantee; however, some short-term loans may be extended on an unsecured basis. Repayment of commercial loans secured by accounts receivable may be substantially dependent on the ability of the borrower to collect amounts due from its customers.

PPP Loans - The Paycheck Protection Program (“PPP”) was launched in April of 2020 to provide small businesses assistance in the form of forgivable 100% guaranteed U.S. SBA loans. We have actively participated in the PPP and at June 30, 2021, we have 281 loans totaling $59.1 million. This financial support of our customers’ businesses may help moderate other Commercial and Commercial Real Estate ~~(“CRE”~~loan losses. The loans are underwritten following the guidelines and approval process from the SBA and pose essentially no credit risk to the loan portfolio.

Commercial Real Estate (“CRE”) Loans – CRE loans are subject to similar underwriting standards and processes as commercial loans. CRE loans are viewed predominantly as cash flow loans and secondarily as loans collateralized by real estate. Generally, CRE lending involves larger principal amounts with repayment largely dependent on the successful operation of the property securing the loan or the business conducted on the collateralized property. CRE loans tend to be more adversely affected by conditions in the real estate markets or by general economic conditions.

The properties securing the CRE portfolio are diverse in terms of type and primary source of repayment. This diversity helps reduce our exposure to adverse economic events that affect any single industry. We monitor and evaluate CRE loans based on occupancy status (investor versus owner occupied), collateral, geography, and risk grade criteria.

Generally, CRE loans are made to developers and builders that are secured by non-owner occupied properties require the borrower to have had an existing relationship with the Company and a proven record of success. Construction loans are underwritten utilizing feasibility studies, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of cost and value associated with the complete project (as-is value). These estimates may be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment largely dependent on the success of the ultimate project. Sources of repayment for these types of loans may be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is secured. These loans are closely monitored by on-site inspections, and are considered to have higher inherent risks than other CRE loans due to their ultimate repayment sensitivity to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

Residential Real Estate Loans – We do not originate consumer real estate mortgage loans. The majority of our loans secured by non owner occupied residential real estate are made either as part of a commercial relationship and subject to similar underwriting standards and processes as the CRE portfolio, or loans that were purchased in a prior year as part of a pool of loans. Purchased loan pools are evaluated based on risk characteristics established for each segmented group of loans. These characteristics include a significant emphasis on historical losses within each loan group, inherent risks for each, and specific loan class characteristics such as trends related to nonaccrual loans, past due loans, criticized loans, net charge-offs or recoveries, among other relevant credit risk factors. Residential equity lines of credit are included in the discussion of consumer loans below.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

We originate some single-family residence construction loans. The loan amounts are no greater than $1 million and are short-term real estate secured financing for the construction of a single-family residence to be occupied by the owner. The loans have a draw down feature with interest only payments, and a balloon payment at the 12-month maturity. All of these loans are refinanced and paid-off by the borrower’s permanent mortgage lender who provided the initial pre-approved mortgage financing. These loans are underwritten utilizing financial analysis of the borrower and are generally based upon estimates of cost and value associated with the complete project (as-is value). These estimates may be inaccurate. The loan disbursement and monitoring process is controlled utilizing similar processes as our CRE construction loans.

Consumer Loans– Our consumer loan originations are generally limited to home equity loans with nominal originations in unsecured personal loans. The portfolio also includes unsecured consumer home improvement loans and residential solar panel loans secured by UCC filings. We are highly dependent on third party credit scoring analysis to supplement the internal underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by management and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are not limited to, a maximum loan-to-value percentage of 80%, collection remedies, the number of such loans a borrower can have at one time, and documentation requirements.

As of June 30, 2021, approximately 84% of our gross loan portfolio (89% excluding PPP loans) is secured by real estate, and a significant decline in real estate market values may require an increase in the ALLL. Deterioration in economic conditions particularly in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan and lease losses.

Confirmation of the quality of our loan grading process is obtained by independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatory agencies. We maintain an independent loan review program that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to the Board of Directors, Loan Committee and Audit Committee. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as our policies and procedures.

~~Management~~’s continuing evaluation of all known relevant quantitative and qualitative internal and external risk factors provides the foundation for the three major components of the ALLL: (1) historical valuation allowances established in accordance with ASC 450, Contingencies (“ASC 450”) for groups of similarly situated loan pools; (2) general valuation allowances established in accordance with ASC 450 and based on qualitative credit risk factors; and (3) specific valuation allowances established in accordance with ASC 310, Receivables (“ASC 310”) and based on estimated probable losses on specific impaired loans. All three components are aggregated and constitute the ALLL; while portions of the allowance may be allocated to specific credits, the allowance net of specific reserves is available for the remaining credits that management deems as “loss.” It is our policy to classify a credit as loss with a concurrent charge-off when management considers the credit uncollectible and of such little value that its continuance as a bankable asset is not warranted. A loss classification does not mean that the loan has absolutely no recovery or salvage value, but rather it is not practical or desirable to defer recognizing the likely credit loss of a valueless asset even though partial recovery may occur in the future.

Our loan portfolio is evaluated by general loan class including commercial, commercial real estate (which includes construction and other real estate), residential real estate (which includes 1-4 family and home equity loans), consumer and other loans. In accordance with ASC 450, historical valuation allowances are established for loan pools with similar risk characteristics common to each loan grouping. These loan pools are similarly risk-graded and each portfolio is evaluated by identifying all relevant risk characteristics that are common to these segmented groups of loans. These characteristics include a significant emphasis on historical losses within each loan group, inherent risks for each, and specific loan class characteristics such as trends related to nonaccrual loans, past due loans, criticized loans, net charge-offs or recoveries, among other relevant credit risk factors. We periodically review and update our historical loss ratios based on net charge-off experience for each loan and lease class. Other credit risk factors are also reviewed periodically and adjusted as necessary to account for any changes in potential loss exposure.

General valuation allowances, as prescribed by ASC 450, are based on qualitative factors such as changes in asset quality trends, concentrations of credit or changes in concentrations of credit, changes in underwriting standards, changes in experience or depth of lending staff or management, the effectiveness of loan grading and the internal loan review function, and any other relevant factors. Management evaluates each qualitative component quarterly to determine the associated risks to the quality of our loan portfolio.

Our investments in Qualified Affordable Housing Partnerships that generate Low Income Housing Tax Credits (“LIHTC”) and deductible operating losses totaled $3.7 million at September 30, 2017. These investments are recorded in ~~Other Assets~~ ~~with a corresponding funding obligation of $467 thousand recorded in~~ ~~Other Liabilities~~ ~~in our~~ ~~Consolidated Balance Sheets~~. We have invested in four separate LIHTC partnerships, which provide the Company with CRA credit. Additionally, the investments in LIHTC partnerships provide us with tax credits and with operating loss tax benefits over an approximately 18-year period. None of the original investments will be repaid. The tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investments we made and provide returns on the investments of between 5% and 8% over the life of the investment. The investments in LIHTC partnerships are being accounted for using the proportional amortization method, under which we amortize the initial cost of an investment in proportion to the amount of the tax credits and other tax benefits received, and recognize the net investment performance in the ~~Consolidated Statements of Income~~ ~~as a component of income tax expense.~~

~~The following table presents our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at September 30, 2017 and~~ December 31, 2016. In addition, the table reflects the tax credits and tax benefits, amortization of the investment and the net impact to our income tax provision for the nine months ended September 30, 2017 and the year ended December 31, 2016.

~~The following table presents our generated tax credits and tax benefits from investments in qualified affordable housing partnerships for the three and nine months ended September 30, 2017 and 2016.~~

The tax credits and benefits were partially offset by the amortization of the principal investment balances of $177 thousand and $512 thousand for the three and nine months ended September 30, 2017 respectively, compared to $180 thousand and $540 thousand for the comparable periods of 2016.

~~The following table reflects the anticipated net income tax benefit at September 30, 2017 that is expected to be recognized over the remaining life of the investments.~~

At ~~September 30, 2017 and December 31, 2016, we had no outstanding federal funds purchased balances and no outstanding advances on any of the Bank’s lines of credit.~~

We have entered into nonbinding federal funds line of credit agreements with three financial institutions to support short-term liquidity needs. The lines totaled $35.0 million at September 30, 2017 and had interest rates ranging from 1.39% to 2.04%. Adva~~nces under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions. The credit arrangements are reviewed and renewed annually.~~

~~We have an available line of credit with the Federal Reserve Bank of $15.3 million subject to collateral requirements, namely the amount of pledged loans.~~

~~We have an available line of credit with the Federal Home Loan Bank of San Francisco of $333.~~6 million subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The line of credit is secured by an investment in Federal Home Loan Bank of San Francisco stock, certain real estate mortgage loans that have been specifically pledged to the Federal Home Loan Bank of San Francisco pursuant to collateral requirements, and pledged securities held in the Bank’s investment securities portfolio.

~~As of~~ ~~September 30, 2017, the Bank was required to hold an investment in Federal Home Loan Bank of San Francisco stock of $4.5 million recorded in~~ O~~ther~~ A~~ssets~~ ~~in the~~ ~~Consolidated Balance Sheets~~. Our investments in Federal Home Loan Bank of San Francisco stock are restricted investment securities, carried at cost, evaluated for impairment, and excluded from securities accounted for under ASC Topic 320 and ASC Topic 321.

We have pledged $383.3 million of our commercial and real estate mortgage loans as collateral for the line of credit with the Federal Home Loan Bank of San Francisco. As of September 30, 2017, we also pledged $30.4 million in securities to the Federal Home L~~oan Bank of San Francisco. All of the securities and loans pledged with the Federal Home Loan Bank of San Francisco were unused as collateral as of September 30, 2017.~~

~~Term debt at September 30, 2017 and December 31, 2016 consisted of the following.~~

~~Future contractual maturities of term debt at September 30, 2017 are as follows.~~

~~The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the~~ nine months ended September 30, 2017 and the year ended December 31, 2016 was $403 thousand and $18.0 million, respectively. The maximum amount outstanding from the Federal Home Loan Bank of San Francisco under term advances at any month end during the nine months ended September 30, 2017 and the year ended December 31, 2016 was $10.0 million and $80.0 million, respectively. There were no outstanding Federal Home Loan Bank of San Francisco advances at September 30, 2017 or December 31, 2016.

In December of 2015, the Holding Company, entered into a senior debt loan agreement to borrow $10.0 million from another financial institution. The loan is payable in monthly installments of $83 thousand principal, plus accrued and unpaid interest, commencing on January 1, 2016, continuing to, and including December 10, 2020. A final scheduled payment of $4.5 million is due on the maturity date of December 10, 2020. The loan may be prepaid in whole or in part at any time without any prepayment penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current three-month LIBOR plus 400 basis points. In December of 2015, the Holding Company incurred senior debt issuance costs of $15 thousand, which are being amortized over the life of the loan as additional interest expense. The loan is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce.

In December of 2015, the Holding Company issued $10.0 million in aggregate principal amount of fixed to floating rate subordinated notes due in 2025. The subordinated debt initially bears interest at 6.88% per annum for a five-year term, payable semi-annually. Thereafter, interest on the subordinated debt will be paid at a variable rate equal to three month LIBOR plus 526 basis points, payable quarterly until the maturity date. In December of 2015, the Holding Company incurred subordinated debt issuance costs of $210 thousand, which are being amortized over the initial five-year-term as additional interest expense.

The subordinated debt is subordinate and junior in right of payment to the prior payment in full of all existing and future claims of creditors and depositors of the Holding Company and its subsidiaries, whether now outstanding or subsequently created. The subordinated debt ranks equally with all other unsecured subordinated debt, except any which by its terms is expressly stated to be subordinated to the subordinated debt. The subordinated debt ranks senior to all future junior subordinated debt obligations, preferred stock and common stock of the Holding Company. The subordinated debt is recorded as term debt on the Holding Company~~’s balance sheet; however, for regulatory purposes, it is treated as Tier 2 capital by the Holding Company.~~

~~The subordinated debt will mature on December 10, 2025 but may be prepaid at the Holding Company~~’s option and with regulatory approval at any time on or after five years after the Closing Date or at any time upon certain events, such as a change in the regulatory capital treatment of the subordinated debt or the interest on the subordinated debt is no longer deductible by the Holding Company for United States federal income tax purposes.

We lease nine sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based on predetermined escalation schedules. Substantially all of the leases include the option to extend the lease term one or more times following expiration of the initial term.

~~The following table sets forth rent expense and rent income for the~~ ~~three and nine months ended September 30, 2017 and 2016.~~

~~The following table sets forth, as of~~ ~~September 30, 2017, the future minimum lease payments under non-cancelable operating leases.~~

Our consolidated financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of our business and involve elements of credit, liquidity, and interest rate risk. In the normal course of business, we are party to financial instruments with off-balance sheet credit risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve elements of credit and interest rate risk similar to the amounts recognized in the ~~Consolidated Balance Sheets~~~~. The contract or notional amounts of these instruments reflect the extent of our involvement in particular classes of financial instruments.~~

~~The following table presents a summary of our commitments and contingent liabilities at September 30, 2017 and December 31, 2016.~~

~~We were not required to perform on any financial guarantees during the~~ nine months ended September 30, 2017, or during the year ended December 31, 2016. At September 30, 2017, approximately $6.6 million of standby letters of credit expire within one year, and $357 thousand expire thereafter.

In fulfilling our CRA responsibilities, we are a sponsor for various nonprofit organizations that receive cash grants from the Federal Home Loan Bank of San Francisco. Those grants require the nonprofit organization to comply with stipulated conditions of the grant over specified periods of time which typically vary from 10 to 15 years. If the nonprofit organization fails to comply, Federal Home Loan Bank of San Francisco can require us to refund the amount of the grant to Federal Home Loan Bank of San Francisco. To mitigate this contingent credit risk, Credit Administration underwrites the financial strength of the nonprofit organization and reviews their systems of internal control to determine, as best as is possible, that they will not fail to comply with the conditions of the grant.

The reserve for unfunded commitments, which is included in Other Liabilities onin the Consolidated Balance Sheets, was ~~$695~~$800 thousand at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016.~~ 2020. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic conditions. When necessary, the provision expense is recorded in other noninterest expense in the Consolidated Statements of Income.

We have invested in five separate Low Income Housing Tax Credit (“LIHTC”) partnerships, which provide the Company with CRA credit. Additionally, the investments in LIHTC partnerships provide us with income tax credits and with operating loss tax benefits over an approximately 23-year period. The income tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investments we made and provide returns on the investments of between 2% and 6% over the life of the investment.

Our investments in LIHTC partnerships totaled $2.6 million at June 30, 2021. These investments are recorded in Other Assets with a corresponding funding obligation of $945 thousand recorded in Other Liabilities in our Consolidated Balance Sheets. None of the original investments will be repaid. The investments in LIHTC partnerships are being accounted for using the proportional amortization method, under which we amortize the initial cost of an investment in proportion to the amount of the income tax credits and other tax benefits received, and recognize the net investment performance in the Consolidated Statements of Income as a component of income tax expense.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following tables present our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at June 30, 2021 and December 31, 2020. In addition, the tables reflect the income tax credits and operating loss tax benefits, amortization of the investment and the net impact to our income tax provision for the six months ended June 30, 2021 and 2020.

The following tables present our generated income tax credits and operating loss tax benefits from investments in LIHTC partnerships for the three and six months ended June 30, 2021 and 2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table reflects as of June 30, 2021, the anticipated net income tax benefit and (expense) that is expected to be recognized over the remaining lives of the investments.

Term debt at June 30, 2021 and December 31, 2020 consisted of the following.

We have an available line of credit with the FHLB of $456.9 million subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The line of credit is secured by an investment in FHLB stock, certain real estate secured loans that have been specifically pledged to the FHLB pursuant to collateral requirements, and certain pledged securities held in the Bank’s investment securities portfolio.

There were 0 borrowings outstanding from the FHLB at June 30, 2021. The Bank had $5.0 million in borrowings from the FHLB at December 31, 2020 that bore no interest and were fully repaid during the first quarter of 2021. The average balance outstanding on FHLB term advances during the six months ended June 30, 2021 and year ended December 31, 2020 was $1.9 million and $8.3 million, respectively. The maximum amount outstanding from the FHLB at any month end during the six months ended June 30, 2021 and year ended December 31, 2020 was $5.0 million and $40.0 million, respectively.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

As of June 30, 2021, the Bank was required to hold an investment in FHLB stock of $7.5 million recorded in Other Assets in the Consolidated Balance Sheets. Our investments in FHLB stock are restricted investment securities, carried at cost, evaluated for impairment, and excluded from securities accounted for under ASC Topic 320 and ASC Topic 321.

As of June 30, 2021, we have pledged $568.6 million of our commercial real estate and residential real estate loans and $52.6 million in securities as collateral for the line of credit with the FHLB.

In December of 2015, the Holding Company issued $10.0 million in aggregate principal amount of fixed to floating rate Subordinated Notes due in 2025. The Subordinated Debt initially bore interest at a fixed rate of 6.88% per annum through December 19, 2020, payable semi-annually. The Subordinated Debt now bears interest at a variable rate equal to three month LIBOR plus 526 basis points, payable quarterly until the maturity date. In December of 2015, the Holding Company incurred subordinated debt issuance costs of $210 thousand, which were amortized over the initial five-year-term as additional interest expense.

The Subordinated Debt is subordinate and junior in right of payment to the prior payment in full of all existing and future claims of creditors and depositors of the Holding Company and its subsidiaries, whether now outstanding or subsequently created. The Subordinated Debt ranks equally with all other unsecured subordinated debt, except any which by its terms is expressly stated to be subordinated to the Subordinated Debt. The Subordinated Debt ranks senior to all preferred stock and common stock of the Holding Company and all future junior subordinated debt obligations. The Subordinated Debt is recorded as term debt on the Holding Company’s balance sheet; however, for regulatory purposes, it is treated as Tier 2 capital by the Holding Company.

The Subordinated Debt will mature on December 10, 2025 but may be repaid at the Holding Company’s option and with regulatory approval at any time.

We have entered into nonbinding unsecured federal funds line of credit agreements with three financial institutions to support short-term liquidity needs. The lines totaled $75.0 million at June 30, 2021 and had interest rates ranging from 0.17% to 0.35%. Advances under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions. The credit arrangements are reviewed and renewed annually. At June 30, 2021 and December 31, 2020, we had 0 outstanding advances on any of the Bank’s federal funds lines of credit.

We have an available line of credit with the Federal Reserve Bank totaling $26.8 million at June 30, 2021, subject to collateral requirements, namely the amount of certain pledged loans. At June 30, 2021 and December 31, 2020, we had 0 outstanding advances on our line of credit with the Federal Reserve Bank. As of June 30, 2021, we have pledged $48.2 million of our commercial loans as collateral for the credit line with the Federal Reserve Bank.

Our consolidated financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of our business and involve elements of credit, liquidity, and interest rate risk. In the normal course of business, we are party to financial instruments with off-balance sheet credit risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve elements of credit and interest rate risk similar to the amounts recognized in the Consolidated Balance Sheets. The contract or notional amounts of these instruments reflect the extent of our involvement in particular classes of financial instruments.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

The following table presents a summary of our commitments and contingent liabilities at June 30, 2021 and December 31, 2020.

We were not required to perform on any financial guarantees during the six months ended June 30, 2021 or during the year ended December 31, 2020. At June 30, 2021, approximately $10.7 million of standby letters of credit will expire within one year, and $158 thousand will expire thereafter.

Affordable Housing Grants and Access to Housing and Economic Assistance for Development Grant Sponsorships

In fulfilling our CRA responsibilities, we are a sponsor for various nonprofit organizations that receive cash grants from the FHLB. Those grants require the nonprofit organization to comply with stipulated conditions of the grant over specified periods of time which typically vary from 10 to 15 years. If the nonprofit organization fails to comply, FHLB can require us to refund the amount of the grant to FHLB. To mitigate this contingent credit risk, our Credit Administration underwrites the financial strength of the nonprofit organization and reviews their systems of internal control to determine, as best as possible, that they will comply with the conditions of the grant.

The Company has entered into ~~contracts~~agreements with certain employees to pay a cash benefit to designated beneficiaries following the death of the employee. The payment will be made only if, at the time of death, the deceased employee was employed by the Bank and the Bank owned a life insurance policy on the ~~employee~~’semployee’s life. Depending on specific facts and circumstances, the payment amount can vary up to a maximum of ~~$225,000~~$225 thousand per ~~employee.~~employee and may be taxable to the beneficiary. Neither the ~~employees~~employee nor the designated beneficiaries have a claim against the Bank’s life insurance policy on the employee’s life.

We are involved in various pending and threatened legal actions arising in the ordinary course of ~~business. We~~business and if necessary, we maintain reserves for losses from legal actions, which are both probable and estimable. In our opinion, the disposition of claims currently pending will not have a material adverse effect on our financial position or results of operations.

We grant many loans collateralized by real ~~estate construction, commercial, and installment loans to customers throughout northern California.~~estate. In our judgment, a concentration exists in real estate related loans, which represented approximately ~~76% and 75%~~ 84% of our gross loan portfolio (89% excluding PPP loans) and 77% of our gross loan portfolio (86% excluding PPP loans) at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, respectively. We underwrite real estate loans in accordance with loan policies that set underwriting criteria, including property types, loan-to-value limits and minimum debt service coverage ratios. We employ a variety of real estate concentration risk management tools including monitoring of limits on concentration levels, limits by property type and geography, annual property reviews including site visits and portfolio stress testing.

~~Commercial real estate concentrations are managed to assure wide geographic and business diversity.~~ Although ~~management believes~~we believe such concentrations have no more than the normal risk of collectability, a substantial decline in the economy in general, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in our principal market areas in particular, could have an adverse impact on the repayment of these loans. ~~Personal~~Business and ~~business~~personal incomes, cash flows from rental operations, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

We recognize the credit risks inherent in dealing with other depository institutions. Accordingly, to prevent excessive exposure to other depository institutions in aggregate or ~~to any single correspondent,~~individually, we have established general standards for selecting correspondent banks as well as internal limits for allowable exposure to other depository institutions in aggregate or ~~to any single correspondent.~~individually. In addition, we have an investment policy that sets forth limitations that apply to all investments with respect to credit rating and concentrations with an issuer.

T~~he following table presents activity in accumulated other comprehensive income (loss) for the nine months ended September 30, 2017.~~

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

We lease nine locations under non-cancelable operating leases. The leases contain various provisions for increases in rental rates based on predetermined escalation schedules. Substantially all of the leases include the option to extend or terminate the lease term one or more times following expiration of the initial term at a rental rate established in the lease. For leases where we are reasonably certain that we will exercise the option to renew the lease, we have recognized those options in our right-of-use lease asset and liability. We had no other (financing, short-term or variable) lease arrangements during the current period or the prior year.

We have recorded a liability in Other Liabilities in our Consolidated Balance Sheets representing the present value of the remaining minimum lease payments and we have recorded an offsetting right-of-use asset in Other Assets in our Consolidated Balance Sheets. The present value calculation uses a discount rate, which is based on our incremental borrowing rate. The right-of-use asset was also reduced for amounts recognized under the previous accounting requirements. The following table presents information regarding our leases as of June 30, 2021 and December 31, 2020.

Lease expenses are recorded on a straight-line basis over the life of each lease. Lease expense and cash paid on leases are presented in the following table for the periods indicated.

The following table ~~presents activity in accumulated other comprehensive income~~sets forth, as of June 30, 2021, the future minimum lease cash payments under non-cancelable operating leases and a reconciliation of the undiscounted cash flows to the operating lease liability.

There were no lease-related non-cash financing activities for the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~

~~Accumulated other comprehensive income is reported net of tax. Detailed information on the tax effects of the individual components of~~ ~~comprehensive income are presented in the~~ ~~Consolidated Statements of Comprehensive Income~~.

During March of 2016, we paid off the $75.0 million Federal Home Loan Bank of San Francisco borrowing (the “hedged instrument”) and terminated all of our interest rate swaps (active and forward starting). Prior to the time of termination, a $2.3 million unrealized pretax loss on swaps was carried in ~~Other~~~~Liabilities~~ ~~in our~~~~Consolidated Balance Sheets~~. ~~At termination, we immediately reclassified the loss to noninterest expense.~~

For derivative financial instruments accounted for as hedging instruments, we formally designate and document, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which the effectiveness of the hedge will be assessed. We formally assess both at inception and at each reporting period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in cash flows of the related underlying exposures. Any ineffective portion of the changes in cash flow of the instruments is recognized immediately into earnings.

