10-Q

Table Of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________to_______________________

Commission file number 0-25135

Bank of Commerce Holdings

California	94-2823865
(State or jurisdiction of incorporation or organization)	(I.R.S. Employer Identification Number)
1901 Churn Creek Road Redding, California	96002
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (530) 722-3952

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “accelerated filer, large accelerated filer and smaller reporting company” in Rule 12b-2 of the Exchange Act.

(Check One)

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller Reporting Company ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)

Yes ☐ No ☒

Outstanding shares of Common Stock, no par value, as of July 21, 2014: 13,293,777

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Index to Form 10-Q

PART I. FINANCIAL INFORMATION	3
Item 1. Financial Statements	3
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3. Quantitative and Qualitative Disclosures About Market Risk	66
Item 4. Controls and Procedures	67
PART II. OTHER INFORMATION	68
Item 1. Legal Proceedings	68
Item 1a. Risk Factors	68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	68
Item 3. Defaults Upon Senior Securities	68
Item 4. Mine Safety Disclosures	68
Item 5. Other Information	68
Item 6. Exhibits	68
SIGNATURES	69

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets

June 30, 2014 and December 31, 2013

(Dollars in Thousands)	June 30, 2014 (Unaudited)			December 31, 2013 (Audited)
ASSETS
Cash and due from banks	$	50,677		$	38,369
Interest bearing due from banks		16,068			20,146
Total cash and cash equivalents		66,745			58,515
Securities available-for-sale, at fair value		188,686			216,640
Securities held-to-maturity, at amortized cost		37,031			36,696
Portfolio loans		619,622			598,298
Allowance for loan losses		(9,882	)		(14,172	)
Net loans		609,740			584,126
Bank premises and equipment, net		12,415			10,893
Other real estate owned		826			913
Other assets		48,273			48,559
Total Assets	$	963,716		$	956,342
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand - noninterest bearing	$	135,416		$	133,984
Demand - interest bearing		269,055			273,390
Savings accounts		90,416			90,442
Certificates of deposit		260,129			248,477
Total deposits		755,016			746,293
Federal Home Loan Bank borrowings		75,000			75,000
Junior subordinated debentures		15,465			15,465
Other liabilities		17,545			17,797
Total Liabilities		863,026			854,555
COMMITMENTS AND CONTINGENCIES (NOTE 12)
Stockholders' Equity:
Preferred stock, no par value, 2,000,000 shares authorized: Series B (liquidation preference $1,000 per share) issued and outstanding: 20,000 in 2014 and 20,000 in 2013		19,931			19,931
Common stock, no par value, 50,000,000 shares authorized; issued; 13,293,777 outstanding as of June 30, 2014 and 13,977,005 outstanding on December 31, 2013		23,858			28,304
Retained earnings		57,808			55,944
Accumulated other comprehensive (loss), net of tax		(907	)		(2,392	)
Total Stockholders’ Equity		100,690			101,787
Total Liabilities and Stockholders' Equity	$	963,716		$	956,342

See accompanying notes to consolidated financial statements.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

Three and six months ended June 30, 2014 and June 30, 2013

(Dollars in thousands)	For the three months ended June 30,					For the six months ended June 30,
	2014			2013		2014			2013
Interest income:
Interest and fees on loans	$	7,188		$	7,352	$	14,282		$	14,999
Interest on securities		1,111			1,022		2,225			2,088
Interest on tax-exempt securities		635			656		1,287			1,279
Interest on interest bearing deposits		128			131		268			272
Total interest income		9,062			9,161		18,062			18,638
Interest expense:
Interest on demand deposits		118			112		239			251
Interest on savings deposits		57			62		114			133
Interest on certificates of deposit		673			654		1,335			1,351
Interest on securities sold under repurchase agreements		0			2		0			6
Interest on other borrowings		24			45		11			105
Total interest expense		872			875		1,699			1,846
Net interest income		8,190			8,286		16,363			16,792
Provision for loan losses		1,450			1,400		1,450			2,450
Net interest income after provision for loan losses		6,740			6,886		14,913			14,342
Noninterest income:
Service charges on deposit accounts		41			54		85			100
Payroll and benefit processing fees		109			114		244			242
Earnings on cash surrender value – Bank owned life insurance		162			112		288			268
(Loss) Gain on investment securities, net		(39	)		406		(284	)		595
Merchant credit card service income, net		29			32		55			65
Other income		1,834			307		2,112			579
Total noninterest income		2,136			1,025		2,500			1,849
Noninterest expense:
Salaries and related benefits		3,417			3,074		7,039			5,998
Occupancy and equipment expense		678			529		1,320			1,103
Write down of other real estate owned		0			-		290			-
Federal Deposit Insurance Corporation insurance premium		189			245		380			333
Data processing fees		218			136		412			270
Professional service fees		338			294		602			563
Deferred compensation expense		115			-		230			-
Other expenses		1,156			870		3,622			2,343
Total noninterest expense		6,111			5,148		13,895			10,610
Income before provision for income taxes		2,765			2,763		3,518			5,581
Provision for income taxes		559			757		747			1,535
Net income		2,206			2,006	$	2,771		$	4,046
Less: Preferred dividends on preferred stock		50			50		100			100
Income available to common shareholders		2,156			1,956	$	2,671		$	3,946
Basic earnings per share	$	0.16		$	0.13	$	0.20		$	0.26
Average basic shares		13,378			15,120		13,658			15,401
Diluted earnings per share	$	0.16		$	0.13	$	0.19		$	0.26
Average diluted shares		13,426			15,139		13,705			15,419

See accompanying notes to consolidated financial statements.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

Three and six months ended June 30, 2014 and June 30, 2013

	Three months ended June 30,						Six Months Ended June 30,
(Dollars in thousands)	2014			2013			2014			2013
Net income	$	2,206		$	2,006		$	2,771		$	4,046
Available-for-sale securities:
Unrealized gains (losses) arising during the period		1,895			(3,628	)		4,725			(3,028	)
Reclassification adjustments for net gains (loss) realized in earnings (net of tax expense (benefit) of $16 and $(167) for the three months ended June 30, 2014 and 2013, respectively, and net of tax expense (benefit) of $117 and $(245) for the six months ended June 30, 2014 and 2013 respectively)		23			(239	)		167			(350	)
Income tax (expense) benefit related to unrealized (gains) losses		(780	)		1,493			(1,945	)		1,246
Net change in unrealized gains (losses)		1,138			(2,374	)		2,947			(2,132	)
Held-to-maturity securities:
Accretion of held-to-maturity other comprehensive income to tax-exempt yield		(23	)		(23	)		(46	)		(46	)
Net change in other comprehensive income relating to held-to-maturity securities		(23	)		(23	)		(46	)		(46	)
Derivatives:
Unrealized (losses) gains arising during the period		(474	)		1,254			(529	)		1,342
Reclassification adjustments for net gains realized in earnings (net of tax expense of $711 and $62 for the three months ended June 30, 2014 and 2013 and net of tax expense of $775 and $124 for the six months ended June 30, 2014 and 2013 respectively)		(1,017	)		(88	)		(1,105	)		(177	)
Income tax benefit (expense) related to unrealized (losses) gains		195			(516	)		218			(552	)
Net unrealized change in derivatives		(1,296	)		650			(1,416	)		613
Other comprehensive (loss) income, net of tax		(181	)		(1,747	)		1,485			(1,565	)
Comprehensive income – Bank of Commerce Holdings	$	2,025		$	259		$	4,256		$	2,481

See accompanying notes to consolidated financial statements.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity

Twelve months ended December 31, 2013 and six months ended June 30, 2014(Unaudited)

(Dollars in thousands)	Preferred Amount		Common Shares			Common Stock Amount			Retained Earnings			Accumulated Other Comp- income(loss) net of tax			Total
BALANCE AT JANUARY 1, 2013	$	19,931		15,972		$	38,871		$	50,261		$	1,258		$	110,321
Net Income		-		-			-			7,935			-			7,935
Other comprehensive loss, net of tax		-		-			-			-			(3,650	)		(3,650	)
Comprehensive income		-		-			-			-			-			4,285
Preferred stock dividend		-		-			-			(200	)		-			(200	)
Repurchase of common stock		-		(2,000	)		(10,614	)		-			-			(10,614	)
Common cash dividend ($0.14 per share)		-		-			-			(2,052	)		-			(2,052	)
Restricted stock Granted		-		1
Common stock issued under employee plans and related tax benefit		-		4			17			-			-			17
Compensation expense associated with stock options		-		-			30			-			-			30
Balance at December 31, 2013	$	19,931		13,977		$	28,304		$	55,944		$	(2,392	)	$	101,787

(Dollars in thousands)	Preferred Amount		Common Shares			Common Stock Amount			Retained Earnings			Accumulated Other Comp- income(loss) net of tax			Total
BALANCE AT JANUARY 1, 2014	$	19,931		13,977		$	28,304		$	55,944		$	(2,392	)	$	101,787
Net income		-		-			-			2,771			-			2,771
Other comprehensive income, net of tax		-		-			-			-			1,485			1,485
Comprehensive income		-		-			-			-			-			4,256
Preferred stock dividend		-		-			-			(100	)		-			(100	)
Repurchase of common stock		-		(700	)		(4,562	)		-			-			(4,562	)
Common cash dividend ($0.06 per share)		-		-			-			(807	)		-			( 807	)
Common stock issued under employee plans and related tax benefit		-		17			66			-			-			66
Stock issued under employee and director stock purchase plan		-		-			23			-			-			23
Compensation expense associated with stock options		-		-			27			-			-			27
Balance at June 30, 2014	$	19,931		13,294		$	23,858		$	57,808		$	(907	)	$	100,690

See accompanying notes to consolidated financial statements.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

Six months ended June 30, 2014 and June 30, 2013

(Dollars in thousands)	June 30, 2014			June 30, 2013
Cash flows from operating activities:
Net income	$	2,771		$	4,046
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		1,450			2,450
Provision for unfunded commitments		-			200
Provision for depreciation and amortization		611			510
Compensation expense associated with stock options		27			11
Net loss (gain) on sale of securities available-for-sale		284			(595	)
Amortization of investment premiums and accretion of discounts, net		810			441
Amortization of held-to-maturity fair value adjustment		(77	)		(77	)
Gain on sale of fixed assets		4			-
Write down of other real estate owned		290			-
Loss (gain) on sale of other real estate owned		15			(13	)
(Increase) in deferred income taxes		-			(1,279	)
(Increase) in cash surrender value of bank owned life policies		(5,288	)		(268	)
Decrease in other assets		1,541			745
Increase in deferred compensation		188			(86	)
Decrease (increase) in deferred loan fees		99			(23	)
(Decrease) in other liabilities		(336	)		(3,212	)
Net cash provided by operating activities		2,389			2,850
Cash flows from investing activities:
Proceeds from maturities and payments of available-for-sale securities		9,078			6,108
Proceeds from sale of available-for-sale securities		68,785			45,342
Purchases of available-for-sale securities		(46,084	)		(76,119	)
Purchases of held-to-maturity securities		(244	)		(3,301	)
Payment to low income housing investments		(693	)		-
Net Redemption of FHLB stock		509
Loan originations, net of principal repayments		(27,431	)		44,892
Purchase of premises and equipment, net		(2,137	)		(1,051	)
Proceeds from settlement of note to former mortgage subsidiary		686			-
Proceeds from the sale of other real estate owned		50			3,055
Net cash provided by investing activities		2,519			18,926
Cash flows from financing activities:
Net (decrease) increase in demand deposits and savings accounts		(2,929	)		4,063
Net increase (decrease) in certificates of deposit		11,652			(10,214	)
Net increase in securities sold under agreements to repurchase		-			(11,337	)
Advances on term debt		-			660,000
Repayment of term debt		-			(660,000	)
Repurchase of common stock		(4,562	)		(4,935	)
Cash dividends paid on common stock		(828	)		(939	)
Cash dividends paid on preferred stock		(100	)		(246	)
Proceeds from stock options exercised		23			-
Stock issued under employee and director stock purchase plan		66			-
Net cash provided (used) in financing activities		3,322			(23,608	)
Net increase (decrease) in cash and cash equivalents		8,230			(1,832	)
Cash and cash equivalents at beginning of year		58,515			45,068
Cash and cash equivalents at end of period	$	66,745		$	43,236

See accompanying notes to consolidated financial statements.

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Consolidated Statements of Cash Flows (Unaudited) (Continued)

Six months ended June 30, 2014 and June 30, 2013

(Dollars in thousands)	June 30, 2014			June 30, 2013
Supplemental disclosures of cash flow activity:
Cash paid during the period for:
Income taxes	$	0		$	5,220
Interest	$	1,671		$	1,865
Supplemental disclosures of non cash investing activities:
Transfer of loans to other real estate owned	$	268		$	1,341
Changes in unrealized gain on investment securities available-for-sale	$	5,008		$	(3,623	)
Changes in net deferred tax asset related to changes in unrealized gain on investment securities		(2,061	)		1,491
Changes in accumulated other comprehensive income due to changes in unrealized gain on investment securities	$	2,947		$	(2,132	)
Changes in unrealized gain loss (gain) on derivatives	$	(529	)	$	1,342
Changes in net deferred tax asset related to changes in unrealized loss on derivatives		218			(552	)
Changes in accumulated other comprehensive income due to changes in unrealized gain (loss) on derivatives	$	(311	)	$	789
Reclassification of earnings from gains on derivatives	$	(1,880	)	$	(300	)
Changes in net deferred tax asset related to reclassification of earnings from gains on derivatives		775			124
Changes in accumulated other comprehensive income due to reclassification of earnings from gain on derivatives	$	(1,105	)	$	(176	)
Accretion of held-to-maturity from other comprehensive income to interest income		(77	)		(77	)
Changes in deferred tax related to accretion of held-to-maturity investment securities		31			31
Changes in accumulated other comprehensive income due to reclassification adjustment to investments held-to-maturity	$	(46	)	$	(46	)
Supplemental disclosures of non cash financing activities:
Cash dividend declared on common stock and payable after period-end	$	399		$	450
Cash dividend declared on preferred stock and payable after period-end	$	50		$	50

See accompanying notes to consolidated financial statements.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bank of Commerce Holdings (the “Holding Company”), is a bank holding company (“BHC”) with its principal offices in Redding, California. The Holding Company’s principal business is to serve as a holding company for Redding 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). The Company has unconsolidated subsidiaries in Bank of Commerce Holdings Trust and Bank of Commerce Holdings Trust II. The following balance sheet as of December 31, 2013, which has been derived from audited financial statements, and the unaudited interim financial statements 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 financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although 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 and with prevailing practices within the banking and securities industries. In preparing such 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 date of the balance sheet and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses (ALLL), the valuation of 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. 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 2013 Annual Report on Form 10-K. The results of operations and cash flows for the 2014 interim periods shown in this report are not necessarily indicative of the results for any future interim period or the entire fiscal year.

Principles of Consolidation

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 June 30, 2014, the Company had two wholly-owned trusts (“Trusts”) that were formed to issue trust preferred securities and related common securities of the Trusts. The Company has not consolidated the accounts of the Trusts in its consolidated financial statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ASC 810, Consolidation (“ASC 810”). As a result, the junior subordinated debentures issued by the Company to the Trusts are reflected on the Company’s Consolidated Balance Sheets as junior subordinated debentures.

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014 the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. A reporting entity should apply existing stock compensation guidance, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company does not expect the ASU to have a material impact on the Company’s consolidated financial statements.

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Notes to Unaudited Consolidated Financial Statements

In May of 2014 FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. ASU 2014-11 also brings U.S. GAAP into greater alignment with IFRS for repurchase-to-maturity transactions. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. For all other entities, all changes are effective for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. Earlier application for a public company is prohibited, but all other companies and organizations may elect to apply the requirements for interim periods beginning after December 15, 2014. The Company does not expect the ASU to have an impact on the Company’s consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08 Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The amendments in the ASU are effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted. The Company does not expect the ASU to have an impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure a consensus of the FASB Emerging Issues Task Force. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted update using either a modified retrospective transition method or a prospective transition method. The Company does not expect the ASU to have a material impact on the Company’s consolidated financial statements..

In January 2014, the FASB issued ASU No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects a consensus of the FASB Emerging Issues Task Force. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. The amendments in this Update are effective for annual periods beginning after December 15, 2014, and interim periods within annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company has implemented the proportional amortization method according to the guidance and the impact has been immaterial.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

NOTE 3. NOTE RECEIVABLE

Pursuant to the terms of a note receivable received in conjunction with the Company’s disposal of the former mortgage subsidiary, the Company received note payments (the “Note”) that commenced in 2013 and were due quarterly over a consecutive five year period. The Note carried a zero rate of interest and the obligation was guaranteed by the continuing shareholder of the Mortgage Company. As of March 31, 2014, the Company received all principal amounts due under the original Note agreement, and the Note carried an outstanding principal balance of $2.7 million.

Recent changes in the regulatory requirements under the Dodd-Frank Act and increasing mortgage interest rates have created significant uncertainty in the mortgage lending industry, and have lead to lower origination volume. Consequently, during the first quarter of 2014, the Company’s management became increasingly concerned about whether remaining principal due under the original terms of the Note would be collectible. As a result, during April 2014, the Company executed a promissory note compromise settlement agreement (the “Agreement”) with the Mortgage Company. The Agreement settled and determined all the respective rights and obligations under the Note.

Under the terms of the Agreement, the Mortgage Company paid cash in the amount of $686 thousand and transferred a 1-4 family mortgage note with a principal balance of $560 thousand to the Company. Simultaneously, the Company applied a portion of the cash proceeds to pay off the outstanding balance of the Mortgage Company’s warehouse line of credit held with the Bank. As a result of the Agreement, the Company recognized a loss of $1.4 million in full and complete satisfaction of the Note.

The table below presents the details of the closing transaction:

(Dollars in thousands)
Proceeds	Amount
Cash received	$	686
1-4 family mortgage note (fair value)		560
Net proceeds received	$	1,246
Assets derecognized
Note due from the Mortgage Company	$	2,753
Warehouse line of credit		259
Discount on the Note		(374	)
Total Assets derecognized	$	2,638
Loss on settlement of the Note	$	1,392

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

NOTE 4. EARNINGS PER SHARE

Basic Earnings Per Share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period, respectively. Diluted EPS reflects the potential dilution that could 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 shared in the earnings of the entity.

The following is a computation of basic and diluted EPS for the three and six months ended June 30, 2014, and 2013:

(Dollars in thousands, except per share data)	For the three months ended June 30,				For the six months ended June 30,
Earnings Per Share	2014			2013	2014		2013
NUMERATORS:
Net income	$	2,206	$	2,006	$	2,771	$	4,046
Less preferred stock dividends		50		50		100		100
Net income available to common shareholders	$	2,156	$	1,956	$	2,671	$	3,946
DENOMINATORS:
Weighted average number of common shares outstanding - basic		13,378		15,120		13,658		15,401
Effect of potentially dilutive common shares (1)		48		19		47		18
Weighted average number of common shares outstanding - diluted		13,426		15,139		13,705		15,419
EARNINGS PER COMMON SHARE:
Basic attributable to operations	$	0.16	$	0.13	$	0.20	$	0.26
Diluted attributable to operations	$	0.16	$	0.13	$	0.19	$	0.26
Anti-dilutive options not included in earnings per share calculation		82,300		108,837		82,300		114,837

(1) Represents the effects of the assumed exercise of stock options

On January 16, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 6% of its outstanding shares over a twelve-month period. The stock repurchase plan authorized the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased 319,196 and 982,173 common shares during the three and six months ended June 30, 2013, respectively. The shares were retired subsequent to purchase. The remaining shares authorized under the plan were purchased during July of 2013.

On August 21, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 7% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company purchased and subsequently retired the full amount of shares authorized under the plan as of December 31, 2013.

On March 20, 2014, the Company announced that its Board of Directors had authorized the purchase of up to 700,000 or 5% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased 259,815 and 700,000 common shares during the three and six months ended June 30, 2014, respectively. The shares were retired subsequent to purchase.

The decrease in weighted average shares from the stock repurchases positively contributed to earnings per common share, and return on common equity.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

NOTE 5. SECURITIES

Securities are classified as available-for-sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities designated as available-for-sale are carried at fair value. Unrealized holding gains or losses are included in other comprehensive income (OCI) as a separate component of shareholders’ equity, net of tax. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.

Debt securities are classified as held-to-maturity if the Company has both the intent and ability to hold those securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost, adjusted for amortization of premium and accretion of discount, computed by the effective interest method over their contractual lives.

Transfers of securities from available-for-sale to held-to-maturity are accounted for at fair value as of the date of the transfer. The difference between the fair value and the amortized cost at the date of transfer is considered a premium or discount and is accounted for accordingly. Any unrealized gain or loss at the date of the transfer is reported in OCI, and is amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount, and will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held to maturity security. The Company did not have any transfers in or out of the various securities classifications for the six months ended June 30, 2014.

The following table presents the amortized costs, gross unrealized gains, gross unrealized losses and approximate fair values of investment securities at June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Amortized Costs		GrossUnrealizedGains		GrossUnrealized Losses			EstimatedFair Value
Available-for-sale securities
U.S. government & agencies	$	7,886	$	0	$	(99	)	$	7,787
Obligations of state and political subdivisions		54,447		1,316		(394	)		55,369
Residential mortgage backed securities and collateralized mortgage obligations		45,522		532		(256	)		45,798
Corporate securities		41,942		482		(258	)		42,166
Commercial mortgage backed securities		9,942		45		(154	)		9,833
Other asset backed securities		27,656		354		(277	)		27,733
Total	$	187,395	$	2,729	$	(1,438	)	$	188,686
Held-to-maturity securities
Obligations of state and political subdivisions	$	37,031	$	344	$	(958	)	$	36,417

(Dollars in thousands)	As of December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government & agencies	$	6,580	$	-	$	(316	)	$	6,264
Obligations of state and political subdivisions		60,370		672		(1,833	)		59,209
Residential mortgage backed securities and collateralized mortgage obligations		64,026		318		(1,353	)		62,991
Corporate securities		48,836		282		(888	)		48,230
Commercial mortgage backed securities		10,828		24		(380	)		10,472
Other asset backed securities		29,717		388		(631	)		29,474
Total	$	220,357	$	1,684	$	(5,401	)	$	216,640
Held-to-maturity securities
Obligations of state and political subdivisions	$	36,696	$	36	$	(2,707	)	$	34,025

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities as of June 30, 2014, are shown below.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
One year or less	$	2,401	$	2,437	$	367	$	368
One year through five years		33,615		34,080		365		383
Five years through ten years		74,449		74,641		14,555		14,472
After ten years		76,930		77,528		21,744		21,194
Total	$	187,395	$	188,686	$	37,031	$	36,417

The amortized cost and fair value of collateralized mortgage obligations and mortgage backed securities are presented by their expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual.

The Company held $53.0 million in securities with safekeeping institutions for pledging purposes. Of this amount, $21.0 million were pledged as of June 30, 2014. The following table presents the fair market value of the securities held, segregated by purpose, as of June 30, 2014:

(Dollars in thousands)	Amount
Public funds collateral	$	22,857
Federal Home Loan Bank borrowings		25,417
Interest rate swap contracts		4,702
Total securities held for pledging purposes	$	52,976

The following table presents the cash proceeds from sales of securities and their associated gross realized gains and gross realized losses that have been included in earnings for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	For three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
Proceeds from sales of securities	$	32,099		$	35,370		$	68,785		$	45,342
Gross realized gains on sales of securities:
Obligations of state and political subdivisions	$	14		$	145		$	171		$	177
Residential mortgage backed securities and collateralized mortgage obligations		63			18			68			105
Corporate securities		85			342			227			360
Commercial mortgage backed securities		5			-			5			-
Other asset backed securities		40			-			63			53
Total gross realized gains on sales of securities	$	207		$	505		$	534		$	695
Gross realized losses on sales of securities
U.S. government & agencies	$	(115	)	$	(27	)	$	(114	)	$	(27	)
Obligations of state and political subdivisions		(69	)		(10	)		(159	)		(10	)
Residential mortgage backed securities and collateralized mortgage obligations		(13	)		(50	)		(482	)		(51	)
Corporate securities		(8	)		(12	)		(8	)		(12	)
Commercial mortgage backed securities		(31	)		-			(32	)		-
Other asset backed securities		(10	)		-			(23	)		-
Total gross realized losses on sales of securities	$	(246	)	$	(99	)	$	(818	)	$	(100	)
(Loss) gain on investment securities, net	$	(39	)	$	406		$	(284	)	$	595

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Notes to Unaudited Consolidated Financial Statements

The following tables present the current fair value and associated unrealized losses on investments with unrealized losses at June 30, 2014, and December 31, 2013. The tables also illustrate whether these securities have had unrealized losses for less than 12 months or for 12 months or longer.

(Dollars in thousands)	As of June 30, 2014
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	4,943	$	(10	)	$	2,846	$	(89	)	$	7,789	$	(99	)
Obligations of states and political subdivisions		7,225		(52	)		14,297		(342	)		21,522		(394	)
Residential mortgage backed securities and collateralized mortgage obligations		7,344		(96	)		6,309		(160	)		13,653		(256	)
Corporate securities		6,911		(76	)		9,945		(182	)		16,856		(258	)
Commercial mortgage backed securities		2,970		(24	)		2,606		(130	)		5,576		(154	)
Other asset backed securities		4,137		(63	)		6,063		(214	)		10,200		(277	)
Total temporarily impaired securities	$	33,530	$	(321	)	$	42,066	$	(1,117	)	$	75,596	$	(1,438	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	2,334	$	(9	)	$	20,487	$	(949	)	$	22,821	$	(958	)

(Dollars in thousands)	As of December 31, 2013
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	5,446	$	(147	)	$	819	$	(168	)	$	6,265	$	(315	)
Obligations of states and political subdivisions		29,943		(1,578	)		2,727		(255	)		32,670		(1,833	)
Residential mortgage backed securities and collateralized mortgage obligations		44,197		(1,214	)		3,271		(139	)		47,468		(1,353	)
Corporate securities		32,649		(792	)		2,960		(96	)		35,609		(888	)
Commercial mortgage backed securities		5,543		(205	)		1,437		(176	)		6,980		(381	)
Other asset backed securities		15,303		(518	)		1,723		(113	)		17,026		(631	)
Total temporarily impaired securities	$	133,081	$	(4,454	)	$	12,937	$	(947	)	$	146,018	$	(5,401	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	23,800	$	(1,524	)	$	7,533	$	(1,183	)	$	31,333	$	(2,707	)

At June 30, 2014, 112 securities were in unrealized loss positions and at December 31, 2013, 196 securities were in unrealized loss positions.

The unrealized losses on obligations of political subdivisions and corporate securities were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and there have been no adverse ratings changes below investment grade since the date of purchase. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in these classes, and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The residential mortgage backed securities, commercial backed securities, collateralized mortgage obligations, and other asset backed securities portfolios in an unrealized loss position at June 30, 2014, were issued by both public and private agencies. The unrealized losses on residential mortgage backed securities, commercial backed securities and collateralized mortgage obligations were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities, and not by the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates and or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in this class, and it is more likely than not the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

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Notes to Unaudited Consolidated Financial Statements

Management reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) or permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is more likely than not that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors. For debt securities, if we intend to sell the security or it is more likely than not we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is more likely than not we will not be required to sell the security, but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to OCI. Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. For the three and six months ended June 30, 2014 and the year ended December 31, 2013, the Company did not recognize impairment losses.

NOTE 6. LOANS

Outstanding loan balances consist of the following at June 30, 2014, and December 31, 2013:

(Dollars in thousands)	June 30, 2014			December 31, 2013
Commercial	$	168,354		$	170,429
Real estate – construction loans		20,462			18,545
Real estate – commercial (investor)		209,324			205,384
Real estate – commercial (owner occupied)		88,402			83,976
Real estate – ITIN loans		54,611			56,101
Real estate – mortgage		14,211			14,590
Real estate – equity lines		43,809			45,462
Consumer		20,195			3,472
Other		50			36
Gross portfolio loans	$	619,418		$	597,995
Less:
Deferred loan costs, net		(204	)		(303	)
Allowance for loan losses		9,882			14,172
Net portfolio loans	$	609,740		$	584,126

Gross loan balances in the table above include net discounts of $257 thousand and net premiums of $53 thousand as of June 30, 2014, and December 31, 2013, respectively.

Loans are reported as past due when any portion of the principal and interest are not received on the due date. The days past due will continue to increase for each day until full principal and interest are received (i.e. if payment is not received within thirty days of the due date, the loan will be considered thirty days past due; if payment is not received within sixty days of the due date, the loan will be considered sixty days past due, etc). Loans that become ninety days past due may be placed in nonaccrual status.

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Notes to Unaudited Consolidated Financial Statements

Age analysis of past due loans, segregated by class of loans, as of June 30, 2014, and December 31, 2013, were as follows:

(Dollars in thousand)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
June 30, 2014
Commercial	$	292	$	2,830	$	352	$	3,474	$	164,880	$	168,354	$	-
Commercial real estate:
Construction										20,462		20,462		-
Other		273		391		299		963		296,763		297,726		-
Residential:
1-4 family		702		369		3,174		4,245		64,577		68,822		-
Home equities		253		-		25		278		43,531		43,809		-
Consumer		-		-		87		87		20,158		20,245		-
Total	$	1,520	$	3,590	$	3,937	$	9,047	$	610,371	$	619,418	$	-

(Dollars in thousand)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
December 31, 2013
Commercial	$	-	$	-	$	-	$	-	$	170,429	$	170,429	$	-
Commercial real estate:
Construction		-		-		-		-		18,545		18,545		-
Other		-		-		-		-		289,360		289,360		-
Residential:
1-4 family		3,125		436		3,167		6,728		63,963		70,691		-
Home equities		131		25		-		156		45,306		45,462		-
Consumer		-		-		-		-		3,508		3,508		-
Total	$	3,256	$	461	$	3,167	$	6,884	$	591,111	$	597,995	$	-

A loan is considered impaired when based on current information and events; the Company determines it is probable that it will not be able to collect all amounts due according to the original loan contract, including scheduled interest payments. Generally, when the Company identifies a loan as impaired, it measures the loan for potential impairment using discounted cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, the current fair value of collateral is used, less selling costs.

The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every six to twelve months. The Company obtains 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’s nor the Bank’s Exclusionary List of appraisers and brokers. In certain 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, an external appraisal is utilized to measure a loan for potential impairment. The Company’s 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 the Company’s Chief Credit Officer.

Although an external appraisal is the primary source to value collateral dependent loans, the Company 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, the Company does not believe there are significant time lapses for the recognition of additional loan loss provisions or charge offs from the date they become known.

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Notes to Unaudited Consolidated Financial Statements

The following table summarizes impaired loans by loan class as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	4,375	$	7,923	$	-
Commercial real estate:
Other		16,830		21,817		-
Residential:
1-4 family		8,391		11,534		-
Home equities		701		767		-
Consumer		87		87		-
Total with no related allowance recorded	$	30,384	$	42,128	$	-
With an allowance recorded:
Commercial	$	13	$	13	$	4
Commercial real estate:
Other		847		847		208
Residential:
1-4 family		3,623		3,753		495
Home equities		589		589		295
Total with an allowance recorded	$	5,072	$	5,202	$	1,002
Subtotal:
Commercial	$	4,388	$	7,936	$	4
Commercial real estate	$	17,677	$	22,664,	$	208
Residential	$	13,304	$	16,643	$	790
Consumer	$	87	$	87	$	-
Total impaired loans	$	35,456	$	47,330	$	1,002

(Dollars in thousands)	As of December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate:
Other	$	15,736	$	18,184	$	-
Residential:
1-4 family		3,714		6,091		-
Home equities		539		545		-
Total with no related allowance recorded	$	19,989	$	24,820	$	-
With an allowance recorded:
Commercial	$	6,590	$	6,808	$	2,988
Commercial real estate:
Other		6,011		6,020		814
Residential:
1-4 family		8,805		9,804		963
Home equities		746		746		229
Total with an allowance recorded	$	22,152	$	23,378	$	4,994
Subtotal:
Commercial	$	6,590	$	6,808	$	2,988
Commercial real estate	$	21,747	$	24,204	$	814
Residential	$	13,804	$	17,186	$	1,192
Total impaired loans	$	42,141	$	48,198	$	4,994

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The Company’s practice is to place an asset on nonaccrual status when one of the following events occurs: (1) any installment of principal or interest is 90 days or more past due (unless in management’s opinion the loan is well-secured and in the process of collection), (2) management determines the ultimate collection of principal or interest to be unlikely or, (3) the terms of the loan have been renegotiated due to a serious weakening of the borrower’s financial condition. Nonperforming loans may be on nonaccrual, 90 days past due and still accruing, or have been restructured. Accruals are resumed on loans only when they are brought fully current with respect to interest and principal and when the loan is estimated to be fully collectible. Restructured loans are those loans on which concessions in terms have been granted because of the borrower’s financial difficulties. Interest is generally accrued on such loans in accordance with the new terms, after a period of sustained performance by the borrower.

One exception to the 90 days past due policy for nonaccruals is the Bank’s pool of home equity loans and lines. Regarding this specific home equity loan pool, the Bank will charge off any loans that go more than 90 days past due. Management believes that at the time these loans become 90 days past due, it is likely that the Company will not collect the remaining principal balance on the loan. In accordance with this policy, management does not expect to classify any of the loans from this pool as nonaccrual.

Nonaccrual loans are restored to accrual status when none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or when the loan becomes “well secured” and “in the process of collection”. When a loan returns to accrual status, interest income is recognized based on the effective yield to maturity on the loan. The effective interest rate is the discount rate that would equate the present value of the future cash payments to the recorded amount of the loan. This results in accreting the amount of interest applied to principal over the remaining term of the loan.

Had nonaccrual loans performed in accordance with their contractual terms, the Company would have recognized additional interest income, net of tax, of approximately $160 thousand and $314 thousand for the three months ended June 30, 2014 and 2013, respectively. The Company would have recognized additional interest income, net of tax, of approximately $328 thousand and $559 thousand for the six months ended June 30, 2014 and 2013, respectively.

Nonaccrual loans, segregated by loan class, were as follows:

(Dollars in thousands)	June 30,2014		December 31,2013
Commercial	$	4,375	$	6,527
Commercial real estate:
Other		15,598		14,539
Residential:
1-4 family		6,939		8,217
Home equities		479		513
Consumer		87		-
Total	$	27,478	$	29,796

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The following table summarizes average recorded investment and interest income recognized on impaired loans by loan class for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	Three Months Ended June 30,2014				Three Months Ended June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	4,295	$	-	$	5,936	$	14
Commercial real estate:
Other		18,402		77		26,160		75
Residential:
1-4 family		12,136		28		14,377		20
Home equities		1,310		8		648		4
Consumer		29		-		-		-
Total	$	36,172	$	113	$	47,121	$	113

(Dollars in thousands)	Six Months Ended June 30,2014				Six Months Ended June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	6,114	$	1	$	4,695	$	19
Commercial real estate:
Other		19,806		184		27,641		157
Residential:
1-4 family		12,214		52		14,382		39
Home equities		1,268		17		567		7
Total	$	39,402	$	254	$	47,285	$	222

The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans. Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it 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 the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent 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. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

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

Maturity – A modification in which the maturity date, timing of payments or frequency of payments is modified.

Rate – A modification in which the interest rate is modified.

Rate and maturity – A modification in which the interest rate is modified and maturity date, timing of payments or frequency of payments is modified.

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The following tables present the period ended balances of newly restructured loans that occurred during the three and six months ended June 30, 2014 and 2013, respectively:

(Dollars in thousands)	For the three months ended June 30, 2014							For the three months ended June 30, 2013
	Maturity	Rate		Rate & Maturity	Rate & Payment Deferral	Total		Rate		Rate & Maturity		Rate & Payment Deferral		Total
Residential:
1-4 family	$	$	153	$	$	$	153	$	81	$	158	$	-	$	239
Total	$	$	153	$	$	$	153	$	81	$	158	$	-	$	239

	For the six months ended June 30, 2014										For the six months ended June 30, 2013
	Maturity		Rate		Rate & Maturity		Rate & Payment Deferral		Total		Rate		Rate & Maturity		Rate & Payment Deferral		Total
Commercial	$	692	$	0	$	0	$	0	$	692	$	0	$	0	$	0	$	0
Residential:
1-4 family		-	$	153		-		-	$	153	$	424	$	210	$	115	$	749
Home equities		-		-		-		-		-		-		73		-		73
Total	$	692	$	153	$	0	$	0	$	845	$	424	$	283	$	115	$	822

The tables below provide information regarding the number of loans where the contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties for the three and six months ended June 30, 2014, and 2013.

(Dollars in thousands)	For the three months ended June 30, 2014						For the three months ended June 30, 2013
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Residential:
1-4 family		2	$	150	$	154		2	$	241	$	244
Total		2	$	150	$	154		2	$	241	$	244

	For the six months ended June 30, 2014						For the six months ended June 30, 2013
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		1	$	700	$	700		0	$	0	$	0
Residential:
1-4 family		2		150		154		8	$	692	$	761
Home equities		-		-		-		1		74		75
Total		3	$	850	$	854		9	$	766	$	836

At June 30, 2014 and December 31, 2013, impaired loans of $7.4 million and $8.8 million were classified as performing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms.

In order for a restructured loan to be considered performing and on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. The Company had no obligations to lend additional funds on the restructured loans as of June 30, 2014 and December 31, 2013.

As of June 30, 2014, the Company had $27.9 million in TDRs compared to $33.4 million as of December 31, 2013. As of June 30, 2014, the Company had one hundred and eighteen loans that qualified as TDRs, of which one hundred three were performing according to their restructured terms. TDRs represented 4.50% of gross portfolio loans as of June 30, 2014, compared with 5.59% at December 31, 2013. The decrease in TDR balances during the six months ended June 30, 2014 is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for a second borrowing relationship and $1.0 million in Commercial Real Estate loans to a third relationship. The loans were previously recorded as TDRs and allocations for the amounts charged off for these relationships were included in the ALLL balance as of December 31, 2013.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The following tables represent loans modified as TDRs within the previous 12 months for which there was a payment default during the three and six months ended June 30, 2014 and 2013, respectively:

(Dollars in thousands)	For the three months ended June 30, 2014				For the three months ended June 30, 2013				For the six months ended June 30, 2014				For the six months ended June 30, 2013
Troubled Debt Restructurings that Subsequently Defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial		2	$	3,007		1	$	49		2	$	3,007		2	$	497
Commercial real estate:
Other		1		391		1		226		1		391		2		960
Residential:
1-4 family		-		-		-		-		1		86		-		-
Total		3	$	3,398		2	$	275		4	$	3,484		4	$	1,457

The foundation or primary factor in determining the appropriate credit quality indicators is the degree of a debtor’s willingness and ability to perform as agreed. The Company defines a performing loan as a loan where any installment of principal or interest is not 90 days or more past due, and management believes the ultimate collection of original contractual principal and interest is likely. The Company defines a nonperforming loan as an impaired loan which may be on nonaccrual, 90 days past due and still accruing, or has been restructured and is not in compliance 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, are as follows:

(Dollars in thousands)	June 30, 2014
	Performing		Nonperforming		Total
Commercial	$	163,979	$	4,375	$	168,354
Commercial real estate:
Construction		20,462		-		20,462
Other		282,128		15,598		297,726
Residential:
1-4 family		61,883		6,939		68,822
Home equities		43,330		479		43,809
Consumer		20,158		87		20,245
Total	$	591,940	$	27,478	$	619,418

(Dollars in thousands)	December 31, 2013
	Performing		Nonperforming		Total
Commercial	$	163,902	$	6,527	$	170,429
Commercial real estate:
Construction		18,545		-		18,545
Other		274,821		14,539		289,360
Residential:
1-4 family		62,474		8,217		70,691
Home equities		44,949		513		45,462
Consumer		3,508		-		3,508
Total	$	568,199	$	29,796	$	597,995

In conjunction with evaluating the performing versus nonperforming nature of the Company’s loan portfolio, management evaluates the following credit risk and other relevant factors in determining the appropriate credit quality indicator (grade) for each loan class:

Pass Grade - Borrowers classified as Pass Grades specifically demonstrate:

● Strong Cash Flows – borrower’s cash flows must meet or exceed the Company’s minimum debt service coverage ratio.

