As filed with
the Securities and Exchange Commission on April 11, 2018.
Registration No. 333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT
OF 1933
BAYCOM
CORP
(Exact name of registrant
as specified in its charter)
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California
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6022
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37-1849111
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(State or other jurisdiction of
incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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500 Ygnacio Valley
Road, Suite 200
Walnut Creek, CA 94596
(925) 476-1800
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Keary L. Colwell
Senior Executive Vice
President, Chief Financial Officer and Corporate Secretary
BayCom Corp
500 Ygnacio Valley
Road, Suite 200
Walnut Creek, CA 94596
(925) 476-1800
(Name, address, including
zip code and telephone number, including area code, of agent for service)
Copies to:
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Dave M. Muchnikoff,
P.C.
Michael S. Sadow, P.C.
Silver, Freedman, Taff
& Tiernan LLP
3299 K Street, N.W.
Suite 100
Washington, DC 20007
(202) 295-4500
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Nikki Wolontis, Esq.
King, Holmes, Paterno
& Soriano, LLP
1900 Avenue of the
Stars
25th Floor
Los Angeles, California
90067
(818) 631-2224
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Approximate date of
commencement of proposed sale to the public: As soon as practicable after the effective date of this registration statement.
If any of the securities
being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, check the following box.
¨
If this Form is filed
to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box
and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a
post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
If this Form is a
post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration statement for the same offering.
¨
Indicate by check
mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company
or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” “smaller
reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer
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¨
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Accelerated filer
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¨
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Non-accelerated filer
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x
(Do not check if a smaller reporting company)
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Smaller reporting company
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¨
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Emerging growth company
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x
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If an emerging growth
company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any
new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.
¨
CALCULATION OF REGISTRATION
FEE
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Title of each class of securities to
be registered
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Proposed maximum aggregate
offering price(1)(2)
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Amount of registration fee
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Common Stock, no par value per share
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$
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57,500,000
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$
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7,159
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(1)
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Estimated solely for the purpose of calculating the amount of the registration fee in accordance
with Rule 457(o) under the Securities Act of 1933, as amended.
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(2)
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Includes the aggregate offering price of additional shares that the underwriters have the option
to purchase.
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The registrant hereby
amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance
with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
The information in this prospectus is not complete
and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission
is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities
in any state where the offer or sale is not permitted.
Subject to Completion
Preliminary Prospectus dated
________ __, 2018
PROSPECTUS
_________ Shares
Common Stock
This prospectus relates to the initial
public offering of BayCom Corp common stock. We are a bank holding company headquartered in Walnut Creek, California for United
Business Bank, a California-chartered bank. We are offering _________ shares of our common stock.
Prior to this offering, there has
been no established public market for our common stock. We anticipate that the initial public offering price of our common
stock will be between $ and $_____ per share. Our common stock has been approved for listing on the NASDAQ Global Select
Market under the symbol “BCML,” subject to notice of issuance.
We are an “emerging growth company”
under the federal securities laws and are eligible for reduced public company reporting requirements. See “Implications of
Being an Emerging Growth Company.”
Investing in our common stock involves risks. See “Risk
Factors” beginning on page 25 of this prospectus.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts and commissions(1)
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$
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$
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Proceeds to us, before expenses
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$
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$
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(1) See “Underwriting” for a description of all
underwriting compensation payable in connection with this offering.
Neither the Securities and Exchange
Commission nor any other regulatory body has approved or disapproved of these securities or passed upon the adequacy or accuracy
of this prospectus. Any representation to the contrary is a criminal offense.
The shares of our common stock that you
purchase in this offering will not be savings accounts, deposits or other obligations of our bank subsidiary and are not insured
or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
The underwriters expect to deliver the shares
of our common stock against payment in New York, New York on or about _________ __, 2018, subject to customary closing conditions.
We have granted the underwriters an option
for a period of 30 days after the date of this prospectus to purchase an additional _______ shares of our common stock on the same
terms and conditions set forth above, less the underwriting discount, solely to cover over-allotments.
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FIG Partners, LLC
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D.A. Davidson & Co.
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Prospectus dated ________ __, 2018
TABLE OF CONTENTS
ABOUT THIS PROSPECTUS
Unless we state otherwise or the context
otherwise requires, references in this prospectus to “we,” “our,” “us,” “the Company”
and “BayCom” refer to BayCom Corp and its consolidated subsidiary, United Business Bank (formerly known as Bay Commercial
Bank), which we sometimes refer to as “the Bank.”
Neither we nor the underwriters have authorized
anyone to provide any information other than that contained in this prospectus or in any free writing prospectus prepared by or
on behalf of us or to which we have referred you. We and the underwriters take no responsibility for, and can provide no assurance
as to the reliability of, any other information that others may give you. We and the underwriters are not making an offer of these
securities in any jurisdiction where the offer is not permitted. You should not assume that the information contained in this prospectus
is accurate as of any date other than the date on the cover page of this prospectus. This prospectus includes references to information
contained on, or that can be accessed through, our website. Information contained on, or that can be accessed through, our website
is not part of, and is not incorporated into, this prospectus.
This prospectus describes the specific details
regarding this offering and the terms and conditions of our common stock being offered hereby and the risks of investing in our
common stock. For further information, see “Where You Can Find More Information.”
Neither we, nor any of our officers, directors,
agents or representatives, or the underwriters, make any representation to you about the legality of an investment in our common
stock. You should not interpret the contents of this prospectus or any free writing prospectus to be legal, business, investment
or tax advice. You should consult with your own advisors for that type of advice and consult with them about the legal, tax, business,
financial and other issues that you should consider before investing in our common stock.
No action is being taken in any jurisdiction
outside the United States to permit a public offering of our securities or possession or distribution of this prospectus in that
jurisdiction. Persons who come into possession of this prospectus in jurisdictions outside the United States are required to inform
themselves about, and to observe, any restrictions as to the offering and the distribution of this prospectus applicable to those
jurisdictions.
Unless otherwise expressly stated or the
context otherwise requires, all information in this prospectus assumes that the underwriters have not exercised their option to
purchase additional shares of our common stock to cover over-allotments, if any.
INDUSTRY AND MARKET DATA
Although we are responsible for all of the
disclosures contained in this prospectus, this prospectus contains industry, market and competitive position data and forecasts
that are based on industry publications and studies conducted by independent third parties. The industry publications and third-party
studies generally state that the information that they contain has been obtained from sources believed to be reliable, although
they do not guarantee the accuracy or completeness of such information. Although we believe that the market position, market opportunity
and market size information included in this prospectus is generally reliable, we have not verified the data, which is inherently
imprecise. The forward-looking statements included in this prospectus related to industry, market and competitive data position
may be materially different than actual results. Trademarks used in the prospectus are the property of their respective owners,
although for presentational convenience we may not use the ® or the ™ symbols to identify such trademarks.
IMPLICATIONS OF BEING AN EMERGING GROWTH
COMPANY
We are an “emerging growth company”
as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. For as long as we are an emerging growth company,
unlike other public companies that are not emerging growth companies under the JOBS Act, we are not required to:
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·
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provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal
control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act;
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·
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provide more than two years of audited financial statements and related management’s discussion and analysis of
financial condition and results of operations;
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·
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comply with any new requirements adopted by the Public Company Accounting Oversight Board, or the PCAOB, requiring mandatory
audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional
information about the audit and the financial statements of the issuer; or
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·
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provide certain disclosure regarding executive compensation required of larger public companies or hold shareholder advisory
votes on executive compensation or golden parachute payments as required by the Dodd-Frank Wall Street Reform and Consumer Protection
Act, or the Dodd-Frank Act.
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We have elected to take advantage of
the reduced disclosure requirements and other relief described above, and in the future we may take advantage of any or all
of these exemptions for so long as we remain an emerging growth company. We will remain an emerging growth company until the
earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the
end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have,
during the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which
we are deemed to be a “large accelerated filer” under the Securities Exchange Act of 1934, as amended, or the
Exchange Act.
In addition to the relief described above,
the JOBS Act permits us an extended transition period for complying with new or revised accounting standards affecting public companies.
We have elected to use this extended transition period, which means that the financial statements included in this prospectus,
as well as any financial statements that we file in the future, will not be subject to all new or revised accounting standards
generally applicable to public companies for the transition period for so long as we remain an emerging growth company or until
we affirmatively and irrevocably opt out of the extended transition period under the JOBS Act. As a result, our financial statements
may not be comparable to the financial statements of public companies that comply with such new or revised accounting standards
on a non-delayed basis.
PROSPECTUS SUMMARY
This summary highlights selected information
contained elsewhere in this prospectus and does not contain all of the information that you should consider before deciding to
purchase our common stock in this offering. You should read the entire prospectus carefully, including the sections titled “Risk
Factors,” “Cautionary Note Regarding Forward-Looking Statements” and “Management’s Discussion and
Analysis of Financial Condition and Results of Operations,” together with our consolidated financial statements and the related
notes thereto, before making an investment decision.
Our Company
We are a bank holding company headquartered
in Walnut Creek, California. United Business Bank, our wholly owned banking subsidiary, is a California state-chartered bank which
provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals.
In our 14 years of operation, we have grown to 17 full service banking branches. Our main office is located in Walnut Creek, California
and our branch offices are located in Oakland, Castro Valley, Mountain View, Napa, Stockton (2), Pleasanton, Livermore, San Jose,
Long Beach, Sacramento, San Francisco and Glendale, California, and Seattle, Washington (2) and Albuquerque, New Mexico. In addition,
we have one loan production office in Los Angeles, California. In addition to our organic growth, we have completed five whole-bank
acquisitions since 2010. As of December 31, 2017, we had, on a consolidated basis, total assets of $1.25 billion, total deposits
of $1.10 billion, total loans of $890.1 million (net of allowances) and total shareholders’ equity of $118.6 million.
Our principal objective is to increase shareholder
value and generate consistent earnings growth by expanding our commercial banking franchise through opportunistic acquisitions
that are additive to our franchise value and organic growth. We strive to provide an enhanced banking experience for our clients
by providing a comprehensive suite of sophisticated banking products and services tailored to meet their needs and by delivering
the high-quality, relationship-based, client service of a community bank.
Our History and Growth
The Company was formed as the holding company
for the Bank in 2016. We commenced banking operations as Bay Commercial Bank in July 2004 and changed the name of the Bank to United
Business Bank in April 2017 following our acquisition of United Business Bank, FSB in April 2017.
The Bank was founded in March 2004 as California-chartered
commercial bank by a group of Walnut Creek business and community leaders, including George Guarini who serves as our Chief Executive
Officer. Mr. Guarini and our other founders envisioned a community bank in Walnut Creek committed to creating long-term relationships
with small and mid-sized businesses and professionals. The severe economic recession beginning in 2008 and the ongoing consolidation
in the banking industry, created an opportunity for our management team and board to build an attractive commercial banking franchise
and create long-term value for our shareholders by employing an acquisition strategy that focuses on opportunities that grow our
product portfolio and expand the business geographically.
In 2010, we raised $16.8 million in net
proceeds through institutional investors and individuals to support our acquisition strategy. Since 2010, we have implemented our
vision of becoming a strategic consolidator of community banks and a destination for seasoned bankers and business persons who
share our entrepreneurial spirit. While not without risk, we believe there are certain advantages resulting from mergers and acquisitions.
These advantages include, among others, the diversification of our loan portfolio with seasoned loans, the expansion of our market
areas and an effective method to augment our growth and risk management infrastructure through the retention of local lending personnel
and credit administration personnel to manage the client relationships of the bank being acquired.
We believe we have a successful track record
of selectively acquiring, integrating and consolidating community banks. Since 2010, we have completed a series of five acquisitions
with aggregate total assets of approximately $892.2 million and total deposits of approximately $768.6 million. Our acquisition
activity includes the following:
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·
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October 2011 –
Acquired Global Trust Bank in Mountain View, California, with $90.0 million in total assets
and $71.3 million in deposits.
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April 2014 –
Acquired Community Bank of San Joaquin in Stockton, California, with $123.7 million in total
assets and $107.2 million in deposits.
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February 2015 –
Acquired Valley Community Bank in Pleasanton, California with locations in Pleasanton,
Livermore and San Jose, California, with $129.6 million in total assets and $107.9 million in deposits.
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·
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April 2017 –
Acquired United Business Bank, FSB headquartered in Oakland, California, with nine full- service
banking offices in Long Beach, Oakland, Sacramento, San Francisco, San Jose and Glendale, California, Seattle, Washington and Albuquerque,
New Mexico. At the time of acquisition, United Business Bank, FSB had $473.1 million in total assets and $428.0 million in deposits.
This acquisition significantly increased our total asset size, expanded our geographic footprint and added low cost, stable deposits
associated with a strong network of relationship with labor unions. Upon completion of our merger with United Business Bank, FSB,
we changed the name of the Bank from Bay Commercial Bank to United Business Bank.
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November 2017 –
Acquired Plaza Bank in Seattle, Washington, with $75.8 million in total assets and $54.2
million in deposits, expanding our presence in the Seattle, Washington market.
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As a result of our acquisitions and
organic growth for the five years ended December 31, 2017, total assets have grown at a compound annual growth rate, or CAGR,
of 32%, our total deposits at a CAGR of 33% and our total loans (net of allowances) at a CAGR of 32%. Our operating performance
has also improved during the five-year period ended December 31, 2017. Our net income grew at a CAGR of 20% and our nonperforming
assets improved, decreasing to $179,000, or 0.01% of total assets, at December 31, 2017, from $2.9 million, or 0.84% of total
assets, at December 31, 2013. Our efficiency ratio was 67.34% for the year ended December 31, 2017, compared to 63.33% for the
year ended December 31, 2013.
As we have grown,
we have been able to effectively manage our capital and as of December 31, 2017, the Company and the Bank were considered “well
capitalized” for regulatory capital purposes. Our tangible book value per share has increased from $11.05 at December 31,
2013 to $13.81 at December 31, 2017. As of December 31, 2017, we had $118.6 million in total shareholders’ equity.
Our Historical Performance
Operating Results
Since our first acquisition in 2011
through December 31, 2017, we have achieved significant growth in many of our key financial performance categories. Since December
31, 2013, we have grown our total assets from $342.3 million to $1.25 billion, total loans, net of allowances, from $251.1 million
to $890.1 million, and total deposits from $286.5 million to $1.10 billion. The charts below illustrate the growth in the dollar
balances of our total assets, loans and deposits for the five-year period ended December 31, 2017. The growth in these metrics
from December 31, 2016 to December 31, 2017 was primarily attributable to our acquisition of United Business Bank, FSB,
which was completed in April 2017.
During the
five-year period ended December 31, 2017, our profitability also significantly increased. The charts below illustrate our
net income to common shareholders, diluted earnings per share (“EPS”) and net interest margin (“NIM”)
during this period.
Note: Net interest margin is calculated by dividing annualized
net interest income by average interest-earning assets for the period.
The charts below illustrate our return on
average assets (“ROAA”), our return on average equity (“ROAE”) and our efficiency ratio in the five-year
period ended December 31, 2017.
Note: ROAA and ROAE are calculated by dividing annualized
net income by average assets and average common equity.
As we have grown, we have been
able to effectively manage our capital while strengthening our asset quality and driving growth in our tangible book value per
share. As of December 31, 2017, our ratio of nonperforming loans to total loans was 0.02% and the Bank’s Tier 1 leverage
ratio was 8.92%. We have maintained a strong balance sheet and, as of December 31, 2017, the Company and the Bank were above the
regulatory definitions of “well capitalized.” Our tangible book value per share has increased from $11.05 at December 31,
2013 to $13.81 at December 31, 2017. At December 31, 2017, we had $118.6 million in total shareholders’ equity.
Loan and Deposit Portfolio
As illustrated in the charts and
tables below, we have grown our loan portfolio from $254.2 million as of December 31, 2013 to $894.8 million as of December
31, 2017. Our loan portfolio composition was 90.4% commercial loans and 9.6% one-to-four family and other as of December 31, 2017,
and within our commercial loan portfolio, 77.6% of such loans were commercial real estate loans and 12.8% of such loans were commercial
and industrial loans.
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(Dollars in Thousands and as of
period end dates)
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2013
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2014
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2015
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2016
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2017
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Commercial and Industrial
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$
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73,430
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$
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71,983
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$
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71,605
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$
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71,093
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$
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114,373
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Residential RE
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17,596
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25,312
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29,378
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31,917
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84,781
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Multifamily RE
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920
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8,233
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36,778
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38,236
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118,128
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Owner occupied CRE
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53,974
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81,435
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131,686
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150,289
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256,451
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Non-owner occupied CRE
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93,371
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125,737
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176,900
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195,753
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297,244
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Construction and land
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14,598
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12,548
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17,086
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19,745
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22,720
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Consumer
and other
(1)
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289
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452
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967
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1,317
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1,096
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Total Loans
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$
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254,178
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$
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325,699
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$
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464,400
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$
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508,350
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$
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894,793
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(1) Consumer and other
represent less than 1% of total loans and are not reflected in the chart above
In addition, as illustrated in the charts
and tables below, we have grown our deposits from $286.5 million at December 31, 2013 to $1.10 billion at December 31, 2017.
The improvement in our deposit mix as well as the current rate environment have helped lower our cost of interest-bearing deposits
from 95 basis points at December 31, 2013 to 59 basis points at December 31, 2017.
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(Dollars in Thousands and as of
period end dates)
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2013
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2014
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2015
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2016
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2017
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Noninterest-bearing demand
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$
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58,017
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$
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124,228
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$
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152,013
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$
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128,697
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$
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327,309
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Money market
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101,038
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143,028
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210,523
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247,732
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356,640
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Interest-bearing demand and savings
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15,621
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42,760
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53,982
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53,186
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191,550
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Certificates
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111,788
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127,923
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126,786
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161,144
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228,806
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Total Deposits
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$
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286,464
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$
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437,939
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$
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543,304
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$
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590,759
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$
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1,104,305
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Cost of Interest-Bearing Deposits
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0.95
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%
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0.89
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%
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0.72
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%
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|
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0.73
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%
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0.59
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%
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Net Interest Margin
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4.10
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%
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3.95
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%
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4.00
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%
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4.25
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%
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4.14
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%
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See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations” for a more comprehensive discussion of our operating and financial performance.
Our Strategies
Our strategy is to continue to make strategic
acquisitions of financial institutions within the Western United States, grow organically and preserve our strong asset quality
through disciplined lending practices.
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·
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Strategic Consolidation of Community Banks
.
We believe our strategy of selectively acquiring and integrating
community banks has provided us with economies of scale and improved our overall franchise efficiency. We expect to continue to
pursue strategic acquisitions of financial institutions and believe our target market areas present us with numerous acquisition
opportunities as many of these financial institution will continue to be burdened and challenged by new and more complex banking
regulations, resource constraints, competitive limitations, rising technological and other business costs, management succession
issues and liquidity concerns.
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The following map illustrates the
headquarters of potential acquisition opportunities broken out by asset size between $100.0 million and $1.5 billion within our
target footprint.
There are 187 banks within our target
markets that meet our size criteria
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Total Banks
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Median
Asset
Size
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Banks $100M-$500M
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121
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$
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229,034
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Banks $500M-$1B
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50
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$
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751,945
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Banks $1B-$1.5B
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16
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$
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1,208,314
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Source: S&P Global Market Intelligence as
of December 31, 2017.
Despite the significant number of opportunities, we
intend to continue to employ a disciplined approach to our acquisition strategy and only seek to identify and partner with financial
institutions that possess attractive market share, low-cost deposit funding and compelling noninterest income-generating businesses.
We believe consolidation will lead to organic growth opportunities for us following the integration of businesses we acquire. We
also expect to continue to manage our branch network in order to ensure effective coverage for clients while minimizing any geographic
overlap and driving corporate efficiency.
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·
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Enhance the Performance of the Banks We Acquire
. We strive to successfully integrate the banks we acquire into our existing operational platform and enhance shareholder value through the creation of efficiencies within the combined operations. We believe that our experience and reputation as a successful integrator and acquirer will allow us to continue to capitalize on additional opportunities in the future.
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|
|
·
|
Focus on Lending Growth in Our Metropolitan Markets
While Increasing Deposits in Our Community Markets
. We believe the markets in which we operate currently provide meaningful
opportunities to expand our commercial client base and increase our current market share through organic growth. We believe
our diverse geographic footprint provides us with access to low cost, stable core deposits in community markets, which deposits
can be used to fund commercial loan growth in our larger metropolitan markets. In acquiring United Business Bank, FSB in 2017,
we acquired a large deposit base from the local and regional unionized labor community. As of December 31, 2017, our top ten
depositors included five labor unions which accounted for roughly 9.31% of our deposits. At that date, nearly 30% of our deposit
base was comprised of non-interest-bearing demand deposit accounts, significantly lowering our aggregate cost of funds.
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|
|
|
|
|
|
·
|
Our team of seasoned bankers represents an important driver of our organic growth by expanding banking relationships with current and potential clients.
We expect to continue to make opportunistic hires of talented and entrepreneurial bankers, to further augment our growth. Our bankers are incentivized to increase the size of their loan and deposit portfolios and generate fee income while maintaining strong credit quality. We also seek to cross-sell our various banking products, including our deposit products, to our commercial loan clients, which we believe provides a basis for expanding our banking relationships as well as a stable, low-cost deposit base. We believe we have built a scalable platform that will support this continued organic growth.
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·
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Preserve Our Asset Quality Through Disciplined Lending Practices
. Our approach to credit management uses well-defined policies and procedures, disciplined underwriting criteria and ongoing risk management. We believe we are a competitive and effective commercial lender, supplementing ongoing and active loan servicing with early-stage credit review provided by our bankers. This approach has allowed us to maintain loan growth with a diversified portfolio of assets. We believe our credit culture supports accountable bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company. As of December 31, 2017, our ratio of nonperforming assets to total assets was 0.01% and our ratio of nonperforming loans to total loans was 0.02%. In the 14 years since our inception, which time frame includes the recent recession in the U.S., we have cumulative net charge-offs of $6.0 million. We believe our success in managing asset quality is illustrated by our aggregate net charge-off history.
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Our Competitive Strengths
Our management team has identified the following competitive
strengths which we believe will allow us to continue to achieve our principal objective of increasing shareholder value and generating
consistent earnings growth:
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|
·
|
Experienced Leadership and Management Team
.
Our experienced executive management team, senior leaders and board of directors have exhibited the ability to deliver shareholder
value by consistently growing profitably while expanding our commercial banking franchise through acquisitions. The members
of our executive management team have many years’ worth of experience working for financial institutions in our markets
during various economic cycles and have significant merger and acquisition experience in the financial services industry.
Our executive management team has instilled a transparent and entrepreneurial culture that rewards leadership, innovation
and problem solving. All founding members of our executive management team, which consists of our chief executive officer,
chief operating officer, and chief financial officer have invested their own capital in the equity of our Company, providing
close alignment of their interests with those of our other shareholders. See “— Our Team.”
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|
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·
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Sophisticated and Customized Banking Products with
High-Quality Client Service
.
We provide a comprehensive suite of financial solutions that competes with large,
national competitors, but with the personalized attention and nimbleness of a relationship-focused community bank. We offer
a full range of lending products, including commercial and multi-family real estate loans (including owner-occupied and investor
real estate loans), commercial and industrial loans (including equipment loans and working capital lines of credit), U.S.
Small Business Administration (“SBA”) loans, construction and land loans, agriculture-related loans and consumer
loans. We provide our commercial clients with a diverse array of cash management services. We also offer convenience-related
services, including banking by appointment (before or after normal business hours on weekdays and on weekends), online banking
services, access to a national automated teller machine network, remote deposit capture, on-line banking and courier services
so that clients’ deposit and other banking needs may be served without the client having to make a trip to the branch.
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·
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Experience in Smaller Communities and Metropolitan Markets
. Our banking footprint has given us experience operating in small communities and large cities. We believe that our presence in smaller communities gives us a relatively stable source of core deposits and steady profitability, while our more metropolitan markets represents strong long-term growth opportunities. In addition, we believe that the breadth of our operating experience and successful track record of integrating prior acquisitions increases the potential acquisition opportunities available to us.
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·
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Disciplined Acquisition Approach
. Our disciplined approach to acquisitions, consolidations and integrations, includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations, after taking into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive due diligence and developing an appropriate plan to address any legacy credit problems of the targeted institution; (iii) identifying an achievable cost savings estimate; (iv) executing definitive acquisition agreements that we believe provide adequate protections to us; (v) installing our credit procedures, audit and risk management policies and procedures, and compliance standards upon consummation of the acquisition; (vi) collaborating with the target’s management team to execute on synergies and cost saving opportunities related to the acquisition; and (vii) involving a broader management team across multiple departments in order to help ensure the successful integration of all business functions. We believe this approach allows us to realize the benefits of the acquisition and create shareholder value, while appropriately managing risk.
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·
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Efficient and Scalable Platform with Capacity to Support Our Growth
. Through significant investments in technology and staff, our management team has built an efficient and scalable corporate infrastructure within our commercial banking franchise which we believe will support our continued growth. During 2017, we undertook several initiatives designed to strengthen our operations and risk culture, including implementing controls and procedures designed to comply with the applicable requirements of the Federal Deposit Insurance Corporation Improvement Act, or FDICIA. We also intend in the future to implement a new core processing system to further enhance our acquisition ability. We believe that this scalable infrastructure will continue to allow us to efficiently and effectively manage our anticipated growth.
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·
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Focus on Operating Efficiencies.
We seek to realize operating efficiencies from our recently completed acquisitions by utilizing technology to streamline our operations. We continue to centralize the back-office functions of our acquired banks, as well as realize cost savings through the use of third party vendors and technology, in order to take advantage of economies of scale as we continue to grow. We intend to focus on initiatives that we believe will provide opportunities to enhance earnings, including the continued rationalization of our retail banking footprint through the evaluation of possible branch consolidations or opportunities to sell branches.
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·
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Strong Risk Management Practices
.
We place significant emphasis on risk management as an integral component of our organizational culture without sacrificing growth. We believe our comprehensive risk management system is designed to make sure that we have sound policies, procedures, and practices for the management of key risks under our risk framework (which includes market, operational, liquidity, interest rate sensitivity, credit, insurance, regulatory, legal and reputational risk) and that any exceptions are reported by senior management to our board of directors or audit committee. We believe that our enterprise risk management philosophy has been important in gaining and maintaining the confidence of our various constituencies and growing our business and footprint within our markets. We also believe our risk management practices are manifested in our strong asset quality statistics. As of December 31, 2017, our ratio of nonperforming assets to total assets was 0.01% and our ratio of nonperforming loans to total loans was 0.02%.
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Our Team
Our directors possess significant executive
management and board leadership experience across a diverse range of industries, including financial services, private equity,
manufacturing, accounting, legal and insurance. Five of our directors, including our Chief Executive Officer, have been investors
in our Company since inception, and our directors and executive officers beneficially owned, in the aggregate, approximately 6.6%
of our outstanding common stock as of March 31, 2018.
Our board of directors oversees the seasoned
and experienced members of our executive management team, who have held management-level positions at commercial banking franchises
within our markets, including throughout various economic cycles. Our executive management team has a long and successful history
of leading acquisition projects, managing organic growth and developing a strong and disciplined credit culture. Our executive
management team is supported by our other officers, managers, bankers and employees, who also have significant experience in commercial
banking, including areas such as lending, underwriting, credit administration, risk management, finance, operations and information
technology. Sharing in our entrepreneurial and ownership-based culture, most of our executive management team has invested personal
funds to acquire equity in our Company, which we believe closely aligns their interests with those of our shareholders.
Our executive management team includes the following officers:
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|
·
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George J. Guarini, President & Chief Executive Officer,
is a founding member of Bay Commercial Bank. Since its inception in 2004, Mr. Guarini has served as the Bank’s President and Chief Executive Officer. Mr. Guarini’s has more than 30 years of experience in the banking industry, holding key executive and senior level management positions with national and regional financial institutions. Prior to opening the Bank, Mr. Guarini was the Senior Vice President and Senior Lending Officer of Summit Bank, a community bank headquartered in Oakland, California. Mr. Guarini also enjoyed a career with Imperial Capital Bank based in Glendale, California, where he began as Senior Vice President in charge of resolving significant loan portfolio weakness and subsequently was appointed as that bank’s Chief Lending Officer.
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·
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Janet L. King, Senior Executive Vice President and Chief Operating Officer,
has been with the Bank since its inception in 2004, and currently serves in these positions with the Company. Ms. King is a member of the executive management team and has over 29 years of banking experience. Prior to joining the Bank, Ms. King was employed by Circle Bank as the Chief Branch Administrative Officer and was formerly Vice President of Operations for Valencia Bank & Trust in Valencia, California.
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·
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Keary L. Colwell, Senior Executive Vice President, Chief Financial Officer and Corporate Secretary,
has been with the Bank since its inception in 2004, and currently serves in these positions with the Company. Ms. Colwell has over 28 years in banking and finance. Prior to joining the Bank, Ms. Colwell was employed by The San Francisco Company and Bank of San Francisco, First Nationwide Bank and Independence Savings and Loan Association.
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·
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Izabella L. Zhu, Executive Vice President and Chief Risk Officer,
joined the Bank in September 2013. Ms. Zhu was previously a Senior Financial Institutions Examiner and a founding and inaugural member of the Examiner Council at the California Department of Business Oversight as well as Examiner-in-Charge of various large banks, troubled financial institutions, and trust departments. Prior to that Ms. Zhu was a financial advisor at Morgan Stanley.
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·
|
David Funkhouser, Executive Vice President and Chief
Credit Officer,
joined the Bank in June 2015. Mr. Funkhouser has over 30 years of experience in banking. Prior to
joining the Bank, Mr. Funkhouser served as President and Chief Executive Officer at Trans Pacific National Bank from 2010
to 2014.
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·
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Charles Yun, Executive Vice President and Chief Lending Officer,
joined the Bank in March 2016. Mr. Yun has been in the banking industry for over 25 years and previously served as a Senior Vice President at Umpqua Bank where he was responsible for the middle market production group in the Bay Area. Mr. Yun’s experiences also extend to various positions with Comerica Bank, Silicon Valley Bank, Heritage Bank and Stanford Federal Credit Union.
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·
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Mary Therese (Terry) Curley, Executive Vice President/Director of the Labor Service Division,
joined in the Bank in April 2017, in connection with our acquisition of United Business Bank, FSB. Ms. Curley served in a variety of positions at United Business Bank, FSB, including most recently as Executive Vice President and Chief Credit Officer.
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For additional information about our directors
and executive officers, see “Management– Business Background of Our Directors” and “– Business Background
of Our Executive Officers Who Are Not Directors.”
Products and Services
We offer a full range
of lending products, including commercial and multi-family real estate loans (including owner-occupied and investor real estate
loans), commercial and industrial loans (including equipment loans and working capital lines of credit), SBA loans, construction
and land loans, agriculture-related loans and consumer loans.
The following chart
summarizes the composition of our loan portfolio as of December 31, 2017.
|
Loan Type
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
Commercial and industrial
|
|
$
|
114,373
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
84,781
|
|
|
|
9.5
|
%
|
|
Multifamily residential
|
|
|
118,128
|
|
|
|
13.2
|
%
|
|
Owner occupied CRE
|
|
|
256,451
|
|
|
|
28.7
|
%
|
|
Non-owner occupied CRE
|
|
|
297,244
|
|
|
|
33.2
|
%
|
|
Construction and land
|
|
|
22,720
|
|
|
|
2.5
|
%
|
|
Total real estate
|
|
|
779,324
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1,096
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Gross loans
|
|
|
894,793
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and costs, net
|
|
|
(469
|
)
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
890,109
|
|
|
|
|
|
We offer a variety of deposit accounts with
a wide range of interest rates and terms including demand, savings, money market and time deposits with the goal of attracting
a wide variety of clients. We solicit these accounts from individuals, small to medium-sized businesses, trade unions and their
related businesses, associations, organizations and government authorities. Our transaction accounts and time certificates are
tailored to the principal market area at rates competitive with those offered in the area. While we do not actively solicit wholesale
deposits for funding purposes and do not partner with deposit brokers, we do participate in the CDARS service via Promontory Interfinancial
Network an as option for our clients to place funds. Our goal is to cross-sell our deposit products to our loan clients.
The following chart
summarizes the composition of our deposits as of December 31, 2017.
|
Deposit Type
|
|
Amount
|
|
|
Percent of
Total
Deposits
|
|
|
Noninterest-bearing demand
|
|
$
|
327,309
|
|
|
|
29.6
|
%
|
|
Money market
|
|
|
356,640
|
|
|
|
32.3
|
%
|
|
Interest-bearing demand and savings
|
|
|
191,550
|
|
|
|
17.3
|
%
|
|
Certificates that mature:
|
|
|
|
|
|
|
|
|
|
Within one year
|
|
|
170,306
|
|
|
|
15.5
|
%
|
|
After one year, but within three years
|
|
|
44,174
|
|
|
|
4.0
|
%
|
|
After three years
|
|
|
14,326
|
|
|
|
1.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,104,305
|
|
|
|
100.0
|
%
|
We provide our commercial clients with a
diverse array of cash management services. We also offer escrow services on commercial transactions and facilitate tax-deferred
commercial exchanges under Section 1031 (“Section 1031”) of the Internal Revenue Code of 1986 as amended (“Code”)
through our Bankers Exchange Division, Bankers Exchange Services, or BES. We provide our clients with convenience-related services,
including banking by appointment (before or after normal business hours on weekdays and on weekends), online banking services,
access to a national automated teller machine network, remote deposit capture, on-line banking and courier services so that clients’
deposit and other banking needs may be served without the client having to make a trip to the branch.
Our Markets
We target our services to small and medium-sized
businesses, professional firms, real estate professionals, nonprofit businesses, labor unions and related nonprofit entities and
businesses and individual consumers within Northern, Central and Southern California, Seattle, Washington and Albuquerque, New
Mexico. We generally lend in markets where we have a physical presence through our branch offices. We operate primarily in the
San Francisco-Oakland-Hayward, California Metropolitan Statistical Area (“MSA”) with additional operations in the Los
Angeles-Long Beach-Anaheim, California MSA, with Northern California responsible for 66.5% and Southern California responsible
for 11.3% of our loan portfolio as of December 31, 2017.
A majority of our branches are located in
the San Francisco Bay Area which includes/in the counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa
Clara, Solano, and Sonoma counties, in California. The greater San Francisco Bay area contains two significant MSAs – the
San Francisco-Oakland-Hayward MSA and the San Jose-Sunnyvale-Santa Clara MSA. With a population of approximately 4.7 million, the
San Francisco-Oakland-Hayward MSA represents the second most populous area in California and the twelfth largest in the United
States. In addition to its current size, the market also demonstrates key characteristics we believe provide the opportunity for
additional growth, including projected population growth of 5.9% through 2022 versus the national average of 3.7%, a median household
income of $88,685 versus a national average of $57,462, and the third highest population density in the nation. The San Jose-Sunnyvale-Santa
Clara MSA also demonstrates key characteristics that provide us growth opportunities, including a population of approximately 2.0
million, projected population growth of 6.0% through 2022, and a median household income of $101,689.
We operate two branch offices and one loan
production office in the Los Angeles-Long Beach-Anaheim, California MSA. The greater Los Angeles area is one of the most significant
business markets in the world, with an estimated gross domestic product of approximately $1 trillion, it would rank as the 16th
largest economy in the world. The Los Angeles-Long Beach-Anaheim, California MSA maintains a population of approximately 13.5 million,
the most populous area in California and the second largest in the United States. We believe the market’s projected population
growth of 4.2% through 2022, its median household income of $64,343, large concentration of small- and medium-sized businesses,
and its highest population density in the nation position the area as an attractive market in which to expand operations.
We serve the Sacramento-Roseville-Arden-Arcade
MSA through one branch office. With a population of approximately 2.3 million, the Sacramento-Roseville-Arden-Arcade MSA includes
the City of Sacramento, the state capital of California. The population is projected to grow 5.1% through 2022 and the median
household income is approximately $63,727. State and local government make up the largest employers, while transportation, health
services, technology, agriculture and mining are important industries for the region.
We serve the Stockton-Lodi MSA in Central
California though two branches. The market area has a population of approximately 740,596, which is projected to grow 5.4% through
2022, and a median household income of approximately $56,705. The area has a diverse industry mix, including agriculture, e-fulfillment
centers, advanced manufacturing, data centers/call centers, and service industries.
We serve the Seattle-Tacoma-Bellevue MSA, which includes King
County (which includes the city of Seattle), through our branch in Seattle. King County has the largest population of any county
in the state of Washington, covers approximately 2,100 square miles, and is located on Puget Sound. It had approximately 2.2 million
residents, which is projected to grow 7.5% through 2022, and a median household income of approximately $81,089. King County has
a diversified economic base with many employers from various industries including shipping and transportation (Port of Seattle,
Paccar, Inc. and Expeditors International of Washington, Inc.), retail (Amazon.com, Inc., Starbucks Corp. and Nordstrom, Inc.)
aerospace (the Boeing Company) and computer technology (Microsoft Corp.) and biotech industries.
We serve Albuquerque, New Mexico the most populous city in the
state of New Mexico through the branch office we recently acquired in the United Business Bank, FSB acquisition. The Albuquerque
MSA has a population of approximately 911,171, ranking it as the 60th MSA in the country. The Albuquerque MSA population is projected
to grow approximately 1.7% through 2022 and its median household income is approximately $50,192. Top industries in Albuquerque
include aerospace and defense (Honeywell), energy technology including solar energy (SCHOTT Solar), and semiconductor and computer
chip manufacturing (Intel Corp).
Risk Factors
As discussed above, our focus is to
(i) continue to make strategic acquisitions of financial institutions within the Western United States, (ii) grow organically
and (iii) preserve our strong asset quality through disciplined lending practices. Our ability to achieve growth with select acquisitions
will be dependent on our ability to successfully identify suitable acquisition candidates, complete acquisitions and successfully
integrate acquired operations into our existing operations. The consummation of any future acquisitions may dilute shareholder
value or may have an adverse effect upon our operating results while the operations of the acquired business are being integrated
into our operations. In addition, once integrated, acquired operations may not achieve levels of profitability comparable to those
achieved by our existing operations, or otherwise perform as expected. Further, transaction-related expenses may adversely affect
our earnings.
There are a number of additional risks
and other considerations that could negatively affect us, including risks related to this offering and our common stock that you
should consider before investing in our common stock. These risks are discussed more fully in the section titled ‘‘Risk
Factors,’’ beginning on page 25, and include, but are not limited to, the following:
|
|
·
|
if general
business, economic conditions and real estate values do not continue to improve, particularly
within our market areas, our growth and results of operations could be adversely affected;
|
|
|
·
|
a substantial
portion of our loan portfolio consists of real estate loans, in particular commercial
real estate loans, which have a higher degree of risk than other types of loans;
|
|
|
·
|
delinquencies
and defaults on newly originated loans may be significantly greater than our current
level of delinquencies and defaults depending on the characteristics of the newly originated
loans;
|
|
|
·
|
economic,
market, operational, liquidity, credit and interest rate risks associated with our business
could adversely affect our business, results of operations and financial condition;
|
|
|
·
|
competition
within the financial services industry, nationally and within our market area, both for
clients and employees, could limit our ability to grow and could adversely affect the
pricing and terms that we are able to offer to our clients;
|
|
|
·
|
if we do
not effectively manage our credit risk, we may experience increased levels of delinquencies,
nonperforming loans and charge-offs, which could require increases in our provision for
loan losses;
|
|
|
·
|
as we rely
heavily on our management team and our bankers, we could be adversely affected by the
unexpected departure of key members of our management and bankers; and
|
|
|
·
|
we are subject
to extensive state and federal financial regulation, and compliance with changing requirements
may restrict our activities or have an adverse effect on our results of operations.
|
Corporate Information
Our principal executive offices are located
at 500 Ygnacio Valley Road, Suite 200, Walnut Creek, California 94596 and our telephone number is (925) 476-1800. Our website is
www.unitedbusinessbank.com. We expect to make our periodic reports and other information filed with, or furnished to, the SEC available
free of charge through our website as soon as reasonably practicable after those reports and other information are electronically
filed with, or furnished to, the SEC. The information on, or otherwise accessible through, our website or any other website does
not constitute a part of this prospectus.
THE OFFERING
|
Shares of common stock offered by us
|
|
_________ shares (or _________ shares, if the underwriters exercise their over-allotment option in full).
|
|
|
|
|
Shares of common stock to be outstanding after this offering
|
|
_________ shares (or _________ shares, if the underwriters exercise their over-allotment option in full).
|
|
|
|
|
Option to purchase additional shares
|
|
We have granted the underwriters an option for a period of 30 days after the date of this prospectus to purchase additional shares of our common stock at the initial public offering price less the underwriting discount to cover over-allotments, if any.
|
|
|
|
|
Securities owned
by directors and executive officers
|
|
Our directors and
executive officers beneficially owned 494,348 shares of our common stock as of March 31,
2018. In addition, our directors and executive officers will receive an aggregate
of approximately $2.7 million or $3.1 million, if the underwriters exercise their over-allotment
option in full (based on the gross proceeds received in the offering) in restricted stock
awards to be granted in connection with this offering. See “Executive and Director
Compensation- Equity Awards in Connection with This Offering.” Our executive
officers and directors may also purchase shares in the offering in their discretion, but
they have made no commitments to do so.
|
|
|
|
|
|
|
|
Our board of directors is not making a recommendation regarding your purchase of shares in the offering.
You should make your decision to invest based on your assessment of our business and the offering. Please see “Risk Factors”
beginning on page 25 for a discussion of some of the risks involved in investing in our common stock.
|
|
|
|
|
Voting rights
|
|
One vote per share of common stock.
|
|
|
|
|
Use of proceeds
|
|
Assuming an initial public offering price of $ per
share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the net
proceeds to us from the sale of our common stock in this offering will be $_____ million (or $_____ million if the underwriters
exercise their over-allotment option in full), after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us.
|
|
|
|
|
|
|
|
We will use a portion of the net proceeds to
repay a $6.0 million term loan with an interest rate of 4.71% that matures in April 2022 and will use the remaining net
proceeds to support our organic growth and for other general corporate purposes, including to fund future acquisitions
of financial institutions (although we do not have any definitive agreements in place to make any such acquisitions at
this time) and to maintain our capital and liquidity ratios at acceptable levels.
See “Use of Proceeds.”
|
|
|
|
|
Dividend policy
|
|
We have not historically declared or paid cash dividends on our common stock and we do not expect to pay cash dividends on our common stock in the foreseeable future. Instead, we anticipate that all of our earnings in the foreseeable future will be retained to support our operations and finance the growth and development of our business. Any future determination to pay dividends on our common stock will be made by our board of directors and will depend upon our results of operations, financial condition, capital requirements, regulatory and contractual restrictions, our business strategy and other factors that our board of directors deems relevant. See “Dividend Policy.”
|
|
Listing and trading symbol
|
|
We have applied to list our common stock on The Nasdaq Global Select Market under the symbol “BCML.”
|
|
|
|
|
Risk factors
|
|
Investing in our common stock involves risks. You should carefully read and consider the information set forth under the headings “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” along with all of the other information set forth in this prospectus before deciding to invest in our common stock.
|
References in this section to the number
of shares of our common stock outstanding after this offering are based on shares of our common stock issued and outstanding as
of December 31, 2017. Unless otherwise noted, these references exclude shares of common stock reserved for issuance under our equity
incentive plans.
Unless otherwise indicated, the information
contained in this prospectus is as of the date set forth on the cover page of this prospectus, assumes that the underwriters do
not exercise their option to purchase any additional shares of common stock to cover over-allotments, if any
and
assumes that the common stock to be sold in this offering is sold at $ per share, which is the midpoint of the price range set
forth on the cover page of this prospectus.
SELECTED FINANCIAL AND OTHER DATA
The Financial Condition Data as of December
31, 2017 and 2016 and the Operating Data for the years ended December 31, 2017, 2016 and 2015 are derived from the audited financial
statements and related notes included elsewhere in the prospectus. The Financial Condition Data as of December 31, 2015, 2014 and
2013 is derived from audited financial statements, not included in this prospectus. The following information is only a summary
and you should read it in conjunction with our financial statements and related notes beginning on page F-1 and with “Management’s
Discussion and Analysis of Financial Condition and Results of Operations” included elsewhere in this prospectus.
|
|
|
At December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Selected Financial Condition Data:
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,245,794
|
|
|
$
|
675,299
|
|
|
$
|
623,304
|
|
|
$
|
504,391
|
|
|
$
|
342,304
|
|
|
Cash and due from banks
|
|
|
251,596
|
|
|
|
130,213
|
|
|
|
111,391
|
|
|
|
145,281
|
|
|
|
80,980
|
|
|
Investments available-for-sale
|
|
|
40,505
|
|
|
|
13,918
|
|
|
|
23,615
|
|
|
|
17,540
|
|
|
|
-
|
|
|
FHLB stock and FRB stock, at cost
|
|
|
7,759
|
|
|
|
3,923
|
|
|
|
3,846
|
|
|
|
2,859
|
|
|
|
2,250
|
|
|
Loans receivable, net
|
|
|
890,109
|
|
|
|
504,264
|
|
|
|
460,208
|
|
|
|
322,908
|
|
|
|
251,105
|
|
|
Total liabilities
|
|
|
1,127,159
|
|
|
|
597,236
|
|
|
|
550,923
|
|
|
|
446,217
|
|
|
|
289,982
|
|
|
Deposits
|
|
|
1,104,305
|
|
|
|
590,759
|
|
|
|
543,304
|
|
|
|
437,941
|
|
|
|
286,464
|
|
|
Borrowed funds
|
|
|
11,387
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
|
2,000
|
|
|
Total equity
|
|
|
118,635
|
|
|
|
78,063
|
|
|
|
72,381
|
|
|
|
58,174
|
|
|
|
52,322
|
|
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Selected Operating Data:
|
|
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividend income
|
|
$
|
44,253
|
|
|
$
|
29,625
|
|
|
$
|
25,715
|
|
|
|
19,637
|
|
|
$
|
14,915
|
|
|
Interest expense
|
|
|
4,312
|
|
|
|
3,074
|
|
|
|
2,691
|
|
|
|
2,310
|
|
|
|
2,010
|
|
|
Net interest income before provision for loan losses
|
|
|
39,941
|
|
|
|
26,551
|
|
|
|
23,024
|
|
|
|
17,057
|
|
|
|
12,835
|
|
|
Provision for loan losses
|
|
|
462
|
|
|
|
598
|
|
|
|
1,412
|
|
|
|
1,074
|
|
|
|
348
|
|
|
Net interest income after provision for loan losses
|
|
|
39,479
|
|
|
|
25,953
|
|
|
|
21,612
|
|
|
|
15,983
|
|
|
|
12,487
|
|
|
Noninterest income
|
|
|
4,794
|
|
|
|
1,358
|
|
|
|
6,902
|
|
|
|
3,705
|
|
|
|
628
|
|
|
Noninterest expense
|
|
|
30,124
|
|
|
|
16,963
|
|
|
|
19,350
|
|
|
|
13,063
|
|
|
|
8,596
|
|
|
Income before provision for income taxes
|
|
|
14,149
|
|
|
|
10,348
|
|
|
|
9,164
|
|
|
|
6,895
|
|
|
|
4,589
|
|
|
Provision for income taxes
|
|
|
8,889
|
|
|
|
4,436
|
|
|
|
1,711
|
|
|
|
1,717
|
|
|
|
1,899
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
5,912
|
|
|
$
|
7,452
|
|
|
$
|
5,178
|
|
|
$
|
2,690
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.82
|
|
|
$
|
1.10
|
|
|
$
|
1.37
|
|
|
$
|
1.09
|
|
|
$
|
0.56
|
|
|
Diluted EPS
|
|
|
0.81
|
|
|
|
1.09
|
|
|
|
1.36
|
|
|
|
1.08
|
|
|
|
0.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
|
15.82
|
|
|
|
14.26
|
|
|
|
13.18
|
|
|
|
11.93
|
|
|
|
11.07
|
|
|
Tangible book value per share
(1)
|
|
|
13.81
|
|
|
|
14.12
|
|
|
|
12.96
|
|
|
|
11.76
|
|
|
|
11.05
|
|
|
Dividends paid during period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Dividend payout ratio
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
Tangible book value is a non-GAAP financial measure generally
used by financial analysts and investment bankers to evaluate financial institutions. For tangible book value, the most directly
comparable financial measure calculated in accordance with GAAP is book value. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”
|
|
|
|
At or For the Years
Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
Selected Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
0.51
|
%
|
|
|
0.91
|
%
|
|
|
1.24
|
%
|
|
|
1.13
|
%
|
|
|
0.84
|
%
|
|
Return on average equity
|
|
|
5.28
|
%
|
|
|
7.87
|
%
|
|
|
10.36
|
%
|
|
|
10.02
|
%
|
|
|
5.24
|
%
|
|
Yield on interest-earning assets
|
|
|
4.59
|
%
|
|
|
4.74
|
%
|
|
|
4.47
|
%
|
|
|
4.55
|
%
|
|
|
4.76
|
%
|
|
Rate paid on interest-bearing liabilities
|
|
|
0.65
|
%
|
|
|
0.73
|
%
|
|
|
0.72
|
%
|
|
|
0.89
|
%
|
|
|
0.95
|
%
|
|
Interest rate spread
(1)
|
|
|
3.94
|
%
|
|
|
4.01
|
%
|
|
|
3.75
|
%
|
|
|
3.66
|
%
|
|
|
3.81
|
%
|
|
Net interest margin
(2)
|
|
|
4.14
|
%
|
|
|
4.25
|
%
|
|
|
4.00
|
%
|
|
|
3.95
|
%
|
|
|
4.10
|
%
|
|
Dividend payout ratio
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Noninterest expense to average total assets
|
|
|
2.93
|
%
|
|
|
2.61
|
%
|
|
|
3.21
|
%
|
|
|
2.79
|
%
|
|
|
2.65
|
%
|
|
Average interest-earning assets to average interest-bearing
liabilities
|
|
|
144.87
|
%
|
|
|
149.24
|
%
|
|
|
153.08
|
%
|
|
|
148.15
|
%
|
|
|
143.26
|
%
|
|
Efficiency ratio
(3)
|
|
|
67.34
|
%
|
|
|
60.78
|
%
|
|
|
64.66
|
%
|
|
|
62.11
|
%
|
|
|
63.52
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios:
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage
|
|
|
8.92
|
%
|
|
|
10.59
|
%
|
|
|
10.59
|
%
|
|
|
10.67
|
%
|
|
|
15.65
|
%
|
|
Common equity tier 1
|
|
|
12.43
|
%
|
|
|
13.43
|
%
|
|
|
13.30
|
%
|
|
|
N/A
|
|
|
|
N/A
|
|
|
Tier 1 capital ratio
|
|
|
12.43
|
%
|
|
|
13.43
|
%
|
|
|
13.30
|
%
|
|
|
15.78
|
%
|
|
|
19.49
|
%
|
|
Total capital ratio
|
|
|
12.94
|
%
|
|
|
14.18
|
%
|
|
|
14.13
|
%
|
|
|
16.50
|
%
|
|
|
20.53
|
%
|
|
Equity to total assets at end of period
|
|
|
9.52
|
%
|
|
|
11.56
|
%
|
|
|
11.61
|
%
|
|
|
11.53
|
%
|
|
|
15.29
|
%
|
|
Average equity to average assets
|
|
|
9.70
|
%
|
|
|
11.55
|
%
|
|
|
11.94
|
%
|
|
|
11.28
|
%
|
|
|
15.97
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets
(5)
|
|
|
0.01
|
%
|
|
|
0.28
|
%
|
|
|
0.05
|
%
|
|
|
0.59
|
%
|
|
|
0.83
|
%
|
|
Nonperforming loans to total loans
|
|
|
0.02
|
%
|
|
|
0.22
|
%
|
|
|
0.07
|
%
|
|
|
0.26
|
%
|
|
|
0.32
|
%
|
|
Allowance for loan losses to non-performing loans
|
|
|
2,354.75
|
%
|
|
|
343.18
|
%
|
|
|
1,152.69
|
%
|
|
|
84.49
|
%
|
|
|
97.20
|
%
|
|
Allowance for loan losses to total loans
|
|
|
0.47
|
%
|
|
|
0.74
|
%
|
|
|
0.83
|
%
|
|
|
0.77
|
%
|
|
|
1.09
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of full service offices
|
|
|
19
|
|
|
|
10
|
|
|
|
10
|
|
|
|
7
|
|
|
|
5
|
|
|
Number of full-time equivalent employees
|
|
|
158
|
|
|
|
110
|
|
|
|
103
|
|
|
|
78
|
|
|
|
49
|
|
|
|
(1)
|
Interest rate spread is
calculated as the average rate earned on interest-earning assets minus the average rate
paid on interest-bearing liabilities.
|
|
|
(2)
|
Average balances are average
daily balances.
|
|
|
(3)
|
Calculated by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest
income.
|
|
|
(4)
|
Regulatory capital ratios
are for United Business Bank only.
|
|
|
(5)
|
Non-performing assets consists of non-accruing loans and accruing loans more than 90 days past due, in addition to other real
estate owned.
|
RECENT DEVELOPMENTS
The selected financial condition and
operating data presented below as of March 31, 2018 and for the three months ended March 31, 2018 and 2017 are unaudited. In the
opinion of management, this unaudited selected data contains all adjustments (none of which are other than normal recurring items)
necessary for a fair presentation of the results for the periods presented. The following information is only a summary and you
should read it in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
and our Consolidated Financial Statements and Notes thereto contained elsewhere in this prospectus. The results of operations
for the three months ended March 31, 2018 are not necessarily indicative of the results to be achieved for the remainder of the
year ending December 31, 2018 or any other period.
|
|
|
At March 31,
|
|
|
At December 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(In thousands)
|
|
|
Selected Financial Condition Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,241,833
|
|
|
$
|
1,245,794
|
|
|
Cash and due from banks
|
|
|
256,796
|
|
|
|
251,596
|
|
|
Investments available-for-sale
|
|
|
36,789
|
|
|
|
40,505
|
|
|
FHLB stock and FRB stock, at cost
|
|
|
8,295
|
|
|
|
7,759
|
|
|
Loans receivable, net
|
|
|
886,229
|
|
|
|
890,109
|
|
|
Total liabilities
|
|
|
1,119,266
|
|
|
|
1,127,159
|
|
|
Deposits
|
|
|
1,098,773
|
|
|
|
1,104,305
|
|
|
Borrowed funds
|
|
|
11,402
|
|
|
|
11,387
|
|
|
Total equity
|
|
|
122,567
|
|
|
|
118,635
|
|
|
|
|
For
the Three Months Ended
March
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
(Dollars in thousands,
except per share data)
|
|
|
Interest income
|
|
$
|
13,552
|
|
|
$
|
7,402
|
|
|
Interest expense
|
|
|
1,138
|
|
|
|
918
|
|
|
Net interest income before provision for loan losses
|
|
|
12,414
|
|
|
|
6,484
|
|
|
Provision for loan losses
|
|
|
254
|
|
|
|
143
|
|
|
Net interest income after provision for loan losses
|
|
|
12,160
|
|
|
|
6,341
|
|
|
Noninterest income
|
|
|
1,726
|
|
|
|
736
|
|
|
Noninterest expense
|
|
|
8,123
|
|
|
|
4,637
|
|
|
Income before provision for income taxes
|
|
|
5,763
|
|
|
|
2,446
|
|
|
Provision for income taxes
|
|
|
1,694
|
|
|
|
1,022
|
|
|
Net income
|
|
$
|
4,069
|
|
|
$
|
1,418
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share (EPS):
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
$
|
0.54
|
|
|
$
|
0.26
|
|
|
Diluted EPS
|
|
|
0.54
|
|
|
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
|
16.32
|
|
|
|
14.54
|
|
|
Tangible book value per share
(1)
|
|
|
14.34
|
|
|
|
14.41
|
|
|
Dividends paid during period
|
|
|
-
|
|
|
|
-
|
|
|
Dividend payout ratio
|
|
|
-
|
|
|
|
-
|
|
|
|
(1)
|
Tangible book value is a non-GAAP financial measure generally
used by financial analysts and investment bankers to evaluate financial institutions.
For tangible book value, the most directly comparable financial measure calculated in
accordance with GAAP is book value. See “Management’s Discussion and Analysis
of Financial Condition and Results of Operations—Non-GAAP Financial Measures.”
Tangible book value per share is calculated as follows at the dates indicated.
|
|
|
|
At
or For the Three Months Ended
March
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Selected Financial Ratios and Other Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance Ratios:
|
|
|
|
|
|
|
|
|
|
Return on average assets
|
|
|
1.31
|
%
|
|
|
0.83
|
%
|
|
Return on average equity
|
|
|
13.41
|
%
|
|
|
7.17
|
%
|
|
Yield on interest-earning assets
|
|
|
4.66
|
%
|
|
|
4.58
|
%
|
|
Rate paid on interest-bearing liabilities
|
|
|
0.59
|
%
|
|
|
0.81
|
%
|
|
Interest rate spread
(1)
|
|
|
4.07
|
%
|
|
|
3.77
|
%
|
|
Net interest margin
(2)
|
|
|
4.27
|
%
|
|
|
4.02
|
%
|
|
Dividend payout ratio
|
|
|
-
|
|
|
|
-
|
|
|
Noninterest expense to average total assets
|
|
|
2.65
|
%
|
|
|
2.77
|
%
|
|
Average interest-earning assets to average interest-bearing liabilities
|
|
|
149.83
|
%
|
|
|
142.32
|
%
|
|
Efficiency ratio
(3)
|
|
|
57.45
|
%
|
|
|
64.23
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Capital Ratios:
(4)
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage
|
|
|
9.45
|
%
|
|
|
11.09
|
%
|
|
Common equity tier 1
|
|
|
13.17
|
%
|
|
|
13.56
|
%
|
|
Tier 1 capital ratio
|
|
|
13.17
|
%
|
|
|
13.56
|
%
|
|
Total capital ratio
|
|
|
13.73
|
%
|
|
|
14.32
|
%
|
|
Equity to total assets at end of period
|
|
|
9.87
|
%
|
|
|
11.41
|
%
|
|
Average equity to average assets
|
|
|
9.76
|
%
|
|
|
11.61
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Asset Quality Ratios:
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets
(5)
|
|
|
0.02
|
%
|
|
|
0.29
|
%
|
|
Nonperforming loans to total loans
|
|
|
0.03
|
%
|
|
|
0.19
|
%
|
|
Allowance for loan losses to non-performing loans
|
|
|
2008.73
|
%
|
|
|
395.76
|
%
|
|
Allowance for loan losses to total loans
|
|
|
0.52
|
%
|
|
|
0.73
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Other Data:
|
|
|
|
|
|
|
|
|
|
Number of full service offices
|
|
|
18
|
|
|
|
10
|
|
|
Number of full-time equivalent employees
|
|
|
158
|
|
|
|
107
|
|
|
|
(1)
|
Interest rate spread is
calculated as the average rate earned on interest-earning assets minus the average rate
paid on interest-bearing liabilities.
|
|
|
(2)
|
Average balances are average
daily balances.
|
|
|
(3)
|
Calculated by dividing noninterest expense by the
sum of net interest income before provision for loan losses plus noninterest income.
|
|
|
(4)
|
Regulatory capital ratios are for United Business Bank only.
|
|
|
(5)
|
Non-performing assets consists of non-accruing loans
and accruing loans more than 90 days past due, in addition to other real estate owned.
|
|
|
|
At March 31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Total shareholders' equity
|
|
$
|
122,567
|
|
|
$
|
79,580
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
4,483
|
|
|
|
719
|
|
|
Goodwill
|
|
|
10,365
|
|
|
|
-
|
|
|
Tangible common equity
|
|
$
|
107,719
|
|
|
$
|
78,861
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
7,512,227
|
|
|
|
5,472,503
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding
|
|
|
7,512,227
|
|
|
|
5,486,559
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
16.32
|
|
|
$
|
14.54
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share
|
|
$
|
14.34
|
|
|
$
|
14.41
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted tangible book value per common share
|
|
$
|
14.34
|
|
|
$
|
14.37
|
|
Comparison of Financial Condition
at March 31, 2018 and December 31, 2017
Total assets.
Total assets
decreased $4.0 million, or 0.3%, to $1.24 billion at March 31, 2018 from $1.25 billion at December 31, 2017. The decrease was
primarily due to a $3.9 million, or 0.4%, decrease in total loans receivable, net.
Cash and cash equivalents.
Cash and cash equivalents increased $5.2 million, or 2.1%, to $256.8 million at March 31, 2018 from $251.6 million at December
31, 2017. The increase was primarily due to cash received from an increase in client deposits. We intend to invest our excess
cash in marketable securities until such funds are needed to support loan growth or other operating or strategic initiatives.
Securities available-for-sale.
Investment securities available-for-sale decreased $3.7 million, or 9.2%, to $36.8 million at March 31, 2018 from $40.5
million at December 31, 2017. The decrease was primarily due to maturities of investment securities of $2.0 million during the
three months ended March 31, 2018, in addition to routine amortization and accretion of investment premiums and discounts. At
March 31, 2018, all of our investment securities were classified as available-for-sale.
Loans receivable, net.
Loans receivable, net of allowance for loan losses, decreased $3.9 million, or 0.4%, to $886.2 million at March 31, 2018 from
$890.1 million at December 31, 2017. The decrease in loans receivable was primarily due to loans sold and prepayments on loans
in excess of new loan originations. Loan originations for quarter ended March 31, 2018 totaled $29.2 million compared to $31.6
million during the three months ended December 31, 2017.
Nonperforming assets and nonaccrual
loans.
Nonperforming assets consists of nonaccrual loans and other real estate owned. Nonperforming assets increased $50,000,
or 27.9%, to $229,000 at March 31, 2018 from $179,000 at December 31, 2017. At March 31, 2018, accruing loans past due 30 to 89
days totaled $1.1 million, compared to $1.9 million at December 31, 2017.
The allowance for loan losses increased
by $385,000, or 9.1%, to $4.6 million at March 31, 2018 from $4.2 million at December 31, 2017. In accordance with acquisition
accounting, loans acquired from the United Business Bank, FSB, and Plaza Bank mergers were recorded at their estimated fair value,
which resulted in a net discount to the loans contractual amounts, of which a portion reflects a discount for possible credit
losses. Credit discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded
for acquired loans at the acquisition date. Although the discount recorded on the acquired loans is not reflected in the allowance
for loan losses, or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to
similar ratios in periods prior to the acquisitions of United Business Bank, FSB, and Plaza Bank. As of March 31, 2018, acquired
loans net of their discounts totaled $378.1 million compared to $400.0 million at December 31, 2017.
Management believes it has established
our allowance for loan losses in accordance with GAAP, however, there can be no assurance that regulators, in reviewing our loan
portfolio, will not request us to increase the allowance for loan losses. In addition, because future events affecting borrowers
and collateral cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is appropriate
or that increased provisions will not be necessary should the quality of the loans deteriorate. Any material increase in the allowance
for loan losses would adversely affect the Company’s financial condition and results of operations.
Deposits.
Total deposits
decreased $5.5 million, or 0.5%, to $1.10 billion at March 31, 2018 from $1.10 billion at December 31, 2017, primarily due to
normal fluctuations within our deposit portfolio. Demand deposits as a percentage of total deposits increased to 80.0% at March
31, 2018 from 79.2% at December 31, 2017.
Borrowings.
Borrowed funds
were $11.4 million at both March 31, 2018 and December 31, 2017. The totals in both periods included $6.0 million in long-term
secured borrowings and $5.4 million (net of mark-to-market adjustments), of junior subordinated debentures issued in connection
with the sale of trust preferred securities from our acquisition of United Business Bank, FSB in 2017. At March 31, 2018, we had
no FHLB advances outstanding and the ability to borrow up to $310.3 million.
In addition to FHLB advances, we may
also utilize Fed Funds purchased from correspondent banks as a source of short-term funding. At March 31, 2018, we had a total
of $55.0 million federal funds line available from four third-party financial institutions, in addition to a $9.0 million line
of credit which will expire in April 2018 that we do not intend to renew.
We are required to provide collateral
for certain local agency deposits. As of March 31, 2018, the FHLB had issued a letter of credit on behalf of the Bank totaling
$7.5 million as collateral for local agency deposits.
Shareholders equity.
Shareholders’
equity increased $3.9 million, or 3.3%, to $122.6 million at March 31, 2018 from $118.6 million at December 31, 2017. This increase
was primarily due to net income of $4.1 million for the three months ended March 31, 2018.
Comparison of Operating Results for the Three Months
Ended March 31, 2018 and 2017
Earnings summary.
We
reported net income of $4.1 million for the three months ended March 31, 2018, compared to $1.4 million for the three months
ended March 31, 2017, an increase of $2.7 million, or 187.3%. The increase in net income primarily was the result of
increases in net interest income before provision for loan losses and non-interest income partially offset by an increase in
non-interest expense reflecting both our two whole-bank acquisitions in 2017 and organic growth.
Diluted earnings per share were $0.54
for the three months ended March 31, 2018, an increase of $0.28 from diluted earnings per share of $0.26 for the three months
ended March 31, 2017.
Our efficiency ratio, which is calculated
by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, improved
to 57.45% for the three months ended March 31, 2018, compared to 64.24% for the three months ended March 31, 2017. The change
in the efficiency ratio for the three months ended March 31, 2018 compared to the three months ended March 31, 2017 is attributable
primarily to the increase in net interest income and noninterest income, partially offset by an increase in noninterest expense.
Interest income.
Interest
income for the three months ended March 31, 2018 was $13.6 million, compared to $7.4 million for the three months ended March
31, 2017, an increase of $6.2 million, or 83.1%. The increase in interest income primarily was due to an increase in average interest
earning assets, principally loans, which was driven by the two whole-bank acquisitions completed during 2017. Interest income
on loans increased $4.6 million as a result of a $372.2 million increase in the average loan balance, further supplemented by
a two basis point increase in the average loan yield. The average yield earned on loans for the three months ended March 31, 2018
was 4.91%, compared to 4.89% for the three months ended March 31, 2017. Interest income on loans for the three months ended March
31, 2018 included $1.2 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to $557,000
for the three months ended March 31, 2017. The remaining net discount on these purchased loans was $7.7 million and $4.7 million
at March 31, 2018 and 2017, respectively.
Interest income on interest-bearing
deposits increased $563,000 as a result of a $125.9 million increase in the average balance of interest-earning deposits and a
67 basis point increase in the yield on interest-earning deposits to 1.56% for the three months ended March 31, 2018 from 0.89%
for the three months ended March 31, 2017. Interest income on investment securities increased $312 thousand as a result of a $25.7
million increase in the average balance of investment securities and a 61 basis point increase in the yield on investment securities
to 2.00% for the three months ended March 31, 2018 from 1.38% for the three months ended March 31, 2017.
Interest expense.
Interest
expense increased by $220,000, or 23.9%, to $1.1 million for the three months ended March 31, 2018 from $918,000 for the three
months ended March 31, 2017. The average cost of interest bearing liabilities decreased 22 basis points to 0.59% for the three
months ended March 31, 2018 from 0.81% for the three months ended March 31, 2017. Total average interest-bearing liabilities increased
by $516.9 million, or 86.9%, to $1.1 billion for the three months ended March 31, 2018 from $516.9 million for the three months
ended March 31, 2017.
Interest expense on deposits increased
$60,000, or 6.6%, to $979,000 during the three months ended March 31, 2018 from $918,000 the same period in 2017, primarily due
to the deposits acquired in the United Business Bank, FSB and Plaza Bank acquisitions. The effects of the increase in the average
deposit balance was largely offset by lower rates paid on interest bearing deposits, reflecting the still relatively low interest
rate environment. The average rate paid on interest bearing deposits decreased to 0.51% for the three months ended March 31, 2018
from 0.81% for the three months ended March 31, 2017. Interest expense on borrowings was $159,000 for the three months ended March
31, 2018 compared to none for the same period in 2017, as a result of the junior subordinated debentures assumed and another borrowing
obtained in connection with our United Business Bank, FSB acquisition. The Company replaced a term loan of United Business Bank,
FSB that matured upon its acquisition with a similar $6.0 million term loan. This term loan will be repaid from the net proceeds
of this offering.
Net interest income.
Net
interest income increased $5.9 million, or 91.5%, to $12.4 million for the three months ended March 31, 2018 compared to $6.5
million for the three months ended March 31, 2017. Net interest margin for the three months ended March 31, 2018 increased 25
basis points to 4.27% from 4.02% for the same period in 2017. Net interest margin is enhanced by the amortization of acquisition
accounting discounts on loans acquired in the acquisitions. Accretion of acquisition accounting discounts on loans and the recognition
of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by 42 basis points and
35 basis points during three months ended March 31, 2018 and 2017, respectively. The average yield on interest-earning assets
for the three months ended March 31, 2018 was 4.66%, an eight basis point increase from the three months ended March 31, 2017,
while the average cost of interest-bearing liabilities for the three months ended March 31, 2018 was 0.59%, down 20 basis points
from the 0.81% cost of funds during the three months ended March 31, 2017.
Provision for loan losses.
We recorded a provision for loan losses of $254,000 for the three months ended March 31, 2018, compared to a provision for loan
losses of $143,000 for the three months ended March 31, 2017, an increase of $111,000 or 77.3%. The provision for loan losses
increased primarily as a result of an increase in specific reserves on certain loans. We had net recoveries on previously charged-off
loans of $131,000 for the three months ended March 31, 2018 compared to net recoveries of $7,000 during the three months ended
March 31, 2017. The ratio of net recoveries to average total loans outstanding was (0.01)% for the three months ended March 31,
2018 and 0.00% for the three months ended March 31, 2017. The allowance for loan losses to loans receivable was 0.52% at March
31, 2018 compared to 0.73% at March 31, 2017.
Management considers the allowance for
loan losses at March 31, 2018 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned
factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the
adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect
in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses
or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results
of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators,
as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment
of information available to them at the time of their examination.
Noninterest income.
Noninterest
income increased $990,000, or 134.6%, to $1.7 million for the three months ended March 31, 2018 compared to $736,000 for the three
months ended March 31, 2017. The increase primarily relates to higher gain on sale of loans, service charges and other fees and
loan fee income. During the three months ended March 31, 2018, the Company sold $6.4 million of SBA loans, which generated a net
gain on sale of $651,000 compared to a gain of $400,000 during the three months ended March 31, 2017. Additionally, our acquisitions
and organic growth significantly increased our deposit accounts, which resulted in a $304,000, or 213.0%, increase in service
charges and other fees. Loan fee income increased $188,000, or 329.6%, to $245,000 for the three months ended March 31, 2018,
compared to $57,000 for the three months ended March 31, 2017. All other components of noninterest income increased $248,000,
net between these two periods.
|
|
|
Three
Months Ended
March
31,
|
|
|
Increase (Decrease)
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain on sale of loans
|
|
$
|
651
|
|
|
$
|
400
|
|
|
$
|
251
|
|
|
|
62.8
|
%
|
|
Service charges and other fees
|
|
|
446
|
|
|
|
143
|
|
|
|
303
|
|
|
|
211.9
|
|
|
Loan fee income
|
|
|
245
|
|
|
|
57
|
|
|
|
188
|
|
|
|
329.8
|
|
|
Other income and fees
|
|
|
384
|
|
|
|
136
|
|
|
|
248
|
|
|
|
182.4
|
|
Total noninterest income
|
|
$
|
1,726
|
|
|
$
|
736
|
|
|
$
|
990
|
|
|
|
134.6
|
|
Noninterest expense.
Noninterest expense increased $3.5 million, or 75.2%, to $8.1 million for the three months ended March 31, 2018 compared to
$4.6 million for the three months ended March 31, 2017. Each line category of noninterest expense was higher than the
previous year, as we nearly doubled in size due to the acquisitions and organic growth. Salaries and related benefits
increased $1.8 million, or 59.4%, to $4.9 million, as the number of full-time equivalent employees increased to 158 at March
31, 2018, compared to 107 a year earlier. Occupancy and equipment expenses increased $406,000, or 71.3%, to $975,000,
primarily due to the increase in the number of branch office resulting from our acquisitions. As of March 31, 2018, we
operated 18 full service branches, compared to 10 a year earlier. As we build our market presence, we regularly evaluate the
appropriate number and locations of our branches, and have recently closed one of our two locations in San Jose, California
in March 2018, due to overlapping market areas. We may also close branches from time to time in the future that do not meet
our objectives or based on acquisitions of other banks with branches located near our existing branches, advances in
technology such as e-commerce, telephone, internet and mobile banking, as well as an increasing customer preference for these
other methods of accessing our products and services, and other factors. Data processing expenses increased $348,000, or
96.8%, to $708,000, related to the acquisitions and the systems conversion we undertook during 2017, as well as a result of
higher transaction volume. Other noninterest expense increased $899,000, or 143.7%, to $1.5 million during the three months
ended March 31, 2018, compared to $626,000 during the same period in 2017, primarily due to increases in office expenses
of $216,000, professional fees of $211,000, amortization of our core deposit intangible asset of $206,000, and in
marketing expenses of $156,000.
|
|
|
Three
Months Ended
March
31,
|
|
|
Increase (Decrease)
|
|
|
|
|
2018
|
|
|
2017
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and related benefits
|
|
$
|
4,914
|
|
|
$
|
3,082
|
|
|
$
|
1,832
|
|
|
|
59.4
|
%
|
|
Occupancy and equipment
|
|
|
975
|
|
|
|
569
|
|
|
|
406
|
|
|
|
71.4
|
|
|
Data processing
|
|
|
708
|
|
|
|
360
|
|
|
|
348
|
|
|
|
96.7
|
|
|
Other
|
|
|
1,525
|
|
|
|
626
|
|
|
|
899
|
|
|
|
143.6
|
|
Total noninterest expense
|
|
$
|
8,123
|
|
|
$
|
4,637
|
|
|
$
|
3,485
|
|
|
|
75.2
|
|
Income taxes.
Income tax expense increased $672,000, or 65.7%, to $1.7 million for the three months ended March 31, 2018 compared to $1.0
million for the three months ended March 31, 2017, reflecting the increase in pre-tax income. The Company’s effective
tax rate was 29.39% for the three months ended March 31, 2018 compared to 41.91% for the same period in 2017. The decrease in
the Company’s effective tax rate during the three months ended March 31, 2018 compared to the same period in 2017
is primarily the result of recent changes in the U. S. tax laws enacted December 22, 2017, wherein the statutory corporate income
tax rate was lowered from 35.0% to 21.0%.
RISK FACTORS
Investment in our common stock involves
risks. In addition to the other information contained in this prospectus, including the matters addressed under “Cautionary
Note Regarding Forward-Looking Statements,” you should carefully consider the following factors before deciding to invest
in shares of our common stock. The occurrence of any of these risks could have a material adverse effect on our business, prospects,
results of operations or financial condition, in which case the trading price of our common stock could decline and you could lose
all or part of your investment. Additional risks of which we are not presently aware or that we currently believe are immaterial
may also harm our business and results of operations.
Risks Related to Our Business
Our business may be adversely affected
by downturns in the national economy and the regional economies in which we operate.
Our operations are
significantly affected by national and regional economic conditions. Weakness in the national economy or the economies
of the markets in which we operate could have a material adverse effect on our financial condition, results of operations and prospects.
We provide banking and financial services primarily to businesses and individuals in the states of California, Washington, and
New Mexico. All of our branches and most of our deposit clients are also located in these three states. Further,
as a result of a high concentration of our client base in the San Francisco Bay area, the deterioration of businesses in this market,
or one or more businesses with a large employee base in this marked, could have a material adverse effect on our business, financial
condition and results of operations. Weakness in the global economy has adversely affected many businesses operating
in our markets that are dependent upon international trade. In addition, adverse weather conditions as well as decreases in market
prices for agricultural products grown in our primary markets can adversely affect agricultural businesses in our markets.
A deterioration in
economic conditions in the market areas we serve, in particular the San Francisco metropolitan area, Seattle, Washington, and Albuquerque,
New Mexico and the agricultural region of the California Central Valley, could result in the following consequences, any of which
could have a material adverse effect on our business, financial condition and results of operations:
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demand for our products and services may decline;
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loan delinquencies, problem assets and foreclosures may increase;
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collateral for loans, especially real estate, may decline in value, in turn reducing
clients’ borrowing power, reducing the value of assets and collateral associated with existing loans;
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the net worth and liquidity of loan guarantors may decline, impairing their ability to honor commitments
to us; and
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the amount of our low-cost or non-interest-bearing deposits may decrease.
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Many of the loans in
our portfolio are secured by real estate. A decline in local economic conditions may have a greater effect on our earnings and
capital than on the earnings and capital of larger financial institutions whose real estate loan portfolios are more geographically
diverse. Deterioration in the real estate markets where collateral for a mortgage loan is located could negatively affect the borrower’s
ability to repay the loan and the value of the collateral securing the loan. If we are required to liquidate a significant amount
of collateral during a period of reduced real estate values, our financial condition and profitability could be adversely affected.
Real estate values are affected by various other factors, including changes in general or regional economic conditions, governmental
rules or policies and natural disasters such as earthquakes, floods, fires and mudslides.
We rely heavily on our management team and could be adversely
affected by the unexpected loss of key officers.
We are led by an experienced management
team with substantial experience in the markets that we serve and the financial products that we offer. The members of our executive
management team, on average, have many years of experience working for financial institutions and have significant merger and acquisition
experience in the financial services industry. Our operating strategy focuses on providing products and services through long-term
relationship managers. In addition, an important part of our future growth strategy includes growing our business through strategic
acquisitions. Accordingly, our success depends in large part on the performance of our key personnel, as well as on our ability
to attract, motivate and retain highly qualified senior and middle management with specific skill sets. Competition for employees
is intense, and the process of locating key personnel with the combination of skills and attributes required to execute our operating
and growth strategies may be lengthy. We may not be successful in retaining our key employees and the unexpected loss of services
of one or more of our key personnel could have a material adverse effect on our business because of their skills, knowledge of
our market and financial products, years of industry experience, long-term client relationships and the difficulty of promptly
finding qualified replacement personnel. If the services of any of our key personnel should become unavailable for any reason,
we may not be able to identify and hire qualified persons on terms acceptable to us, which could have an adverse effect on our
business, financial condition and results of operations.
Our business and profitability may be harmed if we are
unable to identify and acquire other financial institution or manage our growth, which may cause our stock price to decline.
A substantial part of our historical growth
has been a result of acquisitions of other financial institutions. We intend to continue our strategy of evaluating and selectively
acquiring other financial institutions that serve clients or markets we find desirable. The market for acquisitions, however, remains
highly competitive and we may be unable to find satisfactory acquisition candidates in the future that fit our acquisition strategy
and standards. We face significant competition in pursuing acquisition targets from other financial institutions, many of which
possess greater financial, human, technical and other resources than us. Our ability to compete in will depend on our available
financial resources to fund acquisitions, including the amount of cash and cash equivalents we have and the liquidity and market
price of our common stock. In addition, increased competition may also drive up the price that we will be required to pay for acquisitions.
Prices at which acquisitions can be made fluctuate with market conditions. We have experienced times during which acquisitions
could not be made in specific markets at prices we considered acceptable to us and expect that we will experience this condition
in the future. If we are able to identify attractive acquisition opportunities, we must generally satisfy a number of conditions
prior to completing any such transaction, including certain bank regulatory approvals, which have become substantially more difficult,
time-consuming and unpredictable as a result of the recent financial crisis. An important component of our growth strategy may
not be realized if we are unable to find suitable acquisition targets. Additionally, any future acquisition may not produce the
revenue, earnings or synergies that we anticipated.
Further, acquisitions typically involve
the payment of a premium over book and market values and, therefore, some dilution of our tangible book value and net income per
common share may occur in connection with any future acquisition, and the carrying amount of any goodwill that we currently maintain
or may acquire may be subject to impairment in future periods.
If we continue to grow, we will face risks
arising from our increased size. If we do not manage such growth effectively, we may be unable to realize the benefit from the
investments in technology, infrastructure and personnel that we have made to support our expansion. In addition, we may incur higher
costs and realize less revenue growth than we expect, which would reduce our earnings and diminish our future prospects, and we
may not be able to continue to implement our business strategy and successfully conduct our operations. Risks associated with failing
to maintain effective financial and operational controls as we grow, such as maintaining appropriate loan underwriting procedures,
information technology systems, determining adequate allowances for loan losses and complying with regulatory accounting requirements,
including increased loan losses, reduced earnings and potential regulatory penalties and restrictions on growth, all could have
a negative effect on our business, financial condition and results of operations.
Our strategy of pursuing acquisitions exposes us to financial,
execution, compliance and operational risks that could have a material adverse effect on our business, financial condition, results
of operations and growth prospects.
We have recently expanded our business through
acquisitions. During 2017, we completed the acquisitions of United Business Bank, FSB and Plaza Bank. We have grown our consolidated
assets from $675.3 million as of December 31, 2016, to $1.25 billion as of December 31, 2017, and our deposits from $590.8 million
as of December 31, 2016, to $1.10 billion as of December 31, 2017. Because we intend to continue to grow our business through strategic
acquisitions coupled with organic loan growth, we anticipate that much of our future growth will be dependent on our ability to
successfully implement our acquisition growth strategy.
Our pursuit of acquisitions may disrupt
our business, and any equity that we issue as merger consideration may have the effect of diluting the value of your investment.
In addition, we may fail to realize some or all of the anticipated benefits of completed acquisitions.
Our acquisition activities strategy involves
a number of significant risks, including the following:
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incurring time and expense
associated with identifying and evaluating potential acquisitions and negotiating potential transactions, diverting management’s
attention from the operation of our existing business;
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using inaccurate estimates
and judgments to evaluate credit, operations, management, and market risks with respect to the target company or the assets and
liabilities that we seek to acquire;
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exposure to potential asset
quality and credit quality;
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higher than expected deposit
attrition;
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potential exposure to unknown
or contingent liabilities of banks and businesses we acquire, including, without limitation, liabilities for regulatory and compliance
issues;
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inability to realize the
expected revenue increases, cost savings, increases in geographic or product presence, and other projected benefits of the acquisition;
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incurring time and expense
required to integrate the operations and personnel of the combined businesses;
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inconsistencies in standards,
procedures, and policies that would adversely affect our ability to maintain relationships with clients and employees;
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experiencing higher operating
expenses relative to operating income from the new operations;
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creating an adverse short-term
effect on our results of operations;
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significant problems relating
to the conversion of the financial and client data of the entity;
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integration of acquired clients
into our financial and client product systems;
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to finance an acquisition,
we may borrow funds, thereby increasing our leverage and diminishing our liquidity, or pursue other forms of financing, such as
issuing voting and/or non-voting common stock or convertible preferred stock which may have high dividend rights or may be highly
dilutive to our existing shareholders;
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risks of impairment to goodwill.
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Any of the foregoing could have an adverse
effect on our business, financial condition, and results of operation.
In addition we face additional risks in
acquisitions to the extent we acquire new lines of business or new products, or enter new geographic areas, in which we have little
or no current experience, especially if we lose key employees of the acquired operations. We cannot assure you that we will be
successful in overcoming these risks or any other problems encountered in connection with acquisitions. Our inability to overcome
risks associated with acquisitions could have an adverse effect on our ability to successfully implement our acquisition growth
strategy and grow our business and profitability.
If the goodwill that we have recorded or may record in
the future in connection with a business acquisition becomes impaired, it could require charges to earnings.
Goodwill represents the amount by which
the cost of an acquisition exceeded the fair value of net assets we acquired in connection with the purchase of another financial
institution. We review goodwill for impairment at least annually, or more frequently if a triggering event occurs which indicates
that the carrying value of the asset might be impaired.
We determine impairment by comparing the
implied fair value of the goodwill with the carrying amount of that goodwill. If the carrying amount of the goodwill exceeds the
implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess. Any such adjustments are
reflected in our results of operations in the periods in which they become known. As of December 31, 2017, our goodwill totaled
$10.4 million. There can be no assurance that our future evaluations of goodwill will not result in findings of impairment and related
write-downs, which may have a material adverse effect on our business, financial condition and results of operations.
We have entered into employment agreements with certain
of our officers, which may increase our compensation costs upon the occurrence of certain events or increase the cost of acquiring
us.
We have entered into employment agreements
with certain of our officers, which may increase our compensation costs upon the occurrence of certain events or increase the cost
of acquiring us. In the event of termination of employment other than for cause, or in the event of certain types of termination
following a change in control, as set forth in the relevant employment agreement, the agreement will provide for cash severance
benefits based on such officer’s current base salary and the terms of such agreement. For additional information see “Executive
Compensation.”
Our ability to grow our loan portfolio may be limited
by, among other things, economic conditions, competition within our market areas, the timing of loan repayments and seasonality.
Our ability to continue to improve our operating
results is dependent upon, among other things, growing our loan portfolio. While we believe that our strategy to grow our loan
portfolio is sound and our growth targets are achievable over an extended period of time, competition within our market areas is
significant, particularly for borrowers whose businesses have been less negatively impacted by the challenging economic conditions
of the last few years. We compete with both large regional and national financial institutions, who are sometimes able to offer
more attractive interest rates and other financial terms than we choose to offer, as well as other community-based banks who seek
to offer a similar level of service to that which we offer. This competition can make loan growth challenging, particularly if
we are unwilling to price loans at levels that would cause unacceptable levels of compression of our net interest margin or if
we are unwilling to structure a loan in a manner that we believe results in a level of risk to us that we are not willing to accept.
Moreover, loan growth throughout the year can fluctuate due in part to seasonality of the businesses of our borrowers and potential
borrowers and the timing on loan repayments, particularly those of our borrowers with significant relationships with us, resulting
from, among other things, excess levels of liquidity. To the extent that we are unable to increase loans, we may be unable to successfully
implement our growth strategy, which could materially and adversely affect our business, financial condition and results of operations.
Our financial performance will be negatively impacted
if we are unable to execute our growth strategy.
Our current growth strategy is to grow with
select acquisitions supplemented by organic growth. Our ability to grow organically depends primarily on generating loans and deposits
of acceptable risk and expense, and we may not be successful in continuing this organic growth. Our ability to identify appropriate
markets for expansion, recruit and retain qualified personnel, and fund growth at a reasonable cost depends upon prevailing economic
conditions, maintenance of sufficient capital, competitive factors, and changes in banking laws, among other factors. Conversely,
if we grow too quickly and are unable to control costs and maintain asset quality, such growth, whether organic or through select
acquisitions, could materially and adversely affect our financial condition and results of operations.
The required accounting treatment of loans acquired through
acquisitions, including purchase credit impaired loans, could result in higher net interest margins and interest income in current
periods and lower net interest margins and interest income in future periods.
Under U.S. generally accepted accounting
principles, or GAAP, we are required to record loans acquired through acquisitions, including purchase credit impaired loans, at
fair value. Estimating the fair value of such loans requires management to make estimates based on available information and facts
and circumstances on the acquisition date. Actual performance could differ from management’s initial estimates. If these
loans outperform our original fair value estimates, the difference between our original estimate and the actual performance of
the loan (the “discount”) is accreted into net interest income. Thus, our net interest margins may initially increase
due to the discount accretion. We expect the yields on our loans to decline as our acquired loan portfolio pays down or matures
and the discount decreases, and we expect downward pressure on our interest income to the extent that the runoff on our acquired
loan portfolio is not replaced with comparable high-yielding loans. This could result in higher net interest margins and interest
income in current periods and lower net interest rate margins and lower interest income in future periods. For example, the total
loan yield for the year ended December 31, 2017 was 5.44%, which included two basis points from excess accretion related to purchase
credit impaired loans. As a result of the foregoing, we are unlikely to be able to replace loans in our existing portfolio with
comparable high-yielding loans and without a larger volume of high-yielding loans our results of operations may be adversely affected.
Our business, financial condition and results of operations may also be materially and adversely affected if we choose to pursue
riskier higher-yielding loans that fail to perform.
Because a significant portion of our loan portfolio is
comprised of real estate loans, negative changes in the economy affecting real estate values and liquidity could impair the value
of collateral securing our real estate loans and result in loan and other losses.
At December 31, 2017, approximately 87.0%
of our loan portfolio was comprised of loans with real estate as a primary or secondary component of collateral. As a result, adverse
developments affecting real estate values in our market areas could increase the credit risk associated with our real estate loan
portfolio. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions
in the area in which the real estate is located. Adverse changes affecting real estate values and the liquidity of real estate
in one or more of our markets could increase the credit risk associated with our loan portfolio, significantly impair the value
of property pledged as collateral on loans and affect our ability to sell the collateral upon foreclosure without a loss or additional
losses, which could result in losses that would adversely affect profitability. Such declines and losses would have a material
adverse impact on our business, results of operations and growth prospects.
Many of our loans are to commercial borrowers, which have
a higher degree of risk than other types of loans.
At December 31, 2017, we had $808.9 million
of commercial loans, consisting of $694.5 million of commercial real estate loans and $114.4 million of commercial and industrial
loans for which real estate is not the primary source of collateral. Of the $694.5 million of commercial real estate loans, $118.1
million consisted of multifamily loans and $22.7 million consisted of commercial construction and land development loans. Commercial
and industrial loans represented 12.8% of our total loan portfolio at December 31, 2017. In addition, at December 31, 2017, $297.2
million, or 33.2% of our total loan portfolio, consisted of loans secured by non-owner occupied commercial real estate properties.
These loans typically involve higher principal
amounts than other types of loans, and some of our commercial borrowers have more than one loan outstanding with us. Consequently,
an adverse development with respect to one loan or one credit relationship can expose us to a significantly greater risk of loss
compared to an adverse development with respect to a one- to four-family residential mortgage loan. Because payments on such loans
are often dependent on the cash flow of the commercial venture and the successful operation or development of the property or business
involved, repayment of such loans is often more sensitive than other types of loans to adverse conditions in the real estate market
or the general business climate and economy in one of our markets or in occupancy rates where a property is located. Repayments
of loans secured by non-owner occupied properties depend primarily on the tenant’s continuing ability to pay rent to the
property owner, who is our borrower, or, if the property owner is unable to find a tenant, the property owner’s ability to
repay the loan without the benefit of a rental income stream. Accordingly, a downturn in the real estate market or a challenging
business and economic environment may increase our risk related to commercial loans. In addition, many of our commercial real estate
loans are not fully amortizing and require large balloon payments upon maturity. Such balloon payments may require the borrower
to either sell or refinance the underlying property in order to make the payment, which may increase the risk of default or non-payment.
Our commercial and industrial loans are primarily made based on the identified cash flow of the borrower and secondarily on the
collateral underlying the loans. The borrowers’ cash flow may prove to be unpredictable, and collateral securing these loans
may fluctuate in value. Most often, this collateral consists of accounts receivable, inventory and equipment. Significant adverse
changes in our borrowers’ industries and businesses could cause rapid declines in values of, and collectability associated
with, those business assets, which could result in inadequate collateral coverage for our commercial and industrial loans and expose
us to future losses. In the case of loans secured by accounts receivable, the availability of funds for the repayment of these
loans may be substantially dependent on the ability of the borrower to collect amounts due from its clients. Inventory and equipment
may depreciate over time, may be difficult to appraise, may be illiquid and may fluctuate in value based on the success of the
business. If the cash flow from business operations is reduced, the borrower’s ability to repay the loan may be impaired.
An increase in specific reserves and charge-offs related to our commercial and industrial loan portfolio could have a material
adverse effect on our business, financial condition, results of operations and future prospects.
The foregoing risks are enhanced as a result
of the limited geographic scope of our principal markets. Most of the real estate securing our loans is located in our California
markets. Because the value of this collateral depends upon local real estate market conditions and is affected by, among other
things, neighborhood characteristics, real estate tax rates, the cost of operating the properties, and local governmental regulation,
adverse changes in any of these factors in our markets could cause a decline in the value of the collateral securing a significant
portion of our loan portfolio. Further, the concentration of real estate collateral in California limits our ability to diversify
the risk of such occurrences.
The level of our commercial real estate loan portfolio
may subject us to additional regulatory scrutiny.
The Federal Deposit Insurance Corporation
(the “FDIC”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Office
of the Comptroller of the Currency have promulgated joint guidance on sound risk management practices for financial institutions
with concentrations in commercial real estate lending. Under this guidance, a financial institution that, like us, is actively
involved in commercial real estate lending should perform a risk assessment to identify concentrations. A financial institution
may have a concentration in commercial real estate lending if, among other factors (i) total reported loans for construction,
land development and other land represent 100% or more of total capital, or (ii) total reported loans secured by multi-family
and non-farm non-residential properties, loans for construction, land development and other land, and loans otherwise sensitive
to the general commercial real estate market, including loans to commercial real estate related entities, represent 300% or more
of total capital. The particular focus of the guidance is on exposure to commercial real estate loans that are dependent on the
cash flow from the real estate held as collateral and that are likely to be at greater risk to conditions in the commercial real
estate market (as opposed to real estate collateral held as a secondary source of repayment or as an abundance of caution). The
purpose of the guidance is to guide banks in developing risk management practices and capital levels commensurate with the level
and nature of real estate concentrations. The guidance states that management should employ heightened risk management practices
including board and management oversight and strategic planning, development of underwriting standards, risk assessment and monitoring
through market analysis and stress testing. We have concluded that we have a concentration in commercial real estate lending under
the foregoing standards because our balance in commercial real estate loans at December 31, 2017 represents more than 300% of
total capital. Owner occupied commercial real estate totals 229.6% of total capital, while non-owner occupied commercial real
estate totals an additional 371.9% of total capital. While we believe we have implemented policies and procedures with respect
to our commercial real estate loan portfolio consistent with this guidance, bank regulators could require us to implement additional
policies and procedures consistent with their interpretation of the guidance that may result in additional costs to us.
Our high concentration of large loans to certain borrowers
may increase our credit risk.
Our growth over the last several years has
been partially attributable to our ability to originate and retain large loans. We have established an informal, internal limit
on loans to one borrower, principal or guarantor. Our limit is based on “total exposure” which represents the aggregate
exposure of economically related borrowers for approval purposes. However, we may, under certain circumstances, consider going
above this internal limit in situations where management’s understanding of the industry and the credit quality of the borrower
are commensurate with the increased size of the loan. Many of these loans have been made to a small number of borrowers, resulting
in a high concentration of large loans to certain borrowers. As of December 31, 2017, our 10 largest borrowing relationships accounted
for approximately 15.9% of our total loan portfolio, including undisbursed commitments to these borrowers. Along with other risks
inherent in these loans, such as the deterioration of the underlying businesses or property securing these loans, this high concentration
of borrowers presents a risk to our lending operations. If any one of these borrowers becomes unable to repay its loan obligations
as a result of economic or market conditions, or personal circumstances, such as divorce or death, our non-accruing loans and our
provision for loan losses could increase significantly, which could have a material adverse effect on our business, financial condition
and results of operations.
Several of our large depositors have relationships with
each other, which creates a higher risk that one client’s withdrawal of its deposit could lead to a loss of other deposits
from clients within the relationship, which, in turn, could force us to fund our business through more expensive and less stable
sources.
As of December 31, 2017, our ten largest
non-brokered depositors accounted for $120.3 million in deposits, or approximately 10.9% of our total deposits. Several of our
large depositors are affiliated locals of labor unions or have business, family, or other relationships with each other, which
creates a risk that any one client’s withdrawal of its deposit could lead to a loss of other deposits from clients within
the relationship. See “ — Deposits from labor unions and their related businesses are one important source of funds
for us and a reduced level of such deposits may hurt our profits” risk factor below.
Withdrawals of deposits by any one of our
largest depositors or by one of our related client groups could force us to rely more heavily on borrowings and other sources of
funding for our business and withdrawal demands, adversely affecting our net interest margin and results of operations. We may
also be forced, as a result of any withdrawal of deposits, to rely more heavily on other, potentially more expensive and less stable
funding sources. Consequently, the occurrence of any of these events could have a material adverse effect on our business, financial
condition and results of operations.
Our ability to retain and recruit top bankers is critical
to the success of our business.
Our ability to retain and grow our loans,
deposits and fee income depends upon the business generation capabilities and the reputation, relationship management skills and
acquisition experience of our officers and other employees. If we were to lose the services of any of our key employees, including
successful bankers employed by banks that we acquire, to a new or existing competitor or otherwise, we may not be able to retain
valuable client relationships or successfully execute on potential future acquisitions. Competition for loan officers and other
personnel is strong and we may not be successful in attracting or retaining the personnel we require. In particular, many of our
competitors are significantly larger with greater financial resources, and may be able to offer more attractive compensation packages
and broader career opportunities. Additionally, we may incur significant expenses and expend significant time and resources on
training, integration and business development before we are able to determine whether a new loan officer will be profitable or
effective. If we are unable to attract and retain successful loan officers and other personnel, or if our loan officers and other
personnel fail to meet our expectations in terms of client relationships and profitability, we may be unable to execute our business
strategy and our business, financial condition and results of operations may be adversely affected.
Any expansion into new markets or new lines of business
might not be successful.
As part of our ongoing strategic plan, we
may consider expansion into new geographic markets. Such expansion might take the form of the establishment of de novo branches
or the acquisition of existing banks or bank branches. There are considerable costs associated with opening new branches, and new
branches generally do not generate sufficient revenues to offset costs until they have been in operation for some time. Additionally,
we may consider expansion into new lines of business through the acquisition of third parties or organic growth and development.
There are substantial risks associated with such efforts, including risks that (i) revenues from such activities might not
be sufficient to offset the development, compliance, and other implementation costs, (ii) competing products and services
and shifting market preferences might affect the profitability of such activities, and (iii) our internal controls might be
inadequate to manage the risks associated with new activities. Furthermore, it is possible that our unfamiliarity with new markets
or lines of business might adversely affect the success of such actions. External factors, such as compliance with regulations,
competitive alternatives and shifting market preferences, may also affect the ultimate implementation of a new line of business
or offerings of new products, product enhancements or services. If any such expansions into new geographic or product markets are
not successful, there could be an adverse effect on our financial condition and results of operations.
Our small to medium-sized business and entrepreneurial
clients may have fewer financial resources than larger entities to weather adverse business developments, which may impair a borrower’s
ability to repay a loan, and such impairment could adversely affect our financial condition and results of operations.
We target our business development and marketing
strategy primarily to serve the banking and financial services needs of small to midsized businesses, which we define as commercial
borrowing relationships at the Bank of less than $10.0 million in aggregate loan exposure. These businesses generally have fewer
financial resources in terms of capital or borrowing capacity than larger entities, frequently have smaller market shares than
their competition, may be more vulnerable to economic downturns, often need substantial additional capital to expand or compete
and may experience substantial volatility in operating results, any of which may impair a borrower’s ability to repay a loan.
In addition, the success of a small and medium-sized business often depends on the management talents and efforts of one or two
people or a small group of people, and the death, disability or resignation of one or more of these people could have a material
adverse impact on the business and its ability to repay its loan. If general economic conditions negatively impact the markets
in which we operate and small to medium-sized businesses are adversely affected or our borrowers are otherwise affected by adverse
business developments, our business, financial condition and results of operations may be adversely affected.
If we do not effectively manage our credit risk, we may
experience increased levels of delinquencies, nonperforming loans and charge-offs, which could require increases in our provision
for loan losses.
There are risks inherent in making any loan,
including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the
future value of collateral and cash flows available to service debt and risks resulting from changes in economic and market conditions.
We could sustain losses if borrowers, guarantors, and related parties fail to perform in accordance with the terms of their loans.
We have adopted underwriting and credit monitoring procedures and policies that we believe are appropriate to minimize this risk,
including the establishment and review of the allowance for loan losses, periodic assessment of the likelihood of nonperformance,
tracking loan performance, and diversifying our credit portfolio. These policies and procedures, however, may not prevent unexpected
losses that could materially adversely affect our financial condition and results of operations. In particular, we face credit
quality risks presented by past, current, and potential economic and real estate market conditions. If the overall economic climate
in the United States, generally, or our market areas, specifically, declines, our borrowers may experience difficulties in repaying
their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the
provision for loan losses, which would cause our net income, return on equity and capital to decrease.
Our allowance for loan losses may prove to be insufficient
to absorb potential losses in our loan portfolio.
While conditions in the housing and real
estate markets and economic conditions in our market areas have recently improved, if slow economic conditions return or real estate
values and sales deteriorate, we may experience higher delinquencies and credit losses. As a result, we could be required to increase
our provision for loan losses and to charge-off additional loans in the future. If charge-offs in future periods exceed the allowance
for loan losses, we may need additional provisions to replenish the allowance for loan losses.
We maintain our allowance for loan losses
at a level that management considers adequate to absorb probable incurred loan losses based on an analysis of our portfolio and
market environment. The allowance contains provisions for probable losses that have been identified relating to specific borrowing
relationships, as well as probable incurred losses inherent in the loan portfolio and credit undertakings that are not specifically
identified. The amount of this allowance is determined by our management through periodic reviews and consideration of a variety
of factors, including an analysis of the loan portfolio, historical loss experience and an evaluation of current economic conditions
in our market areas.
The determination of the appropriate level
of the allowance for loan losses inherently involves a high degree of subjectivity and requires us to make significant estimates
of current credit risks and future trends, all of which may undergo material changes. Deterioration in economic conditions affecting
borrowers, new information regarding existing loans, identification of additional problem loans and other conditions within our
markets, which may be beyond our control may require an increase in the allowance for loan losses.
As of December 31, 2017, our allowance
for loan losses as a percentage of total loans was 0.47% and as a percentage of total nonperforming loans, excluding the allowance
allocated to loans accounted for acquired credit impaired loans accounted for pursuant to ASC Topic 310-30, was 2,354%. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies” for further
information about ASC 310-30. Although management believes that the allowance for loan losses is adequate to absorb losses on
any existing loans that may become uncollectible, we may be required to take additional provisions for loan losses in the future
to further supplement the allowance for loan losses, either due to management’s decision to do so or because our banking
regulators require us to do so. Bank regulatory agencies will periodically review our allowance for loan losses and the value
attributed to nonaccrual loans and may require an increase in the provision for possible loan losses or the recognition of further
loan charge-offs, based on judgments different than those of management. If charge-offs in future periods exceed the allowance
for loan losses, we may need additional provisions to replenish the allowance for loan losses. Any increases in the allowance
for loan losses will result in a decrease in net income and, most likely, capital, and may have a material negative effect on
our financial condition and results of operations.
The acquisition method of accounting requires
that acquired loans are initially recorded at fair value at the time of acquisition, and therefore no corresponding allowance for
loan losses is recorded for these loans at acquisition because credit quality, among other elements, was considered in the determination
of fair value. To the extent that our estimates of fair value are too high, we will incur losses associated with the acquired loans.
In addition, in June 2016, the FASB issued
a new accounting standard that will replace the current approach under GAAP for establishing the allowance for loan losses, which
generally considers only past events and current conditions, with a new forward-looking methodology that reflects the expected
credit losses over the lives of financial assets starting when such assets are first originated or acquired. Under this new standard,
referred to as Current Expected Credit Loss, or CECL, credit deterioration would be reflected in the income statement in the period
of origination or acquisition of the loan, with changes in expected credit losses due to further credit deterioration or improvement
reflected in the periods in which the expectation changes. The new standard is expected to generally result in increases to allowance
levels and will require the application of the revised methodology to existing financial assets through a one-time adjustment to
retained earnings upon initial effectiveness, which may be material. As an emerging growth company, this standard will be effective
for us for fiscal years beginning after December 15, 2020 and interim reporting periods beginning after December 15, 2021. External
economic factors, such as changes in monetary policy and inflation and deflation, may have an adverse effect on our business, financial
condition and results of operations.
Our profitability is vulnerable to interest rate fluctuations.
As with most financial
institutions, our results of operations depend substantially on our net interest income, which is the difference between the
interest income we earn on our interest-earning assets, such as loans and securities, and the interest expense we pay on our
interest-bearing liabilities, such as deposits and borrowings. Interest rates, which remain largely at
historically low levels, are highly sensitive to many factors that are beyond our control such as general economic conditions
and policies of the federal government, in particular the Federal Open Market Committee. In an attempt to help the overall
economy, the Federal Reserve has kept interest rates low through its targeted Fed Funds rate. During 2017, the FRB increased
the targeted Fed Funds rate three times, each time by 25 basis points, and in March 2018 increased the targeted Fed Funds
rate another 25 basis points. The Federal Reserve has indicated that further increases are likely during 2018, subject to
economic conditions. As the Federal Reserve increases the targeted Fed Funds rate, overall interest rates will likely rise,
which may negatively impact the U.S. economic recovery. Further, changes in monetary policy, including changes in interest
rates, could influence (i) the amount of interest we receive on loans and securities, (ii) the amount of interest we pay on
deposits and borrowings, (iii) our ability to originate loans and obtain deposits, (iv) the fair value of our assets and
liabilities, and (v) the reinvestment risk associated with a reduced duration of our mortgage-backed securities portfolio
as borrowers refinance to reduce borrowing costs. When interest-bearing liabilities reprice or mature more quickly
than interest-earning assets, an increase in interest rates generally would tend to result in a decrease in net
interest income.
A sustained increase in market interest
rates could adversely affect our earnings. A significant portion of our loans have fixed interest rates and longer terms than our
deposits and borrowings. As a result of the relatively low interest rate environment, an increasing percentage of our deposits
have been comprised of certificates of deposit and other deposits yielding no or a relatively low rate of interest having a shorter
duration than our assets. At December 31, 2017, we had $170.3 million in certificates of deposit that mature within one year and
$875.5 million in non-interest bearing, NOW checking, savings and money market accounts. We would incur a higher cost of funds
to retain these deposits in a rising interest rate environment. Our net interest income could be adversely affected if the rates
we pay on deposits and borrowings increase more rapidly than the rates we earn on loans.
Changes in interest rates also affect
the value of our interest-earning assets and in particular our securities portfolio. Generally, the fair value of fixed-rate securities
fluctuates inversely with changes in interest rates. Unrealized gains and losses on securities available for sale are reported
as a separate component of equity, net of tax. Decreases in the fair value of securities available for sale resulting from increases
in interest rates could have an adverse effect on shareholders’ equity.
Any substantial, unexpected, prolonged change
in market interest rates could have a material adverse effect on our financial condition, liquidity and results of operations.
Also, our interest rate risk modeling techniques and assumptions may not fully predict or capture the impact of actual interest
rate changes on our balance sheet or projected operating results. For further discussion of how changes in interest rates could
impact us, see “Management Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate
Sensitivity and Market Risk,” for a discussion of interest rate risk modeling and the inherent risks in modeling assumptions.
Greater seasoning of our loan portfolio could increase
risk of credit defaults in the future.
A significant portion of our organic
loan portfolio at any given time is of relatively recent origin. Typically, loans do not begin to show signs of credit deterioration
or default until they have been outstanding for some period of time (which varies by loan duration and loan type), a process referred
to as “seasoning.” As a result, a portfolio of more seasoned loans may more predictably follow a bank’s historical
default or credit deterioration patterns than a newer portfolio. At December 31, 2017, the weighted average seasoning of our total
loan portfolio was 40 months. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations-
Comparison of Financial Condition at December 31, 2017 and 2016” for more detailed disclosure of the weighted average seasoning
of our total loan portfolio by type of loan. The current level of delinquencies and defaults may not represent the level that
may prevail as the portfolio becomes more seasoned. If delinquencies and defaults increase, we may be required to increase our
provision for loan losses, which could have a material adverse effect on our business, financial condition, results of operations
and growth prospects.
Construction loans are based upon estimates of costs and
values associated with the complete project. These estimates may be inaccurate, and we may be exposed to significant losses on
loans for these projects.
Construction and land development loans
totaled $22.7 million, or 2.5%, of our total loan portfolio as of December 31, 2017, of which $22.2 million were commercial real
estate construction loans and $489,000 were residential real estate construction loans. These loans involve additional risks because
funds are advanced upon the security of the project, which is of uncertain value prior to its completion, and costs may exceed
realizable values in declining real estate markets. Because of the uncertainties inherent in estimating construction costs and
the realizable market value of the completed project and the effects of governmental regulation of real property, it is relatively
difficult to evaluate accurately the total funds required to complete a project and the related loan-to-value ratio. Higher than
anticipated building costs may cause actual results to vary significantly from those estimated. For these reasons, this type of
lending also typically involves higher loan principal amounts and may be concentrated with a small number of builders. A downturn
in the commercial real estate market could increase delinquencies, defaults and foreclosures, and significantly impair the value
of our collateral and our ability to sell the collateral upon foreclosure. Some of the builders we deal with have more than one
loan outstanding with us. Consequently, an adverse development with respect to one loan or one credit relationship can expose us
to a significantly greater risk of loss. In addition, during the term of some of our construction loans, no payment from the borrower
is required since the accumulated interest is added to the principal of the loan through an interest reserve. As a result, construction
loans often involve the disbursement of substantial funds with repayment dependent, in part, on the success of the ultimate project
and the ability of the borrower to sell or lease the property, rather than the ability of the borrower or guarantor to repay principal
and interest. If our appraisal of the value of the completed project proves to be overstated or market values or rental rates decline,
we may have inadequate security for the repayment of the loan upon completion of construction of the project. Because construction
loans require active monitoring of the building process, including cost comparisons and on-site inspections, these loans are more
difficult and costly to monitor. Properties under construction are often difficult to sell and typically must be completed in order
to be successfully sold which also complicates the process of working our problem construction loans. If we are forced to foreclose
on a project prior to or at completion due to a default, we may not be able to recover all of the unpaid balance of, and accrued
interest on, the loan as well as related foreclosure and holding costs. In addition, we may be required to fund additional amounts
to complete the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it.