~~ASC 815-10,~~ ~~Derivatives and Hedging~~ ~~(“ASC 815”) requires companies to recognize all derivative instruments as assets or liabilities at fair value in the~~ ~~Consolidated Balance Sheets~~. In accordance with ASC 815, we designated our interest rate swaps as cash flow hedges of certain active and forecasted variable rate Federal Home Loan Bank of San Francisco advances. Changes in the fair value of the hedging instrument, except any ineffective portion, are recorded in accumulated other comprehensive income until earnings are impacted by the hedged instrument. No components of our hedging instruments are excluded from the assessment of hedge effectiveness in hedging exposure to variability in cash flows.

~~Classification of the gain or loss in the~~ ~~Consolidated Statements of Income~~ upon release from accumulated other comprehensive income is the same as that of the underlying exposure. We discontinue the use of hedge accounting prospectively when (1) the derivative instrument is no longer effective in offsetting changes in fair value or cash flows of the underlying hedged item; (2) the derivative instrument expires, is sold, terminated, or exercised; or (3) designating the derivative instrument as a hedge is no longer appropriate. When we discontinue hedge accounting because it is no longer probable that an anticipated transaction will occur in the originally expected period, or within an additional two-month period thereafter, changes to fair value that were recorded in accumulated other comprehensive income are recognized immediately in earnings.

~~The following table summarizes the losses recorded during the nine months ended September 30, 2016, and their locations within the~~ ~~Consolidated~~ ~~Statements of Income~~.

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Notes to Consolidated Financial Statements (Unaudited)

During the nine months ended September 30, 2016, $1.6 million in losses on derivative instruments designated as cash flow hedges recorded in accumulated other comprehensive income were reclassified into earnings.

Derivative financial instruments contain an element of credit risk if counterparties are unable to meet the terms of the contract. Credit risk associated with derivative financial instruments is measured as the net replacement cost should the counterparties fail to perform under the terms of those contracts. Assuming no recoveries of underlying collateral, credit risk is measured by the market value of the derivative financial instrument.

The contracts with the derivative counterparties contain a provision where if we fail to maintain our status as a well/adequately capitalized institution, then the counterparty could terminate the derivative positions and we would be required to settle our obligations under the agreements. Similarly, we could be required to settle our obligations under certain of our agreements if specific regulatory events occur, such as if we were issued a prompt corrective action directive or a cease and desist order, or if certain regulatory ratios fall below specified levels.

The following ~~table presents~~tables present estimated fair values of our financial instruments as of ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016,~~ 2020, whether or not recognized or recorded at fair value in the Consolidated Balance Sheets. The table indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value.

Non-financial assets and non-financial liabilities defined by the FASB ASC 820,Fair Value Measurement,, such as Bank premises and equipment, deferred taxes and other liabilities are excluded from the table. In addition, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of FASB ASC 825,Financial Instruments,, such as bank-owned life insurance policies.

Level 1 valuations utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that we have the ability to access.

Level 2 valuations utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 valuations include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.

Level 3 valuations are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety.

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Notes to Consolidated Financial Statements (Unaudited)

We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.

~~The following methods and assumptions were used to estimate the fair value of each class of financial instrument for which it is practical to estimate that value:~~

~~Cash and Cash Equivalents~~ ~~– The carrying amounts reported in the~~ ~~Consolidated Balance Sheet~~s for cash and cash equivalents are a reasonable estimate of fair value. The carrying amount is a reasonable estimate of fair value because of the relatively short term between the origination of the instrument and its expected realization. Therefore, we believe the measurement of fair value of cash and cash equivalents is derived from Level 1 inputs.

~~Securities~~ – Investment securities fair values are based on quoted market prices, where available, and are classified as Level 1. If quoted market prices are not available, fair values are estimated using quoted market prices or matrix pricing, which is a mathematical technique, used widely by the industry that relies on the securities relationship to other benchmark securities, and are classified as Level 2.

~~Net Loans~~ – For variable rate loans that re-price frequently and with no significant change in credit risk, fair values are based on carrying values. For fixed rate loans, projected cash flows are discounted back to their present value based on specific risk adjusted spreads to the U.S. Treasury Yield Curve, with the rate determined based on the timing of the cash flows. The ALLL is considered a reasonable estimate of loan discount for credit quality concerns. Given that there are commercial loans with specific terms that are not readily available; we believe the fair value of loans is derived from Level 3 inputs.

~~Federal Home Loan Bank of San Francisco stock~~ – The carrying value of Federal Home Loan Bank of San Francisco stock approximates fair value as the shares can only be redeemed by the issuing institution at par. We measure the fair value of Federal Home Loan Bank of San Francisco stock using Level 1 inputs.

~~Deposits~~ – We measure fair value of maturing deposits using Level 2 inputs. The fair values of deposits were derived by discounting their expected future cash flows based on the Federal Home Loan Bank of San Francisco yield curves, and maturities. We obtained Federal Home Loan Bank of San Francisco yield curve rates as of the measurement date, and believe these inputs fall under Level 2 of the fair value hierarchy. Deposits with no defined maturities, the fair values are the amounts payable on demand at the respective reporting date.

~~Term Debt~~ – For variable rate term debt, the carrying value approximates fair value. The fair value of fixed rate term debt is estimated by discounting the future cash flows using market rates at the reporting date, of which similar debt would be issued with similar credit ratings as ours and similar remaining maturities. We measure the fair value of term debt using Level 2 inputs.

~~Junior subordinated debenture~~ – The fair value of the subordinated debenture is estimated by discounting the future cash flows using market rates at the reporting date, of which similar debentures would be issued with similar credit ratings as ours and similar remaining maturities. At September 30, 2017, future cash flows were discounted at 3.17%. We measure the fair value of subordinated debentures using Level 2 inputs.

~~Commitments~~ – Loan commitments and standby letters of credit generate ongoing fees, which are recognized over the term of the commitment period. In situations where the borrower’s credit quality has declined, we record a reserve for these unfunded commitments. Given the uncertainty in the likelihood and timing of a commitment being drawn upon, a reasonable estimate of the fair value of these commitments is the carrying value of the related unamortized loan fees plus the reserve, which is not material. As such, no disclosures are made on the fair value of commitments.

We use fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Available-for-sale securities and derivatives are recorded at fair value on a recurring basis. From time to time, we may be required to record at fair value other assets on a nonrecurring basis, such as collateral dependent impaired loans and certain other assets including OREO or goodwill. These nonrecurring fair value adjustments involve the application of lower of cost or fair value accounting or write-downs of individual assets.

The following table presents the quantitative information ~~about our assets and liabilities measured at~~used to fair value ~~on a recurring basis, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, as of~~ ~~September~~our net loans at June 30, ~~2017 and December 31, 2016.~~2021.

Debt Securities –The available-for-sale securities amount in the recurring fair value table above represents securities that have been adjusted to their fair values. For these securities, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other things. We have determined that the source of these fair values falls within Level 2 of the fair value hierarchy.

The following tables present information about our assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, as of June 30, 2021 and December 31, 2020.

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~ 2021 or the year ended December 31, ~~2016.~~2020.

~~Assets and~~ ~~Liabilities Recorded at Fair Value on a~~ Nonrecurring ~~Basis~~items

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following three tables present information about our assets and liabilities at September 30, 2017 and December 31, 2016 measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting ~~period.~~

~~The amounts disclosed below present the fair values at the time the nonrecurring fair value measurements were made, and not necessarily the fair values as of the date reported upon.~~

~~The following table presents the losses resulting from nonrecurring fair value adjustments for the~~ ~~three and nine months ended September 30, 2017 and 2016 related to assets outstanding at September 30, 2017 and 2016.~~

~~During the~~ nine months ended September 30, 2017, collateral dependent impaired loans with a carrying amount of $893 thousand were written down to their fair value of $830 thousand resulting in a $63 thousand adjustment to the ALLL.

During the nine months ended September 30, 2017, one OREO property with an aggregate carrying value of $57 thousand outstanding at period end was written down to its fair value of $22 thousand, resulting in a $35 thousand adjustment to the ALLL.

Collateral Dependent Loans - The loan amounts ~~above~~below represent impaired, collateral dependent loans that have been adjusted to fair value during the respective reporting period. When we identify a collateral dependent loan as impaired, we measure the impairment using the current fair value of the collateral, less selling costs. Depending on the characteristics of a loan, the fair value of collateral is generally estimated by obtaining external appraisals. If we determine that the value of the impaired loan is less than the recorded investment in the loan, we recognize this impairment and adjust the carrying value of the loan to fair value through the ALLL.

The loss represents charge-offs or impairments on collateral dependent loans for fair value adjustments based on the fair value of collateral less estimated selling costs. The carrying value of loans fully charged off is zero. When the fair value of the collateral is based on ~~a current appraised value,~~an appraisal or ~~management determines the fair value of the collateral is further impaired below the appraised value~~other estimate and there is no observable market price, we record the impaired loan as nonrecurring Level 3.3 fair value. Impaired loan valuations are adjusted for estimated selling costs ranging from 8% to 10% based off the adjusted fair value of the property.

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Notes to Consolidated Financial Statements (Unaudited)

OREO - The OREO ~~amount above represents~~amounts below represent impaired real estate that has been adjusted to fair value during the respective reporting period. The loss represents impairments on OREO for fair value adjustments based on the fair value of the real estate. The determination of fair value is based on recent appraisals of the foreclosed properties, which take into account recent sales prices adjusted for unobservable inputs, such as opinions provided by local real estate brokers and other real estate experts. OREO fair values are adjusted for estimated selling costs ~~between 8% and 34%.~~of 25% based off the adjusted fair value of the property. We record OREO as a nonrecurring Level 3.3 fair value.

The following tables present information about our assets and liabilities at June 30, 2021 and December 31, 2020 for which a nonrecurring change in fair value has been recorded during the reporting period. In addition, the tables reflect the losses resulting from nonrecurring fair value adjustments for the three and six months ended June 30, 2021 and 2020 related to assets outstanding at June 30, 2021 and 2020.

Fair value estimates are made at a specific point in time, based on relevant market information and other information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time, our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based only on current on and off-balance sheet financial ~~instruments without attempting to estimate the~~instruments. Our fair value ofestimates do not include any adjustment for anticipated future ~~business and the value of assets and liabilities that are not considered financial instruments.~~business. In addition, the tax ramifications related to the realization of the unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of the estimates.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Consolidated Financial Statements (Unaudited)

NOTE 12~~. PURCHASE OF FINANCIAL ASSETS~~10. GOODWILL AND OTHER INTANGIBLES

WeGoodwill and other intangibles, net consisted of the following at June 30, 2021 and December 31, 2020.

Acquired core deposits provide value as a ~~maximum par value~~source of ~~$50.0 million in unsecured consumer home improvement loans~~below market rate funds and the realization of interest cost savings is a fundamental rationale for assuming these deposit liabilities. The cost savings is defined as the difference between the cost of funds on our new deposits (i.e., interest and net maintenance costs) and the cost of an equal amount of funds from an alternative source having a ~~third party originator. The loans are purchased without recourse or servicing rights. As we receive principal payments on these purchased loans,~~similar term as the new ~~loans are purchased a~~nd the outstanding par value remains at approximately $50.0 million. For the period from May 12, 2014 through September 30, 2017, we have paid aggregate cash totaling $114.6 million, and received aggregate cash repayments of $66.8 million for $47.8 million in net loans outstanding. We record the acquired loansdeposit base. Our core deposit intangibles were recorded at fair value atwhich was derived using the ~~time~~income approach and represent the present value of the ~~purchase.~~cost savings over the projected term of our new deposit base. The core deposit intangible is being amortized on a straight-line basis over an estimated eight-year life, and is evaluated annually for impairment.

The following table sets forth, as of June 30, 2021, the total estimated future amortization of intangible assets:

~~On March 11, 2016, we completed~~Pending Merger with Columbia Banking System, Inc.

As announced by the ~~purchase~~Company on June 23, 2021 and reported in the Company’s Current Report on Form 8-K, filed with the Securities and Exchange Commission on June 24, 2021 (the “Current Report”), the Company has entered into an Agreement and Plan of ~~five~~Merger dated June 23, 2021 (the “Merger Agreement”), pursuant to which, subject to the satisfaction or waiver of certain conditions set forth in the Merger Agreement, the Company will merge with and into Columbia (the “Merger”), with Columbia as the surviving entity.

Subject to the terms and conditions of the Merger Agreement, at the date and time when the Merger becomes effective (the “Effective Time”), the Bank of ~~America branches~~Commerce shareholders will have the right to receive, in ~~northern California.~~respect of each share of common stock of Bank of Commerce (“Bank of Commerce Common Stock”), a number of common shares of Columbia (“Columbia Common Stock”) equal to the Exchange Ratio (as defined below), subject to adjustments as set forth in the Merger Agreement (the “Merger Consideration”). “Exchange Ratio” means 0.40 of a share of Columbia Common Stock per each share of Bank of Commerce Common Stock subject to certain potential adjustments. Based on Columbia’s closing stock price on June 23, 2021, the aggregate merger consideration is valued at $266.0 million, which includes $265.6 million of Columbia common stock to be issued to Bank of Commerce shareholders and $400 thousand of cash to be paid to option holders. The ~~acquired branches are located in Colusa, Willows, Orland, Corning, and Yreka. The Bank also acquired three offsite ATM locations in Williams, Orland and Corning. The Bank paid cash~~value of the merger consideration will fluctuate until closing based on the value of ~~$6.7 million and acquired $155.2 million in assets, primarily cash and premises. The Bank assumed $149.2 million in liabilities, primarily deposits.~~Columbia’s stock.

The transaction ~~provided a new source~~is expected to close in the fourth quarter of ~~low cost core deposits~~2021, and ~~allowed us to execute our plan to reconfigure our balance sheet. On March 14, 2016, we utilized a portion~~its completion is contingent upon approval from BOCH’s shareholders, the receipt of ~~that new liquidity to reduce our reliance on wholesale funding sources repaying $75.0 million of Federal Home Loan Bank of San Francisco hedged term debt~~other customary regulatory approvals, and ~~redeeming $17.5 million of brokered time deposits.~~other customary closing conditions.

The transaction was accounted for using the acquisition method of accounting and, accordingly, assets acquired, liabilities assumed, and consideration exchanged were recorded at estimated fair values on the acquisition date. The Bank engaged third party specialists to assist in valuing certain assets, including the real estate and the core deposit intangible that resulted from the acquisition.

~~The contribution of the acquired operations of the five former Bank of America offices was immaterial. Therefore, disclosure of supplemental pro forma financial information~~ and prior period comparisons were deemed neither practical nor meaningful. Additionally, the acquired operation was not considered a “significant business combination” as defined by the Securities and Exchange Commission.

Branch acquisition costs recorded during the year ended December 31, 2016 were $580 thousand. The following table provides an assessment of the consideration transferred, assets purchased, and the liabilities assumed.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

I~~tem~~Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

This report includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (“Exchange Act”) and the Private Securities Litigation Reform Act of 1995. These statements are based on ~~management~~’smanagement’s current beliefs and assumptions, and on information available to management as of the date of this document. Forward-looking statements include the information concerning possible or assumed future results of operations of the Company set forth under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Forward-looking statements may also include statements in which words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “considers” or similar expressions or conditional verbs such as “will,” “should,” “would” and “could” and other comparable words or phrases of a future- or forward-looking nature, are intended to identify such forward-looking statements. Forward-looking statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. The Company’s actual future results and shareholder values may differ materially from those anticipated and expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the Company’s ability to control or predict. Except as specifically noted herein all references to the “Company” refer to Bank of Commerce Holdings, a California corporation, and its consolidated subsidiaries.

The following factors, among others, could cause our actual results to differ materially from those expressed in such forward-looking statements:

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

If our assumptions regarding one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this document and in the information incorporated by reference in this document. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We do not undertake any obligation to publicly correct, revise, or update any forward-looking statement if we later become aware that actual results are likely to differ materially from those expressed in such forward-looking statement, except as required under federal securities laws.

Forward-looking statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties discussed in ~~“RISK FACTORS”~~“RISK FACTORS” and in ~~“MANAGEMENT~~’S“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF ~~OPERATIONS”~~OPERATIONS”.

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company’s’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 under the heading ~~“Risk factors”~~“Risk Factors”. 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~~significant changes and trends in the financial condition, capital resources and liquidity of the Company from December 31, ~~2016~~2020 to ~~September~~June 30, ~~2017.~~2021. Also discussed are significant trends and changes in the Company’s results of operations for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2021, compared to the same ~~period~~periods in ~~2016.~~2020. The consolidated financial statements and related notes appearing elsewhere in this report are unaudited. The following discussion and analysis is intended to provide greater detail of the Company's financial condition and results.

Bank of Commerce Holdings (“~~Holding~~Company,” “Holding Company,” “we,” or “us”) is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”). with its principal offices in Sacramento, California. The Holding ~~Company~~’sCompany’s principal business is to serve as a holding company for ~~Redding~~Merchants Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) ~~which operates under two separate names (Redding Bank of Commerce~~ and ~~Sacramento Bank of Commerce, a division of Redding Bank of Commerce) and for~~ Bank of Commerce Mortgage (inactive). The Bank changed its name for all operations to Merchants Bank of Commerce effective May 20, 2019. We have an unconsolidated subsidiary in Bank of Commerce Holdings Trust II, which was organized in 2005 connection with our ~~prior~~ issuance of trust-preferred securities. Our common stock is traded on the NASDAQ Global Market under the symbol “BOCH.”

We commenced banking operations in 1982 and ~~with the completion of the purchase of~~grew organically to four branches before purchasing five Bank of America branches ~~during the first quarter of~~in 2016 and acquiring Merchants Holding Company in 2019; we now operate ~~nine~~ten full service facilities, one limited service facility and one loan production office in northern California. We also operate a ~~full service~~ “cyber office” as identified in our summary of deposits reporting filed with the FDIC. We provide a wide range of financial services and products for business and retail customers which are competitive with those traditionally offered by banks of similar size in California. As of June 30, 2021 and December 31, 2020, we operated under one primary business segment: Community Banking.

On June 23, 2021, we entered into an Agreement and Plan of Merger with Columbia Banking System, Inc. that we expect to close in the fourth quarter of 2021, subject to the satisfaction of customary closing conditions, including regulatory and shareholder approvals. See Note 11 Merger in the Notes to Consolidated Financial Statements and our press release filed on form 8-K on June 24, 2021 announcing the signing of the definitive merger agreement for additional information.

Our principal executive office is located at 555 Capitol Mall Suite 1255, Sacramento, California 95814 and the telephone number is (800) 421-2575.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial Highlights for the Second Quarter of 2021 Compared to the ~~same quarter~~Same Quarter a ~~year ago:~~Year Ago:

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Financial ~~highlights~~Highlights for the ~~first nine months~~First Six Months of ~~2017 compared~~2021 Compared to the ~~same period~~Same Period a ~~year ago:~~Year Ago:

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Form 10-K for the year ended December 31, ~~2016~~2020 filed with the SEC on March ~~15, 2017.~~5, 2021. Some of these significant accounting policies are considered critical and require management to make difficult, subjective or complex judgments or estimates. Critical accounting estimates are subject to risks and uncertainties and are susceptible to significant change that could have a material impact on the carrying value of certain assets or on income under different assumptions and conditions. Management believes that the following policies would be considered critical under the SEC’s definition.

At the time of purchase, we designate a security as held-to-maturity or available-for-sale, based on our investment objectives, operational needs and intent to hold. We do not engage in trading activity. Securities designated as held-to-maturity are carried at amortized cost. We have the ability and intent to hold these securities to maturity. Securities designated as available-for-sale may be sold to implement our asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors. Securities designated as available-for-sale are recorded at fair value and unrealized gains or losses, net of income taxes, are reported as part of accumulated other comprehensive income (loss), a separate component of ~~shareholders~~’shareholders’ equity. Gains or losses on sale of securities are based on the specific identification method. The market value and ~~underlying~~credit rating of ~~the~~each security is monitored ~~for~~to identify changes in asset quality.

~~Securities~~Security values may be adjusted to reflect changes in valuation as a result of other-than-temporary declines in value. Investments with fair values that are less than amortized ~~cost~~costs are considered impaired. Impairment may result from either a decline in the financial condition of the issuing entity or ~~in the case of fixed rate investments,~~ from changes in interest rates. At each financial statement date, management assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other-than-temporary based upon the positive and negative evidence available. Evidence evaluated includes, but is not limited to, industry analyst reports, credit market conditions, and interest rate trends.

When an investment is other-than-temporarily impaired, we assess whether we intend to sell the security, or it is ~~more likely than not~~more-likely-than-not that we will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses. If we intend to sell the security or if it is ~~more likely than not~~more-likely-than-not that we will be required to sell security before recovery of the amortized cost basis, the entire amount of other-than-temporary impairment is recognized in earnings.

For debt securities that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is calculated as the difference between the ~~investment~~’sinvestment’s amortized cost basis and the present value of its expected future cash flows.

The remaining differences between the ~~investment~~’sinvestment’s fair value and the present value of future expected cash flows is deemed to be due to factors that are not credit related and is recognized in other comprehensive income. Significant judgment is required in the determination of whether other-than-temporary impairment has occurred for an investment. We follow a consistent and systematic process for determining other-than-temporary impairment loss. We have designated the ALCO responsible for the other-than-temporary evaluation process.

The ~~ALCO~~’sALCO’s assessment of whether an other-than-temporary impairment loss should be recognized incorporates both quantitative and qualitative information including, but not limited to: (1) the length of time and the extent of which the fair value has been less than amortized cost, (2) the financial condition and near term prospects of the issuer, (3) our intent and ability to retain the investment for a period of time sufficient to allow for an anticipated recovery in value, (4) whether the debtor is current on interest and principal payments, and (5) general market conditions and industry or sector specific outlook. See Note 3 Securities in the Notes to Consolidated Financial Statements in this document for further detail on other-than-temporary impairment and the securities portfolio.

The ALLL is based upon estimates of loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan and lease portfolio. The allowance is increased by provisions charged to expense and reduced by net charge-offs. In periodic evaluations of the adequacy of the allowance balance, management considers our past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect ~~the~~a borrower's ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors.

Management reviews the ALLL on a monthly basis and conducts a formal assessment of the adequacy of the ALLL on a quarterly basis. These assessments include the periodic re-grading of classified loans based on changes in their individual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interest rate environment and other factors as warranted. Loans are initially graded when originated. ~~They~~Loans are reviewed as they are renewed, when there is a new loan to the same borrower and/or when identified facts demonstrate heightened risk of default. Confirmation of the quality of our grading process is obtained by independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatory agencies. Management monitors delinquent loans continuously and identifies problem loans to be evaluated individually for impairment testing. For loans that are determined impaired, formal impairment measurement is performed at least quarterly on a loan-by-loan basis.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our method for assessing the appropriateness of the allowance includes specific allowances for identified problem loans, an allowance factor for categories of credits and allowances for changing environmental factors (e.g., portfolio trends, concentration of credit, growth, economic factors). Allowances for identified problem loans are based on specific analysis of individual credits. Loss estimation factors for unimpaired loan categories are based on analysis of historical losses adjusted for changing environmental factors applicable to each loan category. Allowances for changing environmental factors are management's best estimate of the probable impact these changes would have on the loan portfolio as a whole. See Note 4 Loans in the Notes to Consolidated Financial Statements in this document for further detail on the ALLL and the loan portfolio.

Goodwill results from a business combination, and is calculated as the amount of consideration paid in excess of the fair value of the net assets acquired in a transaction. Goodwill is considered to have an indefinite life and is therefore not amortized. It is reviewed annually for impairment, or more frequently if required by circumstances known as triggering events. The impairment analysis requires management to make subjective judgments. Events and factors that may significantly affect the estimates include, among others, significant adverse change in the business climate, slower growth rates or a significant and sustained decline in the price of our common stock.

