California Bank of Commerce NOTES TO FINANCIAL STATEMENTS 10.  COMMITMENTS AND CONTINGENCIES  (Continued) Contingencies Correspondent Banking Agreements 11.  SHARE-BASED COMPENSATION Stock Option Awards 42 For the years ended December 31, 2011 and 2010, the compensation cost recognized for stock option  compensation was $248,439 and $532,886, respectively. Of the compensation cost recognized for  the year ended December 31, 2011, $95,375 was for incremental compensation cost resulting from  the exchanged options described above. These exchanged options, which were issued with an exercise price at the fair market value of the  underlying shares at the date of exchange, have a weighted average term of 7.5 years and ratably  vest over 18 months from the option grant date. All other options granted under the Plan have a  10 year term and have been issued with exercise prices at the fair market value of the underlying  shares at the date of grant. The non-qualified stock option awards to the organizers vested 100%  immediately, whereas regular stock option awards to directors and employees vest over a three year  period from the date the options were granted. The share-based compensation expense related to  awards granted to organizers was included in pre-opening expenses. The California Bank of Commerce 2007 Equity Incentive Plan (the “Plan”) permits the grant of stock  options to directors, organizers and employees of the Bank. Grants of options to the organizers  during the start up phase of the Bank and to the Directors are considered non-qualified stock option  awards. All other option grants are considered incentive stock option awards. A group of incentive  stock options for 23 employees were re-priced and exchanged in 2011 for existing vested incentive  stock options under the terms of a Tender Offer. As of December 31, 2010 as a result of these coverage limitations, deposits at one correspondent  bank totaling about $352,000 were not fully insured. Coverage under the Transaction Account  Guarantee Program is in addition to and separate from the coverage available under the FDIC’s  general deposit insurance rules.  The Bank maintains funds on deposit with other federally insured financial institutions under  correspondent banking agreements. Although not all of the Bank’s correspondent banks have elected  to participate in the FDIC sponsored Transaction Account Guarantee Program (“TAGP”), insured  financial institution deposits up to $250,000 are fully insured by the FDIC under the FDIC’s general  deposit insurance rules. Under the Dodd-Frank Act (see p.15), through December 31, 2012, all  noninterest-bearing transaction accounts were fully guaranteed by the FDIC for the entire balance in  the account above $250,000. As a result of these coverage limitations there were no correspondent  bank balances, which were not fully insured as of December 31, 2011. The Bank may be subject to legal proceedings and claims which arise in the ordinary course of  business. In the opinion of management, the amount of ultimate liability with respect to such actions  will not materially affect the financial position or results of operations of the Bank.