10-Q

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 March 31, 2019

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)
555 Capitol Mall, Suite 1255	95814
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (800) 421-2575

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 every Interactive Data File required to be submitted 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 such files).

Yes☒ No ☐

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

Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☒ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Exchange Act:

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

Outstanding shares of Common Stock, no par value, as of April 25, 2019: 18,213,334

1

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Index to Form 10-Q

Part I. FINANCIAL INFORMATION
	Item 1. Financial Statements	3
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations	34
	Item 3. Quantitative and Qualitative Disclosures About Market Risk	56
	Item 4. Controls and Procedures	56
Part II. OTHER INFORMATION
	Item 1. Legal Proceedings	57
	Item 1a. Risk Factors	57
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	57
	Item 3. Defaults Upon Senior Securities	57
	Item 4. Mine Safety Disclosures	57
	Item 5. Other Information	57
	Item 6. Exhibits	57
SIGNATURES		58

2

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Consolidated Balance Sheets (Unaudited)

March 31, 2019 and December 31, 2018

	March 31,			December 31,
(Amounts in thousands, except share information)	2019			2018
Assets:
Cash and due from banks	$	32,104		$	23,692
Interest-bearing deposits in other banks		30,425			23,673
Total cash and cash equivalents		62,529			47,365
Securities available-for-sale, at fair value		294,117			256,928
Loans, net of deferred fees and costs		1,036,598			948,178
Allowance for loan and lease losses		(12,242	)		(12,292	)
Net loans		1,024,356			935,886
Premises and equipment, net		15,391			13,119
Other real estate owned		34			31
Life insurance		23,294			22,410
Deferred tax asset, net		6,072			7,039
Goodwill and core deposit intangible, net		17,094			1,841
Other assets		28,604			22,485
Total assets	$	1,471,491		$	1,307,104
Liabilities and shareholders' equity:
Liabilities:
Demand - noninterest-bearing	$	385,696		$	347,199
Demand - interest-bearing		241,292			252,202
Money market		311,853			265,093
Savings		139,237			114,840
Certificates of deposit		170,216			152,382
Total deposits		1,248,294			1,131,716
Term debt:
Federal Home Loan Bank of San Francisco borrowings		20,000			—
Other borrowings		12,596			13,496
Less unamortized debt issuance costs		(79	)		(91	)
Net term debt		32,517			13,405
Junior subordinated debentures		10,310			10,310
Other liabilities		18,272			13,352
Total liabilities		1,309,393			1,168,783
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized: issued and outstanding - 18,213,334 as of March 31, 2019 and 16,333,502 as of December 31, 2018		71,966			52,284
Retained earnings		90,626			89,045
Accumulated other comprehensive loss, net of tax		(494	)		(3,008	)
Total shareholders' equity		162,098			138,321
Total liabilities and shareholders' equity	$	1,471,491		$	1,307,104

See accompanying notes to consolidated financial statements.

3

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Income (Unaudited)

For the three months ended March 31, 2019 and 2018

	For the Three Months Ended
	March 31,
(Amounts in thousands, except per share information)	2019		2018
Interest income:
Interest and fees on loans	$	12,031	$	10,729
Interest on taxable securities		1,764		1,209
Interest on tax-exempt securities		387		463
Interest on interest-bearing deposits in other banks		245		129
Total interest income		14,427		12,530
Interest expense:
Interest on demand - interest-bearing		126		89
Interest on money market		289		132
Interest on savings		111		59
Interest on certificates of deposit		490		495
Interest on Federal Home Loan Bank of San Francisco borrowings		55		47
Interest on other borrowings		239		281
Interest on junior subordinated debentures		113		82
Total interest expense		1,423		1,185
Net interest income		13,004		11,345
Provision for loan and lease losses		—		—
Net interest income after provision for loan and lease losses		13,004		11,345
Noninterest income:
Service charges on deposit accounts		169		176
ATM and point of sale fees		265		266
Fees on payroll and benefit processing		171		169
Life insurance		129		129
Gain on sale of investment securities, net		92		36
Federal Home Loan Bank of San Francisco dividends		121		80
Gain on sale of OREO		23		16
Other income		87		110
Total noninterest income		1,057		982
Noninterest expense:
Salaries and related benefits		5,729		4,855
Premises and equipment		992		1,071
Federal Deposit Insurance Corporation insurance premium		100		96
Data processing fees		559		432
Professional service fees		303		345
Telecommunications		173		216
Acquisition costs		1,930		—
Other expenses		1,137		1,018
Total noninterest expense		10,923		8,033
Income before provision for income taxes		3,138		4,294
Provision for income taxes		832		1,053
Net income	$	2,306	$	3,241
Earnings per share - basic	$	0.13	$	0.20
Weighted average shares - basic		17,489		16,225
Earnings per share - diluted	$	0.13	$	0.20
Weighted average shares - diluted		17,552		16,310

See accompanying notes to consolidated financial statements.

4

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

For the three months ended March 31, 2019 and 2018

	For the Three Months Ended
	March 31,
(Amounts in thousands)	2019			2018
Net income	$	2,306		$	3,241
Available-for-sale securities:
Unrealized gains (losses) arising during the period		3,661			(3,407	)
Income taxes		(1,082	)		1,007
Change in unrealized gains (losses), net of tax		2,579			(2,400	)
Reclassification adjustment for realized gains included in net income		(92	)		(36	)
Income taxes		27			10
Realized gains, net of tax		(65	)		(26	)
Net increase (decrease) in unrealized gains (losses) on available-for-sale securities		2,514			(2,426	)
Other comprehensive income (loss)		2,514			(2,426	)
Comprehensive income – Bank of Commerce Holdings	$	4,820		$	815

See accompanying notes to consolidated financial statements.

5

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Shareholders’ Equity

For the twelve months ended December 31, 2018 and three months ended March 31, 2019 (Unaudited)

									Accumulated
									Other
			Common						Comprehensive
	Common		Stock			Retained			(Loss) Income
(Amounts in thousands except per share information)	Shares		Amount			Earnings			Net of Tax			Total
January 1, 2018		16,272	$	51,830		$	75,700		$	(266	)	$	127,264
Net income		—		—			3,241			—			3,241
Reclassification of accumulated other comprehensive income due to tax rate change		—		—			52			(52	)		—
Other comprehensive loss, net of tax		—		—			—			(2,426	)		(2,426	)
Comprehensive income		—		—			—			—			815
Dividend declared on common stock ($0.03 per share)		—		—			(486	)		—			(486	)
Stock compensation grants		5		45			—			—			45
Restricted stock granted, net		20		—			—			—			—
Stock options exercised		19		113			—			—			113
Compensation expense associated with stock options		—		3			—			—			3
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes		—		(32	)		—			—			(32	)
Balance at March 31, 2018		16,316	$	51,959		$	78,507		$	(2,744	)	$	127,722
Net income		—		—			3,618			—			3,618
Other comprehensive loss, net of tax		—		—			—			(696	)		(696	)
Comprehensive income		—		—			—			—			2,922
Dividend declared on common stock ($0.04 per share)		—		—			(650	)		—			(650	)
Stock options exercised		2		10			—			—			10
Compensation expense associated with stock options		—		2			—			—			2
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes		—		72			—			—			72
Balance at June 30, 2018		16,318	$	52,043		$	81,475		$	(3,440	)	$	130,078
Net income		—		—			4,032			—			4,032
Other comprehensive loss, net of tax		—		—			—			(639	)		(639	)
Comprehensive income		—		—			—			—			3,393
Dividend declared on common stock ($0.04 per share)		—		—			(650	)		—			(650	)
Stock options exercised		12		74			—			—			74
Compensation expense associated with stock options		—		3			—			—			3
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes		—		71			—			—			71
Balance at September 30, 2018		16,330	$	52,191		$	84,857		$	(4,079	)	$	132,969
Net income		—		—			4,839			—			4,839
Other comprehensive income, net of tax		—		—			—			1,071			1,071
Comprehensive income		—		—			—			—			5,910
Dividend on common stock ($0.04 per share)		—		—			(651	)		—			(651	)
Stock options exercised		4		19			—			—			19
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes		—		74			—			—			74
Balance at December 31, 2018		16,334	$	52,284		$	89,045		$	(3,008	)	$	138,321

6

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

									Accumulated
									Other
			Common						Comprehensive
	Common		Stock			Retained			(Loss) Income
(Amounts in thousands except per share information)	Shares		Amount			Earnings			Net of Tax			Total
Balance at January 1, 2019		16,334	$	52,284		$	89,045		$	(3,008	)	$	138,321
Net income		—		—			2,306			—			2,306
Other comprehensive income, net of tax		—		—			—			2,514			2,514
Comprehensive income		—		—			—			—			4,820
Dividend declared on common stock ($0.04 per share)		—		—			(725	)		—			(725	)
Stock issued for Merchants acquisition		1,834		19,606									19,606
Stock compensation grants		6		58			—			—			58
Restricted stock granted, net		31		—			—			—			—
Stock options exercised		8		40			—			—			40
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes		—		(22	)		—			—			(22	)
Balance at March 31, 2019		18,213	$	71,966		$	90,626		$	(494	)	$	162,098

See accompanying notes to consolidated financial statements.

7

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

For the three months ended March 31, 2019 and March 31, 2018

	For the Three Months Ended
	March 31,
(Amounts in thousands)	2019			2018
Cash flows from operating activities:
Net income	$	2,306		$	3,241
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for unfunded commitments		(100	)		—
Provision for depreciation and amortization		417			506
Amortization of core deposit intangible		146			55
Amortization of debt issuance costs		12			11
Compensation expense associated with stock options		—			3
Compensation expense associated with restricted stock		72			71
Tax benefits from vesting of restricted stock		(4	)		(31	)
Net gain on sale or call of securities		(92	)		(36	)
Amortization of investment premiums and accretion of discounts, net		343			511
Amortization of premiums and accretion of discounts on acquired loans, net		(299	)		(289	)
(Gain) on disposal of fixed assets		—			(5	)
Gain on sale of OREO		(23	)		(16	)
Increase in cash surrender value of life insurance		(129	)		(129	)
Increase (decrease) in deferred compensation and salary continuation plans		19			(1	)
Increase in deferred loan fees and costs		(54	)		(3	)
Decrease in other assets		595			488
Increase in other liabilities		53			682
Net cash provided by operating activities		3,262			5,058
Cash flows from investing activities:
Proceeds from maturities and payments of available-for-sale securities		11,101			7,910
Proceeds from sale of available-for-sale securities		67,402			19,398
Purchases of available-for-sale securities		(5,204	)		(20,334	)
Investment in qualified affordable housing partnerships		—			(31	)
Loan originations, net of principal repayments		(14,973	)		(23,136	)
Net repayment on loan pools		12,100			3,150
Purchase of premises and equipment		(460	)		(48	)
Proceeds from the sale of OREO		54			51
Acquisition of Merchants Holding Company, net of cash paid		(2,875	)		—
Net cash uprovided (used) by investing activities		67,145			(13,040	)

See accompanying notes to consolidated financial statements.

8

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

	For the Three Months Ended
	March 31,
(Amounts in thousands)	2019			2018
Cash flows from financing activities:
Net decrease in demand, money market and savings	$	(53,469	)	$	(40,959	)
Net decrease in certificates of deposit		(20,169	)		(13,022	)
Advances on term debt		130,000			70,000
Repayment of term debt		(110,900	)		(40,900	)
Proceeds from stock options exercised		40			113
Cash paid for shares surrendered for tax-withholding purposes		(94	)		(111	)
Cash dividends paid on common stock		(651	)		(486	)
Net cash used by financing activities		(55,243	)		(25,365	)
Net increase (decrease) in cash and cash equivalents		15,164			(33,347	)
Cash and cash equivalents at beginning of year		47,365			66,970
Cash and cash equivalents at end of period	$	62,529		$	33,623

See accompanying notes to consolidated financial statements.

9

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited) (Continued)

For the three months ended March 31, 2019 and March 31, 2018

	For the Three Months Ended
	March 31,
(Amounts in thousands)	2019			2018
Supplemental disclosures of cash flow activity:
Cash paid during the period for:
Income taxes	$	1,040		$	—
Interest	$	1,232		$	1,043
Operating leases	$	215		$	207
Supplemental disclosures of non cash investing activities:
Transfer of loans to other real estate owned	$	34		$	60
Unrealized gain (loss) on investment securities available-for-sale	$	3,569		$	(3,443	)
Changes in net deferred tax asset related to changes in unrealized (gain) loss on investment securities available-for-sale		(1,055	)		1,017
Changes in accumulated other comprehensive income due to unrealized gain (loss) on investment securities available-for-sale, net of tax	$	2,514		$	(2,426	)
Reclassification of accumulated other comprehensive income due to tax rate change	$	—		$	52
Supplemental disclosures of non cash financing activities:
Stock issued under employee plans	$	58		$	45
Cash dividend declared on common shares and payable after period-end	$	725		$	486
Right-of-use lease asset recorded on adoption of ASU No. 2016-02	$	3,998		$	—
Lease liability recorded on adoption of ASU No. 2016-02	$	4,363		$	—
Transactions related to the acquisition of Merchants Holding Company:
Assets acquired - fair value	$	215,015		$	—
Goodwill	$	11,045		$	—
Liabilities assumed - fair value	$	191,153		$	—

See accompanying notes to consolidated financial statements.

10

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of 1956, as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for Redding Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) which operates under three separate names (Redding Bank of Commerce, Sacramento Bank of Commerce, a division of Redding Bank of Commerce and Merchants Bank of Sacramento, a division of Redding Bank of Commerce) and for Bank of Commerce Mortgage (inactive). The Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The Consolidated Balance Sheets as of March 31, 2019 and December 31, 2018 are derived from the unaudited interim consolidated financial statements and audited consolidated financial statements and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information not misleading.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are not considered material and have no effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings 2018 Annual Report on Form 10-K. The consolidated results of operations and cash flows for the 2019 interim period shown in this report is 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 March 31, 2019 and December 31, 2018, the Company had one wholly-owned trust formed in 2005 to issue trust preferred securities and related common securities. We have not consolidated the accounts of the Trust in our Consolidated Financial Statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”), Consolidation (“ASC 810”). We are not considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issued by the Holding Company to the Trust are reflected on the Company’s Consolidated Balance Sheets.

11

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Leases

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

Application of new accounting guidance

ASU No. 2016-02

Description - In February of 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). This Update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements on a retrospective basis. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement No. 6, Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did not require lease assets and lease liabilities to be recognized for most leases.

Methods and timing of adoption – For public companies, the amendments in this update are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. In July of 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842). The standard contained improvements to ASU No. 2016-02 that permited presentation on a prospective basis.

Financial statement impact – We implemented the new leasing standard on January 1, 2019 on a prospective basis and recorded a new lease asset and related lease liability of approximately $4.4 million related to our current operating leases. The right-of-use asset was also reduced by $458 thousand for amounts recognized previously as part of the single lease cost.

NOTE 2. COMMON STOCK OUTSTANDING AND EARNINGS PER SHARE

On January 31, 2019 we issued 1,834,142 shares of common stock, and paid $15.3 million in cash as part of our acquisition of Merchants Holding Company (“Merchants”). Merchants shareholders now hold, in the aggregate, approximately 10% of our outstanding common stock. The acquisition, after fair value adjustments added $85.3 million in loans, $190.2 million in deposits and $107.4 million in investment securities to our bank as of January 31, 2019. See Note 10 Acquisition in these Notes to Consolidated Financial Statements for additional information on the acquisition

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

The following is a computation of basic and diluted earnings per share for the three months ended March 31, 2019 and 2018.

	For the Three Months Ended
(Amounts in thousands, except per share information)	March 31,
Earnings Per Share	2019		2018
Numerators:
Net income	$	2,306	$	3,241
Denominators:
Weighted average number of common shares outstanding - basic (1)		17,489		16,225
Effect of potentially dilutive common shares (2)		63		85
Weighted average number of common shares outstanding - diluted		17,552		16,310
Earnings per common share:
Basic	$	0.13	$	0.20
Diluted	$	0.13	$	0.20
Anti-dilutive options not included in diluted earnings per share calculation		—		—
Anti-dilutive restricted shares not included in diluted earnings per share calculation		—		42

⁽¹⁾ Excludes unvested restricted shares because they do not have dividend or voting rights

⁽²⁾ Represents the effects of the assumed exercise of stock options and vesting of non-participating restricted shares.

12

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

NOTE 3. SECURITIES

The following tables present the amortized costs, unrealized gains, unrealized losses and estimated fair values of our investment securities as of March 31, 2019, and December 31, 2018.

	As of March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	46,264	$	316	$	(129	)	$	46,451
Obligations of state and political subdivisions		48,066		1,146		(277	)		48,935
Residential mortgage-backed securities and collateralized mortgage obligations		173,098		950		(2,234	)		171,814
Corporate securities		3,018		—		(60	)		2,958
Commercial mortgage-backed securities		24,277		32		(445	)		23,864
Other asset-backed securities		95		—		—			95
Total	$	294,818	$	2,444	$	(3,145	)	$	294,117

	As of December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	40,215	$	202	$	(330	)	$	40,087
Obligations of state and political subdivisions		50,037		1,082		(589	)		50,530
Residential mortgage-backed securities and collateralized mortgage obligations		142,355		129		(3,981	)		138,503
Corporate securities		3,022		—		(100	)		2,922
Commercial mortgage-backed securities		25,446		17		(701	)		24,762
Other asset-backed securities		123		1		—			124
Total	$	261,198	$	1,431	$	(5,701	)	$	256,928

The following table presents the expected maturities of investment securities at March 31, 2019.

	Available-For-Sale
(Amounts in thousands)	Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	1,379	$	1,384
After one year through five years		102,007		102,065
After five years through ten years		110,636		110,180
After ten years		80,796		80,488
Total	$	294,818	$	294,117

13

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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

At March 31, 2019 and December 31, 2018 securities with a fair value of $75.2 million and $68.8 million, respectively, were pledged as collateral to secure public fund deposits, Federal Home Loan Bank of San Francisco borrowings and for other purposes as required by law.

The following table presents the cash proceeds from sales of investment securities and the associated gross realized gains and gross realized losses that have been included in earnings for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31,
(Amounts in thousands)	2019			2018
Proceeds from sales of investment securities	$	67,402		$	19,398
Gross realized gains on sales of investment securities:
U.S. government & agencies	$	33		$	—
Obligations of state and political subdivisions		181			152
Residential mortgage-backed securities and collateralized mortgage obligations		47			—
Total gross realized gains on sales of investment securities		261			152
Gross realized losses on sales of investment securities:
U.S. government & agencies		(4	)		—
Obligations of state and political subdivisions		(77	)		(71	)
Residential mortgage-backed securities and collateralized mortgage obligations		(86	)		—
Commercial mortgage-backed securities		(2	)		—
Other asset-backed securities		—			(45	)
Total gross realized losses on sales of investment securities		(169	)		(116	)
Gain on sales of investment securities, net	$	92		$	36

Investment securities that were in an unrealized loss position as of March 31, 2019 and December 31, 2018 are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

	As of March 31, 2019
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
Available-for-sale securities:
U.S. government & agencies	$	2,846	$	(21	)	$	13,045	$	(108	)	$	15,891	$	(129	)
Obligations of states and political subdivisions		1,718		(18	)		10,347		(259	)		12,065		(277	)
Residential mortgage-backed securities and collateralized mortgage obligations		2,918		(12	)		95,998		(2,222	)		98,916		(2,234	)
Corporate securities		—		—			2,958		(60	)		2,958		(60	)
Commercial mortgage-backed securities		896		(8	)		20,012		(437	)		20,908		(445	)
Total temporarily impaired securities	$	8,378	$	(59	)	$	142,360	$	(3,086	)	$	150,738	$	(3,145	)

	As of December 31, 2018
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale securities:
U.S. government & agencies	$	7,223	$	(39	)	$	12,274	$	(291	)	$	19,497	$	(330	)
Obligations of states and political subdivisions		5,545		(40	)		16,320		(549	)		21,865		(589	)
Residential mortgage-backed securities and collateralized mortgage obligations		21,791		(183	)		93,038		(3,798	)		114,829		(3,981	)
Corporate securities		—		—			2,922		(100	)		2,922		(100	)
Commercial mortgage-backed securities		1,548		(7	)		20,176		(694	)		21,724		(701	)
Total temporarily impaired securities	$	36,107	$	(269	)	$	144,730	$	(5,432	)	$	180,837	$	(5,701	)

14

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

At March 31, 2019 and December 31, 2018, the number of securities that were in an unrealized loss position was 138 and 163, respectively. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and not due to concerns regarding the underlying credit of the issuers or the underlying collateral. Our Investment Policy requires securities at the time of purchase to be rated A3/A- or higher by Moody’s, S&P and Fitch rating agencies. Management monitors the published credit ratings of our investment portfolio for material rating or outlook changes. For all private-label securities collateralized by mortgages, management also monitors the credit characteristics of the underlying mortgages to identify potential credit losses, if any, in the portfolio. Because the decline in fair value is not due to credit quality concerns, we have no plans to sell the securities before the recovery of their amortized cost, and the Bank has the ability to hold the securities to maturity these investments are not considered other-than-temporarily impaired.

The following table presents the characteristics of our securities that are in unrealized loss positions at March 31, 2019 and December 31, 2018.

	Characteristics of securities in unrealized loss positions at
Available-for-sale securities:	March 31, 2019 and December 31, 2018
U.S. government & agencies	Direct obligations of the U.S. Government or obligations guaranteed by U.S. Government agencies.
Obligations of states and political subdivisions	General obligation issuances or revenue securities secured by revenues from specific sources issued by municipalities and political subdivisions located within the U.S.
Residential mortgage-backed securities and collateralized mortgage obligations	Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on residential properties. Issuances by non-governmental entities usually include good credit enhancements. Of the residential mortgage-backed securities and collateralized mortgage obligations that we owned at March 31, 2019 and December 31, 2018, 92% and 66% were issued or guaranteed by U.S. government sponsored entities, respectively.
Corporate securities	Debt obligations generally issued or guaranteed by large U.S. corporate institutions.
Commercial mortgage-backed securities	Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on commercial properties. Issuances by non-governmental entities usually include good credit enhancements. Of the commercial mortgage-backed securities that we owned at March 31, 2019 and December 31, 2018, 95% and 90% were issued or guaranteed by U.S. government sponsored entities, respectively.
Other asset-backed securities	Obligations secured by high quality loans with good credit enhancements issued by non-governmental issuers.

NOTE 4. LOANS

Outstanding loan balances consisted of the following at March 31, 2019, and December 31, 2018.

(Amounts in thousands)	March 31,			December 31,
Loan Portfolio	2019			2018
Commercial	$	149,575		$	135,543
Commercial real estate:
Real estate - construction and land development		30,335			22,563
Real estate - commercial non-owner occupied		469,048			433,708
Real estate - commercial owner occupied		209,099			204,622
Residential real estate:
Real estate - residential - Individual Tax Identification Number (“ITIN”)		36,145			37,446
Real estate - residential - 1-4 family mortgage		68,092			34,366
Real estate - residential - equity lines		26,162			26,958
Consumer and other		46,150			51,045
Gross loans		1,034,606			946,251
Deferred fees and costs		1,992			1,927
Loans, net of deferred fees and costs		1,036,598			948,178
Allowance for loan and lease losses		(12,242	)		(12,292	)
Net loans	$	1,024,356		$	935,886

Certain loans are pledged as collateral for lines of credit with the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank. Pledged loans totaled $480.0 million and $490.2 million at March 31, 2019 and December 31, 2018, respectively.

15

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

When we purchase loans, they are typically purchased at a discount to enhance yield and compensate for credit risk. Gross loan balances in the table above include net purchase discounts of $2.2 million and $2.5 million as of March 31, 2019, and December 31, 2018.

Gross loan balances in the table above include a fair value discount of $2.2 million for loans acquired from Merchants during the first quarter of 2019. We recorded $48 thousand in accretion of the discount for these loans during the three months ended March 31, 2019.

Past Due Loans

Past due loans (gross), segregated by loan portfolio were as follows, as of March 31, 2019, and December 31, 2018.

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
March 31, 2019	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	190	$	47	$	—	$	237	$	149,338	$	149,575	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		30,335		30,335		—
Real estate - commercial non-owner occupied		—		—		10,878		10,878		458,170		469,048		—
Real estate - commercial owner occupied		—		—		—		—		209,099		209,099		—
Residential real estate:
Real estate - residential - ITIN		465		191		170		826		35,319		36,145		—
Real estate - residential - 1-4 family mortgage		—		—		—		—		68,092		68,092		—
Real estate - residential - equity lines		78		—		—		78		26,084		26,162		—
Consumer and other		152		102		—		254		45,896		46,150		—
Total	$	885	$	340	$	11,048	$	12,273	$	1,022,333	$	1,034,606	$	—

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
December 31, 2018	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	—	$	—	$	—	$	—	$	135,543	$	135,543	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		22,563		22,563		—
Real estate - commercial non-owner occupied		10,878		—		548		11,426		422,282		433,708		—
Real estate - commercial owner occupied		688		—		—		688		203,934		204,622		—
Residential real estate:
Real estate - residential - ITIN		184		279		259		722		36,724		37,446		—
Real estate - residential - 1-4 family mortgage		—		—		185		185		34,181		34,366		—
Real estate - residential - equity lines		90		—		—		90		26,868		26,958		—
Consumer and other		534		263		—		797		50,248		51,045		—
Total	$	12,374	$	542	$	992	$	13,908	$	932,343	$	946,251	$	—

16

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Nonaccrual Loans

Nonaccrual loans, segregated by loan portfolio, were as follows as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31,		December 31,
Nonaccrual Loans	2019		2018
Commercial	$	1,018	$	959
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		548
Residential real estate:
Real estate - residential - ITIN		2,392		2,388
Real estate - residential - 1-4 family mortgage		182		185
Real estate - residential - equity lines		42		43
Consumer and other		23		23
Total	$	14,535	$	4,146

Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, of approximately $158 thousand and $43 thousand for the three months ended March 31, 2019 and 2018, respectively.

Impaired Loans

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. The following tables summarize impaired loans by loan portfolio as of March 31, 2019, and December 31, 2018.

	As of March 31, 2019
			Unpaid
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	47	$	65	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		10,878		—
Residential real estate:
Real estate - residential - ITIN		5,962		7,534		—
Real estate - residential - 1-4 family mortgage		182		221		—
Real estate - residential - equity lines		42		48		—
Total with no related allowance recorded	$	17,111	$	18,746	$	—
With an allowance recorded:
Commercial	$	2,158	$	2,299	$	923
Commercial real estate:
Real estate - commercial non-owner occupied		793		793		169
Residential real estate:
Real estate - residential - ITIN		772		810		88
Real estate - residential - equity lines		358		358		179
Consumer and other		23		23		7
Total with an allowance recorded	$	4,104	$	4,283	$	1,366
By loan portfolio:
Commercial	$	2,205	$	2,364	$	923
Commercial real estate		11,671		11,671		169
Residential real estate		7,316		8,971		267
Consumer and other		23		23		7
Total impaired loans	$	21,215	$	23,029	$	1,366

17

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

	As of December 31, 2018
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	51	$	69	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		548		548		—
Residential real estate:
Real estate - residential - ITIN		6,138		7,676		—
Real estate - residential - 1-4 family mortgage		185		223		—
Real estate - residential - equity lines		43		48		—
Total with no related allowance recorded	$	6,965	$	8,564	$	—
With an allowance recorded:
Commercial	$	2,132	$	2,256	$	748
Commercial real estate:
Real estate - commercial non-owner occupied		795		795		209
Residential real estate:
Real estate - residential - ITIN		734		772		91
Real estate - residential - equity lines		363		363		182
Consumer and other		23		23		7
Total with an allowance recorded	$	4,047	$	4,209	$	1,237
By loan portfolio:
Commercial	$	2,183	$	2,325	$	748
Commercial real estate		1,343		1,343		209
Residential real estate		7,463		9,082		273
Consumer and other		23		23		7
Total impaired loans	$	11,012	$	12,773	$	1,237

The following table summarizes average recorded investment and interest income recognized on impaired loans by loan portfolio for the three months ended March 31, 2019 and 2018.

	Three Months Ended				Three Months Ended
	March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
(Amounts in thousands)	Recorded		Income		Recorded		Income
Average Recorded Investment and Interest Income	Investment		Recognized		Investment		Recognized
Commercial	$	2,021	$	17	$	2,589	$	21
Commercial real estate:
Real estate - commercial non-owner occupied		8,412		11		802		11
Residential real estate:
Real estate - residential - ITIN		6,874		42		7,425		41
Real estate - residential - 1-4 family mortgage		184		—		326		—
Real estate - residential - equity lines		401		5		422		5
Consumer and other		23		—		35		—
Total	$	17,915	$	75	$	11,599	$	78

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

Troubled Debt Restructurings

At March 31, 2019 and December 31, 2018, impaired loans of $6.7 million and $6.9 million, respectively, were classified as performing restructured loans.

For a restructured loan to be on accrual status, the loan’s collateral coverage must generally be greater than or equal to 100% of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. We had one restructured commercial line of credit in nonaccrual status that had $41 thousand and $313 thousand in available credit at March 31, 2019 and December 31, 2018, respectively.

18

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

As of March 31, 2019, we had $9.4 million in troubled debt restructurings compared to $9.6 million as of December 31, 2018. As of March 31, 2019, we had 105 loans that qualified as troubled debt restructurings, of which 104 were performing according to their restructured terms. Troubled debt restructurings represented 0.91% of gross loans as of March 31, 2019, compared to 1.01% at December 31, 2018. We do not have any newly restructured loans or modifications for the three months ended March 31, 2019 and 2018. There were no loans modified as a troubled debt restructuring within the previous twelve months for which there was a payment default (after restructuring) during the three months ended March 31, 2019.

Performing and Nonperforming Loans

We define 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. We define a nonperforming loan as an impaired loan, which may be on nonaccrual, or is 90 days past due and still accruing, or has been restructured and does not comply with its modified terms, and our ultimate collection of original contractual principal and interest is uncertain. Performing and nonperforming loans, segregated by loan portfolio, were as follows at March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31, 2019
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	148,557	$	1,018	$	149,575
Commercial real estate:
Real estate - construction and land development		30,335		—		30,335
Real estate - commercial non-owner occupied		458,170		10,878		469,048
Real estate - commercial owner occupied		209,099		—		209,099
Residential real estate:
Real estate - residential - ITIN		33,753		2,392		36,145
Real estate - residential - 1-4 family mortgage		67,910		182		68,092
Real estate - residential - equity lines		26,120		42		26,162
Consumer and other		46,127		23		46,150
Total	$	1,020,071	$	14,535	$	1,034,606

(Amounts in thousands)	December 31, 2018
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	134,584	$	959	$	135,543
Commercial real estate:
Real estate - construction and land development		22,563		—		22,563
Real estate - commercial non-owner occupied		433,160		548		433,708
Real estate - commercial owner occupied		204,622		—		204,622
Residential real estate:
Real estate - residential - ITIN		35,058		2,388		37,446
Real estate - residential - 1-4 family mortgage		34,181		185		34,366
Real estate - residential - equity lines		26,915		43		26,958
Consumer and other		51,022		23		51,045
Total	$	942,105	$	4,146	$	946,251

Credit Quality Ratings

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

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

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

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

● Qualitative Factors – in addition to meeting our 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.

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.

19

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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

● The primary source of repayment may be weakening causing greater reliance on the secondary source of repayment or

● The primary source of repayment is adequate, but the secondary source of repayment is insufficient

● In-depth financial analysis would compare to the lower quartile in two or more of the major components of the Risk Management Association Annual Statement Studies

● Volatile or deteriorating collateral

● Management decisions may be called into question

● Delinquencies in bank credits or other financial/trade creditors

● Frequent overdrafts

● Significant change in management/ownership

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

● Inadequate or incomplete loan documentation or perfection of collateral, or any other deviation from prudent lending practices

● Credit is structured in a manner in which the timing of the repayment source does not match the payment schedule or maturity, materially jeopardizing repayment

● Current economic or market conditions exist which may affect the borrower's ability to perform or affect the Bank's collateral position

● Adverse trends in the borrower's operations or continued deterioration in the borrower’s financial condition that has not yet reached a point where the retirement of debt is jeopardized. A credit in this grade should have favorable prospects of the deteriorating financial trends reversing within a reasonable timeframe.

● The borrower is less than cooperative or unable to produce current and adequate financial information

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

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

● 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 our 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 Doubtful loan has all the weaknesses inherent in one 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. 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. Within six months, the pending events should have been resolved. Based on resolution of the pending events, the credit grade should have improved or the principal balance charged against the ALLL.

20

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

The following tables summarize loans by internal risk grades and by loan class as of March 31, 2019 and December 31, 2018.

	As of March 31, 2019
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	136,434	$	10,297	$	541	$	2,303	$	—	$	149,575
Commercial real estate:
Real estate - construction and land development		30,312		23		—		—		—		30,335
Real estate - commercial non-owner occupied		445,151		10,729		—		13,168		—		469,048
Real estate - commercial owner occupied		194,043		4,706		—		10,350		—		209,099
Residential real estate:
Real estate - residential - ITIN		30,674		—		—		5,471		—		36,145
Real estate - residential - 1-4 family mortgage		66,350		1,083		477		182		—		68,092
Real estate - residential - equity lines		25,865		106		—		191		—		26,162
Consumer and other		46,122		—		—		28		—		46,150
Total	$	974,951	$	26,944	$	1,018	$	31,693	$	—	$	1,034,606

	As of December 31, 2018
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	118,643	$	15,247	$	—	$	1,653	$	—	$	135,543
Commercial real estate:
Real estate - construction and land development		22,539		24		—		—		—		22,563
Real estate - commercial non-owner occupied		409,157		21,698		—		2,853		—		433,708
Real estate - commercial owner occupied		179,154		14,075		—		11,393		—		204,622
Residential real estate:
Real estate - residential - ITIN		31,805		—		—		5,641		—		37,446
Real estate - residential - 1-4 family mortgage		33,388		793		—		185		—		34,366
Real estate - residential - equity lines		25,336		1,313		—		309		—		26,958
Consumer and other		51,016		—		—		29		—		51,045
Total	$	871,038	$	53,150	$	—	$	22,063	$	—	$	946,251

The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was $213 thousand at March 31, 2019.

