California Bank of Commerce NOTES TO FINANCIAL STATEMENTS 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES General California Bank of Commerce (the “Bank”) was approved as a state-chartered non-member bank on  March 23, 2007, and commenced operations on July 17, 2007. The Bank is subject to regulation  by the California Department of Financial Institutions (the “DFI”) and the Federal Deposit Insurance  Corporation (the “FDIC”). The Bank is headquartered in Lafayette, California and provides products  and services to customers who are predominately small to middle-market businesses, professionals  and not-for-profit organizations located in Contra Costa, Alameda and surrounding counties. The Bank’s deposits are insured by the FDIC up to applicable legal limits. Additionally, during 2010,  the Bank participated in the FDIC’s Transaction Account Guarantee Program (“TAGP”) under which  all noninterest-bearing transaction accounts were fully guaranteed by the FDIC for the entire amount  in the account and the Bank was assessed an annual fee of 15 basis points for all deposit amounts  exceeding the existing deposit insurance limit of $250,000. The TAGP program expired December  31, 2010 when it was replaced by provisions of the Dodd-Frank Act, which provides that all funds  in noninterest-bearing transaction accounts will be fully insured from December 31, 2010 through  December 31, 2012. The FDIC will not charge a separate assessment or premium for the insurance  of noninterest-bearing transaction accounts under the Dodd-Frank Act. The accounting and reporting policies of the Bank conform with accounting principles generally  accepted in the United States of America and prevailing practices within the banking industry. The preparation of financial statements in conformity with accounting principles generally accepted  in the United States of America requires management to make estimates and assumptions. These  estimates and assumptions affect the reported amounts of assets and liabilities at the date of the  financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The allowance for loan losses, taxes and fair value  estimates are particularly subject to change. Use of Estimates Reclassifications Cash and Cash Equivalents Certain reclassifications have been made to prior year balances to conform to classifications used in  2011. These reclassifications had no effect on prior year net income or shareholder’s equity. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and due  from banks and Federal funds sold. Generally, Federal funds are sold for one day periods. Loans,  deposits and other borrowings are presented on a net basis. 15