sv1za
As filed with the Securities and Exchange Commission on
March 12, 2010.
Registration
No. 333-164863
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Pre-effective Amendment
No. 2
on
Form S-1/A
REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933
BANK OF COMMERCE
HOLDINGS
(Exact name of registrant as
specified in its charter)
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California
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6022
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94-2823865
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(State or other jurisdiction
of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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1951 Churn Creek Road Redding, California 96002,
(530) 722-3939
(Address, including zip code,
and telephone number, including area code, of Registrants
principal executive offices)
Patrick J. Moty
President and Chief Executive Officer
Bank of Commerce Holdings
1951 Churn Creek Road
Redding, California 96002
(530) 722-3953
(Name, address, including zip
code, and telephone number, including area code, of agent for
service)
Copies to:
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Bruce Dravis
Downey Brand LLP
621 Capitol Mall
18th
Floor
Sacramento, California 95814
(916) 444-1000
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Stephen M. Klein
Graham & Dunn PC
Pier 70
2801 Alaskan Way Suite 300
Seattle, Washington 98121
(206) 624-8300
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Approximate date of commencement of proposed sale of the
securities to the public: As soon as practicable
after this Registration Statement becomes effective
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company þ
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(Do not check if a smaller reporting company)
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CALCULATION OF REGISTRATION FEE
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Proposed Maximum
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Proposed Maximum
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Amount of
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Title of Each Class of
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Amount to be
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Offering Price
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Aggregate Offering
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Registration
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Securities to be Registered
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Registered
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Per Share(1)
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Price(1)(2)
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Fee(3)
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Common Stock, no par value per share
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6,900,000 shares(2
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$
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5.50
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$
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37,950,000
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$
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2,706
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(1) |
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Estimated solely for the purpose of determining the amount of
the registration fee in accordance with Rule 457(a) under
the Securities Act of 1933, as amended. |
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(2) |
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Includes an aggregate of 900,000 shares that the underwriters
have the option to purchase to cover over-allotments, if any. |
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(3) |
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$2,460 previously paid. |
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933, as amended, or until this
Registration Statement shall become effective on such date as
the Commission, acting pursuant to said Section 8(a), may
determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these
securities and it is not soliciting an offer to buy these
securities in any jurisdiction where the offer or sale is not
permitted.
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SUBJECT TO COMPLETION, DATED
MARCH 12, 2010.
PRELIMINARY PROSPECTUS
6,000,000 Shares
Common Stock
We are offering 6,000,000 shares of our common stock, no
par value per share. Our common stock is traded on the NASDAQ
Global Market under the symbol BOCH.
On ,
2010, the last reported sale price of our common stock on the
NASDAQ Global Market was $ per
share.
These shares of common stock are not savings accounts,
deposits, or other obligations of our bank subsidiary or any of
our non-bank subsidiaries and are not insured by the Federal
Deposit Insurance Corporation or any other governmental
agency.
Investing in our common stock involves risks. See RISK
FACTORS beginning on page 8 to read about factors you
should consider before buying our common stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or
complete. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Public offering price
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$
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$
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Underwriting discounts and commissions
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$
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$
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Proceeds to Bank of Commerce Holdings (before expenses)*
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$
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$
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* |
Please see UNDERWRITING for information regarding
certain expenses of the underwriters being borne by us.
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The underwriters also may purchase up to an additional
900,000 shares of our common stock within 30 days of
the date of this prospectus to cover over-allotments, if any.
The underwriters expect to deliver the common stock in
book-entry form only, through the facilities of The Depository
Trust Company, against payment on or
about ,
2010.
Howe
Barnes Hoefer & Arnett
The date of this prospectus
is ,
2010
Bank of
Commerce Holdings
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Churn Creek Road
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Placer Street
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Buenaventura Boulevard
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TABLE OF
CONTENTS
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Page
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ii
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iii
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iii
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1
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6
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8
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20
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21
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22
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23
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23
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27
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29
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29
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EX-23.1 |
CAUTIONARY
STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference
contain certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended (the
Securities Act), and Section 21E of the
Securities Exchange Act of 1934, as amended, (the Exchange
Act), which are intended to be covered by the safe harbors
created thereby. These forward-looking statements represent
plans, estimates, objectives, goals, guidelines, expectations,
intentions, projections and statements of our beliefs concerning
future events, business plans, objectives, expected operating
results and the assumptions upon which those statements are
based. Forward-looking statements include, without limitation,
any statement that may predict, forecast, indicate or imply
future results, performance or achievements, and are typically
identified with words such as may,
could, should, will,
would, believe, anticipate,
estimate, expect, intend,
plan, or words or phrases of similar meaning. We
caution that the forward-looking statements are based largely on
our expectations and are subject to a number of known and
unknown risks and uncertainties that are subject to change based
on factors which are, in many instances, beyond our control.
Actual results, performance or achievements could differ
materially from those contemplated, expressed, or implied by the
forward-looking statements.
The following factors, among others, could cause our actual
results to differ materially from those expressed in such
forward-looking statements:
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The strength of the United States economy in general and the
strength of the local economies in which we conduct operations,
the duration of current financial and economic volatility and
decline and actions taken by the United States Congress and
governmental agencies, including the United States Department of
the Treasury (the Treasury), to deal with challenges
to the United States financial system;
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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;
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Inflation, interest rate, market and monetary fluctuations, the
risks presented by a continued economic recession, which could
adversely affect credit quality, collateral values, investment
values and liquidity;
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Changes in the financial performance
and/or
condition of our borrowers;
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Changes in consumer spending, borrowing and savings habits;
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Changes in the level of our nonperforming assets and charge-offs;
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Oversupply of inventory and continued deterioration in values of
real estate in California and the United States generally,
both residential and commercial;
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Changes in securities markets, public debt markets and other
capital markets;
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Possible
other-than-temporary
impairments of securities held by us;
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The timely development of competitive new products and services
and the acceptance of these products and services by new and
existing customers;
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The willingness of customers to substitute competitors
products and services for our products and services;
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The impact of changes in financial services policies, laws and
regulations, including laws, regulations and policies concerning
taxes, banking, securities and insurance, and the application
thereof by regulatory bodies;
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Technological changes could expose us to new risks, including
potential systems failures or fraud;
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The timing and effect of acquisitions we may make, if any,
including, without limitation, the failure to achieve the
expected revenue growth
and/or
expense savings from such acquisitions;
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Possible impairment of goodwill that has been recorded in
connection with acquisitions which may have a material adverse
impact on our earnings;
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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 (the SEC), the Public Company Accounting
Oversight Board, the Financial Accounting Standards Board or
other accounting standards setters;
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The impact of current governmental efforts to restructure the
United States financial regulatory system, including changes in
the scope and cost of FDIC insurance and other coverages and
changes in the Treasurys Capital Purchase Program;
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Ability to attract deposits and other sources of liquidity at
acceptable costs;
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Changes in the competitive environment among financial and bank
holding companies and other financial service providers;
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The loss of critical personnel and the challenge of hiring
qualified personnel at reasonable compensation levels;
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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;
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Unanticipated regulatory or judicial proceedings; and
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Our ability to manage the risks involved in the foregoing.
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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
prospectus and in the information incorporated by reference in
this prospectus. Therefore, we caution you not to place undue
reliance on our forward-looking information and statements. We
will not update the forward-looking statements to reflect actual
results or changes in the factors affecting the forward-looking
statements.
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 set forth under RISK
FACTORS and disclosed in our filings with the SEC
described below under the heading WHERE YOU CAN FIND MORE
INFORMATION, all of which is accessible on the SECs
website at www.sec.gov.
ABOUT
THIS PROSPECTUS
You should rely only on the information contained or
incorporated by reference in this prospectus. We have not, and
the underwriters have not, authorized any person to provide you
with different or inconsistent information. If anyone provides
you with different or inconsistent information, you should not
rely on it. We are not, and the underwriters are not, making an
offer to sell these securities in any jurisdiction where the
offer or sale is not permitted. You should assume that the
information appearing in this prospectus and the documents
incorporated by reference is accurate only as of their
respective dates. Our business, financial condition, results of
operations and prospects may have changed since such dates.
In this prospectus, Bank of Commerce Holdings, the
Company, we, our,
ours, and us refer to Bank of Commerce
Holdings, which is a financial holding company headquartered in
Redding, California, and its subsidiaries on a consolidated
basis, unless the context otherwise requires. References to the
Bank mean Redding Bank of Commerce, which is a
California-chartered commercial bank and our wholly-owned
banking subsidiary.
WHERE YOU
CAN FIND MORE INFORMATION
We file annual, quarterly and current reports, proxy statements
and other information with the SEC. You may read and copy any
document we file at the SECs Public Reference Room at
100 F Street, N.E.,
iii
Washington, D.C. 20549. You may obtain information on
the operation of the Public Reference Room by calling the SEC
at 1-800-SEC-0330.
The SEC also maintains an Internet site that contains reports,
proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The
Internet address of the SECs website is www.sec.gov.
Such reports and other information concerning us also can be
retrieved by accessing our website at
www.bankofcommerceholdings.com or
www.reddingbankofcommerce.com. Information on our
websites is not part of this prospectus.
This prospectus, which is a part of a registration statement on
Form S-1
that we have filed with the SEC under the Securities Act, omits
certain information set forth in the registration statement.
Accordingly, for further information, you should refer to the
registration statement and its exhibits on file with the SEC.
Furthermore, statements contained in this prospectus concerning
any document filed as an exhibit are not necessarily complete
and, in each instance, we refer you to the copy of such document
filed as an exhibit to the registration statement.
The SEC allows us to incorporate by reference information we
file with it, which means that we can disclose important
information to you by referring you to other documents. The
information incorporated by reference is considered to be part
of this prospectus. We incorporate by reference the documents
listed below, except to the extent that any information
contained in such filings are deemed furnished in
accordance with SEC rules:
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Our Annual Report on
Form 10-K
for the year ended December 31, 2009, filed with the SEC on
March 5, 2010;
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Our Current Reports on
Form 8-K
filed with the SEC on February 9, 2010 (as amended by our
Form 8-K/A
filed on February 18, 2010), February 11, 2010, and
March 5, 2010.
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Upon request, we will provide to each person, including any
beneficial owner to whom a prospectus is delivered, a copy of
any or all of the reports or documents that have been
incorporated by reference in the prospectus contained in the
registration statement, but not delivered with the prospectus.
You may request a copy of these filings (other than an exhibit
to a filing unless that exhibit is specifically incorporated by
reference into that filing) at no cost, by writing to or
telephoning us at the following address and telephone number:
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Bank of
Commerce Holdings
1951 Churn Creek Road
Redding, California 96002
Attention: Samuel D. Jimenez, Chief Financial Officer
Telephone:
(530) 722-3952
iv
PROSPECTUS
SUMMARY
This summary highlights some information contained elsewhere
or incorporated by reference in this prospectus and it may not
contain all of the information that is important to you in
making an investment decision. To understand the terms of the
common stock offered by this prospectus, you should read this
prospectus as well as the information to which we refer you and
the information incorporated by reference in this prospectus.
You should carefully read the section titled RISK
FACTORS in this prospectus to determine whether an
investment in our common stock is appropriate for you.
About
Bank of Commerce Holdings
Bank of Commerce Holdings is a corporation organized under the
laws of California and a financial holding company registered
under the Bank Holding Company Act of 1956, as amended. Our
principal business is to serve as a holding company for Redding
Bank of Commerce, which operates under two separate names
(Redding Bank of
Commercetm
and Roseville Bank of
Commercetm)
and for Bank of Commerce
Mortgagetm,
our majority-owned mortgage brokerage subsidiary. We also have
two unconsolidated subsidiaries, Bank of Commerce Holdings Trust
and Bank of Commerce Holdings Trust II, which were
organized in connection with our prior issuances of trust
preferred securities. Our common stock is traded on the NASDAQ
Global Market under the symbol BOCH.
The Bank commenced banking operations in 1982 and currently
operates four full service facilities in two diverse markets in
Northern California. We are proud of the Banks reputation
as one of Northern Californias premier banks for business.
During 2007, we re-branded the Bank as Bank of
Commerceï
Bank of
Choicetm
reflecting a renewed commitment to making the Bank the choice
for local businesses with a fresh focus on family and personal
finances. We provide a wide range of financial services and
products for business and consumer banking. The services offered
by the Bank include those traditionally offered by banks of
similar size in California, such as free checking,
interest-bearing checking and savings accounts, money market
deposit accounts, sweep arrangements, commercial, construction
and term loans, travelers checks, safe deposit boxes, collection
services and electronic banking activities. The Bank is an
affiliate of LPL Financial and offers wealth management services
through that affiliation.
In order to enhance our noninterest income, in May 2009 we
acquired 51.0% of the capital stock of Simonich Corporation, a
successful state of the art mortgage broker of residential real
estate loans headquartered in San Ramon, California, with
ten offices in three different states and licenses in
California, Oregon, Washington, Idaho and Colorado. The business
was formed in 1993 and funds over $1.0 billion of first
mortgages annually. The acquisition allows us to penetrate into
the mortgage brokerage services market at our current Bank
locations and to share in the income on mortgage transactions
nationwide. On July 1, 2009 we changed the mortgage
companys name to Bank of Commerce
Mortgagetm
in order to enhance our name recognition throughout Northern
California. The services offered by Bank of Commerce
Mortgagetm
include brokerage mortgages for single and multi-family
residential new financing, refinancing and equity lines of
credit which are then sold, servicing included, on the secondary
market or to correspondent relationships.
Our principal executive offices are located at 1951 Churn Creek
Road, Redding, California and the telephone number is
(530) 722-3939.
2009
Results and Balance Sheet Composition
Due to conservative loan underwriting, active servicing of
problem credits and maintenance of a healthy net interest
margin, we have remained profitable during the recent economic
downturn and positioned the company to take advantage of growth
opportunities in the coming years. During 2009 we recorded net
income of $6.0 million, and net income to common
shareholders of $5.1 million, or $0.58 per diluted share,
after deducting preferred dividend payments made to the Treasury
and accretion of preferred shares under the TARP Capital
Purchase Program. This was an increase from $2.2 million of
net income, or $0.25 per share, reported in 2008. As of
December 31, 2009, we had total assets of
$813.4 million, total loans of $601.4 million, an
allowance for loan and lease losses of $11.2 million, or
1.86% of total loans, deposits outstanding of
$640.5 million and shareholders equity of
$68.8 million.
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During the past two years, we have restructured our loan
portfolio, in order to reduce our concentration in commercial
real estate loans, especially construction and land development
loans, and maintained our strengths in commercial and financial
loans. In addition, in April 2009, we entered into a loan sale
and purchase agreement with a third party whereby we purchased
an $80.7 million pool of first mortgage loans made to legal
United States residents who do not have a social security number
(ITIN loans). These were seasoned, performing loans
carrying an average balance of $86,000 and a yield of 7.44%.