Allowance for Loan and Lease Losses

The following tables summarize the ALLL by portfolio for the three months ended March 31, 2019 and 2018.

	For the Three Months Ended March 31, 2019
(Amounts in thousands)			Commercial			Residential
ALLL by Loan Portfolio	Commercial		Real Estate			Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,205	$	7,116		$	1,173		$	1,356		$	442	$	12,292
Charge-offs		—		—			(68	)		(280	)		—		(348	)
Recoveries		153		—			82			63			—		298
Provision		121		(160	)		24			(83	)		98		—
Ending balance	$	2,479	$	6,956		$	1,211		$	1,056		$	540	$	12,242

21

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

	For the Three Months Ended March 31, 2018
(Amounts in thousands)				Commercial		Residential
ALLL by Loan Portfolio	Commercial			Real Estate		Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,397		$	6,514	$	1,169		$	1,435		$	410	$	11,925
Charge-offs		—			—		(114	)		(276	)		—		(390	)
Recoveries		453			—		246			61			—		760
Provision		(552	)		384		(152	)		253			67		—
Ending balance	$	2,298		$	6,898	$	1,149		$	1,473		$	477	$	12,295

The following tables summarize the ALLL and the recorded investment in loans and leases as of March 31, 2019 and December 31, 2018.

	As of March 31, 2019
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	923	$	169	$	267	$	7	$	—	$	1,366
Collectively evaluated for impairment		1,556		6,787		944		1,049		540		10,876
Total	$	2,479	$	6,956	$	1,211	$	1,056	$	540	$	12,242
Gross loans:
Individually evaluated for impairment	$	2,205	$	11,671	$	7,316	$	23	$	—	$	21,215
Collectively evaluated for impairment		147,370		696,811		123,083		46,127		—		1,013,391
Total gross loans	$	149,575	$	708,482	$	130,399	$	46,150	$	—	$	1,034,606

	As of December 31, 2018
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	748	$	209	$	273	$	7	$	—	$	1,237
Collectively evaluated for impairment		1,457		6,907		900		1,349		442		11,055
Total	$	2,205	$	7,116	$	1,173	$	1,356	$	442	$	12,292
Gross loans:
Individually evaluated for impairment	$	2,183	$	1,343	$	7,463	$	23	$	—	$	11,012
Collectively evaluated for impairment		133,360		659,550		91,307		51,022		—		935,239
Total gross loans	$	135,543	$	660,893	$	98,770	$	51,045	$	—	$	946,251

The ALLL totaled $12.2 million or 1.18% of total gross loans at March 31, 2019 and $12.3 million or 1.30% at December 31, 2018. As of March 31, 2019 and December 31, 2018, we had commitments to extend credit of $220.7 million and $235.8 million, respectively. The reserve for unfunded commitments recorded in Other Liabilities in the Consolidated Balance Sheets at March 31, 2019 and December 31, 2018 was $595 thousand and $695 thousand. The decrease in the reserve was due to a reduction in our unfunded commitments.

The ALLL is based upon estimates of future loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. Our ALLL methodology incorporates management’s current judgments, and reflects management’s estimate of future loan and lease 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 adjusted for charge-offs or recoveries. In periodic evaluations of the adequacy of the allowance balance, management considers past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect a borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors. We formally assess the adequacy of the ALLL on a monthly 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 rated when originated. They are reviewed as they are renewed, when there is a new loan to the same borrower and/or when identified facts demonstrate heightened risk of default. Confirmation 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, a formal impairment measurement is performed at least quarterly on a loan-by-loan basis.

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

22

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

We believe that the ALLL was adequate as of March 31, 2019. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company, may require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review.

As of March 31, 2019, approximately 82% of our gross loan portfolio is secured by real estate, and a significant decline in real estate market values may require an increase in the ALLL. Deterioration in economic conditions particularly in our markets may adversely affect our loan portfolio and may lead to additional charges to the provision for loan and lease losses.

Impaired loans are individually evaluated for impairment. If the measurement of each impaired loans’ value is less than the recorded investment in the loan, we recognize this impairment and adjust the carrying value of the loan to fair value through the ALLL. For collateral dependent loans, this can be accomplished by charging off the impaired portion of the loan based on the underlying value of the collateral. For non-collateral dependent loans, we establish a specific component within the ALLL based on the present value of the future cash flows. If we determine the sources of repayment will not result in a reasonable probability that the carrying value of a loan can be recovered, the amount of a loan’s specific impairment is charged off 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 the ALLL provides for coverage of credit losses inherent in the loan portfolio but not captured in the credit loss factors that are utilized in the risk rating-based component, or in the specific impairment reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of March 31, 2019 and December 31, 2018, the unallocated allowance amount represented 4% of the ALLL, respectively.

While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs may occur, actual amounts may differ.

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

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

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

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

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

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

23

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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

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

We maintain an independent loan review program that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to the Board of Directors, Loan Committee and Audit Committee. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as our policies and procedures.

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

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

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

NOTE 5. QUALIFIED AFFORDABLE HOUSING PARTNERSHIP INVESTMENTS

We have invested in four separate LIHTC partnerships, which provide the Company with CRA credit. Additionally, the investments in LIHTC partnerships provide us with tax credits and with operating loss tax benefits over an approximately 18-year period. The tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investments we made and provide returns on the investments of between 3% and 5% over the life of the investment. None of the original investments will be repaid.

Our investments in Qualified Affordable Housing Partnerships totaled $2.9 million at March 31, 2019. These investments are recorded in Other Assets with a corresponding funding obligation of $343 thousand recorded in Other Liabilities in our Consolidated Balance Sheets. The investments in LIHTC partnerships are being accounted for using the proportional amortization method, under which we amortize the initial cost of an investment in proportion to the amount of the tax credits and other tax benefits received, and recognize the net investment performance in the Consolidated Statements of Income as a component of income tax expense.

24

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

The following table presents our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at March 31, 2019 and December 31, 2018. In addition, the table reflects the tax credits and tax benefits, amortization of the investment and the net impact to our income tax provision for the three months ended March 31, 2019 and 2018.

	At March 31, 2019						For the Three Months Ended March 31, 2019
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	977	$	28	$	50	$	45	$	5
WNC Institutional Tax Credit Fund 38, L.P.		1,000		467		—		27		23		4
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,215		315		56		55		1
California Affordable Housing Fund		2,454		229		—		6		9		(3	)
Total	$	7,954	$	2,888	$	343	$	139	$	132	$	7

	At December 31, 2018						For the Three Months Ended March 31, 2018
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,022	$	28	$	50	$	44	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		489		—		32		26		6
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,270		315		56		56		—
California Affordable Housing Fund		2,454		239		—		8		12		(4	)
Total	$	7,954	$	3,020	$	343	$	146	$	138	$	8

The following table presents our generated tax credits and tax benefits from investments in qualified affordable housing partnerships for the three months ended March 31, 2019 and 2018.

	For the Three Months Ended
	March 31, 2019				March 31, 2018
(Amounts in thousands)	Generated		Tax Benefits From		Generated		Tax Benefits from
Qualified Affordable Housing Partnerships	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Raymond James California Housing Opportunities Fund II	$	43	$	7	$	43	$	7
WNC Institutional Tax Credit Fund 38, L.P.		23		4		28		4
Merritt Community Capital Corporation Fund XV, L.P.		48		8		48		8
California Affordable Housing Fund		—		6		1		7
Total	$	114	$	25	$	120	$	26

The following table reflects the net income tax benefit and (expense) at March 31, 2019, that is expected to be recognized over the remaining lives of the investments and has been updated to reflect the lower tax rate in the Tax Cuts and Jobs Act enacted December 22, 2017.

(Amounts in thousands) Qualified Affordable Housing Partnerships: Anticipated net income tax benefit (expense) less amortization of investments	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		California Affordable Housing Fund			Total Net Income Tax Benefit
2019	$	14	$	13	$	3	$	(10	)	$	20
2020		19		17		4		(14	)		26
2021		19		16		4		(14	)		25
2022		19		14		3		(13	)		23
2023 and thereafter		33		27		6		(32	)		34
Total	$	104	$	87	$	20	$	(83	)	$	128

25

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

NOTE 6. TERM DEBT

Term debt at March 31, 2019 and December 31, 2018 consisted of the following.

(Amounts in thousands)	March 31, 2019			December 31, 2018
Federal Home Loan Bank of San Francisco borrowings	$	20,000		$	—
Senior debt		2,596			3,496
Unamortized debt issuance costs		(1	)		(2	)
Subordinated debt		10,000			10,000
Unamortized debt issuance costs		(78	)		(89	)
Net term debt	$	32,517		$	13,405

Future contractual maturities of term debt at March 31, 2019 are as follows.

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Federal Home Loan Bank of San Francisco borrowings	$	20,000	$	—	$	—	$	—	$	—	$	—	$	20,000
Senior debt		750		1,846		—		—		—		—		2,596
Subordinated debt		—		—		—		—		—		10,000		10,000
Total future maturities	$	20,750	$	1,846	$	—	$	—	$	—	$	10,000	$	32,596

Federal Home Loan Bank of San Francisco Borrowings

We have an available line of credit with the Federal Home Loan Bank of San Francisco of $372.2 million subject to certain collateral requirements, namely the amount of pledged loans and investment securities. The line of credit is secured by an investment in Federal Home Loan Bank of San Francisco stock, certain real estate secured loans that have been specifically pledged to the Federal Home Loan Bank of San Francisco pursuant to collateral requirements, and certain pledged securities held in the Bank’s investment securities portfolio.

The Bank had outstanding borrowings from the Federal Home Loan Bank of San Francisco at March 31, 2019 of $20.0 million; there were no borrowings outstanding at December 31, 2018. The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the three months ended March 31, 2019 and year ended December 31, 2018 was $8.8 million and $22.5 million, respectively. The maximum amount outstanding from the Federal Home Loan Bank of San Francisco at any month end during the three months ended March 31, 2019 and year ended December 31, 2018 was $20.0 million and $70.0 million, respectively. The weighted average interest rate on Federal Home Loan Bank of San Francisco borrowings at March 31, 2019 was 2.60%.

As of March 31, 2019, the Bank was required to hold an investment in Federal Home Loan Bank of San Francisco stock of $7.3 million recorded in Other Assets in the Consolidated Balance Sheets. Our investments in Federal Home Loan Bank of San Francisco stock are restricted investment securities, carried at cost, evaluated for impairment, and excluded from securities accounted for under ASC Topic 320 and ASC Topic 321.

We have pledged $447.4 million of our commercial real estate and residential real estate loans as collateral for the line of credit with the Federal Home Loan Bank of San Francisco. As of March 31, 2019, we also pledged $28.7 million in securities to the Federal Home Loan Bank of San Francisco.

Senior Debt

In December of 2015, the Holding Company entered into a senior debt loan agreement to borrow $10.0 million from another financial institution. The original loan terms required monthly principal installments of $83 thousand, plus accrued and unpaid interest, commencing on January 1, 2016, continuing to, and including December 10, 2020 and a final scheduled payment of $5.0 million due on the maturity date of December 10, 2020. The loan may be prepaid in whole or in part at any time without any prepayment penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current three-month LIBOR plus 400 basis points. In December of 2015, the Holding Company incurred senior debt issuance costs of $15 thousand, which are being amortized over the initial term of the loan as additional interest expense. The loan is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce.

Subordinated Debt

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

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

26

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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

Federal Funds

We have entered into nonbinding federal funds line of credit agreements with three financial institutions to support short-term liquidity needs. The lines totaled $35.0 million at March 31, 2019 and had interest rates ranging from 2.64% to 3.44%. Advances under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions. The credit arrangements are reviewed and renewed annually. At March 31, 2019 and December 31, 2018, we had no outstanding advances on any of the Bank’s federal funds lines of credit.

Federal Reserve Bank

We have an available line of credit with the Federal Reserve Bank totaling $23.6 million subject to collateral requirements, namely the amount of certain pledged loans. At March 31, 2019 and December 31, 2018, we had no outstanding advances on our line of credit with the Federal Reserve Bank.

NOTE 7. COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

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

The following table presents a summary of our commitments and contingent liabilities at March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31, 2019		December 31, 2018
Commitments to extend credit	$	213,122	$	223,882
Standby letters of credit		4,218		8,548
Affordable housing grants		3,338		3,338
Total commitments and contingent liabilities	$	220,678	$	235,768

We were not required to perform on any financial guarantees during the three months ended March 31, 2019, or during the year ended December 31, 2018. At March 31, 2019, approximately $3.7 million of standby letters of credit will expire within one year, and $139 thousand will expire thereafter.

Affordable Housing Grants

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

Reserve For Unfunded Commitments

The reserve for unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheets, was $595 thousand and $695 thousand at March 31, 2019 and December 31, 2018, respectively. The decrease in the reserve was due to a reduction in our unfunded commitments. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic conditions. When necessary, the provision adjustments are recorded in other noninterest expense in the Consolidated Statements of Income.

Death Benefit Agreement

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

Legal Proceedings

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Concentrations of Credit Risk

We grant many loans collateralized by real estate. In our judgment, a concentration exists in real estate related loans, which represented approximately 82% and 81% of our gross loan portfolio at March 31, 2019 and December 31, 2018, respectively. We underwrite real estate loans in accordance with loan policies that set underwriting criteria, including property types, loan-to-value limits and minimum debt service coverage ratios. We employ a variety of real estate concentration risk management tools including monitoring of limits on concentration levels, limits by property type and geography, annual property reviews including site visits and portfolio stress testing.

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

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

NOTE 8. LEASES

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

We have applied ASC Topic 842 as of January 1, 2019 and elected the practical expedients package for all of our leases. In accordance with the practical expedients package we were not required to reassess whether any expired or existing contracts are or contain leases and not to reassess the lease classification for existing or expired leases between operating and finance leases. On January 1, 2019, we recorded $4.4 million in Other Liabilities representing the present value of the remaining minimum lease payments and we recorded an offsetting right-of-use asset in Other Assets. The present value calculation uses a discount rate, which is based on our incremental borrowing rate. The right-of-use asset was also reduced by $458 thousand on January 1, 2019 for amounts recognized previously as part of the single lease cost. The table below presents information regarding our leases as of March 31, 2019.

(Amounts in thousands)	March 31, 2019
Right-of-use lease asset	$	3,738
Lease liability	$	4,180
Weighted Average Remaining Lease Term (in years)		6.24
Weighted Average Discount Rate		3.00	%

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

	Three Months Ended March 31,
(Amounts in thousands)	2019		2018
Operating lease expense	$	199	$	189
Cash paid for operating leases	$	215	$	207

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

The following table sets forth, as of March 31, 2019, the future minimum lease cash payments under non-cancelable operating leases and a reconciliation of the undiscounted cash flows to the operating lease liability.

(Amounts in thousands)
Amounts due in:
2019	$	650
2020		884
2021		899
2022		807
2023		335
Thereafter		1,033
Total undiscounted future minimum lease cash payments		4,608
Present value adjustment		(428	)
Lease liability	$	4,180

Our election to utilize the practical expedients package did not result in the recognition of any additional leases, changes in lease terms, changes in classification or in the assessment of initial direct costs. ASC 842 was applied as a change in accounting principle and did not result in any adjustment to equity. The significant judgment made in applying the requirements in ASC Topic 842 is the determination of the incremental borrowing rate for the lease. We used the borrowing rates for terms similar to the lease terms available under our existing line of credit with the Federal Home Loan Bank of San Francisco as our incremental borrowing rate.

NOTE 9. FAIR VALUES

The following table presents estimated fair values of our financial instruments as of March 31, 2019 and December 31, 2018, whether or not recognized or recorded at fair value in the Consolidated Balance Sheets. The table indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value. Non-financial assets and non-financial liabilities defined by the FASB ASC 820, Fair Value Measurement, such as Bank premises and equipment, deferred taxes and other liabilities are excluded from the table. In addition, we have not disclosed the fair value of financial instruments specifically excluded from disclosure requirements of FASB ASC 825, Financial Instruments, such as bank-owned life insurance policies.

(Amounts in thousands)	Carrying		Fair Value Measurements Using
March 31, 2019	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	62,529	$	62,529	$	—	$	—
Securities available-for-sale	$	294,117	$	—	$	294,117	$	—
Net loans	$	1,024,356	$	—	$	—	$	1,025,425
Federal Home Loan Bank of San Francisco stock	$	7,346	$	7,346	$	—	$	—
Financial liabilities
Deposits	$	1,248,294	$	—	$	1,246,655	$	—
Term debt	$	32,517	$	—	$	32,660	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,636	$	—

(Amounts in thousands)	Carrying		Fair Value Measurements Using
December 31, 2018	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	47,365	$	47,365	$	—	$	—
Securities available-for-sale	$	256,928	$	—	$	256,928	$	—
Net loans	$	935,886	$	—	$	—	$	936,697
Federal Home Loan Bank of San Francisco stock	$	5,892	$	5,892	$	—	$	—
Financial liabilities
Deposits	$	1,131,716	$	—	$	1,129,795	$	—
Term debt	$	13,405	$	—	$	13,323	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,183	$	—

Fair Value Hierarchy

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

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

Level 3 

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

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.

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

The following tables present information about our assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value, as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	Fair Value at March 31, 2019
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	46,451	$	—	$	46,451	$	—
Obligations of states and political subdivisions		48,935		—		48,935		—
Residential mortgage-backed securities and collateralized mortgage obligations		171,814		—		171,814		—
Corporate securities		2,958		—		2,958		—
Commercial mortgage-backed securities		23,864		—		23,864		—
Other asset-backed securities		95		—		95		—
Total assets measured at fair value	$	294,117	$	—	$	294,117	$	—

(Amounts in thousands)	Fair Value at December 31, 2018
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	40,087	$	—	$	40,087	$	—
Obligations of states and political subdivisions		50,530		—		50,530		—
Residential mortgage-backed securities and collateralized mortgage obligations		138,503		—		138,503		—
Corporate securities		2,922		—		2,922		—
Commercial mortgage-backed securities		24,762		—		24,762		—
Other investment securities		124		—		124		—
Total assets measured at fair value	$	256,928	$	—	$	256,928	$	—

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, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that may include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other things. We have determined that the source of these fair values falls within Level 2 of the fair value hierarchy.

Transfers Between Fair Value Hierarchy Levels

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer. There were no transfers between levels of the fair value hierarchy during the three months ended March 31, 2019 or the year ended December 31, 2018.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

We may be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables present information about our assets and liabilities at March 31, 2019 and December 31, 2018 measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period.

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

(Amounts in thousands)	Fair Value at March 31, 2019
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	34	$	—	$	—	$	34
Total assets measured at fair value	$	34	$	—	$	—	$	34

30

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

(Amounts in thousands)	Fair Value at December 31, 2018
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	31	$	—	$	—	$	31
Total assets measured at fair value	$	31	$	—	$	—	$	31

The following table presents the losses resulting from nonrecurring fair value adjustments for the three months ended March 31, 2019 and 2018 related to assets outstanding at March 31, 2019 and 2018.

(Amounts in thousands)	Three Months Ended March 31,
Fair value adjustments	2019		2018
Other real estate owned	$	68	$	113
Total	$	68	$	113

During the three months ended March 31, 2019, four OREO properties with an aggregate carrying value of $102 thousand outstanding at period end were written down to their fair value of $34 thousand, resulting in a $68 thousand adjustment to the ALLL.

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 based on recent appraisals of the foreclosed properties, which take into account recent sales prices adjusted for unobservable inputs, such as opinions provided by local real estate brokers and other real estate experts. OREO fair values are adjusted for estimated selling costs that are based off the adjusted fair value and are between 44% and 46%. We record OREO as a nonrecurring Level 3 fair value.

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, our entire holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based 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. 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 10. ACQUISITION

On January 31, 2019, we completed the acquisition of Merchants Holding Company (“Merchants”), to extend our presence in the Sacramento marketplace. Merchants, headquartered in Sacramento, California, was the parent company of Merchants National Bank of Sacramento (“Merchants Bank”), a 97-year-old bank with approximately $211.7 million in assets as of January 31, 2019. Merchants operated one full service branch and one limited service branch in the Sacramento metropolitan area.

We paid $15.3 million in cash and issued 1,834,142 shares of common stock to Merchants shareholders who now hold, in the aggregate, approximately 10% of our outstanding common stock. One former member of the Merchants board now serves on our board of directors. The acquisition, after fair value adjustments added $85.3 million in loans, $190.2 million in deposits and $107.4 million in investment securities to our bank as of January 31, 2019.

The acquisition of Merchants constituted a business combination and has been accounted for using the acquisition method of accounting. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC 805, Business Combinations. Due to the timing of the acquisition, fair values related to loans, deferred tax assets, other assets and other liabilities are preliminary and subject to refinement as additional information regarding the closing date fair values becomes available. The Bank engaged third party specialists to assist in valuing certain assets, including investment securities, loans, real estate and the core deposit intangible that resulted from the acquisition. The acquisition was treated as a "reorganization" within the definition of section 368(a) of the Internal Revenue Code and is generally considered tax-free for U.S. federal income tax purposes.

31

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

The preliminary calculation of goodwill recorded during the first quarter of 2019 is detailed below.

	As Recorded by			Preliminary Fair Value
	Merchants			And Other Acquisition			As Recorded by
(Amounts in thousands)	Holding Company			Related Adjustments			the Company
Consideration paid:
Cash							$	15,300
Stock 1,834,142 shares at $10.69 per share								19,607
Total consideration							$	34,907
Assets acquired:
Cash and fed funds sold	$	12,425		$	—		$	12,425
Investment securities		107,931			(551	)		107,380
Loans, gross		87,570			(2,292	)		85,278
Allowance for loan and lease losses		(1,286	)		1,286			—
Interest receivable		688			—			688
Premises and equipment, net		378			1,856			2,234
Deferred tax assets, net		1,374			(1,287	)		87
Federal Home Loan Bank of San Francisco stock		1,454			—			1,454
Life insurance		755			—			755
Other assets		371			(10	)		361
Core deposit intangible		—			4,353			4,353
Total assets acquired	$	211,660		$	3,355		$	215,015
Liabilities assumed:
Demand, money market and savings	$	152,213		$	—		$	152,213
Certificates of deposit		38,003			—			38,003
Total deposits		190,216			—			190,216
Other liabilities		916			21			937
Total liabilities assumed	$	191,132		$	21		$	191,153
Net identifiable assets acquired over liabilities assumed	$	20,528		$	3,334		$	23,862
Goodwill							$	11,045

Goodwill

As a result of the Merchants acquisition, we have recorded a provisional amount of goodwill totaling $11.0 million, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. The goodwill recorded is preliminary and subject to refinement as additional information regarding the closing date fair values becomes available. We are in the process of obtaining and reviewing valuation reports for the acquired loans and completing the final federal and state income tax returns for Merchants. We also expect that there may be additional fair value adjustments to the other assets and other liabilities as work to finalize the entries to record the transaction. Goodwill is amortized over 15 years for tax purposes.

Goodwill reflects the expected value of Merchants reputation in the community, stable customer base and expected synergies created through the combined operations with our Company.

The following is a description of the methods used to determine the fair values of significant assets and liabilities whose fair values are different from their carrying amounts on Merchants' books at acquisition date presented above.

Investment Securities

Fair values for securities were obtained from an independent pricing service and are based on quoted market prices, where available. If quoted market prices were not available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market, other inputs that are observable in the market or a discounted cash flow model.

Loans

We engaged a third party to assist us in determining the fair values for the loans acquired from Merchants based upon the present values of the expected cash flows and market-derived discount rates. There were no loans acquired with evidence of deterioration of credit quality since origination for which we believe it is probable that we will be unable to collect all contractually required payments receivable. The amounts recognized for loans have been determined only provisionally. We expect to complete the process of evaluating the fair value of the acquired loans during the second quarter of 2019.

Premises and Equipment

We engaged an independent licensed appraiser to determine the fair value of the acquired branch located in Sacramento. The fair value of tangible personal property was not material.

32

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES
Notes to Consolidated Financial Statements (Unaudited)

Deferred Tax Assets

The deferred income tax assets are recorded to reflect the differences in the carrying values of the acquired assets and liabilities for financial reporting purposes and the basis for federal income tax purposes at the Company’s statutory federal and state income tax rate. The amounts recognized for deferred tax assets have been determined only provisionally, and will not be finalized until the 2018 and 2019 tax returns for Merchants have been completed which we expect in the second quarter of 2019.

Core Deposit Intangible

We recorded a core deposit intangible asset of $4.4 million for the deposits acquired in the Merchants acquisition during the first quarter of 2019. The core deposit intangible represents the estimated future benefits of acquired deposits and is booked separately from the related deposits. The value of the core deposit intangible asset was determined using a discounted cash flow approach to arrive at the cost differential between the core deposits (nonmaturity deposits such as transaction, savings and money market accounts) and alternative funding sources. It was calculated as the present value of the difference in cash flows between maintaining the core deposits (interest and net maintenance costs) and the cost of an equal amount of funds with a similar term from an alternative source. The core deposit intangible is amortized on an straight line basis over an estimated eight-year life, and is evaluated periodically for impairment. No impairment loss was recognized in 2019. We recorded amortization of the core deposit intangible totaling $91 thousand for the three months ended March 31, 2019. The future estimated amortization expense on the CDI from the Merchants acquisition at March 31, 2019 is as follows:

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Core deposit intangible amortization	$	408	$	544	$	544	$	544	$	544	$	1,678	$	4,262

Pro Forma Results of Operations

The following table presents pro forma information of the combined entity as if the acquisition occurred on January 1, 2018. The pro forma information does not necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the periods presented, nor is it indicative of the results of operations in future periods. Furthermore, cost savings and other business synergies related to the acquisition are not reflected in the pro forma amounts.

	For the Three Months Ended
Pro forma revenue and earnings	March 31,
(Amounts in thousands)	2019		2018
Net interest income	$	13,199	$	12,674
Net income (1)	$	2,269	$	3,592

⁽¹⁾ Net income for the three months ended March 31, 2019 includes acquisition-related costs of $1.9 million.

We recorded net interest income related to Merchants of approximately $940 thousand in our Consolidated Statement of Income from the January 31, 2019 acquisition date to March 31, 2019. It is impracticable to separately provide information regarding the amount of net income from Merchants included in our Consolidated Statement of Income because the operations of Merchants were substantially comingled with the operations of the Company as of the acquisition date.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

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

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

● The strength of the United States economy in general and the strength of the local economies in California in which we conduct operations;

● Our failure to realize all of the anticipated benefits of our acquisition of Merchants Holding Company;

● Difficulties in integrating the acquired bank branches of Merchants Holding Company;

● Our inability to successfully manage our growth or implement our growth strategy;

● The effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, or the Federal Reserve Board;

● Volatility in the capital or credit markets;

● Changes in the financial performance and/or condition of our borrowers;

● Our concentration in real estate lending;

● Developments and changes in laws and regulations, and increased regulation of the banking industry through legislative action and revised rules and standards applied by the Federal Reserve Board, the Federal Deposit Insurance Corporation and the California Department of Business Oversight;

● Changes in the cost and scope of insurance from the Federal Deposit Insurance Corporation and other third parties;

● Changes in consumer spending, borrowing and savings habits;

● Deterioration in the reputation of banks and the financial services industry could adversely affect the Company's ability to obtain and retain customers;

● Changes in the level of our nonperforming assets and loan charge-offs;

● Deterioration in values of real estate in California and the United States generally, both residential and commercial;

● Possible other-than-temporary impairment of securities held by us;

● The timely development of competitive new products and services and the acceptance of these products and services by new and existing customers;

● The willingness of customers to substitute competitors’ products and services for our products and services;

● Technological changes could expose us to new risks, including potential systems failures or fraud;

● The effect of changes in accounting policies and practices, as may be adopted from time-to-time by bank regulatory agencies, the Securities and

● Exchange Commission (“SEC”), the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) or other accounting standards setters;

● The risks presented by public stock market volatility, which could adversely affect the market price of the Company's common stock and the ability to raise additional capital;

● Inability to attract deposits and other sources of liquidity at acceptable costs;

● Changes in the competitive environment among financial and bank holding companies and other financial service providers, including Fintech companies;

● Consolidation in the financial services industry resulting in the creation of larger financial institutions that may have greater resources could change the competitive landscape;

● The loss of critical personnel and the challenge of hiring qualified personnel at acceptable compensation levels;

● Natural disasters, such as earthquakes, volcanic eruptions, tsunami, wildfires, droughts, floods, mudslides, hurricanes, tornados and other geologic

● processes;

● Natural disasters outside California, could negatively impact our purchased loan portfolio or our third party loan servicers;

● Unauthorized computer access, computer hacking, cyber-attacks, electronic fraudulent activity, attempted theft of financial assets, computer viruses, phishing schemes and other security problems;

● Geopolitical conditions, including acts or threats of war or terrorism, actions taken by the United States or other governments in response to acts or threats of war or terrorism and/or military conflicts, which could impact business and economic conditions in the United States and abroad;

● Our inability to manage the risks involved in the foregoing; and

● The effects of any reputational damage to the Company resulting from any of the foregoing.

If our assumptions regarding one or more of the factors affecting our forward-looking information and statements proves incorrect, then our actual results, performance or achievements could differ materially from those expressed in, or implied by, forward-looking information and statements contained in this document and in the information incorporated by reference in this document. Therefore, we caution you not to place undue reliance on our forward-looking information and statements. We do not undertake any obligation to publicly correct, revise, or update any forward-looking statement if we later become aware that actual results are likely to differ materially from those expressed in such forward-looking statement, except as required under federal securities laws. Forward-looking statements should not be viewed as predictions, and should not be the primary basis upon which investors evaluate us. Any investor in our common stock should consider all risks and uncertainties discussed in “RISK FACTORS” and in “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

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, 2018 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, 2018 to March 31, 2019. Also discussed are significant trends and changes in the Company’s results of operations for the three months ended March 31, 2019, compared to the same period in 2018. 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”) with its principal offices in Sacramento, 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 three separate names (Redding Bank of Commerce, Sacramento Bank of Commerce, a division of Redding Bank of Commerce and Merchants Bank of Sacramento, a division of Redding Bank of Commerce) and Bank of Commerce Mortgage (inactive). As previously announced, the Bank will change its name for all operations to Merchants Bank of Commerce effective May 20, 2019. We have an unconsolidated subsidiary in Bank of Commerce Holdings Trust II, which was organized in connection with our prior issuance of trust-preferred securities. Our common stock is traded on the NASDAQ Global Market under the symbol “BOCH.”

We commenced banking operations in 1982 and grew organically to four branches before purchasing five Bank of America branches in 2016. With our recent acquisition of Merchants Holding Company, we now operate ten full service facilities and one limited service facility in northern California. We also operate a “cyber office” as identified in our summary of deposits reporting filed with the FDIC. We provide a wide range of financial services and products for business and retail customers which are competitive with those traditionally offered by banks of similar size in California. As of December 31, 2018, we operated under one primary business segment: Community Banking.

On January 31, 2019, we completed the acquisition of Merchants Holding Company (“Merchants”), to extend our presence in the Sacramento marketplace. Merchants, headquartered in Sacramento, California, was the parent company of Merchants National Bank of Sacramento (“Merchants Bank”), a 97- year-old bank with approximately $211.7 million in assets as of January 31, 2019. See Note 10 Acquisition in the Notes to Consolidated Financial Statements.

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

EXECUTIVE OVERVIEW

Financial highlights for the first quarter of 2019 compared to the same quarter a year ago:

Performance

● Net income of $2.3 million was a decrease of $935 thousand (29%) from $3.2 million earned during the same period in the prior year. Earnings of $0.13 per share – diluted was a decrease of $0.07 (35%) from $0.20 per share – diluted earned during the same period in the prior year and reflects the impact of 1,834,142 shares of common stock issued during the current quarter as part of our acquisition of Merchants.

● Acquisition costs associated with our acquisition of Merchants totaled $1.9 million.

● Net interest income increased $1.7 million (15%) to $13.0 million compared to $11.3 million for the same period in the prior year.

● Return on average assets decreased to 0.66% compared to 1.05% for the same period in the prior year.

● Return on average equity decreased to 6.12% compared to 10.34% for the same period in the prior year.

● Average loans totaled $993.3 million, an increase of $109.4 million (12%) compared to average loans for the same period in the prior year.

● Average earning assets totaled $1.337 billion, an increase of $155 million (13%) compared to average earning assets for the same period in the prior year.

● Average deposits totaled $1.224 billion, an increase of $153 million (14%) compared to average deposits for the same period in the prior year.

o Average non-maturing deposits totaled $1.056 billion, an increase of $168 million (19%) compared to the same period in the prior year.

o Average certificates of deposit totaled $167.5 million, a decrease of $14.4 million (8%) compared to same period in the prior year.

● The Company’s efficiency ratio was 77.7% compared to 65.2% during the same period in the prior year.

● Book value per common share was $8.90 at March 31, 2019 compared to $7.83 at March 31, 2018.

● Tangible book value per common share was $7.96 at March 31, 2019 compared to $7.71 at March 31, 2018.

Credit Quality

● Nonperforming assets at March 31, 2019 totaled $14.6 million or 0.99% of total assets, an increase of $10.3 million (241%) since March 31, 2018. The increase in nonperforming assets results from one $10.9 million commercial real estate loan, which at March 31, 2019 had zero calculated impairment.