Further, in the case of speculative construction loans, there is the added risk associated with the borrower obtaining a take-out
commitment for a permanent loan. Loans on land under development or held for future construction also pose additional risk because
of the lack of income being produced by the property and the potential illiquid nature of the collateral. At December 31, 2017,
all construction loans were performing in accordance to their repayment terms. Any material increase in our nonperforming construction
loans could have a material adverse effect on our financial condition and results of operation.
Our business may be adversely affected by credit risk
associated with residential property.
At December 31, 2017, $76.6 million, or
8.6% of our total loan portfolio, was secured by first liens on one- to four-family residential loans. In addition, at December
31, 2017, our home equity loans and lines of credit totaled $8.2 million. A portion of our one- to four-family residential real
estate loan portfolio consists of jumbo loans that do not conform to secondary market mortgage requirements, and therefore are
not immediately saleable to Fannie Mae or Freddie Mac because such loans exceed the maximum balance allowable for sale (generally
$424,100 -$625,500 for single-family homes in our markets, depending on the area). Jumbo one- to four-family residential loans
may expose us to increased risk because of their larger balances and because they cannot be immediately sold to government sponsored
enterprises.
In addition, one- to four-family residential
loans are generally sensitive to regional and local economic conditions that significantly impact the ability of borrowers to meet
their loan payment obligations, making loss levels difficult to predict. A decline in residential real estate values resulting
from a downturn in the housing market in our market areas may reduce the value of the real estate collateral securing these types
of loans and increase our risk of loss if borrowers default on their loans. Recessionary conditions or declines in the volume of
real estate sales and/or the sales prices coupled with elevated unemployment rates may result in higher than expected loan delinquencies
or problem assets, and a decline in demand for our products and services. These potential negative events may cause us to incur
losses and adversely affect our business, financial condition and results of operations.
Nonperforming assets take significant time to resolve
and adversely affect our results of operations and financial condition, and could result in further losses in the future.
At December 31, 2017,
nonperforming loans were $179.000, or 0.02% of the total loan portfolio, and nonperforming assets were also $179,000, or
0.01% of total assets. In addition to the nonperforming loans, there were $1.0 million in loans classified as
performing troubled debt restructurings at December 31, 2017. Nonperforming assets adversely affect our earnings in various
ways. We do not record interest income on nonaccrual loans or foreclosed assets, thereby adversely affecting our income, and
increasing our loan administration costs. Upon foreclosure or similar proceedings, we record the repossessed asset at the
estimated fair value, less costs to sell, which may result in a write down or losses. If we experience increases in
nonperforming loans and nonperforming assets, our losses and troubled assets could increase significantly, which could have a
material adverse effect on our financial condition and results of operations as our loan administration costs could increase,
each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity. A
significant increase in the level of nonperforming assets from current levels would also increase our risk profile and may
impact the capital levels our regulators believe are appropriate in light of the increased risk profile. While we reduce
problem assets through collection efforts, asset sales, workouts and restructurings, decreases in the value of the underlying
collateral, or in these borrowers’ performance or financial condition, whether or not due to economic and market
conditions beyond our control, could adversely affect our business, results of operations and financial condition. In
addition, the resolution of nonperforming assets requires significant commitments of time from management and our directors,
which can be detrimental to the performance of their other responsibilities.
The success of our SBA lending program is dependent upon
the continued availability of SBA loan programs, our status as a preferred lender under the SBA loan programs and our ability to
comply with applicable SBA lending requirements.
As an SBA Preferred Lender, we enable our
clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are
not SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other
things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request corrective actions
or impose other restrictions, including revocation of the lender’s Preferred Lender status. If we lose our status as a Preferred
Lender, we may lose our ability to compete effectively with other SBA Preferred Lenders, and as a result we would experience a
material adverse effect to our financial results. Any changes to the SBA program, including changes to the level of guaranty provided
by the federal government on SBA loans or changes to the level of funds appropriated by the federal government to the various SBA
programs, may also have an adverse effect on our business, results of operations and financial condition.
Historically, we have sold the guaranteed
portion of our SBA 7(a) loans in the secondary market. These sales have resulted in gains or premiums on the sale of the loans
and have created a stream of future servicing income. There can be no assurance that we will be able to continue originating these
loans, that a secondary market will exist or that we will continue to realize premiums upon the sale of the guaranteed portion
of these loans. When we sell the guaranteed portion of our SBA 7(a) loans, we incur credit risk on the retained, non-guaranteed
portion of the loans.
In order for a borrower to be eligible to
receive an SBA loan, the lender must establish that the borrower would not be able to secure a bank loan without the credit enhancements
provided by a guaranty under the SBA program. Accordingly, the SBA loans in our portfolio generally have weaker credit characteristics
than the rest of our portfolio, and may be at greater risk of default in the event of deterioration in economic conditions or the
borrower’s financial condition. In the event of a loss resulting from default and a determination by the SBA that there is
a deficiency in the manner in which the loan was originated, funded or serviced by us, the SBA may require us to repurchase the
previously sold portion of the loan, deny its liability under the guaranty, reduce the amount of the guaranty, or, if it has already
paid under the guaranty, seek recovery of the principal loss related to the deficiency from us. Management has estimated losses
inherent in the outstanding guaranteed portion of SBA loans and recorded a recourse reserve at a level determined to be appropriate.
Significant increases to the recourse reserve may materially decrease our net income, which may adversely affect our business,
results of operations and financial condition.
Deposits from labor unions and their related businesses
are one important source of funds for us and a reduced level of such deposits may hurt our profits.
Deposits from labor unions and their related
businesses are an important source of funds for our lending and investment activities. At December 31, 2017, $482.4 million, or
43.7%, of our total deposits were comprised of deposits from labor unions, representing 554 different local unions with an average
deposit balance per local union of approximately $871,000. At that date, five labor unions had aggregate deposits of $10.0 million
or more totaling $102.8 million or more accounting for 9.31% of our total deposits with the largest union relationship totaling
$46.4 million or 4.2% of total deposits representing accounts from eight local unions. Given our use of these high-average balance
deposits as a source of funds, our inability to retain these funds could have an adverse effect on our liquidity. In addition,
these deposits are primarily demand deposit accounts or short-term deposits and therefore may be more sensitive to changes in interest
rates. If we are forced to pay higher rates on these deposits to retain the funds, or if we are unable to retain the funds and
are forced to turn to borrowing and other funding sources for our lending and investment activities, the interest expense associated
with such borrowings may be higher than the rates we are paying on these deposits, which could adversely affect our net margin
and net income. We may also be forced, as a result of any material withdrawal of deposits, to rely more heavily on other, potentially
more expensive and less stable funding sources. Consequently, the occurrence of any of these events could have a material adverse
effect on our business, financial condition and results of operations.
Liquidity risks could affect operations and jeopardize
our business, financial condition, and results of operations.
Liquidity is essential to our business.
We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of liquidity are
increases in deposit accounts, cash flows from loan payments and our securities portfolio. Borrowings also provide us with a source
of funds to meet liquidity demands. An inability to raise funds through deposits, borrowings, the sale of loans and other sources
could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities
or on terms which are acceptable to us could be impaired by factors that affect us specifically, or the financial services industry
or economy in general. Factors that could detrimentally impact our access to liquidity sources include adverse regulatory action
against us or a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are
concentrated. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the
financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent
turmoil faced by banking organizations or deterioration in credit markets.
Our liquidity is dependent on dividends from the Bank.
The Company is a legal entity separate and
distinct from the Bank. A substantial portion of our cash flow, including cash flow to pay principal and interest on any debt we
may incur, comes from dividends the Company receives from the Bank. Various federal and state laws and regulations limit the amount
of dividends that the Bank may pay to the Company. Because our ability to receive dividends or loans from the Bank is restricted,
our ability to pay dividends to our shareholders may also be restricted. As of December 31, 2017, the Bank had the capacity to
pay the Company a dividend of up to $4.8 million without the need to obtain prior regulatory approval. Also, the Company’s
right to participate in a distribution of assets upon a subsidiary’s liquidation or reorganization is subject to the prior
claims of the subsidiary’s creditors. In the event the Bank is unable to pay dividends to us, we may not be able to service
any debt we may incur, which could have a material adverse effect on our business, financial condition, results of operations and
growth prospects.
We may need to raise additional capital in the future,
and if we fail to maintain sufficient capital, whether due to losses, an inability to raise additional capital or otherwise, our
financial condition, liquidity and results of operations, as well as our ability to maintain regulatory compliance, would be adversely
affected.
We face significant capital and other regulatory
requirements as a financial institution. Although management believes that funds raised in this offering will be sufficient to
fund operations and growth initiatives for at least the next 18 to 24 months based on our estimated future operations, we may need
to raise additional capital in the future to provide us with sufficient capital resources and liquidity to meet our commitments
and business needs, which could include the possibility of financing acquisitions. In addition, the Company, on a consolidated
basis, and the Bank, on a stand-alone basis, must meet certain regulatory capital requirements and maintain sufficient liquidity.
Importantly, regulatory capital requirements could increase from current levels, which could require us to raise additional capital
or contract our operations. Our ability to raise additional capital depends on conditions in the capital markets, economic conditions
and a number of other factors, including investor perceptions regarding the banking industry, market conditions and governmental
activities, and on our financial condition and performance. Accordingly, we cannot assure you that we will be able to raise additional
capital, if and when needed, or on terms acceptable to us. If we fail to maintain capital to meet regulatory requirements, our
business, financial condition and results of operations would be materially and adversely affected.
We operate in a highly competitive industry which may
affect our growth prospects and profitability.
Our operations consist of offering banking
and mortgage services, and we also offer SBA lending, and escrow services to generate noninterest income. Many of our competitors
offer the same, or a wider variety of, banking and related financial services within our market areas. These competitors include
national banks, regional banks and other community banks. We also face competition from many other types of financial institutions,
including savings and loan institutions, finance companies, brokerage firms, insurance companies, credit unions, mortgage banks
and other financial intermediaries. In addition, a number of out-of-state financial intermediaries have opened production offices
or otherwise solicit deposits in our market areas. Additionally, we face growing competition from so-called “online businesses”
with few or no physical locations, including online banks, lenders and consumer and commercial lending platforms, as well as automated
retirement and investment service providers. Some of these competitors may have a long history of successful operations in our
market areas and greater ties to local businesses and more expansive banking relationships, as well as more established depositor
bases, fewer regulatory constraints, and lower cost structures than we do. Competitors with greater resources may possess an advantage
through their ability to maintain numerous banking locations in more convenient sites, to conduct more extensive promotional and
advertising campaigns, or to operate a more developed technology platform. Due to their size, many competitors may offer a broader
range of products and services, as well as better pricing for certain products and services than we can offer. For example, in
the current low interest rate environment, competitors with lower costs of capital may solicit our clients to refinance their loans
with a lower interest rate. Increased competition in our markets may result in reduced loans and deposits, as well as reduced net
interest margin and profitability. Ultimately, we may not be able to compete successfully against current and future competitors.
If we are unable to attract and retain banking clients, we may be unable to continue to grow our business, and our financial condition
and results of operations may be adversely affected.
Our ability to compete successfully depends
on a number of factors, including:
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our ability to develop, maintain,
and build upon long-term client relationships based on quality service and high ethical standards;
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our ability to attract and
retain qualified employees to operate our business effectively;
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our ability to expand our
market position;
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the scope, relevance, and
pricing of products and services that we offer to meet client needs and demands;
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the
rate at which we introduce new products and services relative to our competitors;
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client satisfaction with
our level of service; and
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industry and general economic
trends.
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Failure to perform in any of the aforementioned
areas could significantly weaken our competitive position, which could adversely affect our growth and profitability, which, in
turn, could adversely affect our business, financial condition and results of operations.
We also face competition for acquisition
opportunities from other banks and financial institutions, many of which possess greater financial, human, technical and other
resources than we do. Our ability to compete in acquiring target institutions will depend on our available financial resources
to fund the acquisitions, including the amount of cash and cash equivalents we have and the liquidity and market price of our common
stock. In addition, increased competition may also drive up the price that we will be required to pay in order to be the successful
bidder on an acquisition.
Our reputation is critical to the success of our business.
We are a community bank, and our reputation
is one of the most valuable components of our business. As such, we strive to conduct our business in a manner that enhances our
reputation. This is done, in part, by recruiting, hiring, and retaining employees who share our core values of being an integral
part of the communities we serve, delivering superior service to our clients, and caring about our clients and associates. If our
reputation is negatively affected, by the actions of our employees or otherwise, our business and, therefore, our operating results
may be materially adversely affected. Further, negative public opinion can expose us to litigation and regulatory action as we
seek to implement our growth strategy.
Our business plans and financial projections are based
upon numerous assumptions about future events, and our actual financial performance may differ materially from our anticipated
performance if our assumptions are inaccurate.
If the communities in which we operate do
not grow, or if the prevailing economic conditions locally or nationally are less favorable than we have assumed, our ability to
implement our business strategies may be adversely affected and our actual financial performance may be materially different from
our projections. Moreover, we cannot give any assurance that we will benefit from any market growth or favorable economic conditions
in our market areas even if they do occur. If our senior management team is unable to provide the effective leadership necessary
to implement our strategic plan, our actual financial performance may be materially adversely different from our projections. Additionally,
to the extent that any component of our strategic plan requires regulatory approval, if we are unable to obtain necessary approval,
we will be unable to completely implement our strategy, which may adversely affect our actual financial results. Our inability
to successfully implement our strategic plan could adversely affect the price of our common stock.
Agricultural lending and volatility in commodity prices
may adversely affect our financial condition and results of operations.
At December 31, 2017, agricultural loans,
including agricultural real estate, were $24.6 million, or 2.8% of our total loan portfolio. Agricultural lending involves a greater
degree of risk and typically involves higher principal amounts than other types of loans. Repayment is dependent upon the successful
operation of the business, which is greatly dependent on many things outside the control of either us or the borrowers. These factors
include adverse weather conditions that prevent the planting of a crops or limit crop yields (such as hail, drought, fires and
floods), loss of livestock due to disease or other factors, declines in market prices for agricultural products (both domestically
and internationally) and the impact of government regulations (including changes in price supports, subsidies and environmental
regulations). Volatility in commodity prices could adversely impact the ability of borrowers in these industries to perform under
the terms of their borrowing arrangements with us, and as a result, a severe and prolonged decline in commodity prices may adversely
affect our financial condition and results of operations. It is also difficult to project future commodity prices as they are dependent
upon many different factors beyond our control. In addition, many farms are dependent on a limited number of key individuals whose
injury or death may significantly affect the successful operation of the farm. Consequently, agricultural loans may involve a greater
degree of risk than other types of loans, particularly in the case of loans that are unsecured or secured by rapidly depreciating
assets such as farm equipment (some of which is highly specialized with a limited or no market for resale), or assets such as livestock
or crops. In such cases, any repossessed collateral for a defaulted agricultural operating loan my not provide an adequate source
of repayment of the outstanding loan balance as a result of the greater likelihood of damage, loss or depreciation or because the
assessed value of the collateral exceeds the eventual realization value.
Another factor that could have a major impact
on the agricultural industry involves water availability and distribution rights. If the amount of water available to agriculture
becomes increasingly scarce due to drought and/or diversion to other uses, farmers may not be able to continue to produce agricultural
products at a reasonable profit, which has the potential to force many out of business. Such conditions have affected and may continue
to adversely affect our borrowers and, by extension, our business, and if general agricultural conditions decline our level of
nonperforming assets could increase.
Adverse weather or manmade events could negatively affect
our markets or disrupt our operations.
A significant portion of our business
is generated in our California and Washington markets, which have been, and may continue to be, susceptible to natural
disasters, such as flooding, mudslides, brush fires, earthquakes, droughts and other natural disasters and adverse weather.
These natural disasters could negatively impact regional economic conditions, cause a decline in the value or destruction of
mortgaged properties and increase the risk of delinquencies, foreclosures, or loss on loans originated by us, damage our
banking facilities and offices, and negatively impact our growth strategy. Such weather events could disrupt operations,
result in damage to properties, and negatively affect the local economies in the markets where we operate. We cannot predict
whether or to what extent damage that may be caused by future weather or manmade events will affect our operations or the
economies in our current or future market areas, but such events could negatively impact economic conditions in these regions
and result in a decline in local loan demand and loan originations, a decline in the value or destruction of properties
securing our loans, and an increase in delinquencies, foreclosures, or loan losses as uninsured property losses,
interruptions of our clients’ operations or sustained job interruption or loss may materially impair the ability of
borrowers to repay their loans. Our business or results of operations may be adversely affected by these and other negative
effects of natural or manmade disasters. Further, severe weather, natural disasters, acts of war or terrorism, and other
external events could adversely affect us in a number of ways, including an increase in delinquencies, bankruptcies, or
defaults that could result in a higher level of non-performing assets, net charge-offs, and provision for loan losses. A
natural disaster or other catastrophic event could, therefore, result in decreased revenue and loan losses that have a
material adverse effect on our business, financial condition and results of operations.
We depend on the accuracy and completeness of information
about clients and counterparties.
In deciding whether to extend credit or
enter into other transactions with clients and counterparties, we may rely on information furnished to us by or on behalf of clients
and counterparties, including financial statements and other financial information. We also may rely on representations of clients
and counterparties as to the accuracy and completeness of that information and, with respect to financial statements, on reports
of independent auditors. In deciding whether to extend credit, we may rely upon our clients’ representations that their financial
statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations, and cash
flows of the client. We also may rely on client representations and certifications, or other audit or accountants’ reports,
with respect to the business and financial condition of our clients. Our financial condition, results of operations, financial
reporting, and reputation could be negatively affected if we rely on materially misleading, false, inaccurate, or fraudulent information.
We are subject to environmental risk in our lending activities.
Because a significant portion of our loan
portfolio is secured by real property, we may foreclose upon and take title to such property in the ordinary course of business.
If hazardous substances are found on such property, we could be liable for remediation costs, as well as for personal injury and
property damage. Environmental laws might require us to incur substantial expenses, materially reduce the property’s value,
or limit our ability to use or sell the property. Although management has policies requiring environmental reviews before loans
secured by real property are made and before foreclosure is commenced, it is still possible that environmental risks might not
be detected and that the associated costs might have a material adverse effect on our financial condition and results of operations.
We face risks related to our operational, technological
and organizational infrastructure.
Our ability to grow and compete is dependent
on our ability to build or acquire the necessary operational and technological infrastructure and to manage the cost of that infrastructure
as we expand. Operational risk can manifest itself in many ways, such as errors related to failed or inadequate processes, faulty
or disabled computer systems, fraud by employees, or outside persons and exposure to external events. As discussed below, we are
dependent on our operational infrastructure to help manage these risks. In addition, we are heavily dependent on the strength and
capability of our technology systems which we use both to interface with our clients and to manage our internal financial and other
systems. Our ability to develop and deliver new products that meet the needs of our existing clients and attract new ones depends
on the functionality of our technology systems. Additionally, our ability to run our business in compliance with applicable laws
and regulations is dependent on these infrastructures.
The financial services industry is undergoing
rapid technological changes with frequent introductions of new technology-driven products and services. Our future success will
depend in part upon our ability to address the needs of our clients by using technology to provide products and services that will
satisfy client demands for convenience as well as to provide secure electronic environments and create additional efficiencies
in our operations as we continue to grow and expand our market area. We continuously monitor our operational and technological
capabilities and make modifications and improvements when we believe it will be cost effective to do so. In some instances, we
may build and maintain these capabilities ourselves. In connection with implementing new operational and technology enhancements
or products in the future, we may experience certain operational challenges (e.g. human error, system error, incompatibility, etc.)
which could result in us not fully realizing the anticipated benefits from such new technology or require us to incur significant
costs to remedy any such challenges in a timely manner. Many of our larger competitors have substantially greater resources to
invest in operational and technological infrastructure. As a result, they may be able to offer additional or more convenient products
compared to those that we will be able to provide, which would put us at a competitive disadvantage. Accordingly, we may not be
able to effectively implement new technology-driven products and services or be successful in marketing such products and services
to our clients, which could adversely affect our business, financial condition and results of operations.
In addition, the implementation of technological
changes and upgrades to maintain current systems and integrate new ones may also cause service interruptions, transaction processing
errors and system conversion delays and may cause us to fail to comply with applicable laws. We expect that new technologies and
business processes applicable to the banking industry will continue to emerge, and these new technologies and business processes
may be better than those we currently use. Because the pace of technological change is high and our industry is intensely competitive,
we may not be able to sustain our investment in new technology as critical systems and applications become obsolete or as better
ones become available. A failure to successfully keep pace with technological change affecting the financial services industry
and failure to avoid interruptions, errors and delays could have a material adverse effect on our business, financial condition,
results of operations and growth prospects.
The occurrence of fraudulent activity, breaches or failures
of our information security controls or cybersecurity-related incidents could have a material adverse effect on our business, financial
condition and results of operations.
As a bank, we are susceptible to fraudulent
activity, information security breaches and cybersecurity-related incidents that may be committed against us or our clients, which
may result in financial losses or increased costs to us or our clients, disclosure or misuse of our information or our client
information, misappropriation of assets, privacy breaches against our clients, litigation or damage to our reputation. Such fraudulent
activity may take many forms, including check fraud, electronic fraud, wire fraud, phishing, social engineering and other dishonest
acts. Information security breaches and cybersecurity related incidents may include fraudulent or unauthorized access to systems
used by us or our clients, denial or degradation of service attacks, and malware or other cyber-attacks. There continues to be
a rise in electronic fraudulent activity, security breaches and cyber-attacks within the financial services industry, especially
in the commercial banking sector due to cyber criminals targeting commercial bank accounts. Consistent with industry trends, we
have also experienced an increase in attempted electronic fraudulent activity, security breaches and cybersecurity related incidents
in recent periods. Moreover, in recent periods, several large corporations, including financial institutions and retail companies,
have suffered major data breaches, in some cases exposing not only confidential and proprietary corporate information, but also
sensitive financial and other personal information of their clients and employees and subjecting them to potential fraudulent
activity. We are not aware that we have experienced any material misappropriation, loss or other unauthorized disclosure of confidential
or personally identifiable information as a result of a cyber-security breach or other act, however, some of our clients may have
been affected by these breaches, which could increase their risks of identity theft, credit card fraud and other fraudulent activity
that could involve their accounts with us.
The secure maintenance and transmission
of confidential information, as well as execution of transactions over the networks and systems maintained by us, our clients and
third party vendors, such as our online banking or reporting systems, are essential to protect us and our clients against fraud
and security breaches and to maintain the confidence of our clients. Breaches of information security also may occur through intentional
or unintentional acts by those having access to our systems or our clients’ or counterparties’ confidential information,
including employees. Furthermore, our cardholders use their debit and credit cards to make purchases from third parties or through
third party processing services. As such, we are subject to risk from data breaches of such third party’s information systems
or their payment processors. Such a data security breach could compromise our account information. We may suffer losses associated
with reimbursing our clients for such fraudulent transactions on clients’ card accounts, as well as for other costs related
to data security breaches, such as replacing cards associated with compromised card accounts.
In addition, increases in criminal activity
levels and sophistication, advances in computer capabilities, new discoveries, vulnerabilities in third party technologies (including
browsers and operating systems) or other developments could result in a compromise or breach of the technology, processes and controls
that we use to prevent fraudulent transactions and to protect data about us, our clients and underlying transactions. Although
we have developed and continue to invest in systems and processes that are designed to detect and prevent security breaches and
cyber-attacks and periodically test our security, a breach of our systems could result in losses to us or our clients, our loss
of business and/or clients, damage to our reputation, the incurrence of additional expenses, disruption to our business, our inability
to grow our online services or other businesses, additional regulatory scrutiny or penalties, or our exposure to civil litigation
and possible financial liability, any of which could have a material adverse effect on our business, financial condition and results
of operations.
We depend on information technology and telecommunications
systems of third parties, and any systems failures, interruptions or data breaches involving these systems could adversely affect
our operations and financial condition.
We rely heavily on third-party service providers
for much of our communications, information, operating and financial control systems technology, including client relationship
management, internet banking, website, general ledger, deposit, loan servicing and wire origination systems. Any failure or interruption
or breach in security of these systems could result in failures or interruptions in our client relationship management, internet
banking, website, general ledger, deposit, loan servicing and/or wire origination systems.
We cannot assure you that such failures
or interruptions will not occur or, if they do occur, that they will be adequately addressed by us or the third parties on which
we rely. The Company may not be insured against all types of losses as a result of third party failures and insurance coverage
may be inadequate to cover all losses resulting from system failures or other disruptions. If any of our third-party service providers
experience financial, operational or technological difficulties, or if there is any other disruption in our relationships with
them, we may be required to locate alternative sources of such services, and we cannot assure you that we could negotiate terms
that are as favorable to us, or could obtain services with similar functionality as found in our existing systems without the need
to expend substantial resources, if at all. Any of these circumstances could have a material adverse effect on our business, financial
condition, results of operations and cash flows.
Additionally, the bank regulatory agencies
expect financial institutions to be responsible for all aspects of our vendors’ performance, including aspects which they
delegate to third parties. Disruptions or failures in the physical infrastructure or operating systems that support our businesses
and clients, or cyber-attacks or security breaches of the networks, systems or devices that our clients use to access our products
and services could result in client attrition, regulatory fines, penalties or intervention, reputational damage, reimbursement
or other compensation costs, and/or additional compliance costs, any of which could materially adversely affect our results of
operations or financial condition.
We are subject to certain operational risks, including, but
not limited to, client or employee fraud and data processing system failures and errors.
Employee errors and employee and client misconduct
could subject us to financial losses or regulatory sanctions and seriously harm our reputation. Misconduct by our employees could
include hiding unauthorized activities from us, improper or unauthorized activities on behalf of our clients or improper use of
confidential information. It is not always possible to prevent employee errors and misconduct, and the precautions we take to prevent
and detect this activity may not be effective in all cases. Employee errors could also subject us to financial claims for negligence.
We maintain a system of internal controls and
insurance coverage to mitigate against operational risks, including data processing system failures and errors and client or employee
fraud. If our internal controls fail to prevent or detect an occurrence, or if any resulting loss is not insured or exceeds applicable
insurance limits, it could have a material adverse effect on our business, financial condition and results of operations.
If our enterprise risk management framework is not effective
at mitigating risk and loss to us, we could suffer unexpected losses.
Our enterprise risk management framework seeks
to achieve an appropriate balance between risk and return, which is critical to optimizing shareholder value. We have established
processes and procedures intended to identify, measure, monitor, report, analyze and control the types of risk to which we are
subject. These risks include liquidity risk, credit risk, market risk, interest rate risk, operational risk, legal and compliance
risk, and reputational risk, among others. We also maintain a compliance program to identify, measure, assess, and report on our
adherence to applicable laws, policies and procedures. While we assess and improve these programs on an ongoing basis, there can
be no assurance that our risk management or compliance programs, along with other related controls, will effectively mitigate all
risk and limit losses in our business. However, as with any risk management framework, there are inherent limitations to our risk
management strategies as there may exist, or develop in the future, risks that we have not appropriately anticipated or identified.
Any failure or circumvention of our controls, processes and procedures or failure to comply with regulations related to controls,
processes and procedures could necessitate changes in those controls, processes and procedures, which may increase our compliance
costs, divert management attention from our business or subject us to regulatory actions and increased regulatory scrutiny. If
our framework is not effective, we could suffer unexpected losses and our business, financial condition and results of operations
could be materially and adversely affected. We could also be subject to potentially adverse regulatory consequences.
We may be adversely affected by the soundness of other financial
institutions.
Our ability to engage in routine funding transactions
could be adversely affected by the actions and commercial soundness of other financial institutions. Financial services companies
are interrelated as a result of trading, clearing, counterparty, and other relationships. We have exposure to different industries
and counterparties, and through transactions with counterparties in the financial services industry, including brokers and dealers,
commercial banks, investment banks, and other institutional clients. As a result, defaults by, or even rumors or questions about,
one or more financial services companies, or the financial services industry generally, have led to market-wide liquidity problems
and could lead to losses or defaults by us or by other institutions. These losses or defaults could have a material adverse effect
on our business, financial condition and results of operations.
Changes in accounting standards could materially impact our
financial statements.
From time to time, the Financial Accounting
Standards Board or the SEC may change the financial accounting and reporting standards that govern the preparation of our financial
statements. Such changes may result in us being subject to new or changing accounting and reporting standards. In addition, the
bodies that interpret the accounting standards (such as banking regulators, outside auditors or management) may change their interpretations
or positions on how these standards should be applied. These changes may be beyond our control, can be hard to predict, and can
materially impact how we record and report our financial condition and results of operations. In some cases, we could be required
to apply a new or revised standard retrospectively, or apply an existing standard differently, also retrospectively, in each case
resulting in our needing to revise or restate prior period financial statements.
We are or may become involved from time to time in legal proceedings,
information-gathering requests, investigations, and proceedings by governmental and self-regulatory agencies that may lead to adverse
consequences.
Our business is subject to increased litigation
and regulatory risks as a result of a number of factors, including the highly regulated nature of the financial services industry
and the focus of state and federal prosecutors on banks and the financial services industry generally. This focus has only intensified
since the financial crisis, with regulators and prosecutors focusing on a variety of financial institution practices and requirements,
including foreclosure practices, compliance with applicable consumer protection laws, classification of “held for sale”
assets and compliance with anti-money laundering statutes, the Bank Secrecy Act and sanctions administered by the Office of Foreign
Assets Control of the U.S. Department of the Treasury.
Many aspects of our business involve substantial
risk of legal liability. We have been named or threatened to be named as defendants in various lawsuits arising from our business
activities (and in some cases from the activities of companies that we have acquired), including, but not limited to, commercial
real estate mortgages. Legal actions could include claims for substantial compensatory or punitive damages or claims for indeterminate
amounts of damages. In addition, from time to time, we are, or may become, the subject of governmental and self-regulatory agency
information-gathering requests, reviews, investigations and proceedings, and other forms of regulatory inquiry, including by bank
regulatory agencies, the Consumer Financial Protection Bureau (“CFPB”), the SEC, and law enforcement authorities. The
results of such proceedings could lead to significant civil or criminal penalties, including monetary penalties, damages, adverse
judgments, settlements, fines, injunctions, restrictions on the way in which we conduct our business, or reputational harm.
Our involvement in any such matters, whether
tangential or otherwise and even if the matters are ultimately determined in our favor, could also cause significant harm to our
reputation and divert management attention from the operation of our business. Further, any settlement, consent order or adverse
judgment in connection with any formal or informal proceeding or investigation by government agencies may result in litigation,
investigations or proceedings as other litigants and government agencies begin independent reviews of the same activities. As a
result, the outcome of legal and regulatory actions could have a material adverse effect on our business, financial condition,
results of operations and growth prospects.
A change in the tax laws relating to like-kind exchanges could
adversely affect our business.
We offer escrow services and facilitate tax-deferred
commercial exchanges under Section 1031 of the Code to generate non-interest income and low cost deposits. As of December 31, 2017,
deposit balances associated with these operations totaled $14.1 million.
Section 1031 of the Code provides for tax-free
exchanges of real property for other real property. Legislation has been proposed on several occasions that would repeal or restrict
the application of Section 1031. Any repeal or significant change in the tax rules pertaining to like-kind exchanges could adversely
affect results of operations.
Our accounting estimates and risk management processes and
controls rely on analytical and forecasting techniques and models and assumptions, which may not accurately predict future events.
Our accounting policies and methods are fundamental
to the manner in which we record and report our financial condition and results of operations. Our management must exercise judgment
in selecting and applying many of these accounting policies and methods so they comply with GAAP and reflect management’s
judgment of the most appropriate manner to report our financial condition and results of operations. In some cases, management
must select the accounting policy or method to apply from two or more alternatives, any of which may be reasonable under the circumstances,
yet which may result in our reporting materially different results than would have been reported under a different alternative.
Certain accounting policies are critical
to presenting our financial condition and results of operations. They require management to make difficult, subjective or complex
judgments about matters that are uncertain. Materially different amounts could be reported under different conditions or using
different assumptions or estimates. These critical accounting policies include policies related to the allowance for loan losses,
securities, purchased credit impaired (“PCI”) loans, business combinations, loan sales and servicing of financial
assets, goodwill and income taxes. See Note 1 of the Company’s Consolidated Financial Statements included as part of this
prospectus for further information. Because of the uncertainty of estimates involved in these matters, we may be required to do
one or more of the following: significantly increase the allowance for loan losses or sustain loan losses that are significantly
higher than the reserve provided, experience additional impairment in our securities portfolio or record a valuation allowance
against our deferred tax assets. Any of these could have a material adverse effect on our business, financial condition, results
of operations and growth prospects.
The obligations associated with being a public company will
require significant resources and management attention, which may divert from our business operations.
As a result of this offering, we will become
subject to the reporting requirements of the Exchange Act, and the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. The Exchange
Act requires that we file annual, quarterly and current reports with respect to our business and financial condition with the SEC.
The Sarbanes-Oxley Act requires, among other things, that we establish and maintain effective internal controls and procedures
for financial reporting. As a result, we will incur significant legal, accounting and other expenses that we did not previously
incur. We anticipate that these costs will materially increase our general and administrative expenses. Furthermore, the need to
establish the corporate infrastructure demanded of a public company may divert management’s attention from implementing our
strategic plan, which could prevent us from successfully implementing our growth initiatives and improving our business, results
of operations and financial condition.
As an “emerging growth company”
as defined in the JOBS Act, we intend to take advantage of certain temporary exemptions from various reporting requirements, including
reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and an exemption from
the requirement to obtain an attestation from our auditors on management’s assessment of our internal control over financial
reporting. When these exemptions cease to apply, we expect to incur additional expenses and devote increased management effort
toward ensuring compliance with them. We cannot predict or estimate the amount of additional costs we may incur as a result of
becoming a public company or the timing of such costs.
The financial reporting resources we have put in place may
not be sufficient to ensure the accuracy of the additional information we are required to disclose as a publicly listed company.
As a result of becoming a publicly listed company,
we will be subject to the heightened financial reporting standards under GAAP and SEC rules, including more extensive levels of
disclosure. Complying with these standards requires enhancements to the design and operation of our internal control over financial
reporting as well as additional financial reporting and accounting staff with appropriate training and experience in GAAP and SEC
rules and regulations.
If we are unable to meet the demands that will
be placed upon us as a public company, including the requirements of the Sarbanes-Oxley Act, we may be unable to report our financial
results accurately, or report them within the timeframes required by law or stock exchange regulations. Failure to comply with
the Sarbanes-Oxley Act, when and as applicable, could also potentially subject us to sanctions or investigations by the SEC or
other regulatory authorities. If material weaknesses or other deficiencies occur, our ability to report our financial results accurately
and timely could be impaired, which could result in late filings of our annual and quarterly reports under the Exchange Act, restatements
of our consolidated financial statements, a decline in our stock price, suspension or delisting of our common stock from the Nasdaq
Global Select Market, and could have a material adverse effect on our business, financial condition, results of operations and
growth prospects. Even if we are able to report our financial statements accurately and in a timely manner, any failure in our
efforts to implement the improvements or disclosure of material weaknesses in our future filings with the SEC could cause our reputation
to be harmed and our stock price to decline significantly.
We have not performed an evaluation of our internal
control over financial reporting, as contemplated by Section 404 of the Sarbanes-Oxley Act, nor have we engaged our independent
registered public accounting firm to perform an audit of our internal control over financial reporting as of any balance sheet
date reported in our financial statements. Had we performed such an evaluation or had our independent registered public accounting
firm performed an audit of our internal control over financial reporting, material weaknesses may have been identified. In addition,
the JOBS Act provides that, so long as we qualify as an emerging growth company, we will be exempt from the provisions of Section
404(b) of the Sarbanes-Oxley Act, which would require that our independent registered public accounting firm provide an attestation
report on the effectiveness of our internal control over financial reporting. We may take advantage of this exemption so long as
we qualify as an emerging growth company.
Risks Related to the Regulation of Our Industry
Our industry is highly regulated, and the regulatory framework,
together with any future legislative or regulatory changes, may have a materially adverse effect on our operations.
The banking industry is highly regulated and
supervised under both federal and state laws and regulations that are intended primarily for the protection of depositors, clients,
the public, the banking system as a whole or the FDIC Deposit Insurance Fund, not for the protection of our shareholders and creditors.
We are subject to regulation and supervision by the Federal Reserve, and our Bank is subject to regulation and supervision by the
Federal Reserve and the California Department of Business Oversight Division of Financial Institutions, or DBO. Compliance with
these laws and regulations can be difficult and costly, and changes to laws and regulations can impose additional compliance costs.
The Dodd-Frank Act, which imposes significant regulatory and compliance changes on financial institutions, is an example of this
type of federal regulation. The laws and regulations applicable to us govern a variety of matters, including permissible types,
amounts and terms of loans and investments we may make, the maximum interest rate that may be charged, the amount of reserves we
must hold against deposits we take, the types of deposits we may accept and the rates we may pay on such deposits, maintenance
of adequate capital and liquidity, changes in control of us and our Bank, transactions between us and our Bank, handling of nonpublic
information, restrictions on dividends and establishment of new offices. We must obtain approval from our regulators before engaging
in certain activities, including our merger and acquisition transaction, and there is risk that such approvals may not be granted,
either in a timely manner or at all. These requirements may constrain our operations, and the adoption of new laws and changes
to or repeal of existing laws may have a further impact on our business, financial condition and results of operations. Also, the
burden imposed by those federal and state regulations may place banks in general, including our Bank in particular, at a competitive
disadvantage compared to their non-bank competitors. Our failure to comply with any applicable laws or regulations, or regulatory
policies and interpretations of such laws and regulations, could result in sanctions by regulatory agencies, civil money penalties
or damage to our reputation, all of which could have a material adverse effect on our business, financial condition and results
of operations.
Bank holding companies and financial institutions
are extensively regulated and currently face an uncertain regulatory environment. Applicable laws, regulations, interpretations,
enforcement policies and accounting principles have been subject to significant changes in recent years, and may be subject to
significant future changes. Future changes may have a material adverse effect on our business, financial condition and results
of operations.
Federal and state regulatory agencies may adopt
changes to their regulations or change the manner in which existing regulations are applied. We cannot predict the substance or
effect of pending or future legislation or regulation or the application of laws and regulations to us. Compliance with current
and potential regulation, as well as regulatory scrutiny, may significantly increase our costs, impede the efficiency of our internal
business processes, require us to increase our regulatory capital, and limit our ability to pursue business opportunities in an
efficient manner by requiring us to expend significant time, effort and resources to ensure compliance and respond to any regulatory
inquiries or investigations. We may be required to invest significant management attention and resources to evaluate and make any
changes necessary to comply with applicable laws and regulations, particularly as a result of regulations adopted under the Dodd-Frank
Act. This allocation of resources, as well as any failure to comply with applicable requirements, may negatively impact our financial
condition and results of operations.
In addition, regulators may elect to alter standards
or the interpretation of the standards used to measure regulatory compliance or to determine the adequacy of liquidity, risk management
or other operational practices for financial service companies in a manner that impacts our ability to implement our strategy and
could affect us in substantial and unpredictable ways, and could have a material adverse effect on our business, financial condition
and results of operations. Furthermore, the regulatory agencies have extremely broad discretion in their interpretation of laws
and regulations and their assessment of the quality of our loan portfolio, securities portfolio and other assets. If any regulatory
agency’s assessment of the quality of our assets, operations, lending practices, investment practices, capital structure or other
aspects of our business differs from our assessment, we may be required to take additional charges or undertake, or refrain from
taking, actions that could have a material adverse effect on our business, financial condition and results of operations. Our banking
regulators also have the ability to imposed conditions on us in connection with their approval of a merger or acquisition transaction.
We may be adversely affected by changes in U.S. tax laws and
regulations.
The Tax Cuts and Jobs Act was signed into law
in December 2017 reforming the U.S. tax code. The legislation includes lowering the 35% corporate tax rate to 21%, modifying the
U.S. taxation of income earned outside the U.S. and limiting or eliminating various deductions, tax credits and/or other tax preferences.
While we expect to benefit on a prospective net income basis from the decrease in corporate tax rates, the legislation has resulted
in a $2.7 million decrease in the value of our deferred tax asset, which resulted in a material reduction to net income during
the year ended December 31, 2017. In addition, the legislation could negatively impact our clients because it lowers the existing
caps on mortgage interest deductions and limits the state and local tax deductions. These changes could make it more difficult
for borrowers to make their loan payments could also negatively impact the housing market, which could adversely affect our business
and loan growth.
In addition to being affected by general economic conditions,
our earnings and growth are affected by the policies of the Federal Reserve.
Our financial condition and results of operations
are affected by credit policies of monetary authorities, particularly the Federal Reserve. An important function of the Federal
Reserve is to regulate the money supply and credit conditions. Actions by monetary and fiscal authorities, including the Federal
Reserve, could lead to inflation, deflation, or other economic phenomena that could adversely affect our financial performance.
Among the instruments used by the Federal Reserve to implement these objectives are open market purchases and sales of U.S. government
securities, adjustments of the discount rate and changes in banks’ reserve requirements against bank deposits. These instruments
are used in varying combinations to influence overall economic growth and the distribution of credit, bank loans, investments and
deposits. Their use also affects interest rates charged on loans or paid on deposits.
The monetary policies and regulations of the
Federal Reserve have had a significant effect on the operating results of commercial banks in the past and are expected to continue
to do so in the future. The effects of such policies upon our business, financial condition and results of operations cannot be
predicted.
Banking agencies periodically conduct examinations of our
business, including compliance with laws and regulations, and our failure to remediate adverse examination findings or comply with
any supervisory actions to which we become subject as a result of such examinations could materially and adversely affect our business.
We are subject to supervision and regulation
by federal and state banking agencies that periodically conduct examinations of our business, including compliance with laws and
regulations. Specifically, our subsidiary, United Business Bank, is subject to examination by the Federal Reserve and the DBO,
and the Company is subject to examination by the Federal Reserve. Accommodating such examinations may require management to reallocate
resources, which would otherwise be used in the day-to-day operation of other aspects of our business. If, as a result of an examination,
any such banking agency was to determine that the financial condition, capital resources, allowance for loan losses, asset quality,
earnings prospects, management, liquidity, or other aspects of our operations had become unsatisfactory, or that we or our management
were in violation of any law or regulation, such banking agency may take a number of different remedial actions as it deems appropriate.
These actions include the power to require us to remediate any such adverse examination findings.
In addition, these agencies have the power to
take enforcement action against us to enjoin “unsafe or unsound” practices, to require affirmative action to correct
any conditions resulting from any violation of law or regulation or unsafe or unsound practice, to issue an administrative order
that can be judicially enforced, to direct an increase in our capital, to direct the sale of subsidiaries or other assets, to limit
dividends and distributions, to restrict our growth, to assess civil money penalties against us or our officers or directors, to
remove officers and directors and, if it is concluded that such conditions cannot be corrected or there is imminent risk of loss
to depositors, to terminate our deposit insurance and place our Bank into receivership or conservatorship. Any regulatory enforcement
action against us could have a material adverse effect on our business, financial condition and results of operations.
Many of our new activities and expansion plans require regulatory
approvals, and failure to obtain them may restrict our growth.
We intend to complement and expand our business
by pursuing strategic acquisitions of financial institutions and other complementary businesses. Generally, we must receive state
and federal regulatory approval before we can acquire an FDIC-insured depository institution or related business. In determining
whether to approve a proposed acquisition, federal banking regulators will consider, among other factors, the effect of the acquisition
on competition, our financial condition, our future prospects, and the impact of the proposal on U.S. financial stability. The
regulators also review current and projected capital ratios and levels, the competence, experience and integrity of management
and its record of compliance with laws and regulations, the convenience and needs of the communities to be served (including the
acquiring institution’s record of compliance under the CRA) and the effectiveness of the acquiring institution in combating
money laundering activities. Such regulatory approvals may not be granted on terms that are acceptable to us, or at all. We may
also be required to sell branches as a condition to receiving regulatory approval, which condition may not be acceptable to us
or, if acceptable to us, may reduce the benefit of any acquisition.
Federal Deposit Insurance Corporation (“FDIC”)
deposit insurance assessments may continue to materially increase in the future, which would have an adverse effect on earnings.
As a member institution of the FDIC, our subsidiary,
United Business Bank, is assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the
insurance fund and reduced the ratio of reserves to insured deposits. The FDIC has adopted a Deposit Insurance Fund, or DIF, Restoration
Plan, which requires the DIF to attain a 1.35% reserve ratio by December 31, 2020. As a result of this requirement, the Bank could
be required to pay significantly higher premiums or additional special assessments that would adversely affect its earnings, thereby
reducing the availability of funds to pay dividends to us.
As a result of the Dodd-Frank Act and rulemaking, we are subject
to more stringent capital requirements.
In July 2013, the U.S. federal banking authorities
approved new regulatory capital rules implementing the Basel III regulatory capital reforms effecting certain changes required
by the Dodd-Frank Act. The new regulatory capital requirements are generally applicable to all U.S. banks as well as to bank and
saving and loan holding companies, other than “small bank holding companies” (generally bank holding companies with
consolidated assets of less than $1.0 billion). The new regulatory capital rules not only increase most of the required minimum
regulatory capital ratios, but also introduce a new common equity Tier 1 capital ratio and the concept of a capital conservation
buffer. The new regulatory capital rules also expand the current definition of capital by establishing additional criteria that
capital instruments must meet to be considered additional Tier 1 and Tier 2 capital. In order to be a “well-capitalized”
depository institution under the new regime, an institution must maintain a common equity Tier 1 capital ratio of 6.5% or more;
a Tier 1 capital ratio of 8% or more; a total capital ratio of 10% or more; and a leverage ratio of 5% or more. In order to be
a “well-capitalized” bank holding company, an institution must maintain a Tier 1 capital ratio of 6% or more; and a
total capital ratio of 10% or more. Banks and bank holding companies must also maintain a capital conservation buffer consisting
of common equity Tier 1 capital. The new regulatory capital rules became effective on January 1, 2015 with a phase-in period that
generally extends through January 1, 2019 for certain of the changes. Previously, as a bank holding company with less than $1.0
billion in consolidated assets, the Company was not subject to consolidated capital requirements. During the course of 2017, the
Company’s consolidated assets exceeded $1.0 billion and, as a result, the Company is now subject to capital requirements
with a phase-in period that generally extends through January 1, 2019 for certain of the changes, as discussed above.
The failure to meet applicable regulatory capital
requirements could result in one or more of our regulators placing limitations or conditions on our activities, including our growth
initiatives, or restricting the commencement of new activities, and could affect client and investor confidence, our costs of funds
and FDIC insurance costs, our ability to pay dividends on our common stock, our ability to make acquisitions, and our business,
results of operations and financial conditions, generally.
We are subject to numerous laws designed to protect consumers,
including the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to a wide variety
of sanctions.
The Community Reinvestment Act, the Equal Credit
Opportunity Act, the Fair Housing Act and other fair lending laws and regulations prohibit discriminatory lending practices by
financial institutions. The U.S. Department of Justice, federal and state banking and other agencies, and other federal agencies
are responsible for enforcing these laws and regulations. A challenge to an institution’s compliance with fair lending laws
and regulations could result in a wide variety of sanctions, including damages and civil money penalties, injunctive relief, restrictions
on mergers and acquisitions activity, restrictions on expansion, and restrictions on entering new business lines. Private parties
may also challenge an institution’s performance under fair lending laws in private class action litigation. Such actions
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
We face a risk of noncompliance and enforcement action with
the Bank Secrecy Act and other anti-money laundering statutes and regulations.
The Bank Secrecy Act, the USA Patriot Act and
other laws and regulations require financial institutions, among other duties, to institute and maintain an effective anti-money
laundering program and to file reports such as suspicious activity reports and currency transaction reports. We are required to
comply with these and other anti-money laundering requirements. The federal banking agencies and Financial Crimes Enforcement Network
are authorized to impose significant civil money penalties for violations of those requirements and have recently engaged in coordinated
enforcement efforts against banks and other financial services providers with the U.S. Department of Justice, Drug Enforcement
Administration and Internal Revenue Service. We are also subject to increased scrutiny of compliance with the rules enforced by
the Office of Foreign Assets Control. If our policies, procedures and systems are deemed deficient, we would be subject to liability,
including fines and regulatory actions, which may include restrictions on our ability to pay dividends and the denial of regulatory
approvals to proceed with certain aspects of our business plan, including our acquisition plans.
Failure to maintain and implement adequate programs
to combat money laundering and terrorist financing could also have serious reputational consequences for us. Any of these results
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
Regulations relating to privacy, information security and
data protection could increase our costs, affect or limit how we collect and use personal information and adversely affect our
business opportunities.
We are subject to various privacy, information
security and data protection laws, including requirements concerning security breach notification, and we could be negatively affected
by these laws. For example, our business is subject to the Gramm-Leach-Bliley Act which, among other things (i) imposes certain
limitations on our ability to share nonpublic personal information about our clients with nonaffiliated third parties, (ii) requires
that we provide certain disclosures to clients about our information collection, sharing and security practices and afford clients
the right to “opt out” of any information sharing by us with nonaffiliated third parties (with certain exceptions)
and (iii) requires that we develop, implement and maintain a written comprehensive information security program containing appropriate
safeguards based on our size and complexity, the nature and scope of our activities and the sensitivity of client information we
process, as well as plans for responding to data security breaches. Various state and federal banking regulators and states have
also enacted data security breach notification requirements with varying levels of individual, consumer, regulatory or law enforcement
notification in certain circumstances in the event of a security breach. Moreover, legislators and regulators in the United States
are increasingly adopting or revising privacy, information security and data protection laws that potentially could have a significant
impact on our current and planned privacy, data protection and information security-related practices, our collection, use, sharing,
retention and safeguarding of consumer or employee information and some of our current or planned business activities. This could
also increase our costs of compliance and business operations and could reduce income from certain business initiatives. This includes
increased privacy-related enforcement activity at the federal level, by the Federal Trade Commission and the CFPB, as well as at
the state level, such as with regard to mobile applications.
Compliance with current or future privacy, data
protection and information security laws (including those regarding security breach notification) affecting client or employee
data to which we are subject could result in higher compliance and technology costs and could restrict our ability to provide certain
products and services, which could have a material adverse effect on our business, financial condition, results of operations and
growth prospects. Our failure to comply with privacy, data protection and information security laws could result in potentially
significant regulatory or governmental investigations or actions, litigation, fines, sanctions and damage to our reputation, which
could have a material adverse effect on our business, financial condition, results of operations and growth prospects.
The Federal Reserve may require us to commit capital resources
to support the Bank.
As a matter of policy, the Federal Reserve expects
a bank holding company to act as a source of financial and managerial strength to a subsidiary bank and to commit resources to
support such subsidiary bank. The Dodd-Frank Act codified the Federal Reserve’s policy on serving as a source of financial
strength. Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital
injections into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices
for failure to commit resources to a subsidiary bank. A capital injection may be required at times when the holding company may
not have the resources to provide it and therefore may be required to borrow the funds or raise capital. Any loans by a holding
company to its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary
bank. In the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding
company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides that
claims based on any such commitment will be entitled to a priority of payment over the claims of the institution’s general
unsecured creditors, including the holders of its note obligations. Thus, any borrowing that must be done by the Company to make
a required capital injection becomes more difficult and expensive and could have an adverse effect on our business, financial condition
and results of operations.
Risks Related to Our Common Stock and This Offering
An active, liquid trading market for our common stock may
not develop, and you may not be able to sell your common stock at or above the public offering price, or at all.
Prior to this offering, the market for our common
stock has been illiquid and the stock did not trade frequently. While we expect our common stock to be quoted on the Nasdaq Global
Select Market, an active trading market for shares of our common stock may never develop or be sustained following this offering.
If an active trading market does not develop, you may have difficulty selling your shares of common stock at an attractive price,
or at all. The public offering price for our common stock will be determined by negotiations between us and the representative
of the underwriters and may not be indicative of prices that will prevail in the open market following this offering. Consequently,
you may not be able to sell your common stock at or above the public offering price or at any other price or at the time that you
would like to sell. An inactive market may also impair our ability to raise capital by selling our common stock and may impair
our ability to expand our business by using our common stock as consideration in an acquisition.
The market price of our common stock may be subject to substantial
fluctuations, which may make it difficult for you to sell your shares at the volumes, prices, and times desired.
The trading price of our common stock may be
volatile, which may make it difficult for you to resell your shares at the volume, prices and times desired. There are many factors
that may impact the market price and trading volume of our common stock, including:
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general economic conditions and overall market fluctuations;
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actual or anticipated fluctuations in our quarterly or annual operating results;
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operating and stock price performance of other companies that investors deem comparable to us;
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announcements by us or our competitors of significant acquisitions, dispositions, innovations or new programs and services;
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the public reaction to our press releases, our other public announcements and our filings with the SEC;
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changes in financial estimates and recommendations by securities analysts following our stock, or the failure of securities
analysts to cover our common stock after this offering;
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changes in earnings estimates by securities analysts or our ability to meet those estimates;
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the operating and stock price performance of other comparable companies;
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the trading volume of our common stock;
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new technology used, or services offered by, competitors;
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changes in business, legal or regulatory conditions, or other developments affecting participants in our industry, and publicity
regarding our business or any of our significant clients or competitors;
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changes in accounting standards, policies, guidance, interpretations or principles;
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future sales of our common stock by us, directors, executives and significant shareholders; and
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other news, announcements, or disclosures (whether by us or others) related to us, our competitors, our core markets, or the
bank and non-bank financial services industries.
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The realization of any of the risks described
in this “Risk Factors” section could have a material adverse effect on the market price of our common stock and cause
the value of your investment to decline. In addition, the stock market experiences extreme volatility that has often been unrelated
to the operating performance of particular companies. These types of broad market fluctuations may adversely affect investor confidence
and could affect the trading price of our common stock over the short, medium or long term, regardless of our actual performance.
If the market price of our common stock reaches an elevated level following this offering, it may materially and rapidly decline.
In the past, following periods of volatility in the market price of a company’s securities, shareholders have often instituted
securities class action litigation. If we were to be involved in a class action lawsuit, we could incur substantial costs and it
could divert the attention of senior management and have a material adverse effect on our business, financial condition and results
of operations.
Our management will have broad discretion as to the use of
proceeds from this offering, and we may not use the proceeds effectively.
We will use a portion of the net proceeds
from the offering to repay a $6.0 million term loan with an interest rate of 4.71% and will use the remaining net proceeds to support
our organic growth and for other general corporate purposes, including to fund future acquisitions of financial institutions (although
we do not have any definitive agreements in place to make any such acquisitions at this time) and to maintain our capital and liquidity
ratios at acceptable levels. We are not required, however, to apply any portion of the remaining net proceeds of this offering
for any particular purpose. Accordingly, our management will have broad discretion as to the application of the remaining net proceeds
of this offering and could use them for purposes other than those contemplated at the time of this offering. Our shareholders may
not agree with the manner in which our management chooses to allocate and invest the net proceeds. As part of your investment decision,
you will not be able to assess or direct how we apply these net proceeds. We may not be successful in using the net proceeds from
this offering to increase our profitability or market value and we cannot predict whether the proceeds will be invested to yield
a favorable return. If we do not apply these funds effectively, we may lose significant business opportunities. Furthermore, our
stock price could decline if the market does not view our use of the net proceeds from this offering favorably.
We have not historically declared or paid cash dividends on
our common stock and we do not expect to pay dividends on our common stock in the foreseeable future. Consequently, your only opportunity
to achieve a return on your investment in the foreseeable future is if the price of our common stock appreciates.
Our board of directors has not declared a dividend
on our common stock since our inception. Our ability to pay dividends on our common stock is dependent on the Bank’s ability
to pay dividends to us, which is limited by applicable laws and banking regulations. Our ability to pay dividends on our common
stock may in the future be restricted by the terms of any debt or preferred securities we may incur or issue. Payments of future
dividends, if any, will be at the discretion of our board of directors after taking into account various factors, including our
business, operating results and financial condition, current and anticipated cash needs, plans for expansion and any legal or contractual
limitations on our ability to pay dividends. In addition, if required payments on our outstanding debt obligations, including our
junior subordinated debentures held by our unconsolidated subsidiary trust, are not made or suspended, we may be prohibited from
paying dividends on our common stock. Accordingly, shares of common stock should not be purchased by persons who need or desire
dividend income from their investment.
New investors in our common stock will experience immediate
and substantial book value dilution after this offering.
The initial public offering price of our
common stock will be substantially higher than the pro forma tangible book value per share of the outstanding common stock immediately
after the offering. Based on the initial public offering price of $ per share, which is the midpoint of the prince range set forth
on the cover page of this prospectus, and our net tangible book value as of December 31, 2017, if you purchase common stock in
this offering, you will pay more for your shares than our existing tangible book value per share
and
you will suffer immediate dilution from the public offering price of approximately $ per share in pro forma net
tangible book value. As a result of this dilution, investors purchasing stock in this offering may receive significantly less
than the full purchase price that they paid for the shares purchased in this offering in the event of a liquidation.
If a substantial number of shares become available for sale
and are sold in a short period of time, the market price of our common stock could decline.
If our existing shareholders sell substantial
amounts of our common stock in the public market following this offering, the market price of our common stock could decrease significantly.
The perception in the public market that our existing shareholders might sell shares of common stock could also depress our market
price. Upon completion of this offering, we will have _________ shares of common stock outstanding, or _________ shares if the
underwriters exercise in full their option to purchase additional shares. Our directors and executive officers, will be subject
to the 180 day lock-up agreements described in “Underwriting” and the Rule 144 holding period requirements described
in “Shares Eligible for Future Sale.” After all of the lock-up periods have expired and the holding periods have elapsed,
_________ additional shares of our outstanding common stock will be eligible for sale in the public market. In addition, the underwriters
may, at any time and without notice, release all or a portion of the shares subject to lock-up agreements. The market price of
shares of our common stock may drop significantly when the restrictions on resale by our existing shareholders lapse. A decline
in the price of shares of our common stock might impede our ability to raise capital through the issuance of additional shares
of our common stock or other equity securities and could result in a decline in the value of the shares of our common stock purchased
in this offering.
In addition, immediately following this offering,
we intend to file a registration statement on Form S 8 registering under the Securities Act of 1933, as amended, or the Securities
Act, covering the 450,000 shares of our common stock that may be issued in the future under our 2017 Omnibus Equity Incentive Plan,
as described further under “Executive and Director Compensation—Equity Incentive Compensation Plans.” Accordingly,
subject to certain vesting requirements, shares registered under that registration statement will be available for sale in the
open market immediately by persons other than our executive officers and directors and immediately after the lock-up agreements
expire by our executive officers and directors. If a large number of shares are sold in the public market, the sales could reduce
the trading price of our common stock. These sales also could impede our ability to raise future capital.
We may issue shares of our common stock or other
securities from time to time as consideration for future acquisitions and investments and pursuant to compensation and incentive
plans. If any such acquisition or investment is significant, the number of shares of our common stock, or the number or aggregate
principal amount, as the case may be, of other securities that we may issue may in turn be substantial. We may also grant registration
rights covering those shares of our common stock or other securities in connection with any such acquisitions and investments.
If equity research analysts do not publish research or reports
about our business, or if they do publish such reports but issue unfavorable commentary or downgrade our common stock, the price
and trading volume of our common stock could decline.
The trading market for our common stock could
be affected by whether equity research analysts publish research or reports about us and our business. We cannot predict at this
time whether any research analysts will publish research and reports on us and our common stock. If one or more equity analysts
do cover us and our common stock and publish research reports about us, the price of our stock could decline if one or more securities
analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing reports about us or our
business.
If any of the analysts who elect to cover us
downgrades our stock, our stock price could decline rapidly. If any of these analysts ceases coverage of us, we could lose visibility
in the market, which in turn could cause our common stock price or trading volume to decline and our common stock to be less liquid.
A future issuance of stock could dilute the value of our common
stock.
We may sell additional shares of common stock,
or securities convertible into or exchangeable for such shares, in subsequent public or private offerings. Upon completion of this
offering, there will be _________ shares of our common stock issued and outstanding. Those shares outstanding do not include the
potential issuance, as of December 31, 2017, of _______ shares of our common stock subject to issuance under our equity incentive
plan. Future issuance of any new shares could cause further dilution in the value of our outstanding shares of common stock. We
cannot predict the size of future issuances of our common stock, or securities convertible into or exchangeable for such shares,
or the effect, if any, that future issuances and sales of shares of our common stock will have on the market price of our common
stock. Sales of substantial amounts of our common stock (including shares issued in connection with an acquisition), or the perception
that such sales could occur, may adversely affect prevailing market prices of our common stock.
We may issue shares of preferred stock in the future, which
could make it difficult for another company to acquire us or could otherwise adversely affect holders of our common stock, which
could depress the price of our common stock.
Although there are currently no shares of our
preferred stock issued and outstanding, our articles of incorporation authorize us to issue up to 10,000,000 shares of one or more
series of preferred stock. The board also has the power, without shareholder approval, to set the terms of any series of preferred
stock that may be issued, including voting rights, dividend rights, preferences over our common stock with respect to dividends
or in the event of a dissolution, liquidation or winding up and other terms. In the event that we issue preferred stock in the
future that has preference over our common stock with respect to payment of dividends or upon our liquidation, dissolution or winding
up, or if we issue preferred stock with voting rights that dilute the voting power of our common stock, the rights of the holders
of our common stock or the market price of our common stock could be adversely affected. In addition, the ability of our board
of directors to issue shares of preferred stock without any action on the part of our shareholders may impede a takeover of us
and prevent a transaction perceived to be favorable to our shareholders.
The holders of our existing debt obligations, as well as debt
obligations that may be outstanding in the future, will have priority over our common stock with respect to payment in the event
of liquidation, dissolution or winding up and with respect to the payment of interest.
In the event of any liquidation, dissolution
or winding up of the Company, our common stock would rank below all claims of debt holders against us. As of the date of this prospectus,
we had outstanding approximately $6.0 million of senior debt obligations relating to a term loan which we will repay with the proceeds
from this offering, and $5.4 million aggregate principal (net of mark-to-market adjustments) of junior subordinated debentures
issued in connection with the sale of trust preferred securities by a statutory business trust which we assumed in our acquisition
of United Business Bank, FSB. Payments of the principal and interest on the trust preferred securities are conditionally guaranteed
by us. Our debt obligations are senior to our shares of common stock. We must make payments on our debt obligations before any
dividends can be paid on our common stock. In the event of our bankruptcy, dissolution or liquidation, the holders of our debt
obligations must be satisfied before any distributions can be made to the holders of our common stock. We may defer distributions
on our junior subordinated debentures (and the related trust preferred securities) for up to five years, during which time no dividends
may be paid to holders of our common stock. At December 31, 2017, we were current on all interest payments. To the extent that
we issue additional debt obligations or junior subordinated debentures, the additional debt obligations or additional junior subordinated
debentures will be of equal rank with, or senior to, our existing debt obligations and senior to our shares of common stock.
An investment in our common stock is not an insured deposit.
An investment in our common stock is not a bank
deposit and, therefore, is not insured against loss by the FDIC, any other deposit insurance fund or by any other public or private
entity. Investment in our common stock is inherently risky for the reasons described herein, and is subject to the same market
forces that affect the price of common stock in any company. As a result, if you acquire our common stock, you could lose some
or all of your investment.
We are an “emerging growth company,” and the reduced
regulatory and reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors.
We are an “emerging growth company,”
as described in the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of reduced regulatory
and reporting requirements that are otherwise generally applicable to public companies. These include, without limitation, not
being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced financial
reporting requirements, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of
holding non-binding advisory votes on executive compensation and golden parachute payments. The JOBS Act also permits an “emerging
growth company” such as us to take advantage of an extended transition period to comply with new or revised accounting standards
applicable to public companies. We have elected to, and expect to continue to, take advantage of certain of these and other exemptions
until we are no longer an emerging growth company.
In addition, even if we comply with
the greater disclosure obligations of public companies that are not emerging growth companies immediately after this
offering, we may avail ourselves of these reduced requirements applicable to emerging growth companies from time to time in
the future, so long as we are an emerging growth company. We will remain an emerging growth company for up to five years,
unless we earlier cease to be an emerging growth company, which would occur if our annual gross revenues exceed $1.07 billion, if we issue more than $1.0 billion in non-convertible debt in a three-year period, or if the market value of our
common stock held by non-affiliates exceeds $700.0 million as of any June 30 before that time, in which case we would no
longer be an emerging growth company as of the following December 31. Investors and securities analysts may find it more
difficult to evaluate our common stock because we may rely on one or more of these exemptions, and, as a result, investors
may find our common stock less attractive if we rely on the exemptions, which may result in a less active trading market,
increased volatility in our stock price and investor confidence and the market price of our common stock may be materially
and adversely affected.
Because we have elected to use the extended transition period
for complying with new or revised accounting standards for an emerging growth company, our financial statements may not be comparable
to companies that comply with these accounting standards as of the public company effective dates.
We have elected to use the extended transition
period for complying with new or revised accounting standards under Section 7(a)(2)(B) of the Securities Act. This election allows
us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies
until those standards apply to private companies. As a result of this election, our financial statements may not be comparable
to companies that comply with these accounting standards as of the public company effective dates. Because our financial statements
may not be comparable to companies that comply with public company effective dates, investors may have difficulty evaluating or
comparing our business, financial results or prospects in comparison to other public companies, which may have a negative impact
on the value and liquidity of our common stock. We cannot predict if investors will find our common stock less attractive because
we plan to rely on this exemption. If some investors find our common stock less attractive as a result, there may be a less active
trading market for our common stock and our stock price may be more volatile.
Certain laws and provisions of our corporate governance documents
may have an anti-takeover effect.
The following is a summary of certain provisions
of law and our Articles of Incorporation and Bylaws that may have the effect of discouraging, delaying or preventing a change of
control, change in management or an unsolicited acquisition proposal that a shareholder might consider favorable, including proposals
that might result in the payment of a premium over the market price for the shares held by our shareholders. This summary does
not purport to be complete and is qualified in its entirety by reference to the laws and documents referenced.
Provisions of federal banking laws, including
regulatory approval requirements, could make it difficult for a third party to acquire us, even if doing so would be perceived
to be beneficial to our shareholders. Acquisition of 10% or more of any class of voting stock of a bank holding company or depository
institution, including shares of our common stock following completion of this offering, generally creates a rebuttable presumption
that the acquirer “controls” the bank holding company or depository institution. Also, a bank holding company must
obtain the prior approval of the Federal Reserve before, among other things, acquiring direct or indirect ownership or control
of more than 5% of the voting shares of any bank, including our bank.
Under the California Financial Code, no person
shall, directly or indirectly, acquire control of a California state bank or its holding company unless the DBO has approved such
acquisition of control. A person would be deemed to have acquired control of BayCom if such person, directly or indirectly, has
the power (1) to vote 25% or more of the voting power of BayCom, or (2) to direct or cause the direction of the management
and policies of BayCom. For purposes of this law, a person who directly or indirectly owns or controls 10% or more of our outstanding
common stock would be presumed to control BayCom.
Our authorized shares of common stock or preferred
stock may be used by our Board of Directors consistent with its fiduciary duty to deter future attempts to gain control of us.
Under our Articles of Incorporation, our Board of Directors also has sole authority to determine the terms of any one or more series
of preferred stock, including voting rights, conversion rates and liquidation preferences. As a result of the ability to fix voting
rights for a series of preferred stock, our Board of Directors has the power, to the extent consistent with its fiduciary duty,
to issue a series of preferred stock to persons friendly to management in order to attempt to block a post-tender offer merger
or other transaction by which a third party seeks control, and thereby assist management to retain its position. In addition, our
Bylaws impose certain notice and information requirements in connection with the nomination by shareholders of candidates for election
to our Board of Directors or the proposal by shareholders of business to be acted upon at any annual or special meeting of shareholders.
For additional information, see “Description
of Capital Stock - Anti-Takeover Considerations and Special Provisions of Our Articles, Bylaws and California Law.”
CAUTIONARY NOTE REGARDING FORWARD-LOOKING
STATEMENTS
The information in this prospectus includes
“forward-looking statements” within the meaning of the federal securities laws. These forward-looking statements reflect
our current views with respect to, among other things, future events and our financial performance. These statements are often,
but not always, made through the use of words or phrases such as “may,” “should,” “could,”
“predict,” “potential,” “believe,” “will likely result,” “expect,”
“continue,” “will,” “anticipate,” “seek,” “estimate,” “intend,”
“plan,” “project,” “forecast,” “goal,” “target,” “would”
and “outlook,” or the negative variations of those words or other comparable words of a future or forward-looking nature.
These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution you that any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions and uncertainties that are difficult to predict. Although we believe that the
expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially
different from the results expressed or implied by the forward-looking statements.
A number of important factors could cause our
actual results to differ materially from those indicated in these forward-looking statements, including those factors identified
in “Risk Factors” or “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
or the following:
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the credit risks of lending activities, including changes in the level and trend of loan delinquencies and write-offs and
changes in our allowance for loan losses and provision for loan losses that may be impacted by deterioration in the housing and
commercial real estate markets and may lead to increased losses and non-performing assets, and may result in our allowance for
loan losses not being adequate to cover actual losses and require us to materially increase our reserves;
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changes in economic conditions in general and in California, Washington, and New Mexico;
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changes in the levels of general interest rates and the relative differences between short and long-term interest rates, loan
and deposit interest rates;
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our net interest margin and funding sources;
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fluctuations in the demand for loans, the number of unsold homes, land and other properties and fluctuations in real estate
values in our market areas;
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secondary market conditions for loans and our ability to sell loans in the secondary market;
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results of examinations of us by regulatory authorities and the possibility that any such regulatory authority may, among other
things, limit our business activities, require us to change our business mix, increase our allowance for loan and lease losses,
write-down asset values or increase our capital levels, or affect our ability to borrow funds or maintain or increase deposits,
which could adversely affect our liquidity and earnings;
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risks related to our acquisition strategy, including our ability to identify suitable acquisition candidates, exposure to potential
asset and credit quality risks and unknown or contingent liabilities, the need for capital to finance such transactions, our ability
to obtain required regulatory approvals and possible failures in realizing the anticipated benefits from acquisitions;
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challenges arising from attempts to expand into new geographic markets, products, or services;
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our ability to successfully integrate any assets, liabilities, clients, systems, and management personnel we may acquire into
our operations and our ability to realize related revenue synergies and cost savings within expected time frames and any goodwill
charges related thereto;
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legislative or regulatory changes that adversely affect our business including changes in banking, securities and tax law,
and regulatory policies and principles, or the interpretation of regulatory capital or other rules, including changes related to
Basel III;
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the impact of the Dodd-Frank Act and the implementing regulations;
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our ability to attract and retain deposits;
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increases in premiums for deposit insurance;
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our ability to control operating costs and expenses;
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the use of estimates in determining fair value of certain of our assets and liabilities, which estimates may prove to be incorrect
and result in significant changes in valuation;
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difficulties in reducing risk associated with the loans and securities on our balance sheet;
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staffing fluctuations in response to product demand or the implementation of corporate strategies that affect our work force
and potential associated charges;
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the failure or security breach of computer systems on which we depend, or the occurrence of fraudulent activity, breaches or
failures of our information security controls or cybersecurity-related incidents;
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the effectiveness of our risk management framework;
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disruptions, security breaches, or other adverse events, failures or interruptions in, or attacks on, our information technology
systems or on the third-party vendors who perform several of our critical processing functions, which could expose us to litigation
or reputational harm;
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an inability to keep pace with the rate of technological advances;
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our ability to retain key members of our senior management team and our ability to attract, motivate and retain qualified personnel;
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costs and effects of litigation, including settlements and judgments;
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our ability to implement our business strategies and manage our growth;
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future goodwill impairment due to changes in our business, changes in market conditions, or other factors;
|
|
|
·
|
our ability to manage loan delinquency rates;
|
|
|
·
|
liquidity issues, including our ability to raise additional capital, if necessary;
|
|
|
·
|
the loss of our largest loan and depositor relationships;
|
|
|
·
|
the occurrence of adverse weather or manmade events, which could negatively affect our core markets or disrupt our operations;
|
|
|
·
|
increased competitive pressures among financial services companies;
|
|
|
·
|
changes in consumer spending, borrowing and savings habits;
|
|
|
·
|
the availability of resources to address changes in laws, rules, or regulations or to respond to regulatory actions;
|
|
|
·
|
our ability to pay dividends on our common stock, and interest or principal payments on our junior subordinated debentures;
|
|
|
·
|
adverse changes in the securities markets;
|
|
|
·
|
inability of key third-party providers to perform their obligations to us;
|
|
|
·
|
changes in accounting policies and practices, as may be adopted by the financial institution regulatory agencies or the Financial
Accounting Standards Board including additional guidance and interpretation on accounting issues and details of the implementation
of new accounting methods;
|
|
|
·
|
the costs and obligations associated with being a public company;
|
|
|
·
|
the economic impact of war or any terrorist activities; other economic, competitive, governmental, regulatory, and technological
factors affecting our operations, pricing, products and services; and
|
|
|
·
|
other factors that are discussed in “Risk Factors.”
|
The foregoing factors should not be construed
as exhaustive and should be read in conjunction with other cautionary statements that are included in this prospectus. If one or
more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect,
actual results may differ materially from what we anticipate. Accordingly, you should not place undue reliance on any such forward-looking
statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation
to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
New risks and uncertainties arise from time to time, and it is not possible for us to predict those events or how they may affect
us. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of
factors, may cause actual results to differ materially from those contained in any forward-looking statements.
USE OF PROCEEDS
Assuming an initial public offering price
of $ per share, which is the midpoint of the price range set forth on the cover page of this prospectus, we estimate that the
net proceeds to us from the sale of our common stock in this offering will be $____ million (or $____ million if the underwriters
exercise their over-allotment option in full), after deducting underwriting discounts and commissions and the estimated offering
expenses payable by us.
Each $1.00 increase (decrease)
in the assumed initial public offering price would increase (decrease) the net proceeds to us from this offering by $ million
(or $ million if the underwriters exercise their over-allotment option in full), assuming the number of shares we sell, as set
forth on the cover page of this prospectus, remains the same, after deducting underwriting discounts and commissions and the estimated
offering expenses payable by us.
We will use a portion of the net proceeds
from the offering to repay our $6.0 million term loan with an interest rate of 4.71% that matures in April 2022 and intend to
use the remainder to support our organic growth and for other general corporate purposes, including to fund potential future acquisitions
of bank and non-bank financial services companies that we believe are complementary to our business and consistent with our growth
strategy, and to maintain our capital and liquidity ratios at acceptable levels. We do not have any definitive agreements in place
to make any acquisitions at this current time.
Except for the repayment of the $6.0 million
term loan, we have not allocated any portion of net proceeds to be received by us in this offering for a particular purposes. Our
management will have broad discretion over how the remaining proceeds received by us in the offering are used. Proceeds received
in the offering will be invested in short-term investments until needed for the uses described above.
DIVIDEND POLICY
We have not historically declared or paid cash
dividends on our common stock and we do not expect to pay dividends on our common stock for the foreseeable future. Instead, we
anticipate that all of our future earnings will be retained to support our operations and to finance the growth and development
of our business. Any future determination to pay dividends on our common stock will be made by our board of directors and will
depend on a number of factors, including:
|
|
·
|
our historical and projected
financial condition, liquidity and results of operations;
|
|
|
·
|
our capital levels and
requirements;
|
|
|
·
|
statutory and regulatory
prohibitions and other limitations;
|
|
|
·
|
any contractual restriction
on our ability to pay cash dividends, including pursuant to the terms of any of our credit agreements or other borrowing arrangements;
|
|
|
·
|
our business strategy,
including any potential acquisitions;
|
|
|
·
|
general economic conditions;
and
|
|
|
·
|
other factors deemed
relevant by our board of directors.
|
As a California corporation, we are subject
to certain restrictions on dividends under the California General Corporation Code (“CGCL”). Generally, a California
corporation may pay dividends to its shareholders if the corporation’s retained earnings equal at least the amount of the
proposed distribution plus the preferential dividend arrears amount (if any) of the corporation, or if immediately after the distribution,
the value of the corporation’s assets would equal or exceed its total liabilities plus the preferential dividend arrears
amount (if any). In addition, if required payments on our outstanding debt obligations, including our junior subordinated debentures
held by our unconsolidated subsidiary trust, are not made or suspended, we may be prohibited from paying dividends on our common
stock.
Since we are a bank holding company and do not
engage directly in business activities of a material nature, our ability to pay dividends to our shareholders depends, in large
part, upon our receipt of dividends from the Bank, which is also subject to numerous limitations on the payment of dividends under
federal and state banking laws, regulations and policies. The present and future dividend policy of the Bank is subject to the
discretion of its board of directors. The Bank is not obligated to pay dividends. If the Bank is “significantly undercapitalized”
under the applicable federal bank capital standards, or if the Bank is “undercapitalized” and has failed to submit
an acceptable capital restoration plan or has materially failed to implement such a plan, the FDIC may choose to require the Bank
to receive prior approval for any capital distribution from the Federal Reserve. In addition, the Bank generally is prohibited
from making a capital distribution if such a distribution would cause the Bank to be “undercapitalized” under applicable
federal bank capital standards. The Bank is also subject to various legal, regulatory and other restrictions on its ability to
pay dividends and make other distributions and payments to us under California law. For more information, see “Supervision
and Regulation – United Business Bank – Capital Requirements,” “– United Business Bank – Dividends”
and “– BayCom Corp – Dividends.”
We anticipate that this offering and the listing
of our common stock on the NASDAQ Global Select Market will result in a more active trading market for our common stock. However,
we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. You may
not be able to sell your shares quickly or at the market price if trading in our common stock is not active. See “Underwriting”
for more information regarding our arrangements with the underwriters and the factors considered in setting the initial public
offering price.
CAPITALIZATION
The following table shows our capitalization,
including regulatory capital ratios, on a consolidated basis, as of December 31, 2017:
|
|
·
|
on an actual basis;
and
|
|
|
·
|
on
an as adjusted basis after giving effect to (i) the net proceeds from the sale by us
of our common stock in this offering (assuming the underwriters do not exercise their
option to purchase additional shares from us to cover over-allotments, if any) at an
initial public offering price of $____ per share (which is the midpoint of the price
range set forth on the cover page of this prospectus), after deducting underwriting discounts
and commissions and estimated offering expenses, and (ii) the repayment in full of the
outstanding balance on our $6.0 million term loan. See “Use of Proceeds”
for additional information.
|
This table should be read in conjunction with,
and is qualified in its entirety by reference to, “Selected Financial and Other Data,” “Use
of Proceeds,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and
our consolidated financial statements and related notes appearing elsewhere in this prospectus.
|
|
|
As of December 31, 2017
|
|
|
|
|
Actual
|
|
|
As
Adjusted
|
|
|
|
|
(Dollars in thousands)
|
|
|
Indebtedness:
|
|
|
|
|
|
|
|
|
|
Subordinated debentures
(1)
|
|
$
|
6,392
|
|
|
$
|
6,392
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock - no par value, 10,000,000 authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock - no par value, 100,000,000 authorized; 7,496,995 shares outstanding (actual) and ____shares outstanding (pro forma)
|
|
|
81,307
|
|
|
|
-
|
|
|
Additional paid-in capital
|
|
|
287
|
|
|
|
287
|
|
|
Accumulated other comprehensive income
|
|
|
213
|
|
|
|
213
|
|
|
Retained earnings
|
|
|
36,828
|
|
|
|
36,828
|
|
|
Total shareholders’ equity
|
|
$
|
118,635
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value and tangible book value per share
|
|
|
|
|
|
|
|
|
|
Book value per share
|
|
$
|
15.82
|
|
|
$
|
-
|
|
|
Tangible book value per share
|
|
|
13.81
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital ratios (Basel III guidelines):
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
|
8.73
|
%
|
|
|
|
|
|
Common equity Tier 1 capital ratio
|
|
|
11.43
|
%
|
|
|
|
|
|
Tier 1 risk-based capital ratio
|
|
|
12.16
|
%
|
|
|
|
|
|
Total risk-based capital ratio
|
|
|
12.67
|
%
|
|
|
|
|
|
Tangible common equity to tangible assets
(2)
|
|
|
8.41
|
%
|
|
|
|
|
|
|
(1)
|
Consists of debt issued in connection with our trust preferred securities.
|
|
|
(2)
|
Tangible common equity to tangible assets is a non-GAAP financial measure. Tangible common equity is computed as total shareholders’
equity, excluding preferred stock, less intangible assets. Tangible assets are calculated as total assets less intangible assets.
We believe that the most directly comparable GAAP financial measure is total shareholders’ equity to assets. For a reconciliation
of the non-GAAP measure to the most directly comparable GAAP measure see “Management’s Discussion and Analysis of Financial
Condition and Results of Operations—Non-GAAP Financial Measures.”
|
DILUTION
If you invest in our common stock, your ownership
interest will be diluted to the extent that the initial public offering price per share of our common stock exceeds the tangible
book value per share of our common stock immediately following this offering. Tangible book value per common share is equal to
our total shareholders’ equity, less intangible assets, divided by the number of common shares outstanding. Our tangible
equity as of December 31, 2017 was $103.5 million, or a tangible book value of $13.81 per share.
After giving effect to our sale
of _________ shares of common stock in this offering (assuming the underwriters do not exercise their option to purchase
any additional shares of our common stock to cover over-allotments, if any) at an assumed initial public offering price of
$_____ per share (which is the midpoint of the price range set forth on the cover page of this prospectus), and after
deducting underwriting discounts and commissions and the estimated offering expenses, the pro forma tangible book value of
our common stock at December 31, 2017 would have been approximately $_____ million, or $_____ per share. Therefore, this
offering will result in an immediate increase of approximately $____ in the tangible book value per share of our common stock
of existing shareholders and an immediate dilution of approximately $____ in the tangible book value per share of our common
stock to investors purchasing shares in this offering, or approximately ____% of the assumed public offering price (which is
the midpoint of the price range set forth on the cover page of this prospectus). If the initial public offering price is
higher or lower, the dilution to new shareholders will be greater or less, respectively.
The following table illustrates the calculation
of the amount of dilution per share that a purchaser of our common stock in this offering will incur given the assumptions above:
|
Assumed initial public offering price per share
|
|
$
|
-
|
|
|
Tangible book value per share of common stock as of
December 31, 2017
|
|
|
13.81
|
|
|
Increase in tangible book value per common share
attributable to new investors
|
|
|
-
|
|
|
|
|
|
|
|
|
Pro forma tangible book value per common share
upon completion of this offering
|
|
|
-
|
|
|
|
|
|
|
|
|
Dilution per common share to new investors in
this offering
|
|
|
-
|
|
A $1.00 increase (or decrease) in the assumed
initial public offering price of $ .00 per share, which is the midpoint of the estimated initial public offering price
range set forth on the cover page of this prospectus, would increase (or decrease) the as adjusted net tangible book value per
common share after this offering by approximately $ , and dilution in net tangible book value per common share to new investors
by approximately $ , assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains
the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us. If
the underwriters exercise their over-allotment in full, then our pro forma tangible book value as of December 31, 2017, would
be approximately $_____ million, or $_____ per share, representing an immediate increase in tangible book value to our existing
shareholders of approximately $____ per share and immediate dilution in tangible book value to investors purchasing shares in
this offering of approximately $____ per share,
in each
case assuming an initial public offering price of $ per share, which is the midpoint of the estimated initial public offering
price range set forth on the cover page of this prospectus
.
The following table summarizes, as of December
31, 2017, the number of shares of our common stock, the total consideration paid to us, and the average price per share paid by
existing shareholders and by investors purchasing common stock in this offering, and the sale of the common stock offered hereby,
at an assumed initial public offering price of $_____ per share,
(which
is the midpoint of the price range set forth on the cover page of this prospectus),
before deducting the underwriting
discounts and commissions and the estimated offering expenses (assuming the underwriters do not exercise their option to purchase
additional shares from us):
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
|
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
(in
thousands)
|
|
|
Percent
|
|
|
Average
Price Per
Share
|
|
|
Existing shareholders as of December 31, 2017
|
|
|
7,496,995
|
|
|
|
100.0
|
%
|
|
$
|
-
|
|
|
|
|
|
|
$
|
-
|
|
|
New investors in this offering
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100.0
|
%
|
|
$
|
-
|
|
|
|
|
|
|
|
-
|
|
In addition, if the underwriter’s
option to purchase additional shares is exercised in full, the number of shares of common stock held by existing shareholders
as of December 31, 2017 will be further reduced to % of the total number of shares of common stock to be outstanding upon the
completion of this offering, and the number of shares of common stock held by investors participating in this offering will be
further increased to shares or % of the total number of shares of common stock to be outstanding upon the completion of this offering.
The table above excludes 450,000 shares of common
stock reserved at December 31, 2017 for issuance in connection with options that remain available for issuance under our 2017 Omnibus
Equity Incentive Plan. In connection with the exercise of any stock options or if other equity awards are issued under our 2017
Omnibus Equity Incentive Plan, investors purchasing in this offering will experience further dilution.
PRICE RANGE OF OUR COMMON STOCK
Prior to this offering, there has been no established
public market for our common stock. Our common stock is currently quoted on the OTCQB, Over the Counter Marketplace, under the
symbol “BCML.” Trading in shares of our common stock has not been extensive and such trades cannot be characterized
as constituting an active trading market. As of December 31, 2017, there were approximately 615 holders of record of our common
stock.
We anticipate that this offering and the listing
of our common stock on the Nasdaq Global Select Market will result in a more active trading market for our common stock. However,
we cannot assure you that a liquid trading market for our common stock will develop or be sustained after this offering. You may
not be able to sell your shares quickly or at the market price if trading in our common stock is not active. See “Underwriting”
for more information regarding our arrangements with the underwriters and the factors considered in setting the initial public
offering price.
The following table sets forth the high
and low bid prices per share for the calendar quarters indicated for our common stock on the OTCQB based upon information provided
by OTCQB or other reliable sources. There is no assurance that trading in our common stock will be at prices similar to those
at which our common stock has been traded. High and low bid prices reported on the OTCQB reflect inter-dealer quotations without
retail markup, markdown or commissions, and may not necessarily represent actual transactions.
|
|
|
Trading Price
|
|
|
|
|
|
|
|
High
|
|
|
Low
|
|
|
Shares Traded
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
13.25
|
|
|
$
|
11.96
|
|
|
|
107,500
|
|
|
Second quarter
|
|
|
12.15
|
|
|
|
11.56
|
|
|
|
225,000
|
|
|
Third quarter
|
|
|
12.42
|
|
|
|
11.99
|
|
|
|
660,600
|
|
|
Fourth quarter
|
|
|
14.92
|
|
|
|
12.30
|
|
|
|
371,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
16.75
|
|
|
$
|
14.80
|
|
|
|
199,200
|
|
|
Second quarter
|
|
|
17.45
|
|
|
|
16.35
|
|
|
|
256,400
|
|
|
Third quarter
|
|
|
18.00
|
|
|
|
16.90
|
|
|
|
434,900
|
|
|
Fourth quarter
|
|
|
19.75
|
|
|
|
17.80
|
|
|
|
1,055,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
First quarter
|
|
$
|
23.50
|
|
|
$
|
19.25
|
|
|
|
980,500
|
|
|
Second quarter (through April , 2018)
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis
of our financial condition and results of operations should be read in conjunction with “Selected Financial and Other Data” and our audited consolidated financial statements and the accompanying notes included elsewhere
in this prospectus. This discussion and analysis contains forward-looking statements that are subject to certain risks and uncertainties
and are based on certain assumptions that we believe are reasonable but may prove to be inaccurate. Certain risks, uncertainties
and other factors, including those set forth under “Cautionary Note Regarding Forward-Looking Statements,” “Risk
Factors” and elsewhere in this prospectus, may cause actual results to differ materially from those projected results discussed
in the forward-looking statements appearing in this discussion and analysis. We assume no obligation to update any of these forward-looking
statements.
BayCom was approved by the banking regulators
as the holding company for the Bank in 2017. Accordingly, for the year ended December 31, 2017, the following discussion presents
our results of operations and financial condition on a consolidated basis. For years prior to 2017, the following discussion presents
our results of operations and financial condition for the Bank. However, because we conduct all of our material business operations
through the Bank, the entire discussion relates to activities primarily conducted by the Bank.
Background and Overview
BayCom is a bank holding company headquartered
in Walnut Creek, California. BayCom’s wholly owned banking subsidiary, United Business Bank, provides a broad range of financial
services primarily to businesses and business owners as well as individuals through our network of 18 full service branches located
in Northern and Central California, Seattle, Washington and Albuquerque, New Mexico.
Since 2010, we have completed a series
of five acquisitions with aggregate total assets of approximately $892.2 million and total deposits of approximately $768.6 million.
We have sought to integrate the banks we acquire into our existing operational platform and enhance shareholder value through
the creation of efficiencies within the combined operations. In April 2017, we completed our largest acquisition to date when
we acquired United Business Bank, FSB headquartered in Oakland, California, which increased our deposits by approximately $428.0
million, consisting primarily of lower cost stable core deposits from a strong network of relationships with labor unions. At
the time of acquisition, United Business Bank, FSB had total assets of approximately $473.1 million, which significantly increased
our total asset size and provided us with nine full- service banking offices in Albuquerque, New Mexico, and Long Beach, Oakland,
Sacramento, San Francisco, San Jose and Glendale, California, and Seattle, Washington. We integrated the United Business Bank,
FSB’s branches and recognized the opportunity to consolidate two branches, one of which was completed in January 2017 and
the other was completed in April 2018. In addition, in November 2017 we acquired Plaza Bank, with one branch located in Seattle,
Washington. At the time of the acquisition, Plaza Bank had total assets of approximately $75.8 million and deposits of $54.2 million.
Our principal objective is to continue to
increase shareholder value and generate consistent earnings growth by expanding our commercial banking franchise through both strategic
acquisitions and organic growth. We believe our strategy of selectively acquiring and integrating community banks has provided
us with economies of scale and improved our overall franchise efficiency. We expect to continue to pursue strategic acquisitions
and believe our targeted market areas present us with many and varied acquisition opportunities. We are also focused on continuing
to grow organically and believe the markets in which we operate currently provide meaningful opportunities to expand our commercial
client base and increase our current market share. We believe our geographic footprint, which includes the San Francisco Bay area
and the metropolitan markets of Los Angeles and Seattle and other community markets including Albuquerque, New Mexico, provides
us with access to low cost, stable core deposits in community markets that we can use to fund commercial loan growth. We strive
to provide an enhanced banking experience for our clients by providing them with a comprehensive suite of sophisticated banking
products and services tailored to meet their needs, while delivering the high-quality, relationship-based client service of a community
bank.
As of December 31, 2017, the Company had
total consolidated assets of $1.25 billion, total consolidated deposits of $1.10 billion and total consolidated shareholders’ equity
of $118.6 million. Total assets increased $570.5 million, or 84.5%, to $1.25 billion at December 31, 2017 from $675.3 million at
December 31, 2016, primarily as a result of growth in our loan portfolio from our acquisitions of United Business Bank, FSB and
Plaza Bank in 2017.
We continue to focus on growing our commercial
loan portfolios through acquisitions as well as organic growth. At December 31, 2017, we had $894.8 million in total loans. Of
this amount $399.9 million, or 44.7%, consisted of loans we acquired (all of which were recorded to their estimated fair values
at the time of acquisition), and $494.9 million, or 55.3%, consisted of loans we originated.
We had net income of $5.3 million for
the year ended December 31, 2017, compared to $5.9 million for the year ended December 31, 2016. Fully diluted earnings per common
share were $0.81 for the year ended December 31, 2017, compared to $1.09 for the year ended December 31, 2016. The results of
operations for the year ended December 31, 2017, were impacted by $3.5 million of merger related expenses, compared to none in
the year ended December 31, 2016, and a $2.7 million income tax adjustment to the Company’s deferred tax asset related to
the December 22, 2017 enactment of the Tax Cuts and Jobs Act. The effect of these adjustments reduced earnings per share by $0.77
for the year ended December 31, 2017.
The profitability of our operations depends
primarily on our net interest income after provision for loan losses, which is the difference between interest earned on interest
earning assets and interest paid on interest bearing liabilities less provision for loan losses. The provision for loan losses
is dependent on changes in our loan portfolio and management’s assessment of the collectability of our loan portfolio as
well as prevailing economic and market conditions. Our net income is also affected by non-interest income and non-interest expenses.
Non-interest income and non-interest expenses are impacted by the growth of our banking operations and growth in the number of
loan and deposit accounts both organically and through strategic acquisitions. Set forth below is a discussion of the primary factors
we use to evaluate and manage our results of operations:
Net interest income.
Net interest
income represents interest income less interest expense. We generate interest income from interest and fees received on interest-earning
assets, including loans and investment securities and dividends on Federal Home Loan Bank of San Francisco (“FHLB”)
and Federal Reserve Bank of San Francisco (“FRB”) stock we own. We incur interest expense from interest paid on interest-bearing
liabilities, including interest-bearing deposits and borrowings. To evaluate net interest income, we measure and monitor: (i) yields
on our loans and other interest-earning assets; (ii) the costs of our deposits and other funding sources; (iii) our net interest
margin; and (iv) the regulatory risk weighting associated with the assets. Net interest margin is calculated as the annualized
net interest income divided by average interest-earning assets. Because noninterest-bearing sources of funds, such as noninterest-bearing
deposits and shareholders’ equity, also fund interest-earning assets, net interest margin includes the benefit of these noninterest-bearing
sources.
Changes in market interest rates, the slope
of the yield curve, and interest we earn on interest-earning assets or pay on interest-bearing liabilities, as well as the volume
and types of interest-earning assets, interest-bearing and noninterest-bearing liabilities and shareholders’ equity, usually
have the largest impact on changes in our net interest spread, net interest margin and net interest income during a reporting period.
Noninterest income.
Noninterest
income consists of, among other things: (i) service charges on loans and deposits; (ii) gain on sale of loans; and (iii) other
noninterest income. Gain on sale of loans includes income (or losses) from the sale of the guaranteed portion of SBA loans, capitalized
loan servicing rights and other related income. Fair value adjustments to the value of loan servicing rights are also included
in noninterest income.
Noninterest expense.
Noninterest
expense includes, among other things: (i) salaries and related benefits; (ii) occupancy and equipment expense; (iii) data processing;
(iv) FDIC and state assessments; (v) outside and professional services; (vi) amortization of intangibles; and (vii) other general
and administrative expenses. Salaries and related benefits include compensation, employee benefits and employment tax expenses
for our personnel. Occupancy expense includes depreciation expense on our owned properties, lease expense on our leased properties
and other occupancy-related expenses. Data processing expense includes data fees paid to our third-party data processing system
provider and other data service providers. FDIC and state assessments expense represents the assessments that we pay to the FDIC
for deposit insurance and other regulatory costs to various states. Outside and professional fees include legal, accounting, consulting
and other outsourcing arrangements. Amortization of intangibles represents the amortization of our core deposit intangible from
various acquisitions. Other general and administrative expenses include expenses associated with travel, meals, training, supplies
and postage. Noninterest expenses generally increase as we grow our business. Noninterest expenses have increased significantly
over the past few years as we have grown through acquisitions and organically, and as we have built out our operational infrastructure.
Comparison of Financial Condition at
December 31, 2017 and 2016
Total assets.
Total assets
increased $570.5 million, or 84.5%, to $1.25 billion at December 31, 2017 from $675.3 million at December 31, 2016. The increase
was primarily due to a $385.8 million, or 76.5%, increase in total loans receivable, net. During 2017, we acquired two financial
institutions which accounted for $548.9 million of the $570.5 million increase in assets during the year ended December 31, 2017.
Cash and cash equivalents.
Cash and cash equivalents increased $121.2 million, or 94.2%, to $249.9 million at December 31, 2017 from $128.7 million at December
31, 2016. The increase was primarily due to the net cash received of $85.0 million related to our two financial institution acquisitions
during the year ended December 31, 2017, in addition to cash received from an increase in client deposits. We intend to invest
our excess cash in marketable securities until such funds are needed to support loan growth or other operating or strategic initiatives.
Securities available-for-sale.
Our investment policy is established by the board of directors and monitored by the board’s risk committee. It is designed
primarily to provide and maintain liquidity, generate a favorable return on investments without incurring undue interest rate and
credit risk, and complements our lending activities. The policy dictates the criteria for classifying securities as either available-for-sale
or held-to-maturity. The policy permits investment in various types of liquid assets permissible under applicable regulations,
which include U.S. Treasury obligations, U.S. Government agency obligations, some certificates of deposit of insured banks, mortgage-backed
and mortgage-related securities, corporate notes and municipal bonds. Investment in non-investment grade bonds and stripped mortgage-backed
securities is not permitted under the policy.
Investment securities available-for-sale
increased $26.6 million, or 191.0%, to $40.5 million at December 31, 2017 from $13.9 million at December 31, 2016. The increase
was primarily due to $36.0 million of investment securities acquired as part of our two financial institution acquisitions during
the year ended December 31, 2017, in addition to purchases of investment securities of $1.2 million during the year. These increases
were partially offset by $7.7 million of maturities and repayment of securities, in addition to routine amortization of investment
premiums and discounts. At December 31, 2017, all of our investment securities were classified as available-for-sale.
The following table sets forth the amortized
cost and fair value of available-for-sale securities by type as of the dates indicated. At December 31, 2017, our securities portfolio
did not contain securities of any issuer with an aggregate book value in excess of 10% of our equity capital, excluding those issued
by the United States Government or its agencies or United States Government Sponsored Enterprises.
|
|
|
At December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
Amortized
Cost
|
|
|
Fair
Value
|
|
|
|
|
(In thousands)
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
15,910
|
|
|
$
|
16,047
|
|
|
$
|
4,003
|
|
|
$
|
4,081
|
|
|
$
|
5,002
|
|
|
$
|
5,160
|
|
|
Mortgage-backed securities:
|
|
|
9,621
|
|
|
|
9,740
|
|
|
|
1,666
|
|
|
|
1,684
|
|
|
|
2,207
|
|
|
|
2,229
|
|
|
Collateralized mortgage obligations
|
|
|
1,758
|
|
|
|
1,750
|
|
|
|
1,732
|
|
|
|
1,770
|
|
|
|
2,813
|
|
|
|
2,825
|
|
|
U.S. Government Agencies
|
|
|
12,913
|
|
|
|
12,968
|
|
|
|
5,358
|
|
|
|
5,377
|
|
|
|
12,353
|
|
|
|
12,372
|
|
|
U.S. Treasury Obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
1,008
|
|
|
|
1,006
|
|
|
|
1,031
|
|
|
|
1,029
|
|
|
Total
|
|
$
|
40,202
|
|
|
$
|
40,505
|
|
|
$
|
13,767
|
|
|
$
|
13,918
|
|
|
$
|
23,406
|
|
|
$
|
23,615
|
|
The following table sets forth certain information
regarding contractual maturities and the weighted average yields of our investment securities as of the dates presented. Expected
maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call
or prepayment penalties. Yields are calculated on a pre-tax basis.
|
|
|
Amount
Due or Repricing Within:
|
|
|
|
|
One
Year
or
Less
|
|
|
Over
One
to
Five Years
|
|
|
Over
Five
to
Ten Years
|
|
|
Over
Ten
Years
|
|
|
Total
|
|
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
Amortized
Cost
|
|
|
Weighted
Average
Yield
|
|
|
|
|
(Dollars in thousands)
|
|
|
Available-for-sale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal securities
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
2,525
|
|
|
|
1.85
|
%
|
|
$
|
8,795
|
|
|
|
2.34
|
%
|
|
$
|
4,590
|
|
|
|
2.93
|
%
|
|
$
|
15,910
|
|
|
|
2.43
|
%
|
|
Mortgage-backed securities:
|
|
|
1,401
|
|
|
|
2.95
|
%
|
|
|
409
|
|
|
|
2.66
|
%
|
|
|
2,704
|
|
|
|
2.86
|
%
|
|
|
5,107
|
|
|
|
2.84
|
%
|
|
|
9,621
|
|
|
|
2.85
|
%
|
|
Collateralized mortgage
obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,152
|
|
|
|
2.04
|
%
|
|
|
606
|
|
|
|
2.72
|
%
|
|
|
1,758
|
|
|
|
2.27
|
%
|
|
U.S.
Government agencies
|
|
|
11,161
|
|
|
|
2.21
|
%
|
|
|
1,752
|
|
|
|
1.56
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,913
|
|
|
|
2.12
|
%
|
|
Total
|
|
$
|
12,562
|
|
|
|
2.29
|
%
|
|
$
|
4,686
|
|
|
|
1.81
|
%
|
|
$
|
12,651
|
|
|
|
2.42
|
%
|
|
$
|
10,303
|
|
|
|
2.87
|
%
|
|
$
|
40,202
|
|
|
|
2.43
|
%
|
Loans receivable, net.
We
originate a wide variety of loans with a focus on commercial real estate loans and commercial and industrial loans. Loans receivable,
net of allowance for loan losses, increased $385.8 million, or 76.5%, to $890.1 million at December 31, 2017 from $504.3 million
at December 31, 2016. The increase in loans receivable was primarily due the $381.3 million of loans acquired in connection with
our two financial institution acquisitions during the year ended December 31, 2017. We also sold $22.3 million of the guaranteed
portion of U.S. Small Business Administration (“SBA”) loans during 2017 . The following table provides information
about our loan portfolio by type of loan at the dates presented.
|
|
|
As
of December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
Amount
|
|
|
Percent
of
Total
|
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
and industrial
|
|
$
|
114,373
|
|
|
|
12.8
|
%
|
|
$
|
70,987
|
|
|
|
14.0
|
%
|
|
$
|
71,357
|
|
|
|
15.4
|
%
|
|
$
|
70,901
|
|
|
|
21.8
|
%
|
|
$
|
73,430
|
|
|
|
28.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
83,486
|
|
|
|
9.3
|
%
|
|
|
30,498
|
|
|
|
6.0
|
%
|
|
|
27,938
|
|
|
|
6.0
|
%
|
|
|
25,312
|
|
|
|
7.8
|
%
|
|
|
17,596
|
|
|
|
6.9
|
%
|
|
Multifamily residential
|
|
|
113,759
|
|
|
|
12.7
|
%
|
|
|
38,235
|
|
|
|
7.5
|
%
|
|
|
36,778
|
|
|
|
7.9
|
%
|
|
|
8,233
|
|
|
|
2.5
|
%
|
|
|
920
|
|
|
|
0.4
|
%
|
|
Owner occupied CRE
|
|
|
251,712
|
|
|
|
28,1
|
%
|
|
|
145,200
|
|
|
|
28.6
|
%
|
|
|
126,413
|
|
|
|
27.2
|
%
|
|
|
80,404
|
|
|
|
24.7
|
%
|
|
|
53,974
|
|
|
|
21.2
|
%
|
|
Non-owner occupied
CRE
|
|
|
293,332
|
|
|
|
32.9
|
%
|
|
|
194,961
|
|
|
|
38.4
|
%
|
|
|
174,007
|
|
|
|
37.5
|
%
|
|
|
125,737
|
|
|
|
38.6
|
%
|
|
|
93,371
|
|
|
|
36.7
|
%
|
|
Construction
and land
|
|
|
22,720
|
|
|
|
2.5
|
%
|
|
|
19,745
|
|
|
|
3.9
|
%
|
|
|
17,086
|
|
|
|
3.7
|
%
|
|
|
12,548
|
|
|
|
3.9
|
%
|
|
|
14,598
|
|
|
|
5.7
|
%
|
|
Total real estate
|
|
|
765,009
|
|
|
|
85.5
|
%
|
|
|
428,639
|
|
|
|
84.3
|
%
|
|
|
382,222
|
|
|
|
82.3
|
%
|
|
|
252,234
|
|
|
|
77.4
|
%
|
|
|
180,459
|
|
|
|
71.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1,096
|
|
|
|
0.1
|
%
|
|
|
1,317
|
|
|
|
0.3
|
%
|
|
|
967
|
|
|
|
0.2
|
%
|
|
|
452
|
|
|
|
0.1
|
%
|
|
|
289
|
|
|
|
0.1
|
%
|
|
PCI loans
|
|
|
14,315
|
|
|
|
1.6
|
%
|
|
|
7,407
|
|
|
|
1.5
|
%
|
|
|
9,854
|
|
|
|
2.1
|
%
|
|
|
2,112
|
|
|
|
0.6
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
Total
loans
|
|
|
894,793
|
|
|
|
100.0
|
%
|
|
|
508,350
|
|
|
|
100.0
|
%
|
|
|
464,400
|
|
|
|
100.0
|
%
|
|
|
325,699
|
|
|
|
100.0
|
%
|
|
|
254,178
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees
and costs, net
|
|
|
(469
|
)
|
|
|
|
|
|
|
(311
|
)
|
|
|
|
|
|
|
(342
|
)
|
|
|
|
|
|
|
(292
|
)
|
|
|
|
|
|
|
(298
|
)
|
|
|
|
|
|
Allowance
for loan losses
|
|
|
(4,215
|
)
|
|
|
|
|
|
|
(3,775
|
)
|
|
|
|
|
|
|
(3,850
|
)
|
|
|
|
|
|
|
(2,500
|
)
|
|
|
|
|
|
|
(2,775
|
)
|
|
|
|
|
|
Loans
receivable, net
|
|
$
|
890,109
|
|
|
|
|
|
|
$
|
504,264
|
|
|
|
|
|
|
$
|
460,208
|
|
|
|
|
|
|
$
|
322,907
|
|
|
|
|
|
|
$
|
251,105
|
|
|
|
|
|
The following table provides information
about our loan portfolio segregated by legacy and acquired loans at the dates presented.