Net portfolio loans increased $71.1 million or 13.7%, to
$590.0 million at December 31, 2009 over
$518.9 million at December 31, 2008. The increase is
primarily due to the purchase of the ITIN loan pool and
increased activities in commercial real estate categories.
Residential mortgage loans increased $78.5 million and
commercial real estate increased $42.1 million. Other real
estate reflects an increased investment in home equity lines of
credit. The portfolio mix reflected a substantial increase in
real estate mortgage loans to 16.42% of the portfolio in 2009 as
compared to 3.85% of the portfolio in 2008. The other material
changes are reflected in the decrease in the commercial and
financial, and real estate construction portfolios; commercial
and financial loans represent 22.13% of total loans as compared
to 31.11% in 2008 while real estate construction loans reflect
9.90% of total loans versus 15.97% at year-end 2008. As of
December 31, 2009 and 2008, our loan portfolio consisted of
the following types of loans:
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December 31, 2009
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December 31, 2008
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Percentage of
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Percentage of
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Loan Type
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Dollar Amount
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Total Loans
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Dollar Amount
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Total Loans
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(In thousands)
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(In thousands)
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Commercial and financial loans
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$
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133,080
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22.13
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%
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$
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164,083
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31.11
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%
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Real estate construction loans
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59,524
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9.90
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84,218
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15.97
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Real estate commercial (investor)
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197,022
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32.76
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147,868
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28.03
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Real estate commercial (owner occupied)
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63,001
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10.48
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70,046
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13.28
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Real estate ITIN loans
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78,250
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13.01
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0.00
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Real estate other mortgage
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20,526
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3.41
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20,285
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3.85
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Real estate other
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45,601
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7.58
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39,915
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7.57
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Installment
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2,223
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0.37
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145
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0.02
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Other loans
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2,212
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0.36
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903
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0.17
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Total loans
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$
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601,439
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100.00
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%
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$
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527,463
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100.00
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%
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During 2009, we increased our emphasis on gathering core
deposits within our markets through the opening of our
Buenaventura branch in Redding, the promotion of a new savings
product and the adoption of an incentive compensation plan for
our employees for obtaining non-CD deposit accounts. As an
operating tool to manage the Banks net interest income,
although not customary in the industry, our management
calculates core deposits without regard to any
certificates of deposit, regardless of point of origination,
size or maturity. As of December 31, 2009 and 2008 our
deposits consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
December 31, 2008
|
|
|
|
|
|
|
Percentage of
|
|
|
|
|
|
Percentage of
|
|
Deposit Type
|
|
Dollar Amount
|
|
|
Total Deposits
|
|
|
Dollar Amount
|
|
|
Total Deposits
|
|
|
|
(In thousands)
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Demand noninterest bearing
|
|
$
|
69,448
|
|
|
|
10.84
|
%
|
|
$
|
79,988
|
|
|
|
14.40
|
%
|
Demand interest bearing
|
|
|
163,813
|
|
|
|
25.58
|
|
|
|
143,871
|
|
|
|
25.91
|
|
Savings
|
|
|
65,414
|
|
|
|
10.21
|
|
|
|
67,136
|
|
|
|
12.09
|
|
Certificates of Deposit
|
|
|
341,789
|
|
|
|
53.37
|
|
|
|
264,287
|
|
|
|
47.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deposits
|
|
$
|
640,464
|
|
|
|
100.00
|
%
|
|
$
|
555,282
|
|
|
|
100.00
|
%
|
Our base of core deposits has been a driver of our net interest
margin and profitability throughout our recent history. Among
our deposits, our brokered deposits totaled $86.7 million
at December 31, 2009. Included in the brokered deposit
figure is our internet-based deposit gathering program. The
program has been extremely successful in both the level of
deposits and pricing. We have subscribed to National CD Rate
line
2
and Community Bank Funding Companys electronic transaction
network (eTN) for approximately 15 months. The
deposits gathered under the National CD Rate line program are
not considered brokered. We pay an annual
subscription fee to post our rates to the companys
website. Institutional investors such as credit unions, banks,
insurance companies, and other financial institutions review our
rates and contact us directly to confirm our rates and submit
the proper documentation to establish a time deposit. As of
December 31, 2009, we had approximately $50.0 million
in National CD Rate line time deposits; with rates between 50 to
100 basis points below our local markets. The individual
time deposits generally range from $99,000 to $250,000.
The eTN subscription program through Community Bank Funding
Company (CBFC) is somewhat different than the
National CD Rate line program. As with National CD Rate line,
institutional investors subscribe to CBFC program to view our
rates and the posted rates of other banks. However, CBFC does
not charge a subscription fee to post or view the interest rates
but instead charges a fee of 6 to 20 basis points from each
investors time deposit as the cost of doing business.
Accordingly, we report these deposits as brokered.
As of December 31, 2009, we had approximately
$12.0 million in CBFC time deposits; with rates between 50
to 100 basis points below our local markets. The individual
time deposits generally range from $99,000 to $250,000.
Our net interest margin increased to 3.94% in 2009 from 3.47% in
2008, due in part to the reduction of our cost of funds to 1.87%
resulting from our core deposit strategy, CD programs and the
favorable re-pricing of certain borrowings. Net interest income
increased $7.7 million to $29.0 million in 2009
compared to $21.3 million in 2008 and $22.0 million in
2007, representing a 35.82% increase in 2009 over 2008, and a
3.02% decrease in 2008 over 2007. The average balance of total
earning assets increased to $735.2 million in 2009 compared
to $615.0 million in 2008, which reflects a 19.55%
increase. $68.2 million of the increase in average total
earning assets is attributable to the purchase of the ITIN loan
pool. The ITIN loan pool contributed $3.8 million of net
interest income in 2009.
Business
Strategy
We continuously search for both organic and external expansion
opportunities, through internal growth, strategic alliances,
acquisitions, establishing a new office or the delivery of new
products and services. Systematically, we will reevaluate the
short and long-term profitability of all of our lines of
business, and will not hesitate to reduce or eliminate
unprofitable locations or lines of business. We remain a viable,
independent bank committed to enhancing shareholder value. This
commitment has been fostered by proactive management and
dedication to our staff, customers, and the markets we serve.
Our vision is to embrace changes in the industry and develop
profitable business strategies that allow us to maintain our
customer relationships and build new ones. Our competitors are
no longer just banks; we must compete with a myriad of other
financial entities that compete for our core business. The
flexibility provided by our status as a financial holding
company has become increasingly important. We have developed
strategic plans that evaluate additional financial services and
products that can be delivered to our customers efficiently and
profitably. Producing quality returns is, as always, a top
priority.
Our governance structure enables us to manage all major aspects
of our business effectively through an integrated process that
includes financial, strategic, risk and leadership planning. Our
management processes, structures and policies and procedures
help to ensure compliance with laws and regulations and provide
clear lines for decision-making and accountability. Results are
important, but we are equally concerned with how we achieve
those results. Our core values and commitment to high ethical
standards is material to sustaining public trust and confidence
in our Company.
Our primary business strategy is to provide comprehensive
banking and related services to small and mid-sized businesses,
not-for-profit
organizations, and professional service providers as well as
banking services for consumers, primarily business owners and
their key employees. We emphasize the diversity of our product
lines and high levels of personal service and, through our
technology, offer convenient access typically associated with
larger financial institutions, while maintaining the local
decision-making authority and market
3
knowledge, typical of a local community bank. Management intends
to pursue our business strategy through the following
initiatives:
|
|
|
|
|
Utilize the Strength of Our Management
Team. The experience, depth and knowledge of our
management team represent one of our greatest strengths and
competitive advantages. Our Senior Leadership Committee
establishes short and long-term strategies, operating plans and
performance measures and reviews our performance to plan on a
monthly basis. Our Credit Round Table Committee recommends
corporate credit practices and limits, including industry
concentration limits and approval requirements and exceptions.
Our Technology Steering Committee establishes technological
strategies, makes technology investment decisions, and manages
the implementation process. Our ALCO Round Table Committee
establishes and monitors liquidity ranges, pricing, maturities,
investment goals, and interest spread on balance sheet accounts.
Our SOX 404 Compliance Team has established the master plan for
full documentation of the Companys internal controls and
compliance with Section 404 of the Sarbanes-Oxley Act of
2002.
|
|
|
|
Leverage Our Existing Foundation for Additional
Growth. Based on our managements depth of
experience and certain infrastructure investments, we believe
that we will be able to take advantage of certain economies of
scale typically enjoyed by larger organizations to expand our
operations both organically and through strategic cost-effective
avenues. We believe that there will be significant opportunities
to acquire failing institutions or their assets through loss
sharing agreements with the FDIC, buy branches from struggling
banks in our market areas looking to raise capital, and acquire
entire franchises for little to no premium. We also believe that
the investments we have made in our data processing, staff and
branch network will be able to support a much larger asset base.
We are committed, however, to control any additional growth in a
manner designed to minimize risk and to maintain strong capital
ratios. We believe that the net proceeds raised in this offering
will assist us in implementing our growth strategies by
providing the capital necessary to support future asset growth,
both organically and through strategic acquisitions.
|
|
|
|
Maintain Local Decision-Making and
Accountability. We believe we have a competitive
advantage over larger national and regional financial
institutions by providing superior customer service with
experienced, knowledgeable management, localized decision-making
capabilities and prompt credit decisions. We believe that our
customers want to deal directly with the people who make the
ultimate credit decisions and have provided our Bank managers
and loan officers with the authority commensurate with their
experience and history which we believe strikes the right
balance between local decision-making and sound banking practice.
|
|
|
|
|
|
Focus on Asset Quality and Strong
Underwriting. We consider asset quality to be of
primary importance and have taken measures to ensure that,
despite the turbulent economy and growth in our loan portfolio,
we consistently maintain strong asset quality. As part of our
efforts, we utilize a third party loan review service to
evaluate our loan portfolio on a quarterly basis and recommend
action on certain loans if deemed appropriate. As of
December 31, 2009, we had $15.6 million in
nonperforming assets, including other real estate owned of
$2.9 million, which as a percentage of total assets was
2.27%. We also seek to maintain a prudent allowance for loan
losses, which at December 31, 2009 was $11.2 million,
representing 1.86% of our loan portfolio.
|
|
|
|
|
|
Build a Stable Core Deposit Base. We will
continue to grow a stable core deposit base of business and
retail customers. In the event that our asset growth outpaces
these local core deposit funding sources, we will continue to
utilize Federal Home Loan Bank borrowings and raise deposits in
the national market using deposit intermediaries. We intend to
continue our practice of developing a full deposit relationship
with each of our loan customers, their business partners, and
key employees. We will continue to use hot spot
consumer depositories with state of the art technologies in
highly convenient locations to enhance our core deposit base.
|
4
Risk
Factors
An investment in our common stock involves certain risks. You
should consider carefully the risks described under RISK
FACTORS beginning on page 8 of this prospectus, as
well as other information included in or incorporated by
reference into this prospectus, including our consolidated
financial statements and notes thereto, before making an
investment decision.
The
Offering
The following summary of the offering contains basic information
about this offering and our common stock and is not intended to
be a complete discussion of the offering or the common stock.
For a more complete understanding of the common stock, please
refer to the section of this prospectus entitled
DESCRIPTION OF CAPITAL STOCK.