● Net loan charge-offs were $50 thousand in the first quarter of 2019 compared with net recoveries of $370 thousand for the same quarter a year ago.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

SUMMARY OF CRITICAL ACCOUNTING POLICIES

Our significant accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 2018 filed with the SEC on March 12, 2019. Some of these significant accounting policies are considered critical and 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 and Impairment of Investment Securities

At the time of purchase, we designate a security as held-to-maturity or available-for-sale, based on our investment objectives, operational needs and intent to hold. We do not engage in trading activity. Securities designated as held-to-maturity are carried at amortized cost. We have the ability and intent to hold these securities to maturity. Securities designated as available-for-sale may be sold to implement our asset/liability management strategies and in response to changes in interest rates, prepayment rates and similar factors. Securities designated as available-for-sale are recorded at fair value and unrealized gains or losses, net of income taxes, are reported as part of accumulated other comprehensive income (loss), a separate component of shareholders’ 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 to identify changes in 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, we assess whether we intend to sell the security, or it is more likely than not that we will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses. If we intend to sell the security or if it is more likely than not that we will be required to sell security before recovery of the amortized cost basis, the entire amount of other-than-temporary impairment is recognized in earnings.

For debt securities that are considered other-than-temporarily impaired and that we do not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is calculated as the difference between the investment’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 other comprehensive income. Significant judgment is required in the determination of whether other-than-temporary impairment has occurred for an investment. We follow a consistent and systematic process for determining other-than-temporary impairment loss. We have designated the ALCO responsible for the other-than-temporary evaluation process.

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

Allowance for Loan and Lease Losses

The ALLL is based upon estimates of loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. The allowance is increased by provisions charged to expense and reduced by net charge-offs. In periodic evaluations of the adequacy of the allowance balance, management considers our past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that may affect the 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. Loans are reviewed as they are renewed, when there is a new loan to the same borrower and/or when identified facts demonstrate heightened risk of default. Confirmation of the quality of our grading process is obtained by independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatory agencies. Management monitors delinquent loans continuously and identifies problem loans to be evaluated individually for impairment testing. For loans that are determined impaired, formal impairment measurement is performed at least quarterly on a loan-by-loan basis.

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Income Taxes

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

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

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

We believe that all of the tax positions we have taken, meet the more likely than not 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.

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, (“OREO”), core deposit intangible and goodwill. These nonrecurring fair value adjustments typically involve write-downs of individual assets due to application of lower of cost or market accounting.

We have established and documented a process for determining fair value. We maximize the use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements. Whenever there is no readily available market data, we use our best estimate and assumptions in determining fair value, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if other assumptions had been used, our recorded earnings or disclosures could have been materially different from those reflected in these consolidated financial statements. Additional information on our use of fair value measurements and our related valuation methodologies is provided in Note 9 Fair Values in the Notes to Consolidated Financial Statements incorporated in this document.

RECENT ACCOUNTING PRONOUNCEMENTS

ASU No. 2016-13

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

Many of the loss estimation techniques applied today will still be permitted, although the inputs to those techniques will change to reflect the full amount of expected credit losses. Organizations will continue to use judgment to determine which loss estimation method is appropriate for their circumstances. The ASU requires enhanced disclosures to help investors and other financial statement users to better understand significant estimates and judgments used in estimating credit losses, as well as the credit quality and underwriting standards of an organization’s portfolio. These disclosures include qualitative and quantitative requirements that provide additional information about the amounts recorded in the financial statements. In addition, the ASU amends the accounting guidance for credit losses on available-for-sale debt securities and purchased financial assets with credit deterioration.

Methods and timing of adoption – The amendment is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early application will be permitted for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018.

Expected financial statement impact – We are currently evaluating the provisions of the ASU and have formed a committee for the purpose of developing a model that is compliant with the requirements under the ASU. The committee is also gathering pertinent data, consulting with outside professionals and evaluating our IT systems to create reasonable and supportable forecasts. The committee has determined that we do not currently own any securities that will be required to maintain an allowance as a result of implementing the ASU. Management expects to recognize a one–time cumulative effect adjustment to the allowance for loan and lease losses as of the first reporting period in which the new standard is effective. An estimate of the magnitude of the one-time adjustment or the overall impact of this standard has not yet been determined.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

SOURCES OF INCOME

Net Interest Income

We derive our income primarily from net interest income, which is the difference between the interest income we receive on interest-earning assets and the interest expense we pay on interest-bearing liabilities. Net interest income reflects both the amount of earning assets we hold and our net interest margin, which is the difference between the yields we receive on our earning assets and the interest rates we pay to fund those assets. As a result, changes in either our net interest margin or the amount of earning assets we hold will affect our net interest income and earnings.

Net interest income is impacted by many factors that are beyond our control, including general economic conditions and the policies of various governmental and regulatory agencies, the Federal Reserve Board in particular. Increases or decreases in interest rates could adversely affect our net interest margin. Although our asset yields and funding costs tend to move in the same direction in response to changes in interest rates, one can rise or fall faster than the other, and cause our net interest margin to expand or contract. Many of our assets are tied to indexes, which adjust in response to changes in interest rates.

In recent years, we have originated higher volumes of longer term fixed rate loans. In addition, many of the loans we recently acquired in our purchase of Merchants Holding Company are longer term and fixed rate. These loans, combined with the structure of our investment portfolio, the use of floors in the pricing of our variable rate loans and changes to our funding mix have caused the Company to become slightly more liability sensitive, which could negatively impact earnings in a rapidly rising interest rate environment.

We rely on an asset/liability model to assess our interest rate risk by estimating the effect of interest rate changes on our earnings under various simulated scenarios. The scenarios differ based on various assumptions including the direction, magnitude and speed of interest rate changes, the slope of the yield curve and projected changes in the growth and mix of assets and liabilities.

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 declines in the value of 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.

The following table summarizes as of March 31, 2019 when loans are projected to reprice by year and by rate index.

											Years 6
											Through		Beyond
(Amounts in thousands)	Year 1		Year 2		Year 3		Year 4		Year 5		Year 10		Year 10		Total
Rate Index:
Fixed	$	48,422	$	47,780	$	47,872	$	59,950	$	52,605	$	168,820	$	35,944	$	461,393
Variable:
Prime		108,395		5,358		6,101		8,106		8,506		1,967		—		138,433
5 Year Treasury		38,370		32,278		66,945		71,151		70,670		41,272		—		320,686
7 Year Treasury		926		983		11,496		4,941		5,771		16,832		—		40,949
1 Year LIBOR		23,315		—		—		—		—		—		—		23,315
Other Indexes		5,038		4,989		4,957		1,739		1,637		18,826		101		37,287
Nonaccrual		1,953		10,560		279		267		255		839		382		14,535
Total	$	226,419	$	101,948	$	137,650	$	146,154	$	139,444	$	248,556	$	36,427	$	1,036,598

Non Interest Income

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

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

RESULTS OF OPERATIONS

OVERVIEW

First Quarter of 2019 Compared With First Quarter of 2018

Net income for the first quarter of 2019 decreased $935 thousand compared to the first quarter of 2018. In the current quarter, net interest income was $1.7 million higher, noninterest income was $75 thousand higher and the provision for income taxes was $221 thousand lower. These positive changes were offset by noninterest expenses that were $2.9 million higher.

The following table presents the return on average assets and return on average equity for the three months ended March 31, 2019 and 2018. For each of the periods presented, the table includes the calculated ratios based on reported net income as shown in the Consolidated Statements of Income incorporated in this document.

	For the Three Months Ended
	March 31, 2019			March 31, 2018
Return on average assets		0.66	%		1.05	%
Return on average total equity		6.12	%		10.34	%

NET INTEREST INCOME AND NET INTEREST MARGIN

For the three months ended March 31, 2019 compared to the same period a year ago, net interest income increased $1.7 million.

Interest income for the first quarter of 2019 increased $1.9 million or 15% to $14.4 million:

● Interest and fees on loans increased $1.3 million due to a $109.4 million increase in average loan balances partially offset by a one basis point decrease in the average yield on the loan portfolio.

● Interest on securities increased $479 thousand due to a $38.4 million increase in average securities balances and a 32 basis point increase in average yield on the securities portfolio.

● Interest on interest-bearing deposits due from banks increased $116 thousand due to a $7.3 million increase in average interest-bearing deposit balances, and an 88 basis point increase in average yield.

Interest expense for the first quarter of 2019 increased $238 thousand or 20% to $1.4 million:

● Interest expense on interest bearing deposits increased $241 thousand. Average interest-bearing demand, money market and savings deposit balances increased $86.7 million, while average certificate of deposit balances decreased $14.4 million. The average rate paid on interest-bearing deposits increased eight basis points.

● Interest expense on borrowings from the Federal Home Loan Bank of San Francisco increased $8 thousand.

● Interest expense on other term debt and junior subordinated debentures decreased $11 thousand.

40

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

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

The following table presents condensed average balance sheet information, together with interest income and yields earned on average interest-earning assets, and interest expense and rates paid on average interest-bearing liabilities for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31, 2019							Three Months Ended March 31, 2018
	Average							Average
(Amounts in thousands)	Balance		Interest(1)		Yield/ Rate(5)			Balance		Interest(1)		Yield/ Rate(5)
Interest-earning assets:
Net loans (2)	$	993,261	$	12,031		4.91	%	$	883,876	$	10,729		4.92	%
Taxable securities		253,068		1,764		2.83	%		205,302		1,209		2.39	%
Tax-exempt securities		50,454		387		3.11	%		59,789		463		3.14	%
Interest-bearing deposits in other banks		40,223		245		2.47	%		32,915		129		1.59	%
Average interest-earning assets		1,337,006		14,427		4.38	%		1,181,882		12,530		4.30	%
Cash and due from banks		21,392							17,641
Premises and equipment, net		14,581							14,557
Goodwill and core deposit intangible, net		11,872							1,998
Other assets		41,009							32,485
Average total assets	$	1,425,860						$	1,248,563
Interest-bearing liabilities:
Demand - interest-bearing	$	243,376		126		0.21	%	$	234,269		89		0.15	%
Money market		293,396		289		0.40	%		236,171		132		0.23	%
Savings		131,081		111		0.34	%		110,725		59		0.22	%
Certificates of deposit		167,463		490		1.19	%		181,901		495		1.10	%
Federal Home Loan Bank of San Francisco borrowings		8,778		55		2.54	%		12,444		47		1.53	%
Other borrowings		12,889		239		7.52	%		16,528		281		6.90	%
Junior subordinated debentures		10,310		113		4.44	%		10,310		82		3.23	%
Average interest-bearing liabilities		867,293		1,423		0.67	%		802,348		1,185		0.60	%
Noninterest-bearing demand		388,410							307,397
Other liabilities		17,452							11,749
Shareholders’ equity		152,705							127,069
Average liabilities and shareholders’ equity	$	1,425,860						$	1,248,563
Net interest income and net interest margin (4)			$	13,004		3.94	%			$	11,345		3.89	%
Tax equivalent net interest income and net interest margin (3)			$	13,107		3.98	%			$	11,468		3.94	%

⁽¹⁾ Interest income on loans includes deferred fees and costs of approximately $181 thousand and $137 thousand for the three months ended March 31, 2019 and 2018, respectively.

⁽²⁾ Net loans includes average nonaccrual loans of $8.5 million and $4.8 million for the three months ended March 31, 2019 and 2018, respectively.

⁽³⁾ Tax-exempt income has been adjusted to a tax equivalent basis at a 21% tax rate. The amount of such adjustments was an addition to recorded income of approximately $103 thousand and $123 thousand for the three months ended March 31, 2019 and 2018, respectively.

⁽⁴⁾ Net interest margin is net interest income expressed as a percentage of average interest-earning assets.

⁽⁵⁾ Yields and rates are calculated by dividing the income or expense by the average balance of the assets or liabilities, respectively, and annualizing the result.

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BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Analysis of Changes in Net Interest Income

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 variance) and changes in average rates (rate variance) for the three months ended March 31, 2019 and 2018. Changes in tax equivalent interest income and expense, which are not specifically attributable specifically to either volume or rate, are allocated proportionately between both variances.

	Three Months Ended March 31, 2019 Over Three Months Ended March 31, 2018
(Amounts in thousands)	Volume			Rate			Net Change
Increase (decrease) in interest income:
Net loans	$	1,325		$	(23	)	$	1,302
Taxable securities		310			245			555
Tax-exempt securities (1)		(90	)		(6	)		(96	)
Interest-bearing deposits in other banks		33			83			116
Total increase		1,578			299			1,877
Increase (decrease) in interest expense:
Demand - interest-bearing		4			33			37
Money market		38			119			157
Savings		13			39			52
Certificates of deposit		(96	)		91			(5	)
Federal Home Loan Bank of San Francisco borrowings		(6	)		14			8
Other borrowings		(71	)		29			(42	)
Junior subordinated debentures		—			31			31
Total (decrease) increase		(118	)		356			238
Net increase (decrease)	$	1,696		$	(57	)	$	1,639

⁽¹⁾ Tax-exempt income has been adjusted to tax equivalent basis at a 21% tax rate.

PROVISION FOR LOAN AND LEASE LOSSES

The nonaccrual status of a $10.9 million commercial real estate loan has negatively impacted our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter. See Note 4 Loans in the Notes to Consolidated Financial Statements for further discussion.

NONINTEREST INCOME

The following table presents the key components of noninterest income for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31,					Change
(Amounts in thousands)	2019		2018		Amount			Percent
Noninterest income:
Service charges on deposit accounts	$	169	$	176	$	(7	)		(4	)%
ATM and point of sale		265		266		(1	)		(0	)%
Payroll and benefit processing fees		171		169		2			1	%
Life insurance		129		129		—			—	%
Gain on sales of investment securities, net		92		36		56			156	%
Federal Home Loan Bank of San Francisco dividends		121		80		41			51	%
Gain on sale of OREO		23		16		7			44	%
Other		87		110		(23	)		(21	)%
Total noninterest income	$	1,057	$	982	$	75			8

42

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

NONINTEREST EXPENSE

The following table presents the key components of noninterest expense for the three months ended March 31, 2019 and 2018.

	Three Months Ended March 31,				Change			Change
(Amounts in thousands)	2019		2018		Amount			Percent
Noninterest expense:
Salaries & related benefits	$	5,729	$	4,855	$	874			18	%
Premises & equipment		992		1,071		(79	)		(7	)%
Federal Deposit Insurance Corporation insurance premium		100		96		4			4	%
Data processing fees		559		432		127			29	%
Professional service fees		303		345		(42	)		(12	)%
Telecommunications		173		216		(43	)		(20	)%
Acquisition costs		1,930		—		1,930			100	%
Other		1,137		1,018		119			12	%
Total noninterest expense	$	10,923	$	8,033	$	2,890			36	%

Noninterest expense for the three months ended March 31, 2019 increased $2.9 million compared to the same period a year previous, which included:

● $1.9 million in acquisition costs including contract cancellation, software, severance and professional services costs.

● $0.6 million increase in operating expenses from the Merchants acquisition. The increase in operating expenses include IT processing and other salaries and benefit costs that are not expected to continue after functional consolidation in the second quarter of 2019.

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 following table reflects our tax provision and the related effective tax rate for the periods indicated.

	For the Three Months Ended March 31,
(Amounts in thousands)	2019			2018
Income before provision for income taxes	$	3,138		$	4,294
Provision for income taxes	$	832		$	1,053
Effective tax rate		26.5	%		24.5	%

For the three months ended March 31, 2019, our income tax provision of $832 thousand on pre-tax income of $3.1 million was an effective tax rate of 26.5%. The tax provision for the first quarter of the prior year was $1.1 million on pre-tax income of $4.3 million for an effective tax rate of 24.5%. The current quarter includes $135 thousand, of acquisition costs, which are not tax deductible. The Company’s effective tax rate has also increased as muni income, tax credits and permanent deductions arising from investments in low income housing partnerships comprise a smaller percentage of pre-tax income.

43

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

FINANCIAL CONDITION

CONSOLIDATED BALANCE SHEETS

As of March 31, 2019, we had total consolidated assets of $1.471 billion, gross loans of $1.035 billion, allowance for loan and lease losses (“ALLL”) of $12.2 million, total deposits of $1.248 billion, and shareholders’ equity of $162.1 million. We maintained noninterest-bearing cash positions at the Federal Reserve Bank and correspondent banks in the amount of $32.1 million and we also held interest-bearing deposits in the amount of $30.4 million.

Available-for-sale investment securities totaled $294.1 million at March 31, 2019, compared to $257.0 million at December 31, 2018. Our investment portfolio provides a secondary source of liquidity to fund other higher yielding asset opportunities, such as loan originations. During the first three months of 2019, we purchased four securities with a par value of $4.9 million and the Merchants acquisition added 231 securities with a par value of $107.4 million. During the first quarter of 2019, we sold 129 securities with a par value of $67.8 million resulting in $92 thousand in net realized gains. During the three months ended March 31, 2019, we also received $11.1 million in proceeds from principal payments, calls and maturities within the available-for-sale securities portfolio.

At March 31, 2019, our net unrealized losses on available-for-sale investment securities were $701 thousand compared to net unrealized losses of $4.3 million at December 31, 2018. The change in unrealized losses during the three months ended March 31, 2019 was driven by significant changes in market interest rates and no investments were considered other-than-temporarily impaired.

We recorded gross loan balances of $1.035 billion at March 31, 2019, compared to $946.3 million at December 31, 2018 an increase of $88.4 million. The increase in gross loans was due to $85.3 million in loans acquired from the acquisition of Merchants.

The ALLL at March 31, 2019 decreased $50 thousand to $12.2 million compared to $12.3 million at December 31, 2018. At March 31, 2019, relying on our ALLL methodology, which uses criteria such as risk weighting and historical loss rates, and given the ongoing improvements in asset quality, we believe the ALLL is adequate. There is, however, no assurance that future loan and lease losses will not exceed the levels provided for in the ALLL and could result in additional charges to the provision for loan and lease losses.

Nonperforming loans, which include nonaccrual loans and accruing loans past due over 90 days, increased by $10.4 million to $14.5 million, or 1.40% of gross loans, as of March 31, 2019, compared to $4.1 million, or 0.44% of gross loans as of December 31, 2018. The increase in nonperforming loans results from one $10.9 million commercial real estate loan, which at March 31, 2019 had zero calculated impairment.

Past due loans as of March 31, 2019 decreased $1.6 million to $12.3 million, compared to $13.9 million as of December 31, 2018. The decrease in past due loans was primarily due to repayments on two commercial real estate loans for $1.2 million. We believe that risk grading for past due loans appropriately reflects the risk associated with the past due loans. See Note 4 Loans in the Notes to Consolidated Financial Statements in this document for further detail on the ALLL and the loan portfolio.

Premises and equipment totaled $15.4 million at March 31, 2019 an increase of $2.3 million compared to $13.1 million at December 31, 2018. The increase was due to $2.2 million in premises and equipment acquired from Merchants.

Our OREO balance at March 31, 2019 was $34 thousand compared to $31 thousand at December 31, 2018. For the three months ended March 31, 2019, we transferred two foreclosed properties in the amount of $34 thousand to OREO. During the three months ended March 31, 2019, we sold one property with a balance of $31 thousand for a net gain of $23 thousand.

Bank-owned life insurance increased $884 thousand during the three months ended March 31, 2019 to $23.3 million compared to $22.4 million at December 31, 2018. The increase was due to $755 thousand in bank-owned life insurance acquired from Merchants.

Other assets, which include the Bank’s investment qualified zone academy bonds, Federal Home Loan Bank of San Francisco stock, right-of-use lease asset and low-income housing tax credit partnerships totaled $28.6 million at March 31, 2019 compared to $22.5 million at December 31, 2018. The increase was due to $1.5 million in Federal Home Loan Bank of San Francisco stock acquired from Merchants and $4.0 million (net of $458 thousand recognized previously as part of the single lease cost) related to the right-of-use lease asset recorded upon the adoption of ASU No. 2016-02.

Total deposits at March 31, 2019, increased $117 million or 42% annualized to $1.248 billion compared to December 31, 2018. During the first quarter of 2019, the Merchants acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. Legacy deposits have experienced their seasonal decline, of $54.2 million while $19.0 million of wholesale time deposits have matured and were not renewed.

● Total non-maturing deposits increased $205.6 million or 24% compared to the same date a year ago and increased $98.7 million or 41% annualized compared to December 31, 2018.

● Certificates of deposit decreased $6.0 million or 3% compared to the same date a year ago and increased $17.8 million or 47% annualized compared to December 31, 2018.

Other liabilities which include the Bank’s supplemental executive retirement plan, operating leases and funding obligation for investments in qualified affordable housing partnerships increased $4.9 million to $18.3 million as of March 31, 2019 compared to $13.4 million at December 31, 2018. The increase was due to $4.4 million operating lease liability recorded upon the adoption of ASU No. 2016-02.

44

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

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:

● Partially mitigates interest rate risk;

● Diversifies the credit risk inherent in the loan portfolio;

● Provides a vehicle for the investment of excess liquidity;

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

● Is used as collateral for certain public funds.

The carrying value of our available-for-sale investment securities totaled $294.1 million at March 31, 2019, compared to $257.0 million at December 31, 2018. The Merchants acquisition added 231 securities with a par value of $107.4 million to our investment securities portfolio. During the three months ended March 31, 2019, we sold a portion of our investment securities portfolio to provide liquidity for our seasonal decline in deposit balances and our planned reduction of wholesale certificates of deposit.

The following table presents information at carrying value of the investment securities portfolio by classification and major type as of March 31, 2019 and December 31, 2018.

	March 31,		December 31,
(Amounts in thousands)	2019		2018
Available-for-sale securities: (1)
U.S. government & agencies	$	46,451	$	40,087
Obligations of state and political subdivisions		48,935		50,530
Residential mortgage-backed securities and collateralized mortgage obligations		171,814		138,503
Corporate securities		2,958		2,922
Commercial mortgage-backed securities		23,864		24,762
Other asset-backed securities		95		124
Total	$	294,117	$	256,928

⁽¹⁾ Available-for-sale securities are reported at fair value.

The following table presents information at amortized cost of the maturity structure of the investment portfolio at March 31, 2019.

						Maturities					Maturities
	Maturities					Over One Through					Over Five Through					Maturities
	Within One Year					Five Years					Ten Years					Over Ten Years					Total
(Amounts in thousands)	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
Available-for-sale securities: (1)
U.S. government & agencies	$	1,263		3.03	%	$	1,409		2.94	%	$	11,244		3.59	%	$	32,348		3.18	%	$	46,264		3.27	%
Obligations of state and political subdivisions		34		5.60	%		10,358		3.21	%		22,774		3.36	%		14,900		3.27	%		48,066		3.30	%
Residential mortgage-backed securities and collateralized mortgage obligations		82		3.13	%		85,984		3.01	%		73,756		3.02	%		13,276		3.38	%		173,098		3.04	%
Corporate securities		—		—	%		3,018		2.76	%		—		—	%		—		—	%		3,018		2.76	%
Commercial mortgage-backed securities		—		—	%		1,238		2.31	%		2,862		2.18	%		20,177		2.65	%		24,277		2.58	%
Other asset-backed securities		—		—	%		—		—	%		—		—	%		95		4.13	%		95		4.13	%
Total	$	1,379		3.12	%	$	102,007		3.01	%	$	110,636		3.13	%	$	80,796		3.10	%	$	294,818		3.08	%

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

45

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Loan Portfolio

Loan Concentrations

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

The following table presents the composition of the loan portfolio as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31,						December 31,
Loan Portfolio	2019			%			2018			%
Commercial	$	149,575			14	%	$	135,543			14	%
Commercial real estate:
Real estate - construction and land development		30,335			3			22,563			2
Real estate - commercial non-owner occupied		469,048			46			433,708			46
Real estate - commercial owner occupied		209,099			20			204,622			22
Residential real estate:
Real estate - residential - ITIN		36,145			3			37,446			4
Real estate - residential - 1-4 family mortgage		68,092			7			34,366			4
Real estate - residential - equity lines		26,162			3			26,958			3
Consumer and other		46,150			4			51,045			5
Gross loans		1,034,606			100	%		946,251			100	%
Deferred loan fees and costs		1,992						1,927
Loans, net of deferred fees and costs		1,036,598						948,178
Allowance for loan and lease losses		(12,242	)					(12,292	)
Net loans	$	1,024,356					$	935,886

The following table sets forth the maturity and distribution of our loan portfolio as of March 31, 2019.

			After One
	Within One		Through		After Five
(Amounts in thousands)	Year		Five Years		Years		Total
Commercial	$	35,400	$	68,953	$	46,099	$	150,452
Commercial real estate:
Real estate - construction and land development		5,115		8,483		16,685		30,283
Real estate - commercial non-owner occupied		8,855		110,970		348,710		468,535
Real estate - commercial owner occupied		10,081		24,292		175,943		210,316
Residential real estate:
Real estate - residential - ITIN		—		—		36,145		36,145
Real estate - residential - 1-4 family mortgage		23,993		5,231		38,980		68,204
Real estate - residential - equity lines		147		2,195		24,139		26,481
Consumer and other		744		44,428		1,010		46,182
Loans, net of deferred fees and costs	$	84,335	$	264,552	$	687,711	$	1,036,598
Loans with:
Fixed rates	$	48,422	$	208,207	$	204,764	$	461,393
Variable rates		35,913		56,345		482,947		575,205
Total	$	84,335	$	264,552	$	687,711	$	1,036,598

Loans with unique credit characteristics

We own a pool of Individual Tax Identification Number (“ITIN”) residential mortgage loans. The ITIN loans are geographically disbursed throughout the United States and are made to legal United States residents who do not possess a social security number. The ITIN loan portfolio is serviced by a third party. The majority of the ITIN loans are variable rate loans and may have an increased default risk in a rising rate environment. Worsening 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 become responsible for servicing of these ITIN loans, then we may realize additional monitoring, servicing and appraisal costs due to the geographic disbursement of the portfolio which will adversely affect our noninterest expense.

Purchased Loans

In addition to loans we have originated or acquired through whole bank acquisition, the loan portfolio includes purchased loan pools and purchased participations. Purchased loans are recorded at their fair value at the acquisition date.

46

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

The following table presents the recorded investment in purchased loan pools and purchased participations at March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31, 2019					December 31, 2018
Loan Type	Balance		% of Gross Loan Portfolio			Balance		% of Gross Loan Portfolio
Commercial	$	59		—	%	$	66		—	%
Commercial real estate		23,887		3	%		29,096		3	%
Residential real estate		49,710		5	%		51,164		5	%
Consumer and other		40,870		4	%		46,049		5	%
Total purchased loans	$	114,526		12	%	$	126,375		13	%

Asset Quality

Nonperforming Assets

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

We manage asset quality and mitigate credit risk through the application of policies designed to promote sound underwriting and loan monitoring practices. Our Loan Committee is charged with monitoring asset quality, establishing credit policies and procedures and enforcing the consistent application of these policies and procedures across the Bank. The provision for loan and lease losses charged to earnings is based upon management’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 and lease loss experience, estimated loan and lease losses, growth in the loan portfolio, prevailing economic conditions and other factors.

A loan is considered impaired when, based on current information and events, we determine it is probable that we will not be able to collect all amounts due according to the loan contract, including scheduled interest payments. Generally, when we identify a loan as impaired, we measure the loan for potential impairment using discount cash flows, except when the sole remaining source of the repayment for the loan is the liquidation of the collateral. In these cases, we use the current fair value of collateral, less selling costs. The starting point for determining the fair value of collateral is through obtaining external appraisals. Generally, external appraisals are updated every twelve months. We obtain appraisals from a pre-approved list of independent, third party, local appraisal firms. Approval and addition to the list is based on experience, reputation, character, consistency and knowledge of the respective real estate market. At a minimum, it is ascertained that the appraiser is: (1) currently licensed in the state in which the property is located, (2) is experienced in the appraisal of properties similar to the property being appraised, (3) is actively engaged in the appraisal work, (4) has knowledge of current real estate market conditions and financing trends, (5) is reputable, and (6) is not on Freddie Mac’s nor our Exclusionary List of appraisers and brokers. In most cases, appraisals will be reviewed by another independent third party to ensure the quality of the appraisal and the expertise and independence of the appraiser. Upon receipt and review, 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 our Chief Credit Officer. Although an external appraisal is the primary source to value collateral dependent loans, we may also utilize values obtained through purchase and sale agreements, negotiated short sales, broker price opinions, or the sales price of the note. These alternative sources of value are used only if deemed to be more representative of value based on updated information regarding collateral resolution. Impairment analyses are updated, reviewed and approved on a quarterly basis at or near the end of each reporting period. Based on these processes, we do not believe there are significant time lapses for the recognition of additional provision for loan and lease losses or charge-offs from the date they become known.

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

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

47

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

The following table summarizes our nonperforming assets as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31,			December 31,
Nonperforming Assets	2019			2018
Commercial	$	1,018		$	959
Commercial real estate:
Real estate - commercial non-owner occupied		10,878			548
Total commercial real estate		10,878			548
Residential real estate:
Real estate - residential - ITIN		2,392			2,388
Real estate - residential - 1-4 family mortgage		182			185
Real estate - residential - equity lines		42			43
Total residential real estate		2,616			2,616
Consumer and other		23			23
Total nonaccrual loans		14,535			4,146
90 days past due and still accruing		—			—
Total nonperforming loans		14,535			4,146
Other real estate owned		34			31
Total nonperforming assets	$	14,569		$	4,177
Nonperforming loans to gross loans		1.40	%		0.44	%
Nonperforming assets to total assets		0.99	%		0.32	%

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

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

As of March 31, 2019, we had $9.4 million in troubled debt restructurings compared to $9.6 million as of December 31, 2018. As of March 31, 2019, we had 105 restructured loans that qualified as troubled debt restructurings, of which 104 loans were performing according to their restructured terms. Troubled debt restructurings represented 0.91% of gross loans as of March 31, 2019, compared to 1.01% at December 31, 2018.

Impaired loans of $6.7 million and $6.9 million were classified as accruing troubled debt restructurings at March 31, 2019 and December 31, 2018, respectively. For a restructured loan to be on accrual status, the loan’s collateral coverage must generally be greater than or equal to 100% of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. As of March 31, 2019 and December 31, 2018, we had one restructured commercial line of credit in nonaccrual status that had $41 thousand and $313 thousand in available credit, respectively.

48

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

The following table sets forth a summary of our restructured loans that qualify as troubled debt restructurings as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31,			December 31,
Troubled Debt Restructurings	2019			2018
Accruing troubled debt restructurings
Commercial	$	1,187		$	1,224
Commercial real estate:
Real estate - commercial non-owner occupied		793			795
Residential real estate:
Real estate - residential - ITIN		4,342			4,484
Real estate - residential - equity lines		358			363
Total accruing troubled debt restructurings	$	6,680		$	6,866
Nonaccruing troubled debt restructurings
Commercial	$	958		$	877
Residential real estate:
Real estate - residential - ITIN		1,744			1,793
Consumer and other		23			23
Total nonaccruing troubled debt restructurings	$	2,725		$	2,693
Total troubled debt restructurings
Commercial	$	2,145		$	2,101
Commercial real estate:
Real estate - commercial non-owner occupied		793			795
Residential real estate:
Real estate - residential - ITIN		6,086			6,277
Real estate - residential - equity lines		358			363
Consumer and other		23			23
Total troubled debt restructurings	$	9,405		$	9,559
Total troubled debt restructurings to gross loans outstanding at period end		0.91	%		1.01	%

Allowance for Loan and Lease Losses

The ALLL at March 31, 2019 decreased $50 thousand to $12.2 million compared to $12.3 million at December 31, 2018. The nonaccrual status of a $10.9 million commercial real estate loan has resulted in a deterioration in our asset quality metrics. However, no calculated impairment reserve on this loan is indicated and no provision for loan and lease losses was necessary for the quarter. There was no provision for loan and lease losses during the prior quarter or during the same quarter a year ago.

We recorded net loan loss charge-offs of $50 thousand for the three months ended March 31, 2019 compared to net loan loss recoveries of $367 thousand for the year ended December 31, 2018. Charge-offs of $348 thousand were partially offset by recoveries totaling $298 thousand during the three months ended March 31, 2019 The loans acquired from Merchants were recorded at fair value, which included a discount for credit loss adjustments, which is not a part of the ALLL. As a result, our ALLL as a percentage of gross loans declined to 1.18% as of March 31, 2019 compared to 1.37% as of March 31, 2018 and 1.30% as of December 31, 2018.

49

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

The following table summarizes the ALLL roll forward for the three months ended March 31, 2019, twelve months ended December 31, 2018 and the three months ended March 31, 2018. This table also includes impaired loan information at March 31, 2019, December 31, 2018 and March 31, 2018.

	For The Three Months Ended			For The Twelve Months Ended			For The Three Months Ended
(Amounts in thousands)	March 31, 2019			December 31, 2018			March 31, 2018
Beginning balance ALLL	$	12,292		$	11,925		$	11,925
Provision for loan and lease loss charged to expense		—			—			—
Loans charged off		(348	)		(1,248	)		(390	)
Loan and lease loss recoveries		298			1,615			760
Ending balance ALLL	$	12,242		$	12,292		$	12,295

	At March 31, 2019			At December 31, 2018			At March 31, 2018
Nonaccrual loans:
Commercial	$	1,018		$	959		$	1,109
Real estate - commercial non-owner occupied		10,878			548			—
Real estate - residential - ITIN		2,392			2,388			2,839
Real estate - residential - 1-4 family mortgage		182			185			188
Real estate - residential - equity lines		42			43			45
Consumer and other		23			23			35
Total nonaccrual loans		14,535			4,146			4,216
Accruing troubled-debt restructured loans:
Commercial		1,187			1,224			1,516
Real estate - commercial non-owner occupied		793			795			800
Real estate - residential - ITIN		4,342			4,484			4,554
Real estate - residential - equity lines		358			363			376
Total accruing restructured loans		6,680			6,866			7,246
All other accruing impaired loans		—			—			—
Total impaired loans	$	21,215		$	11,012		$	11,462
Gross loans outstanding	$	1,034,606		$	946,251		$	900,420
Ratio of ALLL to gross loans outstanding		1.18	%		1.30	%		1.37	%
Nonaccrual loans to gross loans outstanding		1.40	%		0.44	%		0.47	%

As of March 31, 2019, impaired loans totaled $21.2 million, of which $14.5 million were in nonaccrual status. The increase in loans, nonaccrual loans and loans classified as impaired results from one $10.9 million commercial real estate loan, which at March 31, 2019 had zero calculated impairment. Of the total impaired loans, $6.7 million or 103 were ITIN loans with an average balance of approximately $65 thousand. The remaining impaired loans consist of seven commercial loans, two commercial real estate loans, one residential mortgage, eight home equity loans and one consumer loan.