We perform our analysis of goodwill at the reporting unit level analyzing factors that would impact the estimated fair value of the reporting unit compared to its carrying value. We first assess qualitative factors to determine whether the existence of events and circumstances indicate that it is more likely than not that goodwill is impaired. If the qualitative assessment results indicate that it is more likely than not that the fair value of any reporting unit is less than its carrying amount, then the quantitative impairment test is performed. Various valuation methodologies are considered when completing the quantitative impairment test to determine the estimated fair value of the reporting unit which is then compared to its carrying value, including goodwill. If the fair value of the our Company (our only reporting unit) is less than its carrying amount, an impairment charge would be taken for the amount by which the carrying amount exceeds the reporting unit's fair value, not to exceed the total amount of goodwill allocated to the reporting unit.

Income taxes reported in the consolidated financial statements are computed based on an asset and liability approach. We recognize the amount of taxes payable or refundable for the current year, and deferred tax assets and liabilities for the expected future tax consequences that have been recognized in the consolidated financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the consolidated financial statements and the tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. We record net deferred tax assets to the extent it is ~~more likely than not~~more-likely-than-not that they will be realized. In evaluating our ability to recover the deferred tax assets, management considers all available positive and negative evidence, including projected future taxable income, tax planning strategies and recent financial operations.

In projecting future taxable income, management develops assumptions including the amount of future state and federal pre-tax operating income, the reversal of temporary differences and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts of future taxable income and are consistent with the plans and estimates being used to manage the underlying business. We file consolidated federal and ~~combined~~ state income tax returns.

ASC 740-10-55 Income Taxes requires a two-step process that separates recognition from measurement of tax positions. We recognize the financial statement effect of a tax position when it is ~~more likely than not,~~more-likely-than-not, based on the technical merits, that the position will be sustained upon examination by a taxing authority. The measurement process is applied only after satisfying the recognition requirement and determines what amount of a tax position will be sustainable upon a potential examination or settlement. If upon measuring, the tax position produces a range of potential tax benefits, we may claim the highest tax benefit from that range as long as it is over 50% likely to be realized using a probability analysis.

We believe that all of the tax positions we have taken, meet the ~~more likely than not~~more-likely-than-not recognition threshold. To the extent tax authorities disagree with these tax positions, our effective tax rates could be materially affected in the period of settlement with the taxing authorities.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We use fair value measurements to record fair value adjustments to certain assets and liabilities, and to determine fair value disclosures. We base our fair values on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Securities available-for-sale and derivatives are recorded at fair value on a recurring basis. Additionally, from time to time, we may be required to record certain assets at fair value on a nonrecurring basis, such as certain impaired loans held for investment, (“OREO”), core deposit intangible and goodwill. These nonrecurring fair value adjustments typically involve write-downs of individual assets due to application of lower of cost or market accounting.

We have established and documented a process for determining fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Whenever there is no readily available market data, we use our best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of ~~management~~’smanagement’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these consolidated financial statements. Additional information on our use of fair value measurements and our related valuation methodologies is provided in Note 119 Fair Values in the Notes to Consolidated Financial Statements incorporated in this document.

Description - In June of 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. The amendments are intended to improve financial reporting by requiring timelier recording of credit losses on loans and other financial instruments held by financial institutions and other organizations. The ASU requires the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Financial institutions and other organizations will now use forward-looking information to better inform their credit loss estimates.

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances.

The ASU requires enhanced disclosures to help investors and other financial statement users to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an ~~organization~~’sorganization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting guidance for credit losses on ~~available-for-sale debt~~ securities and purchased financial assets with credit deterioration.

Methods and timing of adoption – The ~~amendment is effective~~FASB has voted to delay until January 2023 the implementation of the ASU No. 2016-13 for ~~fiscal years,~~smaller reporting companies as defined by the SEC. We qualify as a smaller reporting company and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

~~Expected financial statement impact~~ ~~– We are currently evaluating~~in light of this delay, we have postponed the ~~provisions~~implementation of the ASU and have formed a committee for the purpose of developing a model that is compliant with the requirements under the ASU. The committee is also gathering pertinent data, consulting with outside professionals and evaluating our IT systems. Management expectsnot determined if we will implement prior to recognize a one–time cumulative effect adjustment to the allowance for loan and lease losses as of the first reporting period in which the new standard is effective. An estimate of the magnitude of the one-time adjustmentJanuary 2023 or the ~~overall impact~~financial impact. As discussed in Note 11 Merger in the Notes to Consolidated Financial Statements, the Company has entered into an Agreement and Plan of ~~this standard has~~Merger with Columbia Banking System, Inc. with Columbia as the surviving entity. The transaction is expected to close during the fourth quarter of 2021; therefore, we will not ~~yet been determined.~~adopt ASU No. 2016-13.

Description -– In ~~February~~March of ~~2016,~~2020, the FASB issued ASU No. ~~2016-02,~~ 2020-04~~Leases (Topic 812)~~, Reference Rate Reform (topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ~~This Update was issued~~The amendments provide temporary optional guidance to ~~increase transparency~~ease the potential burden in accounting for reference rate reform. The guidance provides optional expedients and ~~comparability among organizations by recognizing lease assets~~exceptions for applying generally accepted accounting principles to contract modifications and ~~lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The core principle of Topic 842~~ ishedging relationships, subject to meeting certain criteria, that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilitiesreference London Inter-Bank Offered Rate ("LIBOR") or another reference rate expected to be ~~recognized for most leases.~~

~~Methods and timing of adoption~~ ~~– For public companies, the amendments~~discontinued. The last expedient is a one-time election to sell or transfer debt securities classified as held-to-maturity. The expedients are in ~~this update are effective for fiscal years beginning after~~effect from March 12, 2020, through December ~~15, 2018, including interim periods within those fiscal years.~~

~~Expected financial statement impact~~ ~~– Although an estimate of~~31, 2022. We have formed a committee to evaluate the impact of the ~~new leasing standard has not yet been determined, the Company expects a significant new lease asset~~LIBOR transition and ~~related lease liability on the balance sheet due to the number of leased properties the Company currently has that are accounted for under current operating lease guidance.~~

~~Description - In January 2016, the FASB issued ASU No. 2016-01, Financial Instruments~~ – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The new guidance is intended to improve the recognition and measurement of financial instruments. This ASU requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value recognized in net income. In addition, the amendment requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes and requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset (i.e., securities or loans and receivables) on the balance sheet or the accompanying notes to the financial statements. This ASU also eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. The amendment also requires a reporting organization to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument specific credit risk (also referred to as "own credit") when the organization has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

~~Methods and timing of adoption~~ – ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted for certain provisions.

~~Expected financial statement impact~~ ~~– The Company is currently evaluating the impact of~~ this ASU on the Company's consolidated financial ~~statements.~~

~~Description - In May of 2014,~~statements and to facilitate the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, which creates Topic 606 and supersedes Topic 605, Revenue Recognition. The core principle of Topic 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In general, the new guidance requires companies to use more judgment and make more estimates than under current guidance, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation.transition.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Methods and timing of adoption~~ – The standard is effective for public entities for interim and annual periods beginning after December 15, 2017 as deferred by ASU No. 2015-14; early adoption is not permitted. For financial reporting purposes, the standard allows for either full retrospective adoption, , or modified retrospective adoption. As a bank, key revenue sources, such as interest income have been identified as out of scope of this new guidance. The Company plans to adopt ASU No. 2014-09 on January 1, 2018 utilizing the modified retrospective approach.

~~Expected financial statement impact~~ – Since the guidance does not apply to revenue associated with financial instruments, including loans and securities that are accounted for under other GAAP, we do not expect the new guidance to have a material impact on interest income. We are continuing our overall assessment of noninterest income revenue streams and reviewing contracts potentially affected by the ASU including fees on payroll and benefit processing, deposit related fees, interchange fees, and merchant income, to determine the potential impact the new guidance is expected to have on the Company’s financial position, results of operations or cash flows.

We derive our income primarily from net interest income, which is the difference between the interest income we receive on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income is impacted by many factors that are beyond our control, including general economic conditions ~~inflation, recession,~~ and the policies of various governmental and regulatory agencies, the Federal Reserve Board in particular. ~~In recent years, we originated higher volumes of longer term fixed rate loans. These loans, combined with~~Aside from changes in market interest rates, the ~~structure of our investment portfolio,~~current net interest margin will be affected by the use of floors in the pricing of our variable rate loans and funding mix caused the Company to become slightly liability sensitive, which could negatively impact earnings in a rising interest rate environment.following:

Net interest income reflects both the amount of earning assets we hold and our net interest margin, which is the difference between the ~~yield~~yields we receive on our earning assets and the interest ~~rate~~rates we pay to fund those assets. As a result, changes in either our net interest margin or the amount of earning assets we hold will affect our net interest income and earnings.

Increases or decreases in interest rates could adversely affect our net interest margin. Although our asset yields and funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, and cause our net interest margin to expand or contract. Many of our assets are tied to ~~prime rate, so they may~~indexes, which adjust ~~faster~~ in response to changes in interest rates. ~~As a result, when~~

When market interest rates ~~fall,~~begin to increase in the ~~yield~~future, we ~~earn on~~anticipate that our interest rate risk position will be neutral to moderately liability sensitive which will remain true until sufficient rate rise allows variable rate loans to move higher off their floors.

The low interest rate environment combined with excess liquidity from increased deposits being invested in lower yielding assets ~~may fall faster than~~has contributed to our ~~ability to reprice a large portion~~lower net interest margin. Because many of our liabilities ~~causing our net interest margin to contract.~~

~~Changes in the slope of the yield curve, the spread between short-term and long-term~~are already priced near historic lows with little room for further reductions, if interest rates could also reduce our net interest margin. Normally, the yield curve is upward sloping, which means that short-term rates are lower than long-term rates. Because our liabilities tend to be shorter in duration than our assets, when the yield curve flattens or even inverts,decline, we could experience pressure on our net interest margin as our cost of funds increases relative to the yield we can earn on our assets.

We assess our interest rate risk by estimating the effect of interest rate changes on our earnings under various simulated scenarios. The scenarios ~~that~~ differ based on assumptions including the direction, magnitude and speed of interest rate changes, and the slope of the yield curve.

There is always the risk that changes in interest rates could reduce our net interest income and earnings in material amounts, especially if actual conditions turn out to be materially different than simulated scenarios. ~~For example, if interest rates rise or fall faster than we assumed or the slope of the yield curve changes, we may incur significant losses on debt securities we hold as investments.~~ To reduce our interest rate risk, we may rebalance our investment and loan portfolios, refinance our debt ~~and~~or take other strategic actions, which may result in losses or expenses.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes as of June 30, 2021 when loans are projected to reprice by year and by rate index.

For variable rate loans, the following table summarizes those that were at or above their floor rate, and those that do not possess a contractual floor rate.

We also earn noninterest income. Sources of noninterest income include fees earned on deposit related services, ATM and point of sale fees, payroll and benefit processing fees, ~~gain on sale of available-for-sale securities,~~ earnings on bank-owned life insurance, gains on sale of available-for-sale investment securities, and dividends on ~~Federal Home Loan Bank~~FHLB stock. Most of ~~San Francisco stock~~.these sources of income do not vary significantly from quarter to quarter. Possible exceptions include gains on sale of available-for-sale investment securities and death proceeds from bank-owned life insurance.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~Third~~Second Quarter of ~~2017~~2021 Compared With ~~Third~~Second Quarter of ~~2016~~2020

Net income for the ~~third~~second quarter of ~~2017~~2021 increased ~~$510~~$292 thousand compared to the ~~third~~second quarter of ~~2016.~~2020. In the current quarter, net interest income was $181 thousand higher, provision for loan and lease losses was $1.3 million ~~higher~~lower and noninterest income was ~~$36~~$176 thousand higher. These positive changes were partially offset by noninterest expense that was ~~$151~~$1.0 million higher and a provision for income taxes that was $356 thousand higher.

Net income for the first six months of 2021 increased $4.3 million compared to the first six months of 2020. In the current year, net interest income was $1.6 million higher, provision for loan and lease losses was $4.2 million lower and noninterest income was $447 thousand higher. These positive changes were partially offset by noninterest expense that was $123 thousand higher and a provision for income taxes that was ~~$683 thousand~~$1.8 million higher.

~~First Nine Months~~ ~~of 2017 Compared With~~ ~~First~~~~Nine Months~~ ~~of 201~~6

~~Net income for the first~~ nine months of 2017 increased $4.4 million compared to the same period a year ago. Net income for the current year included life insurance death benefit proceeds of $502 thousand that were not subject to income tax. Net income for 2016 was negatively impacted by $3.0 million of branch acquisition and balance sheet restructuring costs, a $546 thousand other-than-temporary-impairment of an investment security and the write-off of a $363 thousand deferred tax asset. In the current year, net interest income was $3.7 million higher, noninterest income was $1.2 million higher and noninterest expenses were $1.7 million lower. These positive changes were offset by an increase in the provision for loan and lease losses of $500 thousand, and a provision for income taxes that was $1.7 million higher.

~~We continued payment of our quarterly cash dividends of $0.03 per share during the~~ nine months ended September 30, 2017. In determining the amount of dividend to be paid, management considers capital preservation objectives, expected asset growth, projected earnings, the overall dividend pay-out ratio, and the dividend yield.

Return on Average Assets and Return on Average ~~Total~~ Equity ~~and Common~~ ~~Shareholders' Equity~~

The following table presents the ~~returns~~return on average assets and return on average ~~total~~ equity for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020. For each of the periods presented, the table includes the calculated ratios based on reported net income as shown in the Consolidated Statements of Income incorporated in this document.

~~For~~During 2020, in response to the ~~three months ended~~ ~~September 30, 2017~~economic effects of the COVID-19 pandemic, the Federal Reserve cut short-term interest rates by 150 to 175 basis points and has provided guidance that it expects interest rates to remain low for an extended period of time.

Our net interest margin for the second quarter of 2021 was 3.16%, a decrease of 48 basis points compared to the same period a year ~~ago:~~

~~Interest income~~margin for the ~~three~~first six months ended September 30, 2017 increased $1.4 million or 14% to $11.8 million. Interest and fees on loans increased $880 thousand due to increased average loan balances and increased yield on the loan portfolio. Interest on securities increased $359 thousand and interest on interest-bearing deposits due from banks increased $196 thousand.

~~Interest expense for the third quarter~~ of ~~2017 increased $127 thousand or 12% to $1.2 million. The increase~~2021 was ~~primarily caused by an increase in the average rate paid on interest-bearing deposits.~~

~~For the~~ ~~nine months ended September 30, 2017~~3.30%, a decrease of 44 basis points compared to the same period a year ~~ago:~~ago.

~~Net~~Maintaining our net interest margin in the future will be challenging as current market pressures are anticipated to cause our yield on interest-earning assets to continue to decline and the current margin is temporarily enhanced by accelerated PPP fees.

For the three months ended June 30, 2021 compared to the same period a year ago, net interest income increased $~~3.7 million.~~$181 thousand.

Interest income for the ~~nine months ended September 30, 2017 increased $3.4 million~~second quarter of 2021 decreased $269 thousand or ~~11%~~2% to ~~$33.9~~$14.7 million. Interest and fees on loans increased $2.8 million due to increased average loan balances. Interest on securities increased $310 thousand due to increased average balances. Interest on interest bearing deposits due from banks increased $326 thousand due to increased average balances and increases in the rate we receive on interest bearing deposits.

~~Interest expense for the first~~ nine months of 2017 decreased $285 thousand or 8% to $3.4 million. The net decrease was primarily caused by a $482 thousand decrease in interest on FHLB term debt. Late in the first quarter of 2016 all FHLB term debt was repaid and an interest rate hedge associated with $75.0 million of that debt was terminated. The decrease was partially offset by greater interest expense due to increased average balances in interest-bearing deposits.

●

During the second quarter of 2021, we recognized $588 thousand in accelerated net fee income on PPP loans forgiven and repaid during the quarter. These accelerated loan fees increased the average yield on loans for the second quarter of 2021 by 21 basis points and increased the net interest margin for the second quarter of 2021 by 13 basis points. There was no accelerated net fee income on PPP loans for the second quarter of 2020.

●	PPP loans had an average balance of $104.0 million and yield of 4.10% (1.83% excluding accelerated fee income) for the second quarter of 2021 compared to an average balance of $132.8 million and yield of 2.46% for the same period a year ago.

●	Excluding PPP loans, interest and fees on loans decreased $1.0 million due to a $16.7 million decrease in average loan balances and a 34 basis point decrease in average yield.

●	Interest on investment securities increased $520 thousand due to a $265.6 million increase in average investment securities balances partially offset by a 91 basis point decrease in average yield.

●	Interest on interest-bearing deposits due from banks increased $6 thousand due to a $31.6 million increase in average interest-bearing deposit balances partially offset by 1 basis point decrease in average yield.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Interest expense for the second quarter of 2021 decreased $450 thousand or 37% to $764 thousand.

For the six months ended June 30, 2021 compared to the same period a year ago, net interest income increased $1.6 million.

Interest income for the first six months of 2021 increased $626 thousand or 2% to $30.0 million.

Interest expense for the first six months of 2021 decreased $987 thousand or 38% to $1.6 million.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following tables present ~~condensed~~ average balance sheet information, together with interest income and yields earned on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following ~~table sets~~tables set forth a summary of the changes in ~~tax equivalent~~ net interest income due to changes in average ~~asset and liability~~ balances (volume variance) and changes in average rates (rate variance) for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020. Changes in ~~tax equivalent~~ interest income and expense, which are not specifically attributable ~~specifically~~ to either volume or rate, are allocated proportionately between both variances. Interest income and yields on tax-exempt securities are presented on a nominal basis; not on a tax equivalent basis.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~During the three months ended September 30, 2017 and the same period a year ago, the Company did not record a provision for loan and lease losses.~~

~~Due to a combination of net loan losses and loan portfolio growth, we recorded a $500 thousand provision for loan and lease losses during the nine months ended September 30, 2017.~~ ~~We made~~There was no provision for loan and lease losses ~~during~~for the ~~year~~three months ended ~~December 31, 2016. See~~June 30, 2021 compared to $1.3 million for the same period in the prior year. There was no provision for loan and lease losses for the six months ended June 30, 2021 compared to $4.2 million for the same period in the prior year. A detailed discussion of our provision is provided later in this filing under the heading “Allowance for Loan and Lease Losses”. Also, see Note 4 - Loans in the Notes to Consolidated Financial Statements for further ~~discussion.~~information.

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following table presents the key components of noninterest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020.

~~For~~Noninterest income for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 increased compared to the same ~~period a year ago:~~periods in the prior year. Changes in noninterest income included the following items:

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents the key ~~elements~~components of noninterest expense for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016.~~2020.

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~For~~Salaries and related benefits for the three and six months ended ~~September~~June 30, ~~2017~~2021 were reduced compared to the same ~~period~~periods in the prior year as a result of decreases in the overall number of staff and decreased vacation benefit costs. During the current year, ~~ago,~~employees used more of their previously accrued vacation benefits as travel restrictions imposed in response to the COVID-19 pandemic were reduced.

Loan origination costs in 2020 were higher as a result of loans originated under the PPP. In 2020, we originated 606 PPP loans compared to 247 PPP loans originated in 2021.

The first six months of 2020 included $1.1 million in non-recurring costs that consisted of $700 thousand associated with the termination of a technology management services contract and $414 thousand related to a severance agreement. Excluding the non-recurring costs, noninterest expense in 2021 increased ~~$151 thousand. Investment~~$1.2 million mostly resulting from $817 thousand of merger related costs and the previously discussed change in the Company’s Sacramento business development group and in risk/compliance support caused compensation expense to increase $418 thousand while savings in recruiting, regulatory and professional fees offset much of this cost.loan origination costs.

~~For~~The Company’s efficiency ratio was 61.5% for the ~~nine months ended September 30, 2017 compared to~~second quarter of 2021. The ratio during the same period ~~a year ago:~~

~~Noninterest expense decreased $1.7 million.~~in 2020 was 56.1%. The ~~decrease was primarily due to~~Company’s efficiency ratio of 61.5% for the ~~following~~:second quarter of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 5.4%.

The ~~decrease~~Company’s efficiency ratio was 59.3% for the six months of 2021. The ratio during the same period in 2020 was 63.1%. The Company’s efficiency ratio of 59.3% for the ~~expenses listed above was partially offset~~first six months of 2021 included $817 thousand of merger related costs, which increased the efficiency ratio by 2.7%. The Company’s efficiency ratio of 63.1% for the ~~following~~ ~~increases:~~first six months of 2020 included $1.1 million of non-recurring costs, which increased the efficiency ratio by 3.9%.

Our provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to our income before taxes. The following table reflects our tax provision and the related effective tax rate for the periods indicated.

The income tax calculation for the second quarter of 2021 included the impact of $772 thousand of non-deductible merger costs, which increased the effective tax rate by 2.4%.

The income tax calculation for the six months ended June 30, 2021 included the impact of $772 thousand of non-deductible merger costs, which increased the effective tax ~~rates listed in the table above and a comparison of those tax rates are impacted~~rate by ~~the following items:~~

Ma~~nagement believes that the following table, which is a non-GAAP presentation, provides a helpful disclosure and comparison of our effective tax rates for the periods presented.~~1.1%.

5054

Table of Contents

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(Amounts in thousands)

2017

2016

2017

2016

Income before provision for income taxes - GAAP
$ 4,303 $ 3,110 $ 10,462 $ 4,348
Life insurance death benefit - not taxable
— — (502 ) —
Income before provision for income taxes and life insurance death benefit
$ 4,303 $ 3,110 $ 9,960 $ 4,348

Provision for income taxes - GAAP
$ 1,427 $ 744 $ 3,125 $ 1,386
Deferred tax asset write-off
— — — (363 )
Provision for income taxes - excluding DTA write-off
$ 1,429 $ 744 $ 3,172 $ 1,023
Effective tax rate - excluding life insurance death benefit and DTA write-off
33.21
%
23.92
%
31.85
%
23.53
%

~~As shown in the non-GAAP table above, the Company~~’s effective tax rate on taxable income is approximately 31.50% for 2017 and 23.50% for 2016. The increase has occurred as the items which lower the Company’s effective tax rate (muni income, tax credits and permanent deductions arising from investments in low income housing partnerships) remain essentially unchanged in amount from year to year, but comprise a significantly smaller percentage of pre-tax income.

~~Amended Tax Returns~~

In September of 2016, we filed amended federal and state tax returns for tax years 2011, 2012, 2013, and 2014. The IRS rejected the 2011 amended tax return citing the statute for assessment had expired. Accordingly, the $988 thousand of taxes due pursuant to the 2011 amended tax return was returned to us and has been recorded in other liabilities. Management believes the full amount due will ultimately be ~~sustained.~~

~~Table of Contents~~

~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

FINANCIAL CONDITION

~~CONSOLIDATED~~CONSOLIDATED BALANCE SHEETS

As of ~~September~~June 30, ~~2017,~~2021, we had total consolidated assets of ~~$1.2~~$1.917 billion, gross loans of ~~$824.9 million,~~$1.091 billion, allowance for loan and lease losses (“ALLL”) of ~~$11.7~~$17 million, total deposits of ~~$1.1~~$1.697 billion, and ~~shareholders~~’shareholders’ equity of ~~$128.4~~$182 million.

We ~~continued to maintain a strong liquidity position during the reporting period. As of September 30, 2017, we~~ maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $~~20.0 million. We~~$21.0 million and we also held interest-bearing deposits in the amount of ~~$65.7~~$156.1 million. During the first six months of 2021, we continued to invest our increased liquidity into our investment securities portfolio.

Available-for-sale investment securities totaled ~~$232.5~~$579.7 million at ~~September~~June 30, ~~2017,~~2021, compared to ~~$175.2~~$446.9 million at December 31, ~~2016. Our~~2020. Changes in our available-for-sale ~~investment~~securities portfolio ~~provides a secondary source of liquidity to fund other higher yielding asset opportunities, such~~were as ~~loan originations.~~follows:

~~During the~~ first nine months of 2017, we purchased 80 securities with a par value of $116.7 million and weighted average yield of 2.55% and sold 41 securities with a par value of $45.9 million and weighted average yield of 2.02%. The sales activity on available-for-sale securities resulted in $139 thousand in net realized gains for the nine months ended September 30, 2017. During the nine months ended September 30, 2017, we also received $16.6 million in proceeds from principal payments, calls and maturities within the available-for-sale securities portfolio.
●
Purchased securities with a par value of $221.1 million.
●
Sold securities with a par value of $37.7 million resulting in $71 thousand in net realized gains.
●
Received $49.9 million in proceeds from principal payments, calls and maturities.

