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## NOTES TO FINANCIAL STATEMENTS 

## 9. BORROWING ARRANGEMENTS 

Under an agreement with a correspondent bank, the Bank can borrow up to the lesser of $8,000,000, or the total market value of securities pledged to the bank under a repurchase agreement. At December 31, 2011 and 2010, there were no investment securities pledged to the correspondent bank under this agreement. There were no borrowings outstanding under these arrangements at December 31, 2011 or 2010. 

The Bank has a borrowing arrangement with the Federal Reserve Bank of San Francisco (FRB) under which advances are secured by portions of the Bank’s loan and investment securities portfolios. The Bank’s credit limit varies according to the amount and composition of the assets pledged as collateral. At December 31, 2011, amounts pledged and available borrowing capacity under such limits were approximately $85,012,000 and $70,583,000, respectively. There were no borrowings outstanding under this arrangement as of December 31, 2011 and $10,000,000 in over-night borrowings outstanding under this arrangement at a fixed interest rate of 0.75% at December 31, 2010. 

The Bank has a borrowing arrangement with the Federal Home Loan Bank (FHLB) under which advances are secured by portions of the Bank’s loan portfolio. The Bank’s credit limit varies according to its total assets and the amount and composition of the loan portfolio pledged as collateral. At December 31, 2011, amounts pledged and available borrowing capacity under such limits were approximately $53,213,000 and $35,213,000, respectively. 

There were $18,000,000 in borrowings outstanding under this arrangement at fixed interest rates ranging from 1.20% to 2.79% at December 31, 2011, with a weighted average maturity of approximately 2.1 years. The weighted average interest rate on these borrowings was 2.06% at December 31, 2011. 

At December 31, 2010, there were $18,000,000 in borrowings outstanding under this arrangement at fixed interest rates ranging from 0.69% to 2.79%, with a weighted average maturity of approximately 2.2 years. The weighted average interest rate on these borrowings was 2.00% at December 31, 2010. 

## 10. COMMITMENTS AND CONTINGENCIES 

## Operating Leases 

The Bank leases its headquarters facility in Lafayette, California from an affiliated party under a non- cancelable operating lease. The lease expires on May 30, 2015 and has one 7 1/2 year renewal option. The lease includes annual rent adjustments during the initial lease term and increases to the then current fair-market rent commencing the first year of the option. It is management’s intention to exercise the renewal option. 

During 2011, the Bank leased space in San Jose California for its Loan Production Office. This one- year lease expires August 31, 2012 and has one 1 year renewal option. If renewed, the rent will be increased to reflect the then current fair-market value rents. 

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