● Collateral Margin – generally, the borrower must have pledged an acceptable collateral class with an adequate collateral margin.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

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.

● Qualitative Factors – in addition to meeting the Company’s minimum cash flow and collateral requirements, a number of other qualitative factors are also factored into assigning a pass grade including the borrower’s level of leverage (debt to equity), prospects, history and experience in their industry, credit history, and any other relevant factors including a borrower’s character.

Watch Grade – Generally, borrowers classified as Watch exhibit some level of deterioration in one or more of the following:

● Adequate Cash Flows – borrowers in this category demonstrate adequate cash flows and debt service coverage ratios, but also exhibit one or more less than positive conditions such as declining trends in the level of cash flows, increasing or sole reliance on secondary sources of cash flows, and/or do not meet the Company’s minimum debt service coverage ratio. However, cash flow remains at acceptable levels to meet debt service requirements.

● Adequate Collateral Margin – the collateral securing the debt remains adequate but also exhibits a declining trend in value or expected volatility due to macro or industry specific conditions. The current collateral value, less selling costs, remains adequate to cover the outstanding debt under a liquidation scenario.

● Qualitative Factors – while the borrower’s cash flow and collateral margin generally remain adequate, one or more quantitative and qualitative factors may also factor into assigning a Watch Grade including the borrower’s level of leverage (debt to equity), deterioration in prospects, limited experience in their industry, newly formed company, overall deterioration in the industry, negative trends or recent events in a borrower’s credit history, deviation from core business, and any other relevant factors.

Special Mention Grade – Generally, borrowers classified as Special Mention exhibit a greater level of deterioration than Watch graded loans and warrant management’s close attention. If left uncorrected, the potential weaknesses could threaten repayment prospects in the future. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant an adverse risk grade.

The following represents potential characteristics of a Special Mention Grade but do not necessarily generate automatic reclassification into this loan grade:

● Adequate Cash Flows – borrowers in this category demonstrate adequate cash flows and debt service coverage ratios, but also reflect adverse trends in operations or continuing financial deterioration that, if it does not stabilize and reverse in a reasonable timeframe, retirement of the debt may be jeopardized.

● Adequate Collateral Margin – the collateral securing the debt remains adequate but also exhibits a continuing declining trend in value or volatility due to macro or industry specific conditions. The current collateral value, less selling costs, remains adequate, but should the negative collateral trend continue, the full recovery of the outstanding debt under a liquidation scenario could be jeopardized.

● Qualitative Factors – while the borrower’s cash flow and/or collateral margin continue to deteriorate but generally remain adequate, one or more quantitative and qualitative factors may also be factoring into assigning a Special Mention Grade including inadequate or incomplete loan documentation, perfection of collateral, inadequate credit structure, borrower unable or unwilling to produce current and adequate financial information, and any other relevant factors.

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 the Company 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 classified 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:

● Sustained or substantial deteriorating financial trends,

● Unresolved management problems,

● Collateral is insufficient to repay debt; collateral is not sufficiently supported by independent sources, such as asset-based financial audits, appraisals, or equipment evaluations,

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

● Improper perfection of lien position, which is not readily correctable,

● Unanticipated and severe decline in market values,

● High reliance on secondary source of repayment,

● Legal proceedings, such as bankruptcy or a divorce, which has substantially decreased the borrower’s capacity to repay the debt,

● Fraud committed by the borrower,

● IRS liens that take precedence,

● Forfeiture statutes for assets involved in criminal activities,

● Protracted repayment terms outside of policy that are for longer than the same type of credit in the Company portfolio,

● Any other relevant quantitative or qualitative factor that negatively affects the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

Doubtful Grade – A credit risk rated as Doubtful has all the weaknesses inherent in a credit classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. As such, all doubtful loans are considered impaired. 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:

● Proposed merger(s),

● Acquisition or liquidation procedures,

● Capital injection,

● Perfecting liens on additional collateral,

● Refinancing plans.

Generally, a Doubtful grade does not remain outstanding for a period greater than six months. After six months, the pending events should have either occurred or not occurred. The credit grade should have improved or the principal balance charged against the ALLL.

Credit grade definitions, including qualitative factors, for all credit grades are reviewed and approved annually by the Company’s Loan Committee. The following table summarizes internal risk rating by loan class as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	June 30, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Commercial	$	134,484	$	19,359	$	3,419	$	11,092	$	-	$	168,354
Commercial real estate:
Construction		20,410		52		-		-		-		20,462
Other		269,079		8,367		905		19,375		-		297,726
Residential:
1-4 family		55,875		933		-		12,014		-		68,822
Home equities		39,927		2,392		-		1,490		-		43,809
Consumer		20,089		5		-		151		-		20,245
Total	$	539,864	$	31,108	$	4,324	$	44,122	$	-	$	619,418

(Dollars in thousands)	December 31, 2013
	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Commercial	$	131,042	$	24,274	$	7,177	$	7,936	$	-	$	170,429
Commercial real estate:
Construction		18,048		497		-		-		-		18,545
Other		247,656		18,343		2,309		21,052		-		289,360
Residential:
1-4 family		56,832		1,340		-		12,519		-		70,691
Home equities		41,147		2,311		25		1,979		-		45,462
Consumer		3,307		38		130		33		-		3,508
Total	$	498,032	$	46,803	$	9,641	$	43,519	$	-	$	597,995

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

The following tables below summarize the Allowance for Credit Losses and Recorded Investment in Financing Receivables as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Commercial			Commercial Real Estate			Consumer		Residential			Unallocated			Total
Allowance for credit losses:
Beginning balance	$	7,057		$	2,784		$	35	$	2,493		$	1,803		$	14,172
Charge offs		(3,685	)		(2,406	)		-		(268	)		-			(6,359	)
Recoveries		455			-			-		164			-			619
Provision		(493	)		3,489			203		(56	)		(1,693	)		1,450
Ending balance	$	3,334		$	3,867		$	238	$	2,333		$	110		$	9,882
Ending balance: individually evaluated for impairment	$	4		$	208		$	0	$	790		$	0		$	1,002
Ending balance: collectively evaluated for impairment	$	3,330		$	3,659		$	238	$	1,543		$	110		$	8,880
Financing receivables
Ending balance	$	168,354		$	318,188		$	20,245	$	112,631		$	0		$	619,418
Ending balance individually evaluated for impairment	$	4,388		$	17,677		$	87	$	13,304		$	0		$	35,456
Ending balance collectively evaluated for impairment	$	163,966		$	300,511		$	20,158	$	99,327		$	0		$	583,962

(Dollars in thousands)	As of December 31, 2013
	Commercial			Commercial Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning balance	$	4,168		$	2,783		$	28		$	3,335		$	789	$	11,103
Charge offs		(882	)		(230	)		(25	)		(1,633	)		-		(2,770	)
Recoveries		58			2,483			1			547			-		3,089
Provision		3,713			(2,252	)		31			244			1,014		2,750
Ending balance	$	7,057		$	2,784		$	35		$	2,493		$	1,803	$	14,172
Ending balance: individually evaluated for impairment	$	2,988		$	814		$	-		$	1,192		$	-	$	4,994
Ending balance: collectively evaluated for impairment	$	4,069		$	1,970		$	35		$	1,301		$	1,803	$	9,178
Financing receivables
Ending balance	$	170,429		$	307,905		$	3,508		$	116,153		$	-	$	597,995
Ending balance individually evaluated for impairment	$	6,590		$	21,747		$	-		$	13,804		$	-	$	42,141
Ending balance collectively evaluated for impairment	$	163,839		$	286,158		$	3,508		$	102,349		$	-	$	555,854

The ALLL totaled $9.9 million or 1.59% of total portfolio loans at June 30, 2014 and $14.2 million or 2.37% at December 31, 2013. In addition, as of June 30, 2014, the Company had $225.7 million in commitments to extend credit, and recorded a reserve for unfunded commitments of $696 thousand in other liabilities in the Consolidated Balance Sheets.

During the six months ended June 30, 2014, the Company realized net charge offs of $5.7 million compared with net recoveries of $319 thousand in the period ended December 31, 2013. The increase in net charge offs in the current year and the decrease in the ALLL allocation is primarily due to chargeoffs related to three significant borrowing relationships; the first included $3.4 million in chargeoffs of Commercial and Industrial loans and the second included $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans. The third included $1.0 million in chargeoffs for three Commercial Real Estate loans. Allocations for the amounts charged off for these relationships were included in the ALLL balance as of December 31, 2013.

The ALLL is based upon estimates of loan losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. The Company’s ALLL methodology significantly incorporates management’s current judgments, and reflects the reserve amount that is necessary for estimated loan losses and risks inherent in the loan portfolio in accordance with ASC Topic 450 Contingencies and ASC Topic 310 Receivables.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Notes to Unaudited Consolidated Financial Statements

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 loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect the 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 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.

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.

Management believes that the ALLL was adequately funded as of June 30, 2014. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan losses. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require additional charges to the provision for loan losses in future periods if warranted as a result of their review.

Approximately 70% 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. The recent U.S. recession, the housing market downturn, and depressed real estate values in our markets have negatively impacted aspects of our residential development, commercial real estate, commercial construction and commercial loan portfolios. A continued deterioration in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan losses.

All impaired loans are individually evaluated for impairment. If the measurement of each impaired loan’s 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. This can be accomplished by charging off the impaired portion of the loan or establishing a specific component within the ALLL. If the Bank determines 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 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.

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 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, 2014, the unallocated allowance amount represented 1.1% of the ALLL, compared to 13% at December 31, 2013. The change in the unallocated portion of the allowance is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for a second borrowing relationship. Allocations for the amounts charged off for these two relationships were included in the ALLL balance as of December 31, 2013. The level in unallocated ALLL in both the current period and prior year reflects management’s evaluation of continued weak and uncertain business and economic conditions, credit risk, and depressed collateral values of real estate in our markets. The ALLL composition should not be interpreted as an indication of specific amounts or loan categories in which future charge offs may occur.

The Company has lending policies and procedures in place with the objective of optimizing loan income within an accepted risk tolerance level. Management reviews and approves 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.

The following is a brief summary, by loan type, of management’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.

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Notes to Unaudited Consolidated Financial Statements

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. In addition, the Company maintains a commercial loan with its former mortgage subsidiary in which mortgage loans are pledged as collateral.

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 Company’s CRE portfolio are diverse in terms of type and primary source of repayment. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates CRE loans based on occupancy status (investor versus owner occupied), collateral, geography, and risk grade criteria.

Generally, CRE loans 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.

Consumer Loans – The Company’s consumer loan portfolio is generally limited to home equity loans with nominal originations in unsecured personal loans. The Company is 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.

The Company maintains 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 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 the Company’s policies and procedures.

Management’s continuing evaluation of all known relevant quantitative and qualitative internal and external risk factors provide the foundation for the three major components of the Company’s 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 Company’s 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 the Company’s 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.

In accordance with ASC 450, historical valuation allowances are established for loan pools with similar risk characteristics common to each loan grouping. The Company’s 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.

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Notes to Unaudited Consolidated Financial Statements

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. Management periodically reviews and updates its historical loss ratios based on net charge off experience for each loan 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 the Company’s loan portfolio.

NOTE 7. OTHER REAL ESTATE OWNED

Other Real Estate Owned – Represents real estate which the Bank has taken control of in partial or full satisfaction of loans. At the time of foreclosure, OREO is recorded at the lower of cost or fair value less costs to sell, which becomes the property’s new basis. 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 such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell.

Subsequent valuation adjustments are recognized within net loss of OREO. Revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other noninterest expense in the Consolidated Statements of Operations. In some instances, the Bank may make loans to facilitate the sales of OREO. Management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established within ASC 360-20, Real Estate Sales. Any gains related to sales of OREO may be deferred until the buyer has a sufficient initial and continuing investment in the property.

At June 30, 2014, and December 31, 2013, the recorded investment in OREO was $826 thousand and $913 thousand, respectively. For the six months ended June 30, 2014, the Company transferred foreclosed property from three loans in the amount of $268 thousand to OREO. During the six months ended June 30, 2014, further impairment was deemed necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in the first quarter of 2014 in anticipation of its pending sale. During the six months ended June 30, 2014 the Company sold one property with a balance of $65 thousand for a net loss of $15 thousand. The June 30, 2014 OREO balance consists of five properties, of which three are secured with 1-4 family residential real estate in the amount of $204 thousand. One property is secured by a commercial real estate property in the amount of $161 thousand. The remaining property consists of improved commercial land in the amount of $460 thousand.

NOTE 8. ACCOUNTING FOR INCOME TAX AND UNCERTAINTIES

The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the Company's income before taxes. The principal difference between statutory tax rates and the Company's effective tax rate is the benefit derived from investing in tax-exempt securities; bank owned life insurance, federal tax credits afforded through the Company’s participation in qualified affordable housing project investments.

Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized.

The Company applies the provisions of FASB ASC 740, Income Taxes, relating to the accounting for uncertainty in income taxes. The Company periodically reviews its income tax positions based on tax laws and regulations, and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment. The Company’s uncertain tax positions were nominal in amount.

The Company’s effective income tax rate was 21.23% for the six months ended June 30, 2014, compared with 27.50% for the same period a year ago. The Company’s effective tax rate is derived from the sum of income tax expense divided by pretax income.

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Notes to Unaudited Consolidated Financial Statements

The decrease in the effective tax rate during the six months ended June 30, 2014 compared to the same period a year ago was primarily driven by increased investments in affordable housing projects. Investments in these projects afford the Company certain federal and state tax credits that in turn lower the Company’s effective tax rate. The Company began to realize the benefits of these tax credits during the six months ended June 30, 2014. See Note 9 below for further detail regarding the Company’s investments in affordable housing project investments.

NOTE 9. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company’s investment in Qualified Affordable Housing Projects that generate Low Income Housing Tax Credits (“LIHTC”) at June 30, 2014 was $5.2 million recorded in other assets with a corresponding recorded liability in other liabilities of $4.1 million in funding obligations recorded in other liabilities. The Company has invested in three separate LIHTC projects which provide the Company with CRA credit. Additionally, the investment in LIHTC projects provides the Company with tax credits and with operating loss tax benefits over an approximately sixteen year period. None of the original investment 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 investment made by the Company and provide a return on the investment between 4.76% and 7.18%. The investment in LIHTC projects is being accounted for using the proportional amortization method, under which the Company amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

The following table presents the Company’s original investment in the LIHTC projects accounted for using the proportional amortization method, the current recorded investment balance, and the unfunded liability balance of each investment at June 30, 2014 and December 31, 2013. In addition, the table reflects the tax credits and tax benefits recorded by the Company during 2014 and 2013, the amortization of the investment and the net impact to the Company’s income tax provision for 2014 and 2013:

(Dollars in thousands) Qualified Affordable Housing Projects at June 30, 2014	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization of Investments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,939	$	1,809	$	80	$	61	$	15
WNC Institutional Tax Credit Fund 38, L.P.		1,000		946		468		65		54		16
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,320		1,825		170		180		29
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,205	$	4,102	$	315	$	295	$	60

(Dollars in thousands) Qualified Affordable Housing Projects at December 31, 2013	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization ofInvestments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	2,000	$	1,858	$	30	$	-	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		1,000		592		49		-		12
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,500		2,346		203		-		35
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,500	$	4,796	$	282	$	-	$	53

(1) The amounts reflected in this column represent both the tax credits, as well as the tax benefits generated by the Qualified Affordable Housing Projects operating loss for the year.

(2) This amount reduces the tax credits and benefits generated by the Qualified Affordable Housing Projects.

The Company’s investments in affordable housing projects generated tax credits recorded by the Company of $239 thousand for the quarter ended June 30, 2014 and $0 for the quarter ended June 30, 2013. Additional tax benefits from the operating losses generated by the projects of $76 thousand and $0 for the quarter ended June 30, 2014 and 2013 respectively. The tax credits and benefits were partially offset by the amortization of the principal investment balances of $295 thousand and $0 for the six months ended June 30, 2014 and 2013 respectively.

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Notes to Unaudited Consolidated Financial Statements

The following table reflects the anticipated net income tax benefit that is expected to be recognized by the Company over the remaining life of the investment:

(Dollars in thousands) Qualified Affordable Housing Projects	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		TotalNet Income Tax Benefit
Anticipated net income tax benefit less amortization of investments:
2014	$	15	$	16	$	29	$	60
2015		45		35		47		127
2016 and thereafter		379		246		354		979
Total	$	439	$	297	$	430	$	1,166

NOTE 10. FEDERAL FUNDS PURCHASED

At June 30, 2014 and December 31, 2013, the Company had no outstanding federal funds purchased balances. The Bank had available lines of credit with the Federal Home Loan Bank (FHLB) totaling $124.0 million at June 30, 2014. The Bank had available lines of credit with the Federal Reserve totaling $21.7 million subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with three financial institutions totaling $40.0 million at June 30, 2014. At June 30, 2014, the lines of credit had interest rates ranging from 0.28% to 1.15%. Availability of the lines is subject to federal funds balances available for loan, continued borrower eligibility and are reviewed and renewed periodically throughout the year. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage.

NOTE 11. TERM DEBT

The Bank had outstanding secured advances from the FHLB at June 30, 2014 and December 31, 2013 of $75.0 million.

Future contractual maturities of FHLB term advances at June 30, 2014 are as follows:

(Dollars in thousands)
Year	Amount
2014	$	75,000
Thereafter		-
Total FHLB advances	$	75,000

The maximum amount outstanding from the FHLB under term advances at any month end during the six months ended June 30, 2014, and the year ended December 31, 2013 was $75.0 million and $135.0 million, respectively. The average balance outstanding on FHLB term advances during the six months ended June 30, 2014 and year ended December 31, 2013 was $75.0 million and $109.7 million, respectively. The weighted average interest rate on the borrowings at June 30, 2014 and December 31, 2013 was 0.22% and 0.23%, respectively.

The FHLB borrowings are secured by an investment in FHLB stock, certain real estate mortgage loans which have been specifically pledged to the FHLB pursuant to their collateral requirements, and securities held in the Bank’s investment securities portfolio. As of June 30, 2014, based upon the level of FHLB advances, the Company was required to hold an investment in FHLB stock of $4.0 million. Furthermore, the Company has pledged $255.2 million of its commercial and real estate mortgage loans, and has borrowed $75.0 million against the pledged loans. As of June 30, 2014, the Company held $25.4 million in securities with the FHLB for pledging purposes. All of the securities pledged to the FHLB were unused as collateral as of June 30, 2014.

NOTE 12. COMMITMENTS AND CONTINGENCIES

Lease Commitments – The Company leases four sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term.

Rent expense for the three months ended June 30, 2014 and 2013 was $142 thousand and $97 thousand, respectively. Rent expense was offset by rent income during the three and six months ended June 30, 2014, of $4 thousand and $8 thousand, respectively, compared to $4 thousand and $8 thousand, respectively, in the comparable periods of 2013.

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Notes to Unaudited Consolidated Financial Statements

The following table sets forth, as of June 30, 2014, the future minimum lease payments under non-cancelable operating leases:

(Dollars in thousands)
Amounts due in:
2014	$	275
2015		562
2016		576
2017		517
2018		398
Thereafter		1,555
Total	$	3,883

Financial Instruments with Off-Balance Sheet Risk – The Company’s financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank’s business and involve elements of credit, liquidity, and interest rate risk.

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commitments to extend credit	$	220,808	$	192,351
Standby letters of credit		3,014		4,583
Guaranteed commitments outstanding		1,865		1,871
Total commitments	$	225,687	$	198,805

The Bank is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those 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 those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

While most standby letters of credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral varies but may include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.

Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is deemed necessary. The Bank was not required to perform on any financial guarantees for the six months ended June 30, 2014, and the year ended December 31, 2013. At June 30, 2014 approximately $1.8 million of standby letters of credit expire within one year, and $1.2 thousand expire thereafter.

The reserve for unfunded commitments, which is included in other liabilities on the Consolidated Balance Sheets, was $696 thousand at June 30, 2014 and December 31, 2013. 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. During the six months ended June 30, 2014, the Company made no additional provision to the reserve for unfunded commitments. During the six months ended June 30, 2013, the Company made additional provisions of $200 thousand to the reserve for unfunded commitments. When necessary, the provision expense is recorded in other noninterest expense in the Consolidated Statements of Operations.

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Notes to Unaudited Consolidated Financial Statements

Legal Proceedings – The Company is involved in various pending and threatened legal actions arising in the ordinary course of business. The Company maintains reserves for losses from legal actions, which are both probable and estimable. In the opinion of management, the disposition of claims currently pending will not have a material adverse affect on the Company's financial position or results of operations.

Concentrations of Credit Risk –The Company grants real estate construction, commercial, and installment loans to customers throughout northern California. In management’s judgment, a concentration exists in real estate-related loans, which represented approximately 70% of the Company’s gross loan portfolio at both June 30, 2014 and December 31, 2013. Commercial real estate concentrations are managed to assure wide geographic and business diversity. Although management believes 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 the Company’s primary market areas in particular, as we witnessed with the deterioration in the residential development market over the past five years, could have an adverse impact on the repayment of these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

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

NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents activity in accumulated other comprehensive income for the six months ended June 30, 2014:

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2013	$	(1,809	)	$	(583	)	$	(2,392	)
Comprehensive income three months ended March 31, 2014		1,786			(120	)		1,666
Comprehensive income three months ended June 30, 2014		1,115			(1,296	)		(181	)
Accumulated other comprehensive loss as of June 30, 2014	$	1,092		$	(1,999	)	$	(907	)

The following table presents activity in accumulated other comprehensive income for the six months ended June 30, 2013:

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2012	$	2,189		$	(931	)	$	1,258
Comprehensive income three months ended March 31, 2013		219			(37	)		182
Comprehensive income three months ended June 30, 2013		(2,397	)		650			(1,747	)
Accumulated other comprehensive loss as of June 30, 2013	$	11		$	(318	)	$	(307	)

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

NOTE 14. DERIVATIVES

In the normal course of business the Company is subject to risk from adverse fluctuations in interest rates. To mitigate interest rate risk and market risk, we enter into interest rate swaps with counterparties. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, and are presently being used to hedge interest expenses associated with certain FHLB wholesale borrowings. The Company does not use derivative instruments for trading or speculative purposes. The counterparties to the interest rate swaps and forwards are major financial institutions.

The Company’s objective in managing exposure to market risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent on its access to these contracts in the financial markets.

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Notes to Unaudited Consolidated Financial Statements

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

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 815-10, the Company designates interest rate swaps as cash flow hedges of forecasted variable rate FHLB advances.

No components of the hedging instruments are excluded from the assessment of hedge effectiveness. All changes in fair value of outstanding derivatives in cash flow hedges, except any ineffective portion, are recorded in OCI until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from OCI is the same as that of the underlying exposure.

When the Company discontinues 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 accumulated in OCI are recognized immediately in earnings.

During August 2010, the Company entered into five forward starting interest rate swap contracts (“IR”), to hedge interest rate risk associated with forecasted variable interest rate payments from FHLB advances. The hedge strategy converted the LIBOR based floating rate of interest on certain forecasted FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability. Contracts outstanding at February 3, 2011, had effective dates and maturities ranging from March 1, 2012 through March 1, 2017.

On February 4, 2011, the Company terminated the forward starting interest rate swap positions and realized $3.0 million in cash from the counterparty, equal to the carrying amount of the derivative at the date of termination. In addition, upon termination of the hedge contract, the Company received the full amount of the collateral posted pursuant to the hedge contract. Concurrent with the termination of the hedge contract, management removed the cash flow hedge designation, but continued to conclude the forecasted FHLB advances as probable.

The IR’s were terminated due to continuing uncertainty regarding future economic conditions including the corresponding uncertainty on the timing and extent of future changes in the three month LIBOR rate index. The $3.0 million in cash received from the counterparty reflected gains to be reclassified into earnings. Accordingly, the net gains from this transaction are being reclassified from OCI to earnings as a credit to interest expense in the same periods during which the hedged forecasted transaction affected earnings.

As of June 30, 2014, the Company performed on the first three legs of the forecasted transactions by executing forecasted FHLB advances of $75.0 million, with maturities that aligned with the respective terminated IR’s. During June 2014, the Company concluded the remaining hedged forecasted FHLB advances associated with the final two legs of the IR’s were no longer probable. Accordingly, the remaining gains recorded in OCI relating to the final two legs of the IR’s were immediately recognized in earnings. As a result of the transaction, the Company reclassified $952 thousand from OCI to earnings, which are included in other noninterest income in the Consolidated Statement of Operations.

Since March 1, 2012, $801 thousand and $952 thousand of net gains relating to the IR’s were reclassified out of accumulated OCI and netted with other borrowing expense and other noninterest income, respectively. During the three months ended June 30, 2014, net gains of $65 thousand and $952 thousand were reclassified out of accumulated OCI and netted with other borrowing interest expense and other noninterest income, respectively. As of June 30, 2014, the Company estimates that $13 thousand of existing net gains reported in accumulated OCI will be reclassified into earnings within the next twelve months.

During August 2011, the Company entered into four IR contracts, to hedge interest rate risk associated with forecasted variable rate FHLB advances. The hedge strategy converts the LIBOR based floating rate of interest on certain forecasted FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability.

During June 2013, the Company discontinued the hedge treatment associated with the first leg of the IR swap. Subsequently, in July 2013, the Company decided not to obtain an additional $75.0 million in FHLB borrowings whose interest payments were forecasted to be used as the hedged item. Simultaneously, the Company terminated the IR resulting in a $503 thousand loss recognized in other expenses in the Consolidated Statements of Operations, representing the fair value of the IR at the termination date. Immediately upon termination of the IR, the Company reclassified $296 thousand of accumulated losses from OCI to earnings

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Notes to Unaudited Consolidated Financial Statements

The following table summarizes the notional amount, effective dates and maturity dates of the IR contracts the Company had outstanding with counterparties as of June 30, 2014. Furthermore, the disclosure indicates the maximum length of time over which the Company is hedging its exposure to variability in future cash flows for forecasted interest payment transactions.

(Dollars in thousands)
Description	Notional Amount		Effective Date	Maturity
Forward starting interest rate swap	$	75,000	August 1, 2014	August 3, 2015
Forward starting interest rate swap	$	75,000	August 3, 2015	August 1, 2016
Forward starting interest rate swap	$	75,000	August 1, 2016	August 1, 2017

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

The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has been required to post collateral against its obligations under these agreements of $3.4 million as of June 30, 2014. Accordingly, the Company pledged three mortgage backed securities with an aggregate par value of $4.5 million and an aggregate fair market value of $4.7 million. If the Company had breached any of these provisions at June 30, 2014, it could have been required to settle its obligations under the agreements at the termination value. The collateral posted by the Company exceeds the aggregate fair value of additional assets that would be required to be posted as collateral if the instrument were to be settled immediately.

The following table summarizes the types of derivatives, separately by assets and liabilities, their locations on the Consolidated Balance Sheets, and the fair values of such derivatives as of June 30, 2014, and December 31, 2013. See Note 15, Fair Values in these Notes to Unaudited Consolidated Financial Statements for additional detail on the valuation of the Company’s derivatives. The contracts are made with a single issuer and include the right of offset however all of the outstanding IR contracts have a liability position as of June 30, 2014 and December 31, 2013.

(Dollars in thousands)		Asset Derivatives				Liability Derivatives
Description	Balance Sheet Location	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Forward starting interest rate swaps (1)	Other liabilities	$	-	$	-	$	1,167	$	1,071
Forward starting interest rate swaps (1)	Other liabilities		-		-		1,278		1,134
Forward starting interest rate swaps (1)	Other liabilities		-		-		975		685
Total		$	-	$	-	$	3,420	$	2,890

(1)Derivative designated as hedging instrument.

The following table summarizes the types of derivatives, their locations within the Consolidated Statements of Operations, and the gains recorded for the three months ended June 30, 2014 and 2013:

(Dollars in thousands)		Three months ended June 30,				Six months ended June 30,
Description	Consolidated Statement of Operations Location	2014		2013		2014		2013
Forward starting interest rate swaps (1)	Interest on FHLB borrowings	$	150	$	150	$	300	$	300

(1) Cash flow hedge designation removed. Gains represent tax adjusted amounts reclassified from accumulated OCI pertaining to the terminated forward starting interest rate swap.

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Notes to Unaudited Consolidated Financial Statements

NOTE 15. FAIR VALUES

The following table presents estimated fair values of the Company’s financial instruments as of June 30, 2014, and December 31, 2013, 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 utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs 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 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. 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. The Company’s 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.

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

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.

(Dollars in thousands)			Fair Value Measurements Using
June 30, 2014	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	66,745	$	66,745	$	-	$	-	$	66,745
Securities available-for-sale		188,686		-		188,686		-		188,686
Securities held-to-maturity		37,031		-		36,417		-		36,417
Portfolio loans, net		609,740		-		-		613,681		613,681
Federal Home Loan Bank Stock		4,021		4,021		-		-		4,021
Financial liabilities
Deposits	$	755,016	$	-	$	755,500	$	-	$	755,500
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,484		-		8,484
Derivatives		3,420		-		3,420		-		3,420

(Dollars in thousands)			Fair Value Measurements Using
December 31, 2013	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	58,515	$	58,515	$	-	$	-	$	58,515
Securities available-for-sale		216,640		-		216,640		-		216,640
Securities held-to-maturity		36,696		-		34,025		-		34,025
Portfolio loans, net		584,126		-		-		591,315		591,315
Promissory note due from the former mortgage subsidiary		2,607		-		-		2,607		2,607
Federal Home Loan Bank Stock		4,531		4,531		-		-		4,531
Financial liabilities
Deposits	$	746,293	$	-	$	746,332	$	-	$	746,332
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,754		-		8,754
Derivatives		2,890		-		2,890		-		2,890

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Notes to Unaudited Consolidated Financial Statements

Fair Value Hierarchy

Level 1 valuations utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has 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.

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements. The Company’s 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 Sheets 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, the Company believes the measurement of fair value of cash and cash equivalents is derived from Level 1 inputs.

Securities – For 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.

Portfolio loans, net – 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 to be a reasonable estimate of loan discount for credit quality concerns. Given that there are commercial loans with specific terms that are not readily available; the Company believes the fair value of portfolio loans is derived from Level 3 inputs.

FHLB stock – The carrying value of FHLB stock approximates fair value as the shares can only be redeemed by the issuing institution at par. The Company measures the fair value of FHLB stock using Level 1 inputs.

Promissory note due from Mortgage Company – To determine the fair value of the promissory note, the Company discounts the expected future cash flows after each payment based on a discount rate derived by the average of the bid/ask yields on debt issued by a large mortgage lender with similar risk characteristics, whose debt is currently traded in an active open market. In addition, a risk premium adjustment was added to incorporate certain inherent risks and credit risks associated with the payment of certain cash flows from the former mortgage subsidiary. Accordingly, the Company derived a 10% discount rate to discount the future expected cash flows over the remaining life of the loan. The Company believes the fair value of the promissory note is derived from Level 3 inputs. See Note 3, Note Receivable in these Notes to Unaudited Consolidated Financial Statements for additional detail on the promissory note due.

Deposits – The Company measures 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 FHLB yield curves, and maturities. The Company obtained FHLB yield curve rates as of the measurement date, and believes 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.

FHLB variable rate advances – For variable rate FHLB borrowings, the carrying value approximates fair value. The Company measures the fair value of FHLB advances using Level 2 inputs.

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 June 30, 2014, future cash flows were discounted at 5.93%. The Company measures the fair value of subordinated debentures using Level 2 inputs.

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Notes to Unaudited Consolidated Financial Statements

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.

The Company uses 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, the Company 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. 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 information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value, as of June 30, 2014 and December 31, 2013.

(Dollars in thousands)	Fair Value at June 30, 2014
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	7,787	$	-	$	7,787	$	-
Obligations of states and political subdivisions		55,369		-		55,369		-
Residential mortgage backed securities and collateralized mortgage obligations		45,798		-		45,798		-
Corporate securities		42,166		-		42,166		-
Commercial mortgage backed securities		9,833		-		9,833		-
Other investment securities (1)		27,733		-		27,733		-
Total assets measured at fair value	$	188,686	$	-	$	188,686	$	-
Derivatives – forward starting interest rate swap	$	3,420	$	-	$	3,420	$	-
Total liabilities measured at fair value	$	3,420	$	-	$	3,420	$	-

	Fair Value at December 31, 2013
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	6,264	$	-	$	6,264	$	-
Obligations of states and political subdivisions		59,209		-		59,209		-
Residential mortgage backed securities and collateralized mortgage obligations		62,991		-		62,991		-
Corporate securities		48,230		-		48,230		-
Commercial mortgage backed securities		10,472		-		10,472		-
Other investment securities (1)		29,474		-		29,474		-
Total assets measured at fair value	$	216,640	$	-	$	216,640	$	-
Derivatives – forward starting interest rate swap	$	2,890	$	-	$	2,890	$	-
Total liabilities measured at fair value	$	2,890	$	-	$	2,890	$	-

(1) Principally represents residential mortgage backed securities issued by both by governmental and nongovernmental agencies, and other asset backed securities.

Recurring Items

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, the Company obtains 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. The Company has determined that the source of these fair values falls within Level 2 of the fair value hierarchy.

Forward starting interest rate swaps – The valuation of the Company’s interest rate swaps were obtained from third party pricing services. The fair values of the interest rate swaps were determined by using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis was based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the source of these derivatives’ fair values falls within Level 2 of the fair value hierarchy.

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Notes to Unaudited Consolidated Financial Statements

There were no assets or liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis for the six months ended June 30, 2014 and no transfers in or out of level 3 during the six months ended June 30, 2014. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis for the three and six months ended June 30, 2013. The amount included in the “Beginning balance” column represents the beginning balance of an item in the period for which it was designated as a Level 3 fair value measure.

(Dollars in thousands)	Beginning balance		Transfers into Level 3		Change included in earnings		Purchases and issuances		Sales and settlements			Transfers out			Ending balance		Net change in unrealized gains or (losses) relating to items held at end of period
Three months ended June 30, 2013
Obligations of states and political subdivisions	$	-		-		-		-		-			-		$	-	$	-
Mortgage backed securities	$	750		-		-		-		-			(750	)	$	-	$	-
Six months ended June 30, 2013
Obligations of states and political subdivisions	$	1,131								-			(1,131	)	$	-	$	-
Mortgage backed securities	$	13,747		-		-		-		(749	)		(12,998	)	$	-	$	-

Classification transfers of $1.1 million and $13.7 million in municipal bonds and non-agency mortgage backed securities from Level 2 to Level 3 were made in December 2012. The Company determined the fair values of these securities were derived by both observable and unobservable inputs. Accordingly, a Level 3 classification was deemed necessary. During the three months ended June 30, 2013, the Company transferred $750 thousand associated with one non-agency mortgage backed security from Level 3 to Level 2. During this period the Company was able to obtain observable inputs to determine the securities fair value. During the six months ended June 30, 2013, the Company transferred $1.1 million and $13.0 million in municipal bonds and non-agency mortgage backed securities from Level 3 to Level 2, the Company determined the fair values of these securities were derived from observable inputs.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company 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 table presents information about the Company’s assets and liabilities 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 represent 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.

(Dollars in thousands)	Fair Value at June 30, 2014
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	17,749	$	0	$	0	$	17,749
Other real estate owned		460		-		-		460
Total assets measured at fair value	$	18,209	$	0	$	0	$	18,209

	Fair Value at December 31, 2013
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	2,317	$	0	$	0	$	2,317
Other real estate owned		913		-		-		913
Total assets measured at fair value	$	3,230	$	0	$	0	$	3,230

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Notes to Unaudited Consolidated Financial Statements

The following table presents the losses resulting from nonrecurring fair value adjustments for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Collateral dependent impaired loans	$	892	$	238	$	5,501	$	394
Other real estate owned		-		-		290		3
Total	$	892	$	238	$	5,791	$	397

For the six months ended June 30, 2014:

● Collateral dependent impaired loans with a carrying amount of $23.3 million were written down to their fair value of $17.7 million resulting in a $5.5 million adjustment to the ALLL.

● One OREO property with an carrying value of $750 thousand was written down by $290 thousand to the fair value of $460 in anticipation of its pending sale

The loan amounts above 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. The carrying value of loans fully charged off is zero. When the fair value of the collateral is based on a current appraised value, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. 

The OREO amount above represents 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 generally 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. The Company records OREO as a nonrecurring Level 3. During the three months ended June 30, 2014 no additional impairment was deemed necessary. During the six months ended June 30, 2014 one OREO property with a carrying value of $750 thousand was written down by $290 thousand to the fair value of $460 in anticipation of its pending sale

Limitations – 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 the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s 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 on current on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets and liabilities, and property, plant and equipment. 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.

NOTE 16. TRANSFER OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales based on the criteria of ASC 860 when control over the assets has been surrendered. Assets obtained are to be initially measured at fair value and reflected as proceeds from the transfer. In addition, the assets transferred (cash) should be derecognized with a corresponding gain or loss recorded. Control over transferred assets is deemed surrendered when:

● The assets have been isolated from the Company,

● The transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets (or beneficial interests), and

● The Company does not maintain effective control over the transferred assets or third party beneficial interests through an agreement to repurchase them before their maturity.

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Notes to Unaudited Consolidated Financial Statements

On February 27, 2014, the Company completed a loan purchase transaction which included the purchase of a pool of residential solar panel loans secured by UCC filing with a par value of $12.9 million. The solar panel loans portfolio (“portfolio”) was purchased from an unrelated bank in exchange for cash of $12.7 million. The loans and the related servicing were transferred without recourse. The acquisition of the portfolio was accounted for as a transfer of financial assets. The Company initially measured the acquired loan portfolio at fair value of $12.7 million. The fair value was equal to the price paid to acquire the portfolio as the difference between the par value and cash purchase price represents the fair value adjustment. As a result of this transfer of financial assets, no gain or loss was recorded.

On May 12, 2014, the Company agreed to purchase $40 million of unsecured consumer home improvement loans. The loans will be transferred without recourse or servicing rights. The agreement calls for purchases up to $4 million per month up to a maximum par value of $40 million. As of June 30, 2014 the Company has purchased a total par value of $5.9 million in loans at a net discount of $198 thousand in exchange for cash payments totaling $5.7 million. The acquisition of the portfolio was accounted for as a transfer of financial assets. The Company initially measured the acquired loan portfolio at fair value of $5.7 million. The fair value was equal to the price paid to acquire the portfolio as the difference between the par value and cash purchase price represents the fair value adjustment. As a result of this transfer of financial assets, no gain or loss was recorded.