At ~~September~~June 30, ~~2017,~~2021, our net unrealized gains on available-for-sale investment securities were ~~$630 thousand~~$6.3 million compared to net unrealized ~~losses~~gains of ~~$1.3~~$10.6 million at December 31, ~~2016.~~2020. The fluctuation in net unrealized gains ~~arising~~ during the ~~nine~~six months ended ~~September~~June 30, ~~2017 were primarily driven by a narrowing of market spreads and significant~~2021 was due to changes in market interest rates.

We recorded gross loan balances of ~~$824.9~~$1.091 billion at June 30, 2021, compared to $1.140 billion at December 31, 2020, a decrease of $49 million. Loans, exclusive of PPP increased $23 million, while PPP loans decreased $72 million during the first six months of 2021.

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, decreased by $3.2 million to $3.8 million, or 0.35% of gross loans as of June 30, 2021, compared to $7.0 million, or 0.62% of gross loans as of December 31, 2020. The decrease resulted from repayment of a $3.0 million nonaccrual borrowing relationship during the first quarter of 2021.

Past due loans as of June 30, 2021 decreased $3.5 million to $1.9 million, compared to $5.4 million as of December 31, 2020. The decrease resulted from collection of the previously discussed $3.0 million nonaccrual loans. We believe that risk grading for past due and nonperforming loans appropriately reflects the risk associated with those loans.

In response to the COVID-19 pandemic, we granted loan payment deferrals to help many of our borrowers during 2020. At June 30, 2021, payment deferrals were extant for 16 loans totaling $4.1 million compared to 82 loans totaling $9.5 million at ~~September 30, 2017, compared to $804.2 million at~~ December 31, ~~2016; an increase~~2020. A detailed discussion of ~~$20.7 million. The increase~~the loan payment deferrals is provided later in ~~gross loans occurred primarily~~this document under the heading “COVID-19Troubled Debt Restructuring Guidance”.

During the first quarter of 2021, the SBA extended its debt relief program and resumed making principal and interest payments on all SBA 7(a) loans. Without these payments, past due loan totals might have been higher at June 30, 2021. A detailed discussion of program is provided later in this document under the ~~Bank’s Sacramento marketplace and is the result of investments in our~~ heading “SBA ~~division and in our expanded Sacramento commercial banking group.~~Loan Payments”.

The ALLL at ~~September~~June 30, ~~2017~~2021 increased ~~$147~~$284 thousand to ~~$11.7~~$17.2 million compared to ~~$11.5~~$16.9 million at December 31, ~~2016. A combination of net loan losses and loan portfolio growth supported management’s decision to record a $500 thousand provision for loan and lease losses during the nine months ended September~~2020. At June 30, 2017. During the year ended December 31, 2016, there were no provisions for loan and lease losses. Net loan charge-offs were $352 thousand during the nine months ended September 30, 2017, compared to net loan loss recoveries of $669 thousand during the same period a year previous. At September 30, 2017,2021, relying on our ALLL methodology, which uses criteria such as ~~risk weighting and~~credit grading, historical loss rates, and ~~given the ongoing improvements in asset quality,~~qualitative factors, we believe the ALLL is adequate. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could ~~possibly~~ result in ~~additional~~future charges to the provision for loan and lease losses.

~~Nonperforming loans, which include nonaccrual loans~~ A detailed discussion of the ALLL is provided later in this document under the heading “Allowance for Loan and ~~accruing loans past due over 90 days, decreased by $3.8 million to $7.6 million, or 0.92% of gross loans, as of September 30, 2017, compared to $11.4 million, or 1.42% of gross loans as of December 3~~1, 2016. Past due loans as of September 30, 2017 decreased $2.4 million to $2.1 million, compared to $4.6 million as of December 31, 2016. The decrease in nonperforming loans and past due loans was primarily due to the repayment of a nonaccrual commercial real estate loan for $1.2 million and the transfer of a nonaccrual residential real estate loan to OREO for $803 thousand. We believe that risk grading for past due loans appropriately reflects the risk associated with the past due loans. SeeLease Losses”. Also, see Note 4 Loans in the Notes to Consolidated Financial Statements ~~in this document~~ for further ~~detail~~information on the ALLL and the loan portfolio.

Premises and equipment totaled $~~15.0~~$14.5 million at ~~September~~June 30, ~~2017,~~2021, a decrease of ~~$1.2 million~~$485 thousand compared to ~~$16.2~~$15.0 million at December 31, ~~2016.~~2020.

~~Our~~At June 30, 2021, we had no OREO ~~balance at September 30, 2017 was $699 thousand~~properties compared to ~~$759~~$8 thousand at December 31, ~~2016. For~~2020. During the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, we transferred six foreclosed properties in the amount of $946 thousand to OREO and capitalized $90 thousand in costs for properties already in OREO. During the nine months ended September 30, 2017, we sold eight properties with balances of $1.1 million for a net gain of $22 thousand and recognized a write-down ~~of $52~~for $8 thousand ~~on one OREO~~and sold the property.

Bank-owned life insurance ~~decreased $1.3 million~~ increased $256 thousand during the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 to ~~$21.8~~$24.5 million compared to ~~$23.1~~$24.2 million at December 31, ~~2016. During the first quarter of 2017, we received $2.2 million from life insurance death benefit proceeds, of which $502 thousand was recorded in income. Our~~2020.

Goodwill and other intangible assets, net ~~deferred tax assets were $8.7~~totaled $15.3 million at ~~September~~June 30, ~~2017~~2021, a decrease of $383 thousand compared to ~~$9.5~~$15.7 million at December 31, ~~2016.~~2020, resulting from amortization of core deposit intangibles.

Other assets, which include the ~~Bank~~’sBank’s investment in ~~low income~~qualified zone academy bonds, FHLB stock, right-of-use lease asset and low-income housing tax credit partnerships ~~and investment in Federal Home Loan Bank of San Francisco stock~~ totaled ~~$19.7~~$26.8 million at ~~September~~June 30, ~~2017~~2021 compared to ~~$20.4~~$28.2 million at December 31, ~~2016.~~2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Total deposits at ~~September~~June 30, ~~2017~~2021, increased ~~$87.3~~$155 million or 9%20% annualized to ~~$1.1~~$1.697 billion compared to ~~the same date a year ago and increased $58.1 million or 8% annualized compared to~~$1.543 at December 31, ~~2016.~~2020.

●

Total non-maturing deposits increased ~~$103.1~~$153.3 million or ~~14% compared to the same date a year ago and increased $73.0 million or 12%~~22% annualized compared to December 31, ~~2016.~~2020. The increase in non-maturing deposits was due disbursements from the second PPP program and changes in customer behavior, which continues to place greater emphasis on savings during the current uncertain times. Management assumes that depositor behavior will change at a later date, but is unable to predict the timing of that change.

●

Certificates of deposit ~~decreased $16.0~~increased $1.2 million or ~~7% compared to the same date a year ago and decreased $14.8 million or 9%~~2% annualized compared to December 31, ~~2016.~~2020.

Other liabilities, which include the ~~Bank’s income tax liabilities, supplemental executive retirement plan~~Bank’s liability for Supplemental Executive Retirement Plan (“SERP”), deferred director compensation, operating leases and the funding obligation for investments in ~~qualified affordable housing partnerships~~LIHTC, decreased ~~$346~~$795 thousand to ~~$12.8~~$17.4 million as of ~~September~~June 30, ~~2017~~2021 compared to ~~$13.2~~$18.2 million at December 31, ~~2016.~~2020.

Investment Securities

The composition of our investment securities portfolio reflects ~~management’s investment strategy~~management’s objective of ~~maintaining an appropriate level of liquidity while providing~~pursuing yield and a relatively stable source of interest ~~income.~~income while maintaining an appropriate level of liquidity.

The investment securities portfolio also:

●

~~Mitigates~~Partially mitigates interest rate risk;

●

~~Mitigates~~Diversifies the credit risk inherent in the loan portfolio;

●

Provides a ~~portion~~vehicle for the investment of ~~credit risk inherent in the loan portfolio;~~excess liquidity;

●

~~Provides a vehicle for the investment of excess liquidity;~~

●

Provides a source of liquidity when pledged as collateral for lines of ~~credit;~~

●

~~Can be used as collateral for~~credit or certain public funds.

~~Our~~The carrying value of our available-for-sale investment securities totaled ~~$232.5~~$579.7 million at ~~September~~June 30, ~~2017,~~2021, compared to ~~$175.2~~$446.9 million at December 31, ~~2016.~~2020. Unprecedented deposit growth during the last year as a result of PPP programs and changes in customer behavior has led to a significant increase in the size of our investment securities portfolio. During the ~~first nine~~six months ~~of 2017,~~ended June 30, 2021, we ~~deployed liquidity provided by strong organic deposit growth and the sale of common stock into loan originations, interest bearing deposits at other banks and available for sale securities.~~

~~Our held-to-maturity investment portfolio is generally utilized to hold~~ ~~longer-term securities that may have greater price risk, many of which are pledged as collateral for our local agency deposit program. This portfolio includes~~purchased securities with ~~longer durations~~a par value of $221.1 million and ~~higher coupons than~~weighted average yield of 1.54% (1.59% tax equivalent) and sold securities ~~held in the available-for-sale securities portfolio. Held-to-maturity investment securities had amortized costs~~with a par value of ~~$30.7~~$37.7 million ~~at September 30, 2017, compared to $31.2 million at December 31, 2016. There were no held-to-maturity securities purchased during the nine months ended September 30, 2017.~~and weighted average yield of negative 0.16% and tax equivalent yield of negative 0.08%.

The following t~~able~~table presents the ~~carrying value of the~~available-for-sale investment securities portfolio ~~by classification and major type~~at fair value as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

September 30,

December 31,

(Amounts in thousands)

2017

2016

Available-for-sale securities: ⁽¹⁾

U.S. government & agencies
$ 36,474 $ 10,354
Obligations of state and political subdivisions
53,850 59,428
mortgage-backed securities and collateralized mortgage obligations
105,224 69,604
Corporate securities
6,968 16,116
Commercial mortgage-backed securities
26,148 15,514
Other asset-backed securities
3,830 4,158
Total
$ 232,494 $ 175,174

Held-to-maturity securities: ⁽¹⁾

Obligations of state and political subdivisions
$ 30,724 $ 31,187

⁽¹⁾ ~~Available-for-sale securities are reported at fair value, and held-to-maturity securities are reported at amortized cost.~~

	June 30,		December 31,
(Amounts in thousands)	2021		2020
Available-for-sale securities:
U.S. government & agencies	$	29,691	$	32,994
Obligations of state and political subdivisions		136,467		108,366
Residential mortgage-backed securities and collateralized mortgage obligations		317,842		240,478
Commercial mortgage-backed securities		52,718		28,074
Other asset-backed securities		42,946		36,968
Total	$	579,664	$	446,880

Table of Contents

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents information regarding the amortized cost, and maturity structure ~~and average yield~~ of the investment securities portfolio at ~~September~~June 30, ~~2017.~~2021.

							Over One Through					Over Five Through																					Maturities					Maturities
		Within One Year					Five Years					Ten Years					Over Ten Years					Total						Maturities					Over One Through					Over Five Through					Maturities
(Amounts in thousands)		Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
																												Within One Year					Five Years					Ten Years					Over Ten Years					Total
(Dollars in thousands)																												Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available-for-sale securities:⁽¹⁾	Available-for-sale securities:⁽¹⁾																										Available-for-sale securities:⁽¹⁾
U.S. government & agencies		$	—		—	%	$	—		—	%	$	2,898		2.43	%	$	33,539		2.54	%	$	36,437		2.53	%		$	—		—	%	$	857		2.51	%	$	13,944		2.53	%	$	14,102		2.08	%	$	28,903		2.31	%
Obligations of state and political subdivisions			200		1.15	%		6,739		3.00	%		22,919		2.94	%		22,751		2.39	%		52,609		2.70	%			844		3.25	%		7,933		3.69	%		18,321		2.35	%		105,577		2.27	%		132,675		2.37	%
Mortgage-backed securities and collateralized mortgage obligations			166		3.54	%		62,752		2.44	%		40,778		2.75	%		2,059		2.56	%		105,755		2.56	%
Corporate securities			1,013		1.74	%		4,932		3.27	%		1,000		2.00	%		—		—	%		6,945		2.86	%
Residential mortgage-backed securities and collateralized mortgage obligations																													11,683		2.33	%		99,167		1.83	%		167,257		1.40	%		39,050		1.75	%		317,157		1.61	%
Commercial mortgage-backed securities			—		—	%		845		1.29	%		4,864		2.20	%		20,563		2.37	%		26,272		2.30	%			—		—	%		1,510		2.48	%		22,766		1.66	%		28,208		1.61	%		52,484		1.66	%
Other asset-backed securities			—		—	%		—		—	%		—		—	%		3,846		2.39	%		3,846		2.39	%			—		—	%		—		—	%		—		—	%		42,143		1.25	%		42,143		1.25	%
Total		$	1,379		1.89	%	$	75,268		2.53	%	$	72,459		2.75	%	$	82,758		2.45	%	$	231,864		2.57	%		$	12,527		2.39	%	$	109,467		1.98	%	$	222,288		1.58	%	$	229,080		1.90	%	$	573,362		1.80	%

Held-to-maturity securities: ⁽¹⁾
Obligations of state and political subdivisions		$	95		5.60	%	$	9,834		3.28	%	$	7,656		2.71	%	$	13,139		3.46	%	$	30,724		3.22	%

⁽¹⁾ The maturities for the collateralized mortgage obligations and mortgage-backed securities are presented by expected average life, rather than contractual maturity. The yield on tax-exempt securities has not been adjusted to a tax-equivalent yield basis.

Loan Portfolio

~~Loan Concentration~~s

Historically, we have concentrated our loan origination activities primarily within the California counties of El Dorado, Placer, Sacramento, and ~~Shasta counties in California.~~Shasta. In recent years, our loan origination activity has expanded to include other portions of California and northern Nevada. We manage our credit risk through various diversifications (borrower industry, geography, collateral type) of our loan portfolio, the application of sound underwriting policies and procedures, and ongoing credit monitoring practices. Generally, ~~the~~our loans are secured by real estate or other assets located in California. Repayment is expected from the borrower’s cash flows or cash flows from real estate investments.

Table of Contents

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents the composition of the loan portfolio as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

(Amounts in thousands)

September 30,

December 31,

Loan Portfolio

2017

%

2016

%

Commercial
$ 147,212 18
%
$ 153,844 19
%
Commercial real estate:

Real estate - construction and land development
14,700 2 36,792 5
Real estate - commercial non-owner occupied
333,766 40 292,615 36
Real estate - commercial owner occupied
183,424 22 167,335 21
Residential real estate:

Real estate - residential - ITIN
42,063 5 45,566 6
Real estate - residential - 1-4 family mortgage
21,119 3 20,425 3
Real estate - residential - equity lines
31,158 4 35,953 4
Consumer and other
51,432 6 51,681 6
Gross loans
824,874 100
%
804,211 100
%
Deferred loan fees and costs
1,770 1,324
Loans, net of deferred fees and costs
826,644 805,535
Allowance for loan and lease losses
(11,692 ) (11,544 )
Net loans
$ 814,952 $ 793,991

	June 30, 2021						December 31, 2020
(Dollars in thousands)	Amount			%			Amount			%
Loan Portfolio:
Commercial	$	93,650			9	%	$	115,559			10	%
PPP		59,058			5			130,814			11
Commercial real estate:
Construction and land development		30,494			3			44,549			4
Non-owner occupied		626,819			57			550,020			48
Owner occupied		168,296			15			172,967			15
Residential real estate:
ITIN		26,912			2			29,035			3
1-4 family mortgage		50,259			5			55,925			5
Equity lines		17,827			2			18,894			2
Consumer and other		17,430			2			21,969			2
Gross loans		1,090,745			100	%		1,139,732			100	%
Deferred fees and costs		551						229
Loans, net of deferred fees and costs		1,091,296						1,139,961
Allowance for loan and lease losses		(17,194	)					(16,910	)
Net loans	$	1,074,102					$	1,123,051

The following table sets forth the contractual maturity ~~and re-pricing distribution~~ of our ~~gross loans outstanding~~loan portfolio as of ~~September~~June 30, ~~2017, which, based on remaining scheduled repayments~~2021, although contractual maturities of ~~principal, are due within~~loans do not necessarily reflect the ~~periods indicated.~~actual lives of the loans.

			After One								After One		After Five		After
	Within One		Through		After Five				Within One		Through		Through		Fifteen
(Amounts in thousands)	Year		Five Years		Years		Total		Year		Five Years		Fifteen Years		Years		Total
Loan Portfolio:
Commercial	$	42,130	$	49,565	$	55,517	$	147,212	$	38,007	$	52,592	$	3,051	$	—	$	93,650
PPP										59,058		—		—		—		59,058
Commercial real estate:
Real estate - construction and land development		5,846		4,711		4,143		14,700
Real estate - commercial non-owner occupied		7,910		52,823		273,033		333,766
Real estate - commercial owner occupied		8,693		17,805		156,926		183,424
Construction and land development										8,359		2,931		1,675		17,529		30,494
Non-owner occupied										48,294		229,491		316,010		33,024		626,819
Owner occupied										17,751		65,397		84,516		632		168,296
Residential real estate:
Real estate - residential - ITIN		—		—		42,063		42,063
Real estate - residential - 1-4 family mortgage		104		3,102		17,913		21,119
Real estate - residential - equity lines		48		3,847		27,263		31,158
ITIN										3,316		13,085		10,178		333		26,912
1-4 family mortgage										3,984		16,720		26,999		2,556		50,259
Equity lines										318		927		935		15,647		17,827
Consumer and other		873		48,377		2,182		51,432		1,077		1,494		2		14,857		17,430
Gross loans	$	65,504	$	180,230	$	579,040	$	824,874		180,164		382,637		443,366		84,578		1,090,745
Loans due after one year with:
Deferred fees and costs										—		—		—		—		551
Loans, net of deferred fees and costs									$	180,164	$	382,637	$	443,366	$	84,578	$	1,091,296

Loans with:
Fixed rates			$	106,136	$	191,645	$	297,781	$	59,224	$	197,833	$	255,965	$	1,049	$	514,071
Variable rates				74,094		387,395		461,489		120,940		184,804		187,401		83,529		576,674
Deferred fees and costs										—		—		—		—		551
Total			$	180,230	$	579,040	$	759,270	$	180,164	$	382,637	$	443,366	$	84,578	$	1,091,296

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents our fixed and variable interest rate loans at June 30, 2021.

	At June 30, 2021
(Amounts in thousands)	Fixed		Variable		Total
Loan Portfolio:
Commercial	$	56,410	$	37,240	$	93,650
PPP		59,058		—		59,058
Commercial real estate:
Construction and land development		15,567		14,927		30,494
Non-owner occupied		284,631		342,188		626,819
Owner occupied		35,963		132,333		168,296
Residential real estate:
ITIN		8,155		18,757		26,912
1-4 family mortgage		36,729		13,530		50,259
Equity lines		416		17,411		17,827
Consumer and other		17,142		288		17,430
Gross loans		514,071		576,674		1,090,745
Deferred fees and costs		—		551		551
Loans, net of deferred fees and costs	$	514,071	$	577,225	$	1,091,296

Loans with ~~unique credit characteristics~~Unique Credit Characteristics

~~In April of 2009, we completed a loan~~ ~~‘swap’ transaction, which included our receipt of~~ITIN Loans

We own a pool of Individual Tax Identification Number (“ITIN”) residential mortgage ~~loans. The ITIN~~ loans, which are geographically disbursed throughout the United States and are made to legal United States residents who do not possess a social security number. The ITIN loan portfolio is serviced by a third party. The majority of the ITIN loans are variable rate loans and may have an increased default risk in a rising rate environment. ~~Worsening~~As with all loans, worsening economic conditions in the United States ~~may~~could cause us to suffer higher default rates on our ITIN loans and reduce the value of the assets that we hold as collateral. ~~In addition, if~~If in the future, we become responsible for servicing of these ~~ITIN~~ loans, ~~then~~ we may realize additional monitoring, servicing and appraisal costs due to the geographic disbursement of the portfolio, which ~~will~~would adversely affect our noninterest expense. At June 30, 2021, there were 14 ITIN loans totaling $827 thousand with a COVID-19 related payment deferral. Payment deferrals are limited to no more than six months.

SFC Loans

Between May of 2014 and December of 2018, we purchased unsecured retail installment home improvement consumer loans that were originated by Service Finance Company, LLC (“SFC”). The loans were made through a network of over 8,000 approved home improvement dealers throughout the United States and Puerto Rico. Loans within the portfolio have a wide range of terms, interest rates and purchase discounts or premiums and at origination were made to borrowers with FICO scores of 750 or higher. Principal repayments on these loans totaled $3.9 million during the six months ended June 30, 2021. The loans are serviced by a third party. If in the future, we become responsible for servicing these loans, we may realize additional monitoring and servicing costs due to the geographic disbursement of the portfolio, which would adversely affect our noninterest expense. At June 30, 2021, there were no SFC loans with a COVID-19 related payment deferral.

Paycheck Protection Program (PPP) Loans

We have funded 853 loans totaling $210.8 million under the two PPP loan programs through June 30, 2021.

First PPP Loan Program - 2020

During 2020, we originated 606 loans totaling $163.5 million in the first PPP loan program. Most of the loans have subsequently been forgiven and repaid. At June 30, 2021, 47 loans totaling $12.3 million remain outstanding in the program. The majority of the first program loans have a two-year term over which the loan fee income (net of loan origination costs) is being earned. When a PPP loan is repaid prior to maturity, all unamortized fees and costs associated with the loan are accelerated into income. During the first six months of 2021, 440 loans totaling $118.5 million were repaid and we recognized $1.6 million in accelerated net fee income compared to 119 loans repaid totaling $32.7 million and $664 thousand in accelerated net fee income in the fourth quarter of 2020. At June 30, 2021, net loan fees totaling $142 thousand remain to be earned and we anticipate that most of it will be recognized during the third quarter of 2021.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Second PPP Loan Program - 2021

During the first quarter of 2021, the SBA announced a second PPP loan program. The SBA’s second PPP loan program provided first draw PPP loans to borrowers who were ineligible under the first PPP loan program (sole proprietors, ITIN business owners, small business owners with non-fraud felony convictions and small business owners who have struggled with student loan debt) and allowed second draw PPP loans to qualifying businesses that received a first draw under SBA’s first PPP loan program. The loans were available until May 31, 2021, were limited to $2 million, had a five-year term and SBA increased the lender fees for loans under $50 thousand to incentivize lenders to work with smaller borrowers.

During 2021, we have originated 247 loans totaling $47.3 million in the second PPP loan program. During the second quarter of 2021, we began to process loan forgiveness applications. At June 30, 2021, we have 234 loans totaling $46.7 million in the program. We anticipate that the loans in the second PPP loan program will have a lower yield than the first PPP loan program as net loan fee income will be recognized over a five-year term instead of the two-year term of the first program. Borrowers may submit a loan forgiveness application after using the loan proceeds and submitting an application for forgiveness of their first PPP loan. When a PPP loan is repaid prior to maturity, all unamortized fees and cost associated with the loan are accelerated into income. During the first six months of 2021, 13 loans totaling $629 thousand were repaid and we recognized $28 thousand in accelerated net fee income. At June 30, 2021, net loan fees totaling $1.5 million remain to be earned.

The following tables provide additional information on PPP loans by industry and by loan balance at June 30, 2021 for loans in both PPP loan programs.