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Legacy
|
|
|
Acquired
|
|
|
Total
|
|
|
Legacy
|
|
|
Acquired
|
|
|
Total
|
|
|
Commercial and industrial
|
|
$
|
76,938
|
|
|
$
|
37,435
|
|
|
$
|
114,373
|
|
|
$
|
67,925
|
|
|
$
|
3,062
|
|
|
$
|
70,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
19,771
|
|
|
|
63,715
|
|
|
|
83,486
|
|
|
|
24,494
|
|
|
|
6,004
|
|
|
|
30,498
|
|
|
Multifamily residential
|
|
|
34,041
|
|
|
|
79,718
|
|
|
|
113,759
|
|
|
|
35,334
|
|
|
|
2,901
|
|
|
|
38,235
|
|
|
Owner occupied CRE
|
|
|
150,419
|
|
|
|
101,293
|
|
|
|
251,712
|
|
|
|
112,247
|
|
|
|
32,953
|
|
|
|
145,200
|
|
|
Non-owner occupied CRE
|
|
|
195,670
|
|
|
|
97,662
|
|
|
|
293,332
|
|
|
|
174,499
|
|
|
|
20,462
|
|
|
|
194,961
|
|
|
Construction and land
|
|
|
17,028
|
|
|
|
5,692
|
|
|
|
22,720
|
|
|
|
19,010
|
|
|
|
735
|
|
|
|
19,745
|
|
|
Total real estate
|
|
|
416,929
|
|
|
|
348,080
|
|
|
|
765,009
|
|
|
|
365,584
|
|
|
|
63,055
|
|
|
|
428,639
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1,005
|
|
|
|
91
|
|
|
|
1,096
|
|
|
|
781
|
|
|
|
536
|
|
|
|
1,317
|
|
|
PCI loans
|
|
|
-
|
|
|
|
14,315
|
|
|
|
14,315
|
|
|
|
-
|
|
|
|
7,407
|
|
|
|
7,407
|
|
|
Total Loans
|
|
|
494,872
|
|
|
|
399,921
|
|
|
|
894,793
|
|
|
|
434,290
|
|
|
|
74,060
|
|
|
|
508,350
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and costs, net
|
|
|
(469
|
)
|
|
|
-
|
|
|
|
(469
|
)
|
|
|
(311
|
)
|
|
|
-
|
|
|
|
(311
|
)
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
-
|
|
|
|
(4,215
|
)
|
|
|
(3,775
|
)
|
|
|
-
|
|
|
|
(3,775
|
)
|
|
Net loans
|
|
$
|
490,188
|
|
|
$
|
399,921
|
|
|
$
|
890,109
|
|
|
$
|
430,204
|
|
|
$
|
74,060
|
|
|
$
|
504,264
|
|
The following table schedules illustrate
the contractual maturity and repricing information for our loan portfolio at December 31, 2017. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the contract is due. Purchased credit impaired loans
are reported at their contractual interest rate. The schedule does not reflect the effects of possible prepayments or enforcement
of due-on-sale clauses.
|
|
|
Maturing
Within
One Year
|
|
|
Maturing
After
One
to Five
Years
|
|
|
Maturing
After
Five
Years
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
Commercial and industrial
|
|
$
|
25,861
|
|
|
$
|
52,688
|
|
|
$
|
35,824
|
|
|
$
|
114,373
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
3,632
|
|
|
|
8,417
|
|
|
|
71,437
|
|
|
|
83,486
|
|
|
Multifamily residential
|
|
|
411
|
|
|
|
14,507
|
|
|
|
98,841
|
|
|
|
113,759
|
|
|
Owner occupied CRE
|
|
|
12,784
|
|
|
|
42,416
|
|
|
|
196,512
|
|
|
|
251,712
|
|
|
Non-owner occupied CRE
|
|
|
18,721
|
|
|
|
111,416
|
|
|
|
163,195
|
|
|
|
293,332
|
|
|
Construction and land
|
|
|
17,054
|
|
|
|
4,663
|
|
|
|
1,003
|
|
|
|
22,720
|
|
|
Total real estate
|
|
|
52,602
|
|
|
|
181,419
|
|
|
|
529,988
|
|
|
|
765,009
|
|
|
Consumer and other
|
|
|
1,035
|
|
|
|
43
|
|
|
|
18
|
|
|
|
1,096
|
|
|
PCI loans
|
|
|
1,900
|
|
|
|
3,167
|
|
|
|
9,248
|
|
|
|
14,315
|
|
|
Total loans
|
|
|
81,398
|
|
|
|
237,317
|
|
|
|
576,078
|
|
|
|
894,793
|
|
|
Deferred loan fees and costs, net
|
|
|
(469
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(469
|
)
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(4,215
|
)
|
|
Loans receivable, net
|
|
$
|
76,714
|
|
|
$
|
237,317
|
|
|
$
|
576,078
|
|
|
$
|
890,109
|
|
The following table sets forth the amounts
of loans by floating/adjustable or fixed rate maturing after December 31, 2018.
|
|
|
Floating or
Adjustable
Rate
|
|
|
Fixed Rate
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
Commercial and industrial
|
|
$
|
30,586
|
|
|
$
|
57,924
|
|
|
$
|
88,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
55,931
|
|
|
|
23,923
|
|
|
|
79,854
|
|
|
Multifamily residential
|
|
|
109,020
|
|
|
|
4,328
|
|
|
|
113,348
|
|
|
Owner occupied CRE
|
|
|
156,667
|
|
|
|
82,252
|
|
|
|
238,919
|
|
|
Non-owner occupied CRE
|
|
|
205,626
|
|
|
|
67,096
|
|
|
|
272,722
|
|
|
Construction and land
|
|
|
4,586
|
|
|
|
1,080
|
|
|
|
5,666
|
|
|
Total real estate
|
|
|
531,830
|
|
|
|
178,679
|
|
|
|
710,509
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1
|
|
|
|
60
|
|
|
|
61
|
|
|
PCI loans
|
|
|
11,606
|
|
|
|
2,709
|
|
|
|
14,315
|
|
|
Total loans
|
|
$
|
574,023
|
|
|
$
|
239,372
|
|
|
$
|
813,395
|
|
As a result of the organic growth
of our loan portfolio over the past five years, a significant portion of our loans are of relatively recent origin. In general, loans
do not begin to show signs of credit deterioration or default until they have been outstanding for some period of time, a process
referred to as "seasoning." The following table presents the average age of our loan portfolio by category as of December
31, 2017:
|
|
|
As of December 31,
2017
|
|
|
|
|
Average
Age
(months)
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
32
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
Residential
|
|
36
|
|
|
Multifamily residential
|
|
39
|
|
|
Owner occupied CRE
|
|
42
|
|
|
Non-owner occupied CRE
|
|
42
|
|
|
Construction and land
|
|
34
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
62
|
|
|
|
|
|
|
|
|
Total
|
|
40
|
|
The following table sets forth the originations,
purchases, sales and repayments of loans as of the dates indicated.
|
|
|
For the Years Ended
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(In thousands)
|
|
|
Loans originated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
35,817
|
|
|
$
|
30,954
|
|
|
$
|
33,948
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
5,323
|
|
|
|
11,985
|
|
|
|
6,967
|
|
|
Multifamily residential
|
|
|
6,465
|
|
|
|
5,808
|
|
|
|
23,151
|
|
|
Owner occupied CRE
|
|
|
41,180
|
|
|
|
43,102
|
|
|
|
47,309
|
|
|
Non-owner occupied CRE
|
|
|
50,345
|
|
|
|
62,862
|
|
|
|
66,715
|
|
|
Construction and land
|
|
|
26,801
|
|
|
|
-
|
|
|
|
23,546
|
|
|
Total real estate
|
|
|
130,114
|
|
|
|
123,757
|
|
|
|
167,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
500
|
|
|
|
-
|
|
|
|
900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total loans originated
|
|
|
166,432
|
|
|
|
154,711
|
|
|
|
202,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans purchased
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loans purchased in acquisition
|
|
|
381,336
|
|
|
|
-
|
|
|
|
75,935
|
|
|
Other loans purchased
|
|
|
5,808
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans sold
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
(6,445
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Real estate
|
|
|
(15,867
|
)
|
|
|
-
|
|
|
|
(2,250
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal repayments
|
|
|
(144,979
|
)
|
|
|
(109,494
|
)
|
|
|
(137,570
|
)
|
|
Transfer to real estate owned
|
|
|
-
|
|
|
|
(1,235
|
)
|
|
|
-
|
|
|
Increase/(decrease) in allowance
for loan losses and other items, net
|
|
|
(440
|
)
|
|
|
75
|
|
|
|
(1,351
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in loans receivable
and loans held for sale
|
|
$
|
385,845
|
|
|
$
|
44,056
|
|
|
$
|
137,300
|
|
Nonperforming assets and
nonaccrual loans.
Nonperforming assets consists of nonaccrual loans and other real estate owned. Nonperforming assets
decreased $1.7 million or 90.5%, to $179,000 at December 31, 2017 from $1.9 million at December 31, 2016 due to the
disposition of $775,000 of other real estate owned and a $279,000 decrease in nonaccrual loans.
In general, loans are placed on non-accrual
status after being contractually delinquent for more than 90 days, or earlier if management believes full collection of future
principal and interest on a timely basis is unlikely. When a loan is placed on non-accrual status, all interest accrued but not
received is charged against interest income. When the ability to fully collect non-accrual loan principal is in doubt, cash payments
received are applied against the principal balance of the loan until such time as full collection of the remaining recorded balance
is expected. Generally, loans with temporarily impaired values and loans to borrowers experiencing financial difficulties are placed
on non-accrual status even though the borrowers continue to repay the loans as scheduled. Such loans are categorized as performing
non-accrual loans and are reflected in non-performing assets. Interest received on such loans is recognized as interest income
when received. A non-accrual loan is restored to an accrual basis when principal and interest payments are paid current and full
payment of principal and interest is probable. Loans that are well secured and in the process of collection remain on accrual status.
Purchased loans acquired in a business
combination are recorded at estimated fair value on their purchase date without a carryover of the related allowance for loan
and lease losses. These acquired loans are segregated into three types: pass rated loans with no discount attributable to credit
quality, non-impaired loans with a discount attributable at least in part to credit quality and impaired loans with evidence of
significant credit deterioration.
|
|
·
|
Pass
rated loans (typically performing loans) are accounted for in accordance with ASC Topic
310-20 "Nonrefundable Fees and Other Costs" as these loans do not have evidence
of credit deterioration since origination.
|
|
|
·
|
Non-impaired
loans (typically performing substandard loans) are accounted for in accordance with ASC
Topic 310-30 if they display at least some level of credit deterioration since origination.
|
|
|
·
|
Impaired
loans (typically substandard loans on non-accrual status) are accounted for in accordance
with ASC Topic 310-30 as they display significant credit deterioration since origination.
|
For pass rated
loans (non-purchased credit-impaired loans), the difference between the estimated fair value of the loans and the principal outstanding
is accreted over the remaining life of the loans.
In accordance with
ASC Topic 310-30, for both purchased non-impaired loans (performing substandard loans) and purchased credit-impaired loans, the
loans are pooled by loan type and the difference between contractually required payments at acquisition and the cash flows expected
to be collected is referred to as the non-accretable difference. Further, any excess of cash flows expected at acquisition over
the estimated fair value is referred to as the accretable yield and is recognized into interest income over the remaining life
of the loan pools when there is a reasonable expectation about the amount and timing of such cash flows.
Troubled debt restructured loans.
Troubled debt restructurings, also referred to as “TDRs” herein, which are accounted for under ASC Topic 310-40,
are loans which have renegotiated loan terms to assist borrowers who are unable to meet the original terms of their loans. Such
modifications to loan terms may include a below market interest rate, a reduction in principal, or a longer term to maturity.
At December 31, 2017, we had four TDR loans totaling $1.0 million, three of which totaling $967,000 were performing according
to their restructured terms. The performing TDR loans are not considered nonperforming assets as they continue to accrue interest
despite being considered impaired due to the restructured status. TDR loans as of December 31, 2016 totaled $632,000, all of which
were non-performing. PCI loans included in TDR loans totaled $794,000 and zero as of December 31, 2017 and 2016 respectively.
There was no related allowance for loan losses on the TDR loans at either December 31, 2017 or December 31, 2016.
Potential problem loans.
Potential
problem loans are those loans that are currently accruing interest and are not considered impaired, but which we are monitoring
because the financial information of the borrower causes us concerns as to their ability to comply with their loan repayment terms.
No loans which are past due 90 days or more are still accruing interest at December 31, 2017. Potential problem loans, not included
in the non-performing loans, totaled $6.8 million at December 31, 2017.
Past due loans increased $1.0 million to
$1.9 million at December 31, 2017 from $855,000 at December 31, 2016. The following table sets forth the amounts of past due loans
as of December 31, 2017.
|
|
|
Past
Due Loans But Still Accruing:
|
|
|
|
|
|
|
|
|
|
|
30-89
Days
|
|
|
Over
90 Days
|
|
|
Nonaccrual
Loans
|
|
|
|
|
Number
of Loans
|
|
|
Principal
Balance
of Loans
|
|
|
Number
of Loans
|
|
|
Principal
Balance of
Loans
|
|
|
Number
of Loans
|
|
|
Principal
Balance of
Loans
|
|
|
|
|
(In thousands)
|
|
|
Commercial and industrial
|
|
|
1
|
|
|
$
|
96
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
1
|
|
|
|
349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Multifamily residential
|
|
|
1
|
|
|
|
132
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Owner occupied CRE
|
|
|
1
|
|
|
|
336
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
78
|
|
|
Non-owner occupied CRE
|
|
|
2
|
|
|
|
978
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
88
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
5
|
|
|
|
1,795
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1
|
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
PCI loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total past due and nonaccrual loans
|
|
|
7
|
|
|
$
|
1,894
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
3
|
|
|
$
|
179
|
|
The following table sets forth the non-performing
loans, non-performing assets and troubled debt restructured loans as of the dates indicated:
|
|
|
As
of December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(In thousands)
|
|
|
Loans accounted for on a non-accrual basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
13
|
|
|
$
|
458
|
|
|
$
|
334
|
|
|
$
|
614
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
241
|
|
|
|
-
|
|
|
Multifamily residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Owner occupied CRE
|
|
|
78
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
778
|
|
|
Non-owner occupied CRE
|
|
|
88
|
|
|
|
632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total real estate
|
|
|
166
|
|
|
|
632
|
|
|
|
-
|
|
|
|
241
|
|
|
|
778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonaccrual loans
|
|
|
179
|
|
|
|
1,090
|
|
|
|
334
|
|
|
|
855
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
More than 90 days past due and still
accruing
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total of nonaccrual and 90 days past due loans
|
|
|
179
|
|
|
|
1,090
|
|
|
|
334
|
|
|
|
855
|
|
|
|
818
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate owned
|
|
|
-
|
|
|
|
775
|
|
|
|
-
|
|
|
|
2,103
|
|
|
|
2,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total nonperforming assets
(1)
|
|
$
|
179
|
|
|
$
|
1,865
|
|
|
$
|
334
|
|
|
$
|
2,958
|
|
|
$
|
2,858
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Troubled debt restructurings - performing
|
|
$
|
1,045
|
|
|
$
|
632
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PCI loans
|
|
$
|
14,315
|
|
|
$
|
7,407
|
|
|
$
|
9,854
|
|
|
$
|
2,112
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming assets to total assets
(1)
|
|
|
0.01
|
%
|
|
|
0.28
|
%
|
|
|
0.05
|
%
|
|
|
0.59
|
%
|
|
|
0.83
|
%
|
|
Nonperforming loans to total loans
(1)
|
|
|
0.02
|
%
|
|
|
0.22
|
%
|
|
|
0.07
|
%
|
|
|
0.26
|
%
|
|
|
0.32
|
%
|
|
|
(1)
|
Performing TDRs are not included in nonperforming loans
above, nor are they included in the numerators used to calculate this ratio.
|
Loans under ASC Topic 310-30 are considered
performing and are not included in nonperforming assets in the table above. At December 31, 2017, and 2016, we had no credit impaired
loans under ASC Topic 310-30 that were 90 days past due and still accruing.
For the year ended December 31, 2017, gross
interest income which would have been recorded had the non-accruing loans been current in accordance with their original terms
amounted to $8,000, none of which was included in interest income.
Allowance for loan losses.
The allowance for loan losses is maintained to cover losses that are estimated in accordance with GAAP. It is our estimate of credit
losses inherent in our loan portfolio at each balance sheet date. Our methodology for analyzing the allowance for loan losses consists
of general and specific components. For the general component, we stratify the loan portfolio into homogeneous groups of loans
that possess similar loss potential characteristics and apply a loss ratio to these groups of loans to estimate the credit losses
in the loan portfolio. We use both historical loss ratios and qualitative loss factors assigned to major loan collateral types
to establish general component loss allocations. Qualitative loss factors are based on management’s judgment of company, market,
industry or business specific data and external economic indicators, which may not yet be reflected in the historical loss ratios,
and that could impact our specific loan portfolios. Management and the board of directors sets and adjusts qualitative loss factors
by regularly reviewing changes in underlying loan composition and the seasonality of specific portfolios. Management and the board
of directors also considers credit quality and trends relating to delinquency, non-performing and classified loans within our loan
portfolio when evaluating qualitative loss factors. Additionally, management and the board of directors adjusts qualitative factors
to account for the potential impact of external economic factors, including the unemployment rate, vacancy, capitalization rates,
commodity prices and other pertinent economic data specific to our primary market area and lending portfolios.
For the specific component, the allowance
for loan losses includes loans where management has concerns about the borrower’s ability to repay and on individually analyzed
loans found to be impaired. Management evaluates current information and events regarding a borrower’s ability to repay its obligations
and considers a loan to be impaired when the ultimate collectability of amounts due, according to the contractual terms of the
loan agreement, is in doubt. If an impaired loan is collateral-dependent, the fair value of the collateral, less the estimated
cost to sell, is used to determine the amount of impairment. If an impaired loan is not collateral-dependent, the impairment amount
is determined using the negative difference, if any, between the estimated discounted cash flows and the loan amount due. For impaired
loans, the amount of the impairment can be adjusted, based on current data, until such time as the actual basis is established
by acquisition of the collateral or until the basis is collected. Impairment losses are reflected in the allowance for loan losses
through a charge to the provision for credit losses. Subsequent recoveries are credited to the allowance for loan losses. Cash
receipts for accruing loans are applied to principal and interest under the contractual terms of the loan agreement. Cash receipts
on impaired loans for which the accrual of interest has been discontinued are applied first to principal.
In accordance with acquisition accounting,
loans acquired from the United Business Bank, FSB, and Plaza Bank mergers were recorded at their estimated fair value, which resulted
in a net discount to the loans contractual amounts, of which a portion reflects a discount for possible credit losses. Credit
discounts are included in the determination of fair value and as a result no allowance for loan losses is recorded for acquired
loans at the acquisition date. Although the discount recorded on the acquired loans is not reflected in the allowance for loan
losses, or related allowance coverage ratios, we believe it should be considered when comparing the current ratios to similar
ratios in periods prior to the acquisitions of United Business Bank, FSB, and Plaza Bank. The remaining net discount on these
acquired loans was $8.7 million and $5.3 million at December 31, 2017 and 2016, respectively.
The following table presents an analysis
of changes in the allowance for loan losses for the periods presented.
|
|
|
Years Ended December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
2013
|
|
|
|
|
(Dollars in thousands)
|
|
|
Allowance at beginning of period
|
|
$
|
3,775
|
|
|
$
|
3,850
|
|
|
$
|
2,500
|
|
|
$
|
2,775
|
|
|
$
|
2,700
|
|
|
Provisions for loan losses
|
|
|
462
|
|
|
|
599
|
|
|
|
1,412
|
|
|
|
1,074
|
|
|
|
348
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recoveries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
45
|
|
|
|
55
|
|
|
|
46
|
|
|
|
119
|
|
|
|
509
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
Owner occupied CRE
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5
|
|
|
Consumer and other
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total recoveries
|
|
|
45
|
|
|
|
67
|
|
|
|
46
|
|
|
|
119
|
|
|
|
529
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge-offs:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
(63
|
)
|
|
|
(490
|
)
|
|
|
(95
|
)
|
|
|
(1,112
|
)
|
|
|
(676
|
)
|
|
Owner occupied CRE
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
|
|
(356
|
)
|
|
|
(126
|
)
|
|
Non-owner occupied CRE
|
|
|
(3
|
)
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer and other
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Total charge-offs
|
|
|
(67
|
)
|
|
|
(741
|
)
|
|
|
(108
|
)
|
|
|
(1,468
|
)
|
|
|
(802
|
)
|
|
Net charge-offs
|
|
|
(22
|
)
|
|
|
(673
|
)
|
|
|
(62
|
)
|
|
|
(1,349
|
)
|
|
|
(273
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
4,215
|
|
|
$
|
3,775
|
|
|
$
|
3,850
|
|
|
$
|
2,500
|
|
|
$
|
2,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses as a percentage of total
loans
|
|
|
0.47
|
%
|
|
|
0.74
|
%
|
|
|
0.83
|
%
|
|
|
0.77
|
%
|
|
|
1.09
|
%
|
|
Allowance for loan losses to total loans excluding
PCI loans
|
|
|
0.48
|
%
|
|
|
0.75
|
%
|
|
|
0.85
|
%
|
|
|
0.77
|
%
|
|
|
1.09
|
%
|
|
Allowance for loan losses excluding acquired loans
(loans not covered by the allowance)
|
|
|
0.85
|
%
|
|
|
0.87
|
%
|
|
|
1.08
|
%
|
|
|
0.96
|
%
|
|
|
1.25
|
%
|
|
Allowance for loan losses as a percentage of total
nonperforming loans
|
|
|
2,352.28
|
%
|
|
|
346.33
|
%
|
|
|
1,152.69
|
%
|
|
|
84.49
|
%
|
|
|
97.20
|
%
|
|
Net charge-offs as a percentage of average loans
outstanding during the period
|
|
|
0.00
|
%
|
|
|
0.14
|
%
|
|
|
0.02
|
%
|
|
|
0.43
|
%
|
|
|
0.11
|
%
|
The following table shows the allocation
of the allowance for loan losses at the indicated dates. The allocation is based upon an evaluation of defined loan problems, historical
loan loss ratios, and industry-wide and other factors that affect loan losses in the categories shown below.
|
|
|
As
of December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Loan
Balance
|
|
|
Allowance
by Loan
Category
|
|
|
Percent
of
Loans in
Category
to Total
Loans
|
|
|
Loan
Balance
|
|
|
Allowance
by Loan
Category
|
|
|
Percent
of
Loans in
Category
to Total
Loans
|
|
|
Loan
Balance
|
|
|
Allowance
by Loan
Category
|
|
|
Percent
of
Loans in
Category
to Total
Loans
|
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
and industrial
|
|
$
|
114,373
|
|
|
$
|
911
|
|
|
|
12.8
|
%
|
|
$
|
70,987
|
|
|
$
|
1,072
|
|
|
|
14.0
|
%
|
|
$
|
71,357
|
|
|
$
|
1,559
|
|
|
|
15.4
|
%
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
83,486
|
|
|
|
163
|
|
|
|
9.3
|
%
|
|
|
30,498
|
|
|
|
160
|
|
|
|
6.0
|
%
|
|
|
27,938
|
|
|
|
144
|
|
|
|
6.0
|
%
|
|
Multifamily residential
|
|
|
113,759
|
|
|
|
289
|
|
|
|
12.7
|
%
|
|
|
38,235
|
|
|
|
407
|
|
|
|
7.5
|
%
|
|
|
36,778
|
|
|
|
384
|
|
|
|
7.9
|
%
|
|
Owner occupied CRE
|
|
|
251,712
|
|
|
|
1,105
|
|
|
|
28.1
|
%
|
|
|
145,200
|
|
|
|
671
|
|
|
|
28.6
|
%
|
|
|
126,413
|
|
|
|
494
|
|
|
|
27.2
|
%
|
|
Non-owner occupied
CRE
|
|
|
293,332
|
|
|
|
1,528
|
|
|
|
32.8
|
%
|
|
|
194,961
|
|
|
|
1,156
|
|
|
|
38.4
|
%
|
|
|
174,007
|
|
|
|
1,032
|
|
|
|
37.5
|
%
|
|
Construction
and land
|
|
|
22,720
|
|
|
|
216
|
|
|
|
2.5
|
%
|
|
|
19,745
|
|
|
|
304
|
|
|
|
3.9
|
%
|
|
|
17,086
|
|
|
|
234
|
|
|
|
3.7
|
%
|
|
Total real estate
|
|
|
765,009
|
|
|
|
3,301
|
|
|
|
85.5
|
%
|
|
|
428,639
|
|
|
|
2,698
|
|
|
|
84.3
|
%
|
|
|
382,222
|
|
|
|
2,288
|
|
|
|
82.3
|
%
|
|
Consumer
and other
|
|
|
1,096
|
|
|
|
3
|
|
|
|
0.1
|
%
|
|
|
1,317
|
|
|
|
5
|
|
|
|
0.3
|
%
|
|
|
967
|
|
|
|
3
|
|
|
|
0.2
|
%
|
|
PCI
loans
|
|
|
14,315
|
|
|
|
-
|
|
|
|
1.6
|
%
|
|
|
7,407
|
|
|
|
-
|
|
|
|
1.5
|
|
|
|
9,854
|
|
|
|
-
|
|
|
|
2.1
|
%
|
|
Total loans
|
|
$
|
894,793
|
|
|
$
|
4,215
|
|
|
|
100.0
|
%
|
|
$
|
508,350
|
|
|
$
|
3,775
|
|
|
|
100.0
|
%
|
|
$
|
464,400
|
|
|
$
|
3,850
|
|
|
|
100.0
|
%
|
|
|
|
As of December 31,
|
|
|
|
|
2014
|
|
|
2013
|
|
|
|
|
Loan
Balance
|
|
|
Allowance
by Loan
Category
|
|
|
Percent of
Loans
in
Category to
Total Loans
|
|
|
Loan
Balance
|
|
|
Allowance
by Loan
Category
|
|
|
Percent of
Loans
in
Category to
Total Loans
|
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial and industrial
|
|
$
|
70,901
|
|
|
$
|
1,368
|
|
|
|
21.8
|
%
|
|
$
|
73,430
|
|
|
$
|
1,362
|
|
|
|
28.9
|
%
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
25,312
|
|
|
|
285
|
|
|
|
7.8
|
%
|
|
|
17,596
|
|
|
|
36
|
|
|
|
6.9
|
%
|
|
Multifamily residential
|
|
|
8,233
|
|
|
|
11
|
|
|
|
2.5
|
%
|
|
|
920
|
|
|
|
2
|
|
|
|
0.4
|
%
|
|
Owner occupied CRE
|
|
|
68,821
|
|
|
|
178
|
|
|
|
21.1
|
%
|
|
|
53,568
|
|
|
|
329
|
|
|
|
21.1
|
%
|
|
Non-owner occupied CRE
|
|
|
125,737
|
|
|
|
362
|
|
|
|
38.7
|
%
|
|
|
93,371
|
|
|
|
930
|
|
|
|
36.7
|
%
|
|
Construction and land
|
|
|
24,131
|
|
|
|
293
|
|
|
|
7.4
|
%
|
|
|
15,004
|
|
|
|
115
|
|
|
|
5.9
|
%
|
|
Total real estate
|
|
|
252,234
|
|
|
|
1,457
|
|
|
|
77.4
|
%
|
|
|
180,459
|
|
|
|
1,412
|
|
|
|
71.0
|
%
|
|
Consumer and other
|
|
|
452
|
|
|
|
3
|
|
|
|
0.1
|
%
|
|
|
289
|
|
|
|
1
|
|
|
|
0.1
|
%
|
|
PCI loans
|
|
|
2,112
|
|
|
|
-
|
|
|
|
0.6
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
Total loans
|
|
$
|
325,699
|
|
|
$
|
2,500
|
|
|
|
100.0
|
%
|
|
$
|
254,178
|
|
|
$
|
2,775
|
|
|
|
100.0
|
%
|
The allowance for loan losses increased
by $440,000, or 11.7%, to $4.2 million at December 31, 2017 from $3.8 million at December 31, 2016. Included in the carrying value
of loans are net discounts on acquired loans which may reduce the need for an allowance for loan losses on these loans, because
they are carried at their estimated fair value on the date on which they were acquired.
As of December 31, 2017, we identified
$1.1 million in impaired loans, inclusive of $179,000 of nonperforming loans and $954,000 of performing TDR loans. Of these
impaired loans, only $13,000 had allowances for loan losses as their estimated collateral value or discounted expected cash
flow is equal to or exceeds their carrying costs. As of December 31, 2016, we identified $1.1 million of nonperforming loans
including $632,000 of non-performing TDR loans for a total of $1.1 million of impaired loans. Of these impaired loans, $862,000 had no allowances for loan losses as their estimated collateral value or discounted expected cash flow is equal to or
exceeds their carrying costs. The remaining $228,000 had related allowances for loan losses totaling $46,000.
Based on the established comprehensive methodology
discussed above, management deemed the allowance for loan losses of $4.2 million at December 31, 2017 (0.47% of loans receivable,
net and 2,354.75% of nonperforming loans) appropriate to provide for probable incurred credit losses based on an evaluation of
known and inherent risks in the loan portfolio at that date. This compares to an allowance for loan losses at December 31, 2016
of $3.8 million (0.74% of loans receivable, net and 343.18% of nonperforming loans).
Management believes it has established our
allowance for loan losses in accordance with GAAP, however, there can be no assurance that regulators, in reviewing our loan portfolio,
will not request us to increase the allowance for loan losses. In addition, because future events affecting borrowers and collateral
cannot be predicted with certainty, there can be no assurance that the existing allowance for loan losses is appropriate or that
increased provisions will not be necessary should the quality of the loans deteriorate. Any material increase in the allowance
for loan losses would adversely affect the Company’s financial condition and results of operations.
Deposits.
Deposits are our
primary source of funding and consists of core deposits from the communities served by our branch and office locations. We offer
a variety of deposit accounts with a competitive range of interest rates and terms to both consumers and businesses. Deposits include
interest-bearing and non-interest-bearing demand accounts, savings, money market, certificates of deposit and individual retirement
accounts. These accounts earn interest at rates established by management based on competitive market factors, management’s desire
to increase certain product types or maturities, and in keeping with our asset/liability, liquidity and profitability objectives.
Competitive products, competitive pricing and high touch client service are important to attracting and retaining these deposits.
Total deposits increased $513.5 million,
or 86.9%, to $1.10 billion at December 31, 2017 from $590.8 million at December 31, 2016, primarily due to the $428.0 million of
deposits acquired in the United Business Bank, FSB transaction and $54.2 million of deposits acquired in the Plaza Bank transaction
and, to a lesser extent, organic growth. Demand deposits as a percentage of total deposits increased to 79.2% at December 31, 2017
from 72.7% at December 31, 2016.
The following table sets forth the dollar
amount of deposits in the various types of deposit programs offer at the dates indicated. Information concerning average balances
and rates paid by deposit type for the past three fiscal years is contained on page __ of this prospectus.
|
|
|
December
31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Amount
|
|
|
Percent
of
Total
Deposits
|
|
|
Increase/
(Decrease)
|
|
|
Amount
|
|
|
Percent
of
Total
Deposits
|
|
|
Increase/
(Decrease)
|
|
|
Amount
|
|
|
Percent
of
Total
Deposits
|
|
|
Increase/
(Decrease)
|
|
|
|
|
(Dollars in thousands)
|
|
|
Noninterest-bearing demand
|
|
$
|
327,309
|
|
|
|
29.6
|
%
|
|
$
|
198,612
|
|
|
$
|
128,697
|
|
|
|
21.8
|
%
|
|
$
|
(23,316
|
)
|
|
$
|
152,013
|
|
|
|
28.0
|
%
|
|
$
|
27,785
|
|
|
Money market
|
|
|
356,640
|
|
|
|
32.3
|
%
|
|
|
108,908
|
|
|
|
247,732
|
|
|
|
41.9
|
%
|
|
|
37,209
|
|
|
|
210,523
|
|
|
|
38.7
|
%
|
|
|
67,495
|
|
|
Interest-bearing demand
and savings
|
|
|
191,550
|
|
|
|
17.3
|
%
|
|
|
138,364
|
|
|
|
53,186
|
|
|
|
9.0
|
%
|
|
|
(796
|
)
|
|
|
53,982
|
|
|
|
9.9
|
%
|
|
|
11,221
|
|
|
Time deposits –
$250,000 or less
|
|
|
128,521
|
|
|
|
11.7
|
%
|
|
|
47,712
|
|
|
|
80,809
|
|
|
|
13.7
|
%
|
|
|
7,271
|
|
|
|
73,538
|
|
|
|
13.6
|
%
|
|
|
2,843
|
|
|
Time
deposits – more than $250,000
|
|
|
100,285
|
|
|
|
9.1
|
%
|
|
|
19,950
|
|
|
|
80,335
|
|
|
|
13.6
|
%
|
|
|
27,087
|
|
|
|
53,248
|
|
|
|
9.8
|
%
|
|
|
(3,981
|
)
|
|
Total
|
|
$
|
1,104,305
|
|
|
|
100.0
|
%
|
|
$
|
513,546
|
|
|
$
|
590,759
|
|
|
|
100.0
|
%
|
|
$
|
47,455
|
|
|
$
|
543,304
|
|
|
|
100.0
|
%
|
|
$
|
105,363
|
|
The following table shows time deposits by maturity and rate
as of December 31, 2017:
|
|
|
One Year
or Less
|
|
|
After One
Year Through
Two Years
|
|
|
After Two
Years Through
Three Years
|
|
|
After Three
Years
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
0.00-0.99%
|
|
$
|
95,970
|
|
|
$
|
10,775
|
|
|
$
|
872
|
|
|
$
|
336
|
|
|
$
|
107,953
|
|
|
1.00-1.99%
|
|
|
73,179
|
|
|
|
25,568
|
|
|
|
3,115
|
|
|
|
6,495
|
|
|
|
108,357
|
|
|
2.00% and above
|
|
|
1,157
|
|
|
|
3,098
|
|
|
|
746
|
|
|
|
7,495
|
|
|
|
12,496
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
170,306
|
|
|
$
|
39,441
|
|
|
$
|
4,733
|
|
|
$
|
14,326
|
|
|
$
|
228,806
|
|
The following table indicates the amount
of our certificates of deposit and other deposits by time remaining until maturity as of December 31, 2017.
|
|
|
Three
Months
or Less
|
|
|
Over Three
to Six
Months
|
|
|
Over Six
to 12
Months
|
|
|
Over 12
Months
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
Certificates of deposit less than $100,000
|
|
$
|
7,059
|
|
|
$
|
5,258
|
|
|
$
|
9,446
|
|
|
$
|
4,801
|
|
|
$
|
26,564
|
|
|
Certificates of deposit of $100,000 or more
|
|
|
26,093
|
|
|
|
39,231
|
|
|
|
70,449
|
|
|
|
53,699
|
|
|
|
189,472
|
|
|
Public funds
|
|
|
12,272
|
|
|
|
498
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,770
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,424
|
|
|
$
|
44,987
|
|
|
$
|
79,895
|
|
|
$
|
58,500
|
|
|
$
|
228,806
|
|
Borrowings.
Although deposits
are our primary source of funds, we may from time to time utilize borrowings as a cost-effective source of funds when they can
be invested at a positive interest rate spread, for additional capacity to fund loan demand, or to meet our asset/liability management
goals. We are a member of and may obtain advances from the FHLB of San Francisco, which is part of the Federal Home Loan Bank System.
The eleven regional Federal Home Loan Banks provide a central credit facility for their member institutions. These advances are
provided upon the security of certain of our mortgage loans and mortgage-backed securities. These advances may be made pursuant
to several different credit programs, each of which has its own interest rate, range of maturities and call features. At December
31, 2017, we had no FHLB advances outstanding and the ability to borrow up to $311.5 million. At December 31, 2016, there were
no FHLB advances or other borrowings outstanding.
In addition to FHLB advances, we may also
utilized Fed Funds purchased from correspondent banks as a source of short-term funding. At December 31, 2017, we had a total of
$55.0 million federal funds line available from four third-party financial institutions, in addition to a $9.0 million line of
credit which will expire in April 2018 that we do not intend to renew.
We are required to provide collateral for
certain local agency deposits. As of December 31, 2017, the FHLB had issued a letter of credit on behalf of the Bank totaling $9.9
million as collateral for local agency deposits.
The Company replaced
a term loan of United Business Bank, FSB that matured upon its acquisition with a similar $6.0 million term loan. The
interest rate is 4.71% and the loan begins amortizing in July 2018 with a maturity in 2022. This term loan will be repaid
from the net proceeds of this offering.
The following table
sets forth the maximum month-end balance and daily average balance of subordinated debt and other borrowings for the periods indicated.
|
|
|
December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
(Dollars in thousands)
|
|
|
Maximum balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt
|
|
$
|
6,392
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
FHLB and other borrowings
|
|
|
13,502
|
|
|
|
26,000
|
|
|
|
6,000
|
|
|
Term loan
(1)
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average balance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
3,618
|
|
|
|
-
|
|
|
|
-
|
|
|
FHLB and other borrowings
|
|
|
85
|
|
|
|
76
|
|
|
|
992
|
|
|
Term loan
(1)
|
|
|
4,092
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average rate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debt
|
|
|
5.48
|
%
|
|
|
-
|
|
|
|
-
|
|
|
FHLB and other borrowings
|
|
|
0.75
|
%
|
|
|
0.57
|
%
|
|
|
0.53
|
%
|
|
Term loan
(1)
|
|
|
4.71
|
%
|
|
|
-
|
|
|
|
-
|
|
(1) Expected to be repaid in full out of
proceeds from the offering.
At December 31, 2017, we had $5.4 million
aggregate principal (net of mark-to-market adjustments) of junior subordinated debentures issued in connection with the sale of
trust preferred securities by a statutory business trust which we assumed in our acquisition of United Business Bank, FSB. The
trust preferred securities accrue and pay distributions periodically at specified annual rates as provided in each trust agreement.
The trust used the net proceeds from each of the offerings to purchase a like amount of junior subordinated debentures (the “Debentures”)
of the Company. The Debentures are the sole assets of the trust. The Company’s obligations under the Debentures and related
documents, taken together, constitute a full and unconditional guarantee by the Company of the obligations of the trust. The trust
preferred securities are mandatorily redeemable upon maturity of the Debentures or upon earlier redemption as provided in the indentures.
The Company has the right to redeem the Debentures in whole or in part on or after specific dates, at a redemption price specified
in the indentures governing the Debentures plus any accrued but unpaid interest to the redemption date. The Company also has the
right to defer the payment of interest on each of the Debentures for a period not to exceed 20 consecutive quarters, provided that
the deferral period does not extend beyond the stated maturity. During such deferral period, distributions on the corresponding
trust preferred securities will also be deferred and the Company may not pay cash dividends to the holders of shares of the Company’s
common stock. The common securities issued by the grantor trust are held by the Company, and the Company’s investment in
the common securities was $295,500 at December 31, 2017, which is included in prepaid expenses and other assets in the consolidated
balance sheets included in our consolidated financial statements.
Shareholders’ equity.
Shareholders’
equity increased $40.6 million, or 52.0%, to $118.6 million at December 31, 2017 from $78.1 million at December 31, 2016. This
increase was primarily due to $34.8 million of common stock issued by the Company in connection with its two acquisitions in 2017,
in addition to net income of $5.3 million for the year ended December 31, 2017.
Comparison of Operating Results for the
Years Ended December 31, 2017 and 2016
Earnings summary.
We reported
net income of $5.3 million for the year ended December 31, 2017, compared to $5.9 million for the year ended December 31, 2016,
a decrease of $652,000, or 11.0%. The decrease in net income primarily was the result of $3.5 million in merger expenses related
to the United Business Bank, FSB and Plaza Bank acquisitions and a $2.7 million income tax adjustment to the Company’s deferred
tax asset related to the December 22, 2017 enactment of the Tax Cuts and Jobs Act. The effect of these adjustments reduced
earnings per share by $0.76 for the year ended December 31, 2017.
Diluted earnings per share were $0.81 for
the year ended December 31, 2017, a decrease of $0.28 from diluted earnings per share of $1.09 for the year ended December 31,
2016.
Our efficiency ratio, which is calculated
by dividing noninterest expense by the sum of net interest income before provision for loan losses plus noninterest income, was
67.34% for the year ended December 31, 2017, compared to 60.78% for the year ended December 31, 2016. The change in the efficiency
ratio for the year ended December 31, 2017 compared to the year ended December 31, 2016 is attributable primarily to increases
in noninterest expenses, partially offset by an increase in noninterest income.
Interest income.
Interest
income for the year ended December 31, 2017 was $44.3 million, compared to $29.6 million December 31, 2016, an increase of $14.7
million, or 49.4%. The increase in interest income primarily was due to an increase in average interest earning assets, principally
loans, which was driven by the two whole-bank acquisitions completed during the year ended December 31, 2017, partially offset
by a lower average yield on the loan portfolio. Interest income on loans increased $12.7 million as a result of a $262.3 million
increase in the average loan balance, partially offset by a 32 basis point decline in average loan yield. The average yield earned
on loans for the year ended December 31, 2017 was 5.44%, compared to 5.76% for the year ended December 31, 2016. Interest income
on loans for the year ended December 31, 2017 included $3.0 million in accretion of purchase accounting fair value adjustments
on acquired loans, compared to $1.9 million for the year ended December 31, 2016. The remaining net discount on these purchased
loans was $8.7 million and $5.3 million at December 31, 2017 and 2016, respectively. The average yield earned on loans for the
year ended December 31, 2017 was 4.95%, down 13 basis points from 5.08% for the year ended December 31, 2016.
Interest income on interest-bearing
deposits increased $1.5 million as a result of a $67.3 million increase in the average balance of interest-earning deposits and
a 68 basis point increase in the yield on interest-earning deposits to 1.21% for the year ended December 31, 2017 from 0.53% for
the year ended December 31, 2016. Interest income on investment securities increased $363,000 as a result of a $9.1 million increase
in the average balance of investment securities and an 82 basis point increase in the yield on investment securities to 2.07%
for the year ended December 31, 2017 from 1.25% for the year ended December 31, 2016. For the year ended December 31, 2017, net
interest income included $3.0 million in accretion of purchase accounting fair value adjustments on acquired loans, compared to
$1.9 million for the year ended December 31, 2016.
Interest expense.
Interest
expense increased by $1.2 million, or 40.3%, to $4.3 million for the year ended December 31, 2017 from $3.1 million for the year
ended December 31, 2016. The average cost of interest bearing liabilities decreased eight basis points to 0.65% for the year ended
December 31, 2017 from 0.73% for the year ended December 31, 2016. Total average interest-bearing liabilities increased by $247.8
million, or 59.2%, to $666.2 million for the year ended December 31, 2017 from $418.4 million for the year ended December 31, 2016.
Interest expense on deposits increased
$834,000, or 27.1%, to $3.9 million during the year ended December 31, 2017 from $3.1 million the same period in 2016, primarily
due to the deposits acquired during the year totaling $428.0 million in the United Business Bank, FSB acquisition and $54.2 million
in the Plaza Bank acquisition. The effects of the increase in the average deposit balance was partially offset by lower rates
paid on interest bearing deposits, reflecting the relatively low interest rate environment. The average rate paid on interest
bearing deposits decreased to 0.59% for the year ended December 31, 2017 from 0.73% for the year ended December 31, 2016. Interest
expense on borrowings was $404,000 for the year ended December 31, 2017 compared to none for the same period in 2016, as a result
of the junior subordinated debentures assumed and another borrowing obtained in connection with our United Business Bank, FSB
acquisition.
The Company replaced a term loan of United
Business Bank, FSB that matured upon its acquisition with a similar $6.0 million term loan. This term loan will be repaid from
the net proceeds of this offering.
Net interest income.
Net
interest income increased $13.4 million, or 50.4%, to $39.9 million for the year ended December 31, 2017 compared to $26.6
million for the year ended December 31, 2016. Net interest margin for the year ended December 31, 2017 decreased 11 basis
points to 4.14% from 4.25% for the same period in 2016. Accretion of acquisition accounting discounts on loans and the
recognition of revenue from purchase credit impaired loans in excess of discounts increased our net interest margin by
31 basis points and 32 basis points during years ended December 31, 2017 and 2016, respectively. The average yield on
interest-earning assets for the year ended December 31, 2017 was 4.59%, a 15 basis point decrease from the year ended
December 31, 2016, while the average cost of interest-bearing liabilities for the year ended December 31, 2017 was 0.65%,
down eight basis points from the year ended December 31, 2016.
The following table presents, for the periods
indicated, information about (i) average balances, the total dollar amount of interest income from interest-earning assets and
the resultant average yields; (ii) average balances, the total dollar amount of interest expense on interest-bearing liabilities
and the resultant average yields; (iii) net interest income; (iv) the interest rate spread; and (v) the net interest margin. Yields
have been calculated on a pre-tax basis.
|
|
|
Years
Ended December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
2015
|
|
|
|
|
Average
Balance
(1)
|
|
|
Interest
Inc/Exp
|
|
|
Average
Yield/Rate
|
|
|
Average
Balance
(1)
|
|
|
Interest
Inc/Exp
|
|
|
Average
Yield/Rate
|
|
|
Average
Balance
(1)
|
|
|
Interest
Inc/Exp
|
|
|
Average
Yield/Rate
|
|
|
|
|
(Dollars in thousands)
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
173,321
|
|
|
$
|
2,092
|
|
|
|
1.21
|
%
|
|
$
|
105,999
|
|
|
$
|
566
|
|
|
|
0.53
|
%
|
|
$
|
133,223
|
|
|
$
|
517
|
|
|
|
0.39
|
%
|
|
Investments available-for-sale
|
|
|
30,452
|
|
|
|
631
|
|
|
|
2.07
|
%
|
|
|
21,400
|
|
|
|
268
|
|
|
|
1.25
|
%
|
|
|
43,799
|
|
|
|
478
|
|
|
|
1.09
|
%
|
|
FHLB stock
|
|
|
4,116
|
|
|
|
356
|
|
|
|
8.65
|
%
|
|
|
2,462
|
|
|
|
307
|
|
|
|
12.47
|
%
|
|
|
2,274
|
|
|
|
231
|
|
|
|
10.16
|
%
|
|
FRB stock
|
|
|
1,863
|
|
|
|
87
|
|
|
|
4.67
|
%
|
|
|
1,441
|
|
|
|
90
|
|
|
|
6.25
|
%
|
|
|
1,296
|
|
|
|
74
|
|
|
|
5.71
|
%
|
|
Total
loans
|
|
|
755,404
|
|
|
|
41,087
|
|
|
|
5.44
|
%
|
|
|
493,091
|
|
|
|
28,394
|
|
|
|
5.76
|
%
|
|
|
395,047
|
|
|
|
24,415
|
|
|
|
6.18
|
%
|
|
Total interest-earning
assets
|
|
|
965,156
|
|
|
|
44,253
|
|
|
|
4.59
|
%
|
|
|
624,393
|
|
|
|
29,625
|
|
|
|
4.74
|
%
|
|
|
575,639
|
|
|
|
25,715
|
|
|
|
4.47
|
%
|
|
Noninterest-earning
assets
|
|
|
61,545
|
|
|
|
|
|
|
|
|
|
|
|
25,350
|
|
|
|
|
|
|
|
|
|
|
|
27,386
|
|
|
|
|
|
|
|
|
|
|
Total average assets
|
|
$
|
1,026,701
|
|
|
|
|
|
|
|
|
|
|
$
|
649,743
|
|
|
|
|
|
|
|
|
|
|
$
|
603,025
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
$
|
30,748
|
|
|
|
28
|
|
|
|
0.09
|
%
|
|
$
|
13,694
|
|
|
|
21
|
|
|
|
0.15
|
%
|
|
$
|
13,978
|
|
|
|
19
|
|
|
|
0.14
|
%
|
|
Interest-bearing checking
|
|
|
117,965
|
|
|
|
120
|
|
|
|
0.10
|
%
|
|
|
40,222
|
|
|
|
77
|
|
|
|
0.19
|
%
|
|
|
39,972
|
|
|
|
72
|
|
|
|
0.18
|
%
|
|
Money market accounts
|
|
|
317,946
|
|
|
|
1,703
|
|
|
|
0.54
|
%
|
|
|
228,011
|
|
|
|
1,102
|
|
|
|
0.48
|
%
|
|
|
185,866
|
|
|
|
1,257
|
|
|
|
0.68
|
%
|
|
Certificates of deposit
|
|
|
191,086
|
|
|
|
2,057
|
|
|
|
1.08
|
%
|
|
|
136,382
|
|
|
|
1,874
|
|
|
|
1.37
|
%
|
|
|
135,230
|
|
|
|
1,338
|
|
|
|
0.99
|
%
|
|
Total deposit accounts
|
|
|
657,745
|
|
|
|
3,908
|
|
|
|
0.59
|
%
|
|
|
418,309
|
|
|
|
3,074
|
|
|
|
0.73
|
%
|
|
|
375,046
|
|
|
|
2,686
|
|
|
|
0.72
|
%
|
|
Borrowed
funds
|
|
|
8,485
|
|
|
|
404
|
|
|
|
4.76
|
%
|
|
|
77
|
|
|
|
-
|
|
|
|
-
|
|
|
|
992
|
|
|
|
5
|
|
|
|
0.50
|
%
|
|
Total
int-bearing liabilities
|
|
|
666,230
|
|
|
|
4,312
|
|
|
|
0.65
|
%
|
|
|
418,386
|
|
|
|
3,074
|
|
|
|
0.73
|
%
|
|
|
376,038
|
|
|
|
2,691
|
|
|
|
0.72
|
%
|
|
Noninterest-bearing
liabilities
|
|
|
260,903
|
|
|
|
|
|
|
|
|
|
|
|
156,280
|
|
|
|
|
|
|
|
|
|
|
|
155,001
|
|
|
|
|
|
|
|
|
|
|
Total average liabilities
|
|
|
927,133
|
|
|
|
|
|
|
|
|
|
|
|
574,666
|
|
|
|
|
|
|
|
|
|
|
|
531,039
|
|
|
|
|
|
|
|
|
|
|
Average equity
|
|
|
99,568
|
|
|
|
|
|
|
|
|
|
|
|
75,077
|
|
|
|
|
|
|
|
|
|
|
|
71,986
|
|
|
|
|
|
|
|
|
|
|
Total
average liabilities and equity
|
|
$
|
1,026,701
|
|
|
|
|
|
|
|
|
|
|
$
|
649,743
|
|
|
|
|
|
|
|
|
|
|
$
|
603,025
|
|
|
|
|
|
|
|
|
|
|
Net
interest income
|
|
|
|
|
|
$
|
39,941
|
|
|
|
|
|
|
|
|
|
|
$
|
26,551
|
|
|
|
|
|
|
|
|
|
|
$
|
23,024
|
|
|
|
|
|
|
Interest rate spread
(2)
|
|
|
|
|
|
|
|
|
|
|
3.94
|
%
|
|
|
|
|
|
|
|
|
|
|
4.01
|
%
|
|
|
|
|
|
|
|
|
|
|
3.75
|
%
|
|
Net interest margin
(3)
|
|
|
|
|
|
|
|
|
|
|
4.14
|
%
|
|
|
|
|
|
|
|
|
|
|
4.25
|
%
|
|
|
|
|
|
|
|
|
|
|
4.00
|
%
|
|
Ratio of average interest-
earning assets to average interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
144.87
|
%
|
|
|
|
|
|
|
|
|
|
|
149.24
|
%
|
|
|
|
|
|
|
|
|
|
|
153.08
|
%
|
|
|
(1)
|
Average balances are average daily balances.
|
|
|
(2)
|
Interest rate spread is calculated as the average rate earned on interest-earning assets minus the average rate paid on interest-bearing
liabilities.
|
|
|
(3)
|
Net interest margin is calculated as net interest income divided by total average earning assets.
|
Increases and decreases in interest income
and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities,
as well as changes in weighted average interest rates. The following table sets forth the effects of changing rates and volumes
on our net interest income during the periods shown. Information is provided with respect to (i) effects on interest income attributable
to changes in volume (changes in volume multiplied by prior rate) and (ii) effects on interest income attributable to changes in
rate (changes in rate multiplied by prior volume). Changes applicable to both volume and rate have been allocated to volume. Yields
have been calculated on a pre-tax basis.
|
|
|
Year Ended December
31, 2017
Compared to Year Ended
December 31, 2016
|
|
|
Year Ended December
31, 2016
Compared to Year Ended
December 31, 2015
|
|
|
|
|
Increase/(Decrease)
Due
to
|
|
|
|
|
|
Increase/(Decrease)
Due
to
|
|
|
|
|
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
Rate
|
|
|
Volume
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing deposits
|
|
$
|
716
|
|
|
$
|
810
|
|
|
$
|
1,526
|
|
|
$
|
216
|
|
|
$
|
(167
|
)
|
|
$
|
49
|
|
|
Investments available-for-sale
|
|
|
176
|
|
|
|
188
|
|
|
|
363
|
|
|
|
70
|
|
|
|
(281
|
)
|
|
|
(211
|
)
|
|
FHLB stock
|
|
|
(94
|
)
|
|
|
143
|
|
|
|
49
|
|
|
|
53
|
|
|
|
23
|
|
|
|
76
|
|
|
FRB stock
|
|
|
(23
|
)
|
|
|
20
|
|
|
|
(3
|
)
|
|
|
7
|
|
|
|
9
|
|
|
|
16
|
|
|
Total loans
|
|
|
(1,578
|
)
|
|
|
14,571
|
|
|
|
12,693
|
|
|
|
(1,654
|
)
|
|
|
5,634
|
|
|
|
3,979
|
|
|
Total interest income
|
|
|
(802
|
)
|
|
|
15,431
|
|
|
|
14,628
|
|
|
|
(1,308
|
)
|
|
|
5,218
|
|
|
|
3,910
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Savings accounts
|
|
|
(8
|
)
|
|
|
15
|
|
|
|
7
|
|
|
|
2
|
|
|
|
-
|
|
|
|
2
|
|
|
Interest-bearing checking
|
|
|
(37
|
)
|
|
|
80
|
|
|
|
43
|
|
|
|
4
|
|
|
|
1
|
|
|
|
5
|
|
|
Money market accounts
|
|
|
132
|
|
|
|
469
|
|
|
|
601
|
|
|
|
(340
|
)
|
|
|
185
|
|
|
|
(155
|
)
|
|
Certificates of deposit
|
|
|
371
|
|
|
|
544
|
|
|
|
183
|
|
|
|
520
|
|
|
|
16
|
|
|
|
536
|
|
|
Total deposit accounts
|
|
|
(284
|
)
|
|
|
1,118
|
|
|
|
835
|
|
|
|
187
|
|
|
|
301
|
|
|
|
388
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowed funds
|
|
|
3
|
|
|
|
400
|
|
|
|
403
|
|
|
|
-
|
|
|
|
(5
|
)
|
|
|
(5
|
)
|
|
Total interest expense
|
|
|
(281
|
)
|
|
|
1,529
|
|
|
|
1,238
|
|
|
|
187
|
|
|
|
196
|
|
|
|
383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income
|
|
$
|
(522
|
)
|
|
$
|
13,913
|
|
|
$
|
13,390
|
|
|
$
|
(1,496
|
)
|
|
$
|
5,022
|
|
|
$
|
3,526
|
|
Provision for loan losses.
We establish an allowance for loan losses by charging amounts to the loan provision at a level required to reflect estimated credit
losses in the loan portfolio. In evaluating the level of the allowance for loan losses, management considers, among other factors,
historical loss experience, the types of loans and the amount of loans in the loan portfolio, adverse situations that may affect
borrowers’ ability to repay, estimated value of any underlying collateral, prevailing economic conditions and current risk
factors specifically related to each loan type. See “- Critical Accounting Policies and Estimates — Allowance for loan
loss” for a description of the manner in which the provision for loan losses is established.
Based on management’s
evaluation of the foregoing factors, we recorded a provision for loan losses of $462,000 for the year ended December 31,
2017, compared to a provision for loan losses of $598,000 for the year ended December 31, 2016, a decrease of $136,000 or
22.7%. We recorded no provision for loan losses for acquired loans related to the acquired non-purchased credit-impaired
loans as accounted for in accordance with ASC Topic 310-20 for both the years ended December 31, 2017 and 2016. In addition,
no additional provisions were recorded on the purchase credit-impaired loans accounted for in accordance with ASC Topic
310-30 during 2017 and 2016. The provision for loan losses decreased primarily as a result of the low levels of delinquent,
nonperforming and classified loans, as well as stabilizing real estate values in our market areas which mitigated the
required allowance for loan losses due to our loan growth. We had net charge-offs of $22,000 for the year ended December 31,
2017 compared to $673,000 for the year ended December 31, 2016. The ratio of net charge-offs to average total loans
outstanding was 0.00% for the year ended December 31, 2017 and 0.14% for the year ended December 31, 2016. The allowance for
loan losses to total loans receivable, was 0.47% at December 31, 2017 compared to 0.74% at December 31, 2016.
Management considers the allowance for loan
losses at December 31, 2017 to be adequate to cover losses inherent in the loan portfolio based on the assessment of the above-mentioned
factors affecting the loan portfolio. While management believes the estimates and assumptions used in its determination of the
adequacy of the allowance are reasonable, there can be no assurance that such estimates and assumptions will not be proven incorrect
in the future, or that the actual amount of future losses will not exceed the amount of the established allowance for loan losses
or that any increased allowance for loan losses that may be required will not adversely impact our financial condition and results
of operations. In addition, the determination of the amount of our allowance for loan losses is subject to review by bank regulators,
as part of the routine examination process, which may result in additions to our provision for loan losses based upon their judgment
of information available to them at the time of their examination.
Noninterest income.
Noninterest
income increased $3.4 million, or 253.0%, to $4.8 million for the year ended December 31, 2017 compared to $1.4 million for the
year ended December 31, 2016. During the current year, the Company sold $22.3 million of SBA loans, which generated fees of $2.2
million. Additionally, the acquisitions and organic growth significantly increased our deposit accounts, which resulted in an
$642,000, or 105.8%, increase in service charges and other fees. Loan fee income increased $235,000, or 71.0%, to $566,000 for
the year ended December 31, 2017, compared to $331,000 for the year ended December 31, 2016. All other components of noninterest
income increased $386,000, net during the year.
|
|
|
Years Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
Gain on sale of loans
|
|
$
|
2,173
|
|
|
$
|
—
|
|
|
$
|
2,173
|
|
|
|
NM
|
|
|
Service charges and other fees
|
|
|
1,249
|
|
|
|
607
|
|
|
|
642
|
|
|
|
105.8
|
%
|
|
Loan
servicing and other loan fees
|
|
|
566
|
|
|
|
331
|
|
|
|
235
|
|
|
|
71.0
|
%
|
|
Gain on sale of OREO, net
|
|
|
252
|
|
|
|
—
|
|
|
|
252
|
|
|
|
NM
|
|
|
Other income and fees
|
|
|
554
|
|
|
|
420
|
|
|
|
134
|
|
|
|
31.9
|
%
|
|
Total noninterest income
|
|
$
|
4,794
|
|
|
$
|
1,358
|
|
|
$
|
3,436
|
|
|
|
253.0
|
%
|
NM- Not meaningful.
Noninterest expense.
Noninterest
expense increased $13.2, or 77.6%, to $30.1 million for the year ended December 31, 2017 compared to $17.0 million for the year
ended December 31, 2016. Each line category of noninterest expense was higher than the previous year, as we nearly doubled in
size due to the acquisitions and organic growth. Salaries and related benefits increased $6.4 million, or 60.4%, to $17.0 million,
as the number of full-time equivalent employees increased to 158 at December 31, 2017, compared to 110 a year earlier. Data processing
expenses increased $3.3 million, or 241.6%, to $4.7 million, related to the acquisitions and the systems conversion we undertook
during the year, as well as a result of higher transaction volume. Occupancy and equipment expenses increased $1.1 million, or
50.3%, to $3.2 million, primarily due to the increase in the number of branch office resulting from our acquisitions. As of December
31, 2017, we operated 18 full service branches, compared to 10 a year earlier. As we build our market presence, we regularly evaluate
the appropriate number and locations of our branches, and have recently closed one of our two locations in San Jose,
California in March 2018, due to overlapping market areas. Other noninterest expense increased $2.3 million,
or 82.5%, to $5.1 million during the year ended December 31, 2017, compared to $2.8 million during the same period in 2016, primarily
due to increases in professional fees of $517,000, in the amortization of our core deposit intangible asset of $452,000, in marketing
expenses of $332,000 and in supplies of $296,000.
|
|
|
Years Ended December 31,
|
|
|
Increase (Decrease)
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Amount
|
|
|
Percent
|
|
|
|
|
(Dollars in thousands)
|
|
|
Salaries and related benefits
|
|
$
|
17,018
|
|
|
$
|
10,611
|
|
|
$
|
6,407
|
|
|
|
60.4
|
%
|
|
Occupancy and equipment
|
|
|
3,227
|
|
|
|
2,147
|
|
|
|
1,080
|
|
|
|
50.3
|
%
|
|
Data processing
|
|
|
4,735
|
|
|
|
1,386
|
|
|
|
3,349
|
|
|
|
241.6
|
%
|
|
Other
|
|
|
5,144
|
|
|
|
2,819
|
|
|
|
2,325
|
|
|
|
82.5
|
%
|
|
Total noninterest expense
|
|
$
|
30,124
|
|
|
$
|
16,963
|
|
|
$
|
13,161
|
|
|
|
77.6
|
%
|
NM- Not meaningful.
Income taxes.
Income tax expense
increased $4.5 million, or 100.4%, to $8.9 million for the year ended December 31, 2017 compared to $4.4 million for the year ended
December 31, 2016. The Company’s effective tax rate was 62.8% for the year ended December 31, 2017 compared to 42.9% for
the same period in 2016. The increase in the Company’s effective tax rate during the year ended December 31, 2017 compared
to the same period in 2016 is primarily the result of a $2.7 million charge against our deferred tax assets related to recent changes
in the U. S. tax laws, wherein the statutory corporate tax rate was lowered from 35.0% to 21.0%. Outside of this one-time cost,
the effective tax rate would have been 43.9%, slightly up from the 42.9% recorded during the year ended December 31, 2016.
Liquidity and Capital Resources
Planning for our normal business liquidity
needs, both expected and unexpected, is done on a daily and short-term basis through the cash management function. On a longer-term
basis it is accomplished through the budget and strategic planning functions, with support from internal asset/liability management
software model projections.
Management maintains a liquidity position
that it believes will adequately provide funding for loan demand and deposit run-off that may occur in the normal course of business.
We rely on a number of different sources in order to meet our potential liquidity demands. Our primary sources of funds are deposits,
escrow and custodial deposits, principal and interest payments on loans and proceeds from sale of loans. While maturities and scheduled
amortization of loans are predictable sources of funds, deposit flows and mortgage prepayments are greatly influenced by market
interest rates, economic conditions, and competition. Our most liquid assets are cash, short-term investments, including interest-bearing
demand deposits and securities available-for-sale. The levels of these assets are dependent on our operating, financing, lending,
and investing activities during any given period.
Our cash flows are comprised of three primary
classifications: cash flows from operating activities, investing activities, and financing activities. Net cash provided by operating
activities was $9.3 million and $6.3 million for the years ended December 31, 2017 and 2016, respectively. During the year ended
December 31, 2017, net cash provided from investing activities, which consists primarily of net change in loans receivable and
purchases, sales and maturities of investment securities, was $90.4 million. During the year ended December 31, 2016, net cash
used in investing activities was $32.7 million. Net cash provided from financing activities, which is comprised primarily of net
change in deposits, was $21.4 million and $46.9 million for the years ended December 31, 2017 and 2016, respectively.
The Company, which is a separate legal entity
from the Bank and must provide for its own liquidity, had liquid assets of $676,000 on an unconsolidated basis at December 31,
2017. In addition to its operating expenses, the Company is responsible for paying any dividends declared to its shareholders,
funds paid out for Company stock repurchases, and payments on trust-preferred securities and subordinated debt held at the Company
level. The Company has the ability to receive dividends or capital distributions from the Bank, although there are regulatory restrictions
on the ability of the Bank to pay dividends. See “How We Are Regulated - Limitations on Dividends and Other Capital Distributions”
and Note 21 of the Notes to Consolidated Financial Statements contained herein.
Consistent with our goal to operate a sound
and profitable organization, our policy is for the Company and the Bank to maintain “well-capitalized” status under
the Federal Reserve regulations. Based on capital levels at December 31, 2017 and 2016, the Bank and the Company were considered
to be well-capitalized.
The table below shows the capital ratios
under the Basel III capital framework.
|
|
|
Actual
|
|
|
Minimum
Regulatory
Requirement
|
|
|
Minimum
Regulatory
Requirement for
"Well-Capitalized"
|
|
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
Amount
|
|
|
Ratio
|
|
|
|
|
(Dollars in thousands)
|
|
|
BayCom Corp
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
$
|
107,153
|
|
|
|
8.73
|
%
|
|
$
|
49,117
|
|
|
|
4.00
|
%
|
|
$
|
61,396
|
|
|
|
5.00
|
%
|
|
Common equity tier 1 capital
|
|
|
100,761
|
|
|
|
11.43
|
%
|
|
|
39,659
|
|
|
|
4.50
|
%
|
|
|
57,285
|
|
|
|
6.50
|
%
|
|
Tier 1 capital to risk-weighted assets
|
|
|
107,153
|
|
|
|
12.16
|
%
|
|
|
52,878
|
|
|
|
6.00
|
%
|
|
|
70,504
|
|
|
|
8.00
|
%
|
|
Total capital to risk-weighted assets
|
|
|
111,678
|
|
|
|
12.67
|
%
|
|
|
70,504
|
|
|
|
8.00
|
%
|
|
|
88,133
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Business Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
$
|
111,143
|
|
|
|
8.92
|
%
|
|
$
|
49,823
|
|
|
|
4.00
|
%
|
|
$
|
62,279
|
|
|
|
5.00
|
%
|
|
Common equity tier 1 capital
|
|
|
111,143
|
|
|
|
12.43
|
%
|
|
|
40,229
|
|
|
|
4.50
|
%
|
|
|
58,109
|
|
|
|
6.50
|
%
|
|
Tier 1 capital to risk-weighted assets
|
|
|
111,143
|
|
|
|
12.43
|
%
|
|
|
53,639
|
|
|
|
6.00
|
%
|
|
|
71,519
|
|
|
|
8.00
|
%
|
|
Total capital to risk-weighted assets
|
|
|
115,668
|
|
|
|
12.94
|
%
|
|
|
71,519
|
|
|
|
8.00
|
%
|
|
|
89,399
|
|
|
|
10.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bay Commercial Bank
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 leverage ratio
|
|
$
|
72,937
|
|
|
|
10.59
|
%
|
|
$
|
27,461
|
|
|
|
4.00
|
%
|
|
$
|
34,327
|
|
|
|
5.00
|
%
|
|
Common equity tier 1 capital
|
|
|
72,937
|
|
|
|
13.43
|
%
|
|
|
24,437
|
|
|
|
4.50
|
%
|
|
|
35,298
|
|
|
|
6.50
|
%
|
|
Tier 1 capital to risk-weighted assets
|
|
|
72,937
|
|
|
|
13.43
|
%
|
|
|
32,583
|
|
|
|
6.00
|
%
|
|
|
43,444
|
|
|
|
8.00
|
%
|
|
Total capital to risk-weighted assets
|
|
|
76,992
|
|
|
|
14.18
|
%
|
|
|
43,444
|
|
|
|
8.00
|
%
|
|
|
54,305
|
|
|
|
10.00
|
%
|
Pursuant to the recent capital regulations
adopted by the Federal Reserve and the other federal banking agencies, the Company and the Bank must maintain a capital conservation
buffer consisting of additional common equity tier 1 capital greater than 2.5% of risk-weighted assets above the required minimum
levels of common equity tier 1 capital, tier 1 capital and total capital in order to avoid limitations on paying dividends, repurchasing
shares, and paying discretionary bonuses. The capital conservation buffer requirement is phased in beginning on January 1, 2016
when a buffer greater than 0.625% of risk-weighted assets was required, which amount increases each year until the buffer requirement
is fully implemented on January 1, 2019. At December 31, 2017, the Company and the Bank were considered well-capitalized under
applicable rules and meet the capital conservation buffer requirement.
Contractual Obligations
The following table summarizes aggregated information
about our outstanding contractual obligations and other long-term liabilities as of December 31, 2017. The payment amounts represent
those amounts contractually due to the recipients.
|
|
|
One Year
or Less
|
|
|
After One
Year
Through
Three Years
|
|
|
After Three
Years
Through
Five Years
|
|
|
After Five
Years
|
|
|
Total
|
|
|
|
|
(In thousands)
|
|
|
Deposits without a stated maturity
|
|
$
|
875,499
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
875,499
|
|
|
Certificates of deposit
|
|
|
170,306
|
|
|
|
39,441
|
|
|
|
4,733
|
|
|
|
14,326
|
|
|
|
228,806
|
|
|
Term loan
|
|
|
300
|
|
|
|
1,200
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
6,000
|
|
|
Subordinated debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,387
|
|
|
|
5,387
|
|
|
Salary continuation plan
|
|
|
300
|
|
|
|
600
|
|
|
|
600
|
|
|
|
2,546
|
|
|
|
4,046
|
|
|
Operating lease obligations
|
|
|
1,899
|
|
|
|
3,208
|
|
|
|
2,033
|
|
|
|
1,018
|
|
|
|
8,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
1,048,304
|
|
|
$
|
44,449
|
|
|
$
|
11,866
|
|
|
$
|
23,277
|
|
|
$
|
1,127,896
|
|
Borrowings are fully described in Notes 11 and
12 of the Consolidated Financial Statements as December 31, 2017 and 2016. Operating lease obligations are in place primarily for
facilities and land on which banking facilities are located. See Note 6 of our Consolidated Financial Statements as of December
31, 2017 and 2016 for additional information.
Off-Balance Sheet Arrangements
In the normal course of operations, we engage
in a variety of financial transactions that, in accordance with GAAP, are not recorded in our financial statements. These transactions
involve, to varying degrees, elements of credit, interest rate and liquidity risk. Such transactions are used primarily to manage
clients’ requests for funding and take the form of loan commitments, lines of credit and standby letters of credit.
For information about our loan commitments,
unused lines of credit and standby letters of credit, see Note 14 of the Notes to our Consolidated Financial Statements beginning
on page of this prospectus.
We have not engaged in any other off-balance-sheet
transactions in the normal course of our lending activities.
Quantitative and Qualitative Disclosures About Market and Interest
Rate Risk
Market Risk.
Market risk represents
the risk of loss due to changes in market values of assets and liabilities. We incur market risk in the normal course of business
through exposures to market interest rates, equity prices, and credit spreads. We have identified two primary sources of market
risk: interest rate risk and price risk.
Interest Rate Risk.
Interest rate
risk is the risk to earnings and value arising from changes in market interest rates. Interest rate risk arises from timing differences
in the repricing and maturities of interest-earning assets and interest-bearing liabilities (reprice risk), changes in the expected
maturities of assets and liabilities arising from embedded options, such as borrowers’ ability to prepay residential mortgage
loans at any time and depositors’ ability to redeem certificates of deposit before maturity (option risk), changes in the
shape of the yield curve where interest rates increase or decrease in a nonparallel fashion (yield curve risk), and changes in
spread relationships between different yield curves, such as U.S. Treasuries and LIBOR (basis risk).
The Asset Liability Committee of our board of
directors (“ALCO”), establishes broad policy limits with respect to interest rate risk. ALCO establishes specific operating
guidelines within the parameters of the board of directors’ policies. In general, we seek to minimize the impact of changing
interest rates on net interest income and the economic values of assets and liabilities. Our ALCO meets quarterly to monitor the
level of interest rate risk sensitivity to ensure compliance with the board of directors’ approved risk limits.
Interest rate risk management is an active process
that encompasses monitoring loan and deposit flows complemented by investment and funding activities. Effective management of interest
rate risk begins with understanding the dynamic characteristics of assets and liabilities and determining the appropriate interest
rate risk posture given business forecasts, management objectives, market expectations, and policy constraints.
An asset sensitive position refers to a balance
sheet position in which an increase in short-term interest rates is expected to generate higher net interest income, as rates earned
on our interest-earning assets would reprice upward more quickly than rates paid on our interest-bearing liabilities, thus expanding
our net interest margin. Conversely, a liability sensitive position refers to a balance sheet position in which an increase in
short-term interest rates is expected to generate lower net interest income, as rates paid on our interest-bearing liabilities
would reprice upward more quickly than rates earned on our interest-earning assets, thus compressing our net interest margin.
Income simulation and economic value analysis.
Interest rate risk measurement is calculated and reported to the ALCO at least quarterly. The information reported includes period-end
results and identifies any policy limits exceeded, along with an assessment of the policy limit breach and the action plan and
timeline for resolution, mitigation, or assumption of the risk.
We use two approaches to model interest rate
risk: Net Interest Income at Risk (NII at Risk) and Economic Value of Equity (EVE). Under NII at Risk, net interest income is modeled
utilizing various assumptions for assets, liabilities, and derivatives. EVE measures the period end market value of assets minus
the market value of liabilities and the change in this value as rates change. EVE is a period end measurement.
We report NII at Risk to isolate the change
in income related solely to interest earning assets and interest-bearing liabilities. The NII at Risk results reflect the analysis
used quarterly by management. It models gradual –100, +100, +200 and +300 basis point parallel shifts in market interest
rates, implied by the forward yield curve over the next two-year period. The following table presents NII at Risk as of December
31, 2017 and 2016.
|
|
|
Net Interest Income Sensitivity
Immediate Change in Rates
|
|
|
|
|
-100
|
|
|
+100
|
|
|
+200
|
|
|
+300
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar change
|
|
$
|
(8,011
|
)
|
|
$
|
1,917
|
|
|
$
|
2,908
|
|
|
$
|
3,221
|
|
|
Percent change
|
|
|
(8.5
|
)%
|
|
|
2.0
|
%
|
|
|
3.1
|
%
|
|
|
3.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar change
|
|
$
|
(3,515
|
)
|
|
$
|
1,346
|
|
|
$
|
2,569
|
|
|
$
|
3,630
|
|
|
Percent change
|
|
|
(6.7
|
)%
|
|
|
2.6
|
%
|
|
|
4.9
|
%
|
|
|
6.9
|
%
|
Our interest rate risk management policy limits
the change in our net interest income to –25% for each of the incremental shock scenarios. At December 31, 2017 we estimated
that a –100 basis point change in rates would have caused an 8.5% decline in net interest income over the forward 24-month
period. However, these estimates were based on a constant-sized balance sheet. Mortgage volumes typically would increase in a –100
basis point scenario which would increase net interest and noninterest income. Management determined these dynamics are sufficient
mitigating factors. Management may also remediate situations where we are not within our policy limits by buying or selling assets,
buying or selling participations in assets, and changing asset and liability pricing.
The EVE results included in the table below
reflect the analysis used quarterly by management. It models immediate –100, +100, +200 and +300 basis point parallel shifts
in market interest rates.
|
|
|
Economic Value of Equity Sensitivity
Immediate Change in Rates
|
|
|
|
|
-100
|
|
|
+100
|
|
|
+200
|
|
|
+300
|
|
|
|
|
(Dollars in thousands)
|
|
|
|
|
|
December 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar change
|
|
$
|
(22,343
|
)
|
|
$
|
5,090
|
|
|
$
|
6,307
|
|
|
$
|
5,246
|
|
|
Percent change
|
|
|
(10.0
|
)%
|
|
|
2.3
|
%
|
|
|
2.8
|
%
|
|
|
2.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dollar change
|
|
$
|
(8,943
|
)
|
|
$
|
2,633
|
|
|
$
|
2,720
|
|
|
$
|
2,219
|
|
|
Percent change
|
|
|
(7.6
|
)%
|
|
|
2.2
|
%
|
|
|
2.3
|
%
|
|
|
1.9
|
%
|
Our interest rate risk management policy limits
the change in our EVE to –20% % for each of the incremental shock scenarios. We are within policy limits set by our board
of directors for the –100, +100, +200 and +300 basis point scenarios. The EVE reported at December 31, 2017, projects that
if interest rates increased immediately by 100 basis points, the economic value of equity position would be expected to increase
$5.1 million, or 2.3%. When interest rates rise, fixed rate assets generally lose economic value; the longer the duration, the
greater the value lost. The opposite is true when interest rates fall. The EVE results reported as of December 31, 2017 and 2016,
for all levels of interest rate changes, shows a liability sensitive position.
Critical Accounting Policies and Estimates
Our financial statements are prepared in accordance
with GAAP. The financial information contained within these statements is, to a significant extent, financial information that
is based on approximate measures of the financial effects of transactions and events that have already occurred. The following
represent our critical accounting policies:
Allowance for loan losses.
The
allowance for loan losses is evaluated on a regular basis by management. Periodically, we charge current earnings with provisions
for estimated probable losses of loans receivable. The provision or adjustment takes into consideration the adequacy of the total
allowance for loan losses giving due consideration to specifically identified problem loans, the financial condition of the borrowers,
fair value of the underlying collateral, recourse provisions, prevailing economic conditions, and other factors. Additional consideration
is given to our historical loan loss experience relative to our loan portfolio concentrations related to industry, collateral and
geography. This evaluation is inherently subjective and requires estimates that are susceptible to significant change as additional
or new information becomes available. In addition, regulatory examiners may require additional allowances based on their judgments
of the information regarding problem loans and credit risk available to them at the time of their examinations.
Generally, the allowance for loan loss consists
of various components including a component for specifically identified weaknesses as a result of individual loans being impaired,
a component for general non-specific weakness related to historical experience, economic conditions and other factors that indicate
probable loss in the loan portfolio, and an unallocated component that relates to the inherent imprecision in the use of estimates.
Loans determined to be impaired are individually evaluated by management for specific risk of loss.
In situations where, for economic or legal reasons
related to a borrower’s financial difficulties, we grant a concession to the borrower that we would not otherwise consider,
the related loan is classified as a troubled debt restructuring, or TDR. We measure any loss on the TDR in accordance with the
guidance concerning impaired loans set forth above. Additionally, TDRs are generally placed on non-accrual status at the time of
restructuring and included in impaired loans. These loans are returned to accrual status after the borrower demonstrates performance
with the modified terms for a sustained period of time (generally six months) and has the capacity to continue to perform in accordance
with the modified terms of the restructured debt.
Estimated expected cash flows
related to purchased credit impaired loans.
Loans purchased with evidence of credit deterioration since origination for
which it is probable that all contractually required payments will not be collected are accounted for under FASB ASC 310-30,
Loans
and Debt Securities Acquired with Deteriorated Credit Quality
. In situations where such PCI loans have similar risk characteristics,
loans may be aggregated into pools to estimate cash flows. A pool is accounted for as a single asset with a single interest rate,
cumulative loss rate and cash flow expectation.
The cash flows expected over the life of the
PCI loan or pool are estimated using an internal cash flow model that projects cash flows and calculates the carrying values of
the pools, book yields, effective interest income and impairment, if any, based on pool level events. Assumptions as to default
rates, loss severity and prepayment speeds are utilized to calculate the expected cash flows.
Expected cash flows at the acquisition date
in excess of the fair value of loans are considered to be accretable yield, which is recognized as interest income over the life
of the loan or pool using a level yield method if the timing and amounts of the future cash flows of the pool are reasonably estimable.
Subsequent to the acquisition date, any increases in cash flow over those expected at purchase date in excess of fair value are
recorded as interest income prospectively. Any subsequent decreases in cash flow over those expected at purchase date are recognized
by recording an allowance for loan losses. Any disposals of loans, including sales of loans, payments in full or foreclosures result
in the removal of the loan from the loan pool at the carrying amount.
Business combinations.
We apply
the acquisition method of accounting for business combinations. Under the acquisition method, the acquiring entity in a business
combination recognizes all of the identifiable assets acquired and liabilities assumed at their acquisition date fair values. Management
utilizes prevailing valuation techniques appropriate for the asset or liability being measured in determining these fair values.
Any excess of the purchase price over amounts allocated to assets acquired, including identifiable intangible assets, and liabilities
assumed is recorded as goodwill. Where amounts allocated to assets acquired and liabilities assumed is greater than the purchase
price, a bargain purchase gain is recognized. Acquisition-related costs are expensed as incurred unless they are directly attributable
to the issuance of the Company’s common stock in a business combination.
Loan sales and servicing of financial
assets.
Periodically, we sell loans and retains the servicing rights. The gain or loss on sale of loans depends in part
on the previous carrying amount of the financial assets involved in the transfer, allocated between the assets sold and the retained
interests based on their relative fair value at the date of transfer. All servicing assets and liabilities are initially measured
at fair value. In addition, we amortize servicing rights in proportion to and over the period of the estimated net servicing income
or loss and assesses the rights for impairment. The servicing rights are initially measured at fair value and amortized in proportion
to and over the period of the estimated net servicing income assuming prepayments.
Income taxes.
Deferred income
taxes are computed using the asset and liability method, which recognizes a liability or asset representing the tax effects, based
on current tax law, of future deductible or taxable amounts attributable to events that have been recognized in the financial statements.
A valuation allowance is established to reduce the deferred tax asset to the level at which it is “more likely than not”
that the tax asset or benefits will be realized. Realization of tax benefits of deductible temporary differences and operating
loss carry forwards depends on having sufficient taxable income of an appropriate character within the carry forward periods.
We recognize that the tax effects from an uncertain
tax position can be recognized in the financial statements only if, based on its merits, the position is more likely than not to
be sustained on audit by the taxing authorities. Interest and penalties related to uncertain tax positions are recorded as part
of income tax expense.
Goodwill.
Our goodwill
resulted from our acquisitions of United Business Bank, FSB and Plaza Bank. Goodwill is reviewed for impairment annually and more
often if an event occurs or circumstances change that might indicate the recorded value of the goodwill is more than
its implied value. Such indicators may include, among others: a significant adverse change in legal factors or in the
general business climate; significant decline in the Company’s stock price and market capitalization;
unanticipated competition; and an adverse action or assessment by a regulator. Any adverse changes in these factors could
have a significant impact on the recoverability of goodwill and could have a material impact on our financial condition and
results of operations.
The testing for impairment may begin with an
assessment of qualitative factors to determine whether the existence of events or circumstances leads to a determination that the
fair value of goodwill is less than carrying value. The qualitative assessment includes adverse events or circumstances identified
that could negatively affect the reporting unit’s fair value as well as positive and mitigating events. When required, the
goodwill impairment test involves a two-step process. The first test for goodwill impairment is done by comparing the reporting
unit’s aggregate fair value to its carrying value. Absent other indicators of impairment, if the aggregate fair value exceeds
the carrying value, goodwill is not considered impaired and no additional analysis is necessary. If the carrying value of the reporting
unit were to exceed the aggregate fair value, a second test would be performed to measure the amount of impairment loss, if any.
To measure any impairment loss the implied fair value would be determined in the same manner as if the reporting unit were being
acquired in a business combination. If the implied fair value of goodwill is less than the recorded goodwill an impairment charge
would be recorded for the difference. For the year ended December 31, 2017, we completed step one of the two-step process of the
goodwill impairment test. Based on the results of the test, we concluded that the reporting unit’s fair value was greater
than its carrying value and there was no impairment of goodwill.
Non-GAAP Financial Measures
We identify certain financial measures discussed
in this prospectus as being “non-GAAP financial measures.” In accordance with the SEC’s rules, we classify a
financial measure as being a non-GAAP financial measure if that financial measure excludes or includes amounts, or is subject to
adjustments that have the effect of excluding or including amounts, that are included or excluded, as the case may be, in the most
directly comparable measure calculated and presented in accordance with generally accepted accounting principles as in effect from
time to time in the United States in our statements of income, balance sheet or statements of cash flows. Non-GAAP financial measures
do not include operating and other statistical measures or ratios or statistical measures calculated using exclusively either financial
measures calculated in accordance with GAAP, operating measures or other measures that are not non-GAAP financial measures or both.
The non-GAAP financial measures that we discuss
in this prospectus should not be considered in isolation or as a substitute for the most directly comparable or other financial
measures calculated in accordance with GAAP. Moreover, the manner in which we calculate the non-GAAP financial measures that we
discuss in this prospectus may differ from that of other companies reporting measures with similar names. You should understand
how such other banking organizations calculate their financial measures similar or with names similar to the non-GAAP financial
measures we have discussed in this prospectus when comparing such non-GAAP financial measures.
Tangible Book Value Per Common Share and
Tangible Book Value Per Diluted Common Share
: Tangible book value is a non-GAAP measure generally used by financial analysts
and investment bankers to evaluate financial institutions. We calculate: (a) tangible common equity as total shareholders’
equity less preferred stock and goodwill and core deposit intangibles, net of accumulated amortization; (b) tangible book
value per common share as tangible common equity (as described in clause (a)) divided by shares of common stock outstanding; and
tangible book value per common share as tangible common equity (as described in clause (a)) divided by diluted shares of common
stock outstanding. For tangible book value, the most directly comparable financial measure calculated in accordance with GAAP is
book value.
Management believes that these measures are
important to many investors who are interested in changes from period to period in book value per common share exclusive of changes
in intangible assets. Goodwill and other intangible assets have the effect of increasing total book value while not increasing
our tangible book value.
The following table reconciles, as of the dates
set forth below, total shareholders’ equity to tangible common equity, tangible book value per common share, and diluted
tangible book value per common share and compares these values with book value per common share (dollars in thousands, except per
share data).
|
|
|
At December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Total shareholders’ equity
|
|
$
|
118,635
|
|
|
$
|
78,063
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
(4,772
|
)
|
|
|
(802
|
)
|
|
Goodwill
|
|
|
(10,365
|
)
|
|
|
-
|
|
|
Tangible common equity
|
|
$
|
103,498
|
|
|
$
|
77,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Common shares outstanding
|
|
|
7,496,995
|
|
|
|
5,472,426
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted common shares outstanding
|
|
|
7,478,204
|
|
|
|
5,435,749
|
|
|
|
|
|
|
|
|
|
|
|
|
Book value per common share
|
|
$
|
15.82
|
|
|
$
|
14.26
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible book value per common share
|
|
$
|
13.81
|
|
|
$
|
14.12
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted tangible book value per common share
|
|
$
|
13.84
|
|
|
$
|
14.21
|
|
Tangible Common Equity to Tangible Assets
:
Tangible common equity to tangible assets is a non-GAAP measure generally used by financial analysts and investment bankers to
evaluate financial institutions. We calculate: (a) tangible common equity as total shareholders’ equity less goodwill
and core deposit intangibles, net of accumulated amortization; (b) tangible assets as total assets less goodwill and core
deposit intangibles, net of accumulated amortization; and (c) tangible common equity to tangible assets as tangible common
equity (as described in clause (a)) divided by tangible assets (as described in clause (b)). For common equity to tangible assets,
the most directly comparable financial measure calculated in accordance with GAAP is total shareholders’ equity to total
assets.
Management believes that this measure is important
to many investors in the marketplace who are interested in the relative changes from period to period in common equity and total
assets, each exclusive of changes in intangible assets. Goodwill and other intangible assets have the effect of increasing both
total shareholders’ equity and total assets while not increasing tangible common equity or tangible assets.
The following table reconciles, as of the dates
set forth below, total shareholders’ equity to tangible common equity and total assets to tangible assets (dollars in thousands).
|
|
|
At December 31,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Total shareholders’ equity
|
|
$
|
118,635
|
|
|
$
|
78,063
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
(4,772
|
)
|
|
|
(802
|
)
|
|
Goodwill
|
|
|
(10,365
|
)
|
|
|
-
|
|
|
Tangible common equity
|
|
$
|
103,498
|
|
|
$
|
77,261
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,245,794
|
|
|
$
|
675,299
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Core deposit intangibles
|
|
|
(4,772
|
)
|
|
|
(802
|
)
|
|
Goodwill
|
|
|
(10,365
|
)
|
|
|
-
|
|
|
Tangible assets
|
|
$
|
1,230,657
|
|
|
$
|
674,497
|
|
|
|
|
|
|
|
|
|
|
|
|
Tangible common equity to tangible assets
|
|
|
8.41
|
%
|
|
|
11.45
|
%
|
BUSINESS
Our Company
We are a bank holding company headquartered
in Walnut Creek, California. United Business Bank, our wholly owned banking subsidiary, is a California state-chartered bank which
provides a broad range of financial services primarily to local small and mid-sized businesses, service professionals and individuals.
In our 14 years of operation, we have grown to 17 full service banking branches. Our main office is located in Walnut Creek, California
and our branch offices are located in Oakland, Castro Valley, Mountain View, Napa, Stockton (2), Pleasanton, Livermore, San Jose,
Long Beach, Sacramento, San Francisco and Glendale, California, and Seattle, Washington (2) and Albuquerque, New Mexico. In addition,
we have one loan production office in Los Angeles, California. In addition to our organic growth, we have completed five whole-bank
acquisitions since 2011. As of December 31, 2017, we had, on a consolidated basis, total assets of $1.25 billion, total deposits
of $1.10 billion, total loans of $890.1 million (net of allowances) and total shareholders’ equity of $118.6 million.
Our principal objective is to increase shareholder
value and generate consistent earnings growth by expanding our commercial banking franchise through opportunistic acquisitions
that are additive to our franchise value and organic growth. We strive to provide an enhanced banking experience for our clients
by providing a comprehensive suite of sophisticated banking products and services tailored to meet their needs and by delivering
the high-quality, relationship-based, client service of a community bank.
Our History and Growth
The Company was formed as the holding
company for the Bank in 2017. We commenced banking operations as Bay Commercial Bank in July 2004 and changed the name of the Bank
to United Business Bank in April 2017 following our acquisition of United Business Bank, FSB in April 2017.
The Bank was founded in March 2004
as California-chartered commercial bank by a group of Walnut Creek business and community leaders, including George Guarini who
serves as our Chief Executive Officer. Mr. Guarini and our other founders envisioned a community bank in Walnut Creek committed
to creating long-term relationships with small and mid-sized businesses and professionals. The severe economic recession beginning
in 2008 and the ongoing consolidation in the banking industry, created an opportunity for our management team and board to build
an attractive commercial banking franchise and create long-term value for our shareholders by employing an acquisition strategy
that focuses on opportunities that grow our product portfolio and expand the business geographically.
In 2010, we raised $16.8 million
in net proceeds through institutional investors and individuals to support our acquisition strategy. Since then, we have implemented
our vision of becoming a strategic consolidator of community banks and a destination for seasoned bankers and business persons
who share our entrepreneurial spirit. While not without risk, we believe there are certain advantages resulting from mergers and
acquisitions. These advantages include, among others, the diversification of our loan portfolio with seasoned loans, the expansion
of our market areas and an effective method to augment our growth and risk management infrastructure through the retention of
local lending personnel and credit administration personnel to manage the client relationships of the bank being acquired.
We believe we have a successful track record
of selectively acquiring, integrating and consolidating community banks. Since 2010, we have completed a series of five acquisitions
with aggregate total assets of approximately $892.2 million and total deposits of approximately $768.6 million. Our acquisition
activity includes the following:
|
|
·
|
October 2011 –
Acquired Global Trust Bank in Mountain View, California, with $90.0 million in total assets
and $71.3 million in deposits.
|
|
|
·
|
April 2014 –
Acquired Community Bank of San Joaquin in Stockton, California, with $123.7 million in total
assets and $107.2 million in deposits.
|
|
|
·
|
February 2015 –
Acquired Valley Community Bank in Pleasanton, California with locations in Pleasanton,
Livermore and San Jose, California, with $129.6 million in total assets and $107.9 million in deposits.
|
|
|
·
|
April 2017 –
Acquired United Business Bank, FSB headquartered in Oakland, California, with nine full-
service banking offices in Long Beach, Oakland, Sacramento, San Francisco, San Jose and Glendale, California, Seattle,
Washington and Albuquerque, New Mexico. At the time United Business Bank, FSB had $473.1 million in total assets and $428.0
million in deposits. This acquisition significantly increased our total asset size, expanded our geographic footprint and
added low cost, stable deposits associated with a strong network of relationship with labor unions. Upon completion of our
merger with United Business Bank, FSB, we changed the name of the Bank from Bay Commercial Bank to United Business Bank.
|
|
|
·
|
November 2017 –
Acquired Plaza Bank in Seattle, Washington, with $75.8 million in total assets and $54.2
million in deposits, expanding our presence in the Seattle, Washington market.
|
As a result of our acquisitions and organic
growth for the five years ended December 31, 2017, total assets have grown at a compound annual growth rate, or CAGR, of 32%, our
total deposits at a CAGR of 33% and our total loans (net of allowances) at a CAGR of 32%. Our operating performance has also
improved during the five-year period ended December 31, 2017. Our net income grew at a CAGR of 20% and our nonperforming assets
improved, decreasing to $179,000, or 0.01% of total assets, at December 31, 2017, from $2.9 million, or 0.83% of total assets,
at December 31, 2013. Our efficiency ratio was 67.34% for the year ended December 31, 2017, compared to 63.33% for the year ended
December 31, 2013.
As we have grown, we have
been able to effectively manage our capital and as of December 31, 2017, the Company and the Bank were considered “well
capitalized” for regulatory capital purposes. Our tangible book value per share has increased from $11.05 at December 31,
2013 to $13.81 at December 31, 2017. As of December 31, 2017, we had $118.6 million in total shareholders’ equity.
Our Historical Performance
Operating Results
Since our first acquisition in 2011 through
December 31, 2017, we have achieved significant growth in many of our key financial performance categories. Since December 31,
2013, we have grown our total assets from $342.3 million to $1.25 billion, total loans, net of allowances, from $251.1 million
to $890.1 million, and total deposits from $286.5 million to $1.10 billion. The charts below illustrate the growth in the dollar
balances of our total assets, loans and deposits for the five-year period ended December 31, 2017. The growth in these metrics
from December 31, 2016 to December 31, 2017 was primarily attributable to our acquisition of United Business Bank, FSB,
which was completed in April 2017.
During the five-year
period ended December 31, 2017, our profitability also significantly increased. The charts below illustrate our net income
to common shareholders, diluted EPS and NIM during this period.
Note: Net interest margin is calculated by dividing annualized
net interest income by average interest-earning assets for the period.
The charts below illustrate our ROAA, our
ROAE and our efficiency ratio in the five-year period ended December 31, 2017.
Note: ROAA and ROAE are calculated by dividing annualized
net income by average assets and average common equity.
As we have grown,
we have been able to effectively manage our capital while strengthening our asset quality and driving growth in our tangible book
value per share. As of December 31, 2017, our ratio of nonperforming loans to total loans was 0.02% and the Bank’s Tier
1 leverage ratio was 8.92%. We have maintained a strong balance sheet and, as of December 31, 2017, the Company and the Bank were
above the regulatory definitions of “well capitalized.” Our tangible book value per share has increased from $11.05
at December 31, 2013 to $13.81 at December 31, 2017. At December 31, 2017, we had $118.6 million in total shareholders’
equity.
Loan and Deposit Portfolio
As illustrated in the charts and tables
below, we have grown our loan portfolio from $254.2 million as of December 31, 2013 to $894.8 million as of December 31, 2017.
Our loan portfolio composition was 90.4% commercial loans and 9.6% one-to-four family and other as of December 31, 2017, and within
our commercial loan portfolio, 77.6% of such loans were commercial real estate loans and 12.8% of such loans were commercial and
industrial loans.
|
(Dollars in Thousands and as of
period end dates)
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Commercial and Industrial
|
|
$
|
73,430
|
|
|
$
|
71,983
|
|
|
$
|
71,605
|
|
|
$
|
71,093
|
|
|
$
|
114,373
|
|
|
Residential RE
|
|
|
17,596
|
|
|
|
25,312
|
|
|
|
29,378
|
|
|
|
31,917
|
|
|
|
84,781
|
|
|
Multifamily RE
|
|
|
920
|
|
|
|
8,233
|
|
|
|
36,778
|
|
|
|
38,236
|
|
|
|
118,128
|
|
|
Owner occupied CRE
|
|
|
53,974
|
|
|
|
81,435
|
|
|
|
131,686
|
|
|
|
150,289
|
|
|
|
256,451
|
|
|
Non-owner occupied CRE
|
|
|
93,371
|
|
|
|
125,737
|
|
|
|
176,900
|
|
|
|
195,753
|
|
|
|
297,244
|
|
|
Construction and land
|
|
|
14,598
|
|
|
|
12,548
|
|
|
|
17,086
|
|
|
|
19,745
|
|
|
|
22,720
|
|
|
Consumer
and other
(1)
|
|
|
289
|
|
|
|
452
|
|
|
|
967
|
|
|
|
1,317
|
|
|
|
1,096
|
|
|
Total Loans
|
|
$
|
254,178
|
|
|
$
|
325,699
|
|
|
$
|
464,400
|
|
|
$
|
508,350
|
|
|
$
|
894,793
|
|
(1)
Consumer and other represent less than 1% of total loans and are not reflected in the chart above
In addition, as illustrated
in the charts and tables below, we have grown our deposits from $286.5 million at December 31, 2013 to $1.10 billion at December
31, 2017. The improvement in our deposit mix as well as the current rate environment have helped lower our cost of interest-bearing
deposits from 95 basis points at December 31, 2013 to 59 basis points at December 31, 2017.
|
(Dollars in Thousands and as of
period end dates)
|
|
2013
|
|
|
2014
|
|
|
2015
|
|
|
2016
|
|
|
2017
|
|
|
Noninterest-bearing demand
|
|
$
|
58,017
|
|
|
$
|
124,228
|
|
|
$
|
152,013
|
|
|
$
|
128,697
|
|
|
$
|
327,309
|
|
|
Money market
|
|
|
101,038
|
|
|
|
143,028
|
|
|
|
210,523
|
|
|
|
247,732
|
|
|
|
356,640
|
|
|
Interest-bearing demand and savings
|
|
|
15,621
|
|
|
|
42,760
|
|
|
|
53,982
|
|
|
|
53,186
|
|
|
|
191,550
|
|
|
Certificates
|
|
|
111,788
|
|
|
|
127,923
|
|
|
|
126,786
|
|
|
|
161,144
|
|
|
|
228,806
|
|
|
Total Deposits
|
|
$
|
286,464
|
|
|
$
|
437,939
|
|
|
$
|
543,304
|
|
|
$
|
590,759
|
|
|
$
|
1,104,305
|
|
|
Cost of Interest-Bearing Deposits
|
|
|
0.95
|
%
|
|
|
0.88
|
%
|
|
|
0.72
|
%
|
|
|
0.73
|
%
|
|
|
0.59
|
%
|
|
Net Interest Margin
|
|
|
4.10
|
%
|
|
|
3.95
|
%
|
|
|
4.00
|
%
|
|
|
4.25
|
%
|
|
|
4.14
|
%
|
See “Management’s Discussion and
Analysis of Financial Condition and Results of Operations” for a more comprehensive discussion of our operating and financial
performance.
Our Strategies
Our strategy is to continue to make strategic
acquisitions of financial institutions within the Western United States, grow organically and preserve our strong asset quality
through disciplined lending practices.
|
|
·
|
Strategic
Consolidation of Community Banks
.
We believe our strategy of selectively
acquiring and integrating community banks has provided us with economies of scale and
improved our overall franchise efficiency. We expect to continue to pursue strategic
acquisitions of financial institutions and believe our target market areas present us
with numerous acquisition opportunities as many of these financial institutions will
continue to be burdened and challenged by new and more complex banking regulations, resource
constraints, competitive limitations, rising technological and other business costs,
management succession issues and liquidity concerns.
|
The following map illustrates the headquarters of potential
acquisition opportunities broken out by asset size between $100.0 million and $1.5 billion within our target footprint.
There are 187 banks within our target markets
that meet our size criteria
|
|
|
Total Banks
|
|
|
Median
Asset
Size
|
|
|
Banks $100M-$500M
|
|
|
121
|
|
|
$
|
229,034
|
|
|
Banks $500M-$1B
|
|
|
50
|
|
|
$
|
751,945
|
|
|
Banks $1B-$1.5B
|
|
|
16
|
|
|
$
|
1,208,314
|
|
Source: S&P Global Market Intelligence
as of December 31, 2017.
Despite the significant number of opportunities, we intend
to continue to employ a disciplined approach to our acquisition strategy and only seek to identify and partner with financial institutions
that possess attractive market share, low-cost deposit funding and compelling noninterest income-generating businesses. We believe
consolidation will lead to organic growth opportunities for us following the integration of businesses we acquire. We also expect
to continue to manage our branch network in order to ensure effective coverage for clients while minimizing any geographic overlap
and driving corporate efficiency.
|
|
·
|
Enhance the Performance of the Banks We Acquire
. We strive to successfully integrate the banks we acquire into
our existing operational platform and enhance shareholder value through the creation of efficiencies within the combined operations.
We believe that our experience and reputation as a successful integrator and acquirer will allow us to continue to capitalize on
additional opportunities in the future.
|
|
|
·
|
Focus
on Lending Growth in Our Metropolitan Markets While Increasing Deposits in Our Community
Markets
. We believe the markets in which we operate currently provide meaningful
opportunities to expand our commercial client base and increase our current market share
through organic growth. We believe our diverse geographic footprint provides us with
access to low cost, stable core deposits in community markets, which deposits can be
used to fund commercial loan growth in our larger metropolitan markets. In acquiring
United Business Bank, FSB in 2017, we acquired a large deposit base from the local and
regional unionized labor community. As of December 31, 2017, our top ten depositors included
five labor unions which accounted for roughly 9.31% of our deposits. At that date, nearly
30% of our deposit base was comprised of non-interest-bearing demand deposit accounts,
significantly lowering our aggregate cost of funds.
|
|
|
·
|
Our team of seasoned bankers represents an important driver of our organic growth by expanding banking relationships
with current and potential clients.
We expect to continue to make opportunistic hires of talented and entrepreneurial bankers,
to further augment our growth. Our bankers are incentivized to increase the size of their loan and deposit portfolios and generate
fee income while maintaining strong credit quality. We also seek to cross-sell our various banking products, including our deposit
products, to our commercial loan clients, which we believe provides a basis for expanding our banking relationships as well as
a stable, low-cost deposit base. We believe we have built a scalable platform that will support this continued organic growth.
|
|
|
·
|
Preserve Our Asset Quality Through Disciplined Lending Practices
. Our approach to credit management uses well-defined
policies and procedures, disciplined underwriting criteria and ongoing risk management. We believe we are a competitive and effective
commercial lender, supplementing ongoing and active loan servicing with early-stage credit review provided by our bankers. This
approach has allowed us to maintain loan growth with a diversified portfolio of assets. We believe our credit culture supports
accountable bankers, who maintain an ability to expand our client base as well as make sound decisions for our Company. As of December
31, 2017, our ratio of nonperforming assets to total assets was 0.01% and our ratio of nonperforming loans to total loans was 0.02%.
In the 14 years since our inception, which time frame includes the recent recession in the U.S., we have cumulative net charge-offs
$6.0 million We believe our success in managing asset quality is illustrated by our aggregate net charge-off history.
|
Our Competitive Strengths
Our management team has identified the following
competitive strengths which we believe will allow us to continue to achieve our principal objective of increasing shareholder value
and generating consistent earnings growth:
|
|
·
|
Experienced Leadership and Management Team
. Our experienced executive management team, senior leaders and board
of directors have exhibited the ability to deliver shareholder value by consistently growing profitably while expanding our commercial
banking franchise through acquisitions. The members of our executive management team have many years worth of experience working
for financial institutions in our markets during various economic cycles and have significant merger and acquisition experience
in the financial services industry. Our executive management team has instilled a transparent and entrepreneurial culture that
rewards leadership, innovation and problem solving. All founding members of our executive management team, which consists of our
chief operating officer, chief financial officer and chief executive officer, have invested their own capital in the equity of
our Company, providing close alignment of their interests with those of our other shareholders.
|
|
|
·
|
Sophisticated and Customized Banking Products with High-Quality Client Service
.
We provide a comprehensive
suite of financial solutions that competes with large, national competitors, but with the personalized attention and nimbleness
of a relationship-focused community bank. We offer a full range of lending products, including commercial and multi-family real
estate loans (including owner-occupied and investor real estate loans), commercial and industrial loans (including equipment loans
and working capital lines of credit), U.S. Small Business Administration (“SBA”) loans, construction and land loans,
agriculture-related loans and consumer loans. We provide our commercial clients with a diverse array of cash management services.
We also offer convenience-related services, including banking by appointment (before or after normal business hours on weekdays
and on weekends), online banking services, access to a national automated teller machine network, remote deposit capture, on-line
banking and courier services so that clients’ deposit and other banking needs may be served without the client having to
make a trip to the branch.
|
|
|
·
|
Experience in Smaller Communities and Metropolitan Markets
. Our banking footprint has given us experience operating
in small communities and large cities. We believe that our presence in smaller communities gives us a relatively stable source
of core deposits and steady profitability, while our more metropolitan markets represents strong long-term growth opportunities.
In addition, we believe that the breadth of our operating experience and successful track record of integrating prior acquisitions
increases the potential acquisition opportunities available to us.
|
|
|
·
|
Disciplined Acquisition Approach
. Our disciplined approach to acquisitions, consolidations and integrations,
includes the following: (i) selectively acquiring community banking franchises only at appropriate valuations, after taking
into account risks that we perceive with respect to the targeted bank; (ii) completing comprehensive due diligence and developing
an appropriate plan to address any legacy credit problems of the targeted institution; (iii) identifying an achievable cost
savings estimate; (iv) executing definitive acquisition agreements that we believe provide adequate protections to us; (v) installing
our credit procedures, audit and risk management policies and procedures, and compliance standards upon consummation of the acquisition;
(vi) collaborating with the target’s management team to execute on synergies and cost saving opportunities related to
the acquisition; and (vii) involving a broader management team across multiple departments in order to help ensure the successful
integration of all business functions. We believe this approach allows us to realize the benefits of the acquisition and create
shareholder value, while appropriately managing risk.
|
|
|
·
|
Efficient and Scalable Platform with Capacity to Support Our Growth
. Through significant investments in technology
and staff, our management team has built an efficient and scalable corporate infrastructure within our commercial banking franchise
which we believe will support our continued growth. During 2017, we undertook several initiatives designed to strengthen our operations
and risk culture, including implementing controls and procedures designed to comply with the applicable requirements of the Federal
Deposit Insurance Corporation Improvement Act, or FDICIA. We also intend in the future to implement a new core processing system
to further enhance our acquisition ability. We believe that this scalable infrastructure will continue to allow us to efficiently
and effectively manage our anticipated growth.
|
|
|
·
|
Focus on Operating Efficiencies.
We seek to realize operating efficiencies from our recently completed acquisitions
by utilizing technology to streamline our operations. We continue to centralize the back-office functions of our acquired banks,
as well as realize cost savings through the use of third party vendors and technology, in order to take advantage of economies
of scale as we continue to grow. We intend to focus on initiatives that we believe will provide opportunities to enhance earnings,
including the continued rationalization of our retail banking footprint through the evaluation of possible branch consolidations
or opportunities to sell branches.
|
|
|
·
|
Strong Risk Management Practices
.
We place significant emphasis on risk management as an integral component
of our organizational culture without sacrificing growth. We believe our comprehensive risk management system is designed to make
sure that we have sound policies, procedures, and practices for the management of key risks under our risk framework (which includes
market, operational, liquidity, interest rate sensitivity, credit, insurance, regulatory, legal and reputational risk) and that
any exceptions are reported by senior management to our board of directors or audit committee. We believe that our enterprise risk
management philosophy has been important in gaining and maintaining the confidence of our various constituencies and growing our
business and footprint within our markets. We also believe our risk management practices are manifested in our strong asset quality
statistics. As of December 31, 2017, our ratio of nonperforming assets to total assets was 0.01% and our ratio of nonperforming
loans to total loans was 0.02%.
|
Our Banking Services
A general description of
the range of commercial banking products and other services we offer follows.
Lending Activities.
We offer a full range of lending products, including commercial and multi-family real estate loans (including owner-occupied
and investor real estate loans), commercial and industrial loans (including equipment loans and working capital lines of credit),
SBA loans, construction and land loans, agriculture-related loans and consumer loans. Our preference is for owner-occupied real
estate and commercial and industrial loans. We also offer consumer loans predominantly as an accommodation to our commercial clients,
which include installment loans, unsecured and secured personal lines of credit, and overdraft protection. Lending activities originate
from the relationships and efforts of our bankers. We are a preferred lender under the SBA loan program.
We may periodically purchase whole loans and
loan participation interests or participate in syndicates originating new loans, including shared national credits, primarily during
periods of reduced loan demand in our primary market areas and at times to support our Community Reinvestment Act lending activities.
Any such purchases or loan participations are made generally consistent with our underwriting standards; however, the loans may
be located outside of our normal lending areas. During the years ended December 31, 2017 and 2016, we purchased $5.8 million and
$11.3 million, respectively, of loans and loan participation interests, principally one- to four-family residential loans and multifamily
real estate loans.
We are a business-focused community bank, serving
small and medium-sized businesses, trade unions and their related businesses, entrepreneurs and professionals located in our markets.
We do not target any specific industries or business segments, rather we look to the quality of the client relationship. We attempt
to differentiate ourselves by having an attentive and focused approach to our clients and utilizing, to the fullest extent possible,
the flexibility that results from being an independently owned and operated bank. We focus on establishing and building strong
financial relationships with our clients using a trusted advisor and relationship approach. We emphasize personalized “relationship
banking,” where the relationship is predicated on ongoing client contact, client access to decision makers, and our understanding
of the clients’ business, market and competition which allows us to better meet the needs of our clients.
At December 31, 2017, we had net loans of $890.1
million, representing 71.5% of our total assets. Our loan portfolio consisted of the following loans as of December 31, 2017:
|
Loan Type
|
|
Amount
|
|
|
Percent of
Total
|
|
|
Commercial and industrial
|
|
$
|
114,373
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
84,781
|
|
|
|
9.5
|
%
|
|
Multifamily residential
|
|
|
118,128
|
|
|
|
13.2
|
%
|
|
Owner occupied CRE
|
|
|
256,451
|
|
|
|
28.7
|
%
|
|
Non-owner occupied CRE
|
|
|
297,244
|
|
|
|
33.2
|
%
|
|
Construction and land
|
|
|
22,720
|
|
|
|
2.5
|
%
|
|
Total real estate
|
|
|
779,324
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Consumer and other
|
|
|
1,096
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total loans
|
|
|
894,793
|
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and costs, net
|
|
|
(469
|
)
|
|
|
|
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
|
|
|
Loans receivable, net
|
|
$
|
890,109
|
|
|
|
|
|
For additional information concerning our loan
portfolio, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Financial
Condition – Loan Portfolio.”
Concentrations of Credit Risk
.
Most of our lending is conducted with businesses and individuals in the San Francisco Bay area. Our loan portfolio consists primarily
of commercial real estate loans, including multifamily and construction loans, which totaled $694.5 million and constituted 77.6%
of total loans as of December 31, 2017 and commercial and industrial loans, which totaled $114.4 million and constituted 12.8%
of total loans as of December 31, 2017. Our commercial real estate loans are generally secured by first liens on real property.
The commercial and industrial loans are typically secured by general business assets, accounts receivable inventory and/or the
corporate guaranty of the borrower and personal guaranty of its principals. The geographic concentration of our loans subjects
our business to the general economic conditions within California, Washington and New Mexico. The risks created by such concentrations
have been considered by management in the determination of the adequacy of the allowance for loan losses. Management believes the
allowance for loan losses is adequate to cover probable incurred losses in our loan portfolio as of December 31, 2017.
Comprehensive risk management practices and
appropriate capital levels are essential elements of a sound commercial real estate lending program. A concentration in commercial
real estate adds a dimension of risk that compounds the risk inherent in individual loans. Interagency bank guidance on commercial
real estate concentrations describe sound risk management practices which include board and management oversight, portfolio management,
management information systems, market analysis, portfolio stress testing and sensitivity analysis, credit underwriting standards
and credit risk review functions. Management believes it has implemented these practices in order to monitor the commercial real
estate concentrations in our loan portfolio.