|
|
|
Issuer |
|
Bank of Commerce Holdings, a California corporation |
|
|
|
Common stock we are offering |
|
6,000,000 shares of common stock, no par value |
|
|
|
Common stock outstanding after this offering |
|
14,711,495 shares of common stock (1)(2) |
|
|
|
Over-allotment option |
|
We have granted the underwriters an option to purchase up to an
additional 900,000 shares of common stock within
30 days of the date of this prospectus in order to cover
over-allotments, if any. |
|
|
|
Use of proceeds |
|
We intend to use the net proceeds from this offering to enhance
our ability to support internal organic growth, to maintain
prudent and required regulatory capital levels, and for general
corporate purposes which may include pursuing acquisitions of
deposits, loans, whole banks or branches through both negotiated
and FDIC-assisted transactions, and to position us for the
eventual redemption of our Series A Preferred Stock issued
to the Treasury under the TARP Capital Purchase Program. |
|
Market and trading symbol for our common stock |
|
Our common stock is listed and traded on the NASDAQ Global
Market under the symbol BOCH. |
|
|
|
(1) |
|
The number of shares of common stock outstanding immediately
after the closing of this offering is based on
8,711,495 shares of common stock outstanding as of
March 11, 2010. |
|
|
|
(2) |
|
Unless otherwise indicated, the number of shares of common stock
presented in this prospectus excludes shares issuable pursuant
to the exercise of the underwriters over-allotment option,
282,080 shares of common stock issuable pursuant to
outstanding options under our stock option plan and
405,405 shares of common stock issuable pursuant to
outstanding warrants issued to the Treasury as part of the TARP
Capital Purchase Program. |
5
SUMMARY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The selected consolidated financial data set forth below for the
years ended December 31, 2009, 2008, 2007, 2006 and 2005
have been derived from the Companys audited consolidated
financial statements. Historical results are not necessarily
indicative of future results. You should read the following
summary selected consolidated financial information in
conjunction with our consolidated financial statements and
related notes and Managements Discussion and
Analysis of Financial Condition and Results of Operations
included in our Annual Report on
Form 10-K
for the year ended December 31, 2009 (the 2009
Form 10-K)
which has been filed with the SEC and is incorporated by
reference in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands (except ratios and per share data)
|
|
|
Statements of Income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Interest Income
|
|
$
|
41,329
|
|
|
$
|
37,690
|
|
|
$
|
41,128
|
|
|
$
|
37,610
|
|
|
$
|
27,864
|
|
Net Interest Income
|
|
|
28,994
|
|
|
|
21,348
|
|
|
|
22,012
|
|
|
|
22,035
|
|
|
|
20,238
|
|
Provision for Loan Losses
|
|
|
9,475
|
|
|
|
6,520
|
|
|
|
3,291
|
|
|
|
226
|
|
|
|
448
|
|
Total Noninterest Income
|
|
|
10,063
|
|
|
|
2,623
|
|
|
|
4,535
|
|
|
|
1,928
|
|
|
|
2,124
|
|
Total Noninterest Expense
|
|
|
20,624
|
|
|
|
15,296
|
|
|
|
15,744
|
|
|
|
13,333
|
|
|
|
11,749
|
|
Net Income
|
|
|
6,005
|
|
|
|
2,194
|
|
|
|
6,107
|
|
|
|
6,568
|
|
|
|
6,278
|
|
Balance Sheets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
813,406
|
|
|
$
|
774,214
|
|
|
$
|
618,327
|
|
|
$
|
583,442
|
|
|
$
|
511,644
|
|
Total Gross Loans
|
|
|
601,439
|
|
|
|
527,463
|
|
|
|
494,748
|
|
|
|
414,191
|
|
|
|
368,041
|
|
Allowance for Loan Losses
|
|
|
11,207
|
|
|
|
8,429
|
|
|
|
8,233
|
|
|
|
4,904
|
|
|
|
4,316
|
|
Total Deposits
|
|
|
640,464
|
|
|
|
555,282
|
|
|
|
473,631
|
|
|
|
439,407
|
|
|
|
372,116
|
|
Shareholders Equity
|
|
$
|
68,807
|
|
|
$
|
62,578
|
|
|
$
|
46,164
|
|
|
$
|
43,916
|
|
|
$
|
39,138
|
|
Performance Ratios(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on Average Assets(2)
|
|
|
0.75
|
%
|
|
|
0.33
|
%
|
|
|
1.04
|
%
|
|
|
1.20
|
%
|
|
|
1.34
|
%
|
Return on Average Shareholders Equity(3)
|
|
|
9.01
|
|
|
|
4.99
|
|
|
|
13.39
|
|
|
|
15.59
|
|
|
|
18.35
|
|
Dividend Payout
|
|
|
34.81
|
|
|
|
127.04
|
|
|
|
46.47
|
|
|
|
40.36
|
|
|
|
35.74
|
|
Average Equity to Average Assets
|
|
|
8.28
|
|
|
|
8.91
|
|
|
|
9.43
|
|
|
|
9.49
|
|
|
|
9.43
|
|
Tier 1 Risk-Based Capital Holding Company(4)
|
|
|
12.06
|
|
|
|
11.87
|
|
|
|
10.12
|
|
|
|
11.52
|
|
|
|
12.05
|
|
Total Risk-Based Capital Holding Company
|
|
|
13.31
|
|
|
|
13.12
|
|
|
|
11.37
|
|
|
|
12.64
|
|
|
|
13.09
|
|
Tier 1 Risk-Based Capital Bank
|
|
|
11.57
|
|
|
|
11.58
|
|
|
|
9.97
|
|
|
|
11.42
|
|
|
|
12.08
|
|
Total Risk-Based Capital Bank
|
|
|
12.83
|
|
|
|
12.84
|
|
|
|
11.22
|
|
|
|
12.54
|
|
|
|
13.11
|
|
Net Interest Margin(5)
|
|
|
3.94
|
|
|
|
3.47
|
|
|
|
3.98
|
|
|
|
4.26
|
|
|
|
4.59
|
|
Average Earning Assets to Total Average Assets
|
|
|
91.42
|
|
|
|
92.86
|
|
|
|
93.74
|
|
|
|
94.20
|
|
|
|
94.04
|
|
Nonperforming Assets to Total Assets(6)
|
|
|
2.27
|
|
|
|
2.98
|
|
|
|
2.01
|
|
|
|
0.00
|
|
|
|
0.08
|
|
Net Charge-offs to Average Loans
|
|
|
1.14
|
|
|
|
1.22
|
|
|
|
0.00
|
|
|
|
(0.09
|
)
|
|
|
0.00
|
|
Allowance for Loan Losses to Total Loans
|
|
|
1.86
|
|
|
|
1.60
|
|
|
|
1.66
|
|
|
|
1.18
|
|
|
|
1.17
|
|
Nonperforming Loans to Allowance for Loan Losses
|
|
|
94.16
|
|
|
|
239.10
|
|
|
|
150.72
|
|
|
|
0.00
|
|
|
|
9.15
|
|
Efficiency Ratio(7)
|
|
|
52.80
|
|
|
|
63.81
|
|
|
|
59.31
|
|
|
|
55.64
|
|
|
|
52.54
|
|
6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
|
In thousands (except ratios and per share data)
|
|
|
Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Common Shares Outstanding basic
|
|
|
8,711
|
|
|
|
8,713
|
|
|
|
8,858
|
|
|
|
8,760
|
|
|
|
8,600
|
|
Average Common Shares Outstanding diluted
|
|
|
8,711
|
|
|
|
8,724
|
|
|
|
8,938
|
|
|
|
8,932
|
|
|
|
8,845
|
|
Book Value Per Common Share
|
|
$
|
5.72
|
|
|
$
|
5.23
|
|
|
$
|
5.27
|
|
|
$
|
4.96
|
|
|
$
|
4.52
|
|
Basic Earnings Per Common Share
|
|
|
0.58
|
|
|
|
0.25
|
|
|
|
0.69
|
|
|
|
0.75
|
|
|
|
0.73
|
|
Diluted Earnings Per Common Share
|
|
|
0.58
|
|
|
|
0.25
|
|
|
|
0.68
|
|
|
|
0.74
|
|
|
|
0.71
|
|
Cash Dividends Per Common Share(8)
|
|
|
0.24
|
|
|
|
0.32
|
|
|
|
0.33
|
|
|
|
0.29
|
|
|
|
0.26
|
|
|
|
|
(1) |
|
Regulatory capital ratios and asset quality ratios are end of
period ratios. With the exception of end of period ratios, all
ratios are based on average daily balances during the indicated
period. |
|
(2) |
|
Return on average assets is net income divided by average total
assets. |
|
(3) |
|
Return on average equity is net income divided by average
shareholders equity. |
|
(4) |
|
Regulatory capital ratios are defined in detail in our 2009
Form 10-K. |
|
(5) |
|
Net interest margin equals net interest income as a percent of
average interest-earning assets. |
|
(6) |
|
Nonperforming assets includes all nonperforming loans
(nonaccrual loans, loans 90 days past due and still
accruing interest and restructured loans) and real estate
acquired by foreclosure. |
|
(7) |
|
The efficiency ratio is calculated by dividing noninterest
expense by the sum of net interest income and noninterest
income. The efficiency ratio measures how much we spend in order
to generate each dollar of net revenue. |
|
(8) |
|
Excludes preferred shares under the Treasurys TARP Capital
Purchase Program as well as the minority interest in our
consolidated subsidiary related to Bank of Commerce Mortgage. |
7
RISK
FACTORS
An investment in our common stock involves certain risks. You
should carefully consider the risks described below, as well as
the other information included or incorporated by reference in
this prospectus, before making an investment decision.
Additional risks and uncertainties not presently known to us or
that we currently deem immaterial may also impair our business
operations. If any of these risks actually occurs, our business,
financial condition or results of operations could be materially
adversely affected. In that case, the trading price of our
common stock could decline substantially, and you may lose all
or part of your investment. Additional risks and uncertainties
not presently known to us at this time or that we currently deem
immaterial may also materially and adversely affect our business
and operations. The risks discussed below include
forward-looking statements, and our actual results may differ
substantially from those discussed in these forward-looking
statements.
Risks
Related to Our Business
Our
business is subject to various economic risks that could
adversely impact our results of operations and financial
condition.
There was significant disruption and volatility in the financial
and capital markets during 2008 and 2009. The financial markets
and the financial services industry in particular suffered
unprecedented disruption, causing a number of institutions to
fail or require government intervention to avoid failure. These
conditions were largely the result of the erosion of the United
States and international credit markets, including a significant
and rapid deterioration in the mortgage lending and related real
estate markets and valuation levels. Unemployment nationwide and
in California has increased significantly through this economic
downturn and is anticipated to increase or remain elevated for
the foreseeable future. Continued declines in real estate
values, high unemployment and financial stress on borrowers as a
result of the uncertain economic environment could have an
adverse effect on our borrowers or their customers, which could
adversely affect our financial condition and results of
operations.
We conduct banking operations principally in Northern
California. As a result, our business results are dependent in
large part upon the business activity, population, income
levels, deposits and real estate activity in Northern
California. There can be no assurance that the economic
conditions that have adversely affected the financial services
industry, and the capital, credit and real estate markets
generally, will improve in the near term, in which case we could
continue to experience losses and write-downs of assets, and
could face capital and liquidity constraints or other business
challenges. In addition, the State of California is currently
experiencing significant budgetary and fiscal difficulties,
which include terminating and furloughing state employees. The
businesses operating in California and Sacramento in particular
depend on these state employees for business, and reduced
spending activity by these state employees could have a material
impact on the success or failure of these businesses, some of
which are current or potential future customers of the Bank. A
further deterioration in economic conditions, particularly
within our geographic region, could result in the following
consequences, any of which could have a material adverse effect
on our business, prospects, financial condition and results of
operations:
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Loan delinquencies may further increase causing additional
increases in our provision and allowance for loan losses;
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Financial sector regulators may adopt more restrictive practices
or interpretations of existing regulations, or adopt new
regulations;
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Collateral for loans made by the Bank, especially real estate
related, may continue to decline in value, which in turn could
reduce a clients borrowing power, and reduce the value of
assets and collateral associated with our loans held for
investment;
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Consumer confidence levels may decline and cause adverse changes
in payment patterns, resulting in increased delinquencies and
default rates on loans and other credit facilities and decreased
demand for our products and services; and
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Performance of the underlying loans in the private label
mortgage backed securities we hold may continue to deteriorate
as the recession continues, potentially causing
other-than-temporary
impairment markdowns to our investment portfolio.
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Nonperforming assets take significant time to resolve and
adversely affect our results of operations and financial
condition.
As of December 31, 2009, our total nonperforming assets
amounted to $15.6 million, including $2.9 million in
other real estate owned, or 2.27% of our total assets, down from
$23.1 million, or 2.98% of total assets a year earlier. We
experienced $6.7 million in net charge-offs in 2009
compared to $6.3 million in 2008. Our provision for loan
and lease losses was $9.5 million for the twelve months
ended December 31, 2009 compared to $6.5 million for
the twelve months ended December 31, 2008. Nonperforming
assets adversely affect our net income in various ways. Until
economic and market conditions improve, we may expect to
continue to incur losses relating to an increase in
nonperforming assets. We generally do not record interest income
on nonperforming loans or other real estate owned, thereby
adversely affecting our income, and increasing our loan
administration costs. When we take collateral in foreclosures
and similar proceedings, we are required to mark the related
asset to the then fair market value of the collateral, which may
ultimately result in a loss. An increase in the level of
nonperforming assets increases our risk profile and may impact
the capital levels our regulators believe are appropriate in
light of the ensuing risk profile.
While we reduce problem assets through loan sales, workouts,
restructurings and otherwise, decreases in the value of the
underlying collateral, or in these borrowers performance
or financial condition, whether or not due to economic and
market conditions beyond our control, could adversely affect our
business, results of operations and financial condition. In
addition, the resolution of nonperforming assets requires
significant commitments of time from management and our
directors, which can be detrimental to the performance of their
other responsibilities. There can be no assurance that we will
not experience future increases in nonperforming assets.
We
have a concentration risk in real estate related
loans.
As of December 31, 2009, approximately 77.14% of our loan
portfolio was secured by real estate, the majority of which is
commercial real estate. Of that amount, 9.90% of our total loan
portfolio consisted of construction loans, 43.24% related to
commercial real estate, 16.42% related to residential mortgage
loans (including our ITIN loans) and 7.58% involved real estate
related loans not classified in the preceding definitions. As a
result of increased levels of commercial and consumer
delinquencies and declining real estate values, we have
experienced increasing levels of net charge-offs. A large
percentage of our loan portfolio is secured by commercial real
estate loans which generally carry larger loan balances and
historically have involved a greater degree of financial and
credit risks than residential first mortgage loans. These loans
are primarily made based on the cash flow of the borrower and
secondarily on the underlying collateral provided by the
borrower, and therefore repayment of these loans is often
dependent on the cash flow of the borrower which may be
unpredictable. Continued increases in commercial and consumer
delinquency levels or continued declines in real estate market
values would require increased net charge-offs and increases in
the allowance for loan and lease losses, which could have a
material adverse effect on our business, financial condition,
results of operations and prospects.
Monitoring
and servicing our Individual Tax Identification Number
(ITIN) residential mortgage loans could prove more
costly and time consuming than previously modeled.
In April 2009, we completed a loan swap transaction,
whereby we exchanged, without recourse, $14.0 million in
certain nonperforming assets measured at fair value and cash of
approximately $67.0 million for a pool of performing ITIN
loans with an estimated fair value of $80.7 million. These
loans are residential mortgage loans made to United States
residents without a social security number and are
geographically dispersed throughout the United States. This is
our first ITIN loan transaction, and as such, is serviced
through a third party. Worsening economic conditions in the
United States may cause us to suffer higher default rates on our
ITIN loans and reduce the value of the assets that we hold as
collateral. In addition, if we are forced to
9
foreclose and service these ITIN properties ourselves, we may
realize additional monitoring, servicing and appraisal costs due
to the geographic dispersement of the portfolio which would
adversely affect our noninterest expense.
Future
loan losses may exceed the loan loss allowance.
We have established a reserve for possible losses expected in
connection with loans in the credit portfolio. This allowance
reflects estimates of the collectability of certain identified
loans, as well as an overall risk assessment of total loans
outstanding. The determination of the amount of loan loss
allowance is subjective; although the method for determining the
amount of the allowance uses criteria such as risk ratings and
historical loss rates, these factors may not be adequate
predictors of future loan performance, particularly in the
current economic climate. Accordingly, we cannot offer
assurances that these estimates ultimately will prove correct or
that the loan loss allowance will be sufficient to protect
against losses that ultimately may occur. If the loan loss
allowance proves to be inadequate, we will need to make
additional provisions to the allowance, which is accounted for
as charges to income, which would adversely impact results of
operations and financial condition. Moreover, bank regulators
frequently monitor banks loan loss allowances, and if
regulators were to determine that the allowance was inadequate,
they may require us to increase the allowance, which also would
adversely impact results of operations and financial condition.
Defaults
may negatively impact us.
A source of risk arises from the possibility that losses will be
sustained if a significant number of borrowers, guarantors and
related parties fail to perform in accordance with the terms of
their loans. We have adopted underwriting and credit monitoring
procedures and credit policies, including the establishment and
review of the allowance for loan losses, which management
believes are appropriate to minimize risk by assessing the
likelihood of nonperformance, tracking loan performance and
diversifying the loan portfolio. These policies and procedures,
however, may not prevent unexpected losses that could materially
affect our results of operations.
Interest
rate fluctuations, which are out of our control, could harm
profitability.
Our income is highly dependent on interest rate
differentials and the resulting net interest margins
(i.e., the difference between the interest rates earned on the
Banks interest-earning assets such as loans and
securities, and the interest rates paid on the Banks
interest-bearing liabilities such as deposits and borrowings).
These rates are highly sensitive to many factors, which are
beyond our control, including general economic conditions,
inflation, recession and the policies of various governmental
and regulatory agencies, in particular, the Federal Reserve
Board. Because of our preference for using variable rate pricing
on the majority of our loan portfolio and non-interest bearing
demand deposit accounts we are asset sensitive. As a result, we
are generally adversely affected by declining interest rates. In
addition, changes in monetary policy, including changes in
interest rates, influence the origination of loans, the purchase
of investments and the generation of deposits. These changes
also affect the rates received on loans and securities and paid
on deposits, which could have a material adverse effect on our
business, financial condition and results of operations.