At March 31, 2019, impaired loans had a corresponding specific allowance of $1.4 million. The specific allowance on impaired loans represents the impairment reserves on performing restructured loans, other accruing loans, and nonaccrual loans.

The following table sets forth the allocation of the ALLL as of March 31, 2019 and December 31, 2018.

(Amounts in thousands)	March 31, 2019					December 31, 2018
ALLL	Amount		% Loan Category			Amount		% Loan Category
Commercial	$	2,479		20	%	$	2,205		18	%
Commercial real estate:
Real estate - construction and land development		134		1			107		1
Real estate - commercial non-owner occupied		5,050		42			5,169		42
Real estate - commercial owner occupied		1,772		14			1,840		15
Residential real estate:
Real estate - residential - ITIN		706		6			660		5
Real estate - residential - 1-4 family mortgage		164		1			162		1
Real estate - residential - equity lines		341		3			351		3
Consumer and other		1,056		9			1,356		11
Unallocated		540		4			442		4
Total ALLL	$	12,242		100	%	$	12,292		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 grading-based component, or in the specific reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of March 31, 2019 and December 31, 2018, the unallocated allowance amount represented 4% of the ALLL. While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs may occur, actual amounts may differ.

50

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Reserve for Unfunded Commitments

The reserve for unfunded commitments, which is included in Other Liabilities on the Consolidated Balance Sheets, was $595 thousand and $695 thousand at March 31, 2019 and December 31, 2018. The decrease in the reserve was primarily due to a reduction in our unfunded commitments. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic conditions. When necessary, the provision adjustment is recorded in Other Expenses in the Consolidated Statements of Income.

Deposits

Total deposits as of March 31, 2019 were $1.248 billion compared to $1.132 billion at December 31, 2018, an increase of $117 million or 42% annualized. The following table presents the deposit balances by major category as of March 31, 2019, and December 31, 2018.

(Amounts in thousands)	March 31, 2019					December 31, 2018
Deposits	Amount		Percentage			Amount		Percentage
Noninterest-bearing demand	$	385,696		31	%	$	347,199		31	%
Interest-bearing demand		241,292		19			252,202		22
Money market		311,853		25			265,093		23
Savings		139,237		11			114,840		10
Certificates of deposit, $100,000 or greater		135,651		11			119,376		11
Certificates of deposit, less than $100,000		34,565		3			33,006		3
Total	$	1,248,294		100	%	$	1,131,716		100	%

During the first quarter of 2019, Merchants Holding Company acquisition provided an additional $190.2 million of deposits, which are essentially unchanged at March 31, 2019. As illustrated in the following table, legacy deposits have experienced their seasonal decline, while wholesale time deposits have matured and were not renewed.

	Legacy Deposits		Acquired Merchants Deposits		Change In			Deposits
	At December 31,		At March 31,		Legacy Deposits			At March 31,
(Amounts in thousands)	2018		2019		Deposits			2019
Demand - noninterest-bearing	$	347,199	$	49,892	$	(11,395	)	$	385,696
Demand - interest-bearing		252,202		28,344		(39,254	)		241,292
Money market		265,093		46,321		439			311,853
Total demand		864,494		124,557		(50,210	)		938,841
Savings		114,840		28,386		(3,989	)		139,237
Total non-maturing deposits		979,334		152,943		(54,199	)		1,078,078
Certificates of deposit		152,382		36,863		(19,029	)		170,216
Total deposits	$	1,131,716	$	189,806	$	(73,228	)	$	1,248,294

The following table sets forth the distribution of our year-to-date average daily balances for deposits and their respective average rates for the three months ended March 31, 2019, and the year ended December 31, 2018.

	For the Three Months Ended March 31, 2019					For the Year Ended December 31, 2018
(Amounts in thousands)	Average Balance		Rate			Average Balance		Rate
Interest-bearing demand	$	243,376		0.21	%	$	238,328		0.17	%
Money market		293,396		0.40	%		250,685		0.26	%
Savings		131,081		0.34	%		109,025		0.26	%
Certificates of deposit		167,463		1.19	%		168,183		1.14	%
Interest-bearing deposits		835,316		0.49	%		766,221		0.43	%
Noninterest-bearing demand		388,410					332,197
Total deposits	$	1,223,726		0.34	%	$	1,098,418		0.24	%

51

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Deposit Maturity Schedule

The following table sets forth the maturities of certificates of deposit in amounts of $100,000 or more as of March 31, 2019.

(Amounts in thousands)	March 31,
Maturing in:	2019
Three months or less	$	32,956
Three through six months		21,943
Six through twelve months		19,643
Over twelve months		61,109
Total	$	135,651

We have an agreement with Promontory Interfinancial Network LLC (“Promontory”) allowing provision of 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 and ICS deposits can be reciprocal or one-way.

Included in our certificates of deposit balances are $1.7 million of subscription time deposits obtained in years past through online deposit listing services. We no longer utilize online deposit listing services. As they mature, these listing service deposits are not being renewed.

Borrowings

The following table sets forth the distribution of our year-to-date average daily balances for borrowings and their respective average rates for the three months ended March 31, 2019, and the year ended December 31, 2018.

	For the Three Months Ended March 31, 2019					For the Year Ended December 31, 2018
(Amounts in thousands)	Average Balance		Rate			Average Balance		Rate
Federal Home Loan Bank of San Francisco borrowings	$	8,778		2.54	%	$	22,466		1.94	%
Other borrowings, net		12,889		7.52	%		15,143		7.11	%
Junior subordinated debentures		10,310		4.44	%		10,310		3.73	%
Total borrowings	$	31,977		5.16	%	$	47,919		3.96	%

Term Debt

At March 31, 2019, we had term debt outstanding with a carrying value of $32.5 million compared to $13.4 million at December 31, 2018. Term debt consisted of the following:

Federal Home Loan Bank of San Francisco Borrowings

As of March 31, 2019, the Bank had $20.0 million in Federal Home Loan Bank of San Francisco advances outstanding. There were no Federal Home Loan Bank of San Francisco advances outstanding at December 31, 2018. The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the three months ended March 31, 2019 and the year ended December 31, 2018 was $8.8 million and $22.5 million, respectively. See Note 6 Term Debt in the Notes to Consolidated Financial Statements for information on our Federal Home Loan Bank of San Francisco borrowings.

Senior Debt

In December of 2015, we entered into a senior debt loan agreement to borrow $10.0 million. The debt is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce, matures in 2020, and at March 31, 2019, had a balance of $2.6 million net of unamortized debt issuance costs. Interest on the senior debt is paid at a variable rate equal to three month LIBOR plus 400 basis points resetting monthly. The effective interest rate at March 31, 2019, was 6.61%.

Subordinated Debt

In December of 2015, we issued $10.0 million of fixed to floating rate Subordinated Notes. The Subordinated Debt initially bears interest at 6.88% per annum for a five-year term. Thereafter, interest on the Subordinated Debt will be paid at a variable rate equal to three month LIBOR plus 526 basis points resetting quarterly. At March 31, 2019, the Subordinated Debt had a balance of $9.9 million net of unamortized debt issuance costs. The notes are due in 2025.

52

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

Junior Subordinated Debentures

Bank of Commerce Holdings Trust II

During July of 2005, we participated in a $10.0 million private placement of fixed rate trust-preferred securities (the "Trust-Preferred Securities") through a wholly owned Delaware trust affiliate, Bank of Commerce Holdings Trust II (the "Trust II"). Trust II simultaneously issued $310 thousand common securities to the Holding Company. Rates paid on the Trust-Preferred Securities have transitioned from fixed to floating and are now paid on a quarterly basis at a rate equal to three month LIBOR plus 158 basis points (4.19% at March 31, 2019).

The Trust-Preferred Securities mature on September 15, 2035, and the covenants allow for redemption of the securities at our option during any quarter prior to maturity.

The proceeds from the sale of the Trust-Preferred Securities were used by Trust II to purchase from the Holding Company the aggregate principal amount of $10.3 million of the Holding Company’s junior subordinate debentures (the "Notes"). The net proceeds to the Holding Company from the sale of the Notes to Trust II were partially distributed to the Bank. The proceeds from the Notes qualify as Tier 1 capital under Federal Reserve Board guidelines.

LIQUIDITY AND CASH FLOW

Redding Bank of Commerce

On January 31, 2019, we completed the acquisition of Merchants Holding Company located in Sacramento California. The transaction was attractive to us because it expanded our presence in the Sacramento market, provided a new source of low cost core deposits and a quality loan portfolio. The acquisition also provided approximately $104.5 million of additional liquidity ($119.8 cash and investment securities less $15.3 million paid to Merchants shareholders). During the current quarter, we sold $67.8 million of investment securities to provide liquidity for our seasonal decline in deposit balances and our planned reduction of wholesale certificates of deposit.

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

We monitor the sources and uses of funds on a daily basis to maintain an acceptable liquidity position. One source of funds includes public deposits. We may be required to collateralize a portion of public deposits that exceed FDIC insurance limitations based on the state of California’s risk assessment of the Bank. Public deposits represent 2% of our total deposits at March 31, 2019 and December 31, 2018.

In addition to liquidity provided by core deposits, loan repayments and cash flows from securities, the Bank can borrow on established conditional federal funds lines of credit, sell securities, borrow on a secured basis from the Federal Home Loan Bank of San Francisco, borrow on a secured basis from the Federal Reserve Bank, or issue subscription / brokered certificates of deposit.

At March 31, 2019, the Bank has the following credit arrangements:

● We have an available line of credit with the Federal Home Loan Bank of San Francisco of $372.2 million; credit availability is subject to certain collateral requirements, namely the amount of pledged loans and investment securities.

● We have an available line of credit with the Federal Reserve Bank of $23.6 million subject to collateral requirements, namely the amount of pledged loans.

● We have entered into nonbinding federal funds line of credit agreements with three financial institutions. The available credit on these lines totaled $35.0 million at March 31, 2019 and had interest rates ranging from 2.64% to 3.44%. Advances under the lines are subject to funds availability, continued borrower eligibility, and may have consecutive day usage restrictions.

Bank of Commerce Holdings

The Holding Company is a separate entity from the Bank and must provide for its own cash liquidity. The principal source of cash is dividends received from the Bank and during the first quarter of 2019, the Bank paid a dividend of $2.5 million to the Holding Company. There are statutory and regulatory provisions that could limit the ability of the Bank to pay dividends to the Holding Company in the future.

Consolidated Statements of Cash Flows

As disclosed in the Consolidated Statements of Cash Flows, net cash of $3.3 million was provided by operating activities during the three months ended March 31, 2019. The primary difference between net income and cash provided by operating activities was non-cash items including depreciation, accretion and amortization totaling $619 thousand.

Net cash of $67.1 million provided by investing activities consisted principally of $67.4 million in proceeds from sale of investment securities and $11.1 million in proceeds from maturities and payments of investment securities partially offset by $5.2 million in purchases of investment securities and $2.9 million in net loan originations and $2.9 million of net cash paid for the acquisition of Merchants.

Net cash of $55.2 million used in financing activities principally consisted of:

● $53.5 million decrease in deposits excluding $152.2 million in deposits provided by the acquisition of Merchants,

● $20.2 million decrease in certificates excluding $38.0 million in certificates provided by the acquisition of Merchants,

● $19.1 million increase in net term debt.

53

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

CAPITAL RESOURCES

We use equity capital to support growth and pay dividends. The objective of effective capital management is to produce above market long-term returns for our shareholders. Our sources of capital include retained earnings, common and preferred stock issuance, and issuance of subordinated debt or trust notes.

REGULATORY CAPITAL GUIDELINES

Federal bank regulatory agencies use capital adequacy guidelines in the examination and regulation of bank holding companies and banks. The guidelines are “risk-based,” meaning that they are designed to make capital requirements more sensitive to differences in risk profiles among banks and bank holding companies. The current rules (commonly known as Basel III) require the Bank and the Company to meet a capital conservation buffer requirement in order to avoid constraints on capital distributions, such as dividends and equity repurchases, and certain bonus compensation for executive officers. The capital conservation buffer of 2.50% is added to the minimum capital ratios.

The minimum capital requirements plus the conservation buffer exceeds the well-capitalized thresholds by 0.5 percentage points. This 0.5-percentage-point cushion allows institutions to dip into a portion of their capital conservation buffer before reaching a status that is considered less than well capitalized for prompt corrective action purposes.

As instructed by the Crapo Bill, the FDIC recently published a proposed Community Bank Leverage Ratio of 9%. Any qualifying depository institution or its holding company that exceeds the Community Bank Leverage Ratio will be considered to have met generally applicable leverage and risk-based regulatory capital requirements and considered to be “well capitalized” under the prompt corrective action rules discussed above. It is difficult at this time to predict when or how the new standards under the Crapo Bill will ultimately be applied to us or what specific impact the Crapo Bill (and any implementing rules and regulations) will have on community banks.

CAPITAL ADEQUACY

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

As of March 31, 2019, the most recent notification from the FDIC categorized the Bank as “well capitalized” under the regulatory framework for prompt corrective action as revised by Basel III. There are no conditions or events since the notification that management believes have changed the Bank’s risk category. The Holding Company and the Bank’s capital amounts and ratios as of March 31, 2019, are presented in the following table.

	March 31, 2019
						Well			Minimum			Capital			Minimum Capital
			Actual			Capitalized			Capital			Conservation			Ratio plus Capital
(Amounts in thousands)	Capital		Ratio			Requirement			Requirement			Buffer			Conservation Buffer
Holding Company:
Common Equity Tier 1 Capital Ratio	$	145,959		12.40	%		n/a			4.50	%		2.50	%		7.00	%
Tier 1 Capital Ratio	$	155,959		13.25	%		n/a			6.00	%		2.50	%		8.50	%
Total Capital Ratio	$	178,796		15.19	%		n/a			8.00	%		2.50	%		10.50	%
Tier 1 Leverage Ratio	$	155,959		11.05	%		n/a			4.00	%		n/a			4.00
Bank:
Common Equity Tier 1 Capital Ratio	$	164,538		13.98	%		6.50	%		4.50	%		2.50	%		7.00	%
Tier 1 Capital Ratio	$	164,538		13.98	%		8.00	%		6.00	%		2.50	%		8.50	%
Total Capital Ratio	$	177,374		15.08	%		10.00	%		8.00	%		2.50	%		10.50	%
Tier 1 Leverage Ratio	$	164,538		11.66	%		5.00	%		4.00	%		n/a			4.00

On December 10, 2015, the Holding Company issued $10.0 million in aggregate principal amount of Subordinated Notes to certain institutional investors. The Subordinated Notes qualify as Tier 2 Capital under the Final Rules. See Item 1a - Risk Factors, in our Annual Report on Form 10-K for the year ended December 31, 2018 for further detail on potential risks relating to the Subordinated Notes.

We have recorded core deposit intangibles of $6.1 million and goodwill of $11.7 million. When calculating capital ratios, goodwill and core deposit intangibles are subtracted from Tier 1 capital. Both of these intangible assets are subtracted from tangible equity as part of the calculation of tangible book value per share.

Capital ratios for the Holding Company include the benefit of $19.6 million from issuing 1,834,142 shares of common stock during the current quarter as part of our acquisition of Merchants.

Cash Dividends and Payout Ratios per Common Share

During the quarters ended June 30, 2018, September 30, 2018, December 31, 2018 and March 31, 2019, we declared quarterly cash dividends of $0.04 per common share. During the quarter ended March 31, 2018, we declared cash dividends of $0.03 per common share.

These dividends were made pursuant to our existing dividend policy and in consideration of, among other things, earnings, regulatory capital levels, capital preservation and expected growth. The dividend rate will be reassessed periodically by the Board of Directors in accordance with the dividend policy. There is no assurance that future cash dividends on common shares will be declared or increased.

54

BANK OF COMMERCE HOLDINGS & SUBSIDIARIES

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

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 March 31, 2019 and 2018.

	Three Months Ended March 31,
	2019			2018
Dividends declared per common share	$	0.04		$	0.03
Dividend payout ratio		31	%		15	%

OFF-BALANCE SHEET ARRANGEMENTS

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

CONCENTRATION OF CREDIT RISK

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

55

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Our assessment of market risk as of March 31, 2019 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, 2018.

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 consolidated 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 consolidated financial statements in accordance with generally accepted accounting principles in the United States of America, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the consolidated financial statements.

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

On a quarterly basis, we carry out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer (whom is also our Principal Accounting Officer) of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934. As of March 31, 2019, 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 three months of 2019 that materially affected or are reasonably likely to materially affect our internal control over financial reporting.

56

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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, 2018, filed with the SEC on March 12, 2019.

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

a) Not Applicable

b) Not Applicable

c) Not Applicable

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

57

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: May 3, 2019	/s/ James A. Sundquist
	James A. Sundquist
	Executive Vice President and Chief Financial Officer
	(Principal Financial and Accounting Officer)

58

EX-31.1

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)

Date: May 3, 2019

EX-31.2

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, James A. Sundquist, 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/ James A. Sundquist

James A. Sundquist

Executive Vice President and Chief Financial Officer

(Principal Financial and Accounting Officer)

Date: May 3, 2019

EX-32.0

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 March 31, 2019, 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: May 3, 2019

+

/s/ Randall S. Eslick	/s/ James A. Sundquist
Randall S. Eslick	James A. Sundquist
President and Chief Executive Officer	Executive Vice President and Chief Financial Officer

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Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2019	Apr. 25, 2019
Document Information [Line Items]
Entity Registrant Name	Bank of Commerce Holdings
Entity Central Index Key	0000702513
Trading Symbol	boch
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	false
Entity Small Business	true
Entity Common Stock, Shares Outstanding (in shares)		18,213,334
Document Type	10-Q
Document Period End Date	Mar. 31, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Assets:
Cash and due from banks	$ 32,104	$ 23,692
Interest-bearing deposits in other banks	30,425	23,673
Total cash and cash equivalents	62,529	47,365
Securities available-for-sale, at fair value	294,117	256,928
Loans, net of deferred fees and costs	1,036,598	948,178
Allowance for loan and lease losses	(12,242)	(12,292)
Net loans	1,024,356	935,886
Premises and equipment, net	15,391	13,119
Other real estate owned	34	31
Life insurance	23,294	22,410
Deferred tax asset, net	6,072	7,039
Goodwill and core deposit intangible, net	17,094	1,841
Other assets	28,604	22,485
Total assets	1,471,491	1,307,104
Liabilities:
Demand - noninterest-bearing	385,696	347,199
Demand - interest-bearing	241,292	252,202
Money market	311,853	265,093
Savings	139,237	114,840
Certificates of deposit	170,216	152,382
Total deposits	1,248,294	1,131,716
Federal Home Loan Bank of San Francisco borrowings	20,000
Other borrowings	12,596	13,496
Less unamortized debt issuance costs	(79)	(91)
Net term debt	32,517	13,405
Junior subordinated debentures	10,310	10,310
Other liabilities	18,272	13,352
Total liabilities	1,309,393	1,168,783
Commitments and contingencies (Note 7)
Shareholders' equity:
Common stock, no par value, 50,000,000 shares authorized: issued and outstanding - 18,213,334 as of March 31, 2019 and 16,333,502 as of December 31, 2018	71,966	52,284
Retained earnings	90,626	89,045
Accumulated other comprehensive loss, net of tax	(494)	(3,008)
Total shareholders' equity	162,098	138,321
Total liabilities and shareholders' equity	$ 1,471,491	$ 1,307,104

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Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - $ / shares $ / shares in Thousands	Mar. 31, 2019	Dec. 31, 2018
Common stock, par value (in dollars per share)	$ 0	$ 0
Common stock, authorized (in shares)	50,000,000	50,000,000
Common stock, issued (in shares)	18,213,334	16,333,502
Common stock, outstanding (in shares)	18,213,334	16,333,502

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Consolidated Statements of Income (Unaudited) - USD ($) shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2019	Mar. 31, 2018
Interest income:
Interest and fees on loans		$ 12,031	$ 10,729
Interest on taxable securities		1,764	1,209
Interest on tax-exempt securities		387	463
Interest on interest-bearing deposits in other banks		245	129
Total interest income		14,427	12,530
Interest expense:
Interest on demand - interest-bearing		126	89
Interest on money market		289	132
Interest on savings		111	59
Interest on certificates of deposit		490	495
Interest on Federal Home Loan Bank of San Francisco borrowings		55	47
Interest on other borrowings		239	281
Interest on junior subordinated debentures		113	82
Total interest expense		1,423	1,185
Net interest income		13,004	11,345
Provision for loan and lease losses
Net interest income after provision for loan and lease losses		13,004	11,345
Noninterest income:
Fees on payroll and benefit processing		171	169
Life insurance		129	129
Gain on sale of investment securities, net		92	36
Federal Home Loan Bank of San Francisco dividends		121	80
Gain on sale of OREO		23	16
Other income		87	110
Total noninterest income		1,057	982
Noninterest expense:
Salaries and related benefits		5,729	4,855
Premises and equipment		992	1,071
Federal Deposit Insurance Corporation insurance premium		100	96
Data processing fees		559	432
Professional service fees		303	345
Telecommunications		173	216
Acquisition costs		1,930
Other expenses		1,137	1,018
Total noninterest expense		10,923	8,033
Income before provision for income taxes		3,138	4,294
Provision for income taxes		832	1,053
Net income		$ 2,306	$ 3,241
Earnings per share - basic (in dollars per share)		$ 0.13	$ 0.20
Weighted average shares - basic (in shares)	[1]	17,489	16,225
Earnings per share - diluted (in dollars per share)		$ 0.13	$ 0.20
Weighted average shares - diluted (in shares)		17,552	16,310
Deposit Account [Member]
Noninterest income:
Revenue from Contract with Customer		$ 169	$ 176
Credit and Debit Card [Member]
Noninterest income:
Revenue from Contract with Customer		$ 265	$ 266

[1] Excludes unvested restricted shares because they do not have dividend or voting rights

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Consolidated Statements of Comprehensive Income (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Net income	$ 2,306	$ 3,241
Available-for-sale securities :
Unrealized gains (losses) arising during the period	3,661	(3,407)
Income taxes	(1,082)	1,007
Change in unrealized gains (losses), net of tax	2,579	(2,400)
Reclassification adjustment for realized gains included in net income	(92)	(36)
Income taxes	27	10
Realized gains, net of tax	(65)	(26)
Net increase (decrease) in unrealized gains (losses) on available-for-sale securities	2,514	(2,426)
Other comprehensive income (loss)	2,514	(2,426)
Comprehensive income – Bank of Commerce Holdings	$ 4,820	$ 815

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Consolidated Statements of Shareholders' Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Retained Earnings [Member]	AOCI Attributable to Parent [Member]	Total
Balance (in shares) at Dec. 31, 2017	16,272,000
Balance at Dec. 31, 2017	$ 51,830	$ 75,700	$ (266)	$ 127,264
Net income		3,241		3,241
Reclassification of accumulated other comprehensive income due to tax rate change		52	(52)
Other comprehensive loss, net of tax			(2,426)	(2,426)
Comprehensive income				815
Dividend declared on common stock		(486)		(486)
Stock compensation grants (in shares)	5,000
Stock issued under employee plans	$ 45			45
Restricted stock granted, net (in shares)	20,000
Restricted stock granted, net
Stock options exercised (in shares)	19,000
Stock options exercised	$ 113			113
Compensation expense associated with stock options	3			3
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes	(32)			(32)
Balance at Mar. 31, 2018	$ 51,959	78,507	(2,744)	127,722
Balance (in shares) at Mar. 31, 2018	16,316,000
Net income		3,618		3,618
Other comprehensive loss, net of tax			(696)	(696)
Comprehensive income				2,922
Dividend declared on common stock		(650)		(650)
Stock options exercised (in shares)	2,000
Stock options exercised	$ 10			10
Compensation expense associated with stock options	2			2
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes	72			72
Balance at Jun. 30, 2018	$ 52,043	81,475	(3,440)	130,078
Balance (in shares) at Jun. 30, 2018	16,318,000
Net income		4,032		4,032
Other comprehensive loss, net of tax			(639)	(639)
Comprehensive income				3,393
Dividend declared on common stock		(650)		(650)
Stock options exercised (in shares)	12,000
Stock options exercised	$ 74			74
Compensation expense associated with stock options	3			3
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes	71			71
Balance at Sep. 30, 2018	$ 52,191	84,857	(4,079)	132,969
Balance (in shares) at Sep. 30, 2018	16,330,000
Net income		4,839		4,839
Other comprehensive loss, net of tax			1,071	1,071
Comprehensive income				5,910
Dividend declared on common stock		(651)		(651)
Stock options exercised (in shares)	4,000
Stock options exercised	$ 19			19
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes	74			74
Balance at Dec. 31, 2018	$ 52,284	89,045	(3,008)	$ 138,321
Balance (in shares) at Dec. 31, 2018	16,334,000			16,333,502
Net income		2,306		$ 2,306
Other comprehensive loss, net of tax			2,514	2,514
Comprehensive income				4,820
Dividend declared on common stock		(725)		(725)
Stock compensation grants (in shares)	6,000
Stock issued under employee plans	$ 58			58
Restricted stock granted, net (in shares)	31,000
Restricted stock granted, net
Stock options exercised (in shares)	8,000
Stock options exercised	$ 40			40
Compensation expense associated with restricted stock, net of cash paid for shares surrendered for tax-withholding purposes	(22)			(22)
Balance at Mar. 31, 2019	$ 71,966	90,626	(494)	$ 162,098
Balance (in shares) at Mar. 31, 2019	18,213,000			18,213,334
Stock issued for Merchants acquisition (in shares)	1,834,000
Stock issued for Merchants acquisition	$ 19,606			$ 19,606

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Consolidated Statements of Shareholders' Equity (Unaudited) (Parentheticals) - $ / shares	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Dividend on common stock (in dollars per share)	$ 0.04	$ 0.04	$ 0.04	$ 0.04	$ 0.03

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Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 2,306	$ 3,241
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for unfunded commitments	(100)
Provision for depreciation and amortization	417	506
Amortization of core deposit intangible	146	55
Amortization of debt issuance costs	12	11
Compensation expense associated with stock options		3
Compensation expense associated with restricted stock	72	71
Tax benefits from vesting of restricted stock	(4)	(31)
Net gain on sale or call of securities	(92)	(36)
Amortization of investment premiums and accretion of discounts, net	343	511
Amortization of premiums and accretion of discounts on acquired loans, net	(299)	(289)
(Gain) on disposal of fixed assets		(5)
Gain on sale of OREO	(23)	(16)
Increase in cash surrender value of life insurance	(129)	(129)
Increase (decrease) in deferred compensation and salary continuation plans	19	(1)
Increase in deferred loan fees and costs	(54)	(3)
Decrease in other assets	595	488
Increase in other liabilities	53	682
Net cash provided by operating activities	3,262	5,058
Cash flows from investing activities:
Proceeds from maturities and payments of available-for-sale securities	11,101	7,910
Proceeds from sale of available-for-sale securities	67,402	19,398
Purchases of available-for-sale securities	(5,204)	(20,334)
Investment in qualified affordable housing partnerships		(31)
Loan originations, net of principal repayments	(14,973)	(23,136)
Net repayment on loan pools	12,100	3,150
Purchase of premises and equipment	(460)	(48)
Proceeds from the sale of OREO	54	51
Acquisition of Merchants Holding Company, net of cash paid	(2,875)
Net cash uprovided (used) by investing activities	67,145	(13,040)
Cash flows from financing activities:
Net decrease in demand, money market and savings	(53,469)	(40,959)
Net decrease in certificates of deposit	(20,169)	(13,022)
Advances on term debt	130,000	70,000
Repayment of term debt	(110,900)	(40,900)
Proceeds from stock options exercised	40	113
Cash paid for shares surrendered for tax-withholding purposes	(94)	(111)
Cash dividends paid on common stock	(651)	(486)
Net cash used by financing activities	(55,243)	(25,365)
Net increase (decrease) in cash and cash equivalents	15,164	(33,347)
Cash and cash equivalents at beginning of year	47,365	66,970
Cash and cash equivalents at end of period	62,529	33,623
Cash paid during the period for:
Income taxes	1,040
Interest	1,232	1,043
Cash paid for operating leases	215	207
Supplemental disclosures of non cash investing activities:
Transfer of loans to other real estate owned	34	60
Unrealized gain (loss) on investment securities available-for-sale	3,569	(3,443)
Changes in net deferred tax asset related to changes in unrealized (gain) loss on investment securities available-for-sale	(1,055)	1,017
Changes in accumulated other comprehensive income due to unrealized gain (loss) on investment securities available-for-sale, net of tax	2,514	(2,426)
Reclassification of accumulated other comprehensive income due to tax rate change		52
Supplemental disclosures of non cash financing activities:
Stock issued under employee plans	58	45
Cash dividend declared on common shares and payable after period-end	725	486
Right-of-use lease asset recorded on adoption of ASU No. 2016-02	3,998
Lease liability recorded on adoption of ASU No. 2016-02	4,363
Transactions related to the acquisition of Merchants Holding Company:
Assets acquired - fair value	215,015
Goodwill	11,045
Liabilities assumed - fair value	$ 191,153

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Note 1 - Summary of Significant Accounting Policies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Significant Accounting Policies [Text Block]

NOTE

1.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of

1956,

as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for Redding Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) which operates under

three

separate names (Redding Bank of Commerce, Sacramento Bank of Commerce, a division of Redding Bank of Commerce and Merchants Bank of Sacramento, a division of Redding Bank of Commerce) and for Bank of Commerce Mortgage (inactive). The Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The

Consolidated Balance Sheets

as of

March 31, 2019

and

December 31, 2018

are derived from the unaudited interim consolidated financial statements and audited consolidated financial statements and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information

not

misleading.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are

not

considered material and have

no

effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings

2018

Annual Report on Form

10

-K. The consolidated results of operations and cash flows for the

2019

interim period shown in this report is

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

March 31, 2019

and

December 31, 2018,

the Company had

one

wholly-owned trust formed in

2005

to issue trust preferred securities and related common securities. We have

not

consolidated the accounts of the Trust in our Consolidated Financial Statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”),

Consolidation

(“ASC

810”

). We are

not

considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issuedby the Holding Company to the Trust are reflected on the Company’s

Consolidated Balance Sheets

.

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in

Other Assets

and

Other Liabilities

in our

Consolidated Balance Sheets

. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do

not

provide an incremental borrowing rate we use the borrowing rates for terms similar to the lease terms available under our existing line of credit with the Federal Reserve Bank of San Francisco as our incremental borrowing rate in determining the present value of future payments. Our lease terms

may

include options to extend or terminate the lease which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

Application of new accounting guidance

ASU

No.

2016

-

02

Description - In

February

of

2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

)

. This Update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements on a retrospective basis. The core principle of Topic

842

is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement

No.

6,

Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did

not

require lease assets and lease liabilities to be recognized for most leases.

Methods and timing of adoption – For public companies, the amendments in this update are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. In

July

of

2018,

the FASB issued ASU

No.

2018

-

11,

Leases (Topic

842

)

. The standard contained improvements to ASU

No.

2016

-

02

that permited presentation on a prospective basis.

Financial statement impact – We implemented the new leasing standard on

January 1, 2019

on a prospective basis and recorded a new lease asset and related lease liability of approximately

$4.4

million related to our current operating leases. The right-of-use asset was also reduced by

$458

 thousand for amounts recognized previously as part of the single lease cost.

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Note 2 - Common Stock Outstanding and Earnings Per Share

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Earnings Per Share [Text Block]

NOTE

2.

COMMON STOCK OUTSTANDING AND EARNINGS PER SHARE

On

January 31, 2019

we issued

1,834,142

shares of common stock, and paid

$15.3

million in cash as part of our acquisition of Merchants Holding Company (“Merchants”). Merchants shareholders now hold, in the aggregate, approximately

10%

of our outstanding common stock. The acquisition, after fair value adjustments added

$85.3

million in loans,

$190.2

million in deposits and

$107.4

million in investment securities to our bank as of

January 31, 2019.

See Note

10

Acquisition

in these

Notes to Consolidated Financial Statements

for additional information on the acquisition

Basic earnings per share excludes dilution and is computed by dividing income by the weighted-average number of common shares outstanding for the period, excluding unvested restricted stock awards which do

not

have voting rights or share in dividends. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Holding Company. The computation of diluted earnings per share does

not

assume conversion, exercise, or contingent issuance of securities that would have an anti-dilutive effect on earnings per share.

The following is a computation of basic and diluted earnings per share for the

three

months ended

March 31, 2019

and

2018.

	For the Three Months Ended
(Amounts in thousands, except per share information)	March 31,
Earnings Per Share	2019		2018
Numerators:
Net income	$	2,306	$	3,241
Denominators:
Weighted average number of common shares outstanding - basic (1)		17,489		16,225
Effect of potentially dilutive common shares (2)		63		85
Weighted average number of common shares outstanding - diluted		17,552		16,310
Earnings per common share:
Basic	$	0.13	$	0.20
Diluted	$	0.13	$	0.20
Anti-dilutive options not included in diluted earnings per share calculation		—		—
Anti-dilutive restricted shares not included in diluted earnings per share calculation		—		42

(

1

)

Excludes unvested restricted shares because they do

not

have dividend or voting rights

(

2

)

Represents the effects of the assumed exercise of stock options and vesting of non-participating restricted shares.

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Note 3 - Securities

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

NOTE

3.