The following table shows at December 31, 2017, the geographic distribution
of our loan portfolio in dollar amounts and percentages.
|
|
|
San
Francisco Bay
Region
(1)
|
|
|
Other
California
|
|
|
Total
in State of
California
|
|
|
All
Other States
(2)
|
|
|
Total
|
|
|
|
|
Amount
|
|
|
%
of
Total in
Category
|
|
|
Amount
|
|
|
%
of
Total in
Category
|
|
|
Amount
|
|
|
%
of
Total in
Category
|
|
|
Amount
|
|
|
%
of
Total in
Category
|
|
|
Amount
|
|
|
%
of
Total in
Category
|
|
|
|
|
(Dollars in thousands)
|
|
|
Commercial
and industrial
|
|
$
|
85,243
|
|
|
|
14.1
|
%
|
|
$
|
2,783
|
|
|
|
2.1
|
%
|
|
$
|
88,026
|
|
|
|
11.9
|
%
|
|
$
|
26,347
|
|
|
|
16.8
|
%
|
|
$
|
114,373
|
|
|
|
12.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real estate:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
|
|
|
63,933
|
|
|
|
10.6
|
%
|
|
|
6,793
|
|
|
|
5.1
|
%
|
|
|
70,726
|
|
|
|
9.6
|
%
|
|
|
14,055
|
|
|
|
8.9
|
%
|
|
|
84,781
|
|
|
|
9.5
|
%
|
|
Multifamily residential
|
|
|
83,699
|
|
|
|
13.9
|
%
|
|
|
11,297
|
|
|
|
8.5
|
%
|
|
|
94,996
|
|
|
|
12.9
|
%
|
|
|
23,132
|
|
|
|
14.7
|
%
|
|
|
118,128
|
|
|
|
13.2
|
%
|
|
Owner occupied
CRE
|
|
|
171,386
|
|
|
|
28.4
|
%
|
|
|
48,323
|
|
|
|
36.1
|
%
|
|
|
219,709
|
|
|
|
29.8
|
%
|
|
|
36,742
|
|
|
|
23.4
|
%
|
|
|
256,451
|
|
|
|
28.7
|
%
|
|
Non-owner occupied
CRE
|
|
|
183,451
|
|
|
|
30.3
|
%
|
|
|
61,464
|
|
|
|
46.0
|
%
|
|
|
244,915
|
|
|
|
33.2
|
%
|
|
|
52,329
|
|
|
|
33.3
|
%
|
|
|
297,244
|
|
|
|
33.2
|
%
|
|
Construction
and land
|
|
|
15,182
|
|
|
|
2.5
|
%
|
|
|
2,924
|
|
|
|
2.2
|
%
|
|
|
18,106
|
|
|
|
2.5
|
%
|
|
|
4,614
|
|
|
|
2.9
|
%
|
|
|
22,720
|
|
|
|
2.5
|
%
|
|
Total real estate
|
|
|
517,649
|
|
|
|
85.7
|
%
|
|
|
130,801
|
|
|
|
97.9
|
%
|
|
|
648,452
|
|
|
|
88.0
|
%
|
|
|
130,872
|
|
|
|
83.2
|
%
|
|
|
779,324
|
|
|
|
87.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer
and other
|
|
|
1,069
|
|
|
|
0.2
|
%
|
|
|
-
|
|
|
|
0.0
|
%
|
|
|
1,069
|
|
|
|
0.1
|
%
|
|
|
27
|
|
|
|
0.0
|
%
|
|
|
1,096
|
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
loans
|
|
$
|
603,963
|
|
|
|
100.0
|
%
|
|
$
|
133,584
|
|
|
|
100.0
|
%
|
|
$
|
737,547
|
|
|
|
100.0
|
%
|
|
$
|
157,246
|
|
|
|
100.0
|
%
|
|
$
|
894,793
|
|
|
|
100.0
|
%
|
|
|
(1)
|
Includes Alameda, Contra Costa, Solano, Napa, Sonoma, Marin, San Francisco, San Joaquin San Mateo and Santa Clara counties.
|
|
|
(2)
|
Includes loans located in the states of New Mexico, Washington and other states. At December 31, 2017, loans in New Mexico
and Washington totaled $42.0 million and $87.5 million, respectively.
|
Large Credit Relationships
.
As of December 31, 2017, the aggregate amount of loans to our 10 and 25 largest borrowers (including related entities) amounted
to approximately $132.2 million, or 14.8% of total loans, and $229.4 million, or 25.7% of total loans, respectively. The table
below shows our five largest borrowing relationships as of December 31, 2017 in descending order. Each of the loans in these borrowing
relationships is currently performing in accordance with the loan repayment terms as of December 31, 2017.
|
|
|
|
|
|
Loan Type
|
|
|
|
|
|
Borrower Type
|
|
Number
of
Loans
|
|
|
Commercial
&
Industrial
|
|
|
CRE
Owner
Occupied
|
|
|
CRE Non-
Owner
Occupied
|
|
|
Construction
|
|
|
Total
|
|
|
Commercial real estate investor
|
|
|
3
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,256
|
|
|
$
|
2,546
|
|
|
$
|
17,802
|
|
|
Commercial real estate investor
|
|
|
9
|
|
|
|
3,075
|
|
|
|
10,163
|
|
|
|
5,727
|
|
|
|
-
|
|
|
|
18,965
|
|
|
Individual investor
|
|
|
3
|
|
|
|
-
|
|
|
|
9,601
|
|
|
|
7,381
|
|
|
|
-
|
|
|
|
16,982
|
|
|
Individual investor
|
|
|
6
|
|
|
|
750
|
|
|
|
1,417
|
|
|
|
5,999
|
|
|
|
5,035
|
|
|
|
13,201
|
|
|
Individual investor
|
|
|
8
|
|
|
|
3,451
|
|
|
|
9,308
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,759
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals
|
|
|
29
|
|
|
$
|
7,276
|
|
|
$
|
30,489
|
|
|
$
|
34,363
|
|
|
$
|
7,581
|
|
|
$
|
79,709
|
|
See also “Risk Factors – Risks Related
to Our Business – Our largest loan relationships currently make up a material percentage of our total loan portfolio.”
Loan Underwriting and Approval
. Historically,
we believe we have made sound, high quality loans while recognizing that lending money involves a degree of business risk. Our
current loan origination activities are governed by established policies and procedures intended to mitigate the risks inherent
to the types of collateral and borrowers financed by us. These policies provide a general framework for our loan origination, monitoring
and funding activities, while recognizing that not all risks can be anticipated. Our board of directors delegates loan authority
up to board-approved limits collectively to our Directors’ loan committee, which is comprised of members of our board of
directors, with any loans in excess of that limit requiring approval of the entire board of directors. Our board of directors also
delegates limited individual lending authority up to $2.0 million to our Chief Executive Officer, Chief Credit Officer, and the
Director of Labor Service Division, and up to $500,000 to our Chief Credit Officer, and, on a further limited basis, to selected
credit relationship managers and lending officers in each of our target markets up to $50,000. When the total relationship exceeds
an individual’s loan authority, a higher authority or Directors’ loan committee approval is required. Management will
continue to seek Directors loan committee approval for higher committee loan authorities in conjunction with the increased capital
levels that will result from this offering. The objective of our approval process is to provide a disciplined, collaborative approach
to larger credits while maintaining responsiveness to client needs.
Loan decisions are documented as to the borrower’s business,
purpose of the loan, evaluation of the repayment source and the associated risks, evaluation of collateral, covenants and monitoring
requirements, and the risk rating rationale. Our strategy for approving or disapproving loans is to follow our loan policies and
underwriting practices, on a consistent basis, which include:
|
|
·
|
maintaining close relationships among our clients
and their designated bankers to ensure ongoing credit monitoring and loan servicing;
|
|
|
·
|
granting credit on a sound basis with full knowledge
of the purpose and source of repayment for such credit;
|
|
|
·
|
ensuring that primary and secondary sources of repayment
are adequate in relation to the amount of the loan;
|
|
|
·
|
developing and maintaining targeted levels of diversification
for our loan portfolio as a whole and for loans within each category; and
|
|
|
·
|
ensuring that each loan is properly documented and
that any insurance coverage requirements are satisfied.
|
Managing credit risk is an enterprise-wide process.
The principal economic risk associated with each category of loans that we make is the creditworthiness of the borrower and the
value of the underlying collateral, if any. Borrower creditworthiness is affected by general economic conditions and the strength
of the relevant business market segment. We assess the lending risks, economic conditions and other relevant factors related to
the quality of our loan portfolio in order to identify possible credit quality risks. Our strategy for credit risk management includes
well-defined, centralized credit policies, uniform underwriting criteria and ongoing risk monitoring and review processes for all
credit exposures. Our processes emphasize early-stage review of loans, regular credit evaluations and management reviews of loans,
which supplement the ongoing and proactive credit monitoring and loan servicing provided by our bankers. Our Chief Credit Officer
provides Company-wide credit oversight and periodically reviews all credit risk portfolios to ensure that the risk identification
processes are functioning properly and that our credit standards are followed. In addition, a third-party loan review is performed
to assist in the identification of problem assets and to confirm our internal risk rating of loans. These credit review consultants
review a sample of loans periodically and report the results of their findings to the Audit Committee of the Bank’s board of directors.
Results of loan reviews by consultants as well as examination of the loan portfolio by state and federal regulators are also considered
by management and the board in determining the level of the allowance for loan losses. We attempt to identify potential problem
loans early in an effort to seek aggressive resolution of these situations before the loans become a loss, record any necessary
charge-offs promptly and maintain adequate allowance levels for probable loan losses inherent in the loan portfolio.
Our loan policies generally include other underwriting
guidelines for loans collateralized by real estate. These underwriting standards are designed to determine the maximum loan amount
that a borrower has the capacity to repay based upon the type of collateral securing the loan and the borrower’s income.
Such loan policies include maximum amortization schedules and loan terms for each category of loans collateralized by liens on
real estate.
In addition, our loan policies provide the following:
guidelines for personal guarantees; an environmental review; loans to employees, executive officers and directors; problem loan
identification; maintenance of an adequate allowance for loan losses; and other matters relating to lending practices.
General economic factors affecting a borrower’s
ability to repay include interest rates, inflation and unemployment rates, as well as other factors affecting a borrower’s
clients, suppliers and employees. The well-established financial institutions in our primary markets make proportionately more
loans to medium-to-large-sized businesses than we originate. Many of our commercial loans are, or will likely be, made to small-to-medium-sized
businesses that may be less able to withstand competitive, economic and financial pressures than larger borrowers.
Lending Limits
. Our lending activities
are subject to a variety of lending limits imposed by federal and state law. In general, we are subject to a legal lending limit
on loans to a single borrower based on the Bank’s capital level. The dollar amounts of our lending limit increases or decreases
as the Bank’s capital increases or decreases. We are able to sell participations in its larger loans to other financial
institutions, which allows us to manage the risk involved in these loans and to meet the lending needs of its clients requiring
extensions of credit in excess of these limits.
Legal lending limits are calculated in conformance
with California law, which prohibits a bank from lending to any one individual or entity or its related interests on an unsecured
basis any amount that exceeds 15 percent of the sum of such bank’s shareholders’ equity plus the allowance for loan
losses, capital notes and any debentures, plus an additional 10 percent for loans on a secured basis. At December 31, 2017, our
authorized legal lending limits for loans to one borrower was $17.4 million for unsecured loans and $29.0 million for specific
secured loans. We utilize internal limits that are half the prevailing legal limits. Currently, we maintain an in-house limit of
$8.7 million for a unsecured loans and $14.5 million for a secured loan. The legal limit will increase or decrease as the Bank’s
capital increases or decreases as a result of its earnings or losses, among other reasons. We have strict policies and procedures
in place for the establishment of limits with respect to specific products and businesses and evaluating exceptions to the limits
for individual relationships.
Our loan policies provide general guidelines
for loan-to-value ratios that restrict the size of loans to a maximum percentage of the value of the collateral securing the loans,
which percentage varies by the type of collateral. Our internal loan-to-value limitations follow limits established by applicable
law. Exceptions to our policies are allowed only with the prior approval of the Board of Directors and if the
borrower exhibits financial strength or sufficient, measurable compensating factors exist after consideration of the loan-to-value
ratio, borrower’s financial condition, net worth, credit history, earnings capacity, installment obligations, and current
payment history.
Loan Types
. We provide a variety
of loans to meet our clients’ needs. The real estate portion of our loan portfolio is comprised of the following: mortgage
loans secured typically by commercial and multifamily properties; mortgages and revolving lines of credit secured by equity in
residential properties; and construction and land loans. At December 31, 2017, we held $779.3 million in loans secured by real
estate, representing 87.1 % of total loans receivable, and had undisbursed construction and land commitments of $23.3 million.
The types of our loans are described below:
Commercial Real Estate Loans
. We
make commercial real estate loans, which may be owner occupied or non-owner occupied. As of December 31, 2017, owner-occupied commercial
real estate loans totaled $256.5 million, or 28.7% of the total loan portfolio, and non-owner occupied commercial real estate loans
totaled $297.2 million, or 33.2% of the total loan portfolio. Our commercial real estate loans include loans secured by office
buildings, retail facilities, hotels, gas stations convalescent facilities, industrial use buildings, restaurants and multifamily
properties. Commercial real estate secured loans generally carry higher interest rates and have shorter terms than one-four family
residential real estate loans. Commercial real estate lending typically involves higher loan principal amounts and the repayment
of the loan is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses
and debt service. We require our commercial real estate loans to be secured by a property with adequate margins and generally obtain
a guarantee from responsible parties. Our commercial real estate loans generally are collateralized by first liens on real estate,
have interest rates which may be fixed for three to five years, or adjust annually. Commercial real estate loan terms generally
are limited to 15 years or less, although payments may be structured on a longer amortization basis up to 20 years with balloon
payments or rate adjustments due at the end of three to seven years. We generally charge an origination fee for our services.
Payments on loans secured by such properties
are often dependent on the successful operation (in the case of owner occupied real estate) or management (in the case of non-owner
occupied real estate) of the properties. Accordingly, repayment of these loans may be subject to adverse conditions in the real
estate market or the economy to a greater extent than other types of loans. Commercial real estate loans are underwritten primarily
using a cash flow analysis and secondarily as loans secured by real estate. In underwriting commercial real estate loans, we seek
to minimize risks in a variety of ways, including giving careful consideration to the property’s age, condition, operating
history, future operating projections, current and projected market rental rates, vacancy rates, location and physical condition.
The underwriting analysis also may include credit verification, reviews of appraisals, environmental hazards or reports, the borrower’s
liquidity and leverage, management experience of the owners or principals, economic condition, industry trends and any guarantees,
including SBA loan guarantees. At December 31, 2017, $49.0 million of our commercial real estate loans had SBA guarantees. We generally
require personal guarantees from the principal owners of the property supported by a review by our management of the principal
owners’ personal financial statements. We attempt to limit our risk by analyzing the borrowers’ cash flow and collateral
value on an ongoing basis and by an annual review of rent rolls and financial statements. The loan-to-value ratio as established
by an independent appraisal typically will not exceed 80% at loan origination and is lower in most cases. At December 31, 2017,
the average loan size in our commercial real estate portfolio was approximately $880,000 with a weighted average loan-to-value
ratio of 58%.
Agriculture is a major industry in the Central
Valley, of California, which is one our lending markets. We make agricultural real estate secured loans to borrowers with a strong
capital base, sufficient management depth, proven ability to operate through agricultural cycles, reliable cash flows and adequate
financial reporting. Generally, our agricultural real estate secured loans amortize over periods of 20 years or less and typically
the loan-to-value ratio will not exceed 80% at loan origination, although actual loan-to-value ratios are typically lower. Payments
on agricultural real estate secured loans depend, to a large degree, on the results of operations of the related farm entity. The
repayment is also subject to other economic and weather conditions, as well as market prices for agricultural products which can
be highly volatile. Among the more common risks involved in agricultural lending are weather conditions, disease, water availability
and water distribution rights, which can be mitigated through multi-peril crop insurance. Commodity prices also present a risk,
which may be managed by the use of set price contracts. As part of our underwriting, the borrower is required to obtain multi-peril
crop insurance. Normally, in making agricultural real estate secured loans, our required beginning and projected operating margins
provide for reasonable reserves to offset unexpected yield and price deficiencies. We also consider management succession, life
insurance and business continuation plans when evaluating agricultural real estate secured loans. At December 31, 2017, our agricultural
real estate secured loans, totaled $17.0 million, or 1.9% of our loan portfolio.
The following table
presents a breakdown of our commercial real estate loan portfolio at December 31, 2017, and 2016.
|
|
|
December 31, 2017
|
|
|
December 31, 2016
|
|
|
|
|
Amount
|
|
|
% of
Total in
Category
|
|
|
Amount
|
|
|
% of
Total in
Category
|
|
|
|
|
(Dollars in thousands)
|
|
|
Retail
|
|
$
|
74,380
|
|
|
|
11.1
|
%
|
|
$
|
53,344
|
|
|
|
13.9
|
%
|
|
Multifamily residential
|
|
|
118,128
|
|
|
|
17.6
|
%
|
|
|
37,995
|
|
|
|
10.0
|
%
|
|
Hotel/motel
|
|
|
95,295
|
|
|
|
14.2
|
%
|
|
|
51,375
|
|
|
|
13.4
|
%
|
|
Office
|
|
|
99,187
|
|
|
|
14.8
|
%
|
|
|
46,011
|
|
|
|
12.0
|
%
|
|
Gas station
|
|
|
69,241
|
|
|
|
10.3
|
%
|
|
|
48,912
|
|
|
|
12.7
|
%
|
|
Convalescent facility
|
|
|
31,419
|
|
|
|
4.7
|
%
|
|
|
33,990
|
|
|
|
8.8
|
%
|
|
Industrial
|
|
|
60,751
|
|
|
|
9.0
|
%
|
|
|
25,180
|
|
|
|
6.6
|
%
|
|
Restaurants
|
|
|
21,438
|
|
|
|
3.2
|
%
|
|
|
10,659
|
|
|
|
2.8
|
%
|
|
Agricultural real estate
|
|
|
17,037
|
|
|
|
2.5
|
%
|
|
|
19,954
|
|
|
|
5.2
|
%
|
|
Other
|
|
|
84,946
|
|
|
|
12.6
|
%
|
|
|
56,857
|
|
|
|
14.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
671,822
|
|
|
|
100.0
|
%
|
|
$
|
384,278
|
|
|
|
100.0
|
%
|
We currently target individual commercial
real estate loans between $1.0 million and $5.0 million. As of December 31, 2017, the largest commercial real estate loan had a
net outstanding balance of $13.0 million and was secured by a first deed of trust on a retail strip center located in Sacramento,
California. The largest commercial real estate loan secured by multifamily property as of December 31, 2017, was a 12-unit apartment
complex with a net outstanding principal balance of $5.3 million located in San Francisco, California. Both of these loans were
performing according to their respective loan repayment terms as of December 31, 2017.
Construction and Land Loans
. We make
loans to finance the construction of residential and non-residential properties. Construction loans include loans for owner occupied
single-family homes and commercial projects (such as multi-family housing, industrial, office and retail centers). These loans
generally are collateralized by first liens on real estate and typically have a term of less than one year, floating interest rates
and commitment fees. Construction loans are typically made to builders/developers that have an established record of successful
project completion and loan repayment. We conduct periodic inspections, either directly or through an agent, prior to approval
of periodic draws on these loans based on the percentage of completion. Underwriting guidelines for our construction loans are
similar to those described above for our commercial real estate lending. Our construction loans have terms that typically range
from six months to two years depending on factors such as the type and size of the development and the financial strength of the
borrower/guarantor. Construction loans are typically structured with an interest only period during the construction phase. Construction
loans are underwritten to either mature, or transition to a traditional amortizing loan, at the completion of the construction
phase. The loan-to-value ratio on our construction loans, as established by independent appraisal, typically will not exceed 80%
at loan origination and is lower in most cases. At December 31, 2017, we had $22.7 million in construction loans outstanding,
representing 2.5% of the total loan portfolio, with $23.3 million in undisbursed commitments. The average loan size in our construction
loan portfolio was approximately $700,000 at December 31, 2017, with a weighted average loan-to-value ratio of 53%.
On a more limited basis, we also make land
loans to developers, builders and individuals to finance the commercial development of improved lots or unimproved land. In making
land loans, we follow underwriting policies and disbursement and monitoring procedures similar to those for construction loans.
The initial term on land loans is typically one to three years with interest only payments, payable monthly.
Construction and land loans generally involve
additional risks attributable to the fact that loan funds are advanced upon the security of a project under construction, and the
project is of uncertain value prior to its completion. Because of uncertainties inherent in estimating construction costs, the
market value of the completed project and the effects of governmental regulation on real property, it can be difficult to accurately
evaluate the total funds required to complete a project and the related loan-to-value ratio. As a result of these uncertainties,
construction lending often involves the disbursement of substantial funds with repayment dependent, in part, on the success of
the ultimate project rather than the ability of a borrower or guarantor to repay the loan. If we are forced to foreclose on a project
prior to completion, there is no assurance that we will be able to recover the entire unpaid portion of the loan. In addition,
we may be required to fund additional amounts to complete a project and it may be necessary to hold the property for an indeterminate
period of time subject to the regulatory limitations imposed by local, state or federal laws. Loans on land under development or
held for future construction also pose additional risk because of the lack of income being produced by the property and the potential
illiquid nature of the collateral.
One- to Four-Family Residential Loans
.
We do not originate owner-occupied one- to four-family real estate loans. Our one- to four-family real estate loans were either
acquired through our mergers with other financial institutions or by purchases of whole loan pools with servicing retained. Generally,
these loans were originated to meet the requirements of Fannie Mae, Freddie Mac, the Federal Housing Administration, the U.S.
Department of Veterans Affairs and jumbo loans for sale in the secondary market to investors. Our one-to four-family loans do
not allow for interest-only payments nor negative amortization of principal and carry allowable prepayment restrictions. At December
31, 2017, our one- to four-family loan portfolio totaled $84.8 million or 9.5% of the total loan portfolio.
We do originate a limited amount of loans
secured by second mortgages on residential real estate. Home equity loans and home equity lines of credit generally may have a
loan to value of up 80% at the time origination when combined with the first mortgage. The majority of these loans are secured
by a first or second mortgage on residential property. Home equity lines of credit allow for a 10 year draw period, with a 10 year
repayment period, and the interest rate is generally tied to the prime rate as published by the Wall Street Journal and may include
a margin. Home equity loans generally have ten year maturities based on a 30 year amortization. We retain a valid lien on the real
estate, obtain a title insurance policy that insures that the property is free from encumbrances and require hazard insurance.
As of December 31, 2017, home equity loans and lines of credit totaled $8.2 million or 0.01% of the total loan portfolio. At that
date, $2.1 million of such loans were secured by junior liens.
Commercial and Industrial Loans
.
We make commercial and industrial loans, including commercial lines of credit, working capital loans, term loans, equipment financing,
acquisition, expansion and development loans, SBA loans, letters of credit and other loan products, primarily in our target markets
that are underwritten on the basis of the borrower’s ability to service the debt from operating income. We take as collateral
a lien on general business assets including, among other things, available real estate, accounts receivable, inventory and equipment
and generally obtain a personal guaranty of the borrower or principal. Our operating lines of credit typically are limited to a
percentage of the value of the assets securing the line. Lines of credit and term loans typically are reviewed annually. The terms
of our commercial and industrial loans vary by purpose and by type of underlying collateral. We typically make equipment loans
for a term of five years or less at fixed or adjustable rates, with the loan fully amortized over the term. Loans to support working
capital typically have terms not exceeding one year and are usually secured by accounts receivable, inventory and personal guarantees
of the principals of the business. The interest rates charged on loans vary with the degree of risk and loan amount and are further
subject to competitive pressures, money market rates, the availability of funds and government regulations. For loans secured by
accounts receivable and inventory, principal is typically repaid as the assets securing the loan are converted into cash (monitored
on a monthly or more frequent basis as determined necessary in the underwriting process), and for loans secured with other types
of collateral, principal is typically due at maturity. Terms greater than five years may be appropriate in some circumstances,
based upon the useful life of the underlying asset being financed or if some form of credit enhancement, such as an SBA guarantee
is obtained. These programs have a further benefit to us in terms of liquidity and potential fee income, since there is an active
secondary market which will purchase the guaranteed portion of these loans at a premium.
We also make loans finance the purchase
of machinery, equipment and breeding stock, seasonal crop operating loans used to fund the borrower’s crop production operating
expenses, livestock operating and revolving loans used to purchase livestock for resale and related livestock production expense.
Agricultural operating loans are generally originated at an adjustable- or fixed-rate of interest and generally for a term of up
to seven years. In the case of agricultural operating loans secured by breeding livestock and/or farm equipment, such loans are
originated at fixed rates of interest for a term of up to five years. We typically originate agricultural operating loans on the
basis of the borrower’s ability to make repayment from the cash flow of the borrower’s agricultural business. As a
result, the availability of funds for the repayment of agricultural operating loans may be substantially dependent on the success
of the business itself and the general economic environment. A significant number of agricultural borrowers with these types of
loans may qualify for relief under a chapter of the U.S. Bankruptcy Code that is designed specifically for the reorganization of
financial obligations of family farmers and which provides certain preferential procedures to agricultural borrowers compared to
traditional bankruptcy proceedings pursuant to other chapters of the U.S. Bankruptcy Code.
As of December 31, 2017, we had $114.4 million
of commercial and industrial loans, including $7.6 million of agricultural operating loans.
In general, commercial and industrial loans
may involve increased credit risk and, therefore, typically yield a higher return. The increased risk in commercial and industrial
loans derives from the expectation that such loans generally are serviced principally from the operations of the business, and
those operations may not be successful. Any interruption or discontinuance of operating cash flows from the business, which may
be influenced by events not under the control of the borrower such as economic events and changes in governmental regulations,
could materially affect the ability of the borrower to repay the loan. In addition, the collateral securing commercial and industrial
loans generally includes moveable property such as equipment and inventory, which may decline in value more rapidly than we anticipate,
exposing us to increased credit risk. As a result of these additional complexities, variables and risks, commercial and industrial
loans require extensive underwriting and servicing.
Consumer Loans
. We generally make
consumer loans as an accommodation to our clients on a case by case basis. These loans represent a small portion of our overall
loan portfolio. However, these loans are important in terms of servicing our client’s needs. We make a variety of loans to
individuals for personal and household purposes, including secured and unsecured term loans. Consumer loans are underwritten based
on the individual borrower’s income, current debt level, past credit history and the value of any available collateral. The
terms of consumer loans vary considerably based upon the loan type, nature of collateral and size of the loan. Consumer loans entail
greater risk than do residential real estate loans because they may be unsecured or, if secured, the value of the collateral, such
as an automobile or boat, may be more difficult to assess and more likely to decrease in value than real estate. In such cases,
any repossessed collateral for a defaulted consumer loan may not provide an adequate source of repayment for the outstanding loan
balance. The remaining deficiency often will not warrant further substantial collection efforts against the borrower beyond obtaining
a deficiency judgment. In addition, consumer loan collections are dependent on the borrower’s continuing financial stability,
and thus are more likely to be adversely affected by job loss, divorce, illness or personal bankruptcy. Furthermore, the application
of various federal and state laws may limit the amount which can be recovered on such loans. As of December 31, 2017, consumer
loans totaled approximately $1.1 million or 0.1% of the Company’s loan portfolio.
Deposit Products
Our lending and investing activities are
primarily funded by deposits. We offer a variety of deposit accounts with a wide range of interest rates and terms including demand,
savings, money market and time deposits with the goal of attracting a wide variety of clients. We solicit these accounts from individuals,
small to medium-sized businesses, trade unions and their related businesses, associations, organizations and government authorities.
Our transaction accounts and time certificates are tailored to the principal market area at rates competitive with those offered
in the area. We employ client acquisition strategies to generate new account and deposit growth, such as client referral incentives,
search engine optimization, targeted direct mail and email campaigns, in addition to conventional marketing initiatives and advertising.
While we do not actively solicit wholesale deposits for funding purposes and do not partner with deposit brokers, we do participate
in the CDARS service via Promontory Interfinancial Network an as option for our clients to place funds. Our goal is to cross-sell
our deposit products to our loan clients.
We also offer convenience-related services,
including banking by appointment (before or after normal business hours on weekdays and on weekends), online banking services,
access to a national automated teller machine network, extended drive-through hours, remote deposit capture, and courier service
so that clients’ deposit and other banking needs may be served without the client having to make a trip to the branch. Our
full suite of online banking solutions including access to account balances, online transfers, online bill payment and electronic
delivery of client statements, mobile banking solutions for iPhone and Android phones, including remote check deposit with mobile
bill pay. We offer debit cards with no ATM surcharges or foreign ATM fees for checking clients, plus night depository, direct deposit,
cashier’s and travelers checks and letters of credit, as well as treasury management services, wire transfer services and
automated clearing house (“ACH”) services.
We have implemented deposit gathering strategies
and tactics which have enabled us to attract and retain deposits utilizing technology to deliver high quality commercial depository
(treasury management) services (e.g. remote deposit capture lock box, electronic bill payments wire transfers, direct deposits
and automatic transfers) in addition to the traditional generation of deposit relationships performed in conjunction with our lending
activities. We offer a wide array of commercial treasury management services designed to be competitive with banks of all sizes.
Treasury management services include balance reporting (including current day and previous day activity), transfers between accounts,
wire transfer initiation, ACH origination and stop payments. Cash management deposit products consist of lockbox, remote deposit
capture, positive pay, reverse positive pay, account reconciliation services, zero balance accounts and sweep accounts including
loan sweep.
We provide an avenue for large depositors
to maintain full FDIC insurance coverage for all deposits up to $50.0 million. Under an agreement with Promontory International
Financial Network, we participate in the Certificate of Deposit Account Registry Service (CDARS®) and the Insured Cash Sweep
(ICS) money market product. These are deposit-matching programs which distribute excess balances on deposit with us across other
participating banks. In return, those participating financial institutions place their excess client deposits with us in a reciprocal
amount. These products are designed to enhance our ability to attract and retain clients and increase deposits by providing additional
FDIC insurance for large deposits. We also participate in the ICS One-Way Sell program, which allows us to buy cost effective wholesale
funding on customizable terms. Due to the nature of the placement of the funds, CDARS® and ICS deposits are classified as “brokered
deposits” by regulatory agencies. At December 31, 2017 and 2016, we had $51.3 million and $7.5 million, respectively, in
aggregate CDARS® and ICS deposits.
Additionally, we offer escrow services on
commercial transactions and facilitate tax-deferred commercial exchanges through the Bank’s division, BES. This affords us
a low cost core deposit base. These deposits fluctuate as the sellers of the real estate have up to nine months to invest in replacement
real estate to defer the income tax on the property sold. Deposits related to BES totaled $14.1 million at December 31, 2017.
We also from time to time bid for, and accept,
deposits from public entities in our markets.
Our Markets
We target our services to small and
medium-sized businesses, professional firms, real estate professionals, nonprofit businesses, labor unions and related nonprofit
entities and businesses and individual consumers within Northern, Central and Southern California, Seattle, Washington and Albuquerque,
New Mexico. We generally lend in markets where we have a physical presence through our branch offices. We operate primarily in
the San Francisco-Oakland-Hayward, California MSA with additional operations in the Los Angeles-Long Beach-Anaheim, California
MSA, with Northern California responsible for 67.5% and Southern California responsible for 14.9% of our loan portfolio as of
December 31, 2017.
A majority of our branches are located in
the San Francisco Bay Area which includes/in the counties of Alameda, Contra Costa, Marin, Napa, San Francisco, San Mateo, Santa
Clara, Solano, and Sonoma counties, in California. The greater San Francisco Bay area contains two significant MSAs – the
San Francisco-Oakland-Hayward MSA and the San Jose-Sunnyvale-Santa Clara MSA. With a population of approximately 4.7 million, the
San Francisco-Oakland-Hayward MSA represents the second most populous area in California and the twelfth largest in the United
States. In addition to its current size, the market also demonstrates key characteristics we believe provide the opportunity for
additional growth, including projected population growth of 5.9% through 2022 versus the national average of 3.7%, a median household
income of $88,685 versus a national average of $57,462, and the third highest population density in the nation. The San Jose-Sunnyvale-Santa
Clara MSA also demonstrates key characteristics that provide us growth opportunities, including a population of approximately 2.0
million, projected population growth of 6.0% through 2022, and a median household income of $101,689.
We operate two branch offices and one loan
production office in the Los Angeles-Long Beach-Anaheim, California MSA. The greater Los Angeles area is one of the most significant
business markets in the world, with an estimated gross domestic product of approximately $1 trillion, it would rank as the 16th
largest economy in the world. The Los Angeles-Long Beach-Anaheim, California MSA maintains a population of approximately 13.5 million,
the most populous area in California and the second largest in the United States. We believe the market’s projected population
growth of 4.2% through 2022, its median household income of $64,343, large concentration of small- and medium-sized businesses,
and its highest population density in the nation position the area as an attractive market in which to expand operations.
We serve the Sacramento-Roseville-Arden-Arcade
MSA through one branch office. With a population of approximately 2.3 million, the Sacramento-Roseville-Arden-Arcade MSA includes
the City of Sacramento, the state capital of California. The population is projected to grow 5.1% through 2022 and the median household
income is approximately $63,727. State, local, and local government make up the largest employers, while transportation, health
services, technology, agriculture and mining are important industries for the region.
We serve the Stockton-Lodi MSA in central
California though two branches. The market area has a population of approximately 740,596, which is projected to grow 5.4% through
2022, and a median household income of approximately $56,705. The area has a diverse industry mix, including agriculture, e-fulfillment
centers, advanced manufacturing, data centers/call centers, and service industries.
We serve the Seattle-Tacoma-Bellevue MSA,
which includes King County (which includes the city of Seattle), through our branch in Seattle. King County has the largest population
of any county in the state of Washington, covers approximately 2,100 square miles, and is located on Puget Sound. It had approximately
2.2 million residents, which is projected to grow 7.5% through 2022, and a median household income of approximately $81,089. King
County has a diversified economic base with many employers from various industries including shipping and transportation (Port
of Seattle, Paccar, Inc. and Expeditors International of Washington, Inc.), retail (Amazon.com, Inc., Starbucks Corp. and Nordstrom,
Inc.) aerospace (the Boeing Company) and computer technology (Microsoft Corp.) and biotech industries.
We serve Albuquerque, New Mexico the most
populous city in the state of New Mexico through the branch office we recently acquired in the United Business Bank, FSB acquisition.
The Albuquerque MSA has a population of approximately 911,171, ranking it as the 60th MSA in the country. The Albuquerque MSA population
is projected to grow approximately 1.7% through 2022 and its median household income is approximately $50,192. Top industries in
Albuquerque include aerospace and defense (Honeywell), energy technology including solar energy (SCHOTT Solar), and semiconductor
and computer chip manufacturing (Intel Corp).
Investments
In addition to loans, we make other
investments that conform to our investment policy as set by its board of directors. The primary objectives of our investment
policy are to provide a source of liquidity, to provide an appropriate return on funds invested, to manage interest rate
risk, to meet pledging requirements and to meet regulatory capital requirements. As of December 31, 2017, our investment
portfolio totaled $40.2 million, with an average yield of 2.07% and an estimated duration of approximately 3.7 years.
We employ professional investment advisory
firms to assist in the management of our investment portfolio to enhance our yield and facilitate use of modeling and administration.
While our investments are made by our Chief Financial Officer, our Bank’s board of directors and Asset/Liability Management
Committee remain responsible for the regular review of our investment activities, the review and approval of our investment policy
and ensuring compliance with our investment policy.
Our investment policy outlines investment
type limitations, security mix parameters, authorization guidelines and risk management guidelines. The policy authorizes us to
invest in a variety of investment securities, subject to various limitations. Our current investment portfolio consists of obligations
of the U.S. Treasury and other U.S. government agencies or sponsored entities, including mortgage-backed securities, collateralized
mortgage obligations and municipal securities.
Competition
The financial services industry is highly
competitive as we compete for loans, deposits and client relationships in our market. We compete for loans, deposits, and financial
services in all of our principal markets. We compete directly with other bank and nonbank institutions, including credit unions,
located within our markets, Internet-based banks, out-of-market banks, and bank holding companies that advertise in or otherwise
serve our markets, along with money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other
commercial entities that offer financial services products. Competition involves efforts to retain current clients, make new loans
and obtain new deposits, increase the scope and sophistication of services offered and offer competitive interest rates paid on
deposits and charged on loans.
In commercial banking, we face competition
to underwrite loans to sound, stable businesses and real estate projects at competitive price levels that make sense for our business
and risk profile. Our major competitors include larger national, regional and local financial institutions that may have the ability
to make loans on larger projects than we can or provide a larger mix of product offerings. We also compete with smaller local financial
institutions that may have aggressive pricing and unique terms on various types of loans and, increasingly, financial technology
platforms that offer their products exclusively through web-based portals.
In retail banking, we primarily compete
for deposits with national and local banks and credit unions that have visible retail presence and personnel in our market areas.
The primary factors driving competition for deposits are client service, interest rates, fees charged, branch location and hours
of operation and the range of products offered. We compete for deposits by advertising, offering competitive interest rates and
seeking to provide a higher level of personal service.
Many of our competitors enjoy competitive
advantages, including greater financial resources, a wider geographic presence, more accessible branch office locations, the ability
to offer additional services, more favorable pricing alternatives, and lower origination and operating costs. Some of our competitors
have been in business for a long time and have an established client base and name recognition. We believe that our competitive
pricing, personalized service, and community involvement enable us to effectively compete in the communities in which we operate.
Legal Proceedings
We operate in a highly regulated environment.
From time to time we are a party to various litigation matters incidental to the conduct of our business. We are not presently
party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects,
financial condition, liquidity, results of operation, cash flows or capital levels.
Nevertheless, given the nature, scope and
complexity of the extensive legal and regulatory landscape applicable to our business (including laws and regulations governing
consumer protection, fair lending, fair labor, privacy, information security and anti-money laundering and anti-terrorism laws),
we, like all banking organizations, are subject to heightened legal and regulatory compliance and litigation risk.
Employees
As of December 31, 2017, we had approximately
158 full-time equivalent employees. None of our employees are represented by any collective bargaining unit or is a party to a
collective bargaining agreement.
Properties
Our principal executive offices are
located at 500 Ygnacio Valley Road, Suite 200, Walnut Creek, California 94596. Including our principal executive offices, we currently
operate a total of seventeen full service banking branches consisting of branch offices in Oakland, Castro Valley, Mountain View,
Napa, Stockton, Waterloo, Pleasanton, Livermore, San Jose, Long Beach, Sacramento, San Francisco, and Glendale, California, Seattle,
Washington and Albuquerque, New Mexico. In addition, we have one loan production office in Los Angeles, California. Many of our
branches are equipped with automated teller machines and drive-through facilities. We believe all of our facilities are suitable
for our operational needs. The following table summarizes pertinent details of our principal executive offices and branches, as
of December 31, 2017:
|
Office Location
|
|
Owned/ Leased
|
|
San Francisco Bay Area, California
|
|
|
|
|
|
|
500 Ygnacio Valley Rd, Suites 130, 200, 350
and 390 Walnut Creek, CA
|
|
Leased
|
|
|
|
|
3895 E Castro Valley, Suite A
Castro Valley,
CA
|
|
Leased
|
|
|
|
|
700 E El Camino Real, Suite 110
Mountain View,
CA
|
|
Leased
|
|
|
|
|
960 School St
Napa, CA
|
|
Leased
|
|
|
|
|
155 Grand Ave, Suite 105
Oakland, CA
|
|
Leased; Closed 1/19/18
|
|
|
|
|
100 Hegenberger Rd
Oakland, CA
|
|
Owned
|
|
|
|
|
465 Main St
Pleasanton, CA
|
|
Leased
|
|
|
|
|
2300 First St, Suite 100
Livermore, CA
|
|
Leased
|
|
|
|
|
1150 S Bascom Ave, Suite 29
San Jose, CA
|
|
Leased; Closed 3/30/18
|
|
|
|
|
2 Harrison St, Suite 158
San Francisco, CA
|
|
Leased
|
|
|
|
|
2250 N First St, Suite 102
San Jose, CA
|
|
Leased
|
|
|
|
|
|
Central Valley, California
|
|
|
|
|
|
|
22 W Yokuts Ave
Stockton, CA
|
|
Leased
|
|
|
|
|
4426 E Waterloo Rd
Stockton, CA
|
|
Leased
|
|
|
|
|
2815 J St
Sacramento, CA
|
|
Leased
|
|
|
|
|
|
Southern California
|
|
|
|
|
|
|
330 N Brand Blvd, Suite 120
Glendale, CA
|
|
Leased
|
|
|
|
|
3750 Kilroy Airway Way, Suite 130
Long Beach,
CA
|
|
Leased
|
|
|
|
|
3530 Wilshire Blvd, Suite 1400
Los Angeles,
CA
|
|
Leased
|
|
|
|
|
|
Washington
|
|
|
|
|
|
|
14900 Interurban Ave S, Suite 150
Seattle,
WA
|
|
Leased
|
|
|
|
|
520 Pike St, Suite 2750
Seattle, WA
|
|
Leased
|
|
|
|
|
|
New Mexico
|
|
|
|
|
|
|
1500 Mercantile Ave NE
Albuquerque, NM
|
|
Owned
|
Corporate Information
Our principal executive offices are located
at 500 Ygnacio Valley Road, Suite 200, Walnut Creek, California 94596 and our telephone number is (925) 476-1800. Our website is
www.unitedbusinessbank.com. We expect to make our periodic reports and other information filed with, or furnished to, the SEC available
free of charge through our website as soon as reasonably practicable after those reports and other information are electronically
filed with, or furnished to, the SEC. The information on, or otherwise accessible through, our website or any other website does
not constitute a part of this prospectus.
SUPERVISION AND REGULATION
BayCom and United Business Bank are subject
to significant regulation by federal and state laws and regulations, and the policies of applicable federal and state banking agencies.
The following discussion of particular statutes and regulations affecting BayCom and the Bank is only a brief summary and does
not purport to be complete. This discussion is qualified in its entirety by reference to such statutes and regulations. No assurance
can be given that such statutes or regulations will not change in the future.
There are also a variety of federal and
state statutes that restrict the acquisition of control of bank holding companies and California-chartered banks.
United Business Bank
General
: As state-chartered,
federally insured commercial bank, the Bank is subject to extensive regulation and must comply with various statutory and regulatory
requirements, including prescribed minimum capital standards. As a California chartered bank, the Bank is subject to
primary supervision, periodic examination, and regulation by the DBO and by the Federal Reserve, as its primary federal regulator.
The Bank’s relationship with depositors and borrowers also is regulated to a great extent by both federal and
state law, especially in such matters as the ownership of deposit accounts and the form and content of mortgage and other loan
documents.
Federal and state banking laws and regulations
govern all areas of the operation of the Bank, including reserves, loans, investments, deposits, capital, issuance of securities,
payment of dividends and establishment of branches. Bank regulatory agencies also have the general authority to limit
the dividends paid by insured banks and bank holding companies if such payments should be deemed to constitute an unsafe and unsound
practice and in other circumstances. The Federal Reserve as the primary federal regulator of BayCom and the Bank has
authority to impose penalties, initiate civil and administrative actions and take other steps intended to prevent banks from engaging
in unsafe or unsound practices.
The laws and regulations affecting banks
and bank holding companies have changed significantly, particularly in connection with the enactment of the Dodd-Frank Act. Among
other changes, the Dodd-Frank Act established the CFPB as an independent bureau of the Federal Reserve. The CFPB assumed responsibility
for the implementation of the federal financial consumer protection and fair lending laws and regulations and has authority to
impose new requirements. Any change in applicable laws, regulations, or regulatory policies may have a material effect on our business,
operations, and prospects. We cannot predict the nature or the extent of the effects on our business and earnings that any fiscal
or monetary policies or new federal or state legislation may have in the future.
State Regulation and Supervision
: As
a California-chartered commercial bank with branches in the States of California, New Mexico and Washington, the Bank is subject
not only to the applicable provisions of California law and regulations, but is also subject to applicable New Mexico and Washington
law and regulations. These state laws and regulations govern the Bank’s ability to take deposits and pay interest thereon,
to make loans on or invest in residential and other real estate, to make consumer loans, to invest in securities, to offer various
banking services to its clients and to establish branch offices.
Deposit Insurance
: The Deposit Insurance
Fund of the FDIC insures deposit accounts of the Bank up to $250,000 per separately insured depositor. As insurer, the FDIC
imposes deposit insurance premiums and is authorized to conduct examinations of, and to require reporting by, FDIC-insured institutions.
The Dodd-Frank Act requires the FDIC’s deposit
insurance assessments to be based on assets instead of deposits. The FDIC has issued rules which specify that the assessment
base for a bank is equal to its total average consolidated assets less average tangible capital. As of December 31, 2017,
assessment rates ranged from 3 to 30 basis points for all institutions, subject to adjustments for unsecured debt issued by the
institution, unsecured debt issued by other FDIC-insured institutions, and brokered deposits held by the institution). The FDIC
also imposed a 4.5 basis point surcharge on assessment rates for all large banks, defined as insured depository institutions that
report total consolidated assets of $10 billion or more for four consecutive quarters. The 4.5 basis point surcharge is applied
to the assessment base in excess of $10 billion. The surcharge will be in place until the FDIC reserve ratio reaches 1.35%. When
the reserve ratio reaches 1.38%, small banks will receive certain credits applicable to their assessments. If the FDIC reserve
ratio does not reach 1.35% by December 31, 2018, the FDIC will impose a shortfall assessment on all large banks in the first quarter
of 2019.
Under the current rules, when the reserve
ratio for the prior assessment period is equal to, or greater than 2.0% and less than 2.5%, assessment rates will range from two
basis points to 28 basis points and when the reserve ratio for the prior assessment period is greater than 2.5%, assessment rates
will range from one basis point to 25 basis points (in each case subject to adjustments as described above for current rates).
No institution may pay a dividend if it is in default on its federal deposit insurance assessment.
The FDIC also may prohibit any insured institution
from engaging in any activity determined by regulation or order to pose a serious risk to the deposit insurance fund.
The FDIC may terminate the deposit insurance
of any insured depository institution if it determines after a hearing that the institution has engaged or is engaging in unsafe
or unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation,
order or any condition imposed by an agreement with the FDIC. It also may suspend deposit insurance temporarily during
the hearing process for the permanent termination of insurance if the institution has no tangible capital. If insurance
of accounts is terminated, the accounts at the institution at the time of the termination, less subsequent withdrawals, shall continue
to be insured for a period of six months to two years, as determined by the FDIC. Management is not aware of any existing
circumstances which would result in termination of the deposit insurance of the Bank.
Standards for Safety and Soundness:
The
federal banking regulatory agencies have prescribed, by regulation, guidelines for all insured depository institutions relating
to internal controls, information systems and internal audit systems; loan documentation; credit underwriting; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and benefits. The guidelines set forth
the safety and soundness standards that the federal banking agencies use to identify and address problems at insured depository
institutions. Each insured depository institution must implement a comprehensive written information security program
that includes administrative, technical, and physical safeguards appropriate to the institution’s size and complexity and the nature
and scope of its activities. The information security program must be designed to ensure the security and confidentiality
of client information, protect against any unanticipated threats or hazards to the security or integrity of such information, protect
against unauthorized access to or use of such information that could result in substantial harm or inconvenience to any client,
and ensure the proper disposal of client and consumer information. Each insured depository institution must also develop
and implement a risk-based response program to address incidents of unauthorized access to client information in client information
systems. If the FDIC determines that an institution fails to meet any of these guidelines, it may require an institution
to submit to the FDIC an acceptable plan to achieve compliance.
Capital Requirements:
Bank holding
companies, such as BayCom, and federally insured financial institutions, such as the Bank, are required to maintain a minimum level
of regulatory capital.
BayCom and the Bank are subject to capital
regulations adopted by the Federal Reserve effective January 1, 2015 (with some changes transitioned into full effectiveness over
several years), which establish minimum required ratios for common equity Tier 1 (“CET1”) capital, Tier 1 capital,
and total capital and the leverage ratio; risk-weightings of certain assets and other items for purposes of the risk-based capital
ratios; a required capital conservation buffer over the required capital ratios; and define what qualifies as capital for purposes
of meeting the capital requirements. These regulations implement the regulatory capital reforms required by the Dodd-Frank Act
and the “Basel III” requirements.
Under the capital regulations, the minimum
capital ratios are: (1) a CET1 capital ratio of 4.5% of risk-weighted assets; (2) a Tier 1 capital ratio of 6.0% of risk-weighted
assets; (3) a total risk-based capital ratio of 8.0% of risk-weighted assets; and (4) a leverage ratio (the ratio of Tier 1 capital
to average total consolidated assets) of 4.0%. CET1 generally consists of common stock; retained earnings; accumulated other
comprehensive income (“AOCI”) unless an institution elects to exclude AOCI from regulatory capital; and certain minority
interests; all subject to applicable regulatory adjustments and deductions. Tier 1 capital generally consists of CET1 and noncumulative
perpetual preferred stock. Tier 2 capital generally consists of other preferred stock and subordinated debt meeting certain conditions
plus an amount of the allowance for loan and lease losses up to 1.25% of assets. Total capital is the sum of Tier 1 and Tier 2
capital.
There were a number of changes in what constitutes
regulatory capital compared to the rules in effect prior to January 1, 2015, some of which are subject to transition periods.
These changes include the phasing-out of certain instruments as qualifying capital and eliminate or significantly reduce the use
of hybrid capital instruments, especially trust preferred securities, as regulatory capital. Trust preferred securities issued
by a company, such as the Company, with total consolidated assets of less than $15 billion before May 19, 2010 and treated
as regulatory capital are grandfathered, but any such securities issued later are not eligible as regulatory capital under the
new regulations. If an institution grows above $15 billion as a result of an acquisition, the trust preferred securities
are excluded from Tier 1 capital and instead included in Tier 2 capital. Mortgage servicing assets and deferred tax assets over
designated percentages of CET1 are deducted from capital. In addition, Tier 1 capital includes AOCI, which includes all unrealized
gains and losses on available for sale debt and equity securities
.
However, because of our asset size, we were eligible
for the one-time option of permanently opting out of the inclusion of unrealized gains and losses on available for sale debt and
equity securities in our capital calculations, which we elected to do.
For purposes of determining risk-based capital,
assets and certain off-balance sheet items are risk-weighted from 0% to 1,250%, depending on the risk characteristics of the asset
or item. The regulations changed certain risk-weightings compared to the earlier capital rules, including a 150% risk weight (up
from 100%) for certain high volatility commercial real estate acquisition, development and construction loans and for non-residential
mortgage loans that are 90 days past due or otherwise in nonaccrual status; a 20% (up from 0%) credit conversion factor for the
unused portion of a commitment with an original maturity of one year or less that is not unconditionally cancellable (up from 0%);
and a 250% risk weight (up from 100%) for mortgage servicing and deferred tax assets that are not deducted from capital.
In addition to the minimum CET1, Tier 1,
leverage ratio and total capital ratios, BayCom and the Bank must maintain a capital conservation buffer consisting of additional
CET1 capital greater than 2.5% of risk-weighted assets above the required minimum risk-based capital levels in order to avoid limitations
on paying dividends, repurchasing shares, and paying discretionary bonuses. The new capital conservation buffer requirement
was phased in beginning on January 1, 2016 when a buffer greater than 0.625% of risk-weighted assets was required, which amount
will increase each year by 0.625% until the buffer requirement is fully implemented on January 1, 2019.
To be considered “well capitalized,”
a bank holding company must have, on a consolidated basis, a total risk-based capital ratio of 10.0% or greater and a Tier 1 risk-based
capital ratio of 6.0% or greater and must not be subject to an individual order, directive or agreement under which the Federal
Reserve requires it to maintain a specific capital level. To be considered “well capitalized,” a depository institution
must have a Tier 1 risk-based capital ratio of at least 8.0%, a total risk-based capital ratio of at least 10.0%, a CET1 capital
ratio of at least 6.5% and a leverage ratio of at least 5.0% and not be subject to an individualized order, directive or agreement
under which its primary federal banking regulator requires it to maintain a specific capital level.
Prompt Corrective Action:
Federal
statutes establish a supervisory framework for FDIC-insured institutions based on five capital categories: well capitalized,
adequately capitalized, undercapitalized, significantly undercapitalized and critically undercapitalized. An institution’s
category depends upon where its capital levels are in relation to relevant capital measures. The well-capitalized category is described
above. An institution that is not well capitalized is subject to certain restrictions on brokered deposits, including restrictions
on the rates it can offer on its deposits generally. To be considered adequately capitalized, an institution must have
the minimum capital ratios described above. Any institution which is neither well capitalized nor adequately capitalized is considered
undercapitalized.
Undercapitalized institutions are subject
to certain prompt corrective action requirements, regulatory controls and restrictions which become more extensive as an institution
becomes more severely undercapitalized. Failure by the Bank to comply with applicable capital requirements would, if
not remedied, result in progressively more severe restrictions on its activities and lead to enforcement actions, including, but
not limited to, the issuance of a capital directive to ensure the maintenance of required capital levels and, ultimately, the appointment
of the FDIC as receiver or conservator. Banking regulators will take prompt corrective action with respect to depository
institutions that do not meet minimum capital requirements. Additionally, approval of any regulatory application filed
for their review may be dependent on compliance with capital requirements.
As of December 31, 2017, BayCom and the
Bank each met the requirements to be “well capitalized” and the fully phased-in capital conservation buffer requirement.
For additional information, see Note 17, Regulatory Matters, of the Notes to the Consolidated Financial
Statements.
Commercial Real Estate Lending Concentrations:
The
federal banking agencies have issued guidance on sound risk management practices for concentrations in commercial real estate lending. The
particular focus is on exposure to commercial real estate loans that are dependent on the cash flow from the real estate held as
collateral and that are likely to be sensitive to conditions in the commercial real estate market (as opposed to real estate collateral
held as a secondary source of repayment or as an abundance of caution). The purpose of the guidance is not to limit
a bank’s commercial real estate lending but to guide banks in developing risk management practices and capital levels commensurate
with the level and nature of real estate concentrations. The guidance directs the FDIC and other bank regulatory agencies
to focus their supervisory resources on institutions that may have significant commercial real estate loan concentration risk. A
bank that has experienced rapid growth in commercial real estate lending, has notable exposure to a specific type of commercial
real estate loan, or is approaching or exceeding the following supervisory criteria may be identified for further supervisory analysis
with respect to real estate concentration risk:
|
|
·
|
Total reported loans for construction, land development and other land represent 100% or more of the bank’s total regulatory
capital; or
|
|
|
·
|
Total commercial real estate loans (as defined in the guidance) represent 300% or more of the bank’s total regulatory capital
or the outstanding balance of the bank’s commercial real estate loan portfolio has increased 50% or more during the prior 36 months.
|
The guidance provides that the strength
of an institution’s lending and risk management practices with respect to such concentrations will be taken into account
in supervisory guidance on evaluation of capital adequacy. As of December 31, 2017, the Bank’s aggregate
recorded loan balances for construction, land development and land loans were 19.7% of total regulatory capital. In
addition, at December 31, 2017, the Bank’s commercial real estate loans in accordance with supervisory guidance were
382.0% of total regulatory capital. The Bank believes that the guidelines are applicable to it, as it has a relatively high concentration
in commercial real estate loans. The Bank and its board of directors have discussed the guidelines and believe that the Bank’s
underwriting policies, management information systems, independent credit administration process, and monitoring of real estate
loan concentrations are sufficient to address the guidelines.
Activities and Investments of Insured
State-Chartered Financial Institutions:
California-chartered banks have powers generally comparable to those of
national banks. Federal law generally limits the activities and equity investments of FDIC insured, state-chartered banks to those
that are permissible for national banks. An insured state bank is not prohibited from, among other things, (1) acquiring
or retaining a majority interest in a subsidiary, (2) investing as a limited partner in a partnership the sole purpose of which
is direct or indirect investment in the acquisition, rehabilitation or new construction of a qualified housing project, provided
that such limited partnership investments may not exceed 2% of the bank’s total assets, (3) acquiring up to 10% of the voting stock
of a company that solely provides or re-insures directors’, trustees’ and officers’ liability insurance coverage or bankers’ blanket
bond group insurance coverage for insured depository institutions, and (4) acquiring or retaining the voting shares of a depository
institution if certain requirements are met.
Environmental Issues Associated With
Real Estate Lending:
The Comprehensive Environmental Response, Compensation and Liability Act (CERCLA) is a federal statute
that generally imposes strict liability on all prior and present “owners and operators” of sites containing hazardous
waste. However, Congress acted to protect secured creditors by providing that the term “owner and operator”
excludes a person whose ownership is limited to protecting its security interest in the site. Since the enactment of
the CERCLA, this “secured creditor exemption” has been the subject of judicial interpretations which have left open
the possibility that lenders could be liable for cleanup costs on contaminated property that they hold as collateral for a loan. To
the extent that legal uncertainty exists in this area, all creditors, including the Bank, that have made loans secured by properties
with potential hazardous waste contamination (such as petroleum contamination) could be subject to liability for cleanup costs,
which costs often substantially exceed the value of the collateral property.
Federal Reserve System:
The
Bank is a member of the Federal Reserve Bank (“FRB”) of San Francisco. As a member of the FRB, the Bank is required
to own stock in the FRB of San Francisco based on a specified ratio relative to our capital. FRB stock is carried at cost and may
be sold back to the FRB at its carrying value. The FRB requires that all depository institutions maintain reserves on transaction
accounts or non-personal time deposits. These reserves may be in the form of cash or non-interest-bearing deposits with
the regional Federal Reserve Bank. Interest-bearing checking accounts and other types of accounts that permit payments
or transfers to third parties fall within the definition of transaction accounts and are subject to Regulation D reserve requirements,
as are any non-personal time deposits at a bank. At December 31, 2017, the Bank’s deposits with the FRB and vault cash exceeded
its reserve requirements.
Affiliate Transactions:
BayCom
and the Bank are separate and distinct legal entities. The Bank is an affiliate of BayCom (and any non-bank subsidiary of BayCom)
is an affiliate of the Bank. Federal laws strictly limit the ability of banks to engage in certain transactions with their affiliates. Transactions
deemed to be a “covered transaction” under Section 23A of the Federal Reserve Act between a bank and an affiliate are
limited to 10% of the bank’s capital and surplus and, with respect to all affiliates, to an aggregate of 20% of the bank’s capital
and surplus. Further, covered transactions that are loans and extensions of credit generally are required to be secured
by eligible collateral in specified amounts. Federal law also requires that covered transactions and certain other transactions
listed in Section 23B of the Federal Reserve Act between a bank and its affiliates be on terms as favorable to the bank as transactions
with non-affiliates.
Community Reinvestment Act:
The
Bank is subject to the provisions of the Community Reinvestment Act of 1977 (CRA), which requires the appropriate federal bank
regulatory agency to assess a bank’s performance under the CRA in meeting the credit needs of the community serviced by the bank,
including low and moderate income neighborhoods. The regulatory agency’s assessment of the bank’s record is made available
to the public. Further, a bank’s CRA performance rating must be considered in connection with a bank’s application to,
among other things, to establish a new branch office that will accept deposits, relocate an existing office or merge or consolidate
with, or acquire the assets or assume the liabilities of, a federally regulated financial institution. The Bank received a “satisfactory”
rating during its most recently completed CRA examination.
Dividends:
Dividends from
the Bank constitute the major source of funds available for dividends which may be paid to Company shareholders. The amount of
dividends payable by the Bank to the Company depend upon their earnings and capital position, and is limited by federal and state
laws, regulations and policies, including the capital conservation buffer requirement. According to California law,
neither a bank nor any majority-owned subsidiary of a bank may make a distribution to its shareholders in an amount which exceeds
the lesser of (i) the bank’s retained earnings or (ii) the bank’s net income for its last three fiscal years, less
the amount of any distributions made by the bank or by any majority-owned subsidiary of the bank during such period. Notwithstanding
the foregoing, a bank may, with the prior approval of the DBO, make a distribution to the shareholders of the bank in an amount
not exceeding the greatest of: (i) the bank’s retained earnings; (ii) the net income of the bank for its last fiscal year;
or (iii) the net income of the bank for its current fiscal year. Dividends payable by the Bank can be limited or prohibited if
the Bank does not meet the capital conservation buffer requirement. Federal law further provides that no insured depository institution
may make any capital distribution (which includes a cash dividend) if, after making the distribution, the institution would be
“undercapitalized,” as defined in the prompt corrective action regulations. Moreover, the federal bank regulatory
agencies also have the general authority to limit the dividends paid by insured banks if such payments should be deemed to constitute
an unsafe and unsound practice and failure to meet the capital conservation buffer requirement will result in restrictions on dividends.
Privacy Standards:
The
Gramm-Leach-Bliley Financial Services Modernization Act of 1999 (GLBA) modernized the financial services industry by establishing
a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial
service providers. The Bank is subject to FDIC regulations implementing the privacy protection provisions of the GLBA. These
regulations require the Bank to disclose its privacy policy, including informing consumers of their information sharing practices
and informing consumers of their rights to opt out of certain practices.
Anti-Money Laundering and Client Identification:
The Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001 (USA Patriot Act) was signed into law on October 26, 2001. The USA PATRIOT and Bank Secrecy Acts require financial
institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities.
If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s
Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying
and verifying the identity of clients seeking to open new financial accounts, and, effective in 2018, the beneficial owners of
accounts. Bank regulators are directed to consider an institution’s effectiveness in combating money laundering when ruling
on Bank Holding Company Act and Bank Merger Act applications. The Bank’s policies and procedures comply with the requirements
of the USA Patriot Act.
Other Consumer Protection Laws and Regulations:
The
Dodd-Frank Act established the CFPB and empowered it to exercise broad regulatory, supervisory and enforcement authority with respect
to both new and existing consumer financial protection laws. Banks are subject to consumer protection regulations issued by the
CFPB, but as a financial institution with assets of less than $10 billion, the Bank is generally subject to supervision and enforcement
by the Federal Reserve and the DBO with respect to our compliance with consumer financial protection laws and CFPB regulations.
The Bank is subject to a broad array of
federal and state consumer protection laws and regulations that govern almost every aspect of their business relationships with
consumers. While the list set forth below is not exhaustive, these include the Truth-in-Lending Act, the Truth in Savings
Act, the Electronic Fund Transfers Act, the Expedited Funds Availability Act, the Equal Credit Opportunity Act, the Fair Housing
Act, the Real Estate Settlement Procedures Act, the Home Mortgage Disclosure Act, the Fair Credit Reporting Act, the Right to Financial
Privacy Act, the Home Ownership and Equity Protection Act, the Fair Credit Billing Act, the Homeowners Protection Act, the Check
Clearing for the 21st Century Act, laws governing flood insurance, laws governing consumer protections in connection with the sale
of insurance, federal and state laws prohibiting unfair and deceptive business practices, and various regulations that implement
some or all of the foregoing. These laws and regulations mandate certain disclosure requirements and regulate the manner
in which financial institutions must deal with clients when taking deposits, making loans, collecting loans, and providing other
services. Failure to comply with these laws and regulations can subject the Bank to various penalties, including but
not limited to, enforcement actions, injunctions, fines, civil liability, criminal penalties, punitive damages, and the loss of
certain contractual rights.
BayCom Corp
General:
BayCom, as sole
shareholder of the Bank, is a bank holding company registered with the Federal Reserve. Bank holding companies are subject
to comprehensive regulation by the Federal Reserve under the BHCA, and the regulations of the Federal Reserve. We are
required to file quarterly reports with the Federal Reserve and provide additional information as the Federal Reserve may require. The
Federal Reserve may examine us, and any of our subsidiaries, and charge us for the cost of the examination. The Federal
Reserve also has extensive enforcement authority over bank holding companies, including, among other things, the ability to assess
civil money penalties, to issue cease and desist or removal orders and to require that a holding company divest subsidiaries (including
its bank subsidiaries). In general, enforcement actions may be initiated for violations of law and regulations and unsafe
or unsound practices. BayCom will also be required to file certain reports with, and otherwise comply with the rules
and regulations of the SEC.
The Bank Holding Company Act:
Under
the BHCA, we are supervised by the Federal Reserve. The Federal Reserve has a policy that a bank holding company is
required to serve as a source of financial and managerial strength to its subsidiary banks and may not conduct its operations in
an unsafe or unsound manner. In addition, the Dodd-Frank Act and earlier Federal Reserve policy provide that a bank
holding company should serve as a source of strength to its subsidiary banks by having the ability to provide financial assistance
to its subsidiary banks during periods of financial distress to the banks. A bank holding company’s failure to meet
its obligation to serve as a source of strength to its subsidiary banks will generally be considered by the Federal Reserve to
be an unsafe and unsound banking practice or a violation of the Federal Reserve’s regulations or both. No regulations
have yet been proposed by the Federal Reserve to implement the source of strength provisions of the Dodd-Frank Act. BayCom
and any subsidiaries that it may control are considered “affiliates” of the Bank within the meaning of the Federal
Reserve Act, and transactions between the Bank and affiliates are subject to numerous restrictions. With some exceptions,
BayCom and its subsidiaries are prohibited from tying the provision of various services, such as extensions of credit, to other
services offered by BayCom or by its affiliates.
Acquisitions:
The BHCA
prohibits a bank holding company, with certain exceptions, from acquiring ownership or control of more than 5% of the voting shares
of any company that is not a bank or bank holding company and from engaging in activities other than those of banking, managing
or controlling banks, or providing services for its subsidiaries. Under the BHCA, the Federal Reserve may approve the
ownership of shares by a bank holding company in any company, the activities of which the Federal Reserve has determined to be
so closely related to the business of banking or managing or controlling banks as to be a proper incident thereto. These
activities include: operating a savings institution, mortgage company, finance company, credit card company or factoring
company; performing certain data processing operations; providing certain investment and financial advice; underwriting and acting
as an insurance agent for certain types of credit-related insurance; leasing property on a full-payout, non-operating basis; selling
money orders, travelers’ checks and U.S. Savings Bonds; real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities brokerage services for clients.
Federal Securities Laws:
BayCom’s
common stock will be registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended. We
will be subject to information, proxy solicitation, insider trading restrictions and other requirements under the Securities Exchange
Act of 1934 (the Exchange Act).
The Dodd-Frank Act:
On July 21,
2010, the Dodd-Frank Act was signed into law. The Dodd-Frank-Act imposes new restrictions and an expanded framework of regulatory
oversight for financial institutions, including depository institutions and implements new capital regulations for BayCom and the
Bank are subject to and that are discussed above under the section entitled “Capital Requirements.”
In addition, among other changes, the Dodd-Frank
Act requires public companies to (i) provide their shareholders with a non-binding vote (a) at least once every three years on
the compensation paid to executive officers and (b) at least once every six years on whether they should have a “say on pay”
vote every one, two or three years; (ii) have a separate, non-binding shareholder vote regarding golden parachutes for named executive
officers when a shareholder vote takes place on mergers, acquisitions, dispositions or other transactions that would trigger the
parachute payments; (iii) provide disclosure in annual proxy materials concerning the relationship between the executive compensation
paid and the financial performance of the issuer; and (iv) disclose the ratio of the Chief Executive Officer’s annual total compensation
to the median annual total compensation of all other employees. BayCom as an “emerging growth company,” unlike other
public companies that are not emerging growth companies under the JOBS Act, will not be required to comply with the foregoing disclosure
requirements for as long as it maintains its emerging growth company status. We will remain an emerging growth company until the
earliest of (i) the end of the fiscal year during which we have total annual gross revenues of $1.07 billion or more, (ii) the
end of the fiscal year following the fifth anniversary of the completion of this offering, (iii) the date on which we have, during
the previous three-year period, issued more than $1.0 billion in non-convertible debt and (iv) the date on which we are deemed
to be a “large accelerated filer” under the Exchange Act.
The regulations to implement the provisions
of Section 619 of the Dodd-Frank Act, commonly referred to as the Volcker Rule, contain prohibitions and restrictions on the ability
of financial institutions holding companies and their affiliates to engage in proprietary trading and to hold certain interests
in, or to have certain relationships with, various types of investment funds, including hedge funds and private equity funds. BayCom
is continuously reviewing its investment portfolio to determine if changes in its investment strategies are in compliance with
the various provisions of the Volcker Rule regulations.
For certain provisions of the Dodd-Frank
Act, implementing regulations have not been promulgated, so the full impact of the Dodd-Frank Act on cannot be determined at this
time.
Sarbanes-Oxley Act of 2002:
As
a public company that will file periodic reports with the SEC, under the Exchange Act, BayCom will be is subject to the Sarbanes-Oxley
Act of 2002 (Sarbanes-Oxley Act), which addresses, among other issues, corporate governance, auditing and accounting, executive
compensation and enhanced and timely disclosure of corporate information. The Sarbanes-Oxley Act represents significant federal
involvement in matters traditionally left to state regulatory systems, such as the regulation of the accounting profession, and
to state corporate law, such as the relationship between a board of directors and management and between a board of directors and
its committees. Our policies and procedures are designed to comply with the requirements of the Sarbanes-Oxley Act.
Interstate Banking and Branching:
The
Federal Reserve must approve an application of a bank holding company to acquire control of, or acquire all or substantially all
of the assets of, a bank located in a state other than the holding company’s home state, without regard to whether the transaction
is prohibited by the laws of any state. The Federal Reserve may not approve the acquisition of a bank that has not been
in existence for the minimum time period (not exceeding five years) specified by the statutory law of the host state. Nor
may the Federal Reserve approve an application if the applicant (and its depository institution affiliates) controls or would control
more than 10% of the insured deposits in the United States or 30% or more of the deposits in the target bank’s home state or in
any state in which the target bank maintains a branch. Federal law does not affect the authority of states to limit
the percentage of total insured deposits in the state which may be held or controlled by a bank holding company to the extent such
limitation does not discriminate against out-of-state banks or bank holding companies. Individual states may also waive
the 30% state-wide concentration limit contained in the federal law.
The federal banking agencies are generally
authorized to approve interstate merger transactions without regard to whether the transaction is prohibited by the law of any
state. Interstate acquisitions of branches are permitted only if the law of the state in which the branch is located
permits such acquisitions. Interstate mergers and branch acquisitions are subject to the nationwide and statewide insured
deposit concentration amounts described above. Under the Dodd-Frank Act, the federal banking agencies may generally
approve interstate de novo branching.
Dividends:
The Federal
Reserve has issued a policy statement on the payment of cash dividends by bank holding companies, which expresses its view that
although there are no specific regulations restricting dividend payments by bank holding companies other than state corporate laws,
a bank holding company must maintain an adequate capital position and generally should not pay cash dividends unless the company’s
net income for the past year is sufficient to fully fund the cash dividends and that the prospective rate of earnings appears consistent
with the company’s capital needs, asset quality, and overall financial condition. The Federal Reserve policy statement
also indicates that it would be inappropriate for a company experiencing serious financial problems to borrow funds to pay dividends.
As described above under “Capital Requirements,” the capital conversion buffer requirement can also restrict BayCom’s
and the Bank’s ability to pay dividends. In addition, under federal law, a member bank, such as the Bank, may not declare
or pay a dividend if the total of all dividends declared during the calendar year, including a proposed dividend, exceeds the sum
of the Bank’s net income during the calendar year and the retained net income of the prior two calendar years, unless the
dividend has been approved by the Federal Reserve.
Stock Repurchases:
A bank
holding company, except for certain “well-capitalized” and highly rated bank holding companies, is required to give
the Federal Reserve prior written notice of any purchase or redemption of its outstanding equity securities if the gross consideration
for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the
preceding twelve months, is equal to 10% or more of its consolidated net worth. The Federal Reserve may disapprove such
a purchase or redemption if it determines that the proposal would constitute an unsafe or unsound practice or would violate any
law, regulation, Federal Reserve order or any condition imposed by, or written agreement with, the Federal Reserve.
MANAGEMENT
Executive Officers and Directors
The following table sets forth information regarding our directors
and executive officers.
|
Name
|
|
Age
|
|
Position(s) Held
|
|
Director
Since
(1)
|
|
Term
Expires
|
|
|
|
|
|
|
|
|
|
|
|
DIRECTORS
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd W. Kendall, Jr.
|
|
71
|
|
Chairman of the Board
|
|
2004
|
|
2018
|
|
George J. Guarini
|
|
64
|
|
President, Chief Executive Officer and Director
|
|
2004
|
|
2018
|
|
James S. Camp
|
|
66
|
|
Director
|
|
2004
|
|
2018
|
|
Harpreet S. Chaudhary
|
|
56
|
|
Director
|
|
2011
|
|
2018
|
|
Rocco Davis
|
|
59
|
|
Director
|
|
2017
|
|
2018
|
|
Malcolm F. Hotchkiss
|
|
69
|
|
Director
|
|
2017
|
|
2018
|
|
Robert G. Laverne, MD
|
|
69
|
|
Director
|
|
2004
|
|
2018
|
|
David M. Spatz
|
|
70
|
|
Director
|
|
2004
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
|
|
|
|
|
|
|
|
|
|
|
|
Janet L. King
|
|
55
|
|
Sr. Executive Vice President and Chief Operating
Officer
|
|
N/A
|
|
N/A
|
|
Keary L. Colwell
|
|
58
|
|
Sr. Executive Vice President, Chief Financial
Officer and Secretary
|
|
N/A
|
|
N/A
|
|
Izabella L. Zhu
(2)
|
|
39
|
|
Executive Vice President and Chief Risk Officer
|
|
N/A
|
|
N/A
|
|
David J. Funkhouser
(2)
|
|
62
|
|
Executive Vice President and Chief Credit Officer
|
|
N/A
|
|
N/A
|
|
Charles Yun
(2)
|
|
49
|
|
Executive Vice President and Chief Lending Officer
|
|
N/A
|
|
N/A
|
|
Mary Therese Curley
(2)
|
|
60
|
|
Executive Vice President, Director of Labor Service Division
|
|
N/A
|
|
N/A
|
(1) Includes
years of service on the Board of United Business Bank (formerly known as Bay Commercial Bank).
(2) Executive officers
of United Business Bank only.
Business Background of Our Directors
The business experience of each director
of BayCom for at least the past five years and the experience, qualifications, attributes, skills and area of expertise of each
director that supports his or her service as a director are set forth below. Unless otherwise indicated, the director has held
his or her position for at least the past five years.
George J. Guarini
: Mr. Guarini
is currently the President and Chief Executive Officer of BayCom and United Business Bank (formerly known as Bay Commercial Bank).
Prior to opening the Bank in 2004, Mr. Guarini was the Senior Vice President and Senior Lending Officer of Summit Bank, a community
bank headquartered in Oakland, California. In addition to serving as the Senior Vice President and Senior Lending Officer of Summit
Bank from 2000 to 2003, Mr. Guarini served as the Bank’s acting president between August 2001 and August 2002. From 1994 to 1999,
Mr. Guarini enjoyed a career with Imperial Capital based in Glendale, California, where he began as Senior Vice President and was
charged with resolving significant loan portfolio weakness. In 1995, following a successful initial public offering by ITLA Capital
Corporation, parent of Imperial Capital Bank, he was appointed the Bank’s Chief Lending Officer. In 1997, Mr. Guarini served as
the founding Chief Executive Officer of ITLA Funding Corporation, a wholly owned subsidiary of ITLA Capital Corporation. Prior
to joining Imperial Capital Bank, Mr. Guarini held the position of Senior Vice President for California Republic Bank from 1991
to 1994. Mr. Guarini earned his Bachelor of Arts degree in Economics from Rutgers University. Mr. Guarini’s qualifications
to serve as a member of our board of directors include more than 30 years of experience in the banking industry, holding key executive
and senior level management positions with national and regional financial institutions.
Lloyd W. Kendall, Jr.
: Mr.
Kendall is a lawyer, practicing in the Bay Area since 1978 and specializing in real estate and tax law. His specialty is tax free
exchanges and related areas of the law. He received much of his tax law education through his employment with the U.S. Treasury
Department, Internal Revenue Service. Mr. Kendall formed and owned Lawyers Asset Management, Inc., acting as “Qualified Intermediary”
for tax free exchanges under Section 1031(a) of the Internal Revenue Code, until 2006 when his company merged with Commercial Capital
Bank. He also served as tax counsel for several title companies and was the President of Equity Investment Exchange, Inc., a competitor
owned by Mercury Title Companies of Colorado. He has lectured extensively throughout the U.S. providing continuing education for
lawyers and realtors. Mr. Kendall’s qualifications to serve as a member of our board include extensive experience in the
areas of real estate and tax matters.
James S. Camp
: Mr. Camp is
the President of the S.A. Camp Companies, a closely held company incorporated in 1932. Mr. Camp has served as the company’s President
since 1979. Mr. Camp has over 28 years of bank director experience, having served as a director of California Republic Bank from
1980 to 1994, including as Vice Chairman of the Board and Chairman of the Executive Committee of the Board (1985 - 1992) and as
Chairman of the Board (1992 - 1994). Mr. Camp received a B.S. in Finance from the University of Southern California in 1973. In
1976, Mr. Camp was awarded a J.D. degree from the University of Santa Clara School of Law. In 1977, Mr. Camp received an L.L.M.
in Taxation from New York University School of Law. Mr. Camp has been a member of the State Bar of California since 1976. Mr. Camp’s
qualifications to serve as a member of our board include over 38 years of management and advisory experience, as well as over 28
years of service as a bank director.
Harpreet S. Chaudhary
:
Mr. Chaudhary is a Certified Public Accountant (CPA) and a Certified Financial Planner (CFP) serving as the president of Area
Financial Services, Inc., which provides accounting, wealth planning, tax planning and preparation services for high net worth
individuals and small business owners in the Bay Area for over 25 years. Mr. Chaudhary is a California licensed realtor and owns
and manages various commercial retail properties. Mr. Chaudhary is actively involved with various Bay Area charities like Pratham,
the Fremont Sikh Gurdwara, Genco and the Punjab Cultural society. Mr. Chaudhary is a graduate of the University of Delhi, India.
Mr. Chaudhary’s qualifications to serve as a member of our board include his extensive knowledge in the areas of accounting,
business and real estate.
Rocco Davis
: Mr. Davis
joined the BayCom board of directors in April 2017, following completion of BayCom’s acquisition of First ULB Corp., where
Mr. Davis served on the board of directors of First ULB Corp. since 2014. Mr. Davis joined LIUNA, the Laborers’ International
Union of North America, in 1980 as a Tri-Fund Field Coordinator and currently serves as a Vice President of LIUNA and on its General
Executive Board. He also acts as LIUNA’s Pacific Southwest Regional Manager which covers the states of Arizona, California,
Hawaii, New Mexico and 10 counties in West Texas. He serves as Chairman of the National Alliance for Fair Contracting and serves
on numerous other boards. Mr. Davis’ qualifications to serve as a member of our board include his over 17 years of
management and advisory experience, as well as his prior service on the board of directors of a regulated financial institution.
Malcolm F. Hotchkiss
:
Mr. Hotchkiss had been a Director and the Chief Executive Officer of First ULB Corp. and its subsidiary United Business
Bank, FSB, from 1994 until it was acquired by BayCom in April 2017, and has been a banking executive for more than 30 years.
Mr. Hotchkiss, since May 2017, has been serving as the Chief Credit Officer of Golden Pacific Bank, a small community bank
headquartered in Sacramento, California. Mr. Hotchkiss’ qualifications to serve as a member of our board include
more than 30 years of experience in the banking industry, holding key executive and senior level
management positions.
Robert G. Laverne, M.D.
:
Dr. Laverne is an anesthesiologist at John Muir Medical Center in Walnut Creek, California. Dr. Laverne is also the founder and
Managing Member of New Horizons Properties, LLC, a property development company. Dr. Laverne also served as the Chief Financial
Officer of Medical Anesthesia Consultants (1988 - 1994) and at present, is a director of Medical Anesthesia Consultants. Dr. Laverne
was the Chairman of the Department of Anesthesiology at John Muir Medical Center from 1989 - 1991 and was Chairman of the John
Muir Medical Center Physician Credentials Committee from 1994 - 2001. Dr. Laverne received his M.D. degree from the University
of California Medical Center, San Francisco, and his B.A. degree from the University of California at Berkeley. Dr. Laverne’s
qualifications to serve as a member of our board include his extensive management and advisory experience, holding key board positions,
and his experience as a real estate developer.
David M. Spatz
: Mr. Spatz,
the President of Spatz Development Co., which owns and operates several income-producing real estate properties, retired from Chevron
Corporation in 2000 after 21 years with that corporation. Mr. Spatz held various senior executive positions with Chevron, including
General Manager, Chevron Lubricants Worldwide (1999 - 2000), General Manager, Chevron North America Lubricants (1996 - 1999), Managing
Director, Chevron Technology Marketing (1992 - 1996), and Business Manager, Chevron Chemical Company (1989 - 1992). Mr. Spatz received
a B.S. degree in Chemistry from Clarkson University and a Ph. D. in Chemistry from the University of Michigan. Mr. Spatz’s
qualifications to serve as a member of our board include his extensive management and advisory experience, holding key executive
and senior level management positions with a Fortune 500 company.
Business Background of Our Executive
Officers Who Are Not Directors
The business experience for the past five
years of each of our executive officers is set forth below. Unless otherwise indicated, the executive officer has held his or her
position for at least the past five years.
Janet L. King
: Ms. King is
the Senior Executive Vice President and Chief Operating Officer of BayCom. Ms. King has served as the Chief Operating Officer of
United Business Bank (formerly known as Bay Commercial Bank) since its inception in 2004. Ms. King is a member of the executive
management team and has over 29 years of banking experience. Prior to joining the Bank, Ms. King was employed by Circle Bank in
Novato, California from 1999 - 2004 where she served as the Chief Branch Administrative Officer and was a member of the executive
management team. She was responsible for all aspects of operations, including Branch Development, Human Resources, Information
Technology and Compliance. Prior to this, Ms. King was the Vice President of Operations for Valencia Bank & Trust in Valencia,
California from 1987 - 1998 where she was responsible for Branch Development, Centralized Operations, Information Technology and
Deposit Compliance. Ms. King earned her B.S. degree in Business Administration from the University of Phoenix.
Keary L. Colwell
: Ms. Colwell
is the Senior Executive Vice President, Chief Financial Officer and Corporate Secretary of BayCom. Ms. Colwell has served as the
Chief Financial Officer and Corporate Secretary of United Business Bank (formerly known as Bay Commercial Bank) since inception
in 2004, and is presently also the Bank’s Chief Administrative Officer. Ms. Colwell is a member of the executive management
team and is responsible for all aspects of accounting and finance functions including financial reporting, asset liability management,
and budget and financial planning. She also over sees the Bank’s risk management process. She has over 28 years in banking
and finance. Prior to joining the Bank, Ms. Colwell was employed by The San Francisco Company and Bank of San Francisco, where
she served as the Executive Vice President and Chief Financial Officer from 1996 through the sale of the company in 2001. Ms. Colwell
served as the Vice President/Senior Financial Management of First Nationwide Bank from 1988 - 1992. Prior to joining First Nationwide
Bank, Ms. Colwell was the Vice President and Controller at Independence Savings and Loan Association. Ms. Colwell worked in public
accounting after graduating from college. She obtained her Certified Public Accountant license in 1984. Ms. Colwell holds a B.S.
degree from California State University, Chico.
Izabella L. Zhu
: Ms. Zhu joined
the Bank as Chief Risk Officer and a member of the executive management team in September 2013. Ms. Zhu is responsible for developing,
coordinating, and maintaining forward looking enterprise risk management framework and programs as the Bank pursues various growth
strategies. Prior to joining the Bank, Ms. Zhu was a Senior Financial Institutions Examiner and a founding and inaugural member
of the Examiner Council at the California Department of Business Oversight. She has served as Examiner-in-Charge of various large
banks, troubled financial institutions, and trust departments. Prior to that, Ms. Zhu was a financial advisor at Morgan Stanley.
Ms. Zhu earned a Master’s degree in Public Administration in International Development from the Kennedy School at Harvard University
and a Bachelor’s degree in International Economics from Peking University. Ms. Zhu is also a Certified Fiduciary Investment Risk
Specialist.
David Funkhouser
: Mr.
Funkhouser has been serving the Bank in the capacity of Executive Vice President and Chief Credit Officer since June 2015. He
has over 30 years of experience in banking. Mr. Funkhouser is responsible for the overall management of the Bank’s Credit
Quality including oversight of the Credit Administration Department, the underwriting and loan review analysis processes, all
functions that provide lending support, direction, credit information, and loan policies, procedures and processes to ensure the
overall quality of the Bank’s loan portfolio. Prior to joining the Bank, Mr. Funkhouser was a banking consultant (DJF Consulting
LLC) from April 2014 - June 2015 and served as President and CEO at Trans Pacific National Bank from July 2010 - March 2014. Mr.
Funkhouser holds a B.A. Degree from California State University, San Jose and earned a graduate certificate from the Pacific Coast
Banking School at University of Washington, Seattle, WA.
Charles Yun
: Mr. Yun has
been in the banking industry for over 25 years and has served the Bank as its Executive Vice President and Chief Lending Officer
since March 2016. Mr. Yun is responsible for growing the Bank’s commercial lending portfolio through a diverse focus on
Real Estate and Commercial & Industrial relationships. Prior to joining the Bank, he served as a Senior Vice President at
Umpqua Bank from July 2014 – March 2016 and was responsible for the middle market production group in the Bay Area. Mr.
Yun served as Division Vice President, Commercial Banking at Stanford Federal Credit Union from May 2011 – July 2014 where
he spearheaded the credit union’s commercial banking program. Mr. Yun’s experiences also extend to various positions
with Comerica Bank, Silicon Valley Bank and Heritage Bank. Mr. Yun holds a B.S. Degree in Finance from San Jose State University
and an MBA in Strategy from Pepperdine University.
Mary Therese (Terry) Curley
:
Ms. Curley joined the Bank as Executive Vice President, Director of Labor Service Division in April 2017, in connection with our
acquisition of First ULB Corp and its wholly owned subsidiary, United Business Bank, FSB. At the prior bank, Ms. Curley served
as EVP/Chief Credit Officer (2012 - 2017), SVP/Credit Administrator (2009 - 2012), Credit Card Administrator (2008 - 2009), SVP/Regional
Sales Manager (2005 - 2009), VP/Branch Manager (2000 - 2005) and Business Development Officer (1995 - 2000). In 1992, Ms. Curley
received a B.A. in Political, Legal and Economic Analysis from Mills College, Oakland, CA. In 2005, she earned a graduate certificate
from the Pacific Coast Banking School at University of Washington, Seattle, WA.
Board Leadership Structure and Qualifications
We believe that our directors should have
the highest professional and personal ethics and values, consistent with our longstanding values and standards. They should have
broad experience at the policy-making level in business or banking. They should be committed to enhancing shareholder value and
should have sufficient time to carry out their duties and to provide insight and practical wisdom based on experience. Each director
must represent the interests of all shareholders. When considering potential director candidates, our board of directors considers
the candidate’s character, judgment, diversity, skills, including financial literacy, and experience in the context of our
needs and those of the board of directors. Our board also considers the candidate’s service on boards of other companies
and whether such service would impair the candidate’s ability to perform responsibly all director duties for BayCom.
Our board of directors does not have a
formal policy requiring the separation of the roles of Chief Executive Officer and Chairman of the Board. It is the board of directors’
view that rather than having a rigid policy, the board of directors, with the advice and assistance of the governance and nominating
committee, and upon consideration of all relevant factors and circumstances, will determine, as and when appropriate, whether the
two offices should be separate. Currently, our leadership structure separates the offices of Chief Executive Officer and Chairman
of the Board, with Mr. Guarini serving as our Chief Executive Officer and Mr. Kendall as Chairman of the Board, reinforcing
the leadership role of our board of directors in its oversight of our business and affairs.
Director Independence
The rules of the NASDAQ, as well as those
of the SEC, impose several requirements with respect to the independence of our directors, including the requirement that at least
a majority of the board be “independent” as that term is defined under the applicable rules. Our board of directors
has undertaken a review of the independence of each director in accordance with these rules. Based on information provided by each
director concerning his background, employment and affiliations, our board of directors has determined that Lloyd W. Kendall, Jr.,
James S. Camp, Harpreet S. Chaudhary, Rocco Davis, Malcolm F. Hotchkiss, Robert G. Laverne, M.D. and David M. Spatz do not have
relationships that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director
and that each of these directors is “independent” as that term is defined under the applicable rules. In making these
determinations, our board of directors considered the current and prior relationships that each non-employee director has with
our company and all other facts and circumstances our board of directors deemed relevant in determining their independence.
Committees of Our Board of Directors
Our board of directors has standing audit,
compensation and governance and nominating committees. The responsibilities of these committees are described below. Our board
of directors may also establish such other committees as it deems appropriate, in accordance with applicable laws and regulations
and our corporate governance documents. The following table summarizes the membership of each of the committees of the board of
directors.
|
Director
Name
|
|
Audit
Committee
|
|
Compensation
Committee
|
|
Governance
and
Nominating
Committee
|
|
Lloyd W. Kendall, Jr.
|
|
X
|
|
X
|
|
X*
|
|
George J. Guarini
|
|
|
|
|
|
|
|
James S. Camp
|
|
|
|
X
|
|
X
|
|
Harpreet S. Chaudhary
|
|
X*
|
|
X
|
|
|
|
Rocco Davis
|
|
|
|
|
|
|
|
Malcolm F. Hotchkiss
|
|
X
|
|
X
|
|
|
|
Robert G. Laverne, MD
|
|
X
|
|
|
|
|
|
David M. Spatz
|
|
|
|
X*
|
|
X
|
* Committee Chair
Audit committee.
The audit committee
assists the board of directors in fulfilling its responsibilities for general oversight of the integrity of our financial statements,
our compliance with legal and regulatory requirements, the independent auditors’ qualifications and independence, the performance
of our internal audit function and independent auditors and risk assessment and risk management. Among other things, upon completion
of this offering, the audit committee will:
|
|
·
|
annually review the audit
committee charter and the committee’s performance;
|
|
|
·
|
appoint, evaluate and determine
the compensation of our independent auditors;
|
|
|
·
|
review and approve the scope
of the annual audit, the audit fee, the financial statements, significant accounting policy changes, material weaknesses identified
by outside auditors or the internal audit function and risk management issues;
|
|
|
·
|
prepare the audit committee
report for inclusion in our proxy statement for our annual meeting;
|
|
|
·
|
review disclosure controls
and procedures, internal controls, internal audit function and corporate policies with respect to financial information;
|
|
|
·
|
assist the board of directors
in monitoring our compliance with applicable legal and regulatory requirements;
|
|
|
·
|
oversee investigations into
complaints concerning financial matters, if any; and
|
|
|
·
|
review other risks that may
have a significant impact on our financial statements.
|
The audit committee works closely with
management as well as our independent auditors. The audit committee has the authority to obtain advice and assistance from, and
receive appropriate funding to engage, outside legal, accounting or other advisors as the audit committee deems necessary to carry
out its duties. The audit committee has adopted a written charter that, among other things, specifies the scope of its rights and
responsibilities. Before completion of the offering, the charter will be available on our website at www.unitedbusinessbank.com.
The audit committee is composed solely
of members who satisfy the applicable independence, financial literacy and other requirements of the NASDAQ for audit committees,
and upon completion of the offering Director Chaudhary will be appointed to serve as the “audit committee financial expert,”
as defined by the SEC rules. Each of our audit committee members also qualify as independent directors under the independence requirements
of Rule 10A-3 of the Exchange Act.
Compensation committee
. The compensation
committee is responsible for discharging the board’s responsibilities relating to compensation of our executive officers
and directors. Among other things, upon completion of this offering, the compensation committee will:
|
|
·
|
evaluate human resources
and compensation strategies;
|
|
|
·
|
review and approve objectives
relevant to executive officer compensation;
|
|
|
·
|
evaluate performance and
recommends the compensation of the Chief Executive Officer in accordance with those objectives;
|
|
|
·
|
approve any changes to non-equity-based
benefit plans involving a material financial commitment;
|
|
|
·
|
recommend to the board of
directors compensation for directors;
|
|
|
·
|
prepare the compensation
committee report required by SEC rules to be included in our annual report, if any; and
|
|
|
·
|
evaluate performance in relation
to the compensation committee charter.
|
The compensation committee has adopted
a written charter that, among other things, specifies the scope of its rights and responsibilities. Before completion of the offering,
the charter will be available on our website at www.unitedbusinessbank.com. The compensation committee will be composed solely
of members who satisfy the applicable independence requirements of the NASDAQ for compensation committees.
Governance and nominating committee
.
The governance and nominating committee is responsible for making recommendations to our board of directors regarding candidates
for directorships and the size and composition of our board of directors. In addition, the governance and nominating committee
will be responsible for overseeing our corporate governance guidelines and reporting and making recommendations to our board of
directors concerning governance matters. Among other things, the governance and nominating committee will:
|
|
·
|
identify individuals qualified
to be directors consistent with the criteria approved by the board of directors, subject to any waivers granted by the board,
and recommend director nominees to the full board of directors;
|
|
|
·
|
ensure that the audit and
compensation committees have the benefit of qualified “independent” directors;
|
|
|
·
|
oversee management continuity
planning;
|
|
|
·
|
lead the board of directors
in its annual performance review; and
|
|
|
·
|
take a leadership role in
shaping the corporate governance of our organization.
|
The governance and nominating committee
has adopted a written charter that, among other things, specifies the scope of its rights and responsibilities. Before completion
of the offering, the charter will be available on our website at www.unitedbusinessbank.com. The governance and nominating committee
is composed solely of members who satisfy the applicable independence requirements of the NASDAQ for governance and nominating
committees.
Board Oversight of Risk Management
Our board of directors believes that effective
risk management and control processes are critical to our safety and soundness, our ability to predict and manage the challenges
that we face and, ultimately, our long-term corporate success. Our board of directors, both directly and through its committees,
is responsible for overseeing our risk management processes, with each of the committees of our board of directors assuming a different
and important role in overseeing the management of the risks we face.
The audit committee of our board of directors
oversees our enterprise-wide risk management framework, which establishes our overall risk appetite and risk management strategy
and enables our management to understand, manage and report on the risks we face. The audit committee is responsible for overseeing
risks associated with financial matters (particularly financial reporting, accounting practices and policies, disclosure controls
and procedures and internal control over financial reporting), potential conflicts of interest and engaging as appropriate with
the Bank’s risk committee to assess our enterprise-wide risk framework. The compensation committee has primary responsibility
for risks and exposures associated with our compensation policies, plans and practices, regarding both executive compensation and
the compensation structure generally. In particular, our compensation committee, in conjunction with our President and Chief Executive
Officer and other members of our management as appropriate, reviews our incentive compensation arrangements to ensure these programs
are consistent with applicable laws and regulations, including safety and soundness requirements, and do not encourage imprudent
or excessive risk-taking by our employees. The governance and nominating committee of our board of directors oversees risks associated
with the independence of our board of directors.
Our senior management is responsible for
implementing and reporting to our board of directors regarding our risk management processes, including by assessing and managing
the risks we face, including strategic, operational, regulatory, investment and execution risks, on a day-to-day basis. Our senior
management is also responsible for creating and recommending to our board of directors for approval appropriate risk appetite metrics
reflecting the aggregate levels and types of risk we are willing to accept in connection with the operation of our business and
pursuit of our business objectives.
The role of our board of directors in our
risk oversight is consistent with our leadership structure, with our President and Chief Executive Officer and the other members
of senior management having responsibility for assessing and managing our risk exposure, and our board of directors and its committees
providing oversight in connection with those efforts. We believe this division of risk management responsibilities presents a consistent,
systemic and effective approach for identifying, managing and mitigating risks throughout our operations.
Compensation Committee Interlocks and Insider Participation
None of the members of our compensation
committee will be or will have been an officer or employee of BayCom or its subsidiary, United Business Bank. In addition, none
of our executive officers serve or have served as a member of the board of directors, compensation committee or other board committee
performing equivalent functions of any entity that has one or more executive officers serving as one of our directors or on our
compensation committee.
Code of Business Conduct and Ethics
Our board of directors has adopt a code
of business conduct and ethics (the “Code of Ethics”) that applies to all of our directors, officers and employees,
including our principal executive officer, principal financial officer and principal accounting officer and persons performing
similar functions. The Code of Ethics will be available upon written request to Corporate Secretary, BayCom Corp, 500 Ygnacio Valley
Road. Suite 200, Walnut Creek, California 94596 and on our website at www.unitedbusinessbank.com. If we amend or grant any waiver
from a provision of our Code of Ethics that applies to our executive officers, we will publicly disclose such amendment or waiver
on our website and as required by applicable law, including by filing a Current Report on Form 8-K.
EXECUTIVE AND DIRECTOR COMPENSATION
Summary Compensation Table
The “named executive officers”
of BayCom are George J. Guarini, our Chief Executive Officer, Janet L. King, our Senior Executive Vice President and Chief Operating
Officer and Keary L. Colwell, our Senior Executive Vice President, Chief Financial Officer and Corporate Secretary, as of December 31,
2017. The following table presents compensation awarded in the year ended December 31, 2017 to our named executive officers
or paid to or accrued for those executive officers for services rendered during 2017.
Name and
Principal
Position
|
|
Year
|
|
Salary
|
|
|
Bonus
|
|
|
Stock
Awards
(1)
|
|
|
All
Other
Compensation
(2)
|
|
|
Total
|
|
George
J. Guarini
President and CEO
|
|
2017
|
|
$
|
450,000
|
|
|
$
|
411,122
|
|
|
$
|
112,808
|
|
|
$
|
282,571
|
|
|
$
|
1,256,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janet L. King
Senior Executive Vice President and COO
|
|
2017
|
|
$
|
325,000
|
|
|
$
|
212,095
|
|
|
$
|
48,887
|
|
|
$
|
62,049
|
|
|
$
|
648,031
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keary L. Colwell
Senior Executive Vice President, CFO and Corporate Secretary
|
|
2017
|
|
$
|
325,000
|
|
|
$
|
212,095
|
|
|
$
|
48,887
|
|
|
$
|
61,910
|
|
|
$
|
647,892
|
|
|
|
(1)
|
The amounts in this column are calculated using the grant date
fair value of the award under ASC Topic No. 718, Compensation-Stock
Compensation, based on the number of restricted shares
awarded and the grant date fair value of the Company’s common stock on the date
the award was made. The grant date fair value amount is based on the per share closing
price of the Company’s common stock on the date the award was made of $14.90.
|
|
|
(2)
|
The amounts represented for the year ended December 31, 2017, consist of the following (no executive officer received personal
benefits or perquisites exceeding $10,000 in the aggregate):
|
|
Name
|
|
401(k)
Matching
Contribution
|
|
|
Salary
Continuation
Plan
|
|
|
Premiums on
Split-dollar life
insurance benefits
|
|
|
Total
|
|
|
George J. Guarini
|
|
$
|
24,000
|
|
|
$
|
256,050
|
|
|
$
|
2,521
|
|
|
$
|
282,571
|
|
|
Janet L. King
|
|
|
17,735
|
|
|
|
44,314
|
|
|
|
—
|
|
|
|
62,049
|
|
|
Keary L. Colwell
|
|
|
17,596
|
|
|
|
44,314
|
|
|
|
—
|
|
|
|
61,910
|
|
Employment Agreements with Mr. Guarini, Ms. King and Ms.
Colwell
We have entered
into a three-year employment agreement with each of Mr. Guarini, Ms. King and Ms. Colwell, which agreements were amended and restated
effective as of February 22, 2018. The term of each agreement will automatically extend for an additional year on each annual
anniversary date of the agreements, unless either party gives notice that the extensions will cease.
Each employment agreement provides for,
among other things, a minimum annual base salary of $495,000 for Mr. Guarini and $357,500 for Ms. King and Ms. Colwell (subject
to adjustments as may be determined by our board of directors), incentive bonuses, a monthly automobile allowance ($800 in the
case of Mr. Guarini and Ms. King, and $500 in the case of Ms. Colwell) and group insurance benefits, as well as a group life insurance
benefit payable to the executive’s designated beneficiary in an amount equal to the executive’s then-current annual
base salary and participation in any retirement, profit-sharing, salary deferral, medical expense reimbursement and other similar
plans we may establish for our employees. Each agreement generally provides for indemnification of the executive to the maximum
extent permitted by law and applicable regulations for any expenses incurred by the executive, and for any judgments, awards, fines
or penalties imposed against the executive, in any proceeding relating to the executive’s actions (or our actions) while
an agent of ours. Each agreement also provides for the advancement of expenses to the executive and coverage under a director and
officer liability insurance policy.
Each employment agreement provides for the
grant of a restricted stock award in the event the offering is successfully completed for at least $30.0 million of gross proceeds.
See “- Equity Awards in Connection with This Offering” for a description of such grants.
Each employment agreement provides for an
annual restricted stock grant in the first quarter of each year for a number of shares of common stock equal to 25% (15% for Ms.
King and Ms. Colwell) of the executive’s base salary as of the end of the preceding calendar year, divided by the fair market
value of our common stock as of the date of grant. These annual grants will vest at the rate of 20% per year over a five-year period,
with the initial vesting occurring on the one-year anniversary of the date of grant.
The employment agreements provide that the public offering grants,
the annual grants of restricted stock and any other equity awards will become fully vested upon either (1) a termination of the
executive’s employment due to death or disability or by the Bank without cause, (2) a change in control as defined in our
2017 Omnibus Equity Incentive Plan (or any applicable subsequent plan) if no replacement award (as defined in the employment agreements)
is provided to the executive, or (3) the executive terminates his or her employment for “good reason” as defined below.
Each agreement provides that if, within
one year following a change in control, the executive’s employment is terminated without cause or the executive terminates
his or her employment for “good reason,” then the executive will be entitled to a lump sum cash severance payment.
The severance pay in connection with a change in control would be equal to three times (two times for Ms. King and Ms. Colwell)
the sum of (a) the executive’s then-current base annual salary, (b) any incentive bonus paid to the executive with respect
to the preceding year, and (c) the grant date value of the executive’s annual restricted stock award for the year in which
the termination occurs or, if the termination occurs before the annual grant is made for such year, the grant date value of the
annual restricted stock award for the immediately preceding calendar year. In addition, if we terminate the agreement without
cause prior to a change in control, the Bank will (1) pay the aggregate amount in the preceding sentence over 24 months (12 months
for Ms. King and Ms. Colwell) in equal monthly installments, and (2) for a period of 24 months in the case of Mr. Guarini and
12 months in the case of Ms. King and Ms. Colwell), continue to provide the executive with health insurance benefits on the same
terms as when the executive was employed by us. The term “good reason” means any of the following: (1) a material
permanent reduction in the executive’s total compensation or benefits; (2) a material permanent reduction in the executive’s
title or responsibilities; or (3) a relocation of the executive’s principal office so that his or her commute distance is
increased by more than 40 miles from Walnut Creek, California.
Each employment agreement provides that
if the severance payments and benefits to be made thereunder, together with other change in control payments or benefits to the
executive, would be deemed to be “parachute payments” under Section 280G of the Code, then the severance under the
employment agreements will be reduced by the minimum amount necessary to result in no portion of the change in control payments
and benefits being deemed a parachute payment only if doing so would result in a greater net after-tax benefit to the executive.
If the executive’s change in control payments and benefits are deemed to be parachute payments and are not reduced, then
the executive will be required to pay a 20% excise tax on the amount of his parachute payments in excess of one times the executive’s
average taxable income for the preceding five calendar years, and such excess will not be deductible by the Company or the Bank
for federal income tax purposes.
Each of the employment agreements also contains
(i) a confidentiality provision regarding the use and disclosure of confidential information during the term of employment and
for a period one year following termination of employment, and (ii) a client and employee non-solicit for a period of one
year following termination of employment.
Annual Bonus
Our named executive officers participate
in an annual incentive bonus program, which we refer to as the “Annual Bonus Plan,” which provides for annual cash
bonuses to designated senior managers, including all of the named executive officers, upon the achievement of performance goals
established by the Bank’s board of directors. The purpose of the Annual Bonus Plan is to provide an incentive for achieving
defined target performance goals based on our annual business and profit plan, which we refer to as the “Performance Plan.”
The target performance goals in the Performance Plan typically include, but are not limited to, objectives regarding earnings,
loan and deposit growth, credit quality, operating efficiency, strategic initiatives and regulatory examinations, and are established
annually. Under the Annual Bonus Plan, our named executive officers may earn an annual cash bonus up to a maximum of 150% of his
or her target annual incentive award, or may earn no bonus at all if the Company’s actual performance is less than 75% of
the target performance goal. The Bank’s board of directors, in its sole discretion, may increase or decrease the actual award
earned by an executive under the Annual Bonus Plan. Executives must be employed on the date of payment in order to receive payment
of an earned award.
In 2017, target annual incentive awards
under the Annual Bonus Plan for our named executive officers were 70% of base salary for Mr. Guarini and 50% of base salary for
Ms. King and Ms. Colwell. The annual cash incentives awarded for 2017 performance were $411,122 for Mr. Guarini, $212,095
for Ms. King and $212,095 for Ms. Colwell, representing achievement at 130.5% of their target annual incentive awards. No
adjustments up or down were made by the Bank’s board of directors to the 2017 annual cash bonuses earned by the named executive
officers. The annual cash incentives awarded for 2017 performance are reflected under the “Bonus” column in the Summary
Compensation Table above.
Equity Incentive Plans
In 2017, we adopted, and the existing
shareholders of the Company approved, the BayCom Corp 2017 Omnibus Equity Incentive Plan (which we refer to as the 2017 Plan and
which was amended and restated effective as of February 22, 2018) in which our employees, executive officers and/or directors
and consultants may participate. The 2017 Plan replaced our 2014 Omnibus Equity Incentive Plan (which we refer to as the 2014
Plan), and no further awards are being made under the 2014 Plan. All awards outstanding under the 2014 Plan remain outstanding
in accordance with their terms and continue to be governed solely by the terms of the 2014 Plan and the documents evidencing such
award.
The 2017 Plan provides for the issuance
of up to 450,000 shares of common stock pursuant to awards of incentive stock options, within the meaning of Section 422 of
the Internal Revenue Code, nonstatutory stock options, stock appreciation rights, restricted stock awards, restricted stock unit
awards, performance-based stock and stock unit awards, and other forms of equity or cash compensation. As of the date of this prospectus,
all 450,000 shares remain available for award under the 2017 Plan. The purpose of the 2017 Plan is to provide selected present
and future employees, directors and consultants of the Company and its subsidiaries and affiliates with stock based incentives
and other equity interests in the Company, thereby giving them a stake in the growth and prosperity of the Company and encouraging
the continuance of their services with the Company.
The maximum aggregate award that may be
granted to any individual participant under the 2017 Plan for any fiscal year is limited to the lesser of 50,000 shares of common
stock or a fair market value of $2,000,000, provided, however, that no individual director of the Company may be awarded more than
25,000 shares of common stock during a fiscal year. No awards may be granted under the 2017 Plan after October 17
,
2027,
ten years from the date of board approval of the 2017 Plan, subject to earlier termination.
The 2017 Plan is administered by the Compensation
Committee of the board of directors of the Company. The Compensation Committee has the ability to make awards under the 2017 Plan,
and to select employees, directors and consultants who may participate in the 2017 Plan, determine the amount and types of awards,
and determine the terms and conditions of awards; determine whether or not a change of control shall have occurred; construe and
interpret the 2017 Plan and any agreement or instrument under the 2017 Plan; establish and administer any performance goals, including
related performance measures or performance criteria and applicable performance periods, determine the extent to which any performance
goals and/or other terms and conditions of an award are attained or are not attained, and certify whether, and to what extent,
any such performance goals and other material terms applicable to awards intended to qualify as performance-based compensation
were in fact satisfied; construe any ambiguous provisions, correct any defects, supply any omissions and reconcile any inconsistencies
in the 2017 Plan and/or any award agreement; establish, adopt, amend, waive and/or rescind rules and regulations related to the
administration of the 2017 Plan; interpret the 2017 Plan and any awards made under the 2017 Plan.
The Compensation Committee may, in its
discretion, at the time an award is made under the 2017 Plan or at any time prior to, coincident with or after the time of a Change
of Control (as defined below), subject to certain limitations, provide for the acceleration of any time periods relating to the
exercise or vesting of an award; (b) provide for the purchase of an award, upon the participant’s request, for an amount
of cash equal to the amount which could have been obtained upon the exercise or vesting of the award had the award been currently
exercisable or payable; (c) make adjustments to an award as the Compensation Committee deems appropriate to reflect the Change
of Control; or (d) use its best efforts to cause an award to be assumed, or new rights substituted therefore, by the surviving
corporation in the Change of Control. Generally, where possible the Compensation Committee shall seek to cause the assumption
of outstanding awards in the event of a Change of Control, as provided in the foregoing clause (d), except that the employment
agreements with Mr. Guarini, Ms. King and Ms. Colwell provide for accelerated vesting of their restricted stock awards upon a
Change of Control.
For purposes of the 2017 Plan, a “Change
of Control” generally shall be deemed to occur if: (a) any person is or becomes the beneficial owner, directly or indirectly,
in a transaction or series of transactions, of securities of BayCom representing more than 50% of the voting power of BayCom’s
voting capital stock (the “Voting Stock”); (b) the consummation of a merger, or other business combination after which
the holders of the Voting Stock do not collectively own 50% or more of the voting capital stock of the entity surviving such merger
or other business combination, or the sale, lease, exchange or other transfer in a transaction or series of transactions of all
or substantially all of the assets of BayCom; or (c) a majority of the BayCom board of directors is replaced in any twelve (12)
month period by individuals whose appointment or election is not endorsed by a majority of the members of the BayCom board of directors
prior to the date of the appointment or election; or (d) an event occurs that we would need to report as a change of control under
the federal securities laws.
During 2017, Mr. Guarini, Ms. King and Ms.