Changes
in the fair value of our securities may reduce our
shareholders equity and net income.
At December 31, 2009, $80.1 million of our securities
were classified as
available-for-sale.
At such date, the aggregate net unrealized gain on our
available-for-sale
securities, net of tax, was $658,000. We increase or decrease
shareholders equity by the amount of change from the
unrealized gain or loss (the difference between the estimated
fair value and the amortized cost) of our
available-for-sale
securities portfolio, net of the related tax, under the category
of accumulated other comprehensive income/loss. Therefore, a
decline in the estimated fair value of this portfolio will
result in a decline in reported shareholders equity, as
well as book value per common share and tangible book value per
common share. This decrease will occur even though the
securities are not sold. In the case of debt securities, if
these securities are never sold and there are no credit
impairments, the decrease will be recovered over the life of the
securities. In the event there are credit loss related
impairments, the credit loss component is recognized in earnings.
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Our available for sale equity holdings consist of shares of the
Federal Home Loan Bank of San Francisco (FHLB).
As of December 31, 2009, we held stock in the FHLB totaling
$6.1 million. The stock is carried at cost and is subject
to recoverability testing under applicable accounting standards.
As of December 31, 2009, we did not recognize an impairment
charge related to our FHLB stock holdings; however, future
negative changes to the financial condition of the FHLB may
require us to recognize an impairment charge with respect to
such stock holdings.
Conditions
in the financial markets may limit our access to additional
funding to meet our liquidity needs.
Liquidity is essential to our business, as we must maintain
sufficient funds to respond to the needs of depositors and
borrowers. An inability to raise funds through deposits,
repurchase agreements, federal funds purchased, FHLB advances,
the sale or pledging as collateral of loans and other assets
could have a substantial negative effect on our liquidity. Our
access to funding sources in amounts adequate to finance our
activities could be impaired by factors that affect us
specifically or the financial services industry in general.
Factors that could negatively affect our access to liquidity
sources include negative operating results, a decrease in the
level of our business activity due to a market downturn or
negative regulatory action against us. Our ability to borrow
could also be impaired by factors that are not specific to us,
such as severe disruption of the financial markets or negative
news and expectations about the prospects for the financial
services industry as a whole, as evidenced by turmoil in the
domestic and worldwide credit markets in recent years.
The
condition of other financial institutions could negatively
affect us.
Financial services institutions are interrelated as a result of
trading, clearing, counterparty, public perceptions and other
relationships. We have exposure to many different industries and
counterparties, and we routinely execute transactions with
counterparties in the financial services industry, including
commercial banks, brokers and dealers, investment banks and
other institutional clients. Many of these transactions expose
us to credit risk in the event of a default by a counterparty or
client. In addition, our credit risk may be exacerbated when the
collateral held by us cannot be realized upon or is liquidated
at prices not sufficient to recover the full amount of the
credit or derivative exposure due to us. Any such losses could
have a material adverse effect on our financial condition and
results of operations.
Changes
in laws, government regulation and monetary policy may have a
material effect on our results of operations.
Financial institutions have been the subject of substantial
legislative and regulatory changes and may be the subject of
further legislation or regulation in the future, none of which
is within our control. Significant new laws or regulations or
changes in, or repeals of, existing laws or regulations may
cause our results of operations to differ materially. In
addition, the cost and burden of compliance with applicable laws
and regulations have significantly increased and could adversely
affect our ability to operate profitably.
Further, federal monetary policy significantly affects credit
conditions for us, as well as for our borrowers, particularly as
implemented by the Federal Reserve Board, primarily through open
market operations in United States government securities,
the discount rate for bank borrowings and reserve requirements.
A material change in any of these conditions could have a
material impact on us or our borrowers, and therefore on our
results of operations.
On October 3, 2008, the Emergency Economic Stabilization
Act of 2008 (EESA) was signed into law. Pursuant to
the EESA, the Treasury was granted the authority to take a range
of actions for the purpose of stabilizing and providing
liquidity to the United States financial markets and has
proposed several programs, including the purchase by the
Treasury of certain troubled assets from financial institutions
and the direct purchase by the Treasury of equity of financial
institutions. There can be no assurance, however, as to the
actual impact that the foregoing or any other governmental
program will have on the financial markets. The failure of the
financial markets to stabilize and a continuation or worsening
of current financial market conditions could materially and
adversely affect our business, financial condition, results of
operations, access
11
to credit or the trading price of our common stock. In
addition, current initiatives of President Obamas
Administration and the possible enactment of recently proposed
bankruptcy legislation may adversely affect our financial
condition and results of operations. There can be no assurance,
however, as to the actual impact that the foregoing or any other
governmental program will have on the financial markets.
The failure of the financial markets to stabilize and a
continuation or worsening of current financial market conditions
could materially and adversely affect our business, financial
condition, results of operations, access to credit and the
trading price of our common stock.
We expect to face increased regulation and supervision of our
industry as a result of the existing financial crisis, and there
will be additional requirements and conditions imposed on us to
the extent that we participate in any of the programs
established or to be established by the Treasury or by the
federal bank regulatory agencies. Such additional regulation and
supervision may increase our costs and limit our ability to
pursue business opportunities. The effects of such recently
enacted, and proposed, legislation and regulatory programs on us
cannot reliably be determined at this time.
Because
of our participation in the Troubled Asset Relief Program we are
subject to several restrictions including, without limitation,
restrictions on our ability to declare or pay dividends and
repurchase our shares as well as restrictions on compensation
paid to our executives.
On November 14, 2008, in exchange for an aggregate purchase
price of $17.0 million, we issued and sold to the Treasury
pursuant to the Trouble Asset Relief Program (TARP)
Capital Purchase Program the following:
(i) 17,000 shares of our newly designated Fixed Rate
Cumulative Perpetual Preferred Stock, Series A, no par
value per share and liquidation preference $1,000 per share
(Series A Preferred Stock) and (ii) a
warrant to purchase up to 405,405 shares of our common
stock, no par value per share, at an exercise price of $6.29 per
share, subject to certain anti-dilution and other adjustments.
The warrant may be exercised for up to ten years after issuance.
In connection with the issuance and sale of our securities, we
entered into a Letter Agreement including the Securities
Purchase Agreement Standard Terms, dated
November 14, 2008, with the Treasury
(Agreement). The Agreement contains limitations on
the payment of quarterly cash dividends on our common stock in
excess of $0.08 per share, and on our ability to repurchase our
common stock.
Our
Series A Preferred Stock diminishes the net income
available to our common shareholders and earnings per common
share.
The dividends accrued on the Series A Preferred Stock
reduce the net income available to common shareholders and our
earnings per common share. In 2009 our net income of
$6.0 million was reduced to $5.1 million after
deducting approximately $942,000 in dividends to the Treasury
plus accretion on the Series A Preferred Stock. The
Series A Preferred Stock is cumulative, which means that
any dividends not declared or paid will accumulate and will be
payable when the payment of dividends is resumed. The dividend
rate on the Series A Preferred Stock will increase from 5%
to 9% per annum five years after its original issuance if not
earlier redeemed.
If we are unable to redeem the Preferred Stock prior to the date
of this increase, the cost of capital to us will increase
substantially. Depending on our financial condition at the time,
this increase in the Series A Preferred Stock annual
dividend rate could have a material adverse effect on our
earnings and could also adversely affect our ability to pay
dividends on our common shares. Shares of Series A
Preferred Stock will also receive preferential treatment in the
event of the liquidation, dissolution or winding up of the
Company. Additionally, the terms of the Series A Preferred
Stock allow the Treasury to impose additional restrictions,
including those on dividends and unilateral amendments required
to comply with changes in applicable federal law.
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Our
holders of the Series A Preferred Stock have certain voting
rights that may adversely affect our common shareholders, and
the holders of the Series A Preferred Stock may have
interests different from our common shareholders.
In the event that we fail to pay dividends on the Series A
Preferred Stock for a total of at least six quarterly dividend
periods (whether or not consecutive), the Treasury will have the
right to appoint two directors to our Board of Directors until
all accrued but unpaid dividends have been paid. Otherwise,
except as required by law, holders of the Series A
Preferred Stock have limited voting rights. So long as shares of
Series A Preferred Stock are outstanding, in addition to
any other vote or consent of shareholders required by law or our
Articles of Incorporation, the vote or consent of holders of at
least
662/3%
of the shares of Series A Preferred Stock outstanding is
required for:
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Any authorization or issuance of shares ranking senior to the
Series A Preferred Stock;
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Any amendments to the rights of the Series A Preferred
Stock so as to adversely affect the rights, preferences,
privileges or voting power of the Series A Preferred
Stock; or
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Consummation of any merger, share exchange or similar
transaction unless the shares of Series A Preferred Stock
remain outstanding, or if we are not the surviving entity in
such transaction, are converted into or exchanged for preference
securities of the surviving entity and the shares of
Series A Preferred Stock remaining outstanding or such
preference securities have the rights, preferences, privileges
and voting power of the Series A Preferred Stock.
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The holders of our Series A Preferred Stock, including the
Treasury, may have different interests from the holders of our
common stock, and could vote to block the foregoing
transactions, even when considered desirable by, or in the best
interests of, the holders of our common stock.
We
rely heavily on our management team and the loss of key officers
may adversely affect operations.
Our success has been and will continue to be greatly influenced
by the ability to retain existing senior management and, with
expansion, to attract and retain qualified additional senior and
middle management. We recently had a number of changes in our
senior management team, including the promotions of our new
Chief Financial Officer and Chief Operating Officer and the
appointment of a new Chief Risk Officer. The departure of any of
our senior management could have an adverse effect on us.
Our participation in the TARP Capital Purchase Program could
also have an adverse effect on our ability to attract and retain
qualified executive officers. Legislation and rules applicable
to the TARP Capital Purchase Program participants include
extensive new restrictions on our ability to pay retention
awards, bonuses and other incentive compensation to our Chief
Executive Officer during the period in which the Series A
Preferred Stock is outstanding. Other restrictions are not
limited to our Chief Executive Officer and cover other employees
whose contributions to revenue and performance can be
significant. The limitations may adversely affect our ability to
recruit and retain these key employees in addition to our senior
executive officers, especially if we are competing for talent
against institutions that are not subject to the same
restrictions. The Federal Reserve is contemplating proposed
rules governing the compensation practices of financial
institutions and these rules, if adopted, may adversely affect
our management retention and limit our ability to promote our
objectives through our compensation and incentive programs and,
as a result, adversely affect our results of operations and
financial condition.
The full scope and impact of these limitations is uncertain and
difficult to predict. The Secretary of the Treasury has adopted
standards that implement certain compensation limitations, but
these standards have not yet been broadly interpreted and
remain, in many respects, ambiguous. The new and potential
future legal requirements and implementing standards under the
Capital Purchase Program may have unforeseen or unintended
adverse effects on the financial services industry as a whole,
and particularly on Capital Purchase Program participants,
including us. It will likely require significant time, effort
and resources on our part to interpret and apply them. If any of
our regulators believe that we are not in compliance with new
and future legal requirements and implementing standards, it
could subject us to regulatory actions or otherwise adversely
affect our management retention and, as a result, our results of
operations and financial condition.
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Even if we redeem our Series A Preferred Stock and
repurchase the warrant issued to the Treasury, we will continue
to be subject to evolving legal and regulatory requirements that
may, among other things, require increasing amounts of our time,
effort and resources to ensure compliance.
Internal
control systems could fail to detect certain
events.
We are subject to many operating risks, including, without
limitation, data processing system failures and errors, and
customer or employee fraud. There can be no assurance that such
an event will not occur, and if such an event is not prevented
or detected by our other internal controls and does occur, and
it is uninsured or is in excess of applicable insurance limits,
it could have a significant adverse impact on our reputation in
the business community and our business, financial condition and
results of operations.
Our
operations could be interrupted if third party service providers
experience difficulty, terminate their services or fail to
comply with banking regulations.
We depend, and will continue to depend to a significant extent,
on a number of relationships with third-party service providers.
Specifically, we utilize software and hardware systems for
processing, essential web hosting, debit and credit card
processing, merchant processing, Internet banking systems and
other processing services from third-party service providers. If
these third-party service providers experience difficulties or
terminate their services, and we are unable to replace them with
other qualified service providers, our operations could be
interrupted. If an interruption were to continue for a
significant period of time, our business, financial condition
and results of operations could be materially adversely affected.
Confidential
customer information transmitted through the Banks online
banking service is vulnerable to security breaches and computer
viruses, which could expose the Bank to litigation and adversely
affect its reputation and ability to generate
deposits.
The Bank provides its customers the ability to bank online. The
secure transmission of confidential information over the
Internet is a critical element of online banking. The
Banks network could be vulnerable to unauthorized access,
computer viruses, phishing schemes and other security problems.
The Bank may be required to spend significant capital and other
resources to protect against the threat of security breaches and
computer viruses, or to alleviate problems caused by security
breaches or viruses. To the extent that the Banks
activities or the activities of its customers involve the
storage and transmission of confidential information, security
breaches and viruses could expose us and the Bank to claims,
litigation and other possible liabilities. Any inability to
prevent security breaches or computer viruses could also cause
existing customers to lose confidence in the Banks systems
and could adversely affect its reputation and our ability to
generate deposits.
Potential
acquisitions may disrupt our business and dilute shareholder
value.
We continuously consider merger and acquisition opportunities
and conduct due diligence activities related to possible
transactions with other financial institutions. As a result,
merger or acquisition discussions and, in some cases,
negotiations may take place and future mergers or acquisitions
involving cash, debt or equity securities may occur at any time.
Acquisitions typically involve the payment of a premium over
book and market values, and, therefore, some dilution of our
stocks tangible book value and net income per common share
may occur in connection with any future transaction. In
addition, while loss sharing arrangements currently associated
with FDIC-assisted transactions provide some level of risk
reduction; these arrangements do not completely eliminate risk.
To the extent we would participate in an FDIC-assisted
transaction there can be no assurances that any positive
expected results of such a transaction would fully materialize.
Furthermore, failure to realize the expected revenue increases,
cost savings, increases in geographic or product presence,
and/or other
projected benefits from an acquisition could have a material
adverse effect on our financial condition and results of
operations. We may seek merger or acquisition partners that are
culturally similar, have experienced management and possess
either significant market presence or have
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potential for improved profitability through financial
management, economies of scale or expanded services. We do not
currently have any specific plans, arrangements or
understandings regarding such expansion.