SECURITIES

The following tables present the amortized costs, unrealized gains, unrealized losses and estimated fair values of our investment securities as of

March 31, 2019,

and

December 31, 2018.

	As of March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	46,264	$	316	$	(129	)	$	46,451
Obligations of state and political subdivisions		48,066		1,146		(277	)		48,935
Residential mortgage-backed securities and collateralized mortgage obligations		173,098		950		(2,234	)		171,814
Corporate securities		3,018		—		(60	)		2,958
Commercial mortgage-backed securities		24,277		32		(445	)		23,864
Other asset-backed securities		95		—		—			95
Total	$	294,818	$	2,444	$	(3,145	)	$	294,117

	As of December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	40,215	$	202	$	(330	)	$	40,087
Obligations of state and political subdivisions		50,037		1,082		(589	)		50,530
Residential mortgage-backed securities and collateralized mortgage obligations		142,355		129		(3,981	)		138,503
Corporate securities		3,022		—		(100	)		2,922
Commercial mortgage-backed securities		25,446		17		(701	)		24,762
Other asset-backed securities		123		1		—			124
Total	$	261,198	$	1,431	$	(5,701	)	$	256,928

The following table presents the expected maturities of investment securities at

March 31, 2019.

	Available-For-Sale
(Amounts in thousands)	Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	1,379	$	1,384
After one year through five years		102,007		102,065
After five years through ten years		110,636		110,180
After ten years		80,796		80,488
Total	$	294,818	$	294,117

The amortized cost and fair value of residential mortgage-backed securities, collateralized mortgage obligations and commercial mortgage securities are presented by their expected average life, rather than contractual maturity, because the underlying loans

may

be repaid without prepayment penalties.

At

March 31, 2019

and

December 31, 2018

securities with a fair value of

$75.2

million and

$68.8

million, respectively, were pledged as collateral to secure public fund deposits, Federal Home Loan Bank of San Francisco borrowings and for other purposes as required by law.

The following table presents the cash proceeds from sales of investment securities and the associated gross realized gains and gross realized losses that have been included in earnings for the

three

months ended

March 31, 2019

and

2018.

	Three Months Ended March 31,
(Amounts in thousands)	2019			2018
Proceeds from sales of investment securities	$	67,402		$	19,398
Gross realized gains on sales of investment securities:
U.S. government & agencies	$	33		$	—
Obligations of state and political subdivisions		181			152
Residential mortgage-backed securities and collateralized mortgage obligations		47			—
Total gross realized gains on sales of investment securities		261			152
Gross realized losses on sales of investment securities:
U.S. government & agencies		(4	)		—
Obligations of state and political subdivisions		(77	)		(71	)
Residential mortgage-backed securities and collateralized mortgage obligations		(86	)		—
Commercial mortgage-backed securities		(2	)		—
Other asset-backed securities		—			(45	)
Total gross realized losses on sales of investment securities		(169	)		(116	)
Gain on sales of investment securities, net	$	92		$	36

Investment securities that were in an unrealized loss position as of

March 31, 2019

and

December 31, 2018

are presented in the following tables, based on the length of time individual securities have been in an unrealized loss position.

	As of March 31, 2019
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
Available-for-sale securities:
U.S. government & agencies	$	2,846	$	(21	)	$	13,045	$	(108	)	$	15,891	$	(129	)
Obligations of states and political subdivisions		1,718		(18	)		10,347		(259	)		12,065		(277	)
Residential mortgage-backed securities and collateralized mortgage obligations		2,918		(12	)		95,998		(2,222	)		98,916		(2,234	)
Corporate securities		—		—			2,958		(60	)		2,958		(60	)
Commercial mortgage-backed securities		896		(8	)		20,012		(437	)		20,908		(445	)
Total temporarily impaired securities	$	8,378	$	(59	)	$	142,360	$	(3,086	)	$	150,738	$	(3,145	)

	As of December 31, 2018
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale securities:
U.S. government & agencies	$	7,223	$	(39	)	$	12,274	$	(291	)	$	19,497	$	(330	)
Obligations of states and political subdivisions		5,545		(40	)		16,320		(549	)		21,865		(589	)
Residential mortgage-backed securities and collateralized mortgage obligations		21,791		(183	)		93,038		(3,798	)		114,829		(3,981	)
Corporate securities		—		—			2,922		(100	)		2,922		(100	)
Commercial mortgage-backed securities		1,548		(7	)		20,176		(694	)		21,724		(701	)
Total temporarily impaired securities	$	36,107	$	(269	)	$	144,730	$	(5,432	)	$	180,837	$	(5,701	)

At

March 31, 2019

and

December 31, 2018,

the number of securities that were in an unrealized loss position was

138

and

163,

respectively. In the opinion of management, these securities are considered only temporarily impaired due to changes in market interest rates or widening of market spreads subsequent to the initial purchase of the securities, and

not

due to concerns regarding the underlying credit of the issuers or the underlying collateral. Our Investment Policy requires securities at the time of purchase to be rated

A3/A

- or higher by Moody’s, S&P and Fitch rating agencies. Management monitors the published credit ratings of our investment portfolio for material rating or outlook changes. For all private-label securities collateralized by mortgages, management also monitors the credit characteristics of the underlying mortgages to identify potential credit losses, if any, in the portfolio. Because the decline in fair value is

not

due to credit quality concerns, we have

no

plans to sell the securities before the recovery of their amortized cost, and the Bank has the ability to hold the securities to maturity these investments are

not

considered other-than-temporarily impaired.

The following table presents the characteristics of our securities that are in unrealized loss positions at

March 31, 2019

and

December 31, 2018.

	Characteristics of securities in unrealized loss positions at
Available-for-sale securities:	March 31, 2019 and December 31, 2018
U.S. government & agencies	Direct obligations of the U.S. Government or obligations guaranteed by U.S. Government agencies.
Obligations of states and political subdivisions	General obligation issuances or revenue securities secured by revenues from specific sources issued by municipalities and political subdivisions located within the U.S.
Residential mortgage-backed securities and collateralized mortgage obligations	Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on residential properties. Issuances by non-governmental entities usually include good credit enhancements. Of the residential mortgage-backed securities and collateralized mortgage obligations that we owned at March 31, 2019 and December 31, 2018, 92% and 66% were issued or guaranteed by U.S. government sponsored entities, respectively.
Corporate securities	Debt obligations generally issued or guaranteed by large U.S. corporate institutions.
Commercial mortgage-backed securities	Obligations of U.S. government sponsored entities or non-governmental entities collateralized by high quality mortgages on commercial properties. Issuances by non-governmental entities usually include good credit enhancements. Of the commercial mortgage-backed securities that we owned at March 31, 2019 and December 31, 2018, 95% and 90% were issued or guaranteed by U.S. government sponsored entities, respectively.
Other asset-backed securities	Obligations secured by high quality loans with good credit enhancements issued by non-governmental issuers.

XML

Note 4 - Loans

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

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

NOTE

4.

LOANS

Outstanding loan balances consisted of the following at

March 31, 2019,

and

December 31, 2018.

(Amounts in thousands)	March 31,			December 31,
Loan Portfolio	2019			2018
Commercial	$	149,575		$	135,543
Commercial real estate:
Real estate - construction and land development		30,335			22,563
Real estate - commercial non-owner occupied		469,048			433,708
Real estate - commercial owner occupied		209,099			204,622
Residential real estate:
Real estate - residential - Individual Tax Identification Number (“ITIN”)		36,145			37,446
Real estate - residential - 1-4 family mortgage		68,092			34,366
Real estate - residential - equity lines		26,162			26,958
Consumer and other		46,150			51,045
Gross loans		1,034,606			946,251
Deferred fees and costs		1,992			1,927
Loans, net of deferred fees and costs		1,036,598			948,178
Allowance for loan and lease losses		(12,242	)		(12,292	)
Net loans	$	1,024,356		$	935,886

Certain loans are pledged as collateral for lines of credit with the Federal Home Loan Bank of San Francisco and the Federal Reserve Bank. Pledged loans totaled

$480.0

million and

$490.2

million at

March 31, 2019

and

December 31, 2018,

respectively.

When we purchase loans, they are typically purchased at a discount to enhance yield and compensate for credit risk. Gross loan balances in the table above include net purchase discounts of

$2.2

million and

$2.5

million as of

March 31, 2019,

and

December 31, 2018.

Gross loan balances in the table above include a fair value discount of

$2.2

million for loans acquired from Merchants during the

first

quarter of

2019.

We recorded

$48

thousand in accretion of the discount for these loans during the

three

months ended

March 31, 2019.

Past Due Loans

Past due loans (gross), segregated by loan portfolio were as follows, as of

March 31, 2019,

and

December 31, 2018.

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
March 31, 2019	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	190	$	47	$	—	$	237	$	149,338	$	149,575	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		30,335		30,335		—
Real estate - commercial non-owner occupied		—		—		10,878		10,878		458,170		469,048		—
Real estate - commercial owner occupied		—		—		—		—		209,099		209,099		—
Residential real estate:
Real estate - residential - ITIN		465		191		170		826		35,319		36,145		—
Real estate - residential - 1-4 family mortgage		—		—		—		—		68,092		68,092		—
Real estate - residential - equity lines		78		—		—		78		26,084		26,162		—
Consumer and other		152		102		—		254		45,896		46,150		—
Total	$	885	$	340	$	11,048	$	12,273	$	1,022,333	$	1,034,606	$	—

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
December 31, 2018	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	—	$	—	$	—	$	—	$	135,543	$	135,543	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		22,563		22,563		—
Real estate - commercial non-owner occupied		10,878		—		548		11,426		422,282		433,708		—
Real estate - commercial owner occupied		688		—		—		688		203,934		204,622		—
Residential real estate:
Real estate - residential - ITIN		184		279		259		722		36,724		37,446		—
Real estate - residential - 1-4 family mortgage		—		—		185		185		34,181		34,366		—
Real estate - residential - equity lines		90		—		—		90		26,868		26,958		—
Consumer and other		534		263		—		797		50,248		51,045		—
Total	$	12,374	$	542	$	992	$	13,908	$	932,343	$	946,251	$	—

Nonaccrual Loans

Nonaccrual loans, segregated by loan portfolio, were as follows as of

March 31, 2019

and

December 31, 2018.

(Amounts in thousands)	March 31,		December 31,
Nonaccrual Loans	2019		2018
Commercial	$	1,018	$	959
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		548
Residential real estate:
Real estate - residential - ITIN		2,392		2,388
Real estate - residential - 1-4 family mortgage		182		185
Real estate - residential - equity lines		42		43
Consumer and other		23		23
Total	$	14,535	$	4,146

Had nonaccrual loans performed in accordance with their contractual terms, we would have recognized additional interest income, net of tax, of approximately

$158

thousand and

$43

thousand for the

three

months ended

March 31, 2019

and

2018,

respectively.

Impaired Loans

A loan is considered impaired when, based on current information and events, we determine it is probable that we will

not

be able to collect all amounts due according to the loan contract, including scheduled interest payments. The following tables summarize impaired loans by loan portfolio as of

March 31, 2019,

and

December 31, 2018.

	As of March 31, 2019
			Unpaid
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	47	$	65	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		10,878		—
Residential real estate:
Real estate - residential - ITIN		5,962		7,534		—
Real estate - residential - 1-4 family mortgage		182		221		—
Real estate - residential - equity lines		42		48		—
Total with no related allowance recorded	$	17,111	$	18,746	$	—
With an allowance recorded:
Commercial	$	2,158	$	2,299	$	923
Commercial real estate:
Real estate - commercial non-owner occupied		793		793		169
Residential real estate:
Real estate - residential - ITIN		772		810		88
Real estate - residential - equity lines		358		358		179
Consumer and other		23		23		7
Total with an allowance recorded	$	4,104	$	4,283	$	1,366
By loan portfolio:
Commercial	$	2,205	$	2,364	$	923
Commercial real estate		11,671		11,671		169
Residential real estate		7,316		8,971		267
Consumer and other		23		23		7
Total impaired loans	$	21,215	$	23,029	$	1,366

	As of December 31, 2018
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	51	$	69	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		548		548		—
Residential real estate:
Real estate - residential - ITIN		6,138		7,676		—
Real estate - residential - 1-4 family mortgage		185		223		—
Real estate - residential - equity lines		43		48		—
Total with no related allowance recorded	$	6,965	$	8,564	$	—
With an allowance recorded:
Commercial	$	2,132	$	2,256	$	748
Commercial real estate:
Real estate - commercial non-owner occupied		795		795		209
Residential real estate:
Real estate - residential - ITIN		734		772		91
Real estate - residential - equity lines		363		363		182
Consumer and other		23		23		7
Total with an allowance recorded	$	4,047	$	4,209	$	1,237
By loan portfolio:
Commercial	$	2,183	$	2,325	$	748
Commercial real estate		1,343		1,343		209
Residential real estate		7,463		9,082		273
Consumer and other		23		23		7
Total impaired loans	$	11,012	$	12,773	$	1,237

The following table summarizes average recorded investment and interest income recognized on impaired loans by loan portfolio for the

three

months ended

March 31, 2019

and

2018.

	Three Months Ended				Three Months Ended
	March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
(Amounts in thousands)	Recorded		Income		Recorded		Income
Average Recorded Investment and Interest Income	Investment		Recognized		Investment		Recognized
Commercial	$	2,021	$	17	$	2,589	$	21
Commercial real estate:
Real estate - commercial non-owner occupied		8,412		11		802		11
Residential real estate:
Real estate - residential - ITIN		6,874		42		7,425		41
Real estate - residential - 1-4 family mortgage		184		—		326		—
Real estate - residential - equity lines		401		5		422		5
Consumer and other		23		—		35		—
Total	$	17,915	$	75	$	11,599	$	78

The impaired loans on which these interest income amounts were recognized are primarily accruing troubled debt restructured loans. Loans are reported as troubled debt restructurings when we grant a concession(s) to a borrower experiencing financial difficulties that we would

not

otherwise consider. Examples of such concessions include a reduction in the loan rate, forgiveness of principal or accrued interest, extending the maturity date(s) significantly, or providing a lower interest rate than would be normally available for a transaction of similar risk. As a result of these concessions, restructured loans are impaired as we will

not

collect all amounts due, either principal or interest, in accordance with the terms of the original loan agreement.

Troubled Debt Restructurings

At

March 31, 2019

and

December 31, 2018,

impaired loans of

$6.7

million and

$6.9

million, respectively, were classified as performing restructured loans.

For a restructured loan to be on accrual status, the loan’s collateral coverage must generally be greater than or equal to

100%

of the loan balance, the loan payments must be current, and the borrower must demonstrate the ability to make payments from a verified source of cash flow. We had

one

restructured commercial line of credit in nonaccrual status that had

$41

thousand and

$313

thousand in available credit at

March 31, 2019

and

December 31, 2018,

respectively.

As of

March 31, 2019,

we had

$9.4

million in troubled debt restructurings compared to

$9.6

million as of

December 31, 2018.

As of

March 31, 2019,

we had

105

loans that qualified as troubled debt restructurings, of which

104

were performing according to their restructured terms. Troubled debt restructurings represented

0.91%

of gross loans as of

March 31, 2019,

compared to

1.01%

at

December 31, 2018.

We do

not

have any newly restructured loans or modifications for the

three

months ended

March 31, 2019

and

2018.

There were

no

loans modified as a troubled debt restructuring within the previous

twelve

months for which there was a payment default (after restructuring) during the

three

months ended

March 31, 2019.

Performing and Nonperforming Loans

We define 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. We define a nonperforming loan as an impaired loan, which

may

be on nonaccrual, or is

90

days past due and still accruing, or has been restructured and does

not

comply with its modified terms, and our ultimate collection of original contractual principal and interest is uncertain. Performing and nonperforming loans, segregated by loan portfolio, were as follows at

March 31, 2019

and

December 31, 2018.

(Amounts in thousands)	March 31, 2019
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	148,557	$	1,018	$	149,575
Commercial real estate:
Real estate - construction and land development		30,335		—		30,335
Real estate - commercial non-owner occupied		458,170		10,878		469,048
Real estate - commercial owner occupied		209,099		—		209,099
Residential real estate:
Real estate - residential - ITIN		33,753		2,392		36,145
Real estate - residential - 1-4 family mortgage		67,910		182		68,092
Real estate - residential - equity lines		26,120		42		26,162
Consumer and other		46,127		23		46,150
Total	$	1,020,071	$	14,535	$	1,034,606

(Amounts in thousands)	December 31, 2018
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	134,584	$	959	$	135,543
Commercial real estate:
Real estate - construction and land development		22,563		—		22,563
Real estate - commercial non-owner occupied		433,160		548		433,708
Real estate - commercial owner occupied		204,622		—		204,622
Residential real estate:
Real estate - residential - ITIN		35,058		2,388		37,446
Real estate - residential - 1-4 family mortgage		34,181		185		34,366
Real estate - residential - equity lines		26,915		43		26,958
Consumer and other		51,022		23		51,045
Total	$	942,105	$	4,146	$	946,251

Credit Quality Ratings

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

Pass Grade:

A Pass loan is a strong credit with

no

existing or known weaknesses that

may

require management’s close attention. Some pass loans require short-term enhanced monitoring to determine when the credit relationship would merit either an upgrade or a downgrade. Loans classified as Pass Grade specifically demonstrate:

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

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

● Qualitative Factors – in addition to meeting our 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.

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

Watch Grade:

The credit is acceptable but the borrower has experienced a temporary setback or adverse information has been received, and

may

exhibit

one

or more of the characteristics shown in the list below. This risk grade could apply to credits on a temporary basis pending a full review. Credits with this risk grade will require more handling time and increased management. The list below contains characteristics of this risk grade, but individually do

not

automatically cause the loan to be assigned a Watch Grade.

● The primary source of repayment may be weakening causing greater reliance on the secondary source of repayment or

● The primary source of repayment is adequate, but the secondary source of repayment is insufficient

● In-depth financial analysis would compare to the lower quartile in two or more of the major components of the Risk Management Association Annual Statement Studies

● Volatile or deteriorating collateral

● Management decisions may be called into question

● Delinquencies in bank credits or other financial/trade creditors

● Frequent overdrafts

● Significant change in management/ownership

Special Mention Grade:

Credits in this grade are potentially weak and deserve management's close attention. If left uncorrected, these potential weaknesses

may

result in deterioration of the repayment prospects of the credit. Special Mention credits are

not

adversely classified and do

not

expose the Bank to sufficient risk to warrant adverse classification. The list below exhibits the characteristics of this grade, but individually do

not

automatically cause the borrower to be assigned a grade of Special Mention:

● Inadequate or incomplete loan documentation or perfection of collateral, or any other deviation from prudent lending practices

● Credit is structured in a manner in which the timing of the repayment source does not match the payment schedule or maturity, materially jeopardizing repayment

● Current economic or market conditions exist which may affect the borrower's ability to perform or affect the Bank's collateral position

● Adverse trends in the borrower's operations or continued deterioration in the borrower’s financial condition that has not yet reached a point where the retirement of debt is jeopardized. A credit in this grade should have favorable prospects of the deteriorating financial trends reversing within a reasonable timeframe.

● The borrower is less than cooperative or unable to produce current and adequate financial information

Substandard Grade:

A Substandard credit is inadequately protected by the current net worth and paying capacity of the borrower or of the collateral pledged, if any. Substandard credits have a well-defined weakness or weaknesses that jeopardize the liquidation or timely collection of the debt. Substandard credits are characterized by the distinct possibility that we will sustain some loss if the deficiencies are

not

corrected. However, a potential loss does

not

have to be recognizable in an individual credit for it to be considered a substandard credit. As such, substandard credits

may

or

may

not

be graded as impaired.

The following represents, but is

not

limited to, the potential characteristics of a Substandard Grade and do

not

necessarily generate automatic reclassification into this loan grade:

● 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 our 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 Doubtful loan has all the weaknesses inherent in

one

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. 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. Within

six

months, the pending events should have been resolved. Based on resolution of the pending events, the credit grade should have improved or the principal balance charged against the ALLL.

The following tables summarize loans by internal risk grades and by loan class as of

March 31, 2019

and

December 31, 2018.

	As of March 31, 2019
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	136,434	$	10,297	$	541	$	2,303	$	—	$	149,575
Commercial real estate:
Real estate - construction and land development		30,312		23		—		—		—		30,335
Real estate - commercial non-owner occupied		445,151		10,729		—		13,168		—		469,048
Real estate - commercial owner occupied		194,043		4,706		—		10,350		—		209,099
Residential real estate:
Real estate - residential - ITIN		30,674		—		—		5,471		—		36,145
Real estate - residential - 1-4 family mortgage		66,350		1,083		477		182		—		68,092
Real estate - residential - equity lines		25,865		106		—		191		—		26,162
Consumer and other		46,122		—		—		28		—		46,150
Total	$	974,951	$	26,944	$	1,018	$	31,693	$	—	$	1,034,606

	As of December 31, 2018
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	118,643	$	15,247	$	—	$	1,653	$	—	$	135,543
Commercial real estate:
Real estate - construction and land development		22,539		24		—		—		—		22,563
Real estate - commercial non-owner occupied		409,157		21,698		—		2,853		—		433,708
Real estate - commercial owner occupied		179,154		14,075		—		11,393		—		204,622
Residential real estate:
Real estate - residential - ITIN		31,805		—		—		5,641		—		37,446
Real estate - residential - 1-4 family mortgage		33,388		793		—		185		—		34,366
Real estate - residential - equity lines		25,336		1,313		—		309		—		26,958
Consumer and other		51,016		—		—		29		—		51,045
Total	$	871,038	$	53,150	$	—	$	22,063	$	—	$	946,251

The recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure was

$213

thousand at

March 31, 2019.

Allowance for Loan and Lease Losses

The following tables summarize the ALLL by portfolio for the

three

months ended

March 31, 2019

and

2018.

	For the Three Months Ended March 31, 2019
(Amounts in thousands)			Commercial			Residential
ALLL by Loan Portfolio	Commercial		Real Estate			Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,205	$	7,116		$	1,173		$	1,356		$	442	$	12,292
Charge-offs		—		—			(68	)		(280	)		—		(348	)
Recoveries		153		—			82			63			—		298
Provision		121		(160	)		24			(83	)		98		—
Ending balance	$	2,479	$	6,956		$	1,211		$	1,056		$	540	$	12,242

	For the Three Months Ended March 31, 2018
(Amounts in thousands)				Commercial		Residential
ALLL by Loan Portfolio	Commercial			Real Estate		Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,397		$	6,514	$	1,169		$	1,435		$	410	$	11,925
Charge-offs		—			—		(114	)		(276	)		—		(390	)
Recoveries		453			—		246			61			—		760
Provision		(552	)		384		(152	)		253			67		—
Ending balance	$	2,298		$	6,898	$	1,149		$	1,473		$	477	$	12,295

The following tables summarize the ALLL and the recorded investment in loans and leases as of

March 31, 2019

and

December 31, 2018.

	As of March 31, 2019
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	923	$	169	$	267	$	7	$	—	$	1,366
Collectively evaluated for impairment		1,556		6,787		944		1,049		540		10,876
Total	$	2,479	$	6,956	$	1,211	$	1,056	$	540	$	12,242
Gross loans:
Individually evaluated for impairment	$	2,205	$	11,671	$	7,316	$	23	$	—	$	21,215
Collectively evaluated for impairment		147,370		696,811		123,083		46,127		—		1,013,391
Total gross loans	$	149,575	$	708,482	$	130,399	$	46,150	$	—	$	1,034,606

	As of December 31, 2018
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	748	$	209	$	273	$	7	$	—	$	1,237
Collectively evaluated for impairment		1,457		6,907		900		1,349		442		11,055
Total	$	2,205	$	7,116	$	1,173	$	1,356	$	442	$	12,292
Gross loans:
Individually evaluated for impairment	$	2,183	$	1,343	$	7,463	$	23	$	—	$	11,012
Collectively evaluated for impairment		133,360		659,550		91,307		51,022		—		935,239
Total gross loans	$	135,543	$	660,893	$	98,770	$	51,045	$	—	$	946,251

The ALLL totaled

$12.2

million or

1.18%

of total gross loans at

March 31, 2019

and

$12.3

million or

1.30%

at

December 31, 2018.

As of

March 31, 2019

and

December 31, 2018,

we had commitments to extend credit of

$220.7

million and

$235.8

million, respectively. The reserve for unfunded commitments recorded in

Other Liabilities

in the

Consolidated Balance Sheets

at

March 31, 2019

and

December 31, 2018

was

$595

thousand and

$695

thousand. The decrease in the reserve was due to a reduction in our unfunded commitments.

The ALLL is based upon estimates of future loan and lease losses and is maintained at a level considered adequate to provide for probable losses inherent in the outstanding loan portfolio. Our ALLL methodology incorporates management’s current judgments, and reflects management’s estimate of future loan and lease 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 adjusted for charge-offs or recoveries. In periodic evaluations of the adequacy of the allowancebalance, management considers past loan and lease loss experience by type of credit, known and inherent risks in the portfolio, adverse situations that

may

affect a borrower’s ability to repay, the estimated value of any underlying collateral, current economic conditions and other factors. We formallyassess the adequacy of the ALLL on a monthly basis. These assessments include the periodic re-grading of classified loans based on changes in theirindividual credit characteristics including delinquency, seasoning, recent financial performance of the borrower, economic factors, changes in the interestrate environment and other factors as warranted. Loans are initially rated when originated. They are reviewed as they are renewed, when there is a new loanto the same borrower and/or when identified facts demonstrate heightened risk of default. Confirmation of the quality of our grading process is obtainedby independent reviews conducted by outside consultants specifically hired for this purpose and by periodic examination by various bank regulatoryagencies.

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

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

We believe that the ALLL was adequate as of

March 31, 2019.

There is, however,

no

assurance that future loan and lease losses will

not

exceed the levels provided for in the ALLL and could possibly result in additional charges to the provision for loan and lease losses. In addition, bank regulatory authorities, as part of their periodic examination of the Company,

may

require additional charges to the provision for loan and lease losses in future periods if warranted as a result of their review.

As of

March 31, 2019,

approximately

82%

of our gross loan portfolio is secured by real estate, and a significant decline in real estate market values

may

require an increase in the ALLL. Deterioration in economic conditions particularly in our markets

may

adversely affect our loan portfolio and

may

lead to additional charges to the provision for loan and lease losses.

Impaired loans are individually evaluated for impairment. If the measurement of each impaired loans’ value is less than the recorded investment in the loan, we recognize this impairment and adjust the carrying value of the loan to fair value through the ALLL. For collateral dependent loans, this can be accomplished by charging off the impaired portion of the loan based on the underlying value of the collateral. For non-collateral dependent loans, we establish a specific component within the ALLL based on the present value of the future cash flows. If we determine the sources of repayment will

not

result in a reasonable probability that the carrying value of a loan can be recovered, the amount of a loan’s specific impairment is charged off 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 the ALLL provides for coverage of credit losses inherent in the loan portfolio but

not

captured in the credit loss factors that are utilized in the risk rating-based component, or in the specific impairment reserve component of the ALLL, and acknowledges the inherent imprecision of all loss prediction models. As of

March 31, 2019

and

December 31, 2018,

the unallocated allowance amount represented

4%

of the ALLL, respectively.

While the ALLL composition is an indication of specific amounts or loan categories in which future charge-offs

may

occur, actual amounts

may

differ.

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

change.

Most commercial loans are generally secured by the assets being financed and other business assets such as accounts receivable or inventory. Management

may

also incorporate a personal guarantee; however, some short-term loans

may

be extended on an unsecured basis. Repayment of commercial loans secured by accounts receivable

may

be substantially dependent on the ability of the borrower to collect amounts due from its customers.

Commercial Real Estate (“CRE”) Loans

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

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

Generally, CRE loans are made to developers and builders that are secured by non-owner occupied properties require the borrower to have had an existing relationship with the Company and a proven record of success. Construction loans are underwritten utilizing feasibility studies, sensitivity analysis of absorption and lease rates, and financial analysis of the developers and property owners. Construction loans are generally based upon estimates of cost and value associated with the complete project (as-is value). These estimates

may

be inaccurate. Construction loans often involve the disbursement of substantial funds with repayment largely dependent on the success of the ultimate project. Sources of repayment for these types of loans

may

be pre-committed permanent loans from approved long-term lenders, sales of developed property, or an interim loan commitment from the Company until permanent financing is secured. These loans are closely monitored by on-site inspections, and are considered to have higher inherent risks than other CRE loans due to their ultimate repayment sensitivity to interest rate changes, governmental regulation of real property, general economic conditions, and the availability of long-term financing.

Residential Real Estate Loans

– We do

not

originate consumer real estate mortgage loans. The majority of our loans secured by non owner occupied residential real estate are made either as part of a commercial relationship and subject to similar underwriting standards and processes as the CRE portfolio, or loans that were purchased in a prior year as part of a pool of loans. Purchased loan pools are evaluated based on risk characteristics established for each segmented group of loans. These characteristics include a significant emphasis on historical losses within each loan group, inherent risks for each, and specific loan class characteristics such as trends related to nonaccrual loans, past due loans, criticized loans, net charge-offs or recoveries, among other relevant credit risk factors. Residential equity lines of credit are included in the discussion of consumer loans below.

We originate some single family residence construction loans. The loan amounts are

no

greater than

$1

million and are short term real estate secured financing for the construction of a single family residence to be occupied by the owner. The loans have a draw down feature with interest only payments, and a balloon payment at the

12

-month maturity. All of these loans are refinanced and paid-off by the borrower’s permanent mortgage lender who provided the initial pre-approved mortgage financing. These loans are underwritten utilizing financial analysis of the borrower and are generally based upon estimates of cost and value associated with the complete project (as-is value). These estimates

may

be inaccurate. The loan disbursement and monitoring process is controlled utilizing similar processes as our CRE construction loans.

Consumer Loans –

Our consumer loan originations are generally limited to home equity loans with nominal originations in unsecured personal loans. The portfolio also includes unsecured consumer home improvement loans and residential solar panel loans secured by UCC filings. We are highly dependent on

third

party credit scoring analysis to supplement the internal underwriting process. To monitor and manage consumer loan risk, policies and procedures are developed and modified, as needed, jointly by management and staff personnel. This activity, coupled with relatively small loan amounts that are spread across many individual borrowers, minimizes risk. Additionally, trend and outlook reports are reviewed by management on a regular basis. Underwriting standards for home equity loans are heavily influenced by statutory requirements, which include, but are

not

limited to, a maximum loan-to-value percentage of

80%,

collection remedies, the number of such loans a borrower can have at

one

time, and documentation requirements.

We maintain an independent loan review program that reviews and validates the credit risk program on a periodic basis. Results of these reviews are presented to the Board of Directors, Loan Committee and Audit Committee. The loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit personnel, as well as our policies and procedures.

Management’s continuing evaluation of all known relevant quantitative and qualitative internal and external risk factors provides the foundation for the

three

major components of the ALLL: (

1

) historical valuation allowances established in accordance with ASC

450,

Contingencies (“ASC

450”

) for groups of similarly situated loan pools; (

2

) general valuation allowances established in accordance with ASC

450

that are based on qualitative credit risk factors; and (

3

) specific valuation allowances established in accordance with ASC

310,

Receivables (“ASC

310”

) that are based on estimated probable losses on specific impaired loans. All

three

components are aggregated and constitute the ALLL; while portions of the allowance

may

be allocated to specific credits, the allowance net of specific reserves is available for the remaining credits that management deems as “loss.” It is our policy to classify a credit as loss with a concurrent charge-off when management considers the credit uncollectible and of such little value that its continuance as a bankable asset is

not

warranted. A loss classification does

not

mean that the loan has absolutely

no

recovery or salvage value, but rather it is

not

practical or desirable to defer recognizing the likely credit loss of a valueless asset even though partial recovery

may

occur in the future.

Our loan portfolio is evaluated by general loan class including commercial, commercial real estate (which includes construction and other real estate), residential real estate (which includes

1

-

4

family and home equity loans), consumer and other loans. In accordance with ASC

450,

historical valuation allowances are established for loan pools with similar risk characteristics common to each loan grouping. These loan pools are similarly risk-graded and each portfolio is evaluated by identifying all relevant risk characteristics that are common to these segmented groups of loans. These characteristics include a significant emphasis on historical losses within each loan group, inherent risks for each, and specific loan class characteristics such as trends related to nonaccrual loans, past due loans, criticized loans, net charge-offs or recoveries, among other relevant credit risk factors. We periodically review and update our historical loss ratios based on net charge-off experience for each loan and lease class. Other credit risk factors are also reviewed periodically and adjusted as necessary to account for any changes in potential loss exposure.

General valuation allowances, as prescribed by ASC

450,

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

XML

Note 5 - Qualified Affordable Housing Partnership Investments

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Qualified Affordable Housing Project Investments [Text Block]

NOTE

5.

QUALIFIED AFFORDABLE HOUSING PARTNERSHIP INVESTMENTS

We have invested in

four

separate LIHTC partnerships, which provide the Company with CRA credit. Additionally, the investments in LIHTC partnerships provide us with tax credits and with operating loss tax benefits over an approximately

18

-year period. The tax credits and the operating loss tax benefits that are generated by each of the properties are expected to exceed the total value of the investments we made and provide returns on the investments of between

3%

and

5%

over the life of the investment.

None

of the original investments will be repaid.

Our investments in Qualified Affordable Housing Partnerships totaled

$2.9

million at

March 31, 2019.

These investments are recorded in

Other Assets

with a corresponding funding obligation of

$343

thousand recorded in

Other Liabilities

in our

Consolidated Balance Sheets

. The investments in LIHTC partnerships are being accounted for using the proportional amortization method, under which we amortize the initial cost of an investment in proportion to the amount of the tax credits and other tax benefits received, and recognize the net investment performance in the

Consolidated Statements of Income

as a component of income tax expense.

The following table presents our original investment in LIHTC partnerships, the current recorded investment balance, and the unfunded liability balance of each investment at

March 31, 2019

and

December 31, 2018.