Colwell were awarded 7,571 shares, 3,281 shares and 3,281 shares, respectively, of restricted stock under our 2014 Plan. The restricted
stock award agreements entered into with each of the named executive officers provide, among other things, that (i) their restricted
stock awards vest in five equal annual installments following the grant date, (ii) in the event of a termination of service, except
as a result of a disability, all of the executive’s unvested awards would be forfeited, (iii) in the event of a termination
of service due to disability, all of the executive’s unvested awards immediately vest in full, and (iv) during the period
of restriction, the executive may exercise full voting rights and is entitled to receive all cash dividends and distributions paid
with respect to the restricted shares while they are held.
Other Savings, Retirement and Benefit Plans
Executive Supplemental Retirement
Agreements.
Effective January 1, 2014, the Bank entered into an executive supplemental retirement agreement with George
J. Guarini, its President and Chief Executive Officer, and effective July 1, 2017 the Bank entered into similar agreements with
Janet King, its Senior EVP and Chief Operating Officer and with Keary Colwell, its Senior EVP, Chief Financial Officer, Chief
Administrative Officer and Secretary. Each of the agreements were amended and restated effective as of February 22, 2018. The
agreements provide that the executives will receive supplemental retirement benefits for a period of 15 years, with the retirement
benefits to be based upon each executive’s vested accrued liability balance. The Bank makes annual contributions to each
executive’s account based on the extent to which the performance goals under the Performance Plan are achieved each year,
with a minimum contribution of 6.19% (2.75% for Ms. King and Ms. Colwell) of the executive’s base salary if the overall
performance is at 75% of target and with a maximum contribution of 61.36% (27.27% for Ms. King and Ms. Colwell) of the executive’s
base salary if the overall performance is at 125% of target. If overall performance is at the target level, the annual contribution
is equal to 45.0% (20.0% for Ms. King and Ms. Colwell) of the executive’s base salary. No annual contribution is made if
the overall performance is below 75% of target. The performance goals under the Performance Plan are subject to change each year.
Each executive’s account balance is credited with interest each year based on the average Citigroup Pension liability Index
for the applicable year (the “applicable interest rate”).
Mr. Guarini is currently 40% vested in his
account balance, with the vesting percentage increasing by 10% in October of each year until he becomes 100% vested in 2023. Ms.
King and Ms. Colwell will first become 30% vested in their account balances in 2019, with their vesting percentages generally increasing
by 10% each year until they become 100% vested in 2027. Mr. Guarini’s annual contributions will be made for each year through
calendar 2023, with no contributions to be made for his service in any subsequent year. If an executive has a separation from service
for any reason other than cause or disability and prior to a change in control, then the executive’s vested account balance
shall be used to calculate an annuity payable on a monthly basis for 180 months by applying the applicable interest rate. If the
executive’s employment is involuntarily terminated by the Bank other than for cause, then the executive shall be deemed 100%
vested in his or her account balance. In addition, if the executive’s separation from service occurs after October 6 of any
given year (October 1 for Ms. King and Ms. Colwell), his or her account balance will be credited with the contribution that would
have been made for such year as if his or her separation from service had occurred on December 31 of such year. If the executive’s
employment is terminated for cause, then the executive shall forfeit all rights and benefits under his or her supplemental compensation
agreement.
If a change in control (as defined in the
agreements) occurs on or before December 31, 2023 (December 31, 2026 for Ms. King and Ms. Colwell), then the executive’s
account shall be credited with the projected annual contributions that would have been made through 2023 (2026 for Ms. King and
Ms. Colwell) based on the Bank’s average performance level for the three preceding years, together with earnings at the applicable
interest rate through the end of 2023 (2026 for Ms. King and Ms. Colwell). In addition, each executive shall be deemed to be 100%
vested in his or her account balance. Each executive’s account balance as adjusted will then be used to calculate an annuity
payable on a monthly basis for 180 months by applying the applicable interest rate, with the monthly payments to commence on the
first day of the fourth month following the executive’s separation from service (subject to delay until the seventh month
following separation from service if the executive is a specified employee as defined under Section 409A of the Code at the time
of separation). If the change in control benefits, either alone or together with other payments the executive has the right to
receive, constitute excess parachute payments under Section 280G of the Code, then the executive will pay the applicable excise
taxes and the Bank (or its successor) will lose the corporate tax deduction on the excess parachute payments. The agreements also
provide that the executives may require the Bank to establish and fund a trust in the event of a change in control to fund the
change in control benefits payable to the executives.
The supplemental compensation agreements
also provide for disability benefits, which are calculated in a manner similar to the change in control benefits if the disability
occurs on or before December 31, 2023 (December 31, 2026 for Ms. King and Ms. Colwell). If the executive dies while still employed
and prior to a change in control or becoming disabled, then all rights and benefits under his or her supplemental compensation
agreement shall be forfeited and the executive’s beneficiaries shall only be entitled to receive the death benefits payable
under Bank-owned life insurance covering the executive to the extent applicable.
The supplemental compensation agreements
provide that each executive cannot compete against the Bank by serving in any capacity with another FDIC-insured financial institution
located within a 40-mile radius of any deposit taking office of the Bank for a period of three years following the executive’s
separation from service.
The expense recognized for the year ended
December 31, 2017 with respect to each named executive officer under their respective salary continuation agreement is reflected
under “Other Annual Compensation” in the Summary Compensation Table above.
Split Dollar Life Insurance Benefits.
The Bank has purchased a life insurance policy(ies) on Mr. Guarini and has entered into a Joint Beneficiary Agreement
with him effective as of January 1, 2014. The agreement provides certain death benefits to Mr. Guarini’s beneficiaries
upon his death. Under the agreement, if Mr. Guarini is employed by the Bank at the time of his death, his beneficiary(ies)
will be entitled to receive an amount equal to the lesser of (i) $1.5 million or (ii) 50% of the amount by which the total proceeds
of the policy(ies) exceed the cash value of the policy(ies). In the event Mr. Guarini is not employed by the Bank for any
reason other than death, then neither he nor his beneficiary(ies) shall be entitled to receive any amount of the insurance proceeds.
The Joint Beneficiary Agreement provides that the Bank owns and pays the premiums on the insurance policy(ies). Mr. Guarini
may request an accelerated payment of a portion of the eligible death benefit available under his insurance policy(ies) in the
case of an unforeseeable emergency. To obtain an unforeseeable emergency withdrawal, Mr. Guarini must meet the requirements of
Section 409A of the Code. The total premiums paid on the policy(ies) covered by Mr. Guarini’s Joint Beneficiary
Agreement with the Bank is included in the Summary Compensation Table under the column “All Other Compensation.” As
of December 31, 2017, the survivor’s benefit for the named beneficiaries of Mr. Guarini under his agreement was $1.5 million.
401(k) Profit Sharing Plan.
We maintain a 401(k) Profit Sharing Plan (the “401(k) Plan”), which is a tax-qualified defined contribution savings
plan for all of our eligible employees, including each of our named executive officers. Under the 401(k) Plan, each participating
employee with a minimum service requirement is permitted to contribute to the 401(k) Plan through payroll deductions (the “salary
deferral contributions”) up to the maximum amount allowable by law, thereby deferring taxes on all or a portion of these
amounts. We match 100% of the first 3% of the pay that an employee contributes on a pre-tax basis to the 401(k) Plan and 50% of
the next 2% of the pay that an employee contributes on a pre-tax basis to the 401(k) Plan. We may also make a discretionary matching
and profit sharing contributions to the 401(k) Plan on behalf of the employee in such amounts as may be determined by our board
of directors. Any employer matching or profit sharing contribution vests 100% after a participant has completed three years of
service, provided that any such contribution which has not yet vested will vest upon the participant’s attainment of age
65 or upon the participant’s death or permanent disability. We may also make additional special contributions to the 401(k)
Plan, which vest immediately. Participants are entitled to receive their salary deferral contributions and vested benefits under
the 401(k) Plan upon termination of employment, retirement, death or disability. Participants have the right to self-direct all
of their salary deferral contributions. The matching contributions made by the Bank for the year ended December 31, 2017 on behalf
of the named executive officers are reflected under “All Other Compensation” in the Summary Compensation Table above.
Other benefits.
We currently
provide health benefits to our employees, including hospitalization and comprehensive medical benefits, dental insurance, life
and short- and long-term disability insurance, subject to certain deductibles and copayments by employees. These plans are generally
available to all of our salaried employees and do not discriminate in scope, terms or operation in favor of our executive officers
or directors.
Outstanding Equity Awards at December 31, 2017
The following table sets forth information
regarding outstanding restricted stock awards, which were the only type of equity awards held by each named executive officer at
December 31, 2017.
|
|
|
Stock Awards
|
|
|
|
|
Name
|
|
Number of
Unvested
Shares
|
|
|
Market
Value of
Unvested
Shares
(1)
|
|
|
Vesting
Date
|
|
George J. Guarini
|
|
|
4,541
|
|
|
$
|
88,322
|
|
|
1/1/2018
|
|
|
|
|
6,098
|
|
|
|
118,606
|
|
|
8/19/2018
|
|
|
|
|
4,541
|
|
|
|
88,322
|
|
|
1/1/2019
|
|
|
|
|
6,098
|
|
|
|
118,606
|
|
|
8/19/2019
|
|
|
|
|
4,541
|
|
|
|
88,322
|
|
|
1/1/2020
|
|
|
|
|
2,966
|
|
|
|
57,689
|
|
|
1/1/2021
|
|
|
|
|
1,514
|
|
|
|
29,447
|
|
|
1/1/2022
|
|
Total
|
|
|
30,299
|
|
|
|
589,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Janet L. King
|
|
|
1,810
|
|
|
|
35,204
|
|
|
1/1/2018
|
|
|
|
|
1,677
|
|
|
|
32,618
|
|
|
8/19/2018
|
|
|
|
|
1,809
|
|
|
|
35,185
|
|
|
1/1/2019
|
|
|
|
|
1,677
|
|
|
|
32,618
|
|
|
8/19/2019
|
|
|
|
|
1,809
|
|
|
|
35,185
|
|
|
1/1/2020
|
|
|
|
|
656
|
|
|
|
12,759
|
|
|
1/1/2021
|
|
|
|
|
1,209
|
|
|
|
23,515
|
|
|
1/1/2022
|
|
Total
|
|
|
10,647
|
|
|
|
207,084
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Keary L. Colwell
|
|
|
1,810
|
|
|
|
35,204
|
|
|
1/1/2018
|
|
|
|
|
1,677
|
|
|
|
32,618
|
|
|
8/19/2018
|
|
|
|
|
1,809
|
|
|
|
35,185
|
|
|
1/1/2019
|
|
|
|
|
1,677
|
|
|
|
32,618
|
|
|
8/19/2019
|
|
|
|
|
1,809
|
|
|
|
35,185
|
|
|
1/1/2020
|
|
|
|
|
656
|
|
|
|
12,759
|
|
|
1/1/2021
|
|
|
|
|
1,209
|
|
|
|
23,515
|
|
|
1/1/2022
|
|
Total
|
|
|
10,647
|
|
|
|
207,084
|
|
|
|
|
|
(1)
|
Based on the $19.45 closing price of a share of BayCom
common stock as quoted on the OTCQB on December 31, 2017.
|
Equity Awards in Connection with This Offering
The Board of Directors, upon the recommendation
of the Compensation Committee, approved amendments to the employment agreements of the named executive officers, as described above,
to provide for the grant of restricted stock awards in connection with this initial public offering, assuming the offering results
in at least $30.0 million of gross proceeds. In addition, we will grant restricted stock awards to our directors in connection
with this offering. These awards to directors and executive officers will have a grant date value aggregating 5.5% of the gross
proceeds of the offering, including gross proceeds resulting from any exercise of the underwriters’ over-allotment option
(the “IPO Awards”). The IPO Awards will be made as described below, and each IPO Award will vest over (i) a one-year
period following the date of grant, in the case of the non-employee directors, and (ii) a three-year period following the date
of grant, with the initial vesting occurring on the one-year anniversary of the date of grant, in the case of the executive officers.
The following table sets forth the amount of IPO Awards for each individual director and executive officer (“Grant Date Value”).
|
|
|
|
|
|
Aggregate Grant
|
|
|
|
|
Percentage of
|
|
|
Date Value of
|
|
|
Name
|
|
Gross Proceeds (1)
|
|
|
IPO Awards (2)
|
|
|
Non-employee directors:
(3)
|
|
|
|
|
|
|
|
|
|
Lloyd W. Kendall, Jr
|
|
|
0.120
|
%
|
|
$
|
69,193
|
|
|
James S. Camp
|
|
|
0.120
|
|
|
|
69,193
|
|
|
Harpreet S. Chaudhary
|
|
|
0.082
|
|
|
|
47,097
|
|
|
Rocco Davis
|
|
|
0.049
|
|
|
|
28,157
|
|
|
Malcolm F. Hotchkiss
|
|
|
0.049
|
|
|
|
28,157
|
|
|
Robert G. Laverne, MD
|
|
|
0.120
|
|
|
|
69,193
|
|
|
David M. Spatz
|
|
|
0.120
|
|
|
|
69,193
|
|
|
Executive officers:
|
|
|
|
|
|
|
|
|
|
George J. Guarini
|
|
|
3.025
|
|
|
|
1,739,375
|
|
|
Janet L. King
|
|
|
0.825
|
|
|
|
474,375
|
|
|
Keary L. Colwell
|
|
|
0.825
|
|
|
|
474,375
|
|
|
Total
(4)
|
|
|
5.335
|
%
|
|
$
|
3,068,308
|
|
|
|
(1)
|
The percentages in this column have been rounded to three decimal points, while the Grant Date Value column is based on actual
percentages.
|
|
|
(2)
|
Assumes the offering is $50.0 million and that the underwriters fully exercise their over-allotment option, resulting in total
gross proceeds of $57.5 million.
|
|
|
(3)
|
Each non-employee director will receive a restricted stock award with a Grant Date Value equal to $25,000 plus a percentage
of the gross proceeds based on his years of service. Because the percentages shown for the non-employee directors reflect the $25,000,
the percentages for the non-employee directors will change if the gross proceeds in the offering change.
|
|
|
(4)
|
Excludes IPO Awards with a Grant Date Value totaling $94,193 (0.164% of the gross offering proceeds) to be granted to directors
of the Bank who are not directors of the Company.
|
The IPO Awards will be granted to our non-employee
directors on the date the underwriters’ over-allotment option is exercised or expires, with the number of shares of common
stock covered by their IPO Awards equal to each recipient’s Grant Date Value divided by the initial public offering price.
The IPO Awards will be granted to our named executive officers over a three-year period as follows: (1) the initial grant will
be made on the date the underwriters’ over-allotment option is exercised or expires, with the number of shares of common
stock covered by the initial grant equal to one-third of each recipient’s Grant Date Value divided by the initial public
offering price, (2) the second grant will be made on the one-year anniversary of the first grant, with the number of shares of
common stock covered by the second grant equal to one-third of each recipient’s Grant Date Value divided by the fair market
value of the Company’s common stock as of the close of business on such grant date, and (3) the third grant will be made
on the two-year anniversary of the first grant, with the number of shares of common stock covered by the third grant equal to one-third
of each recipient’s Grant Date Value divided by the fair market value of the Company’s common stock as of the close
of business on such grant date. Each of the grants are subject to sufficient shares being available under our 2017 Plan or any
subsequent plan and compliance with the annual award limitations set forth therein.
Director Compensation
2017 Director Compensation Table
The following table lists the individuals
who served on BayCom’s board of directors in 2017 and received compensation in 2017 for their service as directors. All compensation
paid to directors is for their service on both the BayCom board of directors and the Bank board of directors. All of the directors
serve on both the BayCom board of directors and the Bank board of directors, except for Messrs. Hotchkiss and Davis who are not
director of the Bank. Mr. Guarini did not receive compensation in 2017 for his service on the BayCom or the Bank boards of directors.
|
Name
|
|
Fees Earned
or Paid
in Cash
|
|
|
Stock
Awards
(1)
|
|
|
Total
Compensation
|
|
|
Lloyd W. Kendall, Jr.
|
|
$
|
47,100
|
|
|
$
|
23,994
|
|
|
$
|
71,094
|
|
|
James S. Camp
|
|
|
23,500
|
|
|
|
23,994
|
|
|
|
47,494
|
|
|
Harpreet S. Chaudhary
|
|
|
33,900
|
|
|
|
23,994
|
|
|
|
57,894
|
|
|
Rocco Davis
(2)
|
|
|
4,000
|
|
|
|
9,999
|
|
|
|
13,999
|
|
|
Malcolm F. Hotchkiss
(2)
|
|
|
4,000
|
|
|
|
9,999
|
|
|
|
13,999
|
|
|
Robert G. Laverne, MD
|
|
|
23,500
|
|
|
|
23,994
|
|
|
|
47,494
|
|
|
David M. Spatz
|
|
|
34,500
|
|
|
|
23,994
|
|
|
|
58,494
|
|
|
|
(1)
|
On July 1, 2017, Messrs. Kendall, Camp, Chaudhary, Laverne
and Spatz were each awarded 1,375 shares of BayCom common stock and Messrs. Davis and Hotchkiss were each awarded 573 shares of
BayCom common stock, which vest in full on July 1, 2018. Amounts reported in this column represent the aggregate grant date fair
value of the stock awards computed in accordance with Financial Accounting Standards Board Accounting Standards Codification Topic
718, Compensation— Stock Compensation (“FASB ASC Topic 718”). The grant date fair value amount is
based on the per share closing price of BayCom’s common stock on the date the award was made. The aggregate number of restricted
stock awards held by each director in the table above as of December 31, 2017, is as follows: Mr. Kendall – 2,695 shares;
Mr. Camp – 1,375 shares, Mr. Chaudhary – 1,375 shares; Mr. Davis – 573 shares; Mr. Hotchkiss – 573 shares;
Mr. Laverne – 1,375 shares; and Mr. Spatz –1,375 shares.
|
|
|
(2)
|
Messrs. Davis and Hotchkiss joined the Company’s
board of directors in May 2017 in connection with the Company’s acquisition of United Business Bank, FSB.
|
BayCom Director Compensation Program
As currently in effect, our director compensation
program provides the following compensation for non-employee members of our board of directors:
|
|
·
|
A quarterly cash retainer of $2,000 for service on the
BayCom board of directors, provided that directors who also serve on the Bank board of directors only receive fees at the Bank
level;
|
|
|
·
|
A monthly cash retainer of $2,000 for service on the Bank
board of directors;
|
|
|
·
|
An additional monthly cash retainer of $1,000 for the Chairman
of the Bank Board; and
|
|
|
·
|
$200 per each loan committee meeting attended.
|
We also reimburse all directors for reasonable
and substantiated out-of-pocket expenses incurred in connection with the performance of their duties as directors. We also pay
the premiums on directors’ and officers’ liability insurance.
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth information,
as of the date of this prospectus, regarding the beneficial ownership of our common stock, immediately prior to and immediately
after the consummation of this offering, by:
|
|
·
|
all persons known by us to own beneficially more than 5%
of our outstanding common stock;
|
|
|
·
|
each of our named executive officers;
|
|
|
·
|
each of our directors (at the Company level); and
|
|
|
·
|
all of our directors and executive officers as a group.
|
Beneficial ownership is determined in accordance
with the rules of the SEC. These rules generally attribute beneficial ownership of securities to persons who possess sole or shared
voting power or investment power with respect to such securities. A security holder is also deemed to be, as of any date, the beneficial
owner of all securities that such security holder has the right to acquire within 60 days after such date through (i) the
exercise of any option or warrant, (ii) the conversion of a security, (iii) the power to revoke a trust, discretionary
account or similar arrangement or (iv) the automatic termination of a trust, discretionary account or similar arrangement.
Except as otherwise indicated, all persons listed below have sole voting and investment power with respect to the shares beneficially
owned by them, subject to applicable community property laws. Except as otherwise indicated, the address for each shareholder listed
below is c/o BayCom Corp, 500 Ygnacio Valley Road. Suite 200, Walnut Creek, California 94596.
|
Name of Beneficial Owners Greater than
|
|
Beneficial Ownership
Prior to the Completion
of this Offering
|
|
|
Beneficial Ownership
After the Completion
of this Offering
(12)
|
|
|
5% Shareholders
|
|
Number
|
|
|
Percentage
|
|
|
Number
|
|
|
Percentage
|
|
EJF Sidecar Fund Series
LLC Small Financial Equities
2107 Wilson Boulevard,
Suite 410
Arlington, VA 22201
|
|
|
525,000
|
|
|
|
7.0
|
%
|
|
|
525,000
|
|
|
|
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Directors and Executive
Officers
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lloyd W. Kendall,
Jr.
(1)
|
|
|
67,274
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
George J. Guarini
(2)
|
|
|
78,447
|
|
|
|
1.0
|
%
|
|
|
|
|
|
|
|
|
|
James S. Camp
(3)
|
|
|
104,552
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
Harpreet S. Chaudhary
(4)
|
|
|
24,222
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Rocco Davis
(5)
|
|
|
1,793
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Malcolm F. Hotchkiss
(6)
|
|
|
8,573
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Robert G. Laverne,
M.D,
(7)
|
|
|
103,825
|
|
|
|
1.4
|
%
|
|
|
|
|
|
|
|
|
|
David M. Spatz
(8)
|
|
|
58,435
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Keary L. Colwell
(9)
|
|
|
19,429
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
Janet L. King
(10)
|
|
|
23,431
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
All
directors and executive officers as a group (14 persons)
(11)
|
|
|
494,348
|
|
|
|
6.6
|
%
|
|
|
|
|
|
|
|
|
|
*
|
Represents beneficial ownership of less than 1%.
|
|
|
|
|
(1)
|
Includes 2,695 restricted shares of Company common stock over which Mr. Kendall has sole voting power and no dispositive power.
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|
(2)
|
Includes 25,758 restricted shares of Company
common stock over which he has sole voting power and no dispositive power.
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|
(3)
|
Includes 2,500 shares owned jointly with Mr. Camp’s wife and 1,375 restricted shares of Company common stock over which Mr. Camp has sole voting power and no dispositive power.
|
|
(4)
|
Includes 1,375 restricted shares of Company common stock over which Mr. Chaudhary has sole voting power and no dispositive power.
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|
(5)
|
Includes 573 restricted shares of Company common stock over which Mr. Davis has sole voting power and no dispositive power.
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|
(6)
|
Includes 8,000 shares owned jointly with Mr. Hotchkiss’ wife and 573 restricted shares of Company common stock over which Mr. Hotchkiss has sole voting power and no dispositive power.
|
|
(7)
|
Includes 1,375 restricted shares of Company common stock over which Mr. Laverne has sole voting power and no dispositive power.
|
|
(8)
|
Includes 1,500 shares owned by Mr. Spatz’s wife individually and 1,375 restricted shares of Company common stock over which Mr. Spatz has sole voting power and no dispositive power.
|
|
(9)
|
Includes 8,837 restricted shares of Company
common stock over which Ms. Colwell has sole voting power and no dispositive power.
|
|
(10)
|
Includes 8,837 restricted shares of Company common stock over which Ms. King has sole
voting power and no dispositive power.
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|
(11)
|
Includes shares held by directors and executive officers directly, in retirement accounts,
in a fiduciary capacity or by certain affiliated entities or members of the named individuals’ families, with respect
to which shares the named individuals and group may be deemed to have sole or shared voting and/or dispositive powers. Also
includes 56,020 restricted shares of Company common stock over which they have sole voting power and no dispositive power.
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(12)
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Beneficial ownership amounts reported in this column include the maximum number of IPO Awards to be granted to the directors and executive officers of the Company in connection with this offering. For a discussion of these awards, see “Executive and Director Compensation – Equity Awards in Connection with this Offering.”
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CERTAIN RELATIONSHIPS
AND RELATED TRANSACTIONS
We may occasionally enter into transactions
with certain “related persons.” Related persons include our executive officers, directors, 5% or more beneficial owners
of our common stock, immediate family members of these persons and entities in which one of these persons has a direct or indirect
material interest. We generally refer to transactions with these related persons as “related party transactions.”
Related Party Transaction Policy
Our board of directors will adopt a written
policy governing the review and approval of transactions with related parties that will or may be expected to exceed $120,000 in
any fiscal year. The policy will call for the related party transactions to be reviewed and, if deemed appropriate, approved or
ratified by our audit committee. Upon determination by our audit committee that a transaction requires review under the policy,
the material facts are required to be presented to the audit committee. In determining whether or not to approve a related party
transaction, our audit committee will take into account, among other relevant factors, whether the related party transaction is
in our best interests, whether it involves a conflict of interest and the commercial reasonableness of the transaction. In the
event that we become aware of a related party transaction that was not approved under the policy before it was entered into, our
audit committee will review such transaction as promptly as reasonably practical and will take such course of action as may be
deemed appropriate under the circumstances. In the event a member of our audit committee is not disinterested with respect to the
related party transaction under review, that member may not participate in the review, approval or ratification of that related
party transaction.
Certain decisions and transactions are not
subject to the related party transaction approval policy, including: (i) decisions on compensation or benefits relating to
directors or executive officers and (ii) indebtedness to us in the ordinary course of business, on substantially the same
terms, including interest rate and collateral, as those prevailing at the time for comparable loans with persons not related to
us and not presenting more than the normal risk of collectability or other unfavorable features.
Certain Related Party Transactions
In the ordinary course of our business,
we have engaged and expect to continue engaging through our Bank in ordinary banking transactions with our directors, executive
officers, their immediate family members and companies in which they may have a 5% or more beneficial ownership interest, including
loans to such persons. Any such loan was made on substantially the same terms, including interest rates and collateral, as those
prevailing at the time such loan was made as loans made to persons who were not related to us. These loans do not involve more
than the normal credit collection risk and do not present any other unfavorable features to us.
DESCRIPTION OF CAPITAL STOCK
The following is a summary of the material
rights of our capital stock and related provisions of our articles of incorporation, or articles, and bylaws. The following description
of our capital stock does not purport to be complete and is subject to, and qualified in its entirety by, our articles and bylaws,
which are filed with the SEC as exhibits to the registration statement of which this prospectus is a part, and applicable law.
Our articles authorize the issuance of up
to 100,000,000 shares of common stock, no par value, and up to 10,000,000 shares of preferred stock, no par value. At December
31, 2017, we had issued and outstanding 7,496,995 shares of our common stock, and no shares of preferred stock. We have reserved
an additional 450,000 shares to be utilized for awards that remain available for grant and issuance under our existing equity incentive
plan.
Common Stock
Governing Documents.
Holders
of shares of our common stock have the rights set forth in our articles, our bylaws and California law.
Dividends and Distributions.
The
payment of dividends is subject to the restrictions set forth in the California General Corporation Law, or CGCL. The CGCL provides
that neither a company nor any of its subsidiaries shall make any distribution to its shareholders unless: (i) the amount of retained
earnings of the company immediately prior to the distribution equals or exceeds the sum of (A) the amount of the proposed distribution
plus (B) the preferential dividends arrears amount, or (ii) immediately after the distribution, the value of the company’s assets
would equal or exceed the sum of its total liabilities plus the preferential rights amount.
Further, it is the policy of the Federal
Reserve that bank holding companies, such as BayCom, should generally pay dividends on common stock only out of income available
over the past year, and only if prospective earnings retention is consistent with the organization’s expected future needs and
financial condition. It is also the Federal Reserve’s policy that bank holding companies should not maintain dividend levels that
undermine their ability to be a source of strength to its banking subsidiaries.
Holders of our common stock may receive
dividends when, as and if declared by our board of directors out of funds legally available for the payment of dividends, subject
to any restrictions imposed by regulatory authorities and the payment of any preferential amounts to which any class of preferred
stock may be entitled. BayCom has not paid any cash dividends since inception and has instead retained earnings for the purpose
of increasing capital to support growth. The payment of dividends by BayCom will depend on the company’s net income, financial
condition, regulatory requirements and other factors, including the results of the Bank’s operations. BayCom intends to
continue to follow its existing policy of retaining earnings to increase capital for future growth and does not anticipate paying
cash dividends in the foreseeable future.
Ranking.
Our common stock
ranks junior with respect to dividend rights and rights upon liquidation, dissolution or winding up of the Company to all other
securities and indebtedness of the Company.
Upon any voluntary or involuntary liquidation,
dissolution or winding up of the Company, the holders of our common stock are entitled to share equally, on a per share basis,
in all of our assets available for distribution, after payment to creditors and subject to any prior distribution rights granted
to holders of any then outstanding shares of preferred stock.
Conversion Rights.
Our common
stock is not convertible into any other shares of our capital stock.
Preemptive Rights.
Holders
of our common stock do not have any preemptive rights.
Voting Rights.
The holders
of our common stock are entitled to one vote per share on any matter to be voted on by the shareholders. The holders of our common
stock are entitled to cumulative voting rights with respect to the election of directors. This means that a shareholder has the
right to vote the number of shares owned by him or her for as many candidates as there are directors to be elected, or to cumulate
his or her shares and give one candidate as many votes as the number of directors multiplied by the number of shares owned shall
equal, or to distribute them on the same principle among as many candidates as he or she deems appropriate. A plurality of the
shares voted shall elect all of the directors then standing for election at a meeting of shareholders at which a quorum is present.
This means the candidates receiving the highest number of affirmative votes, up to the number of directors to be elected, are elected
as directors.
Redemption.
We have no obligation
or right to redeem our common stock.
Stock Exchange Listing.
We
have applied to list our common stock on the NASDAQ Global Select Market under the symbol “BCML.”
Preferred Stock
Upon authorization of our board of directors,
we may issue shares of one or more series of our preferred stock from time to time. Our board of directors may, without any action
by holders of common stock and except as may be otherwise provided in the terms of any series of preferred stock of which there
are shares outstanding, adopt resolutions to designate and establish a new series of preferred stock. Upon establishing such a
series of preferred stock, the board will determine the number of shares of preferred stock of that series that may be issued and
the rights and preferences of that series of preferred stock. The rights of any series of preferred stock may include, among others:
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general or special voting rights;
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|
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preferential liquidation rights;
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|
·
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preferential cumulative or noncumulative dividend rights;
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|
·
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redemption or put rights; and
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·
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conversion or exchange rights.
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We may issue shares of, or rights to purchase
shares of, one or more series of our preferred stock that have been designated from time to time, the terms of which might:
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·
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adversely affect voting or other rights evidenced by, or amounts otherwise payable with respect to, the common stock or other
series of preferred stock;
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·
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discourage an unsolicited proposal to acquire us; or
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·
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facilitate a particular business combination involving us. Any of these actions could have an anti-takeover effect and discourage
a transaction that some or a majority of our shareholders might believe to be in their best interests or in which our shareholders
might receive a premium for their stock over our then market price.
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Anti-Takeover Considerations and Special Provisions of Our
Articles, Bylaws and California Law
California law, federal banking regulations
and certain provisions of our articles and bylaws could have the effect of delaying or deferring the removal of incumbent directors
or delaying, deferring or discouraging another party from acquiring control of us, even if such removal or acquisition would be
viewed by our shareholders to be in their best interests. These provisions, summarized below, are intended to encourage persons
seeking to acquire control of us to first negotiate with our board of directors. These provisions also serve to discourage hostile
takeover practices and inadequate takeover bids. We believe that these provisions are beneficial because the negotiation they encourage
could result in improved terms of any unsolicited proposal.
Federal Banking Regulations.
Provisions of federal banking laws, including regulatory approval requirements, could make it difficult for a third party to acquire
us, even if doing so would be perceived to be beneficial to our shareholders. Acquisition of 10% or more of any class of voting
stock of a bank holding company or depository institution, including shares of our common stock following completion of this offering,
generally creates a rebuttable presumption that the acquirer “controls” the bank holding company or depository institution.
Also, a bank holding company must obtain the prior approval of the Federal Reserve before, among other things, acquiring direct
or indirect ownership or control of more than 5% of the voting shares of any bank, including our bank.
California Law.
Under the
CGCL, most business combinations, including mergers, consolidations and sales of substantially all of the assets of a California
corporation, must be approved by the vote of the holders of at least a majority of the outstanding shares of common stock and any
other affected class of stock of such corporation. The articles or bylaws of a California corporation may, but are not required
to, set a higher standard for approval of such transactions. Our articles of incorporation and bylaws do not set higher limits.
We are subject to the provisions of Section
1203 of the CGCL, which contains provisions that may have the effect of deterring hostile takeovers or delaying or preventing changes
in control in which our shareholders could receive a premium for their shares or other changes in our management. First, if an
“interested person” makes an offer to purchase the shares of some or all of our existing shareholders, we must obtain
an affirmative opinion in writing as to the fairness of the offering price prior to completing the transaction. California law
considers a person to be an “interested person” if the person directly or indirectly controls our Company, if the person
is directly or indirectly controlled by one of our officers or directors, or if the person is an entity in which one of our officers
or directors holds a material financial interest. If, after receiving an offer from such an “interested person”, we
receive a subsequent offer from a neutral third party, then we must notify our shareholders of this offer and afford each of them
the opportunity to withdraw their consent to the “interested person” offer.
Authorized But Unissued Capital Stock.
We have 92,503,005 shares of authorized but unissued common stock, of which we have reserved 450,000 shares to be utilized
for awards that remain available for grant and issuance under our 2017 Omnibus Equity Incentive Plan. We also have 10,000,000 shares
of authorized but unissued preferred stock, and our board of directors may authorize the issuance of one or more series of preferred
stock without shareholder approval. These shares could be used by our board of directors to make it more difficult or to discourage
an attempt to obtain control of us through a merger, tender offer, proxy contest or otherwise.
Limitation on Right to Call a Special
Meeting of Shareholders.
Our bylaws provide that special meetings of shareholders may only be called by our board, the
chairperson of our board, or our president or by the holders of not less than 10% of our outstanding shares of capital stock entitled
to vote for the purpose or purposes for which the meeting is being called.
Advance Notice Provisions.
Additionally,
our bylaws provide that nominations for directors must be made in accordance with the provisions of our bylaws, which generally
require, among other things, that such nominations be provided in writing to the Company’s president by the later of: (i)
the close of business 21 days prior to the meeting of shareholders called for the election of directors, or (ii) 10 days after
the date of mailing of the notice of meeting to shareholders, and that the notice to the Company’s president contain certain
information about the shareholder and the director nominee.
Filling of Board Vacancies; Removals.
Any vacancies in our board of directors and any directorships resulting from any increase in the number of directors may
be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director
so elected shall hold office until the next annual meeting and until the director’s successor has been elected and qualified.
However, a vacancy created on the board by the removal of a director may be filled only by the affirmative vote of a majority of
the shares represented and voting at a duly held meeting at which a quorum is present, or by the unanimous written consent of all
shares entitled to vote thereon.
New or Amendment of the Bylaws.
New
bylaws may be adopted or the bylaws may be amended or repealed by the vote or written consent of holders of a majority of the outstanding
shares entitled to vote. Our bylaws also provide that except for changing the range of directors which is currently set at five
(5) to nine (9), our bylaws may be altered, amended or repealed by our board without prior notice to or approval by our shareholders,
except as otherwise may be required by California law.
Voting Provisions.
Our articles
do not provide for certain heightened voting thresholds needed to consummate a change in control transaction, such as a merger,
the sale of substantially all of our assets or other similar transaction. Accordingly, we will not be able to consummate a change
in control transaction or sell all or substantially all of our assets without obtaining the affirmative vote of the holders of
shares of our capital stock having at least a majority of the voting power of all outstanding capital stock entitled to vote thereon.
Elimination of Liability and Indemnification.
Our articles of incorporation eliminate the personal liability of our directors for monetary damages to the fullest extent
permitted under California law. A director’s liability, however, is not eliminated with respect to (i) intentional misconduct
or knowing and culpable violation of law; (ii) acts or omissions that a director believes to be contrary to the best interests
of the corporation or its shareholders or that involve the absence of good faith on the part of the director; (iii) receipt of
an improper personal benefit; (iv) acts or omissions that show reckless disregard for the director’s duty to the corporation or
its shareholders, where the director in the ordinary course of performing a director’s duties should be aware of a risk of serious
injury to the corporation or its shareholders; (v) acts or omissions that constitute an unexcused pattern of inattention that amounts
to an abdication of the director’s duty to the corporation and its shareholders; (vi) transactions between the corporation and
a director who has a material financial interest in such transaction; and (vii) liability for improper distributions, loans or
guarantees. Our articles of incorporation and bylaws also provide, among other things, for the indemnification of our directors,
officers and agents, and authorize our board of directors to pay expenses incurred by, or to satisfy a judgment or fine rendered
or levied against, such agents in connection with any personal legal liability incurred by the individual while acting for us within
the scope of his or her employment (subject to certain limitations). It is the policy of our board of directors that our directors,
officers and agents shall be indemnified to the maximum extent permitted under applicable law and our articles of incorporation
and bylaws, and we have obtained director and officer liability insurance covering all of our and the Bank’s officers and
directors.
Transfer Agent
The Company’s transfer agent is OTR
Transfer, Inc. The transfer agent’s address is 1001 SW Fifth Ave, Ste 1550, Portland, Oregon 97204-1143 and the telephone
number is (503) 225-0375.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no
established public market for our common stock. Our common stock is currently quoted on the OTCQB, Over the Counter Marketplace,
under the symbol “BCML.” Trading in shares of our common stock has not been extensive and such trades cannot be characterized
as constituting an active trading market. Future sales of substantial amounts of our common stock in the public market, or the
perception that such sales may occur, could adversely affect market prices prevailing from time to time. Furthermore, because only
a limited number of shares will be available for sale shortly after this offering due to existing contractual and legal restrictions
on resale as described below, there may be sales of substantial amounts of our common stock in the public market after the restrictions
lapse. This may adversely affect the prevailing market price and our ability to raise equity capital in the future.
Upon completion of this offering, we will
have ____________ shares of common stock outstanding (__________ shares if the underwriters exercise in full their option
to purchase additional shares from us). Of these shares, _________ shares of our common stock (or __________ shares if
the underwriters exercise their option to purchase additional shares of common stock in full) sold in this offering will be freely
transferable without restriction or further registration under the Securities Act, except for any shares purchased by our “affiliates”,
as that term is defined in Rule 144 under the Securities Act. The remaining ____________ shares of our common stock outstanding
are “restricted shares” as defined in Rule 144. Restricted shares may be sold in the public market only if registered
under the Securities Act or if they qualify for an exemption from registration under Rule 144. As a result of the contractual [180-day]
lock-up period described below applicable to certain of our shareholders and the provisions of Rule 144, the shares subject to
the lockup will be available for sale in the public market only after 180 days from the date of this prospectus (subject to registration
or an exemption from registration).
Rule 144
In general, a person who has beneficially
owned restricted shares of our common stock for at least six months would be entitled to sell such securities, provided that (i) such
person is not deemed to have been one of our affiliates at the time of, or at any time during the 90 days preceding, the sale and
(ii) we are subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Persons who
have beneficially owned restricted shares of our common stock for at least six months but who are our affiliates at the time of,
or any time during the 90 days preceding, the sale, would be subject to additional restrictions, by which such person would be
entitled to sell within any three-month period only a number of securities that does not exceed the greater of the following:
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1% of the number of shares of our common stock then outstanding, which will equal approximately [______] shares immediately
after this offering; or
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·
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the average weekly trading volume of our common stock on during the four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale;
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provided, in each case, which we are subject to the Exchange
Act periodic reporting requirements for at least 90 days before the sale. Such sales both by affiliates and by non-affiliates must
also comply with the manner of sale and notice provisions of Rule 144 to the extent applicable.
Lock-up Agreements
We, our executive officers and directors,
subject to de minimis exceptions, have agreed not to sell or transfer any common stock or securities convertible into, exchangeable
for, exercisable for, or repayable with common stock, for 180 days after the date of this prospectus without first obtaining the
written consent of FIG Partners, LLC
and
D.A.
Davidson & Co. as representatives of the underwriters. See “Underwriting.” At any time and without public notice,
the representatives may, in their sole discretion, release all or some of the securities from these lock-up agreements. The underwriters
do not have any present intention or arrangement to release any shares of our common stock subject to lock-up agreements prior
to the expiration of the [180-day] lock-up period.
Equity Incentive Plans
We intend to file with the SEC a registration
statement on Form S-8 covering the shares of common stock reserved for issuance under our equity incentive plan. That registration
statement is expected to be filed and become effective as soon as practicable after the closing of this offering. Upon effectiveness,
the shares of common stock covered by that registration statement will be eligible for sale in the public market, subject to the
lock-up agreements and Rule 144 restrictions described above.
Rule 701
In general, under Rule 701 under the Securities
Act, an employee, consultant or advisor who purchases shares of our common stock from us in connection with a compensatory stock
or option plan or other written agreement is eligible to resell those shares 90 days after the effective date of the registration
statement of which this prospectus forms a part in reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period restriction, contained in Rule 144.
Material
United States Federal Income Tax Considerations
for Non-U.S. Holders
The following is a
summary of the material United States federal income tax consequences relevant to non-U.S. holders, as defined below, of the purchase,
ownership and disposition of our common stock. The following summary is based on current provisions of the Code, Treasury regulations
and judicial and administrative authority, all of which are subject to change, possibly with retroactive effect. This section does
not consider the Medicare tax on certain investment income, state, local, estate, gift or foreign tax consequences, nor does it
address tax consequences to special classes of investors, including, but not limited to, tax-exempt or governmental organizations,
insurance companies, banks or other financial institutions, partnerships or other entities classified as partnerships for United
States federal income tax purposes, dealers in securities or foreign currencies, persons liable for the alternative minimum tax,
traders in securities that elect to use a mark-to-market method of accounting for their securities holdings, persons who have acquired
our common stock as compensation or otherwise in connection with the performance of services, certain former citizens or long-term
residents of the United States, or persons that will hold our common stock as a position in a hedging transaction, “straddle,”
“conversion transaction” or other risk reduction transaction. Tax consequences may vary depending upon the particular
status of an investor. The summary is limited to non-U.S. holders who will hold our common stock as “capital assets”
(generally, property held for investment).
PROSPECTIVE INVESTORS ARE ENCOURAGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE APPLICATION OF THE U.S. FEDERAL INCOME TAX LAWS (INCLUDING ANY RECENT CHANGES THERETO) TO THEIR PARTICULAR SITUATION, AS WELL
AS ANY TAX CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF OUR COMMON STOCK ARISING UNDER THE U.S. FEDERAL ESTATE OR
GIFT TAX LAWS OR UNDER THE LAWS OF ANY STATE, LOCAL, NON-U.S. OR OTHER TAXING JURISDICTION OR UNDER ANY APPLICABLE INCOME TAX TREATY.
You are a “non-U.S.
holder” or purposes of this discussion if you are a beneficial owner of our common stock that for U.S. federal income tax
purposes is not a partnership or any of the following:
(1) an individual
who is a citizen or resident of the United States;
(2) a corporation
(or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the
United States, any state thereof or the District of Columbia;
(3) an estate
the income of which is subject to U.S. federal income tax regardless of its source; or
(4) a trust (i)
the administration of which is subject to the primary supervision of a U.S. court and which has one or more United States persons
who have the authority to control all substantial decisions of the trust or (ii) which has made a valid election under applicable
U.S. Treasury regulations to be treated as a United States person.
If an entity or arrangement
treated as a partnership for United States federal income tax purposes holds our common stock, the tax treatment of a partner in
the partnership will generally depend upon the status of the partner, the activities of the partnership and certain determinations
made at the partner level. If you are treated as a partner in such an entity holding our common stock, you should consult your
tax advisor as to the United States federal income tax consequences applicable to you.
Distributions
Distributions with
respect to our common stock will be treated as dividends when paid to the extent of our current and accumulated earnings and profits
as determined for United States federal income tax purposes. Except as described below, if you are a non-U.S. holder of our shares,
dividends paid to you are subject to withholding of United States federal income tax at a 30% rate or at a lower rate if you are
eligible for the benefits of an income tax treaty that provides for a lower rate. Even if you are eligible for a lower treaty rate,
we and other payors will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividends paid
to you, unless you have furnished to us or another payor, as applicable:
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a valid IRS Form W-8BEN, W-8BEN-E, another applicable or successor variation of Form W-8 or an
acceptable substitute form upon which you certify, under penalties of perjury, your status as a non-U.S. person and your entitlement
to the lower treaty rate with respect to such payments, or
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in the case of payments made outside the United States to an offshore account (generally, an account
maintained by you at an office or branch of a bank or other financial institution at any location outside the United States), other
documentary evidence establishing your entitlement to the lower treaty rate in accordance with Treasury regulations.
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If you are eligible
for a reduced rate of U.S. withholding tax under a tax treaty, you may obtain a refund of any amounts withheld in excess of that
rate by timely filing a refund claim with the IRS.
If dividends paid to
you are “effectively connected” with your conduct of a trade or business within the United States, and, if required
by a tax treaty, the dividends are attributable to a permanent establishment that you maintain in the United States, we and other
payors generally are not required to withhold tax from the dividends, provided that you have furnished to us or another payor a
valid IRS Form W-8ECI or an acceptable substitute form upon which you represent, under penalties of perjury, that:
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you are a non-U.S. person; and
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the dividends are effectively connected with your conduct of a trade or business within the United
States and are includible in your gross income.
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“Effectively
connected” dividends are generally taxed on a net income basis at rates applicable to United States citizens, resident aliens
and domestic United States corporations. If you are a corporate non-U.S. holder, “effectively connected” dividends
that you receive may, under certain circumstances, be subject to an additional “branch profits tax” at a 30% rate,
or at a lower rate if you are eligible for the benefits of an income tax treaty that provides for a lower rate.
Sale or Redemption
If you are a non-U.S.
holder, you generally will not be subject to United States federal income or withholding tax on gain realized on the sale, exchange
or other disposition of our common stock unless (i) you are an individual, you hold our shares as a capital asset, you are present
in the United States for 183 or more days in the taxable year of the sale and certain other conditions exist, (ii) the gain is
“effectively connected” with your conduct of a trade or business in the United States, and the gain is attributable
to a permanent establishment that you maintain in the United States, if that is required by an applicable income tax treaty as
a condition to subjecting you to United States taxation on a net income basis, or (iii) our common stock constitutes a United States
real property interest by reason of our status as a United States real property holding corporation for U.S. federal income tax
purposes at any time within the shorter of the five-year period ending on the date of the disposition, and your holding period
and certain conditions are satisfied.
If you are a foreign
corporation, the branch profits tax described above may also apply to such effectively connected gain. If you are an individual
who is subject to U.S. federal income tax because you were present in the United States for 183 days or more during the year of
sale or other disposition of our common stock, you will be subject to a flat 30% tax (or lower rate as specified by any applicable
income tax treaty) on the gain derived from such sale or other disposition, which generally may be offset by U.S. source capital
losses. Gain that is effectively connected with the conduct of a trade or business in the United States generally will be subject
to U.S. federal income tax, net of certain deductions, at regular U.S. federal income tax rates.
Information Reporting and Backup Withholding
Payment of dividends,
and the tax withheld on those payments, are subject to information reporting requirements. These information reporting requirements
apply regardless of whether withholding was reduced or eliminated by an applicable income tax treaty. Under the provisions of an
applicable income tax treaty or agreement, copies of the information returns reporting such dividends and withholding may also
be made available to the tax authorities in the country in which the non-U.S. holder resides. U.S. backup withholding will generally
apply on payment of dividends to non-U.S. holders unless such non-U.S. holders furnish to the payor a Form W-8BEN, W-8BEN-E (or
other applicable or successor form), or otherwise establish an exemption and the payor does not have actual knowledge or reason
to know that the holder is a U.S. person, as defined under the Code, that is not an exempt recipient.
Payment of the proceeds
of a sale of our common stock within the United States or conducted through certain U.S.-related financial intermediaries is subject
to information reporting and, depending on the circumstances, backup withholding, unless the non-U.S. holder, or beneficial owner
thereof, as applicable, certifies that it is a non-U.S. holder on Form W-8BEN, W-8BEN-E (or other applicable or successor form),
or otherwise establishes an exemption and the payor does not have actual knowledge or reason to know the holder is a U.S. person,
as defined under the Code, that is not an exempt recipient.
Backup withholding
is not an additional tax. Any amount withheld under the backup withholding rules from a payment to a non-U.S. holder is allowable
as a credit against the non-U.S. holder’s United States federal income tax, which may entitle the non-U.S. holder to a refund,
provided that the non-U.S. holder timely provides the required information to the IRS. Moreover, certain penalties may be imposed
by the IRS on a non-U.S. holder who is required to furnish information but does not do so in the proper manner. Non-U.S. holders
should consult their tax advisors regarding the application of backup withholding in their particular circumstances and the availability
of and procedure for obtaining an exemption from backup withholding under current Treasury regulations.
Foreign Account Tax Compliance Act
Under Sections 1471
through 1474 of the Code, the Foreign Account Tax Compliance Act, or FATCA, imposes a 30% withholding tax on certain types of payments
made to “foreign financial institutions” (“FFI”) and certain other non-U.S. entities unless certain due
diligence, reporting, withholding, and certification requirements are satisfied.
As a general matter,
FATCA imposes a 30% withholding tax on dividends on, and gross proceeds from the sale or other disposition of, our common stock
if paid to a foreign entity unless (i) in the case of a FFI, such institution enters into an agreement with the U.S. government
to withhold on certain payments, and to collect and provide to the U.S. tax authorities substantial information regarding U.S.
account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account
holders that are non-U.S. entities with U.S. owners), (ii) in the case of a non-financial foreign entity, such entity certifies
that it does not have any “substantial United States owners” (as defined in the Code) or provides the applicable withholding
agent with a certification identifying the direct and indirect substantial United States owners of the entity (in either case,
generally on an IRS Form W-8BEN-E), or (iii) the FFI or non-financial foreign entity otherwise qualifies for an exemption from
these rules and provides appropriate documentation (such as an IRS Form W-8BEN-E).
Different rules from
those described above may apply to non-U.S. holders resident in jurisdictions that have entered into inter-governmental agreements
with the United States.
Pursuant to the delayed
effective dates provided for in the final regulations, the required withholding currently applies to dividends on our common stock
and will apply to gross proceeds from a sale or other disposition of our common stock beginning on January 1, 2019. If withholding
is required under FATCA on a payment related to our common stock, investors that otherwise would not be subject to withholding
(or that otherwise would be entitled to a reduced rate of withholding) generally will be required to seek a refund or credit from
the IRS to obtain the benefit of such exemption or reduction (provided that such benefit is available). Prospective investors should
consult their tax advisors regarding the effect of FATCA in their particular circumstances.
Non-U.S. holders are
encouraged to consult with their tax advisors regarding the possible implications of the legislation on their investment in our
common stock.
INVESTORS CONSIDERING
THE PURCHASE OF OUR COMMON STOCK ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE APPLICATION OF THE U.S. FEDERAL INCOME
TAX LAWS (INCLUDING ANY RECENT CHANGES THERETO) TO THEIR PARTICULAR SITUATIONS AND THE APPLICABILITY AND EFFECT OF U.S. FEDERAL
ESTATE AND GIFT TAX LAWS AND ANY STATE, LOCAL OR NON-U.S. TAX LAWS AND TAX TREATIES.
UNDERWRITING
We are offering the shares of our common
stock described in this prospectus through several underwriters for whom FIG Partners, LLC and D.A. Davidson & Co. are acting
as representatives. We have entered into an underwriting agreement dated , 2018, with FIG Partners, LLC and D.A. Davidson &
Co. as representatives of the underwriters. Subject to the terms and conditions of the underwriting agreement, each of the underwriters
named below has severally agreed to purchase the number of shares of common stock listed next to its name in the following table:
|
Underwriter
|
|
Number of Shares
|
|
|
FIG Partners, LLC
|
|
|
|
|
|
D.A. Davidson & Co.
|
|
|
|
|
The underwriters are offering the shares
of our common stock subject to a number of conditions, including receipt and acceptance of the common stock by the underwriters.
In connection with this offering, the underwriters
or securities dealers may distribute offering documents to investors electronically.
Commission and Discounts
Shares of common stock sold by the underwriters
to the public will initially be offered at the public offering price set forth on the cover of this prospectus. Any shares of common
stock sold by the underwriters to securities dealers may be sold at a discount of up to $____ per share from the public offering
price. If all of the shares of common stock are not sold at the public offering price, the representatives may change the offering
price and the other selling terms. Sales of shares of common stock made outside of the United States may be made by affiliates
of the underwriters.
The following table shows the public offering
price, underwriting discount and proceeds before expenses. The amounts shown assume either no exercise or full exercise by the
underwriters of their overallotment option to purchase an additional _______ shares:
|
|
|
Per Share
|
|
|
No Exercise
|
|
|
Full Exercise
|
|
|
Public offering price
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Underwriting discount
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Proceeds to us, before expenses
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
The expenses of the offering, not including
the underwriting discount, are estimated to be approximately $_________ and are payable by us. We have agreed to reimburse the
underwriters for their reasonable fees and expenses incurred in connection with this offering, including reasonable fees of counsel
to the underwriters and other reasonable out-of-pocket expenses incurred by the underwriters in connection with the offering up
to a maximum of $250,000.
FIG Partners previously served as the financial
advisor to BayCom in connection with its acquisition of Plaza Bank, which was consummated on November 6, 2017. In connection with
such services, FIG Partners received fees from BayCom for its services rendered of an aggregate of $50,000.
Option to Purchase Additional Shares
We have granted the underwriters an option
to buy up to _______ additional shares of our common stock, at the public offering price less underwriting discounts. The underwriters
may exercise this option, in whole or from time to time in part, solely for the purpose of covering over-allotments, if any, made
in connection with this offering. The underwriters have 30 days from the date of this prospectus to exercise this option.
If the underwriters exercise this option, each underwriter will be obligated, subject to the conditions in the underwriting agreement,
to purchase a number of additional shares of our common stock from us proportionate to such underwriter’s initial amount
relative to the total amount reflected in the table above.
Lock-Up Agreements
We, our executive officers and directors
and certain other persons, have entered into lock-up agreements with the underwriters. Under these agreements, we and each of these
persons may not, without the prior written approval of the representatives, on behalf on the underwriters, subject to limited exceptions,
|
|
·
|
offer, pledge, sell, contract
to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant
for the sale of, or otherwise dispose of or transfer any shares of our common stock or any securities convertible into or exchangeable
or exercisable for our common stock, whether now owned or hereafter acquired or with respect to which such person has or hereafter
acquires the power of disposition, or file any registration statement under the Securities Act, with respect to any of the foregoing;
or
|
|
|
·
|
enter into any swap, hedge
or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence
of ownership of the shares of our common stock, whether any such swap, hedge or transaction is to be settled by delivery of shares
of our common stock or other securities, in cash or otherwise.
|
These restrictions will be in effect for
a period of 180 days after the date of the underwriting agreement.
These restrictions also apply to securities
convertible into or exchangeable or exercisable for or repayable with common stock to the same extent as they apply to our common
stock. They also apply to common stock owned now or acquired later by the person executing the agreement or for which the person
executing the agreement later acquires the power of disposition.
Pricing of the Offering
Prior to this offering, the market for our
common stock has been illiquid and the stock did not trade frequently. The initial public offering price was negotiated between
the representatives of the underwriters and us. In addition to prevailing market conditions, among the factors considered in determining
the initial public offering price of the common stock will be our historical performance, estimates of our business potential and
our earnings prospects, an assessment of our management and the consideration of the above factors in relation to market valuation
of companies in related businesses. An active trading market for the shares may not develop. It is also possible that the shares
will not trade in the public market at or above the initial public offering price following the completion of the offering. We
have applied to list our common stock on the NASDAQ Global Select Market under the symbol “BCML.”
Indemnification and Contribution
We have agreed to indemnify the underwriters
and their affiliates, selling agents and controlling persons against certain liabilities, including under the Securities Act. If
we are unable to provide this indemnification, we will contribute to the payments the underwriters and their affiliates, selling
agents and controlling persons may be required to make in respect of those liabilities.
Price Stabilization, Short Positions and Penalty Bids
To facilitate the offering of our common
stock, the underwriters may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock,
including:
|
|
·
|
stabilizing transactions;
|
|
|
·
|
purchases to cover positions
created by short sales.
|
Stabilizing transactions consist of bids
or purchases made for the purpose of preventing or retarding a decline in the market price of our common stock while this offering
is in progress. These transactions may also include making short sales of our common stock, which involve the sale by the underwriters
of a greater number of shares of common stock than they are required to purchase in this offering. Short sales may be “covered
short sales,” which are short positions in an amount not greater than the underwriters’ over-allotment option referred
to above, or may be “naked short sales,” which are short positions in excess of that amount.
The underwriters may close out any covered
short position either by exercising their over-allotment option, in whole or in part, or by purchasing shares in the open market.
In making this determination, the underwriters will consider, among other things, the price of shares available for purchase in
the open market compared to the price at which they may purchase shares through the over-allotment option. The underwriters must
close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created
if the underwriters are concerned that there may be downward pressure on the price of the common stock in the open market that
could adversely affect investors who purchased in this offering.
As a result of these activities, the price
of our common stock may be higher than the price that otherwise might exist in the open market. If these activities are commenced,
they may be discontinued by the underwriters at any time without notice. The underwriters may carry out these transactions on The
NASDAQ Global Select Market, in the over-the-counter market or otherwise.
Passive Market Making
In connection with this offering, the underwriters
and selling group members may engage in passive market making transactions in our common stock on The NASDAQ Global Select Market
in accordance with Rule 103 of Regulation M under the Exchange Act during a period before the commencement of offers
or sales of common stock and extending through the completion of the distribution of this offering. A passive market maker must
display its bid at a price not in excess of the highest independent bid of that security. However, if all independent bids are
lowered below the passive market maker’s bid, that bid must then be lowered when specified purchase limits are exceeded.
Passive market making may cause the price of our common stock to be higher than the price that otherwise would exist in the open
market in the absence of those transactions. The underwriters and dealers are not required to engage in passive market making and
may end passive market making activities at any time.
Electronic Distribution
A prospectus in electronic format may be
made available by e-mail or on the websites or through online services maintained by one or more of the underwriters or their affiliates.
In those cases, prospective investors may view offering terms online and may be allowed to place orders online. The underwriters
may agree with us to allocate a specific number of shares for sale to online brokerage account holders. Any such allocation for
online distributions will be made by the underwriters on the same basis as other allocations. Other than the prospectus in electronic
format, the information on the underwriters’ websites and any information contained on any other website maintained by any
of the underwriters is not part of this prospectus, has not been approved and/or endorsed by the underwriters or us and should
not be relied upon by investors.
Affiliations
The underwriters and their respective affiliates
are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment research, principal investment, hedging, financing, valuation and
brokerage activities. From time to time, the underwriters and/or their respective affiliates have directly and indirectly engaged,
or may engage, in various financial advisory, investment banking and commercial banking and other services for us and our affiliates
in the ordinary course of their business, for which they have received, or may receive, customary compensation, fees, commissions
and expense reimbursement. In addition, in the ordinary course of their various business activities, the underwriters and their
respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative
securities) and financial instruments (including bank loans) for their own account and for the accounts of their clients, and those
investment and securities activities may involve securities and/or instruments of ours. The underwriters and their respective affiliates
may also make investment recommendations and/or publish or express independent research views in respect of those securities or
instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in those securities
and instruments.
LEGAL MATTERS
The validity of our common stock offered
by this prospectus will be passed upon for us by Silver, Freedman, Taff & Tiernan LLP, Washington, D.C. Certain legal matters
in connection with this offering will be passed upon for the underwriters by King, Holmes, Paterno & Soriano, Los Angeles,
California.
EXPERTS
The consolidated financial statements
of BayCom Corp and subsidiaries as of December 31, 2017 and 2016 and for each of the years in the two-year period ended
December 31, 2017 and 2016 have been so included in reliance upon the report of Vavrinek, Trine, Day & Co., LLP, Laguna
Hills, California.
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the SEC a registration
statement on Form S-1 (including the exhibits, schedules and amendments thereto) under the Securities Act, with respect to the
shares of our common stock offered hereby. This prospectus does not contain all of the information set forth in the registration
statement and the exhibits and schedules thereto. For further information with respect to the common stock offered hereby, we refer
you to the registration statement and the exhibits and schedules filed therewith. Statements contained in this prospectus as to
the contents of any contract, agreement or any other document are summaries of the material terms of such contract, agreement or
other document and are not necessarily complete. With respect to each of these contracts, agreements or other documents filed as
an exhibit to the registration statement, reference is made to the exhibits for a more complete description of the matter involved.
A copy of the registration statement, and the exhibits and schedules thereto, may be inspected without charge at the public reference
facilities maintained by the SEC at 100 F Street NE, Washington, D.C. 20549. Copies of these materials may be obtained, upon payment
of a duplicating fee, from the Public Reference Room of the SEC at 100 F Street NE, Washington, D.C. 20549. Please call the SEC
at 1-800-SEC-0330 for further information on the operation of the Public Reference Room. The SEC maintains a website that contains
reports, proxy and information statements and other information regarding registrants that file electronically with the SEC. The
address of the SEC’s website is
www.sec.gov
.
As a result of this offering, we will become
subject to full information requirements of the Exchange Act. We will fulfill our obligations with respect to such requirements
by filing periodic reports and other information with the SEC. We intend to furnish our shareholders with annual reports containing
financial statements audited by an independent public accounting firm.
Index
to Consolidated Financial Statements
Report
of
i
ndependent
r
egistered
p
ublic
a
ccounting
f
irm
Board of Directors and
Shareholders of
BayCom Corp and Subsidiary
Opinion on the Financial Statements
We have audited the accompanying consolidated
balance sheets of BayCom Corp and Subsidiary (the "Company") as of December 31, 2017 and 2016, the related consolidated
statements of income and comprehensive income, changes in shareholders' equity, and cash flows for the years ended, and the related
notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly,
in all material respects, the consolidated financial position of the Company as of December 31, 2017 and 2016, and the results
of its operations and its cash flows for the years ended, in conformity with accounting principles generally accepted in the United
States of America.
Basis for Opinion
These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits.
We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")
and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have,
nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required
to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the
effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our opinion.
|
/s/
Vavrinek, Trine, Day & Co., LLP
|
|
We have served as the Company's auditor
since 2016.
|
Laguna Hills, California
|
|
|
February 23, 2018
|
|
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 2017 and 2016
(In thousands, except for per share data)
|
|
|
2017
|
|
|
2016
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
14,754
|
|
|
$
|
5,666
|
|
|
Federal funds sold
|
|
|
235,099
|
|
|
|
123,018
|
|
|
Cash and cash equivalents
|
|
|
249,853
|
|
|
|
128,684
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest bearing deposits in banks
|
|
|
1,743
|
|
|
|
1,529
|
|
|
Investment securities available-for-sale
|
|
|
40,505
|
|
|
|
13,918
|
|
|
Federal Home Loan Bank stock, at par
|
|
|
4,772
|
|
|
|
2,511
|
|
|
Federal Reserve Bank stock, at par
|
|
|
2,987
|
|
|
|
1,412
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale
|
|
|
3,245
|
|
|
|
-
|
|
|
Loans
|
|
|
891,548
|
|
|
|
508,350
|
|
|
Deferred fees, net
|
|
|
(469
|
)
|
|
|
(311
|
)
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
(3,775
|
)
|
|
Loans, net
|
|
|
890,109
|
|
|
|
504,264
|
|
|
Premises and equipment, net
|
|
|
8,399
|
|
|
|
1,106
|
|
|
Other real estate owned (OREO)
|
|
|
-
|
|
|
|
775
|
|
|
Core deposit intangible
|
|
|
4,772
|
|
|
|
802
|
|
|
Cash surrender value of Bank owned life insurance policies, net
|
|
|
17,132
|
|
|
|
6,470
|
|
|
Goodwill
|
|
|
10,365
|
|
|
|
-
|
|
|
Interest receivable and other assets
|
|
|
15,157
|
|
|
|
13,828
|
|
|
Total Assets
|
|
$
|
1,245,794
|
|
|
$
|
675,299
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing deposits
|
|
$
|
327,309
|
|
|
$
|
128,697
|
|
|
Interest bearing deposits
|
|
|
776,996
|
|
|
|
462,062
|
|
|
Total deposits
|
|
|
1,104,305
|
|
|
|
590,759
|
|
|
Other borrowings
|
|
|
6,000
|
|
|
|
-
|
|
|
Salary continuation plan
|
|
|
4,046
|
|
|
|
3,157
|
|
|
Interest payable and other liabilities
|
|
|
7,421
|
|
|
|
3,320
|
|
|
Junior subordinated deferrable interest debentures, net
|
|
|
5,387
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
1,127,159
|
|
|
|
597,236
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 14)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 10,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock - no par value; 100,000,000 shares authorized in 2017 and 2016; 7,496,995 and 5,472,426 shares issued and outstanding in 2017 and 2016, respectively
|
|
|
81,307
|
|
|
|
46,084
|
|
|
Additional paid in capital
|
|
|
287
|
|
|
|
287
|
|
|
Accumulated other comprehensive income, net of tax
|
|
|
213
|
|
|
|
88
|
|
|
Retained earnings
|
|
|
36,828
|
|
|
|
31,604
|
|
|
Total shareholders’ equity
|
|
|
118,635
|
|
|
|
78,063
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
1,245,794
|
|
|
$
|
675,299
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2017 and
2016
(In thousands, except for per share data)
|
|
|
2017
|
|
|
2016
|
|
|
Interest income:
|
|
|
|
|
|
|
|
|
|
Loans, including fees
|
|
$
|
41,087
|
|
|
$
|
28,394
|
|
|
Investment securities and interest bearing deposits in banks
|
|
|
2,661
|
|
|
|
809
|
|
|
FHLB dividends
|
|
|
356
|
|
|
|
307
|
|
|
FRB dividends
|
|
|
87
|
|
|
|
90
|
|
|
Federal funds sold
|
|
|
62
|
|
|
|
25
|
|
|
Total interest income
|
|
|
44,253
|
|
|
|
29,625
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
3,908
|
|
|
|
3,074
|
|
|
Other borrowings
|
|
|
404
|
|
|
|
-
|
|
|
Total interest expense
|
|
|
4,312
|
|
|
|
3,074
|
|
|
Net interest income
|
|
|
39,941
|
|
|
|
26,551
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for loan losses
|
|
|
462
|
|
|
|
598
|
|
|
Net interest income after provision for loan losses
|
|
|
39,479
|
|
|
|
25,953
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest income:
|
|
|
|
|
|
|
|
|
|
Gain on sale of loans
|
|
|
2,173
|
|
|
|
-
|
|
|
Service charges and other fees
|
|
|
1,249
|
|
|
|
607
|
|
|
Loan servicing and other loan fees
|
|
|
566
|
|
|
|
331
|
|
|
Gain on sale of OREO, net
|
|
|
252
|
|
|
|
-
|
|
|
Other income and fees
|
|
|
554
|
|
|
|
420
|
|
|
Total non-interest income
|
|
|
4,794
|
|
|
|
1,358
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense:
|
|
|
|
|
|
|
|
|
|
Salaries and related benefits
|
|
|
17,018
|
|
|
|
10,611
|
|
|
Occupancy and equipment
|
|
|
3,227
|
|
|
|
2,147
|
|
|
Data processing
|
|
|
4,735
|
|
|
|
1,386
|
|
|
Other
|
|
|
5,144
|
|
|
|
2,819
|
|
|
Total non-interest expense
|
|
|
30,124
|
|
|
|
16,963
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes
|
|
|
14,149
|
|
|
|
10,348
|
|
|
Provision for income taxes
|
|
|
8,889
|
|
|
|
4,436
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
5,912
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share:
|
|
|
|
|
|
|
|
|
|
Basic: Earnings per common share
|
|
$
|
0.82
|
|
|
$
|
1.10
|
|
|
Weighted average shares outstanding
|
|
|
6,444,475
|
|
|
|
5,392,597
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted: Earnings per common share
|
|
$
|
0.81
|
|
|
$
|
1.09
|
|
|
Weighted average shares outstanding
|
|
|
6,485,094
|
|
|
|
5,433,719
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
INCOME
For the years ended December 31, 2017 and
2016
(In thousands, except for per share data)
|
|
|
2017
|
|
|
2016
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
5,912
|
|
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized holding gain (loss) on available-for-sale on investment securities, net of tax of $63 in 2017 and $24 in 2016
|
|
|
89
|
|
|
|
(33
|
)
|
|
Other comprehensive (loss) income
|
|
|
89
|
|
|
|
(33
|
)
|
|
Total comprehensive income
|
|
$
|
5,349
|
|
|
$
|
5,879
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN
SHAREHOLDERS’ EQUITY
For the Periods ending December 31, 2017
and 2016
(In thousands, except for per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Number of
|
|
|
Stock
|
|
|
Paid in
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Shareholders’
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income/(loss)
|
|
|
Equity
|
|
|
Balance, December 31, 2015
|
|
|
5,493,209
|
|
|
$
|
46,280
|
|
|
$
|
287
|
|
|
$
|
25,692
|
|
|
$
|
121
|
|
|
$
|
72,380
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,912
|
|
|
|
|
|
|
|
5,912
|
|
|
Other comprehensive loss, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(33
|
)
|
|
|
(33
|
)
|
|
Restricted stock granted
|
|
|
12,794
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination of restricted stock
|
|
|
(2,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
334
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
334
|
|
|
Exercise of stock options
|
|
|
38,331
|
|
|
|
371
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
371
|
|
|
Repurchase of shares
|
|
|
(69,908
|
)
|
|
|
(901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(901
|
)
|
|
Balance, December 31, 2016
|
|
|
5,472,426
|
|
|
|
46,084
|
|
|
|
287
|
|
|
|
31,604
|
|
|
|
88
|
|
|
|
78,063
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,260
|
|
|
|
|
|
|
|
5,260
|
|
|
Other comprehensive income, net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
89
|
|
|
|
89
|
|
|
Reclassification of stranded tax effects from change in tax rate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(36
|
)
|
|
|
36
|
|
|
|
-
|
|
|
Restricted stock granted
|
|
|
28,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation
|
|
|
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
423
|
|
|
Issuance of shares
|
|
|
1,997,960
|
|
|
|
34,824
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
34,824
|
|
|
Repurchase of shares
|
|
|
(1,891
|
)
|
|
|
(24
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(24
|
)
|
|
Balance, December 31, 2017
|
|
|
7,496,995
|
|
|
$
|
81,307
|
|
|
$
|
287
|
|
|
$
|
36,828
|
|
|
$
|
213
|
|
|
$
|
118,635
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 and
2016
(In thousands, except for per share data)
|
|
|
2017
|
|
|
2016
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
5,912
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Decrease in deferred tax asset
|
|
|
3,491
|
|
|
|
1,699
|
|
|
Mark-to-market accretion on acquired loans
|
|
|
(3,000
|
)
|
|
|
(1,891
|
)
|
|
Gain on sale of loans
|
|
|
(2,173
|
)
|
|
|
-
|
|
|
Proceeds from the sale of loans
|
|
|
24,784
|
|
|
|
-
|
|
|
Loans originated for sale
|
|
|
(25,558
|
)
|
|
|
-
|
|
|
Mark-to-market accretion Trust Preferred
|
|
|
40
|
|
|
|
-
|
|
|
Change in cash surrender value of the life insurance policies
|
|
|
(231
|
)
|
|
|
(214
|
)
|
|
Provision for loan losses
|
|
|
462
|
|
|
|
598
|
|
|
Net (gain) or loss on sale of OREO
|
|
|
(252
|
)
|
|
|
179
|
|
|
Amortization/accretion of premium/discount on investment securities
|
|
|
369
|
|
|
|
190
|
|
|
Depreciation and amortization
|
|
|
762
|
|
|
|
498
|
|
|
Core deposit intangible amortization
|
|
|
850
|
|
|
|
398
|
|
|
Stock based compensation
|
|
|
423
|
|
|
|
334
|
|
|
Deferred loan origination fees
|
|
|
158
|
|
|
|
(30
|
)
|
|
Decrease (increase) in accrued interest receivable and other assets
|
|
|
990
|
|
|
|
(212
|
)
|
|
Increase (decrease) in salary continuation liability
|
|
|
126
|
|
|
|
(37
|
)
|
|
Increase (decrease) in accrued interest payable and other liabilities
|
|
|
2,827
|
|
|
|
(1,106
|
)
|
|
Net cash provided by operating activities
|
|
|
9,328
|
|
|
|
6,318
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Maturity of interest bearing deposits in banks
|
|
|
2,522
|
|
|
|
1,690
|
|
|
Purchase of investment securities available for sale
|
|
|
(1,180
|
)
|
|
|
-
|
|
|
Proceeds from the maturity and repayment of securities
|
|
|
7,651
|
|
|
|
9,564
|
|
|
Redemption (purchase) of Federal Home Loan Bank stock
|
|
|
319
|
|
|
|
(151
|
)
|
|
Net decrease (increase) in loans
|
|
|
295
|
|
|
|
(43,687
|
)
|
|
(Purchase) redemption of Federal Reserve Bank stock
|
|
|
(1,576
|
)
|
|
|
75
|
|
|
Purchase of bank owned life insurance
|
|
|
(4,003
|
)
|
|
|
(8
|
)
|
|
Proceeds from sale of OREO
|
|
|
1,754
|
|
|
|
-
|
|
|
Purchase of premises and equipment
|
|
|
(368
|
)
|
|
|
(214
|
)
|
|
Net cash received from acquisition
|
|
|
84,996
|
|
|
|
-
|
|
|
Net cash provided by (used in) investing activities
|
|
|
90,410
|
|
|
|
(32,731
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Net increase in demand, interest bearing and savings deposits
|
|
|
7,812
|
|
|
|
13,098
|
|
|
Increase in time deposits
|
|
|
23,538
|
|
|
|
34,357
|
|
|
Repurchase of common stock
|
|
|
(24
|
)
|
|
|
(901
|
)
|
|
Exercise of stock options
|
|
|
-
|
|
|
|
371
|
|
|
Increase in long- term borrowings
|
|
|
6,000
|
|
|
|
-
|
|
|
Decrease in short-term borrowings
|
|
|
(15,895
|
)
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
21,431
|
|
|
|
46,925
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
121,169
|
|
|
|
20,512
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
128,684
|
|
|
|
108,172
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
249,853
|
|
|
$
|
128,684
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- CONTINUED
For the years ended December 31, 2017 and
2016
(In thousands, except for per share data)
|
|
|
2017
|
|
|
2016
|
|
|
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
|
Cash paid during the year for:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
4,178
|
|
|
$
|
3,055
|
|
|
Income tax, net of refunds
|
|
|
3,838
|
|
|
|
2,845
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash investing activities:
|
|
|
|
|
|
|
|
|
|
Net change in unrealized gain on investment securities available-for sale
|
|
$
|
125
|
|
|
$
|
(33
|
)
|
|
Transfers of loans to other real estate owned
|
|
|
275
|
|
|
|
954
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions:
|
|
|
|
|
|
|
|
|
|
Assets acquired, net of cash received
|
|
$
|
444,826
|
|
|
$
|
-
|
|
|
Liabilities assumed
|
|
|
505,364
|
|
|
|
-
|
|
|
Common stock issued
|
|
|
34,824
|
|
|
|
-
|
|
|
Goodwill
|
|
|
10,365
|
|
|
|
-
|
|
The accompanying notes are an integral part
of the consolidated financial statements.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
|
|
1.
|
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Principles of Consolidation
The accounting and reporting policies of
BayCom Corp, (the “Company”) and its wholly-owned subsidiary, United Business Bank (the “Bank”) are in
accordance with accounting principles generally accepted in the United States of America and prevailing practices within the banking
industry. The Company has an investment in First ULB Statutory Trust I (the “Trust”) that is accounted for under the
equity method. A summary of the significant accounting policies applied in preparation of the accompanying financial statements
follows.
These consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiary, the Bank. All material intercompany transactions and accounts
have been eliminated in consolidation. For financial reporting purposes, the Trust is accounted for under the equity method and
is included in other assets on the consolidated balance sheets. The junior subordinated debentures issued and guaranteed by the
Company and held by the Trust are reflected as liabilities on the Company’s consolidated balance sheets.
Organization
Effective January 17, 2017, the Bank formed
a bank holding company, BayCom Corp. All of the outstanding shares of the Bank’s common stock were exchanged for common stock
in BayCom Corp on a one for one basis.
United Business Bank, formally known as,
Bay Commercial Bank, a state chartered Bank was incorporated under the laws of the State of California on March 24, 2004 and opened
for business on July 20, 2004. The Bank offers traditional commercial banking products and services to businesses and individuals
through 18 branches located in Contra Costa, Alameda, Santa Clara, Napa, San Joaquin and Los Angeles Counties in addition to two
branches in Seattle, Washington and one in Albuquerque, New Mexico. The out of state branches were acquired through mergers in
2017.
Use of Estimates
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. Significant accounting estimates reflected
in the Company’s 2017 and 2016 financial statements include the allowance for loan losses, the valuation for deferred tax
assets, the fair value of stock options, the valuation of financial assets and liabilities, and the determination, recognition
and measurement of impaired loans. Actual results could differ from these estimates.
Business Combinations
On April 28, 2017, the Company acquired
all of the assets and assumed all of the liabilities of First ULB Corp and its subsidiary, United Business Bank, FSB, (“FULB”
under a Merger and Plan of Reorganization dated December 14, 2016 (the “FULB Merger Agreement”). On November 3, 2017,
the Company acquired Plaza Bank (“Plaza”) located in downtown Seattle, Washington also under a Merger and Plan of Reorganization
dated June 26, 2017.
The acquired assets and assumed liabilities,
both tangible and intangible for both acquisitions were measured at estimated fair values, as required by the acquisition method
of accounting for business combinations Financial Accounting Standards Board Accounting Standards Codification (FASB ASC) 805,
Business Combinations. Management made significant estimates and exercised significant judgment in accounting for the acquisition.
The Company recorded an identifiable intangible asset representing the value of the core deposit customer base. The deposit intangible
assets represent the value ascribed to the long-term deposit relationships acquired and is being amortized over an estimated average
useful life of seven years.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Cash and Cash Equivalents
Cash equivalents are defined as short-term,
highly liquid investments both readily convertible into known amounts of cash and so near maturity that there is insignificant
risk of change in value because of changes in interest rates. Generally, only investments with original maturities of three months
or less at the time of purchase qualify as cash equivalents. Cash and cash equivalents include cash and due from banks and federal
funds sold. Generally, banks are required to maintain non-interest bearing cash reserves equal to a percentage of certain deposits.
For the years ended December 31, 2017 and 2016, $29.8 million and $5.0 million reserve balances were required, respectively.
As of December 31, 2017 and 2016, the Company
has cash deposits at other financial institutions in excess of FDIC insured limits. However, as the Company places these deposits
with major financial institutions and monitors the financial condition of these institutions, management believes the risk of loss
to be minimal. At December 31, 2017, the Company held interest bearing Money Market in these banks totaling $95.0 million with
a yield of 1.5%. None were held at December 31, 2016.
Interest Bearing Deposits in Banks
The Company invests in certificates of
time deposits with other financial institutions. At December 31, 2017 and 2016, the Company held $1.7 million with a yield of 0.96%
and $1.5 million in certificates of deposit with a yield of 1.31%, maturing one year or less. These deposits do not exceed FDIC
limits.
Investment Securities Available for
Sale
Available-for-sale securities include bonds,
notes, mortgage-backed securities, and debentures not classified as held-to-maturity securities. These securities are carried at
estimated fair value with unrealized holding gains and losses, net of tax impact, if any, reported as a net amount in a separate
component of shareholders’ equity, accumulated other comprehensive income (loss), until realized. Gains and losses on the
sale of available-for-sale securities are determined using the specific identification method. The amortization of premiums and
accretion of discounts are recognized as adjustments to interest income over the period to maturity.
Investments with fair values that are less
than amortized costs are considered impaired. Impairment may result from either a decline in the financial condition of the issuing
entity or in the case of fixed interest rate investments, from rising interest rates. At each financial statement date management
assesses each investment to determine if impaired investments are temporarily impaired or if the impairment is other than temporary.
This assessment includes a determination of whether the Company intends to sell the security, or it is more likely than not that
the Company will be required to sell the security before recovery of its amortized cost basis less any current-period credit losses.
For debt securities that are considered other than temporarily impaired and that the Company doesn’t not intend to sell and
will not be required to sell prior to recovery of the amortized cost basis, the amount of impairment is separated into the amount
that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized
in earnings and is calculated as the difference between the security’s amortized costs basis and the present value of its
expected future cash flows.
The remaining difference between the security’s
fair value and the present value of the future expected cash flow is deemed to be due to factors that are not credit related and
is recognized in other comprehensive income (loss).
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Federal Home Loan Bank of San Francisco
(“FHLB”) Stock
As of December 31, 2017 and 2016, FHLB
stock totaling $4.8 million and $2.5 million, respectively, is recorded at cost and is redeemable at par value. Investment in FHLB
stock is a required investment for institutions who are members of the FHLB. FHLB stock carried at cost and periodically evaluated
for impairment based on ultimate recovery of par value.
Federal Reserve Bank (“FRB”)
Stock
As of December 31, 2017 and 2016, FRB stock
totaling $3.0 million and $1.4 million, respectively, is recorded at cost and is redeemable at par value. Investment in FRB stock
is a required investment for member institutions. FRB Stock is carried at cost and periodically evaluated for impairment based
on ultimate recovery of par value.
Loans
Loans are stated at the principal amount
outstanding, net of the allowance for loan losses, net deferred fees, and unearned discounts, if any. The Company holds loans receivable
primarily for investment purposes. The Company purchases and sells interests in certain loans referred to as participations. The
participations are sold without recourse.
In 2017, the Company acquired loans in
a business combination that are recorded at estimated fair value on their purchase date. The purchaser cannot carryover the related
allowance for loan losses as probable credit losses are considered in the estimation of fair value. Purchased loans are accounted
for under ASC 310-30, Loans and Debt Securities with Deteriorated Credit Quality or ASC 310-20, Non-refundable Fees and other Costs.
Certain acquired loans exhibited credit quality deterioration since origination and are therefore being accounted for under ASC
310-30. The acquired loans that did not exhibit credit quality deterioration are accounted for under ASC 310-20.
A significant portion of the Company’s
loan portfolio is comprised of adjustable rate loans. Interest on loans is calculated and accrued daily using the simple interest
method based on the daily amount of principal outstanding. Generally, loans with temporarily impaired values and loans to borrowers
experiencing financial difficulties are placed on non-accrual even though the borrowers continue to repay the loans as scheduled.
When the ability to fully collect non-accrual
loan principal is in doubt, cash payments received are applied first to principal until such time as full collection of the remaining
recorded balance is expected. Loans are returned to accrual basis when principal and interest payments are being paid currently
and full payment of principal and interest is probable.
Purchased Credit Impaired Loans
The Company purchases individual loans
and groups of loans, some of which show evidence of credit deterioration since origination. The purchased credit impaired (“PCI”)
loans are recorded at the amount paid, since there is no carryover of the seller’s allowance for loan losses. After acquisition,
losses are recognized by an increase in the allowance for loan losses.
Since PCI loans are accounted for individually
or aggregated into pools of loans on common risk characteristics. The Company estimates the amount and timing of expected cash
flows for the loan or pool, and the expected cash flows in excess of the amount paid are recorded as interest income over the life
of the loan (accretable yield). The excess of the loan’s or pool’s contractual principal and interest over the expected
cash flows is not recorded (nonaccretable differences).
Over the life of the loan or pool, expected
cash flows continue to be estimated. If the present value of the expected cash flows is less than the amount, a loss is recorded
as a provision for loan losses. If the present value of expected cash flows is greater than the carrying amount, it is recognized
as part of the future interest income.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Loan Fees and Costs
Loan origination fees, commitment fees,
direct loan origination costs and purchase premiums and discounts on loans are deferred and recognized as an adjustment of yield,
to be amortized to interest income over the contractual term of the loan. Other loan fees and charges which represent income from
delinquent payment charges, and miscellaneous loan or letter of credit services, are recognized as non-interest income when collected.
Salaries, employee benefits and other expenses
totaling $660,000 and $695,000 are deferred as loan origination costs for the years ended December 31, 2017 and 2016, respectively.
Allowance for Loan Losses
The allowance for loan losses is evaluated
on a regular basis by management. Periodically, the Company charges current earnings with provisions for estimated probable losses
of loans receivable. The provision or adjustment takes into consideration the adequacy of the total allowance for loan losses giving
due consideration to specifically identified problem loans, the financial condition of the borrower, fair value of the underlying
collateral, recourse provisions, prevailing economic conditions, and other factors. Additional consideration is given to the Company’s
historical loan loss experience relative to the Company’s loan portfolio concentrations related to industry, collateral and
geography. The Company considers this concentration of credit risk when assessing and assigning qualitative factors in the allowance
for loan losses. Portfolio segments identified by the Company include commercial and industrial, construction and land, commercial
real estate including multi-family, residential real estate and consumer. This evaluation is inherently subjective and requires
estimates that are susceptible to significant change as additional or new information becomes available. Relevant risk characteristics
for the Company’s loan portfolio segments include vintage of the loan, debt service coverage, loan-to-value ratios and other
financial performance ratios. In addition, regulatory examiners may require additional allowances based on their judgments of the
information regarding problem loans and credit risk available to them at the time of their examinations. At December 31, 2017 and
2016, management believes the allowance for loan losses adequately reflects the credit risk in the loan portfolio.
Generally, the allowance for loan loss
consists of various components including a component for specifically identified weaknesses as a result of individual loans being
impaired, a component for general non-specific weakness related to historical experience, economic conditions and other factors
that indicate probable loss in the loan portfolio, and an unallocated component that relates to the inherent imprecision in the
use of estimates. Loans determined to be impaired are individually evaluated by management for specific risk of loss.
The Company evaluates and assigns a risk
grade to each loan based on certain criteria to assess the credit quality of each loan. The assignment of a risk rating is done
for each individual loan. Loans are graded from inception and on a continuing basis until the debt is repaid. Any adverse or beneficial
trends will trigger a review of the loan risk rating. Each loan is assigned a risk grade based on its characteristics. Loans with
low to average credit risk are assigned a lower risk grade than those with higher credit risk as determined by the individual loan
characteristics.
The Company’s Pass loans includes
loans with acceptable business or individual credit risk where the borrower’s operations, cash flow or financial condition
provides evidence of low to average levels of risk.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Loans that are assigned higher risk grades
are loans that exhibit the following characteristics:
A Special mention asset has potential weaknesses
that deserve close attention. If left uncorrected, these potential weaknesses may result in a deterioration of the repayment prospects
for the asset or in the Company’s credit position at some future date. Special Mention assets are not adversely classified
and do not expose the Company to sufficient risk to warrant adverse classification. Loans in this category would be characterized
by any of the following situations.
|
|
·
|
Credit that is currently protected but is
potentially a weak asset.
|
|
|
·
|
Credit that is difficult to manage because
of an inadequate loan agreement, the condition of and/or control over collateral, failure to obtain proper documentation, or any
other deviation from product lending practices.
|
|
|
·
|
Adverse financial trends.
|
A Special Mention rating should be a temporary
rating, pending the occurrence of an event that would cause the risk rating to either improve or to be downgraded.
A Substandard asset is inadequately protected
by the current net worth and paying capacity of the obligor or of the collateral pledged. Assets so classified must have a well-defined
weakness or weaknesses that jeopardize the liquidation of the debt. Assets are characterized by the distinct possibility that the
Company will sustain some loss if the deficiencies are not corrected. The potential loss does not have to be recognizable in an
individual credit for that credit to be risk rated substandard.
A loan can be fully and adequately secured and still be considered
substandard. Some characteristics of substandard loans are:
|
|
·
|
Inability to service debt from ordinary and
recurring cash flow.
|
|
|
·
|
Reliance upon alternative sources of repayment.
|
|
|
·
|
Term loans that are granted on liberal terms
because the borrower cannot service normal payments for that type of debt.
|
|
|
·
|
Repayment dependent upon the liquidation
of collateral.
|
|
|
·
|
Inability to perform as agreed, but adequately
protected by collateral.
|
|
|
·
|
Necessity to renegotiate payments to a non-standard
level to ensure performance.
|
|
|
·
|
The borrower is Bankrupt, or for any other
reason, future repayment is dependent on court action.
|
Any asset classified Doubtful has all the
weaknesses inherent in one classified substandard with the added characteristic that the weaknesses make collection or liquidation
in full, on the basis of currently existing facts, conditions, and value, highly questionable and improbable. Doubtful assets have
a high probability of loss, yet certain important and reasonably specific pending factors may work toward the strengthening of
the asset.
Losses are recognized as charges to the
allowance when the loan or portion of the loan is considered uncollectible or at the time of foreclosure. Recoveries on loans receivable
previously charged off are credited to the allowance for loan losses.
Troubled Debt Restructuring
In situations where, for economic or legal
reasons related to a borrower’s financial difficulties, the Company grants a concession to the borrower that it would not
otherwise consider, the related loan is classified as a troubled debt restructuring. The Company measures any loss on the troubled
debt restructuring in accordance with the guidance concerning impaired loans set forth above. Additionally, loans modified in troubled
debt restructurings are generally placed on non-accrual status at the time of restructuring and included in impaired loans. These
loans are returned to accrual status after the borrower demonstrates performance with the modified terms for a sustained period
of time (generally six months) and has the capacity to continue to perform in accordance with the modified terms of the restructured
debt.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Other Real Estate Owned (“OREO”)
OREO acquired through, or in lieu of, foreclosure
are held-for-sale and are initially recorded at fair value less selling expenses. Any write-downs to fair value at the time of
transfer are charged to the allowance for loan losses. Costs to hold OREO are expensed when incurred.
The Company obtains an appraisal or market
valuation analysis on all OREO. If the periodic valuation indicates a decline in the fair value below recorded carrying value,
an additional write-down or valuation allowance for OREO losses is established as a charge to earnings. Fair value is based on
current market conditions, appraisals, and estimated sales values of similar properties. Operating expenses of such properties,
net of related income, are included in other expenses. The Company may make loans to facilitate the sale of OREO. Gains and losses
on the disposition of OREO are included in non-interest income. Gains and losses on financed sales are recorded in accordance with
the appropriate accounting method, taking into consideration the buyers initial and continuing investment in the property, potential
subordination and transfer of ownership.
Premises and Equipment
Land is carried at cost. Premises and equipment
are stated at historical cost less accumulated depreciation or amortization. Depreciation is determined using the straight-line
method over the estimated useful lives of the related assets. The useful lives of premises range between twenty-five to thirty-nine
years.
The useful lives of furniture, fixtures
and equipment are estimated to be three to five years. Leasehold improvements are amortized over the life of the asset or the term
of the related lease, whichever is shorter. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation
or amortization are removed from the accounts, and any resulting gain or loss is recognized in current income. The cost of maintenance
and repairs is charged to expense as incurred. Annually at the end of each year, the Company evaluates premises and equipment for
impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be fully recoverable.
Goodwill and Other Intangible Assets
Goodwill is determined as the excess of
the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the
fair value of the net assets acquired and the liabilities assumed as of the acquisition date. Goodwill that arises from a business
combination is periodically evaluated for impairment at the reporting unit level, at least annually. Intangible assets with definite
useful lives are amortized over their estimated useful lives to their estimated residual values. Core deposit intangible represents
the estimated future benefit of deposits related to an acquisition and is booked separately from the related deposits and evaluated
periodically for impairment.
As of December 31, 2017, goodwill totaled
$10.4 million and a core intangible premium totaled $4.8 million from business combinations. A significant decline in expected future
cash flows, a significant adverse change in the business climate, slower growth rates or a significant decline in the price of
our common stock could necessitate taking charges in the future related to the impairment of goodwill or other intangible assets.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Bank Owned Life Insurance (“BOLI”)
The Bank owns life insurance policies on
certain key current officers. BOLI is recorded in interest receivable and other assets on the consolidated statements of condition
at the amount that can realized under the insurance contract at the end of the period.
Impairment of Assets
All assets are reviewed for impairment
whenever events or changes indicate that the carrying value of the asset may not be recoverable. As of December 31, 2017 and 2016,
the Company determined that no events or changes occurred during 2017 and 2016 that would indicate that the carrying value of any
long-lived assets may not be recoverable.
A loan may be considered impaired when,
based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal
or interest when due according to the contractual terms of the loan agreement. Factors considered by management in determining
impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments
when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management
determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of
the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s
prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Impairment is measured on
a loan by loan basis for loans by either the present value of expected future cash flows discounted at the loan’s effective
interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
See additional discussion under
Fair Value Measurement
.
Transfers of Financial Assets
Transfers of an entire financial asset,
a group of financial assets, or a participating interest in an entire financial asset are accounted for as sales when control over
the assets has been relinquished. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated
from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right)
to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
The Company may sell certain portions of
government guaranteed loans in the secondary market. These sales are recorded by the Company when control is surrendered and any
warranty period or recourse provision expires.
Servicing Assets and Liabilities
All servicing assets and liabilities are
initially measured at fair value. In addition, the Company amortizes servicing rights in proportion to and over the period of the
estimated net servicing income or loss and assesses the rights for impairment. The servicing rights are initially measured at fair
value and amortized in proportion to and over the period of the estimated net servicing income assuming prepayments.
Loans serviced for others totaled $160.1
million and $72.2 million as of December 31, 2017 and 2016, respectively. Total servicing liabilities, included in other
liabilities on the statement of financial condition, were $254,000 and $293,000 as of December 31, 2017 and 2016, respectively.
Servicing assets totaled $1.3 million and $470,000 as of December 31, 2017 and 2016, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Loans Held For Sale
Periodically, the Company sells loans and
retains the servicing rights. The gain or loss on sale of loans depends in part on the previous carrying amount of the financial
assets involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair value
at the date of transfer.
The portions of the U.S. Small Business
Administration (“SBA”) loans that are guaranteed by the SBA are classified by management as loans held for sale since
the Bank intends to sell these loans. Loans held for sale are recorded at the lower aggregate cost or estimated fair value. During
2017, the Company sold $24.7 million of SBA loans in the secondary market, $22.3 million of which settled by end of year 2017.
No loans were sold during 2016.
The fair value of SBA loans held for sale
is based primarily on prices that secondary markets are currently offering for loans with similar characteristics. Net unrealized
losses, if any, are recognized through a valuation allowance through a charge to income. The carrying value of SBA loans held for
sale is net of premiums as well as deferred originations fees and costs. Premiums and net origination fees and costs are deferred
and included in the basis of the loans in calculating gains or losses upon sale. SBA loans are generally secured by the borrowing
entities’ assets such accounts receivable, property and equipment, and other business assets. The Company generally recognizes
gains and losses on these loan sales based on the differences between the sales proceeds received and the allocated carrying value
of the loans sold (which can include deferred premiums and net origination fees and costs). The non-guaranteed portion of the SBA
loans is not typically sold by the Company and is classified as held for investment. In connection with the Company’s SBA
lending activities, the Company recognizes servicing assets when servicing rights are retained. The Company initially recognizes
servicing assets when servicing rights are retained. The Company initially recognizes and measures at fair value servicing rights
obtained by SBA loan sales. The Company subsequently measures these servicing assets by using the amortization method, which amortizes
servicing assets in proportion to, and over the period of, estimated net servicing income. The amortization of the servicing assets
is analyzed periodically and is adjusted to reflect changes in prepayment rates and other estimates. The servicing asset is included
in other assets on the consolidated statements of financial condition and the related amortization is net against other non-operating
income in the consolidated statement of income. Gain or loss on sale of loans is included in non-interest income.
Income Taxes
The Company and the Bank file a United
States consolidated federal income tax return and a California and New Mexico income tax return, Income taxes are accounted for
using the asset and liability method. Under such method, deferred tax assets and liabilities are recognized for the future tax
consequences of differences between the financial statement carrying amounts of existing assets and liabilities and their respective
tax basis (temporary differences). Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred
tax assets and liabilities of a change in tax rate is recognized in the period of change.
A valuation allowance is established as
a reduction to deferred tax assets to the extent that it is more than likely than not that the benefits associated with the deferred
tax assets will not be realized. The determination, recognition, and measurement of deferred tax assets and the requirement for
a related valuation allowance is based on estimated future taxable income.
The Company recognizes interest accrued
and penalties related to unrecognized tax benefits in tax expense. During the years ended December 31, 2017 and 2016, the
Company recognized zero and $6,000 in interest and penalties, respectively. The Company had no unrecognized tax benefits as of
December 31, 20117 and 2016.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The Company files income tax returns in
the U.S. federal jurisdiction, with the States of California and New Mexico. The Company had no unrecognized tax benefits at December
31, 2017 and 2016.
On December 22, 2017, the U.S. Government
enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). Among other
provisions, the Tax Act reduced the federal marginal corporate income tax rate from 35% to 21%. As a result of the passage of the
Tax Act, the Company recorded a $2.7 million charge for the revaluation of its net deferred tax asset to account for the future
impact of the decrease in the corporate income tax rate and other provisions of the legislation. The charge was recorded as an
increase to tax expense and reduction of the net deferred asset. The Company’s financial results reflect the income tax effects
of the Tax Act for which the accounting is complete and provisional amounts for those specific income tax effects of the Tax Act
for which the accounting is incomplete but a reasonable estimate could be determined. The Company did not identify items for which
the income tax effects of the Tax Act have not been completed and a reasonable estimate could not be determined as of December
31, 2017. As a result, these amounts could be adjusted during the measurement period, which will end in December 2018.
Non-interest Income
The Company records fees for other client
services, such as service charges on deposit accounts and loan fees. These fees are recorded as income when the services are performed.
Stock Based Compensation
Stock Options
The Company recognized in the statement
of income the grant-date fair value of stock options and other equity-based forms of compensation issued to employees over the
employees’ requisite service period (generally the vesting period). The fair value of each option was estimated on the date
of grant using the Black-Scholes options pricing model. The fair value method includes an estimate of expected volatility and an
estimate of the expected option term, which is based on consideration of the vesting period and contractual term of the option.
Restricted Equity Grants
The Company granted restricted stock to
directors and employees in 2017 and 2016 as shown in footnote 16. The grant-date fair value of the award is amortized on the straight-line
basis over the requisite service period, which is generally the vesting period, as compensation expense.
Earnings Per Share
Basic earnings per share (“EPS”)
is computed by dividing the net income by the weighted-average number of common shares outstanding for the year. Diluted EPS reflects
the potential dilution that could occur if stock options were exercised and the dilutive effect of unvested restricted stock grants.
The treasury stock method is applied to determine the dilutive effect of stock options, restricted stock in computing diluted EPS.
For the year ending December 31, 2017, no stock options were outstanding and the dilutive effective of 67,481 shares of unvested
restricted stock grants were included in the calculation of diluted common shares. For the period ending December 31, 2016, a total
of 8,373 stock options, and the dilutive effect of 68,605 shares of unvested stock grants were included in the calculation of diluted
common shares.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
For the periods ended December 31, 2017
and 2016, total weighted average common shares outstanding are as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Common Stock
|
|
|
6,444,475
|
|
|
|
5,392,597
|
|
|
Diluted effect of restricted stock grants
|
|
|
40,619
|
|
|
|
32,209
|
|
|
Diluted effect of stock options
|
|
|
-
|
|
|
|
8,913
|
|
|
Total weighted average diluted shares
|
|
|
6,485,094
|
|
|
|
5,433,719
|
|
Repurchase of Common Stock
In 2017, the Company repurchased 1,891
shares of common stock under the Dissenters’ Rights provisions as a result of the FULB merger. During the year ended December
31, 2016, the Company repurchased 69,908 shares of common stock as a part of a stock repurchase program.
Comprehensive Income (Loss)
Comprehensive income (loss) includes disclosure
of other comprehensive income or loss that historically has not been recognized in the calculation of net income or loss. Unrealized
gains and losses on the Company’s available-for-sale investment securities are included in other comprehensive income or loss.
Total comprehensive income or loss and the components of accumulated other comprehensive income are presented as a separate statement
of comprehensive income.
Loss Contingencies and Legal Claims
In the normal course of business, the Company
may be subject to claims and lawsuits. It is the opinion of management that the disposition or ultimate resolution of such claims
and lawsuits, if any, will not have a material adverse effect on the financial position of the Company.
Recent
Accounting Guidance Not Yet Effective and Adopted Accounting Guidance
In May 2014, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09,
Revenue from Contracts
with Customers (Topic 606)
. This Update requires an entity to recognize revenue as performance obligations are met, in order
to reflect the transfer of promised goods or services to customers in an amount that reflects the consideration the entity is entitled
to receive for those goods or services. The following steps are applied in the updated guidance: (1) identify the contract(s) with
a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate
the transaction price to the performance obligations in the contract; and (5) recognize revenue when, or as, the entity satisfies
a performance obligation. These amendments are effective for public business entities for annual reporting periods beginning after
December 15, 2017, including interim periods within that reporting period and one year later for nonpublic business entities. Early
adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods
within that period. The Company adopted ASU No. 2014-09 on January 1, 2018. The Company does not expect ASU 2014-09 to have a material
impact on its financial statements and disclosures.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
In January 2016, the FASB issued ASU 2016-01,
Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities (Subtopic 825-10)
.
Changes made to the current measurement model primarily affect the accounting for equity securities and readily determinable fair
values, where changes in fair value will impact earnings instead of other comprehensive income. The accounting for other financial
instruments, such as loans, investments in debt securities, and financial liabilities is largely unchanged. The Update also changes
the presentation and disclosure requirements for financial instruments including a requirement that public business entities use
exit price when measuring the fair value of financial instruments measured at amortized cost for disclosure purposes. This Update
is generally effective for public business entities in fiscal years beginning after December 15, 2017, including interim periods
within those fiscal years and one year later for nonpublic business entities. Nonpublic business entities are permitted to immediately
adopt a provision which would omit the disclosure of fair value of financial instruments carried at amortized cost. The Company
has adopted this provision. The Company does not expect ASU 2016-01 to have a material impact on its financial statements and disclosures.
In February 2016, the FASB issued Accounting
Standards Update (ASU) 2016-02, Leases (Topic 842). The most significant change for lessees is the requirement under the new guidance
to recognize right-of-use assets and lease liabilities for all leases not considered short-term leases, which is generally defined
as a lease term of less than 12 months. This change will result in lessees recognizing right-of-use assets and lease liabilities
for most leases currently accounted for as operating leases under current lease accounting guidance. The amendments in this Updates
are effective for interim and annual periods beginning after December 15, 2018 for public business entities and one year later
for all other entities. Upon adoption of the guidance, the Company expects to report increased assets and increased liabilities
on its Consolidated Statements of Financial Condition as a result of recognizing right-of-use assets and lease liabilities related
to certain banking offices and certain equipment under noncancelable operating lease agreements, which currently are not reflected
in its Consolidated Statements of Financial Condition. The Company is currently evaluating the effects of ASU 2016-02 on its financial
statements and disclosures.
In March 2016, the FASB issued ASU 2016-09,
Improvements to Employee Share-Based Payment Accounting (Topic 718.) ASU 2016-09 includes provisions intended to simplify various
aspects related to how share-based payments are accounted for and presented in the financial statements. Under ASU 2016-09, excess
tax benefits and certain tax deficiencies will no longer be recorded in additional paid-in capital (“APIC”). Instead,
they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement, and APIC
pools will be eliminated. In addition, the guidance requires excess tax benefits be presented as an operating activity on the statement
of cash flows rather than as a financing activity. ASU 2016-09 also permits an accounting policy election for the impact of forfeitures
on the recognition of expense for share-based payment awards. Forfeitures can be estimated, as required today, or recognized when
they occur. This guidance is effective for public business entities for interim and annual reporting periods beginning after December
15, 2017, and for nonpublic business entities annual reporting periods beginning after December 15, 2018, and interim periods within
the reporting period and one year later for nonpublic entities. Early adoption is permitted, but all of the guidance must be adopted
in the same period. The Company has adopted ASU 2016-09 as of January 1, 2017. The Company plans to recognize forfeitures as they
occur. The Company does not expect ASU 2016-09 to have a material impact on its financial statements and disclosures. The adoption
of ASU 2016-09 could result in increased volatility to income tax expense that is reported related to excess tax benefits and tax.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
In June 2016, the FASB issued ASU No. 2016-13,
Measurement of Credit Losses on Financial Instruments (Topic 326).
This ASU significantly changes how entities will measure
credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. In
issuing the standard, the FASB is responding to criticism that today’s guidance delays recognition of credit losses. The standard
will replace today’s “incurred loss” approach with an “expected loss” model. The new model, referred to as
the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured
at amortized cost, and (2) certain off-balance sheet credit exposures. This includes, but is not limited to, loans, leases, held-to-maturity
securities, loan commitments, and financial guarantees. The CECL model does not apply to available-for-sale (“AFS”) debt
securities. For AFS debt securities with unrealized losses, entities will measure credit losses in a manner similar to what they
do today, except that the losses will be recognized as allowances rather than reductions in the amortized cost of the securities.
As a result, entities will recognize improvements to estimated credit losses immediately in earnings rather than as interest income
over time, as they do today. The ASU also simplifies the accounting model for purchased credit-impaired debt securities and loans.
ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the
allowance for loan and lease losses. In addition, public business entities will need to disclose the amortized cost balance
for each class of financial asset by credit quality indicator, disaggregated by the year of origination. ASU No. 2016-13 is effective
for interim and annual reporting periods beginning after December 15, 2019 for SEC filers, one year later for non SEC filing public
business entities and annual reporting periods beginning after December 15, 2020 for nonpublic business entities and interim periods
within the reporting periods beginning after December 15, 2021. Early adoption is permitted for interim and annual reporting periods
beginning after December 15, 2018. Entities will apply the standard’s provisions as a cumulative-effect adjustment to retained
earnings as of the beginning of the first reporting period in which the guidance is effective (i.e., modified retrospective approach).
The Company is still evaluating the effects this ASU will have on the Company’s Consolidated Financial Statements. Upon adoption,
the Company expects changes in the processes and procedures used to calculate the allowance for loan losses, including changes
in assumptions and estimates to consider expected credit losses over the life of the loan versus the current accounting practice
that utilizes the incurred loss model. The new guidance may result in an increase in the allowance for loan losses which will also
reflect the new requirement to include the nonaccretable principal differences on purchased credit-impaired loans; however, the
Company is still in the process of determining the magnitude of the change and its impact on the Consolidated Financial Statements.
In January 2017, the FASB issued ASU No.
2017-04,
Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment.
This guidance
removes Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation, and goodwill impairment
will simply be the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount
of goodwill. All other goodwill impairment guidance will remain largely unchanged. Entities will continue to have the option to
perform a qualitative assessment to determine if a quantitative impairment test is necessary. The amendments in this Update are
required for public business entities and other entities that have goodwill reported in their financial statements and have not
elected the private company alternative for the subsequent measurement of goodwill. ASU No. 2017-04 is effective for interim and
annual reporting periods beginning after December 15, 2021 for public business entities who are not SEC filers and one year latter
for all other entities. The Company does not expect ASU 2016-01 to have a material impact on its financial statements and disclosures.
In May 2017, FASB issued ASU 2017-09,
Scope
of Modification Accounting
. This guidance is intended to provide clarity and reduce both (1) diversity in practice and (2)
cost and complexity when applying the guidance in Topic 718,
Compensation—Stock Compensation
, to a change to the terms
or conditions of a share-based payment award. The ASU provides guidance about which changes to the terms or conditions of a share-based
payment award require an entity to apply modification accounting in Topic 718. An entity should account for the effects of a modification
unless all the following are met: (1) the fair value (or calculated value or intrinsic value, if such an alternative measurement
method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative
measurement method is used) of the original award immediately before the original award is modified. If the modification does not
affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate
the value immediately before and after the modification, (2) the vesting conditions of the modified award are the same as the vesting
conditions of the original award immediately before the original award is modified and (3) the classification of the modified award
as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the
original award is modified. The ASU is effective for all entities for annual periods, and interim periods within those annual periods,
beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business
entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting
periods for which financial statements have not yet been made available for issuance. The Company’s early adoption of this ASU
in the quarter ended June 30, 2017 did not have a material impact on the Company’s Consolidated Financial Statements.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Application of US GAAP in Accounting
for the Tax Cuts and Jobs Act
On December 22, 2017, the SEC staff issued
Staff Accounting Bulletin No. 118 (SAB 118) to address the application of US GAAP in situations when a registrant does not have
the necessary information available, prepared, or analyzed (including computations) in reasonable detail to complete the accounting
for certain income tax effects of the 2017 Tax Act. SAB 118 provides guidance to registrants under three scenarios: (1) Measurement
of certain income tax effects is complete, (2) Measurement of certain income tax effects can be reasonable estimated and (3) Measurement
of certain income tax effects cannot be reasonably estimated. SAB 118 provides a one year measurement period for the registrant
to complete its accounting for certain income tax effects that are considered provisional or for which reasonable estimates cannot
be made. The Company recognized the income tax effects of the 2017 Tax Act in its 2017 financial statements in accordance with
SAB 118.
Subsequent Events
Management has evaluated subsequent events
for potential recognition and disclosure through February 23, 2018, the date the financial statements were issued.
Reclassifications
Certain prior year amounts are reclassified
to conform to the current year presentation. None of the reclassifications impact net income or net earnings per common share.
