Fair Value Hierarchy Management monitors the availability of observable market data to assess the appropriate classification  of financial instruments within the fair value hierarchy. Changes in economic conditions or model- based valuation techniques may require the transfer of financial instruments from one fair value level  to another. In such instances, the transfer is reported at the beginning of the reporting period.  Level 3 – Model-based techniques that use at least one significant assumption not observable in the  market. These unobservable assumptions reflect the Bank’s estimates of assumptions that market  participants would use on pricing the asset or liability. Valuation techniques include management  judgment and estimation which may be significant. Level 2 – Quoted prices for similar instruments in active markets, quoted prices for identical or similar  instruments in markets that are not active, and model-based valuation techniques for which all  significant assumptions are observable or can be corroborated by observable market data. Level 1 – Quoted market prices for identical instruments traded in active exchange markets. The Bank groups its assets and liabilities measured at fair value in three levels, based on the markets  in which the assets and liabilities are traded and the reliability of the assumptions used to determine  fair value. Valuations within these levels are based upon: 27 The fair values of commitments are estimated using the fees currently charged to enter into similar  agreements and are not significant and, therefore, not included in the above table. For investment securities, fair values are based on quoted market prices, quoted market prices for  similar securities and indications of value provided by brokers. The fair values for loans and leases,  including loans held-for-sale, are estimated using discounted cash flow analyses, using interest rates  currently being offered at each reporting date for loans with similar terms to borrowers of comparable  creditworthiness. It was not practicable to determine the fair value of FHLB, IBFC and PCBB stock  due to restrictions placed on their transferability. Fair values for fixed-rate certificates of deposit are  estimated using discounted cash flow analyses using interest rates offered at each reporting date by  the Bank for certificates with similar remaining maturities.  The following methods and assumptions were used to estimate the fair value of financial instruments. For cash and cash equivalents, accrued interest receivable and payable, demand deposits, short- term borrowings and fixed-rate long-term borrowings, the carrying amount is estimated to be fair  value. These estimates do not reflect any premium or discount that could result from offering the Bank’s  entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate  the value of anticipated future business related to the instruments. In addition, the tax ramifications  related to the realization of unrealized gains and losses can have a significant effect on fair value  estimates and have not been considered in any of these estimates. Fair Value of Financial Instruments (Continued) NOTES TO FINANCIAL STATEMENTS 2.  FAIR VALUE MEASUREMENTS  (Continued) California Bank of Commerce