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

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

Forward Looking Statements and Risk Factors

This Report contains certain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, which are intended to be covered by the safe harbor for “forward-looking statements” provided by the Private Securities Litigation Reform Act of 1995. These statements may include statements that expressly or implicitly predict future results, performance or events. Statements other than statements of historical fact are forward-looking statements. You can find many of these statements by looking for words such as “anticipates,” “expects,” “believes,” “estimates” and “intends” and words or phrases of similar meaning. We make forward-looking statements regarding projected sources of funds, use of proceeds, availability of acquisition and growth opportunities, dividends, adequacy of our allowance for loan and lease losses (ALLL) and provision for loan losses, our commercial real estate portfolio and subsequent charge offs. Forward-looking statements involve substantial risks and uncertainties, many of which are difficult to predict and are generally beyond our control. There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. Risks and uncertainties include those set forth in our filings with the Securities and Exchange Commission (SEC), and the following factors that might cause actual results to differ materially from those presented:

● Our ability to attract new deposits and loans

● Demand for financial services in our market areas

● Competitive market pricing factors

● Deterioration of economic conditions that could result in increased loan losses

● Risks associated with concentrations of real estate related loans

● Market interest rate volatility

● Stability of funding sources and continued availability of borrowing

● Changes in legal or regulatory requirements or the results of regulatory examinations that could restrict growth

● Our ability to recruit and maintain key management staff

● Our ability to raise capital and incur debt on reasonable terms

● Regulatory limits on the Bank’s ability to pay dividends to the Company

● The impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act”) and related rules and regulations on the Company’s business operations and competitiveness, including the impact of executive compensation restrictions, which may affect the Company’s ability to retain and recruit executives in competition with firms in other industries who do not operate under those restrictions

● The impact of the Dodd-Frank Act on the Company’s interchange fee revenue, interest expense, FDIC deposit insurance assessments and regulatory compliance expense

There are many factors that could cause actual results to differ materially from those contemplated by these forward-looking statements. We do not intend to update these forward-looking statements. Readers should consider any forward-looking statements in light of this explanation, and we caution readers about relying on forward-looking statements.

For additional information concerning risks and uncertainties related to the Company and its operations please refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 under the heading “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 changes and trends in the financial condition, capital resources and liquidity of the Company from December 31, 2013 to June 30, 2014. Also discussed are significant trends and changes in the Company’s results of operations for the six months ended June 30, 2014, compared to the same period in 2013. 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.

GENERAL

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”). Our principal business is to serve as a holding company for Redding Bank of Commerce (“Bank”), which operates under two separate names (Redding Bank of Commerce and Sacramento Bank of Commerce a division of Redding Bank of Commerce). We also have two unconsolidated subsidiaries, Bank of Commerce Holdings Trust and Bank of Commerce Holdings Trust II, which were organized in connection with our prior issuances of trust preferred securities. Our common stock is traded on the NASDAQ Global Market under the symbol “BOCH.”

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

The Company commenced banking operations in 1982 and currently operates four full service facilities in two diverse markets in Northern California. We are proud of the Bank’s reputation as one of Northern California’s premier banks for business. We provide a wide range of financial services and products for business and consumer banking. The services offered by the Bank include those traditionally offered by banks of similar size in California.

We continuously search for both organic and external expansion opportunities, through internal growth, strategic alliances, acquisitions, establishing a new office or the delivery of new products and services. Systematically, we reevaluate the short and long term profitability of all of our lines of business, and continually evaluate whether to reduce or eliminate unprofitable locations or lines of business. We remain a viable, independent bank committed to enhancing shareholder value. This commitment has been fostered by proactive management and dedication to our staff, customers, and the markets we serve.

Our principal executive offices are located at 1901 Churn Creek Road, Redding, California and the telephone number is (530) 722-3939.

Executive Overview

Significant items for the six months ended June 30, 2014 were as follows:

Financial Position

Total consolidated assets were $963.7 million as of June 30, 2014, compared to $956.3 million as of December 31, 2013. Cash from increased deposits and sales of available for sale investment securities was used to, repurchase Company common stock, $5 million of additional BOLI and purchase $18.4 million loan fair value through two pools of consumer loans.

Capital

● The Company repurchased 700,000 common shares at a weighted average cost of $6.52 per share, pursuant to the Company’s publicly announced stock repurchase plan.

● The Company paid preferred stock cash dividends of $100 thousand compared to $100 thousand during the same period in 2013.

● The Company declared a regular cash dividend of $0.03 and $0.03 for the quarters ending June 30, 2014 and March 31, 3014 respectively. In determining the amount of dividends to be paid, the Company considers capital preservation, expected asset growth, projected earnings and our overall dividend pay-out ratio.

● The Company concluded the remaining hedged forecasted FHLB advances associated with the final two legs of the forward starting interest rate swap contracts (“IR”) were no longer probable. As a result, the Company reclassified $1.6 million from OCI and deferred tax liability to earnings, which are included in other noninterest income in the Consolidated Statement of Operations.

Financial Performance

● Net income available to common shareholders was $2.7 million for the six months ended June 30, 2014, compared with $3.9 million for the same period a year ago. The decrease in net income in the current quarter was attributable to the following:

o The negotiated settlement of a note receivable from our former mortgage subsidiary resulted in a loss of $1.4 million.

o A $290 thousand write-down on the pending sale of other real estate owned.

o Securities losses of $284 thousand due to the sale of lower yielding, longer duration securities.

o Gains of $1.6 million relating to the final two legs of the IR swap were recognized in other noninterest income.

● Net interest margin, on a tax equivalent basis, was 3.75% for the three months ended June 30, 2014 compared to 3.86% at December 31, 2013, and 3.81% for the quarter ended June 30, 2013. Decreased yields in the loan portfolio and decreased volume in the securities portfolio were partially offset increased yield in the investment portfolio and increased volume in the loan portfolio.

● Non maturing core deposits increased $44.4 million or 10% compared to the same period a year ago.

Credit Quality

● Nonperforming assets decreased to $28.3 million, or 2.94% of total assets, as of June 30, 2014, compared to $30.7 million, or 3.23% of total assets as of December 31, 2013. Nonperforming loans decreased $2.3 million to $27.5 million, or 4.43% of total loans, as of June 30, 2014, compared to $29.8 million, or 4.98% of total loans as of December 31, 2013. Nonaccrual loans have been written-down to their estimated net realizable values.

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● Net charge offs were $5.7 million, or 0.94% of average loans, as compared to net charge offs of $420 thousand or 0.07% of average loans during the same period a year ago.

● The Company made $1.5 million additional provision for loan losses, a decrease of $1.0 million compared to the same period a year ago. During the current period, provision expense to net charge offs was 25% compared to 585% during the same period a year ago.

Summary of Critical Accounting Policies

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements for the year ended December 31, 2013 included in the Form 10-K for the year ended December 31, 2013 filed with the SEC on March 11, 2014. Not all of these significant accounting policies require management to make difficult, subjective or complex judgments or estimates. Management believes that the following policies would be considered critical under the SEC’s definition.

Valuation of Investments and Impairment of Securities

At the time of purchase, the Company designates the security as held-to-maturity or available-for-sale, based on its investment objectives, operational needs and intent to hold. The Company does not engage in trading activity. Securities designated as held-to-maturity are carried at cost adjusted for the accretion of discounts and amortization of premiums. The Company has the ability and intent to hold these securities to maturity. Securities designated as available-for-sale may be sold to implement the Company’s 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 (OCI) (loss), a separate component of shareholders’ equity. Gains or losses on sale of securities are based on the specific identification method. The market value and underlying rating of the security is monitored for quality. Securities 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 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, the Company assesses whether it intends to sell the security, or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses.

If the Company intends to sell the security or if it more likely than not that the Company will be required to sell security before recovery of the amortized cost basis, the entire amount of other than temporary impairment (OTTI) 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’s amortized cost basis and the present value of its expected future cash flows.

The remaining differences between the investment’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 OCI. Significant judgment is required in the determination of whether OTTI has occurred for an investment. The Company follows a consistent and systematic process for determining OTTI loss. The Company has designated the ALCO Committee responsible for the other-than-temporary evaluation process.

The ALCO Committee’s assessment of whether OTTI 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) the intent and ability of the Company to retain its 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.

Allowance for Loan and Lease Losses

ALLL is based upon estimates of loan losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan 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 loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect the 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 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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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.

Income Taxes

Income taxes reported in the 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 financial statements. Under this method, deferred tax assets and liabilities are determined based on the differences between the financial statements and 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 that they will be realized. In evaluating our ability to recover the deferred tax assets, management considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, 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 pretax 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. The Company files consolidated federal and combined state income tax returns.

We recognize the financial statement effect of a tax position when it is more likely than not, based on the technical merits, that the position will be sustained upon examination. For tax positions that meet the more likely than not threshold, we may recognize only the largest amount of tax benefit that is greater than fifty percent likely to be realized upon ultimate settlement with the taxing authority.

Management believes that all of our tax positions taken meet the 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.

Derivative Financial Instruments and Hedging Activities

In the normal course of business the Company is subject to risk from adverse fluctuations in interest rates. The Company manages these risks through a program that includes the use of derivative financial instruments, primarily swaps and forwards. Counterparties to these contracts are major financial institutions. The Company is exposed to credit loss in the event of nonperformance by these counterparties. The Company does not use derivative instruments for trading or speculative purposes.

The Company's objective in managing exposure to market risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent on its access to these contracts in the financial markets.

All of the Company's outstanding derivative financial instruments are recognized in the Consolidated Balance Sheets sheet at their fair values. The effect on earnings from recognizing the fair values of these derivative financial instruments depends on their intended use, their hedge designation, and their effectiveness in offsetting changes in the fair values of the exposures they are hedging. Changes in the fair values of instruments designated to reduce or eliminate adverse fluctuations in the fair values of recognized assets and liabilities and unrecognized firm commitments are reported in earnings along with changes in the fair values of the hedged items. Changes in the effective portions of the fair values of instruments used to reduce or eliminate adverse fluctuations in cash flows of anticipated or forecasted transactions are reported in equity as a component of accumulated OCI. Amounts in accumulated OCI are reclassified to earnings when the related hedged items affect earnings or the anticipated transactions are no longer probable. Changes in the fair values of derivative instruments that are not designated as hedges or do not qualify for hedge accounting treatment are reported currently in earnings. Amounts reported in earnings are classified consistent with the item being hedged.

For derivative financial instruments accounted for as hedging instruments, the Company formally designates and documents, at inception, the financial instrument as a hedge of a specific underlying exposure, the risk management objective, and the manner in which effectiveness of the hedge will be assessed. The Company formally assesses both at inception and at each reporting period thereafter, whether the derivative financial instruments used in hedging transactions are effective in offsetting changes in fair value or cash flows of the related underlying exposures. Any ineffective portion of the change in fair value of the instruments is recognized immediately into earnings.

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The Company discontinues 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.

Types of derivative transactions currently recorded by the Company as of June 30, 2014:

● Interest Rate Swap Agreements – As part of the Company’s risk management strategy, the Company enters into interest rate swap agreements or other derivatives to mitigate the interest rate risk inherent in certain assets and liabilities. These derivative instruments are accounted for as cash flow hedges, with the changes in fair value reflected in OCI and subsequently reclassified to earnings when earnings are realized on the hedged item. At June 30, 2014, the Company maintained a notional amount of $75.0 million in forward starting interest rate swap agreements which were in an aggregate unrealized loss position of $3.4 million.

Fair Value Measurements

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, and OREO. 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, management uses its best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’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 financial statements. Additional information on our use of fair value measurements and our related valuation methodologies is provided in Note 15 of the Notes to the Unaudited Consolidated Financial Statements incorporated in this document.

Sources of Income

We derive our income from two principal sources: (1) 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, and (2) fee income, which includes fees earned on deposit services, income from payroll processing, electronic-based cash management services, mortgage banking income, and merchant credit card processing services.

Our income depends to a great extent on net interest income, which correlates strongly with certain interest rate characteristics. These interest rate characteristics are highly sensitive to many factors, which 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. Because of our predisposition to variable rate pricing on our assets and level of time deposits, we are frequently considered asset sensitive, and generally we are affected adversely by declining interest rates. However, in the current interest rate environment, many of our variable rate loans are priced at their floors. As a result, we would not experience an immediate benefit in a rising rate environment.

Net interest income reflects both our net interest margin, which is the difference between the yield we earn on our assets and the interest rate we pay for deposits and other sources of funding, and the amount of earning assets we hold. As a result, changes in either our net interest margin or the amount of earning assets we hold could affect our net interest income and earnings.

Increases or decreases in interest rates could adversely affect our net interest margin. Although the yield we earn on our assets 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 adjust faster in response to changes in interest rates. As a result, when interest rates fall, the yield we earn on our assets may fall faster than our ability to reprice a large portion 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 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, 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.

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

We assess our interest rate risk by estimating the effect on our earnings under various simulated 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 take other strategic actions which may result in losses or expenses.

RESULTS OF OPERATIONS

OVERVIEW

Net income attributable to Bank of Commerce Holdings was $2.7 million during the six months ended June 30, 2014 compared to net income of $4.0 million during the same period a year ago. The decrease was principally attributable to the negotiated settlement of the note receivable from our former mortgage subsidiary (the “Note”) which resulted in a loss of $1.4 million recorded in other expenses. The Company also recorded loss of $284 thousand on the sale of investment securities as part of a strategy for repositioning of the portfolio to reduce interest rate risk and determined that further impairment on a specific commercial lot in the other real estate owned portfolio was necessary; resulting in a $290 thousand write down of the property’s carrying value. The property was transferred to OREO in 2010 and was written down to its fair value in the first quarter in anticipation of its pending sale. The decrease was partially offset by gains reclassified from OCI to earnings based on the determination that the remaining hedged forecasted FHLB advances associated with the final two legs of the IR’s were no longer probable. Accordingly, the remaining gains recorded in OCI relating to the final two legs of the IR’s were immediately recognized in earnings. As a result of the transaction, the Company recognized $1.6 million in earnings. The decrease in net income was also offset by a decrease in the provision for income taxes of $788 thousand for the six months ended June 30, 2014

Preferred stock dividends payable to the U.S. Treasury were the unchanged at $100 thousand compared to the same period a year ago as a result of increased qualified lending over the measurement period. Accordingly, net income available to common shareholders during the six months ended June 30, 2014 decreased compared with the same period a year ago due to the decrease in net income described in the previous paragraph. Net income available to common shareholders was $2.2 million for the three months ended June 30, 2014, compared with net income of $2.0 million for the same period a year ago, the increase was primarily was primarily attributed to reclassification adjustments recorded in other noninterest income.

Diluted Earnings Per Share (EPS) were $ 0.19 for the six months ended June 30, 2014 compared with $0.26 for the same period a year ago. The decrease in diluted EPS compared to the same period a year ago, primarily resulted from decreased net income and partially offset by a decrease in weighted average shares resulting from common stock repurchases.

The Company continued its quarterly cash dividends of $0.03 per share during the quarter ended June 30, 2014. In determining the amount of dividends to be paid, management gives consideration to capital preservation objectives, expected asset growth, projected earnings, and the overall dividend pay-out ratio.

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

The following table presents the returns on average assets, average total equity and average common shareholders' equity for the three months ended June 30, 2014 and 2013. For each of the periods presented, the table includes the calculated ratios based on reported net earnings available to common shareholders and net income attributable to Bank of Commerce Holdings as shown in the Consolidated Statements of Operations incorporated in this document. Our return on average common shareholders' equity is positively impacted by lower average common shareholder equity.

	June 30, 2014			June 30, 2013
Returns on average assets:
Income available to common shareholders		0.55	%		0.82	%
Net income attributable to Bank of Commerce Holdings		0.57	%		0.84	%
Returns on average total equity:
Income available to common shareholders		5.24	%		7.22	%
Net income attributable to Bank of Commerce Holdings		5.44	%		7.40	%
Return on average common shareholders’ equity:
Income available to common shareholders		6.52	%		8.83	%
Net income attributable to Bank of Commerce Holdings		6.76	%		9.05	%

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NET INTEREST INCOME AND NET INTEREST MARGIN

Net interest income is the largest source of our operating income. Net interest income for the six months ended June 30, 2014 was $16.4 million compared to $16.8 million during the same period a year ago.

Interest income for the six months ended June 30, 2014 was $18.1 million, a decrease of $577 thousand or 3% compared to the same period a year ago. The decrease in interest income during the six three months of 2014 compared to the same period a year ago was primarily driven by decreased volume and yields in the loan portfolio and decreased volume in the investment securities portfolio, partially offset by increased yield of investment securities. Average non-accruing loans at June 30, 2014 decreased $12.8 million compared to the same period a year ago. Decreases in loan portfolio yield resulted in a $380 thousand decrease in loan interest income while decreases in loan portfolio volume resulted in a $337 thousand decrease in interest income compared to the same period a year ago.

Interest income recognized from the investment securities portfolio increased $148 thousand during the six months ended June 30, 2014 compared to the same period a year ago. The increase in investment securities interest income was primarily attributable to increased yields, partially offset by decreased volume. Average securities balances and weighted average tax equivalent yields at June 30, 2014 and 2013 were $240.4 million and 3.48% compared to $253.4 million and 3.18%, respectively.

Interest expense for the six months ended June 30, 2014 was $1.7 million, a decrease of $147 thousand or 0.34% compared to the same period a year ago. During the six months ended June 30, 2014, the Company continued to benefit from the re-pricing of deposits, and lower FHLB borrowings expense compared to the same period a year ago partially offset by increased deposit volume. The decrease in FHLB borrowing expense for the six months ended June 30, 2014 was primarily driven by decreased borrowings compared to the same period a year ago.

The net interest margin (net interest income as a percentage of average interest earning assets) on a fully tax-equivalent basis was 3.73% for the six months ended June 30, 2014, a decrease of 7 basis points as compared to the same period a year ago. The decrease in net interest margin primarily resulted from a 10 basis point decline in tax equivalent yield on average earning assets, partially offset by a 3 basis point decrease in interest expense to average earning assets. With decreasing elasticity in managing our funding costs and historically low interest rates, maintaining net interest margins in the foreseeable future will be challenging. Accordingly, management will continue to pursue organic loan growth, wholesale loan purchases, and actively manage the investment securities portfolio within our accepted risk tolerance to maximize yield on earning assets.

Our net interest income is affected by changes in the amount and mix of interest earning assets and interest bearing liabilities, as well as changes in the yields earned on interest earning assets and rates paid on deposits and borrowed funds. The following tables present condensed average balance sheet information, together with interest income and yields on average interest earning assets, and interest expense and rates paid on average interest bearing liabilities for the six months ended June 30, 2014 and 2013:

Average Balances, Interest Income/Expense and Yields/Rates Paid

	Six months ended June 30, 2014							Six months ended June 30, 2013
(Dollars in thousands)	Average Balance		Interest		Yield/ Rate			Average Balance		Interest		Yield/ Rate
Portfolio loans1	$	610,033	$	14,282		4.68	%	$	624,444	$	14,999		4.80	%
Tax-exempt securities2		85,097		1,950		4.58	%		91,833		1,938		4.22	%
Taxable securities		155,343		2,225		2.86	%		161,545		2,089		2.59	%
Interest bearing due from banks		62,126		268		0.86	%		40,306		272		1.35	%
Average Earning Assets		912,599	$	18,725		4.10	%		918,128	$	19,298		4.20	%
Cash & due from banks		10,187							9,920
Bank premises		11,696							10,081
Other assets		32,684							26,523
Average Total Assets	$	967,166						$	964,652
Interest bearing demand	$	270,311	$	239		0.18	%	$	235,786	$	251		0.21	%
Savings deposits		91,447		114		0.25	%		91,482		133		0.29	%
Certificates of deposit		261,184		1,335		1.02	%		252,322		1,351		1.07	%
Repurchase agreements		-		-			%		11,476		6		0.10	%
Other borrowings		90,465		11		0.01	%		143,688		105		0.15	%
Average Interest Liabilities	$	713,407	$	1,699		0.48	%	$	734,574	$	1,846		0.50	%
Noninterest bearing demand		132,669							114,119
Other liabilities		19,213							6,603
Shareholders’ equity		101,877							109,356
Average Liabilities and Shareholders’ Equity	$	967,166						$	964,652
Net Interest Income and Net Interest Margin			$	17,026		3.73	%			$	17,452		3.80	%

Interest income on loans includes fee expense of approximately $(166) thousand and $(148) thousand for the six months ended June 30, 23014 and 2013, respectively.

(1) Average nonaccrual loans of $27.3 million and $40.1 million for the six months ended June 30, 2014 and 2013 are included, respectively.

(2) Tax-exempt income has been adjusted to a tax equivalent basis at a 34% tax rate. The amount of such adjustments was an addition to recorded income of approximately $663 thousand and $659 thousand for the six months ended June 30, 2014 and 2013, respectively.

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The following table sets forth a summary of the changes in tax equivalent net interest income due to changes in average asset and liability balances (volume) and changes in average rates (rate) for the three months ended June 30, 2014 and June 30, 2014. Changes in tax equivalent interest income and expense, which are not attributable specifically to either volume or rate, are allocated proportionately between both variances.

Analysis of Changes in Net Interest Income

	June 30, 2014 over June 30, 2013
(Dollars in thousands)	Variance due to Average Volume			Variance due to Average Rate			Total
(Decrease) Increase
Interest Income:
Portfolio loans	$	(337	)	$	(380	)	$	(717	)
Tax-exempt securities1		(154	)		166			12
Taxable securities		(89	)		225			136
Interest bearing due from banks		94			(98	)		(4	)
Total Increase (Decrease)		(486	)		(87	)		(573	)
Increase (Decrease)
Interest Expense:
Interest bearing demand		31			(43	)		(12	)
Savings accounts		0			(19	)		(19	)
Certificates of deposit		45			(61	)		(16	)
Repurchase agreements		0			(6	)		(6	)
Other borrowings		124			(218	)		(94	)
Total Increase (Decrease)		200			(347	)		(147	)
Net Increase (Decrease)	$	(686	)	$	260		$	(426	)

¹ Tax-exempt income has been adjusted to tax equivalent basis at a 34% tax rate.

NONINTEREST INCOME

Noninterest income for the six months ended June 30, 2014 was $2.5 million, an increase of $651thousand, or 35.2%, compared to the same period a year ago. The following table presents the key components of noninterest income for the three and six months ended June 30, 2014 and 2013:

	Three months ended June 30,											Six months ended June 30,
(Dollars in thousands)	2014			2013		Change Amount			Change Percent			2014			2013		Change Amount			Change Percent
Noninterest income:
Service charges on deposit accounts	$	41		$	54	$	(13	)		-24.07	%	$	85		$	100	$	(15	)		-15.0	%
Payroll and benefit processing fees		109			114		(5	)		-4.39	%		244			242		2			0.83	%
Earnings on cash surrender value – Bank owned life insurance		162			112		50			44.64	%		288			268		20			7.46	%
(Loss) gain on investment securities, net		(39	)		406		(445	)		-109.61	%		(284	)		595		(879	)		-147.73	%
Merchant credit card service income, net		29			32		(3	)		-9.38	%		55			65		(10	)		-15.38	%
Other income		1,834			307		1,527			497.39	%		2,112			579		1,533			264.77	%
Total noninterest income	$	2,136		$	1,025	$	1,111			108.39	%	$	2,500		$	1,849	$	651			35.21	%

Service charges on deposit accounts decreased $13 thousand and $15 thousand for the three and six months ended June 30, 2014 respectively, due to decreased fees on demand deposit accounts.

Bank owned life insurance earnings increased $50 thousand for the three months ended June 30, 2014 compared to the same periods a year ago. The increase was due to the purchase of additional policies during the three months ended June 30, 2013.

Gains on the sale of investment securities decreased $445 thousand to a loss of $39 thousand for the three months ended June 30, 2014, compared to gains of $406 thousand for the same period a year ago. During the three months ended June 30, 2014, the Company purchased seventeen securities with weighted average yields of 2.82%. During the same period the Company sold thirty securities with weighted average yields 2.56%. Generally, securities purchased had relatively short durations with solid credit quality.

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The major components of other income are fees earned on ATM transactions, mortgage fee income, online banking services, wire transfers, and FHLB dividends. The increase in current year is primarily driven by $1.6 million in gains recorded in other income as a result of the Company’s determination that the remaining hedged forecasted FHLB advances associated with the final two legs of the IR’s were no longer probable. . Changes in the other components of other income are a result of normal operating activities. See Note 14, Derivatives in the Notes to Unaudited Consolidated Financial Statements for additional detail on the Company’s hedged transactions.

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NONINTEREST EXPENSE

Noninterest expense for the six months ended June 30, 2014 was $13.9 million, an increase of $962 thousand or 31% compared to the same period a year ago. The following table presents the key elements of noninterest expense for the three and six months ended June 30, 2014 and 2013:

	Three months ended June 30,										Six months ended June 30,
(Dollars in thousands)	2014		2013		Change Amount			Change Percent			2014		2013		Change Amount		Change Percent
Noninterest expense:
Salaries & related benefits	$	3,417	$	3,074	$	343			11.16	%	$	7,039	$	5,998	$	1,041		17.36	%
Occupancy & equipment expense		678		529		149			28.17	%		1,320		1,103		217		19.67	%
Write down of other real estate owned		-		-		-			0	%		290		-		290		100	%
Federal Deposit Insurance Corporation insurance premium		189		245		(56	)		-22.86	%		380		333		47		14.11	%
Data processing fees		218		136		82			60.29	%		412		270		142		52.59	%
Professional service fees		338		294		44			14.97	%		602		563		39		6.93	%
Deferred compensation expense		115		-		115			100	%		230		-		230		100	%
Other expenses		1,156		870		286			32.87	%		3,622		2,343		1,279		54.59	%
Total noninterest expense	$	6,111	$	5,148	$	962			18.68	%	$	13,895	$	10,610	$	3,284		30.95	%

Salaries and related benefits expense for the three and six months ended June 30, 2014 were $3.4 million and 7.0 million, an increase of $343 thousand or 11% and $1.0 million or 17.% compared to the same periods a year ago, respectively. The increase in salaries and related benefits was primarily driven by an increase in the number of employees including the addition of a new SBA Lending Department, increased Supplemental Executive Retirement Plan (SERP) costs, increased health insurance costs and an increase in contributions to the Company’s employee profit sharing plan.

Occupancy and equipment expenses increased $149 thousand and $217 thousand for the three and six months ended June 30, 2014, respectively, compared to the same periods a year ago. The increase in occupancy and equipment expenses is due to increased rent expenses and furniture fixture, and equipment costs related to the expansion of the Sacramento Bank of Commerce branch and remodel of the Churn Creek branch.

The decrease in FDIC assessments of $56 thousand or 23% to $189 thousand during the quarter ended June 30, 2014 resulted from certain true-up adjustments to record additional premium expenses deemed necessary upon receipt of final prepaid premium reimbursement from the FDIC in June of 2013. The increase for the six months ended June 30, 2014 compared to the prior year is due to certain true-up adjustments to reverse prior period over accruals recorded in March of 2013.

Data processing expense for the three months ended June 30, 2014 was $218 thousand an increase of $82 thousand or 60% compared to the same period a year ago. The increases in data processing expense compared to the same periods a year ago is primarily driven by increases in software maintenance and licensing expenses. The Bank continues to strive to make improvements in network infrastructure and systems, and expects to realize continued increased costs in these expenses for the foreseeable future.

Deferred compensation expense was $115 thousand and $230 thousand for the three and six months ended June 30, 2014 respectively, compared to $0 for the same periods a year ago. During June of the prior period, the Company’s board of directors approved a revision to SERP resulting in a reduction in accrued deferred compensation expenses of $357 thousand. For disclosure purposes, in the table above and in the Consolidated Statement of Operations, the benefit in deferred compensation expense is included in the line item other expenses.

Other expenses for the three and six months ended June 30, 2014 were $1.2 million and $3.6 million, an increase of $286 thousand and 1.3 million respectively, compared to the same periods a year ago. The increase in other expenses was primarily driven by the reduction in SERP expenses recorded during the three and six months ended June 30, 2013 and the negotiated settlement of the Note from the former mortgage subsidiary which resulted in a pretax loss recorded in other expenses of $1.4 million during the six months ended June 30, 2014. Other expenses for the six months ended June 30, 2014 also include $295 thousand of amortization expense for affordable housing investments purchased during 2013, partially offset by a decrease in the amount of off balance sheet provision of $200 thousand, and a decrease in OREO expenses of $178 thousand.

INCOME TAXES

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 principal difference between statutory tax rates and our effective tax rate is the benefit derived from investing in tax-exempt securities and preferential state tax treatment for qualified enterprise zone loans. We continue to participate in Affordable Housing projects which afford federal and state tax credits. Increases and decreases in the provision for taxes reflect changes in our income before taxes.

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The following table reflects the Company's tax provision and the related effective tax rate for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	For the three months ended June 30,									For the six months ended June 30,
	2014			2013			2014			2013
Income tax provision	$	559		$	757		$	747		$	1,535
Effective tax rate		20.22	%		27.40	%		21.23	%		27.50	%

The Company’s effective income tax rate was 20.22% and 27.40% three months ended June 30, 2014 and 2013 respectively. The effective tax rates differed from the federal statutory rate of 34% and the state rate of 10.84% principally because of non-taxable income arising from bank-owned life insurance, income on tax-exempt investment securities, and tax credits arising from low income housing investments. The Company’s effective tax rate is derived from income tax expense divided by income before provision for income taxes.

The decrease in the effective tax rate for the three and six months ended June 30, 2014 was primarily driven by increased investments in Qualified Affordable Housing Projects The Company made investments in Qualified Affordable Housing Projects during 2013, which generated low income housing tax credit and benefits net of Investment amortization of $60 thousand and $0 for the year ended June 30, 2014 and 2013 respectively. See note 9. “Investments in Qualified Affordable Housing Projects” in the Notes to the Unaudited Consolidated Financial Statements in this document for a discussion on the investments made.

FINANCIAL CONDITION

BALANCE SHEET

As of June 30, 2014, the Company had total consolidated assets of $963.7 million, total net portfolio loans of $609.7 million, an ALLL of $9.9 million, deposits outstanding of $755.0 million, and stockholders’ equity of $100.7 million.

The Company continued to maintain a strong liquidity position during the reporting period. As of June 30, 2014, the Company maintained cash positions at the Federal Reserve Bank and correspondent banks in the amount of $50.7 million. The Company also held certificates of deposits with other financial institutions in the amount of $16.1 million, which the Company considers liquid.

Available-for-sale investment securities totaled $188.7 million at June 30, 2014, compared with $216.6 million at December 31, 2013. The Company’s available-for-sale investment portfolio is currently being utilized as a secondary source of liquidity to fund other higher yielding asset opportunities, such as commercial and commercial real estate loan originations when required. During the first six months of 2014, the Company purchased thirty-nine securities with a par value of $45.2 million, weighted average yield of 2.98%, and weighted average duration of 5.29. During the first six months of 2014 the Company sold sixty-two securities with a par value of $66.2 million and a weighted average yield of 2.26%. The net sales activity resulted in $284 thousand realized loss.

The Company’s purchases continue to focus on moderate term maturity securities, taking advantage of the steepness of the yield curve which moderates the Company’s exposure to rising interest rates, while still providing an acceptable yield. Sales were focused on longer term municipal and corporate bonds, as well as mortgage-backed and asset-backed securities with extended cash flows or with a high probability of cash flows extending as interest rates increase.

Overall, management’s investment strategy reflects the continuing expectation of rising rates across the yield curve. As such, management will continue to actively seek out opportunities to reduce the overall duration of the portfolio and improve cash flows. Given the current shape of the yield curve, this strategy could entail absorbing small losses within the portfolio to meet this longer term objective.

At June 30, 2014, the Company’s net unrealized gain on available-for-sale securities were $1.3 million, compared with $3.7 million net unrealized losses at December 31, 2013. The favorable change in net unrealized losses was primarily due to increases in the fair values of the Company’s municipal bond, mortgage backed securities and corporate bond, portfolios. The increases in the fair values of the Company’s investment securities portfolio were primarily driven by the narrowing of market spreads and changes in market interest rates.

Overall, the net portfolio loan balance increased during the first six months of 2014. The Company recorded net portfolio loans of $609.7 million at June 30, 2014, compared with $584.1 million at December 31, 2013, an increase of $25.6 million, or 4%. The increase in net portfolio loans was primarily attributable commercial real estate loan originations and $18.1 million in consumer loans associated with the purchase of consumer loan pools. See Note 16, Transfer of Financial Assets in the Notes to the Unaudited Consolidated Financial Statements in this document for further information regarding the purchase of these pools.

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The Company continued to monitor credit quality during the period, and adjust the ALLL accordingly. As such, the Company made $ 1.5 million additional provision for loan losses during the first six months of 2014, compared with $2.5 million during the same period a year ago. The Company’s ALLL as a percentage of gross portfolio loans was 1.60% as of June 30, 2014 compared with 2.37% as of December 31, 2013 and 2.13%, as of June 30, 2013.

Net charge offs were $5.7 million during the first six months of 2014, compared with net charge offs of $419 thousand during the same period a year ago. The charge offs in the current year were primarily focused in three separate relationships. The first included $3.4 million in chargeoffs of Commercial and Industrial loans. The second included $1.4 million in charge offs of Commercial Real Estate and Farmland loans and the third included $1.0 Commercial Real Estate loans. Allocations for the amounts charged off for the relationships above were included in the ALLL balance as of December 31, 2013.

Despite the charge offs related to these three loans, during the first six months of 2014 the trend in asset quality of the Bank’s loan portfolio stabilized relative to fiscal years 2013 and 2012. Management is cautiously optimistic that given continuing improvements in local and national economic conditions, the Company’s impaired assets will continue to trend down. However, the commercial real estate and commercial loan portfolio’s continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and less than robust economic conditions. Accordingly, management will continue to work diligently to identify and dispose of problematic assets which could lead to an elevated level of charge offs. At June 30, 2014, management believes the Company’s ALLL is adequately funded given the current level of credit risk.

Past due loans as of June 30, 2014 increased to $9.0 million, compared to $6.9 million as of December 31, 2013. The increase in past due loans was primarily attributable to increases in the past due commercial and commercial real estate portfolios partially offset by decreases in the residential loan portfolio. Management believes that risk grading for past due loans appropriately reflects the risk associated with the past due loans.

The Company’s OREO balance at June 30, 2014 was $826 thousand compared to $913 thousand at December 31, 2013. The net decrease in OREO was primarily due to impairment charges related to a specific commercial lot that were deemed necessary, resulting in a write down of $290 thousand of the property’s carrying value in the first quarter of 2014. During the second quarter of 2014, the sale of one property from the ITIN portfolio was offset by the addition of two ITIN portfolio properties and one commercial real estate property. See Note 7, Other Real Estate Owned in the Notes to Consolidated Financial Statements in this document, for further details relating to the Company’s OREO portfolio. The Company remains committed to working with customers who are experiencing financial difficulties to find potential solutions.

Total deposits as of June 30, 2014 were $755.0 million compared to $746.3 million at December 31, 2013, an increase of $8.7 million. During the first six months of 2014, decreases in interest bearing demand were offset by increases certificate of deposit accounts.

Brokered certificates of deposits totaled $13.7 million at June 30, 2014, and were structured with both fixed rate terms and adjustable rate terms and had remaining maturities ranging from less than one year to 6.0 years. Furthermore, brokered certificates of deposits with adjustable rate terms were structured with call features allowing the Company to call the certificate should interest rates move in an unfavorable direction. These call features are generally exercisable within six to twelve months of issuance date and quarterly thereafter.

On March 20, 2014, the Company announced that its Board of Directors had authorized the purchase of up to 700,000 or 5% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased 700,000 common shares during the six months ended June 30, 2014. The shares were retired subsequent to purchase.

The decrease in weighted average shares from the stock repurchases positively contributed to earnings per common share, and return on common equity.

INVESTMENT SECURITIES

The composition of our investment securities portfolio reflects management’s investment strategy of maintaining an appropriate level of liquidity while providing a relatively stable source of interest income. The investment securities portfolio also mitigates interest rate risk and a portion of credit risk inherent in the loan portfolio, while providing a vehicle for the investment of available funds, a source of liquidity (by pledging as collateral) and collateral for certain public funds deposits.

Available-for-sale investment securities totaled $188.7 million at June 30, 2014, compared with $216.6 million at December 31, 2013. Purchases of available-for-sale securities of $46.1 million were offset by sales of $69.1 million, pay downs of $9.1 million, amortization of net purchase price premiums of $901 thousand, and an increase in fair value of $5.0 million. During the first six months of 2014, the Company purchased thirty-eight available for sale securities and sold sixty-three securities.

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The Company’s held-to-maturity investment portfolio is generally utilized to hold longer term securities that may have greater price risk. This portfolio includes securities with longer durations and higher coupons than securities held in the available-for-sale securities portfolio. Held-to-maturity investment securities had carrying amounts of $37.0 million at June 30, 2014, compared with $36.7 million at December 31, 2013. During the six months ended June 30, 2014, purchases of $244 thousand of held-to-maturity securities were offset by $90 thousand net discount accretion.

The following table presents the investment securities portfolio by classification and major type as of June 30, 2014 and December 31, 2013:

(Dollars in thousands)
Available-for-sale securities (1)	June 30, 2014		December 31, 2013
U.S. government & agencies	$	7,787	$	6,264
Obligations of state and political subdivisions		55,369		59,209
Residential mortgage backed securities and collateralized mortgage obligations		45,798		62,991
Corporate securities		42,166		48,230
Commercial mortgage backed securities		9,833		10,472
Other asset backed securities		27,733		29,474
Total	$	188,686	$	216,640
Held-to-maturity securities (1)
Obligations of state and political subdivisions	$	37,031	$	36,696

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

The following table presents information regarding the amortized cost and maturity structure of the investment portfolio at June 30, 2014:

(Dollars in thousands)	Within One Year					Over One through Five Years					Over Five through Ten Years					Over Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available-for-sale securities
U.S. government & agencies	$	0		-	%	$	0		-	%	$	7,886		2.80	%	$	0			%	$	7,886		2.80	%
Obligations of state and political subdivisions		-		-			4,720		2.90	%		11,660		2.93	%		38,067		2.94	%		54,447		2.94	%
Mortgage backed securities and collateralized mortgage obligations		1,385		5.07	%		11,821		3.16	%		30,835		2.85	%		1,481		3.99	%		45,522		3.03	%
Corporate securities		1,016		3.26	%		17,074		2.73	%		22,244		2.94	%		1,068		2.48	%		41,402		2.84	%
Commercial mortgage backed securities		-		-			-		-	%		1,130		2.06	%		8,812		3.35	%		9,942		3.20	%
Other asset backed securities		-		-			-		-	%		694		1.98	%		26,962		2.93	%		27,656		2.91	%
Total	$	2,401		4.31	%	$	33,615		2.90	%	$	74,449		2.85	%	$	76,390		3.00	%	$	186,855		2.94	%
Held-to-maturity securities
Obligations of state and political subdivisions	$	367		1.49	%	$	365		4.24	%	$	14,555		2.97	%	$	21,744		3.07	%	$	37,031		3.03	%

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.

LOANS AND PORTFOLIO CONCENTRATIONS

Loans and Portfolio Concentration

We concentrate our portfolio lending activities primarily within El Dorado, Placer, Sacramento, and Shasta counties in California, and the location of the Bank's four full service branches, specifically identified as Northern California. We manage our credit risk through diversification of our loan portfolio and the application of underwriting policies and procedures and credit monitoring practices. Generally, the loans are secured by real estate or other assets located in California; repayment is expected from the borrower’s business cash flows or cash flows from real estate investments.

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Overall, the net portfolio loan balance increased during the first six months of 2014. The Company recorded net portfolio loans of $609.7 million at June 30, 2014, compared with $584.1 million at December 31, 2013, an increase of 25.6 million, or 4%. The increase in net portfolio loans was primarily attributable to commercial real estate loan originations and the purchase of consumer loan pools during the first and second quarters of 2014. See Note 16, Transfer of Financial Assets in the Notes to the Unaudited Consolidated Financial Statements in this document for further information regarding the purchased loans.