On April 28, 2017, to increase its market
area, reduce net funding costs, and improve operating efficiency, the Company acquired FULB. The Company added eight locations
including seven full service branches on one loan production office. The branch offices are located in Oakland, San Jose, Sacramento,
San Francisco, Glendale, California and Albuquerque, New Mexico and Tukwila, Washington. The loan production office is located
in Los Angeles, California. The Company paid a total of $41.9 million comprised of cash of $19.0 million and 1,371,579 shares at
a price of $16.66 per share of common stock in exchange for all of the common shares outstanding of FULB. Each share of FULB stock
converted into .9733 share of the Company’s common stock. As of the merger date, the fair value of FULB’s consolidated
assets totaled approximately $473.1 million and deposits totaled approximately $428.0 million. The fair value of estimates are
subject to change during the measurement period, after the acquisition date as additional information relative to the acquisition
date fair values becomes available. The merger transaction is accounted for using the acquisition method of accounting for business
combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed totaled approximately $32.8
million at the date of merger. The Company assumed the Subordinated Debentures held by Trust. The Company assumed the lease obligation
related to each facility.
On November 3, 2017, to enhance its market
share in Washington, the Company acquired Plaza adding one branch office located in Seattle, Washington. The Company issued 626,381
shares of common stock at a price of $19.10 per share in exchange for the all of the common shares outstanding of Plaza. Each share
of Plaza’s common stock outstanding converted into .084795 share of the Company’s common stock. As of the merger date,
the fair value of Plaza Bank’s assets totaled approximately $75.8 million and deposits totaled approximately $54.2 million.
The fair value of estimates are subject to change during the measurement period, after the acquisition date as additional information
relative to the acquisition date fair values becomes available. The merger transaction is accounted for using the acquisition method
of accounting for business combinations FASB ASC 805, Business Combinations. The net assets acquired and the liabilities assumed
totaled approximately $10.8 million at the date of merger. The Company assumed the lease obligation related to the branch facility.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following table summarizes the fair value of the assets
acquired and liabilities assumed at the acquisition date:
|
|
|
FULB
Acquisition Date
April 28, 2017
|
|
|
Plaza
Acquisition Date
November 3, 2017
|
|
|
Fair value of Assets:
|
|
|
|
|
|
|
|
|
|
Cash and due from Banks
|
|
$
|
27,992
|
|
|
$
|
1,124
|
|
|
Federal funds sold
|
|
|
75,037
|
|
|
|
-
|
|
|
Total cash and cash equivalents
|
|
|
103,029
|
|
|
|
1,124
|
|
|
Investment securities
|
|
|
30,241
|
|
|
|
5,772
|
|
|
FHLB stock
|
|
|
2,087
|
|
|
|
493
|
|
|
Loans
|
|
|
315,970
|
|
|
|
65,366
|
|
|
Core deposit intangible
|
|
|
4,435
|
|
|
|
385
|
|
|
Deferred tax asset, including refunds
|
|
|
(164
|
)
|
|
|
2,070
|
|
|
Servicing asset
|
|
|
1,282
|
|
|
|
-
|
|
|
BOLI
|
|
|
6,428
|
|
|
|
-
|
|
|
Other assets
|
|
|
9,831
|
|
|
|
630
|
|
|
Total assets acquired
|
|
|
473,139
|
|
|
|
75,840
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
|
|
|
|
|
|
|
Noninterest bearing
|
|
|
152,842
|
|
|
|
17,256
|
|
|
Interest bearing
|
|
|
275,175
|
|
|
|
36,923
|
|
|
Total deposits
|
|
|
428,017
|
|
|
|
54,179
|
|
|
Salary continuation plan
|
|
|
764
|
|
|
|
-
|
|
|
Other borrowings
|
|
|
10,775
|
|
|
|
10,467
|
|
|
Other liabilities
|
|
|
812
|
|
|
|
350
|
|
|
Total liabilities assumed
|
|
|
440,368
|
|
|
|
64,996
|
|
|
Stock issued
|
|
|
22,860
|
|
|
|
11,964
|
|
|
Cash consideration
|
|
|
19,037
|
|
|
|
119
|
|
|
Goodwill
|
|
$
|
9,126
|
|
|
$
|
1,239
|
|
Goodwill represents the excess
of the estimated fair value of the liabilities assets assumed over the estimated fair value of the assets acquired.
The
consideration paid represented a premium to the book value of pre-Merger institution’s net assets at the acquisition date.
Goodwill
is not tax deductible.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following table presents the net assets
acquired and the estimated fair value adjustments, which resulted in Goodwill at the acquisition date:
|
|
|
FULB
Acquisition Date
April 28, 2017
|
|
|
Plaza
Acquisition Date
November 3, 2017
|
|
|
Book value of net assets acquired
|
|
$
|
29,321
|
|
|
$
|
8,107
|
|
|
Fair value adjustments:
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
636
|
|
|
|
386
|
|
|
Write-down on real estate investment
|
|
|
(262
|
)
|
|
|
-
|
|
|
Time-deposits
|
|
|
-
|
|
|
|
(74
|
)
|
|
Other borrowings
|
|
|
-
|
|
|
|
(30
|
)
|
|
Trust preferred securities
|
|
|
1,045
|
|
|
|
-
|
|
|
Core deposit intangible
|
|
|
4,435
|
|
|
|
385
|
|
|
Deferred tax assets
|
|
|
(2,404
|
)
|
|
|
2,070
|
|
|
Total purchase accounting adjustments
|
|
|
3,450
|
|
|
|
2,737
|
|
|
Fair value of net assets acquired
|
|
|
32,771
|
|
|
|
10,844
|
|
|
Common stock issued
|
|
|
22,860
|
|
|
|
11,964
|
|
|
Cash paid
|
|
|
19,037
|
|
|
|
119
|
|
|
Total price paid
|
|
|
41,897
|
|
|
|
12,083
|
|
|
Goodwill
|
|
$
|
9,126
|
|
|
$
|
1,239
|
|
Loans
The Company engaged a third party to determine
the fair value of loans. The fair values for acquired loans were calculated using a discounted cash flow analysis based on the
present value of the expected cash flows utilizing market-derived discount rates and certain assumptions related to expected cash
flows including prepayment estimates adjusted based on loan type and seasoning, and probability of default and loss severity. For
purchased non-credit impaired loans (“PNCI”), the total gross contractual amounts receivable was $379.1 million as
of the acquisition date. For PCI loans, the total contractual amounts receivable was $8.6 million as of the date of acquisition.
The fair value of the PCI loans is estimated to total $7.3 million as of the date of acquisition.
The PNCI loans with similar characteristics
were grouped together and were treated in the aggregate when applying the discount rate on the expected cash flows. Aggregation
factors considered include the type of loan and related collateral, risk classification, fixed or variable interest rate, term
of loan and whether or not the loan was amortizing. The discount rates used for the similar groups of loans are based on current
market rates for new originations of comparable loans, where available, and include adjustments for credit and liquidity factors.
In addition, the guarantee of certain retained SBA guaranteed loans is reflected in the fair value.
At the acquisition date, the contractual
amount and timing of undiscounted principal and interest payments and the estimated the amount and timing of undiscounted expected
principal and interest payments was used to estimate the fair value of PCI loans. The difference between these two amounts represented
the nonaccretable difference. On the acquisition date, the amount by which the undiscounted expected cash flows exceed the estimated
fair value of the acquired loans is the “accretable yield”. The accretable yield is then measured at each financial
reporting date and represented the difference between the remaining undiscounted expected cash flows and the current carrying value
of the loans. For PCI loans the accretable yield is accreted into interest income over the life of the estimated remaining cash
flows. At each financial reporting date, the carrying value of each PCI loan is compared to an updated estimate of expected principal
payment or recovery on each loan. To the extent that the loan carrying amount exceeds the updated expected principal payment or
recovery, a provision of loan loss would be recorded as a charge to income and an allowance for loan loss established.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following table reflects contractual
cash flows, nonaccretable difference, accretable yield, fair value, purchase discount, and principal balance for the various loan
categories as of the acquisition date. For PCI loans, the purchase discount does not necessarily represent cash flows to be collected
as a portion of it is a nonaccretable difference:
|
|
|
Credit-impaired
|
|
|
Non-credit
|
|
|
|
|
|
|
|
loans
|
|
|
impaired loans
|
|
|
Total
|
|
|
Contractually required payments
|
|
$
|
8,577
|
|
|
$
|
379,144
|
|
|
$
|
387,721
|
|
|
Less: nonaccretable difference
|
|
|
(966
|
)
|
|
|
-
|
|
|
|
(966
|
)
|
|
Cash flows expected to be collected (undiscounted)
|
|
|
7,611
|
|
|
|
379,144
|
|
|
|
386,755
|
|
|
Accretable yield
|
|
|
(322
|
)
|
|
|
(5,097
|
)
|
|
|
(5,419
|
)
|
|
Fair value of purchased loans
|
|
$
|
7,289
|
|
|
$
|
374,047
|
|
|
$
|
381,336
|
|
Real Estate Investment
The acquisition of FULB includes the
acquisition of a real estate investment. The real estate was sold after the merger resulting in a fair value adjustment equal
to the sale price net of closing expenses.
Servicing Assets
The acquisition of FULB included the acquisition
of loans serviced for others including the SBA. The fair value of the servicing assets were calculated based on the net present
value of the servicing income stream using a market-derived discount rate and estimated expected cash flows based on the estimated
life of the underlying loans less the estimated cost of servicing plus a normal profit.
Core Deposit Intangible
The core deposit intangible asset, with
an estimated acquisition date fair value of $4.8 million, represents the value ascribed to the long-term deposit relationships
acquired and is being amortized over an estimated average useful life of seven years. Retention rates used to arrive at fair values
are based on historical attrition analysis of other comparable financial institution’s and management’s assumptions.
Generally, a run-off of 5% from beginning balances is assumed for all account types in the first and second year and includes a
deposit growth rate of 1%. The core deposit intangible is estimated not to have a significant residual value.
Deposits
The fair values used for the retail DDA
and NOW deposits were equal to the amounts payable on demand at the acquisition date. There was no fair value adjustment for FULB’s
time deposits as the fair values were equal to the carrying value as of the acquisition date based on the discounted cash flow
that applied interest rates offered by market participants as of the acquisition date on time deposits with similar maturity dates.
The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates offered by
market participants as of the acquisition date on time deposits with similar maturity terms as the discount rates.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Subordinated Deferrable Interest Debentures
The Subordinated Deferrable Interest Debentures
total of $6.4 million had a fair value of $5.4 million. The fair value adjustment of $1,045,000 for debentures is equal to the
discounted cash flow that applied interest rates offered by market participants as of the acquisition date.
Pro Forma Results of Operations
The operating results of the Company
for the year ended December 31, 2017 and 2016 include the operating results of FULB and Plaza since their respective acquisition
dates. The following table represents the net interest and other income, basic earnings per share and diluted earnings per share
as if the acquisition with FULB and Plaza were effective as of January 1, 2017 and 2016 for the respective year in which each
acquisition was closed. The unaudited pro forma information in the following table is intended for informational purposes only
and is not necessarily indicative of our future operating results for operating results that would have occurred had the mergers
been completed at the beginning of each respective year. No assumptions have been applied to the pro forma results of operation
regarding possible revenue enhancements, expense efficiencies or asset dispositions.
The contribution of the acquired operations
from FULB and Plaza to our results of operations for the 2017 is as follows:
|
|
|
Proforma
|
|
|
Proforma
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Net interest income
|
|
$
|
47,656
|
|
|
$
|
44,635
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
4,387
|
|
|
|
9,380
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share
|
|
$
|
0.59
|
|
|
$
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share
|
|
$
|
0.59
|
|
|
$
|
1.26
|
|
These amounts include the acquisition-related
third party expenses, accretion of the discounts on acquired loans and amortization of the fair value mark adjustments on core
deposit intangible. FULB and Plaza’s results of operations prior to the merger date are not included in the Company’s
results for 2017. The contribution shown above excludes allocated overhead and allocated cost of funds.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Acquisition-related Expenses
Acquisition-related expenses are recognized
as incurred and continue until all systems are converted and operational functions become fully integrated. We incurred third-party
acquisition-related expenses in the following line items in the statement of income for the year ended December 31, 2017 as follows:
|
|
|
FULB
|
|
|
Plaza
|
|
|
Total
|
|
|
Acquisition related expenses in 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
$
|
349
|
|
|
$
|
225
|
|
|
$
|
574
|
|
|
Data processing
|
|
|
1,586
|
|
|
|
855
|
|
|
|
2,441
|
|
|
Severance expense
|
|
|
212
|
|
|
|
75
|
|
|
|
287
|
|
|
Other
|
|
|
120
|
|
|
|
54
|
|
|
|
174
|
|
|
Total
|
|
$
|
2,267
|
|
|
$
|
1,209
|
|
|
$
|
3,476
|
|
The amortized cost and estimated fair value of investment securities
available for sale at December 31, 2017 and 2016 consist of the following:
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
2017
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Municipal securities
|
|
$
|
15,910
|
|
|
$
|
182
|
|
|
$
|
(45
|
)
|
|
$
|
16,047
|
|
|
Mortgage-backed securities
|
|
|
9,621
|
|
|
|
143
|
|
|
|
(24
|
)
|
|
|
9,740
|
|
|
Collateralized mortgage obligations
|
|
|
1,758
|
|
|
|
1
|
|
|
|
(9
|
)
|
|
|
1,750
|
|
|
U.S. Government Agencies
|
|
|
6,984
|
|
|
|
-
|
|
|
|
(13
|
)
|
|
|
6,971
|
|
|
SBA securities
|
|
|
5,929
|
|
|
|
78
|
|
|
|
(10
|
)
|
|
|
5,997
|
|
|
Total investment securities
|
|
$
|
40,202
|
|
|
$
|
404
|
|
|
$
|
(101
|
)
|
|
$
|
40,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
|
Gross
|
|
|
Estimated
|
|
|
|
|
Amortized
|
|
|
Unrealized
|
|
|
Unrealized
|
|
|
Fair
|
|
|
2016
|
|
Cost
|
|
|
Gain
|
|
|
Loss
|
|
|
Value
|
|
|
Municipal securities
|
|
$
|
4,003
|
|
|
$
|
82
|
|
|
$
|
(4
|
)
|
|
$
|
4,081
|
|
|
Mortgage-backed securities
|
|
|
1,666
|
|
|
|
18
|
|
|
|
-
|
|
|
|
1,684
|
|
|
Collateralized mortgage obligations
|
|
|
1,732
|
|
|
|
38
|
|
|
|
-
|
|
|
|
1,770
|
|
|
U.S. Government Agencies
|
|
|
5,358
|
|
|
|
19
|
|
|
|
-
|
|
|
|
5,377
|
|
|
U.S. Treasury
|
|
|
1,008
|
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
1,006
|
|
|
Total investment securities
|
|
$
|
13,767
|
|
|
$
|
157
|
|
|
$
|
(6
|
)
|
|
$
|
13,918
|
|
No investment securities were sold in 2017 and 2016.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The unrealized losses at December 31, 2017 and 2016 are summarized
and classified according to the duration of the loss period as follows:
|
|
|
Less than 12 Months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
2017
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Municipal securities
|
|
$
|
4,011
|
|
|
$
|
(39
|
)
|
|
$
|
267
|
|
|
$
|
(6
|
)
|
|
$
|
4,278
|
|
|
$
|
(45
|
)
|
|
Mortgage-backed securities
|
|
|
4,075
|
|
|
|
(24
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
4,075
|
|
|
|
(24
|
)
|
|
Collateralized mortgage obligations
|
|
|
1,201
|
|
|
|
(9
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,201
|
|
|
|
(9
|
)
|
|
U.S. Government Agencies
|
|
|
6,981
|
|
|
|
(13
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
6,981
|
|
|
|
(13
|
)
|
|
SBA securities
|
|
|
1,245
|
|
|
|
(10
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,245
|
|
|
|
(10
|
)
|
|
Total
|
|
$
|
17,513
|
|
|
$
|
(95
|
)
|
|
$
|
267
|
|
|
$
|
(6
|
)
|
|
$
|
17,780
|
|
|
$
|
(101
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less than 12 Months
|
|
|
12 Months or more
|
|
|
Total
|
|
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
Estimated
|
|
|
Unrealized
|
|
|
2016
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Fair Value
|
|
|
Loss
|
|
|
Municipal securities
|
|
$
|
515
|
|
|
$
|
(1
|
)
|
|
$
|
844
|
|
|
$
|
(3
|
)
|
|
$
|
1,358
|
|
|
$
|
(4
|
)
|
|
Mortgage-backed securities
|
|
|
508
|
|
|
|
-
|
|
|
|
66
|
|
|
|
-
|
|
|
|
574
|
|
|
|
-
|
|
|
Collateralized mortgage obligations
|
|
|
-
|
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
|
|
117
|
|
|
|
-
|
|
|
U.S. Government Agencies
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
U.S. Treasury
|
|
|
1,006
|
|
|
|
(2
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
1,006
|
|
|
|
(2
|
)
|
|
Total
|
|
$
|
2,029
|
|
|
$
|
(3
|
)
|
|
$
|
1,027
|
|
|
$
|
(3
|
)
|
|
$
|
3,055
|
|
|
$
|
(6
|
)
|
Certain investment securities shown in
the previous table have fair values less than amortized cost and therefore contain unrealized losses. The Company considers a number
of factors including, but not limited to: (a) length of time and the extent to which the fair value has been less than the amortized
costs, (b) the financial condition and near-term prospects of the issuer, (c) the intent and ability of the Company to retain its
investment for a period of time sufficient to allow for an anticipated recovery in value, (d) whether the debtor is current on
interest and principal payments, and (e) general market conditions and the industry or sector-specific outlook. Management has
evaluated all securities at December 31, 2017 and has determined that no securities are other than temporarily impaired. Because
the Company does not intend to sell and it is likely that management will not be required to sell the securities prior to their
anticipated recovery, which may be maturity, the Company does not consider these securities to be other-than temporarily impaired.
At December 31, 2017, the Company held
148 investment securities, of which one was in a loss position for more than twelve months and 45 were in an unrealized loss position
for less than twelve months. These temporary unrealized losses relate principally to current interest rates for similar types of
securities. The Company anticipates full recovery of amortized cost with respect to these securities at maturity or sooner in the
event of a more favorable market interest rate environment.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The amortized cost and estimated fair value
of debt securities at December 31, 2017 and 2016, by call date are shown below. Expected maturities will differ from contractual
maturities because a borrower may have the right to call or pre-pay obligations with or without call or prepayment penalties.
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Amortized
|
|
|
Estimated
|
|
|
Amortized
|
|
|
Estimated
|
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Due in one year or less
|
|
$
|
5,248
|
|
|
$
|
5,243
|
|
|
$
|
3,745
|
|
|
$
|
3,740
|
|
|
Due after one year through five years
|
|
|
4,987
|
|
|
|
4,959
|
|
|
|
4,662
|
|
|
|
4,690
|
|
|
Due after five year through ten years
|
|
|
14,619
|
|
|
|
14,737
|
|
|
|
4,920
|
|
|
|
5,040
|
|
|
Due after ten years
|
|
|
15,348
|
|
|
|
15,566
|
|
|
|
440
|
|
|
|
448
|
|
|
Total
|
|
$
|
40,202
|
|
|
$
|
40,505
|
|
|
$
|
13,767
|
|
|
$
|
13,918
|
|
At December 31, 2017 and 2016, available-for-sale securities
with a carrying amount of approximately $5.4 million and $2.2 million, respectively, were pledged to secure borrowing arrangements
with the FHLB (see Note 11).
The Company’s loan portfolio at December
31, 2017 and 2016 is summarized below:
|
|
|
2017
|
|
|
2016
|
|
|
Commercial and industrial
|
|
$
|
114,373
|
|
|
$
|
71,093
|
|
|
Construction and land
|
|
|
22,720
|
|
|
|
19,745
|
|
|
Commercial real estate
|
|
|
671,823
|
|
|
|
384,278
|
|
|
Residential real estate
|
|
|
84,781
|
|
|
|
31,917
|
|
|
Consumer
|
|
|
1,096
|
|
|
|
1,317
|
|
|
Total loans
|
|
|
894,793
|
|
|
|
508,350
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred loan fees and costs, net
|
|
|
(469
|
)
|
|
|
(311
|
)
|
|
Allowance for loan losses
|
|
|
(4,215
|
)
|
|
|
(3,775
|
)
|
|
Net loans
|
|
$
|
890,109
|
|
|
$
|
504,264
|
|
For the years ended December 31, 2017 and
2016, the Company had $179,000 and $1.1 million, respectively, of impaired loans on nonaccrual. For the period ended December 31,
2017 and 2016, if interest had been accrued such income would have been approximately $8,000 and $32,000, respectively. As of December
31, 2017 and 2016, the unaccreted discount on PNCI loans totaled $5.6 million and $2.1 million, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
As of December 31, 2017 and 2016, the Company’s impaired
or non-accrual originated and acquired PCI loans have a related allowance for loss as follows:
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Average
|
|
|
Interest
|
|
|
|
|
Recorded
|
|
|
Principal
|
|
|
Related
|
|
|
Recorded
|
|
|
Income
|
|
|
2017
|
|
Investment
|
|
|
Balance
|
|
|
Allowance
|
|
|
Investment
|
|
|
Recognized
|
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
1,120
|
|
|
|
1,228
|
|
|
|
-
|
|
|
|
1,147
|
|
|
|
56
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
13
|
|
|
|
2
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
1,133
|
|
|
$
|
1,241
|
|
|
$
|
13
|
|
|
$
|
1,160
|
|
|
$
|
58
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
230
|
|
|
$
|
230
|
|
|
$
|
-
|
|
|
$
|
230
|
|
|
$
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
632
|
|
|
|
632
|
|
|
|
-
|
|
|
|
653
|
|
|
|
-
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
228
|
|
|
|
228
|
|
|
|
46
|
|
|
|
243
|
|
|
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
1,090
|
|
|
$
|
1,090
|
|
|
$
|
46
|
|
|
$
|
1,126
|
|
|
$
|
-
|
|
As of December 31, 2017 and 2016, the Company
had no loans 90 days delinquent and still accruing interest. During 2017 and 2016, the Company did not recognize any interest income
under the cash basis.
As of December 31, 2017 and 2016, the
Company had troubled debt restructured loans totaling $1.0 million and $632,000, respectively. In 2017 and 2016, the Company
recorded no charge-off related to restructured loans and none in 2016. As of December 31, 2017 and 2016, troubled debt
restructured loans had a related allowance of $13,000 and zero, respectively. There are no commitments to lend additional amounts as
of December 31, 2017 and 2016, respectively, to borrowers with outstanding loans that are classified as a troubled
debt restructured loan. As of December 31, 2017 and 2016, all troubled debt restructured loans were preforming in accordance
with their terms.
As of December 31, 2017 and 2016, the Company
had variable rate loans totaling $635.5 million and $355.9 million, respectively. As of December 31, 2017, total of $445.9 million
have interest rate floors, of which $327.6 million are at their floors.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Loans are made primarily for business, personal, and real estate
purposes and concentrated in the Los Angeles area, San Francisco Bay Area and the Central Valley, including San Joaquin and Sacramento
counties, New Mexico and Washington states.
Real estate loans are secured by real property.
Secured commercial and industrial loans are secured by deposits, or business or personal assets. The Company’s policy for
requiring collateral is based on analysis of the borrower, the borrower’s industry and the economic environment in which
the loan is granted. The loans are expected to be repaid from cash flows or proceeds from the sale of selected assets of the borrower.
As of December 31, 2017 and 2016, the single
largest loan totaled $13.0 million for both years, and is secured by commercial real estate. As of December 31, 2017 and 2016,
undisbursed commitments total $98.7 million and $68.9 million, respectively.
The Company had no loans and one loan in
the amount of $230,000 classified as doubtful as of December 31, 2017 and 2016, respectively.
Assets classified Loss are considered uncollectible
and of minimal value. Assets classified losses are charged off against the allowance for loan losses.
The following table summarizes the Company’s
loan portfolio by credit quality and product and/or collateral type as of December 31, 2017 and 2016:
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
Commercial and industrial
|
|
$
|
112,650
|
|
|
$
|
807
|
|
|
$
|
916
|
|
|
$
|
-
|
|
|
$
|
114,373
|
|
|
Construction and land
|
|
|
19,833
|
|
|
|
-
|
|
|
|
2,887
|
|
|
|
-
|
|
|
|
22,720
|
|
|
Commercial real estate
|
|
|
664,551
|
|
|
|
4,058
|
|
|
|
3,214
|
|
|
|
-
|
|
|
|
671,823
|
|
|
Residential real estate
|
|
|
84,781
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,781
|
|
|
Consumer
|
|
|
1,096
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,096
|
|
|
Total
|
|
$
|
882,911
|
|
|
$
|
4,865
|
|
|
$
|
7,017
|
|
|
$
|
-
|
|
|
$
|
894,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Special
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Pass
|
|
|
Mention
|
|
|
Substandard
|
|
|
Doubtful
|
|
|
Total
|
|
|
Commercial and industrial
|
|
$
|
68,720
|
|
|
$
|
311
|
|
|
$
|
1,832
|
|
|
$
|
230
|
|
|
$
|
71,093
|
|
|
Construction and land
|
|
|
16,808
|
|
|
|
-
|
|
|
|
2,937
|
|
|
|
-
|
|
|
|
19,745
|
|
|
Commercial real estate
|
|
|
379,073
|
|
|
|
2,603
|
|
|
|
2,602
|
|
|
|
-
|
|
|
|
384,278
|
|
|
Residential real estate
|
|
|
31,917
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
31,917
|
|
|
Consumer
|
|
|
1,317
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,317
|
|
|
Total
|
|
$
|
497,835
|
|
|
$
|
2,914
|
|
|
$
|
7,371
|
|
|
$
|
230
|
|
|
$
|
508,350
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following table provides an aging of the Company’s
loans receivable as of December 31, 2017 and 2016.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded
|
|
|
|
|
|
|
|
|
|
|
Greater
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment
>
|
|
|
|
|
30-59 Days
|
|
|
60-89 Days
|
|
|
Than
|
|
|
Total Past
|
|
|
|
|
|
|
|
|
Total Loans
|
|
|
90 Days
and
|
|
|
2017
|
|
Past
Due
|
|
|
Past
Due
|
|
|
90
Days
|
|
|
Due
|
|
|
Current
|
|
|
PCI
Loans
|
|
|
Receivable
|
|
|
Accruing
|
|
|
Commercial and industrial
|
|
$
|
96
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
96
|
|
|
$
|
114,274
|
|
|
$
|
3
|
|
|
$
|
114,373
|
|
|
$
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
22,720
|
|
|
|
-
|
|
|
|
22,720
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
1,446
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,446
|
|
|
|
657,360
|
|
|
|
13,017
|
|
|
|
671,823
|
|
|
|
-
|
|
|
Residential
|
|
|
349
|
|
|
|
-
|
|
|
|
-
|
|
|
|
349
|
|
|
|
83,137
|
|
|
|
1,295
|
|
|
|
84,781
|
|
|
|
-
|
|
|
Consumer
|
|
|
3
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3
|
|
|
|
1,093
|
|
|
|
-
|
|
|
|
1,096
|
|
|
|
-
|
|
|
Total
|
|
$
|
1,894
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,894
|
|
|
$
|
878,584
|
|
|
$
|
14,315
|
|
|
$
|
894,793
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
230
|
|
|
$
|
230
|
|
|
$
|
70,756
|
|
|
$
|
107
|
|
|
$
|
71,093
|
|
|
$
|
-
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,745
|
|
|
|
-
|
|
|
|
19,745
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
625
|
|
|
|
-
|
|
|
|
-
|
|
|
|
625
|
|
|
|
377,772
|
|
|
|
5,881
|
|
|
|
384,278
|
|
|
|
-
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
30,498
|
|
|
|
1,419
|
|
|
|
31,917
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,317
|
|
|
|
-
|
|
|
|
1,317
|
|
|
|
-
|
|
|
Total
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
230
|
|
|
$
|
855
|
|
|
$
|
500,088
|
|
|
$
|
7,407
|
|
|
$
|
508,350
|
|
|
$
|
-
|
|
During the period ended December 31, 2017, the terms of certain loans
were modified as trouble debt restructurings. The following table provides the troubled debt restructurings by modification
type during the period ending December 31, 2017.
|
2017
|
|
Number of
Loans
|
|
|
Rate
Modification
|
|
|
Term
Modification
|
|
|
Interest Only
Modification
|
|
|
Rate & Term
Modification
|
|
|
Total
|
|
|
Troubled Debt Restructurings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial and industrial
|
|
|
1
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
Construction and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
3
|
|
|
|
-
|
|
|
|
238
|
|
|
|
-
|
|
|
|
794
|
|
|
|
1,032
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
4
|
|
|
$
|
-
|
|
|
$
|
238
|
|
|
$
|
-
|
|
|
$
|
807
|
|
|
$
|
1,045
|
|
There were no TDR modifications during
2016.
The following table presents loans by class modified as
troubled debt restructurings including any subsequent defaults during the period ending December 31, 2017:
|
2017
|
|
Number of
Loans
|
|
|
Pre-
Modification
Outstanding
Recorded
Investment
|
|
|
Post-
Modification
Outstanding
Recorded
Investment
|
|
|
Reserve
Difference
(1)
|
|
|
Commercial and Industrial
|
|
|
1
|
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
-
|
|
|
Construction
and land
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Commercial real estate
|
|
|
3
|
|
|
|
1,032
|
|
|
|
1,032
|
|
|
|
-
|
|
|
Residential
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
|
4
|
|
|
$
|
1,045
|
|
|
$
|
1,045
|
|
|
$
|
-
|
|
|
|
(1)
|
This represents the increase or (decrease) in the allowance
for loans and lease losses reserve for these credits measured as the difference between the specific post-modification impairment
reserve and the pre-modification reserve calculated under our general allowance for loan loss methodology.
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
In the table on the previous page, there was
no TDR’s that subsequently defaulted necessitating an increase in the allowance for loan losses for the year ending
December 31, 2017. The total allowance for loan losses specifically allocated to TDR’s was $13,000.
Purchase Credit Impaired Loans
As a part of acquisitions, the Company has purchased loans,
some of which have shown evidence of credit deterioration since origination and it was probable at the acquisition that all contractually
requirement payments would not be collected. The carrying amount and unpaid principal balance of PCI loans are as follows:
|
|
|
December
31, 2017
|
|
|
December
31, 2016
|
|
|
|
|
Unpaid
|
|
|
|
|
|
Unpaid
|
|
|
|
|
|
|
|
Principal
|
|
|
Carrying
|
|
|
Principal
|
|
|
Carrying
|
|
|
|
|
Balance
|
|
|
Value
|
|
|
Balance
|
|
|
Value
|
|
|
Real estate secured
|
|
$
|
17,268
|
|
|
$
|
14,313
|
|
|
$
|
10,341
|
|
|
$
|
7,300
|
|
|
Commercial and industrial
|
|
|
149
|
|
|
|
2
|
|
|
|
309
|
|
|
|
107
|
|
|
Consumer
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total purchase credit impaired loans
|
|
$
|
17,417
|
|
|
$
|
14,315
|
|
|
$
|
10,650
|
|
|
$
|
7,407
|
|
The Company did not increase the allowance for loan losses in
for these PCI loans in 2017 or 2016.
The following table reflects contractual cash flows, non-accretable
difference, accretable yield, and carrying amount for all acquired PCI loans as of December 31, 2017 and 2016.
|
|
|
2017
|
|
|
2016
|
|
|
Contractually required payments
|
|
$
|
17,417
|
|
|
$
|
10,650
|
|
|
Less: non-accretable difference
|
|
|
(2,730
|
)
|
|
|
(2,932
|
)
|
|
Cash flows expected to be collected (undiscounted)
|
|
|
14,687
|
|
|
|
7,718
|
|
|
Accretable Yield
|
|
|
(372
|
)
|
|
|
(311
|
)
|
|
Carrying Amount
|
|
$
|
14,315
|
|
|
$
|
7,407
|
|
The following table reflects accretable yield PCI loans as of
December 31, 2017 and 2016.
|
|
|
2017
|
|
|
2016
|
|
|
Balance at beginning of period
|
|
$
|
311
|
|
|
$
|
2,744
|
|
|
Additions
|
|
|
1,422
|
|
|
|
-
|
|
|
Removals
|
|
|
-
|
|
|
|
(365
|
)
|
|
Accretion
|
|
|
(1,361
|
)
|
|
|
(2,068
|
)
|
|
Balance at end of period
|
|
$
|
372
|
|
|
$
|
311
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
5.
|
ALLOWANCE FOR LOAN LOSSES
|
The following table summarizes the Company’s
allowance for loan losses for the year ended December 31, 2017 and 2016 by loan product and collateral type:
|
|
|
Commercial
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
and
Industrial
|
|
|
and
Land
|
|
|
Real
Estate
|
|
|
Residential
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
balance
|
|
$
|
1,011
|
|
|
$
|
287
|
|
|
$
|
2,105
|
|
|
$
|
151
|
|
|
$
|
4
|
|
|
$
|
217
|
|
|
$
|
3,775
|
|
|
Charge-offs
|
|
|
(63
|
)
|
|
|
-
|
|
|
|
(3
|
)
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
(67
|
)
|
|
Recoveries
|
|
|
45
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45
|
|
|
Provision
|
|
|
(152
|
)
|
|
|
(88
|
)
|
|
|
593
|
|
|
|
(1
|
)
|
|
|
-
|
|
|
|
110
|
|
|
|
462
|
|
|
Ending
balance
|
|
$
|
841
|
|
|
$
|
199
|
|
|
$
|
2,695
|
|
|
$
|
150
|
|
|
$
|
3
|
|
|
$
|
327
|
|
|
$
|
4,215
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan loss related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
individually evaluated for impairment
|
|
$
|
13
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
collectively evaluated for impairment
|
|
|
828
|
|
|
|
199
|
|
|
|
2,695
|
|
|
|
150
|
|
|
|
3
|
|
|
|
327
|
|
|
|
4,202
|
|
|
PCI
loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
|
13
|
|
|
|
-
|
|
|
|
1,120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,133
|
|
|
Collectively
evaluated for impairment
|
|
|
114,357
|
|
|
|
22,720
|
|
|
|
657,686
|
|
|
|
83,486
|
|
|
|
1,096
|
|
|
|
-
|
|
|
|
879,345
|
|
|
PCI
loans
|
|
|
3
|
|
|
|
-
|
|
|
|
13,017
|
|
|
|
1,295
|
|
|
|
-
|
|
|
|
-
|
|
|
|
14,315
|
|
|
Balance
of loans collectively evaluated for impairment
|
|
|
114,360
|
|
|
|
22,720
|
|
|
|
670,703
|
|
|
|
84,781
|
|
|
|
1,096
|
|
|
|
-
|
|
|
|
893,660
|
|
|
Total
|
|
$
|
114,373
|
|
|
$
|
22,720
|
|
|
$
|
671,823
|
|
|
$
|
84,781
|
|
|
$
|
1,096
|
|
|
$
|
-
|
|
|
$
|
894,793
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial
|
|
|
Construction
|
|
|
Commercial
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
and
Industrial
|
|
|
and
Land
|
|
|
Real
Estate
|
|
|
Residential
|
|
|
Consumer
|
|
|
Unallocated
|
|
|
Total
|
|
|
Allowance
for loan losses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance
|
|
$
|
1,418
|
|
|
$
|
212
|
|
|
$
|
1,735
|
|
|
$
|
131
|
|
|
$
|
3
|
|
|
$
|
351
|
|
|
$
|
3,850
|
|
|
Charge-offs
|
|
|
(491
|
)
|
|
|
-
|
|
|
|
(250
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(741
|
)
|
|
Recoveries
|
|
|
55
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12
|
|
|
|
-
|
|
|
|
67
|
|
|
Provision
|
|
|
29
|
|
|
|
75
|
|
|
|
620
|
|
|
|
20
|
|
|
|
(11
|
)
|
|
|
(134
|
)
|
|
|
599
|
|
|
Ending
balance
|
|
$
|
1,011
|
|
|
$
|
287
|
|
|
$
|
2,105
|
|
|
$
|
151
|
|
|
$
|
4
|
|
|
$
|
217
|
|
|
$
|
3,775
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance
for loan loss related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
individually evaluated for impairment
|
|
$
|
46
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans
collectively evaluated for impairment
|
|
|
965
|
|
|
|
287
|
|
|
|
2,105
|
|
|
|
151
|
|
|
|
4
|
|
|
|
217
|
|
|
|
3,729
|
|
|
PCI
loans
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance of loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually
evaluated for impairment
|
|
|
458
|
|
|
|
-
|
|
|
|
632
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,090
|
|
|
Collectively
evaluated for impairment
|
|
|
70,528
|
|
|
|
19,745
|
|
|
|
377,765
|
|
|
|
30,498
|
|
|
|
1,317
|
|
|
|
-
|
|
|
|
499,853
|
|
|
PCI
loans
|
|
|
107
|
|
|
|
-
|
|
|
|
5,881
|
|
|
|
1,419
|
|
|
|
-
|
|
|
|
-
|
|
|
|
7,407
|
|
|
Balance
of loans collectively evaluated for impairment
|
|
|
70,635
|
|
|
|
19,745
|
|
|
|
383,646
|
|
|
|
31,917
|
|
|
|
1,317
|
|
|
|
-
|
|
|
|
507,260
|
|
|
Total
|
|
$
|
71,093
|
|
|
$
|
19,745
|
|
|
$
|
384,278
|
|
|
$
|
31,917
|
|
|
$
|
1,317
|
|
|
$
|
-
|
|
|
$
|
508,350
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
6.
|
PREMISES AND EQUIPMENT
|
Premises and equipment consisted of the
following at December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Premises Owned
|
|
$
|
7,276
|
|
|
$
|
-
|
|
|
Furniture, fixtures and equipment
|
|
|
2,939
|
|
|
|
2,280
|
|
|
Leasehold improvements
|
|
|
1,271
|
|
|
|
1,172
|
|
|
Less accumulated depreciation and amortization
|
|
|
(3,087
|
)
|
|
|
(2,346
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total premises and equipment, net
|
|
$
|
8,399
|
|
|
$
|
1,106
|
|
Depreciation and amortization included
in occupancy and equipment expense total $762,000 for the year ended December 31, 2017 and $498,000 for the year ended December
31, 2016.
The Company leases its branches and administration
office under noncancelable operating leases. These leases expire on various dates through 2025. All leases have an option to renew
with renewal periods between three and twelve years. Future minimum lease payments are as follows:
|
Year Ending December 31,
|
|
|
|
|
|
2018
|
|
$
|
1,899
|
|
|
2019
|
|
|
1,781
|
|
|
2020
|
|
|
1,427
|
|
|
2021
|
|
|
1,087
|
|
|
2022
|
|
|
946
|
|
|
Thereafter
|
|
|
1,018
|
|
|
Total
|
|
$
|
8,158
|
|
Rental expense included in occupancy and
equipment expense totals $1.9 million and $1.4 million for the years ended December 31, 2017 and 2016, respectively.
|
|
7.
|
OTHER REAL ESTATE OWNED
|
Other real estate owned as of December
31, 2017 and 2016 consisted of the following:
|
|
|
2017
|
|
|
2016
|
|
|
Commercial real estate
|
|
$
|
-
|
|
|
$
|
954
|
|
|
Valuation allowance
|
|
|
-
|
|
|
|
(179
|
)
|
|
Total
|
|
$
|
-
|
|
|
$
|
775
|
|
As of December 31, 2017 and 2016, there
were no loans in the process of foreclosure.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
8.
|
GOODWILL AND INTANGIBLE ASSETS
|
Goodwill
The change in goodwill as of December 31, 2017 and 2016 were
as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Beginning of the year
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Acquired goodwill
|
|
|
10,365
|
|
|
|
-
|
|
|
Impairment
|
|
|
-
|
|
|
|
-
|
|
|
End of year
|
|
$
|
10,365
|
|
|
$
|
-
|
|
Impairment exists when a reporting
unit’s carrying value of goodwill exceeds its fair value. As of December 31, 2017, the Company had positive equity and the
Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of the Company
exceeded its carrying value, including goodwill. The qualitative assessment indicated that it was more likely than not that its
fair value exceeded its carrying value, resulting in no impairment.
Core Deposit Intangible
Acquired intangible assets as of December 31, 2017 and 2016
were as follows:
|
|
|
2017
|
|
|
2016
|
|
|
Core deposit intangible
|
|
$
|
802
|
|
|
$
|
1,200
|
|
|
Additions
|
|
|
4,820
|
|
|
|
-
|
|
|
Less accumulated amortization
|
|
|
(850
|
)
|
|
|
(398
|
)
|
|
Net core deposit intangibles
|
|
$
|
4,772
|
|
|
$
|
802
|
|
The Company recorded total amortization expense totaling $850,000
and $398,000 in 2017 and 2016, respectively.
Estimated amortization for the next five years is as follows:
|
Year Ending December 31,
|
|
|
|
|
|
2018
|
|
$
|
1,157
|
|
|
2019
|
|
|
1,145
|
|
|
2020
|
|
|
991
|
|
|
2021
|
|
|
977
|
|
|
2022
|
|
|
325
|
|
|
Thereafter
|
|
|
177
|
|
|
Total
|
|
$
|
4,772
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
As of December 31, 2017 and 2016, the Company’s other
assets consisted of the following:
|
|
|
2017
|
|
|
2016
|
|
|
Deferred tax assets
|
|
$
|
6,519
|
|
|
$
|
10,004
|
|
|
Accrued interest receivable
|
|
|
3,002
|
|
|
|
1,481
|
|
|
SBA servicing asset
|
|
|
1,270
|
|
|
|
470
|
|
|
Investment in SBJ Fund, LP
|
|
|
799
|
|
|
|
555
|
|
|
Investment in statutory trust
|
|
|
296
|
|
|
|
-
|
|
|
All other
|
|
|
3,271
|
|
|
|
1,318
|
|
|
|
|
$
|
15,157
|
|
|
$
|
13,828
|
|
Deposits consisted of the following at
December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Demand deposits
|
|
$
|
327,309
|
|
|
$
|
128,697
|
|
|
NOW accounts and Savings
|
|
|
191,550
|
|
|
|
53,186
|
|
|
Money market
|
|
|
356,640
|
|
|
|
247,732
|
|
|
CDAR’s
|
|
|
51,275
|
|
|
|
7,537
|
|
|
Time under $250,000
|
|
|
74,996
|
|
|
|
73,271
|
|
|
Time $250,000 and over
|
|
|
102,535
|
|
|
|
80,336
|
|
|
Total deposits
|
|
$
|
1,104,305
|
|
|
$
|
590,759
|
|
At December 31, 2017 and 2016, the weighted
average stated rate on our deposits was 0.47% and 0.54%, respectively. At December 31, 2017, approximately $120.3 million, or 10.9%,
of the Company’s deposits are derived from the top ten (10) depositors. At December 31, 2016, approximately $96.9 million, or 16.4%,
of the Company’s deposits are derived from the top ten (10) depositors.
The Company accepts deposits related to
real estate transactions qualifying under the Internal Revenue Code Section 1031, Tax Deferred Exchanges. These deposits fluctuate
as the sellers of real estate have up to six months to invest in replacement real estate to defer the income tax on the property
sold. The Company also accepts deposits related to business escrow services. Deposits related to these activities total $14.1 million
and $14.5 million at December 31, 2017 and 2016, respectively. Average deposit balances for these activities totaled $18.4 million
and $20.1 million during 2017 and 2016, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
At December 31, 2017, aggregate annual
maturities of time deposits are as follows:
|
Year Ending December 31,
|
|
2018
|
|
$
|
170,306
|
|
|
2019
|
|
|
39,441
|
|
|
2020
|
|
|
4,733
|
|
|
2021
|
|
|
3,152
|
|
|
2022
|
|
|
11,174
|
|
|
|
|
$
|
228,806
|
|
Interest expense, net of early withdrawal
penalty, recognized on interest-bearing deposits for the years ended December 31, 2017 and 2016 consists of the following:
|
|
|
2017
|
|
|
2016
|
|
|
NOW accounts and savings
|
|
$
|
148
|
|
|
$
|
98
|
|
|
Money market
|
|
|
1,703
|
|
|
|
1,102
|
|
|
Time under $250,000
|
|
|
1,137
|
|
|
|
1,114
|
|
|
Time $250,000 and over
|
|
|
920
|
|
|
|
760
|
|
|
Total
|
|
$
|
3,908
|
|
|
$
|
3,074
|
|
The Company has a secured term borrowing
totaling $6.0 million and a line totaling $9.0 million with a correspondent bank secured by the Bank’s common stock. Loan
covenants require that the Bank meet minimum capital, liquidity, and loan concentrations limits. There were no draws on the line
in 2017. The line matures April 28, 2018. The interest rate on the term borrowing is 4.71%. The term borrowing begins amortizing
in July 2018 and matures in 2022. Principal payments on term borrowings amortize as follows:
|
Year Ending December 31,
|
|
2018
|
|
$
|
300
|
|
|
2019
|
|
|
600
|
|
|
2020
|
|
|
600
|
|
|
2021
|
|
|
600
|
|
|
2022
|
|
|
3,900
|
|
|
Total
|
|
$
|
6,000
|
|
The Company has an approved secured borrowing
facility with the FHLB for up to 25% of total assets for a term not to exceed five years under a blanket lien of certain types
of loans. There were no outstanding borrowings under this facility at December 31, 2017 and December 31, 2016.
The Company has four Federal Funds lines
with available commitments totaling $55.0 million with four correspondent banks. There are no amounts outstanding under these facilities
at December 31, 2017 and 2016.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
12.
|
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
|
The Company acquired the Trust in the acquisition
of FULB. The Trust is a Delaware business formed with capital of $192,000 for the sole purpose of issuing trust preferred securities
fully and unconditionally guaranteed by the Company. The Trust issued 6,200 Floating Rate Capital Trust Pass-Through Securities
(“Trust Preferred Securities”), with a liquidation value $1,000 per security, for gross proceeds of $6.2 million. The
entire proceeds of the issuance were invested by the Trust in $6.4 million of Floating Rate Junior Subordinated Deferrable Interest
Debentures (the “Subordinated Debentures”) issued by the Company, with identical maturities, repricing and payment
terms as the Trust Preferred Securities. The Subordinated Debentures mature on September 15, 2034, bear a current interest rate
of 3.82% (based on 3-months Libor plus 2.5%), with quarterly repricing. The debentures are redeemable by the Company subject to
prior approval from the Federal Reserve Board of Governors (“Federal Reserve”), on any March 15, June 15, September
15, or December 15. The redemption price is par plus accrued and unpaid interest, except in the case of redemption under special
event which is defined in the debenture. The Trust Preferred Securities are subject to mandatory redemption to the extent of any
early redemption of the Subordinated Debentures and upon maturity of the Subordinated Debentures on September 15, 2034.
Holders of the Trust Preferred Securities
are entitled to a cumulative cash distribution on the liquidation amount of $1,000 per security. For each successive period beginning
on March 15, June 15, September 15 and December 15 of each year, the rate will be adjusted to equal 3-month Libor plus 2.50%. The
Trust has the option to defer payment of the distributions for a period of up to five years, as long as the Company is not in default
of the payment of interest on the Subordinated Debentures. The Trust Preferred Securities were sold and issued in private transactions
pursuant to an exemption from registration under the Securities Act of 1933, as amended. The Company has guaranteed, on a subordinated
basis, distributions and other payments due on the Trust Preferred Securities.
Income taxes expense for the years ended
December 31, 2017 and 2016 are as follows:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Federal
|
|
|
State
|
|
|
Federal
|
|
|
State
|
|
|
Current income taxes
|
|
$
|
4,164
|
|
|
$
|
1,234
|
|
|
$
|
2,060
|
|
|
$
|
677
|
|
|
Deferred tax asset adjustment for enacted change in tax rate
|
|
|
2,681
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Deferred income taxes, net
|
|
|
437
|
|
|
|
373
|
|
|
|
1,222
|
|
|
|
477
|
|
|
Total provision for income taxes
|
|
$
|
7,282
|
|
|
$
|
1,607
|
|
|
$
|
3,282
|
|
|
$
|
1,154
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The provision for income tax differs from
the amounts computed by applying the statutory Federal and State income tax rates. The significant items comprising these differences
for the years ended December 31, 2017 and 2016 consist of the following:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Amount
|
|
|
Rate %
|
|
|
Amount
|
|
|
Rate %
|
|
|
Federal statutory tax rate
|
|
$
|
4,811
|
|
|
|
34.00
|
%
|
|
$
|
3,518
|
|
|
|
34.00
|
%
|
|
State statutory tax rate, net of Federal effective tax
rate
|
|
|
1,061
|
|
|
|
7.50
|
%
|
|
|
727
|
|
|
|
7.02
|
%
|
|
Tax exempt interest
|
|
|
(77
|
)
|
|
|
-0.54
|
%
|
|
|
(13
|
)
|
|
|
-0.13
|
%
|
|
Bank owned life insurance
|
|
|
(79
|
)
|
|
|
-0.56
|
%
|
|
|
(73
|
)
|
|
|
-0.70
|
%
|
|
Tax impact from enacted change in tax rate
|
|
|
2,681
|
|
|
|
18.95
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Acquisition expenses
|
|
|
179
|
|
|
|
1.26
|
%
|
|
|
-
|
|
|
|
0.00
|
%
|
|
Other
|
|
|
313
|
|
|
|
2.21
|
%
|
|
|
277
|
|
|
|
2.68
|
%
|
|
Total income tax expense
|
|
$
|
8,889
|
|
|
|
62.82
|
%
|
|
$
|
4,436
|
|
|
|
42.87
|
%
|
The Company is subject to federal income
tax and state franchise tax. Federal income tax returns for the years ended on or after December 31, 2014 are open to audit by
the federal authorities and California and New Mexico returns for the years ended on or after December 31, 2013 are open to audit
by state authorities.
On December 22, 2017, the U.S. Government
enacted the Tax Act. The Tax Act amends the Internal Revenue Code to reduce tax rates and modify policies, credits, and deductions
for individuals and businesses. For businesses, the Tax Act reduces the corporate federal income tax rate from a maximum of 35%
to a flat 21% rate. The corporate income tax rate reduction was effective January 1, 2018. The Tax Act required a revaluation the
Company’s deferred tax assets and liabilities to account for the future impact of lower corporate tax rates and other provisions
of the legislation. As a result of the Company’s revaluation, the net deferred tax asset was reduced through a $2.7 million
increase to the provision for income tax.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Deferred tax assets at December 31, 2017 and 2016, included
as a component of other assets in the Consolidated Balance Sheets, consisted of the following:
|
|
|
2017
|
|
|
2016
|
|
|
Net operating loss carryforward
|
|
$
|
3,935
|
|
|
$
|
4,573
|
|
|
Mark to market adjustments
|
|
|
515
|
|
|
|
2,000
|
|
|
Salary continuation plan
|
|
|
1,178
|
|
|
|
1,299
|
|
|
Allowance for loan losses
|
|
|
879
|
|
|
|
1,554
|
|
|
Amortization of start up costs
|
|
|
221
|
|
|
|
206
|
|
|
Other
|
|
|
196
|
|
|
|
285
|
|
|
Stock based compensation
|
|
|
279
|
|
|
|
973
|
|
|
Deferred tax assets
|
|
|
7,203
|
|
|
|
10,890
|
|
|
Depreciation
|
|
|
(3
|
)
|
|
|
(84
|
)
|
|
FHLB stock dividend
|
|
|
(193
|
)
|
|
|
(117
|
)
|
|
Unrealized gain on AFS securities
|
|
|
(88
|
)
|
|
|
(26
|
)
|
|
Other
|
|
|
(370
|
)
|
|
|
(194
|
)
|
|
Stock based compensation
|
|
|
(30
|
)
|
|
|
(465
|
)
|
|
Deferred tax liability
|
|
|
(684
|
)
|
|
|
(886
|
)
|
|
Total deferred tax assets, net
|
|
$
|
6,519
|
|
|
$
|
10,004
|
|
The utilization of the net operating losses
is subject to an annual limit pursuant to Section 382 of the Internal Revenue Code. The amount of the annual limitations for Federal
and California Franchise Tax purpose is $1.3 million and begins expiring in 2028. As of December 31, 2017 and 2016, there is no
valuation allowance based on management’s estimate that the Company will more likely than not be able to utilize all of the
deferred tax assets prior to expiration. At December 31, 2017, Federal net operating losses included in the deferred tax asset
totaled $14.0 million and California net operating losses totaled $9.1 million.
The Company files income tax returns in
the U.S. federal jurisdiction, in California and in New Mexico. The Company’s policy is to recognize penalties and interest
as income tax expense.
|
|
14.
|
COMMITMENTS AND CONTINGENCIES
|
Lending and Letter of Credit Commitments
In the normal course of business, the Company
enters into various commitments to extend credit which are not reflected in the financial statements. These commitments consist
of the undisbursed balance on personal, commercial lines, including commercial real estate secured lines of credit, and of undisbursed
funds on construction and development loans. At December 31, 2017 and 2016, undisbursed commitments total $98.7 million and $68.9
million, respectively. In addition, at December 31, 2017 and 2016, the Company has issued standby letter of credit commitments,
primarily issued for the third party performance obligations of Company clients totaling $213,000 and $31,000, respectively, of
which zero was outstanding at both December 31, 2017 and December 31, 2016.
Commitments generally have fixed expiration
dates or other termination clauses. The actual liquidity needs or the credit risk that the Company will experience will be lower
than the contractual amount of commitments to extend credit because a significant portion of these commitments are expected to
expire without being drawn upon. The commitments are generally variable rate and include unfunded home equity lines of credit,
commercial real estate construction where disbursement is made over the course of construction, commercial revolving lines of credit,
and unsecured personal lines of credit. The Company’s outstanding loan commitments are made using the same underwriting standards
as comparable outstanding loans. As of December 31, 2017 and 2016, the reserve associated with these commitments is $310,000, and
$280,000, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Commercial Real Estate Concentrations
At December 31, 2017, in management’s
judgment, a concentration of loans existed in commercial real estate related loans. The Company’s commercial real estate
loans are secured by owner-occupied and non-owner occupied commercial real estate and multi-family properties. Although management
believes that loans within these concentrations have no more than the normal risk of collectability, a decline in the perform
of the economy in general or a decline in real estate value in the Company’s primary market areas in particular, could have
an adverse impact on collectability,
Local Agency Deposits
In the normal course of business, the Company
accepts deposits from local agencies. The Company is required to provide collateral for certain local agency deposits in the states
of California and Washington. As of December 31, 2017 and 2016, the FHLB issued a letter of credit on behalf of the Company totaling
$9.9 million in 2017 and $10.0 million for 2016, respectively, as collateral for local agency deposits.
|
|
15.
|
EMPLOYEE BENEFIT PLANS
|
401(k) Plan
Effective January 1, 2005, the Company
adopted a qualified 401(k) profit sharing plan (401(k) Plan) that covers substantially all full-time employees. The 401(k) Plan
permits voluntary contributions by participants and provides for voluntary matching contributions by the Company. For the years
ended December 31, 2017 and 2016 the Company made contributions to the plan of $403,000 and $259,000, respectively.
Salary Continuation Plan
In 2014, the Company established a salary
continuation plan for one of its executive officers. In 2017, the Company extended coverage to two additional executive officers.
Under the agreements, the Company provides the executive, or their designated beneficiaries, with annual benefits for fifteen years
after retirement or death. The contributions are based on the executive’s performance related to Company’s financial
performance. These benefits are substantially equivalent to those available under insurance policies purchased by the Company on
the life of the executives.
The expense recognized under the salary
continuation agreements defined above totaled $391,000 and $171,000 for the years ended December 31, 2017 and 2016, respectively
and are included in salaries and employee benefits expense in the income statement.
In connection with these agreements, the
Company holds single premium life insurance policies with cash surrender value totaling $17.1 million and $6.5 million at December
31, 2017 and 2016, respectively. A total of $6.4 million was acquired through the merger in 2017. The income from these policies
totaled $231,000 and $213,000, respectively, for the years ended December 31, 2017 and 2016, and is included in other non-interest
income in the income statement.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
16.
|
EQUITY INCENTIVE PLANS
|
2017 Omnibus Equity Incentive Plan
The shareholders approved the Omnibus Equity
Incentive Plan (2017 Plan) in November 2017. The 2017 Plan provides for the awarding by the Company’s Board of Directors
of equity incentive awards to employees and non-employee directors. An equity incentive award may be an option, stock appreciation
rights, restricted stock units, stock award, other stock-based award or performance award granted under the 2017 Plan. Factors
considered by the Board in awarding equity incentives to officers and employees include the performance of the Company, the employee’s
or officer’s job performance, the importance of his or her position, and his or her contribution to the organization’s goals for
the award period. Generally, awards are restricted and have a vesting period of not longer than ten years. Subject to adjustment
as provided in the 2017 Plan, the maximum number of shares of Common Stock that may be delivered pursuant to awards granted under
the Plan is 450,000. The 2017 Plan provides for an annual restricted stock grant limits to officers, employees and directors. The
annual stock grant limit per person for officers and employees is the lessor of 50,000 shares or a value of $2.0 million, and per
person for directors the maximum is 25,000 shares. All unvested restricted shares outstanding vest in the event of a change in
control of the Company. No shares were granted under the 2017 Plan.
2014 Omnibus Equity Incentive Plan
In 2014, the shareholders approved the
Omnibus Equity Incentive Plan (2014 Plan). A total of 148,962 equity incentive awards have been granted under the 2014 Plan. The
awards are restricted and have a vesting period of one to five years. No future equity awards will be made from the 2014 Plan.
As of December 31, 2017 and 2016, pursuant
to the 2014 Plan, 148,962 and 120,462 shares, respectively, of restricted common stock were granted to officers and directors.
The shares have vesting periods between one and five years. A total of 29,624 and 27,066 shares have vested during 2017 and 2016
respectively.
The following table provides the restricted stock grant activity
for 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Unvested shares at beginning of the year
|
|
|
68,605
|
|
|
$
|
11.51
|
|
|
|
84,877
|
|
|
$
|
11.09
|
|
|
Granted
|
|
|
28,500
|
|
|
|
15.94
|
|
|
|
12,794
|
|
|
|
13.25
|
|
|
Vested
|
|
|
(29,624
|
)
|
|
|
11.23
|
|
|
|
(27,066
|
)
|
|
|
11.04
|
|
|
Forfeited/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,000
|
)
|
|
|
10.96
|
|
|
Unvested shares at end of the year
|
|
|
67,481
|
|
|
$
|
13.51
|
|
|
|
68,605
|
|
|
$
|
11.51
|
|
As of December 31, 2017, unvested shares
totaling 67,481 vest over a weighted average period of one and a half years. For the year ended December 31, 2017 and 2016, the
total fair value of vested stock was $576,000 and $333,000, respectively.
As of December 31, 2017 and 2016, compensation
related expenses totaling $423,000 and $334,000, respectively, were recorded and unrecognized compensation expenses related to
non-vested stock was $912,000 and $512,000, respectively. The total tax benefit related to restricted stock grants was $174,000
and $138,000 during 2017 and 2016, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
2004 Stock Option Plan
The 2004 Stock Option Plan expired in 2014.
There are no options outstanding as of December 31, 2017 and 2016. In 2016, options to acquire 38,331 shares of common stock, with
an intrinsic value of $177,000, were exercised. The following table provides the stock option activity for 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Shares
|
|
|
Price
|
|
|
Balance at beginning of the year
|
|
|
-
|
|
|
$
|
-
|
|
|
|
52,988
|
|
|
$
|
9.77
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
(38,331
|
)
|
|
|
9.68
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
(14,657
|
)
|
|
|
10.00
|
|
|
Balance at end of the year
|
|
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
As of December 31, 2017 and 2016, there
are no unrecognized compensation costs related to stock options. No tax benefits related to non-qualified stock options were recorded
during 2017 and 2016.
Dividends
The Company’s ability to pay cash
dividends is dependent on dividends paid to it by the Bank, and is also limited by state corporation law. The California General
Corporation Law allows a California corporation to pay dividends if the Company’s retained earnings equal at least the amount
of the proposed dividend. If the Company does not have sufficient retained earnings available for the proposed dividend, it may
still pay a dividend to its shareholders if immediately after giving effect to the dividend the sum of its liabilities (exclusive
of goodwill and deferred charges) would be at least 125% of its liabilities (not including deferred taxes, deferred income and
other deferred liabilities) and the current assets of the company would at least be equal to its current liabilities, or, if the
average of its earnings before taxes on income and before interest expense for the two preceding fiscal years, at least equal to
125% of its current liabilities.
Dividends from the Bank to the Company
are restricted under California law to the lesser of the Bank’s retained earnings or the Bank’s net income for the
latest three fiscal years, less dividends previously declared during that period or, with the approval of the California Department
of Business Oversight, to the greater of the retained earnings of the Bank, the net income of the Bank for its last fiscal year,
or the net income of the Bank for its current fiscal year. In 2017, the Bank paid a dividend to the Company totaling $19.0 million.
At December 31, 2017, $4.8 million is free from such restrictions.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Regulatory Capital
The Company and the Bank are subject to
various regulatory capital requirements administered by federal banking agencies. The foregoing capital ratios are based in part
on specific quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting
practices. Capital amounts and classification are also subject to qualitative judgments by the regulators about capital components,
risk weightings and other factors. Failure to meet capital requirements can initiate regulatory action. The final rules implementing
Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Bank
on January 1, 2015 with full compliance with all of the requirements being fully phased in by January 1, 2019. The capital conservation
buffer requirement is being phased in beginning January 1, 2016 at 0.625% of risk-weighted assets and increasing by 0.625% each
subsequent January 1, until it reaches 2.5% on January 1, 2019. The net unrealized gain or loss on available for sale securities
is not included in the computation of the regulatory capital.
Failure to meet minimum capital requirements
can initiate regulatory action. As of December 31, 2017 and 2016, management believes that the Company and the Bank meets all the
capital adequacy requirements. At December 31, 2017 and 2016, the most recent regulatory notifications categorized the Bank as
well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification
that management believes have changed the institution’s category.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following is a summary of actual capital
amounts and ratios as of December 31, 2017 and 2016, for the Company and the Bank compared to the requirements for minimum capital
adequacy and classification as well capitalized. Actual and required capital amounts and ratios are presented below at year end:
|
|
|
2017
|
|
|
2016
|
|
|
|
|
Dollars
|
|
|
Ratio
|
|
|
Dollars
|
|
|
Ratio
|
|
|
Leverage Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BayCom Corp
|
|
$
|
107,153
|
|
|
|
8.73
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
61,396
|
|
|
|
5.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum regulatory requirement
|
|
|
49,117
|
|
|
|
4.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Business Bank
|
|
$
|
111,143
|
|
|
|
8.92
|
%
|
|
$
|
72,937
|
|
|
|
10.59
|
%
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
62,279
|
|
|
|
5.00
|
%
|
|
|
34,327
|
|
|
|
5.00
|
%
|
|
Minimum regulatory requirement
|
|
|
49,823
|
|
|
|
4.00
|
%
|
|
|
27,461
|
|
|
|
4.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Equity Tier 1 Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BayCom Corp
|
|
$
|
100,761
|
|
|
|
11.43
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
57,285
|
|
|
|
6.50
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum regulatory requirement
|
|
|
39,659
|
|
|
|
4.50
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Business Bank
|
|
$
|
111,143
|
|
|
|
12.43
|
%
|
|
$
|
72,937
|
|
|
|
13.43
|
%
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
58,109
|
|
|
|
6.50
|
%
|
|
|
35,298
|
|
|
|
6.50
|
%
|
|
Minimum regulatory requirement
|
|
|
40,229
|
|
|
|
4.50
|
%
|
|
|
24,437
|
|
|
|
4.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BayCom Corp
|
|
$
|
107,153
|
|
|
|
12.16
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
70,504
|
|
|
|
8.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum regulatory requirement
|
|
|
52,878
|
|
|
|
6.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Business Bank
|
|
$
|
111,143
|
|
|
|
12.43
|
%
|
|
$
|
72,937
|
|
|
|
13.43
|
%
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
71,519
|
|
|
|
8.00
|
%
|
|
|
43,444
|
|
|
|
8.00
|
%
|
|
Minimum regulatory requirement
|
|
|
53,639
|
|
|
|
6.00
|
%
|
|
|
32,583
|
|
|
|
6.00
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Risk-Based Capital Ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BayCom Corp
|
|
$
|
111,678
|
|
|
|
12.67
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
88,133
|
|
|
|
10.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
Minimum regulatory requirement
|
|
|
70,504
|
|
|
|
8.00
|
%
|
|
|
NA
|
|
|
|
NA
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United Business Bank
|
|
$
|
115,668
|
|
|
|
12.94
|
%
|
|
$
|
76,992
|
|
|
|
14.18
|
%
|
|
Minimum requirement for "Well-Capitalized"
|
|
|
89,399
|
|
|
|
10.00
|
%
|
|
|
54,305
|
|
|
|
10.00
|
%
|
|
Minimum regulatory requirement
|
|
|
71,519
|
|
|
|
8.00
|
%
|
|
|
43,444
|
|
|
|
8.00
|
%
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
18.
|
RELATED PARTY TRANSACTIONS
|
In the ordinary course of business, the
Company may enter into transactions with related parties, including Directors, shareholders, officers and their associates. These
transactions are on substantially the same terms, including rates and collateral, as loans to unrelated parties and do not involve
more than normal risk of collection.
The following is a summary of the aggregate loan activity involving
related party borrowers for the years ending December 31, 2017 and 2016:
|
|
|
2017
|
|
|
2016
|
|
|
Balance, beginning
|
|
$
|
9,862
|
|
|
$
|
9,378
|
|
|
Disbursements
|
|
|
1,488
|
|
|
|
1,069
|
|
|
Amounts repaid
|
|
|
(6,791
|
)
|
|
|
(585
|
)
|
|
Balance, ending
|
|
$
|
4,559
|
|
|
$
|
9,862
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed commitments to related parties
|
|
$
|
7,187
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit issued for related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
At December 31, 2017 and 2016, the Company’s
deposits included deposits from related parties which totaled approximately $19.8 million and $16.8 million, respectively.
For the years ended December 31, 2017 and
2016, respectively, other expenses consist of the following:
|
|
|
2017
|
|
|
2016
|
|
|
Professional fees
|
|
$
|
1,217
|
|
|
$
|
700
|
|
|
Core deposit premium amortization
|
|
|
850
|
|
|
|
398
|
|
|
Marketing and promotions
|
|
|
601
|
|
|
|
269
|
|
|
Stationery and supplies
|
|
|
585
|
|
|
|
289
|
|
|
Insurance including FDIC Premiums
|
|
|
508
|
|
|
|
349
|
|
|
Communication and postage
|
|
|
368
|
|
|
|
219
|
|
|
Loan default related expenses
|
|
|
234
|
|
|
|
(61
|
)
|
|
Director fees
|
|
|
219
|
|
|
|
181
|
|
|
Bank service charges
|
|
|
113
|
|
|
|
81
|
|
|
Courier expense
|
|
|
112
|
|
|
|
82
|
|
|
Write-down on OREO
|
|
|
-
|
|
|
|
179
|
|
|
Other
|
|
|
337
|
|
|
|
133
|
|
|
Total other expenses
|
|
$
|
5,144
|
|
|
$
|
2,819
|
|
The Company expenses marketing and promotions
costs as they are incurred. Advertising expense, included in marketing and promotions, total $113,000 and $59,000 for the years
ended December 31, 2017 and 2016, respectively.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
|
|
20.
|
FAIR VALUE OF FINANCIAL INSTRUMENTS
|
The following tables have information about
the Company’s assets and liabilities measured at fair value as of December 31, 2017 and 2016, and the fair value techniques
used to determine such fair value. The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair
value into three broad levels (Level 1, Level 2, and Level 3).
Level 1
– Inputs are unadjusted
quoted prices in active markets (as defined) for identical assets or liabilities that the reporting entity has the ability to access
at the measurement date.
Level 2
– Inputs are inputs other
than quoted prices include quoted prices for similar assets and liabilities in active markets, and inputs other than quoted prices
that are observable for the asset or liability such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3
– Inputs are unobservable
inputs for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
In certain cases, the inputs used to measure
fair value may fall into different levels of the hierarchy. In such cases, the lowest level of inputs that is significant to the
measurement is used for to determine the hierarch for the entire asset or liability. Transfers between levels of the fair value
hierarchy are recognized on the actual date of the event or circumstances that caused the transfer, which generally coincides with
our quarterly valuation process. There were no transfers between levels during 2017 or 2016.
The following assets are measured at fair
value on a recurring basis:
|
|
|
As of December 31, 2017
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Description of Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
$
|
16,047
|
|
|
$
|
-
|
|
|
$
|
16,047
|
|
|
$
|
-
|
|
|
Mortgage-back securities
|
|
|
9,740
|
|
|
|
-
|
|
|
|
9,740
|
|
|
|
-
|
|
|
Collateralized mortgage obligations
|
|
|
1,750
|
|
|
|
-
|
|
|
|
1,750
|
|
|
|
-
|
|
|
U.S. Government Agencies
|
|
|
6,971
|
|
|
|
-
|
|
|
|
6,971
|
|
|
|
-
|
|
|
SBA securities
|
|
|
5,997
|
|
|
|
-
|
|
|
|
5,997
|
|
|
|
-
|
|
|
Total at fair value
|
|
$
|
40,505
|
|
|
$
|
-
|
|
|
$
|
40,505
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2016
|
|
|
|
|
Total
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Description of Financial Instruments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal Securities
|
|
$
|
4,081
|
|
|
$
|
-
|
|
|
$
|
4,081
|
|
|
$
|
-
|
|
|
Mortgage-back securities
|
|
|
1,684
|
|
|
|
-
|
|
|
|
1,684
|
|
|
|
-
|
|
|
Collateralized mortgage obligations
|
|
|
1,770
|
|
|
|
-
|
|
|
|
1,770
|
|
|
|
-
|
|
|
U.S. Government Agencies
|
|
|
5,377
|
|
|
|
-
|
|
|
|
5,377
|
|
|
|
-
|
|
|
U.S. Treasury
|
|
|
1,006
|
|
|
|
-
|
|
|
|
1,006
|
|
|
|
-
|
|
|
Total at fair value
|
|
$
|
13,918
|
|
|
$
|
-
|
|
|
$
|
13,918
|
|
|
$
|
-
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The following table presents the recorded
amount of assets measured at fair value on a non-recurring basis as of December 31, 2017 and 2016:
|
2017
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
OREO
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Valuation allowance
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Total assets measured at fair value
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
OREO
|
|
$
|
954
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
954
|
|
|
Valuation allowance
|
|
|
(179
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(179
|
)
|
|
Total assets measured at fair value
|
|
$
|
775
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
775
|
|
The Company does not record loans at fair
value on a recurring basis. However, from time to time, a loan may be considered impaired and an allowance for loan losses is established.
Loans for which it is probable that payment of interest and principal will not be made in accordance with the contractual terms
of the loan agreement are considered impaired. The fair value of impaired loans is estimated using one of several methods, including
collateral value, market value of similar debt, enterprise value, liquidation value and discounted cash flows. Those impaired loans
not requiring an allowance represent loans for which the fair value of the expected repayments or collateral exceed the recorded
investments in such loans. When the fair value of the collateral is based on an observable market price or a current appraised
value which uses substantially observable data, the Company records the impaired loan as non-recurring Level 2. When an appraised
value is not available or management determines the fair value of the collateral is further impaired below the appraised value
or the appraised value contains a significant assumption, and there is no observable market price, the Company records the impaired
loan as non-recurring Level 3.
The Company records OREO at fair value
on a non-recurring basis based on the collateral value of the property. When the fair value of the collateral is based on an observable
market price or a current appraised value which uses substantially observable data, the Company records the OREO as non-recurring
Level 2. When an appraised value is not available or management determines the fair value of the collateral is further impaired
below the appraised value or the appraised value contains a significant assumption, and there is no observable market price, the
Company records the impaired loan as non-recurring Level 3. Adjustments are routinely made in the appraisal process by the appraisers
to adjust for differences between the comparable sales and income data available. Management also incorporates assumptions regarding
market trends or other relevant factors and selling and commission costs ranging from 5% to 7%. Such adjustments and assumptions
are typically significant and result in a Level 3 classification of the inputs for determining fair value.
The following methods and assumptions were
used to estimate the fair value disclosure for financial instruments:
Cash and cash equivalents
– Cash and cash equivalents include cash and due from banks, interest bearing deposits in banks, and Fed funds sold, and are valued
at their carrying amounts because of the short-term nature of these instruments.
Interest bearing deposits in Banks
– Interest bearing deposits in banks are valued based on quoted interest rates for comparable instruments with similar remaining
maturities.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
Investment Securities
– The fair value of available of sale securities are based on quoted market prices, where available. If quoted market prices
are not available, fair values are estimated using quoted market prices for similar securities and indications of value provided
by brokers.
Other equity securities
–
The carrying value of the FHLB and FRB stock approximates the fair value because the stock is redeemable at par.
Loans
- Loans with variable
interest rates are valued at the current carrying value, because these loans are regularly adjusted to market rates. The
fair value of fixed rate with remaining maturities in excess of one year is estimated by discounting the future cash flows using
current rates at which similar loans would be made to borrowers with similar credit ratings for the same remaining maturities.
The allowance for loan losses is considered to be a reasonable estimate of the loan discount related to credit risk.
Accrued interest receivable and payable
– The accrued interest receivable and payable balance approximates its fair value.
Deposits
– The fair value
of non-interest bearing deposits, interest bearing transaction accounts and savings accounts is the amount payable on demand at
the reporting date. The fair value of time deposits is estimated by discounting the future cash flows using current
rates offered for deposits of similar remaining maturities.
Other borrowings
–
The fair value is estimated by discounting the future cash flows using current rates offered for similar borrowings. The discount
rate is equal to the market rate of currently offered similar products. This is an adjustable rate borrowing and adjusts to market
on a quarterly basis.
Junior Subordinated Deferrable
Interest Debentures
– The fair value of junior subordinated deferrable interest debentures is determined based on
rates and/or discounted cash flow analysis using interest rates offered in inactive markets for instruments of a similar maturity
and structure resulting in a Level 3 classification. The debenture carried at the current carrying value, because the debentures
regularly adjusted to market rates.
Undisbursed loan commitments and
standby letters of credit
– The fair value of the off-balance sheet items are based on discounted cash flows of expected
fundings.
Loans held for sale
–
Since the loans designated by the Company as available- for- sale are typically sold shortly after making the decision to sell
them, realized gains and losses are usually recognized within the same period and fluctuations in fair value are thus not relevant
for reporting purposes. If the available-for-sale loans stay on our books for an extended period of time, the fair value of those
loans is determined using quoted secondary-market prices.
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
The carrying amounts and fair values of the Company’s financial
instruments at December 31, 2017 and 2016 are presented below.
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair value measurements
|
|
|
2017
|
|
Amount
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
249,853
|
|
|
$
|
249,853
|
|
|
$
|
249,853
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest bearing deposits in banks
|
|
|
1,743
|
|
|
|
1,743
|
|
|
|
1,743
|
|
|
|
-
|
|
|
|
-
|
|
|
Investment securities
|
|
|
40,505
|
|
|
|
40,505
|
|
|
|
-
|
|
|
|
40,505
|
|
|
|
-
|
|
|
Other equity securities
|
|
|
7,759
|
|
|
|
7,759
|
|
|
|
-
|
|
|
|
7,759
|
|
|
|
-
|
|
|
Loans, net
|
|
|
886,864
|
|
|
|
883,361
|
|
|
|
-
|
|
|
|
-
|
|
|
|
883,361
|
|
|
Loans held for sale
|
|
|
3,245
|
|
|
|
3,245
|
|
|
|
-
|
|
|
|
3,245
|
|
|
|
|
|
|
Accrued interest receivable
|
|
|
3,002
|
|
|
|
3,002
|
|
|
|
-
|
|
|
|
3,002
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
1,104,305
|
|
|
|
1,104,665
|
|
|
|
875,506
|
|
|
|
229,159
|
|
|
|
-
|
|
|
Subordinated Debenture
|
|
|
5,387
|
|
|
|
5,387
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,387
|
|
|
Other borrowings
|
|
|
6,000
|
|
|
|
6,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
Accrued interest payable
|
|
|
141
|
|
|
|
141
|
|
|
|
-
|
|
|
|
141
|
|
|
|
-
|
|
|
Off-balance sheet liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed loan commitments
|
|
|
310
|
|
|
|
310
|
|
|
|
-
|
|
|
|
-
|
|
|
|
310
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
Fair
|
|
|
Fair value measurements
|
|
|
2016
|
|
Amount
|
|
|
Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Financial Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
128,684
|
|
|
$
|
128,684
|
|
|
$
|
128,684
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Interest bearing deposits in banks
|
|
|
1,529
|
|
|
|
1,529
|
|
|
|
1,529
|
|
|
|
-
|
|
|
|
-
|
|
|
Investment securities
|
|
|
13,918
|
|
|
|
13,918
|
|
|
|
-
|
|
|
|
13,918
|
|
|
|
-
|
|
|
Other equity securities
|
|
|
3,922
|
|
|
|
3,922
|
|
|
|
-
|
|
|
|
3,922
|
|
|
|
-
|
|
|
Loans, net
|
|
|
504,264
|
|
|
|
504,264
|
|
|
|
-
|
|
|
|
-
|
|
|
|
504,264
|
|
|
Accrued interest receivable
|
|
|
1,481
|
|
|
|
1,481
|
|
|
|
-
|
|
|
|
1,481
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
590,758
|
|
|
|
591,067
|
|
|
|
429,902
|
|
|
|
161,166
|
|
|
|
-
|
|
|
Accrued interest payable
|
|
|
87
|
|
|
|
87
|
|
|
|
-
|
|
|
|
87
|
|
|
|
-
|
|
|
Off-balance sheet liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undisbursed loan commitments
|
|
|
280
|
|
|
|
280
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
STATEMENTS OF FINANCIAL CONDITION
December 31, 2017 and 2016
|
|
|
2017
|
|
|
2016
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks
|
|
$
|
676
|
|
|
$
|
-
|
|
|
Investment in bank subsidiary
|
|
|
129,246
|
|
|
|
-
|
|
|
Premises and equipment, net
|
|
|
4
|
|
|
|
-
|
|
|
Other assets
|
|
|
198
|
|
|
|
-
|
|
|
Total Assets
|
|
$
|
130,124
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subordinated debentures, net
|
|
$
|
5,387
|
|
|
$
|
-
|
|
|
Other borrowings
|
|
|
6,000
|
|
|
|
-
|
|
|
Interest payable and other liabilities
|
|
|
102
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
11,489
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’ equity:
|
|
|
|
|
|
|
|
|
|
Preferred stock - no par value; 10,000,000 shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
|
Common stock - no par value; 100,000,000 shares authorized in 2017 and 2016; 7,496,995 and 5,472,426 shares issued and outstanding in 2017 and 2016, respectively
|
|
|
81,307
|
|
|
|
-
|
|
|
Additional paid in capital
|
|
|
287
|
|
|
|
-
|
|
|
Accumulated other comprehensive income, net of tax
|
|
|
213
|
|
|
|
-
|
|
|
Retained earnings
|
|
|
36,828
|
|
|
|
-
|
|
|
Total shareholders’ equity
|
|
|
118,635
|
|
|
|
-
|
|
|
Total Liabilities and Shareholders’ Equity
|
|
$
|
130,124
|
|
|
$
|
-
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
STATEMENTS OF INCOME
For the years ended December 31, 2017 and
2016
|
|
|
2017
|
|
|
2016
|
|
|
Income:
|
|
|
|
|
|
|
|
|
|
Dividends from bank subsidiary
|
|
$
|
5,620
|
|
|
$
|
-
|
|
|
Dividends from statutory trust
|
|
|
3
|
|
|
|
-
|
|
|
Total income
|
|
|
5,623
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Expense:
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
404
|
|
|
|
-
|
|
|
Non-interest expense
|
|
|
106
|
|
|
|
-
|
|
|
Total expense
|
|
|
510
|
|
|
|
-
|
|
|
Income before provision for income taxes
|
|
|
5,113
|
|
|
|
|
|
|
Provision for income taxes (benefit)
|
|
|
(147
|
)
|
|
|
-
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
-
|
|
BAYCOM CORP AND SUBSIDIARY
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except for per share data)
(Continued)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017 and
2016
|
|
|
2017
|
|
|
2016
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,260
|
|
|
$
|
-
|
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
|
|
|
|
Income from subsidiary
|
|
|
(5,620
|
)
|
|
|
-
|
|
|
Dividend from subsidiary
|
|
|
19,035
|
|
|
|
|
|
|
Income tax benefit
|
|
|
(147
|
)
|
|
|
-
|
|
|
Depreciation of furniture, fixtures and equipment
|
|
|
2
|
|
|
|
-
|
|
|
Mark to market amortization
|
|
|
40
|
|
|
|
-
|
|
|
Increase in other assets
|
|
|
(12
|
)
|
|
|
-
|
|
|
Net cash provided by operating activities
|
|
|
18,558
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
Sale of real estate owned
|
|
|
452
|
|
|
|
-
|
|
|
Net cash paid for acquisitions
|
|
|
(18,881
|
)
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
|
(18,429
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
Increase in long-term borrowings
|
|
|
6,000
|
|
|
|
-
|
|
|
Purchase of shares
|
|
|
(24
|
)
|
|
|
-
|
|
|
Payoff of short-term borrowings
|
|
|
(5,429
|
)
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
547
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase in cash and cash equivalents
|
|
|
676
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at the beginning of the year
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of the year
|
|
$
|
676
|
|
|
$
|
-
|
|
____________ Shares
Common Stock
Prospectus dated ________ __, 2018
|
|
FIG Partners, LLC
|
D.A. Davidson & Co.
|
|
Until _________ __, 2018 (the 25th day after the date of this
prospectus), all dealers effecting transactions in our common stock, whether or not participating in this offering, may be required
to deliver a prospectus. This delivery requirement is in addition to the obligation of dealers to deliver a prospectus when acting
as underwriters and with respect to their unsold allotments or subscriptions.
PART II — INFORMATION
NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table
sets forth all costs and expenses, other than underwriting discounts and commissions, in connection with the sale of shares of
our common stock being registered, all of which will be paid by us. All amounts shown are estimates, except for the SEC registration
fee, the FINRA filing fee and the Nasdaq listing fee.
|
|
|
|
Amount
|
|
|
SEC registration fee
|
|
$
|
7,159
|
|
|
FINRA filing fee
|
|
|
9,125
|
|
|
Nasdaq listing fee
|
|
|
25,000
|
|
|
Legal fees and expenses
|
|
|
450,000
|
|
|
Accounting fees and expenses
|
|
|
100,000
|
|
|
Printing fees and expenses
|
|
|
60,000
|
|
|
Transfer agent and registrar fees and expenses
|
|
|
10,000
|
|
|
Underwriters’ fees and expenses
|
|
|
250,000
|
|
|
Miscellaneous
|
|
|
100,000
|
|
|
Total
|
|
$
|
1,011,284
|
|
|
|
*
|
To be completed by amendment.
|
Item 14. Indemnification of Directors and Officers.
California General Corporation
Law
Under Section 317 of
the California Corporations Code, or the CGCL, a California corporation has the power to indemnify any person who was or is a party,
or is threatened to be made a party to any proceeding (other than an action by or in the right of the corporation to procure a
judgment in its favor) by reason, whether civil, criminal, administrative or investigative (other than an action by or in the right
of the corporation) by reason of the fact that he or she is or was an agent of the corporation, against expenses (including attorneys’
fees), judgments, fines, settlements and other amounts actually and reasonably incurred in connection with the proceeding if that
person acted in good faith and in a manner he or she reasonably believed to be in the best interests of the corporation and, in
the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful.
In addition, a California
corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened,
pending or completed action by or in the right of the corporation to procure a judgment in its favor by reason of the fact that
the person is or was an agent of the corporation, against expenses actually and reasonably incurred by that person in connection
with the defense or settlement of the action if the person acted in good faith, in a manner the person believed to be in the best
interests of the corporation and its shareholders, provided that no indemnification shall be made for any of the following (1)
with respect to any claim, issue, or matter as to which such person has been adjudged to have been liable to the corporation in
the performance of that person’s duty to the corporation and its shareholders, unless and only to the extent that the court in
which the proceeding is or was pending shall determine upon application that, in view of all the circumstances of the case, the
person is fairly and reasonably entitled to indemnity for expenses and then only to the extent that the court shall determine;
(2) of amounts paid in settling or otherwise disposing of a pending action without court approval; or (3) of expenses incurred
in defending a pending action which is settled or otherwise disposed of without court approval.
Section 317 of the CGCL
also provides that, to the extent that an agent of a corporation has been successful on the merits in the defense of any proceeding
referred to in either of the foregoing paragraphs or in defense of any claim, issue or matter therein, the agent shall be indemnified
against expenses actually and reasonably incurred by the agent in connection therewith.
Section 317 of the GCGL
also provides that to the extent that an agent of a corporation has been successful on the merits in defense of any proceeding
referred to above or in defense of any claim, issue, or matter therein, the agent shall be indemnified against expenses actually
and reasonably incurred by the agent in connection therewith.
Except as provided in
the paragraph above, any indemnification under this section shall be made by the corporation only if authorized in the specific
case, upon a determination that indemnification of the agent is proper in the circumstances because the agent has met the applicable
standard of conduct set forth above, by any of the following: (1) a majority vote of a quorum consisting of directors who are not
parties to such proceeding, (2) if such a quorum of directors is not obtainable, by independent legal counsel in a written opinion,
(3) approval of the shareholders (Section 153), with the shares owned by the person to be indemnified not being entitled to vote
thereon, or (4) The court in which the proceeding is or was pending upon application made by the corporation or the agent or the
attorney or other person rendering services in connection with the defense, whether or not the application by the agent, attorney
or other person is opposed by the corporation.
Articles of Incorporation and Bylaws
The Company’s articles
of incorporation provide that the liability of the directors of the Corporation for monetary damages shall be eliminated to the
fullest extent permissible under California law. Our articles of incorporation and bylaws also provide that we are authorized to
provide indemnification of agents (as defined in Section 317 of the Corporations Code) for breach of duty to the corporation and
its shareholders through bylaw provisions or through agreements with agents, or both, in excess of the indemnification otherwise
permitted by Section 317 of the Corporations Code, subject to the limits of such excess indemnification set forth in Section 204
of the Corporations Code.
The Company has also
obtained officers’ and directors’ liability insurance which insures against liabilities that officers and directors may, in such
capacities, incur. Section 317 of the GCGL provides that a California corporation shall have power to purchase and maintain insurance
on behalf of any agent of the corporation against any liability asserted against or incurred by the agent in any that capacity
or arising out of the agent’s status as such whether or not the corporation would have the power to indemnify the agent against
that liability under CGCL Section 317.
Underwriting Agreement
Reference is made
to the form of underwriting agreement to be filed as Exhibit 1.1 hereto for provisions providing that the underwriters are
obligated under certain circumstances to indemnify our directors, officers and controlling persons against certain liabilities
under the Securities Act of 1933, as amended (the “Securities Act”).
Item 15. Recent Sales of Unregistered Securities.
There were no unregistered
securities that were sold by the Company within the past three years other than (1) the issuance of 5,472,426 shares on January
17, 2017 pursuant to Section 3(a)(12) of the Securities Act to existing Bay Commercial Bank shareholders as part of its bank holding
company reorganization; (2) the issuance of 1,271,579 shares on April 28, 2017 pursuant to Section 3(a)(10) of the Securities Act
to existing First ULB Corp. shareholders in connection with its acquisition by the Company; and (3) the issuance of 626,381 shares
on November 3, 2017 pursuant to Section 3(a)(10) of the Securities Act to existing Plaza Bank shareholders in connection with its
acquisition by the Company.
Item 16. Exhibits and Financial Statement Schedules.
|
|
(a)
|
Exhibits
. The following exhibits are filed as part of this Registration Statement:
|
|
Exhibit
Number
|
|
Description
|
|
1.1
|
|
Form of Underwriting
Agreement.
|
|
2.1
|
|
Agreement and Plan of Reorganization and Merger, between BayCom Corp, Bay
Commercial Bank, First ULB Corp. and United Business Bank, FSB dated as of December 14, 2016.†
|
|
2.2
|
|
Agreement and Plan of Merger, between BayCom Corp, Bay United Business Bank, and
Plaza Bank dated as of June 26, 2017†
|
|
3.1
|
|
Articles of Incorporation of BayCom Corp.
|
|
3.2
|
|
Amended and Restated Bylaws of BayCom Corp.
|
|
4.1
|
|
Form of common stock certificate of BayCom Corp.
|
|
|
|
The other instruments defining the rights of holders of the long-term debt securities of the Company and its subsidiary are omitted pursuant to section (b)(4)(iii)(A) of Item 601 of Regulation S-K. The Company hereby agrees to furnish copies of these instruments to the SEC upon request.
|
|
5.1
|
|
Form of Opinion of Silver, Freedman, Taff & Tiernan LLP.
|
|
10.1
|
|
Amended and Restated Employment Agreement, dated February 20, 2018, among
BayCom Corp, United Business Bank and George Guarini.
|
|
10.2
|
|
Amended and Restated Employment Agreement, dated February 20, 2018, among
BayCom Corp, United Business Bank and Janet King.
|
|
10.3
|
|
Amended and Restated Employment Agreement, dated February 20, 2018, among
BayCom Corp, United Business Bank and Keary Colwell.
|
|
10.4
|
|
Amended and Restated Executive Supplemental Compensation Agreement, dated
February 20, 2018, between United Business Bank and George J. Guarini.
|
|
10.5
|
|
Amended and Restated Executive Supplemental Compensation Agreement, dated
February 20, 2018, between United Business Bank and Janet King.
|
|
10.6
|
|
Amended and Restated Executive Supplemental Compensation Agreement, dated
February 20, 2018, between United Business Bank and Keary Colwell.
|
|
10.7*
|
|
Amended and Restated Joint Beneficiary Agreement among, United Business
Bank and George Guarini.
|
|
10.8
|
|
Bay Commercial Bank 2014 Equity Incentive Plan.
|
* To
be filed by amendment.
† Schedules
and/or exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish a copy
of any omitted schedule or exhibit to the SEC upon request.
(b)
Financial
Statement Schedules
. All schedules are omitted because the required information is inapplicable or the information is presented
in the consolidated financial statements and the related notes.
Item 17. Undertakings.
The undersigned registrant
hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations
and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.
Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant
pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification
is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
The undersigned registrant
hereby undertakes that:
(1) For
purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement
as of the time it was declared effective.
(2) For
the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Walnut Creek, State of California, on April 10, 2018.
|
|
BAYCOM CORP
|
|
|
|
|
|
|
By:
|
/s/ George J. Guarini
|
|
|
Name:
|
George J. Guarini
|
|
|
Title:
|
President and Chief Executive Officer
|
Power of Attorney
Pursuant to the requirements of the
Securities Act, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Each of the undersigned officers and directors of Level One Bancorp, Inc. hereby constitutes and appoints George Guarini and Keary
Colwell, and each of them individually (with full power to each of them to act alone), his or her true and lawful attorneys-in-fact
and agents, with full power of substitution and resubstitution in each of them for him or her and in his or her name, place and
stead, and in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration
statement (or any other registration statement for the same offering that is to be effective upon filing pursuant to Rule 462(b)
under the Securities Act), and to file the same, with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and thing requisite or necessary to be done in and about the premises, as full to all intents
and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or
any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
Director;
|
|
April 10, 2018
|
|
/s/ George J. Guarini
|
|
President and Chief Executive Officer
|
|
|
|
George J. Guarini
|
|
(principal executive officer)
|
|
|
|
|
|
|
|
|
|
/s/ Keary L. Colwell
|
|
Senior Executive Vice President and Chief Financial Officer
|
|
April 10, 2018
|
|
Keary L. Colwell
|
|
(principal financial officer and accounting officer))
|
|
|
|
|
|
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/s/ Lloyd W. Kendall, Jr.
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Director (Chairman)
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April 10, 2018
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Lloyd W. Kendall, Jr.
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/s/ James S. Camp
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Director
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April 10, 2018
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James S. Camp
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Signature
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Title
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Date
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/s/ Harpreet S. Chaudhary
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Director
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April 10, 2018
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Harpreet S. Chaudhary
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/s/ Rocco Davis
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Director
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April 10, 2018
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Rocco Davis
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/s/ Malcolm F. Hotchkiss
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Director
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April 10, 2018
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Malcolm F. Hotchkiss
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/s/ Robert G. Laverne, MD
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Director
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April 10, 2018
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Robert G. Laverne, MD
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/s/ David M. Spatz
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Director
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April 10, 2018
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David M. Spatz
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Exhibit 1.1
[ ]
Shares of Common Stock
BAYCOM CORP
Common Stock, without par value per share
UNDERWRITING AGREEMENT
[ ],
2018
FIG Partners, LLC
1475 Peachtree Street, NE
Suite 800
Atlanta, Georgia 30309
D. A. Davidson & Co.
611 Anton Blvd.
Suite 600
Costa Mesa, California 92626
as Representatives of the several Underwriters
Ladies and Gentlemen:
BayCom Corp, a California corporation (the
“Company”), and United Business Bank, a California state-chartered bank (the “Bank”) confirm their respective
agreement with FIG Partners, LLC (“FIG”), D.A. Davidson & Co. (“Davidson”) and each of the other Underwriters
named in
Schedule A
hereto (collectively, the “Underwriters”), for whom FIG and Davidson are acting as
representatives (in such capacity, the “Representatives”), with respect to (i) the sale by the Company, and the
purchase by the Underwriters, acting severally and not jointly, of an aggregate of [
·
]
shares of common stock, without par value per share, of the Company (“Common Stock”), in the respective amounts set
forth in
Schedule A
hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly,
of the option described in Section 2(b) hereof to purchase all or any part of [
·
]
additional shares of Common Stock. The aforesaid [
·
] shares of Common Stock
(the “Initial Shares”) to be purchased by the Underwriters and all or any part of the [
·
]
shares of Common Stock subject to the option described in Section 2(b) hereof (the “Option Shares”) are hereinafter
called, collectively, the “Securities.”
The Company has filed with the Securities
and Exchange Commission (the “Commission”) a registration statement on Form S-1 (No. 333-[*]), including
the related preliminary prospectus or prospectus covering the registration of the Securities under the Securities Act of 1933,
as amended (the “1933 Act”). Promptly after execution and delivery of this Underwriting Agreement, the Company will
prepare and file a prospectus in accordance with the provisions of Rule 430A (“Rule 430A”) of the rules and
regulations of the Commission under the 1933 Act (the “1933 Act Regulations”) and paragraph (b) of Rule 424
(“Rule 424(b)”) of the 1933 Act Regulations. The information included in such prospectus that was omitted
from such registration statement at the time it became effective but that is deemed to be part of such registration statement at
the time it became effective pursuant to paragraph (b) of Rule 430A is referred to as “Rule 430A Information.”
Each prospectus used before such registration statement became effective, and any prospectus that omitted the Rule 430A Information
that was used after such effectiveness and prior to the execution and delivery of this Underwriting Agreement, is herein called
a “preliminary prospectus.” Such registration statement, including the amendments thereto, the exhibits and any
schedules thereto, if any, at the time it became effective and including the Rule 430A Information is herein called the “Registration
Statement.” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein
referred to as the “Rule 462(b) Registration Statement,” and after such filing the term “Registration
Statement” shall include the Rule 462(b) Registration Statement. The final prospectus made available to the
Underwriters by the Company to meet requests of purchasers pursuant to Rule 173 under the 1933 Act is herein called the “Prospectus.”
For purposes of this Underwriting Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus
or any amendment or supplement to any of the foregoing shall be the copy filed with the Commission pursuant to its Electronic Data
Gathering, Analysis and Retrieval system (“EDGAR”).
As used in this Underwriting Agreement:
“
Applicable Time
” means
[
·
] [a/p].m. (Eastern time) on the date of this Agreement or such other date and
time as agreed by the Company and the Representatives.
“
General Disclosure Package
”
means any Issuer-Represented General Free Writing Prospectus(es) (as defined below) issued at or prior to the Applicable Time and
the preliminary prospectus relating to the Securities dated [
·
], all considered
together.
“
Issuer-Represented Free Writing
Prospectus
” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations
(“
Rule 433
”), relating to the Securities that is required to be filed with the Commission by the Company
in the form filed or required to be filed with the Commission.
“
Issuer-Represented General Free
Writing Prospectus
” means any Issuer-Represented Free Writing Prospectus that is intended for general distribution to
prospective investors, as evidenced by its being specified in
Schedule B
hereto.
“
Issuer-Represented Limited Use Free
Writing Prospectus
” means any Issuer-Represented Free Writing Prospectus that is not an Issuer-Represented General Free
Writing Prospectus. The term Issuer Represented Limited Use Free Writing Prospectus also includes any “bona fide electronic
road show” as defined in Rule 433, that is made available without restriction pursuant to Rule 433(d)(8)(ii), even
though not required to be filed with the SEC.
SECTION 1.
Representations
and Warranties and Agreements
.
(a)
Representations
and Warranties by the Company.
The Company represents and warrants to each Underwriter as of the date hereof, as of the
Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b) hereof,
and agrees with each Underwriter, as follows:
(i)
Compliance
with Registration Requirements
. (A) At the time of filing the Registration Statement, any 462(b) Registration
Statement and any post-effective amendments thereto, and (B) at the date hereof, the Company was not an “ineligible
issuer” as defined in Rule 405 of the 1933 Act Regulations (“Rule 405”), each of the Registration Statement,
any post-effective amendment thereto under the 1933 Act and any Rule 462(b) Registration Statement has become effective
under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment
thereto or any Rule 462(b) Registration Statement has been issued and no proceedings for that purpose have been instituted
or are pending or, to the knowledge of the Company, are threatened by the Commission, and any request on the part of the Commission
for additional information has been complied with.
At the respective times the Registration
Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the
Closing Time (and, if any Option Shares are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration
Statement and any amendments and supplements thereto complied and will comply in all material respects when filed with the requirements
of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the statements therein not misleading. Neither the General
Disclosure Package as of the Applicable Time, nor the Prospectus nor any amendments or supplements thereto (including any prospectus
wrapper) at the time the Prospectus as of its date or any such amendment or supplement was issued and at the Closing Time (and,
if any Option Shares are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or
omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances
under which they were made, not misleading. The representations and warranties in this paragraph shall not apply to
statements in or omissions from the Registration Statement, any preliminary prospectus or the Prospectus made in reliance upon
and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for
use therein, it being understood that the only written information that the Underwriters have furnished to the Company specifically
for inclusion in the Registration Statement, any preliminary prospectus and the Prospectus (or any amendment or supplement thereto)
are (i) the concession and reallowance figures appearing in the Prospectus in the section entitled “Underwriting—
Commission and Discounts,” (ii) the information contained under the caption “Underwriting—Price Stabilization,
Short Positions and Penalty Bids” and (iii) the first three sentences under the caption “Underwriting—Passive
Market Making,” (such information being referred to herein as the “Underwriter Information”).
Each preliminary prospectus and the prospectus
filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424
under the 1933 Act, complied when so filed in all material respects with the 1933 Act and the 1933 Act Regulations and each preliminary
prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically
transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
As of the Applicable Time, neither (x) the
General Disclosure Package nor (y) any individual Issuer-Represented Limited Use Free Writing Prospectus, when considered
together with the General Disclosure Package, included any untrue statement of a material fact or omitted to state any material
fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.
The representations and warranties in this paragraph shall not apply to statements in or omissions from the General Disclosure
Package or any Issuer-Represented Limited Use Free Writing Prospectus made in reliance upon and in conformity with the Underwriter
Information.
(ii)
Issuer-Represented
Free Writing Prospectuses
. Each Issuer-Represented Free Writing Prospectus, as of its issue date and at all subsequent
times through the completion of the public offer and sale of the Securities, or until any earlier date that the issuer notified
or notifies the Representatives, did not, does not and will not include any information that conflicted, conflicts or will conflict
with the information contained in the Registration Statement, the General Disclosure Package or the Prospectus.
(iii)
Emerging
Growth Company
. From the time of the initial confidential submission of the Registration Statement to the Commission
(or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in
any Testing-the-Waters Communication (as defined below)) through the date hereof, the Company has been and is an “emerging
growth company,” as defined in Section 2(a) of the 1933 Act (an “Emerging Growth Company”). “Testing-the-Waters
Communication” means any oral or written communication with potential investors undertaken in reliance on Section 5(d) of
the 1933 Act.
(iv)
Testing-the-Waters
Communications
. The Company (i) has not alone engaged in any Testing-the-Waters Communications other than
Testing-the-Waters Communications with the consent of the Representatives and with entities that are either (1) qualified
institutional buyers within the meaning of Rule 144A under the 1933 Act or (2) institutions that are accredited investors
within the meaning of Rule 501 under the 1933 Act and (ii) has not authorized anyone other than the Representatives to
engage in Testing-the-Waters Communications. The Company reconfirms that the Representatives have been authorized to act on its
behalf in undertaking Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written
Testing-the-Waters Communications (defined below) other than those listed on
Schedule B
hereto.
“Written Testing-the-Waters Communication”
means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the 1933 Act.
Any individual Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement
or the General Disclosure Package, complied in all material respects with the 1933 Act, and when taken together with the General
Disclosure Package, as of the Applicable Time did not, and as of the Closing Time and as of each Date of Delivery (if any), as
the case may be, will not, contain any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which they were made, not misleading. The representations
and warranties in this paragraph shall not apply to statements in or omissions from any Written Testing-the-Waters Communication
made in reliance upon and in conformity with the Underwriter Information.
(v)
Independent
Accountants
. Vavrinek, Trine, Day & Co., LLP (“VTD”), the accounting firm that certified the financial
statements and supporting schedules of the Company included in the Registration Statement, the General Disclosure Package and the
Prospectus, is to the knowledge of the Company, an independent registered public accounting firm as required by the 1933 Act and
the 1933 Act Regulations. VTD is a registered public accounting firm, as defined by the Public Company Accounting Oversight Board,
whose registration to the knowledge of the Company has not been suspended or revoked and who has not requested such registration
to be withdrawn. With respect to the Company, to the knowledge of the Company, VTD is not and has not been in violation of the
auditor independence requirements of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”) and the related rules and
regulations of the Commission.
(vi)
Financial
Statements
. The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus,
together with the related schedules and notes, present fairly in all material respects the financial position of the Company and
its consolidated subsidiaries at the dates indicated and the statement of operations, shareholders’ equity and cash flows
of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity
with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods involved.
The supporting schedules, if any, included in the Registration Statement, the General Disclosure Package and the Prospectus present
fairly in all material respects in accordance with GAAP the information required to be stated therein. The selected financial
data and the summary financial information included in the Registration Statement, the General Disclosure Package and the Prospectus
present fairly in all material respects the information shown therein and have been compiled on a basis consistent with that of
the audited financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus and
the books and records of the Company. No other financial statements or schedules are required to be included in the Registration
Statement, the General Disclosure Package or the Prospectus. To the extent applicable, all disclosures contained in the Registration
Statement, the General Disclosure Package, any Issuer-Represented Free Writing Prospectus, any Written Testing-the-Waters Communication
or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations
of the Commission) comply with Regulation G of the Securities Exchange Act of 1934, as amended (“1934 Act”), the rules and
regulations of the 1934 Act (the “1934 Act Regulations”) and Item 10 of Regulation S-K under the 1933 Act, as applicable.
(vii)
No
Material Adverse Change in Business
. Since the respective dates as of which information is given in the Registration
Statement, the General Disclosure Package and the Prospectus, except as otherwise stated therein, (A) there has been no material
adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company
and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a “Material
Adverse Effect”), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other
than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as
one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any
class of its capital stock.
(viii)
Company
Validly Existing
. The Company has been duly organized and is validly existing as a corporation under the laws of the
State of California and has corporate power and authority to own, lease and operate its properties and to conduct its business
as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its
obligations under this Underwriting Agreement; and the Company is duly qualified as a foreign corporation to transact business
and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result
in a Material Adverse Effect.
(ix)
Subsidiaries
.
The Bank is the only subsidiary of the Company. The Bank is a California state-chartered bank, duly organized and is validly existing
and in good standing as a corporation under the laws of the State of California and is licensed by the California Department of
Business Oversight—Division of Financial Institutions (the “DBO”) to conduct business as a commercial bank and
has the requisite corporate power and authority to own or lease all of its properties and assets and carry on its business as now
being conducted. The Bank is duly licensed or qualified to do business as a foreign corporation to transact business and is in
good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing
of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a
Material Adverse Effect.
(x)
Capitalization
.
The authorized, issued and outstanding capital stock of the Company is as set forth in the Registration Statement, the General
Disclosure Package and the Prospectus in the column entitled “Actual” under the caption “Capitalization”
(except for subsequent issuances, if any, pursuant to this Underwriting Agreement, pursuant to reservations, agreements or employee
benefit plans referred to in the Registration Statement, the General Disclosure Package and the Prospectus or pursuant to the exercise
of convertible securities or options disclosed in the Registration Statement, the General Disclosure Package and the Prospectus).
The shares of issued and outstanding capital stock have been duly authorized and validly issued and are fully paid and non-assessable;
none of the outstanding shares of capital stock was issued in violation of the preemptive or other similar rights of any securityholder
of the Company. The Company owns 100% of the issued and outstanding shares of the capital stock of the Bank. All of the issued
and outstanding shares of capital stock of the Bank has been duly authorized and validly issued, is fully paid and non-assessable
and is owned by the Company, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none
of the outstanding shares of capital stock of the Bank was issued in violation of any preemptive or similar right of any securityholder
of the Bank.
(xi)
Authorization
of Agreement
. This Underwriting Agreement has been duly authorized, executed and delivered by the Company and the Bank.
(xii)
Authorization
and Description of Securities
. The Securities to be purchased by the Underwriters from the Company have been duly authorized
for issuance and sale to the Underwriters pursuant to this Underwriting Agreement and, when issued and delivered by the Company
pursuant to this Underwriting Agreement against payment of the consideration set forth herein, will be validly issued and fully
paid and non-assessable; the Common Stock conforms in all material respects to all statements relating thereto contained in the
Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects
to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability
for the debts of the Company by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive
or other similar rights of any securityholder of the Company.
(xiii)
Absence
of Defaults and Conflicts
. Neither the Company nor the Bank is (A) in violation of its charter or by-laws or (B) in
default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture,
mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or the Bank
is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or the Bank is
subject (collectively, “Agreements and Instruments”) except for such defaults that would not result in a Material Adverse
Effect; and the execution, delivery and performance of this Underwriting Agreement by the Company and the consummation of the transactions
contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance
and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Registration Statement,
the General Disclosure Package and the Prospectus under the caption “Use of Proceeds”) and compliance by the Company
with its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with
or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event
(as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets
of the Company or the Bank pursuant to, the Agreements and Instruments (except for such conflicts, breaches or defaults or liens,
charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the
provisions of the charter or by-laws of the Company or the Bank or any applicable law, statute, rule, regulation, judgment, order,
writ or decree of any government, government instrumentality or court, domestic or foreign, having jurisdiction over the Company
or the Bank or any of their assets, properties or operations (except for such violations that would not result in a Material Adverse
Effect). As used herein, a “Repayment Event” means any event or condition which gives the holder of any note, debenture
or other evidence of indebtedness the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness
by the Company or the Bank prior to its scheduled maturity.
(xiv)
Absence
of Labor Dispute
. No labor dispute with the employees of the Company or the Bank exists or, to the knowledge of the Company,
is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or the Bank’s
principal suppliers, manufacturers, customers or contractors, which, in either case, would not result in a Material Adverse Effect.
(xv)
Absence
of Proceedings
. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental
agency or body, domestic or foreign, now pending, or, to the knowledge of the Company, threatened, against or affecting the Company
or the Bank, which is required to be disclosed in the Registration Statement, the General Disclosure Package and the Prospectus
(other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might
reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions
contemplated in this Underwriting Agreement or the performance by the Company of its obligations hereunder. The aggregate of all
pending legal or governmental proceedings to which the Company or the Bank is a party or of which any of their respective property
or assets is the subject which are not described in the Registration Statement, the General Disclosure Package and the Prospectus,
including ordinary routine litigation incidental to the business, if determined adversely to the Company or the Bank would not
result in a Material Adverse Effect.
(xvi)
Accuracy
of Exhibits
. There are no contracts or documents which are required to be described in the Registration Statement, the
General Disclosure Package, the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required.
(xvii)
Possession
of Intellectual Property
. The Company and the Bank own or possess, or can acquire on reasonable terms, adequate patents,
patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary
or confidential information, systems or procedures and excluding generally commercially available “off the shelf” software
programs licensed pursuant to shrink wrap or “click and accept” licenses), trademarks, service marks, trade names or
other intellectual property (collectively, “Intellectual Property”) necessary to carry on the business now operated
by each of them, and neither the Company nor the Bank has received any notice or is otherwise aware of any infringement of or conflict
with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of the Company or the Bank therein.
(xviii)
Absence
of Further Requirements
. No filing with, or authorization, approval, consent, license, order, registration, qualification
or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its
obligations under this Underwriting Agreement, in connection with the offering, issuance or sale of the Securities or the consummation
of the transactions contemplated by this Underwriting Agreement, except such as have been already obtained or as may be required
under the 1933 Act or the 1933 Act Regulations, the rules of The NASDAQ Stock Market, state securities laws, or the rules and regulations
of the Financial Industry Regulatory Authority, Inc. (“FINRA”).