We cannot say with certainty that we will be able to consummate,
or if consummated, successfully integrate future acquisitions or
that we will not incur disruptions or unexpected expenses in
integrating such acquisitions. In attempting to make such
acquisitions, we anticipate competing with other financial
institutions, many of which have greater financial and
operational resources than us. Acquiring other banks,
businesses, or branches involves various risks commonly
associated with acquisitions, including, among other things:
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Potential exposure to unknown or contingent liabilities of the
target company;
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Exposure to potential asset quality issues of the target company;
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Difficulty and expense of integrating the operations and
personnel of the target company;
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Potential disruption to our business;
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The possible loss of key employees and customers of the target
company;
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Difficulty in estimating the value of the target
company; and
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Potential changes in banking or tax laws or regulations that may
affect the target company.
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We are
subject to extensive regulation which could adversely affect our
business.
Our operations are subject to extensive regulation by federal,
state and local governmental authorities and are subject to
various laws and judicial and administrative decisions imposing
requirements and restrictions on part or all of our operations.
Given the current disruption in the financial markets and
potential new regulatory initiatives, including the Obama
Administrations recent financial regulatory reform
proposal, new regulations and laws that may affect us are
increasingly likely. Because our business is highly regulated,
the laws, rules and regulations applicable to us are subject to
modification and change. There are currently proposed laws,
rules and regulations that, if adopted, would impact our
operations.
These proposed laws, rules and regulations, or any other laws,
rules or regulations, may be adopted in the future, which could
(i) make compliance much more difficult or expensive,
(ii) restrict our ability to originate, broker or sell
loans or accept certain deposits, (iii) further limit or
restrict the amount of commissions, interest or other charges
earned on loans originated or sold by us, or (iv) otherwise
adversely affect our business or prospects for business.
Moreover, banking regulators have significant discretion and
authority to address what regulators perceive to be unsafe or
unsound practices or violations of laws or regulations by
financial institutions and holding companies in the performance
of their supervisory and enforcement duties. The exercise of
regulatory authority by banking regulators over us may have a
negative impact on our financial condition and results of
operations. Additionally, in order to conduct certain
activities, including acquisitions, we are required to obtain
regulatory approval. There can be no assurance that any required
approvals can be obtained, or obtained without conditions or on
a timeframe acceptable to us.
Higher
FDIC deposit insurance premiums and assessments could adversely
affect our financial condition.
FDIC insurance premiums increased substantially in 2009, and we
expect to pay significantly higher FDIC premiums in the future.
As the large number of recent bank failures continues to deplete
the Deposit Insurance Fund, the FDIC adopted a revised
risk-based deposit insurance assessment schedule in February
2009, which raised deposit insurance premiums. The FDIC also
implemented a five basis point special assessment of each
insured depository institutions assets minus Tier 1
capital as of June 30, 2009, which special assessment
amount was capped at 10 basis points times the
institutions assessment base for the second quarter of
2009. In addition, the FDIC recently approved a rule requiring
financial institutions to prepay their estimated quarterly
risk-based assessments for the fourth quarter of 2009 and for
all of 2010 through and including 2012 in order to re-capitalize
the Deposit Insurance Fund. Accordingly, the Bank prepaid
deposit insurance premiums in the amount of $3.3 million on
December 31, 2009. The rule also provides for increasing
the FDIC assessment rates by three basis points effective
January 1, 2011. There can be no
15
assurance that the FDIC will not increase premiums further or
levy additional special assessments, either of which could have
a material adverse effect on our results of operations and
financial condition.
Shares
eligible for future sale could have a dilutive
effect.
Shares of our common stock eligible for future sale, including
those that may be issued in connection with our various stock
option and equity compensation plans, in possible acquisitions,
and any other offering of our common stock for cash, and the
issuance of 405,405 shares underlying the warrant issued to
the Treasury pursuant to the TARP Capital Purchase Program,
could have a dilutive effect on the market for our common stock
and could adversely affect its market price. Our Articles of
Incorporation authorize 50,000,000 shares of which
8,711,495 shares were outstanding as of March 11,
2010. In addition there are 282,080 shares subject to
common stock options outstanding with a weighted average
exercise price of $7.06 per share.
Changes
in accounting standards may impact how we report our financial
condition and results of operations.
Our accounting policies and methods are fundamental to how we
record and report our financial condition and results of
operations. From time to time, the Financial Accounting
Standards Board changes the financial accounting and reporting
standards that govern the preparation of our financial
statements. These changes can be difficult to predict and can
materially impact how we record and report our financial
condition and results of operations. In some cases, we could be
required to apply a new or revised standard retroactively,
resulting in a restatement of prior period financial statements.
A
natural disaster or recurring energy shortage, especially in
California, could harm our business.
Historically, California has been vulnerable to natural
disasters. Therefore, we are susceptible to the risks of natural
disasters, such as earthquakes, wildfires, floods and mudslides.
Natural disasters could harm our operations directly through
interference with communications, including the interruption or
loss of our websites, which would prevent us from gathering
deposits, originating loans and processing and controlling our
flow of business, as well as through the destruction of
facilities and our operational, financial and management
information systems. California has also experienced energy
shortages, which, if they recur, could impair the value of the
real estate in those areas affected.
Although we have implemented several
back-up
systems and protections and maintain business interruption
insurance, these measures may not protect us fully from the
effects of a natural disaster. The occurrence of natural
disasters or energy shortages in California could have a
material adverse effect on our business, prospects, financial
condition and results of operations.
Our
level of deposits may be volatile which could have an adverse
effect on our liquidity, results of operations and cash
flows.
The Banks depositors could choose to withdraw their
deposits from the Bank and then put it into alternative
investments, causing an increase in our funding costs and
reducing net interest income. Checking, savings and money market
account balances, including brokered deposits under the National
CD Rate line program and eTN subscription program, can decrease
when customers perceive that alternative investments, such as
the stock market, may provide a better risk/return tradeoff.
When customers move funds out of bank deposits into other
investments, the Bank will lose a relatively low cost source of
funds, increasing funding costs.
At December 31, 2009, time certificates of deposit in
excess of $100,000 represented approximately 39% of the dollar
value of our total deposits. As such, these deposits are
considered volatile and could be subject to withdrawal.
Withdrawal of a material amount of such deposits could adversely
affect the liquidity of our profitability, business prospects,
results of operations and cash flows. We monitor activity of
volatile liability deposits on a quarterly basis.
16
Negative
publicity could damage our reputation.
Reputation risk, or the risk to our earnings and capital from
negative public opinion, is inherent in the financial services
business. Negative public opinion could adversely affect our
ability to keep and attract customers and expose us to adverse
legal and regulatory consequences. Negative public opinion could
result from actual or alleged conduct in any number of
activities, including lending practices, corporate governance or
acquisitions, and from actions taken by government regulators
and community organizations in response to that conduct.
Changes
in prevailing mortgage and interest rates could have an adverse
effect on mortgage origination fees and the profitability of the
mortgages we originate.
Changes in interest rates greatly affect the mortgage banking
business. Our mortgage subsidiary, Bank of Commerce
Mortgagetm,
originates, funds and services mortgage loans, which subjects
the Company to various risks, including credit, liquidity and
interest rate risks. Based on market conditions and other
factors, the Company reduces unwanted credit and liquidity risks
by selling some or all of the long-term fixed-rate mortgage
loans and adjustable rate mortgages originated.
Notwithstanding the continued downturn in the housing sector,
and the continued lack of liquidity in the nonconforming
secondary markets, our subsidiary mortgage banking revenue
continued to be strong. Interest rate and market risk can be
substantial in the mortgage business. Changes in interest rates
may potentially impact total origination fees.
Interest rates impact the amount and timing of origination
because consumer demand for new mortgages and the level of
refinancing activity are sensitive to changes in mortgage
interest rates. Typically, a decline in mortgage interest rates
will lead to an increase in mortgage originations and fees.
Given the time it takes for consumer behavior to fully react to
interest rate changes, as well as the time required for
processing a new application, providing the commitment, and
selling the loan, interest rate changes will impact origination
fees with a lag. The amount and timing of the impact on
origination fees will depend on the magnitude, speed and
duration of the change in interest rates. A decline in interest
rates increases the propensity for refinancing.
As part of subsidiary mortgage banking activities, we enter into
commitments to fund residential mortgage loans at specified
times in the future. A mortgage loan commitment is an interest
rate lock that binds us to lend funds to a potential borrower at
a specified interest rate and within a specified period of time,
up to 60 days after inception of the rate lock. Outstanding
loan commitments expose the Company to the risk that the price
of the mortgage loans underlying the commitments might decline
due to increases in mortgage interest rates from inception of
the rate lock to the funding of the loan.
Mortgage
banking revenue can be volatile from quarter to
quarter.
We earn revenue from fees for originating mortgage loans. When
rates rise, the demand for mortgage loans tends to fall,
reducing the revenue from loan originations. It is also possible
that, because of the recession and deteriorating housing market,
even if interest rates were to fall, mortgage originations may
also fall, with a corresponding impact on origination fees.
Risks
Related to this Offering and Ownership of Our Common
Stock
The
market price of our common stock may decline after the
offering.
The price per share at which we sell the common stock in this
offering may be more or less than the market price of our common
stock on the date the offering is consummated. If the purchase
price is greater than the market price at the time of sale,
purchasers will experience an immediate decline in the market
value of the common stock purchased in this offering. If the
actual purchase price is less than the market price for the
shares of common stock, some purchasers in the offering may be
inclined to immediately sell shares of common stock to attempt
to realize a profit. Any such sales, depending on the volume and
timing, could cause the price of our common stock to decline.
Additionally, because stock prices generally fluctuate over
time, there is no assurance that purchasers of our common stock
in the offering will be able to sell shares after the
17
offering at a price that is equal to or greater than the actual
purchase price. Purchasers should consider these possibilities
in determining whether to purchase shares in the offering and
the timing of any sales of shares of common stock.
The
price of our common stock may fluctuate significantly, and this
may make it difficult for you to resell shares of common stock
owned by you at times or at prices you find
attractive.
Stock price volatility may make it difficult for you to resell
your common stock when you want and at prices you find
attractive. Our stock price can fluctuate significantly in
response to a variety of factors including, among other things:
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Actual or anticipated variations in quarterly results of
operations;
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Recommendations by securities analysts;
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Operating and stock price performance of other companies that
investors deem comparable to us;
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News reports relating to trends, concerns and other issues in
the financial services industry, including the failures of other
financial institutions in the current economic downturn;
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Perceptions in the marketplace regarding us
and/or our
competitors;
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Public sentiments toward the financial services and banking
industry generally;
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New technology used, or services offered, by competitors;
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Significant acquisitions or business combinations, strategic
partnerships, joint ventures or capital commitments by or
involving us or our competitors;
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Failure to integrate acquisitions or realize anticipated
benefits from acquisitions;
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Changes in government regulations; and
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Geopolitical conditions such as acts or threats of terrorism or
military conflicts.
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General market fluctuations, industry factors and general
economic and political conditions and events, such as economic
slowdowns or recessions, interest rate changes or credit loss
trends, could also cause our stock price to decrease regardless
of operating results as evidenced by the current volatility and
disruption of capital and credit markets.
Our
profitability measures could be adversely affected if we are
unable to effectively deploy the capital raised in this
offering.
We intend to use the net proceeds of this offering as described
below in USE OF PROCEEDS, including but not limited
to possible opportunistic acquisitions, including FDIC-assisted
transactions. Although we are periodically engaged in
discussions with potential acquisition candidates, we are not
currently party to any purchase or merger agreement.
There can be no assurance that we will be able to negotiate
future acquisitions on terms acceptable to us. Investing the
proceeds of this offering in investment grade securities until
we are able to deploy the proceeds would provide lower margins
than we generally earn on loans, potentially adversely impacting
shareholder returns, including earnings per share, net interest
margin, return on assets and return on equity.
Only a
limited trading market exists for our common stock, which could
lead to significant price volatility.
Our common stock is traded on the NASDAQ Global Market under the
trading symbol BOCH, but there have historically
been low trading volumes in our common stock. The limited
trading market for our common stock may cause fluctuations in
the market value of our common stock to be exaggerated, leading
to price volatility in excess of that which would occur in a
more active trading market of our common stock.
18
Future sales of substantial amounts of common stock in the
public market, or the perception that such sales may occur,
could adversely affect the prevailing market price of the common
stock. In addition, even if a more active market in our common
stock develops, we cannot assure you that such a market will
continue or that shareholders will be able to sell their shares
at or above the price offered by this prospectus.
Anti-takeover
provisions in our articles of incorporation could make a third
party acquisition of us difficult.
In order to approve a merger or similar business combination
with the owner of 20% or more of our common stock (an
Interested Shareholder), our Articles of
Incorporation contain provisions that would require a
supermajority vote of
662/3%
of the outstanding shares of the common stock (excluding the
shares held by the Interested Shareholder or its affiliates).
These provisions further require that the per share
consideration to be paid in such a transaction would have to
equal or exceed the greater of (a) the highest per share
price paid by the Interested Shareholder (i) within two
years of the transaction proposal announcement date, or
(ii) the date the Interested Shareholder acquired a 20%
-plus ownership interest (if the acquisition occurred less than
two years before the transaction announcement) and (b) the
fair market value of the Common Stock on (i) the
transaction proposal announcement date, or (ii) the date
the Interested Shareholder acquired a 20% -plus ownership
interest (if the acquisition occurred less than two years before
the transaction announcement).
The operation of these provisions could result in the Company
becoming a less attractive target for a would-be acquirer. As a
consequence, it is possible that shareholder would lose an
opportunity to be paid a premium for their shares in an
acquisition transaction.
There
may be future sales or other dilutions of our equity which may
adversely affect the market price of our common
stock.
Except as described under UNDERWRITING, we are not
restricted from issuing additional shares of common stock,
including securities that are convertible into or exchangeable
for, or that represent the right to receive our common stock. In
addition, we are not prohibited from issuing additional
securities which are senior to our common stock. Because our
decision to issue securities in any future offering will depend
in part on market conditions and other factors beyond our
control, we cannot predict or estimate the amount, timing or
nature of any future offerings. Thus, our shareholders bear the
risk of any future stock issuances reducing the market price of
our common stock and diluting their stock holdings in us.
The exercise of the underwriters over-allotment option,
the exercise of any options granted to our directors and
employees, the exercise of the outstanding warrants for our
common stock as referenced above, the issuance of shares of
common stock in acquisitions and other issuances of our common
stock could have an adverse effect on the market price of the
shares of our common stock. In addition, the existence of
options and warrants to acquire shares of our common stock may
materially adversely affect the terms upon which we may be able
to obtain additional capital in the future through the sale of
equity securities. Any future issuances of shares of our common
stock will be dilutive to existing shareholders.
The
holders of our preferred stock and trust preferred securities
have rights that are senior to those of our holders of common
stock and that may impact our ability to pay dividends on our
common stock to our common shareholders and reduce net income
available to our common shareholders.