The following table presents the composition of the loan portfolio as of June 30, 2014 and December 31, 2013:

(Dollars in thousands)	June 30, 2014			% of gross portfolio loans			December 31, 2013			% of gross portfolio loans
Commercial	$	168,354			27	%	$	170,429			29	%
Real estate – construction loans		20,462			3	%		18,545			3	%
Real estate – commercial (investor)		209,324			33	%		205,384			34	%
Real estate – commercial (owner occupied)		88,402			14	%		83,976			14	%
Real estate – ITIN loans		54,611			9	%		56,101			9	%
Real estate – mortgage		14,211			2	%		14,590			2	%
Real estate – equity lines		43,809			8	%		45,462			8	%
Consumer		20,195			3	%		3,472			1	%
Other		50			-	%		36			-	%
Gross portfolio loans	$	619,418			100	%	$	597,995			100	%
Less:
Deferred loan fees, net		(204	)					(303	)
Allowance for loan losses		9,882						14,172
Net portfolio loans	$	609,740					$	584,126

The following table provides a breakdown of the Company’s real estate construction portfolio as of June 30, 2014:

(Dollars in thousands) Loan Type	Balance		% of total
Commercial lots	$	5,244		26	%
Commercial real estate – construction		10,286		50	%
1-4 family subdivision loans		3,066		15	%
1-4 family individual residential lots		1,522		7	%
1-4 family construction speculative		344		2	%
Total real estate-construction	$	20,462		100	%

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The following table sets forth the maturity and re-pricing distribution of our loans outstanding as of June 30, 2014, which, based on remaining scheduled repayments of principal, were due within the periods indicated:

(Dollars in thousands)	Within One Year		After One Through Five Years		After Five Years		Total
Commercial	$	77,567	$	51,626	$	39,161	$	168,354
Real estate - construction loans		6,320		7,504		6,638		20,462
Real estate - commercial (investor)		28,067		32,673		148,584		209,324
Real estate - commercial (owner occupied)		2,896		23,797		61,709		88,402
Real estate - ITIN loans		-		-		54,611		54,611
Real estate - mortgage		390		2,280		11,541		14,211
Real estate - equity lines		1,203		3,610		38,996		43,809
Consumer		7,091		1,410		11,694		20,195
Other		-		50		-		50
Gross portfolio loans	$	123,534	$	122,950	$	372,934	$	619,418
Loans due after one year with:
Fixed rates			$	55,801	$	90,674	$	146,475
Variable rates				67,149		282,259		349,408
Total			$	122,950	$	372,933	$	495,883

Loans with unique credit characteristics

On April 17, 2009, the Company transferred certain nonperforming loans, without recourse, and cash in exchange for the acquisition of a pool of Individual Tax Identification Number (“ITIN”) residential mortgage loans. The ITIN loans are loans made to legal United States residents without a social security number, and are geographically dispersed throughout the United States. The ITIN loan portfolio is serviced through a third party. Worsening economic conditions in the United States may 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 we are forced to foreclose and service these ITIN properties ourselves, we may realize additional monitoring, servicing and appraisal costs due to the geographic disbursement of the portfolio which will adversely affect our noninterest expense. As of June 30, 2014, and December 31, 2013, the specific ITIN ALLL allocation represented approximately 2.23% and 1.30% of the total outstanding principal, respectively.

ASSET QUALITY

Nonperforming Assets

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

Deterioration of the California real estate market has had an adverse effect on the Company’s business, financial condition, and results of operations. The residential development and construction markets have yet to fully recover from their depressed states experienced during the recent economic recession. Consequently, our loan portfolio continues to reflect an elevated level of nonperforming loans which have resulted in elevated provisions to the ALLL. Management has taken cautious yet decisive steps to ensure the proper funding of loan reserves. Given the current business environment, management’s top focus is on credit quality, expense control, and bottom line net income. All of these are affected either directly or indirectly by the Company’s management of its asset quality.

We manage asset quality and control credit risk through the application of policies designed to promote sound underwriting and loan monitoring practices. The Bank’s 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’s judgment of the amount necessary to maintain the allowance at a level adequate to absorb probable incurred losses. 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, 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 basis. These reviews consider such factors as the financial strength of borrowers, the value of the applicable collateral, loan loss experience, estimated loan losses, growth in the loan portfolio, prevailing economic conditions and other factors.

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Our loan portfolio continues to be impacted by the repercussions from the recent economic recession. Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, totaled $27.5 million or 4.43% of total portfolio loans as of June 30, 2014, as compared to $29.8 million, or 4.98% of total loans, at December 31, 2013. Nonperforming assets, which include nonperforming loans and foreclosed real estate (“OREO”), totaled $28.3 million, or 2.94% of total assets as of June 30, 2014, compared with $30.7 million, or 3.23% of total assets as of December 31, 2013. Nonperforming loans decreased $2.3 million during the six months ended June 30, 2014 and classified loans decreased $4.7 million during the same period. The Company recorded additional provision expense of $1.5 million during the six months ended June 30, 2014.

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 appraisals. Generally, external appraisals are updated every six to 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’s nor the Bank’s Exclusionary List of appraisers and brokers. In certain 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, an external appraisal is utilized to measure a loan for potential impairment.

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 the Company’s 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 loan loss provisions 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 on nonaccrual status until all principal and interest payments are brought current and the prospects for future payments in accordance with the loan agreement appear relatively certain.

The Company practices one exception to the nonaccrual policy for the Arrow loan pool which has unique credit characteristics, and is made up of subordinated home equity lines of credits and home equity loans. The Arrow credits are considered uncollectable when they become 90 days past due. Accordingly, loans in this pool are charged off when they become 90 days past due.

Upon acquisition of real estate collateral, typically through the foreclosure process, we promptly begin to market the property for sale. If we do not begin to receive offers or indications of interest we will analyze the price and review market conditions to assess the pricing level that would enable us to sell the property. In addition, we obtain updated appraisals on OREO property every six to twelve months. Increases in 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. Unless a current appraisal is available, an appraisal will be ordered prior to a loan migrating to OREO. Foreclosed properties held as OREO are recorded at the lower of the recorded investment in the loan or market value of the property less expected selling costs. OREO at June 30, 2014 totaled $826 thousand and consisted of five properties.

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

The following table summarizes our nonperforming assets as of June 30, 2014 and December 31, 2013:

(Dollars in thousands)
Nonperforming assets	June 30, 2014			December 31, 2013
Commercial	$	4,375		$	6,527
Total real estate construction		4,375			6,527
Real estate mortgage
ITIN 1-4 family loan pool		5,690			6,895
1-4 family, closed end 1st lien		1,249			1,322
1-4 family revolving		479			513
Total real estate mortgage		7,418			8,730
Commercial real estate		15,598			14,539
Consumer		87			-
Total nonaccrual loans		27,478			29,796
90 days past due and still accruing		-			-
Total nonperforming loans		27,478			29,796
Other real estate owned		826			913
Total nonperforming assets	$	28,304		$	30,709
Nonperforming loans to total loans		4.43	%		4.98	%
Nonperforming assets to total assets		2.94	%		3.23	%

As of June 30, 2014, nonperforming assets of $28.3 million have been written down by 36%, or $10.2 million, from their original balance of $42.8 million.

The Company is continually performing extensive reviews of the commercial real estate portfolio, including stress testing. These reviews are being performed on both the investor credits and owner occupied credits. These reviews are being completed to verify leasing status, to ensure the accuracy of risk ratings, and to develop proactive action plans with borrowers on projects. Stress testing has been performed to determine the effect of rising cap rates, interest rates, and vacancy rates on the portfolio. Based on our analysis, the Company believes our lending teams are effectively managing the risks in this portfolio. There can be no assurance that any further 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 in additional nonperforming loans in the future.

Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it 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 the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent 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. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

As of June 30, 2014, the Company had $27.9 million in TDRs compared to $33.4 million as of December 31, 2013. As of June 30, 2014, the Company had one hundred eighteen restructured loans that qualified as TDRs, of which one hundred three were performing according to their restructured terms. TDRs represented 4.50% of gross portfolio loans as of June 30, 2014, compared with 5.59% at December 31, 2013.

At June 30, 2014 and December 31, 2013, impaired loans of $7.4 million and $8.8 million were classified as accruing TDRs, respectively. The restructured loans on accrual status represent the majority of impaired loans accruing interest at each respective date. In order for a restructured loan to be on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. The Company had no obligations to lend additional funds on the restructured loans as of June 30, 2014. As of June 30, 2014, there were $8.1 million of ITINs which were classified as TDRs, of which $3.0 million were on nonaccrual status.

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The following table sets forth a summary of the Company’s restructured loans that qualify as TDRs as of June 30, 2014 and December 31, 2013:

(Dollars in thousands)
Troubled debt restructurings	June 30, 2014			December 31, 2013
Accruing troubled debt restructurings
Commercial	$	13		$	63
Commercial real estate:
Other		1,716			3,864
Residential:
1-4 family		5,074			4,303
Home equities		589			598
Total accruing troubled debt restructurings	$	7,392		$	8,828
Nonaccruing troubled debt restructurings
Commercial	$	4,023		$	6,458
Commercial real estate:
Other		13,224			14,024
Residential:
1-4 family		3,257			4,114
Total nonaccruing troubled debt restructurings	$	20,504		$	24,596
Total troubled debt restructurings
Commercial	$	4,036		$	6,521
Commercial real estate:
Other		14,940			17,888
Residential:
1-4 family		8,331			8,417
Home equities		589			598
Total troubled debt restructurings	$	27,896		$	33,424
Percentage of gross portfolio loans		4.50	%		5.59	%

Allowance for Loan and Lease Losses and Reserve for Unfunded Commitments

The ALLL at June 30, 2014 decreased $4.3 million to $9.9 million compared to $14.2 million at December 31, 2013. The Company recorded net chargeoffs of $5.7 million for the six months ended June 30, 2014 compared to net recoveries of $319 thousand for the year ended December 31, 2013 and net charge-offs of $420 thousand for the same period a year ago. During the first six months of 2013, the Company made additional provisions for loan losses of $1.5 million compared to provision expense of $2.5 million during the same period a year ago.

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The following table summarizes the activity in the ALLL reserves for the periods indicated:

(Dollars in thousands)	June 30, 2014			December 31, 2013			June 30, 2013
Beginning balance allowance for loan losses	$	14,172		$	11,103		$	11,103
Provision for loan loss charged to expense		1,450			2,750			2,450
Loans charged off		(6,359	)		(2,770	)		(1,319	)
Loan loss recoveries		619			3,089			899
Ending balance allowance for loan losses	$	9,882		$	14,172		$	13,133
Gross portfolio loans outstanding at period end	$	619,418		$	597,995		$	617,398
Ratio of allowance for loan losses to total loans		1.59	%		2.37	%		2.13	%
Nonaccrual loans at period end:
Commercial	$	4,375		$	6,527		$	7,898
Commercial real estate		15,598			14,539			16,614
Residential real estate		6,939			8,217			11,165
Home equity		479			513			345
Consumer		87			-			-
Total nonaccrual loans	$	27,478		$	29,796		$	36,022
Accruing troubled-debt restructured loans
Commercial	$	13		$	63		$	68
Commercial real estate		1,716			3,864			1,748
Residential real estate		5,074			4,303			3,174
Home equity		589			598			531
Total accruing restructured loans	$	7,392		$	8,828		$	5,521
All other accruing impaired loans		585			3,517			4,445
Total impaired loans	$	35,456		$	42,141		$	45,988
Allowance for loan losses to nonaccrual loans at period end		35.96	%		47.56	%		36.46	%
Nonaccrual loans to total loans		4.43	%		4.98	%		5.83	%

As of June 30, 2014, impaired loans totaled $35.5 million, of which $27.5 million were in nonaccrual status. Of the total impaired loans, $10.8 million or one hundred thirty were ITIN loans with an average balance of approximately $83 thousand. The remaining impaired loans consist of six commercial loans, fourteen commercial real estate loans, six residential mortgages, sixteen home equity loans and one consumer loan.

All impaired loans are individually evaluated for impairment. If the measurement of each impaired loan’s 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 dependant loans the Company establishes a specific component within the ALLL based on the present value of the future cash flows. If in management’s assessment 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 against the ALLL.

At June 30, 2014, the recorded investment in loans classified as impaired totaled $35.5 million, with a corresponding valuation allowance (included in the ALLL) of $1.0 million. The valuation allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans. At December 31, 2013, the total recorded investment in impaired loans was $42.1 million, with a corresponding valuation allowance (included in the ALLL) of $5.0 million.

The Company realized net charge offs of $5.7 million for the six months ended June 30, 2014 compared with net recoveries of $319 thousand in the prior year end and net charge offs of $420 thousand in the same period a year ago. Management does not feel that the increase in net charge offs in the current year is indicative of a trend as the increase in net charge offs in the current quarter and the decrease in the ALLL allocation is primarily due to chargeoffs related to three significant borrowing relationships. The first relationship included $3.4 million in chargeoffs of Commercial and Industrial loans and the second included $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans. The third included $1.0 million in chargeoffs for three Commercial Real Estate loans. Allocations for the amounts charged off for these relationships were included in the ALLL balance as of December 31, 2013. Management has individually evaluated each impaired loan and believes that the remaining loan portfolio is properly risk graded and that the reserve level and allocations are appropriate at June 30, 2014.

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The commercial real estate and commercial loan portfolio’s continue to be influenced by weak real estate values, the effects of relatively high unemployment levels, and overall sluggish economic conditions. Past due loans as of June 30, 2014 increased to $9.0 million, compared to $6.9 million as of December 31, 2013. The increase in past due loans was primarily due to increases in the past due commercial and commercial real estate portfolios related to one relationship, partially offset by decreases in the past due residential loan portfolio. Management continues to work diligently to identify and dispose of problematic assets, which could lead to an elevated level of chargeoffs. At June 30, 2014, management believes the Company’s ALLL is adequately funded given the current level of credit risk which includes appropriately risk grading past due loans.

The following table sets forth the allocation of the ALLL and percent of loans in each category to total loans (excluding deferred loan fees) as of June 30, 2014 and December 31, 2013:

	June 30, 2014					December 31, 2013
(Dollars in thousands)	Amount		% Loan Category			Amount		% Loan Category
Balance at end of period applicable to:
Commercial	$	3,334		34	%	$	7,057		50	%
Commercial real estate:
Construction		354		4	%		173		1	%
Other		3,513		35	%		2,611		18	%
Residential:
1-4 family		1,440		15	%		1,685		12	%
Home equities		893		9	%		808		6	%
Consumer		238		2	%		35		0	%
Unallocated		110		1	%		1,803		13	%
Total allowance for loan and lease losses	$	9,882		100	%	$	14,172		100	%

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 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, 2014, the unallocated allowance amount represented 1% of the ALLL, compared to 13% at December 31, 2013. The decrease in the unallocated ALLL during the six months ended June 30, 2014 is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for a second borrowing relationship. The loans were previously recorded as TDRs and allocations for the amounts charged off for these two relationships were included in the ALLL balance as of December 31, 2013. The level in unallocated ALLL in both the current period and prior year reflects management’s evaluation of the current business and economic conditions, credit risk, and depressed collateral values of real estate in our markets. The ALLL composition should not be interpreted as an indication of specific amounts or loan categories in which future charge offs may occur.

DEPOSITS

Total deposits as of June 30, 2014 were $755.0 million compared to $746.3 million at December 31, 2013, an increase of $8.7 million. During the first six months of 2014, increases in certificate of deposit accounts were partially offset by decreases in interest bearing demand.

The following table presents the deposit balances by major category as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	June 30, 2014					December 31, 2013
	Amount		Percentage			Amount		Percentage
Noninterest bearing demand	$	135,416		18	%	$	133,984		18	%
Interest bearing demand		269,055		35	%		273,390		37	%
Savings		90,416		12	%		90,442		12	%
Time, $100,000 or greater		216,510		29	%		201,340		27	%
Time, less than $100,000		43,619		6	%		47,137		6	%
Total	$	755,016		100	%	$	746,293		100	%

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

The following table sets forth the distribution of our average daily balances and their respective yields as of June 30, 2014, and December 31, 2013.

(Dollars in thousands)	June 30, 2014					December 31, 2013
	Amount		Yield			Amount		Yield
Interest bearing demand	$	140,045		0.16	%	$	115,342		0.19	%
Savings		91,447		0.25	%		92,502		0.27	%
Money market accounts		130,266		0.19	%		128,783		0.20	%
Certificates of deposit		261,184		1.02	%		249,500		1.05	%
Interest bearing deposits		622,942		0.55	%		586,127		0.57	%
Noninterest bearing demand		132,669					126,017
Average total deposits	$	755,611				$	712,144
Average other borrowings	$	90,465		0.42	%	$	130,924		0.09	%

The following table sets forth the remaining maturities of certificates of deposit in amounts of $100,000 or more as of June 30, 2014:

Deposit Maturity Schedule

(Dollars in thousands)	June 30, 2014
Maturing in:
Three months or less	$	37,707
Three through six months		23,771
Six through twelve months		36,736
Over twelve months		118,296
Total	$	216,510

The Company has an agreement with Promontory Interfinancial Network LLC (“Promontory”) allowing our Bank to provide FDIC deposit insurance to balances in excess of current FDIC deposit insurance limits. Promontory’s Certificate of Deposit Account Registry Service (CDARS) and Insured Cash Sweep (ICS) 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. These products are designed to enhance our ability to attract and retain customers and increase deposits, by providing additional FDIC coverage to customers. CDARS deposits can be reciprocal or one-way, and ICS deposits can only be reciprocal. All of the Bank’s CDARS and ICS deposits are reciprocal. At June 30, 2014 and December 31, 2013, the Company’s CDARS and ICS balances totaled $47.8 million and $53.2 million, respectively. Of these totals, at June 30, 2014 and December 31, 2013, there were no time deposits equal to or greater than the $250,000 fully insured under current deposit insurance limits.

BORROWINGS

At June 30, 2014, the Bank had term debt outstanding with a carrying value of $75.0 million compared to $75.0 million December 31, 2013. Advances from the FHLB amounted to 100% of the total term debt and are secured by commercial real estate loans, and residential mortgage loans. The FHLB advance has a floating contractual interest rate of 0.23% with maturity in August, 2014.

Junior Subordinate Debentures

During the first quarter 2003, Bank of Commerce Holdings formed a wholly-owned Delaware statutory business trust, Bank of Commerce Holdings Trust (the "grantor trust"), which issued $5.0 million of guaranteed preferred beneficial interests in Bank of Commerce Holdings' junior subordinated debentures (the "trust notes") to the public and $155 thousand common securities to the Company. These debentures qualify as Tier 1 capital under Federal Reserve Board guidelines. The proceeds from the issuance of the trust notes were transferred from the grantor trust to the Holding Company and from the Holding Company to the Bank as surplus capital.

The trust notes accrue and pay distributions on a quarterly basis at three month LIBOR plus 3.30%. The effective interest rate at June 30, 2014 was 3.53%. The rate increase is capped at 2.75% annually and the lifetime cap is 12.5%. The final maturity on the trust notes is April 7, 2033, and the debt allows for prepayment after five years on the quarterly payment date.

On July 29, 2005, the Company participated in a private placement to an institutional investor of $10 million of fixed rate trust preferred securities (the "Trust Preferred Securities"); through a newly formed Delaware trust affiliate, Bank of Commerce Holdings Trust II (the "Trust"). The Trust simultaneously issued $310 thousand common securities to the Company. The fixed rate terms expired in September 2010, and have transitioned to floating rate for the remainder of the term.

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The proceeds from the sale of the Trust Preferred Securities were used by the Trust to purchase from the Company the aggregate principal amount of $10.3 million of the Company's floating rate junior subordinate debentures (the "Notes"). The net proceeds to the Company from the sale of the Notes to the Trust were used by the Company for general corporate purposes, including funding the growth of the Company's various financial services.

The Trust Preferred Securities mature on September 15, 2035, and are redeemable at the Company's option on any March 15, June 15, or September 15 until maturity. The Trust Preferred Securities require quarterly distributions by the Trust to the holder of the Trust Preferred Securities at a rate that resets quarterly to equal three month LIBOR plus 1.58%. The effective interest rate at June 30, 2014 was 1.81%. The interest payments by the Company will be used to pay the quarterly distributions payable by the Trust to the holder of the Trust Preferred Securities.

The Notes were issued pursuant to a Junior Subordinated Indenture (the "Indenture"), dated July 29, 2005, by and between the Company and J.P. Morgan Chase Bank, National Association, as trustee. Like the Trust Preferred Securities, the Notes bear interest at a floating rate which resets on a quarterly basis to three month LIBOR plus 1.58%. The interest payments by the Company will be used to pay the quarterly distributions payable by the Trust to the holder of the Trust Preferred Securities. However, so long as no event of default, as described below, has occurred under the Notes, the Company may, from time to time, defer interest payments on the Notes (in which case the Trust will be entitled to defer distributions otherwise due on the Trust Preferred Securities) for up to twenty (20) consecutive quarters. The Notes are subordinated to the prior payment of other indebtedness of the Company that, by its terms, is not similarly subordinated. The Notes mature on September 15, 2035, and may be redeemed at the Company's option on any March 15, June 15, or September 15 until maturity. The Company may redeem the Notes for their aggregate principal amount, plus accrued interest, if any.

Although the Notes are recorded as a liability on the Company's Consolidated Balance Sheets, for regulatory purposes, the Notes are treated as Tier 1 capital under rulings of the Federal Reserve Board, the Company's primary federal regulatory agency.

LIQUIDITY AND CASH FLOW

The principal objective of our liquidity management program is to maintain the Bank's ability to meet the day-to-day cash flow requirements of our customers who either wish to withdraw funds or to draw upon credit facilities to meet their cash needs.

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. Individual state laws require banks to collateralize public deposits, typically as a percentage of their public deposit balance in excess of FDIC insurance. In addition to liquidity from core deposits and the repayments and maturities of loans and investment securities, the Bank can utilize established uncommitted federal funds lines of credit, sell securities under agreements to repurchase, borrow on a secured basis from the FHLB or issue brokered certificates of deposit.

The Bank had available lines of credit with the FHLB totaling $124.0 million as of June 30, 2014; credit availability is subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The Bank had available lines of credit with the Federal Reserve totaling $ 21.7 million subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with additional financial institutions totaling $40.0 million at June 30, 2014. Availability of lines is subject to federal funds balances available for loan and continued borrower eligibility. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage.

The Holding Company is a separate entity from the Bank and must provide for its own liquidity. Substantially all of the Holding Company's revenues are obtained from dividends declared and paid by the Bank. The Bank paid $3.9 million in dividends to the Holding Company during the six months ended June 30, 2014. The dividends were primarily used to fund treasury stock purchases and pay dividends to shareholders. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to the Holding Company. We believe that such restrictions will not have an adverse impact on the ability of the Holding Company to fund its quarterly cash dividend distributions to common shareholders and meet its ongoing cash obligations, which consist principally of debt service on the $15.5 million (issued amount) of outstanding junior subordinated debentures. As of June 30, 2014, the Holding Company did not have any borrowing arrangements of its own.

As disclosed in the Consolidated Statements of Cash Flows, net cash provided by operating activities was $2.4 million for the six months ended June 30, 2014. The material differences between cash provided by operating activities and net income consisted of non-cash items including: $1.5 million of loan loss provision, a $1.9 million increase in other assets due to gains re-classed from OCI, a $1.5 million decrease in other assets from the settlement of the Note to the former mortgage subsidiary.

Net cash of $2.5 million provided by investing activities consisted principally of $68.8 million in proceeds from sale of investment securities, $9.1 million in proceeds from maturities and payments from available-for-sale investment securities. Other investing activities included, partially offset by $46.1 million in purchases of available-for-sale securities, $27.4 million in net loan originations and $2.1 million investment in premise and equipment.

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Net cash of $3.3 million provided by financing activities consisted principally of $11.7 million increase certificates of deposits partially offset by $2.9 million in decrease in demand and savings accounts, $4.6 million in purchases of common stock and $928 thousand in dividends on common and preferred stock.

CAPITAL RESOURCES

We use capital to fund organic growth, pay dividends and repurchase our shares. The objective of effective capital management is to produce above market long term returns by using capital when returns are perceived to be high and issuing capital when costs are perceived to be low. Our potential sources of capital include retained earnings, common and preferred stock issuance, and issuance of subordinated debt and trust notes.

Overall capital adequacy is monitored on a day-to-day basis by management and reported to our Board of Directors on a monthly basis. The regulators of the Bank measure capital adequacy by using a risk-based capital framework and by monitoring compliance with minimum leverage ratio guidelines. Under the risk-based capital standard, assets reported on our Consolidated Balance Sheets and certain off-balance sheet items are assigned to risk categories, each of which is assigned a risk weight.

This standard characterizes an institution's capital as being "Tier 1" capital (defined as principally comprising shareholders' equity) and "Tier 2" capital (defined as principally comprising the qualifying portion of the ALLL). The minimum ratio of total risk-based capital to risk-adjusted assets, including certain off-balance sheet items, is 8%. At least one-half (4%) of the total risk-based capital is to be comprised of common equity; the remaining balance may consist of debt securities and a limited portion of the ALLL.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets and of Tier 1 capital to average assets. Management believes that the Company and the Bank met all capital adequacy requirements to which they are subject to, as of June 30, 2014.

As of June 30, 2014, the most recent notification from the FDIC categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. To be categorized as well capitalized, an institution must maintain minimum Total Risk-Based, Tier 1 Risk-Based and Tier 1 Leverage ratios as set forth in the following table. There are no conditions or events since the notification that management believes have changed the Bank's category.

The Company and the Bank’s capital amounts and ratios as of June 30, 2014, are presented in the table.

(Dollars in thousands)	Capital		Actual Ratio			Well Capitalized Requirement			Minimum Capital Requirement
The Holding Company
Leverage	$	116,928		12.10	%	n/a				4	%
Tier 1 Risk-Based		116,928		15.14	%	n/a				4	%
Total Risk-Based		126,592		16.39	%	n/a				8	%
The Bank
Leverage	$	116,909		12.11	%		5	%		4	%
Tier 1 Risk-Based		116,909		15.15	%		6	%		4	%
Total Risk-Based		126,566		16.40	%		10	%		8	%

Total shareholders’ equity at June 30, 2014 was $100.7 million, compared to shareholder’s equity of $101.8 million reported at December 31, 2013. During the six months ended June 30, 2014, the decrease in shareholders’ equity was primarily due to the repurchase and subsequent retirement of 700,000 shares of stock at a weighted average price of $6.49 per share, partially offset by income from operations and increased other comprehensive income.

On September 28, 2011, the Company entered into a Securities Purchase Agreement with the Secretary of the Treasury, pursuant to which the Company issued and sold to the Treasury 20,000 shares of its Senior Non-Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock”), having a liquidation preference of $1,000 per share, for aggregate proceeds net of issuance costs of $19.9 million. The issuance was pursuant to the Treasury’s SBLF program, a $30 billion fund established under the Small Business Jobs Act of 2010, which encourages lending to small businesses by providing capital to qualified community banks with assets of less than $10 billion.

The Series B Preferred Stock is entitled to receive non-cumulative dividends payable quarterly on each January 1, April 1, July 1 and October 1. The dividend rate, was calculated on the aggregate Liquidation Amount, and was initially set at 5% per annum based upon the initial level of Qualified Small Business Lending (QSBL) by the Bank. The dividend rate for future dividend periods was set based upon the percentage change in qualified lending between each dividend period and the baseline QSBL level established at the commencement of the Agreement. As a result of increased qualified lending, preferred stock dividends for the SBLF program are fixed at the current rate of 1% through January 2016.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

If the Series B Preferred Stock remains outstanding beyond January 2016, the dividend rate will be fixed at 9%. Depending on the Company’s condition this increase in the Series B Preferred Stock annual dividend rate could have a material adverse effect on our earnings and could also adversely affect our ability to pay dividends on our common shares.

Such dividends are not cumulative, but the Company may only declare and pay dividends on its common stock (or any other equity securities junior to the Series B Preferred Stock) if it has declared and paid dividends for the current dividend period on the Series B Preferred Stock, and will be subject to other restrictions on its ability to repurchase or redeem other securities. In addition, if (1) the Company has not timely declared and paid dividends on the Series B Preferred Stock for six dividend periods or more, whether or not consecutive, and (2) shares of Series B Preferred Stock with an aggregate liquidation preference of at least $20.0 million are still outstanding, the Treasury (or any successor holder of Series B Preferred Stock) may designate two additional directors to be elected to the Company’s Board of Directors.

As more completely described in the Certificate of Designation, holders of the Series B Preferred Stock have the right to vote as a separate class on certain matters relating to the rights of holders of Series B Preferred Stock and on certain corporate transactions. Except with respect to such matters and, if applicable, the election of the additional directors described above, the Series B Preferred Stock does not have voting rights.

The Company may redeem the shares of Series B Preferred Stock, in whole or in part, at any time at a redemption price equal to the sum of the Liquidation Amount per share and the per-share amount of any unpaid dividends for the then-current period, subject to any required prior approval by the Company’s primary federal banking regulator.

Periodically, the Board of Directors authorizes the Company to repurchase shares. Share repurchase announcements are published in press releases and SEC 8-K filings. Typically we do not give any public notice before repurchasing shares. Various factors determine the amount and timing of our share repurchases, including our capital requirements, market conditions and legal considerations. These factors can change at any time and there can be no assurance as to the number of shares repurchased or the timing of the repurchases. Our policy has been to repurchase shares under the safe harbor conditions of Rule 10b-18 of the Exchange Act including a limitation on the daily volume of repurchases.

On January 16, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 6% of its outstanding shares over a twelve-month period. The stock repurchase plan authorized the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased and subsequently retired 662,977 shares during the three months ended March 31, 2013.

On August 21, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 7% of its outstanding shares over a twelve-month period. The stock repurchase plan authorized the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased and subsequently retired 1,000,000 shares during the year ended December 31, 2013.

On March 20, 2014, the Company announced that its Board of Directors had authorized the purchase of up to 700,000 or 5% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased and subsequently retired 700,000 common shares during the six months ended June 30, 2014.

During the six months ended June 30, 2014 and, 2013 respectively, the Company’s Board of Directors declared a quarterly cash dividend of $0.03 per common share per quarter. These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings, regulatory capital levels, capital preservation, expected growth, and the overall payout ratio. We expect that the dividend rate will be reassessed on a quarterly basis 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.

The following table presents cash dividends declared and dividend payout ratios (dividends declared per common share divided by basic earnings per common share) for the three months ended June 30, 2014 and 2013.

Cash Dividends and Payout Ratios per Common Share

	Three months ended June 30,						Six months ended June 30,
	2014			2013			2014			2013
Dividends declared per common share	$	0.03		$	0.03		$	0.06		$	0.06
Dividend payout ratio		19	%		23	%		30	%		23	%

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

OFF-BALANCE SHEET ARRANGEMENTS

Information regarding Off-Balance Sheet Arrangements is included in Note 12, Commitments and Contingencies, in the Notes to Unaudited Consolidated Financial Statements incorporated in this document.

CONCENTRATION OF CREDIT RISK

Information regarding Concentration of Credit Risk is included in Note 12, Commitments and Contingencies, in the Notes to Unaudited Consolidated Financial Statements incorporated in this document.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

The Company’s assessment of market risk as of June 30, 2014 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, 2013.

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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’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’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 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’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 financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America.

The Company’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 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 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 June 30, 2014, 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 quarter of 2014 that materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company is involved in various pending and threatened legal actions arising in the ordinary course of business. The Company maintains reserves for losses from legal actions, which are both probable and estimable. In the opinion of management, the disposition of claims currently pending will not have a material adverse affect on the Company's financial position or results of operations.

Item 1a. Risk Factors

There have been no significant changes in the risk factors previously disclosed in the Company’s Form 10-K for the period ended December 31, 2013, filed with the SEC on March 11, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

a) Not Applicable

b) Not Applicable

c) The following table provides information about repurchases of common stock by the Company during three months ended June 30, 2014:

Period			Total number of Common Shares Purchased (1)		Average Price Paid per Common Share		Total Number of Shares Purchased as Part of Publicly Announced Plan (2)		Maximum Number of Remaining Shares that May be Purchased at Period End under the Plan
4/1/14	–	4/30/14		80,915	$	6.65		80,915		178,270
5/1/14	–	5/31/14		178,270	$	6.44		178,270		0
6/1/14	–	6/30/14		-	$	-		-		-
Total for quarter				259,185	$	6.52		259,185

(1) Common shares repurchased by the Company during the quarter consisted of 259,185 shares repurchased pursuant to the Company’s publicly announced corporate stock repurchase plan described in (2) below.

(2) On March 20, 2014, the Company announced that its Board of Directors had authorized the purchase of up to 700,000 or 5% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases.

Item 3. Defaults Upon Senior Securities

Not Applicable

Item 4. Mine Safety Disclosures

Not Applicable

Item 5. Other Information

Not Applicable

Item 6. Exhibits

31.1 Certification of Chief Executive Officer pursuant to Sarbanes-Oxley Act of 2002

31.2 Certification of Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002

32.0 Certification of Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Act of 2002

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Calculation Linkbase Document

101.DEF XBRL Taxonomy Definition Linkbase Document

101.LAB XBRL Taxonomy Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

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SIGNATURES

Following 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: August 8, 2014	/s/ Samuel D. Jimenez
	Samuel D. Jimenez
	Executive Vice President and
	Chief Operating Officer and Chief Financial Officer

69

EX-31

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Randall S Eslick, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Bank of Commerce Holdings (the “registrant”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, registrant's internal control over financial reporting; and;

5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ Randall S Eslick

Randall S Eslick

President and Chief Executive Officer

(Principal Executive Officer)

Dated: August 8, 2014

EX-31

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a), AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Samuel D. Jimenez, certify that:

1) I have reviewed this quarterly report on Form 10-Q of Bank of Commerce Holdings (the “registrant”);

2) Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3) Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4) The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and;

5) The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

/s/ SAMUEL D. JIMENEZ

Samuel D. Jimenez

Executive Vice President and

Chief Operating Officer and Chief Financial Officer

(Principal Financial and Accounting Officer)

Dated: August 8, 2014

EX-32

Exhibit 32.0

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Regarding Quarterly Report on Form 10-Q

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of Bank of Commerce Holdings, a California Corporation (the "Company"), does certify that:

1.	The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, fully complies with the requirements of section 13(a) or 15(d) of the Securities and Exchange Act of 1934, as amended, and
2.	Information contained in the Form 10-Q fairly presents, in all material respects, the financial condition and results of the Company.