(xix)
Possession
of Licenses and Permits
. The Company and the Bank possess such permits, licenses, approvals, consents and other authorizations
(collectively, “Governmental Licenses”) issued by the appropriate federal, state, local or foreign regulatory agencies
or bodies necessary to conduct the business now operated by them, except where the failure to have such Governmental License would
not, singly or in the aggregate, have a Material Adverse Effect; the Company and the Bank are in compliance with the terms and
conditions of all Governmental Licenses, except where the absence of such Governmental License or the failure so to comply would
not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and
effect, except where the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force
and effect would not have a Material Adverse Effect; and neither the Company nor the Bank has received any notice of proceedings
relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. Neither the Company nor the Bank has
failed to file with applicable regulatory authorities any statement, report, information or form required by any applicable law,
regulation or order, except where such failure would not, individually or in the aggregate, have a Material Adverse Effect, all
such filings were in material compliance with applicable laws when filed and no material deficiencies have been asserted by any
regulatory commission, agency or authority with respect to any such filings or submissions.
(xx)
Title
to Property
. The Company and the Bank have good and marketable title to all real property owned by the Company and the
Bank and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security
interests, claims, restrictions or encumbrances of any kind except such as do not, singly or in the aggregate, materially affect
the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or the
Bank; and all of the leases and subleases material to the business of the Company and the Bank, considered as one enterprise, and
under which the Company or any of its subsidiaries holds properties described in the Registration Statement, the General Disclosure
Package and the Prospectus, are in full force and effect, and neither the Company nor the Bank has any notice of any material claim
of any sort that has been asserted by anyone adverse to the rights of the Company or the Bank under any of the leases or subleases
mentioned above, or affecting or questioning the rights of the Company or the Bank to the continued possession of the leased or
subleased premises under any such lease or sublease.
(xxi)
Investment
Company Act
. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application
of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will
not be, an “investment company” or an entity “controlled” by an “investment company” as such
terms are defined in the Investment Company Act of 1940, as amended (the “1940 Act”).
(xxii)
Environmental
Laws
. Except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company
nor the Bank is in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or
rule of common law or any applicable judicial or administrative interpretation thereof, including any judicial or administrative
order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and
regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous
substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “Hazardous Materials”)
or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials
(collectively, “Environmental Laws”), (B) the Company and the Bank have all permits, authorizations and approvals
required under any applicable Environmental Laws and are each in compliance with their requirements, (C) to the Company’s
knowledge there are no pending or threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims,
liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company
or the Bank and (D) to the Company’s knowledge there are no events or circumstances that would result in forming the
basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency,
against or affecting the Company or the Bank relating to Hazardous Materials or any Environmental Laws.
(xxiii)
Taxes
.
The Company and the Bank have (a) timely filed all material foreign, United States federal, state and local tax returns, information
returns, and similar reports that are required to be filed (taking into account valid extensions), and all tax returns are true,
correct and complete in all material respects, (b) paid in full all taxes required to be paid by it and any other assessment,
fine or penalty levied against it, except for any such tax assessment, fine or penalty that is not currently due and payable or
is currently being contested in good faith or as would not have, individually or in the aggregate, a Material Adverse Effect, and
(c) established on the most recent balance sheet reserves that are adequate for the payment of all taxes not yet due and payable.
(xxiv)
Insurance
.
The Company and the Bank carry, or are covered by, insurance in such amounts and covering such risks as the Company reasonably
believes are adequate for the conduct of the business of the Company and the Bank and the value of their properties and as are
customary in the business in which the Company and the Bank are engaged; neither the Company nor the Bank has been refused any
insurance coverage sought or applied for; and the Company has no reason to believe that they will not be able to renew their existing
insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not have a Material Adverse Effect.
(xxv)
Statistical
and Market Data
. Nothing has come to the attention of the Company that has caused the Company to believe that the statistical
and market-related data included in the Registration Statement, the General Disclosure Package and the Prospectus are not based
on or derived from sources that are reliable and accurate in all material respects.
(xxvi)
Relationship
.
No relationship, direct or indirect, exists between or among the Company or the Bank, on the one hand, and the directors, officers,
shareholders, customers or suppliers of the Company or the Bank, on the other, that is required by the 1933 Act, the 1933 Act Regulations
to be described in the Registration Statement, the General Disclosure Package and the Prospectus and that is not so described.
(xxvii)
Internal
Control Over Financial Reporting
. The Company and the Bank maintain a system of internal accounting controls sufficient
to provide reasonable assurance that (A) transactions are executed in accordance with management’s general or specific
authorizations; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain asset accountability; (C) access to assets is permitted only in accordance with management’s general
or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences. Since the end of the Company’s most recent
audited fiscal year, there has been (I) no material weakness in the Company’s or the Bank’s internal control over
financial reporting (whether or not remediated) and (II) no change in the Company’s or the Bank’s internal control
over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s or the
Bank’s internal control over financial reporting.
(xxviii)
Disclosure
Controls and Procedures
. The Company and the Bank employ disclosure controls and procedures (as such term is defined
in Rule 13a-15 under the 1934 Act), which (A) are designed to ensure that information that is required to be disclosed
by the Company in the reports that it will have to file or submit under the 1934 Act is recorded, processed, summarized and reported
within the time periods specified in the Commission’s rules and forms and that material information relating to the
Company and the Bank is made known to the Company’s principal executive officer and principal financial officer by others
within the Company and the Bank to allow timely decisions regarding disclosure, and (B) are effective in all material respects
to perform the functions for which they were established. Since the date of its most recent audited financial statements,
the Company has not been advised of (1) any significant deficiency in the design or operation of internal controls which could
adversely affect the Company’s or the Bank’s ability to record, process, summarize and report financial data or any
material weaknesses in internal controls or (2) any fraud, whether or not material, that involves management or other employees
who have a significant role in the Company’s or the Bank’s internal controls. Since the most recent evaluation of the
Company’s or any of its subsidiaries’ disclosure controls and procedures described above, there have been no significant
changes in internal controls or in other factors that could significantly affect internal controls.
(xxix)
Pending
Procedures and Examinations
. The Registration Statement is not the subject of a pending proceeding or examination under
Section 8(d) or 8(e) of the 1933 Act, and the Company is not the subject of a pending proceeding under Section 8A
of the 1933 Act in connection with the offering of the Securities.
(xxx)
Unlawful
Payments
. Neither the Company nor the Bank nor, to the knowledge of the Company, any director, officer, agent, employee
or other person associated with or acting on behalf of the Company or the Bank has (A) used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expense relating to political activity; (B) made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from corporate funds; (C) violated or is in violation
of any provision of the Foreign Corrupt Practices Act of 1977; or (D) made any bribe, rebate, payoff, influence payment, kickback
or other unlawful payment.
(xxxi)
No
Registration Rights
. No person has the right to require the Company or the Bank to register any securities for sale under
the 1933 Act by reason of the filing of the Registration Statement with the Commission or the issuance and sale of the Securities
to be sold by the Company hereunder, except for such rights as have been duly waived in writing and are described in the Registration
Statement, General Disclosure Package and Prospectus. All such waivers are in full force and effect on the date hereof.
(xxxii)
No
Preemptive Rights
. There are no authorized or outstanding preemptive rights, rights of first refusal or other similar
rights to purchase, or equity or debt securities convertible into or exchangeable or exercisable for, any capital stock of the
Company or the Bank except for such rights as have been duly waived and are described in the Registration Statement, General Disclosure
Package and Prospectus. All such waivers are in full force and effect on the date hereof.
(xxxiii)
No
Stabilization or Manipulation
. Neither the Company nor the Bank, nor any affiliates of the Company or the Bank, has taken,
directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or
manipulation of the price of the Securities.
(xxxiv)
No
Unauthorized Use of Prospectus
. The Company has not distributed and, prior to the later to occur of (i) the Closing
Time and (ii) completion of the distribution of the Securities, will not distribute any prospectus (as such term is defined
in the 1933 Act and the 1933 Act Regulations) in connection with the offering and sale of the Securities other than the Registration
Statement, any preliminary prospectus, the Prospectus or other materials, if any, permitted by the 1933 Act or by the 1933 Act
Regulations and approved by the Representatives.
(xxxv)
Forward-Looking
Statements
. No forward-looking statement (within the meaning of Section 27A of the 1933 Act and Section 21E
of the 1934 Act) contained in the Registration Statement, the General Disclosure Package and the Prospectus has been made or reaffirmed
without a reasonable basis or has been disclosed other than in good faith.
(xxxvi)
Lock-up
Agreements
. Each of the (i) Company’s executive officers and directors and (ii) certain other shareholders,
in each case as listed on
Schedule D
hereto, has executed and delivered lock-up agreements as contemplated by Section 5(i) hereof.
(xxxvii)
Fees
.
Other than as contemplated by this Underwriting Agreement, there is no broker, finder or other party that is entitled to receive
from the Company or the Bank any brokerage or finder’s fee or any other fee, commission or payment as a result of the transactions
contemplated by this Underwriting Agreement.
(xxxviii)
ERISA
.
The Company and the Bank or their “ERISA Affiliates” (as defined below) are in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income Security Act of 1974, as amended, including the regulations
and published interpretations thereunder (“ERISA”); no “reportable event” (as defined in ERISA) has occurred
with respect to any “employee benefit plan” (as defined in ERISA) for which the Company or the Bank or ERISA Affiliates
would have any liability; the Company and the Bank or their ERISA Affiliates have not incurred and do not expect to incur liability
under (i) Title IV of ERISA with respect to termination of, or withdrawal from, any “employee benefit plan” or
(ii) Sections 412, 4971, 4975 or 4980B of the United States Internal Revenue Code of 1986, as amended, and the regulations
and published interpretations thereunder (collectively the “Code”); and each “employee benefit plan” for
which the Company and the Bank or any of their ERISA Affiliates would have any liability that is intended to be qualified under
Section 401(a) of the Code is so qualified in all material respects and nothing has occurred, whether by action or by
failure to act, which would cause the loss of such qualification. “ERISA Affiliate” means, with respect to the Company
or the Bank, any member of any group of organizations described in Sections 414(b), (c), (m) or (o) of the Code or Section 400(b) of
ERISA of which the Company or the Bank is a member.
(xxxix)
Bank
Holding Company Act; Banking Regulation
. The Company is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended.
(xl)
No
Regulatory Proceedings
. Neither the Company nor the Bank is a party to or subject to any order, decree, agreement, memorandum
of understanding or similar agreement with, or a commitment letter, supervisory letter or similar submission to, any federal, state
or local court or governmental entity (each a “Governmental Entity”) charged with the supervision or regulation of
depository institutions or engaged in the insurance of deposits (including the Board of Governors of the Federal Reserve System
(“FRB”), the Federal Deposit Insurance Corporation (“FDIC”) and the DBO) or the supervision or regulation
of the Company or the Bank that restricts materially the conduct of its business, or in any manner relates to its capital adequacy,
its credit policies, or its management and neither the Company nor the Bank has been advised by any such Governmental Entity that
such Governmental Entity is contemplating issuing or requesting (or is considering the appropriateness of issuing or requesting)
any such order, decree, agreement, memorandum of understanding, commitment letter, supervisory letter or similar submission.
(xli)
Compliance
with Applicable Laws
. Except where the failure to be in compliance would not result in a Material Adverse Effect, the
Company and the Bank conduct their respective businesses in compliance with all federal, state, local and foreign statutes, laws,
rules, regulations, decisions, directives and orders applicable to them (including, without limitation, all applicable regulations
and orders of, or agreements with, the FRB, the FDIC, the DBO, the Equal Credit Opportunity Act, the Fair Housing Act, the Community
Reinvestment Act, the Home Mortgage Disclosure Act, all other applicable fair lending laws or other laws relating to discrimination,
the Bank Secrecy Act, Title III of the USA Patriot Act, the Currency and Foreign Transaction Reporting Act of 1970, as amended,
and any applicable money laundering statutes of all jurisdictions, the rules and regulations thereunder and any related or similar
rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity). Neither the Company nor the
Bank has received any communication from any Governmental Entity asserting that the Company or the Bank is not in compliance with
any statute, law, rule, regulation, decision, directive or order, except where the asserted failure to comply would not result
in a Material Adverse Effect.
(xlii)
Deposit
Insurance
. The deposit accounts of the Bank are insured by the FDIC up to the legal maximum, the Bank has paid all premiums
and assessments required by the FDIC and the regulations thereunder and no proceeding for the termination or revocation of such
insurance is pending or, to the knowledge of the Company, threatened.
(xlii)
OFAC
.
None of the Company, the Bank, or to their knowledge, any officer or director of either the Company or the Bank, or to their knowledge,
any agent, employee, affiliate or person acting on behalf of the Company or the Bank, is or has been (A) engaged in any services
(including financial services), transfers of goods, software, or technology, or any other business activity related to (i) Cuba, Iran,
North Korea, Sudan, Syria or the Crimea region of Ukraine claimed by Russia (“Sanctioned Countries”), (ii) the
government of any Sanctioned Country, (iii) any person, entity or organization located in, resident in, formed under the laws
of, or owned or controlled by the government of, any Sanctioned Country, or (iv) any person, entity or organization made subject
of any sanctions administered or enforced by the United States Government, including, without limitation, the list of Specially
Designated Nationals (“SDN List”) of the Office of Foreign Assets Control of the U.S. Treasury Department (“OFAC”),
or by the United Nations Security Council, the European Union, Her Majesty’s Treasury, or other relevant sanctions authority
(collectively, “Sanctions”) and the Company will not directly or indirectly use the proceeds of this offering, or lend,
contribute or otherwise make available such proceeds to any subsidiary, or any joint venture partner or other person or entity,
for the purpose of financing the activities of or business with any person, or in any country or territory, that currently is the
subject to any U.S. sanctions administered by OFAC or in any other manner that will result in a violation by any person (including
any person participating in the transaction whether as underwriter, advisor, investor or otherwise) of U.S. sanctions administered
by OFAC; (B) engaged in any transfers of goods, technologies or services (including financial services) that may assist the
governments of Sanctioned Countries or facilitate money laundering or other activities proscribed by United States laws, rules or
regulations; (C) is a person, entity or organization currently the subject of any Sanctions; or (D) located, organized
or resident in any Sanctioned Country.
(xliv)
Investment
Securities
. Each of the Company and the Bank has good and marketable title to all securities held by it (except securities
sold under repurchase agreements or held in any fiduciary or agency capacity) free and clear of any lien, claim, charge, option,
encumbrance, mortgage, pledge or security interest or other restriction of any kind, except to the extent such securities are pledged
in the ordinary course of business consistent with prudent business practices to secure obligations of the Company or the Bank
and except for such defects in title or liens, claims, charges, options, encumbrances, mortgages, pledges or security interests
or other restrictions of any kind that would not be material to the Company and the Bank.
(xlv)
Derivative
Securities
. Except as has or would not reasonably be expected to result in a Material Adverse Effect, all material swaps,
caps, floors, futures, forward contracts, option agreements (other than employee stock options) and other derivative financial
instruments, contracts or arrangements, whether entered into for the account of the Company or the Bank or for the account of a
customer of the Company or the Bank, were entered into in the ordinary course of business and in accordance and in all material
respects with applicable laws, rules, regulations and policies of all applicable regulatory agencies and with counterparties believed
to be financially responsible at the time. The Company and the Bank have duly performed in all material respects all of their obligations
thereunder to the extent that such obligations to perform have accrued. Neither the Company nor the Bank, nor, to the knowledge
of the Company, any other party thereto, is in breach of its material obligations under any such agreement or arrangement.
(xlvi)
Bank
Dividend Restrictions
. Except as disclosed in each of the Registration Statement, the General Disclosure Package and
the Prospectus, the Bank is not currently prohibited, directly or indirectly, under any order of the FRB (other than orders applicable
to bank holding companies and their subsidiaries generally), the FDIC, the DBO or any other Governmental Entity, under any applicable
law, or under any agreement or other instrument to which it is a party or is subject, from paying any dividends to the Company,
from making any other distribution on the Bank’s capital stock, from repaying to the Company any loans or advances to the
Bank from the Company or from transferring any of the Bank’s properties or assets to the Company.
(b)
Officer’s
Certificates.
Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for
the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby.
SECTION 2.
Sale
and Delivery to Underwriters; Closing
.
(a)
Initial
Shares.
On the basis of the representations and warranties herein contained and subject to the terms and conditions herein
set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly,
agrees to purchase from the Company, at the price per share set forth in
Schedule C
, that number of Initial Shares
set forth in
Schedule A
opposite the name of such Underwriter, subject, in each case, to such adjustments among the
Underwriters as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional securities.
(b)
Option
Shares.
In addition, on the basis of the representations and warranties herein contained and subject to the terms and
conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up
to an aggregate of [
·
] Option Shares, at the price per share set forth in
Schedule C
,
less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Shares but
not payable on the Option Shares. The option hereby granted will expire 30 days after the date hereof and may be exercised
in whole or in part from time to time upon notice by the Representatives to the Company setting forth the number of Option Shares
as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option
Shares. Any such time and date of delivery (a “Date of Delivery”) shall be determined by the Representatives,
but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time,
as hereinafter defined. If the option is exercised as to all or any portion of the Option Shares, each of the Underwriters,
acting severally and not jointly, will purchase that proportion of the total number of Option Shares then being purchased which
the number of Initial Shares set forth in
Schedule A
opposite the name of such Underwriter bears to the total number
of Initial Shares, subject in each case to such adjustments as the Representatives in their discretion shall make to eliminate
any sales or purchases of fractional shares.
(c)
Payment
and Delivery of Shares.
The Securities to be purchased by each Underwriter hereunder, in book-entry form, and in such
authorized denominations and registered in such names as the Representatives may request upon at least forty-eight hours’
prior notice to the Company shall be delivered by or on behalf of the Company to the Representatives, through the facilities of
The Depository Trust Company (“DTC”), for the account of such Underwriter, against payment by or on behalf of such
Underwriter of the purchase price therefor by wire transfer of Federal (same-day) funds to the account specified by the Company
to the Representatives at least forty-eight hours in advance. The time and date of such delivery and payment shall be, with respect
to the Initial Shares, [*] a.m. New York time, on [*], 2018, or such other time and date as the Representatives and the Company
may agree upon in writing (such time and date of payment and delivery being herein called “Closing Time”) and, with
respect to the Option Shares, [*] a.m., New York time, on the Date of Delivery specified by the Representative in each written
notice given by the Representatives of the Underwriters’ election to purchase such Option Shares, or such other time and
date as the Representatives and the Company may agree upon in writing. It is understood that each Underwriter has authorized the
Representatives, for their accounts, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial
Shares and the Option Shares, if any, which it has agreed to purchase. FIG and Davidson, individually and not as representatives
of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Shares or the Option
Shares, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date
of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.
SECTION 3.
Covenants
of the Company
. The Company covenants with each Underwriter as follows:
(a)
Compliance
with Securities Regulations and Commission Requests.
Until the last Date of Delivery, the Company, subject to Section 3(b),
will comply with the requirements of Rule 430A and will notify the Representatives immediately, and confirm the notice in
writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to
the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of
any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus
or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of
the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings
for any of such purposes or of any examination pursuant to Section 8(e) of the 1933 Act concerning the Registration Statement
and (v) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering
of the Securities. The Company will promptly effect the filings necessary pursuant to Rule 424(b) in the manner
and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)) and will take such steps
as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received
for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. Until the last Date of Delivery,
the Company will make every reasonable effort to prevent the issuance of any stop order described in clause (iv) above and,
if any such stop order is issued, to obtain the lifting thereof at the earliest possible moment.
(b)
Filing
of Amendments.
The Company will give the Representatives notice of its intention to file or prepare any amendment to
the Registration Statement (including any filing under Rule 462(b)), or any amendment, supplement or revision to either any
preliminary prospectus (including the prospectus included in the Registration Statement at the time it became effective) or to
the Prospectus, whether pursuant to the 1933 Act, the 1934 Act or otherwise, will furnish the Representatives with copies of any
such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any
such document to which the Representatives or counsel for the Underwriters shall reasonably object.
(c)
Delivery
of Registration Statements.
The Company has furnished or will deliver to the Representatives and counsel for the Underwriters,
without charge, as many signed copies as the Underwriters may reasonably request of the Registration Statement as originally filed
and of each amendment thereto (including exhibits filed therewith) and as many signed copies as the Underwriters may reasonably
request of all consents and certificates of experts, and will also deliver to the Representatives, without charge, as many conformed
copies as the Underwriters may reasonably request of the Registration Statement as originally filed and of each amendment thereto
(without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished
to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR,
except to the extent permitted by Regulation S-T.
(d)
Delivery
of Prospectuses.
The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus
as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the
1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required
to be delivered under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as amended or supplemented) as such
Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters
will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e)
Continued
Compliance with Securities Laws.
The Company will comply with the 1933 Act and the 1933 Act Regulations and the 1934
Act and the 1934 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Underwriting
Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time when a prospectus
is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall
exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration
Statement or amend or supplement any preliminary prospectus or the Prospectus in order that such preliminary prospectus or Prospectus
will not include any untrue statements of a material fact or omit to state a material fact necessary in order to make the statements
therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be
necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement any preliminary
prospectus or the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company
will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary
to correct such statement or omission or to make the Registration Statement or any preliminary prospectus or the Prospectus comply
with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement
as the Underwriters may reasonably request. If at any time following issuance of an Issuer-Represented Free Writing Prospectus
there occurred or occurs an event or development as a result of which such Issuer-Represented Free Writing Prospectus conflicted
or would conflict with the information contained in the Registration Statement or contained or would contain an untrue statement
of a material fact required to be stated therein or necessary to make the statements therein not misleading, the Company has promptly
notified or will promptly notify the Representatives and has promptly amended or will promptly amend or supplement, at its own
expense, such Issuer-Represented Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission. If
at any time following issuance of an Issuer-Represented Free Writing Prospectus there occurred or occurs an event or development
as a result of which such Issuer-Represented Free Writing Prospectus conflicted or would conflict with the information contained
in the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material
fact necessary in order to make the statements therein, in the light of the circumstances prevailing at that subsequent time, not
misleading, the Company has promptly notified or will promptly notify the Representatives and has promptly amended or will promptly
amend or supplement, at its own expense, such Issuer-Represented Free Writing Prospectus to eliminate or correct such conflict,
untrue statement or omission.
(f)
Blue
Sky Qualifications.
The Company will use its best efforts, in cooperation with the Underwriters, to qualify the Securities
for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the
Representatives may designate and to maintain such qualifications in effect as long as may be required to complete the distribution
of the Securities; provided, that the Company shall not be obligated to file any general consent to service of process or to qualify
as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself
to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which
the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such
jurisdiction to continue such qualification until completion of the distribution of the Securities. The Company will also supply
the Underwriters with such information as is necessary for the determination of the legality of the Securities for investment under
the laws of such jurisdiction as the Underwriters may request.
(g)
Rule 158.
The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its
securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by,
the last paragraph of Section 11(a) of the 1933 Act.
(h)
Use
of Proceeds.
The Company will use the net proceeds received by it from the sale of the Securities in the manner specified
in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”
(i)
Listing/DTC
Eligibility.
The Company will use its best efforts to effect and maintain the listing of the Securities on the Nasdaq
Global Select Market (“Nasdaq”). The Company will cooperate with the Representatives and use its best efforts to permit
the Securities to be eligible for clearance, settlement and trading through the facilities of DTC.
(j)
Restriction
on Sale of Securities.
During a period of 180 days from the date of the Prospectus, the Company will not, without the
prior written consent of the Representatives, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise
transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock
or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or
any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of
ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled
by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the
Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant
or the conversion of a security outstanding on the date hereof and disclosed in the Registration Statement, General Disclosure
Package and Prospectus, (C) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to existing
employee benefit plans of the Company disclosed in the Registration Statement, the General Disclosure Package and the Prospectus,
provided that such options shall not be vested and exercisable within the 180 day period referred to above, or (D) any shares
of Common Stock issued pursuant to any non-employee director stock plan or dividend reinvestment plan; and provided that, the Company
may file with the Commission registration statements on Form S-8 for any of the plans set forth in clauses (B) and (C) above during
the restrictive period set forth in this Section 3(j).
(k)
Reporting
Requirements.
The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the
1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required
by the 1934 Act and the 1934 Act Regulations.
(l)
Lock-up
Agreements.
Within the 180-day period following the Closing Time, the Company agrees to issue stop-transfer instructions
to its transfer agent and registrar for the Common Stock with respect to any transfer or contemplated transfer that would constitute
a breach of, or default under, any lock-up agreements delivered to the Representatives as contemplated by Section 5(i) hereof.
(m)
Issuer
Free Writing Prospectus
. The Company represents and agrees that, unless it obtains the prior consent of the Representatives,
it has not made and will not make any offer relating to the Securities that would constitute an “issuer free writing prospectus,”
as defined in Rule 433, or that would otherwise constitute a “free writing prospectus,” as defined in Rule 405,
required to be filed with the Commission. Any such free writing prospectus consented to by the Representatives and the Company
is hereinafter referred to as an “
Issuer Permitted Free Writing Prospectus
.” The Company represents that
it has treated or agrees that it will treat each Issuer Permitted Free Writing Prospectus as an “issuer free writing prospectus,”
as defined in Rule 433, and has complied and will comply with the requirements of Rule 433 applicable to any Issuer Permitted
Free Writing Prospectus, including timely filing with the Commission where required, legending and record keeping. The Company
represents that it has satisfied and agrees that it will satisfy the conditions in Rule 433 to avoid a requirement to file
with the Commission any electronic road show.
(n)
Registration
Rights, Preemptive Rights and Other Rights.
The Company agrees that it shall not release any party from a waiver of registration
rights, or from a waiver of any preemptive rights, rights of first refusal or other similar rights to purchase, or equity or debt
securities convertible into or exchangeable or exercisable for, any capital stock of the Company or the Bank, during the 180-day
restricted period referred to in Section 3(j) hereof.
(o)
Emerging
Growth Company
. The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company
at any time prior to the later of (i) completion of the distribution of Securities within the meaning of the 1933 Act and
(ii) completion of the 180-day restricted period referred to in Section 3(j) hereof.
SECTION 4.
Payment
of Expenses
.
(a)
Expenses.
The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Underwriting Agreement,
including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits)
as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this
Underwriting Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering,
purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for
the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the
sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company’s counsel,
accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions
of Section 3(f) hereof, including filing fees, (vi) the printing and delivery to the Underwriters of copies of each
preliminary prospectus, any Issuer-Represented Free Writing Prospectus, any Written Testing-the-Waters Communications and the Prospectus
and any amendments or supplements thereto (including any costs associated with electronic delivery of these materials), (vii) the
preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the
fees and expenses of any transfer agent or registrar for the Securities, (ix) the costs and expenses of the Company relating
to investor presentations in connection with testing-the-waters meetings or on any “road show” undertaken in connection
with the marketing of the Securities, including without limitation, expenses associated with the production of testing-the-waters
or road show slides and graphics, fees and expenses of any consultants engaged in connection with the testing-the-waters presentations
or road show, travel and lodging expenses of the officers of the Company and any such consultants, (x) the filing fees incurred
by the Underwriters in connection with determining their compliance with the rules and regulations of FINRA related to the Underwriters’
participation in the offering and distribution of the Securities, (xi) the fees and expenses incurred in connection with the
listing of the Securities on the Nasdaq Global Select Market, and (xii) all costs and expenses of the Underwriters, including,
but not limited to, the reasonable fees and expenses of the counsel to Underwriters, and marketing, syndication and travel expenses,
provided, however, that the costs and expenses of the Underwriters shall not exceed $250,000.
(b)
Termination
of Agreement.
If this Underwriting Agreement is terminated by the Representatives in accordance with the provisions of
Section 5, Section 9(a) or Section 11 hereof, the Company shall reimburse the Underwriters for all of their
out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.
SECTION 5.
Conditions
of Underwriters’ Obligations
. The obligations of the several Underwriters hereunder are subject to the accuracy
of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the
Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder,
and to the following further conditions:
(a)
Effectiveness
of Registration Statement.
The Registration Statement, including any Rule 462(b) Registration Statement, has become
effective and at Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under
the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for
additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters. A prospectus
containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time period required
by Rule 424(b) (without reliance on Rule 424(b)(8)) (or a post-effective amendment providing such information shall
have been filed and declared effective in accordance with the requirements of Rule 430A).
(b)
Opinion
of Counsel for Company.
At Closing Time, the Representatives shall have received the opinion, dated as of Closing Time,
of Silver, Freedman, Taff & Tiernan LLP, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters,
together with signed or reproduced copies of such letter for each of the other Underwriters named on the cover page of the Prospectus
to the effect set forth in
Exhibit B
hereto. Such counsel may also state that, insofar as such opinion involves factual
matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and
certificates of public officials..
(c)
Opinion
of Counsel for Underwriters.
At Closing Time, the Representatives shall have received the opinion, dated as of Closing
Time, of King, Holmes, Paterno & Soriano, LLP, counsel for the Underwriters, together with signed or reproduced copies of such
letter for each of the other Underwriters named on the cover page of the Prospectus, in form and substance satisfactory to the
Underwriters.
(d)
Officers’
Certificate.
At Closing Time, the Representatives shall have received a certificate of the President and Chief Executive
Officer of the Company and of the Chief Financial Officer of the Company, dated as of Closing Time, to the effect that (i) there
has been no Material Adverse Effect, (ii) the representations and warranties in Section 1(a) hereof are true and correct
with the same force and effect as though expressly made at and as of Closing Time, (iii) the Company has complied with all
agreements and satisfied all conditions on its part to be performed or satisfied at or prior to Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have
been instituted or are pending or are, to their knowledge, contemplated by the Commission.
(e)
Accountant’s
Comfort Letter.
At the time of the execution of this Underwriting Agreement, the Representatives shall have received
from VTD a letter dated the date hereof, in form and substance satisfactory to the Representatives, together with signed or reproduced
copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included
in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and General Disclosure Package.
(f)
Bring-down
Comfort Letter.
At Closing Time, the Representatives shall have received from VTD a letter, dated as of Closing Time,
to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section,
except that the specified date referred to shall be a date not more than three business days prior to Closing Time.
(g)
Approval
of Listing.
At Closing Time, the Securities shall have been approved for listing on the Nasdaq Global Select Market under
the symbol “BCML,” subject only to official notice of issuance and upon consummation of the offering contemplated hereby
the Company will be in compliance with the designation and maintenance criteria applicable to such Nasdaq issues.
(h)
No
Objection.
FINRA shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness
of the underwriting terms and arrangements.
(i)
Lock-up
Agreements.
At the date of this Underwriting Agreement, the Representatives shall have received an agreement substantially
in the form of
Exhibit A
hereto signed by each persons listed on
Schedule D
hereto.
(k)
No
Termination Event.
On or after the date hereof, there shall not have occurred any of the events, circumstances or occurrences
set forth in Section 9(a).
(l)
Rule 462(b) Registration
Statement
. In the event that a Rule 462(b) Registration Statement is filed in connection with the offering
contemplated by this Underwriting Agreement, such Rule 462(b) Registration Statement shall have been filed with the Commission,
in compliance with Rule 462(b), on the date of this Underwriting Agreement and shall have become effective automatically upon
such filing.
(m)
Conditions
to Purchase of Option Shares.
In the event that the Underwriters exercise their option provided in Section 2(b) hereof
to purchase all or any portion of the Option Shares, the representations and warranties of the Company contained herein and the
statements in any certificates furnished by the Company and the Bank hereunder shall be true and correct as of each Date of Delivery
and, at the relevant Date of Delivery, the Representatives shall have received:
(i)
Officers’
Certificate
. A certificate, dated such Date of Delivery, of the President and Chief Executive Officer of the Company
and of the Chief Financial Officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof
remains true and correct as of such Date of Delivery.
(ii)
Opinion
of Counsel for Company
. The favorable opinion of Silver, Freedman, Taff & Tiernan, LLP, counsel for the Company,
in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Shares
to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof.
(iii)
Opinion
of Counsel for Underwriters
. The favorable opinion of King, Holmes, Paterno & Soriano, LLP, counsel for the Underwriters,
dated such Date of Delivery, relating to the Option Shares to be purchased on such Date of Delivery and otherwise to the same effect
as the opinion required by Section 5(c) hereof.
(iv)
Bring-down
Comfort Letter
. A letter from VTD, in form and substance satisfactory to the Representatives and dated such Date of Delivery,
substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof,
except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than five
days prior to such Date of Delivery.
(v)
No
Termination Event
. There shall not have occurred prior to the Date of Delivery any of the events, circumstances or occurrences
set forth in Section 9(a).
(n)
Additional
Documents.
At Closing Time and at each Date of Delivery counsel for the Underwriters shall have been furnished with such
documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities
as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of
any of the conditions, herein contained, and all proceedings taken by the Company in connection with the issuance and sale of the
Securities as herein contemplated shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.
(o)
Termination
of Agreement.
If any condition specified in this Section shall not have been fulfilled when and as required to be
fulfilled, this Underwriting Agreement, or, in the case of any condition to the purchase of Option Shares on a Date of Delivery
which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Shares, may be terminated
by the Representatives by written notice to the Company at any time at or prior to Closing Time or such Date of Delivery, as the
case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4
and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect.
SECTION 6.
Indemnification
.
(a)
Indemnification
of Underwriters.
The Company and the Bank jointly and severally agree to indemnify and hold harmless each Underwriter,
its affiliates (as such term is defined in Rule 501(b) under the 1933 Act) (“Affiliates”), its and its Affiliates’
respective selling agents, partners, directors, officers and employees and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act to the extent and in the manner set forth in
clauses (i), (ii) and (iii) below as follows:
(i) against any and
all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information,
or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements
therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary
prospectus, any Issuer-Represented Free Writing Prospectus, any Written Testing-the-Waters Communication, the General Disclosure
Package or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material
fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;
(ii) against any and all loss, liability,
claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation,
or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based
upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of the Company; and
(iii) against
any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by the Representatives), reasonably
incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by or before any governmental
agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above; provided,
that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with the Underwriter
Information. Notwithstanding the foregoing, the indemnification provided in this Section 6 shall not apply to the Bank if a governmental
entity having jurisdiction over the Bank by written communication addressed to the Bank or its board of directors, including in
connection with any examination of the Bank, informs the Bank or its board of directors in writing that (A) such governmental entity
has determined that such indemnification violates Sections 23A or 23B of the Federal Reserve Act, as amended, or (B) such indemnification
would give rise to civil money penalties against the Bank or the members of its board of directors. The Company and the Bank agree
to notify the Underwriter immediately upon receipt of such written advisement or notice.
The obligations of the Company and the Bank
under this Section and Section 7 below shall be in addition to any liability which the Company or the Bank may otherwise
have and shall extend, upon the same terms and conditions, to each Underwriter, its Affiliates, its and its Affiliates’ respective
selling agents, partners, directors, officers and employees and each person, if any, who controls any Underwriter within the meaning
of Section 15 of the 1933 Act or Section 20 of the 1934 Act; and the several obligations of the Underwriters under this
Section and Section 7 below shall be in addition to any liability which the respective Underwriters may otherwise have
and shall extend, upon the same terms and conditions, to each director of the Company (including any person who, with his or her
consent, is named in the Registration Statement as about to become a director of the Company), each officer of the Company who
signs the Registration Statement and to each person, if any, who controls the Company or the Bank, as the case may be, within the
meaning of the 1933 Act.
(b)
Indemnification of Company, Directors
and Officers.
Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its
officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage, and expense described in
the indemnity contained in Section 6(a) hereof, as incurred, but only with respect to untrue statements or omissions, or alleged
untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information,
any preliminary prospectus, any Issuer-Represented Free Writing Prospectus, any Written Testing-the-Waters Communication or the
Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.
(c)
Actions against Parties; Notification.
Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve
such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any
event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In
the case of parties indemnified pursuant to Section 6(a) above, counsel to the indemnified parties shall be selected
by the Representatives, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel to the indemnified
parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any
such action; provided, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also
be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than
one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any
one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.
No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the
entry of any judgment with respect to any litigation, or any investigation or proceeding by or before any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under
this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto),
unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability
arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified party.
(d)
Settlement Without Consent if Failure
to Reimburse.
If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified
party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature
contemplated by Section 6(a)(ii) effected without its written consent if (i) such settlement is entered into more
than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received
notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying
party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.
SECTION 7.
Contribution
.
If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless
an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying
party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified
party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Underwriting Agreement or
(ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the
one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Company
on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Underwriting
Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities
pursuant to this Underwriting Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting
discount and commissions received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus
bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.
The relative fault of the Company, on the
one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue
or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information
supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Underwriters agree that
it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims,
damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any
legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation,
or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon
any such untrue or alleged untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7,
no Underwriter shall be required to contribute any amount in excess of the amount by which the total discounts, fees and commissions
received by it exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such
untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
For purposes of this Section 7, each
person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934
Act and each Underwriter’s Affiliates, its and its Affiliates’ respective selling agents, partners, directors, officers
and employees shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of
the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The obligations
of the Company and the Bank in this Section 7 to contribute are joint and several subject, in the case of the Bank, to the
same limitation on indemnification as set forth in Section 6(a). The Underwriters’ respective obligations to contribute pursuant
to this Section 7 are several in proportion to the number of Initial Shares set forth opposite their respective names in
Schedule
A
hereto and not joint.
SECTION 8.
Representations,
Warranties and Agreements to Survive Delivery
. All representations, warranties and agreements contained in this Underwriting
Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and
effect, regardless of any (i) investigation made by or on behalf of any Underwriter, its Affiliates, its and its Affiliates’
respective selling agents, partners, directors, officers and employees and each person, if any, who controls any Underwriter within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, or by or on behalf of the Company, and (ii) delivery
of and payment for the Securities.
SECTION 9.
Termination
of Underwriting Agreement
.
(a)
Termination; General.
The
Representatives may terminate this Underwriting Agreement, by notice to the Company, at any time at or prior to Closing Time (i) if
there has been, since the time of execution of this Underwriting Agreement or since the respective dates as of which information
is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect or if the
Underwriters decline to purchase the Securities for any reason permitted under this Agreement, (ii) if there has occurred
any material adverse change in the financial markets in the United States or the international financial markets, any outbreak
of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in
national or international political, financial or economic conditions, including without limitation as a result of terrorist activities,
in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to
market the Securities or to enforce contracts for the sale of the Securities, (iii) if trading in any securities of the Company
has been suspended or materially limited by the Commission or the Nasdaq, or if trading generally on the New York Stock Exchange
or on Nasdaq has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges
for prices have been required, by any of said exchanges or by such system or by order of the Commission, FINRA or any other governmental
authority, (iv) a material disruption has occurred in commercial banking or securities settlement or clearance services in
the United States or with respect to Clearstream or Euroclear Systems in Europe, or (v) if a banking moratorium has been declared
by either federal, California or New York authorities.
(b)
Liabilities.
If this Underwriting
Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except
as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain
in full force and effect.
SECTION 10.
Default by
the Underwriters
. If any one or more of the Underwriters shall fail or refuse to purchase Firm Shares that it or they have
agreed to purchase hereunder, and the aggregate number of Initial Shares that such defaulting Underwriter or Underwriters agreed
but failed or refused to purchase is not more than one-tenth of the aggregate number of the Initial Shares, or if any one or more
of the Underwriters shall fail or refuse to purchase Option Shares with respect to which the Underwriters have exercised their
option to purchase, each non-defaulting Underwriter shall be obligated, severally, in the proportion in which the number of Initial
Shares set forth opposite its name in Schedule I hereto bears to the aggregate number of Initial Shares set forth opposite the
names of all non-defaulting Underwriters or in such other proportion as you may agree with such non-defaulting Underwriters, to
purchase the Initial Shares or Option Shares, as the case may be, that such defaulting Underwriter or Underwriters failed or refused
to purchase. If any Underwriter or Underwriters shall fail or refuse to purchase Initial Shares and the aggregate number of Initial
Shares with respect to which such default occurs is more than one-tenth of the aggregate number of Initial Shares and arrangements
satisfactory to you and the Company for the purchase of such Initial Shares are not made within 48 hours after such default, this
Agreement will terminate without liability on the part of any non-defaulting Underwriter or the Company. In any such case that
does not result in termination of this Agreement, either you or the Company shall have the right to postpone the Closing Date,
but in no event for longer than seven (7) days, in order that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. Any action taken under this Section 10 shall not relieve any
defaulting Underwriter from liability in respect of any such default of any such Underwriter under this Agreement.
SECTION 11.
Covenant
of the Underwriters
. Each Underwriter represents and agrees that, unless it obtains the prior consent of the Company and the
Representatives, it has not made and will not make any offer relating to the Securities that would constitute an “issuer
free writing prospectus,” as defined in Rule 433, or that would otherwise constitute a “free writing prospectus,”
as defined in Rule 405, required to be filed with the Commission.
SECTION 12.
Notices
.
All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted
by any standard form of telecommunication. Notices to the Underwriters shall be directed to FIG Partners, LLC, 1475 Peachtree
Street, NE, Suite 800, Atlanta, Georgia, Attn: Greg Gersack and D.A. Davidson & Co., 611 Anton Blvd., Suite 600, Costa Mesa,
California 92626, Attn: [*]; notices to the Company shall be directed to BayCom Corp, 500 Ygnacio Valley Road, Suite 500, Walnut
Creek, California 94596, Attn: George J. Guarini.
SECTION 13.
Parties
.
This Underwriting Agreement shall inure to the benefit of and be binding upon the Underwriters, the Company, the Bank and their
respective successors. Nothing expressed or mentioned in this Underwriting Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Underwriters, the Company, the Bank and their respective successors and the
controlling persons, officers and directors and other persons or entities referred to in Sections 6 and 7 and their heirs
and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Underwriting Agreement or
any provision herein contained. This Underwriting Agreement and all conditions and provisions hereof are intended to be for
the sole and exclusive benefit of the Underwriters, the Company, the Bank and their respective successors, and said controlling
persons, officers and directors and other persons or entities and their heirs and legal representatives, and for the benefit of
no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by
reason merely of such purchase.
SECTION 14.
No
Fiduciaries
. The Company acknowledges and agrees that (i) the purchase and sale of the Securities pursuant to this Underwriting
Agreement, including the determination of the public offering price of the Securities and any related discounts and commissions,
is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other
hand, (ii) in connection with the offering contemplated hereby and the process leading to such transaction each Underwriter
is and has been acting solely as a principal and is not the agent or fiduciary of the Company, the Bank, or their respective shareholders,
creditors, employees or any other third party, (iii) no Underwriter has assumed or will assume an advisory or fiduciary responsibility
in favor of the Company with respect to the offering contemplated hereby or the process leading thereto (irrespective of whether
such Underwriter has advised or is currently advising the Company on other matters) and no Underwriter has any obligation to the
Company with respect to the offering contemplated hereby except the obligations expressly set forth in this Underwriting Agreement,
(iv) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests
that differ from those of the Company, and (v) the Underwriters have not provided any legal, accounting, regulatory or tax
advice with respect to the offering contemplated hereby and the Company has consulted its own legal, accounting, regulatory and
tax advisors to the extent it deemed appropriate.
SECTION 15.
GOVERNING
LAW
. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.
SECTION 16.
General
Provisions
. This Underwriting Agreement constitutes the entire agreement of the parties to this Underwriting Agreement
and supersedes all prior written or oral and all contemporaneous oral agreements, understandings and negotiations with respect
to the subject matter hereof. This Underwriting Agreement may be executed in two or more counterparts, each one of which
shall be an original, but all of which together shall constitute one and the same instrument. The exchange of copies of this
Underwriting Agreement and of signature pages by facsimile or other electronic means shall constitute effective execution
and delivery of this Underwriting Agreement by the parties hereto and may be used in lieu of the original signature pages to
this Underwriting Agreement for all purposes. This Underwriting Agreement may not be amended or modified unless in writing
by all of the parties hereto, and no condition herein (express or implied) may be waived unless waived in writing by each party
whom the condition is meant to benefit. The headings herein are for convenience only and shall not affect the construction hereof.
If the foregoing is in accordance with your
understanding, please sign and return to us four counterparts hereof, and upon the acceptance hereof by the Representatives, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall constitute a binding agreement among each of the
Underwriters, the Company and the Bank. It is understood that the Representatives’ acceptance of this letter on behalf
of each of the Underwriters is pursuant to the authority set forth in a form of Agreement among Underwriters, the form of which
shall be submitted to the Company for examination upon request, but without warranty on the Representatives’ part as to the
authority of the signers thereof.
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Very truly yours,
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BAYCOM CORP
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By:
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Name:
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Title:
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UNITED BUSINESS BANK
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By:
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Name:
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Title:
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CONFIRMED AND ACCEPTED,
as of the date first above written:
FIG PARTNERS, LLC
D.A. DAVIDSON & CO.
as Representatives of the Underwriters
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By:
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FIG Partners, LLC
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By:
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Name:
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Title:
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By:
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D. A. Davidson & Co.
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By:
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Name:
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Title:
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SCHEDULE A
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Name of Underwriter
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Number of
Initial Shares
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FIG Partners, LLC
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[
·
]
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D. A. Davidson & Co.
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[
·
]
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[
·
]
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Total
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[
·
]
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SCHEDULE B
Issuer-Represented General Free Writing
Prospectus
[List]
Written Testing-the-Waters Communications
Investor Presentation dated [
·
],
2018
SCHEDULE C
BayCom Corp
[
·
] Shares of
Common Stock
(Without Par Value Per Share)
1. The initial
public offering price per share for the Securities, determined as provided in said Section 2, shall be $[
·
].
2. The purchase
price per share for the Securities to be paid by the several Underwriters shall be $[
·
],
being an amount equal to the initial public offering price set forth above less $[
·
]
per share; provided that the purchase price per share for any Option Shares purchased upon the exercise of the option described
in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company
and payable on the Initial Shares but not payable on the Option Shares.
SCHEDULE D
List of persons and entities
subject to lock-up
Directors
Lloyd W. Kendall, Jr.
George J. Guarini
James S. Camp
Harpreet S. Chaudhary
Rocco Davis
Malcolm F. Hotchkiss
Robert G. Laverne, MD
David M. Spatz
Executive Officer Who Are Not Directors
Janet L. King
Keary L. Colwell
Izabella L. Zhu
David J. Funkhouser
Charles Yun
Mary Therese Curley
EXHIBIT A
LOCK-UP AGREEMENT
,
2018
FIG Partners, LLC
1475 Peachtree Street, NE
Suite 800
Atlanta, Georgia 30309
D. A. Davidson & Co.
611 Anton Blvd.
Suite 600
Costa Mesa, California 92626
As Representatives of the several Underwriters
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Re:
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Proposed Initial Public Offering of BayCom Corp
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Ladies and Gentlemen:
The undersigned, a
shareholder, an executive officer and/or director of BayCom Corp, a California corporation (the “
Company
”),
understands that FIG Partners, LLC (“
FIG
”) and D. A. Davidson & Co. (“
Davidson
,” and
together with
FIG
, the “
Representatives
”), as representatives of the several Underwriters (the “
Underwriters
”),
proposes to enter into an Underwriting Agreement (the “
Underwriting Agreement
”) with the Company providing for
the initial public offering (the “
Offering
”) of the Company’s common stock, without par value (including
any securities convertible into or exchangeable or exercisable for such common stock, the “
Common Stock
”).
In recognition of
the benefit that the Offering will confer upon the undersigned as a shareholder, executive officer and/or director of the Company,
and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees
with each Underwriter to be named in the Underwriting Agreement that, commencing on the date hereof and ending on, and including,
the date that is 180 days from the date of the Underwriting Agreement (such period being referred to herein as the “
Lock-Up
Period
”), the undersigned will not without the prior written consent of FIG Partners, LLC, directly or indirectly, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant for the sale of, hypothecate, establish an open “put equivalent position” within the meaning of Rule 16a-1(h) under
the Exchange Act, or otherwise dispose of or transfer any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of disposition, or that may be deemed to be beneficially owned by the undersigned or exercise
any right with respect to the registration of any of the foregoing, or file or cause to be filed any registration statement in
connection therewith under the Securities Act of 1933, as amended (the “
Securities Act
”), (ii) enter into
any swap, hedge or any other agreement or any transaction that transfers, in whole or in part, the economic consequence of ownership
of the Common Stock, whether any such swap, hedge or transaction is to be settled by delivery of Common Stock or other securities,
in cash or otherwise, or (iii) publicly disclose the intention to make any such offer, pledge, sale or disposition, or to
enter into any such swap, hedge, transaction or other arrangement. For the avoidance of doubt, the undersigned acknowledges that
the foregoing shall not be applicable to any shares of Common Stock the undersigned may purchase in the Offering.
Notwithstanding the
foregoing, (A) the foregoing restrictions shall not apply to pledges in a
bona fide
transaction that are
in effect as of the date hereof to a lender to the undersigned, as disclosed in writing to the Representatives; and (B) the
undersigned may transfer the undersigned’s shares of Common Stock or any securities convertible into or exchangeable or exercisable
for Common Stock (i) as a
bona fide
gift or gifts including through a distribution by a trust, family limited
partnership, corporation or other entity, provided that the donee or donees agree to be bound in writing by the restrictions set
forth herein; (ii) to any corporation, trust, family limited partnership or other entity for the direct or indirect benefit
of the undersigned or the immediate family of the undersigned; provided, that the trustee of the trust or general partner of the
family limited partnership, as the case may be, agrees to be bound by the restrictions set forth herein; and provided further,
that any such transfer shall not involve a disposition for value; (iii) transfers pursuant to a qualified domestic order or divorce
settlement or by will or intestate succession to executors, administrators, testamentary trustees, legatees or beneficiaries, provided
that the recipients of such transfers agree to be bound in writing by the restrictions set forth herein; (iv) any grant or exercise
of options or vesting of restricted shares pursuant to the Company’s equity incentive plans, including any withholding of
Common Stock to satisfy the exercise price of outstanding options held by the undersigned or to satisfy tax obligations upon exercise
or vesting of any such awards; ; or (v) transactions relating to Common Stock acquired in open market transactions after the
completion of the Offering; and (v) with the prior written consent of the Representatives. For purposes of this letter agreement,
“immediate family” shall mean any relationship by blood, marriage, domestic partnership or adoption, not more remote
than first cousin.
In addition to the
preceding paragraph and notwithstanding anything to the contrary herein, the undersigned may enter into an agreement or trading
plan to allow brokerage sales of all or a portion of the Common Stock pursuant to Rule 10b5-1 under the Exchange Act, provided
that (i) any such brokerage sales or transfers may not occur prior to the expiration of the Lock-Up Period, (ii) prior to the expiration
of the Lock-Up Period, no public disclosure or filing under the Exchange Act or Rule 144 under the Act by any party shall be required,
or made, voluntarily reporting such agreement or trading plan, and (iii) the undersigned provides notice to the Representatives
upon entering into any such agreement or adopting any such trading plan.
The undersigned also
agrees and consents to the entry of stop transfer instructions with the Company’s transfer agent and registrar against the
transfer of the undersigned’s shares of Common Stock during the Lock-Up Period, except in compliance with this letter agreement.
In furtherance of the foregoing, the Company and its transfer agent are hereby authorized to decline to make any transfer of securities
during the Lock-Up Period if such transfer would constitute a violation or breach of this letter agreement.
In addition, the undersigned
agrees that, during the Lock-Up Period, without the prior written consent of the Representatives (which consent may be withheld
in their sole discretion): (i) the undersigned will not request, make any demand for or exercise any right with respect to,
the registration of any Common Stock and (ii) the undersigned waives any and all notice requirements and rights with respect
to the registration of any shares of Common Stock pursuant to any agreement, understanding or otherwise to which the undersigned
is a party.
The undersigned represents
and warrants that the undersigned has full power and authority to enter into this letter agreement. The undersigned agrees that
the provisions of this letter agreement shall be binding also upon the successors, assigns, heirs and personal representatives
of the undersigned.
The undersigned understands
that this letter agreement shall automatically terminate and the undersigned shall be released from all obligations under this
letter agreement upon the earliest to occur, if any, of: (A) termination of the Underwriting Agreement before the sale of
any Common Stock to the Underwriters, or (B) [*] 2018, in the event that the Underwriting Agreement has not been executed
by that date.
This letter agreement
shall be governed by and construed in accordance with the laws of the State of New York.
[
Signature page follows
]
The undersigned understands that the Company
and the Underwriters are relying upon this letter agreement in proceeding toward consummation of the Offering. The undersigned
further understands that this letter agreement is irrevocable and, unless it’s earlier terminated according to its terms,
shall be binding upon the undersigned’s heirs, legal representatives, successors, and assigns.
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Very truly yours,
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Signature:
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Name:
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[
Signature page to Lock-Up Agreement
]
Exhibit 2.1
AGREEMENT
AND PLAN OF REORGANIZATION AND MERGER
DATED AS
OF DECEMBER 14, 2016
BY AND AMONG
BAY COMMERCIAL
BANK,
BAYCOM CORP,
FIRST ULB
CORP.,
AND
UNITED BUSINESS
BANK, FSB
TABLE OF CONTENTS
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Page
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ARTICLE I CERTAIN DEFINITIONS
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2
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1.1
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Certain Definitions
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2
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ARTICLE II THE MERGERS AND RELATED MATTERS
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11
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2.1
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The Mergers; Surviving Entities
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11
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2.2
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Filing of Agreement of Merger
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12
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ARTICLE III EFFECT OF THE MERGER ON CAPITAL STOCK
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12
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3.1
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Effect on Capital Stock
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12
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3.2
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Exchange of Certificates
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13
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3.3
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Withholding Rights
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16
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ARTICLE IV ACTIONS PENDING THE MERGER
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16
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4.1
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Forbearances by FULB and UBB
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16
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4.2
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Forbearances of BAY.
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20
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ARTICLE V REPRESENTATIONS AND WARRANTIES
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24
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5.1
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Disclosure Schedules
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24
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5.2
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Representations and Warranties of FULB and UBB
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25
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5.3
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Representations and Warranties of BAY
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40
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ARTICLE VI COVENANTS
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54
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6.1
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Reasonable Best Efforts
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54
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6.2
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Regulatory Filings
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55
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6.3
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Press Releases
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55
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6.4
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Access; Information
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55
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6.5
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No Solicitation
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56
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6.6
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FULB Shareholder Recommendation
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59
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6.7
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Requisite Shareholder Approval
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59
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6.8
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Indebtedness; Trust Preferred Securities; Note Payable
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60
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6.9
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Notification of Certain Matters
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61
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6.10
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Estoppel Letters and Consents; Title Insurance
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61
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6.11
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Antitakeover Statutes
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61
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6.12
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Notice to UBB Customers
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61
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6.13
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Indemnification; Directors and Officers Insurance
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62
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6.14
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Post-Merger Boards.
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62
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6.15
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California Permit
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63
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6.16
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Benefit Plans.
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63
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6.17
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Certain Policies
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65
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ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTION
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65
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7.1
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Conditions to Each Party’s Obligation to Effect the Transactions Contemplated Hereby
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65
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7.2
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Conditions to Obligations of FULB and UBB
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66
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7.3
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Conditions to Obligation of BAY
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67
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ARTICLE VIII TERMINATION
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68
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8.1
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Termination
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68
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8.2
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Liabilities and Remedies; Liquidated Damages; Expense Reimbursement
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70
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ARTICLE IX MISCELLANEOUS
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71
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9.1
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Survival of Representations, Warranties and Agreements
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71
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9.2
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Waiver; Amendment
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71
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9.3
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Counterparts
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71
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9.4
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Governing Law
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72
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9.5
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Waiver of Jury Trial
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72
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9.6
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Expenses
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72
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9.7
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Notices
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72
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9.8
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Entire Understanding; No Third-Party Beneficiaries
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73
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9.9
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Severability
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73
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9.10
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Enforcement of the Agreement
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73
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9.11
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Interpretation
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74
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9.12
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Assignment
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74
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9.13
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Alternative Structure
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74
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ANNEX A
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Form of FULB Non-Competition and Voting Agreement
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ANNEX B
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Form of BAY Voting Agreement
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ANNEX C
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Form of Merger Agreement
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AGREEMENT AND PLAN OF
REORGANIZATION AND MERGER
, dated as of December 14, 2016, by and among Bay Commercial Bank, a California state-chartered bank
(“BAY”), BayCom Corp, a California corporation [that is in the process of becoming a bank holding company and sole
shareholder of BAY (“BHC”), First ULB Corp., a California corporation and registered savings and loan holding company
(“FULB”) and United Business Bank, FSB, a federal savings bank (“UBB”).
RECITALS
WHEREAS, FULB owns all of
the issued and outstanding capital stock of UBB;
WHEREAS, the parties hereto
wish to provide for the terms and conditions of a strategic business combination in which, (i) BAY [is in the process of a bank
holding reorganization where BAY would become] a wholly owned subsidiary of BHC and the outstanding shares of BAY would be exchanged
for shares of BHC on a one-for-one basis, (ii) in exchange for the merger consideration as set forth herein, FULB would be merged
with and into BHC (the “Merger”), with BHC being the surviving entity in the Merger, and (iii) UBB would, immediately
after the Merger is consummated, be merged with and into BAY (the “Bank Merger”), with BAY being the surviving entity
in the Bank Merger;
WHEREAS, each of the Boards
of Directors of BAY, BHC, FULB and UBB has unanimously (i) approved and declared advisable this Agreement and the transactions
contemplated by this Agreement, including the Merger, and the Bank Merger, and (ii) determined that this Agreement and such
transactions are fair to, and in the best interests of, BHC, BAY, FULB, and UBB, respectively, and the shareholders of BHC, BAY,
FULB and UBB, respectively;
WHEREAS, the parties intend
that the Merger be treated for federal income tax purposes as a reorganization described in Section 368(a) of the Internal Revenue
Code (the “Code”);
WHEREAS, as a material inducement
to BAY to enter into this Agreement, and simultaneous with the execution of this Agreement, each of the non-employee directors
of FULB and UBB are entering into an agreement, in the form of Annex A hereto (the “FULB Non-Competition and Voting Agreement”),
pursuant to which each such non-employee director shall agree, among other things, to vote all shares of capital stock of FULB
owned by such person, in favor of the approval and adoption of this Agreement;
WHEREAS, as a material inducement
to FULB and UBB to enter into this Agreement, and simultaneous with the execution of this Agreement, each of the directors and
executive officers of BAY is entering into an agreement, in the form of Annex B hereto (the “BAY Voting Agreement”),
pursuant to which each such director and executive officer shall agree, among other things, to vote all shares of capital stock
of BAY owned by such person, in favor of the approval and adoption of this Agreement;
WHEREAS, the parties hereto
desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions
to the Merger;
NOW, THEREFORE, in consideration
of the mutual covenants, representations, warranties and agreements contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1
Certain
Definitions
. The following terms are used in this Agreement with the meanings set forth below:
“Acquisition Proposal”
means any inquiry, offer or proposal other than by BAY or BHC, whether or not in writing, contemplating, relating to, or that could
reasonably be expected to lead to: (i) any transaction or series of transactions involving any merger, consolidation, recapitalization,
share exchange, liquidation, dissolution or similar transaction involving FULB or its Subsidiaries; (ii) any transaction pursuant
to which any third party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly,
any assets of FULB or its Subsidiaries representing, in the aggregate, twenty-five percent (25%) or more of the assets of FULB
on a consolidated basis; (iii) any issuance, sale or other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to purchase or securities convertible into, such securities)
representing twenty-five percent (25%) or more of the votes attached to the outstanding securities of FULB; (iv) any tender offer
or exchange offer that, if consummated, would result in any third party or group beneficially owning twenty-five percent (25%)
or more of any class of equity securities of FULB or its Subsidiaries; or (v) any transaction which is similar in form, substance
or purpose to any of the foregoing transactions, or any combination of the foregoing.
“Adverse Recommendation
Change” means (i) a withdrawal, modification or qualification in any manner that is adverse to BAY of the approval, recommendation
or declaration of advisability by the FULB Board, or any such committee thereof with responsibility for the negotiation or oversight
to the extent permitted by law of the transactions contemplated by this Agreement, the Merger or any of the other transactions
contemplated hereby; (ii) the adoption, approval, recommendation, endorsement or declaration of advisability of the adoption of
any Acquisition Proposal; (iii) the resolution, agreement or proposal by the board of directors or any committee of the board of
directors of FULB with responsibility for the negotiation or oversight of the transactions contemplated by this Agreement to the
extent permitted by law, to take any such actions described in clauses (i) or (ii); or (iii) the submission of this this Agreement
to shareholders without recommendation.
“Affiliate” means,
with respect to a Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such
Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled
by” or “under common control with”), as applied to any Person, means the possession, directly or indirectly,
of (i) ownership, control or power to vote twenty-five percent (25%) or more of the outstanding shares of any class of voting
securities of such Person, (ii) control, in any manner, over the election of a majority of the directors, trustees or general
partners (or individuals exercising similar functions) of such Person or (iii) the power to exercise a controlling influence
over the management or policies of such Person.
“Agreement” means
this Agreement and Plan of Reorganization and Merger, as amended or modified from time to time in accordance with Section 9.2.
“Alternative Acquisition
Agreement” means any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement or other contract constituting or related to, or which
is intended to or is reasonably likely to lead to, any Acquisition Proposal.
“Bank Merger”
has the meaning set forth in the recitals to this Agreement.
“Bank Merger Effective
Time” has the meaning set forth in Section 2.2.
“Bank Secrecy Act”
means the Bank Secrecy Act of 1970, as amended.
“BAY” has the
meaning set forth in the preamble to this Agreement.
“BAY Articles”
means the Articles of Incorporation of BAY, as amended.
“BAY Benefit Plan”
has the meaning set forth in Section 5.3(m).
“BAY Board” means
the Board of Directors of BAY.
“BAY Bylaws”
means the Bylaws of BAY, as amended.
“BAY Common Stock”
means shares of BAY common stock, without par value.
BAY Closing Book Value”
means BAY’s total tangible shareholders’ equity on December 31, 2016 excluding, net of tax effect: (a) accumulated
other comprehensive income or loss; and (b) any extraordinary items of income or gain arising out of transactions outside the ordinary
course of business.
“BAY Closing Book Value
Per Share” means the BAY Closing Book Value divided by the number of shares of BAY Common Stock outstanding on December 31,
2016.
“BAY Financial Statements”
means (i) the audited statements of financial condition (including related notes and schedules, if any) of BAY as of December 31,
2015 and 2014, and the statements of operations and comprehensive income, shareholders’ equity and cash flows (including
related notes and schedules, if any) of BAY for each of the years ended December 31, 2015 and 2014, (ii) the unaudited
statements of financial condition (including related notes and schedules, if any) of BAY as of September 30, 2016 and the unaudited
statements of operations and comprehensive income and shareholders’ equity (including related notes and schedules, if any)
of BAY for the nine months ended September 30, 2016, and (iii) the statements of financial condition of BAY (including related
notes and schedules, if any) and the consolidated statements of operations and comprehensive income and shareholders’ equity
(including related notes and schedules, if any) of BAY with respect to the monthly, quarterly and annual periods ending subsequent
to September 30, 2016.
“BAY Loan Property”
has the meaning set forth in Section 5.3(p)
“BAY Material Contract”
has the meaning set forth in Section 5.3(l)(i)
“BAY Shareholders Meeting”
has the meaning set forth in Section 6.7(b).
“BAY Termination Fee”
has the meaning set forth in Section 8.2(a)(ii).
“BAY Voting Agreement”
has the meaning set forth in the recitals to this Agreement.
“BHC” has the
meaning set forth in the recitals to this Agreement.
“BHCA” means
the Bank Holding Company Act of 1956, as amended.
“Burdensome Condition”
has the meaning set forth in Section 7.1(a).
“Business Day”
means Monday through Friday of each week, except a legal holiday recognized as such by the United States government or any day
on which banking institutions in the State of California are authorized or obligated to close.
“Certificate”
has the meaning set forth in Section 3.1(a)(ii).
“CFC” means the
California Financial Code.
“CGCL” means
the California General Corporation Law.
“Closing” has
the meaning set forth in Section 7.1.
“Closing Date”
means the date on which the Effective Time occurs.
“Code” has the
meaning set forth in the recitals to this Agreement.
“Commissioner”
means the Commissioner of the Department of Business Oversight of the State of California.
“Community Reinvestment
Act” means the Community Reinvestment Act of 1977, as amended.
“Confidentiality Agreement”
has the meaning set forth in Section 6.4(c).
“Consents” has
the meaning set forth in Section 6.10.
“D&O Insurance”
has the meaning set forth in Section 6.13(c).
“DBO” means the
Department of Business Oversight of the State of California.
“DBO Permit”
has the meaning set forth in Section 6.15(a).
“Derivatives Contracts”
means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor
transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates,
credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions,
including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding
any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.
“Disclosure Schedule”
has the meaning set forth in Section 5.1.
“Dissenting Shares”
has the meaning set forth in Section 3.1(e).
“DOL” has the
meaning set forth in Section 5.2(n)(i).
“Effective Time”
has the meaning set forth in Section 2.2.
“Environmental Laws”
means any federal, state or local law, statute, code, ordinance, injunction, regulation, order, decree, permit, authorization,
opinion or agency or Governmental Authority requirement relating to: (A) the protection or restoration of the environment,
health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous
Substance, or (C) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property
in connection with any Hazardous Substance.
“Equal Credit Opportunity
Act” means the Equal Credit Opportunity Act, as amended.
“Equity Investment”
means (i) an Equity Security; and (ii) an ownership interest in any company or other entity, any membership interest
that includes a voting right in any company or other entity, any interest in real estate, and any investment or transaction which
in substance falls into any of these categories even though it may be structured as some other form of investment or transaction.
“Equity Security”
means any stock, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract, or voting-trust certificate; any security convertible into
such a security; any security carrying any warrant or right to subscribe to or purchase any such security; and any certificate
of interest or participation in, temporary or interim certificate for, or receipt for any of the foregoing.
“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate”
has the meaning set forth in Section 5.2(n)(iii).
“Exchange Agent”
has the meaning set forth in Section 3.2(a).
“Exchange Fund”
has the meaning set forth in Section 3.2(a).
“Excluded Shares”
means shares of FULB Common Stock owned by BAY, UBB, or FULB, in each case not held (i) in trust accounts, managed accounts
and the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties or (ii) in
respect of a debt previously contracted, as held immediately prior to the Effective Time.
“Fair Housing Act”
means the Fair Housing Act, as amended.
“FDIC” means
the Federal Deposit Insurance Corporation.
“Federal Reserve Act”
means the Federal Reserve Act, as amended.
“Federal Reserve Board”
means the Board of Governors of the Federal Reserve System.
“FHLB” means
the Federal Home Loan Bank of San Francisco.
“Former UBB Employees”
has the meaning set forth in Section 6.16(b).
“FULB” has the
meaning set forth in the preamble to this Agreement.
“FULB Articles”
means the Articles of Incorporation of FULB, as amended.
“FULB Benefit Plans”
has the meaning set forth in Section 5.2(n)(i).
“FULB Board”
means the Board of Directors of FULB.
“FULB Bylaws”
means the Bylaws of FULB, as amended.
“FULB Common Stock”
means the common stock of FULB.
“FULB Financial Statements”
means (i) the audited consolidated statements of financial condition (including related notes and schedules, if any) of FULB
as of September 30, 2015 and, 2014 and the consolidated statements of operations and comprehensive income, shareholders’
equity and cash flows (including related notes and schedules, if any) of FULB for each of the two years ended September 30, 2015
and 2014, (ii) the unaudited consolidated statements of financial condition (including related notes and schedules, if any)
of FULB as of September 30, 2016 and the unaudited consolidated statements of operations and comprehensive income and shareholders’
equity (including related notes and schedules, if any) of FULB for the twelve months ended September 30, 2016, and (iii) the
consolidated statements of financial condition of FULB (including related notes and schedules, if any) and the consolidated statements
of operations and comprehensive income and shareholders’ equity (including related notes and schedules, if any) of FULB with
respect to the monthly, quarterly and annual periods ending subsequent to September 30, 2016.
“FULB Material Contract”
has the meaning set forth in Section 5.2(l)(i).
“FULB Shareholders
Meeting” has the meaning set forth in Section 6.7(b).
“FULB Non-Competition
and Voting Agreement” has the meaning set forth in the recitals to this Agreement.
“GAAP” means
generally accepted accounting principles and practices as in effect from time to time in the United States.
“Governmental Authority”
means any federal, territorial, state or local court, administrative agency or commission or other governmental authority or instrumentality
or self-regulatory organization.
“Hazardous Substance”
means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law, (B) any petroleum,
petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials, radon or urea-formaldehyde insulation, or (C) any other substance which is the subject of regulatory action by
any Governmental Authority in connection with any Environmental Law.
“HOLA” means
the Home Owners’ Loan Act.
“Home Mortgage Disclosure
Act” means the Home Mortgage Disclosure Act, as amended.
“Indebtedness of FULB
and UBB” means the (i) $6,392,000 of Trust Debentures due September 15, 2034, (ii) $6,000,000 promissory note due August
5, 2023 issued to Grandpoint Bank that as of September 30, 2016, has a principal balance of $5,856,434, (iii) the principal and
interest of and premium (if any) in respect of (A) any other indebtedness for money borrowed and (B) any other indebtedness evidenced
by notes, debentures, bonds or other similar instruments for the payment of which such Person is responsible or liable; (iv) all
obligations issued or assumed as the deferred purchase price of property, all conditional sale obligations and all obligations
under any title retention agreement (but excluding trade accounts payable and other accrued current liabilities arising in the
Ordinary Course of Business); (v) all obligations under leases required to be capitalized in accordance with GAAP; (vi) all obligations
for the reimbursement of any obligor on any letter of credit, banker’s acceptance or similar credit transaction; (vii) all
obligations of the type referred to in clauses (iii) and (iv) the payment of which is a direct or indirect obligation, guaranty,
surety or otherwise, including guarantees of such obligations and (vii) all obligations of the type referred to in clauses (iii)
through (vii) of other Persons that are secured by any Lien any property or asset (whether or not such obligation is assumed).
“Indemnified Parties”
has the meaning set forth in Section 6.13(a).
“IRS” has the
meaning set forth in Section 5.2(n)(i).
“Liens” means
any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.
“Loans” has the
meaning set forth in Section 4.1(s).
“Loan Package”
has the meaning set forth in Section 4.1(s).
“Material Adverse Effect”
means with respect to any party, any effect, change, development or occurrence that (i) is material and adverse to the condition
(financial or otherwise), assets, deposits, results of operations, prospects, liabilities or business of such party, taken as a
whole;
provided
that a Material Adverse Effect shall not be deemed to include any effect on the referenced party which is
caused by (A) changes in laws and regulations or interpretations thereof, by Government Authorities, that are applicable to
the banking or savings industries; (B) changes in GAAP or regulatory accounting principles that are applicable to the banking
or savings industries; (C) changes in global, national or regional political conditions or general economic (including interest
rates) or market conditions in the United States and the State of California, State of New Mexico and State of Washington, including
changes in credit availability and liquidity, currency exchange rates, and price levels or trading volumes in the United States
or foreign securities markets affecting other companies in the financial services industry; (D) general changes in the credit
markets or general downgrades in the credit markets; (E) actions or omissions of a party with the prior consent of the other,
in contemplation of this Agreement as required or permitted hereunder, as required under any regulatory approval received in connection
with this Agreement or which have been waived in writing by the other party; (F) the public announcement or consummation of the
transactions contemplated hereby if such announcement is made after prior consent of the other party; (G) any modifications
or changes to valuation policies and practices in connection with the transactions contemplated by this Agreement or restructuring
charges taken in connection with the transactions contemplated by this Agreement, in each case in accordance with GAAP; (H) changes
in the market price of such party’s common stock; or (I) any outbreak or escalation of hostilities, declared or undeclared
acts of war or terrorism; except to the extent that the effects of such change disproportionately affect such party and its subsidiaries,
taken as a whole, as compared to other similarly situated companies in the industry in which such party operates; or (ii) would
materially impede the ability of such party to perform its obligations under this Agreement or otherwise materially impede the
consummation of the transactions contemplated hereby.
“Material Contract”
or “Material Contracts” has the meaning set forth in Section 5.2(l)(i).
“Maximum Amount”
has the meaning set forth in Section 6.13(c).
“Merger” has
the meaning set forth in the recitals to this Agreement.
“National Labor Relations
Act” means the National Labor Relations Act, as amended.
“OCC” means the
Office of the Comptroller of the Currency.
“OREO” means
other real estate owned.
“Party Expenses”
has the meaning set forth in Section 8.2(a)(iii).
“Pension Plan”
has the meaning set forth in Section 5.2(n)(ii).
“Per Share Cash Consideration”
has the meaning set forth in Section 3.1(a)(ii).
“Per Share Merger Consideration”
has the meaning set forth in Section 3.1(a).
“Per Share Stock Consideration”
has the meaning set forth in Section 3.1(a)(ii).
“Person” means
any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or
unincorporated organization.
“Previously Disclosed”
with regard to a party means information set forth in its Disclosure Schedule;
provided, however
, that disclosure in any
section of such Disclosure Schedule shall apply only to the indicated section of this Agreement except to the extent that it is
reasonably apparent from the face of such disclosure that such disclosure is relevant to another section of this Agreement.
“Proxy Statement-Offering
Circular” has the meaning set forth in Section 6.7(a).
“Record Holder”
has the meaning set forth in Section 3.2(b)
“Regulatory Approvals”
means the approval, non-disapproval and/or non-objection of any bank regulator or other Governmental Authority that is necessary
in connection with the consummation of the Merger, the Bank Merger, and the related transactions contemplated by this Agreement.
“Representatives”
has the meaning set forth in Section 6.5(a).
“Requisite Shareholder
Approval” means, with respect to BAY, BHC, FULB, and UBB the approval of its shareholders required to consummate the Merger
and the Bank Merger in accordance with the CGCL and the CFC, as applicable.
“Rights” means,
with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments of any character
that obligate the Person to sell, purchase, issue or dispose of any of its capital stock or other ownership interests or other
securities representing the right to purchase or otherwise receive any of its capital stock or other ownership interests.
“SEC” means the
U.S. Securities and Exchange Commission.
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Shares” has
the meaning set forth in Section 3.1(a).
“Subsidiary”
has the meaning ascribed to such term in Rule l-02 of Regulation S-X of the SEC.
“Superior Proposal”
means any unsolicited, bona fide binding written Acquisition Proposal that is not obtained in breach of this Agreement and that
the FULB Board determines in good faith (after consultation with outside counsel and a financial advisor of nationally recognized
reputation), taking into account the identity of the Person making the proposal, all legal, financial, regulatory and other aspects
of the Acquisition Proposal and this Agreement (including any proposal to adjust the terms and conditions of this Agreement) including
any break up fees, expense reimbursement provisions, conditions to and expected timing and risks of consummation and the form of
consideration offered and the ability of the party making such proposal to obtain financing and whether such financing is then
fully committed for such Acquisition Proposal, and after taking into account all other legal, financial, strategic, regulatory
and other aspects of such proposal (i) is more favorable from a financial point of view to its shareholders than the Merger, (ii)
is reasonably likely to receive all necessary Regulatory Approvals for the consummation of the transactions contemplated by the
Superior Proposal; (iii) does not contain any condition to closing or similar contingency related to the ability of the party making
such proposal to obtain financing; and (iv) is reasonably likely of being completed on the terms proposed on a timely basis.
“Tax” and “Taxes”
mean (i) any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), custom duties, capital stock, franchise,
profits, net worth, margin, capital production, withholding, social security (or similar excises), unemployment, disability, ad
valorem, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether or not disputed, by any Governmental
Authority responsible for imposition of any such tax (domestic or foreign), (ii) liability for the payment of any amount of
the type described in clause (i) as a result of being or having been on or before the Closing Date a member of an affiliated,
consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of a Person
to a Governmental Authority is determined or taken into account with reference to the liability of any other Person, and (iii) liability
for the payment of any amount as a result of being party to any tax sharing agreement or with respect to the payment of any amount
of the type described in (i) or (ii) as a result of any existing express or implied obligation (including an indemnification
obligation).
“Tax Returns”
means any return (including any amended return), declaration or other report (including elections, declarations, claims for refund,
schedules, estimates and information returns) with respect to any Taxes (including estimated taxes).
“Trust Debentures”
has the meaning set forth in Section 6.8.
“UBB” has the
meaning set forth in the preamble to this Agreement.
“UBB Charter”
means the Federal Stock Association Charter of UBB, as amended.
“UBB Board” means
the Board of Directors of UBB.
“UBB Common Stock”
means the common stock of UBB.
“UBB Loan Property”
has the meaning set forth in Section 5.2(p).
“USA PATRIOT Act”
means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, as amended.
ARTICLE II
THE MERGERS AND RELATED
MATTERS
2.1
The
Mergers; Surviving Entities
.
(a)
The
Mergers
. Subject to the terms and conditions of this Agreement, and pursuant to the applicable provisions of the CGCL and the
CFC, federal law and, to the extent applicable, the rules and regulations promulgated by the DBO, and the Federal Reserve Board,
at the Effective Time, FULB shall be merged with and into BHC, with BHC as the surviving corporation. Subject to the terms and
conditions of this Agreement, and pursuant to the applicable provisions of the CGCL and the CFC, federal law and, to the extent
applicable, the rules and regulations promulgated by the DBO and FDIC, immediately following the Merger Effective Time, UBB shall
be merged with and into BAY, with BAY as the surviving bank.
(b)
Surviving
Entities
. Upon the consummation of the Merger, the separate corporate existence of FULB shall cease and BHC shall continue
as the surviving entity under the laws of the State of California. The name of “BayCom Corp.” as the surviving entity
of the Merger shall remain “BayCom Corp.” From and after the Effective Time, BHC, as the surviving entity of the Merger,
shall possess all of the properties and rights and be subject to all of the liabilities and obligations of FULB. Upon the consummation
of the Bank Merger, the separate corporate existence of UBB shall cease and BAY shall continue as the surviving entity under the
laws of the State of California. The name of “Bay Commercial Bank” as the surviving entity of the Bank Merger shall
remain “Bay Commercial Bank. From and after the Bank Merger Effective Time, BAY, as the surviving entity of the Bank Merger,
shall possess all of the properties and rights and be subject to all of the liabilities and obligations of UBB.
(c)
Articles
of Incorporation and Bylaws of the Surviving Entities
. The Articles of Incorporation and Bylaws of BHC, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation and Bylaws of BHC, as the surviving corporation of the Merger,
until either is thereafter amended in accordance with applicable law. The Articles of Incorporation and Bylaws of BAY, as in effect
immediately prior to the Bank Merger Effective Time, shall be the Articles of Incorporation and Bylaws of BAY, as the surviving
corporation of the Bank Merger, until either is thereafter amended in accordance with applicable law
(d)
Directors
and Officers of the Surviving Entities
. The directors and officers of BHC immediately prior to the Effective Time shall be
the directors and officers of BHC, as the surviving corporation of the Merger, until their respective successors shall be duly
elected and qualified or otherwise duly selected, and the directors and officers of BAY immediately prior to the Bank Merger Effective
Time shall be the directors and officers of BAY, as the surviving corporation of the Bank Merger, until their respective successors
shall be duly elected and qualified or otherwise duly selected,
provided, however
, that the BHC Board shall take all actions
legally necessary to cause the number of directors that will comprise the full BHC Board promptly after the Effective Time to be
increased by two (2), which two (2) vacancies shall be filled by Malcolm Hotchkiss and Rocco Davis (the “New BHC Directors”).
If either of the New BHC Directors do not accept the appointment to the BHC Board, then the vacancy shall be filled from other
members of the FULB Board or UBB Board, as chosen by BAY.
2.2
Filing
of Agreement of Merger
. As soon as practicable, but in no event later than the tenth (10
th
) calendar day after which
each of the conditions set forth in Article VII hereof has been satisfied or waived (other than those conditions that by their
nature are to be satisfied at Closing) or such other time as the parties may agree, BHC and FULB will file, or cause to be filed,
with the California Secretary of State an agreement of merger in substantially the form of Annex C to this Agreement, effecting
the Merger, and the Merger shall become effective at that time (the “Effective Time”). Immediately following the Effective
Time, BAY and UBB will file, or cause to be filed, with the California Secretary of State and DBO an agreement of merger, effecting
the Bank Merger, and the Bank Merger shall become effective at that time (the “Bank Merger Effective Time”).
ARTICLE III
EFFECT OF THE MERGER
ON CAPITAL STOCK
3.1
Effect
on Capital Stock
. At the Effective Time, as a result of the Merger and without any action on the part of the holder of any
capital stock of FULB:
(a)
Effect
on FULB Common Stock
. Each share of FULB Common Stock (collectively, the “Shares”) issued and outstanding immediately
prior to the Effective Time (other than Excluded Shares and Dissenting Shares) shall be converted into the right to receive the
following (the “Per Share Merger Consideration”):
(i) $13.50
in cash (the “Per Share Cash Consideration”); and
(ii) 0.9733
shares of BHC Common Stock (the “Per Share Stock Consideration”).
At the Effective Time, all of the Shares shall
cease to be outstanding, shall be cancelled and shall cease to exist, and each certificate (each, a “Certificate”,
it being understood that any reference herein to “Certificate” shall be deemed, as appropriate, to include reference
to book-entry account statements relating to the ownership of shares of FULB Common Stock, and it being further understood that
provisions herein relating to Certificates shall be interpreted in a manner that appropriately accounts for book-entry shares,
including that, in lieu of delivery of a Certificate and a letter of transmittal as specified herein, shares held in book-entry
form may be transferred by means of an “agent’s message” to the Exchange Agent or such other evidence of transfer
as the Exchange Agent may reasonably request) formerly representing any of the Shares (other than Excluded Shares and Dissenting
Shares) shall thereafter represent only the right to receive the Per Share Merger Consideration, without interest.
(b)
Effect
on BHC Common Stock
. The shares of BHC Common Stock issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and shall not be converted or otherwise affected by the Merger.
(c)
No
Effect on Capital Stock of BAY
. The Merger shall have no effect on the capital stock of BAY.
(d)
Cancellation
of Excluded Shares
. Each Excluded Share shall, as a result of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be cancelled without payment of any consideration therefor and cease to exist.
(e)
Dissenting
Shares
. Any shares of FULB Common Stock or BHC Common Stock held by a Person who dissents from the Merger in accordance with
the provisions of applicable law shall be herein called “Dissenting Shares.” Notwithstanding any other provision of
this Agreement, any Dissenting Shares shall not, after the Effective Time, be entitled to vote for any purpose or receive any dividends
or other distributions and shall be entitled only to such rights as are afforded in respect of Dissenting Shares pursuant to applicable
law. The Per Share Merger Consideration for any Dissenting Share shall be paid over to BHC by the Exchange Agent pending the determination
as to the rights of any Dissenting Share to consideration under applicable laws.
(f)
Tax
Adjustment
. If the Merger fails to satisfy the “continuity of interest” requirements under applicable federal income
tax principles relating to reorganizations under Section 368(a) of the Code, then BHC shall reduce the Per Share Cash Consideration
(and increase the Per Share Stock Consideration accordingly) to the minimum extent necessary to enable the Merger to meet the requirements
for reorganization under Section 368(a) of the Code. The number of shares of BHC Common Stock by which the Per Share Stock Consideration
will be increased will be equal to the amount by which the Per Share Cash Consideration is reduced divided by Bay Closing Book
Value Per Share.
3.2
Exchange
of Certificates
.
(a)
Exchange
Agent
. At the Effective Time, BHC shall make available or cause to be made available to an exchange agent selected by BHC with
FULB’s prior approval, which shall not be unreasonably withheld (the “Exchange Agent”), amounts in cash and BHC
Common Stock sufficient in order for the Exchange Agent to distribute the Per Share Merger Consideration (the “Exchange Fund”).
The Exchange Agent shall invest the cash portion of the Exchange Fund as directed by BHC; provided that such investments shall
be in a bank account of a federally insured depository institution or in short term (90 days or less) obligations of or guaranteed
by the United States of America. Any interest and other income resulting from such investment shall become a part of the Exchange
Fund, and any amounts in excess of the amounts payable under Section 3.1 shall be promptly returned to BHC.
(b)
Exchange
Procedures
. As soon as practicable after the Effective Time (and in no event later than five (5) Business Days after the Effective
Time), BHC shall cause the Exchange Agent to mail to each Person that was, immediately prior to the Effective Time, a holder of
shares of BHC Common Stock (a “Record Holder”) (other than holders of Excluded Shares and Dissenting Shares) represented
by Certificates: (i) a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu of the Certificates as provided
in Section 3.2(g)) to the Exchange Agent, such customary letter of transmittal to be in such form and have such other provisions
as BAY and FULB may reasonably agree; and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits
of loss in lieu of the Certificates as provided in Section 3.2(g)) in exchange for the Per Share Merger Consideration. Upon surrender
of the Certificates for exchange and cancellation to the Exchange Agent, together with such letter of transmittal duly completed
and executed, the Record Holder shall be entitled to promptly receive in exchange for each share of FULB Common Stock represented
by such surrendered Certificates: (i) the Per Share Stock Consideration, if any, which such Record Holder has the right to receive
pursuant to Section 3.1(a)(ii) hereof; and (ii) the Per Share Cash Consideration which the Record Holder has the right to receive
pursuant to Section 3.1(a)(i) hereof (after giving effect to any required Tax withholdings as provided in Section 3.3), with any
amount of less than one cent being rounded up to the nearest whole number. Certificates so surrendered shall be cancelled. No interest
will be paid or accrued on any amount payable upon due surrender of the Certificates. BHC and BAY shall be entitled to rely upon
the stock transfer books of FULB to establish the identity of those persons entitled to receive the Per Share Merger Consideration
specified in this Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership
of stock represented by any Certificate, BHC shall be entitled to deposit the Per Share Merger Consideration in respect thereof
in escrow with an independent third party and thereafter be relieved with respect to any claims thereto.
(c)
Distributions
with Respect to Unexchanged Shares
. All shares of BHC Common Stock to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time and, whenever a dividend or other distribution is declared by BHC in respect of the BHC
Common Stock, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions
in respect of all shares issuable pursuant to this Agreement. No dividends or other distributions in respect of the BHC Common
Stock shall be paid to any holder of any unsurrendered Certificate until such Certificate (or affidavits of loss in lieu of the
Certificate as provided in Section 3.2(g)) is surrendered for exchange in accordance with this Article III. Subject to the effect
of applicable laws, following surrender of any such Certificate (or affidavits of loss in lieu of the Certificate as provided in
Section 3.2(g)), there shall be issued and/or paid to the holder of the certificates representing whole shares of BHC Common Stock
issued in exchange therefor, without interest, (A) at the time of such surrender, the dividends or other distributions with
a record date at or after the Effective Time theretofore payable with respect to such whole shares of BHC Common Stock and not
paid and (B) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares
of BHC Common Stock with a record date at or after the Effective Time and a payment date subsequent to the time of such surrender.
(d)
Transfers
.
The Per Share Merger Consideration delivered in accordance with the terms of this Article III upon the surrender of the Certificates
shall be deemed to have been delivered in full satisfaction of all rights pertaining to such Shares (other than the right to receive
the payments and deliveries contemplated by this Article III). At the Effective Time, holders of Certificates shall cease to have
rights with respect to FULB Common Stock previously represented by such Certificates, and such holders’ sole rights (other
than the holders of Certificates representing Dissenting Shares) shall be to exchange such Certificates for the Per Share Merger
Consideration in respect of the shares represented thereby. From and after the Effective Time, there shall be no further registration
of transfers on the stock transfer books of FULB of the Shares that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, any Certificate is presented to BHC or the Exchange Agent for transfer, it shall be cancelled and exchanged
for the Per Share Merger Consideration to which the holder of the Certificate is entitled pursuant to this Article III.
(e)
Fractional
Shares
. Notwithstanding any other provision of this Agreement, no fractional shares of BHC Common Stock will be issued in respect
of a holder’s Shares. In lieu thereof, any holder of Shares entitled to receive a fractional share of BHC Common Stock but
for this Section 3.2(e) shall be entitled to receive a cash payment, which payment shall be calculated by the Exchange Agent as
an amount equal to the product of (i) such fractional share interest times (ii) BAY Closing Book Value Per Share. All fractional
shares to which a single record holder of Shares would otherwise be entitled to receive hereunder shall be aggregated and calculations
shall be rounded to three decimal places.
(f)
Termination
of Exchange Fund
. Any portion of the Exchange Fund (including cash, certificates representing shares of BHC Common Stock and
the proceeds of any investments of the Exchange Fund) that remains unclaimed by the shareholders of FULB for 180 days after the
Effective Time (or such other time as shall be expressly provided in the agreement with the Exchange Agent with respect to the
Exchange Fund), shall be delivered to BHC. Any holder of Shares (other than Excluded Shares and Dissenting Shares) that has not
theretofore complied with this Article III shall, after any remaining portion of the Exchange Fund has been delivered to BHC, thereafter
look only to BHC for payment of the Per Share Merger Consideration (after giving effect to any required tax withholdings as provided
in Section 3.3) upon due surrender of its Certificates (or affidavits of loss in lieu of the Certificates), without any interest
thereon. Notwithstanding the foregoing, none of BHC, BAY, the Exchange Agent or any other Person shall be liable to any former
holder of Shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar
Laws.
(g)
Lost,
Stolen or Destroyed Certificates
. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by BHC, the
posting by such Person of a bond in customary amount and upon such terms as may be reasonably required by BHC as indemnity against
any claim that may be made against it with respect to such Certificate, the Exchange Agent will distribute the Per Share Merger
Consideration with respect to each Share represented by such lost, stolen or destroyed Certificate.
3.3
Withholding
Rights
. Each of BHC, BAY and Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable
pursuant to this Agreement to any holder of shares of FULB Common Stock such amounts as it is required to deduct and withhold with
respect to the making of such payment under the Code, or any other applicable state, local or foreign Tax law. To the extent that
amounts are so withheld by BHC, BAY or Exchange Agent, such withheld amounts (i) shall be timely remitted by BHC or BAY to
the applicable Governmental Authority, and (ii) shall be treated for all purposes of this Agreement as having been paid to
the holder of shares of FULB Common Stock in respect of which such deduction and withholding was made by BHC or BAY, as the case
may be.
ARTICLE IV
ACTIONS PENDING THE MERGER
4.1
Forbearances
by FULB and UBB
. From the date hereof and until the Effective Time, except as expressly contemplated or permitted by this Agreement,
required by a Governmental Authority of competent jurisdiction or as Previously Disclosed or as reasonably requested by BAY, without
the prior written consent of BAY (which such consent shall not be unreasonably withheld or delayed), each of FULB and UBB shall
not:
(a)
Ordinary
Course
. Conduct its respective business other than in the ordinary and usual course consistent with past practice and in compliance
with all laws and prudent business and banking practices, or fail to use commercially reasonable best efforts to preserve its business
organization, keep available the present services of its employees and preserve for itself and the other parties the goodwill of
its customers and others with whom business relations exist.
(b)
Capital
Stock
. (i) Issue, sell or otherwise permit to become outstanding, or authorize the issuance of or creation of, any additional
shares of stock or any Rights or other Rights (other than the issuance of common stock upon exercise of stock options outstanding
on the date of this Agreement in accordance with their respective terms), (ii) adjust, split, combine or reclassify any capital
stock, (iii) enter into any agreement, understanding or arrangement with respect to the sale or voting of common stock or
(iv) directly or indirectly redeem, purchase or otherwise acquire any shares of capital stock or equity interests or any securities
or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain
events) into or exchangeable for any shares of capital stock or equity interests.
(c)
Dividends
.
Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on, any shares
of its capital stock.
(d)
Compensation;
Employment Agreements; Etc
. Except as set forth on
Schedule 4.1(d)
of the Disclosure Schedule, enter into, amend, renew
or accelerate the vesting or payment under, any employment, consulting, severance, change in control, bonus, salary continuation
or other similar agreements, arrangements or benefit plans with any current or former director, officer or employee or grant any
salary or wage increase or award any incentive or other bonus payment or increase any employee benefit (including incentive or
bonus payments), except (i) for other changes that are required by applicable law, (ii) to satisfy contractual obligations
existing as of the date hereof as Previously Disclosed, or (iii) normal annual merit salary increases made in the ordinary
course of business consistent in amount and timing with past practices to employees (other than executive officers).
(e)
Hiring
.
Hire any person as an employee of or promote any employee, except (i) to satisfy contractual obligations existing as of the
date hereof as Previously Disclosed or (ii) to fill any vacancies arising after the date hereof and whose employment is terminable
at will and who are not subject to or eligible for any severance or similar benefits or payments that would become payable as a
result of the transactions contemplated hereby or the consummation thereof.
(f)
Benefit
Plans
. Enter into, establish, adopt, amend or terminate, or make any contributions to, except (i) as may be required by
applicable law or (ii) to satisfy contractual obligations existing as of the date hereof as Previously Disclosed, any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan, grant, award or arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any current or former director, officer or employee or take any action to accelerate the vesting
or exercisability of any compensation or benefits payable thereunder, other than actions related to the transactions contemplated
by this Agreement.
(g)
Dispositions
.
Except in the ordinary course of business, (i) sell, transfer, mortgage, license, encumber or otherwise dispose of or discontinue
any of its assets, rights, deposits, business or properties outside the ordinary course of business in a transaction that, in the
aggregate, exceeds $50,000; or (ii) sell, transfer, mortgage, license, encumber or otherwise dispose of any assets, rights, deposits,
business or properties at a price that is less than the book value as of September 30, 2016.
(h)
Acquisitions
.
Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice),
including by merger or consolidation, purchasing any equity interest in or making any investment in a partnership or joint venture,
all or any portion of the assets, business, securities (other than by way of foreclosures or acquisitions in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent
with past practice), deposits or properties of any other Person.
(i)
Capital
Expenditures
. Other than in accordance with binding commitments existing on the date hereof as Previously Disclosed, other
than capital expenditures in the ordinary course of business consistent with past practice, and other than capital expenditures
Previously Disclosed, make any capital expenditures in amounts not exceeding $25,000 per project or $100,000 in the aggregate except
for emergency repairs or replacements.
(j)
Governing
Documents
. Amend its articles or certificate of incorporation, bylaws or any other governing documents or enter into a plan
of consolidation, merger, share exchange or reorganization with any Person, or a letter of intent or agreement in principle with
respect thereto.
(k)
Accounting
Methods
. Implement or adopt any change in its accounting principles, practices or methods, other than (i) as may be required
by changes in laws, regulations or GAAP, (ii) for tax purposes or (iii) to take advantage of any beneficial tax or accounting methods.
(l)
Contracts
.
Enter into, cancel, fail to renew or terminate any Material Contract, amend or modify in any material respect any of its existing
Material Contracts or real or personal property leases or waive, release, relinquish or assign any Material Contract or real or
personal property lease (or any rights thereunder), other than (i) as otherwise permitted under this Agreement, (ii) in the
ordinary course of business consistent with past practice or (iii) to replace any existing contractual arrangement on substantially
the same terms as the original agreement, including with respect to pricing and termination.
(m)
Claims
.
Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which it
is or becomes a party after the date of this Agreement, which settlement, agreement or action involves payment of an amount which
exceeds $10,000 in excess of amounts contributed by insurance and/or would impose any material restriction on its business.
(n)
Banking
Operations
. Enter into any new line of business; introduce any significant new products or services; materially change its
lending, investment, underwriting, pricing, servicing, risk and asset liability management and other material banking and operating
policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority, or the manner in
which its investment securities or loan portfolio is classified or reported; or file any application or enter into any contract
with respect to the opening, relocation or closing of, or open, relocate or close, any branch, office servicing center or other
facility.
(o)
Marketing
.
Introduce any marketing campaigns or any new sales compensation or incentive programs or arrangements.
(p)
Derivatives
Contracts
. Enter into any Derivatives Contract, except in the ordinary course of business consistent with past practice.
(q)
Indebtedness
.
Incur any indebtedness for borrowed money (other than deposits, escrow balances, federal funds purchased, cash management accounts,
FHLB advances, in each case in the ordinary course of business consistent with past practice); or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any other Person, other than with respect to the collection
of checks and other negotiable instruments in the ordinary course of business consistent with past practice.
(r)
Investment
Securities
. Acquire or otherwise invest in (other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with
past practice) any (i) Equity Investment, or (ii) debt security, in each case other than in the ordinary course of business
consistent with past practice.
(s)
Loans
.
Except to satisfy contractual obligations existing as of the date hereto, (i) make, renew or otherwise modify any loan, loan
commitment, letter of credit or other extension of credit originated or to be originated (collectively, “
Loans
”)
in a manner that is inconsistent with its ordinary course of business, inconsistent with its lending policies and procedures in
effect as of the date of this Agreement, or in the case of a modification or renewal would reduce the outstanding unpaid principal,
interest, and other amounts owed under the Loan prior to its modification or renewal; (ii) take any action that would result
in any discretionary release of collateral or guarantees or otherwise restructure the respective amounts set forth in clause (i)
above; (iii) make or commit to make any Loan to, or enter into any transaction with, any directors, officers, employees or
any of its Affiliates; or (iv) enter into any Loan securitization or create any special purpose funding entity. For any new
Loan to be originated by UBB or renewal in a principal amount such that the total loans outstanding to such borrower, including
unfunded commitments would be, in excess of $2,500,000, prior to committing to extend or renew such Loan, UBB shall provide BAY
with a copy of the loan underwriting analysis and credit memo of UBB with respect to the proposed Loan (the “
Loan Package
”).
UBB shall consider any comments that may be raised by BAY within forty-eight (48) hours of BAY’s receipt of the Loan Package.
If BAY fails to respond to UBB within forty-eight (48) hours after receipt by BAY of the Loan Package, BAY shall be deemed to have
no comments on such Loan.
(t)
Investments
in Real Estate
. Make any investment or commitment to invest in real estate or in any real estate development project (other
than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted
in good faith, in each case in the ordinary course of business consistent with past practice).
(u)
Adverse
Actions
. Knowingly take or fail to take any action: (i) that is intended or may reasonably be expected to result in (A) any
of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time or (B) any of the conditions to the transactions contemplated set forth in Section 7.2 not
being satisfied or (ii) which would reasonably be expected to materially and adversely impair or delay consummation of the
transactions contemplated hereby beyond the time period contemplated by this Agreement, except, in each case, as may be required
by applicable law or regulation.
(v)
Tax
Elections
. Except as expressly contemplated by this Agreement, make or change any material Tax election, settle or compromise
any of its material Tax liabilities, agree to an extension or waiver of the statute of limitations with respect to the assessment
or determination of a material amount of its Taxes, enter into any closing agreement with respect to any material amount of its
Taxes or surrender any right to claim a material amount of its Tax refund, adopt or change any method of accounting with respect
to its Taxes, or file any amended Tax Return.
(w)
Antitakeover
Statutes
. Take any action (i) that would cause this Agreement or the transactions contemplated hereby to be subject to
the provisions of any state antitakeover law or state or territorial law that purports to limit or restrict business combinations
or the ability to acquire or vote shares (“
Antitakeover Law
”) or (ii) to exempt or make not subject to
the provisions of any Antitakeover Law or state law that purports to limit or restrict business combinations or the ability to
acquire or vote shares, any Person or any action taken thereby, which Person or action would have otherwise been subject to the
restrictive provisions thereof and not exempt therefrom.
(x)
Affiliate
Transactions
. Enter into any transaction, commitment, arrangement or other activity with a related entity, Affiliate or Subsidiary
other than (i) compensation in the ordinary course of business consistent with past practice, (ii) loans, subject to subsection
4.1(s), or (iii) deposit transactions.
(y)
Interest
on Deposits
. Increase the rate of interest paid on interest-bearing deposits or on certificates of deposit, except in a manner
and pursuant to policies and the ordinary course of business consistent with past practices and otherwise consistent with general
economic and competitive conditions in UBB’s market area.
(z)
Commitments
.
Enter into any contract with respect to, or otherwise agree, authorize or commit to take, or publicly recommend, propose or announce
an intention to take, any of the foregoing actions.
4.2
Forbearances
of BAY
. From the date hereof and until the Effective Time, except as expressly contemplated or permitted by this Agreement,
required by a Governmental Authority of competent jurisdiction or as Previously Disclosed, without the prior written consent of
FULB (which such consent shall not be unreasonably withheld or delayed), BAY shall not:
(a)
Ordinary
Course
. Conduct its business other than in the ordinary and usual course consistent with past practice and in compliance with
all laws and prudent business and banking practices, or fail to use commercially reasonable best efforts to preserve its business
organization, keep available the present services of its employees and preserve for itself and the other parties the goodwill of
its customers and others with whom business relations exist.
(b)
Capital
Stock
. (i) Issue, sell or otherwise permit to become outstanding, or authorize the issuance of or creation of, any additional
shares of stock or any Rights or permit any shares of stock to become subject to grants of employee or director stock options or
other Rights (other than the issuance of common stock upon exercise of stock options outstanding on the date of this Agreement
in accordance with their respective terms) other than shares of BAY Common Stock issued to the BHC in the bank holding company
reorganization, (ii) adjust, split, combine or reclassify any capital stock, (iii) enter into any agreement, understanding or arrangement
with respect to the sale or voting of common stock other than shares issued to the BHC in the bank holding company reorganization
or (iv) directly or indirectly redeem, purchase or otherwise acquire any shares of capital stock or equity interests or any securities
or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain
events) into or exchangeable for any shares of capital stock or equity interests.
(c)
Dividends;
Share Issuances
. Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution
on, any shares of its capital stock, or redeem any shares of its capital stock.
(d)
Compensation; Employment Agreements; Etc
. Except as set forth on
Schedule 4.2(d)
of the Disclosure Schedule, enter
into, amend, renew or accelerate the vesting or payment under, any employment, consulting, severance, change in control, bonus,
salary continuation or other similar agreements, arrangements or benefit plans with any current or former director, officer or
employee or grant any salary or wage increase or award any incentive or other bonus payment or increase any employee benefit (including
incentive or bonus payments), except (i) for other changes that are required by applicable law, (ii) to satisfy contractual
obligations existing as of the date hereof as Previously Disclosed, or (iii) normal annual merit salary increases made in
the ordinary course of business consistent in amount and timing with past practices to employees (other than executive officers).
(e)
Hiring
.
Hire any person as an employee of or promote any employee, except (i) to satisfy contractual obligations existing as of the
date hereof as Previously Disclosed or (ii) to fill any vacancies arising after the date hereof and whose employment is terminable
at will and who are not subject to or eligible for any severance or similar benefits or payments that would become payable as a
result of the transactions contemplated hereby or the consummation thereof.
(f)
Benefit
Plans
. Enter into, establish, adopt, amend or terminate, or make any contributions to, except (i) as may be required by
applicable law or (ii) to satisfy contractual obligations existing as of the date hereof as Previously Disclosed, any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan, grant, award or arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any current or former director, officer or employee or take any action to accelerate the vesting
or exercisability of any compensation or benefits payable thereunder, other than actions related to the transactions contemplated
by this Agreement.
(g)
Dispositions
.
Except in the ordinary course of business, (i) sell, transfer, mortgage, license, encumber or otherwise dispose of or discontinue
any of its assets, rights, deposits, business or properties outside the ordinary course of business in a transaction that, in the
aggregate, exceeds $100,000; or (ii) sell, transfer, mortgage, license, encumber or otherwise dispose of any assets, rights, deposits,
business or properties at a price that is less than the book value as of September 30, 2016.
(h)
Acquisitions
.
Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice),
including by merger or consolidation, purchasing any equity interest in or making any investment in a partnership or joint venture,
all or any portion of the assets, business, securities (other than by way of foreclosures or acquisitions in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent
with past practice), deposits or properties of any other Person.
(i)
Capital
Expenditures
. Other than in accordance with binding commitments existing on the date hereof, other than capital expenditures
in the ordinary course of business consistent with past practice, and other than capital expenditures Previously Disclosed, make
any capital expenditures in amounts not exceeding $50,000 per project or $100,000 in the aggregate except for emergency repairs
or replacements.
(j)
Governing
Documents
. Amend its articles or certificate of incorporation, bylaws or any other governing documents or enter into a plan
of consolidation, merger, share exchange or reorganization with any Person, or a letter of intent or agreement in principle with
respect thereto.
(k)
Accounting
Methods
. Implement or adopt any change in its accounting principles, practices or methods, other than (i) as may be required
by changes in laws, regulations or GAAP, (ii) for tax purposes or (iii) to take advantage of any beneficial tax or accounting methods.
(l)
Contracts
.
Enter into, cancel, fail to renew or terminate any Material Contract, amend or modify in any material respect any of its existing
Material Contracts or real or personal property leases or waive, release, relinquish or assign any Material Contract or real or
personal property lease (or any rights thereunder), other than (i) as otherwise permitted under this Agreement, (ii) in the
ordinary course of business consistent with past practice, or (iii) to replace any existing contractual arrangement on substantially
the same terms as the original agreement, including with respect to pricing and termination.
(m)
Claims
.
Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which it
is or becomes a party after the date of this Agreement, which settlement, agreement or action involves payment of an amount which
exceeds $25,000 in excess of amounts contributed by insurance and/or would impose any material restriction on its business.
(n)
Banking
Operations
. Enter into any new line of business; introduce any significant new products or services; materially change its
lending, investment, underwriting, pricing, servicing, risk and asset liability management and other material banking and operating
policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority, or the manner in
which its investment securities or loan portfolio is classified or reported; or file any application or enter into any contract
with respect to the opening, relocation or closing of, or open, relocate or close, any branch, office servicing center or other
facility.
(o)
Marketing
.
Introduce any marketing campaigns or any new sales compensation or incentive programs or arrangements.
(p)
Derivatives
Contracts
. Enter into any Derivatives Contract, except in the ordinary course of business consistent with past practice.
(q)
Indebtedness
.
Incur any indebtedness for borrowed money (other than deposits, escrow balances, federal funds purchased, cash management accounts,
FHLB advances, in each case in the ordinary course of business consistent with past practice); or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any other Person, other than with respect to the collection
of checks and other negotiable instruments in the ordinary course of business consistent with past practice.
(r)
Investment
Securities
. Acquire or otherwise invest in (other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with
past practice) any (i) Equity Investment, or (ii) debt security other than in the ordinary course of business consistent
with past practice.
(s)
Loans
.
Except to satisfy contractual obligations existing as of the date hereto, (i) Make, renew or otherwise modify any Loans in
a manner that is inconsistent with its ordinary course of business, inconsistent with its lending policies and procedures in effect
as of the date of this Agreement, or in the case of a modification or renewal would reduce the outstanding unpaid principal, interest,
and other amounts owed under the Loan prior to its modification or renewal; (ii) take any action that would result in any
discretionary release of collateral or guarantees or otherwise restructure the respective amounts set forth in clause (i) above;
(iii) make or commit to make any Loan to, or enter into any transaction with, any directors, officers, employees or any of
its Affiliates; or (iv) enter into any Loan securitization or create any special purpose funding entity. For any new Loan
to be originated by BAY or renewal in a principal amount such that the total loans outstanding to such borrower, including unfunded
commitments would be, in excess of $5,000,000, prior to committing to extend or renew such Loan, BAY shall provide UBB with a copy
of the loan underwriting analysis and credit memo of BAY with respect to the proposed Loan (the “
Loan Package
”).
BAY shall consider any comments that may be raised by UBB within forty-eight (48) hours of UBB’s receipt of the Loan Package.
If UBB fails to respond to BAY within forty-eight (48) hours after receipt by UBB of the Loan Package, UBB shall be deemed to have
no comments on such Loan.
(t)
Investments
in Real Estate
. Make any investment or commitment to invest in real estate or in any real estate development project (other
than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted
in good faith, in each case in the ordinary course of business consistent with past practice).
(u)
Adverse
Actions
. Knowingly take or fail to take any action: (i) that is intended or may reasonably be expected to result in (A) any
of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time or (B) any of the conditions to the transactions contemplated set forth in Section 7.3 not
being satisfied or (ii) which would reasonably be expected to materially and adversely impair or delay consummation of the
transactions contemplated hereby beyond the time period contemplated by this Agreement, except, in each as may be required by applicable
or regulation.
(v)
Tax
Elections
. Except as expressly contemplated by this Agreement, make or change any material Tax election, settle or compromise
any of its material Tax liabilities, agree to an extension or waiver of the statute of limitations with respect to the assessment
or determination of a material amount of its Taxes, enter into any closing agreement with respect to any material amount of its
Taxes or surrender any right to claim a material amount of its Tax refund, adopt or change any method of accounting with respect
to its Taxes, or file any amended Tax Return.
(w)
Antitakeover
Statutes
. Take any action (i) that would cause this Agreement or the transactions contemplated hereby to be subject to
the provisions of Antitakeover Law or (ii) to exempt or make not subject to the provisions of any Antitakeover Law or state
law that purports to limit or restrict business combinations or the ability to acquire or vote shares, any Person or any action
taken thereby, which Person or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom.
(x)
Affiliate
Transactions
. Enter into any transaction, commitment, arrangement or other activity with a related entity, Affiliate or Subsidiary
other than (i) compensation in the ordinary course of business consistent with past practice, (ii) loans, subject to subsection
4.2(s), or (iii) deposit transactions.
(y)
Interest
on Deposits
. Increase the rate of interest paid on interest-bearing deposits or on certificates of deposit, except in a manner
and pursuant to policies and the ordinary course of business consistent with past practices and otherwise consistent with general
economic and competitive conditions in BAY’s market area.
(z)
Commitments
.