	At June 30, 2021
(Dollars in thousands)	Number		Balance
Industry:
Construction		39	$	15,634
Healthcare and Social Assistance		42		4,326
Professional, Scientific and Tech Services		37		5,711
Accommodation and Food Services		39		9,185
Admin, Support, Waste Management and Remediation Services		9		2,064
Primary Metal Manufacturing		7		558
Retail Trade		19		3,340
Other		89		18,240
Total		281	$	59,058

	At June 30, 2021
(Dollars in thousands)	Balance		Number		Average Loan Size
Loan Size:
$50,000 or less	$	2,232		101	$	22
$50,001 to $150,000		7,047		83	$	85
$150,001 to $350,000		10,723		51	$	210
$350,001 to $1,999,999		31,884		43	$	741
$2,000,000 or greater		7,172		3	$	2,391
Total	$	59,058		281	$	210

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table presents the status of our loans in the forgiveness process.

	At June 30, 2021						At December 31, 2020
(Dollars in thousands)	Balance		Number		Average Loan Size		Balance		Number		Average Loan Size
First PPP loan program - 2020
Borrower has not started application	$	314		7	$	45	$	33,459		185	$	181
Borrower is working on application		3,348		15	$	223		31,277		136	$	230
Borrower has completed application and bank is reviewing it		2,744		16	$	172		43,872		105	$	418
Bank has approved application and submitted it to SBA		5,804		6	$	967		22,087		44	$	502
Loans partially repaid ⁽¹⁾		137		3	$	46		119		17	$	7
PPP loans not fully repaid		12,347		47	$	263		130,814		487	$	269

Repayments		151,146		559	$	270		32,679		119	$	275
Total first PPP loan program - 2020		163,493		606	$	270		163,493		606	$	270

Second PPP loan program - 2021
Borrower has not started application		42,506		221	$	192		—		—	$	—
Borrower is working on application		2,224		6	$	371		—		—	$	—
Borrower has completed application and bank is reviewing it		1,911		6	$	319		—		—	$	—
Bank has approved application and submitted it to SBA		70		1	$	70		—		—	$	—
PPP loans not fully repaid		46,711		234	$	200		—		—	$	—

Repayments		629		13	$	48		—		—	$	—
Total second PPP loan program - 2021		47,340		247	$	192		—		—	$	—

Total PPP loans originated by bank	$	210,833		853	$	247	$	163,493		606	$	270

⁽¹⁾ Borrowers who participated in the Economic Injury Disaster Loan ("EIDL") program had their forgiveness payment reduced by their EIDL advance. This reduction has subsequently been repealed and the SBA has remitted a reconciliation payment for previously-deducted EIDL advance amounts, plus interest.

Purchased Loans

In addition to loans we have originated or loans we acquired in conjunction with our acquisition of Merchants National Bank of Sacramento, the loan portfolio includes purchased loan pools and purchased participations. Purchased ~~loans~~loan pools and participations are recorded at their fair value at the acquisition date. ~~Credit discounts are included~~

The following table presents the recorded investment in ~~the determination of fair value; therefore, an ALLL is not recorded at the acquisition date. Additional information regarding the individual~~ purchased loan pools ~~can be found in Note 12~~ ~~Purchase of Financial Assets~~and purchased participations at June 30, 2021 and December 31, 2020. The purchased loans presented in the table include the ITIN and SFC loans discussed under the heading “L~~Notes to Consolidated Financial Statements~~oans with Unique Credit Characteristics ~~in this document.~~”.

	June 30, 2021					December 31, 2020
(Dollars in thousands)	Balance		% of Gross Loan Portfolio			Balance		% of Gross Loan Portfolio
Loan Type:
Commercial real estate	$	10,183		1	%	$	14,027		1	%
Residential real estate		37,302		3			40,242		3
Consumer and other		14,419		1			18,369		2
Total purchased loans	$	61,904		5	%	$	72,638		6	%

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~The following table presents the recorded investment in loans at September 30, 2017 and~~ ~~December 31, 2016 that were not originated by us.~~

(Amounts in thousands)

September 30, 2017

December 31, 2016

Loans Type

Balance

% of Gross Loan Portfolio

Balance

% of Gross Loan Portfolio

Commercial
$ 109 —
%
$ 109 —
%
Commercial real estate
30,490 4 31,662 4
Residential real estate
48,603 6 52,888 7
Consumer and other
49,316 6 49,057 6
Total purchased loans
$ 128,518 16
%
$ 133,716 17
%

Many of the loans that we have acquired from third party originators are made to borrowers who are located throughout the United States, other than in California. Some of those borrowers were undoubtedly impacted by the hurricanes which caused destruction in Texas, Florida, Georgia and Puerto Rico during the third quarter. As part of our discussion of the ALLL elsewhere in this document, we have provided the preliminary information we have about these loans.

A~~sset~~Asset Quality

Nonperforming Assets

Our loan portfolio is heavily concentrated in real estate and the ability for a significant portion of our borrowers~~’ ability~~ to repay their loans is dependent upon the professional services, commercial real estate market and the residential real estate development industry sectors. Loans secured by real estate or other assets primarily located in California are expected to be repaid from cash flows of the borrower or proceeds from the sale of collateral. As such, our dependence on real estate secured loans ~~could increase~~increases the risk of loss in our loan portfolio inwhen a market ofexperiences declining real estate values. Furthermore, declining real estate values would negatively impact any holdings of OREO.

We manage asset quality and mitigate credit risk through the application of policies designed to promote sound underwriting and loan monitoring practices. Our Loan Committee is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. The provision for loan and lease losses charged to earnings is based upon ~~management~~’smanagement’s judgment of the amount necessary to maintain the allowance at a level adequate to ~~absorb~~provide for probable ~~incurred losses.~~losses inherent in the outstanding loan and lease portfolio. The amount of provision charge is dependent upon many factors, including loan growth, net charge-offs, changes in the composition of the loan portfolio, delinquencies, management’s assessment of loan portfolio quality, general economic conditions that can impact the value of collateral, and other trends. The evaluation of these factors is performed through an analysis of the adequacy of the ALLL. Reviews of nonperforming loans, past due loans and larger credits, designed to identify potential charges to the ALLL, and to determine the adequacy of the allowance, are conducted on a ~~monthly~~quarterly basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan and lease loss experience, estimated loan and lease losses, growth in the loan portfolio, prevailing economic conditions and other factors.

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Generally, when we identify a loan as impaired, we measure the loan for potential impairment using discount cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining ~~external~~independent appraisals. Generally, ~~external~~these appraisals are updated every twelve months. We obtain appraisals from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is: (1) currently licensed in the state in which the property is located, (2) is experienced in the appraisal of properties similar to the property being appraised, (3) is actively engaged in the appraisal work, (4) has knowledge of current real estate market conditions and financing trends, (5) is reputable, and (6) is not on Freddie ~~Mac~~’sMac’s nor our Exclusionary List of appraisers and brokers. In most cases, appraisals will be reviewed by another independent third party to ensure the quality of the appraisal and the expertise and independence of the appraiser. Upon receipt and review, anthe external appraisal is utilized to measure a loan for potential impairment.

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~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Our impairment analysis documents the date of the appraisal used in the analysis, whether the officer preparing the report deems it current, and, if not, allows for internal valuation adjustments with justification. Typical justified adjustments might include discounts for continued market deterioration subsequent to appraisal date, adjustments for the release of collateral contemplated in the appraisal, or the value of other collateral or consideration not contemplated in the appraisal. An appraisal over one year old in most cases will be considered stale dated and an updated or new appraisal will be required. Any adjustments from appraised value to net realizable value are detailed and justified in the impairment analysis, which is reviewed and approved by our Chief Credit Officer. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, broker price opinions, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed and approved on a quarterly basis at or near the end of each reporting period. Based on these processes, we do not believe there are significant time lapses for the recognition of additional provision for loan and lease ~~loss~~losses or charge-offs from the date they become known.

Loans are classified as nonaccrual when collection of principal or interest is doubtful; generally these are loans that are past due as to maturity or payment of principal or interest by 90 days or more, unless such loans are well-secured and in the process of collection. Additionally, all loans that are impaired are considered for nonaccrual status. Loans placed on nonaccrual will typically remain onin nonaccrual status until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear certain.

Upon acquisition of real estate collateral, typically through the foreclosure process, we promptly begin to market the property for sale. If we do not receive offers or indications of interest within a reasonable timeframe, we will review market ~~condition~~sconditions to assess the pricing level that would enable us to sell the property. At the time of foreclosure, OREO is recorded at fair value less costs to sell (“cost”), which becomes the property’s new basis. Unless a current appraisal is available, an appraisal will be ordered prior to a loan migrating to OREO. Any write-downs based on the asset’s fair value at the date of acquisition are charged to the ALLL. After foreclosure, management periodically performs valuations and the property is carried at the lower of the cost or fair value less expected selling costs. We obtain updated appraisals on OREO property every six to twelve months. Valuation adjustments recorded in a period are primarily based on (1) updated appraisals received during the period, or (2) management’s authorization to reduce the selling price of the property during the period.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The ~~followin~~gfollowing table summarizes our nonperforming assets as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

(Amounts in thousands)	September 30,			December 31,
Nonperforming Assets	2017			2016
							June 30,			December 31,
(Dollars in thousands)							2021			2020
Nonperforming Assets:
Commercial	$	2,309		$	2,749		$	1,506		$	1,535
Commercial real estate:
Real estate - commercial non-owner occupied		—			1,196
Real estate - commercial owner occupied		617			784
Non-owner occupied								606			640
Owner occupied								89			3,094
Total commercial real estate		617			1,980			695			3,734
Residential real estate:
Real estate - residential - ITIN		3,201			3,576
Real estate - residential - 1-4 family mortgage		626			1,914
Real estate - residential - equity lines		815			917
ITIN								1,463			1,585
1-4 family mortgage								133			141
Total residential real estate		4,642			6,407			1,596			1,726
Consumer and other		37			250			16			18
Total nonaccrual loans		7,605			11,386			3,813			7,013
90 days past due and still accruing		—			—			—			—
Total nonperforming loans		7,605			11,386			3,813			7,013
Other real estate owned		699			759			—			8
Total nonperforming assets	$	8,304		$	12,145		$	3,813		$	7,021

Gross loans							$	1,090,745		$	1,139,732
PPP loans ⁽¹⁾								59,058			130,814
Total gross loans, net of PPP loans							$	1,031,687		$	1,008,918

Nonperforming loans to gross loans		0.92	%		1.42	%		0.35	%		0.62	%
Nonperforming loans to gross loans (excluding PPP) ⁽²⁾								0.37	%		0.70	%
Nonperforming assets to total assets		0.67	%		1.06	%		0.20	%		0.40	%

⁽¹⁾ PPP loans are fully guaranteed by SBA and no allowance is provided for them.

⁽²⁾ Nonperforming loans to gross loans (excluding PPP) is computed by dividing nonperforming loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

We ~~continually~~regularly perform thorough reviews of the commercial real estate portfolio, including semi-annual stress testing. These reviews are performed on both our non-owner and owner occupied credits. ~~These reviews are completed to verify leasing status, to ensure the accuracy of risk ratings, and to develop proactive action plans with borrowers on projects.~~ Stress testing is performed to determine the effect of rising cap rates, interest rates, and vacancy rates on the portfolio. Based on our analysis, we believe we are effectively managing the risks in this portfolio. There can be no assurance that declines in economic conditions, such as potential increases in retail or office vacancy rates, will not exceed the projected assumptions utilized in stress testing ~~resulting~~and result in additional nonperforming loans in the future.

Troubled Debt Restructurings

Loans are reported as troubled debt restructurings when we grant a concession(s) to a borrower experiencing financial difficulties that we would not otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, troubled debt restructured loans are impaired as we will not collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent troubled debt restructured loans are measured by comparing the present value of expected future cash flows of the restructured loans, discounted at the effective interest rate of the original loan agreement to the loans carrying value. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

As of June 30, 2021, we had $5.8 million in troubled debt restructurings compared to $6.1 million as of December 31, 2020. As of June 30, 2021, 89 loans were classified as troubled debt restructurings, of which 88 loans were performing according to their restructured terms. Of the 89 troubled debt restructurings, 81 were ITIN loans totaling $4.6 million which are serviced by a third party. Troubled debt restructurings represented 0.53% of gross loans as of June 30, 2021 and December 31, 2020.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

~~As of September 30, 2017, we had $11.0 million in troubled debt restructurings compared to $12.1 million as of~~ December 31, 2016. As of September 30, 2017, we had 118 restructured loans that qualified as troubled debt restructurings, of which 111 loans were performing according to their restructured terms. Troubled debt restructurings represented 1.33% of gross loans as of September 30, 2017, compared to 1.50% at December 31, 2016.

Impaired loans of ~~$6.6~~$3.9 million and ~~$7.1~~$4.1 million were classified as accruing troubled debt restructurings at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. For a restructured loan to be on accrual status, the ~~loan~~’sloan’s collateral coverage must generally be greater than or equal to 100% of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. As of ~~September~~June 30, ~~2017,~~2021 and December 31, 2020, we had ~~one restructured commercial line of credit in nonaccrual status that had $261 thousand in available credit. We had~~ no ~~obligation~~obligations to lend additional funds on any troubled debt restructured ~~loans as of December 31, 2016.~~loans.

The following table sets forth a summary of our restructured loans that qualify as troubled debt restructurings as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

(Amounts in thousands)	September 30,			December 31,
Troubled Debt Restructurings	2017			2016
							June 30,			December 31,
(Dollars in thousands)							2021			2020
Troubled Debt Restructurings:
Accruing troubled debt restructurings
Commercial	$	671		$	776		$	430		$	498
Commercial real estate:
Real estate - commercial non-owner occupied		805			808
Residential real estate:
Real estate - residential - ITIN		4,655			5,033
Real estate - residential - equity lines		441			454
ITIN								3,374			3,466
Equity lines								112			126
Total accruing troubled debt restructurings	$	6,572		$	7,071		$	3,916		$	4,090

Nonaccruing troubled debt restructurings
Commercial	$	1,609		$	1,940
Commercial real estate:
Non-owner occupied							$	606		$	640
Residential real estate:
Real estate - residential - ITIN		2,461			2,691
Real estate - residential - 1-4 family mortgage		306			335
ITIN								1,247			1,349
Consumer and other		27			29			16			18
Total nonaccruing troubled debt restructurings	$	4,403		$	4,995		$	1,869		$	2,007

Total troubled debt restructurings

Commercial	$	2,280		$	2,716		$	430		$	498
Commercial real estate:
Real estate - commercial non-owner occupied		805			808
Non-owner occupied								606			640
Residential real estate:
Real estate - residential - ITIN		7,116			7,724
Real estate - residential - 1-4 family mortgage		306			335
Real estate - residential - equity lines		441			454
ITIN								4,621			4,815
Equity lines								112			126
Consumer and other		27			29			16			18
Total troubled debt restructurings	$	10,975		$	12,066		$	5,785		$	6,097

Total troubled debt restructurings to gross loans outstanding at period end		1.33	%		1.50	%		0.53	%		0.53	%
Total troubled debt restructurings to gross loans outstanding at period end (excluding PPP) ⁽¹⁾								0.56	%		0.60	%

⁽¹⁾Troubled debt restructuring to gross loans (excluding PPP) is computed by dividing troubled debt restructurings by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

COVID-19 Troubled Debt Restructuring Guidance

~~Allowance~~Financial institution regulators and the CARES Act have changed the treatment of short-term loan modifications for ~~Loan and Lease Losses and Reserve for Unfunded Commitments~~borrowers impacted by COVID-19. The change provides that modifications made in response to COVID-19, to borrowers under certain circumstances, should not be considered a troubled debt restructuring.

~~The~~ ~~ALLL at September 30, 2017 increased $147 thousand~~We have responded to ~~$11.7 million compared~~the needs of our borrowers in accordance with the CARES Act and regulatory guidance to ~~$11.5 million at December 31, 2016. A combination~~grant short-term COVID-19 related loan modifications. These modified loans are not troubled debt restructurings and are not considered to be past due or non-performing. We have granted payment deferrals ranging from one to six months determined on a case-by-case basis considering the nature of ~~net loan losses~~the business and ~~loan portfolio growth supported management’s decision to record~~the impact of COVID-19. For some borrowers who where initially granted a ~~$500 thousand provision for loan and lease losses during the nine~~payment deferral of less than six months, ~~ended September 30, 2017. During the year ended December 31, 2016 there were no provisions for loan and lease losses.~~we have granted an additional payment deferral period on a case-by-case basis.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We maintain close contact with our borrowers to update our understanding of the impact of the pandemic on them, their businesses and the underlying collateral for our loans. For borrowers who continue to have been granted a loan payment deferral, we have evaluated their credit quality position and the potential for loss of principal.

Most loan payment deferrals have ended and borrowers have resumed making payments. At June 30, 2021, payment deferrals were extant for 16 loans totaling $4.1 million compared to 82 loans totaling $9.5 million at December 31, 2020. Loans with a payment deferral at June 30, 2021 consisted of two SBA 504 commercial real estate loans totaling $3.2 million and 14 first trust deed residential mortgage loans totaling $827 thousand.

Past Due Loans

Past due loans as of June 30, 2021 decreased $3.5 million to $1.9 million compared to $5.4 million as of December 31, 2020. The decreases in past due loans resulted from repayment of a $3.0 million nonaccrual borrowing relationship during the first quarter of 2021.

SBA Loan Payments

During the first quarter of 2021, the SBA extended its debt relief program and resumed making principal and interest payments on all of our SBA 7(a) loans, which totaled $29.0 million at June 30, 2021. Payment assistance varies by borrower, will continue for no more than eight months and is limited to a maximum $9 thousand per borrower per month.

Allowance for Loan and Lease Losses

We ~~recorded net~~ monitor credit quality and the general economic environment to ensure that the ALLL is maintained at a level that is adequate to cover estimated credit losses in the loan ~~charge-offs~~and lease portfolio. Our review of ~~$352 thousand~~ALLL adequacy utilizes both quantitative and qualitative factors. The quantitative analysis relies on historical loss rates which, unfortunately, may not be indicative of future losses. In response to quantitative data deficiencies, we have placed greater reliance on qualitative factors (Q-Factors).

Many of our COVID-19 related credit concerns have moderated and no provision for loan and lease losses was required during the first six months of 2021 compared to a provision of $4.2 million for the ~~nine months ended September 30, 2017 compared to net~~same period a year ago. Net loan loss recoveries were $284 thousand during the first six months of ~~$364 thousand~~2021 and most of our borrowers who received a COVID-19 related loan payment deferral have resumed making their payments. This compares with the first six months of 2020 when concerns over COVID-19 necessitated a provision for ~~the year ended~~loan and lease losses of $4.2 million. Our ALLL methodology supported an ALLL of $17.2 million at June 30, 2021, an increase of 2% compared to our ALLL of $16.9 million at December 31, ~~2016. Charge-offs during the nine months ended September 30, 2017 occurred primary from purchased consumer loans and were partially offset by recoveries from two commercial loan relationships.~~2020. Our ALLL as a percentage of gross loans was ~~1.42%~~1.58% as of ~~September~~June 30, ~~2017 and 1.44%~~2021 compared to 1.48% as of December 31, ~~2016.~~2020.

Management believes the Company’s ALLL is adequate at June 30, 2021. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in future charges to the provision for loan and lease losses.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table summarizes the ALLL roll forward for the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2021, twelve months ended December 31, ~~2016~~2020 and the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2020. This table also includes impaired loan information at ~~September~~June 30, ~~2017,~~2021, December 31, ~~2016~~2020 and ~~September~~June 30, ~~2016.~~2020.

For The Nine Months
Ended

For The Twelve Months
Ended

For The Nine Months
Ended

(Amounts in thousands)

September 30, 2017

December 31, 2016

September 30, 2016

Beginning balance ALLL
$ 11,544 $ 11,180 $ 11,180
Provision for loan and lease loss charged to expense
500 — —
Loans charged off
(1,051 ) (2,784 ) (2,398 )
Loan and lease loss recoveries
699 3,148 3,067
Ending balance ALLL
$ 11,692 $ 11,544 $ 11,849

	For The Six Months Ended			For The Twelve Months Ended			For The Six Months Ended
(Dollars in thousands)	June 30, 2021			December 31, 2020			June 30, 2020
ALLL:
ALLL beginning balance	$	16,910		$	12,231		$	12,231
Provision for loan and lease losses		—			5,250			4,150
Loans charged-off		(162	)		(1,113	)		(525	)
Loan and lease loss recoveries		446			542			233
ALLL ending balance	$	17,194		$	16,910		$	16,089

	At June 30, 2021			At December 31, 2020			At June 30, 2020
Nonaccrual loans:
Commercial	$	1,506		$	1,535		$	7
Commercial real estate:
Non-owner occupied		606			640			1,717
Owner occupied		89			3,094			2,992
Residential real estate:
ITIN		1,463			1,585			1,738
1-4 family mortgage		133			141			180
Consumer and other		16			18			37
Total nonaccrual loans		3,813			7,013			6,671
Accruing troubled debt restructured loans:
Commercial		430			498			592
Residential real estate:
ITIN		3,374			3,466			3,642
Equity lines		112			126			221
Total accruing troubled debt restructured loans		3,916			4,090			4,455
Total impaired loans	$	7,729		$	11,103		$	11,126

Gross loans outstanding	$	1,090,745		$	1,139,732		$	1,206,340

Ratio of ALLL to gross loans outstanding		1.58	%		1.48	%		1.33	%
Ratio of ALLL to gross loans outstanding (excluding PPP)⁽¹⁾		1.67	%		1.68	%		1.54	%
Nonaccrual loans to gross loans outstanding		0.35	%		0.62	%		0.55	%
Nonaccrual loans to gross loans outstanding (excluding PPP)⁽²⁾		0.37	%		0.70	%		0.64	%

At September 30, 2017

At December 31, 2016

At September 30, 2016

Nonaccrual loans:

Commercial
$ 2,309 $ 2,749 $ 1,710
Real estate - commercial non-owner occupied
— 1,196 1,196
Real estate - commercial owner occupied
617 784 800
Real estate - residential - ITIN
3,201 3,576 3,392
Real estate - residential - 1-4 family mortgage
626 1,914 1,798
Real estate - residential - equity lines
815 917 942
Consumer and other
37 250 252
Total nonaccrual loans
7,605 11,386 10,090
Accruing troubled-debt restructured loans:

Commercial
671 776 726
Real estate - commercial non-owner occupied
805 808 811
Real estate - residential - ITIN
4,655 5,033 5,280
Real estate - residential - equity lines
441 454 543
Total accruing restructured loans
6,572 7,071 7,360

All other accruing impaired loans
— 337 483
Total impaired loans
$ 14,177 $ 18,794 $ 17,933

Gross loans outstanding
$ 824,874 $ 804,211 $ 779,019

Ratio of ALLL to gross loans outstanding
1.42
%
1.44
%
1.52
%
Nonaccrual loans to gross loans outstanding
0.92
%
1.42
%
1.30
%

⁽¹⁾ ALLL to gross loans outstanding (excluding PPP) is computed by dividing the ALLL by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

⁽²⁾ Nonaccrual loans to gross loans outstanding (excluding PPP) is computed by dividing the nonaccrual loans by total gross loans excluding gross PPP loans. Management believes that the ratio excluding PPP loans is meaningful when comparing to periods that do not include PPP loans, which are guaranteed by the SBA, and are expected to be forgiven and repaid by the SBA.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following table sets forth the ratio of net charge-offs (recoveries) for the six months ended June 30, 2021 (annualized) and the year ended December 31, 2020 to average loans outstanding for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

As of September 30, 2017, impaired loans totaled $14.2 million, of which $7.6 million were in nonaccrual status. Of the total impaired loans, $7.9 million or 115 were ITIN loans with an average balance of approximately $68 thousand. The remaining impaired loans consist of nine commercial loans, two commercial real estate loans, four residential mortgages, ten home equity loans and two consumer loans.

	For the Six Months Ended			For the Year Ended
	June 30, 2021			December 31, 2020
Loan Portfolio:
Commercial		(0.01	)%		0.25	%
Commercial real estate:
Owner occupied		(0.12	)%		0.05	%
Residential real estate:
ITIN		(0.69	)%		(0.20	)%
1-4 family mortgage		(0.03	)%		(0.03	)%
Equity lines		(0.45	)%		(0.04	)%
Consumer and other		(0.27	)%		0.80	%
Total		(0.05	)%		0.05	%

At ~~September~~June 30, ~~2017,~~2021, impaired loans had a corresponding specific allowance of ~~$918 thousand~~.$159 thousand. The specific allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

~~Table of Contents~~

~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~

~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

The following table sets forth the allocation of the ALLL as of ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016.~~2020.