Dated: August 8, 2014
/s/ Randall S Eslick	/s/ Samuel D. Jimenez
Randall S Eslick	Samuel D. Jimenez
President and Chief Executive Officer	Executive Vice President and Chief Operating Officer and Chief Financial Officer

XML

Note 4 - Earnings Per Share (Details)	3 Months Ended	6 Months Ended			3 Months Ended	6 Months Ended
	Jun. 30, 2013 January Sixteen Two Thousand And Thirteen Plan [Member]	Jun. 30, 2013 January Sixteen Two Thousand And Thirteen Plan [Member]	Jan. 16, 2013 January Sixteen Two Thousand And Thirteen Plan [Member]	Aug. 21, 2013 August Twenty One Two Thousand And Thirteen Plan [Member]	Jun. 30, 2014 March Twenty Two Thousand and Fourteen Plan [Member]	Jun. 30, 2014 March Twenty Two Thousand and Fourteen Plan [Member]	Mar. 20, 2014 March Twenty Two Thousand and Fourteen Plan [Member]
Note 4 - Earnings Per Share (Details) [Line Items]
Stock Repurchase Program, Number of Shares Authorized to be Repurchased			1,000,000	1,000,000			700,000
Purchase Of Common Stock Percentage On Outstanding Shares			6.00%	7.00%			5.00%
Stock Repurchased During Period, Shares	319,196	982,173			259,815	700,000

XML

Note 6 - Loans (Details) - Information Regarding Number of Loans Where Contractual Terms have been Restructured (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Financing Receivable, Modifications [Line Items]
Number of Contracts	2	2	3	9
Pre-Modification Outstanding Recorded Investment	$ 150	$ 241	$ 850	$ 766
Post-Modification Outstanding Recorded Investment	154	244	854	836
Commercial Portfolio Segment [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts			1	0
Pre-Modification Outstanding Recorded Investment			700	0
Post-Modification Outstanding Recorded Investment			700	0
Residential One To Four Family [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts	2	2	2	8
Pre-Modification Outstanding Recorded Investment	150	241	150	692
Post-Modification Outstanding Recorded Investment	154	244	154	761
Residential Real Estate and Home Equities [Member]
Financing Receivable, Modifications [Line Items]
Number of Contracts				1
Pre-Modification Outstanding Recorded Investment				74
Post-Modification Outstanding Recorded Investment				$ 75

XML

Note 6 - Loans (Details) - Outstanding Loan Balances (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	$ 619,418	$ 597,995
Deferred loan costs, net	(204)	(303)
Allowance for loan losses	9,882	14,172
Net portfolio loans	609,740	584,126
Commercial Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	168,354	170,429
Commercial Construction Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	20,462	18,545
Commercial Investor Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	209,324	205,384
Commercial Owner Occupied Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	88,402	83,976
Individual Tax Identification Number Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	54,611	56,101
Commercial Mortgage Backed Securities [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	14,211	14,590
Home Equity Line of Credit [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	43,809	45,462
Consumer Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	20,195	3,472
Other Loan [Member]
Note 6 - Loans (Details) - Outstanding Loan Balances [Line Items]
Outstanding Loan Balances	$ 50	$ 36

XML

Note 13 - Accumulated Other Comprehensive Income (Details) - Activity in Accumulated Other Comprehensive Income (USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended		12 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2013	Mar. 31, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Dec. 31, 2012
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive income	$ (907)		$ (307)		$ (907)	$ (307)	$ (2,392)	$ 1,258
Comprehensive income	(181)	1,666	(1,747)	182	1,485	(1,565)	(3,650)
Unrealized Gains on Securities [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive income	1,092		11		1,092	11	(1,809)	2,189
Comprehensive income	1,115	1,786	(2,397)	219
Unrealized Gains on Derivatives [Member]
Accumulated Other Comprehensive Income (Loss) [Line Items]
Accumulated other comprehensive income	(1,999)		(318)		(1,999)	(318)	(583)	(931)
Comprehensive income	$ (1,296)	$ (120)	$ 650	$ (37)

XML

Note 6 - Loans (Details) - Financing Receivables Modified as Troubled Debt Restructurings within Previous 12 Months for Payment Default (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 6 - Loans (Details) - Financing Receivables Modified as Troubled Debt Restructurings within Previous 12 Months for Payment Default [Line Items]
Number of Contracts	3	2	4	4
Recorded Investment	$ 3,398	$ 275	$ 3,484	$ 1,457
Commercial Portfolio Segment [Member]
Note 6 - Loans (Details) - Financing Receivables Modified as Troubled Debt Restructurings within Previous 12 Months for Payment Default [Line Items]
Number of Contracts	2	1	2	2
Recorded Investment	3,007	49	3,007	497
Commercial Real Estate Other Receivable [Member]
Note 6 - Loans (Details) - Financing Receivables Modified as Troubled Debt Restructurings within Previous 12 Months for Payment Default [Line Items]
Number of Contracts	1	1	1	2
Recorded Investment	391	226	391	960
Residential One To Four Family [Member]
Note 6 - Loans (Details) - Financing Receivables Modified as Troubled Debt Restructurings within Previous 12 Months for Payment Default [Line Items]
Number of Contracts			1
Recorded Investment			$ 86

XML

Note 15 - Fair Values (Details) - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014
Obligations Of States And Political Subdivisions [Member]
Note 15 - Fair Values (Details) - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs [Line Items]
Beginning balance		$ 1,131
Transfers into Level 3	0
Change included in earnings	0
Purchases and issuances	0
Sales and settlements	0
Transfers out		(1,131)
Ending balance	0	0
Net change in unrealized gains or (losses) relating to items held at end of period	0
Collateralized Mortgage Backed Securities [Member]
Note 15 - Fair Values (Details) - Reconciliation of Assets and Liabilities Measured at Fair Value Using Significant Unobservable Inputs [Line Items]
Beginning balance	750	13,747
Transfers into Level 3	0
Change included in earnings	0
Purchases and issuances	0
Sales and settlements	0	(749)
Transfers out	(750)	(12,998)
Net change in unrealized gains or (losses) relating to items held at end of period	$ 0

XML

Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	$ 33,530	$ 133,081
Unrealized losses, Less than 12 months	(321)	(4,454)
Fair value, 12 months or more	42,066	12,937
Unrealized losses, 12 months or more	(1,117)	(947)
Fair value, total	75,596	146,018
Unrealized losses, total	(1,438)	(5,401)
US Government Agencies Debt Securities [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	4,943	5,446
Unrealized losses, Less than 12 months	(10)	(147)
Fair value, 12 months or more	2,846	819
Unrealized losses, 12 months or more	(89)	(168)
Fair value, total	7,789	6,265
Unrealized losses, total	(99)	(315)
Obligations Of States And Political Subdivisions [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	7,225	29,943
Unrealized losses, Less than 12 months	(52)	(1,578)
Fair value, 12 months or more	14,297	2,727
Unrealized losses, 12 months or more	(342)	(255)
Fair value, total	21,522	32,670
Unrealized losses, total	(394)	(1,833)
Fair value, Less than 12 months	2,334	23,800
Unrealized losses, Less than 12 months	(9)	(1,524)
Fair value, 12 months or more	20,487	7,533
Unrealized losses, 12 months or more	(949)	(1,183)
Fair value, total	22,821	31,333
Unrealized losses, total	(958)	(2,707)
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	7,344	44,197
Unrealized losses, Less than 12 months	(96)	(1,214)
Fair value, 12 months or more	6,309	3,271
Unrealized losses, 12 months or more	(160)	(139)
Fair value, total	13,653	47,468
Unrealized losses, total	(256)	(1,353)
Corporate Debt Securities [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	6,911	32,649
Unrealized losses, Less than 12 months	(76)	(792)
Fair value, 12 months or more	9,945	2,960
Unrealized losses, 12 months or more	(182)	(96)
Fair value, total	16,856	35,609
Unrealized losses, total	(258)	(888)
Commercial Mortgage Backed Securities [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	2,970	5,543
Unrealized losses, Less than 12 months	(24)	(205)
Fair value, 12 months or more	2,606	1,437
Unrealized losses, 12 months or more	(130)	(176)
Fair value, total	5,576	6,980
Unrealized losses, total	(154)	(381)
Other Asset Backed Securities [Member]
Note 5 - Securities (Details) - Fair Value and Associated Unrealized Losses on Investments [Line Items]
Fair value, Less than 12 months	4,137	15,303
Unrealized losses, Less than 12 months	(63)	(518)
Fair value, 12 months or more	6,063	1,723
Unrealized losses, 12 months or more	(214)	(113)
Fair value, total	10,200	17,026
Unrealized losses, total	$ (277)	$ (631)

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Note 13 - Accumulated Other Comprehensive Income (Tables)

6 Months Ended

Jun. 30, 2014

Accumulated Other Comprehensive Income Loss [Abstract]

Schedule of Accumulated Other Comprehensive Income (Loss) [Table Text Block]

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2013	$	(1,809	)	$	(583	)	$	(2,392	)
Comprehensive income three months ended March 31, 2014		1,786			(120	)		1,666
Comprehensive income three months ended June 30, 2014		1,115			(1,296	)		(181	)
Accumulated other comprehensive loss as of June 30, 2014	$	1,092		$	(1,999	)	$	(907	)

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2012	$	2,189		$	(931	)	$	1,258
Comprehensive income three months ended March 31, 2013		219			(37	)		182
Comprehensive income three months ended June 30, 2013		(2,397	)		650			(1,747	)
Accumulated other comprehensive loss as of June 30, 2013	$	11		$	(318	)	$	(307	)

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Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	$ 188,686	$ 216,640
Fair Value, Inputs, Level 1 [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 1 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 1 [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 2 [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 2 [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 2 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Fair Value, Inputs, Level 2 [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	188,686	216,640
Fair Value, Inputs, Level 3 [Member] | Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	17,749	2,317
Fair Value, Inputs, Level 3 [Member] | Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	460	913
Fair Value, Inputs, Level 3 [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	18,209	3,230
Fair Value, Inputs, Level 3 [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	0	0
Impaired Loans [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	17,749	2,317
Other Real Estate Owned [Member] | Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	460	913
Fair Value, Measurements, Nonrecurring [Member]
Note 15 - Fair Values (Details) - Fair Value of Assets Measured on a Non-Recurring Basis [Line Items]
Assets measured at fair value	$ 18,209	$ 3,230

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Note 14 - Derivatives (Details) - Fair Value and Balance Sheet Location of Derivatives (Forward Starting Interest Rate Swaps [Member], Other Assets Other Liabilities [Member], USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Derivatives, Fair Value [Line Items]
Asset Derivatives	$ 0		$ 0
Liability Derivatives	3,420		2,890
Forward Starting Interest Rate Swap One [Member]
Derivatives, Fair Value [Line Items]
Asset Derivatives	0	[1]	0	[1]
Liability Derivatives	1,167	[1]	1,071	[1]
Forward Starting Interest Rate Swap Two [Member]
Derivatives, Fair Value [Line Items]
Asset Derivatives	0	[1]	0	[1]
Liability Derivatives	1,278	[1]	1,134	[1]
Forward Starting Interest Rate Swap Three [Member]
Derivatives, Fair Value [Line Items]
Asset Derivatives	0	[1]	0	[1]
Liability Derivatives	$ 975	[1]	$ 685	[1]

[1] Derivative designated as hedging instrument.

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Note 6 - Loans (Details) - Internal Risk Rating by Loan Class (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	$ 619,418	$ 597,995
Commercial Portfolio Segment [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	134,484	131,042
Commercial Portfolio Segment [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	19,359	24,274
Commercial Portfolio Segment [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	3,419	7,177
Commercial Portfolio Segment [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	11,092	7,936
Commercial Portfolio Segment [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Commercial Portfolio Segment [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	168,354	170,429
Commercial Real Estate Construction Financing Receivable [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	20,410	18,048
Commercial Real Estate Construction Financing Receivable [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	52	497
Commercial Real Estate Construction Financing Receivable [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans		0
Commercial Real Estate Construction Financing Receivable [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans		0
Commercial Real Estate Construction Financing Receivable [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Commercial Real Estate Construction Financing Receivable [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	20,462	18,545
Commercial Real Estate Other Receivable [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	269,079	247,656
Commercial Real Estate Other Receivable [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	8,367	18,343
Commercial Real Estate Other Receivable [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	905	2,309
Commercial Real Estate Other Receivable [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	19,375	21,052
Commercial Real Estate Other Receivable [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Commercial Real Estate Other Receivable [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	297,726	289,360
Residential One To Four Family [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	55,875	56,832
Residential One To Four Family [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	933	1,340
Residential One To Four Family [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Residential One To Four Family [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	12,014	12,519
Residential One To Four Family [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Residential One To Four Family [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	68,822	70,691
Residential Real Estate and Home Equities [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	39,927	41,147
Residential Real Estate and Home Equities [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	2,392	2,311
Residential Real Estate and Home Equities [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans		25
Residential Real Estate and Home Equities [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	1,490	1,979
Residential Real Estate and Home Equities [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Residential Real Estate and Home Equities [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	43,809	45,462
Consumer Portfolio Segment [Member] | Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	20,089	3,307
Consumer Portfolio Segment [Member] | Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	5	38
Consumer Portfolio Segment [Member] | Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans		130
Consumer Portfolio Segment [Member] | Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	151	33
Consumer Portfolio Segment [Member] | Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	0	0
Consumer Portfolio Segment [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	20,245	3,508
Pass [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	539,864	498,032
Watch [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	31,108	46,803
Special Mention [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	4,324	9,641
Substandard [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	44,122	43,519
Doubtful [Member]
Note 6 - Loans (Details) - Internal Risk Rating by Loan Class [Line Items]
Portfolio Loans	$ 0	$ 0

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Note 15 - Fair Values (Details) - Fair Value of Financial Instruments (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financial assets
Securities available-for-sale	$ 188,686	$ 216,640
Securities held-to-maturity	36,417
Financial liabilities
Federal Home Loan Bank advances	75,000
Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and cash equivalents	66,745	58,515
Federal Home Loan Bank Stock	4,021	4,531
Fair Value, Inputs, Level 2 [Member]
Financial assets
Securities available-for-sale	188,686	216,640
Securities held-to-maturity	36,417	34,025
Financial liabilities
Deposits	755,500	746,332
Federal Home Loan Bank advances	75,000	75,000
Subordinated debenture	8,484	8,754
Derivatives	3,420	2,890
Fair Value, Inputs, Level 3 [Member]
Financial assets
Portfolio loans, net	613,681	591,315
Promissory note due from the former mortgage subsidiary		2,607
Reported Value Measurement [Member]
Financial assets
Cash and cash equivalents	66,745	58,515
Securities available-for-sale	188,686	216,640
Securities held-to-maturity	37,031	36,696
Portfolio loans, net	609,740	584,126
Promissory note due from the former mortgage subsidiary		2,607
Federal Home Loan Bank Stock	4,021	4,531
Financial liabilities
Deposits	755,016	746,293
Federal Home Loan Bank advances	75,000	75,000
Subordinated debenture	15,465	15,465
Derivatives	3,420	2,890
Estimate of Fair Value Measurement [Member]
Financial assets
Cash and cash equivalents	66,745	58,515
Securities available-for-sale	188,686	216,640
Securities held-to-maturity	36,417	34,025
Portfolio loans, net	613,681	591,315
Promissory note due from the former mortgage subsidiary		2,607
Federal Home Loan Bank Stock	4,021	4,531
Financial liabilities
Deposits	755,500	746,332
Federal Home Loan Bank advances	75,000	75,000
Subordinated debenture	8,484	8,754
Derivatives	$ 3,420	$ 2,890

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Note 16 - Transfer of Financial Assets (Details) (USD $)	0 Months Ended	1 Months Ended
	May 12, 2014	Jun. 30, 2014	Feb. 27, 2014
Transfers and Servicing [Abstract]
Loan Purchase Agreement, Fanancial Asset For Which Transfer Is Accounted As Sale, Par Value Purchased		$ 5,900,000	$ 12,900,000
Payments to Acquire Loans Held-for-investment		5,700,000	12,700,000
Transfers of Financial Assets Accounted for as Sale, Initial Fair Value of Assets Obtained as Proceeds		5,700,000	12,700,000
Loan Purchase Agreement, Fanancial Asset For Which Transfer Is Accounted As Sale, Total Commitment To Purchase	40,000,000
Loan Purchase Agreement, Transfer Of Financial Assets Accounted For As Sale, Maximum Monthly Loan Purchase	4,000,000
Loan Purchase Agreement, Fanancial Asset For Which Transfer Is Accounted As Sale, Net Discount		$ 198,000

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Note 15 - Fair Values (Details) - Assets and Liabilities Measured at Fair Value on a Recurring Basis (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014		Dec. 31, 2013
Available-for-sale securities
Assets measured at fair value	$ 188,686		$ 216,640
Liabilities measured at fair value	3,420		2,890
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities
Assets measured at fair value	0		0
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	7,787		6,264
US Government Agencies Debt Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale securities
Assets measured at fair value	0		0
US Government Agencies Debt Securities [Member]
Available-for-sale securities
Assets measured at fair value	7,787		6,264
Obligations Of States And Political Subdivisions [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	55,369		59,209
Obligations Of States And Political Subdivisions [Member]
Available-for-sale securities
Assets measured at fair value	55,369		59,209
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	45,798		62,991
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Available-for-sale securities
Assets measured at fair value	45,798		62,991
Corporate Debt Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	42,166		48,230
Corporate Debt Securities [Member]
Available-for-sale securities
Assets measured at fair value	42,166		48,230
Commercial Mortgage Backed Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	9,833		10,472
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities
Assets measured at fair value	9,833		10,472
Other Investment Securities [Member] | Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities
Assets measured at fair value		[1]		[1]
Other Investment Securities [Member] | Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	27,733	[1]	29,474	[1]
Other Investment Securities [Member] | Fair Value, Inputs, Level 3 [Member]
Available-for-sale securities
Assets measured at fair value		[1]		[1]
Other Investment Securities [Member]
Available-for-sale securities
Assets measured at fair value	27,733	[1]	29,474	[1]
Fair Value, Inputs, Level 1 [Member] | Interest Rate Swap [Member]
Available-for-sale securities
Liabilities measured at fair value	0		0
Fair Value, Inputs, Level 1 [Member]
Available-for-sale securities
Assets measured at fair value	0		0
Liabilities measured at fair value	0		0
Fair Value, Inputs, Level 2 [Member] | Interest Rate Swap [Member]
Available-for-sale securities
Liabilities measured at fair value	3,420		2,890
Fair Value, Inputs, Level 2 [Member]
Available-for-sale securities
Assets measured at fair value	188,686		216,640
Liabilities measured at fair value	3,420		2,890
Fair Value, Inputs, Level 3 [Member] | Interest Rate Swap [Member]
Available-for-sale securities
Liabilities measured at fair value	0		0
Fair Value, Inputs, Level 3 [Member]
Available-for-sale securities
Assets measured at fair value	0		0
Liabilities measured at fair value	0		0
Interest Rate Swap [Member]
Available-for-sale securities
Liabilities measured at fair value	$ 3,420		$ 2,890

[1] Principally represents residential mortgage backed securities issued by both by governmental and nongovernmental agencies, and other asset backed securities.

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Note 14 - Derivatives (Details) (USD $)	3 Months Ended		6 Months Ended		3 Months Ended	9 Months Ended	28 Months Ended	6 Months Ended				1 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014 Reclassification out of Accumulated Other Comprehensive Income [Member] Gains (Losses) on Derivatives [Member]	Sep. 30, 2013 Reclassification out of Accumulated Other Comprehensive Income [Member] Gains (Losses) on Derivatives [Member]	Jun. 30, 2014 Reclassification out of Accumulated Other Comprehensive Income [Member] Gains (Losses) on Derivatives [Member]	Jun. 30, 2014 Interest Expense [Member]	Aug. 31, 2010 Forward Starting Interest Rate Swaps [Member]	Aug. 31, 2011 Interest Rate Swap [Member]	Feb. 04, 2011 Interest Rate Swap [Member]	Jul. 31, 2013 Forward Starting Interest Rate Swap One [Member]	Jun. 30, 2014 Federal Home Loan Bank (FHLB) [Member]	Jun. 30, 2014 Federal Home Loan Bank Certificates and Obligations (FHLB) [Member]
Note 14 - Derivatives (Details) [Line Items]
Derivative, Number of Instruments Held									5	4
Derivative Asset, Notional Amount											$ 3,000,000
Net Income (Loss), Including Portion Attributable to Noncontrolling Interest	2,206,000	2,006,000	2,771,000	4,046,000		3,000,000
Interest Rate Derivative Liabilities, at Fair Value														75,000,000
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net			(1,880,000)	(300,000)									952,000
Interest Expense	872,000	875,000	1,699,000	1,846,000	65,000		801,000
Noninterest Income	2,136,000	1,025,000	2,500,000	1,849,000	952,000		952,000
Derivative Instruments, Gain (Loss) Reclassification from Accumulated OCI to Income, Estimated Net Amount to be Transferred								13,000
Borrowings From Federal Home Loan Bank Not Obtained												75,000,000
Derivative, Gain (Loss) on Derivative, Net												(503,000)
Other Comprehensive Income (Loss), Reclassification Adjustment from AOCI on Derivatives, before Tax												(296,000)
Obligation to Return Securities Received as Collateral	3,400,000		3,400,000
Number Of Mortgage Backed Securities Pledged			3
Pledge On One Mortgage Backed Securities	4,500,000		4,500,000
Fair Value, Estimate Not Practicable, Mortgage-backed Securities Held-to-maturity	$ 4,700,000		$ 4,700,000

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Note 16 - Transfer of Financial Assets

6 Months Ended

Jun. 30, 2014

Transfers and Servicing [Abstract]

Transfers and Servicing of Financial Assets [Text Block]

NOTE 16. TRANSFER OF FINANCIAL ASSETS

Transfers of financial assets are accounted for as sales based on the criteria of ASC 860 when control over the assets has been surrendered. Assets obtained are to be initially measured at fair value and reflected as proceeds from the transfer. In addition, the assets transferred (cash) should be derecognized with a corresponding gain or loss recorded. Control over transferred assets is deemed surrendered when:

● The assets have been isolated from the Company,

● The transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets (or beneficial interests), and

● The Company does not maintain effective control over the transferred assets or third party beneficial interests through an agreement to repurchase them before their maturity.

On February 27, 2014, the Company completed a loan purchase transaction which included the purchase of a pool of residential solar panel loans secured by UCC filing with a par value of $12.9 million. The solar panel loans portfolio (“portfolio”) was purchased from an unrelated bank in exchange for cash of $12.7 million. The loans and the related servicing were transferred without recourse. The acquisition of the portfolio was accounted for as a transfer of financial assets. The Company initially measured the acquired loan portfolio at fair value of $12.7 million. The fair value was equal to the price paid to acquire the portfolio as the difference between the par value and cash purchase price represents the fair value adjustment. As a result of this transfer of financial assets, no gain or loss was recorded.

On May 12, 2014, the Company agreed to purchase $40 million of unsecured consumer home improvement loans. The loans will be transferred without recourse or servicing rights. The agreement calls for purchases up to $4 million per month up to a maximum par value of $40 million. As of June 30, 2014 the Company has purchased a total par value of $5.9 million in loans at a net discount of $198 thousand in exchange for cash payments totaling $5.7 million. The acquisition of the portfolio was accounted for as a transfer of financial assets. The Company initially measured the acquired loan portfolio at fair value of $5.7 million. The fair value was equal to the price paid to acquire the portfolio as the difference between the par value and cash purchase price represents the fair value adjustment. As a result of this transfer of financial assets, no gain or loss was recorded.

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Note 6 - Loans (Details) - Summary of Impaired Loans by Loan Class (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Impaired [Line Items]
Recorded Investment	$ 30,384	$ 19,989
Unpaid Principal Balance	42,128	24,820
Related Allowance	0	0
Recorded Investment	5,072	22,152
Unpaid Principal Balance	5,202	23,378
Related Allowance	1,002	4,994
Subtotal:
Recorded Investment	35,456	42,141
Unpaid Principal Balance	47,330	48,198
Related Allowance	1,002	4,994
Commercial Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	4,375
Unpaid Principal Balance	7,923
Related Allowance	0
Recorded Investment	13	6,590
Unpaid Principal Balance	13	6,808
Related Allowance	4	2,988
Subtotal:
Recorded Investment	4,388	6,590
Unpaid Principal Balance	7,936	6,808
Related Allowance	4	2,988
Commercial Real Estate Other Receivable [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	16,830	15,736
Unpaid Principal Balance	21,817	18,184
Related Allowance	0	0
Recorded Investment	847	6,011
Unpaid Principal Balance	847	6,020
Related Allowance	208	814
Residential One To Four Family [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	8,391	3,714
Unpaid Principal Balance	11,534	6,091
Related Allowance	0	0
Recorded Investment	3,623	8,805
Unpaid Principal Balance	3,753	9,804
Related Allowance	495	963
Residential Real Estate and Home Equities [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	701	539
Unpaid Principal Balance	767	545
Related Allowance	0	0
Recorded Investment	589	746
Unpaid Principal Balance	589	746
Related Allowance	295	229
Consumer Portfolio Segment [Member]
Financing Receivable, Impaired [Line Items]
Recorded Investment	87
Unpaid Principal Balance	87
Subtotal:
Recorded Investment	87
Unpaid Principal Balance	87
Commercial Real Estate Portfolio Segment [Member]
Subtotal:
Recorded Investment	17,677	21,747
Unpaid Principal Balance	22,664	24,204
Related Allowance	208	814
Residential Portfolio Segment [Member]
Subtotal:
Recorded Investment	13,304	13,804
Unpaid Principal Balance	16,643	17,186
Related Allowance	$ 790	$ 1,192

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Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	$ 187,395	$ 220,357
Gross Unrealized Gains	2,729	1,684
Gross Unrealized Losses	(1,438)	(5,401)
Estimated Fair Value	188,686	216,640
Amortized Costs	37,031	36,696
Estimated Fair Value	36,417
US Government Agencies Debt Securities [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	7,886	6,580
Gross Unrealized Gains	0
Gross Unrealized Losses	(99)	(316)
Estimated Fair Value	7,787	6,264
Obligations Of State And Political Subdivisions [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	54,447	60,370
Gross Unrealized Gains	1,316	672
Gross Unrealized Losses	(394)	(1,833)
Estimated Fair Value	55,369	59,209
Amortized Costs	37,031	36,696
Gross Unrealized Gains	344	36
Gross Unrealized Losses	(958)	(2,707)
Estimated Fair Value	36,417	34,025
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	45,522	64,026
Gross Unrealized Gains	532	318
Gross Unrealized Losses	(256)	(1,353)
Estimated Fair Value	45,798	62,991
Corporate Debt Securities [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	41,942	48,836
Gross Unrealized Gains	482	282
Gross Unrealized Losses	(258)	(888)
Estimated Fair Value	42,166	48,230
Commercial Mortgage Backed Securities [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	9,942	10,828
Gross Unrealized Gains	45	24
Gross Unrealized Losses	(154)	(380)
Estimated Fair Value	9,833	10,472
Asset-backed Securities [Member]
Note 5 - Securities (Details) - Amortized Costs, Gross Unrealized Gains, Gross Unrealized Losses and Approximate Fair Values of Investment Securities [Line Items]
Amortized Costs	27,656	29,717
Gross Unrealized Gains	354	388
Gross Unrealized Losses	(277)	(631)
Estimated Fair Value	$ 27,733	$ 29,474

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Note 15 - Fair Values (Details) (USD $)	3 Months Ended	6 Months Ended		12 Months Ended	3 Months Ended	6 Months Ended		12 Months Ended	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Jun. 30, 2013 Obligations Of States And Political Subdivisions [Member] Fair Value, Inputs, Level 2 [Member]	Dec. 31, 2012 Obligations Of States And Political Subdivisions [Member] Fair Value, Inputs, Level 2 [Member]	Jun. 30, 2014 Obligations Of States And Political Subdivisions [Member]	Jun. 30, 2014 Obligations Of States And Political Subdivisions [Member]	Jun. 30, 2013 Non Agency Mortgage Backed Securities [Member] Fair Value, Inputs, Level 2 [Member]	Dec. 31, 2012 Non Agency Mortgage Backed Securities [Member] Fair Value, Inputs, Level 2 [Member]	Jun. 30, 2013 Non Agency Mortgage Backed Securities [Member] Fair Value, Inputs, Level 3 [Member]	Jun. 30, 2014 Collateral Impaired Loans [Member]	Jun. 30, 2014 Other Real Estate Owned [Member]
Note 15 - Fair Values (Details) [Line Items]
Fair Value Inputs, Discount Rate		10.00%
Future Cash Flows Discounted	5.93%	5.93%
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers Into Level 3				$ 1,100,000	$ 0			$ 13,700,000
Fair Value, Measurement with Unobservable Inputs Reconciliation, Liability, Transfers out of Level 3			1,100,000			1,131,000	13,000,000		750,000
Collateral Dependent Impaired Loans Carrying Amount										23,300,000	750,000
Fair Value Written Down										17,700,000	460,000
Allowance for Loan and Lease Losses, Adjustments, Net										5,500,000
Impairment of Real Estate	0	290,000									290,000
Carrying Value Of Loans Fully Charged Off		$ 0

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Note 3 - Note Receivable (Details) (USD $)	1 Months Ended	3 Months Ended	6 Months Ended
	Apr. 30, 2014	Mar. 31, 2014	Jun. 30, 2014
Note Receivable [Abstract]
Promissory Note Rate Of Interest Under Purchase Agreement		0.00%
Financing Receivable, Gross		$ 2,700,000
Proceeds from Collection of Notes Receivable	686,000		686,000
Mortgage Loans on Real Estate, Carrying Amount of Mortgages	560,000
Loss On Settlement Of Note Receivable	$ 1,400,000		$ 1,392,000

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Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	$ 36,172	$ 47,121	$ 39,402	$ 47,285
Interest Income Recognized	113	113	254	222
Commercial Portfolio Segment [Member]
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	4,295	5,936	6,114	4,695
Interest Income Recognized		14	1	19
Commercial Real Estate Other Receivable [Member]
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	18,402	26,160	19,806	27,641
Interest Income Recognized	77	75	184	157
Residential One To Four Family [Member]
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	12,136	14,377	12,214	14,382
Interest Income Recognized	28	20	52	39
Residential Real Estate and Home Equities [Member]
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	1,310	648	1,268	567
Interest Income Recognized	8	4	17	7
Consumer Portfolio Segment [Member]
Note 6 - Loans (Details) - Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Line Items]
Average Recorded Investment	$ 29

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Note 12 - Commitments and Contingencies (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Note 12 - Commitments and Contingencies (Details) [Line Items]
Number Of Operating Leases Sites			4
Operating Leases, Rent Expense	$ 142,000	$ 97,000
Rent Expense Offset By Rent Income	4,000	4,000	8,000	8,000
Reserve For Unfunded Commitments Included In Other Liabilities	696,000		696,000		696,000
Additional Provisions To Reserve For Unfunded Commitments			0	200,000
Real Estate Related Loans Representing Lease Portfolio	70.00%		70.00%		70.00%
Standby Letters of Credit [Member]
Note 12 - Commitments and Contingencies (Details) [Line Items]
Expiry Of Standby Letters Of Credit Within One Year	1,800,000		1,800,000
Expiry Of Standby Letter Of Credit Thereafter	$ 1,200		$ 1,200

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Note 9 - Qualified Affordable Housing Project Investments (Details) (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014		Dec. 31, 2013
Note 9 - Qualified Affordable Housing Project Investments (Details) [Line Items]
Proportional Amortization Method Qualified Affordable Housing Project Investments	$ 5,205,000		$ 5,205,000		$ 5,500,000
Proportional Amortization Method Qualified Affordable Housing Project Investments, Unfunded Liability Obligation	4,102,000		4,102,000		4,796,000
Qualified Affordable Housing Project Investments Term			16 years
Affordable Housing Tax Credits, Amount	239,000	0
Affordable Housing Tax Benefits, Amount	76,000	0
Proportional Amortization Method Qualified Affordable Housing Project Investments, Amortization	$ 295,000	$ 0	$ 295,000	[1]	$ 0	[1]
Minimum [Member]
Note 9 - Qualified Affordable Housing Project Investments (Details) [Line Items]
Qualified Affordable Housing Project Investments, Return Rate			4.76%
Maximum [Member]
Note 9 - Qualified Affordable Housing Project Investments (Details) [Line Items]
Qualified Affordable Housing Project Investments, Return Rate			7.18%

[1] This amount reduces the tax credits and benefits generated by the Qualified Affordable Housing Projects.

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Note 6 - Loans (Details) (USD $)	1 Months Ended	3 Months Ended		6 Months Ended		12 Months Ended
	Dec. 31, 2013	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013	Dec. 31, 2012
Note 6 - Loans (Details) [Line Items]
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums	$ 53,000	$ 257,000		$ 257,000		$ 53,000
Additional Interest Income		160,000	314,000	328,000	559,000
Impaired Financing Receivable, Recorded Investment	42,141,000	35,456,000		35,456,000		42,141,000
Percentage Of Collateral Coverage To Loan Balance To Consider Restructured Loan To Performing And Accrual Status				100.00%
Obligations To Lend Additional Funds On Restructured Loans	0	0		0		0
Financing Receivable, Modifications, Recorded Investment	33,400,000	27,900,000		27,900,000		33,400,000
Financing Receivable, Modifications, Number of Contracts		2	2	3	9
Troubled Debt Restructurings Percentage Of Gross Portfolio Loans	5.59%	4.50%		4.50%		5.59%
Doubtful Grade Remaining Outstanding Period Minimum				6 months
Financing Receivable, Allowance for Credit Losses	14,172,000	9,882,000		9,882,000		14,172,000	11,103,000
Percentage Of Allowance For Loan And Lease Losses Out Of Net Loans	2.37%	1.59%		1.59%		2.37%
Reserve For Off Balance Sheet Commitments		696,000		696,000
Allowance for Loan and Lease Losses Write-offs, Net				5,700,000
Proceeds from Recoveries of Loans Previously Charged off						319,000
Percentage Of Loan Portfolio Secured By Real Estate		70.00%		70.00%
Percentage Of Unallocated Allowance Amount Out Of Allowance For Loan And Lease Losses	13.00%			1.10%
Maximum Loan To Value Percentage				80.00%
Loans 30 Days Past Due [Member]
Note 6 - Loans (Details) [Line Items]
Number Of Days For Loan Past Due				30 days
Loans 60 Days Past Due [Member]
Note 6 - Loans (Details) [Line Items]
Number Of Days For Loan Past Due				60 days
Loans 90 Days Past Due [Member]
Note 6 - Loans (Details) [Line Items]
Number Of Days For Loan Past Due				90 days
Performing Loans [Member]
Note 6 - Loans (Details) [Line Items]
Impaired Financing Receivable, Recorded Investment	8,800,000	7,400,000		7,400,000		8,800,000
Financing Receivable, Modifications, Number of Contracts				103
Troubled Debt Restructuring [Member]
Note 6 - Loans (Details) [Line Items]
Financing Receivable, Modifications, Number of Contracts				118
Commercial and Industrial [Member]
Note 6 - Loans (Details) [Line Items]
Allowance for Loan and Lease Losses, Write-offs				3,400,000		3,400,000
Commercial Real Estate and Farmland [Member]
Note 6 - Loans (Details) [Line Items]
Allowance for Loan and Lease Losses, Write-offs				1,400,000		1,400,000
Commercial Real Estate Loans To A Third Relationship [Member]
Note 6 - Loans (Details) [Line Items]
Allowance for Loan and Lease Losses, Write-offs				1,000,000
Commitments to Extend Credit [Member]
Note 6 - Loans (Details) [Line Items]
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Asset		225,700,000		225,700,000
Commercial Real Estate Portfolio Segment [Member]
Note 6 - Loans (Details) [Line Items]
Impaired Financing Receivable, Recorded Investment	21,747,000	17,677,000		17,677,000		21,747,000
Allowance for Loan and Lease Losses, Write-offs						1,000,000
Financing Receivable, Allowance for Credit Losses	$ 2,784,000	$ 3,867,000		$ 3,867,000		$ 2,784,000	$ 2,783,000
Minimum [Member]
Note 6 - Loans (Details) [Line Items]
Frequency Of External Appraisals Updating				6 months
Maximum [Member]
Note 6 - Loans (Details) [Line Items]
Frequency Of External Appraisals Updating				12 months

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Consolidated Statements of Cash Flows (Unaudited) (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net income	$ 2,771	$ 4,046
Provision for loan losses	1,450	2,450
Provision for unfunded commitments		200
Provision for depreciation and amortization	611	510
Compensation expense associated with stock options	27	11
Net loss (gain) on sale of securities available-for-sale	284	(595)
Amortization of investment premiums and accretion of discounts, net	810	441
Amortization of held-to-maturity fair value adjustment	(77)	(77)
Gain on sale of fixed assets	4
Write down of other real estate owned	290
Loss (gain) on sale of other real estate owned	15	(13)
(Increase) in deferred income taxes		(1,279)
(Increase) in cash surrender value of bank owned life policies	(5,288)	(268)
Decrease in other assets	1,541	745
Increase in deferred compensation	188	(86)
Decrease (increase) in deferred loan fees	99	(23)
(Decrease) in other liabilities	(336)	(3,212)
Net cash provided by operating activities	2,389	2,850
Cash flows from investing activities:
Proceeds from maturities and payments of available-for-sale securities	9,078	6,108
Proceeds from sale of available-for-sale securities	68,785	45,342
Purchases of available-for-sale securities	(46,084)	(76,119)
Purchases of held-to-maturity securities	(244)	(3,301)
Payment to low income housing investments	(693)
Net Redemption of FHLB stock	509
Loan originations, net of principal repayments	(27,431)	44,892
Purchase of premises and equipment, net	(2,137)	(1,051)
Proceeds from settlement of note to former mortgage subsidiary	686
Proceeds from the sale of other real estate owned	50	3,055
Net cash provided by investing activities	2,519	18,926
Cash flows from financing activities:
Net (decrease) increase in demand deposits and savings accounts	(2,929)	4,063
Net increase (decrease) in certificates of deposit	11,652	(10,214)
Net increase in securities sold under agreements to repurchase		(11,337)
Advances on term debt		660,000
Repayment of term debt		(660,000)
Repurchase of common stock	(4,562)	(4,935)
Cash dividends paid on common stock	(828)	(939)
Cash dividends paid on preferred stock	(100)	(246)
Proceeds from stock options exercised	23
Stock issued under employee and director stock purchase plan	66
Net cash provided (used) in financing activities	3,322	(23,608)
Net increase (decrease) in cash and cash equivalents	8,230	(1,832)
Cash and cash equivalents at beginning of year	58,515	45,068
Cash and cash equivalents at end of period	66,745	43,236
Supplemental disclosures of cash flow activity:
Income taxes	0	5,220
Interest	1,671	1,865
Supplemental disclosures of non cash investing activities:
Transfer of loans to other real estate owned	268	1,341
Changes in unrealized gain on investment securities available-for-sale	5,008	(3,623)
Changes in net deferred tax asset related to changes in unrealized gain on investment securities	(2,061)	1,491
Changes in accumulated other comprehensive income due to changes in unrealized gain on investment securities	2,947	(2,132)
Changes in unrealized gain loss (gain) on derivatives	(529)	1,342
Changes in net deferred tax asset related to changes in unrealized loss on derivatives	218	(552)
Changes in accumulated other comprehensive income due to changes in unrealized gain (loss) on derivatives	(311)	789
Reclassification of earnings from gains on derivatives	(1,880)	(300)
Changes in net deferred tax asset related to reclassification of earnings from gains on derivatives	775	124
Changes in accumulated other comprehensive income due to reclassification of earnings from gain on derivatives	(1,105)	(176)
Accretion of held-to-maturity from other comprehensive income to interest income	(77)	(77)
Changes in deferred tax related to accretion of held-to-maturity investment securities	31	31
Changes in accumulated other comprehensive income due to reclassification adjustment to investments held-to-maturity	(46)	(46)
Common Stock [Member]
Supplemental disclosures of non cash financing activities:
Dividend payable	399	450
Preferred Stock [Member]
Supplemental disclosures of non cash financing activities:
Dividend payable	$ 50	$ 50

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Note 9 - Qualified Affordable Housing Project Investments (Details) - Components of Investment in LIHTC Projects (USD $)	3 Months Ended		6 Months Ended		12 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014		Dec. 31, 2013
Note 9 - Qualified Affordable Housing Project Investments (Details) - Components of Investment in LIHTC Projects [Line Items]
Original Investment Value	$ 5,500,000		$ 5,500,000		$ 5,500,000
Current Recorded Investment	5,205,000		5,205,000		5,500,000
Unfunded Liability Obligation	4,102,000		4,102,000		4,796,000
Tax Credits and Benefits			315,000	[1]	282,000	[1]
Amortization of Investments	295,000	0	295,000	[2]	0	[2]
Net Income Tax Benefit			60,000		53,000
Raymond James California Housing Opportunities Fund II [Member]
Note 9 - Qualified Affordable Housing Project Investments (Details) - Components of Investment in LIHTC Projects [Line Items]
Original Investment Value	2,000,000		2,000,000		2,000,000
Current Recorded Investment	1,939,000		1,939,000		2,000,000
Unfunded Liability Obligation	1,809,000		1,809,000		1,858,000
Tax Credits and Benefits			80,000	[1]	30,000	[1]
Amortization of Investments			61,000	[2]	0	[2]
Net Income Tax Benefit			15,000		6,000
WNC Institutional Tax Credit Fun 38, L.P. [Member]
Note 9 - Qualified Affordable Housing Project Investments (Details) - Components of Investment in LIHTC Projects [Line Items]
Original Investment Value	1,000,000		1,000,000		1,000,000
Current Recorded Investment	946,000		946,000		1,000,000
Unfunded Liability Obligation	468,000		468,000		592,000
Tax Credits and Benefits			65,000	[1]	49,000	[1]
Amortization of Investments			54,000	[2]		[2]
Net Income Tax Benefit			16,000		12,000
Merritt Community Capital Corporation Fund XV, L.P. [Member]
Note 9 - Qualified Affordable Housing Project Investments (Details) - Components of Investment in LIHTC Projects [Line Items]
Original Investment Value	2,500,000		2,500,000		2,500,000
Current Recorded Investment	2,320,000		2,320,000		2,500,000
Unfunded Liability Obligation	1,825,000		1,825,000		2,346,000
Tax Credits and Benefits			170,000	[1]	203,000	[1]
Amortization of Investments			180,000	[2]		[2]
Net Income Tax Benefit			$ 29,000		$ 35,000

[1] The amounts reflected in this column represent both the tax credits, as well as the tax benefits generated by the Qualified Affordable Housing Projects operating loss for the year.

[2] This amount reduces the tax credits and benefits generated by the Qualified Affordable Housing Projects.

