California Bank of Commerce NOTES TO FINANCIAL STATEMENTS 1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES  (Continued) 17 At December 31, 2011 and 2010, the Bank’s investment in FHLB stock totaled $1,178,200 and  $846,000, respectively, and is included on the balance sheet in accrued interest receivable and other  assets. Both cash and stock dividends are reported as income. Investment in Federal Home Loan Bank Stock (Continued) Investment in Other Bank Stocks Bank Owned Life Insurance Loans Independent Bankers Financial Corporation The Independent Bankers Financial Corporation (the “IBFC”), the holding company for The  Independent Banker’s Bank, provides services exclusively to banks. At December 31, 2011 and  2010, the Bank’s investment in IBFC stock totaled $50,419. The investment is carried at cost and is  included on the balance sheet in accrued interest receivable and other assets. The Pacific Coast Bankers’ Bancshares (“PCBB”), the holding company for The Pacific Coast  Banker’s Bank, provides services exclusively to banks. At December 31, 2011 and 2010, the Bank’s  investment in PCBB stock totaled $190,000. The investment is carried at cost and is included on the  balance sheet in accrued interest receivable and other assets. Pacific Coast Bankers’ Bancshares The Bank has purchased life insurance policies on certain key executives. Bank owned life insurance  is recorded at the amount that can be realized under the insurance contract at the balance sheet date,  which is the cash surrender value adjusted for other charges, or other amounts due that are probable  at settlement. Loans that management has the intent and ability to hold for the foreseeable future, or until maturity  or payoff, are reported at the principal balances outstanding, net of deferred fees and costs and the  allowance for loan losses. Loans transferred from loans held for sale are carried at the lower of  principal balance or market value at the date of transfer adjusted for accretion of discounts. Interest is  accrued daily based upon outstanding loan balances. However, when, in the opinion of management,  loans are considered to be impaired and the future collectability of interest and principal is in serious  doubt, loans are placed on nonaccrual status and the accrual of interest income is suspended. Any  interest accrued but unpaid is charged against income. Payments received are applied to reduce  principal to the extent necessary to ensure collection. Subsequent payments on these loans, or  payments received on nonaccrual loans for which the ultimate collectability of principal is not in doubt,  are applied first to earned but unpaid interest and then to principal. 