(Amounts in thousands)

September 30, 2017

December 31, 2016

ALLL

Amount

Percent

Amount

Percent

Commercial
$ 2,644 22
%
$ 2,849 25
%
Commercial real estate:

Real estate - construction and land development
67 1 177 2
Real estate - commercial non-owner occupied
4,415 37 3,637 32
Real estate - commercial owner occupied
1,822 16 1,764 15
Residential real estate:

Real estate - residential - ITIN
552 5 973 8
Real estate - residential - 1-4 family mortgage
103 1 106 1
Real estate - residential - equity lines
529 5 637 5
Consumer and other
1,200 10 955 8
Unallocated
360 3 446 4
Total ALLL
$ 11,692 100
%
$ 11,544 100
%

	June 30, 2021					December 31, 2020
(Dollars in thousands)	Amount		% Loan Category			Amount		% Loan Category
ALLL:
Commercial	$	1,839		9	%	$	2,402		10	%
PPP ⁽¹⁾		—		5			—		11
Commercial real estate:
Construction and land development		317		3			449		4
Non-owner occupied		10,396		57			9,195		48
Owner occupied		2,199		15			2,251		15
Residential real estate:
ITIN		539		2			617		3
1-4 family mortgage		337		5			386		5
Equity lines		284		2			321		2
Consumer and other		469		2			683		2
Unallocated		814		n/a			606		n/a
Total ALLL	$	17,194		100	%	$	16,910		100	%

⁽¹⁾ PPP loans are fully guaranteed by SBA and no allowance is provided for them.

The unallocated portion of ALLL provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk grading-based component, or in the specific reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of ~~September~~June 30, ~~2017,~~2021, the unallocated ~~allowance~~ amount ~~represents 3%~~represented 5% of the ALLL compared to 4% at December 31, ~~2016.~~2020. While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs may occur, actual amounts may differ.

~~Natural Disaster~~Reserve for Unfunded Commitmentss

~~Wildfire~~s

~~We have extended credit to borrowers~~The reserve for unfunded commitments, which is included in ~~California's Napa~~Other Liabilities in the Consolidated Balance Sheets, was $800 thousand at June 30, 2021 and ~~Sonoma counties where devastating fires recently caused widespread destruction. In those two counties we have made ten commercial real estate loans totaling $12.8 million. We believe that none~~ December 31, 2020. The adequacy of the ~~real estate collateralizing our loans was burned. It~~reserve for unfunded commitments is ~~however too soon to approximate~~reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic ~~impact~~conditions. When necessary, the provision expense is recorded in other noninterest expense in the Consolidated Statements of ~~the fires on the general economy~~Income.

Table of ~~the region or on our borrowers' businesses specifically.~~Contents
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Goodwill and Other Intangible Assets

~~Hurricane~~s

~~Many~~Goodwill and other intangible assets, net totaled $15.3 million at June 30, 2021 and primarily consisted of goodwill and core deposit intangibles recorded as part of previous acquisitions. Goodwill is evaluated for impairment annually and any such impairment is recognized in the period identified. A more frequent assessment of possible goodwill impairment is performed whenever we identify certain triggering events or circumstances that would more likely than not indicate that the fair value of the ~~loans that we have acquired from third party originators were made~~Bank is less than the carrying amount of the Bank’s equity. The triggering events to ~~borrowers who are located throughout~~be considered include a deterioration in general economic conditions, decreased overall financial performance of the ~~United States, other than in California. Some of those borrowers reside in portions of Texas, Florida, Georgia~~Company, and ~~Puerto Rico where hurricanes caused severe damage during the third quarter of 2017. The loans that could be affected are primarily ITIN loans which are secured by 1~~^st deeds of trust and consumer home improvement loans which are unsecured. These loans are not serviced by us and we are dependent on third party servicers for collection efforts, processing payment deferral requests and obtaining loss information. Based on preliminary information, we believe thata sustained decrease in the ~~affected areas, our exposure for loans secured by 1~~^st ~~and 2~~^nd residential deeds of trust is 21 loans totaling $1.2 million (none in Puerto Rico), and for unsecured consumer loans is 361 loans totaling $3.5 million (of which 78 loans totaling $1.2 million are in Puerto Rico). We do not currently know the extent of damage to our loan collateral, the amounts of available insurance coverage, the availability of government assistance for our borrowers or whether our borrower's ability to repay their loans has been diminished.Company’s stock price.

Deposits

Total deposits as of ~~September~~June 30, ~~2017~~2021 were ~~$1.1~~$1.697 billion compared to ~~$1.0~~$1.543 billion at December 31, ~~2016,~~2020, an increase of ~~$58.1 million or 8% annualized.~~$155 million. The following table presents the deposit balances by major category as of ~~September~~June 30, ~~2017,~~2021, and December 31, ~~2016.~~2020. The increase in non-maturing deposits from December 31, 2020 to June 30, 2021 was due to PPP loan program disbursements and changes in customer behavior, which continues to place greater emphasis on savings during the current uncertain times. Management assumes that depositor behavior will change at a later date, but is unable to predict the timing of that change.

(Amounts in thousands)

September 30, 2017

December 31, 2016

Deposits

Amount

Percentage

Amount

Percentage

Noninterest-bearing demand
$ 316,814 30
%
$ 270,398 27
%
Interest-bearing demand
206,045 19 198,328 20
Money market accounts
227,421 21 207,241 20
Savings
111,962 11 113,309 11
Certificates of deposit, $100,000 or greater
156,743 15 167,962 17
Certificates of deposit, less than $100,000
43,800 4 47,428 5
Total
$ 1,062,785 100
%
$ 1,004,666 100
%
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~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

June 30, 2021

December 31, 2020

(Dollars in thousands)

Amount

%

Amount

%

Deposits:

Noninterest-bearing demand
$ 627,911 37
%
$ 541,033 34
%
Interest-bearing demand
306,565 18 290,251 19
Money market
463,639 27 425,121 28
Savings
162,325 10 150,695 10
Certificates of deposit, $250,000 or less
74,605 4 78,217 5
Certificates of deposit, greater than $250,000
62,293 4 57,462 4
Total
$ 1,697,338 100
%
$ 1,542,779 100
%

The following table sets forth the distribution of ~~our~~ ~~year-to-date~~ average ~~daily balances~~deposits and their respective average rates for the ~~nine months ended September 30, 2017, and the year ended December 31, 2016.~~periods indicated.

For the Nine Months Ended September 30, 2017

For the Year Ended December 31, 2016

(Amounts in thousands)

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Interest-bearing demand
$ 204,808 0.13
%
$ 172,011 0.12
%
Money market accounts
221,557 0.20
%
202,159 0.16
%
Savings
111,258 0.18
%
104,771 0.17
%
Certificates of deposit
209,275 1.05
%
221,074 0.99
%
Interest-bearing deposits
746,898 0.41
%
700,015 0.41
%
Noninterest-bearing demand
280,559 226,368
Average total deposits
$ 1,027,457 0.30 % $ 926,383 0.31 %

Term debt
$ 18,644 6.33
%
$ 37,286 4.47
%
Junior subordinated debentures
10,310 2.74
%
10,310 2.28
%
Average total borrowings
$ 28,954 5.05
%
$ 47,596 4.00
%
~~Deposit Maturity Schedule~~
~~The following table sets forth the maturities of certificates of deposit in amounts of $100,000 or more as of September 30, 2017.~~
(Amounts in thousands)

September 30,

Maturing in:

2017

Three months or less
$ 25,453
Three through six months
26,545
Six through twelve months
32,907
Over twelve months
71,838
Total
$ 156,743

For the Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

(Dollars in thousands)

Average Balance

Average Rate

Average Balance

Average Rate

Deposits:

Interest-bearing demand
$ 298,236 0.08
%
$ 264,652 0.12
%
Money market
434,140 0.17
%
372,939 0.33
%
Savings
158,738 0.11
%
142,857 0.24
%
Certificates of deposit
136,969 0.94
%
142,067 1.23
%
Interest-bearing deposits
1,028,083 0.24
%
922,515 0.39
%
Noninterest-bearing demand
584,513 500,862
Total deposits
$ 1,612,596 0.15
%
$ 1,423,377 0.26
%

We have an agreement with IntraFi Network (“IntraFi”), formerly known as Promontory Interfinancial Network LLC (“Promontory”) ~~allowing~~which facilitates provision of FDIC deposit insurance to balances in excess of current FDIC deposit insurance limits. ~~Promontory~~’sIntraFi’s Certificate of Deposit Account Registry Service (“CDARS”) and Insured Cash Sweep (“ICS”) products use a deposit-matching program to exchange Bank deposits in excess of the current deposit insurance limits for excess balances at other participating banks, on a dollar-for-dollar basis ~~that would be fully insured at the Bank.~~(reciprocal arrangement). These products are designed to enhance our ability to attract and retain customers and increase deposits, by providing additional FDIC coverage to customers. CDARS and ICS deposits can also be ~~reciprocal or one-way~~arranged on a non-reciprocal basis. CDARS and ~~are considered brokered~~ICS deposits ~~by the FDIC.~~totaled $77.4 million and $85.6 million at June 30, 2021 and December 31, 2020, respectively.
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Deposit Maturity Schedule

~~In accordance with regulatory Call Report instructions, we filed quarterly Call Reports,~~The following table sets forth the maturities of uninsured certificates of deposit greater than $250,000 as of June 30, 2021.

June 30,

(Amounts in thousands)

2021

Maturing in:

Three months or less
$ 15,263
Three through six months
6,040
Six through twelve months
18,658
Over twelve months
22,332
Total
$ 62,293
Our uninsured deposits, which ~~listed brokered deposits~~are the portion of ~~$56.2~~deposit accounts that exceed the FDIC insurance limit (currently $250,000), approximated $934 million and ~~$65.2~~$795 million at ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, respectively. These amounts were ~~obtained through~~estimated based on the ~~CDARS~~same methodologies and ~~ICS programs.~~assumptions used for regulatory reporting purposes.

Borrowings
The following table sets forth our year-to-date average balances for borrowings and their respective average rates for the periods indicated.

For the Six Months Ended

For the Year Ended

June 30, 2021

December 31, 2020

(Dollars in thousands)

Average Balance

Average Rate

Average Balance

Average Rate

Borrowings:

FHLB borrowings
$ 1,934 —
%
$ 8,347 0.06
%
Subordinated debt, net
10,000 5.55
%
9,981 7.32
%
Junior subordinated debentures
10,310 1.82
%
10,310 2.41
%
Total borrowings
$ 22,244 3.34
%
$ 28,638 3.45
%
Term Debt

At ~~September~~June 30, ~~2017,~~2021, we had term debt outstanding with a carrying value of ~~$17.6~~$10.0 million compared to ~~$18.7~~$15.0 million at December 31, ~~2016.~~2020. Term debt consisted of the following:

Federal Home Loan Bank of San Francisco Borrowings

As of ~~September~~June 30, ~~2017 and December 31, 2016,~~2021, the Bank had no ~~Federal Home Loan Bank of San Francisco~~FHLB advances ~~outstanding. The average balance~~ outstanding ~~on Federal Home Loan Bank of San Francisco term advances during the nine months ended September 30, 2017 and the year ended~~compared to $5.0 million at December 31, ~~2016 was $403 thousand and $18.0 million, respectively.~~2020. See Note 6 ~~Federal Funds Purchased and Lines of Credit~~Term Debt in the Notes to Consolidated Financial Statements for information on our ~~Federal Home Loan Bank of San Francisco~~FHLB borrowings.
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~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~Senior~~Subordinated Debt

In December of 2015, we entered into a senior debt loan agreement to borrow $10.0 million. The debt is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce, matures in 2020, and at September 30, 2017, had a balance of $7.7 million net of unamortized debt issuance costs. Interest on the senior debt is paid at a variable rate equal to three month LIBOR plus 400 basis points resetting monthly. The effective interest rate at September 30, 2017, was 5.32%
~~Subordinated Deb~~t
~~In December~~ of 2015, we issued $10.0 million of fixed to floating rate ~~subordinated notes.~~Subordinated Notes. The ~~subordinated debt~~Subordinated Debt initially ~~bears~~bore interest at a fixed rate of 6.88% per annum ~~for a five-year term. Thereafter, interest~~through December 19, 2020. Interest on the ~~subordinated debt will be paid~~Subordinated Debt currently bears interest at a variable rate equal to three month LIBOR plus 526 basis points resetting quarterly. ~~At September 30, 2017, the Subordinated Debt had a balance of $9.9 million net of unamortized debt issuance costs.~~ The notes are due in 2025.

Junior Subordinated ~~Debenture~~Debenturess
Bank of Commerce Holdings Trust IIII

During July of 2005, we participated in a $10.0 million private placement of fixed rate trust-preferred securities (the "Trust-Preferred Securities") through a wholly owned Delaware trust affiliate, Bank of Commerce Holdings Trust II (the "Trust II"). T~~rust~~Trust II simultaneously issued $310 thousand common securities to the Holding Company. Rates paid on the Trust-Preferred Securities have transitioned from fixed to floating and are now paid on a quarterly basis at a rate equal to three month LIBOR plus 158 basis points ~~(2.90%~~(1.19% at ~~September~~June 30, ~~2017)~~2021).
The Trust-Preferred Securities mature on September 15, 2035, and the covenants allow for redemption of the securities at our option during any quarter prior to maturity.

The proceeds from the s~~ale~~sale of the Trust-Preferred Securities were used by ~~the~~ Trust II to purchase from the Holding Company the aggregate principal amount of $10.3 million of the Holding Company’s junior subordinate debentures (the "Notes"). The net proceeds to the Holding Company from the sale of the Notes to ~~the~~ Trust II were partially distributed to the ~~Bank for general corporate purposes, including funding the growth of the Bank’s various financial services.~~Bank. The proceeds from the Notes qualify as Tier 1 capital under Federal Reserve Board guidelines.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CASH FLOW

~~Redding~~Merchants Bank of Commerce
~~On March 11, 2016~~, we completed the purchase of five Bank of America branches located in northern California. The transaction was attractive to us because it provided a new source of low cost core deposits and allowed us to execute our plan to reconfigure our Balance Sheet. The acquisition provided approximately $142.3 million of new liquidity ($149.0 million of new deposits less payments of $6.7 million made to Bank of America). We utilized a portion of that new liquidity to reduce our reliance on wholesale funding sources, repaying $75.0 million of Federal Home Loan Bank of San Francisco hedged term debt and redeeming $17.5 million of brokered time deposits. We utilized the remaining liquidity to fund loan growth.

The principal objective of our liquidity management program is to maintain our ability to meet the day-to-day cash flow requirements of our customers who wish either ~~wish~~ to withdraw funds on deposit or to draw upon their credit facilities.
We monitor the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. ~~One source of funds includes public deposits. We may be required to collateralize a portion of public deposits that exceed FDIC insurance limitations based on the state of California’s risk assessment of the Bank. Public deposits represent 2% of our total deposits at September 30, 2017 and December 31, 2016.~~

In addition to liquidity ~~from~~provided by core deposits, loan repayments and cash flows from securities, the Bank can ~~utilize established uncommitted federal funds lines of credit, sell securities,~~ borrow on a secured basis from the ~~Federal Home Loan Bank of San Francisco,~~FHLB, borrow on a secured basis from the Federal Reserve Bank, borrow on established conditional federal funds lines of credit, sell securities, or issue subscription / brokered certificates of deposit.
We have experienced significant increased deposit balances due to PPP loan program disbursements and customer behavior, which continues to place greater emphasis on savings during the current uncertain times. Through June 30, 2021, we have not experienced any unusual pressure on our deposit balances or on our liquidity position as a result of the COVID-19 pandemic.

At ~~September~~June 30, ~~2017,~~2021, the Bank ~~had~~has the following credit arrangements:

●
~~We have an available line~~Line of credit with the ~~Federal Home Loan Bank~~FHLB of ~~San Francisco of $332.4 million; credit availability~~$456.9 million is ~~subject to certain collateral requirements, namely the amount of pledged loans and investment securities.~~
●
~~We have an available line of credit with the Federal Reserve Bank of $15.3 million~~ subject to collateral requirements, namely the amount of pledged ~~loans.~~loans and investment securities.

●
~~We have entered into nonbinding~~Line of credit with the Federal Reserve Bank of $26.8 million is subject to collateral requirements, namely the amount of pledged loans.
●
Nonbinding unsecured federal funds line of credit agreements with three financial institutions. The available credit on these lines totaled ~~$35.0~~$75.0 million at ~~September~~June 30, ~~2017~~2021 and had interest rates ranging from ~~1.39%~~0.17% to ~~2.04%~~0.35%. Advances under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions.
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~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~
~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

Bank of Commerce Holdings

The Holding Company is a separate entity from the Bank and must provide for its own liquidity. ~~Substantially all of~~At June 30, 2021, the Holding ~~Company's~~Company had cash ~~flows are obtained~~balances of $3.1 million. Our principal source of cash is dividends received from ~~dividends declared and paid by~~ the Bank. During the first six months of 2021, the Bank paid dividends totaling $2.5 million to the Holding Company. There are statutory and regulatory provisions t~~hat~~that could limit the ability of the Bank to pay dividends to the Holding ~~Company. As described~~Company in the paragraph below, the Holding Company received $26.8 million in proceeds from the sale of common stock and given its cash position, there are currently no plans to pay dividends from the Bank to the Holding Company.future.

On May 10, 2017, we completed the sale of 2,738,096 shares of our common stock at a public offering price of $10.50 and received net proceeds of $26.8 million. These proceeds will support lending and investment activities, support or fund acquisitions of other institutions or branches if opportunities for such transactions become available, or repay certain borrowings. We deployed liquidity provided by the sale of common stock into available-for-sale securities and interest-bearing deposits at other banks.
Consolidated Statements of Cash ~~Flow~~sFlows

As disclosed in the Consolidated Statements of Cash Flows,~~, net cash of $10.3 million was provided by operating activities during~~ the ~~nine months ended September 30, 2017. The~~ primary difference between net income and cash provided by operating activities isare non-cash ~~items including depreciation and amortization totaling $3.2 million and a provision for loan and lease losses of $500 thousand.~~items.

Net cash of ~~$75.6~~$12.1 million ~~used~~was provided by ~~investing~~operating activities during the six months ended June 30, 2021 consisted principally of $121.6 million in purchases of available-for-sale investment securities and $22.0 million in net loan purchases and originations partially offset by $47.9 million in proceeds from sale of available-for-sale investment securities, $16.6 million in proceeds from maturities and payments of available-for-sale securities and $2.2 million of life insurance proceeds.of:
●
$9.1 million in net income.
●
$1.1 million in depreciation and amortization.
●
$1.4 million in amortization of premiums and accretion of discounts on investment securities.

Net cash of ~~$82.6~~$89.7 million used in investing activities during the six months ended June 30, 2021 consisted principally of:
●
$227.6 million in purchases of investment securities.
These uses of cash were partially offset by:
●
$39.1 million in proceeds from sale of investment securities.
●
$49.9 million in proceeds from maturities and payments of investment securities.
●
$39.0 million in net loan principal repayments.
●
$10.7 million in repayments on purchased loan pools.
Net cash of $147.7 million provided by financing activities during the six months ended June 30, 2021 consisted principally ~~of a $73.0 million increase in demand and savings deposits and $26.8 million in proceeds from issuance of common~~ ~~stock~~of:
●
$153.3 million increase in non-maturing deposits.
●
$1.2 million increase in certificates of deposit.
These sources were partially offset ~~by a decrease in certificates~~by:
●
$5.0 million repayment of term debt.
●
$2.0 million dividends paid on common stock.
70

Table of ~~deposit of $14.8 million.~~
Contents
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CAPITAL RESOURCES

~~We use~~Equity capital is available to support organic and strategic growth, pay dividends and ~~pay dividends.~~repurchase shares. The objective of effective capital management is to produce ~~above market~~competitive long-term returns ~~by using~~for our shareholders while ensuring that adequate capital ~~when investment returns are perceived~~is maintained relative to ~~be high and issuing capital when costs are perceived to be low.~~the Company’s risk profile. Our sources of capital include retained earnings, common and preferred stock issuance, and issuance of subordinated ~~debt or trust notes.~~debt.

REGULATORY CAPITAL GUIDELINES

Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. The guidelines are “risk-based,” meaning that they are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies. ~~On July 2, 2013, the federal banking agencies approved the final~~The current rules ~~(the “Final Rules”) implementing the Basel Committee's December 2010 final capital framework~~ (commonly known as Basel III). The Final Rules substantially amended the regulatory risk-based capital rules applicable to the Holding Company and the Bank. The phase-in period for the Final Rules began for the Company on January 1, 2015 with full compliance with the Final Rules phased in by January 1, 2019.
~~Generally speaking, effective January 1, 2015, the Final Rules did the following:~~
●
~~Created “Common Equity Tier 1 Capital Ratio,” which is a measure of regulatory capital closer to pure tangible common equity than the previous Tier 1 definition;~~
●
~~Establisheda required minimum risk-based capital ratio for “Common Equity Tier 1 Capital Ratio” 4.5%;~~
●
~~Increasedthe required minimum risk-based “Tier 1 Capital Ratio” to 6.0%:~~
●
~~Increased the required minimum risk-based “Total Capital Ratio” to 8.0%;~~
●
~~Increased the required minimum “Tier 1 Leverage Ratio” to 4.0%;~~
●
~~Added a 2.50% capital conversation buffer to the minimum “Common Equity Tier 1 Capital Ratio”, “Tier 1 Capital Ratio” and “Total Capital Ratio”; and~~
●
~~Allowed for permanent grandfathering of non-qualifying instruments, such as our trust-preferred securities, subject to a limit of 25% of Tier 1 capital.~~
~~The Final Rules~~ require the Bank and the Company to meet ~~the~~a capital conservation buffer requirement in order to avoid constraints on capital distributions, such as dividends and equity repurchases, and certain bonus compensation for executive officers. TheThe capital conservation buffer of 2.50% is added to the minimum capital ~~ratios and is being phased in between 2016 and 2019. For 2017, the partially phased in buffer is 1.25%.~~ratios.

~~When the new capital rule is fully phased in, the~~The Basel III minimum capital requirements plus the conservation buffer ~~will~~ exceed the w~~ell-capitalized~~prior regulatory “well-capitalized” capital thresholds by 0.5 percentage points. This ~~0.5-percentage-point~~0.5 percentage-point cushion ~~will allow~~allows institutions to dip into a portion of their capital conservation buffer before reaching a status that is considered less than well capitalized for prompt corrective action purposes.
63
~~Table of Contents~~
~~BANK OF COMMERCE HOLDINGS & SUBSIDIARIES~~
~~MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS~~

~~These capital rules also change~~As of January 1, 2020 for certain qualifying institutions, the ~~risk-weights of certain assets for purposes~~FDIC accepts compliance with a Community Bank Leverage Ratio in lieu of the ~~risk-based~~Basel III capital ~~ratios and phase out certain instruments as~~requirements. We are a qualifying ~~capital. The Final Rules also contain revisions~~institution; however, we have opted to continue reporting under the ~~prompt corrective action framework, which is designed~~Basel III requirements. We can opt-in to ~~place restrictions on insured depository institutions, if their capital levels begin to show signs of weakness.~~
~~Under~~use the ~~prompt corrective action requirements, which are designed to complement~~Community Bank Leverage Ratio at any time in the ~~capital conservation buffer, insured depository institutions are required to meet the following increased capital level requirements in order to qualify as “well-capitalized:”~~
●
~~a “Common Equity Tier 1 Capital Ratio” of at least 6.5%;~~
●
~~a “Tier 1 Capital Ratio” of at least~~ ~~8%;~~
●
~~a “Total Capital Ratio” of at least 10%;~~
●
~~a “Tier 1 Leverage Ratio” of at least 5%;~~ ~~and~~
●
~~not be subject to any order or written directive requiring a specific capital level.~~
The FDIC's rules (as amended by the Final Rules) also contain other capital classification categories, such as "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized," which are based on an institution's specific capital ratios.future.