At December 31, 2009, our subsidiary trusts had outstanding
$15.0 million of trust preferred securities. These
securities are effectively senior to shares of common stock due
to the priority of the underlying junior subordinated debt. As a
result, we must make payments on our trust preferred securities
before any dividends can be paid on our common stock; moreover,
in the event of our bankruptcy, dissolution, or liquidation, the
obligations outstanding with respect to our trust preferred
securities must be satisfied before any distributions can be
made to our shareholders. While we have the right to defer
dividends on the trust preferred securities for a period of up
to five years, if any such election is made, no dividends may be
paid to our common or preferred shareholders during that time.
19
We are required to pay cumulative dividends on the
$17.0 million in Series A Preferred Stock issued to
the Treasury in the TARP Capital Purchase Program at an annual
rate of 5% for the first five years and 9% thereafter, unless we
redeem the shares earlier. We may not declare or pay dividends
on our common stock or repurchase shares of our common stock
without first having paid all accrued cumulative preferred
dividends that are due. Until January 2012, we also may not
increase our per share common stock dividend rate or repurchase
shares of our common shares without the Treasurys consent,
unless the Treasury has transferred to third parties all the
Series A Preferred Stock originally issued to it.
Our
future ability to pay dividends and repurchase stock is subject
to restrictions.
Since we are a holding company with no significant assets other
than the Bank and our majority-owned mortgage company, we have
no material source of income other than dividends received from
the Bank and the mortgage company. Therefore, our ability to pay
dividends to our shareholders will depend on the Banks and
mortgage companys ability to pay dividends to us.
Moreover, banks and financial holding companies are both subject
to certain federal and state regulatory restrictions on cash
dividends. We are also restricted from paying dividends if we
have deferred payments of the interest on, or an event of
default has occurred with respect to, our trust preferred
securities or Series A Preferred Stock. Additionally, terms
and conditions of our Series A Preferred Stock place
certain restrictions and limitations on our common stock
dividends and repurchases of our common stock. See
DIVIDEND POLICY.
An
investment is not an insured deposit.
An investment in our common stock is not a bank deposit and is
not insured or guaranteed by the FDIC or any other government
agency. Your investment in our common stock will be subject to
investment risk and you may lose all or part of your investment.
USE OF
PROCEEDS
The net proceeds, after underwriting discounts and commissions
and estimated expenses, to us from the sale of the common stock
offered by this prospectus are expected to be approximately
$ million. If the
underwriters exercise their over-allotment option in full, we
estimate that our net proceeds will be approximately
$ million. We intend to use
the net proceeds of this offering (i) for general corporate
purposes, including contributing additional capital to the Bank,
(ii) to support our ongoing and future anticipated growth,
which may include opportunistic acquisitions of all or parts of
other financial institutions, including FDIC-assisted
transactions, and (iii) to position us for eventual
redemption of our Series A Preferred Stock issued to the
Treasury under the TARP Capital Purchase Program. We do not have
any agreements or commitments with respect to any current
transactions. Pending allocation of specific uses, we intend to
invest the proceeds in short-term interest-bearing investment
grade securities.
20
CAPITALIZATION
The following table shows our capitalization and regulatory
capital ratios as of December 31, 2009 on an actual basis
and on an as-adjusted basis to give effect to the receipt of the
estimated net proceeds from this offering. The as-adjusted
capitalization assumes no exercise of the underwriters
over-allotment option, that 6,000,000 shares of common
stock are sold by us at an offering price of
$ per share (based on the closing
price of our common stock on the NASDAQ Global Market
on ,
2010), and that the net proceeds from the offering, after
deducting the underwriting discounts and commissions and
estimated offering expenses payable by us, are approximately
$ million.
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As of December 31, 2009
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Actual
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As Adjusted(1)
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(Dollars in thousands, except per share data)
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Unaudited
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Junior subordinated debt payable to unconsolidated subsidiary
grantor trusts
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$
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15,465
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$
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15,465
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Shareholders equity
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Preferred stock, liquidation preference of $1,000 per share;
2,000,000 authorized; 17,000 issued and outstanding as of
December 31, 2009
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$
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16,641
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$
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16,641
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Common stock, authorized 50,000,000 shares without par;
issued and outstanding 8,711,495, actual; issued and outstanding
14,711,495 shares, as adjusted
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9,730
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Common stock warrant
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449
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449
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Retained earnings
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39,004
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39,004
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Accumulated other comprehensive gain, net of tax
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658
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658
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Non controlling interest in subsidiary
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2,325
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2,325
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Total shareholders equity
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$
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68,807
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$
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Total capitalization
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$
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84,272
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$
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Per Common Share
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Book value per share
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$
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5.72
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$
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Tangible book value per share
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5.29
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Regulatory Capital Ratios Company
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Leverage Ratio
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9.89
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%
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%
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Tier 1 Capital
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12.06
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%
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%
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Total Capital
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13.31
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%
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%
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Regulatory Capital Ratios Bank
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Leverage Ratio
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9.37
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%
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%
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Tier 1 Capital
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11.57
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%
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%
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Total Capital
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12.83
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%
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%
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(1) |
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Assumes that 6,000,000 shares of our common stock are sold
in this offering at $ per share,
our closing price
on ,
2010, and that the net proceeds thereof are approximately
$ million after deducting
underwriting discounts and commissions and our estimated
expenses. If the underwriters over-allotment option is
exercised in full, net proceeds are expected to increase to
approximately $ million. |
21
DIVIDEND
POLICY
The goals of our dividend policy and planning function are in
accord with our subsidiary Banks capital strategy and
overall business plans and objectives. The following summarizes
the general goals that pertain to our dividend management:
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Current and future capital adequacy is paramount in determining
the amount of dividends we should pay to our shareholders;
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Ensure the safety and soundness of the Banks deposits,
while providing an appropriate return to our shareholders;
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Establish a dividend payout approach that provides consistency
and opportunity for growth; and
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Explore new types of dividend vehicles and dividend payout
programs.
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There were approximately 676 holders of our common stock as of
December 31, 2009, including those held in street name, and
the market price on that date was $5.28 per share. Cash
dividends of $0.06 per share were paid on each of April 10,
2009, July 17, 2009, October 9, 2009 and
January 15, 2010 to shareholders of record as of
March 31, 2009, June 30, 2009, September 30, 2009
and December 31, 2009. Cash dividends of $0.08 per share
were paid on each of April 11, 2008, July 11, 2008,
October 10, 2008 and January 10, 2009 to shareholders
of record as of March 31, 2008, June 30, 2008,
September 30, 2008 and December 31, 2008. On
March 5, 2010, our Board of Directors declared a cash
dividend of $0.06 per share to shareholders of record as of
March 15, 2010, payable on March 26, 2010. Shares
purchased in this offering will not be eligible to receive the
March 2010 dividend.
We currently expect to pay quarterly cash dividends of at least
$0.06 per share in the future, but our ability to pay dividends
is subject to the policy goals listed above and certain
regulatory requirements. The Federal Reserve Board
(FRB) generally prohibits a financial holding
company from declaring or paying a cash dividend which would
impose undue pressure on the capital of subsidiary banks or
would be funded only through borrowing or other arrangements
that might adversely affect a financial services holding
companys financial position. The FRBs policy is that
a financial holding company should not continue its existing
rate of cash dividends on its common stock unless its net income
is sufficient to fully fund each dividend and its prospective
rate of earnings retention appears consistent with its capital
needs, asset quality and overall financial condition. The power
of the board of directors of an insured depository institution
such as the Bank to declare a cash dividend or other
distribution with respect to capital is subject to statutory and
regulatory restrictions which limit the amount available for
such distribution depending upon the earnings, financial
condition and cash needs of the institution, as well as general
business conditions.
Pursuant to the terms of the agreements between us and the
Treasury governing the TARP Capital Purchase Program, we may not
declare or pay any dividend or make any distribution on our
common stock other than (i) regular quarterly dividends not
exceeding an annual aggregate of $0.32 per share;
(ii) dividends payable solely in shares of our common
stock; and (iii) dividends or distributions of rights of
junior stock in connection with a shareholder rights plan.
In addition to the restrictions imposed under federal law, banks
chartered under California law generally may pay cash dividends
only to the extent such payments do not exceed the lesser of
retained earnings of the bank or the banks net income for
its last three fiscal years (less any distributions to
shareholders during such period). In the event a bank desires to
pay cash dividends in excess of such amount, the bank may pay a
cash dividend with the prior approval of the Commissioner of the
Department of Financial Institutions in an amount not exceeding
the greatest of the banks retained earnings, the
banks net income for its last fiscal year, or the
banks net income for its current fiscal year.
Holding
Company Dividends
All dividends declared and distributed by us will comply with
applicable state corporate law. The Board of Directors will
declare dividends only if our Bank subsidiary is considered to
have adequate and strong earnings. Dividends will be declared
and ultimately paid only if they are covered by earnings, not
paid by
22
using borrowed funds, and not a result of unusual or
nonrecurring gains. All dividends will comply with this policy.
The financial markets and shareholders favorably view a
consistent dividend. Future capital requirements and corporate
plans will be considered whenever dividends are initiated,
increased or decreased.
On March 5, 2010 the Board of Directors declared a dividend
of $0.06 to shareholders of record as of March 15, 2010
payable on March 26, 2010. As a result, investors in this
offering will not be entitled to receive the dividend on shares
purchased in this offering.
PRICE
RANGE OF COMMON STOCK
The following table presents the range of high and low sale
prices of our common stock as reported on the NASDAQ Global
Market for the periods shown below:
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Sale Price per Share
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High
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Low
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Year Ending December 31, 2010
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First Quarter (through March 11, 2010)
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$
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5.50
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4.95
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Year Ended December 31, 2009
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First Quarter
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5.05
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3.90
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Second Quarter
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6.52
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4.08
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Third Quarter
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6.30
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4.50
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Fourth Quarter
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5.99
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5.10
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Year Ended December 31, 2008
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First Quarter
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8.59
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6.00
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Second Quarter
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8.34
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6.10
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Third Quarter
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6.95
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5.50
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Fourth Quarter
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6.60
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3.92
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Year Ended December 31, 2007
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First Quarter
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12.29
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10.98
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Second Quarter
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12.50
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10.82
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Third Quarter
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11.54
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9.45
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Fourth Quarter
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11.64
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8.45
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As of December 31, 2009, there were 676 holders of record
of our common stock and 8,711,495 shares of our common
stock issued and outstanding.
On ,
2010, the closing sale price for our common stock was
$ per share, as reported on
the NASDAQ Global Market.
DESCRIPTION
OF CAPITAL STOCK
We are currently authorized to issue two classes of shares
designated respectively Common Stock and
Preferred Stock. The number of shares of Common
Stock authorized is 50,000,000 and the number of shares of
Preferred Stock authorized is 2,000,000.
Preferred
Stock and Warrants
The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is authorized to fix the
number of shares of any series of Preferred Stock and to
determine the designation of any such series. The Board of
Directors is also authorized to determine or alter the rights,
preferences, privileges and restrictions granted to or imposed
upon any wholly unissued series of Preferred Stock. In addition,
the Board of Directors is authorized, within the limits and
restrictions stated in any resolution or
23
resolutions of the Board of Directors originally fixing the
number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series then
outstanding) the number of shares of any such series subsequent
to the issue of shares of that series.
We are authorized to issue 2,000,000 shares of preferred
stock. Preferred shares outstanding rank senior to common shares
both as to dividends and liquidation preference but generally
have no voting rights. Pursuant to a Letter Agreement dated
November 14, 2008, and the Securities Purchase
Agreement Standard Terms (Securities Purchase
Agreement) we issued to the Treasury 17,000 shares of
our Series A Preferred Stock for a total price of
$17.0 million. The Series A Preferred Stock pays
cumulative dividends at a rate of 5% per year for the first five
years and thereafter at a rate of 9% per year. Except under
limited circumstances, the Series A Preferred Stock is
non-voting.
If dividends on the Series A Preferred Stock have not been
paid for an aggregate of six quarterly dividend periods (whether
or not consecutive), the holders of the Series A Preferred
Stock will be entitled to elect two additional members of our
board of directors, at the next annual meeting (or at a special
meeting called for the purpose of electing the preferred stock
directors prior to the next annual meeting), and at each
subsequent annual meeting until all accrued and unpaid dividends
for all past dividend periods have been paid.
Prior to November 14, 2011, unless we have redeemed the
Series A Preferred Stock or the Treasury has transferred
the Series A Preferred Stock to a third party, the consent
of the Treasury will be required for us to increase our common
stock dividend or repurchase our common stock or other equity or
capital securities, other than in connection with benefit plans
consistent with past practice and certain other circumstances
specified in the Securities Purchase Agreement. A consequence of
the Series A Preferred Stock purchase includes certain
restrictions on executive compensation.
As part of its purchase of the Series A Preferred Stock,
the Treasury received a warrant (Warrant) to
purchase 405,405 shares of our common stock at an initial
per share exercise price of $6.29. The Warrant provides for the
adjustment of the exercise price and the number of shares of our
common stock issuable upon exercise pursuant to customary
anti-dilution provisions, such as upon stock splits or
distributions of securities or other assets to holders of our
common stock, and upon certain issuances of our common stock at
or below a specified price relative to the initial exercise
price. The Warrant expires ten years from the issuance date.
Pursuant to the Securities Purchase Agreement, the Treasury has
agreed not to exercise voting power with respect to any shares
of common stock issued upon exercise of the Warrant.
Both the Series A Preferred Stock and Warrant will be
accounted for as components of Tier 1 capital. The
Series A Preferred Stock and the Warrant were issued in a
private placement exempt from registration pursuant to
Section 4(2) of the Securities Act. Upon the request of the
Treasury at any time, we have agreed to promptly enter into a
deposit arrangement pursuant to which the Series A
Preferred Stock may be deposited and depositary shares
(Depositary Shares) may be issued. Neither the
Series A Preferred Stock nor the Warrant will be subject to
any contractual restrictions on transfer.
Prior to November 14, 2011, unless we have redeemed the
Series A Preferred Stock or the Treasury has transferred
the Series A Preferred Stock to a third party, the consent
of the Treasury will be required for us to (i) declare or
pay any dividend or make any distribution on our common stock
(other than regular quarterly cash dividends of not more than
$0.08 per share of common stock) or (ii) redeem, purchase
or acquire any shares of the Companys common stock or
other equity or capital securities, other than in connection
with benefit plans consistent with past practice and certain
other circumstances specified in the Securities Purchase
Agreement.
The proceeds from the Treasury were allocated based on the
relative fair value of the Warrant as compared with the fair
value of the preferred stock. The fair value of the Warrant was
determined using a valuation model which incorporates
assumptions including our common stock price, dividend yield,
stock price volatility and the risk-free interest rate. The fair
value is determined based on assumptions regarding the discount
rate (market rate) on our Series A Preferred Stock which
was estimated to be approximately 9% at the date of issuance.