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Note 5 - Securities (Details) - The Amortized Cost and Estimated Fair Value of Available-For-Sale and Held-to-Maturity Securities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
AMOUNTS MATURING IN:
One year or less	$ 2,401
One year or less	2,437
One year or less	367
One year or less	368
One year through five years	33,615
One year through five years	34,080
One year through five years	365
One year through five years	383
Five years through ten years	74,449
Five years through ten years	74,641
Five years through ten years	14,555
Five years through ten years	14,472
After ten years	76,930
After ten years	77,528
After ten years	21,744
After ten years	21,194
Total	187,395
Total	188,686	216,640
Total	37,031
Total	$ 36,417

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Note 5 - Securities (Tables)

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Schedule of Available-for-sale Securities Reconciliation [Table Text Block]

(Dollars in thousands)	As of June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government & agencies	$	7,886	$	0	$	(99	)	$	7,787
Obligations of state and political subdivisions		54,447		1,316		(394	)		55,369
Residential mortgage backed securities and collateralized mortgage obligations		45,522		532		(256	)		45,798
Corporate securities		41,942		482		(258	)		42,166
Commercial mortgage backed securities		9,942		45		(154	)		9,833
Other asset backed securities		27,656		354		(277	)		27,733
Total	$	187,395	$	2,729	$	(1,438	)	$	188,686
Held-to-maturity securities
Obligations of state and political subdivisions	$	37,031	$	344	$	(958	)	$	36,417

(Dollars in thousands)	As of December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government & agencies	$	6,580	$	-	$	(316	)	$	6,264
Obligations of state and political subdivisions		60,370		672		(1,833	)		59,209
Residential mortgage backed securities and collateralized mortgage obligations		64,026		318		(1,353	)		62,991
Corporate securities		48,836		282		(888	)		48,230
Commercial mortgage backed securities		10,828		24		(380	)		10,472
Other asset backed securities		29,717		388		(631	)		29,474
Total	$	220,357	$	1,684	$	(5,401	)	$	216,640
Held-to-maturity securities
Obligations of state and political subdivisions	$	36,696	$	36	$	(2,707	)	$	34,025

Amortized Cost And Estimated Fair Value Available For Sale Securities Table [Text Block]

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
One year or less	$	2,401	$	2,437	$	367	$	368
One year through five years		33,615		34,080		365		383
Five years through ten years		74,449		74,641		14,555		14,472
After ten years		76,930		77,528		21,744		21,194
Total	$	187,395	$	188,686	$	37,031	$	36,417

Schedule of Financial Instruments Owned and Pledged as Collateral [Table Text Block]

(Dollars in thousands)	Amount
Public funds collateral	$	22,857
Federal Home Loan Bank borrowings		25,417
Interest rate swap contracts		4,702
Total securities held for pledging purposes	$	52,976

Schedule of Realized Gain (Loss) [Table Text Block]

(Dollars in thousands)	For three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
Proceeds from sales of securities	$	32,099		$	35,370		$	68,785		$	45,342
Gross realized gains on sales of securities:
Obligations of state and political subdivisions	$	14		$	145		$	171		$	177
Residential mortgage backed securities and collateralized mortgage obligations		63			18			68			105
Corporate securities		85			342			227			360
Commercial mortgage backed securities		5			-			5			-
Other asset backed securities		40			-			63			53
Total gross realized gains on sales of securities	$	207		$	505		$	534		$	695
Gross realized losses on sales of securities
U.S. government & agencies	$	(115	)	$	(27	)	$	(114	)	$	(27	)
Obligations of state and political subdivisions		(69	)		(10	)		(159	)		(10	)
Residential mortgage backed securities and collateralized mortgage obligations		(13	)		(50	)		(482	)		(51	)
Corporate securities		(8	)		(12	)		(8	)		(12	)
Commercial mortgage backed securities		(31	)		-			(32	)		-
Other asset backed securities		(10	)		-			(23	)		-
Total gross realized losses on sales of securities	$	(246	)	$	(99	)	$	(818	)	$	(100	)
(Loss) gain on investment securities, net	$	(39	)	$	406		$	(284	)	$	595

Schedule of Unrealized Loss on Investments [Table Text Block]

(Dollars in thousands)	As of June 30, 2014
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	4,943	$	(10	)	$	2,846	$	(89	)	$	7,789	$	(99	)
Obligations of states and political subdivisions		7,225		(52	)		14,297		(342	)		21,522		(394	)
Residential mortgage backed securities and collateralized mortgage obligations		7,344		(96	)		6,309		(160	)		13,653		(256	)
Corporate securities		6,911		(76	)		9,945		(182	)		16,856		(258	)
Commercial mortgage backed securities		2,970		(24	)		2,606		(130	)		5,576		(154	)
Other asset backed securities		4,137		(63	)		6,063		(214	)		10,200		(277	)
Total temporarily impaired securities	$	33,530	$	(321	)	$	42,066	$	(1,117	)	$	75,596	$	(1,438	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	2,334	$	(9	)	$	20,487	$	(949	)	$	22,821	$	(958	)

(Dollars in thousands)	As of December 31, 2013
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	5,446	$	(147	)	$	819	$	(168	)	$	6,265	$	(315	)
Obligations of states and political subdivisions		29,943		(1,578	)		2,727		(255	)		32,670		(1,833	)
Residential mortgage backed securities and collateralized mortgage obligations		44,197		(1,214	)		3,271		(139	)		47,468		(1,353	)
Corporate securities		32,649		(792	)		2,960		(96	)		35,609		(888	)
Commercial mortgage backed securities		5,543		(205	)		1,437		(176	)		6,980		(381	)
Other asset backed securities		15,303		(518	)		1,723		(113	)		17,026		(631	)
Total temporarily impaired securities	$	133,081	$	(4,454	)	$	12,937	$	(947	)	$	146,018	$	(5,401	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	23,800	$	(1,524	)	$	7,533	$	(1,183	)	$	31,333	$	(2,707	)

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Note 4 - Earnings Per Share (Tables)

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

(Dollars in thousands, except per share data)	For the three months ended June 30,				For the six months ended June 30,
Earnings Per Share	2014			2013	2014		2013
NUMERATORS:
Net income	$	2,206	$	2,006	$	2,771	$	4,046
Less preferred stock dividends		50		50		100		100
Net income available to common shareholders	$	2,156	$	1,956	$	2,671	$	3,946
DENOMINATORS:
Weighted average number of common shares outstanding - basic		13,378		15,120		13,658		15,401
Effect of potentially dilutive common shares (1)		48		19		47		18
Weighted average number of common shares outstanding - diluted		13,426		15,139		13,705		15,419
EARNINGS PER COMMON SHARE:
Basic attributable to operations	$	0.16	$	0.13	$	0.20	$	0.26
Diluted attributable to operations	$	0.16	$	0.13	$	0.19	$	0.26
Anti-dilutive options not included in earnings per share calculation		82,300		108,837		82,300		114,837

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Note 6 - Loans (Details) - Performing and nonperforming loans, segregated by class of loans, are as follows: (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 619,418	$ 597,995
Commercial Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	163,979	163,902
Commercial Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	4,375	6,527
Commercial Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	168,354	170,429
Commercial Real Estate Construction Financing Receivable [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	20,462	18,545
Commercial Real Estate Construction Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	20,462	18,545
Commercial Real Estate Other Receivable [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	282,128	274,821
Commercial Real Estate Other Receivable [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	15,598	14,539
Commercial Real Estate Other Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	297,726	289,360
Residential One To Four Family [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	61,883	62,474
Residential One To Four Family [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	6,939	8,217
Residential One To Four Family [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	68,822	70,691
Residential Real Estate and Home Equities [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	43,330	44,949
Residential Real Estate and Home Equities [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	479	513
Residential Real Estate and Home Equities [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	43,809	45,462
Consumer Portfolio Segment [Member] | Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	20,158	3,508
Consumer Portfolio Segment [Member] | Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	87
Consumer Portfolio Segment [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	20,245	3,508
Performing Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	591,940	568,199
Nonperforming Financing Receivable [Member]
Financing Receivable, Recorded Investment [Line Items]
Financing Receivable	$ 27,478	$ 29,796

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Note 5 - Securities (Details) - Fair Market Value of Securities Segregated by Purpose (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Financial Instruments Owned and Pledged as Collateral [Line Items]
Pledged securities	$ 52,976
Public Funds Collateral [Member]
Financial Instruments Owned and Pledged as Collateral [Line Items]
Pledged securities	22,857
Federal Home Loan Bank Borrowings [Member]
Financial Instruments Owned and Pledged as Collateral [Line Items]
Pledged securities	25,417
Interest Rate Swap [Member]
Financial Instruments Owned and Pledged as Collateral [Line Items]
Pledged securities	$ 4,702

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Note 9 - Qualified Affordable Housing Project Investments (Tables)

6 Months Ended

Jun. 30, 2014

Qualified Affordable Housing Project Investments [Abstract]

Proportional Amortization Method Investment, Qualified Affordable Housing Project [Table Text Block]

(Dollars in thousands) Qualified Affordable Housing Projects at June 30, 2014	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization of Investments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,939	$	1,809	$	80	$	61	$	15
WNC Institutional Tax Credit Fund 38, L.P.		1,000		946		468		65		54		16
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,320		1,825		170		180		29
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,205	$	4,102	$	315	$	295	$	60

(Dollars in thousands) Qualified Affordable Housing Projects at December 31, 2013	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization of Investments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	2,000	$	1,858	$	30	$	-	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		1,000		592		49		-		12
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,500		2,346		203		-		35
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,500	$	4,796	$	282	$	-	$	53

Qualified Affordable Housing Projects, Future Income Tax Benefit [Table Text Block]

(Dollars in thousands) Qualified Affordable Housing Projects	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		Total Net Income Tax Benefit
Anticipated net income tax benefit less amortization of investments:
2014	$	15	$	16	$	29	$	60
2015		45		35		47		127
2016 and thereafter		379		246		354		979
Total	$	439	$	297	$	430	$	1,166

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Note 11 - Term Debt (Tables)

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Schedule of Federal Home Loan Bank, Advances, by Branch of FHLB Bank [Table Text Block]

(Dollars in thousands)
Year	Amount
2014	$	75,000
Thereafter		-
Total FHLB advances	$	75,000

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Consolidated Statements of Stockholders’ Equity (Unaudited) (Parentheticals) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Common cash dividend per share	$ 0.06	$ 0.14

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Note 12 - Commitments and Contingencies (Tables)

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Schedule of Future Minimum Rental Payments for Operating Leases [Table Text Block]

(Dollars in thousands)
Amounts due in:
2014	$	275
2015		562
2016		576
2017		517
2018		398
Thereafter		1,555
Total	$	3,883

Commitments And Contingent Liabilities [Table Text Block]

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commitments to extend credit	$	220,808	$	192,351
Standby letters of credit		3,014		4,583
Guaranteed commitments outstanding		1,865		1,871
Total commitments	$	225,687	$	198,805

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Note 4 - Earnings Per Share (Details) - Basic and Diluted EPS (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
NUMERATORS:
Net income (in Dollars)	$ 2,206		$ 2,006		$ 2,771		$ 4,046
Less preferred stock dividends (in Dollars)	50		50		100		100
Net income available to common shareholders (in Dollars)	$ 2,156		$ 1,956		$ 2,671		$ 3,946
DENOMINATORS:
Weighted average number of common shares outstanding - basic	13,378		15,120		13,658		15,401
Effect of potentially dilutive common shares (1)	48	[1]	19	[1]	47	[1]	18	[1]
Weighted average number of common shares outstanding - diluted	13,426		15,139		13,705		15,419
EARNINGS PER COMMON SHARE:
Basic attributable to operations (in Dollars per share)	$ 0.16		$ 0.13		$ 0.20		$ 0.26
Diluted attributable to operations (in Dollars per share)	$ 0.16		$ 0.13		$ 0.19		$ 0.26
Anti-dilutive options not included in earnings per share calculation	82,300		108,837		82,300		114,837

[1] Represents the effects of the assumed exercise of stock options

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Note 6 - Loans (Details) - Summary of Period Ending Balances of Newly Restructured Loans and Types of Modifications (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 6 - Loans (Details) - Summary of Period Ending Balances of Newly Restructured Loans and Types of Modifications [Line Items]
Maturity			$ 692
Rate	153	81	153	424
Rate & Maturity		158	0	283
Rate & Payment Deferral			0	115
Total	153	239	845	822
Commercial Portfolio Segment [Member]
Note 6 - Loans (Details) - Summary of Period Ending Balances of Newly Restructured Loans and Types of Modifications [Line Items]
Maturity			692
Rate			0	0
Rate & Maturity			0	0
Rate & Payment Deferral			0	0
Total			692	0
Residential One To Four Family [Member]
Note 6 - Loans (Details) - Summary of Period Ending Balances of Newly Restructured Loans and Types of Modifications [Line Items]
Rate	153	81	153	424
Rate & Maturity		158		210
Rate & Payment Deferral				115
Total	153	239	153	749
Residential Real Estate and Home Equities [Member]
Note 6 - Loans (Details) - Summary of Period Ending Balances of Newly Restructured Loans and Types of Modifications [Line Items]
Rate & Maturity				73
Total				$ 73

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Note 14 - Derivatives (Details) - Noitional Amount, Effective Dates and Maturity Dates of the IR Contracts (USD $) In Thousands, unless otherwise specified	6 Months Ended
	Jun. 30, 2014
Forward Starting Interest Rate Swap One [Member]
Note 14 - Derivatives (Details) - Noitional Amount, Effective Dates and Maturity Dates of the IR Contracts [Line Items]
Notional Amount	$ 75,000
Effective Date`	Aug. 01, 2014
Maturity	Aug. 03, 2015
Forward Starting Interest Rate Swap Two [Member]
Note 14 - Derivatives (Details) - Noitional Amount, Effective Dates and Maturity Dates of the IR Contracts [Line Items]
Notional Amount	75,000
Effective Date`	Aug. 03, 2015
Maturity	Aug. 01, 2016
Forward Starting Interest Rate Swap Three [Member]
Note 14 - Derivatives (Details) - Noitional Amount, Effective Dates and Maturity Dates of the IR Contracts [Line Items]
Notional Amount	$ 75,000
Effective Date`	Aug. 01, 2016
Maturity	Aug. 01, 2017

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Consolidated Balance Sheets (Current Period Unaudited) (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
ASSETS
Cash and due from banks	$ 50,677	$ 38,369
Interest bearing due from banks	16,068	20,146
Total cash and cash equivalents	66,745	58,515
Securities available-for-sale, at fair value	188,686	216,640
Securities held-to-maturity, at amortized cost	37,031	36,696
Portfolio loans	619,622	598,298
Allowance for loan losses	(9,882)	(14,172)
Net loans	609,740	584,126
Bank premises and equipment, net	12,415	10,893
Other real estate owned	826	913
Other assets	48,273	48,559
Total Assets	963,716	956,342
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand - noninterest bearing	135,416	133,984
Demand - interest bearing	269,055	273,390
Savings accounts	90,416	90,442
Certificates of deposit	260,129	248,477
Total deposits	755,016	746,293
Federal Home Loan Bank borrowings	75,000	75,000
Junior subordinated debentures	15,465	15,465
Other liabilities	17,545	17,797
Total Liabilities	863,026	854,555
COMMITMENTS AND CONTINGENCIES (NOTE 12)
Stockholders' Equity:
Preferred stock, no par value, 2,000,000 shares authorized: Series B (liquidation preference $1,000 per share) issued and outstanding: 20,000 in 2014 and 20,000 in 2013	19,931	19,931
Common stock, no par value, 50,000,000 shares authorized; issued; 13,293,777 outstanding as of June 30, 2014 and 13,977,005 outstanding on December 31, 2013	23,858	28,304
Retained earnings	57,808	55,944
Accumulated other comprehensive (loss), net of tax	(907)	(2,392)
Total Stockholders’ Equity	100,690	101,787
Total Liabilities and Stockholders' Equity	$ 963,716	$ 956,342

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Note 5 - Securities (Details) - Sales of Securities (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 5 - Securities (Details) - Sales of Securities [Line Items]
Proceeds from sales of securities	$ 32,099	$ 35,370	$ 68,785	$ 45,342
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	207	505	534	695
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(246)	(99)	(818)	(100)
(Loss) gain on investment securities, net	(39)	406	(284)	595
Obligations Of State And Political Subdivisions [Member]
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	14	145	171	177
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(69)	(10)	(159)	(10)
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	63	18	68	105
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(13)	(50)	(482)	(51)
Corporate Debt Securities [Member]
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	85	342	227	360
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(8)	(12)	(8)	(12)
Commercial Mortgage Backed Securities [Member]
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	5		5
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(31)		(32)
Other Asset Backed Securities [Member]
Gross realized gains on sales of securities:
Gross realized gains on sales of securities	40		63	53
Gross realized losses on sales of securities
Gross realized losses on sales of securities	(10)		(23)
US Government Agencies Debt Securities [Member]
Gross realized losses on sales of securities
Gross realized losses on sales of securities	$ (115)	$ (27)	$ (114)	$ (27)

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Consolidated Statements of Comprehensive Income (Unaudited) (Parentheticals) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Tax expense on reclassification adjustments for net gains realized in earnings			$ 31	$ 31
Tax expense on reclassification adjustments for net gains realized in earnings	711	62	775	124
Available for Sale Securities [Member]
Tax expense on reclassification adjustments for net gains realized in earnings	$ 16	$ (167)	$ 117	$ (245)

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Note 7 - Other Real Estate Owned (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Note 7 - Other Real Estate Owned (Details) [Line Items]
Real Estate Acquired Through Foreclosure	$ 826	$ 826		$ 913
Real Estate Owned, Transfer to Real Estate Owned		268
Impairment of Real Estate	0	290
Sales of Real Estate		65
Gains (Losses) on Sales of Other Real Estate		(15)	13
Number of Real Estate Properties	5	5
Commercial Land [Member]
Note 7 - Other Real Estate Owned (Details) [Line Items]
Impairment of Real Estate		290
Other Real Estate Assets Improved Commercial Land	460	460
Residential One To Four Family [Member]
Note 7 - Other Real Estate Owned (Details) [Line Items]
Real Estate Acquired Through Foreclosure	204	204
Number Of Real Estate Properties Secured	3	3
Commercial [Member]
Note 7 - Other Real Estate Owned (Details) [Line Items]
Real Estate Acquired Through Foreclosure	$ 161	$ 161
Number Of Real Estate Properties Secured	1	1

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Note 15 - Fair Values (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value, by Balance Sheet Grouping [Table Text Block]

(Dollars in thousands)			Fair Value Measurements Using
June 30, 2014	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	66,745	$	66,745	$	-	$	-	$	66,745
Securities available-for-sale		188,686		-		188,686		-		188,686
Securities held-to-maturity		37,031		-		36,417		-		36,417
Portfolio loans, net		609,740		-		-		613,681		613,681
Federal Home Loan Bank Stock		4,021		4,021		-		-		4,021
Financial liabilities
Deposits	$	755,016	$	-	$	755,500	$	-	$	755,500
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,484		-		8,484
Derivatives		3,420		-		3,420		-		3,420

(Dollars in thousands)			Fair Value Measurements Using
December 31, 2013	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	58,515	$	58,515	$	-	$	-	$	58,515
Securities available-for-sale		216,640		-		216,640		-		216,640
Securities held-to-maturity		36,696		-		34,025		-		34,025
Portfolio loans, net		584,126		-		-		591,315		591,315
Promissory note due from the former mortgage subsidiary		2,607		-		-		2,607		2,607
Federal Home Loan Bank Stock		4,531		4,531		-		-		4,531
Financial liabilities
Deposits	$	746,293	$	-	$	746,332	$	-	$	746,332
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,754		-		8,754
Derivatives		2,890		-		2,890		-		2,890

Assets And Liabilities Measured At Fair Value On Recurring Basis Table [Text Block]

(Dollars in thousands)	Fair Value at June 30, 2014
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	7,787	$	-	$	7,787	$	-
Obligations of states and political subdivisions		55,369		-		55,369		-
Residential mortgage backed securities and collateralized mortgage obligations		45,798		-		45,798		-
Corporate securities		42,166		-		42,166		-
Commercial mortgage backed securities		9,833		-		9,833		-
Other investment securities (1)		27,733		-		27,733		-
Total assets measured at fair value	$	188,686	$	-	$	188,686	$	-
Derivatives – forward starting interest rate swap	$	3,420	$	-	$	3,420	$	-
Total liabilities measured at fair value	$	3,420	$	-	$	3,420	$	-

	Fair Value at December 31, 2013
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	6,264	$	-	$	6,264	$	-
Obligations of states and political subdivisions		59,209		-		59,209		-
Residential mortgage backed securities and collateralized mortgage obligations		62,991		-		62,991		-
Corporate securities		48,230		-		48,230		-
Commercial mortgage backed securities		10,472		-		10,472		-
Other investment securities (1)		29,474		-		29,474		-
Total assets measured at fair value	$	216,640	$	-	$	216,640	$	-
Derivatives – forward starting interest rate swap	$	2,890	$	-	$	2,890	$	-
Total liabilities measured at fair value	$	2,890	$	-	$	2,890	$	-

Fair Value Of Assets And Liabilities Measured On Recurring Basis Unobservable Input [Table Text Block]

(Dollars in thousands)	Beginning balance		Transfers into Level 3		Change included in earnings		Purchases and issuances		Sales and settlements			Transfers out			Ending balance		Net change in unrealized gains or (losses) relating to items held at end of period
Three months ended June 30, 2013
Obligations of states and political subdivisions	$	-		-		-		-		-			-		$	-	$	-
Mortgage backed securities	$	750		-		-		-		-			(750	)	$	-	$	-
Six months ended June 30, 2013
Obligations of states and political subdivisions	$	1,131								-			(1,131	)	$	-	$	-
Mortgage backed securities	$	13,747		-		-		-		(749	)		(12,998	)	$	-	$	-

Fair Value Measurements, Nonrecurring [Table Text Block]

(Dollars in thousands)	Fair Value at June 30, 2014
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	17,749	$	0	$	0	$	17,749
Other real estate owned		460		-		-		460
Total assets measured at fair value	$	18,209	$	0	$	0	$	18,209

	Fair Value at December 31, 2013
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	2,317	$	0	$	0	$	2,317
Other real estate owned		913		-		-		913
Total assets measured at fair value	$	3,230	$	0	$	0	$	3,230

Loss From Nonrecurring Fair Value [Table Text Block]

(Dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Collateral dependent impaired loans	$	892	$	238	$	5,501	$	394
Other real estate owned		-		-		290		3
Total	$	892	$	238	$	5,791	$	397

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Note 11 - Term Debt (Details) (USD $)	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Disclosure Text Block [Abstract]
Federal Home Loan Bank Borrowings	$ 75,000,000	$ 75,000,000
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available	75,000,000	135,000,000
Federal Home Loan Bank, Advances, Activity for Year, Average Balance of Agreements Outstanding	75,000,000	109,700,000
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Weighted Average Interest Rate	0.22%	0.23%
Federal Home Loan Bank Stock and Federal Reserve Bank Stock	4,000,000
Mortgage Loans on Real Estate, Commercial and Consumer, Net	255,200,000
Loans Pledged as Collateral	75,000,000
Pledged Financial Instruments, Not Separately Reported, Securities for Federal Home Loan Bank	$ 25,400,000

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Note 13 - Accumulated Other Comprehensive Income

6 Months Ended

Jun. 30, 2014

Accumulated Other Comprehensive Income Loss [Abstract]

Accumulated Other Comprehensive Income Loss [Text Block]

NOTE 13. ACCUMULATED OTHER COMPREHENSIVE INCOME

The following table presents activity in accumulated other comprehensive income for the six months ended June 30, 2014:

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2013	$	(1,809	)	$	(583	)	$	(2,392	)
Comprehensive income three months ended March 31, 2014		1,786			(120	)		1,666
Comprehensive income three months ended June 30, 2014		1,115			(1,296	)		(181	)
Accumulated other comprehensive loss as of June 30, 2014	$	1,092		$	(1,999	)	$	(907	)

The following table presents activity in accumulated other comprehensive income for the six months ended June 30, 2013:

(Dollars in thousands)	Unrealized Gains (Losses) on Securities			Unrealized Gains (Losses) on Derivatives			Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income as of December 31, 2012	$	2,189		$	(931	)	$	1,258
Comprehensive income three months ended March 31, 2013		219			(37	)		182
Comprehensive income three months ended June 30, 2013		(2,397	)		650			(1,747	)
Accumulated other comprehensive loss as of June 30, 2013	$	11		$	(318	)	$	(307	)

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

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Note 1 - Summary of Significant Accounting Policies (Details)	Jun. 30, 2014
Accounting Policies [Abstract]
Number Of Wholly Owned Trusts	2

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Note 15 - Fair Values

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 15. FAIR VALUES

The following table presents estimated fair values of the Company’s financial instruments as of June 30, 2014, and December 31, 2013, 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 utilized by the Company to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. Fair values determined by Level 2 inputs utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs 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 inputs are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. 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. The Company’s 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.

Estimated fair values are disclosed for financial instruments for which it is practicable to estimate fair value. These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

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.

(Dollars in thousands)			Fair Value Measurements Using
June 30, 2014	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	66,745	$	66,745	$	-	$	-	$	66,745
Securities available-for-sale		188,686		-		188,686		-		188,686
Securities held-to-maturity		37,031		-		36,417		-		36,417
Portfolio loans, net		609,740		-		-		613,681		613,681
Federal Home Loan Bank Stock		4,021		4,021		-		-		4,021
Financial liabilities
Deposits	$	755,016	$	-	$	755,500	$	-	$	755,500
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,484		-		8,484
Derivatives		3,420		-		3,420		-		3,420

(Dollars in thousands)			Fair Value Measurements Using
December 31, 2013	Carrying Amounts		Level 1		Level 2		Level 3		Total
Financial assets
Cash and cash equivalents	$	58,515	$	58,515	$	-	$	-	$	58,515
Securities available-for-sale		216,640		-		216,640		-		216,640
Securities held-to-maturity		36,696		-		34,025		-		34,025
Portfolio loans, net		584,126		-		-		591,315		591,315
Promissory note due from the former mortgage subsidiary		2,607		-		-		2,607		2,607
Federal Home Loan Bank Stock		4,531		4,531		-		-		4,531
Financial liabilities
Deposits	$	746,293	$	-	$	746,332	$	-	$	746,332
Federal Home Loan Bank advances		75,000		-		75,000		-		75,000
Subordinated debenture		15,465		-		8,754		-		8,754
Derivatives		2,890		-		2,890		-		2,890

Fair Value Hierarchy

Level 1 valuations utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has 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.

The Company maximizes the use of observable inputs and minimizes the use of unobservable inputs when developing fair value measurements. The Company’s 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 Sheets 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, the Company believes the measurement of fair value of cash and cash equivalents is derived from Level 1 inputs.

Securities – For 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.

Portfolio loans, net – 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 to be a reasonable estimate of loan discount for credit quality concerns. Given that there are commercial loans with specific terms that are not readily available; the Company believes the fair value of portfolio loans is derived from Level 3 inputs.

FHLB stock – The carrying value of FHLB stock approximates fair value as the shares can only be redeemed by the issuing institution at par. The Company measures the fair value of FHLB stock using Level 1 inputs.

Promissory note due from Mortgage Company – To determine the fair value of the promissory note, the Company discounts the expected future cash flows after each payment based on a discount rate derived by the average of the bid/ask yields on debt issued by a large mortgage lender with similar risk characteristics, whose debt is currently traded in an active open market. In addition, a risk premium adjustment was added to incorporate certain inherent risks and credit risks associated with the payment of certain cash flows from the former mortgage subsidiary. Accordingly, the Company derived a 10% discount rate to discount the future expected cash flows over the remaining life of the loan. The Company believes the fair value of the promissory note is derived from Level 3 inputs. See Note 3, Note Receivable in these Notes to Unaudited Consolidated Financial Statements for additional detail on the promissory note due.

Deposits – The Company measures 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 FHLB yield curves, and maturities. The Company obtained FHLB yield curve rates as of the measurement date, and believes 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.

FHLB variable rate advances – For variable rate FHLB borrowings, the carrying value approximates fair value. The Company measures the fair value of FHLB advances using Level 2 inputs.

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 June 30, 2014, future cash flows were discounted at 5.93%. The Company measures 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.

The Company uses 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, the Company 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. 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 information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value, as of June 30, 2014 and December 31, 2013.

(Dollars in thousands)	Fair Value at June 30, 2014
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	7,787	$	-	$	7,787	$	-
Obligations of states and political subdivisions		55,369		-		55,369		-
Residential mortgage backed securities and collateralized mortgage obligations		45,798		-		45,798		-
Corporate securities		42,166		-		42,166		-
Commercial mortgage backed securities		9,833		-		9,833		-
Other investment securities (1)		27,733		-		27,733		-
Total assets measured at fair value	$	188,686	$	-	$	188,686	$	-
Derivatives – forward starting interest rate swap	$	3,420	$	-	$	3,420	$	-
Total liabilities measured at fair value	$	3,420	$	-	$	3,420	$	-

	Fair Value at December 31, 2013
Recurring basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	6,264	$	-	$	6,264	$	-
Obligations of states and political subdivisions		59,209		-		59,209		-
Residential mortgage backed securities and collateralized mortgage obligations		62,991		-		62,991		-
Corporate securities		48,230		-		48,230		-
Commercial mortgage backed securities		10,472		-		10,472		-
Other investment securities (1)		29,474		-		29,474		-
Total assets measured at fair value	$	216,640	$	-	$	216,640	$	-
Derivatives – forward starting interest rate swap	$	2,890	$	-	$	2,890	$	-
Total liabilities measured at fair value	$	2,890	$	-	$	2,890	$	-

(1) Principally represents residential mortgage backed securities issued by both by governmental and nongovernmental agencies, and other asset backed securities.

Recurring Items

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, the Company obtains 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. The Company has determined that the source of these fair values falls within Level 2 of the fair value hierarchy.

Forward starting interest rate swaps – The valuation of the Company’s interest rate swaps were obtained from third party pricing services. The fair values of the interest rate swaps were determined by using a discounted cash flow analysis on the expected cash flows of each derivative. The pricing analysis was based on observable inputs for the contractual terms of the derivatives, including the period to maturity and interest rate curves. The Company has determined that the source of these derivatives’ fair values falls within Level 2 of the fair value hierarchy.

There were no assets or liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis for the six months ended June 30, 2014 and no transfers in or out of level 3 during the six months ended June 30, 2014. The following table provides a reconciliation of assets and liabilities measured at fair value using significant unobservable inputs (Level 3) on a recurring basis for the three and six months ended June 30, 2013. The amount included in the “Beginning balance” column represents the beginning balance of an item in the period for which it was designated as a Level 3 fair value measure.

(Dollars in thousands)	Beginning balance		Transfers into Level 3		Change included in earnings		Purchases and issuances		Sales and settlements			Transfers out			Ending balance		Net change in unrealized gains or (losses) relating to items held at end of period
Three months ended June 30, 2013
Obligations of states and political subdivisions	$	-		-		-		-		-			-		$	-	$	-
Mortgage backed securities	$	750		-		-		-		-			(750	)	$	-	$	-
Six months ended June 30, 2013
Obligations of states and political subdivisions	$	1,131								-			(1,131	)	$	-	$	-
Mortgage backed securities	$	13,747		-		-		-		(749	)		(12,998	)	$	-	$	-

Classification transfers of $1.1 million and $13.7 million in municipal bonds and non-agency mortgage backed securities from Level 2 to Level 3 were made in December 2012. The Company determined the fair values of these securities were derived by both observable and unobservable inputs. Accordingly, a Level 3 classification was deemed necessary. During the three months ended June 30, 2013, the Company transferred $750 thousand associated with one non-agency mortgage backed security from Level 3 to Level 2. During this period the Company was able to obtain observable inputs to determine the securities fair value. During the six months ended June 30, 2013, the Company transferred $1.1 million and $13.0 million in municipal bonds and non-agency mortgage backed securities from Level 3 to Level 2, the Company determined the fair values of these securities were derived from observable inputs.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

The Company 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 table presents information about the Company’s assets and liabilities 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 represent 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.

(Dollars in thousands)	Fair Value at June 30, 2014
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	17,749	$	0	$	0	$	17,749
Other real estate owned		460		-		-		460
Total assets measured at fair value	$	18,209	$	0	$	0	$	18,209

	Fair Value at December 31, 2013
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Collateral dependent impaired loans	$	2,317	$	0	$	0	$	2,317
Other real estate owned		913		-		-		913
Total assets measured at fair value	$	3,230	$	0	$	0	$	3,230

The following table presents the losses resulting from nonrecurring fair value adjustments for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	Three months ended June 30,				Six months ended June 30,
	2014		2013		2014		2013
Collateral dependent impaired loans	$	892	$	238	$	5,501	$	394
Other real estate owned		-		-		290		3
Total	$	892	$	238	$	5,791	$	397

For the six months ended June 30, 2014:

● Collateral dependent impaired loans with a carrying amount of $23.3 million were written down to their fair value of $17.7 million resulting in a $5.5 million adjustment to the ALLL.

● One OREO property with an carrying value of $750 thousand was written down by $290 thousand to the fair value of $460 in anticipation of its pending sale

The loan amounts above 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. The carrying value of loans fully charged off is zero. When the fair value of the collateral is based on a current appraised value, or management determines the fair value of the collateral is further impaired below the appraised value and there is no observable market price, the Company records the impaired loan as nonrecurring Level 3. 

The OREO amount above represents 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 generally 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. The Company records OREO as a nonrecurring Level 3. During the three months ended June 30, 2014 no additional impairment was deemed necessary. During the six months ended June 30, 2014 one OREO property with a carrying value of $750 thousand was written down by $290 thousand to the fair value of $460 in anticipation of its pending sale

Limitations – 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 the Company’s entire holdings of a particular financial instrument. Because no market exists for a significant portion of the Company’s 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 on current on and off-balance sheet financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Other significant assets and liabilities that are not considered financial assets or liabilities include deferred tax assets and liabilities, and property, plant and equipment. 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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Note 12 - Commitments and Contingencies (Details) - Future Minimum Lease Payments under Non-Cancelable Operating Leases (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Future Minimum Lease Payments under Non-Cancelable Operating Leases [Abstract]
2014	$ 275
2015	562
2016	576
2017	517
2018	398
Thereafter	1,555
Total	$ 3,883

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Consolidated Statements of Stockholders’ Equity (Unaudited) (USD $) In Thousands, except Share data	Preferred Stock [Member]	Common Stock [Member] Employees [Member]	Common Stock [Member] Employee and Director [Member]	Common Stock [Member]	Retained Earnings [Member]	Accumulated Other Comprehensive Income (Loss) [Member]	Employees [Member]	Employee and Director [Member]	Total
Balance at Dec. 31, 2012	$ 19,931			$ 38,871	$ 50,261	$ 1,258			$ 110,321
Balance (in Shares) at Dec. 31, 2012				15,972,000
Net Income from continuing operations					7,935				7,935
Other comprehensive income, net of tax						(3,650)			(3,650)
Comprehensive income									4,285
Preferred stock dividend					(200)				(200)
Repurchase of common stock				(10,614)					(10,614)
Repurchase of common stock (in Shares)				(2,000,000)
Common cash dividend					(2,052)				(2,052)
Restricted stock Granted (in Shares)				1,000
Common stock issued under employee plans and related tax benefit		17					17
Common stock issued under employee plans and related tax benefit (in Shares)		4,000
Compensation expense associated with stock options				30					30
Balance at Dec. 31, 2013	19,931			28,304	55,944	(2,392)			101,787
Balance (in Shares) at Dec. 31, 2013				13,977,000
Net Income from continuing operations					2,771				2,771
Other comprehensive income, net of tax						1,485			1,485
Comprehensive income									4,256
Preferred stock dividend					(100)				(100)
Repurchase of common stock				(4,562)					(4,562)
Repurchase of common stock (in Shares)				(700,000)
Common cash dividend					(807)				(807)
Common stock issued under employee plans and related tax benefit		66	23				66	23
Common stock issued under employee plans and related tax benefit (in Shares)		17,000
Compensation expense associated with stock options				27					27
Balance at Jun. 30, 2014	$ 19,931			$ 23,858	$ 57,808	$ (907)			$ 100,690
Balance (in Shares) at Jun. 30, 2014				13,294,000

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Preferred stock, par value (in Dollars per share)	$ 0	$ 0
Preferred stock, shares authorized	2,000,000	2,000,000
Common stock, par value (in Dollars per share)	$ 0	$ 0
Common stock, shares authorized	50,000,000	50,000,000
Common stock, shares outstanding	13,293,777	13,977,005
Series B Preferred Stock [Member]
Preferred stock, liquidation preference (in Dollars per share)	$ 1,000	$ 1,000
Preferred stock, shares issued	20,000	20,000
Preferred stock, shares outstanding	20,000	20,000

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Note 8 - Accounting for Income Tax and Uncertainties

6 Months Ended

Jun. 30, 2014

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 8. ACCOUNTING FOR INCOME TAX AND UNCERTAINTIES

The Company's provision for income taxes includes both federal and state income taxes and reflects the application of federal and state statutory rates to the Company's income before taxes. The principal difference between statutory tax rates and the Company's effective tax rate is the benefit derived from investing in tax-exempt securities; bank owned life insurance, federal tax credits afforded through the Company’s participation in qualified affordable housing project investments.

Income taxes are accounted for using the asset and liability method. Under this method a deferred tax asset or liability is determined based on the enacted tax rates which will be in effect when the differences between the financial statement carrying amounts and tax basis of existing assets and liabilities are expected to be reported in the Company’s income tax returns. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established to reduce the net carrying amount of deferred tax assets if it is determined to be more likely than not, that all or some portion of the potential deferred tax asset will not be realized.

The Company applies the provisions of FASB ASC 740, Income Taxes, relating to the accounting for uncertainty in income taxes. The Company periodically reviews its income tax positions based on tax laws and regulations, and financial reporting considerations, and records adjustments as appropriate. This review takes into consideration the status of current taxing authorities’ examinations of the Company’s tax returns, recent positions taken by the taxing authorities on similar transactions, if any, and the overall tax environment. The Company’s uncertain tax positions were nominal in amount.

The Company’s effective income tax rate was 21.23% for the six months ended June 30, 2014, compared with 27.50% for the same period a year ago. The Company’s effective tax rate is derived from the sum of income tax expense divided by pretax income.

The decrease in the effective tax rate during the six months ended June 30, 2014 compared to the same period a year ago was primarily driven by increased investments in affordable housing projects. Investments in these projects afford the Company certain federal and state tax credits that in turn lower the Company’s effective tax rate. The Company began to realize the benefits of these tax credits during the six months ended June 30, 2014. See Note 9 below for further detail regarding the Company’s investments in affordable housing project investments.

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Document And Entity Information	6 Months Ended
	Jun. 30, 2014	Jul. 21, 2014
Document and Entity Information [Abstract]
Entity Registrant Name	Bank of Commerce Holdings
Document Type	10-Q
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		13,293,777
Amendment Flag	false
Entity Central Index Key	0000702513
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Accelerated Filer
Entity Well-known Seasoned Issuer	No
Document Period End Date	Jun. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q2

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Note 9 - Qualified Affordable Housing Project Investments

6 Months Ended

Jun. 30, 2014

Qualified Affordable Housing Project Investments [Abstract]

Qualified Affordable Housing Project Investments [Text Block]

NOTE 9. QUALIFIED AFFORDABLE HOUSING PROJECT INVESTMENTS

The Company’s investment in Qualified Affordable Housing Projects that generate Low Income Housing Tax Credits (“LIHTC”) at June 30, 2014 was $5.2 million recorded in other assets with a corresponding recorded liability in other liabilities of $4.1 million in funding obligations recorded in other liabilities. The Company has invested in three separate LIHTC projects which provide the Company with CRA credit. Additionally, the investment in LIHTC projects provides the Company with tax credits and with operating loss tax benefits over an approximately sixteen year period. None of the original investment 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 investment made by the Company and provide a return on the investment between 4.76% and 7.18%. The investment in LIHTC projects is being accounted for using the proportional amortization method, under which the Company amortizes the initial cost of the investment in proportion to the amount of the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit).

The following table presents the Company’s original investment in the LIHTC projects accounted for using the proportional amortization method, the current recorded investment balance, and the unfunded liability balance of each investment at June 30, 2014 and December 31, 2013. In addition, the table reflects the tax credits and tax benefits recorded by the Company during 2014 and 2013, the amortization of the investment and the net impact to the Company’s income tax provision for 2014 and 2013:

(Dollars in thousands) Qualified Affordable Housing Projects at June 30, 2014	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization of Investments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,939	$	1,809	$	80	$	61	$	15
WNC Institutional Tax Credit Fund 38, L.P.		1,000		946		468		65		54		16
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,320		1,825		170		180		29
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,205	$	4,102	$	315	$	295	$	60

(Dollars in thousands) Qualified Affordable Housing Projects at December 31, 2013	Original Investment Value		Current Recorded Investment		Unfunded Liability Obligation		Tax Credits and Benefits (1)		Amortization of Investments (2)		Net Income Tax Benefit
Raymond James California Housing Opportunities Fund II	$	2,000	$	2,000	$	1,858	$	30	$	-	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		1,000		592		49		-		12
Merritt Community Capital Corporation Fund XV, L.P.		2,500		2,500		2,346		203		-		35
Total – Investments in Qualified Affordable Housing Projects	$	5,500	$	5,500	$	4,796	$	282	$	-	$	53

(1) The amounts reflected in this column represent both the tax credits, as well as the tax benefits generated by the Qualified Affordable Housing Projects operating loss for the year.

(2) This amount reduces the tax credits and benefits generated by the Qualified Affordable Housing Projects.

The Company’s investments in affordable housing projects generated tax credits recorded by the Company of $239 thousand for the quarter ended June 30, 2014 and $0 for the quarter ended June 30, 2013. Additional tax benefits from the operating losses generated by the projects of $76 thousand and $0 for the quarter ended June 30, 2014 and 2013 respectively. The tax credits and benefits were partially offset by the amortization of the principal investment balances of $295 thousand and $0 for the six months ended June 30, 2014 and 2013 respectively.