In addition, the table reflects the tax credits and tax benefits, amortization of the investment and the net impact to our income tax provision for the

three

months ended

March 31, 2019

and

2018.

	At March 31, 2019						For the Three Months Ended March 31, 2019
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	977	$	28	$	50	$	45	$	5
WNC Institutional Tax Credit Fund 38, L.P.		1,000		467		—		27		23		4
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,215		315		56		55		1
California Affordable Housing Fund		2,454		229		—		6		9		(3	)
Total	$	7,954	$	2,888	$	343	$	139	$	132	$	7

	At December 31, 2018						For the Three Months Ended March 31, 2018
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,022	$	28	$	50	$	44	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		489		—		32		26		6
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,270		315		56		56		—
California Affordable Housing Fund		2,454		239		—		8		12		(4	)
Total	$	7,954	$	3,020	$	343	$	146	$	138	$	8

The following table presents our generated tax credits and tax benefits from investments in qualified affordable housing partnerships for the

three

months ended

March 31, 2019

and

2018.

	For the Three Months Ended
	March 31, 2019				March 31, 2018
(Amounts in thousands)	Generated		Tax Benefits From		Generated		Tax Benefits from
Qualified Affordable Housing Partnerships	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Raymond James California Housing Opportunities Fund II	$	43	$	7	$	43	$	7
WNC Institutional Tax Credit Fund 38, L.P.		23		4		28		4
Merritt Community Capital Corporation Fund XV, L.P.		48		8		48		8
California Affordable Housing Fund		—		6		1		7
Total	$	114	$	25	$	120	$	26

The following table reflects the net income tax benefit and (expense) at

March 31, 2019,

that is expected to be recognized over the remaining lives of the investments and has been updated to reflect the lower tax rate in the Tax Cuts and Jobs Act enacted

December 22, 2017.

(Amounts in thousands) Qualified Affordable Housing Partnerships: Anticipated net income tax benefit (expense) less amortization of investments	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		California Affordable Housing Fund			Total Net Income Tax Benefit
2019	$	14	$	13	$	3	$	(10	)	$	20
2020		19		17		4		(14	)		26
2021		19		16		4		(14	)		25
2022		19		14		3		(13	)		23
2023 and thereafter		33		27		6		(32	)		34
Total	$	104	$	87	$	20	$	(83	)	$	128

XML

Note 6 - Term Debt

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Long-term Debt [Text Block]

NOTE

6.

TERM DEBT

Term debt at

March 31, 2019

and

December 31, 2018

consisted of the following.

(Amounts in thousands)	March 31, 2019			December 31, 2018
Federal Home Loan Bank of San Francisco borrowings	$	20,000		$	—
Senior debt		2,596			3,496
Unamortized debt issuance costs		(1	)		(2	)
Subordinated debt		10,000			10,000
Unamortized debt issuance costs		(78	)		(89	)
Net term debt	$	32,517		$	13,405

Future contractual maturities of term debt at

March 31, 2019

are as follows.

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Federal Home Loan Bank of San Francisco borrowings	$	20,000	$	—	$	—	$	—	$	—	$	—	$	20,000
Senior debt		750		1,846		—		—		—		—		2,596
Subordinated debt		—		—		—		—		—		10,000		10,000
Total future maturities	$	20,750	$	1,846	$	—	$	—	$	—	$	10,000	$	32,596

Federal Home Loan Bank of San Francisco Borrowings

We have an available line of credit with the Federal Home Loan Bank of San Francisco of

$372.2

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

The Bank had outstanding borrowings from the Federal Home Loan Bank of San Francisco at

March 31, 2019

of

$20.0

million; there were

no

borrowings outstanding at

December 31, 2018.

The average balance outstanding on Federal Home Loan Bank of San Francisco term advances during the

three

months ended

March 31, 2019

and year ended

December 31, 2018

was

$8.8

million and

$22.5

million, respectively. The maximum amount outstanding from the Federal Home Loan Bank of San Francisco at any month end during the

three

months ended

March 31, 2019

and year ended

December 31, 2018

was

$20.0

million and

$70.0

million, respectively. The weighted average interest rate on Federal Home Loan Bank of San Francisco borrowings at

March 31, 2019

was

2.60%.

As of

March 31, 2019,

the Bank was required to hold an investment in Federal Home Loan Bank of San Francisco stock of

$7.3

million recorded in

Other Assets

in the

Consolidated Balance Sheets

. Our investments in Federal Home Loan Bank of San Francisco stock are restricted investment securities, carried at cost, evaluated for impairment, and excluded from securities accounted for under ASC Topic

320

and ASC Topic

321.

We have pledged

$447.4

million of our commercial real estate and residential real estate loans as collateral for the line of credit with the Federal Home Loan Bank of San Francisco. As of

March 31, 2019,

we also pledged

$28.7

million in securities to the Federal Home Loan Bank of San Francisco.

Senior Debt

In

December

of

2015,

the Holding Company entered into a senior debt loan agreement to borrow

$10.0

million from another financial institution. The original loan terms required monthly principal installments of

$83

thousand, plus accrued and unpaid interest, commencing on

January 1, 2016,

continuing to, and including

December 10, 2020

and a final scheduled payment of

$5.0

million due on the maturity date of

December 10, 2020.

The loan

may

be prepaid in whole or in part at any time without any prepayment penalty. The principal amount of the loan bears interest at a variable rate, resetting monthly that is equal to the sum of the current

three

-month LIBOR plus

400

basis points. In

December

of

2015,

the Holding Company incurred senior debt issuance costs of

$15

thousand, which are being amortized over the initial term of the loan as additional interest expense. The loan is secured by a pledge from the Holding Company of all of the outstanding stock of Redding Bank of Commerce.

Subordinated Debt

In

December

of

2015,

the Holding Company issued

$10.0

million in aggregate principal amount of fixed to floating rate Subordinated Notes due in

2025.

The Subordinated Debt initially bears interest at

6.88%

per annum for a

five

-year term, payable semi-annually. Thereafter, interest on the Subordinated Debt will be paid at a variable rate equal to

three

month LIBOR plus

526

basis points, payable quarterly until the maturity date. In

December

of

2015,

the Holding Company incurred subordinated debt issuance costs of

$210

thousand, which are being amortized over the initial

five

-year-term as additional interest expense.

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

2

capital by the Holding Company.

The Subordinated Debt will mature on

December 10, 2025

but

may

be prepaid at the Holding Company’s option and with regulatory approval at any time on or after

five

years after the Closing Date or at any time upon certain events, such as a change in the regulatory capital treatment of the Subordinated Debt or the interest on the Subordinated Debt is

no

longer deductible by the Holding Company for United States federal income tax purposes.

Federal Funds

We have entered into nonbinding federal funds line of credit agreements with

three

financial institutions to support short-term liquidity needs. The lines totaled

$35.0

million at

March 31, 2019

and had interest rates ranging from

2.64%

to

3.44%.

Advances under the lines are subject to funds availability, continued borrower eligibility, and

may

have consecutive day usage restrictions. The credit arrangements are reviewed and renewed annually. At

March 31, 2019

and

December 31, 2018,

we had

no

outstanding advances on any of the Bank’s federal funds lines of credit.

Federal Reserve Bank

We have an available line of credit with the Federal Reserve Bank totaling

$23.6

million subject to collateral requirements, namely the amount of certain pledged loans. At

March 31, 2019

and

December 31, 2018,

we had

no

outstanding advances on our line of credit with the Federal Reserve Bank.

XML

Note 7 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

NOTE

7.

COMMITMENTS AND CONTINGENCIES

Financial Instruments with Off-Balance Sheet Risk

Our consolidated financial statements do

not

reflect various commitments and contingent liabilities that arise in the normal course of our business and involve elements of credit, liquidity, and interest rate risk. In the normal course of business we are party to financial instruments with off-balance sheet credit risk to meet the financing needs of our customers. These financial instruments include commitments to extend credit, standby letters of credit and financial guarantees. These instruments involve elements of credit and interest rate risk similar to the amounts recognized in the

Consolidated Balance Sheets

. The contract or notional amounts of these instruments reflect the extent of our involvement in particular classes of financial instruments.

The following table presents a summary of our commitments and contingent liabilities at

March 31, 2019

and

December 31, 2018.

(Amounts in thousands)	March 31, 2019		December 31, 2018
Commitments to extend credit	$	213,122	$	223,882
Standby letters of credit		4,218		8,548
Affordable housing grants		3,338		3,338
Total commitments and contingent liabilities	$	220,678	$	235,768

We were

not

required to perform on any financial guarantees during the

three

months ended

March 31, 2019,

or during the year ended

December 31, 2018.

At

March 31, 2019,

approximately

$3.7

million of standby letters of credit will expire within

one

year, and

$139

thousand will expire thereafter.

Affordable Housing Grants

In fulfilling our CRA responsibilities, we are a sponsor for various nonprofit organizations that receive cash grants from the Federal Home Loan Bank of San Francisco. Those grants require the nonprofit organization to comply with stipulated conditions of the grant over specified periods of time which typically vary from

10

to

15

years. If the nonprofit organization fails to comply, Federal Home Loan Bank of San Francisco can require us to refund the amount of the grant to Federal Home Loan Bank of San Francisco. To mitigate this contingent credit risk, our Credit Administration underwrites the financial strength of the nonprofit organization and reviews their systems of internal control to determine, as best as possible, that they will comply with the conditions of the grant.

Reserve For Unfunded Commitments

The reserve for unfunded commitments, which is included in

Other Liabilities

on the

Consolidated Balance Sheets

, was

$595

thousand and

$695

thousand at

March 31, 2019

and

December 31, 2018,

respectively. The decrease in the reserve was due to a reduction in our unfunded commitments. The adequacy of the reserve for unfunded commitments is reviewed on a quarterly basis, based upon changes in the amount of commitments, loss experience, and economic conditions. When necessary, the provision adjustments are recorded in other noninterest expense in the

Consolidated Statements of Income.

Death Benefit Agreement

The Company has entered into agreements with certain employees to pay a cash benefit to designated beneficiaries following the death of the employee. The payment will be made only if, at the time of death, the deceased employee was employed by the Bank and the Bank owned a life insurance policy on the employee’s life. Depending on specific facts and circumstances, the payment amount can vary up to a maximum of

$225

thousand per employee and

may

be taxable to the recipient. Neither the employee nor the designated recipient has a claim against the Bank’s life insurance policy on the employee’s life.

Legal Proceedings

We are involved in various pending and threatened legal actions arising in the ordinary course of business and if necessary, we maintain reserves for losses from legal actions, which are both probable and estimable. In our opinion, the disposition of claims currently pending will

not

have a material adverse effect on our financial position or results of operations.

Concentrations of Credit Risk

We grant many loans collateralized by real estate. In our judgment, a concentration exists in real estate related loans, which represented approximately

82%

and

81%

of our gross loan portfolio at

March 31, 2019

and

December 31, 2018,

respectively. We underwrite real estate loans in accordance with loan policies that set underwriting criteria, including property types, loan-to-value limits and minimum debt service coverage ratios. We employ a variety of real estate concentration risk management tools including monitoring of limits on concentration levels, limits by property type and geography, annual property reviews including site visits and portfolio stress testing.

Although we believe such concentrations have

no

more than the normal risk of collectability, a substantial decline in the economy in general, material increases in interest rates, changes in tax policies, tightening credit or refinancing markets, or a decline in real estate values in our principal market areas in particular, could have an adverse impact on the repayment of these loans. Business and personal incomes, cash flows from rental operations, proceeds from the sale of real property, or proceeds from refinancing, represent the primary sources of repayment for a majority of these loans.

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

XML

Note 8 - Leases

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Lessee, Operating Leases [Text Block]

NOTE

8.

LEASES

We lease

nine

sites under non-cancelable operating leases. The leases contain various provisions for increases in rental rates based on predetermined escalation schedules. Substantially all of the leases include the option to extend or terminate the lease term

one

or more times following expiration of the initial term at a rental rate established in the lease. For leases where we are reasonably certain that we will exercise the option to renew the lease, we have recognized those options in our lease asset and liability. We had

no

financing lease arrangements during the current period or the prior year.

We have applied ASC Topic

842

as of

January 1, 2019

and elected the practical expedients package for all of our leases. In accordance with the practical expedients package we were

not

required to reassess whether any expired or existing contracts are or contain leases and

not

to reassess the lease classification for existing or expired leases between operating and finance leases. On

January 1, 2019,

we recorded

$4.4

million in

Other Liabilities

representing the present value of the remaining minimum lease payments and we recorded an offsetting right-of-use asset in

Other Assets

. The present value calculation uses a discount rate, which is based on our incremental borrowing rate. The right-of-use asset was also reduced by

$458

thousand on

January 1, 2019

for amounts recognized previously as part of the single lease cost. The table below presents information regarding our leases as of

March 31, 2019.

(Amounts in thousands)	March 31, 2019
Right-of-use lease asset	$	3,738
Lease liability	$	4,180
Weighted Average Remaining Lease Term (in years)		6.24
Weighted Average Discount Rate		3.00	%

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

	Three Months Ended March 31,
(Amounts in thousands)	2019		2018
Operating lease expense	$	199	$	189
Cash paid for operating leases	$	215	$	207

The following table sets forth, as of

March 31, 2019,

the future minimum lease cash payments under non-cancelable operating leases and a reconciliation of the undiscounted cash flows to the operating lease liability.

(Amounts in thousands)
Amounts due in:
2019	$	650
2020		884
2021		899
2022		807
2023		335
Thereafter		1,033
Total undiscounted future minimum lease cash payments		4,608
Present value adjustment		(428	)
Lease liability	$	4,180

Our election to utilize the practical expedients package did

not

result in the recognition of any additional leases, changes in lease terms, changes in classification or in the assessment of initial direct costs. ASC

842

was applied as a change in accounting principle and did

not

result in any adjustment to equity. The significant judgment made in applying the requirements in ASC Topic

842

is the determination of the incremental borrowing rate for the lease. We used the borrowing rates for terms similar to the lease terms available under our existing line of credit with the Federal Reserve Bank of San Francisco as our incremental borrowing rate.

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Note 9 - Fair Values

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Fair Value Disclosures [Text Block]

NOTE

9.

FAIR VALUES

The following table presents estimated fair values of our financial instruments as of

March 31, 2019

and

December 31, 2018,

whether or

not

recognized or recorded at fair value in the

Consolidated Balance Sheets

. The table indicates the fair value hierarchy of the valuation techniques we utilized to determine such fair value. Non-financial assets and non-financial liabilities defined by the FASB ASC

820,

Fair Value Measurement, such as Bank premises and equipment, deferred taxes and other liabilities are excluded from the table. In addition, we have

not

disclosed the fair value of financial instruments specifically excluded from disclosure requirements of FASB ASC

825,

Financial Instruments, such as bank-owned life insurance policies.

(Amounts in thousands)	Carrying		Fair Value Measurements Using
March 31, 2019	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	62,529	$	62,529	$	—	$	—
Securities available-for-sale	$	294,117	$	—	$	294,117	$	—
Net loans	$	1,024,356	$	—	$	—	$	1,025,425
Federal Home Loan Bank of San Francisco stock	$	7,346	$	7,346	$	—	$	—
Financial liabilities
Deposits	$	1,248,294	$	—	$	1,246,655	$	—
Term debt	$	32,517	$	—	$	32,660	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,636	$	—

(Amounts in thousands)	Carrying		Fair Value Measurements Using
December 31, 2018	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	47,365	$	47,365	$	—	$	—
Securities available-for-sale	$	256,928	$	—	$	256,928	$	—
Net loans	$	935,886	$	—	$	—	$	936,697
Federal Home Loan Bank of San Francisco stock	$	5,892	$	5,892	$	—	$	—
Financial liabilities
Deposits	$	1,131,716	$	—	$	1,129,795	$	—
Term debt	$	13,405	$	—	$	13,323	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,183	$	—

Fair Value Hierarchy

Level

1

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

Level

2

valuations utilize inputs other than quoted prices included in Level

1

that are observable for the asset or liability, either directly or indirectly. Level

2

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

Level

3

 

Valuations are unobservable inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability. Valuation is generated from model-based techniques that use significant assumptions

not

observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include the use of option pricing models, discounted cash flow models and similar techniques.

In certain cases, the inputs used to measure fair value

may

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

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

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

March 31, 2019

and

December 31, 2018.

(Amounts in thousands)	Fair Value at March 31, 2019
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	46,451	$	—	$	46,451	$	—
Obligations of states and political subdivisions		48,935		—		48,935		—
Residential mortgage-backed securities and collateralized mortgage obligations		171,814		—		171,814		—
Corporate securities		2,958		—		2,958		—
Commercial mortgage-backed securities		23,864		—		23,864		—
Other asset-backed securities		95		—		95		—
Total assets measured at fair value	$	294,117	$	—	$	294,117	$	—

(Amounts in thousands)	Fair Value at December 31, 2018
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	40,087	$	—	$	40,087	$	—
Obligations of states and political subdivisions		50,530		—		50,530		—
Residential mortgage-backed securities and collateralized mortgage obligations		138,503		—		138,503		—
Corporate securities		2,922		—		2,922		—
Commercial mortgage-backed securities		24,762		—		24,762		—
Other investment securities		124		—		124		—
Total assets measured at fair value	$	256,928	$	—	$	256,928	$	—

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, we obtain fair value measurements from an independent pricing service. The fair value measurements consider observable data that

may

include dealer quotes, market spreads, cash flows, the U.S. Treasury yield curve, live trading levels, trade execution data, market consensus prepayment speeds, credit information and the bond’s terms and conditions among other things. We have determined that the source of these fair values falls within Level

2

of the fair value hierarchy.

Transfers Between Fair Value Hierarchy Levels

Transfers between levels of the fair value hierarchy are recognized on the actual date of the event or circumstance that caused the transfer. There were

no

transfers between levels of the fair value hierarchy during the

three

months ended

March 31, 2019

or the year ended

December 31, 2018.

Assets and Liabilities Recorded at Fair Value on a Nonrecurring Basis

We

may

be required, from time to time, to measure certain assets at fair value on a nonrecurring basis. These adjustments to fair value generally result from the application of lower of cost or fair value accounting or write-downs of individual assets due to impairment. The following tables present information about our assets and liabilities at

March 31, 2019

and

December 31, 2018

measured at fair value on a nonrecurring basis for which a nonrecurring change in fair value has been recorded during the reporting period.

The amounts disclosed below present the fair values at the time the nonrecurring fair value measurements were made, and

not

necessarily the fair values as of the date reported upon. 

(Amounts in thousands)	Fair Value at March 31, 2019
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	34	$	—	$	—	$	34
Total assets measured at fair value	$	34	$	—	$	—	$	34

(Amounts in thousands)	Fair Value at December 31, 2018
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	31	$	—	$	—	$	31
Total assets measured at fair value	$	31	$	—	$	—	$	31

The following table presents the losses resulting from nonrecurring fair value adjustments for the

three

months ended

March 31, 2019

and

2018

related to assets outstanding at

March 31, 2019

and

2018.

(Amounts in thousands)	Three Months Ended March 31,
Fair value adjustments	2019		2018
Other real estate owned	$	68	$	113
Total	$	68	$	113

During the

three

months ended

March 31, 2019,

four

OREO properties with an aggregate carrying value of

$102

thousand outstanding at period end were written down to their fair value of

$34

thousand, resulting in a

$68

thousand adjustment to the ALLL.

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 based on recent appraisals of the foreclosed properties, which take into account recent sales prices adjusted for unobservable inputs, such as opinions provided by local real estate brokers and other real estate experts. OREO fair values are adjusted for estimated selling costs that are based off the adjusted fair value and are between

44%

and

46%.

We record OREO as a nonrecurring Level

3

fair value.

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, our entire holdings of a particular financial instrument. Because

no

market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature, involve uncertainties and matters of significant judgment, and therefore cannot be determined with precision. Changes in assumptions could significantly affect the estimates.

Fair value estimates are based 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. 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 10 - Acquisition

3 Months Ended

Mar. 31, 2019

Notes to Financial Statements

Mergers, Acquisitions and Dispositions Disclosures [Text Block]

NOTE

10.

ACQUISITION

On

January 31, 2019,

we completed the acquisition of Merchants Holding Company (“Merchants”), to extend our presence in the Sacramento marketplace. Merchants, headquartered in Sacramento, California, was the parent company of Merchants National Bank of Sacramento (“Merchants Bank”), a

97

-year-old bank with approximately

$211.7

million in assets as of

January 31, 2019.

Merchants operated

one

full service branch and

one

limited service branch in the Sacramento metropolitan area.

We paid

$15.3

million in cash and issued

1,834,142

shares of common stock to Merchants shareholders who now hold, in the aggregate, approximately

10%

of our outstanding common stock. One former member of the Merchants board now serves on our board of directors. The acquisition, after fair value adjustments added

$85.3

million in loans,

$190.2

million in deposits and

$107.4

million in investment securities to our bank as of

January 31, 2019.

The acquisition of Merchants constituted a business combination and has been accounted for using the acquisition method of accounting. The assets acquired and liabilities assumed, both tangible and intangible, were recorded at their fair values as of the acquisition date in accordance with ASC

805,

Business Combinations. Due to the timing of the acquisition, fair values related to loans, deferred tax assets, other assets and other liabilities are preliminary and subject to refinement as additional information regarding the closing date fair values becomes available. The Bank engaged

third

party specialists to assist in valuing certain assets, including investment securities, loans, real estate and the core deposit intangible that resulted from the acquisition. The acquisition was treated as a "reorganization" within the definition of section

368

(a) of the Internal Revenue Code and is generally considered tax-free for U.S. federal income tax purposes.

The preliminary calculation of goodwill recorded during the

first

quarter of

2019

is detailed below.

	As Recorded by			Preliminary Fair Value
	Merchants			And Other Acquisition			As Recorded by
(Amounts in thousands)	Holding Company			Related Adjustments			the Company
Consideration paid:
Cash							$	15,300
Stock 1,834,142 shares at $10.69 per share								19,607
Total consideration							$	34,907
Assets acquired:
Cash and fed funds sold	$	12,425		$	—		$	12,425
Investment securities		107,931			(551	)		107,380
Loans, gross		87,570			(2,292	)		85,278
Allowance for loan and lease losses		(1,286	)		1,286			—
Interest receivable		688			—			688
Premises and equipment, net		378			1,856			2,234
Deferred tax assets, net		1,374			(1,287	)		87
Federal Home Loan Bank of San Francisco stock		1,454			—			1,454
Life insurance		755			—			755
Other assets		371			(10	)		361
Core deposit intangible		—			4,353			4,353
Total assets acquired	$	211,660		$	3,355		$	215,015
Liabilities assumed:
Demand, money market and savings	$	152,213		$	—		$	152,213
Certificates of deposit		38,003			—			38,003
Total deposits		190,216			—			190,216
Other liabilities		916			21			937
Total liabilities assumed	$	191,132		$	21		$	191,153
Net identifiable assets acquired over liabilities assumed	$	20,528		$	3,334		$	23,862
Goodwill							$	11,045

Goodwill

As a result of the Merchants acquisition, we have recorded a provisional amount of goodwill totaling

$11.0

million, which represents the excess of the total purchase price paid over the fair value of the assets acquired, net of the fair values of liabilities assumed. The goodwill recorded is preliminary and subject to refinement as additional information regarding the closing date fair values becomes available. We are in the process of obtaining and reviewing valuation reports for the acquired loans and completing the final federal and state income tax returns for Merchants. We also expect that there

may

be additional fair value adjustments to the other assets and other liabilities as work to finalize the entries to record the transaction. Goodwill is amortized over

15

years for tax purposes.

Goodwill reflects the expected value of Merchants reputation in the community, stable customer base and expected synergies created through the combined operations with our company.

The following is a description of the methods used to determine the fair values of significant assets and liabilities whose fair values are different from their carrying amounts on Merchants' books at acquisition date presented above.

Investment Securities

Fair values for securities were obtained from an independent pricing service and are based on quoted market prices, where available. If quoted market prices were

not

available, fair value estimates were based on observable inputs including quoted market prices for similar instruments, quoted market prices that are

not

in an active market, other inputs that are observable in the market or a discounted cash flow model.

Loans

We engaged a

third

party to assist us in determining the fair values for the loans acquired from Merchants based upon the present values of the expected cash flows and market-derived discount rates. There were

no

loans acquired with evidence of deterioration of credit quality since origination for which we believe it is probable that we will be unable to collect all contractually required payments receivable. The amounts recognized for loans have been determined only provisionally. We expect to complete the process of evaluating the fair value of the acquired loans during the

second

quarter of

2019.

Premises and Equipment

We engaged an independent licensed appraiser to determine the fair value of the acquired branch located in Sacramento. The fair value of tangible personal property was

not

material.

Deferred Tax Assets

The deferred income tax assets are recorded to reflect the differences in the carrying values of the acquired assets and liabilities for financial reporting purposes and the basis for federal income tax purposes at the Company’s statutory federal and state income tax rate. The amounts recognized for deferred tax assets have been determined only provisionally, and will

not

be finalized until the

2018

and

2019

tax returns for Merchants have been completed which we expect in the

second

quarter of

2019.

Core Deposit Intangible

We recorded a core deposit intangible asset of

$4.4

million for the deposits acquired in the Merchants acquisition during the

first

quarter of

2019.

The core deposit intangible represents the estimated future benefits of acquired deposits and is booked separately from the related deposits. The value of the core deposit intangible asset was determined using a discounted cash flow approach to arrive at the cost differential between the core deposits (nonmaturity deposits such as transaction, savings and money market accounts) and alternative funding sources. It was calculated as the present value of the difference in cash flows between maintaining the core deposits (interest and net maintenance costs) and the cost of an equal amount of funds with a similar term from an alternative source. The core deposit intangible is amortized on an straight line basis over an estimated

eight

-year life, and is evaluated periodically for impairment.

No

impairment loss was recognized in

2019.

We recorded amortization of the core deposit intangible totaling

$91

thousand for the

three

months ended

March 31, 2019.

The future estimated amortization expense on the CDI from the Merchants acquisition at

March 31, 2019

is as follows:

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Core deposit intangible amortization	$	408	$	544	$	544	$	544	$	544	$	1,678	$	4,262

Pro Forma Results of Operations

The following table presents pro forma information of the combined entity as if the acquisition occurred on

January 1, 2018.

The pro forma information does

not

necessarily reflect the results of operations that would have resulted had the acquisition been completed at the beginning of the periods presented, nor is it indicative of the results of operations in future periods. Furthermore, cost savings and other business synergies related to the acquisition are

not

reflected in the pro forma amounts.

	For the Three Months Ended
Pro forma revenue and earnings	March 31,
(Amounts in thousands)	2019		2018
Net interest income	$	13,199	$	12,674
Net income (1)	$	2,269	$	3,592

(

1

)

Net income for the

three

months ended

March 31, 2019

includes acquisition-related costs of

$1.9

million.

We recorded net interest income related to Merchants of approximately

$940

thousand in our

Consolidated Statement of Income

from the

January 31, 2019

acquisition date to

March 31, 2019.

It is impracticable to separately provide information regarding the amount of net income from Merchants included in our

Consolidated Statement of Income

because the operations of Merchants were substantially comingled with the operations of the Company as of the acquisition date.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2019

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Bank of Commerce Holdings (“Company,” “Holding Company,” “we,” or “us”), is a corporation organized under the laws of California and a bank holding company (“BHC”) registered under the Bank Holding Company Act of

1956,

as amended (“BHC Act”) with its principal offices in Sacramento, California. The Holding Company’s principal business is to serve as a holding company for Redding Bank of Commerce (the “Bank” and together with the Holding Company, the “Company”) which operates under

three

separate names (Redding Bank of Commerce, Sacramento Bank of Commerce, a division of Redding Bank of Commerce and Merchants Bank of Sacramento, a division of Redding Bank of Commerce) and for Bank of Commerce Mortgage (inactive). The Company has an unconsolidated subsidiary in Bank of Commerce Holdings Trust II. The

Consolidated Balance Sheets

as of

March 31, 2019

and

December 31, 2018

are derived from the unaudited interim consolidated financial statements and audited consolidated financial statements and have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and note disclosures normally included in annual consolidated financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to those rules and regulations. The Company believes that all adjustments (all of which are normal and recurring in nature) considered necessary for a fair presentation have been included and the disclosures made are adequate to make the information

not

misleading.

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and with prevailing practices within the banking and securities industries. In preparing such consolidated financial statements, management is required to make certain estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the Balance Sheets and the reported amounts of revenues and expenses for the reporting periods. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change relate to the valuation and impairment of investment securities, the determination of the allowance for loan and lease losses (“ALLL”), income taxes, the valuation of goodwill and Other Real Estate Owned (“OREO”), and fair value measurements. Certain amounts for prior periods have been reclassified to conform to the current financial statement presentation. The results of reclassifications are

not

considered material and have

no

effect on previously reported net income or shareholders' equity. The accompanying unaudited consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes contained in Bank of Commerce Holdings

2018

Annual Report on Form

10

-K. The consolidated results of operations and cash flows for the

2019

interim period shown in this report is

not

necessarily indicative of the results for any future interim period or the entire fiscal year.

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

March 31, 2019

and

December 31, 2018,

the Company had

one

wholly-owned trust formed in

2005

to issue trust preferred securities and related common securities. We have

not

consolidated the accounts of the Trust in our Consolidated Financial Statements in accordance with Financial Accounting Standards Board Accounting Standards Codification (“FASB”),

Consolidation

(“ASC

810”

). We are

not

considered the primary beneficiary of the Trust (variable interest entity). As a result, the junior subordinated debentures issuedby the Holding Company to the Trust are reflected on the Company’s

Consolidated Balance Sheets

.

Lessee, Leases [Policy Text Block]

Leases

We determine if an arrangement is a lease at inception. Operating leases are included in

Other Assets

and

Other Liabilities

in our

Consolidated Balance Sheets

. Operating lease right-of-use assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As most of our leases do

not

provide an incremental borrowing rate we use the borrowing rates for terms similar to the lease terms available under our existing line of credit with the Federal Reserve Bank of San Francisco as our incremental borrowing rate in determining the present value of future payments. Our lease terms

may

include options to extend or terminate the lease which we recognize when it is reasonably certain that we will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

New Accounting Pronouncements, Policy [Policy Text Block]

Application of new accounting guidance

ASU

No.

2016

-

02

Description - In

February

of

2016,

the FASB issued ASU

No.

2016

-

02,

Leases (Topic

842

)

. This Update was issued to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements on a retrospective basis. The core principle of Topic

842

is that a lessee should recognize the assets and liabilities that arise from leases. All leases create an asset and a liability for the lessee in accordance with FASB Concepts Statement

No.

6,

Elements of Financial Statements, and, therefore, recognition of those lease assets and lease liabilities represents an improvement over previous GAAP, which did

not

require lease assets and lease liabilities to be recognized for most leases.

Methods and timing of adoption – For public companies, the amendments in this update are effective for fiscal years beginning after

December 15, 2018,

including interim periods within those fiscal years. In

July

of

2018,

the FASB issued ASU

No.

2018

-

11,

Leases (Topic

842

)

. The standard contained improvements to ASU

No.

2016

-

02

that permited presentation on a prospective basis.

Financial statement impact – We implemented the new leasing standard on

January 1, 2019

on a prospective basis and recorded a new lease asset and related lease liability of approximately

$4.4

million related to our current operating leases. The right-of-use asset was also reduced by

$458

 thousand for amounts recognized previously as part of the single lease cost.