The discount will be accreted to par value over a five-year
term, which is the expected
24
life of our Series A Preferred Stock. Capital Purchase
Program participants may opt out by repaying the
capital without raising additional capital subject to
consultation with the appropriate federal regulator.
Common
Stock
Subject to preferences that may be applicable to Preferred
Stock, the holders of common stock share equally on a per share
basis any dividends declared by the board of directors out of
funds legally available. If the Company is liquidated, dissolved
or wound up, the holders of our common stock will be entitled to
a ratable share of any distribution to shareholders, after
satisfaction of all of our liabilities and of the prior rights
of then outstanding preferred stock. The common stock does not
include preemptive or other subscription rights to purchase
additional shares.
Holders of our common stock have the right to vote on matters
submitted to a vote of our shareholders. Under California
corporate law, holders of common stock are entitled to exercise
such voting rights on a cumulative basis, unless the Company
adopts a provision in its Articles of Incorporation or By-Laws
to eliminate cumulative voting.
In accordance with Section 301.5 of the California
Corporations Code, a corporation whose shares are listed for
trading on an approved exchange may eliminate cumulative voting
for directors by amendment to its articles of incorporation or
its bylaws. Cumulative voting means that each shareholder may
cumulate, and cast, a number of votes equal to number of shares
held, multiplied by the number of directors to be elected. Under
cumulative voting, a shareholder may withhold votes from certain
candidates and cast all such cumulated votes for a single
candidate or split the cumulated votes between multiple
candidates. At our 2010 Annual Meeting of Shareholders we intend
to, among other things, submit a proposal to our shareholders to
amend our By-Laws to eliminate cumulative voting for directors
to the extent allowed under the California Corporations Code.
The amendment to eliminate cumulative voting for directors must
be approved by the holders of a majority of outstanding shares
of our common stock.
Our common stock is listed on the NASDAQ Global Market under the
symbol BOCH.
Transfer
Agent and Registrar
The transfer agent and registrar for our common stock is
Registrar and Transfer Company, 10 Commerce Drive, Cranford, New
Jersey 07016. Telephone
(800) 368-5948.
Restrictions
on Ownership
The Bank Holding Company Act (BHCA) generally
prohibits any company that is not engaged in banking activities
and activities that are permissible for a bank holding company
or a financial holding company from acquiring control of us. Any
holder of 25% or more of our common stock, or a holder of 5% or
more if such holder otherwise exercises a controlling
influence over us, will generally deemed to control us,
and may be subject to regulation as a bank holding company under
the BHCA. Any existing bank holding company would need the prior
approval of the Federal Reserve Board before acquiring 5% or
more of our voting stock. In addition, the Change in Bank
Control Act of 1978, as amended, prohibits a person or group of
persons from acquiring control of a bank holding company unless
the Federal Reserve Board has been notified and has not objected
to the transaction.
Under a rebuttable presumption established by the Federal
Reserve Board, the acquisition of 10% or more of a class of
voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act,
such as ours, could constitute acquisition of control of the
bank holding company.
Under the California Financial Code, no person shall, directly
or indirectly, acquire control of a California state bank or its
holding company unless the Department of Financial Institutions
has approved such acquisition of control. A person would be
deemed to have acquired control of us if such person, directly
or indirectly, has the power (i) to vote 25% or more of our
voting power, or (ii) to direct or cause the direction of
the management and our policies. For purposes of this law, a
person who directly or indirectly owns or controls 10% or more
of our outstanding common stock would be presumed to control of
us.
25
In order to approve a merger or similar business combination
with the owner of 20% or more of our common stock (an
Interested Shareholder), our Articles of
Incorporation contain provisions that would require a
supermajority vote of
662/3%
of the outstanding shares of the common stock (excluding the
shares held by the Interested Shareholder or its affiliates).
These provisions further require that the per share
consideration to be paid in such a transaction would have to
equal or exceed the greater of (a) the highest per share
price paid by the Interested Shareholder (i) within two
years of the transaction proposal announcement date, or
(ii) the date the Interested Shareholder acquired a 20%
-plus ownership interest (if the acquisition occurred less than
two years before the transaction announcement) and (b) the
fair market value of the Common Stock on (i) the
transaction proposal announcement date, or (ii) the date
the Interested Shareholder acquired a 20% -plus ownership
interest (if the acquisition occurred less than two years before
the transaction announcement).
26
UNDERWRITING
We are offering the shares of our common stock described in this
prospectus in an underwritten offering in which Howe Barnes
Hoefer & Arnett, Inc. is acting as representative of
the underwriters. We have entered into an underwriting agreement
with Howe Barnes Hoefer & Arnett, Inc., acting as
representative of the underwriters named below, with respect to
the common stock being offered. Subject to the terms and
conditions contained in the underwriting agreement, the
underwriters have agreed to purchase the respective number of
shares of our common stock set forth opposite its name below.
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Name
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Number of Shares
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Howe Barnes Hoefer & Arnett, Inc.
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Total
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Under the terms and conditions of the underwriting agreement,
the underwriters are committed to accept and pay for all of the
shares, if any are taken. In the underwriting agreement, the
obligations of the underwriters are subject to approval of
certain legal matters by their counsel, including the
authorization and the validity of the shares, and to other
conditions contained in the underwriting agreement, such as
receipt by the underwriters of officers certificates and
legal opinions.
Over-Allotment
Option
We have granted to the underwriters an option, exercisable
within 30 days after the date of this prospectus, to
purchase up
to
additional shares of our common stock. The underwriters may
exercise the option only for the purpose of covering
over-allotments, if any, made in connection with the
distribution of the shares being offered by this prospectus.
Lock-Up
Agreements
Our executive officers and directors have agreed that for a
period of 90 days from the date of this prospectus, none of
our executive officers or directors will, without the prior
written consent of Howe Barnes Hoefer & Arnett, Inc.,
as the representative of the underwriters, subject to certain
exceptions, sell, offer to sell or otherwise dispose of or
transfer any shares of our common stock or any securities
convertible into or exercisable or exchangeable for our common
stock. Howe Barnes Hoefer & Arnett, Inc., in its sole
discretion, may release the securities subject to these
lock-up
agreements at any time without notice.
Commissions
and Expenses
The underwriters propose to offer the shares of our common stock
directly to the public at the public offering price set forth
above, and to certain securities dealers at this price, less a
concession not in excess of $ per
share. The underwriters may allow, and the selected dealers may
re-allow, a concession not in excess of
$ per share to certain brokers and
dealers.
The table below shows the per share and total underwriting
discounts and commissions that we will pay to the underwriters
and the proceeds we will receive before expenses. We estimate
that the total expenses of this offering payable by us, not
including the underwriting discounts and commissions but
including our reimbursement of up to $80,000 of documented
out-of-pocket
expenses of the underwriters, will be approximately $250,000.
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Total Without
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Total with
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Option
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Option
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Per Share
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Exercised
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Exercised
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Public offering price
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$
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$
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$
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Underwriting discount
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Proceeds to us, before expenses
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27
The offering of the shares of our common stock will be made for
delivery when, as and if accepted by the underwriters and
subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The underwriters
reserve the right to reject any order for the purchase of the
shares. After the shares are released for sale to the public,
the underwriters may, from time to time, change the offering
price and other selling terms.
Neither we nor the underwriters can assure you that an active
and liquid market will develop for the shares or, if developed,
that the market will continue. The offering price and
distribution rate was determined by negotiations between the
underwriters and us, and the offering price of the shares may
not be indicative of the market price following the offering.
The underwriters will have no obligation to make a market in the
shares, however, and may cease market-making activities, if
commenced, at any time.
Indemnity
Under the underwriting agreement, we have agreed to indemnify
the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, as amended
(Securities Act) and to contribute to payments that
the underwriters may be required to make in respect of these
liabilities.
Stabilization
In connection with this offering, the underwriters may engage in
stabilizing transactions, over-allotment transactions, covering
transactions, and penalty bids in accordance with
Regulation M under the Securities Exchange Act of 1934, as
amended (the Exchange Act).
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Stabilizing transactions permit bids to purchase the underlying
security so long as the stabilizing bids do not exceed a
specified maximum.
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Over-allotment involves sales by the underwriters of shares in
excess of the number of shares the underwriters are obligated to
purchase, which creates a short position. The short position may
be either a covered short position or a naked short position. In
a covered short position, the number of shares over-allotted by
the underwriters is not greater than the number of shares that
they may purchase in the over-allotment option. In a naked short
position, the number of shares involved is greater than the
number of shares in the over-allotment option. The underwriters
may close out any covered short position by either exercising
their over-allotment option or purchasing shares in the open
market.
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Covering transactions involve the purchase of common stock in
the open market after the distribution has been completed in
order to cover short positions. In determining the source of
shares to close out the short position, the underwriters will
consider, among other things, the price of shares available for
purchase in the open market as compared to the price at which
they may purchase shares through the over-allotment option. If
the underwriters sell more shares than could be covered by the
over-allotment option, a naked short position, the position can
only be closed out by buying shares in the open market. A naked
short position is more likely to be created if the underwriters
are concerned that there could be downward pressure on the price
of the shares in the open market after pricing that could
adversely affect investors who purchase in this offering.
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Penalty bids permit the underwriters to reclaim a selling
concession from a selected dealer when the common stock
originally sold by the selected dealer is purchased in a
stabilizing covering transaction to cover short positions.
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These stabilizing transactions, covering transactions and
penalty bids may have the effect of raising or maintaining the
market price of our common stock or preventing or retarding a
decline in the market price of our common stock. As a result,
the price of our common stock may be higher than the price that
might otherwise exist in the open market. Neither we nor the
underwriters make any representation or prediction as to the
effect that the transactions described above may have on the
price of our common stock. These transactions may be effected on
the NASDAQ Global Market or otherwise and, if commenced, may be
discontinued at any time.
28
Passive
Market Making
In connection with this offering, the underwriters and selected
dealers, if any, who are qualified market makers on the NASDAQ
Global Market, may engage in passive market making transactions
in our common stock on the NASDAQ Global Market in accordance
with Rule 103 of Regulation M under the Exchange Act.
Rule 103 permits passive market making activity by the
participants in our common stock offering.
Passive market making may occur before the pricing of our
offering, or before the commencement of offers or sales of our
common stock. Each passive market maker must comply with
applicable volume and price limitations and must be identified
as a passive market maker. In general, a passive market maker
must display its bid at a price not in excess of the highest
independent bid for the security. If all independent bids are
lowered below the bid of the passive market maker, however, the
bid must then be lowered when purchase limits are exceeded. Net
purchases by a passive market maker on each day are limited to a
specified percentage of the passive market makers average
daily trading volume in the common stock during a specified
period and must be discontinued when that limit is reached. The
underwriters and other dealers are not required to engage in
passive market making and may end passive market making
activities at any time.
Affiliations
Howe Barnes Hoefer & Arnett, Inc. has performed and
expects to continue to perform financial advisory and investment
banking services for us in the ordinary course of its business,
and may have received, and may continue to receive, compensation
for such services.
LEGAL
MATTERS
The validity of the securities offered by this prospectus will
be passed upon for us by Downey Brand LLP. Certain legal matters
will be passed upon for the underwriters by Graham &
Dunn PC.
EXPERTS
The consolidated financial statements incorporated in this
prospectus by reference from the Bank of Commerce Holdings
Annual Report on
Form 10-K
for the year ended December 31, 2009 have been audited by
Moss Adams LLP, an independent registered public accounting
firm, as stated in their report thereon included therein, which
is incorporated herein by reference. Such consolidated financial
statements have been so incorporated in reliance upon the report
of such firm given upon their authority as experts in accounting
and auditing.
29
6,000,000 Shares
of Common Stock
Howe
Barnes Hoefer & Arnett
,
2010
PART II
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
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Item 13.
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Other
Expenses of Issuance and Distribution
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The following table sets forth the various expenses to be
incurred in connection with the sale and distribution of the
shares of common stock being registered hereby, all of which
will be borne by us (except any underwriting discounts and
commissions and expenses incurred for brokerage, accounting, tax
or legal services or any other expenses incurred in disposing of
the shares). All amounts shown are estimates except the SEC
registration fee.
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SEC registration fee
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$
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2,706
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FINRA filing fee
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$
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4,295
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Legal fees and expenses
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$
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200,000
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Accounting fees and expenses
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$
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18,000
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Printing fees and expenses
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$
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11,000
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Miscellaneous expenses
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$
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13,999
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Total Expenses
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$
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250,000
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Item 14.
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Indemnification
of Agents of the Corporation
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Agent means any person who is or was a director,
officer, employee or other agent of the company, or is or was
serving at the request of the Company as a director, officer,
employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust or other enterprise, or was a
director, officer, employee or agent of a foreign or domestic
corporation that was a predecessor corporation of the Company or
of another enterprise at the request of such predecessor
Company; proceeding means any threatened, pending or
completed action or proceeding, whether civil, criminal,
administrative or investigative; and expenses
include without limitation attorneys fees and any expenses
of establishing a right to indemnification.
The Company shall indemnify any person who was or is a party or
is threatened to be made a party to any proceeding (other than
an action by or in the right of the Company to procure a
judgment in its favor) by reason of the fact that such person is
or was an agent of the Company, against expenses, judgments,
fines, settlements and other amounts actually and reasonably
incurred in connection with such proceeding if such person acted
in good faith and in a manner such person reasonably believed to
be in the best interests of the Company and, in the case of a
criminal proceeding, if such person had no reasonable cause to
believe that such persons conduct was unlawful. The
termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of nolo contendere or its
equivalent shall not, of itself, create a presumption that such
person did not act in good faith and in a manner which such
person reasonably believed to be in the best interests of the
Company or that such person had reasonable cause to believe that
such persons conduct was unlawful.
The Company shall indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or
completed action by or in the right of the Company to procure a
judgment in its favor by reason of the fact that such person is
or was an agent of the Company, against expenses actually and
reasonably incurred by such person in connection with the
defense or settlement of such action if such person acted in
good faith, in a manner such person believed to be in the best
interests of the Company and with such care, including
reasonable inquiry, as an ordinarily prudent person in a like
position would use under similar circumstances. The Board of
Directors of the Company will provide for the indemnification of
agents to the fullest extent permissible under California law.
II-1
No indemnification will be made:
(1) In respect of any claim, issue or matter as to which
such person shall have been adjudged to be liable to the Company
in the performance of such persons duty to the Company,
unless and only to the extent that the court in which such
proceeding is or was pending shall determine upon application
that, in view of all the circumstances of the case, such person
is fairly and reasonably entitled to indemnity for the expenses
which such court shall determine;
(2) Of amounts paid in settling or otherwise disposing of a
threatened or pending action, with or without court
approval; or
(3) Of expenses incurred in defending a threatened or
pending action, which is settled or otherwise disposed of
without court approval.