The following table reflects the anticipated net income tax benefit that is expected to be recognized by the Company over the remaining life of the investment:

(Dollars in thousands) Qualified Affordable Housing Projects	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		Total Net Income Tax Benefit
Anticipated net income tax benefit less amortization of investments:
2014	$	15	$	16	$	29	$	60
2015		45		35		47		127
2016 and thereafter		379		246		354		979
Total	$	439	$	297	$	430	$	1,166

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Note 15 - Fair Values (Details) - Losses Resulting from Nonrecurring Fair Value Adjustments (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Note 15 - Fair Values (Details) - Losses Resulting from Nonrecurring Fair Value Adjustments [Line Items]
Total	$ 892	$ 238	$ 5,791	$ 397
Impaired Loans [Member]
Note 15 - Fair Values (Details) - Losses Resulting from Nonrecurring Fair Value Adjustments [Line Items]
Total	892	238	5,501	394
Other Real Estate Owned [Member]
Note 15 - Fair Values (Details) - Losses Resulting from Nonrecurring Fair Value Adjustments [Line Items]
Total			$ 290	$ 3

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Consolidated Statements of Operations (Unaudited) (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Interest income:
Interest and fees on loans	$ 7,188	$ 7,352	$ 14,282	$ 14,999
Interest on securities	1,111	1,022	2,225	2,088
Interest on tax-exempt securities	635	656	1,287	1,279
Interest on interest bearing deposits	128	131	268	272
Total interest income	9,062	9,161	18,062	18,638
Interest expense:
Interest on demand deposits	118	112	239	251
Interest on savings deposits	57	62	114	133
Interest on certificates of deposit	673	654	1,335	1,351
Interest on securities sold under repurchase agreements	0	2	0	6
Interest on other borrowings	24	45	11	105
Total interest expense	872	875	1,699	1,846
Net interest income	8,190	8,286	16,363	16,792
Provision for loan losses	1,450	1,400	1,450	2,450
Net interest income after provision for loan losses	6,740	6,886	14,913	14,342
Noninterest income:
Service charges on deposit accounts	41	54	85	100
Payroll and benefit processing fees	109	114	244	242
Earnings on cash surrender value – Bank owned life insurance	162	112	288	268
(Loss) Gain on investment securities, net	(39)	406	(284)	595
Merchant credit card service income, net	29	32	55	65
Other income	1,834	307	2,112	579
Total noninterest income	2,136	1,025	2,500	1,849
Noninterest expense:
Salaries and related benefits	3,417	3,074	7,039	5,998
Occupancy and equipment expense	678	529	1,320	1,103
Write down of other real estate owned	0		290
Federal Deposit Insurance Corporation insurance premium	189	245	380	333
Data processing fees	218	136	412	270
Professional service fees	338	294	602	563
Deferred compensation expense	115		230
Other expenses	1,156	870	3,622	2,343
Total noninterest expense	6,111	5,148	13,895	10,610
Income before provision for income taxes	2,765	2,763	3,518	5,581
Provision for income taxes	559	757	747	1,535
Net income	2,206	2,006	2,771	4,046
Less: Preferred dividends on preferred stock	50	50	100	100
Income available to common shareholders	$ 2,156	$ 1,956	$ 2,671	$ 3,946
Basic earnings per share (in Dollars per share)	$ 0.16	$ 0.13	$ 0.20	$ 0.26
Average basic shares (in Shares)	13,378	15,120	13,658	15,401
Diluted earnings per share (in Dollars per share)	$ 0.16	$ 0.13	$ 0.19	$ 0.26
Average diluted shares (in Shares)	13,426	15,139	13,705	15,419

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Note 3 - Note Receivable

6 Months Ended

Jun. 30, 2014

Note Receivable [Abstract]

Note Receivable [Text Block]

NOTE 3. NOTE RECEIVABLE

Pursuant to the terms of a note receivable received in conjunction with the Company’s disposal of the former mortgage subsidiary, the Company received note payments (the “Note”) that commenced in 2013 and were due quarterly over a consecutive five year period. The Note carried a zero rate of interest and the obligation was guaranteed by the continuing shareholder of the Mortgage Company. As of March 31, 2014, the Company received all principal amounts due under the original Note agreement, and the Note carried an outstanding principal balance of $2.7 million.

Recent changes in the regulatory requirements under the Dodd-Frank Act and increasing mortgage interest rates have created significant uncertainty in the mortgage lending industry, and have lead to lower origination volume. Consequently, during the first quarter of 2014, the Company’s management became increasingly concerned about whether remaining principal due under the original terms of the Note would be collectible. As a result, during April 2014, the Company executed a promissory note compromise settlement agreement (the “Agreement”) with the Mortgage Company. The Agreement settled and determined all the respective rights and obligations under the Note.

Under the terms of the Agreement, the Mortgage Company paid cash in the amount of $686 thousand and transferred a 1-4 family mortgage note with a principal balance of $560 thousand to the Company. Simultaneously, the Company applied a portion of the cash proceeds to pay off the outstanding balance of the Mortgage Company’s warehouse line of credit held with the Bank. As a result of the Agreement, the Company recognized a loss of $1.4 million in full and complete satisfaction of the Note.

The table below presents the details of the closing transaction:

(Dollars in thousands)
Proceeds	Amount
Cash received	$	686
1-4 family mortgage note (fair value)		560
Net proceeds received	$	1,246
Assets derecognized
Note due from the Mortgage Company	$	2,753
Warehouse line of credit		259
Discount on the Note		(374	)
Total Assets derecognized	$	2,638
Loss on settlement of the Note	$	1,392

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Note 2 - Recent Accounting Pronouncements

6 Months Ended

Jun. 30, 2014

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

New Accounting Pronouncements and Changes in Accounting Principles [Text Block]

NOTE 2. RECENT ACCOUNTING PRONOUNCEMENTS

In June 2014 the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period is treated as a performance condition. A reporting entity should apply existing stock compensation guidance, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the award. Compensation cost should be recognized in the period in which it becomes probable that the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. The Company does not expect the ASU to have a material impact on the Company’s consolidated financial statements.

In May of 2014 FASB issued ASU No. 2014-11, Transfers and Servicing (Topic 860): Repurchase-to-Maturity Transactions, Repurchase Financings, and Disclosures, which changes the accounting for repurchase-to-maturity transactions and repurchase financing arrangements. It also requires additional disclosures about repurchase agreements and other similar transactions. The new guidance aligns the accounting for repurchase-to-maturity transactions and repurchase agreements executed as a repurchase financing with the accounting for other typical repurchase agreements. Going forward, these transactions would all be accounted for as secured borrowings. The guidance eliminates sale accounting for repurchase-to-maturity transactions and supersedes the guidance under which a transfer of a financial asset and a contemporaneous repurchase financing could be accounted for on a combined basis as a forward agreement, which has resulted in outcomes referred to as off-balance-sheet accounting. ASU 2014-11 also brings U.S. GAAP into greater alignment with IFRS for repurchase-to-maturity transactions. The amendments in the ASU require a new disclosure for transactions economically similar to repurchase agreements in which the transferor retains substantially all of the exposure to the economic return on the transferred financial assets throughout the term of the transaction. The amendments in the ASU also require expanded disclosures about the nature of collateral pledged in repurchase agreements and similar transactions accounted for as secured borrowings. The amendments in this ASU are effective for public companies for the first interim or annual period beginning after December 15, 2014. In addition, for public companies, the disclosure for certain transactions accounted for as a sale is effective for the first interim or annual period beginning on or after December 15, 2014, and the disclosure for transactions accounted for as secured borrowings is required to be presented for annual periods beginning after December 15, 2014, and interim periods beginning after March 15, 2015. For all other entities, all changes are effective for annual periods beginning after December 15, 2014, and interim periods beginning after December 15, 2015. Earlier application for a public company is prohibited, but all other companies and organizations may elect to apply the requirements for interim periods beginning after December 15, 2014. The Company does not expect the ASU to have an impact on the Company’s consolidated financial statements.

In April 2014, the FASB issued ASU No. 2014-08 Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in the ASU change the criteria for reporting discontinued operations while enhancing disclosures in this area. It also addresses sources of confusion and inconsistent application related to financial reporting of discontinued operations guidance in U.S. GAAP. Under the new guidance, only disposals representing a strategic shift in operations should be presented as discontinued operations. Those strategic shifts should have a major effect on the organization’s operations and financial results. In addition, the new guidance requires expanded disclosures about discontinued operations that will provide financial statement users with more information about the assets, liabilities, income, and expenses of discontinued operations. The new guidance also requires disclosure of the pre-tax income attributable to a disposal of a significant part of an organization that does not qualify for discontinued operations reporting. Part of the new definition of discontinued operation is based on elements of the definition of discontinued operations in IFRS 5, Non-Current Assets Held for Sale and Discontinued Operations. The amendments in the ASU are effective for annual financial statements with fiscal years beginning on or after December 15, 2014. Early adoption is permitted. The Company does not expect the ASU to have an impact on the Company’s consolidated financial statements.

In January 2014, the FASB issued ASU No. 2014-04, Receivables—Troubled Debt Restructurings by Creditors (Subtopic 310-40): Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure a consensus of the FASB Emerging Issues Task Force. The amendments in this Update clarify that an in substance repossession or foreclosure occurs, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, upon either (1) the creditor obtaining legal title to the residential real estate property upon completion of a foreclosure or (2) the borrower conveying all interest in the residential real estate property to the creditor to satisfy that loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Additionally, the amendments require interim and annual disclosure of both (1) the amount of foreclosed residential real estate property held by the creditor and (2) the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure according to local requirements of the applicable jurisdiction. The amendments are effective annual periods, and interim periods within those annual periods, beginning after December 15, 2014. Early adoption is permitted update using either a modified retrospective transition method or a prospective transition method. The Company does not expect the ASU to have a material impact on the Company’s consolidated financial statements..

In January 2014, the FASB issued ASU No. 2014-01, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Qualified Affordable Housing Projects a consensus of the FASB Emerging Issues Task Force. The amendments in this Update permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments in this Update should be applied retrospectively to all periods presented. The amendments in this Update are effective for annual periods beginning after December 15, 2014, and interim periods within annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The Company has implemented the proportional amortization method according to the guidance and the impact has been immaterial.

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Note 14 - Derivatives

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 14. DERIVATIVES

In the normal course of business the Company is subject to risk from adverse fluctuations in interest rates. To mitigate interest rate risk and market risk, we enter into interest rate swaps with counterparties. Derivative instruments are used to manage interest rate risk relating to specific groups of assets and liabilities, and are presently being used to hedge interest expenses associated with certain FHLB wholesale borrowings. The Company does not use derivative instruments for trading or speculative purposes. The counterparties to the interest rate swaps and forwards are major financial institutions.

The Company’s objective in managing exposure to market risk is to limit the impact on earnings and cash flow. The extent to which the Company uses such instruments is dependent on its access to these contracts in the financial markets.

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

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 815-10, the Company designates interest rate swaps as cash flow hedges of forecasted variable rate FHLB advances.

No components of the hedging instruments are excluded from the assessment of hedge effectiveness. All changes in fair value of outstanding derivatives in cash flow hedges, except any ineffective portion, are recorded in OCI until earnings are impacted by the hedged transaction. Classification of the gain or loss in the Consolidated Statements of Operations upon release from OCI is the same as that of the underlying exposure.

When the Company discontinues 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 accumulated in OCI are recognized immediately in earnings.

During August 2010, the Company entered into five forward starting interest rate swap contracts (“IR”), to hedge interest rate risk associated with forecasted variable interest rate payments from FHLB advances. The hedge strategy converted the LIBOR based floating rate of interest on certain forecasted FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability. Contracts outstanding at February 3, 2011, had effective dates and maturities ranging from March 1, 2012 through March 1, 2017.

On February 4, 2011, the Company terminated the forward starting interest rate swap positions and realized $3.0 million in cash from the counterparty, equal to the carrying amount of the derivative at the date of termination. In addition, upon termination of the hedge contract, the Company received the full amount of the collateral posted pursuant to the hedge contract. Concurrent with the termination of the hedge contract, management removed the cash flow hedge designation, but continued to conclude the forecasted FHLB advances as probable.

The IR’s were terminated due to continuing uncertainty regarding future economic conditions including the corresponding uncertainty on the timing and extent of future changes in the three month LIBOR rate index. The $3.0 million in cash received from the counterparty reflected gains to be reclassified into earnings. Accordingly, the net gains from this transaction are being reclassified from OCI to earnings as a credit to interest expense in the same periods during which the hedged forecasted transaction affected earnings.

As of June 30, 2014, the Company performed on the first three legs of the forecasted transactions by executing forecasted FHLB advances of $75.0 million, with maturities that aligned with the respective terminated IR’s. During June 2014, the Company concluded the remaining hedged forecasted FHLB advances associated with the final two legs of the IR’s were no longer probable. Accordingly, the remaining gains recorded in OCI relating to the final two legs of the IR’s were immediately recognized in earnings. As a result of the transaction, the Company reclassified $952 thousand from OCI to earnings, which are included in other noninterest income in the Consolidated Statement of Operations.

Since March 1, 2012, $801 thousand and $952 thousand of net gains relating to the IR’s were reclassified out of accumulated OCI and netted with other borrowing expense and other noninterest income, respectively. During the three months ended June 30, 2014, net gains of $65 thousand and $952 thousand were reclassified out of accumulated OCI and netted with other borrowing interest expense and other noninterest income, respectively. As of June 30, 2014, the Company estimates that $13 thousand of existing net gains reported in accumulated OCI will be reclassified into earnings within the next twelve months.

During August 2011, the Company entered into four IR contracts, to hedge interest rate risk associated with forecasted variable rate FHLB advances. The hedge strategy converts the LIBOR based floating rate of interest on certain forecasted FHLB advances to fixed interest rates, thereby protecting the Company from floating interest rate variability.

During June 2013, the Company discontinued the hedge treatment associated with the first leg of the IR swap. Subsequently, in July 2013, the Company decided not to obtain an additional $75.0 million in FHLB borrowings whose interest payments were forecasted to be used as the hedged item. Simultaneously, the Company terminated the IR resulting in a $503 thousand loss recognized in other expenses in the Consolidated Statements of Operations, representing the fair value of the IR at the termination date. Immediately upon termination of the IR, the Company reclassified $296 thousand of accumulated losses from OCI to earnings

The following table summarizes the notional amount, effective dates and maturity dates of the IR contracts the Company had outstanding with counterparties as of June 30, 2014. Furthermore, the disclosure indicates the maximum length of time over which the Company is hedging its exposure to variability in future cash flows for forecasted interest payment transactions.

(Dollars in thousands)
Description	Notional Amount		Effective Date	Maturity
Forward starting interest rate swap	$	75,000	August 1, 2014	August 3, 2015
Forward starting interest rate swap	$	75,000	August 3, 2015	August 1, 2016
Forward starting interest rate swap	$	75,000	August 1, 2016	August 1, 2017

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

The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and has been required to post collateral against its obligations under these agreements of $3.4 million as of June 30, 2014. Accordingly, the Company pledged three mortgage backed securities with an aggregate par value of $4.5 million and an aggregate fair market value of $4.7 million. If the Company had breached any of these provisions at June 30, 2014, it could have been required to settle its obligations under the agreements at the termination value. The collateral posted by the Company exceeds the aggregate fair value of additional assets that would be required to be posted as collateral if the instrument were to be settled immediately.

The following table summarizes the types of derivatives, separately by assets and liabilities, their locations on the Consolidated Balance Sheets, and the fair values of such derivatives as of June 30, 2014, and December 31, 2013. See Note 15, Fair Values in these Notes to Unaudited Consolidated Financial Statements for additional detail on the valuation of the Company’s derivatives. The contracts are made with a single issuer and include the right of offset however all of the outstanding IR contracts have a liability position as of June 30, 2014 and December 31, 2013.

(Dollars in thousands)		Asset Derivatives				Liability Derivatives
Description	Balance Sheet Location	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Forward starting interest rate swaps (1)	Other liabilities	$	-	$	-	$	1,167	$	1,071
Forward starting interest rate swaps (1)	Other liabilities		-		-		1,278		1,134
Forward starting interest rate swaps (1)	Other liabilities		-		-		975		685
Total		$	-	$	-	$	3,420	$	2,890

(1)Derivative designated as hedging instrument.

The following table summarizes the types of derivatives, their locations within the Consolidated Statements of Operations, and the gains recorded for the three months ended June 30, 2014 and 2013:

(Dollars in thousands)		Three months ended June 30,				Six months ended June 30,
Description	Consolidated Statement of Operations Location	2014		2013		2014		2013
Forward starting interest rate swaps (1)	Interest on FHLB borrowings	$	150	$	150	$	300	$	300

(1) Cash flow hedge designation removed. Gains represent tax adjusted amounts reclassified from accumulated OCI pertaining to the terminated forward starting interest rate swap.

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Note 10 - Federal Funds Purchased

6 Months Ended

Jun. 30, 2014

Banking and Thrift [Abstract]

Banking and Thrift Disclosure [Text Block]

NOTE 10. FEDERAL FUNDS PURCHASED

At June 30, 2014 and December 31, 2013, the Company had no outstanding federal funds purchased balances. The Bank had available lines of credit with the Federal Home Loan Bank (FHLB) totaling $124.0 million at June 30, 2014. The Bank had available lines of credit with the Federal Reserve totaling $21.7 million subject to certain collateral requirements, namely the amount of certain pledged loans. The Bank had uncommitted federal funds line of credit agreements with three financial institutions totaling $40.0 million at June 30, 2014. At June 30, 2014, the lines of credit had interest rates ranging from 0.28% to 1.15%. Availability of the lines is subject to federal funds balances available for loan, continued borrower eligibility and are reviewed and renewed periodically throughout the year. These lines are intended to support short-term liquidity needs, and the agreements may restrict consecutive day usage.

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Note 6 - Loans

6 Months Ended

Jun. 30, 2014

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 6. LOANS

Outstanding loan balances consist of the following at June 30, 2014, and December 31, 2013:

(Dollars in thousands)	June 30, 2014			December 31, 2013
Commercial	$	168,354		$	170,429
Real estate – construction loans		20,462			18,545
Real estate – commercial (investor)		209,324			205,384
Real estate – commercial (owner occupied)		88,402			83,976
Real estate – ITIN loans		54,611			56,101
Real estate – mortgage		14,211			14,590
Real estate – equity lines		43,809			45,462
Consumer		20,195			3,472
Other		50			36
Gross portfolio loans	$	619,418		$	597,995
Less:
Deferred loan costs, net		(204	)		(303	)
Allowance for loan losses		9,882			14,172
Net portfolio loans	$	609,740		$	584,126

Gross loan balances in the table above include net discounts of $257 thousand and net premiums of $53 thousand as of June 30, 2014, and December 31, 2013, respectively.

Loans are reported as past due when any portion of the principal and interest are not received on the due date. The days past due will continue to increase for each day until full principal and interest are received (i.e. if payment is not received within thirty days of the due date, the loan will be considered thirty days past due; if payment is not received within sixty days of the due date, the loan will be considered sixty days past due, etc). Loans that become ninety days past due may be placed in nonaccrual status.

Age analysis of past due loans, segregated by class of loans, as of June 30, 2014, and December 31, 2013, were as follows:

(Dollars in thousand)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
June 30, 2014
Commercial	$	292	$	2,830	$	352	$	3,474	$	164,880	$	168,354	$	-
Commercial real estate:
Construction										20,462		20,462		-
Other		273		391		299		963		296,763		297,726		-
Residential:
1-4 family		702		369		3,174		4,245		64,577		68,822		-
Home equities		253		-		25		278		43,531		43,809		-
Consumer		-		-		87		87		20,158		20,245		-
Total	$	1,520	$	3,590	$	3,937	$	9,047	$	610,371	$	619,418	$	-

(Dollars in thousand)	30-59 Days Past Due		60-89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total		Recorded Investment > 90 Days and Accruing
December 31, 2013
Commercial	$	-	$	-	$	-	$	-	$	170,429	$	170,429	$	-
Commercial real estate:
Construction		-		-		-		-		18,545		18,545		-
Other		-		-		-		-		289,360		289,360		-
Residential:
1-4 family		3,125		436		3,167		6,728		63,963		70,691		-
Home equities		131		25		-		156		45,306		45,462		-
Consumer		-		-		-		-		3,508		3,508		-
Total	$	3,256	$	461	$	3,167	$	6,884	$	591,111	$	597,995	$	-

A loan is considered impaired when based on current information and events; the Company determines it is probable that it will not be able to collect all amounts due according to the original loan contract, including scheduled interest payments. Generally, when the Company identifies a loan as impaired, it measures the loan for potential impairment using discounted cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, the current fair value of collateral is used, less selling costs.

The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every six to twelve months. The Company obtains 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’s nor the Bank’s Exclusionary List of appraisers and brokers. In certain 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, an external appraisal is utilized to measure a loan for potential impairment. The Company’s 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 the Company’s Chief Credit Officer.

Although an external appraisal is the primary source to value collateral dependent loans, the Company 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, the Company does not believe there are significant time lapses for the recognition of additional loan loss provisions or charge offs from the date they become known.

The following table summarizes impaired loans by loan class as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial	$	4,375	$	7,923	$	-
Commercial real estate:
Other		16,830		21,817		-
Residential:
1-4 family		8,391		11,534		-
Home equities		701		767		-
Consumer		87		87		-
Total with no related allowance recorded	$	30,384	$	42,128	$	-
With an allowance recorded:
Commercial	$	13	$	13	$	4
Commercial real estate:
Other		847		847		208
Residential:
1-4 family		3,623		3,753		495
Home equities		589		589		295
Total with an allowance recorded	$	5,072	$	5,202	$	1,002
Subtotal:
Commercial	$	4,388	$	7,936	$	4
Commercial real estate	$	17,677	$	22,664,	$	208
Residential	$	13,304	$	16,643	$	790
Consumer	$	87	$	87	$	-
Total impaired loans	$	35,456	$	47,330	$	1,002

(Dollars in thousands)	As of December 31, 2013
	Recorded Investment		Unpaid Principal Balance		Related Allowance
With no related allowance recorded:
Commercial real estate:
Other	$	15,736	$	18,184	$	-
Residential:
1-4 family		3,714		6,091		-
Home equities		539		545		-
Total with no related allowance recorded	$	19,989	$	24,820	$	-
With an allowance recorded:
Commercial	$	6,590	$	6,808	$	2,988
Commercial real estate:
Other		6,011		6,020		814
Residential:
1-4 family		8,805		9,804		963
Home equities		746		746		229
Total with an allowance recorded	$	22,152	$	23,378	$	4,994
Subtotal:
Commercial	$	6,590	$	6,808	$	2,988
Commercial real estate	$	21,747	$	24,204	$	814
Residential	$	13,804	$	17,186	$	1,192
Total impaired loans	$	42,141	$	48,198	$	4,994

The Company’s practice is to place an asset on nonaccrual status when one of the following events occurs: (1) any installment of principal or interest is 90 days or more past due (unless in management’s opinion the loan is well-secured and in the process of collection), (2) management determines the ultimate collection of principal or interest to be unlikely or, (3) the terms of the loan have been renegotiated due to a serious weakening of the borrower’s financial condition. Nonperforming loans may be on nonaccrual, 90 days past due and still accruing, or have been restructured. Accruals are resumed on loans only when they are brought fully current with respect to interest and principal and when the loan is estimated to be fully collectible. Restructured loans are those loans on which concessions in terms have been granted because of the borrower’s financial difficulties. Interest is generally accrued on such loans in accordance with the new terms, after a period of sustained performance by the borrower.

One exception to the 90 days past due policy for nonaccruals is the Bank’s pool of home equity loans and lines. Regarding this specific home equity loan pool, the Bank will charge off any loans that go more than 90 days past due. Management believes that at the time these loans become 90 days past due, it is likely that the Company will not collect the remaining principal balance on the loan. In accordance with this policy, management does not expect to classify any of the loans from this pool as nonaccrual.

Nonaccrual loans are restored to accrual status when none of its principal and interest is due and unpaid, and the Company expects repayment of the remaining contractual principal and interest, or when the loan becomes “well secured” and “in the process of collection”. When a loan returns to accrual status, interest income is recognized based on the effective yield to maturity on the loan. The effective interest rate is the discount rate that would equate the present value of the future cash payments to the recorded amount of the loan. This results in accreting the amount of interest applied to principal over the remaining term of the loan.

Had nonaccrual loans performed in accordance with their contractual terms, the Company would have recognized additional interest income, net of tax, of approximately $160 thousand and $314 thousand for the three months ended June 30, 2014 and 2013, respectively. The Company would have recognized additional interest income, net of tax, of approximately $328 thousand and $559 thousand for the six months ended June 30, 2014 and 2013, respectively.

Nonaccrual loans, segregated by loan class, were as follows:

(Dollars in thousands)	June 30,2014		December 31,2013
Commercial	$	4,375	$	6,527
Commercial real estate:
Other		15,598		14,539
Residential:
1-4 family		6,939		8,217
Home equities		479		513
Consumer		87		-
Total	$	27,478	$	29,796

The following table summarizes average recorded investment and interest income recognized on impaired loans by loan class for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	Three Months Ended June 30,2014				Three Months Ended June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	4,295	$	-	$	5,936	$	14
Commercial real estate:
Other		18,402		77		26,160		75
Residential:
1-4 family		12,136		28		14,377		20
Home equities		1,310		8		648		4
Consumer		29		-		-		-
Total	$	36,172	$	113	$	47,121	$	113

(Dollars in thousands)	Six Months Ended June 30,2014				Six Months Ended June 30, 2013
	Average Recorded Investment		Interest Income Recognized		Average Recorded Investment		Interest Income Recognized
Commercial	$	6,114	$	1	$	4,695	$	19
Commercial real estate:
Other		19,806		184		27,641		157
Residential:
1-4 family		12,214		52		14,382		39
Home equities		1,268		17		567		7
Consumer		-		-		-		-
Total	$	39,402	$	254	$	47,285	$	222

The impaired loans for which these interest income amounts were recognized primarily relate to accruing restructured loans. Loans are reported as troubled debt restructurings (TDR) when the Bank grants a concession(s) to a borrower experiencing financial difficulties that it 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 the Bank will not collect all amounts due, both principal and interest, in accordance with the terms of the original loan agreement. Impairment reserves on non-collateral dependent 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. These impairment reserves are recognized as a specific component to be provided for in the ALLL.

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

Maturity – A modification in which the maturity date, timing of payments or frequency of payments is modified.

Rate – A modification in which the interest rate is modified.

Rate and maturity – A modification in which the interest rate is modified and maturity date, timing of payments or frequency of payments is modified.

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

The following tables present the period ended balances of newly restructured loans that occurred during the three and six months ended June 30, 2014 and 2013, respectively:

(Dollars in thousands)	For the three months ended June 30, 2014										For the three months ended June 30, 2013
	Maturity		Rate		Rate & Maturity		Rate & Payment Deferral		Total		Rate		Rate & Maturity		Rate & Payment Deferral		Total
Commercial	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Residential:
1-4 family	$	-	$	153	$	-	$	-	$	153	$	81	$	158	$	-	$	239
Home equities	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-	$	-
Total	$	-	$	153	$	-	$	-	$	153	$	81	$	158	$	-	$	239

	For the six months ended June 30, 2014										For the six months ended June 30, 2013
	Maturity		Rate		Rate & Maturity		Rate & Payment Deferral		Total		Rate		Rate & Maturity		Rate & Payment Deferral		Total
Commercial	$	692	$	0	$	0	$	0	$	692	$	0	$	0	$	0	$	0
Residential:
1-4 family	$	-	$	153	$	-	$	-	$	153	$	424	$	210	$	115	$	749
Home equities	$	-	$	-	$	-	$	-	$	-	$	-	$	73	$	-	$	73
Total	$	692	$	153	$	0	$	0	$	845	$	424	$	283	$	115	$	822

The tables below provide information regarding the number of loans where the contractual terms have been restructured in a manner which grants a concession to a borrower experiencing financial difficulties for the three and six months ended June 30, 2014, and 2013.

(Dollars in thousands)	For the three months ended June 30, 2014						For the three months ended June 30, 2013
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		-	$	-	$	-		-	$	-	$	-
Residential:
1-4 family		2	$	150	$	154		2	$	241	$	244
Home equities		-	$	-	$	-		-	$	-	$	-
Total		2	$	150	$	154		2	$	241	$	244

	For the six months ended June 30, 2014						For the six months ended June 30, 2013
Troubled Debt Restructurings	Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment		Number of Contracts		Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
Commercial		1	$	700	$	700		0	$	0	$	0
Residential:
1-4 family		2	$	150	$	154		8	$	692	$	761
Home equities		-	$	-	$	-		1	$	74	$	75
Total		3	$	850	$	854		9	$	766	$	836

At June 30, 2014 and December 31, 2013, impaired loans of $7.4 million and $8.8 million were classified as performing restructured loans, respectively. The restructurings were granted in response to borrower financial difficulty, and generally provide for a temporary modification of loan repayment terms.

In order for a restructured loan to be considered performing and on accrual status, the loan’s collateral coverage generally will be greater than or equal to 100% of the loan balance, the loan is current on payments, and the borrower must either prefund an interest reserve or demonstrate the ability to make payments from a verified source of cash flow. The Company had no obligations to lend additional funds on the restructured loans as of June 30, 2014 and December 31, 2013.

As of June 30, 2014, the Company had $27.9 million in TDRs compared to $33.4 million as of December 31, 2013. As of June 30, 2014, the Company had one hundred and eighteen loans that qualified as TDRs, of which one hundred three were performing according to their restructured terms. TDRs represented 4.50% of gross portfolio loans as of June 30, 2014, compared with 5.59% at December 31, 2013. The decrease in TDR balances during the six months ended June 30, 2014 is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for a second borrowing relationship and $1.0 million in Commercial Real Estate loans to a third relationship. The loans were previously recorded as TDRs and allocations for the amounts charged off for these relationships were included in the ALLL balance as of December 31, 2013.

The following tables represent loans modified as TDRs within the previous 12 months for which there was a payment default during the three and six months ended June 30, 2014 and 2013, respectively:

(Dollars in thousands)	For the three months ended June 30, 2014				For the three months ended June 30, 2013				For the six months ended June 30, 2014				For the six months ended June 30, 2013
Troubled Debt Restructurings that Subsequently Defaulted	Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment		Number of Contracts		Recorded Investment
Commercial		2	$	3,007		1	$	49		2	$	3,007		2	$	497
Commercial real estate:
Other		1		391		1		226		1		391		2		960
Residential:
1-4 family		-		-		-		-		1		86		-		-
Total		3	$	3,398		2	$	275		4	$	3,484		4	$	1,457

The foundation or primary factor in determining the appropriate credit quality indicators is the degree of a debtor’s willingness and ability to perform as agreed. The Company defines a performing loan as a loan where any installment of principal or interest is not 90 days or more past due, and management believes the ultimate collection of original contractual principal and interest is likely. The Company defines a nonperforming loan as an impaired loan which may be on nonaccrual, 90 days past due and still accruing, or has been restructured and is not in compliance 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, are as follows:

(Dollars in thousands)	June 30, 2014
	Performing		Nonperforming		Total
Commercial	$	163,979	$	4,375	$	168,354
Commercial real estate:
Construction		20,462		-		20,462
Other		282,128		15,598		297,726
Residential:
1-4 family		61,883		6,939		68,822
Home equities		43,330		479		43,809
Consumer		20,158		87		20,245
Total	$	591,940	$	27,478	$	619,418

(Dollars in thousands)	December 31, 2013
	Performing		Nonperforming		Total
Commercial	$	163,902	$	6,527	$	170,429
Commercial real estate:
Construction		18,545		-		18,545
Other		274,821		14,539		289,360
Residential:
1-4 family		62,474		8,217		70,691
Home equities		44,949		513		45,462
Consumer		3,508		-		3,508
Total	$	568,199	$	29,796	$	597,995

In conjunction with evaluating the performing versus nonperforming nature of the Company’s loan portfolio, management evaluates the following credit risk and other relevant factors in determining the appropriate credit quality indicator (grade) for each loan class:

Pass Grade - Borrowers classified as Pass Grades specifically demonstrate:

● Strong Cash Flows – borrower’s cash flows must meet or exceed the Company’s minimum debt service coverage ratio.

● Collateral Margin – generally, the borrower must have pledged an acceptable collateral class with an adequate collateral margin.

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.

● Qualitative Factors – in addition to meeting the Company’s minimum cash flow and collateral requirements, a number of other qualitative factors are also factored into assigning a pass grade including the borrower’s level of leverage (debt to equity), prospects, history and experience in their industry, credit history, and any other relevant factors including a borrower’s character.

Watch Grade – Generally, borrowers classified as Watch exhibit some level of deterioration in one or more of the following:

● Adequate Cash Flows – borrowers in this category demonstrate adequate cash flows and debt service coverage ratios, but also exhibit one or more less than positive conditions such as declining trends in the level of cash flows, increasing or sole reliance on secondary sources of cash flows, and/or do not meet the Company’s minimum debt service coverage ratio. However, cash flow remains at acceptable levels to meet debt service requirements.

● Adequate Collateral Margin – the collateral securing the debt remains adequate but also exhibits a declining trend in value or expected volatility due to macro or industry specific conditions. The current collateral value, less selling costs, remains adequate to cover the outstanding debt under a liquidation scenario.

● Qualitative Factors – while the borrower’s cash flow and collateral margin generally remain adequate, one or more quantitative and qualitative factors may also factor into assigning a Watch Grade including the borrower’s level of leverage (debt to equity), deterioration in prospects, limited experience in their industry, newly formed company, overall deterioration in the industry, negative trends or recent events in a borrower’s credit history, deviation from core business, and any other relevant factors.

Special Mention Grade – Generally, borrowers classified as Special Mention exhibit a greater level of deterioration than Watch graded loans and warrant management’s close attention. If left uncorrected, the potential weaknesses could threaten repayment prospects in the future. Special Mention loans are not adversely classified and do not expose the Company to sufficient risk to warrant an adverse risk grade.

The following represents potential characteristics of a Special Mention Grade but do not necessarily generate automatic reclassification into this loan grade:

● Adequate Cash Flows – borrowers in this category demonstrate adequate cash flows and debt service coverage ratios, but also reflect adverse trends in operations or continuing financial deterioration that, if it does not stabilize and reverse in a reasonable timeframe, retirement of the debt may be jeopardized.

● Adequate Collateral Margin – the collateral securing the debt remains adequate but also exhibits a continuing declining trend in value or volatility due to macro or industry specific conditions. The current collateral value, less selling costs, remains adequate, but should the negative collateral trend continue, the full recovery of the outstanding debt under a liquidation scenario could be jeopardized.

● Qualitative Factors – while the borrower’s cash flow and/or collateral margin continue to deteriorate but generally remain adequate, one or more quantitative and qualitative factors may also be factoring into assigning a Special Mention Grade including inadequate or incomplete loan documentation, perfection of collateral, inadequate credit structure, borrower unable or unwilling to produce current and adequate financial information, and any other relevant factors.

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 the Company 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 classified 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:

● Sustained or substantial deteriorating financial trends,

● Unresolved management problems,

● Collateral is insufficient to repay debt; collateral is not sufficiently supported by independent sources, such as asset-based financial audits, appraisals, or equipment evaluations,

● Improper perfection of lien position, which is not readily correctable,

● Unanticipated and severe decline in market values,

● High reliance on secondary source of repayment,

● Legal proceedings, such as bankruptcy or a divorce, which has substantially decreased the borrower’s capacity to repay the debt,

● Fraud committed by the borrower,

● IRS liens that take precedence,

● Forfeiture statutes for assets involved in criminal activities,

● Protracted repayment terms outside of policy that are for longer than the same type of credit in the Company portfolio,

● Any other relevant quantitative or qualitative factor that negatively affects the current net worth and paying capacity of the borrower or of the collateral pledged, if any.

Doubtful Grade – A credit risk rated as Doubtful has all the weaknesses inherent in a credit classified Substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. As such, all doubtful loans are considered impaired. 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:

● Proposed merger(s),

● Acquisition or liquidation procedures,

● Capital injection,

● Perfecting liens on additional collateral,

● Refinancing plans.

Generally, a Doubtful grade does not remain outstanding for a period greater than six months. After six months, the pending events should have either occurred or not occurred. The credit grade should have improved or the principal balance charged against the ALLL.

Credit grade definitions, including qualitative factors, for all credit grades are reviewed and approved annually by the Company’s Loan Committee. The following table summarizes internal risk rating by loan class as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	June 30, 2014
	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Commercial	$	134,484	$	19,359	$	3,419	$	11,092	$	-	$	168,354
Commercial real estate:
Construction		20,410		52		-		-		-		20,462
Other		269,079		8,367		905		19,375		-		297,726
Residential:
1-4 family		55,875		933		-		12,014		-		68,822
Home equities		39,927		2,392		-		1,490		-		43,809
Consumer		20,089		5		-		151		-		20,245
Total	$	539,864	$	31,108	$	4,324	$	44,122	$	-	$	619,418

(Dollars in thousands)	December 31, 2013
	Pass		Watch		Special Mention		Substandard		Doubtful		Total
Commercial	$	131,042	$	24,274	$	7,177	$	7,936	$	-	$	170,429
Commercial real estate:
Construction		18,048		497		-		-		-		18,545
Other		247,656		18,343		2,309		21,052		-		289,360
Residential:
1-4 family		56,832		1,340		-		12,519		-		70,691
Home equities		41,147		2,311		25		1,979		-		45,462
Consumer		3,307		38		130		33		-		3,508
Total	$	498,032	$	46,803	$	9,641	$	43,519	$	-	$	597,995

The following tables below summarize the Allowance for Credit Losses and Recorded Investment in Financing Receivables as of June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Commercial			Commercial Real Estate			Consumer		Residential			Unallocated			Total
Allowance for credit losses:
Beginning balance	$	7,057		$	2,784		$	35	$	2,493		$	1,803		$	14,172
Charge offs		(3,685	)		(2,406	)		-		(268	)		-			(6,359	)
Recoveries		455			-			-		164			-			619
Provision		(493	)		3,489			203		(56	)		(1,693	)		1,450
Ending balance	$	3,334		$	3,867		$	238	$	2,333		$	110		$	9,882
Ending balance: individually evaluated for impairment	$	4		$	208		$	0	$	790		$	0		$	1,002
Ending balance: collectively evaluated for impairment	$	3,330		$	3,659		$	238	$	1,543		$	110		$	8,880
Financing receivables
Ending balance	$	168,354		$	318,188		$	20,245	$	112,631		$	0		$	619,418
Ending balance individually evaluated for impairment	$	4,388		$	17,677		$	87	$	13,304		$	0		$	35,456
Ending balance collectively evaluated for impairment	$	163,966		$	300,511		$	20,158	$	99,327		$	0		$	583,962

(Dollars in thousands)	As of December 31, 2013
	Commercial			Commercial Real Estate			Consumer			Residential			Unallocated		Total
Allowance for credit losses:
Beginning balance	$	4,168		$	2,783		$	28		$	3,335		$	789	$	11,103
Charge offs		(882	)		(230	)		(25	)		(1,633	)		-		(2,770	)
Recoveries		58			2,483			1			547			-		3,089
Provision		3,713			(2,252	)		31			244			1,014		2,750
Ending balance	$	7,057		$	2,784		$	35		$	2,493		$	1,803	$	14,172
Ending balance: individually evaluated for impairment	$	2,988		$	814		$	-		$	1,192		$	-	$	4,994
Ending balance: collectively evaluated for impairment	$	4,069		$	1,970		$	35		$	1,301		$	1,803	$	9,178
Financing receivables
Ending balance	$	170,429		$	307,905		$	3,508		$	116,153		$	-	$	597,995
Ending balance individually evaluated for impairment	$	6,590		$	21,747		$	-		$	13,804		$	-	$	42,141
Ending balance collectively evaluated for impairment	$	163,839		$	286,158		$	3,508		$	102,349		$	-	$	555,854

The ALLL totaled $9.9 million or 1.59% of total portfolio loans at June 30, 2014 and $14.2 million or 2.37% at December 31, 2013. In addition, as of June 30, 2014, the Company had $225.7 million in commitments to extend credit, and recorded a reserve for unfunded commitments of $696 thousand in other liabilities in the Consolidated Balance Sheets.