XML

Note 2 - Common Stock Outstanding and Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	For the Three Months Ended
(Amounts in thousands, except per share information)	March 31,
Earnings Per Share	2019		2018
Numerators:
Net income	$	2,306	$	3,241
Denominators:
Weighted average number of common shares outstanding - basic (1)		17,489		16,225
Effect of potentially dilutive common shares (2)		63		85
Weighted average number of common shares outstanding - diluted		17,552		16,310
Earnings per common share:
Basic	$	0.13	$	0.20
Diluted	$	0.13	$	0.20
Anti-dilutive options not included in diluted earnings per share calculation		—		—
Anti-dilutive restricted shares not included in diluted earnings per share calculation		—		42

XML

Note 3 - Securities (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	As of March 31, 2019
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	46,264	$	316	$	(129	)	$	46,451
Obligations of state and political subdivisions		48,066		1,146		(277	)		48,935
Residential mortgage-backed securities and collateralized mortgage obligations		173,098		950		(2,234	)		171,814
Corporate securities		3,018		—		(60	)		2,958
Commercial mortgage-backed securities		24,277		32		(445	)		23,864
Other asset-backed securities		95		—		—			95
Total	$	294,818	$	2,444	$	(3,145	)	$	294,117

	As of December 31, 2018
			Gross		Gross
	Amortized		Unrealized		Unrealized			Estimated
(Amounts in thousands)	Cost		Gain		Loss			Fair Value
Available-for-sale securities:
U.S. government & agencies	$	40,215	$	202	$	(330	)	$	40,087
Obligations of state and political subdivisions		50,037		1,082		(589	)		50,530
Residential mortgage-backed securities and collateralized mortgage obligations		142,355		129		(3,981	)		138,503
Corporate securities		3,022		—		(100	)		2,922
Commercial mortgage-backed securities		25,446		17		(701	)		24,762
Other asset-backed securities		123		1		—			124
Total	$	261,198	$	1,431	$	(5,701	)	$	256,928

Amortized Cost and Estimated Fair Value Available for Sale Securities [Table Text Block]

	Available-For-Sale
(Amounts in thousands)	Amortized Cost		Fair Value
Amounts maturing in:
One year or less	$	1,379	$	1,384
After one year through five years		102,007		102,065
After five years through ten years		110,636		110,180
After ten years		80,796		80,488
Total	$	294,818	$	294,117

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

	Three Months Ended March 31,
(Amounts in thousands)	2019			2018
Proceeds from sales of investment securities	$	67,402		$	19,398
Gross realized gains on sales of investment securities:
U.S. government & agencies	$	33		$	—
Obligations of state and political subdivisions		181			152
Residential mortgage-backed securities and collateralized mortgage obligations		47			—
Total gross realized gains on sales of investment securities		261			152
Gross realized losses on sales of investment securities:
U.S. government & agencies		(4	)		—
Obligations of state and political subdivisions		(77	)		(71	)
Residential mortgage-backed securities and collateralized mortgage obligations		(86	)		—
Commercial mortgage-backed securities		(2	)		—
Other asset-backed securities		—			(45	)
Total gross realized losses on sales of investment securities		(169	)		(116	)
Gain on sales of investment securities, net	$	92		$	36

Schedule of Unrealized Loss on Investments [Table Text Block]

	As of March 31, 2019
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Losses			Value		Losses			Value		Losses
Available-for-sale securities:
U.S. government & agencies	$	2,846	$	(21	)	$	13,045	$	(108	)	$	15,891	$	(129	)
Obligations of states and political subdivisions		1,718		(18	)		10,347		(259	)		12,065		(277	)
Residential mortgage-backed securities and collateralized mortgage obligations		2,918		(12	)		95,998		(2,222	)		98,916		(2,234	)
Corporate securities		—		—			2,958		(60	)		2,958		(60	)
Commercial mortgage-backed securities		896		(8	)		20,012		(437	)		20,908		(445	)
Total temporarily impaired securities	$	8,378	$	(59	)	$	142,360	$	(3,086	)	$	150,738	$	(3,145	)

	As of December 31, 2018
	Less Than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
(Amounts in thousands)	Value		Loss			Value		Loss			Value		Loss
Available-for-sale securities:
U.S. government & agencies	$	7,223	$	(39	)	$	12,274	$	(291	)	$	19,497	$	(330	)
Obligations of states and political subdivisions		5,545		(40	)		16,320		(549	)		21,865		(589	)
Residential mortgage-backed securities and collateralized mortgage obligations		21,791		(183	)		93,038		(3,798	)		114,829		(3,981	)
Corporate securities		—		—			2,922		(100	)		2,922		(100	)
Commercial mortgage-backed securities		1,548		(7	)		20,176		(694	)		21,724		(701	)
Total temporarily impaired securities	$	36,107	$	(269	)	$	144,730	$	(5,432	)	$	180,837	$	(5,701	)

XML

Note 4 - Loans (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Outstanding Loan Balances [Table Text Block]

(Amounts in thousands)	March 31,			December 31,
Loan Portfolio	2019			2018
Commercial	$	149,575		$	135,543
Commercial real estate:
Real estate - construction and land development		30,335			22,563
Real estate - commercial non-owner occupied		469,048			433,708
Real estate - commercial owner occupied		209,099			204,622
Residential real estate:
Real estate - residential - Individual Tax Identification Number (“ITIN”)		36,145			37,446
Real estate - residential - 1-4 family mortgage		68,092			34,366
Real estate - residential - equity lines		26,162			26,958
Consumer and other		46,150			51,045
Gross loans		1,034,606			946,251
Deferred fees and costs		1,992			1,927
Loans, net of deferred fees and costs		1,036,598			948,178
Allowance for loan and lease losses		(12,242	)		(12,292	)
Net loans	$	1,024,356		$	935,886

Financing Receivable, Past Due [Table Text Block]

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
March 31, 2019	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	190	$	47	$	—	$	237	$	149,338	$	149,575	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		30,335		30,335		—
Real estate - commercial non-owner occupied		—		—		10,878		10,878		458,170		469,048		—
Real estate - commercial owner occupied		—		—		—		—		209,099		209,099		—
Residential real estate:
Real estate - residential - ITIN		465		191		170		826		35,319		36,145		—
Real estate - residential - 1-4 family mortgage		—		—		—		—		68,092		68,092		—
Real estate - residential - equity lines		78		—		—		78		26,084		26,162		—
Consumer and other		152		102		—		254		45,896		46,150		—
Total	$	885	$	340	$	11,048	$	12,273	$	1,022,333	$	1,034,606	$	—

(Amounts in thousands)	30-59		60-89		90 or Greater								Recorded Investment >
Past Due Loans at	Days Past		Days Past		Days Past		Total Past						90 Days and
December 31, 2018	Due		Due		Due		Due		Current		Total		Accruing
Commercial	$	—	$	—	$	—	$	—	$	135,543	$	135,543	$	—
Commercial real estate:
Real estate - construction and land development		—		—		—		—		22,563		22,563		—
Real estate - commercial non-owner occupied		10,878		—		548		11,426		422,282		433,708		—
Real estate - commercial owner occupied		688		—		—		688		203,934		204,622		—
Residential real estate:
Real estate - residential - ITIN		184		279		259		722		36,724		37,446		—
Real estate - residential - 1-4 family mortgage		—		—		185		185		34,181		34,366		—
Real estate - residential - equity lines		90		—		—		90		26,868		26,958		—
Consumer and other		534		263		—		797		50,248		51,045		—
Total	$	12,374	$	542	$	992	$	13,908	$	932,343	$	946,251	$	—

Schedule of Credit Losses Related to Financing Receivables, Current and Noncurrent 1 [Table Text Block]

(Amounts in thousands)	March 31,		December 31,
Nonaccrual Loans	2019		2018
Commercial	$	1,018	$	959
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		548
Residential real estate:
Real estate - residential - ITIN		2,392		2,388
Real estate - residential - 1-4 family mortgage		182		185
Real estate - residential - equity lines		42		43
Consumer and other		23		23
Total	$	14,535	$	4,146

Impaired Financing Receivables [Table Text Block]

	As of March 31, 2019
			Unpaid
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	47	$	65	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		10,878		10,878		—
Residential real estate:
Real estate - residential - ITIN		5,962		7,534		—
Real estate - residential - 1-4 family mortgage		182		221		—
Real estate - residential - equity lines		42		48		—
Total with no related allowance recorded	$	17,111	$	18,746	$	—
With an allowance recorded:
Commercial	$	2,158	$	2,299	$	923
Commercial real estate:
Real estate - commercial non-owner occupied		793		793		169
Residential real estate:
Real estate - residential - ITIN		772		810		88
Real estate - residential - equity lines		358		358		179
Consumer and other		23		23		7
Total with an allowance recorded	$	4,104	$	4,283	$	1,366
By loan portfolio:
Commercial	$	2,205	$	2,364	$	923
Commercial real estate		11,671		11,671		169
Residential real estate		7,316		8,971		267
Consumer and other		23		23		7
Total impaired loans	$	21,215	$	23,029	$	1,366

	As of December 31, 2018
(Amounts in thousands)	Recorded		Principal		Related
Impaired Loans	Investment		Balance		Allowance
With no related allowance recorded:
Commercial	$	51	$	69	$	—
Commercial real estate:
Real estate - commercial non-owner occupied		548		548		—
Residential real estate:
Real estate - residential - ITIN		6,138		7,676		—
Real estate - residential - 1-4 family mortgage		185		223		—
Real estate - residential - equity lines		43		48		—
Total with no related allowance recorded	$	6,965	$	8,564	$	—
With an allowance recorded:
Commercial	$	2,132	$	2,256	$	748
Commercial real estate:
Real estate - commercial non-owner occupied		795		795		209
Residential real estate:
Real estate - residential - ITIN		734		772		91
Real estate - residential - equity lines		363		363		182
Consumer and other		23		23		7
Total with an allowance recorded	$	4,047	$	4,209	$	1,237
By loan portfolio:
Commercial	$	2,183	$	2,325	$	748
Commercial real estate		1,343		1,343		209
Residential real estate		7,463		9,082		273
Consumer and other		23		23		7
Total impaired loans	$	11,012	$	12,773	$	1,237

Average Recorded Investment and Interest Income Recognized on Impaired Loans by Loan Class [Table Text Block]

	Three Months Ended				Three Months Ended
	March 31, 2019				March 31, 2018
	Average		Interest		Average		Interest
(Amounts in thousands)	Recorded		Income		Recorded		Income
Average Recorded Investment and Interest Income	Investment		Recognized		Investment		Recognized
Commercial	$	2,021	$	17	$	2,589	$	21
Commercial real estate:
Real estate - commercial non-owner occupied		8,412		11		802		11
Residential real estate:
Real estate - residential - ITIN		6,874		42		7,425		41
Real estate - residential - 1-4 family mortgage		184		—		326		—
Real estate - residential - equity lines		401		5		422		5
Consumer and other		23		—		35		—
Total	$	17,915	$	75	$	11,599	$	78

Financing Receivable Credit Quality Indicators [Table Text Block]

(Amounts in thousands)	March 31, 2019
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	148,557	$	1,018	$	149,575
Commercial real estate:
Real estate - construction and land development		30,335		—		30,335
Real estate - commercial non-owner occupied		458,170		10,878		469,048
Real estate - commercial owner occupied		209,099		—		209,099
Residential real estate:
Real estate - residential - ITIN		33,753		2,392		36,145
Real estate - residential - 1-4 family mortgage		67,910		182		68,092
Real estate - residential - equity lines		26,120		42		26,162
Consumer and other		46,127		23		46,150
Total	$	1,020,071	$	14,535	$	1,034,606

(Amounts in thousands)	December 31, 2018
Performing and Nonperforming Loans	Performing		Nonperforming		Total
Commercial	$	134,584	$	959	$	135,543
Commercial real estate:
Real estate - construction and land development		22,563		—		22,563
Real estate - commercial non-owner occupied		433,160		548		433,708
Real estate - commercial owner occupied		204,622		—		204,622
Residential real estate:
Real estate - residential - ITIN		35,058		2,388		37,446
Real estate - residential - 1-4 family mortgage		34,181		185		34,366
Real estate - residential - equity lines		26,915		43		26,958
Consumer and other		51,022		23		51,045
Total	$	942,105	$	4,146	$	946,251

Financing Receivable Credit Quality Indicator [Table Text Block]

	As of March 31, 2019
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	136,434	$	10,297	$	541	$	2,303	$	—	$	149,575
Commercial real estate:
Real estate - construction and land development		30,312		23		—		—		—		30,335
Real estate - commercial non-owner occupied		445,151		10,729		—		13,168		—		469,048
Real estate - commercial owner occupied		194,043		4,706		—		10,350		—		209,099
Residential real estate:
Real estate - residential - ITIN		30,674		—		—		5,471		—		36,145
Real estate - residential - 1-4 family mortgage		66,350		1,083		477		182		—		68,092
Real estate - residential - equity lines		25,865		106		—		191		—		26,162
Consumer and other		46,122		—		—		28		—		46,150
Total	$	974,951	$	26,944	$	1,018	$	31,693	$	—	$	1,034,606

	As of December 31, 2018
					Special
(Amounts in thousands)	Pass		Watch		Mention		Substandard		Doubtful		Total
Commercial	$	118,643	$	15,247	$	—	$	1,653	$	—	$	135,543
Commercial real estate:
Real estate - construction and land development		22,539		24		—		—		—		22,563
Real estate - commercial non-owner occupied		409,157		21,698		—		2,853		—		433,708
Real estate - commercial owner occupied		179,154		14,075		—		11,393		—		204,622
Residential real estate:
Real estate - residential - ITIN		31,805		—		—		5,641		—		37,446
Real estate - residential - 1-4 family mortgage		33,388		793		—		185		—		34,366
Real estate - residential - equity lines		25,336		1,313		—		309		—		26,958
Consumer and other		51,016		—		—		29		—		51,045
Total	$	871,038	$	53,150	$	—	$	22,063	$	—	$	946,251

Financing Receivable, Allowance for Credit Loss [Table Text Block]

	For the Three Months Ended March 31, 2019
(Amounts in thousands)			Commercial			Residential
ALLL by Loan Portfolio	Commercial		Real Estate			Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,205	$	7,116		$	1,173		$	1,356		$	442	$	12,292
Charge-offs		—		—			(68	)		(280	)		—		(348	)
Recoveries		153		—			82			63			—		298
Provision		121		(160	)		24			(83	)		98		—
Ending balance	$	2,479	$	6,956		$	1,211		$	1,056		$	540	$	12,242

	For the Three Months Ended March 31, 2018
(Amounts in thousands)				Commercial		Residential
ALLL by Loan Portfolio	Commercial			Real Estate		Real Estate			Consumer			Unallocated		Total
Beginning balance	$	2,397		$	6,514	$	1,169		$	1,435		$	410	$	11,925
Charge-offs		—			—		(114	)		(276	)		—		(390	)
Recoveries		453			—		246			61			—		760
Provision		(552	)		384		(152	)		253			67		—
Ending balance	$	2,298		$	6,898	$	1,149		$	1,473		$	477	$	12,295

	As of March 31, 2019
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	923	$	169	$	267	$	7	$	—	$	1,366
Collectively evaluated for impairment		1,556		6,787		944		1,049		540		10,876
Total	$	2,479	$	6,956	$	1,211	$	1,056	$	540	$	12,242
Gross loans:
Individually evaluated for impairment	$	2,205	$	11,671	$	7,316	$	23	$	—	$	21,215
Collectively evaluated for impairment		147,370		696,811		123,083		46,127		—		1,013,391
Total gross loans	$	149,575	$	708,482	$	130,399	$	46,150	$	—	$	1,034,606

	As of December 31, 2018
			Commercial		Residential
(Amounts in thousands)	Commercial		Real Estate		Real Estate		Consumer		Unallocated		Total
ALLL:
Individually evaluated for impairment	$	748	$	209	$	273	$	7	$	—	$	1,237
Collectively evaluated for impairment		1,457		6,907		900		1,349		442		11,055
Total	$	2,205	$	7,116	$	1,173	$	1,356	$	442	$	12,292
Gross loans:
Individually evaluated for impairment	$	2,183	$	1,343	$	7,463	$	23	$	—	$	11,012
Collectively evaluated for impairment		133,360		659,550		91,307		51,022		—		935,239
Total gross loans	$	135,543	$	660,893	$	98,770	$	51,045	$	—	$	946,251

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Note 5 - Qualified Affordable Housing Partnership Investments (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

	At March 31, 2019						For the Three Months Ended March 31, 2019
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	977	$	28	$	50	$	45	$	5
WNC Institutional Tax Credit Fund 38, L.P.		1,000		467		—		27		23		4
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,215		315		56		55		1
California Affordable Housing Fund		2,454		229		—		6		9		(3	)
Total	$	7,954	$	2,888	$	343	$	139	$	132	$	7

	At December 31, 2018						For the Three Months Ended March 31, 2018
(Amounts in thousands)	Original		Current		Unfunded		Tax Credits		Amortization		Net
Qualified Affordable Housing	Investment		Recorded		Liability		and		of		Income Tax
Partnerships	Value		Investment		Obligation		Benefits		Investments		Benefit (Expense)
Raymond James California Housing Opportunities Fund II	$	2,000	$	1,022	$	28	$	50	$	44	$	6
WNC Institutional Tax Credit Fund 38, L.P.		1,000		489		—		32		26		6
Merritt Community Capital Corporation Fund XV, L.P.		2,500		1,270		315		56		56		—
California Affordable Housing Fund		2,454		239		—		8		12		(4	)
Total	$	7,954	$	3,020	$	343	$	146	$	138	$	8

Qualified Affordable Housing Project Investments Tax Credits and Benefits [Table Text Block]

	For the Three Months Ended
	March 31, 2019				March 31, 2018
(Amounts in thousands)	Generated		Tax Benefits From		Generated		Tax Benefits from
Qualified Affordable Housing Partnerships	Tax Credits		Taxable Losses		Tax Credits		Taxable Losses
Raymond James California Housing Opportunities Fund II	$	43	$	7	$	43	$	7
WNC Institutional Tax Credit Fund 38, L.P.		23		4		28		4
Merritt Community Capital Corporation Fund XV, L.P.		48		8		48		8
California Affordable Housing Fund		—		6		1		7
Total	$	114	$	25	$	120	$	26

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

(Amounts in thousands) Qualified Affordable Housing Partnerships: Anticipated net income tax benefit (expense) less amortization of investments	Raymond James California Housing Opportunities Fund II		WNC Institutional Tax Credit Fund 38, L.P.		Merritt Community Capital Corporation Fund XV, L.P		California Affordable Housing Fund			Total Net Income Tax Benefit
2019	$	14	$	13	$	3	$	(10	)	$	20
2020		19		17		4		(14	)		26
2021		19		16		4		(14	)		25
2022		19		14		3		(13	)		23
2023 and thereafter		33		27		6		(32	)		34
Total	$	104	$	87	$	20	$	(83	)	$	128

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Note 6 - Term Debt (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

(Amounts in thousands)	March 31, 2019			December 31, 2018
Federal Home Loan Bank of San Francisco borrowings	$	20,000		$	—
Senior debt		2,596			3,496
Unamortized debt issuance costs		(1	)		(2	)
Subordinated debt		10,000			10,000
Unamortized debt issuance costs		(78	)		(89	)
Net term debt	$	32,517		$	13,405

Schedule of Maturities of Long-term Debt [Table Text Block]

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Federal Home Loan Bank of San Francisco borrowings	$	20,000	$	—	$	—	$	—	$	—	$	—	$	20,000
Senior debt		750		1,846		—		—		—		—		2,596
Subordinated debt		—		—		—		—		—		10,000		10,000
Total future maturities	$	20,750	$	1,846	$	—	$	—	$	—	$	10,000	$	32,596

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Note 7 - Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Commitments and Contingent Liabilities [Table Text Block]

(Amounts in thousands)	March 31, 2019		December 31, 2018
Commitments to extend credit	$	213,122	$	223,882
Standby letters of credit		4,218		8,548
Affordable housing grants		3,338		3,338
Total commitments and contingent liabilities	$	220,678	$	235,768

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Note 8 - Leases (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Lease, Cost [Table Text Block]

(Amounts in thousands)	March 31, 2019
Right-of-use lease asset	$	3,738
Lease liability	$	4,180
Weighted Average Remaining Lease Term (in years)		6.24
Weighted Average Discount Rate		3.00	%

	Three Months Ended March 31,
(Amounts in thousands)	2019		2018
Operating lease expense	$	199	$	189
Cash paid for operating leases	$	215	$	207

Lessee, Operating Lease, Liability, Maturity [Table Text Block]

(Amounts in thousands)
Amounts due in:
2019	$	650
2020		884
2021		899
2022		807
2023		335
Thereafter		1,033
Total undiscounted future minimum lease cash payments		4,608
Present value adjustment		(428	)
Lease liability	$	4,180

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Note 9 - Fair Values (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

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

(Amounts in thousands)	Carrying		Fair Value Measurements Using
March 31, 2019	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	62,529	$	62,529	$	—	$	—
Securities available-for-sale	$	294,117	$	—	$	294,117	$	—
Net loans	$	1,024,356	$	—	$	—	$	1,025,425
Federal Home Loan Bank of San Francisco stock	$	7,346	$	7,346	$	—	$	—
Financial liabilities
Deposits	$	1,248,294	$	—	$	1,246,655	$	—
Term debt	$	32,517	$	—	$	32,660	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,636	$	—

(Amounts in thousands)	Carrying		Fair Value Measurements Using
December 31, 2018	Amounts		Level 1		Level 2		Level 3
Financial assets
Cash and cash equivalents	$	47,365	$	47,365	$	—	$	—
Securities available-for-sale	$	256,928	$	—	$	256,928	$	—
Net loans	$	935,886	$	—	$	—	$	936,697
Federal Home Loan Bank of San Francisco stock	$	5,892	$	5,892	$	—	$	—
Financial liabilities
Deposits	$	1,131,716	$	—	$	1,129,795	$	—
Term debt	$	13,405	$	—	$	13,323	$	—
Junior subordinated debenture	$	10,310	$	—	$	14,183	$	—

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis [Table Text Block]

(Amounts in thousands)	Fair Value at March 31, 2019
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	46,451	$	—	$	46,451	$	—
Obligations of states and political subdivisions		48,935		—		48,935		—
Residential mortgage-backed securities and collateralized mortgage obligations		171,814		—		171,814		—
Corporate securities		2,958		—		2,958		—
Commercial mortgage-backed securities		23,864		—		23,864		—
Other asset-backed securities		95		—		95		—
Total assets measured at fair value	$	294,117	$	—	$	294,117	$	—

(Amounts in thousands)	Fair Value at December 31, 2018
Recurring Basis	Total		Level 1		Level 2		Level 3
Available-for-sale securities
U.S. government and agencies	$	40,087	$	—	$	40,087	$	—
Obligations of states and political subdivisions		50,530		—		50,530		—
Residential mortgage-backed securities and collateralized mortgage obligations		138,503		—		138,503		—
Corporate securities		2,922		—		2,922		—
Commercial mortgage-backed securities		24,762		—		24,762		—
Other investment securities		124		—		124		—
Total assets measured at fair value	$	256,928	$	—	$	256,928	$	—

Fair Value Measurements, Nonrecurring [Table Text Block]

(Amounts in thousands)	Fair Value at March 31, 2019
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	34	$	—	$	—	$	34
Total assets measured at fair value	$	34	$	—	$	—	$	34

(Amounts in thousands)	Fair Value at December 31, 2018
Nonrecurring basis	Total		Level 1		Level 2		Level 3
Other real estate owned	$	31	$	—	$	—	$	31
Total assets measured at fair value	$	31	$	—	$	—	$	31

Loss from Nonrecurring Fair Value [Table Text Block]

(Amounts in thousands)	Three Months Ended March 31,
Fair value adjustments	2019		2018
Other real estate owned	$	68	$	113
Total	$	68	$	113

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Note 10 - Acquisition (Tables)

3 Months Ended

Mar. 31, 2019

Notes Tables

Schedule of Recognized Identified Assets Acquired and Liabilities Assumed [Table Text Block]

	As Recorded by			Preliminary Fair Value
	Merchants			And Other Acquisition			As Recorded by
(Amounts in thousands)	Holding Company			Related Adjustments			the Company
Consideration paid:
Cash							$	15,300
Stock 1,834,142 shares at $10.69 per share								19,607
Total consideration							$	34,907
Assets acquired:
Cash and fed funds sold	$	12,425		$	—		$	12,425
Investment securities		107,931			(551	)		107,380
Loans, gross		87,570			(2,292	)		85,278
Allowance for loan and lease losses		(1,286	)		1,286			—
Interest receivable		688			—			688
Premises and equipment, net		378			1,856			2,234
Deferred tax assets, net		1,374			(1,287	)		87
Federal Home Loan Bank of San Francisco stock		1,454			—			1,454
Life insurance		755			—			755
Other assets		371			(10	)		361
Core deposit intangible		—			4,353			4,353
Total assets acquired	$	211,660		$	3,355		$	215,015
Liabilities assumed:
Demand, money market and savings	$	152,213		$	—		$	152,213
Certificates of deposit		38,003			—			38,003
Total deposits		190,216			—			190,216
Other liabilities		916			21			937
Total liabilities assumed	$	191,132		$	21		$	191,153
Net identifiable assets acquired over liabilities assumed	$	20,528		$	3,334		$	23,862
Goodwill							$	11,045

Business Acquisition, Pro Forma Information [Table Text Block]

	For the Three Months Ended
Pro forma revenue and earnings	March 31,
(Amounts in thousands)	2019		2018
Net interest income	$	13,199	$	12,674
Net income (1)	$	2,269	$	3,592

Merchants Holding Company [Member]

Notes Tables

Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block]

(Amounts in thousands)	2019		2020		2021		2022		2023		Thereafter		Total
Core deposit intangible amortization	$	408	$	544	$	544	$	544	$	544	$	1,678	$	4,262

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Note 1 - Summary of Significant Accounting Policies (Details Textual) $ in Thousands	Jan. 01, 2019 USD ($)	Mar. 31, 2019 USD ($)	Dec. 31, 2018
Number Of Wholly Owned Trusts		1	1
Operating Lease, Right-of-Use Asset		$ 3,738
Operating Lease, Right-of-use Assets, Reduction for Amounts Recognized Previously	$ 458
Operating Lease, Liability, Total		$ 4,180
Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset	4,400
Operating Lease, Liability, Total	$ 4,400

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Note 2 - Common Stock Outstanding and Earnings Per Share (Details Textual) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Jan. 31, 2019	Jan. 31, 2019	Mar. 31, 2019
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	1,834,142		1,834,142
Payments to Acquire Businesses, Gross	$ 15,300
Merchants Holding Company [Member]
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares		1,834,142
Payments to Acquire Businesses, Gross		$ 15,300	$ 15,300
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Loans	85,300	85,300
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Deposits	190,200	190,200
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Investment Securities	$ 107,400	$ 107,400
Merchants Holding Company [Member] | Bank of Commerce [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	10.00%	10.00%

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Note 2 - Common Stock Outstanding and Earnings Per Share - Basic and Diluted EPS (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands		3 Months Ended
		Mar. 31, 2019	Dec. 31, 2018	Sep. 30, 2018	Jun. 30, 2018	Mar. 31, 2018
Net income		$ 2,306	$ 4,839	$ 4,032	$ 3,618	$ 3,241
Weighted average shares - basic (in shares)	[1]	17,489				16,225
Effect of potentially dilutive common shares (in shares)	[2]	63				85
Weighted average number of common shares outstanding - diluted (in shares)		17,552				16,310
Earnings per share - basic (in dollars per share)		$ 0.13				$ 0.20
Earnings per share - diluted (in dollars per share)		$ 0.13				$ 0.20
Share-based Payment Arrangement, Option [Member]
Anti-dilutive options not included in diluted earnings per share calculation (in shares)
Restricted Stock [Member]
Anti-dilutive options not included in diluted earnings per share calculation (in shares)						42

[1] Excludes unvested restricted shares because they do not have dividend or voting rights

[2] Represents the effects of the assumed exercise of stock options and vesting of non-participating restricted shares.

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Note 3 - Securities (Details Textual) - USD ($) $ in Millions	Mar. 31, 2019	Dec. 31, 2018
Securities Held as Collateral, at Fair Value	$ 75.2	$ 68.8
Debt Securities, Available-for-sale, Unrealized Loss Position, Number of Positions	138	163
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Available for Sale Securities, Percent of Portfolio Guaranteed	92.00%	66.00%
Commercial Mortgage Backed Securities [Member]
Available for Sale Securities, Percent of Portfolio Guaranteed	95.00%	90.00%

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Note 3 - Securities - Securities Reconciliation (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-sale securities:
Available-for-sale securities, amortized costs	$ 294,818	$ 261,198
Available-for-sale securities, gross unrealized gain	2,444	1,431
Available-for-sale securities, gross unrealized loss	(3,145)	(5,701)
Securities available-for-sale	294,117	256,928
US Government Agencies Debt Securities [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	46,264	40,215
Available-for-sale securities, gross unrealized gain	316	202
Available-for-sale securities, gross unrealized loss	(129)	(330)
Securities available-for-sale	46,451	40,087
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	48,066	50,037
Available-for-sale securities, gross unrealized gain	1,146	1,082
Available-for-sale securities, gross unrealized loss	(277)	(589)
Securities available-for-sale	48,935	50,530
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	173,098	142,355
Available-for-sale securities, gross unrealized gain	950	129
Available-for-sale securities, gross unrealized loss	(2,234)	(3,981)
Securities available-for-sale	171,814	138,503
Corporate Debt Securities [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	3,018	3,022
Available-for-sale securities, gross unrealized gain
Available-for-sale securities, gross unrealized loss	(60)	(100)
Securities available-for-sale	2,958	2,922
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	24,277	25,446
Available-for-sale securities, gross unrealized gain	32	17
Available-for-sale securities, gross unrealized loss	(445)	(701)
Securities available-for-sale	23,864	24,762
Asset-backed Securities [Member]
Available-for-sale securities:
Available-for-sale securities, amortized costs	95	123
Available-for-sale securities, gross unrealized gain		1
Available-for-sale securities, gross unrealized loss
Securities available-for-sale	$ 95	$ 124

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Note 3 - Securities - Expected Maturities of Investment Securities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Amounts maturing in:
Available-for-sale securities, amortized cost, one year or less	$ 1,379
Available-for-sale securities, fair value, one year or less	1,384
Available-for-sale securities, amortized cost, after one year through five years	102,007
Available-for-sale securities, fair value, after one year through five years	102,065
Available-for-sale securities, amortized cost, after five years through ten years	110,636
Available-for-sale securities, fair value, after five years through ten years	110,180
Available-for-sale securities, amortized cost, after ten years	80,796
Available-for-sale securities, fair value, after ten years	80,488
Available-for-sale securities, amortized cost, total	294,818	$ 261,198
Available-for-sale securities, fair value, total	$ 294,117

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Note 3 - Securities - Sales of Securities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Proceeds from sales of investment securities	$ 67,402	$ 19,398
Gross realized gains on sales of securities	261	152
Gross realized losses on sales of securities	(169)	(116)
Gain on sales of investment securities, net	92	36
US Government Agencies Debt Securities [Member]
Gross realized gains on sales of securities	33
Gross realized losses on sales of securities	(4)
US States and Political Subdivisions Debt Securities [Member]
Gross realized gains on sales of securities	181	152
Gross realized losses on sales of securities	(77)	(71)
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Gross realized gains on sales of securities	47
Gross realized losses on sales of securities	(86)
Commercial Mortgage Backed Securities [Member]
Gross realized losses on sales of securities	(2)
Asset-backed Securities [Member]
Gross realized losses on sales of securities		$ (45)

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Note 3 - Securities - Securities in an Unrealized Loss Position (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Available-for-sale securities, less than 12 months, fair value	$ 8,378	$ 36,107
Available-for-sale securities, less than 12 months, unrealized losses	(59)	(269)
Available-for-sale securities, 12 months or more, fair value	142,360	144,730
Available-for-sale securities, 12 months or more, unrealized losses	(3,086)	(5,432)
Available-for-sale securities, fair value	150,738	180,837
Available-for-sale securities, unrealized losses	(3,145)	(5,701)
US Government Agencies Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value	2,846	7,223
Available-for-sale securities, less than 12 months, unrealized losses	(21)	(39)
Available-for-sale securities, 12 months or more, fair value	13,045	12,274
Available-for-sale securities, 12 months or more, unrealized losses	(108)	(291)
Available-for-sale securities, fair value	15,891	19,497
Available-for-sale securities, unrealized losses	(129)	(330)
US States and Political Subdivisions Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value	1,718	5,545
Available-for-sale securities, less than 12 months, unrealized losses	(18)	(40)
Available-for-sale securities, 12 months or more, fair value	10,347	16,320
Available-for-sale securities, 12 months or more, unrealized losses	(259)	(549)
Available-for-sale securities, fair value	12,065	21,865
Available-for-sale securities, unrealized losses	(277)	(589)
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Available-for-sale securities, less than 12 months, fair value	2,918	21,791
Available-for-sale securities, less than 12 months, unrealized losses	(12)	(183)
Available-for-sale securities, 12 months or more, fair value	95,998	93,038
Available-for-sale securities, 12 months or more, unrealized losses	(2,222)	(3,798)
Available-for-sale securities, fair value	98,916	114,829
Available-for-sale securities, unrealized losses	(2,234)	(3,981)
Corporate Debt Securities [Member]
Available-for-sale securities, less than 12 months, fair value
Available-for-sale securities, less than 12 months, unrealized losses
Available-for-sale securities, 12 months or more, fair value	2,958	2,922
Available-for-sale securities, 12 months or more, unrealized losses	(60)	(100)
Available-for-sale securities, fair value	2,958	2,922
Available-for-sale securities, unrealized losses	(60)	(100)
Commercial Mortgage Backed Securities [Member]
Available-for-sale securities, less than 12 months, fair value	896	1,548
Available-for-sale securities, less than 12 months, unrealized losses	(8)	(7)
Available-for-sale securities, 12 months or more, fair value	20,012	20,176
Available-for-sale securities, 12 months or more, unrealized losses	(437)	(694)
Available-for-sale securities, fair value	20,908	21,724
Available-for-sale securities, unrealized losses	$ (445)	$ (701)

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Note 4 - Loans (Details Textual) $ in Thousands	3 Months Ended		12 Months Ended
	Mar. 31, 2019 USD ($)	Mar. 31, 2018 USD ($)	Dec. 31, 2018 USD ($)
Unamortized Loan Commitment and Origination Fees and Unamortized Discounts or Premiums, Total	$ 2,200		$ 2,500
Loans and Leases Receivable, Impaired, Interest Lost on Nonaccrual Loans	158	$ 43
Impaired Financing Receivable, Recorded Investment, Total	$ 21,215		11,012
Percentage of Collateral Coverage to Loan Balance to Consider Restructured Loan to Performing and Accrual Status	100.00%
Financing Receivable, Modifications, Number of Contracts	0	0
Financing Receivable, Nonaccrual	$ 14,535		4,146
Financing Receivable, Troubled Debt Restructuring	$ 9,400		$ 9,600
Financing Receivable, Number of Contracts Qualified as Troubled Debt Restructuring	105
Troubled Debt Restructurings Percentage of Gross Portfolio Loans	0.91%		1.01%
Financing Receivable, Troubled Debt Restructuring, Subsequent Default, Number of Contracts	0
Doubtful Grade Remaining Outstanding Period, Minimum			180 days
Mortgage Loans in Process of Foreclosure, Amount	$ 213
Loans and Leases Receivable, Allowance, Ending Balance	$ 12,242		$ 12,292
Percentage of Allowance for Loan and Lease Losses out of Net Loans	1.18%		1.30%
Fair Value Disclosure, Off-balance Sheet Risks, Amount, Asset	$ 220,700		$ 235,800
Reserve for Unfunded Commitments Included in Other Liabilities	$ 595		$ 695
Percentage of Loan Portfolio Secured by Real Estate	82.00%
Percentage of Unallocated Allowance Amount out of Allowance for Loan and Lease Losses	4.00%		4.00%
Maximum Loan to Value, Percentage	80.00%
Commercial Portfolio Segment [Member]
Impaired Financing Receivable, Recorded Investment, Total	$ 2,205		$ 2,183
Financing Receivable, Nonaccrual	$ 1,018		$ 959
Commercial Portfolio Segment [Member] | Line of Credit [Member]
Financing Receivable, Modifications, Number of Contracts	1		1
Financing Receivable, Nonaccrual	$ 41		$ 313
Performing Financial Instruments [Member]
Impaired Financing Receivable, Recorded Investment, Total	$ 6,700		6,900
Financing Receivable, Number of Contracts Qualified as Troubled Debt Restructuring	104
Merchants Holding Company [Member]
Accretion (Amortization) of Discounts and Premiums, Acquired Loans	$ 48
Federal Home Loan Bank of San Francisco [Member]
Loans Pledged as Collateral	$ 480,000		$ 490,200

