Investment securities are classified into the following categories: Management determines the appropriate classification of its investments at the time of purchase. Subsequent transfers between categories are accounted for at fair value. Gains and losses on the sale of investment securities are computed using the specific identification  method. Interest earned on investment securities is reported in interest income, net of applicable  adjustments for accretion of discounts and amortization of premiums using the level yield method  adjusted for changes in principal prepayment speeds. An investment security is impaired when its carrying value is greater than its fair value. Investment  securities that are impaired are evaluated on at least a quarterly basis and more frequently when  economic or market conditions warrant such an evaluation to determine whether such a decline in  their fair value is other than temporary. Management utilizes criteria such as the magnitude and  duration of the decline and the intent and ability of the Bank to retain its investment in the securities  for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the  reasons underlying the decline, to determine whether the loss in value is other than temporary. The  term “other than temporary” is not intended to indicate that the decline is permanent, but indicates  that the prospects for a near-term recovery of value is not necessarily favorable, or that there is a lack  of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, and management does not intend  to sell the security or it is more likely than not that the Bank will not be required to sell the security  before recovery, only the portion of the impairment loss representing credit exposure is recognized  as a charge to earnings, with the balance recognized as a charge to other comprehensive income. If  management intends to sell the security or it is more likely than not that the Bank will be required to  sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a  charge to earnings. As a member of the Federal Home Loan Bank of San Francisco, the Bank is required to maintain  an investment in the capital stock of the Federal Home Loan Bank (the “FHLB”). The investment is  carried at cost, classified as a restricted security, and periodically evaluated for impairment based on  the ultimate recovery of par value. California Bank of Commerce 16 Investment Securities •  Available-for-sale securities, reported at fair value, with unrealized gains and losses  excluded from earnings and reported, net of taxes, as accumulated other comprehensive  income (loss) within shareholders’ equity. •  Held-to-maturity securities, which management has the positive intent and ability to hold,  reported at amortized cost, adjusted for the accretion of discounts and amortization of  premiums. NOTES TO FINANCIAL STATEMENTS 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) Investment in Federal Home Loan Bank Stock