During the six months ended June 30, 2014, the Company realized net charge offs of $5.7 million compared with net recoveries of $319 thousand in the period ended December 31, 2013. The increase in net charge offs in the current year and the decrease in the ALLL allocation is primarily due to chargeoffs related to three significant borrowing relationships; the first included $3.4 million in chargeoffs of Commercial and Industrial loans and the second included $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans. The third included $1.0 million in chargeoffs for three Commercial Real Estate loans. Allocations for the amounts charged off for these relationships were included in the ALLL balance as of December 31, 2013.

The ALLL is based upon estimates of loan losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. The Company’s ALLL methodology significantly incorporates management’s current judgments, and reflects the reserve amount that is necessary for estimated loan losses and risks inherent in the loan portfolio in accordance with ASC Topic 450 Contingencies and ASC Topic 310 Receivables.

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 loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect the 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 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.

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.

Management believes that the ALLL was adequately funded as of June 30, 2014. There is, however, no assurance that future loan losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan losses. In addition, bank regulatory authorities, as part of their periodic examination of the Bank, may require additional charges to the provision for loan losses in future periods if warranted as a result of their review.

Approximately 70% 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. The recent U.S. recession, the housing market downturn, and depressed real estate values in our markets have negatively impacted aspects of our residential development, commercial real estate, commercial construction and commercial loan portfolios. A continued deterioration in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan losses.

All impaired loans are individually evaluated for impairment. If the measurement of each impaired loan’s 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. This can be accomplished by charging off the impaired portion of the loan or establishing a specific component within the ALLL. If the Bank determines 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 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.

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 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, 2014, the unallocated allowance amount represented 1.1% of the ALLL, compared to 13% at December 31, 2013. The change in the unallocated portion of the allowance is primarily due to $3.4 million in chargeoffs of Commercial and Industrial loans for one borrowing relationship and $1.4 million in chargeoffs of Commercial Real Estate and Farmland loans for a second borrowing relationship. Allocations for the amounts charged off for these two relationships were included in the ALLL balance as of December 31, 2013. The level in unallocated ALLL in both the current period and prior year reflects management’s evaluation of continued weak and uncertain business and economic conditions, credit risk, and depressed collateral values of real estate in our markets. The ALLL composition should not be interpreted as an indication of specific amounts or loan categories in which future charge offs may occur.

The Company has lending policies and procedures in place with the objective of optimizing loan income within an accepted risk tolerance level. Management reviews and approves 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.

The following is a brief summary, by loan type, of management’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.

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. In addition, the Company maintains a commercial loan with its former mortgage subsidiary in which mortgage loans are pledged as collateral.

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 Company’s CRE portfolio are diverse in terms of type and primary source of repayment. This diversity helps reduce the Company’s exposure to adverse economic events that affect any single industry. Management monitors and evaluates CRE loans based on occupancy status (investor versus owner occupied), collateral, geography, and risk grade criteria.

Generally, CRE loans 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.

Consumer Loans – The Company’s consumer loan portfolio is generally limited to home equity loans with nominal originations in unsecured personal loans. The Company is 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.

The Company maintains 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 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 the Company’s policies and procedures.

Management’s continuing evaluation of all known relevant quantitative and qualitative internal and external risk factors provide the foundation for the three major components of the Company’s 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 Company’s 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 the Company’s 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.

In accordance with ASC 450, historical valuation allowances are established for loan pools with similar risk characteristics common to each loan grouping. The Company’s 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.

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. Management periodically reviews and updates its historical loss ratios based on net charge off experience for each loan 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 the Company’s loan portfolio.

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Note 8 - Accounting for Income Tax and Uncertainties (Details)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Income Tax Disclosure [Abstract]
Effective Income Tax Rate Reconciliation, Percent	21.23%	27.50%

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Note 4 - Earnings Per Share

6 Months Ended

Jun. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 4. EARNINGS PER SHARE

Basic Earnings Per Share (EPS) is computed by dividing net income available to common stockholders by the weighted average number of common shares outstanding for the period, respectively. Diluted EPS reflects the potential dilution that could 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 shared in the earnings of the entity.

The following is a computation of basic and diluted EPS for the three and six months ended June 30, 2014, and 2013:

(Dollars in thousands, except per share data)	For the three months ended June 30,				For the six months ended June 30,
Earnings Per Share	2014			2013	2014		2013
NUMERATORS:
Net income	$	2,206	$	2,006	$	2,771	$	4,046
Less preferred stock dividends		50		50		100		100
Net income available to common shareholders	$	2,156	$	1,956	$	2,671	$	3,946
DENOMINATORS:
Weighted average number of common shares outstanding - basic		13,378		15,120		13,658		15,401
Effect of potentially dilutive common shares (1)		48		19		47		18
Weighted average number of common shares outstanding - diluted		13,426		15,139		13,705		15,419
EARNINGS PER COMMON SHARE:
Basic attributable to operations	$	0.16	$	0.13	$	0.20	$	0.26
Diluted attributable to operations	$	0.16	$	0.13	$	0.19	$	0.26
Anti-dilutive options not included in earnings per share calculation		82,300		108,837		82,300		114,837

(1) Represents the effects of the assumed exercise of stock options

On January 16, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 6% of its outstanding shares over a twelve-month period. The stock repurchase plan authorized the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased 319,196 and 982,173 common shares during the three and six months ended June 30, 2013, respectively. The shares were retired subsequent to purchase. The remaining shares authorized under the plan were purchased during July of 2013.

On August 21, 2013, the Company announced that its Board of Directors had authorized the purchase of up to 1,000,000 or 7% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company purchased and subsequently retired the full amount of shares authorized under the plan as of December 31, 2013.

On March 20, 2014, the Company announced that its Board of Directors had authorized the purchase of up to 700,000 or 5% of its outstanding shares over a twelve-month period. The stock repurchase plan authorizes the Company to conduct open market purchases or privately negotiated transactions from time to time when, at management’s discretion, it was determined that market conditions and other factors warrant such purchases. Pursuant to the stock repurchase plan, the Company repurchased 259,815 and 700,000 common shares during the three and six months ended June 30, 2014, respectively. The shares were retired subsequent to purchase.

The decrease in weighted average shares from the stock repurchases positively contributed to earnings per common share, and return on common equity.

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Note 5 - Securities

6 Months Ended

Jun. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 5. SECURITIES

Securities are classified as available-for-sale if the Company intends and has the ability to hold those securities for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as available-for-sale would be based on various factors, including significant movements in interest rates, changes in the maturity mix of assets and liabilities, liquidity needs, regulatory capital considerations and other similar factors. Securities designated as available-for-sale are carried at fair value. Unrealized holding gains or losses are included in other comprehensive income (OCI) as a separate component of shareholders’ equity, net of tax. Realized gains or losses, determined on the basis of the cost of specific securities sold, are included in earnings. Premiums and discounts are amortized or accreted over the life of the related investment security as an adjustment to yield using the effective interest method. Dividend and interest income are recognized when earned.

Debt securities are classified as held-to-maturity if the Company has both the intent and ability to hold those securities to maturity regardless of changes in market conditions, liquidity needs or changes in general economic conditions. These securities are carried at cost, adjusted for amortization of premium and accretion of discount, computed by the effective interest method over their contractual lives.

Transfers of securities from available-for-sale to held-to-maturity are accounted for at fair value as of the date of the transfer. The difference between the fair value and the amortized cost at the date of transfer is considered a premium or discount and is accounted for accordingly. Any unrealized gain or loss at the date of the transfer is reported in OCI, and is amortized over the remaining life of the security as an adjustment of yield in a manner consistent with the amortization of any premium or discount, and will offset or mitigate the effect on interest income of the amortization of the premium or discount for that held to maturity security. The Company did not have any transfers in or out of the various securities classifications for the six months ended June 30, 2014.

The following table presents the amortized costs, gross unrealized gains, gross unrealized losses and approximate fair values of investment securities at June 30, 2014, and December 31, 2013:

(Dollars in thousands)	As of June 30, 2014
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government & agencies	$	7,886	$	0	$	(99	)	$	7,787
Obligations of state and political subdivisions		54,447		1,316		(394	)		55,369
Residential mortgage backed securities and collateralized mortgage obligations		45,522		532		(256	)		45,798
Corporate securities		41,942		482		(258	)		42,166
Commercial mortgage backed securities		9,942		45		(154	)		9,833
Other asset backed securities		27,656		354		(277	)		27,733
Total	$	187,395	$	2,729	$	(1,438	)	$	188,686
Held-to-maturity securities
Obligations of state and political subdivisions	$	37,031	$	344	$	(958	)	$	36,417

(Dollars in thousands)	As of December 31, 2013
	Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Available-for-sale securities
U.S. government & agencies	$	6,580	$	-	$	(316	)	$	6,264
Obligations of state and political subdivisions		60,370		672		(1,833	)		59,209
Residential mortgage backed securities and collateralized mortgage obligations		64,026		318		(1,353	)		62,991
Corporate securities		48,836		282		(888	)		48,230
Commercial mortgage backed securities		10,828		24		(380	)		10,472
Other asset backed securities		29,717		388		(631	)		29,474
Total	$	220,357	$	1,684	$	(5,401	)	$	216,640
Held-to-maturity securities
Obligations of state and political subdivisions	$	36,696	$	36	$	(2,707	)	$	34,025

The amortized cost and estimated fair value of available-for-sale and held-to-maturity securities as of June 30, 2014, are shown below.

(Dollars in thousands)	Available-for-sale				Held-to-maturity
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
AMOUNTS MATURING IN:
One year or less	$	2,401	$	2,437	$	367	$	368
One year through five years		33,615		34,080		365		383
Five years through ten years		74,449		74,641		14,555		14,472
After ten years		76,930		77,528		21,744		21,194
Total	$	187,395	$	188,686	$	37,031	$	36,417

The amortized cost and fair value of collateralized mortgage obligations and mortgage backed securities are presented by their expected average life, rather than contractual maturity, in the preceding table. Expected maturities may differ from contractual.

The Company held $53.0 million in securities with safekeeping institutions for pledging purposes. Of this amount, $21.0 million were pledged as of June 30, 2014. The following table presents the fair market value of the securities held, segregated by purpose, as of June 30, 2014:

(Dollars in thousands)	Amount
Public funds collateral	$	22,857
Federal Home Loan Bank borrowings		25,417
Interest rate swap contracts		4,702
Total securities held for pledging purposes	$	52,976

The following table presents the cash proceeds from sales of securities and their associated gross realized gains and gross realized losses that have been included in earnings for the three and six months ended June 30, 2014 and 2013:

(Dollars in thousands)	For three months ended June 30,						For the six months ended June 30,
	2014			2013			2014			2013
Proceeds from sales of securities	$	32,099		$	35,370		$	68,785		$	45,342
Gross realized gains on sales of securities:
Obligations of state and political subdivisions	$	14		$	145		$	171		$	177
Residential mortgage backed securities and collateralized mortgage obligations		63			18			68			105
Corporate securities		85			342			227			360
Commercial mortgage backed securities		5			-			5			-
Other asset backed securities		40			-			63			53
Total gross realized gains on sales of securities	$	207		$	505		$	534		$	695
Gross realized losses on sales of securities
U.S. government & agencies	$	(115	)	$	(27	)	$	(114	)	$	(27	)
Obligations of state and political subdivisions		(69	)		(10	)		(159	)		(10	)
Residential mortgage backed securities and collateralized mortgage obligations		(13	)		(50	)		(482	)		(51	)
Corporate securities		(8	)		(12	)		(8	)		(12	)
Commercial mortgage backed securities		(31	)		-			(32	)		-
Other asset backed securities		(10	)		-			(23	)		-
Total gross realized losses on sales of securities	$	(246	)	$	(99	)	$	(818	)	$	(100	)
(Loss) gain on investment securities, net	$	(39	)	$	406		$	(284	)	$	595

The following tables present the current fair value and associated unrealized losses on investments with unrealized losses at June 30, 2014, and December 31, 2013. The tables also illustrate whether these securities have had unrealized losses for less than 12 months or for 12 months or longer.

(Dollars in thousands)	As of June 30, 2014
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	4,943	$	(10	)	$	2,846	$	(89	)	$	7,789	$	(99	)
Obligations of states and political subdivisions		7,225		(52	)		14,297		(342	)		21,522		(394	)
Residential mortgage backed securities and collateralized mortgage obligations		7,344		(96	)		6,309		(160	)		13,653		(256	)
Corporate securities		6,911		(76	)		9,945		(182	)		16,856		(258	)
Commercial mortgage backed securities		2,970		(24	)		2,606		(130	)		5,576		(154	)
Other asset backed securities		4,137		(63	)		6,063		(214	)		10,200		(277	)
Total temporarily impaired securities	$	33,530	$	(321	)	$	42,066	$	(1,117	)	$	75,596	$	(1,438	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	2,334	$	(9	)	$	20,487	$	(949	)	$	22,821	$	(958	)

(Dollars in thousands)	As of December 31, 2013
	Less than 12 months					12 months or more					Total
Available-for-sale securities	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
U.S. government & agencies	$	5,446	$	(147	)	$	819	$	(168	)	$	6,265	$	(315	)
Obligations of states and political subdivisions		29,943		(1,578	)		2,727		(255	)		32,670		(1,833	)
Residential mortgage backed securities and collateralized mortgage obligations		44,197		(1,214	)		3,271		(139	)		47,468		(1,353	)
Corporate securities		32,649		(792	)		2,960		(96	)		35,609		(888	)
Commercial mortgage backed securities		5,543		(205	)		1,437		(176	)		6,980		(381	)
Other asset backed securities		15,303		(518	)		1,723		(113	)		17,026		(631	)
Total temporarily impaired securities	$	133,081	$	(4,454	)	$	12,937	$	(947	)	$	146,018	$	(5,401	)
Held-to-maturity securities
Obligations of states and political subdivisions	$	23,800	$	(1,524	)	$	7,533	$	(1,183	)	$	31,333	$	(2,707	)

At June 30, 2014, 112 securities were in unrealized loss positions and at December 31, 2013, 196 securities were in unrealized loss positions.

The unrealized losses on obligations of political subdivisions and corporate securities were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities. Management monitors published credit ratings of these securities and there have been no adverse ratings changes below investment grade since the date of purchase. Because the decline in fair value is attributable to changes in interest rates or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in these classes, and it is more likely than not that the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

The residential mortgage backed securities, commercial backed securities, collateralized mortgage obligations, and other asset backed securities portfolios in an unrealized loss position at June 30, 2014, were issued by both public and private agencies. The unrealized losses on residential mortgage backed securities, commercial backed securities and collateralized mortgage obligations were caused by changes in market interest rates and / or the widening of market spreads subsequent to the initial purchase of these securities, and not by the underlying credit of the issuers or the underlying collateral. It is expected that these securities will not be settled at a price less than the amortized cost of each investment. Because the decline in fair value is attributable to changes in interest rates and or widening market spreads and not credit quality, and because the Company does not intend to sell the securities in this class, and it is more likely than not the Company will not be required to sell these securities before recovery of their amortized cost basis, which may include holding each security until contractual maturity, the unrealized losses on these investments are not considered other-than-temporarily impaired.

Management reviews investment securities on an ongoing basis for the presence of other-than-temporary impairment (“OTTI”) or permanent impairment, taking into consideration current market conditions, fair value in relationship to cost, extent and nature of the change in fair value, issuer rating changes and trends, whether we intend to sell a security or if it is more likely than not that we will be required to sell the security before recovery of our amortized cost basis of the investment, which may be maturity, and other factors. For debt securities, if we intend to sell the security or it is more likely than not we will be required to sell the security before recovering its cost basis, the entire impairment loss would be recognized in earnings as an OTTI. If we do not intend to sell the security and it is more likely than not we will not be required to sell the security, but we do not expect to recover the entire amortized cost basis of the security, only the portion of the impairment loss representing credit losses would be recognized in earnings. The credit loss on a security is measured as the difference between the amortized cost basis and the present value of the cash flows expected to be collected. Projected cash flows are discounted by the original or current effective interest rate depending on the nature of the security being measured for potential OTTI. The remaining impairment related to all other factors, the difference between the present value of the cash flows expected to be collected and fair value, is recognized as a charge to OCI. Impairment losses related to all other factors are presented as separate categories within OCI. For investment securities held to maturity, this amount is accreted over the remaining life of the debt security prospectively based on the amount and timing of future estimated cash flows. The accretion of the OTTI amount recorded in OCI will increase the carrying value of the investment, and would not affect earnings. If there is an indication of additional credit losses the security is re-evaluated according to the procedures described above. For the three and six months ended June 30, 2014 and the year ended December 31, 2013, the Company did not recognize impairment losses.

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Note 7 - Other Real Estate Owned

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Real Estate Owned [Text Block]

NOTE 7. OTHER REAL ESTATE OWNED

Other Real Estate Owned – Represents real estate which the Bank has taken control of in partial or full satisfaction of loans. At the time of foreclosure, OREO is recorded at the lower of cost or fair value less costs to sell, which becomes the property’s new basis. 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 such that the real estate is carried at the lower of its new cost basis or fair value, net of estimated costs to sell.

Subsequent valuation adjustments are recognized within net loss of OREO. Revenue and expenses from operations and subsequent adjustments to the carrying amount of the property are included in other noninterest expense in the Consolidated Statements of Operations. In some instances, the Bank may make loans to facilitate the sales of OREO. Management reviews all sales for which it is the lending institution for compliance with sales treatment under provisions established within ASC 360-20, Real Estate Sales. Any gains related to sales of OREO may be deferred until the buyer has a sufficient initial and continuing investment in the property.

At June 30, 2014, and December 31, 2013, the recorded investment in OREO was $826 thousand and $913 thousand, respectively. For the six months ended June 30, 2014, the Company transferred foreclosed property from three loans in the amount of $268 thousand to OREO. During the six months ended June 30, 2014, further impairment was deemed necessary for an improved commercial land property in the amount of $290 thousand. The property was transferred to OREO in 2010 and was written down to its fair value in the first quarter of 2014 in anticipation of its pending sale. During the six months ended June 30, 2014 the Company sold one property with a balance of $65 thousand for a net loss of $15 thousand. The June 30, 2014 OREO balance consists of five properties, of which three are secured with 1-4 family residential real estate in the amount of $204 thousand. One property is secured by a commercial real estate property in the amount of $161 thousand. The remaining property consists of improved commercial land in the amount of $460 thousand.

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Note 10 - Federal Funds Purchased (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Note 10 - Federal Funds Purchased (Details) [Line Items]
Federal Funds Purchased	$ 0	$ 0
Collateralized Agreements	40,000,000
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate, Range from	0.28%
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Interest Rate, Range to	1.15%
Federal Home Loan Bank (FHLB) [Member]
Note 10 - Federal Funds Purchased (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	124,000,000
Federal Reserve [Member]
Note 10 - Federal Funds Purchased (Details) [Line Items]
Line of Credit Facility, Maximum Borrowing Capacity	$ 21,700,000

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Note 11 - Term Debt (Details) - Future Contractual Maturities of FHLB (USD $)	Jun. 30, 2014
Future Contractual Maturities of FHLB [Abstract]
2014	$ 75,000,000
Thereafter	0
Total FHLB advances	$ 75,000,000

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Note 9 - Qualified Affordable Housing Project Investments (Details) - Anticipated Net Income Tax Benefit from LIHTC Projects (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014
Anticipated net income tax benefit less amortization of investments:
2014	$ 60
2015	127
2016 and thereafter	979
Total	1,166
Raymond James California Housing Opportunities Fund II [Member]
Anticipated net income tax benefit less amortization of investments:
2014	15
2015	45
2016 and thereafter	379
Total	439
WNC Institutional Tax Credit Fun 38, L.P. [Member]
Anticipated net income tax benefit less amortization of investments:
2014	16
2015	35
2016 and thereafter	246
Total	297
Merritt Community Capital Corporation Fund XV, L.P. [Member]
Anticipated net income tax benefit less amortization of investments:
2014	29
2015	47
2016 and thereafter	354
Total	$ 430

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Note 14 - Derivatives (Tables)

6 Months Ended

Jun. 30, 2014

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary Of Notional Amount Effective Dates And Maturity Dates [Table Text Block]

(Dollars in thousands)
Description	Notional Amount		Effective Date	Maturity
Forward starting interest rate swap	$	75,000	August 1, 2014	August 3, 2015
Forward starting interest rate swap	$	75,000	August 3, 2015	August 1, 2016
Forward starting interest rate swap	$	75,000	August 1, 2016	August 1, 2017

Schedule of Derivative Instruments in Statement of Financial Position, Fair Value [Table Text Block]

(Dollars in thousands)		Asset Derivatives				Liability Derivatives
Description	Balance Sheet Location	June 30, 2014		December 31, 2013		June 30, 2014		December 31, 2013
Forward starting interest rate swaps (1)	Other liabilities	$	-	$	-	$	1,167	$	1,071
Forward starting interest rate swaps (1)	Other liabilities		-		-		1,278		1,134
Forward starting interest rate swaps (1)	Other liabilities		-		-		975		685
Total		$	-	$	-	$	3,420	$	2,890

Derivative Instruments, Gain (Loss) [Table Text Block]

(Dollars in thousands)		Three months ended June 30,				Six months ended June 30,
Description	Consolidated Statement of Operations Location	2014		2013		2014		2013
Forward starting interest rate swaps (1)	Interest on FHLB borrowings	$	150	$	150	$	300	$	300

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Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	$ 27,478	$ 29,796
Commercial Portfolio Segment [Member]
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	4,375	6,527
Commercial Real Estate Other Receivable [Member]
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	15,598	14,539
Residential One To Four Family [Member]
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	6,939	8,217
Residential Real Estate and Home Equities [Member]
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	479	513
Residential Consumer [Member]
Note 6 - Loans (Details) - Nonaccrual Loans, Segregated by Loan Class [Line Items]
Nonaccrual Loans	$ 87

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Note 12 - Commitments and Contingencies

6 Months Ended

Jun. 30, 2014

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 12. COMMITMENTS AND CONTINGENCIES

Lease Commitments – The Company leases four sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates, based either on changes in the published Consumer Price Index or a predetermined escalation schedule. Substantially all of the leases provide the Company with the option to extend the lease term one or more times following expiration of the initial term.

Rent expense for the three months ended June 30, 2014 and 2013 was $142 thousand and $97 thousand, respectively. Rent expense was offset by rent income during the three and six months ended June 30, 2014, of $4 thousand and $8 thousand, respectively, compared to $4 thousand and $8 thousand, respectively, in the comparable periods of 2013.

The following table sets forth, as of June 30, 2014, the future minimum lease payments under non-cancelable operating leases:

(Dollars in thousands)
Amounts due in:
2014	$	275
2015		562
2016		576
2017		517
2018		398
Thereafter		1,555
Total	$	3,883

Financial Instruments with Off-Balance Sheet Risk – The Company’s financial statements do not reflect various commitments and contingent liabilities that arise in the normal course of the Bank’s business and involve elements of credit, liquidity, and interest rate risk.

The following table presents a summary of the Bank’s commitments and contingent liabilities:

(Dollars in thousands)	June 30, 2014		December 31, 2013
Commitments to extend credit	$	220,808	$	192,351
Standby letters of credit		3,014		4,583
Guaranteed commitments outstanding		1,865		1,871
Total commitments	$	225,687	$	198,805

The Bank is a party to financial instruments with off-balance sheet credit risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. Those 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 those instruments reflect the extent of the Bank’s involvement in particular classes of financial instruments.

The Bank’s exposure to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit, standby letters of credit, and financial guarantees written, is represented by the contractual notional amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any covenant or condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

While most standby letters of credit are not utilized, a significant portion of such utilization is on an immediate payment basis. The Bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if it is deemed necessary by the Bank upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral varies but may include cash, accounts receivable, inventory, premises and equipment and income-producing commercial properties.

Standby letters of credit and financial guarantees written are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support public and private borrowing arrangements, including international trade finance, commercial paper, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

The Bank holds cash, marketable securities, or real estate as collateral supporting those commitments for which collateral is deemed necessary. The Bank was not required to perform on any financial guarantees for the six months ended June 30, 2014, and the year ended December 31, 2013. At June 30, 2014 approximately $1.8 million of standby letters of credit expire within one year, and $1.2 thousand expire thereafter.

The reserve for unfunded commitments, which is included in other liabilities on the Consolidated Balance Sheets, was $696 thousand at June 30, 2014 and December 31, 2013. 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. During the six months ended June 30, 2014, the Company made no additional provision to the reserve for unfunded commitments. During the six months ended June 30, 2013, the Company made additional provisions of $200 thousand to the reserve for unfunded commitments. When necessary, the provision expense is recorded in other noninterest expense in the Consolidated Statements of Operations.

Legal Proceedings – The Company is involved in various pending and threatened legal actions arising in the ordinary course of business. The Company maintains reserves for losses from legal actions, which are both probable and estimable. In the opinion of management, the disposition of claims currently pending will not have a material adverse affect on the Company's financial position or results of operations.

Concentrations of Credit Risk –The Company grants real estate construction, commercial, and installment loans to customers throughout northern California. In management’s judgment, a concentration exists in real estate-related loans, which represented approximately 70% of the Company’s gross loan portfolio at both June 30, 2014 and December 31, 2013. Commercial real estate concentrations are managed to assure wide geographic and business diversity. Although management believes 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 the Company’s primary market areas in particular, as we witnessed with the deterioration in the residential development market over the past five years, could have an adverse impact on the repayment of these loans. Personal and business incomes, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

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

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Accounting Policies, by Policy (Policies)

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

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 June 30, 2014, the Company had two wholly-owned trusts (“Trusts”) that were formed to issue trust preferred securities and related common securities of the Trusts. The Company has not consolidated the accounts of the Trusts in its consolidated financial statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ASC 810, Consolidation (“ASC 810”). As a result, the junior subordinated debentures issued by the Company to the Trusts are reflected on the Company’s Consolidated Balance Sheets as junior subordinated debentures.

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Note 6 - Loans (Details) - Age Analysis of Past Due Loans (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	$ 1,520	$ 3,256
60-89 Days Past Due	3,590	461
Greater Than 90 Days	3,937	3,167
Total Past Due	9,047	6,884
Current	610,371	591,111
Total	619,418	597,995
Recorded Investment > 90 Days and Accruing	0	0
Commercial Portfolio Segment [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	292	0
60-89 Days Past Due	2,830	0
Greater Than 90 Days	352	0
Total Past Due	3,474	0
Current	164,880	170,429
Total	168,354	170,429
Recorded Investment > 90 Days and Accruing	0	0
Commercial Real Estate Construction Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		0
60-89 Days Past Due		0
Greater Than 90 Days		0
Total Past Due		0
Current	20,462	18,545
Total	20,462	18,545
Recorded Investment > 90 Days and Accruing	0	0
Commercial Real Estate Other Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	273	0
60-89 Days Past Due	391	0
Greater Than 90 Days	299	0
Total Past Due	963	0
Current	296,763	289,360
Total	297,726	289,360
Recorded Investment > 90 Days and Accruing	0	0
Residential One To Four Family [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	702	3,125
60-89 Days Past Due	369	436
Greater Than 90 Days	3,174	3,167
Total Past Due	4,245	6,728
Current	64,577	63,963
Total	68,822	70,691
Recorded Investment > 90 Days and Accruing	0	0
Residential Real Estate and Home Equities [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due	253	131
60-89 Days Past Due	0	25
Greater Than 90 Days	25	0
Total Past Due	278	156
Current	43,531	45,306
Total	43,809	45,462
Recorded Investment > 90 Days and Accruing	0	0
Consumer Other Financing Receivable [Member]
Financing Receivable, Recorded Investment, Past Due [Line Items]
30-59 Days Past Due		0
60-89 Days Past Due	0	0
Greater Than 90 Days	87	0
Total Past Due	87	0
Current	20,158	3,508
Total	20,245	3,508
Recorded Investment > 90 Days and Accruing	$ 0	$ 0

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Note 5 - Securities (Details) (USD $)	3 Months Ended	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Jun. 30, 2014	Dec. 31, 2013
Investments, Debt and Equity Securities [Abstract]
Security Owned and Pledged as Collateral, Fair Value	$ 52,976,000	$ 52,976,000
Held-to-maturity Securities Pledged as Collateral	21,000,000	21,000,000
Available-for-sale, Securities in Unrealized Loss Positions, Qualitative Disclosure, Number of Positions	112	112	196
Other than Temporary Impairment Losses, Investments	$ 0	$ 0	$ 0

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Consolidated Statements of Comprehensive Income (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Net income	$ 2,206	$ 2,006	$ 2,771	$ 4,046
Available-for-sale securities:
Unrealized gains (losses) arising during the period	1,895	(3,628)	4,725	(3,028)
Income tax (expense) benefit related to unrealized (gains) losses	(780)	1,493	(1,945)	1,246
Net change in unrealized gains (losses)	1,138	(2,374)	2,947	(2,132)
Held-to-maturity securities:
Accretion of held-to-maturity other comprehensive income to tax-exempt yield	(23)	(23)	(46)	(46)
Net change in other comprehensive income relating to held-to-maturity securities	(23)	(23)	(46)	(46)
Derivatives:
Unrealized (losses) gains arising during the period	(474)	1,254	(529)	1,342
Reclassification adjustments for net gains realized in earnings (net of tax expense of $711 and $62 for the three months ended June 30, 2014 and 2013 and net of tax expense of $775 and $124 for the six months ended June 30, 2014 and 2013 respectively)	(1,017)	(88)	(1,105)	(177)
Income tax benefit (expense) related to unrealized (losses) gains	195	(516)	218	(552)
Net unrealized change in derivatives	(1,296)	650	(1,416)	613
Other comprehensive (loss) income, net of tax	(181)	(1,747)	1,485	(1,565)
Comprehensive income – Bank of Commerce Holdings	2,025	259	4,256	2,481
Available for Sale Securities [Member]
Available-for-sale securities:
Reclassification adjustments for net gains (loss) realized in earnings (net of tax expense (benefit) of $16 and $(167) for the three months ended June 30, 2014 and 2013, respectively, and net of tax expense (benefit) of $117 and $(245) for the six months ended June 30, 2014 and 2013 respectively)	$ 23	$ (239)	$ 167	$ (350)

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Note 1 - Summary of Significant Accounting Policies

6 Months Ended

Jun. 30, 2014

Accounting Policies [Abstract]

Significant Accounting Policies [Text Block]

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bank of Commerce Holdings (the “Holding Company”), is a bank holding company (“BHC”) with its principal offices in Redding, California. The Holding Company’s principal business is to serve as a holding company for Redding 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). The Company has unconsolidated subsidiaries in Bank of Commerce Holdings Trust and Bank of Commerce Holdings Trust II. The following balance sheet as of December 31, 2013, which has been derived from audited financial statements, and the unaudited interim financial statements 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 financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations, although 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 and with prevailing practices within the banking and securities industries. In preparing such 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 date of the balance sheet and the reported amounts of revenues and expenses for the reporting period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the determination of the allowance for loan and lease losses (ALLL), the valuation of 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. 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 2013 Annual Report on Form 10-K. The results of operations and cash flows for the 2014 interim periods shown in this report are not necessarily indicative of the results for any future interim period or the entire fiscal year.

Principles of Consolidation

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 June 30, 2014, the Company had two wholly-owned trusts (“Trusts”) that were formed to issue trust preferred securities and related common securities of the Trusts. The Company has not consolidated the accounts of the Trusts in its consolidated financial statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”) ASC 810, Consolidation (“ASC 810”). As a result, the junior subordinated debentures issued by the Company to the Trusts are reflected on the Company’s Consolidated Balance Sheets as junior subordinated debentures.

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Note 6 - Loans (Details) - Allowance for Credit Losses and Recorded Investment in Financing Receivables (USD $) In Thousands, unless otherwise specified	6 Months Ended	12 Months Ended
	Jun. 30, 2014	Dec. 31, 2013
Allowance for credit losses:
Beginning balance	$ 14,172	$ 11,103
Ending balance	9,882	14,172
Ending balance: individually evaluated for impairment	1,002	4,994
Ending balance: collectively evaluated for impairment	8,880	9,178
Charge offs	(6,359)	(2,770)
Recoveries	619	3,089
Provision	1,450	2,750
Financing receivables
Ending balance	619,418	597,995
Ending balance individually evaluated for impairment	35,456	42,141
Ending balance collectively evaluated for impairment	583,962	555,854
Commercial Portfolio Segment [Member]
Allowance for credit losses:
Beginning balance	7,057	4,168
Ending balance	3,334	7,057
Ending balance: individually evaluated for impairment	4	2,988
Ending balance: collectively evaluated for impairment	3,330	4,069
Charge offs	(3,685)	(882)
Recoveries	455	58
Provision	(493)	3,713
Financing receivables
Ending balance	168,354	170,429
Ending balance individually evaluated for impairment	4,388	6,590
Ending balance collectively evaluated for impairment	163,966	163,839
Commercial Real Estate Portfolio Segment [Member]
Allowance for credit losses:
Beginning balance	2,784	2,783
Ending balance	3,867	2,784
Ending balance: individually evaluated for impairment	208	814
Ending balance: collectively evaluated for impairment	3,659	1,970
Charge offs	(2,406)	(230)
Recoveries		2,483
Provision	3,489	(2,252)
Financing receivables
Ending balance	318,188	307,905
Ending balance individually evaluated for impairment	17,677	21,747
Ending balance collectively evaluated for impairment	300,511	286,158
Consumer Portfolio Segment [Member]
Allowance for credit losses:
Beginning balance	35	28
Ending balance	238	35
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	238	35
Charge offs	0	(25)
Recoveries	0	1
Provision	203	31
Financing receivables
Ending balance	20,245	3,508
Ending balance individually evaluated for impairment	87	0
Ending balance collectively evaluated for impairment	20,158	3,508
Residential Portfolio Segment [Member]
Allowance for credit losses:
Beginning balance	2,493	3,335
Ending balance	2,333	2,493
Ending balance: individually evaluated for impairment	790	1,192
Ending balance: collectively evaluated for impairment	1,543	1,301
Charge offs	(268)	(1,633)
Recoveries	164	547
Provision	(56)	244
Financing receivables
Ending balance	112,631	116,153
Ending balance individually evaluated for impairment	13,304	13,804
Ending balance collectively evaluated for impairment	99,327	102,349
Unallocated Financing Receivables [Member]
Allowance for credit losses:
Beginning balance	1,803	789
Ending balance	110	1,803
Ending balance: individually evaluated for impairment	0	0
Ending balance: collectively evaluated for impairment	110	1,803
Charge offs	0	0
Recoveries	0	0
Provision	(1,693)	1,014
Financing receivables
Ending balance	0	0
Ending balance individually evaluated for impairment	0	0
Ending balance collectively evaluated for impairment	$ 0	$ 0

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Note 12 - Commitments and Contingencies (Details) - Summary of the Bank’s Commitments and Contingent Liabilities (USD $) In Thousands, unless otherwise specified	Jun. 30, 2014	Dec. 31, 2013
Note 12 - Commitments and Contingencies (Details) - Summary of the Bank’s Commitments and Contingent Liabilities [Line Items]
Total commitments	$ 225,687	$ 198,805
Commitments to Extend Credit [Member]
Note 12 - Commitments and Contingencies (Details) - Summary of the Bank’s Commitments and Contingent Liabilities [Line Items]
Total commitments	220,808	192,351
Standby Letters of Credit [Member]
Note 12 - Commitments and Contingencies (Details) - Summary of the Bank’s Commitments and Contingent Liabilities [Line Items]
Total commitments	3,014	4,583
Guaranteed Commitments Outstanding [Member]
Note 12 - Commitments and Contingencies (Details) - Summary of the Bank’s Commitments and Contingent Liabilities [Line Items]
Total commitments	$ 1,865	$ 1,871

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Note 3 - Note Receivable (Tables)

6 Months Ended

Jun. 30, 2014

Note Receivable [Abstract]

Note Receivable Settlement [Table Text Block]

(Dollars in thousands)
Proceeds	Amount
Cash received	$	686
1-4 family mortgage note (fair value)		560
Net proceeds received	$	1,246
Assets derecognized
Note due from the Mortgage Company	$	2,753
Warehouse line of credit		259
Discount on the Note		(374	)
Total Assets derecognized	$	2,638
Loss on settlement of the Note	$	1,392

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Note 14 - Derivatives (Details) - Gains (Losses) on Derivatives and Location on Income Statement (Forward Starting Interest Rate Swaps [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended				6 Months Ended
	Jun. 30, 2014		Jun. 30, 2013		Jun. 30, 2014		Jun. 30, 2013
Forward Starting Interest Rate Swaps [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Forward starting interest rate swaps (1)	$ 150	[1]	$ 150	[1]	$ 300	[1]	$ 300	[1]

[1] Cash flow hedge designation removed. Gains represent tax adjusted amounts reclassified from accumulated OCI pertaining to the terminated forward starting interest rate swap.

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Note 3 - Note Receivable (Details) - Details of Closing Transaction (USD $) In Thousands, unless otherwise specified	1 Months Ended	6 Months Ended
	Apr. 30, 2014	Jun. 30, 2014
Details of Closing Transaction [Abstract]
Cash received	$ 686	$ 686
1-4 family mortgage note (fair value)		560
Net proceeds received		1,246
Note due from the Mortgage Company		2,753
Warehouse line of credit		259
Discount on the Note		(374)
Total Assets derecognized		2,638
Loss on settlement of the Note	$ 1,400	$ 1,392

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Note 11 - Term Debt

6 Months Ended

Jun. 30, 2014

Disclosure Text Block [Abstract]

Federal Home Loan Bank Advances, Disclosure [Text Block]

NOTE 11. TERM DEBT

The Bank had outstanding secured advances from the FHLB at June 30, 2014 and December 31, 2013 of $75.0 million.

Future contractual maturities of FHLB term advances at June 30, 2014 are as follows:

(Dollars in thousands)
Year	Amount
2014	$	75,000
Thereafter		-
Total FHLB advances	$	75,000

The maximum amount outstanding from the FHLB under term advances at any month end during the six months ended June 30, 2014, and the year ended December 31, 2013 was $75.0 million and $135.0 million, respectively. The average balance outstanding on FHLB term advances during the six months ended June 30, 2014 and year ended December 31, 2013 was $75.0 million and $109.7 million, respectively. The weighted average interest rate on the borrowings at June 30, 2014 and December 31, 2013 was 0.22% and 0.23%, respectively.

The FHLB borrowings are secured by an investment in FHLB stock, certain real estate mortgage loans which have been specifically pledged to the FHLB pursuant to their collateral requirements, and securities held in the Bank’s investment securities portfolio. As of June 30, 2014, based upon the level of FHLB advances, the Company was required to hold an investment in FHLB stock of $4.0 million. Furthermore, the Company has pledged $255.2 million of its commercial and real estate mortgage loans, and has borrowed $75.0 million against the pledged loans. As of June 30, 2014, the Company held $25.4 million in securities with the FHLB for pledging purposes. All of the securities pledged to the FHLB were unused as collateral as of June 30, 2014.