To the extent that an agent of the Company has been successful
on the merits in defense of any proceeding or in defense of any
claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent
in connection therewith.
Any indemnification shall be made by the Company only if
authorized in the specific case, upon a determination that
indemnification of the agent is proper in the circumstances
because the agent has met the applicable standard of conduct, by:
(1) A majority vote of a quorum consisting of directors who
are not parties to such proceeding;
(2) Approval or ratification by the affirmative vote of a
majority of the shares of the Company represented and voting at
a duly held meeting at which a quorum is present (which shares
voting affirmatively also constitute at least a majority of the
required quorum) or by the written consent of holders of a
majority of the outstanding shares entitled to vote; for such
purpose, the shares owned by the person to be indemnified shall
not be considered outstanding or entitled to vote
thereon; or
(3) The court in which such proceeding is or was pending,
upon application made by the Company or the agent or the
attorney or other person rendering services in connection with
the defense, whether or not such application by the agent,
attorney or other person is opposed by the Company.
Expenses incurred in defending any proceeding may be advanced by
the Company prior to the final disposition of such proceeding
upon receipt of an undertaking by or on behalf of the agent to
repay such amount unless it shall be determined ultimately that
the agent is entitled to be indemnified as authorized.
Nothing shall affect any right to indemnification to which
persons other than directors and officers of the Company or any
subsidiary thereof may be entitled by contract or otherwise.
No indemnification or advance shall be made in any circumstance
where it appears:
(1) That it would be inconsistent with a provision of the
Articles of Incorporation, as amended, a resolution of the
shareholders or an agreement in effect at the time of the
accrual of the alleged cause of action asserted in the
proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits
indemnification; or
(2) That it would be inconsistent with any condition
expressly imposed by a court in approving a settlement.
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Item 15.
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Recent
Sales of Unregistered Securities.
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During the last three years, the Company has not sold any shares
of common stock without registration under the Securities Act.
Issuance of 17,000 shares of the Companys
Series A Preferred Stock and a warrant to purchase
405,405 shares of the Companys common stock is
subject to an exemption from registration pursuant to
Section 4(2) of the Securities Act and is described under
the caption Description of Capital Stock and is
incorporated into this item by reference.
II-2
EXHIBIT INDEX
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Exhibit
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Number
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Description of Document
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1.1*
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Form of Underwriting Agreement.
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3.1
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Articles of Incorporation as amended, incorporated by reference
to EX-3.1 of the
Form 10-12G
filed 12/4/1998.
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3.2
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Bylaws as amended, incorporated by reference to EX-3.1 of the
Form 8-K
filed 05/15/2007.
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4.1
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Specimen Common Stock Certificate, incorporated by reference to
EX-4.1 of the
Form 10-12G
filed 12/4/1998.
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4.2
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Certificate of determination for the Series A Preferred
Stock, incorporated by reference to EX-4.1 of the
Form 8-K
filed 11/19/2008.
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4.3
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Form of Certificate for the Series A Preferred Stock,
incorporated by reference to EX-4.2 of the
Form 8-K
filed 11/19/2008.
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4.4
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Warrant for purchase of shares of Common stock, incorporated by
reference to EX-4.3 of the
Form 8-K
filed 11/19/2008.
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5.1*
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Legal opinion of Downey Brand LLP.
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10.1
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Letter Agreement, dated November 14, 2008, between Bank of
Commerce Holdings and the United States Department of the
Treasury, which includes the Securities Purchase
Agreement Standard terms attached thereto, with
respect to the issuance of the Series A Preferred Stock and
Warrant, incorporated by reference to EX-10.1 of the
Form 8-K
filed 11/19/2008.
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10.2
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Office Building Lease between Gairn Partnership/First Avenue
Square and Redding Bank of Commerce dated July 16, 1998,
incorporated by reference to EX-10.2 of the
Form 10-12G
filed 12/4/1998.
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10.3
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1998 Stock Option Plan, incorporated by reference to EX-10.3 of
the
Form 10-12G
filed 12/4/1998.
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10.4
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Form of Incentive Stock Option Agreement used in connection with
1998 Stock Option Plan, incorporated by reference to EX-10.4 of
the
Form 10-12G
filed 12/4/1998.
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10.5
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Form of Non-statutory Stock Option Agreement used in connection
with 1998 Stock Option Plan, incorporated by reference to
EX-10.5 of the
Form 10-12G
filed 12/4/1998.
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10.7
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Directors Deferred Compensation Plan, incorporated by reference
to EX-10.7 of the
Form 10-12G
filed 12/4/1998.
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10.8
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Form of Deferred Compensation Agreement Used In Connection With
Directors Deferred Compensation Plan, incorporated by reference
to EX-10.8 of the
Form 10-12G
filed 12/4/1998.
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10.10
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Employment contracts dated April 2001, incorporated by reference
to EX-10.10 of the
Form 8-K
filed 9/27/2001.
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10.11
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Affiliated Business Arrangement Agreement, incorporated by
reference to EX-10.11 of the
Form 8-K
filed 8/20/2004.
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10.12
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Office building lease by and between Waybright #3 Partners and
Redding Bank of Commerce dated 9/23/2005, incorporated by
reference to EX-99.1 of the
Form 8-K
filed 9/26/2005.
|
10.13
|
|
Amendment to Employment contracts dated April 2001, incorporated
by reference to EX-99.1 &99.2 of the
Form 8-K
filed 12/21/2005.
|
10.14
|
|
Change in Control Agreements, incorporated by reference to
EX-99.1-99.4 of the
Form 8-K
filed 12/21/2005.
|
10.15
|
|
Salary Continuation Blais, incorporated by reference
to EX-10.15 of the
Form 8-K
filed 12/19/2006.
|
10.16
|
|
Salary Continuation Moty, incorporated by reference
to EX-10.16 of the
Form 8-K
filed 12/19/2006.
|
10.17
|
|
Salary Continuation Eslick, incorporated by
reference to EX-10.17 of the
Form 8-K
filed 12/19/2006.
|
II-3
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
10.19
|
|
Employment Agreement Miles, incorporated by
reference to EX-10.19 of the
Form 8-K
filed 1/03/07.
|
10.21
|
|
Salary Continuation Miles, incorporated by reference
to EX-10.21 of the
Form 8-K
filed 1/03/07.
|
10.22
|
|
Employment Agreement Moty, incorporated by reference
to EX-10.22 of the
Form 8-K
filed 9/27/07.
|
10.23
|
|
Salary Continuation Moty, incorporated by reference
to EX-10.23 of the
Form 8-K
filed 9/28/07.
|
10.24
|
|
Employment contracts dated October 14, 2008, incorporated
by reference to EX-10.22 of the
Form 8-K
filed 10/17/08.
|
10.25
|
|
Employment Agreement Matranga, incorporated by
reference to EX-10.22 of the
Form 8-K
filed 11/26/08.
|
14.0
|
|
Bank of Commerce Code of Ethics, incorporated by reference to
EX-10.12 of the
Form 8-K
filed 2/26/2003.
|
21.1
|
|
Subsidiaries of the Company, incorporated by reference to
EX-21.1 of the
Form 10-12G
filed 12/4/1998.
|
23.1**
|
|
Consent of Moss Adams LLP.
|
23.2*
|
|
Consent of Downey Brand LLP (included in Exhibit 5.1).
|
24.1*
|
|
Power of Attorney.
|
|
|
|
** |
|
Filed with this Pre-Effective Amendment No. 2 to
Registration Statement on Form S-1
(No. 333-164863). |
Certain instruments with respect to long-term debt of the
registrant and consolidated subsidiaries are not filed herewith
pursuant to Item 601(b)(4)(iii) of
Regulation S-K
since the total amount of securities authorized under each such
instrument does not exceed 10% of the total assets of the
registrant and its subsidiaries on a consolidated basis. The
registrant agrees to furnish a copy of any such instrument to
the SEC upon request.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 (Securities Act) may be
permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is,
therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment
by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act, the information omitted from the form of
prospectus filed as part of this registration statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the registrant pursuant to Rule 424(b)
(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of this registration statement as of the time
it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this Amendment No. 2 to
Registration Statement
No. 333-164863
to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Redding, State of California, on
March 12, 2010.
BANK OF COMMERCE HOLDINGS
Patrick J. Moty
President & Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 2 to Registration Statement
No. 333-164863
has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 12,
2010.
|
|
|
|
|
Signature
|
|
Title
|
|
|
|
|
/s/ PATRICK
J. MOTY
|
|
President, Chief Executive Officer and Director
(Principal Executive Officer)
|
|
|
|
/s/ SAMUEL
D. JIMENEZ
|
|
Senior Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
|
|
|
|
*
Kenneth
R. Gifford, Jr.
|
|
Chairman of the Board of Directors
|
|
|
|
*
Orin
Bennett
|
|
Director
|
|
|
|
*
Dave
Bonucelli
|
|
Director
|
|
|
|
*
Gary
Burks
|
|
Director
|
|
|
|
*
Russel
L. Duclos
|
|
Director
|
|
|
|
*
Jon
W. Halfhide
|
|
Director
|
|
|
|
*
David
H. Scott
|
|
Director
|
|
|
|
*
Lyle
L. Tullis
|
|
Director
|
|
|
|
|
|
*By:
|
|
/s/ PATRICK
J. MOTY
Patrick
J. Moty
Attorney-in-Fact
|
|
|
II-5
EXHIBIT INDEX
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
1.1*
|
|
Form of Underwriting Agreement.
|
3.1
|
|
Articles of Incorporation as amended, incorporated by reference
to EX-3.1 of the
Form 10-12G
filed 12/4/1998.
|
3.2
|
|
Bylaws as amended, incorporated by reference to EX-3.1 of the
Form 8-K
filed 05/15/2007.
|
4.1
|
|
Specimen Common Stock Certificate, incorporated by reference to
EX-4.1 of the
Form 10-12G
filed 12/4/1998.
|
4.2
|
|
Certificate of determination for the Series A Preferred
Stock, incorporated by reference to EX-4.1 of the
Form 8-K
filed 11/19/2008.
|
4.3
|
|
Form of Certificate for the Series A Preferred Stock,
incorporated by reference to EX-4.2 of the
Form 8-K
filed 11/19/2008.
|
4.4
|
|
Warrant for purchase of shares of Common stock, incorporated by
reference to EX-4.3 of the
Form 8-K
filed 11/19/2008.
|
5.1*
|
|
Legal opinion of Downey Brand LLP.
|
10.1
|
|
Letter Agreement, dated November 14, 2008, between Bank of
Commerce Holdings and the United States Department of the
Treasury, which includes the Securities Purchase
Agreement Standard terms attached thereto, with
respect to the issuance of the Series A Preferred Stock and
Warrant, incorporated by reference to EX-10.1 of the
Form 8-K
filed 11/19/2008.
|
10.2
|
|
Office Building Lease between Garian Partnership/First Avenue
Square and Redding Bank of Commerce dated July 16, 1998,
incorporated by reference to EX-10.2 of the
Form 10-12G
filed 12/4/1998.
|
10.3
|
|
1998 Stock Option Plan, incorporated by reference to EX-10.3 of
the
Form 10-12G
filed 12/4/1998.
|
10.4
|
|
Form of Incentive Stock Option Agreement used in connection with
1998 Stock Option Plan, incorporated by reference to EX-10.4 of
the
Form 10-12G
filed 12/4/1998.
|
10.5
|
|
Form of Non-statutory Stock Option Agreement used in connection
with 1998 Stock Option Plan, incorporated by reference to
EX-10.5 of the
Form 10-12G
filed 12/4/1998.
|
10.7
|
|
Directors Deferred Compensation Plan, incorporated by reference
to EX-10.7 of the
Form 10-12G
filed 12/4/1998.
|
10.8
|
|
Form of Deferred Compensation Agreement Used In Connection With
Directors Deferred Compensation Plan, incorporated by reference
to EX-10.8 of the
Form 10-12G
filed 12/4/1998.
|
10.10
|
|
Employment contracts dated April 2001, incorporated by reference
to EX-10.10 of the
Form 8-K
filed 9/27/2001.
|
10.11
|
|
Affiliated Business Arrangement Agreement, incorporated by
reference to EX-10.11 of the
Form 8-K
filed 8/20/2004.
|
10.12
|
|
Office building lease by and between Wainright #3 Partners and
Redding Bank of Commerce dated 9/23/2005, incorporated by
reference to EX-99.1 of the
Form 8-K
filed 9/26/2005.
|
10.13
|
|
Amendment to Employment contracts dated April 2001, incorporated
by reference to EX-99.1 &99.2 of the
Form 8-K
filed 12/21/2005.
|
10.14
|
|
Change in Control Agreements, incorporated by reference to
EX-99.1-99.4 of the
Form 8-K
filed 12/21/2005.
|
10.15
|
|
Salary Continuation Blais, incorporated by reference
to EX-10.15 of the
Form 8-K
filed 12/19/2006.
|
10.16
|
|
Salary Continuation Moty, incorporated by reference
to EX-10.16 of the
Form 8-K
filed 12/19/2006.
|
10.17
|
|
Salary Continuation Eslick, incorporated by
reference to EX-10.17 of the
Form 8-K
filed 12/19/2006.
|
10.19
|
|
Employment Agreement Miles, incorporated by
reference to EX-10.19 of the
Form 8-K
filed 1/03/07.
|
10.21
|
|
Salary Continuation Miles, incorporated by reference
to EX-10.21 of the
Form 8-K
filed 1/03/07.
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description of Document
|
|
10.22
|
|
Employment Agreement Moty, incorporated by reference
to EX-10.22 of the
Form 8-K
filed 9/27/07.
|
10.23
|
|
Salary Continuation Moty, incorporated by reference
to EX-10.23 of the
Form 8-K
filed 9/28/07.
|
10.24
|
|
Employment contracts dated October 14, 2008, incorporated
by reference to EX-10.22 of the
Form 8-K
filed 10/17/08.
|
10.25
|
|
Employment Agreement Matranga, incorporated by
reference to EX-10.22 of the
Form 8-K
filed 11/26/08.
|
14.0
|
|
Bank of Commerce Code of Ethics, incorporated by reference to
EX-10.12 of the
Form 8-K
filed 2/26/2003.
|
21.1
|
|
Subsidiaries of the Company, incorporated by reference to
EX-21.1 of the
Form 10-12G
filed 12/4/1998.
|
23.1**
|
|
Consent of Moss Adams LLP.
|
23.2*
|
|
Consent of Downey Brand LLP (included in Exhibit 5.1).
|
24.1*
|
|
Power of Attorney.
|
|
|
|
** |
|
Filed with this Pre-Effective Amendment No. 2 to
Registration Statement on Form S-1
(No. 333-164863). |