CAPITAL ADEQUACY

Overall capital adequacy is monitored on a day-to-day basis by management and reported to our Board of Directors on a monthly basis. ~~Our regulators measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. Based on management’s review and analysis of Basel III, management believes that the Holding Company and the Bank will exceed the standards under these new rules.~~

As of ~~September~~June 30, ~~2017,~~2021, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for ~~prompt corrective action.~~Prompt Corrective Action (“FDIC PCA”). There are no conditions or events since the notification that management believes have changed the ~~Bank~~’sBank’s risk category. The Holding Company and the Bank’s capital amounts and ratios as of ~~September~~June 30, ~~2017,~~2021, are presented in the following table.

September 30, 2017

(Amounts in thousands)

Capital

Actual
Ratio

Well
Capitalized
Requirement

Minimum
Capital
Requirement

Applicable
2017 Capital
Conservation Buffer

Minimum Capital
Ratio plus Capital
Conservation Buffer

Holding Company:

Common Equity Tier 1 Capital Ratio
$ 125,592 12.66
%
n/a 4.50
%
1.25
%
5.750
%
Tier 1 Capital Ratio
$ 135,462 13.65
%
n/a 6.00
%
1.25
%
7.250
%
Total Capital Ratio
$ 157,848 15.91
%
n/a 8.00
%
1.25
%
9.250
%
Tier 1 Leverage Ratio
$ 135,462 11.12
%
n/a 4.00
%
n/a n/a

Bank:

Common Equity Tier 1 Capital ratio
$ 127,819 12.87
%
6.50
%
4.50
%
1.25
%
5.750
%
Tier 1 Capital Ratio
$ 127,819 12.87
%
8.00
%
6.00
%
1.25
%
7.250
%
Total Capital Ratio
$ 140,206 14.12
%
10.00
%
8.00
%
1.25
%
9.250
%
Tier 1 Leverage Ratio
$ 127,819 10.50
%
5.00
%
4.00
%
n/a n/a

June 30, 2021

FDIC PCA

BASEL III

Well

Minimum

Capital

Minimum Capital

Actual

Capitalized

Capital

Conservation

Ratio plus Capital

(Dollars in thousands)

Capital

Ratio

Requirement

Requirement

Buffer

Conservation Buffer

Holding Company:

Common equity tier 1 capital ratio
$ 163,336 13.04
%
n/a 4.50
%
2.50
%
7.00
%
Tier 1 capital ratio
$ 173,336 13.84
%
n/a 6.00
%
2.50
%
8.50
%
Total capital ratio
$ 199,025 15.89
%
n/a 8.00
%
2.50
%
10.50
%
Tier 1 leverage ratio
$ 173,336 9.37
%
n/a 4.00
%
n/a 4.00
%

Bank:

Common equity tier 1 capital ratio
$ 181,361 14.48
%
6.50
%
4.50
%
2.50
%
7.00
%
Tier 1 capital ratio
$ 181,361 14.48
%
8.00
%
6.00
%
2.50
%
8.50
%
Total capital ratio
$ 197,042 15.74
%
10.00
%
8.00
%
2.50
%
10.50
%
Tier 1 leverage ratio
$ 181,361 9.80
%
5.00
%
4.00
%
n/a 4.00
%

On December 10, 2015, the Holding Company issued $10.0 million in aggregate principal amount of Subordinated Notes to certain institutional investors. The Subordinated Notes qualify as Tier 2 Capital under the Final Rules. See Item 1a1A - Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, ~~2016~~2020 for further detail on potential risks relating to the Subordinated Notes.

AsGoodwill and other intangible assets, net totaled $15.3 million at June 30, 2021 and primarily consisted of goodwill and core deposit intangibles recorded as part of previous acquisitions. See Note 10, Goodwill and Other Intangibles in the ~~branch acquisition, we recorded a core deposit~~Notes to Consolidated Financial Statements in this document for additional detail goodwill and other intangible ~~of $1.8 million and goodwill of $665 thousand.~~assets. When calculating capital ratios, goodwill and ~~a portion of the core deposit intangibles~~other intangible assets, net are ~~subtracted~~deducted from Tier 1 capital. The deduction for core deposit intangibles is subject to a phase in period under the Basel III risk based capital rules. During 2016, 60% of the core deposit intangible was deducted from Tier 1 capital, 80% for 2017 and 100% thereafter. Both of these intangible assets are subtracted from tangible equity as part of the calculation of tangible book value per share.
~~Capital ratios for the~~ ~~Holding Company include the benefit of $26.8 million net proceeds from the sale of 2,738,096 shares of common stock in the second quarter of 2017.~~

64
71
Table of Contents
BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In late 2020, we announced a new share repurchase program to repurchase up to 1.0 million shares of common stock over a period ending December 31, 2021. As of June 30, 2021, no shares have been repurchased under this program. Given the recent announcement of the merger with Columbia, management will not be purchasing shares under the program.

Cash Dividends and Payout Ratios per Common Share

~~During~~The following table presents cash dividends declared and dividend pay-out ratios (dividends declared per common share divided by basic earnings per common share) for the ~~nine~~three and six months ended ~~September~~June 30, ~~2017~~2021 and ~~the year ended December 31,~~ ~~2016, we declared quarterly cash dividends of $0.03 per common share.~~
2020. These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings, regulatory capital levels, our risk profile, capital preservation and expected growth. The dividend rate ~~will be~~is reassessed periodically by the Board of Directors in accordance with the dividend policy. There is no assurance that future cash dividends on common shares will be declared or increased.

For the Three Months Ended

For the Six Months Ended

June 30,

June 30,

2021

2020

2021

2020

Dividends declared per common share
$ 0.06 $ 0.05 $ 0.12 $ 0.10
Dividend payout ratio
24
%
22
%
22
%
36
%
Tangible Book Value Per Share and Tangible Common Equity Ratio
We believe the tangible common equity ratio and tangible book value per share are meaningful measures that the Company and investors commonly use to assess the value and capital levels of the Company.
The following table ~~presents cash dividends declared~~provides a reconciliation of shareholders' equity (GAAP) to tangible common equity (non-GAAP), and ~~dividend payout ratios (dividends declared per common share divided by basic earnings per common share) for the~~ ~~three~~total assets (GAAP) to tangible assets (non-GAAP) as of June 30, 2021 and ~~nine months ended September 30, 2017 and 2016.~~December 31, 2020.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Dividends declared per common share
$ 0.03 $ 0.03 $ 0.09 $ 0.09
Dividend payout ratio
17
%
17
%
18
%
41
%

June 30,

December 31,

(Dollars in thousands except ratio and per share data)

2021

2020

Tangible common shareholders' equity:

Total shareholders' equity (GAAP)
$ 182,137 $ 177,702
Subtract:

Goodwill (GAAP)
11,671 11,671
Other intangible assets, net (GAAP)
3,661 4,044
Tangible common shareholders' equity (non-GAAP)
$ 166,805 $ 161,987

Total assets (GAAP)
$ 1,917,153 $ 1,763,954
Subtract:

Goodwill (GAAP)
11,671 11,671
Other intangible assets, net (GAAP)
3,661 4,044
Tangible assets (non-GAAP)
$ 1,901,821 $ 1,748,239

Common equity ratio (GAAP)
9.50
%
10.07
%
Tangible common equity ratio (non-GAAP)
8.77
%
9.27
%
Book value per share (GAAP)
$ 10.78 $ 10.58
Tangible book value per share (non-GAAP)
$ 9.87 $ 9.64

The Tangible common equity, the tangible common equity ratio and tangible book value are non-GAAP financial measures, are not audited, and should be viewed in conjunction with the total shareholders' equity, total shareholders' equity ratio and book value per share. Although we believe these non-GAAP financial measures are frequently used by stakeholders in the evaluation of a company, they have limitations as analytical tools, and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

OFF-BALANCE SHEET ARRANGEMENTS

Information regarding Off-Balance Sheet Arrangements is included in Note 8, 7, Commitments and Contingencies, in the Notes to Consolidated Financial Statements incorporated in this document.

CONCENTRATION OF CREDIT RISK

Information regarding Concentration of Credit Risk is included in Note 8, 7, C~~ommitme~~~~nts~~Commitments and Contingencies, in the Notes to Consolidated Financial Statements incorporated in this document.

65
72
Table of Contents

I~~tem~~Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our assessment of market risk as of ~~September~~June 30, ~~2017~~2021 indicates there are no material changes in the quantitative and qualitative disclosures from those in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

I~~tem~~Item 4. Controls and Procedures

Disclosure Controls and Procedures

As of the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of the ~~Company~~’sCompany’s management, including its President and Chief Executive Officer and its Chief Financial Officer, of the effectiveness of its disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based on that evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that these disclosure controls and procedures were effective.

Disclosure controls and procedures, no matter how well designed and implemented, can provide only reasonable assurance of achieving an ~~entity~~’sentity’s disclosure objectives. The likelihood of achieving such objectives is affected by limitations inherent in disclosure controls and procedures. These include the fact that human judgment in decision-making can be faulty and that breakdowns in internal controls can occur because of human failures such as simple errors, mistakes or intentional circumvention of the established processes.

Report on Internal Control over Financial Re~~porting~~Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed by, or under the supervision of, the ~~Company~~’sCompany’s Chief Executive Officer and the Chief Financial Officer and implemented by the Company’s Board of Directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The ~~Company~~’sCompany’s internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

On a quarterly basis, we carry out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer (whom is also our Principal Accounting Officer) of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. As of ~~September~~June 30, ~~2017,~~2021, our management, including our Chief Executive Officer, and Principal Financial Officer, concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating to us that is required to be included in our periodic SEC filings.

Although we change and improve our internal controls over financial reporting on an ongoing basis, we do not believe that any such changes occurred in the first ~~nine~~six months of ~~2017~~2021 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

6673
Table of Contents

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are subject to various pending and threatened legal actions arising in the ordinary course of business and ~~maintains~~maintain reserves for losses from legal actions that are both probable and estimable. There are no legal proceedings adverse to the Company that will have a material effect on our consolidated financial position or results of operations.

I~~tem 1a.~~Item 1A. Risk Factors
We have only fragmented information about the impact of hurricanes Harvey, Irma and Maria on our purchased loan portfolios. We are in the preliminary stage of assessing how these storms will impact our portfolio or ~~our earnings. Until more is known, we are unable to quantify that impact.~~

The risks described below, as well as the risk factors previously disclosed in the ~~Company~~’sCompany’s Form 10-K for the period ended December 31, ~~2016,~~2020, filed with the SEC on March ~~15, 2017~~5, 2021 should be carefully considered. The risks described may not be the only risks facing us. Additional risks and uncertainties not currently known to us or that are currently considered to not be material also may materially adversely affect our business, financial condition and/or operating results. Our risk factors regarding natural disasters have been expanded to specifically address additional types of natural disasters and risks to our purchased loan portfolio and loan servicers.

~~A natural disaster~~ ~~outside California, could negatively impact our purchased loan portfolio or our third party loan servicer.~~Due to the fluctuation in market price of Columbia Banking System, Inc. common stock, the BOCH shareholders’ cannot be sure of the exact value of consideration they will receive in the Merger.

~~Our purchased loan portfolio includes a significant amount of loans made to borrowers outside California and which are serviced by third parties outside of California. A significant portion~~Upon the effective time of the ~~purchased loans~~Merger described Note 11 Merger in the Notes to Consolidated Financial Statements, each share of Bank of Commerce common stock will be cancelled and ~~third party loan servicers are in areas that are vulnerable~~converted into the right to ~~natural disasters. Therefore, we are susceptible~~receive the Merger Consideration, consisting of shares of Columbia common stock pursuant to the ~~risks~~terms of ~~natural disasters outside California. Natural disasters~~the Merger Agreement. The value of the Merger Consideration to be received by Company shareholders will be based on an Exchange Ratio, which is 0.40 shares of Columbia common stock for each share of Bank of Commerce common stock. Because the price of Columbia common stock could ~~impact~~fluctuate during the ~~operations~~period of ~~our loan servicers directly through interference with communications, including~~time between the ~~interruption~~date of this filing and the time the Company's shareholders actually receive their shares of Columbia common stock as merger consideration, the Company's shareholders will be subject to the risk of a decline in the price of Columbia common stock during this period.
The Merger is subject to approval from BOCH’s shareholders, customary regulatory approvals and other customary closing conditions.
Prior to completion of the Merger, approvals must be obtained from various parties. Although the Company does not currently expect that any such conditions or changes will be imposed, there can be no assurance that they will not be, and such conditions or changes could have the effect of delaying completion of the merger, imposing additional costs on, or limiting the revenues of Columbia Banking System, Inc. following the Merger or causing the Merger Agreement to terminate.
Termination of the Merger Agreement could negatively affect us.
If, for any reason, the Merger Agreement is terminated, the Company may be adversely affected as a result of not pursuing other beneficial opportunities prior to such termination and the loss of websites, destruction of facilities, operational, financial and management information systems which could prevent them from servicing our portfolio. Natural disasters outside California could also impactcritical personnel. The Company will be required to pay the ~~underlying collateral and borrower’s ability to repay the loans for our purchased loan portfolios~~Columbia Banking System, Inc. a termination fee totaling $12 million.

~~Ite~~mItem 2. Unregistered Sales of Equity Securities and Use of Proceeds

a)
Not Applicable

a)b)
~~Not Applicable~~
b)Not Applicable
~~Not Applicable~~

c)
Not Applicable

I~~tem~~Item 3. Defaults Upon Senior Securities

Not Applicable

I~~tem~~Item 4. Mine Safety Disclosures

Not Applicable

I~~tem~~Item 5. Other Information

Not Applicable

I~~tem~~Item 6. Exhibits

2.1
Agreement and Plan of Merger, dated as of June 23, 2021, by and between Columbia Banking System, Inc. and Bank of Commerce Holdings
10.1
Form of Voting Support Agreement
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.0
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS
Inline XBRL Instance Document
101.SCH
Inline XBRL Taxonomy Extension Schema Document
101.CAL
Inline XBRL Taxonomy Calculation Linkbase Document
101.DEF
Inline XBRL Taxonomy Definition Linkbase Document
101.LAB
Inline XBRL Taxonomy Label Linkbase Document
101.PRE
Inline XBRL Taxonomy Extension Presentation Linkbase Document
104
XBRL Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

6774
Table of Contents

~~SIGNATURE~~SSIGNATURES

~~Following~~Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

BANK OF COMMERCE HOLDINGS

(Registrant)

Date: ~~November 3, 2017~~August 6, 2021
/s/ James A. Sundquist

James A. Sundquist

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

68
75

California	94-2823865
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)

555 Capitol Mall, Suite 1255, Sacramento, California	9~~5814~~95814
(Address of principal executive offices)	(Zip Code)
~~(Address of principal executive offices)~~	~~(Zip Code)~~

	September 30,			December 31,
(Amounts in thousands, except share information)	2017			2016
Assets:
Cash and due from banks	$	19,929		$	16,419
Interest-bearing deposits in other banks		65,702			51,988
Total cash and cash equivalents		85,631			68,407

Securities available-for-sale, at fair value		232,494			175,174
Securities held-to-maturity, at amortized cost		30,724			31,187

Loans, net of deferred fees and costs		826,644			805,535
Allowance for loan and lease losses		(11,692	)		(11,544	)
Net loans		814,952			793,991

Premises and equipment, net		15,039			16,226
Other real estate owned		699			759
Life insurance		21,764			23,098
Deferred tax asset, net		8,751			9,542
Goodwill and core deposit intangible, net		2,086			2,252
Other assets		19,741			20,356
Total assets	$	1,231,881		$	1,140,992

Liabilities and shareholders' equity:
Liabilities:
Demand - noninterest-bearing	$	316,814		$	270,398
Demand - interest-bearing		433,466			405,569
Savings		111,962			113,309
Certificates of deposit		200,543			215,390
Total deposits		1,062,785			1,004,666

Term debt:
Principal		17,700			18,917
Less unamortized debt issuance costs		(150	)		(184	)
Net term debt		17,550			18,733

Junior subordinated debentures		10,310			10,310
Other liabilities		12,831			13,177
Total liabilities		1,103,476			1,046,886

Commitments and contingencies (Note 8)
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized: issued and outstanding - 16,264,561 as of September 30, 2017 and 13,440,422 as of December 31, 2016		51,755			24,547
Retained earnings		76,179			70,218
Accumulated other comprehensive income (loss), net of tax		471			(659	)
Total shareholders' equity		128,405			94,106
Total liabilities and shareholders' equity	$	1,231,881		$	1,140,992

	For the Three Months Ended				For the Nine Months Ended
	September 30,				September 30,
(Amounts in thousands, except per share information)	2017		2016		2017		2016
Interest income:
Interest and fees on loans	$	9,887	$	9,007	$	29,029	$	26,254
Interest on taxable securities		1,049		689		2,710		2,281
Interest on tax-exempt securities		551		552		1,615		1,734
Interest on interest-bearing deposits in other banks		278		82		548		222
Total interest income		11,765		10,330		33,902		30,491
Interest expense:
Interest on demand deposits		196		136		528		388
Interest on savings deposits		52		43		146		129
Interest on certificates of deposit		567		524		1,641		1,636
Interest on term debt		292		292		883		1,369
Interest on junior subordinated debentures		74		59		211		172
Total interest expense		1,181		1,054		3,409		3,694
Net interest income		10,584		9,276		30,493		26,797
Provision for loan and lease losses		—		—		500		—
Net interest income after provision for loan and lease losses		10,584		9,276		29,993		26,797
Noninterest income:
Service charges on deposit accounts		132		133		401		293
ATM and point of sale fees		273		287		827		714
Fees on payroll and benefit processing		147		133		485		432
Life insurance		134		152		915		461
Gain on sale of investment securities, net		38		70		139		192
Impairment losses on investment securities		—		—		—		(546	)
Federal Home Loan Bank of San Francisco dividends		80		102		237		291
Other income		191		82		516		508
Total noninterest income		995		959		3,520		2,345
Noninterest expense:
Salaries and related benefits		4,291		3,873		13,296		12,188
Premises and equipment		1,067		1,071		3,169		2,847
Federal Deposit Insurance Corporation insurance premium		78		176		230		513
Data processing fees		437		464		1,294		1,142
Professional service fees		276		303		1,119		1,209
Telecommunications		219		199		653		545
Branch acquisition costs		—		—		—		580
Loss on cancellation of interest rate swap		—		—		—		2,325
Other expenses		908		1,039		3,290		3,445
Total noninterest expense		7,276		7,125		23,051		24,794
Income before provision for income taxes		4,303		3,110		10,462		4,348
Provision for income taxes		1,427		744		3,125		1,386
Net income	$	2,876	$	2,366	$	7,337	$	2,962

Earnings per share - basic	$	0.18	$	0.18	$	0.49	$	0.22
Weighted average shares - basic		16,191		13,369		14,884		13,366
Earnings per share - diluted	$	0.18	$	0.18	$	0.49	$	0.22
Weighted average shares - diluted		16,288		13,439		14,984		13,412

	For the Three Months Ended				For the Six Months Ended
	June 30,				June 30,
(Amounts in thousands, except per share information)	2021		2020		2021		2020
Interest income:
Interest and fees on loans	$	12,429	$	13,224	$	25,644	$	25,562
Interest on taxable securities		1,697		1,329		3,182		2,911
Interest on tax-exempt securities		575		423		1,086		694
Interest on interest-bearing deposits in other banks		27		21		56		175
Total interest income		14,728		14,997		29,968		29,342
Interest expense:
Interest on demand - interest-bearing		55		85		113		185
Interest on money market		180		317		375		720
Interest on savings		41		95		89		213
Interest on certificates of deposit		303		467		641		931
Interest on FHLB		0		5		0		5
Interest on other borrowings		138		184		275		368
Interest on junior subordinated debentures		47		61		93		151
Total interest expense		764		1,214		1,586		2,573
Net interest income		13,964		13,783		28,382		26,769
Provision for loan and lease losses		0		1,300		0		4,150
Net interest income after provision for loan and lease losses		13,964		12,483		28,382		22,619
Noninterest income:
Service charges on deposit accounts		160		152		308		321
ATM and point of sale fees		401		263		719		531
Payroll and benefit processing fees		160		143		329		313
Life insurance		123		148		244		271
Gain on sale of investment securities, net		64		140		71		224
FHLB dividends		126		36		219		166
Legal settlement		0		0		221		0
Other income		97		73		183		21
Total noninterest income		1,131		955		2,294		1,847
Noninterest expense:
Salaries and related benefits		5,205		4,965		10,844		10,852
Premises and equipment		973		826		1,932		1,680
FDIC insurance premium		124		90		234		126
Data processing		546		585		1,094		1,116
Professional services		278		469		579		803
Telecommunications		145		156		315		327
Merger costs		817		0		817		0
Other expenses		1,191		1,179		2,361		3,149
Total noninterest expense		9,279		8,270		18,176		18,053
Income before provision for income taxes		5,816		5,168		12,500		6,413
Provision for income taxes		1,677		1,321		3,441		1,650
Net income	$	4,139	$	3,847	$	9,059	$	4,763

Earnings per share - basic	$	0.25	$	0.23	$	0.54	$	0.28
Weighted average shares - basic		16,736		16,660		16,721		17,178
Earnings per share - diluted	$	0.25	$	0.23	$	0.54	$	0.28
Weighted average shares - diluted		16,823		16,689		16,803		17,217

	For the Three Months Ended						For the Six Months Ended
	June 30,						June 30,
(Amounts in thousands)	2021			2020			2021			2020
Net income	$	4,139		$	3,847		$	9,059		$	4,763

Available-for-sale securities:
Changes in unrealized gains (losses) arising during the period		2,415			1,845			(4,258	)		6,678
Income taxes		(714	)		(544	)		1,259			(1,973	)
Change in unrealized gains (losses), net of tax		1,701			1,301			(2,999	)		4,705

Reclassification adjustment for realized gains included in net income		(64	)		(140	)		(71	)		(224	)
Income taxes		19			40			21			66
Realized gains, net of tax		(45	)		(100	)		(50	)		(158	)

Net change in unrealized gains (losses) on available-for-sale securities		1,656			1,201			(3,049	)		4,547
Other comprehensive income (loss)		1,656			1,201			(3,049	)		4,547
Comprehensive income	$	5,795		$	5,048		$	6,010		$	9,310

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	BOCH	NASDAQ

Part I. FINANCIAL INFORMATION
	Item 1. Financial Statements	3
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	3839
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	6673
	Item 4. Controls and Procedures	6673

Part II. OTHER INFORMATION
	Item 1. Legal Proceedings	6774
	Item ~~1a.~~1A. Risk Factors	6774
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	6774
	Item 3. Defaults Upon Senior Securities	6774
	Item 4. Mine Safety Disclosures	6774
	Item 5. Other Information	6774
	Item 6. Exhibits	6774

SIGNATURES		6875

								Accumulated
								Other
			Common					Comprehensive
	Common		Stock		Retained			(Loss)
(Amounts in thousands except per share information)	Shares		Amount		Earnings			Net of Tax			Total
Balance at January 1, 2016		13,342	$	24,214	$	66,562		$	(254	)	$	90,522
Net income		—		—		5,259			—			5,259
Other comprehensive loss, net of tax		—		—		—			(405	)		(405	)
Comprehensive income		—		—		—			—			4,854
Dividend on common stock ($0.12 per share)		—		—		(1,603	)		—			(1,603	)
Common stock issued under employee plans		29		84		—			—			84
Stock options exercised		2		10		—			—			10
Compensation expense associated with stock options		—		24		—			—			24
Compensation expense associated with restricted stock		—		215		—			—			215
Balance at December 31, 2016⁽¹⁾		13,373	$	24,547	$	70,218		$	(659	)	$	94,106