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Note 4 - Loans - Outstanding Loan Balances (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Gross loans	$ 1,034,606	$ 946,251
Deferred fees and costs	1,992	1,927
Loans, net of deferred fees and costs	1,036,598	948,178
Allowance for loan and lease losses	(12,242)	(12,292)
Net loans	1,024,356	935,886
Commercial Portfolio Segment [Member]
Gross loans	149,575	135,543
Commercial Real Estate Portfolio Segment [Member]
Gross loans	708,482	660,893
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	30,335	22,563
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	469,048	433,708
Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	209,099	204,622
Residential Portfolio Segment [Member]
Gross loans	130,399	98,770
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	36,145	37,446
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	68,092	34,366
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	26,162	26,958
Consumer Portfolio Segment [Member]
Gross loans	$ 46,150	$ 51,045

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Note 4 - Loans - Age Analysis of Past Due Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Loans, past due	$ 12,273	$ 13,908
Loans, current	1,022,333	932,343
Gross loans	1,034,606	946,251
Recorded investment greater than 90 days and accruing
Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	885	12,374
Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	340	542
Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due	11,048	992
Commercial Portfolio Segment [Member]
Loans, past due	237
Loans, current	149,338	135,543
Gross loans	149,575	135,543
Recorded investment greater than 90 days and accruing
Commercial Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	190
Commercial Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	47
Commercial Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member]
Gross loans	708,482	660,893
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Loans, past due
Loans, current	30,335	22,563
Gross loans	30,335	22,563
Recorded investment greater than 90 days and accruing
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Loans, past due	10,878	11,426
Loans, current	458,170	422,282
Gross loans	469,048	433,708
Recorded investment greater than 90 days and accruing
Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Loans, past due		688
Loans, current	209,099	203,934
Gross loans	209,099	204,622
Recorded investment greater than 90 days and accruing
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Construction Loans [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Non-owner Occupied [Member]
Loans, past due		10,878
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Commercial Owner Occupied Loan [Member]
Loans, past due		688
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Construction Loans [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Non-owner Occupied [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Commercial Owner Occupied Loan [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Construction Loans [Member]
Loans, past due
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Non-owner Occupied [Member]
Loans, past due	10,878	548
Commercial Real Estate Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Commercial Owner Occupied Loan [Member]
Loans, past due
Residential Portfolio Segment [Member]
Gross loans	130,399	98,770
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Loans, past due	826	722
Loans, current	35,319	36,724
Gross loans	36,145	37,446
Recorded investment greater than 90 days and accruing
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Loans, past due		185
Loans, current	68,092	34,181
Gross loans	68,092	34,366
Recorded investment greater than 90 days and accruing
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Loans, past due	78	90
Loans, current	26,084	26,868
Gross loans	26,162	26,958
Recorded investment greater than 90 days and accruing
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Loans, past due	465	184
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Loans, past due
Residential Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member] | Home Equity Loan [Member]
Loans, past due	78	90
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Loans, past due	191	279
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Loans, past due
Residential Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member] | Home Equity Loan [Member]
Loans, past due
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Loans, past due	170	259
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Loans, past due		185
Residential Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member] | Home Equity Loan [Member]
Loans, past due
Consumer Portfolio Segment [Member]
Loans, past due	254	797
Loans, current	45,896	50,248
Gross loans	46,150	51,045
Recorded investment greater than 90 days and accruing
Consumer Portfolio Segment [Member] | Financial Asset, 30 to 59 Days Past Due [Member]
Loans, past due	152	534
Consumer Portfolio Segment [Member] | Financial Asset, 60 to 89 Days Past Due [Member]
Loans, past due	102	263
Consumer Portfolio Segment [Member] | Financial Asset, Equal to or Greater than 90 Days Past Due [Member]
Loans, past due

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Note 4 - Loans - Nonaccrual Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Nonaccrual loans	$ 14,535	$ 4,146
Commercial Portfolio Segment [Member]
Nonaccrual loans	1,018	959
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Nonaccrual loans	10,878	548
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Nonaccrual loans	2,392	2,388
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Nonaccrual loans	182	185
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Nonaccrual loans	42	43
Consumer Portfolio Segment [Member]
Nonaccrual loans	$ 23	$ 23

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Note 4 - Loans - Impaired Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Recorded investment with no related allowance recorded	$ 17,111	$ 6,965
Unpaid principal balance with no related allowance recorded	18,746	8,564
Recorded investment with related allowance recorded	4,104	4,047
Unpaid principal balance with related allowance recorded	4,283	4,209
Related allowance	1,366	1,237
Recorded investment	21,215	11,012
Unpaid principle balance	23,029	12,773
Commercial Portfolio Segment [Member]
Recorded investment with no related allowance recorded	47	51
Unpaid principal balance with no related allowance recorded	65	69
Recorded investment with related allowance recorded	2,158	2,132
Unpaid principal balance with related allowance recorded	2,299	2,256
Related allowance	923	748
Recorded investment	2,205	2,183
Unpaid principle balance	2,364	2,325
Commercial Real Estate Portfolio Segment [Member]
Related allowance	169	209
Recorded investment	11,671	1,343
Unpaid principle balance	11,671	1,343
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Recorded investment with no related allowance recorded	10,878	548
Unpaid principal balance with no related allowance recorded	10,878	548
Recorded investment with related allowance recorded	793	795
Unpaid principal balance with related allowance recorded	793	795
Related allowance	169	209
Residential Portfolio Segment [Member]
Related allowance	267	273
Recorded investment	7,316	7,463
Unpaid principle balance	8,971	9,082
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Recorded investment with no related allowance recorded	5,962	6,138
Unpaid principal balance with no related allowance recorded	7,534	7,676
Recorded investment with related allowance recorded	772	734
Unpaid principal balance with related allowance recorded	810	772
Related allowance	88	91
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Recorded investment with no related allowance recorded	182	185
Unpaid principal balance with no related allowance recorded	221	223
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Recorded investment with no related allowance recorded	42	43
Unpaid principal balance with no related allowance recorded	48	48
Recorded investment with related allowance recorded	358	363
Unpaid principal balance with related allowance recorded	358	363
Related allowance	179	182
Consumer Portfolio Segment [Member]
Recorded investment with related allowance recorded	23	23
Unpaid principal balance with related allowance recorded	23	23
Related allowance	7	7
Recorded investment	23	23
Unpaid principle balance	$ 23	$ 23

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Note 4 - Loans - Average Recorded Investment and Interest Income Recognized on Impaired Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Average recorded investment	$ 17,915	$ 11,599
Interest income recognized	75	78
Commercial Portfolio Segment [Member]
Average recorded investment	2,021	2,589
Interest income recognized	17	21
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Average recorded investment	8,412	802
Interest income recognized	11	11
Residential Portfolio Segment [Member] | Individual Tax Identification Number Loan [Member]
Average recorded investment	6,874	7,425
Interest income recognized	42	41
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Average recorded investment	184	326
Interest income recognized
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Average recorded investment	401	422
Interest income recognized	5	5
Consumer Portfolio Segment [Member]
Average recorded investment	23	35
Interest income recognized

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Note 4 - Loans - Performing and Nonperforming Loans (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Gross loans	$ 1,034,606	$ 946,251
Commercial Portfolio Segment [Member]
Gross loans	149,575	135,543
Commercial Real Estate Portfolio Segment [Member]
Gross loans	708,482	660,893
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	30,335	22,563
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	469,048	433,708
Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	209,099	204,622
Residential Portfolio Segment [Member]
Gross loans	130,399	98,770
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	36,145	37,446
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	68,092	34,366
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	26,162	26,958
Consumer Portfolio Segment [Member]
Gross loans	46,150	51,045
Performing Financial Instruments [Member]
Gross loans	1,020,071	942,105
Performing Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Gross loans	148,557	134,584
Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	30,335	22,563
Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	458,170	433,160
Performing Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	209,099	204,622
Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	33,753	35,058
Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	67,910	34,181
Performing Financial Instruments [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	26,120	26,915
Performing Financial Instruments [Member] | Consumer Portfolio Segment [Member]
Gross loans	46,127	51,022
Nonperforming Financial Instruments [Member]
Gross loans	14,535	4,146
Nonperforming Financial Instruments [Member] | Commercial Portfolio Segment [Member]
Gross loans	1,018	959
Nonperforming Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans
Nonperforming Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	10,878	548
Nonperforming Financial Instruments [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans
Nonperforming Financial Instruments [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	2,392	2,388
Nonperforming Financial Instruments [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	182	185
Nonperforming Financial Instruments [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	42	43
Nonperforming Financial Instruments [Member] | Consumer Portfolio Segment [Member]
Gross loans	$ 23	$ 23

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Note 4 - Loans - Internal Risk Rating by Loan Class (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Gross loans	$ 1,034,606	$ 946,251
Commercial Portfolio Segment [Member]
Gross loans	149,575	135,543
Commercial Real Estate Portfolio Segment [Member]
Gross loans	708,482	660,893
Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	30,335	22,563
Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	469,048	433,708
Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	209,099	204,622
Residential Portfolio Segment [Member]
Gross loans	130,399	98,770
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	36,145	37,446
Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	68,092	34,366
Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	26,162	26,958
Consumer Portfolio Segment [Member]
Gross loans	46,150	51,045
Pass [Member]
Gross loans	974,951	871,038
Pass [Member] | Commercial Portfolio Segment [Member]
Gross loans	136,434	118,643
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	30,312	22,539
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	445,151	409,157
Pass [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	194,043	179,154
Pass [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	30,674	31,805
Pass [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	66,350	33,388
Pass [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	25,865	25,336
Pass [Member] | Consumer Portfolio Segment [Member]
Gross loans	46,122	51,016
Watch [Member]
Gross loans	26,944	53,150
Watch [Member] | Commercial Portfolio Segment [Member]
Gross loans	10,297	15,247
Watch [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans	23	24
Watch [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	10,729	21,698
Watch [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	4,706	14,075
Watch [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans
Watch [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	1,083	793
Watch [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	106	1,313
Watch [Member] | Consumer Portfolio Segment [Member]
Gross loans
Special Mention [Member]
Gross loans	1,018
Special Mention [Member] | Commercial Portfolio Segment [Member]
Gross loans	541
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans
Special Mention [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans
Special Mention [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans
Special Mention [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	477
Special Mention [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans
Special Mention [Member] | Consumer Portfolio Segment [Member]
Gross loans
Substandard [Member]
Gross loans	31,693	22,063
Substandard [Member] | Commercial Portfolio Segment [Member]
Gross loans	2,303	1,653
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans	13,168	2,853
Substandard [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans	10,350	11,393
Substandard [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans	5,471	5,641
Substandard [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans	182	185
Substandard [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans	191	309
Substandard [Member] | Consumer Portfolio Segment [Member]
Gross loans	28	29
Doubtful [Member]
Gross loans
Doubtful [Member] | Commercial Portfolio Segment [Member]
Gross loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Construction Loans [Member]
Gross loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Non-owner Occupied [Member]
Gross loans
Doubtful [Member] | Commercial Real Estate Portfolio Segment [Member] | Commercial Owner Occupied Loan [Member]
Gross loans
Doubtful [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Individual Tax Identification Number Loan [Member]
Gross loans
Doubtful [Member] | Residential Portfolio Segment [Member] | Real Estate Loan [Member] | Mortgage Receivable [Member]
Gross loans
Doubtful [Member] | Residential Portfolio Segment [Member] | Home Equity Loan [Member]
Gross loans
Doubtful [Member] | Consumer Portfolio Segment [Member]
Gross loans

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Note 4 - Loans - Allowance for Credit Losses and Recorded Investment in Financing Receivables (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2019	Dec. 31, 2018
Balance	$ 12,292	$ 11,925
Charge-offs	(348)	(390)
Recoveries	298	760
Provision for loan and lease losses
Balance	12,242	12,295
Individually evaluated for impairment			$ 1,366	$ 1,237
Collectively evaluated for impairment			10,876	11,055
Total	12,292	11,925	12,242	12,292
Individually evaluated for impairment			21,215	11,012
Collectively evaluated for impairment			1,013,391	935,239
Total gross loans			1,034,606	946,251
Commercial Portfolio Segment [Member]
Balance	2,205	2,397
Charge-offs
Recoveries	153	453
Provision for loan and lease losses	121	(552)
Balance	2,479	2,298
Individually evaluated for impairment			923	748
Collectively evaluated for impairment			1,556	1,457
Total	2,205	2,397	2,479	2,205
Individually evaluated for impairment			2,205	2,183
Collectively evaluated for impairment			147,370	133,360
Total gross loans			149,575	135,543
Commercial Real Estate Portfolio Segment [Member]
Balance	7,116	6,514
Charge-offs
Recoveries
Provision for loan and lease losses	(160)	384
Balance	6,956	6,898
Individually evaluated for impairment			169	209
Collectively evaluated for impairment			6,787	6,907
Total	7,116	6,514	6,956	7,116
Individually evaluated for impairment			11,671	1,343
Collectively evaluated for impairment			696,811	659,550
Total gross loans			708,482	660,893
Residential Portfolio Segment [Member]
Balance	1,173	1,169
Charge-offs	(68)	(114)
Recoveries	82	246
Provision for loan and lease losses	24	(152)
Balance	1,211	1,149
Individually evaluated for impairment			267	273
Collectively evaluated for impairment			944	900
Total	1,173	1,169	1,211	1,173
Individually evaluated for impairment			7,316	7,463
Collectively evaluated for impairment			123,083	91,307
Total gross loans			130,399	98,770
Consumer Portfolio Segment [Member]
Balance	1,356	1,435
Charge-offs	(280)	(276)
Recoveries	63	61
Provision for loan and lease losses	(83)	253
Balance	1,056	1,473
Individually evaluated for impairment			7	7
Collectively evaluated for impairment			1,049	1,349
Total	1,356	1,435	1,056	1,356
Individually evaluated for impairment			23	23
Collectively evaluated for impairment			46,127	51,022
Total gross loans			46,150	51,045
Unallocated Financing Receivables [Member]
Balance	442	410
Charge-offs
Recoveries
Provision for loan and lease losses	98	67
Balance	540	477
Individually evaluated for impairment
Collectively evaluated for impairment			540	442
Total	$ 442	$ 410	540	442
Individually evaluated for impairment
Collectively evaluated for impairment
Total gross loans

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Note 5 - Qualified Affordable Housing Partnership Investments (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Dec. 31, 2018
Qualified Affordable Housing Project Investments Term	18 years
Proportional Amortization Method Qualified Affordable Housing Project Investments	$ 2,888	$ 3,020
Proportional Amortization Method Qualified Affordable Housing Project Investments Unfunded Liability Obligation	$ 343	$ 343
Minimum [Member]
Qualified Affordable Housing Project Investments Return Rate	3.00%
Maximum [Member]
Qualified Affordable Housing Project Investments Return Rate	5.00%

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Note 5 - Qualified Affordable Housing Partnership Investments - Original Investment in LIHTC Projects (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018	Dec. 31, 2018
Original Investment	$ 7,954		$ 7,954
Current Recorded Investment	2,888		3,020
Unfunded Liability Obligation	343		343
Tax Credits and Benefits	139	$ 146
Amortization of Investments	132	138
Net Income Tax Benefit	7	8
Raymond James California Housing Opportunities Fund II [Member]
Original Investment	2,000		2,000
Current Recorded Investment	977		1,022
Unfunded Liability Obligation	28		28
Tax Credits and Benefits	50	50
Amortization of Investments	45	44
Net Income Tax Benefit	5	6
WNC Institutional Tax Credit Fun 38 L.P. [Member]
Original Investment	1,000		1,000
Current Recorded Investment	467		489
Unfunded Liability Obligation
Tax Credits and Benefits	27	32
Amortization of Investments	23	26
Net Income Tax Benefit	4	6
Merritt Community Capital Corporation Fund XV, L.P. [Member]
Original Investment	2,500		2,500
Current Recorded Investment	1,215		1,270
Unfunded Liability Obligation	315		315
Tax Credits and Benefits	56	56
Amortization of Investments	55	56
Net Income Tax Benefit	1
California Affordable Housing Fund [Member]
Original Investment	2,454		2,454
Current Recorded Investment	229		239
Unfunded Liability Obligation
Tax Credits and Benefits	6	8
Amortization of Investments	9	12
Net Income Tax Benefit	$ (3)	$ (4)

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Note 5 - Qualified Affordable Housing Partnership Investments - Generated Tax Credits and Benefits From Investments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Generated tax credits	$ 114	$ 120
Tax benefits from taxable losses	25	26
Raymond James California Housing Opportunities Fund II [Member]
Generated tax credits	43	43
Tax benefits from taxable losses	7	7
WNC Institutional Tax Credit Fun 38 L.P. [Member]
Generated tax credits	23	28
Tax benefits from taxable losses	4	4
Merritt Community Capital Corporation Fund XV, L.P. [Member]
Generated tax credits	48	48
Tax benefits from taxable losses	8	8
California Affordable Housing Fund [Member]
Generated tax credits		1
Tax benefits from taxable losses	$ 6	$ 7

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Note 5 - Qualified Affordable Housing Partnership Investments - Anticipated Net Income Tax Benefit (Details) $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 20
2020	26
2021	25
2022	23
2023 and thereafter	34
Total	128
Raymond James California Housing Opportunities Fund II [Member]
2019	14
2020	19
2021	19
2022	19
2023 and thereafter	33
Total	104
WNC Institutional Tax Credit Fun 38 L.P. [Member]
2019	13
2020	17
2021	16
2022	14
2023 and thereafter	27
Total	87
Merritt Community Capital Corporation Fund XV, L.P. [Member]
2019	3
2020	4
2021	4
2022	3
2023 and thereafter	6
Total	20
California Affordable Housing Fund [Member]
2019	(10)
2020	(14)
2021	(14)
2022	(13)
2023 and thereafter	(32)
Total	$ (83)

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Note 6 - Term Debt (Details Textual) - USD ($) $ in Thousands	1 Months Ended	3 Months Ended	12 Months Ended
	Dec. 31, 2015	Mar. 31, 2019	Dec. 31, 2018
Advances from Federal Home Loan Banks, Total		$ 20,000
Proceeds from Issuance of Senior Long-term Debt	$ 10,000
Proceeds from Issuance of Subordinated Long-term Debt	10,000
Federal Funds Purchased		0	0
Federal Funds Purchased [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 35,000
Federal Funds Purchased [Member] | Minimum [Member]
Debt Instrument, Interest Rate, Stated Percentage		2.64%
Federal Funds Purchased [Member] | Maximum [Member]
Debt Instrument, Interest Rate, Stated Percentage		3.44%
Federal Reserve Bank Advances [Member]
Line of Credit Facility, Maximum Borrowing Capacity		$ 23,600
Federal Home Loan Bank, Advances, Branch of FHLB Bank, Amount of Advances		0	0
Senior Notes [Member]
Debt Instrument, Periodic Payment, Total	83
Debt Instrument, Periodic Payment Terms, Balloon Payment to be Paid	5,000
Debt Issuance Costs, Gross	$ 15
Senior Notes [Member] | London Interbank Offered Rate (LIBOR) [Member]
Debt Instrument, Basis Spread on Variable Rate	4.00%
Subordinated Debt [Member] | Fixed to Floating Interest Rate [Member]
Debt Issuance Costs, Gross	$ 210
Debt Instrument, Interest Rate, Stated Percentage	6.88%
Debt Fixed Interest Term	5 years
Subordinated Debt [Member] | London Interbank Offered Rate (LIBOR) [Member] | Fixed to Floating Interest Rate [Member]
Debt Instrument, Basis Spread on Variable Rate	5.26%
Federal Home Loan Bank of San Francisco [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Maximum Amount Available		372,200
Advances from Federal Home Loan Banks, Total		20,000	0
Federal Home Loan Bank, Advances, Activity for Year, Average Balance of Agreements Outstanding		8,800	22,500
Federal Home Loan Bank, Advances, Activity for Year, Maximum Outstanding at any Month End		$ 20,000	$ 70,000
Debt, Weighted Average Interest Rate		2.60%
Federal Home Loan Bank of San Francisco [Member] | Real Estate [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged		$ 447,400
Federal Home Loan Bank of San Francisco [Member] | Equity Securities [Member]
Federal Home Loan Bank, Advances, General Debt Obligations, Disclosures, Collateral Pledged		28,700
Federal Home Loan Bank of San Francisco [Member] | Other Assets [Member]
Federal Home Loan Bank Stock		$ 7,300

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Note 6 - Term Debt - Term Debt (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Federal Home Loan Bank of San Francisco borrowings	$ 20,000
Long-term debt, gross	12,596	13,496
Unamortized debt issuance costs	(79)	(91)
Net term debt	32,517	13,405
Senior Notes [Member]
Long-term debt, gross	2,596	3,496
Unamortized debt issuance costs	(1)	(2)
Subordinated Debt [Member]
Long-term debt, gross	10,000	10,000
Unamortized debt issuance costs	$ (78)	$ (89)

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Note 6 - Term Debt - Future Contractual Maturities of Term Debt (Details) $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 20,750
2020	1,846
2021
2022
2023
Thereafter	10,000
Total future maturities	32,596
Federal Home Loan Bank Advances [Member]
2019	20,000
2020
2021
2022
2023
Thereafter
Total future maturities	20,000
Senior Notes [Member]
2019	750
2020	1,846
2021
2022
2023
Thereafter
Total future maturities	2,596
Subordinated Debt [Member]
2019
2020
2021
2022
2023
Thereafter	10,000
Total future maturities	$ 10,000

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Note 7 - Commitments and Contingencies (Details Textual) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Expiry of Standby Letters of Credit Within One Year	$ 3,700
Expiry of Standby Letter of Credit Thereafter	139
Reserve for Unfunded Commitments Included in Other Liabilities	$ 595	$ 695
Real Estate Related Loans Representing Lease Portfolio	82.00%	81.00%
Insurance Claims [Member] | Maximum [Member]
Loss Contingency, Estimate of Possible Loss	$ 225
Other Liabilities [Member]
Reserve for Unfunded Commitments Included in Other Liabilities	$ 595	$ 695

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Note 7 - Commitments and Contingencies - Commitments and Contingent Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Commitments	$ 220,678	$ 235,768
Standby Letters of Credit [Member]
Commitments	4,218	8,548
Federal Home Loan Bank of San Francisco Affordable Housing Grant Sponsorships [Member]
Commitments	3,338	3,338
Commitments to Extend Credit [Member]
Commitments	$ 213,122	$ 223,882

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Note 8 - Leases (Details Textual) $ in Thousands		3 Months Ended
	Jan. 01, 2019 USD ($)	Mar. 31, 2019 USD ($)
Number of Operating Leases Sites		9
Operating Lease, Liability, Total		$ 4,180
Operating Lease, Right-of-use Assets, Reduction for Amounts Recognized Previously	$ 458
Operating Lease, Right-of-Use Asset		$ 3,738
Accounting Standards Update 2016-02 [Member]
Operating Lease, Liability, Total	4,400
Operating Lease, Right-of-Use Asset	4,400
Other Liabilities [Member] | Accounting Standards Update 2016-02 [Member]
Operating Lease, Liability, Total	4,400
Other Assets [Member] | Accounting Standards Update 2016-02 [Member]
Operating Lease, Right-of-Use Asset	$ 4,400

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Note 8 - Leases - Lease Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Right-of-use lease asset	$ 3,738
Lease liability	$ 4,180
Weighted Average Remaining Lease Term (in years) (Year)	6 years 87 days
Weighted Average Discount Rate	3.00%
Operating lease expense	$ 199	$ 189
Cash paid for operating leases	$ 215	$ 207

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Note 8 - Leases - Future Minimum Lease Payments for Operating Leases (Details) $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 650
2020	884
2021	899
2022	807
2023	335
Thereafter	1,033
Total undiscounted future minimum lease cash payments	4,608
Present value adjustment	(428)
Lease liability	$ 4,180

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Note 9 - Fair Values (Details Textual) $ in Thousands	3 Months Ended
	Mar. 31, 2019 USD ($)	Dec. 31, 2018 USD ($)
Measurement Input, Cost to Sell [Member] | Minimum [Member]
Other Real Estate Owned, Measurement Input	0.44
Measurement Input, Cost to Sell [Member] | Maximum [Member]
Other Real Estate Owned, Measurement Input	0.46
Other Real Estate Owned [Member]
Number of Real Estate Properties	4
OREO Carrying Amount	$ 34	$ 102
Allowance for Loan and Lease Losses, Adjustments, Other	$ 68

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Note 9 - Fair Values - Fair Value of Financial Instruments (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Financial assets
Securities available-for-sale	$ 294,117	$ 256,928
Reported Value Measurement [Member]
Financial assets
Cash and cash equivalents	62,529	47,365
Securities available-for-sale	294,117	256,928
Net loans	1,024,356	935,886
Federal Home Loan Bank of San Francisco stock	7,346	5,892
Financial liabilities
Deposits	1,248,294	1,131,716
Term debt	32,517	13,405
Junior subordinated debenture	10,310	10,310
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 1 [Member]
Financial assets
Cash and cash equivalents	62,529	47,365
Securities available-for-sale
Net loans
Federal Home Loan Bank of San Francisco stock	7,346	5,892
Financial liabilities
Deposits
Term debt
Junior subordinated debenture
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 2 [Member]
Financial assets
Cash and cash equivalents
Securities available-for-sale	294,117	256,928
Net loans
Federal Home Loan Bank of San Francisco stock
Financial liabilities
Deposits	1,246,655	1,129,795
Term debt	32,660	13,323
Junior subordinated debenture	14,636	14,183
Estimate of Fair Value Measurement [Member] | Fair Value, Inputs, Level 3 [Member]
Financial assets
Cash and cash equivalents
Securities available-for-sale
Net loans	1,025,425	936,697
Federal Home Loan Bank of San Francisco stock
Financial liabilities
Deposits
Term debt
Junior subordinated debenture

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Note 9 - Fair Values - Assets and Liabilities Measured at Fair Value on a Recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Securities available-for-sale	$ 294,117	$ 256,928
Fair Value, Recurring [Member]
Total assets measured at fair value	294,117	256,928
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Total assets measured at fair value
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Total assets measured at fair value	294,117	256,928
Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Total assets measured at fair value
US Government Agencies Debt Securities [Member]
Securities available-for-sale	46,451	40,087
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	46,451	40,087
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	46,451	40,087
US Government Agencies Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
US States and Political Subdivisions Debt Securities [Member]
Securities available-for-sale	48,935	50,530
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	48,935	50,530
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	48,935	50,530
US States and Political Subdivisions Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member]
Securities available-for-sale	171,814	138,503
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	171,814	138,503
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	171,814	138,503
Residential Mortgage Backed Securities and Collateralized Mortgage Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
Corporate Debt Securities [Member]
Securities available-for-sale	2,958	2,922
Corporate Debt Securities [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	2,958	2,922
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	2,958	2,922
Corporate Debt Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
Commercial Mortgage Backed Securities [Member]
Securities available-for-sale	23,864	24,762
Commercial Mortgage Backed Securities [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	23,864	24,762
Commercial Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
Commercial Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	23,864	24,762
Commercial Mortgage Backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
Asset-backed Securities [Member]
Securities available-for-sale	95	124
Asset-backed Securities [Member] | Fair Value, Recurring [Member]
Securities available-for-sale	95
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale	95
Asset-backed Securities [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale
Other Debt Obligations [Member] | Fair Value, Recurring [Member]
Securities available-for-sale		124
Other Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 1 [Member]
Securities available-for-sale
Other Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 2 [Member]
Securities available-for-sale		124
Other Debt Obligations [Member] | Fair Value, Recurring [Member] | Fair Value, Inputs, Level 3 [Member]
Securities available-for-sale

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Note 9 - Fair Values - Fair Value of Assets Measured on a Non-recurring Basis (Details) - USD ($) $ in Thousands	Mar. 31, 2019	Dec. 31, 2018
Other real estate owned	$ 34	$ 31
Fair Value, Nonrecurring [Member]
Other real estate owned	34	31
Total assets measured at fair value	34	31
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 1 [Member]
Other real estate owned
Total assets measured at fair value
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 2 [Member]
Other real estate owned
Total assets measured at fair value
Fair Value, Nonrecurring [Member] | Fair Value, Inputs, Level 3 [Member]
Other real estate owned	34	31
Total assets measured at fair value	$ 34	$ 31

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Note 9 - Fair Values - Losses Resulting From Non-recurring Fair Value Adjustments (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019	Mar. 31, 2018
Losses resulting from nonrecurring fair value adjustments	$ 68	$ 113
Other Real Estate Owned [Member]
Losses resulting from nonrecurring fair value adjustments	$ 68	$ 113

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Note 10 - Acquisition (Details Textual) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Jan. 31, 2019	Jan. 31, 2019	Mar. 31, 2019	Mar. 31, 2018
Payments to Acquire Businesses, Gross	$ 15,300
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares	1,834,142		1,834,142
Amortization of Intangible Assets, Total			$ 146	$ 55
Merchants Holding Company [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets, Total			211,660
Bank of Commerce [Member] | Merchants Holding Company [Member]
Noncontrolling Interest, Ownership Percentage by Noncontrolling Owners	10.00%	10.00%
Merchants Holding Company [Member]
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Assets, Total	$ 211,700	$ 211,700	215,015
Payments to Acquire Businesses, Gross		$ 15,300	15,300
Business Acquisition, Equity Interest Issued or Issuable, Number of Shares		1,834,142
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Loans	85,300	$ 85,300
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Current Liabilities, Deposits	190,200	190,200
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Investment Securities	107,400	107,400
Goodwill, Ending Balance	11,000	$ 11,000	11,045
Goodwill, Amortization period		15 years
Impairment of Intangible Assets, Finite-lived			0
Business Acquisition, Transaction Costs			1,900
Business Combination, Pro Forma Information, Earnings or Loss of Acquiree since Acquisition Date, Actual			940
Merchants Holding Company [Member] | Core Deposits [Member]
Finite-Lived Intangible Assets, Gross, Total	$ 4,400	$ 4,400
Finite-Lived Intangible Asset, Useful Life		8 years
Amortization of Intangible Assets, Total			$ 91

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Note 10 - Acquisition - Assets and Liabilities Acquired (Details) - USD ($) $ in Thousands		1 Months Ended	3 Months Ended
	Jan. 31, 2019	Jan. 31, 2019	Mar. 31, 2019
Consideration paid:
Cash	$ 15,300
Merchants Holding Company [Member]
Assets acquired:
Cash and fed funds sold			$ 12,425
Investment securities			107,931
Loans, gross			87,570
Allowance for loan and lease losses			(1,286)
Interest receivable			688
Premises and equipment, net			378
Deferred tax assets, net			1,374
Federal Home Loan Bank of San Francisco stock			1,454
Life insurance			755
Other assets			371
Core deposit intangible
Total assets acquired			211,660
Liabilities assumed:
Demand, money market and savings			152,213
Certificates of deposit			38,003
Total deposits			190,216
Other liabilities			916
Total liabilities assumed			191,132
Net identifiable assets acquired over liabilities assumed			20,528
Merchants Holding Company [Member]
Consideration paid:
Cash		$ 15,300	15,300
Stock 1,834,142 shares at $10.69 per share			19,607
Total consideration			34,907
Assets acquired:
Cash and fed funds sold			12,425
Investment securities			107,380
Investment securities, adjustment			(551)
Loans, gross			85,278
Loans, gross, adjustment			(2,292)
Allowance for loan and lease losses
Allowance for loan and lease losses, adjustment			1,286
Interest receivable			688
Premises and equipment, net			2,234
Premises and equipment, net, adjustment			1,856
Deferred tax assets, net			87
Deferred tax assets, net, adjustment			(1,287)
Federal Home Loan Bank of San Francisco stock			1,454
Life insurance			755
Other assets			361
Other assets, adjustment			(10)
Core deposit intangible			4,353
Core deposit intangible, adjustment			4,353
Total assets acquired	211,700	211,700	215,015
Total assets acquired, adjustment			3,355
Liabilities assumed:
Demand, money market and savings			152,213
Certificates of deposit			38,003
Total deposits			190,216
Other liabilities			937
Other liabilities, adjustment			21
Total liabilities assumed			191,153
Total liabilities assumed, adjustment			21
Net identifiable assets acquired over liabilities assumed			23,862
Net identifiable assets acquired over liabilities assumed, adjustment			3,334
Goodwill	$ 11,000	$ 11,000	$ 11,045

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Note 10 - Acquisition - Assets and Liabilities Acquired (Details) (Parentheticals) - $ / shares		3 Months Ended
	Jan. 31, 2019	Mar. 31, 2019
Shares issued (in shares)	1,834,142	1,834,142
Price per share (in dollars per share)		$ 10.69

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Note 10 - Acquisition - Future Estimated Amortization Expense (Details) - Merchants Holding Company [Member] - Core Deposits [Member] $ in Thousands	Mar. 31, 2019 USD ($)
2019	$ 408
2020	544
2021	544
2022	544
2023	544
Thereafter	1,678
Total	$ 4,262

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Note 10 - Acquisition - Pro Forma Revenue and Earnings (Details) - Merchants Holding Company [Member] - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2019		Mar. 31, 2018
Net interest income	$ 13,199		$ 12,674
Net income	$ 2,269	[1]	$ 3,592

[1] Net income for the three months ended March 31, 2019 includes acquisition-related costs of $1.9 million.