										Accumulated Other
				*Common*						*Comprehensive*
	*Common*			*Stock*			*Retained*			*Income*
(Amounts in thousands except per share information)	*Shares*			*Amount*			*Earnings*			*Net of Tax*		*Total*
Balance at December 31, 2019		18,137		$	71,311		$	100,566		$	2,601	$	174,478
Net income		—			0			916			0		916
Other comprehensive income, net of tax		—			0			0			3,346		3,346
Dividend declared on common stock ($0.05 per share)		—			0			(838	)		0		(838	)
Repurchase of common stock		(1,352	)		(12,230	)		0			0		(12,230	)
Restricted stock granted, net of forfeitures		22			0			0			0		0
Shares surrendered for tax-withholding purposes		(11	)		(120	)		0			0		(120	)
Compensation expense associated with restricted stock		—			106			0			0		106
Balance at March 31, 2020		16,796		$	59,067		$	100,644		$	5,947	$	165,658
Net income		—			0			3,847			0		3,847
Other comprehensive income, net of tax		—			0			0			1,201		1,201
Dividend declared on common stock ($0.05 per share)		—			0			(833	)		0		(833	)
Repurchase of common stock		(57	)		(423	)		0			0		(423	)
Compensation expense associated with restricted stock		—			105			0			0		105
Balance at June 30, 2020		16,739		$	58,749		$	103,658		$	7,148	$	169,555
Net income		—			0			4,329			0		4,329
Other comprehensive income, net of tax		—			0			0			176		176
Dividend declared on common stock ($0.05 per share)		—			0			(833	)		0		(833	)
Restricted stock granted, net of forfeitures		53			0			0			0		0
Compensation expense associated with restricted stock		—			123			0			0		123
Balance at September 30, 2020		16,792		$	58,872		$	107,154		$	7,324	$	173,350
Net income		—			0			5,072			0		5,072
Other comprehensive income, net of tax		—			0			0			164		164
Dividend declared on common stock ($0.06 per share)		—			0			(1,000	)		0		(1,000	)
Restricted stock granted, net of forfeitures		10			0			0			0		0
Shares surrendered for tax-withholding purposes		(1	)		(9	)		0			0		(9	)
Compensation expense associated with restricted stock		—			125			0			0		125
Balance at December 31, 2020		16,801		$	58,988		$	111,226		$	7,488	$	177,702

	As of September 30, 2017
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	36,437	$	122	$	(85	)	$	36,474
Obligations of state and political subdivisions		52,609		1,343		(102	)		53,850
Residential mortgage-backed securities and collateralized mortgage obligations		105,755		165		(696	)		105,224
Corporate securities		6,945		97		(74	)		6,968
Commercial mortgage-backed securities		26,272		29		(153	)		26,148
Other asset-backed securities		3,846		6		(22	)		3,830
Total	$	231,864	$	1,762	$	(1,132	)	$	232,494

Held-to-maturity securities:
Obligations of state and political subdivisions	$	30,724	$	1,238	$	(80	)	$	31,882

	As of June 30, 2021
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*			*Estimated*
(Amounts in thousands)	*Costs*		*Gains*		*Losses*			*Fair Values*
Available-for-sale securities:
U.S. government & agencies	$	28,903	$	822	$	(34	)	$	29,691
Obligations of state and political subdivisions		132,675		4,366		(574	)		136,467
Residential mortgage-backed securities and collateralized mortgage obligations		317,157		2,697		(2,012	)		317,842
Commercial mortgage-backed securities		52,484		532		(298	)		52,718
Other asset-backed securities		42,143		804		(1	)		42,946
Total	$	573,362	$	9,221	$	(2,919	)	$	579,664

	As of December 31, 2016
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	10,427	$	10	$	(83	)	$	10,354
Obligations of state and political subdivisions		58,847		1,001		(420	)		59,428
Residential mortgage-backed securities and collateralized mortgage obligations		71,068		33		(1,497	)		69,604
Corporate securities		16,153		103		(140	)		16,116
Commercial mortgage-backed securities		15,786		9		(281	)		15,514
Other asset-backed securities		4,237		8		(87	)		4,158
Total	$	176,518	$	1,164	$	(2,508	)	$	175,174

Held-to-maturity securities:
Obligations of state and political subdivisions	$	31,187	$	710	$	(523	)	$	31,374

	As of December 31, 2020
			Gross		Gross
	*Amortized*		*Unrealized*		*Unrealized*			*Estimated*
(Amounts in thousands)	*Costs*		*Gains*		*Losses*			*Fair Values*
Available-for-sale securities:
U.S. government & agencies	$	32,164	$	838	$	(8	)	$	32,994
Obligations of state and political subdivisions		103,424		4,971		(29	)		108,366
Residential mortgage-backed securities and collateralized mortgage obligations		236,829		3,895		(246	)		240,478
Commercial mortgage-backed securities		27,455		637		(18	)		28,074
Other asset-backed securities		36,377		592		(1	)		36,968
Total	$	436,249	$	10,933	$	(302	)	$	446,880

	Available-For-Sale				Held-To-Maturity				Available-For-Sale
(Amounts in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value		Amortized Costs		Estimated Fair Values
Amounts maturing in:
One year or less	$	1,379	$	1,382	$	95	$	98	$	12,527	$	12,780
After one year through five years		75,268		75,183		9,834		10,354		109,467		111,792
After five years through ten years		72,459		72,951		7,656		7,838		222,288		222,274
After ten years		82,758		82,978		13,139		13,592		229,080		232,818
Total	$	231,864	$	232,494	$	30,724	$	31,882	$	573,362	$	579,664

	Three Months Ended September 30,						Nine Months Ended September 30,
(Amounts in thousands)	2017			2016			2017			2016
Proceeds from sales of securities	$	20,640		$	12,310		$	47,892		$	46,699

Gross realized gains on sales of securities:
U.S. government & agencies	$	—		$	9		$	—		$	17
Obligations of state and political subdivisions		31			25			112			136
Residential mortgage-backed securities and collateralized mortgage obligations		16			12			53			14
Corporate securities		20			29			30			105
Commercial mortgage-backed securities		3			—			3			4
Other asset-backed securities		—			1			—			14
Total gross realized gains on sales of securities		70			76			198			290
Gross realized losses on sales of securities:
U.S. government & agencies		—			—			—			(4	)
Obligations of state and political subdivisions		(10	)		(3	)		(10	)		(3	)
Residential mortgage-backed securities and collateralized mortgage obligations		(22	)		—			(46	)		(64	)
Corporate securities		—			(2	)		(3	)		(27	)
Commercial mortgage-backed securities		—			(1	)		—			—
Other asset-backed securities		—			—			—			—
Total gross realized losses on sales of securities		(32	)		(6	)		(59	)		(98	)
Gain on investment securities, net	$	38		$	70		$	139		$	192

																As of June 30, 2021
	As of September 30, 2017															Less Than 12 Months					12 Months or More					Total
	Less Than 12 Months					12 Months or More					Total					Estimated					Estimated					Estimated
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses			Values		Losses			Values		Losses			Values		Losses
Available-for-sale securities:
U.S. government & agencies	$	15,565	$	(85	)	$	—	$	—		$	15,565	$	(85	)	$	2,920	$	(32	)	$	286	$	(2	)	$	3,206	$	(34	)
Obligations of states and political subdivisions		7,535		(39	)		4,644		(63	)		12,179		(102	)
Obligations of state and political subdivisions																	36,685		(574	)		0		0			36,685		(574	)
Residential mortgage-backed securities and collateralized mortgage obligations		57,273		(293	)		23,194		(403	)		80,467		(696	)		185,745		(2,007	)		283		(5	)		186,028		(2,012	)
Corporate securities		2,029		(14	)		940		(60	)		2,969		(74	)
Commercial mortgage-backed securities		10,481		(48	)		9,672		(105	)		20,153		(153	)		25,891		(298	)		0		0			25,891		(298	)
Other asset-backed securities		2,163		(20	)		1,268		(2	)		3,431		(22	)		1,787		(1	)		0		0			1,787		(1	)
Total temporarily impaired securities	$	95,046	$	(499	)	$	39,718	$	(633	)	$	134,764	$	(1,132	)	$	253,028	$	(2,912	)	$	569	$	(7	)	$	253,597	$	(2,919	)

Held-to-maturity securities:
Obligations of states and political subdivisions	$	1,019	$	(3	)	$	1,965	$	(77	)	$	2,984	$	(80	)



		Characteristics of securities in unrealized loss positions atat
Available-for-sale ~~securities~~:securities:		~~September~~June 30, ~~2017~~ 2021 and December 31, ~~201~~20206
U.S. government & ~~agencie~~sagencies		Direct obligations of the U.S. ~~Government~~government or obligations guaranteed by U.S. ~~Government~~government agencies. such as the SBA.
Obligations of ~~States~~state and political ~~subdivision~~ssubdivisions		General obligation issuances or revenue securities ~~secured by revenues from specific sources~~ issued by municipalities and political subdivisions located within the U.S. secured by revenues from specific sources.
Residential mortgage-backed securities and collateralized mortgage ~~obligation~~sobligations		Obligations ofissued by U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on residential properties. Issuances by non-governmental entities usually include ~~with~~ good credit enhancements. Of the residential mortgage-backed securities and collateralized mortgage obligations that we owned at ~~September~~June 30, ~~2017~~ 2021 and December 31, ~~2016, 54%~~2020, 88% and ~~49%~~86%, respectively, were issued or guaranteed by U.S. government sponsored ~~entities, respectively.~~
~~Corporate securitie~~s		~~Debt obligations generally issued or guaranteed by large U.S. corporate institutions.~~entities.
Commercial mortgage-backed ~~securitie~~ssecurities		Obligations ofissued by U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on commercial properties. Issuances by non-governmental entities usually include good credit enhancements. Of the commercial mortgage-backed securities that we owned at June 30, 2021 and December 31, 2020, 100% were issued or guaranteed by U.S. government sponsored entities.
Other asset-backed ~~securitie~~ssecurities		Obligations issued by non-governmental issuers secured by high quality loans with good credit ~~enhancements issued by non-governmental issuers.~~enhancements.

					Greater								Recorded
(Amounts in thousands)	30-59		60-89		Than 90								Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
September 30, 2017	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	—	$	—	$	—	$	—	$	147,212	$	147,212	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		14,700		14,700		—
Real estate - commercial non-owner occupied		—		—		—		—		333,766		333,766		—
Real estate - commercial owner occupied		142		—		—		142		183,282		183,424		—
Residential real estate:
Real estate - residential - ITIN		458		77		672		1,207		40,856		42,063		—
Real estate - residential - 1-4 family mortgage		125		196		—		321		20,798		21,119		—
Real estate - residential - equity lines		113		46		—		159		30,999		31,158		—
Consumer and other		202		80		—		282		51,150		51,432		—
Total	$	1,040	$	399	$	672	$	2,111	$	822,763	$	824,874	$	—

(Amounts in thousands)	September 30,		December 31,
Nonaccrual Loans	2017		2016
					June 30,		December 31,
(Amounts in thousands)					2021		2020
Nonaccrual Loans:
Commercial	$	2,309	$	2,749	$	1,506	$	1,535
Commercial real estate:
Real estate - commercial non-owner occupied		—		1,196
Real estate - commercial owner occupied		617		784
Residential real estate:
Real estate - residential - ITIN		3,201		3,576
Real estate - residential - 1-4 family mortgage		626		1,914
Real estate - residential - equity lines		815		917
Consumer and other		37		250
Total	$	7,605	$	11,386
Commercial real estate:
Non-owner occupied						606		640
Owner occupied						89		3,094
Residential real estate:
ITIN						1,463		1,585
1-4 family mortgage						133		141
Consumer and other						16		18
Total					$	3,813	$	7,013

							As of June 30, 2021
	As of September 30, 2017								Unpaid
			Unpaid				*Recorded*		*Principal*		*Related*
(Amounts in thousands)	Recorded		Principal		Related		*Investment*		*Balance*		*Allowance*
Impaired Loans	Investment		Balance		Allowance
Impaired Loans:
With no related allowance recorded:
Commercial	$	1,322	$	2,170	$	—	$	1,541	$	1,899	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		—		—		—
Real estate - commercial owner occupied		617		671		—
Non-owner occupied								606		652		—
Owner occupied								89		93		—
Residential real estate:
Real estate - residential - ITIN		6,347		8,111		—
Real estate - residential - 1-4 family mortgage		626		1,130		—
Real estate - residential - equity lines		815		1,316		—
ITIN								4,836		6,206		—
1-4 family mortgage								134		197		—
Total with no related allowance recorded	$	9,727	$	13,398	$	—	$	7,206	$	9,047	$	—

With an allowance recorded:
Commercial	$	1,658	$	1,701	$	453	$	395	$	395	$	99
Commercial real estate:
Real estate - commercial non-owner occupied		805		805		79
Residential real estate:
Real estate - residential - ITIN		1,509		1,549		154
Real estate - residential - equity lines		441		441		220
Equity lines								112		112		56
Consumer and other		37		37		12		16		16		4
Total with an allowance recorded	$	4,450	$	4,533	$	918	$	523	$	523	$	159

By loan class:
By loan portfolio:
Commercial	$	2,980	$	3,871	$	453	$	1,936	$	2,294	$	99
Commercial real estate		1,422		1,476		79		695		745		0
Residential real estate		9,738		12,547		374		5,082		6,515		56
Consumer and other		37		37		12		16		16		4
Total impaired loans	$	14,177	$	17,931	$	918	$	7,729	$	9,570	$	159

									For the Three Months Ended
	Three Months Ended				Three Months Ended				June 30, 2021				June 30, 2020
	September 30, 2017				September 30, 2016				Average		Interest		Average		Interest
	Average		Interest		Average		Interest		Recorded		Income		Recorded		Income
(Amounts in thousands)	Recorded		Income		Recorded		Income		Investment		Recognized		Investment		Recognized
Average Recorded Investment and Interest Income	Investment		Recognized		Investment		Recognized
Average Recorded Investment and Interest Income:
Commercial	$	3,140	$	9	$	2,601	$	10	$	1,972	$	7	$	613	$	9
Commercial real estate:
Real estate - commercial non-owner occupied		1,381		12		2,010		12
Real estate - commercial owner occupied		624		—		1,147		6
Non-owner occupied										613		0		926		0
Owner occupied										91		0		3,066		0
Residential real estate:
Real estate - residential - ITIN		7,907		40		8,831		42
Real estate - residential - 1-4 family mortgage		634		—		1,808		—
Real estate - residential - equity lines		1,291		5		1,661		7
ITIN										4,869		32		5,440		34
1-4 family mortgage										135		0		181		0
Equity lines										115		2		222		4
Consumer and other		38		—		257		—		16		0		38		0
Total	$	15,015	$	66	$	18,315	$	77	$	7,811	$	41	$	10,486	$	47

	Nine Months Ended				Nine Months Ended
	September 30, 2017				September 30, 2016
	Average		Interest		Average		Interest
(Amounts in thousands)	Recorded		Income		Recorded		Income
Average Recorded Investment and Interest Income	Investment		Recognized		Investment		Recognized
Commercial	$	3,249	$	29	$	2,551	$	14
Commercial real estate:
Real estate - commercial non-owner occupied		1,796		35		2,015		35
Real estate - commercial owner occupied		692		2		1,333		19
Residential real estate:
Real estate - residential - ITIN		8,080		120		9,037		124
Real estate - residential - 1-4 family mortgage		1,155		—		1,774		—
Real estate - residential - equity lines		1,330		14		1,558		20
Consumer and other		83		—		133		—
Total	$	16,385	$	200	$	18,401	$	212

	Modification Types For the Three Months Ended June 30, 2020						Modification Types For the Six Months Ended June 30, 2020
(Amounts in thousands)	Maturity		Payment Deferral		Total		Maturity		Payment Deferral		Total
Troubled Debt Restructurings:
Commercial real estate:
Non-owner occupied	$	0	$	654	$	654	$	0	$	654	$	654
Total	$	0	$	654	$	654	$	0	$	654	$	654

	For the Three Months Ended September 30, 2017								For the Three Months Ended September 30, 2016
(Amounts in thousands)			Rate &
Troubled Debt Restructuring Modification Types	Rate & Maturity		Payment Deferral		Payment Deferral		Total		Maturity		Rate & Maturity		Principal Reduction		Payment Deferral		Total
Commercial	$	—	$	—	$	—	$	—	$	139	$	—	$	—	$	—	$	139
Residential real estate:
Real estate - residential - ITIN		—		—		—		—		—		—		82		—		82
Total	$	—	$	—	$	—	$	—	$	139	$	—	$	82	$	—	$	221

	For the Nine Months Ended September 30, 2017								For the Nine Months Ended September 30, 2016
(Amounts in thousands)			Rate &
Troubled Debt Restructuring Modification Types	Rate & Maturity		Payment Deferral		Payment Deferral		Total		Maturity		Rate & Maturity		Principal Reduction		Payment Deferral		Total
Commercial	$	—	$	—	$	—	$	—	$	139	$	951	$	—	$	—	$	1,090
Residential real estate:
Real estate - residential - ITIN		—		61		—		61		—		—		82		118		200
Total	$	—	$	61	$	—	$	61	$	139	$	951	$	82	$	118	$	1,290

	For the Three Months Ended September 30, 2017						For the Three Months Ended September 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Amounts in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
Troubled Debt Restructurings	Contracts		Investment		Investment		Contracts		Investment		Investment
Commercial		—	$	—	$	—		1	$	135	$	147
Residential real estate:
Real estate - residential - ITIN		—		—		—		1		97		82
Total		—	$	—	$	—		2	$	232	$	229

	For the Nine Months Ended September 30, 2017						For the Nine Months Ended September 30, 2016
			Pre-		Post-				Pre-		Post-
			Modification		Modification				Modification		Modification
			Outstanding		Outstanding				Outstanding		Outstanding
(Amounts in thousands)	Number of		Recorded		Recorded		Number of		Recorded		Recorded
Troubled Debt Restructurings	Contracts		Investment		Investment		Contracts		Investment		Investment
Commercial		—	$	—	$	—		2	$	1,262	$	1,273
Residential real estate:
Real estate - residential - ITIN		1		81		61		2		267		252
Total		1	$	81	$	61		4	$	1,529	$	1,525

(Amounts in thousands)	September 30, 2017
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	144,903	$	2,309	$	147,212
Commercial real estate:
Real estate - construction and land development		14,700		—		14,700
Real estate - commercial non-owner occupied		333,766		—		333,766
Real estate - commercial owner occupied		182,807		617		183,424
Residential real estate:
Real estate - residential - ITIN		38,862		3,201		42,063
Real estate - residential - 1-4 family mortgage		20,493		626		21,119
Real estate - residential - equity lines		30,343		815		31,158
Consumer and other		51,395		37		51,432
Total	$	817,269	$	7,605	$	824,874

(Amounts in thousands)	December 31, 2016
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	151,095	$	2,749	$	153,844
Commercial real estate:
Real estate - construction and land development		36,792		—		36,792
Real estate - commercial non-owner occupied		291,419		1,196		292,615
Real estate - commercial owner occupied		166,551		784		167,335
Residential real estate:
Real estate - residential - ITIN		41,990		3,576		45,566
Real estate - residential - 1-4 family mortgage		18,511		1,914		20,425
Real estate - residential - equity lines		35,036		917		35,953
Consumer and other		51,431		250		51,681
Total	$	792,825	$	11,386	$	804,211

	As of September 30, 2017												As of June 30, 2021
					Special												Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total		Pass		Watch		Mention		Substandard		Doubtful		Total
Loan Portfolio:
Commercial	$	112,623	$	27,420	$	2,633	$	4,536	$	—	$	147,212	$	82,919	$	8,667	$	0	$	2,064	$	0	$	93,650
PPP														59,058		0		0		0		0		59,058
Commercial real estate:
Real estate - construction and land development		14,700		—		—		—		—		14,700
Real estate - commercial non-owner occupied		322,650		9,332		395		1,389		—		333,766
Real estate - commercial owner occupied		171,315		10,027		142		1,940		—		183,424
Construction and land development														30,183		114		0		197		0		30,494
Non-owner occupied														538,752		48,037		33,285		6,745		0		626,819
Owner occupied														150,116		11,372		0		6,808		0		168,296
Residential real estate:
Real estate - residential - ITIN		35,480		—		—		6,583		—		42,063
Real estate - residential - 1-4 family mortgage		19,696		797		—		626		—		21,119
Real estate - residential - equity lines		27,922		2,015		65		1,156		—		31,158
ITIN														23,605		0		0		3,307		0		26,912
1-4 family mortgage														49,017		0		0		1,242		0		50,259
Equity lines														17,827		0		0		0		0		17,827
Consumer and other		51,369		—		3		60		—		51,432		17,414		0		0		16		0		17,430
Total	$	755,755	$	49,591	$	3,238	$	16,290	$	—	$	824,874	$	968,891	$	68,190	$	33,285	$	20,379	$	0	$	1,090,745

																		For the Three Months Ended June 30, 2021
																					Paycheck
	For the Three Months Ended September 30, 2017																				Protection		Commercial		Residential
(Amounts in thousands)				Commercial		Residential												Commercial			Program ⁽¹⁾		Real Estate		Real Estate			Consumer			Unallocated		Total
ALLL by Loan Class	Commercial			Real Estate		Real Estate			Consumer			Unallocated			Total
ALLL by Loan Portfolio:
Beginning balance	$	2,850		$	6,072	$	1,197		$	1,137		$	432		$	11,688		$	2,366		$	0	$	12,253	$	1,221		$	557		$	630	$	17,027
Charge-offs		—			—		(86	)		(159	)		—			(245	)		0			0		0		(18	)		(54	)		0		(72	)
Recoveries		148			—		13			88			—			249			(5	)		0		0		158			86			0		239
Provision		(354	)		232		60			134			(72	)		—			(522	)		0		659		(201	)		(120	)		184		0
Ending balance	$	2,644		$	6,304	$	1,184		$	1,200		$	360		$	11,692		$	1,839		$	0	$	12,912	$	1,160		$	469		$	814	$	17,194

																		For the Six Months Ended June 30, 2021
																					Paycheck
	For the Nine Months Ended September 30, 2017																				Protection		Commercial		Residential
(Amounts in thousands)				Commercial		Residential												Commercial			Program⁽¹⁾		Real Estate		Real Estate			Consumer			Unallocated		Total
ALLL by Loan Class	Commercial			Real Estate		Real Estate			Consumer			Unallocated			Total
ALLL by Loan Portfolio:
Beginning balance	$	2,849		$	5,578	$	1,716		$	955		$	446		$	11,544		$	2,402		$	0	$	11,895	$	1,324		$	683		$	606	$	16,910
Charge-offs		(50	)		—		(370	)		(631	)		—			(1,051	)		0			0		0		(40	)		(122	)		0		(162	)
Recoveries		383			27		107			182			—			699			5			0		110		183			148			0		446
Provision		(538	)		699		(269	)		694			(86	)		500			(568	)		0		907		(307	)		(240	)		208		0
Ending balance	$	2,644		$	6,304	$	1,184		$	1,200		$	360		$	11,692		$	1,839		$	0	$	12,912	$	1,160		$	469		$	814	$	17,194

	For the Six Months Ended June 30, 2020
			Paycheck
			Protection		Commercial			Residential
(Amounts in thousands)	Commercial		Program ⁽¹⁾		Real Estate			Real Estate			Consumer			Unallocated		Total
ALLL by Loan Portfolio:
Beginning balance	$	1,822	$	0	$	8,096		$	1,032		$	933		$	348	$	12,231
Charge-offs		0		0		(145	)		(35	)		(345	)		0		(525	)
Recoveries		22		0		0			62			149			0		233
Provision		556		0		2,985			247			133			229		4,150
Ending balance	$	2,400	$	0	$	10,936		$	1,306		$	870		$	577	$	16,089

	At September 30, 2017						For the Nine Months Ended September 30, 2017
	Original		Current		Unfunded		Tax Credits		Amortization		Net
(Amounts in thousands)	Investment		Recorded		Liability		and		of		Income Tax
Qualified Affordable Housing Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,222	$	45	$	168	$	140	$	28
WNC Institutional Tax Credit Fund 38, L.P.		1,000		618		55		105		79		26
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,547		367		203		166		37
California Affordable Housing Fund		2,454		318		—		132		127		5
Total	$	7,954	$	3,705	$	467	$	608	$	512	$	96

	At December 31, 2016						For the Nine Months Ended September 30, 2016
	Original		Current		Unfunded		Tax Credits		Amortization		Net
(Amounts in thousands)	Investment		Recorded		Liability		and		of		Income Tax
Qualified Affordable Housing Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,361	$	45	$	178	$	136	$	42
WNC Institutional Tax Credit Fund 38, L.P.		1,000		698		73		107		78		29
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,713		367		199		171		28
California Affordable Housing Fund		2,454		445		—		154		155		(1)
Total	$	7,954	$	4,217	$	485	$	638	$	540	$	98