Enter into any contract with respect to, or otherwise agree, authorize or commit to take, or publicly recommend, propose or announce
an intention to take, any of the foregoing actions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1
Disclosure
Schedules
. On or prior to the date hereof, FULB and UBB have delivered to BAY, and BAY has delivered to FULB and UBB, a confidential
schedule (the “
Disclosure Schedule
”) setting forth, among other things, items the disclosure of which is necessary
or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception to one
or more representations or warranties contained in Article V or to one or more of its covenants contained in Article IV or Article
VI. Any information disclosure in any section of such party’s Disclosure Schedule shall apply only to the indicated section
of this Agreement except to the extent that it is reasonably apparent from the face of such disclosure that such disclosure is
relevant to another section of this Agreement
5.2
Representations
and Warranties of FULB and UBB
. FULB and UBB hereby jointly and severally represent and warrant to BAY that, except as Previously
Disclosed:
(a)
Organization,
Standing and Authority
. UBB is a federally chartered savings bank duly organized and validly existing under the laws of the
United States that is duly authorized by the OCC to conduct business as a federal savings bank. UBB is duly licensed or qualified
to do business and is in good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct
of its business requires it to be so licensed or qualified, except where failure to be so licensed or qualified would not materially
impair the ability of UBB to perform its obligations under this Agreement or otherwise materially impede the consummation of the
transactions contemplated hereby. UBB has in effect all federal, state, local and foreign governmental authorizations necessary
for it to own or lease its properties and assets and to carry on its business as it is now conducted, except where the failure
to be so authorized would not materially impair the ability of UBB to perform its obligations under this Agreement or otherwise
materially impede the consummation of the transactions contemplated hereby. The deposit accounts of UBB are insured by the FDIC,
in the manner and to the maximum extent provided by applicable law, and UBB has paid all deposit insurance premiums and assessments
required by applicable laws and regulations. FULB is a corporation duly organized and validly existing under the laws of the State
of California. FULB is duly registered as a savings and loan holding company under HOLA. FULB has in effect all federal, state,
local and foreign governmental authorizations necessary for it to own or lease its properties and assets and to carry on its business
as it is now conducted, except where the failure to be so authorized would not materially impair the ability of FULB to perform
its obligations under this Agreement or otherwise materially impede the consummation of the transactions contemplated hereby. The
copies of the UBB Charter, the FULB Articles, the UBB Bylaws, the FULB Bylaws, and the other governing documents of UBB and FULB
which have been previously made available to BAY are true, complete and correct copies of such documents as in effect on the date
of this Agreement. The minute books of UBB and FULB contain true, complete and correct records in all material respects of all
meetings and other material corporate actions held or taken by its board of directors (including committees of its board of directors),
as well as the shareholders of UBB and FULB through the date hereof.
(b)
FULB
Capital Structure
.
(i) The
authorized capital stock of UBB consists of (i) 1,000 shares of UBB Common Stock, $100 par value per share, all of which are
issued and outstanding. UBB does not have any other shares of capital stock authorized, designated, issued or outstanding. FULB
is the record holder of all of the issued and outstanding shares of UBB Common Stock. All outstanding shares of UBB’s capital
stock (i) have been duly authorized and validly issued and are fully paid, non-assessable and not subject to preemptive rights
or similar rights created by statute, the UBB Charter, the UBB Bylaws or any agreement to which UBB is a party, and (ii) have
been offered, sold, issued and delivered by UBB in all material respects in compliance with all applicable laws. There are no declared
or accrued but unpaid dividends with respect to any shares of UBB capital stock.
(ii) The
authorized capital stock of FULB consists of (i) 10,000,000 shares of FULB Common Stock, no par value per share, of which 1,409,938
shares are issued and outstanding as of the date hereof, and (ii) 10,000,000 shares of preferred stock, no par value per share,
none of which are issued and outstanding as of the date hereof. FULB does not have any other shares of capital stock authorized,
designated, issued or outstanding. All outstanding shares of FULB’s capital stock (i) have been duly authorized and
validly issued and are fully paid, non-assessable and not subject to preemptive rights or similar rights created by statute, the
FULB Articles, the FULB Bylaws or any agreement to which FULB is a party, and (ii) have been offered, sold, issued and delivered
by FULB in all material respects in compliance with all applicable laws. There are no declared or accrued but unpaid dividends
with respect to any shares of FULB capital stock.
(iii) Neither
FULB nor UBB currently has in place any stock option plan or any other plan or agreement providing for equity compensation to any
Person.
(iv) There
are no Rights or agreements obligating FULB or UBB to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered,
sold, repurchased or redeemed, any FULB capital stock or any capital stock or equity or other ownership interest of FULB or obligating
FULB to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Right. There are
no outstanding or authorized stock options, stock appreciation, phantom stock, profit participation, or other similar rights with
respect to either FULB or UBB.
(v) Except
for the FULB Non-Competition and Voting Agreements, there are no (i) voting trusts, proxies, or other agreements or understandings
with respect to the voting stock of FULB to which FULB is a party, by which FULB is bound, or of which FULB has knowledge, or (ii) agreements
or understandings to which FULB is a party, by which FULB is bound, or of which FULB has knowledge relating to the registration,
sale or transfer (including agreements relating to rights of first refusal, “co-sale” rights or “drag-along”
rights) of any FULB capital stock. There are no Rights or agreements obligating either FULB or UBB to issue, deliver, sell, repurchase
or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any FULB or UBB capital stock or any capital stock
or equity or other ownership interest of FULB or UBB or obligating FULB or UBB to grant, extend, accelerate the vesting of, change
the price of, otherwise amend or enter into any such Right.
(c)
Subsidiaries
.
FULB owns all of the issued and outstanding shares of UBB and does not own, beneficially, directly or indirectly, any other Equity
Securities or similar interests of any Person or any interest in a partnership or joint venture of any kind. UBB does not own,
beneficially, directly or indirectly, any Equity Securities or similar interests of any Person or any interest in a partnership
or joint venture of any kind.
(d)
Corporate
Power
. Each of FULB and UBB has the corporate power and authority to carry on its respective business as it is now being conducted
and to own all its properties and assets; and each of FULB and UBB has the corporate power and authority to execute, deliver and
perform its respective obligations under this Agreement and to consummate the transactions contemplated hereby, in each case, subject
to receipt of all necessary approvals of Governmental Authorities.
(e)
Corporate
Authority
.
(i) Subject
to receipt of the Requisite Shareholder Approval, this Agreement and the transactions contemplated hereby have been authorized
and approved by all necessary corporate action of each of FULB and UBB on or prior to the date hereof and will remain in full force
and effect through the Closing. No other corporate or shareholder action is necessary or required to authorize and approve this
Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of FULB and UBB
and, assuming due authorization, execution and delivery by BAY and BHC, this Agreement is a valid and legally binding obligation
of each of FULB and UBB, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting
creditors’ rights or by general equity principles).
(ii) The
FULB Board and the UBB Board, by a unanimous vote thereof, has adopted resolutions (1) determining that this Agreement and
the transactions contemplated herein, including the Merger, are fair to, and in the best interests of, FULB, UBB and its respective
shareholders, (2) approving and declaring advisable this Agreement and the transactions contemplated hereby and (3) recommending
that FULB’s shareholders approve and adopt this Agreement.
(f)
Regulatory
Approvals
. No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with
any third party are required to be made or obtained by FULB, UBB or any of their Affiliates in connection with the execution, delivery
or performance by FULB and UBB of this Agreement or to consummate the transactions contemplated hereby, except for (A) filings
of applications or notices with, and approvals or waivers by the DBO, the Federal Reserve Board and the OCC, as may be required,
(B) the filing of an application for, and the issuance of, a permit as contemplated by Section 6.15 herein, (C) filings
of applications and notices with certain states and the receipt of all necessary state securities and “Blue Sky” permits
or approvals, and (D) the filing of the agreement of merger with the California Secretary of State with respect to the Merger
and the filing of the Bank Merger agreement with the California Secretary of State and the DBO with respect to the Bank Merger.
(g)
No
Conflict.
The execution and delivery by each of FULB and UBB of this Agreement and the consummation of the transactions provided
for in this Agreement (i) do not violate any provision of the FULB Articles, the UBB Charter, the FULB Bylaws, the UBB Bylaws
any provision of applicable federal or state law or any governmental rule or regulation (assuming receipt of the required approval
of any Governmental Authority and receipt of the Requisite Shareholder Approval), and (i) except as set forth in
Schedule 5.2(g)
of the Disclosure Schedule, do not require any consent of any person under, conflict with or result in a breach of, or accelerate
the performance required by any of the terms of, any material debt instrument, lease, license, covenant, agreement or understanding
to which FULB, or any of its subsidiaries is a party or by which any of them is bound, or any order, ruling, decree, judgment,
arbitration award or stipulation to which FULB or UBB, or any of their subsidiaries is subject, or constitute a default thereunder
or result in the creation of any lien, claim, security interest, encumbrance, charge, restriction or right of any third party of
any kind whatsoever upon any of the properties or assets of FULB, UBB, or any of their subsidiaries.
(h)
Financial
Statements; Material Adverse Effect
.
(i) FULB
has previously made available to BAY accurate and complete copies of the FULB Financial Statements. The FULB Financial Statements
as of and for the fiscal years ended September 30, 2015 and 2014 are accompanied by the audit report of Crowe Horwath, LLP. The
FULB Financial Statements fairly present in all material respects, the financial condition of FULB as of the respective dates set
forth therein, and the consolidated results of operations, changes in shareholders’ equity and cash flows (if applicable)
of FULB for the respective periods or as of the respective dates set forth therein.
(ii) The
FULB Financial Statements have been, and are being, prepared in accordance with GAAP consistently applied during the periods involved,
except as stated therein.
(iii) Since
October 1, 2015, neither FULB nor UBB has incurred any liability other than in the ordinary course of business consistent with
past practice, except (i) as Previously Disclosed, (ii) liabilities properly accrued or reserved against in the consolidated balance
sheet of FULB as of October 1, 2015, (iii) liabilities and obligations incurred since October 1, 2015 in the ordinary course of
business consistent with past practice, (iv) liabilities and obligations that are not material to FULB and UBB, taken as a whole,
and (iv) any liabilities and obligations incurred with respect to the transactions contemplated by this Agreement.
(iv) Except
as Previously Disclosed, since October 1, 2015, (A) each of FULB and UBB has conducted its business in the ordinary and usual
course consistent with past practice, and (B) no event has occurred or circumstance arisen that, individually or taken together
with all other facts, circumstances and events (described in any paragraph of this Section 5.2 or otherwise), has had or is reasonably
likely to have a Material Adverse Effect with respect to FULB and UBB.
(v) No
agreement pursuant to which any loans or other assets have been or shall be sold by FULB or UBB entitled the buyer of such loans
or other assets to cause FULB or UBB to repurchase such loan or other asset or the buyer to pursue any other form of recourse against
FULB or UBB. All cash, stock or other dividends or any other distribution with respect to the capital stock of FULB or UBB that
has been declared, set aside or paid since October 1, 2015 has been Previously Disclosed. Since October 1, 2015, no shares of capital
stock of FULB or UBB have been purchased, redeemed or otherwise acquired, directly or indirectly, by FULB or UBB and no agreements
have been made by FULB or UBB to do any of the foregoing.
(i)
Legal
Proceedings
. Except as set forth in
Schedule 5.2(i)
of the Disclosure Schedule, no litigation, arbitration, claim or
other proceeding before any court or governmental agency is pending against FULB or UBB, individually or in the aggregate, that
has had or could reasonably be expected to have a Material Adverse Effect with respect to FULB or UBB, and, to the knowledge of
FULB and UBB, no such litigation, arbitration, claim or other proceeding has been threatened and there are no facts which could
reasonably give rise to such litigation, arbitration, claim or other proceeding. None of FULB, UBB, nor any of their respective
properties owned by FULB or UBB, is a party to or subject to any order, judgment, decree or regulatory restriction that, individually
or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect with respect to FULB or UBB.
(j)
Regulatory
Matters
.
(i) Each
of FULB and UBB has duly filed with the appropriate Governmental Authorities in substantially the correct form the monthly, quarterly
and annual reports required to be filed by it under applicable laws and regulations, and such reports were in all material respects
complete and accurate and in compliance with the requirements of applicable laws and regulations, and FULB and UBB have previously
made available to BAY accurate and complete copies of all such reports. Except as Previously Disclosed, in connection with the
most recent examinations of FULB and UBB by the appropriate Governmental Authorities, neither FULB nor UBB was required to correct
or change any action, procedure or proceeding which either FULB or UBB believes in good faith has not been now corrected or changed,
other than corrections or changes which, if not made, either individually or in the aggregate, could not reasonably be expected
to have a Material Adverse Effect on FULB or UBB.
(ii) None
of FULB, UBB or any of their respective properties is a party to or is subject to any order, decree, directive, agreement, memorandum
of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter
from, nor, except in the normal course of business, has either FULB or UBB adopted any policies, procedures or board resolutions
at the request or suggestion of, any Governmental Authority. Each of FULB and UBB has paid all assessments made or imposed by any
Governmental Authority.
(iii) Except
as Previously Disclosed, no Governmental Authority has initiated since December 31, 2014 or has pending any proceeding, enforcement
action or, to the knowledge of FULB or UBB, investigation or inquiry into the business, operations, policies, practices or disclosures
of FULB or UBB (other than normal examinations conducted by a Governmental Authority in the ordinary course of the business of
FULB or UBB), or, to the knowledge of FULB or UBB, threatened any of the foregoing.
(iv) FULB
and UBB are “well-capitalized” as defined by applicable laws and regulations. The most recent regulatory rating given
to UBB as to compliance with the Community Reinvestment Act is “Satisfactory” or better. Since the last regulatory
examination of UBB with respect to Community Reinvestment Act compliance, UBB has not received any complaints as to Community Reinvestment
Act compliance, and no proceedings are pending, nor to the knowledge of UBB, threatened with respect to any violations of consumer
fair lending laws or regulations.
(k)
Compliance
With Laws
. Except as Previously Disclosed, each of FULB and UBB:
(i) is
and at all times since December 31, 2014 has been in material compliance with all applicable federal, state, local and foreign
statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, decrees or policies and/or guidelines of
any Governmental Authority applicable thereto or to the employees conducting such businesses, including, without limitation, Sections
23A and 23B of the Federal Reserve Act and regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA PATRIOT Act, all other applicable
fair lending laws and other laws relating to discriminatory business practices;
(ii) has
and at all times since December 31, 2014 has had all permits, licenses, franchises, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all Governmental Authorities (and has paid all fees and assessments
due and payable in connection therewith) that are required in order to permit it to own or lease its properties and to conduct
its business as presently conducted, except where the failure to do so would not have a Material Adverse Effect; and all such permits,
licenses, franchises, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of FULB
and UBB, no suspension or cancellation of any of them is pending or threatened;
(iii) has
received, since December 31, 2014, no notification or communication from any Governmental Authority (A) asserting that
FULB or UBB is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces
or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to the knowledge of FULB or
UBB, do any grounds for any of the foregoing exist); and
(iv) has
devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of its financial statements, has designed disclosure controls and procedures to ensure
that material information is made known to the management of FULB and UBB on no less than a quarterly basis, and has disclosed,
based on its most recent evaluation prior to the date hereof, to its auditors (A) any significant deficiencies in the design
or operation of internal controls which could adversely affect in any material respect its ability to record, process, summarize
and report financial data and has identified for its auditors any material weaknesses in internal controls and (B) any fraud,
whether or not material, that involves management or other employees who have a significant role in its internal controls.
(l)
Material
Contracts; Defaults
.
(i) Except
as Previously Disclosed, neither FULB nor UBB is a party to, bound by or subject to any agreement, contract, arrangement, commitment
or understanding (whether written or oral) (A) with respect to the employment of any of its directors, officers, employees
or consultants, (B) which would entitle any present or former director, officer, employee or agent of either FULB or UBB to
indemnification from FULB or UBB, (C) which is an agreement (including data processing, software programming, consulting and
licensing contracts) not terminable on 60 days or less notice and involving the payment or value of more than $50,000 per annum,
(D) which is with or to a labor union or guild (including any collective bargaining agreement), (E) which relates to
the incurrence of indebtedness (other than deposit liabilities, advances and loans from the FHLB, and sales of securities subject
to repurchase, or similar obligation, in each case, in the ordinary course of business), (F) which grants any Person a right
of first refusal, right of first offer or similar right with respect to any material properties, rights, assets or business of
FULB or UBB, (G) which involves the purchase or sale of assets with a purchase price of $50,000 or more in any single case
or $50,000 in all such cases, other than purchases and sales of investment securities and loans in the ordinary course of business
consistent with past practice, (H) which is a consulting agreement, license or service contract (including data processing,
software programming and licensing contracts and outsourcing contracts) which involves the payment of $50,000 or more in annual
fees, (I) which provides for the payment by FULB or UBB of payments upon a change of control thereof, (J) which is a
lease for any real or material personal property owned or presently used by FULB or UBB, (K) which materially restricts the
conduct of any business by FULB or UBB or limits the freedom of FULB or UBB to engage in any line of business in any geographic
area (or would so restrict FULB or UBB after consummation of the transactions contemplated hereby) or which requires exclusive
referrals of business or requires FULB or UBB to offer specified products or services to their customers or depositors on a priority
or exclusive basis, (L) which is with respect to, or otherwise commits FULB or UBB to do, any of the foregoing, or (M) which
is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) (all of the foregoing collectively, “
FULB
Material Contracts
”).
(ii) To
the knowledge of FULB and UBB, each FULB Material Contract is valid and binding on FULB and/or UBB and is in full force and effect
(other than due to the ordinary expiration thereof) and is valid and binding on the other parties thereto. None of FULB, UBB or,
to the knowledge of FULB and/or UBB, any other parties thereto, is in material default under any FULB Material Contract and there
has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default. Except
as provided in this Agreement, no power of attorney or similar authorization given directly or indirectly by FULB or UBB is currently
outstanding.
(iii) All
outstanding loans from FULB or UBB to its officers and directors have been Previously Disclosed, and except as Previously Disclosed,
there has been no default on, or forgiveness or waiver of, in whole or in part, any such loan during the two years immediately
preceding the date hereof.
(m)
No
Brokers
. Other than for financial advisory services performed for FULB by FIG Partners pursuant to an agreement dated November
4, 2016 and provided to BAY, no action has been taken by FULB or UBB that would give rise to any valid claim against any party
hereto for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated hereby.
The board of directors of FULB has received the opinion (which, if initially rendered verbally, has been or will be confirmed by
a written opinion, dated the same date) of FIG Partners, to the effect that, as of the date of such opinion, and based upon and
subject to the factors, assumptions, and limitations set forth therein, the Per Share Merger Consideration to be received by the
holders of FULB common stock in the Merger is fair, from a financial point of view, to such holders.
(n)
Employee
Benefit Plans
.
(i)
Schedule
5.2(n)(i)
lists all benefit and compensation plans, contracts, policies or arrangements covering current or former employees
of FULB and/or UBB and current or former directors or independent contractors of FULB and/or UBB, including, but not limited to,
“employee benefit plans” within the meaning of Section 3(3) of ERISA, and severance, employment, change in control,
fringe benefit, deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus
plans, agreements, programs, policies or other arrangements (the “
FULB Benefit Plans
”). FULB and UBB have previously
made available to BAY true and complete copies of (A) all FULB Benefit Plans including, but not limited to, any trust instruments
and insurance contracts forming a part of any FULB Benefit Plans and all amendments thereto; (B) the most recent annual report
(Form 5500), together with all schedules, as required, filed with the Internal Revenue Service (“
IRS
”) or Department
of Labor (the “
DOL
”), as applicable, and any financial statements and opinions required by Sections 103(a)(3)
and 103(e) of ERISA with respect to each FULB Benefit Plan; (C) for each FULB Benefit Plan which is a “top-hat”
plan, a copy of filings with the DOL; (D) the most recent determination letter issued by the IRS (or, in the case of an FULB
Benefit Plan maintained pursuant to the adoption of a prototype or volume submitter document a copy of an opinion or notification
letter issued by the IRS to the sponsor of the prototype or volume submitter document upon which FULB is entitled to rely stating
that the form of the prototype or volume submitter plan document is acceptable for the establishment of a qualified retirement
plan), for each FULB Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code; (E) the
most recent summary plan description and any summary of material modifications, as required, for each FULB Benefit Plan; (F) the
most recent actuarial report, if any relating to each FULB Benefit Plan; (G) the most recent actuarial valuation, study or
estimate of any retiree medical and life insurance benefits plan or supplemental retirement benefits plan; and (H) the most
recent summary annual report for each FULB Benefit Plan required to provide summary annual reports by Section 104 of ERISA.
(ii) Each
FULB Benefit Plan has been established and administered to date in all material respects in accordance with the applicable provisions
of ERISA, the Code and applicable law and with the terms and provisions of all documents, contracts or agreements pursuant to which
such FULB Benefit Plan is maintained. Each FULB Benefit Plan which is an “employee pension benefit plan” within the
meaning of Section 3(2) of ERISA (a “
Pension Plan
”) and which is intended to be qualified under Section 401(a)
of the Code, has received a favorable determination letter from the IRS, and FULB is not aware of any circumstances likely to result
in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a)
of the Code. Neither FULB nor UBB has received any correspondence or written or verbal notice from the IRS, DOL, any other governmental
agency, any participant in or beneficiary of, an FULB Benefit Plan, or any agent representing any of the foregoing that brings
into question the qualification of any such FULB Benefit Plan. There is no material pending or, to either FULB’s or UBB’s
knowledge, threatened litigation relating to the FULB Benefit Plans. Neither FULB nor UBB has engaged in a transaction with respect
to any FULB Benefit Plan or Pension Plan that could subject it to a tax or penalty imposed by either Section 4975 of the Code or
Section 502(i) of ERISA in an amount which would be material. There are no matters pending before the IRS, DOL or other governmental
agency with respect to any FULB Benefit Plan. No FULB Benefit Plan or related trust has been the subject of an audit, investigation
or examination by a Governmental Authority.
(iii) No
liability under Title IV of ERISA has been or is expected to be incurred by either FULB or UBB with respect to any ongoing, frozen
or terminated “single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained
by any of them or the single-employer plan of any entity which is considered one employer with FULB under Section 4001 of ERISA
or Section 414 of the Code (an “
ERISA Affiliate
”). Neither FULB nor UBB has incurred, and does not expect to
incur, any withdrawal liability with respect to a multiemployer plan (as defined in 4001(a)(3) of ERISA) under of Title IV of ERISA
(regardless of whether based on contributions of an ERISA Affiliate). No notice of a “reportable event,” within the
meaning of Section 4043 of ERISA for which the 30-day reporting requirement has not been waived, has been required to be filed
for any Pension Plan or by any ERISA Affiliate or will be required to be filed in connection with the transactions contemplated
hereby. There has been no termination or partial termination, as defined in Section 411(d) of the Code and the regulations thereunder,
of any Pension Plan.
(iv) All
contributions required to be made under the terms of any FULB Benefit Plan have been timely made. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has an “accumulated funding deficiency” (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. Neither
FULB nor UBB has provided, nor is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the Code.
(v) Except
as set forth on
Schedule 5.2(n)(v)
of the Disclosure Schedule, neither FULB nor UBB has any obligations for retiree health
and life benefits under any FULB Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6
of Subtitle B of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality. FULB
may amend or terminate any such FULB Benefit Plan in accordance with and to the extent permitted by their terms at any time without
incurring any liability thereunder. No event or condition exists with respect to an FULB Benefit Plan that could subject either
FULB or UBB to a material tax under Section 4980B of the Code.
(vi) Except
as set forth on
Schedule 5.2(n)(vi)
of the Disclosure Schedule, neither the execution of this Agreement nor consummation
of the transactions contemplated hereby, either alone or in connection with a subsequent event, (A) entitle any employees
or any current or former director or independent contractor of FULB or UBB to severance pay or any increase in severance pay upon
any termination of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment
or funding (through a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any
other material obligation pursuant to, any of the FULB Benefit Plans, (C) result in any breach or violation of, or a default
under, any of the FULB Benefit Plans, (D) result in any payment that would be a “parachute payment” to a “disqualified
individual” as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable
compensation for personal services performed or to be performed in the future or (E) result in any payment or portion of any
payment that would not be deductible by FULB under Section 162(m) of the Code when paid.
(vii) All
required reports and descriptions (including but not limited to Form 5500 annual reports and required attachments, Forms 1099-R,
summary annual reports, Forms PBGC-1 and summary plan descriptions) have been filed or distributed appropriately with respect to
each Benefit Plan. All required tax filings with respect to each Benefit Plan have been made, and any taxes due in connection with
such filings have been paid.
(viii) No
FULB Benefit Plan is or has been funded by, associated with, or related to a “voluntary employee’s beneficiary association”
within the meaning of Section 501(c)(9) of the Code, a “welfare benefit fund” within the meaning of Section 419 of
the Code, a “qualified asset account” within the meaning of Section 419A of the Code or a “multiple employer
welfare arrangement” within the meaning of Section 3(40) of ERISA.
(ix) Each
FULB Benefit Plan which is a “nonqualified deferred compensation plan” (within the meaning of Section 409A of the Code)
has been operated in compliance with Section 409A of the Code and the guidance issued by the IRS with respect to such plans.
(o)
Labor
Matters
. Except as set forth on
Schedule 5.2(o)
, neither FULB nor UBB is a party to and is not bound by any collective
bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is either FULB
or UBB the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National
Labor Relations Act) or seeking to compel either FULB or UBB to bargain with any labor organization as to wages or conditions of
employment, nor is there any strike or other labor dispute involving it pending or, to either FULB’s or UBB’s knowledge,
threatened, nor, to either FULB’s or UBB’s knowledge, are any employees of FULB or UBB seeking to certify a collective
bargaining unit or engaging in other organizational activity. Since January 1, 2015, FULB and UBB have paid in full all wages,
salaries, commissions, bonuses, benefits and other compensation due to its employees or otherwise arising under any policy, practice,
agreement, plan, program, statute or other law.
(p)
Environmental
Matters
. To the knowledge of FULB and UBB, there are no legal, administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations, remediation activities or governmental investigations of any nature seeking
to impose on FULB or UBB any liability or obligation arising under any Environmental Laws pending or threatened against FULB or
UBB, which liability or obligation could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect
on FULB or UBB. To the knowledge of FULB and UBB, there is no reasonable basis for any such proceeding, claim, action, environmental
remediation or investigation that could impose any liability or obligation that could reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on FULB or UBB. To the knowledge of FULB and UBB, each of FULB and UBB is in compliance
in all material respects with applicable Environmental Laws. To the knowledge of FULB and UBB, no real property (including buildings
or other structures) currently or formerly owned or operated by FULB or UBB, or any property in which FULB or UBB has held a security
interest, Lien or a fiduciary or management role (“UBB Loan Property”), has been contaminated with, or has had any
release of, any Hazardous Substance that has resulted, or could reasonably be expected to result, in a Material Adverse Effect
with respect to FULB or UBB. Neither FULB nor UBB could be deemed the owner or operator of, nor has either participated in the
management regarding Hazardous Substances of, any UBB Loan Property or any property of UBB which has been contaminated with, or
has had any release of, any Hazardous Substance that has resulted, or would reasonably be expected to result, in a Material Adverse
Effect with respect to FULB or UBB. To the knowledge of UBB, UBB does not have any liability for any Hazardous Substance disposal
or contamination on any third party property. To the knowledge of FULB and UBB, none of FULB, UBB, or any Person whose liability
UBB has assumed whether contractually or by operation of law, has received any notice, demand letter, claim or request for information
alleging any material violation of, or material liability under, any Environmental Law. Neither FULB nor UBB is subject to any
order, decree, injunction or other agreement with any Governmental Authority or any third party relating to any Environmental Law.
To the knowledge of FULB and UBB, there are no circumstances or conditions (including the presence of asbestos, underground storage
tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or automotive services) involving
FULB, UBB, any currently or formerly owned or operated property, any UBB Loan Property, or, to FULB’s and UBB’s knowledge,
any Person whose liability FULB or UBB has assumed whether contractually or by operation of law, that could reasonably be expected
to result in any material claims, liability or investigations against FULB or UBB, result in any material restrictions on the ownership,
use, or transfer of any property pursuant to any Environmental Law, or adversely affect the value of any UBB Loan Property or property
of FULB or UBB. Each of FULB and UBB has made available to BAY true and correct copies of all environmental reports or studies,
sampling data, correspondence and filings in its possession or reasonably available to it relating to FULB or UBB and any currently
or formerly owned or operated property.
(q)
Tax
Matters
.
(i) Each
of FULB and UBB has timely filed all Tax Returns required to have been filed, taking into account any properly granted extensions
of time to file, with the appropriate taxing authorities, such Tax Returns are true, correct and complete in all material respects
and none of such Tax Returns has been amended.
(ii) All
material Taxes required to be paid or remitted by FULB or UBB on or before the date hereof have been so paid or remitted, including
all Taxes shown as due and owing on all Tax Returns, all Taxes assessed or reassessed by any Governmental Authority, all Taxes
held in trust or deemed to be held in trust for a Governmental Authority and all installments on account of Taxes for the current
year or, where payment is not yet due, sufficiently reserved in the FULB Financial Statements in accordance with GAAP.
(iii) Each
of FULB and UBB and its respective officers, directors or any employee responsible for Tax matters have complied in all material
respects with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes in connection
with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(iv) Each
of FULB and UBB has not waived any statute of limitations in respect of its Taxes or agreed to any extension of time with respect
to a Tax assessment or deficiency.
(v) To
each of FULB’s and UBB’s knowledge, neither has engaged in any transaction that would constitute a “reportable
transaction” within the meaning of Treasury Regulations Section 1.6011-4(b).
(vi) The
unpaid Taxes of FULB and UBB (A) do not exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established
to reflect temporary difference between book and Tax income) as shown on FULB’s balance sheet dated September 30, 2016 and
(B) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past
custom and practice of FULB and UBB in filing their Tax Returns.
(vii) Neither
FULB nor UBB is currently the beneficiary of any extension of time within which to file any Tax Returns.
(viii) There
are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of FULB or UBB.
(ix) No
Tax actions by any Governmental Authority are pending or being conducted with respect to FULB or UBB.
(x) Neither
FULB nor UBB has received from any taxing authority (including jurisdictions in which neither FULB nor UBB has filed Tax Returns)
any (A) notice indicating an intent to open an audit or other review, (B) request for information related to Tax matters
or (C) notice of deficiency or proposed adjustment for any amount of Tax, proposed, asserted or assessed by any Governmental
Authority against FULB or UBB.
(xi) Except
as Previously Disclosed, neither FULB nor UBB is a party to or bound by any tax sharing agreement.
(xii) Except
as Previously Disclosed and except for the affiliated group of which FULB is parent, neither FULB nor UBB has ever been a member
of a group of corporations with which it has filed (or been required to file) consolidated, combined or unitary Tax Returns.
(xiii) Neither
FULB nor UBB is currently liable, nor does FULB or UBB have any potential liability, for the Taxes of another Person (A) under
Treasury Regulations Section 1.1502-6 (or comparable provision of state, local or foreign law), (B) as transferee or successor,
or (C) by contract or indemnity or otherwise.
(xiv) Neither
FULB nor UBB has ever been either a “distributing corporation” or a “controlled corporation” in connection
with a distribution of stock qualifying for tax-free treatment, in whole or in part, under Section 355 of the Code.
(xv) Neither
FULB nor UBB has been nor will be a “United States real property holding corporation” within the meaning of Section
897 of the Code during the five year period ending on the Closing Date.
(xvi) Neither
FULB or UBB will be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable
period (or portion thereof) ending after the Closing Date, as a result of any: (A) change in method of accounting for a taxable
period ending on or prior to the Closing Date under Section 481 of the Code or similar state and local Tax law, (B) any “closing
agreement” as described in Section 7121 of the Code or similar state or local Tax law executed on or prior to the Closing
Date, (C) installment sale or open transaction disposition made on or prior to the Closing Date, (D) prepaid amount received
on or prior to the Closing Date, (E) any item having been reported on the completed contract method of accounting or the percentage
of completion method of accounting, or (F) other action taken prior to the Closing Date.
(r)
Risk
Management Instruments
. Except as Previously Disclosed, neither FULB nor UBB is a party to, nor has it agreed to enter into,
a Derivatives Contract.
(s)
Loans;
Nonperforming and Classified Assets
.
(i) Except
as Previously Disclosed, each Loan on the books and records of UBB was made and has been serviced in all material respects in accordance
with its customary lending standards in the ordinary course of business, is evidenced in all material respects by appropriate and
sufficient documentation and, to the knowledge of FULB and UBB, constitutes the legal, valid and binding obligation of the obligor
named therein, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditor’s rights or by general equity principles.
(ii) UBB
has Previously Disclosed as of the latest practicable date prior to the date of this Agreement: (A) any Loan under the terms
of which the obligor is [60] or more days delinquent in payment of principal or interest, or to the knowledge of UBB, in default
of any other material provision thereof; (B) each Loan which has been classified as “substandard,” “doubtful,”
“loss” or “special mention” (or words of similar import) by UBB, or an applicable regulatory authority;
(C) a listing of the OREO acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof; and (D) each
Loan with any director or executive officer of UBB or an Affiliate of UBB.
(iii) UBB
has Previously Disclosed a list and description of all loan participations entered into between UBB and any third party which are
reflected on the books and records of UBB. A true and complete copy of each document relating to each loan participation has been
made available to BAY, with the exception of loan files for loans guaranteed or unguaranteed by the SBA or another Governmental
Authority and sold in the ordinary course of business.
(t)
Properties
.
All real property owned or leased by FULB or UBB has been Previously Disclosed. With respect to such real property that is owned
by FULB or UBB, FULB or UBB, as applicable, has good and marketable and insurable title, free and clear of all Liens, leases or
other imperfections of title or survey, except (i) Liens for current taxes and assessments not yet due and payable and for
which adequate reserves have been established, (ii) Liens set forth in policies for title insurance of such properties delivered
to BAY, (iii) survey imperfections set forth in surveys of such properties delivered to BAY or (iv) as Previously Disclosed.
With respect to such real property that is leased by either FULB or UBB, FULB or UBB has a good and marketable leasehold estate
in and to such property (except for the matters described in clauses (i)-(iv) hereof). Except as set forth on
Schedule
5.2(t)
of the Disclosure Schedule: each of FULB and UBB has delivered true, correct and complete copies of such lease(s), together
with all amendments thereto, to BAY; any such lease is in full force and effect and will not lapse or terminate prior to the Closing
Date. To the knowledge of FULB and UBB, none of FULB, UBB and the landlord thereunder is in default of any of their respective
obligations under any such lease and any such lease constitutes the valid and enforceable obligations of the parties thereto; other
than as set forth on
Schedule 5.2(t)
, the transactions contemplated hereby will not require the consent of any landlord
under any such lease; and, with respect to any mortgage, deed of trust or other security instrument which establishes a Lien on
the fee interest in any real property subject to any such lease, FULB or UBB has the benefit of a non-disturbance agreement from
the holder or beneficiary of such mortgage, deed of trust or other security instrument that provides that FULB’s and/or UBB’s
use and enjoyment of the real property subject to such lease will not be disturbed as a result of the landlord’s default
under any such mortgage, deed of trust or other security instrument, provided neither FULB nor UBB is in default of any of its
obligations pursuant to any such lease beyond the expiration of any notice and cure periods. All real and personal property owned
by either FULB or UBB or presently used by either FULB or UBB in its business is in good condition (ordinary wear and tear excepted)
and is sufficient to carry on its business in the ordinary course of business consistent with its past practices. FULB and UBB
have good and marketable and insurable title, free and clear of all Liens to all of its respective material properties and assets,
other than real property, except (i) pledges to secure deposits incurred in the ordinary course of its banking business consistent
with past practice, (ii) such imperfections of title and encumbrances, if any, as are not material in character, amount or
extent and (iii) as Previously Disclosed. All personal property which is material to FULB’s and UBB’s business
and leased or licensed by FULB and/or UBB is held pursuant to leases or licenses which are valid and enforceable in accordance
with their respective terms and such leases will not terminate or lapse prior to the Effective Time.
(u)
Intellectual
Property
. Except as Previously Disclosed, FULB and UBB own or possess valid and binding licenses and other rights to use without
payment of any material amount all material patents, copyrights, trade secrets, trade names, service marks, trademarks and other
intellectual property rights used in their respective businesses, free and clear of any material Liens, all of which have been
Previously Disclosed by FULB and UBB, and neither FULB nor UBB has received any notice of conflict or allegation of invalidity
with respect thereto or that asserts the intellectual property rights of others. To the knowledge of FULB and UBB, the operation
of the businesses of FULB and UBB does not infringe or violate the intellectual property of any third party. FULB and UBB have
performed in all material respects all the obligations required to be performed by them and are not in default under any contract,
agreement, arrangement or commitment relating to any of the foregoing.
(v)
Fiduciary
Accounts
. Each of FULB and UBB has properly administered all accounts for which it acts as a fiduciary, including but not limited
to accounts for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor,
in accordance with the terms of the governing documents and applicable laws, regulations and common laws. To the knowledge of FULB
and UBB, neither FULB, UBB nor any of its respective directors, officers or employees, has committed any breach of trust with respect
to any fiduciary account and the records for each such fiduciary account are true and correct and accurately reflect the assets
of such fiduciary account.
(w)
Books
and Records
. The books, records, systems, data and information of FULB and UBB (i) have been fully, properly and accurately
maintained in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect
in all material respects all dealings and transactions in respect of FULB and UBB and (ii) are recorded, stored, maintained
and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under
the exclusive ownership and direct control of FULB and UBB (including all means of access thereto and therefrom).
(x)
Insurance
.
FULB and UBB have Previously Disclosed all of the material insurance policies, binders, or bonds currently maintained by FULB and/or
UBB. Each of FULB and UBB is insured with reputable insurers against such risks and in such amounts as the management of FULB and
UBB have reasonably determined to be prudent in accordance with industry practices; all of the material insurance policies, binders,
or bonds currently maintained by FULB and UBB are in full force and effect; neither FULB nor UBB is in material default thereunder;
and all claims thereunder have been filed in due and timely fashion.
(y)
Allowance
For Loan Losses
. UBB’s allowance for loan losses is in compliance with UBB’s existing methodology for determining
the adequacy of its allowance for loan losses as well as the standards established by GAAP, the Financial Accounting Standards
Board and applicable bank regulatory agencies and is adequate under all such standards.
(z)
Transactions
With Affiliates
. Except as set forth on
Schedule 5.2(z)
, there are no existing or pending transactions, nor are there
any agreements or understandings, with any shareholders, directors, officers or employees of FULB or UBB, or any Affiliate of FULB
or UBB, relating to, arising from or affecting FULB or UBB, including without limitation, any transactions, arrangements or understandings
relating to the purchase or sale of goods or services, the lending of monies or the sale, lease or use of any assets of FULB or
UBB, with or without adequate compensation, in any amount whatsoever.
(aa)
Material
Facts
. The representations and warranties contained in this Section 5.2, when considered as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained
in this Section 5.2 not misleading.
5.3
Representations
and Warranties of BAY
. BAY represents and warrants to FULB and UBB that, except as previously disclosed:
(a)
Organization,
Standing and Authority
. BAY is a bank duly organized and validly existing under the laws of the State of California that is
duly authorized by the DBO to conduct business as a commercial bank. BAY is duly licensed or qualified to do business and is in
good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires
it to be so licensed or qualified, except where failure to be so licensed or qualified would not materially impair the ability
of BAY to perform its obligations under this Agreement or otherwise materially impede the consummation of the transactions contemplated
hereby. BAY has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted, except where the failure to be so authorized would not
materially impair the ability of BAY to perform its obligations under this Agreement or otherwise materially impede the consummation
of the transactions contemplated hereby. The deposit accounts of BAY are insured by the FDIC, in the manner and to the maximum
extent provided by applicable law, and BAY has paid all deposit insurance premiums and assessments required by applicable laws
and regulations. BHC is a corporation duly organized and validly existing under the laws of the State of California and will be
duly registered as a bank holding company under the BHCA. The copies of the BAY Articles, BHC Articles, BAY Bylaws and BHC Bylaws,
and the other governing documents of BAY and BHC which have been previously made available to FULB are true, complete and correct
copies of such documents as in effect on the date of this Agreement. The minute books of BAY contain true, complete and correct
records in all material respects of all meetings and other material corporate actions held or taken by its board of directors (including
committees of its board of directors), as well as the shareholders of BAY through the date hereof.
(b)
Capital
Structure
.
(i) The
authorized capital stock of BAY consists of (i) 100,000,000 shares of BAY Common Stock, of which 5,472,426 shares are issued
and outstanding, and (ii) 10,000,000 shares of preferred stock, of which no shares are issued and outstanding. BAY does not
have any other shares of capital stock authorized, designated, issued or outstanding. Following the bank holding company reorganization,
BHC will be the record holder of all of the issued and outstanding shares of BAY Common Stock. All outstanding shares of BAY’s
capital stock (i) have been duly authorized and validly issued and are fully paid, non-assessable and not subject to preemptive
rights or similar rights created by statute, the BAY Articles, the BAY Bylaws or any agreement to which BAY is a party, and (ii) have
been offered, sold, issued and delivered by BAY in all material respects in compliance with all applicable laws. There are no declared
or accrued but unpaid dividends with respect to any shares of BAY capital stock.
(ii) The
authorized capital stock of BHC consists of (i) 100,000,000 shares of BHC Common Stock, of which 100 shares will be issued and
outstanding following the bank holding company reorganization, and (ii) 10,000,000 shares of preferred stock, of which no shares
are issued and outstanding as of the date hereof. BHC does not have any other shares of capital stock authorized, designated, issued
or outstanding. All outstanding shares of BHC’s capital stock (i) will be duly authorized and validly issued and will
be fully paid, non-assessable and not subject to preemptive rights or similar rights created by statute, the BHC Articles, the
BHC Bylaws or any agreement to which BHC is a party, and (ii) will be offered, sold, issued and delivered by BHC in all material
respects in compliance with all applicable laws. There are no declared or accrued but unpaid dividends with respect to any shares
of BHC capital stock.
(iii) Other
than the BAY Equity Incentive Plan, neither BAY nor BHC has adopted, sponsored or maintained any stock option plan or any other
plan or agreement providing for equity compensation to any Person.
(iv)
Schedule
5.3(b)(iv)
of the Disclosure Schedule lists each restricted stock grant and the terms thereof outstanding under the BAY Equity
Incentive Plan. Other than such grants, there are no Rights or agreements obligating BAY to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any BAY capital stock or any capital stock or equity or
other ownership interest of BAY or obligating BAY to grant, extend, accelerate the vesting of, change the price of, otherwise amend
or enter into any such Right. Other than the restricted stock grants, there are no outstanding or authorized stock option, stock
appreciation, phantom stock, profit participation, or other similar rights with respect to BAY.
(v) There
are no Rights or agreements obligating BAY to issue, deliver, sell, repurchase or redeem, or cause to be issued, delivered, sold,
repurchased or redeemed, any BAY capital stock or any capital stock or equity or other ownership interest of BAY or obligating
BAY to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Right.
(c)
Subsidiaries
.
Following the bank holding company reorganization, BHC will own all of the issued and outstanding shares of BAY and will not own,
beneficially, directly or indirectly, any other Equity Securities or similar interests of any Person or any interest in a partnership
or joint venture of any kind. BAY does not own, beneficially, directly or indirectly, any Equity Securities or similar interests
of any Person or any interest in a partnership or joint venture of any kind.
(d)
Corporate
Power
. BAY has the corporate power and authority to carry on its business as it is now being conducted and to own all its properties
and assets; BAY has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and
to consummate the transactions contemplated hereby, in each case, subject to receipt of all necessary approvals of Governmental
Authorities.
(e)
Corporate
Authority
.
(i) Subject
to the receipt of the Requisite Shareholder Approval, this Agreement and the transactions contemplated hereby have been authorized
by all necessary corporate action of BAY on or prior to the date hereof and will remain in full force and effect through the Closing.
No other corporate or shareholder action is necessary or required to authorize and approve this Agreement or the transactions contemplated
hereby. This Agreement has been duly executed and delivered by each of BAY and BHC and, assuming due authorization, execution and
delivery by FULB and UBB, this Agreement is a valid and legally binding agreement of each of BAY and BHC, enforceable in accordance
with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting creditors’ rights or by general equity principles).
(ii) The
BAY Board and BHC Board, by a unanimous vote thereof, have adopted resolutions (1) determining that this Agreement and the transactions
contemplated herein, including the Merger, are fair to, and in the best interests of, BAY, BHC and their respective shareholders,
(2) approving and declaring advisable this Agreement and the transactions contemplated hereby and (3) recommending that BAY’s
shareholders approve and adopt this Agreement.
(f)
Regulatory
Approvals
. No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with
any third party are required to be made or obtained by BAY, BHC or any of their Affiliates in connection with the execution, delivery
or performance by BAY and BHC of this Agreement or to consummate the transactions contemplated hereby, except for (A) filings
of applications or notices with, and approvals or waivers by the DBO, the Federal Reserve Board and the OCC, as may be required,
(B) the filing of an application for, and the issuance of, a permit as contemplated by Section 6.15 herein, (C) filings
of applications and notices with certain states and the receipt of all necessary state securities and “Blue Sky” permits
or approvals, and (D) the filing of the agreement of merger with the California Secretary of State with respect to the Merger
and the filing of the Bank Merger agreement with the California Secretary of State and the DBO with respect to the Bank Merger.
(g)
No
Conflict.
The execution and delivery by each of BAY and BHC of this Agreement and the consummation of the transactions provided
for in this Agreement (i) do not violate any provision of the BAY Articles, BHC Articles, BAY Bylaws, BHC Bylaws, any provision
of federal or state law or any governmental rule or regulation (assuming receipt of the required approval of any Governmental Authority
and receipt of the Requisite Shareholder Approval) and (ii) except as set forth in
Schedule 5.3(g)
, do not require
any consent of any person under, conflict with or result in a breach of, or accelerate the performance required by any of the terms
of, any material debt instrument, lease, license, covenant, agreement or understanding to which BAY is a party or by which it is
bound, or any order, ruling, decree, judgment, arbitration award or stipulation to which BAY, is subject, or constitute a default
thereunder or result in the creation of any lien, claim, security interest, encumbrance, charge, restriction or right of any third
party of any kind whatsoever upon any of the properties or assets of BAY.
(h)
Financial
Statements; Material Adverse Effect
.
(i) BAY
has previously made available to FULB and UBB accurate and complete copies of the BAY Financial Statements. The BAY Financial Statements
as of and for the years ended December 31, 2015 and 2014 are accompanied by the audit report of Moss Adams. LLP, The BAY Financial
Statements fairly present in all material respects, the financial condition of BAY as of the respective dates set forth therein,
and the results of operations, changes in shareholders’ equity and cash flows (if applicable) of BAY for the respective periods
or as of the respective dates set forth therein.
(ii) The
BAY Financial Statements have been, and are being, prepared in accordance with GAAP consistently applied during the periods involved,
except as stated therein. BAY has cash in amount sufficient to pay the aggregate Per Share Cash Consideration.
(iii) Since
January 1, 2016, BAY has not incurred any liability other than in the ordinary course of business consistent with past practice,
except (i) as Previously Disclosed, (ii) liabilities properly accrued or reserved against in the consolidated balance sheet of
BAY as of January 1, 2016, (iii) liabilities and obligations incurred since January 1, 2016 in the ordinary course of business
consistent with past practice, (iv) liabilities and obligations that are not material to BAY, and (iv) any liabilities and obligations
incurred with respect to the transactions contemplated by this Agreement.
(iv) Since
January 1, 2016, (A) BAY has conducted its business in the ordinary and usual course consistent with past practice and (B) no
event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances and events (described
in any paragraph of this Section 5.3 or otherwise), has had or is reasonably likely to have a Material Adverse Effect with respect
to BAY.
(v) No
agreement pursuant to which any loans or other assets have been or shall be sold by BAY entitled the buyer of such loans or other
assets to cause BAY to repurchase such loan or other asset or the buyer to pursue any other form of recourse against BAY. All cash,
stock or other dividends or any other distribution with respect to the capital stock of BAY that has been declared, set aside or
paid since December 31, 2015 has been Previously Disclosed. Since December 31, 2015, no shares of capital stock of BAY
have been purchased, redeemed or otherwise acquired, directly or indirectly, by BAY and no agreements have been made by BAY to
do any of the foregoing.
(i)
Legal
Proceedings
. Except as set forth in
Schedule 5.3(i)
of the Disclosure Schedule, no litigation, arbitration, claim or
other proceeding before any court or governmental agency is pending against BAY, individually or in the aggregate, that has had
or could reasonably be expected to have a Material Adverse Effect with respect to BAY, and, to the knowledge of BAY, no such litigation,
arbitration, claim or other proceeding has been threatened and there are no facts which could reasonably give rise to such litigation,
arbitration, claim or other proceeding. Neither BAY, nor any of its properties owned by BAY is a party to or subject to any order,
judgment, decree or regulatory restriction that, individually or in the aggregate, has had or could reasonably be expected to have
a Material Adverse Effect with respect to BAY.
(j)
Regulatory
Matters
.
(i) BAY
has duly filed with the appropriate Governmental Authorities in substantially the correct form the monthly, quarterly and annual
reports required to be filed by it under applicable laws and regulations, and such reports were in all material respects complete
and accurate and in compliance with the requirements of applicable laws and regulations, and BAY has made available to FULB and
UBB accurate and complete copies of all such reports. Except as Previously Disclosed, in connection with the most recent examination
of BAY by the appropriate Governmental Authorities, BAY was not required to correct or change any action, procedure or proceeding
which BAY believes in good faith has not been now corrected or changed, other than corrections or changes which, if not made, either
individually or in the aggregate, would not have a Material Adverse Effect on BAY.
(ii) Neither
BAY, nor any of its properties is a party to or is subject to any order, decree, directive, agreement, memorandum of understanding
or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter from, nor, except
in the normal course of business, has BAY adopted any policies, procedures or board resolutions at the request or suggestion of,
any Governmental Authority. BAY has paid all assessments made or imposed by any Governmental Authority.
(iii) Except
as Previously Disclosed, no Governmental Authority has initiated since December 31, 2014 or has pending any proceeding, enforcement
action or, to the knowledge of BAY, investigation or inquiry into the business, operations, policies, practices or disclosures
of BAY (other than normal examinations conducted by a Governmental Authority in the ordinary course of the business of BAY), or,
to the knowledge of BAY, threatened any of the foregoing.
(iv) BAY
is “well-capitalized” as defined in applicable laws and regulations. The most recent regulatory rating given to BAY
as to compliance with the Community Reinvestment Act is “Satisfactory” or better. Since the last regulatory examination
of BAY with respect to Community Reinvestment Act compliance, BAY has not received any complaints as to Community Reinvestment
Act compliance, and no proceedings are pending, nor to the knowledge of BAY, threatened with respect to any violations of consumer
fair lending laws or regulations.
(k)
Compliance
With Laws
. Except as Previously Disclosed, BAY:
(i) is
and at all times since December 31, 2014 has been in material compliance with all applicable federal, state, local and foreign
statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, decrees or policies and/or guidelines of
any Governmental Authority applicable thereto or to the employees conducting such businesses, including, without limitation, Sections
23A and 23B of the Federal Reserve Act and regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA PATRIOT Act, all other applicable
fair lending laws and other laws relating to discriminatory business practices;
(ii) has
and at all times since December 31, 2014 has had all permits, licenses, franchises, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all Governmental Authorities (and has paid all fees and assessments
due and payable in connection therewith) that are required in order to permit it to own or lease its properties and to conduct
its business as presently conducted, except where the failure to do so would not have a Material Adverse Effect; all such permits,
licenses, franchises, certificates of authority, orders and approvals are in full force and effect and, to the knowledge of BAY,
no suspension or cancellation of any of them is pending or threatened;
(iii) has
received, since December 31, 2014, no notification or communication from any Governmental Authority (A) asserting that
BAY is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening
to revoke any license, franchise, permit or governmental authorization (nor, to the knowledge of BAY, do any grounds for any of
the foregoing exist); and
(iv) has
devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of its financial statements, has designed disclosure controls and procedures to ensure
that material information is made known to the management of BAY on no less than a quarterly basis, and has disclosed, based on
its most recent evaluation prior to the date hereof, to its auditors (A) any significant deficiencies in the design or operation
of internal controls which could adversely affect in any material respect its ability to record, process, summarize and report
financial data and has identified for its auditors any material weaknesses in internal controls and (B) any fraud, whether
or not material, that involves management or other employees who have a significant role in its internal controls.
(l)
Material
Contracts; Defaults
.
(i) Except
as Previously Disclosed, BAY is not a party to, bound by or subject to any agreement, contract, arrangement, commitment or understanding
(whether written or oral) (A) with respect to the employment of any of its directors, officers, employees or consultants,
(B) which would entitle any present or former director, officer, employee or agent of BAY to indemnification from BAY, (C) which
is an agreement (including data processing, software programming, consulting and licensing contracts) not terminable on 60 days
or less notice and involving the payment or value of more than $50,000 per annum, (D) which is with or to a labor union or
guild (including any collective bargaining agreement), (E) which relates to the incurrence of indebtedness (other than deposit
liabilities, advances and loans from the FHLB, and sales of securities subject to repurchase, or similar obligation, in each case,
in the ordinary course of business), (F) which grants any Person a right of first refusal, right of first offer or similar
right with respect to any material properties, rights, assets or business of BAY, (G) which involves the purchase or sale
of assets with a purchase price of $50,000 or more in any single case or $50,000 in all such cases, other than purchases and sales
of investment securities and loans in the ordinary course of business consistent with past practice, (H) which is a consulting
agreement, license or service contract (including data processing, software programming and licensing contracts and outsourcing
contracts) which involves the payment of $50,000 or more in annual fees, (I) which provides for the payment by BAY of payments
upon a change of control thereof, (J) which is a lease for any real or material personal property owned or presently used
by BAY, (K) which materially restricts the conduct of any business by BAY or limits the freedom of BAY to engage in any line
of business in any geographic area (or would so restrict BAY after consummation of the transactions contemplated hereby) or which
requires exclusive referrals of business or requires BAY to offer specified products or services to their customers or depositors
on a priority or exclusive basis, (L) which is with respect to, or otherwise commits BAY to do, any of the foregoing, or (M) which
is a material contract (as defined in Item 601(b)(10) of Regulation S-K of the SEC) (all of the foregoing collectively, “
BAY
Material Contracts
”).
(ii) To
the knowledge of BAY, each BAY Material Contract is valid and binding on BAY and is in full force and effect (other than due to
the ordinary expiration thereof) and is valid and binding on the other parties thereto. None of BAY, or, to the knowledge of BAY,
any other parties thereto, is in material default under any BAY Material Contract and there has not occurred any event that, with
the lapse of time or the giving of notice or both, would constitute such a default. Except as provided in this Agreement, no power
of attorney or similar authorization given directly or indirectly by BAY is currently outstanding.
(iii) All
outstanding loans from BAY to its officers and directors have been Previously Disclosed, and except as Previously Disclosed, there
has been no default on, or forgiveness or waiver of, in whole or in part, any such loan during the two years immediately preceding
the date hereof.
(m)
No
Brokers
. Other than for financial advisory services performed for BAY by Vining Sparks, LP pursuant to an agreement dated November
2, 2016, as Previously Disclosed, no action has been taken by BAY that would give rise to any valid claim against any party hereto
for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated hereby. The
board of directors of BAY has received the opinion (which, if initially rendered verbally, has been or will be confirmed by a written
opinion, dated the same date) of Vining Sparks, LP, to the effect that, as of the date of such opinion, and based upon and subject
to the factors, assumptions, and limitations set forth therein, the Per Share Merger Consideration is fair, from a financial point
of view, to BAY shareholders.
(n)
Employee
Benefit Plans
.
(i) Schedule
5.3(n)(i) lists all benefit and compensation plans, contracts, policies or arrangements covering current or former employees of
BAY and current or former directors or independent contractors of BAY, including, but not limited to, “employee benefit plans”
within the meaning of Section 3(3) of ERISA, and severance, employment, change in control, fringe benefit, deferred compensation,
stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus plans, agreements, programs, policies
or other arrangements (the “BAY Bank Benefit Plans”). BAY has previously made available to FULB and UBB true and complete
copies of (A) all BAY Benefit Plans including, but not limited to, any trust instruments and insurance contracts forming a part
of any BAY Benefit Plans and all amendments thereto; (B) the most recent annual report (Form 5500), together with all schedules,
as required, filed with the IRS or the DOL, as applicable, and any financial statements and opinions required by Sections 103(a)(3)
and 103(e) of ERISA with respect to each BAY Benefit Plan; (C) for each BAY Benefit Plan which is a “top-hat” plan,
a copy of filings with the DOL; (D) the most recent determination letter issued by the IRS (or, in the case of a BAY Benefit Plan
maintained pursuant to the adoption of a prototype or volume submitter document a copy of an opinion or notification letter issued
by the IRS to the sponsor of the prototype or volume submitter document upon which BAY is entitled to rely stating that the form
of the prototype or volume submitter plan document is acceptable for the establishment of a qualified retirement plan), for each
BAY Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code; (E) the most recent summary plan
description and any summary of material modifications, as required, for each BAY Benefit Plan; (F) the most recent actuarial report,
if any relating to each BAY Benefit Plan; (G) the most recent actuarial valuation, study or estimate of any retiree medical and
life insurance benefits plan or supplemental retirement benefits plan; and (H) the most recent summary annual report for each BAY
Benefit Plan required to provide summary annual reports by Section 104 of ERISA.
(ii) Each
BAY Benefit Plan has been established and administered to date in all material respects in accordance with the applicable provisions
of ERISA, the Code and applicable law and with the terms and provisions of all documents, contracts or agreements pursuant to which
such BAY Benefit Plan is maintained. Each BAY Benefit Plan which is an “employee pension benefit plan” within the meaning
of Section 3(2) of ERISA (a “Pension Plan”) and which is intended to be qualified under Section 401(a) of the Code,
has received a favorable determination letter from the IRS, and BAY is not aware of any circumstances likely to result in revocation
of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a) of the Code.
BAY has not has received any correspondence or written or verbal notice from the IRS, DOL, any other governmental agency, any participant
in or beneficiary of, a BAY Benefit Plan, or any agent representing any of the foregoing that brings into question the qualification
of any such BAY Benefit Plan. There is no material pending or, to BAY’s knowledge, threatened litigation relating to the
BAY Benefit Plans. BAY has not engaged in a transaction with respect to any BAY Benefit Plan or Pension Plan that could subject
it to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount which would be material.
There are no matters pending before the IRS, DOL or other governmental agency with respect to any BAY Benefit Plan. No BAY Benefit
Plan or related trust has been the subject of an audit, investigation or examination by a Governmental Authority.
(iii) No
liability under Title IV of ERISA has been or is expected to be incurred by BAY with respect to any ongoing, frozen or terminated
“single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them or the single-employer plan of any entity which is considered one employer with BAY under Section 4001 of ERISA or Section
414 of the Code (an “ERISA Affiliate”). BAY has not incurred, and does not expect to incur, any withdrawal liability
with respect to a multiemployer plan (as defined in 4001(a)(3) of ERISA) under of Title IV of ERISA (regardless of whether based
on contributions of an ERISA Affiliate). No notice of a “reportable event,” within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate or will be required to be filed in connection with the transactions contemplated hereby. There has been no termination
or partial termination, as defined in Section 411(d) of the Code and the regulations thereunder, of any Pension Plan.
(iv) All
contributions required to be made under the terms of any BAY Benefit Plan have been timely made. Neither any Pension Plan nor any
single-employer plan of an ERISA Affiliate has an “accumulated funding deficiency” (whether or not waived) within the
meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. BAY has not
provided, and is not required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Code.
(v) Except
as set forth on
Schedule 5.3(n)(v)
of the Disclosure Schedule, BAY does not have any obligations for retiree health and
life benefits under any BAY Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6 of Subtitle
B of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality. BAY may amend or
terminate any such BAY Benefit Plan in accordance with and to the extent permitted by their terms at any time without incurring
any liability thereunder. No event or condition exists with respect to a BAY Benefit Plan that could subject BAY to a material
tax under Section 4980B of the Code.
(vi) Except
as set forth on
Schedule 5.3(n)(vi)
of the Disclosure Schedule, neither the execution of this Agreement nor consummation
of the transactions contemplated hereby, either alone or in connection with a subsequent event, (A) entitle any employees
or any current or former director or independent contractor of BAY to severance pay or any increase in severance pay upon any termination
of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment or funding (through
a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation
pursuant to, any of the BAY Benefit Plans, (C) result in any breach or violation of, or a default under, any of the BAY Benefit
Plans, (D) result in any payment that would be a “parachute payment” to a “disqualified individual”
as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future or (E) result in any payment or portion of any payment that would not
be deductible by BAY under Section 162(m) of the Code when paid.
(vii) All
required reports and descriptions (including but not limited to Form 5500 annual reports and required attachments, Forms 1099-R,
summary annual reports, Forms PBGC-1 and summary plan descriptions) have been filed or distributed appropriately with respect to
each Benefit Plan. All required tax filings with respect to each Benefit Plan have been made, and any taxes due in connection with
such filings have been paid.
(viii) No
BAY Benefit Plan is or has been funded by, associated with, or related to a “voluntary employee’s beneficiary association”
within the meaning of Section 501(c)(9) of the Code, a “welfare benefit fund” within the meaning of Section 419 of
the Code, a “qualified asset account” within the meaning of Section 419A of the Code or a “multiple employer
welfare arrangement” within the meaning of Section 3(40) of ERISA.
(ix) Each
BAY Benefit Plan which is a “nonqualified deferred compensation plan” (within the meaning of Section 409A of the Code)
has been operated in compliance with Section 409A of the Code and the guidance issued by the IRS with respect to such plans.
(o)
Labor
Matters
. BAY is not a party to and is not bound by any collective bargaining agreement, contract or other agreement or understanding
with a labor union or labor organization, nor is BAY the subject of a proceeding asserting that it has committed an unfair labor
practice (within the meaning of the National Labor Relations Act) or seeking to compel BAY to bargain with any labor organization
as to wages or conditions of employment, nor is there any strike or other labor dispute involving it pending or, to BAY’s
knowledge, threatened, nor, to BAY’s knowledge, are any employees of BAY seeking to certify a collective bargaining unit
or engaging in other organizational activity. Since January 1, 2015, BAY has paid in full all wages, salaries, commissions, bonuses,
benefits and other compensation due to its employees or otherwise arising under any policy, practice, agreement, plan, program,
statute or other law.
(p)
Environmental
Matters
. To the knowledge of BAY, there are no legal, administrative, arbitral or other proceedings, claims, actions, causes
of action, private environmental investigations, remediation activities or governmental investigations of any nature seeking to
impose on BAY any liability or obligation arising under any Environmental Laws pending or threatened against BAY, which liability
or obligation could have, individually or in the aggregate, a Material Adverse Effect on BAY. To the knowledge of BAY, there is
no reasonable basis for any such proceeding, claim, action, environmental remediation or investigation that could impose any liability
or obligation that could have or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect
on BAY. To the knowledge of BAY, BAY is in compliance in all material respects with applicable Environmental Laws. To the knowledge
of BAY, no real property (including buildings or other structures) currently or formerly owned or operated by BAY, or any property
in which BAY has held a security interest, Lien or a fiduciary or management role (“BAY Loan Property”), has been contaminated
with, or has had any release of, any Hazardous Substance that has resulted, or would reasonably be expected to result, in a Material
Adverse Effect with respect to BAY. BAY could not be deemed the owner or operator of, nor has it participated in the management
regarding Hazardous Substances of, any BAY Loan Property or any property of BAY which has been contaminated with, or has had any
release of, any Hazardous Substance that has resulted, or would reasonably be expected to result, in a Material Adverse Effect
with respect to BAY. To BAY’s knowledge, BAY has no liability for any Hazardous Substance disposal or contamination on any
third party property. Neither BAY, nor to BAY’s knowledge, any Person whose liability BAY has assumed whether contractually
or by operation of law, has received any notice, demand letter, claim or request for information alleging any material violation
of, or material liability under, any Environmental Law. BAY is not subject to any order, decree, injunction or other agreement
with any Governmental Authority or any third party relating to any Environmental Law. To BAY’s knowledge, there are no circumstances
or conditions (including the presence of asbestos, underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing
operations, dry-cleaning, or automotive services) involving BAY, any currently or formerly owned or operated property, any BAY
Loan Property, or, to BAY’s knowledge, any Person whose liability BAY has assumed whether contractually or by operation of
law, that could reasonably be expected to result in any material claims, liability or investigations against BAY, result in any
material restrictions on the ownership, use, or transfer of any property pursuant to any Environmental Law, or adversely affect
the value of any BAY Loan Property or property of BAY. BAY has made available to FULB and UBB true and correct copies of all environmental
reports or studies, sampling data, correspondence and filings in its possession or reasonably available to it relating to BAY and
any currently or formerly owned or operated property.
(q)
Tax
Matters
.
(i) BAY
has timely filed all Tax Returns required to have been filed, taking into account any properly granted extensions of time to file,
with the appropriate taxing authorities, such Tax Returns are true, correct and complete and none of such Tax Returns has been
amended.
(ii) All
material Taxes required to be paid or remitted by BAY have been paid or remitted, including all Taxes shown as due and owing on
all Tax Returns, all Taxes assessed or reassessed by any Governmental Authority, all Taxes held in trust or deemed to be held in
trust for a Governmental Authority and all installments on account of Taxes for the current year or, where payment is not yet due,
sufficiently reserved in the BAY Financial Statements in accordance with GAAP.
(iii) BAY
and its officers, directors or any employee responsible for Tax matters have complied in all material respects with all rules and
regulations relating to the withholding of Taxes and the remittance of withheld Taxes in connection with any amounts paid or owing
to any employee, independent contractor, creditor, shareholder or other third party.
(iv) BAY
has not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(v) To
BAY’s knowledge, it has not engaged in any transaction that would constitute a “reportable transaction” within
the meaning of Treasury Regulations Section 1.6011-4(b).
(vi) The
unpaid Taxes of BAY (A) do not exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established
to reflect temporary difference between book and Tax income) as shown on the balance sheet dated September 30, 2016 of BAY, and
(B) will not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past
custom and practice of BAY in filing its Tax Returns.
(vii) BAY
is not currently the beneficiary of any extension of time within which to file any Tax Returns.
(viii) There
are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of BAY.
(ix) No
Tax actions by any Governmental Authority are pending or being conducted with respect to BAY.
(x) BAY
has not received from any taxing authority (including jurisdictions in which BAY has not filed Tax Returns) any (A) notice
indicating an intent to open an audit or other review, (B) request for information related to Tax matters or (C) notice
of deficiency or proposed adjustment for any amount of Tax, proposed, asserted or assessed by any Governmental Authority against
BAY.
(xi) Except
as Previously Disclosed, BAY is not a party to or bound by any tax sharing agreement.
(xii) Except
as Previously Disclosed, BAY has not been a member of a group of corporations with which it has filed (or been required to file)
consolidated, combined or unitary Tax Returns.
(xiii) BAY
is not currently liable, nor does BAY have any potential liability, for the Taxes of another Person (A) under Treasury Regulations
Section 1.1502-6 (or comparable provision of state, local or foreign law), (B) as transferee or successor, or (C) by
contract or indemnity or otherwise.
(xiv) BAY
has not ever been either a “distributing corporation” or a “controlled corporation” in connection with
a distribution of stock qualifying for tax-free treatment, in whole or in part, under Section 355 of the Code.
(xv) BAY
has not either been nor will be a “United States real property holding corporation” within the meaning of Section 897
of the Code during the five year period ending on the Closing Date.
(xvi) BAY
will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date, as a result of any: (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Section 481 of the Code or similar state and local Tax law, (B) any “closing
agreement” as described in Section 7121 of the Code or similar state or local Tax law executed on or prior to the Closing
Date, (C) installment sale or open transaction disposition made on or prior to the Closing Date, (D) prepaid amount received
on or prior to the Closing Date, (E) any item having been reported on the completed contract method of accounting or the percentage
of completion method of accounting, or (F) other action taken prior to the Closing Date.
(r)
Loans;
Nonperforming and Classified Assets
.
(i) Except
as Previously Disclosed, each Loan on the books and records of BAY was made and has been serviced in all material respects in accordance
with its customary lending standards in the ordinary course of business, is evidenced in all material respects by appropriate and
sufficient documentation and, to the knowledge of BAY, constitutes the legal, valid and binding obligation of the obligor named
therein, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditor’s rights or by general equity principles.
(ii) BAY
has Previously Disclosed as of the latest practicable date prior to the date of this Agreement: (A) any Loan under the terms
of which the obligor is [60] or more days delinquent in payment of principal or interest, or to the knowledge of BAY, in default
of any other material provision thereof; (B) each Loan which has been classified as “substandard,” “doubtful,”
“loss” or “special mention” (or words of similar import) by BAY, or an applicable regulatory authority;
(C) a listing of the OREO acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof; and (D) each
Loan with any director or executive officer of BAY or an Affiliate of BAY.
(iii) BAY
has Previously Disclosed a list and description of all loan participations entered into between BAY and any third party which are
reflected on the books and records of BAY. A true and complete copy of each document relating to each loan participation has been
made available to FULB and UBB, with the exception of loan files for loans guaranteed or unguaranteed by the SBA or another Governmental
Authority and sold in the ordinary course of business.
(s)
Properties
.
All real property owned or leased by BAY has been Previously Disclosed. With respect to such real property that is owned by BAY,
BAY has good and marketable and insurable title, free and clear of all Liens, leases or other imperfections of title or survey,
except (i) Liens for current taxes and assessments not yet due and payable and for which adequate reserves have been established,
(ii) Liens set forth in policies for title insurance of such properties delivered to FULB and UBB, (iii) survey imperfections
set forth in surveys of such properties delivered to FULB and UBB or (iv) as Previously Disclosed. With respect to such real
property that is leased by BAY, BAY has a good and marketable leasehold estate in and to such property (except for the matters
described in clauses (i)-(iv) hereof). Except as set forth on
Schedule 5.3(s)
of the Disclosure Schedule: BAY has delivered
true, correct and complete copies of such lease(s), together with all amendments thereto, to FULB and UBB; any such lease is in
full force and effect and will not lapse or terminate prior to the Closing Date. To the knowledge of BAY, BAY is not and the landlord
thereunder is not in default of any of their respective obligations under any such lease and any such lease constitutes the valid
and enforceable obligations of the parties thereto; other than as set forth on
Schedule 5.3(s)
, the transactions contemplated
hereby will not require the consent of any landlord under any such lease; and, with respect to any mortgage, deed of trust or other
security instrument which establishes a Lien on the fee interest in any real property subject to any such lease, BAY has the benefit
of a non-disturbance agreement from the holder or beneficiary of such mortgage, deed of trust or other security instrument that
provides that BAY’s use and enjoyment of the real property subject to such lease will not be disturbed as a result of the
landlord’s default under any such mortgage, deed of trust or other security instrument, provided BAY is not in default of
any of its obligations pursuant to any such lease beyond the expiration of any notice and cure periods. All real and personal property
owned by BAY or presently used by BAY in its business is in good condition (ordinary wear and tear excepted) and is sufficient
to carry on its business in the ordinary course of business consistent with its past practices. BAY has good and marketable and
insurable title, free and clear of all Liens to all of its material properties and assets, other than real property, except (i) pledges
to secure deposits incurred in the ordinary course of its banking business consistent with past practice, (ii) such imperfections
of title and encumbrances, if any, as are not material in character, amount or extent and (iii) as Previously Disclosed. All
personal property which is material to BAY’s business and leased or licensed by BAY is held pursuant to leases or licenses
which are valid and enforceable in accordance with their respective terms and such leases will not terminate or lapse prior to
the Effective Time.
(t)
Intellectual
Property
. Except as Previously Disclosed, BAY owns or possesses valid and binding licenses and other rights to use without
payment of any material amount all material patents, copyrights, trade secrets, trade names, service marks, trademarks and other
intellectual property rights used in its business, free and clear of any material Liens, all of which have been Previously Disclosed
by BAY, and BAY has not received any notice of conflict or allegation of invalidity with respect thereto or that asserts the intellectual
property rights of others. To the knowledge of BAY, the operation of the business of BAY does not infringe or violate the intellectual
property of any third party. BAY has performed in all material respects all the obligations required to be performed by it and
is not in default under any contract, agreement, arrangement or commitment relating to any of the foregoing.
(u)
Fiduciary
Accounts
. BAY has properly administered all accounts for which it acts as a fiduciary, including but not limited to accounts
for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance
with the terms of the governing documents and applicable laws, regulations and common laws. To the knowledge of BAY, neither BAY
nor any of its directors, officers or employees, has committed any breach of trust with respect to any fiduciary account and the
records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
(v)
Books
and Records
. The books, records, systems, data and information of BAY (i) have been fully, properly and accurately maintained
in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all
material respects all dealings and transactions in respect of BAY and (ii) are recorded, stored, maintained and operated under
means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive
ownership and direct control of BAY (including all means of access thereto and therefrom).
(w)
Insurance
.
BAY is insured with reputable insurers against such risks and in such amounts as the management of BAY has reasonably determined
to be prudent in accordance with industry practices; all of the material insurance policies, binders, or bonds currently maintained
by BAY are in full force and effect; BAY is not in material default thereunder; and all claims thereunder have been filed in due
and timely fashion.
(x)
Allowance
For Loan Losses
. BAY’s allowance for loan losses is in compliance with BAY’s existing methodology for determining
the adequacy of its allowance for loan losses as well as the standards established by GAAP, the Financial Accounting Standards
Board and applicable bank regulatory agencies and is adequate under all such standards.
(y)
Transactions
With Affiliates
. Except as Previously Disclosed, there are no existing or pending transactions, nor are there any agreements
or understandings, with any shareholders, directors, officers or employees of BAY or any Affiliate of BAY, relating to, arising
from or affecting BAY, including without limitation, any transactions, arrangements or understandings relating to the purchase
or sale of goods or services, the lending of monies or the sale, lease or use of any assets of BAY, with or without adequate compensation,
in any amount whatsoever.
(z)
Material
Facts
.
The representations and warranties Section 5.3, when considered as a whole, do
not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements
and information contained in this Section 5.3 not misleading
ARTICLE VI
COVENANTS
6.1
Reasonable
Best Efforts
. Subject to the terms and conditions of this Agreement, FULB and UBB, on the one hand, and BAY and BHC, on the
other hand, agree to use their commercially reasonable best efforts in good faith, to take, or cause to be taken, all actions,
and to do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit
consummation of the transactions contemplated hereby as promptly as practicable and otherwise to enable consummation of the transactions
contemplated hereby, including the satisfaction of the conditions set forth in Article VII hereof, and shall cooperate fully with
the other parties hereto to that end.
6.2
Regulatory
Filings
.
(a) Subject
to the other provisions of this Agreement, BAY, BHC, FULB and UBB shall cooperate and use their respective commercially reasonable
best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations
of all third parties and Governmental Authorities necessary to consummate the transactions contemplated hereby; and BAY and BHC
shall use their commercially reasonable best efforts to make any necessary initial filings with Governmental Authorities, within
thirty (30) days following the execution hereof.
(b) Each
party agrees, upon request, to furnish the other parties with all information concerning itself and its directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application
made by or on behalf of such other parties or any of their respective Subsidiaries (if applicable) to any third party or Governmental
Authority.
6.3
Press
Releases
. BAY, BHC, FULB and UBB shall consult with each other before issuing any press release with respect to the transactions
contemplated hereby or this Agreement and shall not issue any such press release or make any such public statements without the
prior consent of the other parties, which shall not be unreasonably withheld or delayed;
provided, however
, that a party
may, without the prior consent of the other parties (but after such consultation, to the extent practicable under the circumstances),
issue such press release or make such public statements as may upon the advice of outside counsel be required by law or the rules
or regulations of the securities exchange on which it trades, to the extent applicable.
6.4
Access;
Information
.
(a) Upon
reasonable notice from BAY and subject to applicable laws relating to the exchange of information, FULB and UBB shall afford BAY
and its officers, employees, counsel, accountants and other authorized representatives such access during normal business hours
throughout the period prior to the Effective Time to the books, records (including, without limitation, Tax Returns and work papers
of independent auditors), properties, personnel and advisors of FULB and UBB and to such other information relating to FULB and
UBB as BAY may reasonably request and, during such period, it shall furnish to BAY all information concerning the business, properties
and personnel of FULB and UBB as BAY may reasonably request. Upon reasonable notice from FULB and UBB and subject to applicable
laws relating to the exchange of information, BAY shall afford FULB, UBB and their respective officers, employees, counsel, accountants
and other authorized representatives such access during normal business hours throughout the period prior to the Effective Time
to the books, records (including, without limitation, Tax Returns and work papers of independent auditors), properties, personnel
and advisors of BAY and to such other information relating to BAY as FULB and UBB may reasonably request and, during such period,
it shall furnish to FULB and UBB all information concerning the business, properties and personnel of BAY as FULB and UBB may reasonably
request.
(b) FULB
and UBB shall cooperate, and use their commercially reasonable best efforts to cause its independent auditor to cooperate, at FULB’s
expense, with BAY and its independent auditor in order to enable BAY and its Affiliates to prepare financial statements, including,
without limitation, pro forma financial information, for FULB that may be required by BAY and BHC in connection with the filing
of regulatory applications with Governmental Authorities or otherwise required in connection with the transactions contemplated
by this Agreement. Without limiting the generality of the foregoing, FULB and UBB agree that they will execute and deliver, and
cause their officers to execute and deliver (including former officers of FULB and/or UBB after the Closing), such “representation”
letters as are customarily delivered in connection with audits and as the independent auditors of FULB, UBB or BAY may respectively
reasonably request under the circumstances.
(c) All
information furnished pursuant to this Section 6.4 shall be subject to the provisions of the confidentiality agreement, dated as
of September 7, 2016 between BAY, FULB and UBB (the “Confidentiality Agreement”).
(d) No
investigation by any of the parties or their respective representatives shall affect the representations, warranties, covenants
or agreements of the other parties set forth herein.
6.5
No
Solicitation
(a) FULB
and UBB shall not, and shall not permit or authorize any of its Subsidiaries, Affiliates, directors, officers, employees, agents
and representatives (including without limitation any investment banker, financial advisor, attorney, accountant or other representatives
retained by FULB or UBB) (all of the foregoing, collectively “Representatives”), directly or indirectly, to (i) solicit,
initiate, endorse, encourage or facilitate any inquiry, proposal or offer with respect to, or the making or completion of, any
Acquisition Proposal, or any inquiry, proposal or offer that is reasonably likely to lead to any Acquisition Proposal, (ii) enter
into, continue or otherwise participate in any discussions or negotiations regarding, or furnish to any Person any information
or data with respect to, or otherwise cooperate in any way with, any Acquisition Proposal, (iii) approve, recommend, agree to or
accept, or propose to approve, recommend, agree to or accept, any Acquisition Proposal or (iv) resolve, propose or agree to do
any of the foregoing.
FULB and UBB shall, and
shall cause each of their respective Subsidiaries and the Representatives of FULB, UBB and their Subsidiaries to, (A) immediately
cease and cause to be terminated all existing discussions or negotiations with any Person conducted heretofore with respect to
any Acquisition Proposal, and (B) not terminate, waive, amend, release or modify any provision of any confidentiality or standstill
agreement to which it or any of its Affiliates or Representatives is a party with respect to any Acquisition Proposal, and shall
enforce the provisions of any such agreement.
Notwithstanding the foregoing,
if at any time following the date of this Agreement and prior to obtaining FULB Requisite Shareholder Approval, (1) FULB or UBB
receives a written Acquisition Proposal that the FULB Board believes in good faith to be bona fide, (2) such Acquisition Proposal
was unsolicited and did not otherwise result from a breach of this Section 6.5(a), (3) the FULB Board determines in good faith
that such Acquisition Proposal constitutes or is more likely than not to result in a Superior Proposal and (4) the FULB Board determines
in good faith (and based on the advice of outside counsel) that the failure to take the actions referred to in clause (x) or (y)
below would constitute a breach of its fiduciary duties to the shareholders of FULB under applicable Law, then FULB may (x) furnish
information with respect to FULB and its Subsidiaries to the Person making such Acquisition Proposal pursuant to a customary confidentiality
agreement containing terms substantially similar to, and no less favorable to FULB than, those set forth in the Confidentiality
Agreement; provided, that any non-public information provided to any Person given such access shall have been previously provided
to BAY or shall be provided to BAY prior to or concurrently with the time it is provided to such Person and (y) participate in
discussions or negotiations with the Person making such Acquisition Proposal regarding such Acquisition Proposal; provided that
prior to providing any nonpublic information permitted to be provided pursuant to the foregoing provisos or engaging in any discussions
or negotiations, FULB shall have entered into a confidentiality agreement with such third party on terms no less favorable to FULB
than the Confidentiality Agreement.
(b) Neither
the FULB Board nor any committee thereof shall: (i) effectuate an Adverse Recommendation Change; (ii) cause or permit FULB to enter
into an Alternate Acquisition Agreement; or (iii) resolve, agree or propose to take any such actions.
Notwithstanding the foregoing,
in the event FULB receives an unsolicited bona fide Acquisition Proposal and the FULB Board concludes in good faith that such Acquisition
Proposal constitutes or is more likely than not to result in a Superior Proposal, the FULB Board shall nevertheless cause the FULB
Shareholders Meeting to be held in accordance with Section 6.7(b) herein, but may, to the extent that the FULB Board concludes
in good faith (and based on the advice of outside counsel) that failure to take such action would result in a violation of its
fiduciary duties under applicable Law, submit this Agreement to its shareholders without recommendation (although the resolutions
approving this Agreement as of the date of this Agreement may not be rescinded or amended) in which event the FULB Board may communicate
the basis for its lack of a recommendation to the shareholders in the Proxy Statement or an appropriate amendment or supplement
thereto to the extent required by law; provided, however, that FULB may not submit this Agreement to its shareholders without recommendation
unless (A) FULB promptly notifies BAY in writing at least five (5) Business Days before taking that action of its intention to
do so, and specifying the reasons therefor, including the terms and conditions of, and the identity of any Person making, such
Superior Proposal, and contemporaneously furnishing a copy of the relevant Alternative Acquisition Agreement and any other relevant
transaction documents (it being understood and agreed that any amendment to the financial terms or any amendment to any other material
term of such Superior Proposal shall require a new written notice by FULB and a new five (5) Business Day period) and (B) prior
to the expiration of such five (5) Business Day period, BAY does not make a proposal to adjust the terms and conditions of this
Agreement that the FULB Board determines in good faith (after consultation with outside counsel and its financial advisor) after
giving effect to, among other things, the payment of the BAY Termination Fee set forth in Section 8.2(a)(ii)
,
that
such action is no longer required by its fiduciary duties to the shareholders of FULB under applicable Law.
During the five (5) Business
Day period prior to its effecting an Adverse Recommendation Change as referred to above, FULB shall, and shall cause its financial
and legal advisors to, negotiate with BAY in good faith (to the extent BAY seeks to negotiate) regarding any revisions to the terms
of the transactions contemplated by this Agreement proposed by BAY.
(c) In
addition to the obligations of FULB set forth in Section 6.5(a) and Section 6.5(b), FULB shall promptly, and in any event within
24 hours of receipt, advise BAY in writing in the event FULB or any of its Subsidiaries or Representatives receives (i) any Acquisition
Proposal or indication by any Person that it is considering making an Acquisition Proposal, (ii) any request for information, discussion
or negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal or (iii) any inquiry, proposal
or offer that is reasonably likely to lead to an Acquisition Proposal, in each case together with the terms and conditions of such
Acquisition Proposal (to the extent such terms and conditions are known to FULB), request, inquiry, proposal or offer and the identity
of the Person making any such Acquisition Proposal, request, inquiry, proposal or offer, and shall furnish BAY with a copy of such
Acquisition Proposal (or, where such Acquisition Proposal is not in writing, with a description of the material terms and conditions
thereof). FULB shall keep BAY informed (orally and in writing) in all material respects on a timely basis of the status and details
(including, within 24 hours after the occurrence of any amendment, modification, discussion or negotiation of any such Acquisition
Proposal, request, inquiry, proposal or offer, including furnishing copies of any written inquiries, correspondence and draft documentation,
and written summaries of any material oral inquiries or discussions. Without limiting any of the foregoing, FULB shall promptly
(and in any event within 24 hours) notify BAY orally and in writing if it determines to begin providing information or to engage
in discussions or negotiations concerning an Acquisition Proposal pursuant to Section 6.5(a) or Section 6.5(b) and shall in no
event begin providing such information or engaging in such discussions or negotiations prior to providing such notice.
(d) FULB
agrees that any violation of the restrictions set forth in this Section 6.5 by any Representative of FULB or any of its Subsidiaries,
whether or not such Person is purporting to act on behalf of FULB or any of its Subsidiaries or otherwise, shall be deemed to be
a material breach of this Agreement by FULB.
(e) FULB
shall not, and shall cause its Subsidiaries not to, enter into any agreement with any Person subsequent to the date of this Agreement
that (i) would restrict FULB’s ability to comply with any of the terms of this Section 6.5; or (ii) relates to any Acquisition
Proposal that would materially impair FULB’s ability to consummate the transactions contemplated by this Agreement.
(f) FULB
shall not take any action to exempt any Person (other than BAY, BHC and their respective Affiliates) from the restrictions on “business
combinations” or any similar provision contained in any Antitakeover Law or otherwise cause such restrictions not to apply,
or agree to do any of the foregoing.
(g) FULB
agrees that, prior to the termination of this Agreement, it shall not submit to the vote of its shareholders any Acquisition Proposal
(whether or not a Superior Proposal) or propose to do so.
6.6
FULB
Shareholder Recommendation
.
Unless the FULB Board submits
this Agreement to its shareholders without recommendation pursuant to Section 6.5(b), FULB, through the FULB Board, shall (i) recommend
to the FULB shareholders that they adopt this Agreement and the transactions contemplated hereby, (ii) include such recommendation
in the Proxy Statement-Offering Circular and (iii) publicly reaffirm such recommendation within 24 hours after a request to do
so by BAY. Without limiting the generality of the foregoing, FULB agrees that its obligations to convene and hold the FULB Shareholders
Meeting as soon as practicable under Section 6.7(b) shall not be affected by the commencement, public proposal, public disclosure
or communication to FULB or any other Person of any Acquisition Proposal. In any case in which the FULB Board, submits this Agreement
to its shareholders without recommendation pursuant to Section 6.5(b), or anything else to the contrary in this Agreement
(x) FULB shall nevertheless submit this Agreement and the Merger to a vote of its shareholders and (y) the Proxy Statement-Offering
Circular and any and all accompanying materials (including the proxy card, the “Proxy Materials”)) shall be identical
in form and content to Proxy Materials that would have been prepared by FULB had no Adverse Recommendation Change occurred, except
for appropriate changes to the disclosure in the Proxy Statement-Offering Circular stating that such Adverse Recommendation Change
has been made and, if applicable, describing matters relating to the Superior Proposal or other event giving rise to the Adverse
Recommendation Change to the extent required by applicable Law.
6.7
Requisite
Shareholder Approval
.
(a)
Proxy
Statement-Offering Circular
. For the purposes of holding the FULB Shareholders Meeting, and holding the BAY Shareholders Meeting,
BAY shall draft and prepare, and FULB shall cooperate in the preparation of a joint proxy statement and offering circular satisfying
all applicable requirements of applicable state and federal securities laws, and the rules and regulations thereunder (such joint
proxy statement/offering circular in the form mailed to the shareholders of FULB and BAY/BHC, together with any and all amendments
or supplements thereto, being herein referred to as the “Proxy Statement-Offering Circular”). BAY shall file a draft
of the Proxy Statement-Offering Circular, with the DBO in connection with the permit application as described in Section 6.15.
BAY shall use its best efforts to have the Proxy Statement-Offering Circular approved by the DBO as promptly as practicable after
such filing, and following receipt of the DBO Permit, BAY and FULB shall thereafter promptly mail the Proxy Statement-Offering
Circular to FULB’s shareholders and BAY/BHC’s shareholders. BAY shall also use its commercially reasonable efforts
to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry out the transactions
contemplated by this Agreement, and FULB shall furnish all information concerning FULB, and the holders of FULB Common Stock, as
may be reasonably requested in connection with any such action. FULB shall provide BAY with any information concerning itself that
BAY may reasonably request in connection with the drafting and preparation of the Proxy Statement-Offering Circular, and BAY shall
notify FULB promptly of the receipt of any comments of the DBO or any blue sky administrator with respect to the Proxy Statement-Offering
Circular and of any requests by the DBO or any blue sky administrator for any amendment or supplement thereto or for additional
information and shall provide to FULB promptly copies of all correspondence between BAY or any of their representatives and the
DBO. BAY shall give FULB and its counsel the opportunity to review and comment on the Proxy Statement-Offering Circular prior to
its being filed with the DBO and shall give FULB and its counsel the opportunity to review and comment on all amendments and supplements
to the Proxy Statement-Offering Circular and all responses to requests for additional information and replies to comments prior
to their being filed with, or sent to, the DBO. Each of BAY and FULB agrees to use reasonable efforts, after consultation with
the other party hereto, to respond promptly to all such comments of and requests by the DBO and to cause the Proxy Statement-Offering
Circular and all required amendments and supplements thereto to be mailed to the holders of common stock entitled to vote at the
FULB Shareholders Meeting and at the BAY Shareholders Meeting at the earliest practicable time. FULB and BAY shall promptly notify
the other party if at any time it becomes aware that the Proxy Statement-Offering Circular contains any untrue statement of a material
fact or omits to state a material fact required to be stated therein or necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading. In such event, FULB shall cooperate with BAY in the preparation
of a supplement or amendment to such Proxy Statement-Offering Circular that corrects such misstatement or omission, and BAY shall
file an amended Proxy-Statement Prospectus with the DBO, as required, and shall mail such supplement or amendment to holders of
FULB Common Stock and BAY Common Stock entitled to vote at the FULB Shareholders Meeting and the BAY Shareholders Meeting, respectively,
at the earliest practicable time.
(b)
Shareholders’
Meetings and Approvals
. FULB will as promptly as practicable after the receipt of the DBO Permit, take all steps necessary
to give notice of, convene and hold a meeting of its shareholders of FULB (the “FULB Shareholders Meeting”), for the
purpose of considering this Agreement and the Merger, and for such other purposes as may be, in FULB’s reasonable judgment,
necessary or desirable. BAY will promptly as practicable after the receipt of the DBO Permit take all steps necessary to give notice
of, convene, and hold a meeting of the shareholders of BAY/BHC (the “BAY Shareholders Meeting”), for the purpose of
considering the Agreement and the Merger, and for such other purposes as may be, in BAY’s reasonable judgment, necessary
or desirable.
6.8
Indebtedness;
Trust Preferred Securities; Note Payable
. Upon the Effective Time, BHC and BAY shall assume (i) all Indebtedness of FULB and
UBB and (ii) the due and punctual performance and observance of the covenants to be performed by FULB pursuant to the junior subordinated
debentures (the “Trust Debentures”) issued by First ULB Statutory Trust I, relating to the trust preferred securities
issued by the trust, and the due and punctual payment of the principal of and premium, if any, and interest on such trust preferred
securities. In connection with (ii) of this
Section 6.8
, BAY and BHC shall execute and deliver any supplemental indentures
or other documents, and the parties hereto shall provide any opinion of counsel to the trustee thereof, required to make such
assumption effective.
6.9
Notification
of Certain Matters
. Each of FULB and UBB shall give prompt notice to BAY, and BAY shall give prompt notice to FULB and UBB
of any fact, event or circumstance known to it that (i) is reasonably likely, individually or taken together with all other
facts, events and circumstances known to such party, to result in any Material Adverse Effect with respect to such party, (ii) would
cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained herein, or (iii) lead
to litigation or regulatory action that would delay or prevent the consummation of the transactions contemplated by this Agreement.
6.10
Estoppel
Letters and Consents; Title Insurance
. FULB and UBB shall use their respective best efforts to obtain and deliver to BAY at
the Closing with respect to all real estate (i) owned by FULB and/or UBB, an estoppel letter dated as of the Closing Date
in a form reasonably acceptable to BAY from each tenant and (ii) leased by FULB and/or UBB, an estoppel letter dated as of
the Closing Date in a form reasonably acceptable to BAY from each lessor to the extent required by the applicable lease. FULB and
UBB shall also deliver to BAY, title policies in the amounts requested by BAY, issued by a title insurance company reasonably acceptable
to BAY, subject only to the exceptions described in the first sentence of Section 5.2(t). FULB and UBB shall pay all costs for
removing or obtaining a policy, or endorsement satisfactory to BAY respecting any other title exceptions. In all other circumstances,
for any reissued, down dated or new title policy issued to BAY, FULB and UBB shall pay for that portion of the policy premium attributable
to an amount equal to the net book value of its investment in the land and improvements, and the balance shall be payable by BAY.
FULB and UBB shall also use commercially reasonable efforts to obtain the waiver, approval and/or consents to assignment for all
FULB Material Contracts so identified as requiring consent on the Disclosure Schedules (the “Consents”). Where required
by law or by agreements with third parties, FULB and UBB shall use commercially reasonable best efforts to obtain from third parties,
prior to the Closing Date, all other consents to the transactions contemplated by this Agreement.
6.11
Antitakeover
Statutes
. Each of BAY, BHC, FULB and UBB and their respective boards of directors shall, if any state antitakeover statute
or similar statute becomes applicable to this Agreement and the transactions contemplated hereby, take all action reasonably necessary
to ensure that the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise to minimize the effect of such statute or regulation on this Agreement and the transactions contemplated hereby.
6.12
Notice
to UBB Customers
. On and after the receipt of all Regulatory Approvals and shareholder approvals required to consummate the
transactions contemplated hereby, UBB shall permit BAY to provide one or more written notices (which may be joint notices from
UBB and BAY) to customers of UBB to describe the proposed transactions, the effect on customers and planned transition procedures.
UBB shall have the right to review and approve the substance of any such communications, provided that UBB shall not unreasonably
withhold, delay or condition its approval.
6.13
Indemnification;
Directors and Officers Insurance
.
(a) From
and after the Effective Time, BAY and BHC shall indemnify and hold harmless, to the fullest extent permitted under applicable law
and the FULB Articles, the UBB Charter, the FULB Bylaws and the UBB Bylaws (and shall also advance expenses as incurred to the
fullest extent permitted under applicable law and the FULB Articles, the UBB Charter, the FULB Bylaws and the UBB Bylaws), each
present and former director and officer of FULB and UBB (in each case, when acting in such capacity) and any other Person entitled
to indemnification under the FULB Bylaws and UBB Bylaws, determined as of the Effective Time (collectively, the “Indemnified
Parties”) against any costs or expenses (including reasonable attorneys’ fees), judgments, fines, losses, claims, damages
or liabilities incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative
or investigative, arising out of matters existing or occurring at or prior to the Effective Time, including the transactions contemplated
by this Agreement; provided that the Indemnified Party to whom expenses are advanced provides an undertaking to repay such advances
if it is ultimately determined that such Indemnified Party is not entitled to indemnification by BAY or BHC.
(b) Any
Indemnified Party wishing to claim indemnification under Section 6.13(a), upon learning of any claim, action, suit, proceeding
or investigation described above, will promptly notify BAY and BHC, but the failure to so notify shall not relieve indemnification
obligations which BAY or BHC may have to such Indemnified Party;
provided
that failure to so notify will not affect the
obligations of BAY and BHC under Section 6.13(a) unless and to the extent that BAY or BHC is actually and materially prejudiced
as a consequence.
(c) Prior
to the Effective Time, FULB and UBB shall, or if FULB or UBB is unable to, BAY or BHC as of the Effective Time shall, obtain and
FULB and UBB shall fully pay for “tail” insurance (providing only for the Side A coverage for Indemnified Parties where
the existing policies also include Side B coverage for FULB) with a claims period of up to six (6) years from and after the
Effective Time with respect to directors’ and officers’ liability insurance and fiduciary liability insurance (collectively,
“D&O Insurance”) with benefits and levels of coverage at least as favorable to the Indemnified Parties as FULB’s
and UBB’s existing policies with respect to matters existing or occurring at or prior to the Effective Time (including in
connection with this Agreement or the transactions or actions contemplated hereby);
provided, however
, that in no event
shall FULB and UBB expend for “tail” insurance policies a premium amount in excess of 250% of the annual premiums on
FULB’s and UBB’s existing policies as of the date of this Agreement (the “Maximum Amount”);
provided
,
further
, that if the annual premiums of such insurance coverage exceed such amount, FULB, UBB, BAY or BHC shall obtain a
policy with the greatest coverage available for a cost not exceeding such amount.
(d) The
provisions of this Section 6.13 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party as if
he or she was a party to this Agreement.
6.14
Post-Merger
Boards.
On or prior to the Closing Date, the board of directors of BHC shall take such actions as are necessary to increase
the size of the board of directors of BHC by two seats and to appoint to the board of directors of BHC immediately after the Effective
Time Malcolm Hotchkiss and Rocco Davis or, in the event either of the foregoing individuals declines such appointment or is otherwise
unable to accept such appointment, two other individuals currently serving as members of the boards of directors of FULB or UBB,
selected by BAY.
6.15
California
Permit
.
(a)
Preparation
and Filing of Permit Application
. BAY, BHC, FULB and UBB contemplate that all shares of BHC Common Stock exchanged for shares
of FULB Common Stock in the Merger shall be exempt from the Securities Act under the provisions of Section 3(a)(10) of such act.
BAY and BHC shall promptly prepare and file an appropriate application with the Commissioner for a permit to issue and exchange
securities as described in Section 25142 of the CGCL and as will be in compliance with the California Corporate Securities Law
of 1968 (the “DBO Permit”). The DBO Permit shall approve the issuance of a sufficient number of shares of BHC Common
Stock to complete the exchange of shares of FULB Common Stock for shares of BHC Common Stock pursuant to Article III of this Agreement.
BAY, BHC, FULB and UBB shall cooperate in all reasonable respects with regard to the preparation of the related Proxy Statement-Offering
Circular in preliminary form so it can be filed with the Commissioner for purposes of a permit application under Section 25142
of the CGCL. The Proxy Statement-Offering Circular shall constitute a disclosure document for the offer and issuance of the shares
of BHC Common Stock to be received by holders of FULB Common Stock in the Merger and, a proxy statement with respect to the solicitation
of the shareholders of BAY and FULB with respect to approval of the Agreement and the transactions contemplated hereby (including
the Merger), and shall include (i) a statement to the effect that the FULB Board has unanimously recommended that holders of FULB
Common Stock vote in favor of the approval of the Agreement and the transactions contemplated hereby (including the Merger), and
(ii) a statement to the effect that the BAY Board has unanimously recommended that holders of BAY Common Stock vote in favor of
the Agreement and the transaction contemplated hereby (including the Merger), and (iii) such other information as FULB and BAY
may agree is required or advisable to be included therein. BAY and FULB shall each provide promptly to the other such information
concerning its business and financial condition and affairs as may be required or appropriate for including in the permit application
or in the Proxy Statement-Offering Circular (or other proxy or solicitation materials), and shall cause its legal counsel, financial
advisors and independent auditors to cooperate with the other party’s legal counsel, financial advisors and independent auditors
in the preparation of the permit application and the Proxy Statement-Offering Circular (and any other proxy or solicitation materials).
(b)
Issuance
of Permit
. BAY, BHC, FULB and UBB shall use their best efforts to have the permit described in Section 25142 of the CGCL (and
any necessary or appropriate amendments or supplements thereto) issued by the Commissioner under the California Corporate Securities
Law of 1968 as soon as practicable.
6.16
Benefit
Plans
.
(a)
Termination
of FULB and UBB Plans
. At the Effective Time, FULB and UBB shall terminate, any and all 401(k) Plans FULB and UBB maintain
and any other FULB Benefit Plans that BAY may specify; provided, however that BAY must give prior advance written notice of any
such request for termination at least thirty (30) days prior to the Closing Date. Prior to the Effective Time, FULB and UBB shall
take all action necessary to fully vest participants in their account balances under any and all 401(k) Plans FULB and UBB maintain.
(b)
Participation
in BAY Benefit Plans
. As of and following the Effective Time, the employees of FULB and UBB as of the Effective Time who continue
to be employed by BAY after the Effective Time or who are offered and who accept employment with BAY (collectively, the “Former
UBB Employees”) shall be eligible to participate in the BAY Benefit Plans in which the similarly situated employees of BAY
participate, to the same extent as such similarly situated employees of BAY participate. With respect to each BAY Benefit Plan,
BAY agrees that for purposes of determining eligibility to participate, vesting and benefits (other than benefit accruals under
any defined benefit pension plan), service with FULB and/or UBB shall be treated as service with BAY; provided, however, that such
service shall not be recognized to the extent that such recognition would result in a duplication of benefits. To the extent permitted
by any insurer of a BAY Benefit Plan, BAY shall cause such BAY Plan to waive: (i) any pre-existing condition restriction that did
not apply under the terms of any analogous FULB Benefit Plan immediately prior to the Effective Time; and (ii) any waiting period
limitation or evidence of insurability requirement which would otherwise be applicable to a Former UBB Employee on or after the
Effective Time to the extent such Former UBB Employee had satisfied any similar limitation or requirement under an analogous FULB
Benefit Plan prior to the Effective Time for purposes of applying deductibles, co-payments and out-of-pocket maximums as though
such amounts had been paid in accordance with the terms and conditions of the BAY Benefit Plan.
(c)
Severance
Program
. Other than as set forth on
Schedule 6.16(c)
of the Disclosure Schedule, any former employee of UBB (excluding
any such employee who is party to an employment agreement or change-in-control agreement which provides for severance payments)
whose employment is terminated (other than for cause) at the request of BAY (but by and in the sole discretion of FULB and UBB)
prior to the Effective Time, or is terminated by BAY within twelve (12) months following the Closing Date, shall be entitled to
receive severance payments in an amount equal to two (2) weeks’ base pay for each full year of service based upon the
employee’s date of hire (plus a prorated amount for each partial year of service), such service determined by taking into
account service with FULB, UBB and BAY, with a minimum of four (4) weeks of base pay; provided, however, that for purposes
of this Section 6.16 an employee shall also be considered to be terminated by BAY if such person resigns after (i) any significant
reduction in base salary or incentive compensation from that paid or made available immediately prior to the Closing Date or (ii)
being required to be based at any office or location more than forty miles from where the person was based on the date immediately
preceding the Closing Date, except for travel reasonably required in the performance of responsibilities and commensurate with
the amount of travel required prior to the Closing Date.
6.17
Certain
Policies
. Prior to the Closing Date, UBB shall, consistent with GAAP and applicable banking laws and regulations, to the extent
requested by BAY, modify or change its loan, OREO, accrual, reserve, tax, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves) so as to be applied on a basis that is consistent with that of BAY;
provided,
however
, that no such modifications or changes need be made prior to the satisfaction of the condition set forth in Section
7.1(a); and further provided that in any event, no accrual or reserve made by UBB pursuant to this Section 6.17 shall constitute
or be deemed to be a breach, violation of or failure to satisfy any representation, warranty, covenant, agreement, condition or
other provision of this Agreement or otherwise be considered in determining whether any such breach, violation or failure to satisfy
shall have occurred. The recording of any such adjustments shall not be deemed to imply any misstatement of previously furnished
financial statements or information and shall not be construed as concurrence of FULB or UBB or their respective management with
any such adjustments.
ARTICLE VII
CONDITIONS TO CONSUMMATION
OF THE TRANSACTION
7.1
Conditions
to Each Party’s Obligation to Effect the Transactions Contemplated Hereby
. The respective obligation of each of the parties
hereto to consummate the transactions contemplated hereby (the “Closing”) is subject to the fulfillment or, to the
extent permitted by applicable law, written waiver by the parties hereto prior to the Closing Date, of each of the following conditions:
(a)
Regulatory
Approvals
. All Regulatory Approvals required to consummate the transactions contemplated hereby, including but not limited
to the Merger, and the Bank Merger, shall have been obtained and shall remain in full force and effect and all statutory waiting
periods in respect thereof shall have expired, and no such approvals shall contain any conditions, restrictions or requirements
which BAY and BHC, on the one hand, or FULB and UBB, on the other hand, reasonably determine in good faith would, individually
or in the aggregate, materially reduce the benefits of the transactions contemplated hereby to such a degree that BAY and BHC or
FULB and UBB, as the case may be, would not have entered into this Agreement had such conditions, restrictions or requirements
been known at the date hereof (any such condition, restriction or requirement, a “Burdensome Condition”).
(b)
No
Injunction
. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which
is in effect and prohibits or makes illegal consummation of the transactions contemplated hereby.
(c)
Corporate
Approvals
. This Agreement, the Merger and the transactions contemplated herein shall have been duly approved by (i) the
FULB Board, (ii) the UBB Board, (iii) the affirmative vote of the holders of a majority of the outstanding shares of FULB
Common Stock, (iv) FULB, as the sole shareholder of UBB, (v) the BAY Board, (vi) the BHC Board, (vii) the affirmative
vote of the holders of a majority of the outstanding shares of BAY Common Stock, and (viii) following the bank holding company
reorganization, the affirmative vote of the holders of a majority of the outstanding shares of BHC Common Stock.
(d)
Issuance
of Permit
. The DBO Permit (and any necessary or appropriate amendments or supplements thereto) shall have been issued by the
Commissioner, after a hearing before the DBO upon the fairness of the terms and conditions of the issuance and exchange of shares
of BHC Common Stock for shares of FULB Common Stock, no stop order denying effectiveness to, or suspending or revoking the effectiveness
of such qualification shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before
the Commissioner, and the shares of BHC Common Stock qualified under the permit issued by the Commissioner shall have received
all state securities and “Blue Sky” permits or approvals required to consummate the transactions contemplated by this
Agreement.
7.2
Conditions
to Obligations of FULB and UBB
. The obligations of FULB and UBB to consummate the transactions contemplated hereby are also
subject to the fulfillment or written waiver by FULB and UBB prior to the Closing Date of each of the following conditions:
(a)
Representations
and Warranties
. The representations and warranties of BAY set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and warranties
that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date), except
where the failure to be so true and correct (without giving effect to any limitation as to “materiality” or “Material
Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably be expected to
have a Material Adverse Effect on BAY or BHC,
provided that
(i) the representations and warranties of BAY (A) set
forth in the first sentence of Section 5.3(a), Section 5.3(e) and Section 5.3(g)(i) shall be true and correct as of such
dates in all respects, and (B) set forth in Section 5.3(b) shall be true and correct as of such dates in all respects other
than for such failures to be true and correct as are
de minimis
in effect, and FULB and UBB shall have received a certificate
or certificates, dated the Closing Date, signed on behalf of BAY by the President and Chief Executive Officer and the Chief Financial
Officer to such effect.
(b)
Performance
of Obligations of BAY and BHC
. Each of BAY and BHC shall have performed in all material respects all obligations required to
be performed by it under this Agreement at or prior to the Closing Date, and FULB and UBB shall have received a certificate or
certificates, dated the Closing Date, signed on behalf of BAY by the President and Chief Executive Officer and the Chief Financial
Officer to such effect.
(c)
No
Material Adverse Effect
. There shall not have occurred any event, circumstance, change, occurrence or state of facts that,
individually or in the aggregate with all such other events, circumstances, changes occurrences or states of facts, has resulted
in or would reasonably be expected to result in, a Material Adverse Effect on BAY or BHC.
(d)
Payment
of Merger Consideration
. BHC shall have delivered the Merger Consideration to the Exchange Agent and the Exchange Agent shall
have provided FULB and UBB with a certificate evidencing such delivery.
(e)
Appointment
of FULB Directors to the Board of Directors
. BHC shall have offered to appoint the New BHC Directors (Malcolm Hotchkiss and
Rocco Davis or two other individuals currently serving as members of the boards of directors of FULB or UBB) to serve on its board
of directors effective immediately after the Effective Time.
(f)
Other
Actions
. BAY and BHC shall have furnished FULB and UBB with such certificates of its respective officers or others and such
other documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.2 as FULB may reasonably request.
(g)
Well-Capitalized
.
BAY will, after payment of the Per Share Merger Consideration, be “well-capitalized” as defined in applicable laws
and regulations.
7.3
Conditions
to Obligation of BAY
. The obligation of BAY to consummate the Merger and the other transactions contemplated hereby is also
subject to the fulfillment or written waiver by BAY prior to the Closing Date of each of the following conditions:
(a)
Representations
and Warranties
. The representations and warranties of FULB and UBB set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations
and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such
date), except where the failure to be so true and correct (without giving effect to any limitation as to “materiality”
or “Material Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably
be expected to have a Material Adverse Effect on BAY, BHC, FULB, or UBB,
provided that
the representations and warranties
of FULB and UBB set forth in the first sentence of Section 5.2(a), Section 5.2(b), Section 5.2(e), Section 5.2(g)(i) and Section
5.2(m) shall be true and correct as of such dates in all respects, and BAY shall have received a certificate, dated the Closing
Date and signed on behalf of FULB and UBB by the President and the Chief Financial Officer of each such entity to such effect.
(b)
Performance
of Obligations of FULB and UBB
. FULB and UBB shall have performed in all material respects all obligations required to be performed
by each of them under this Agreement at or prior to the Closing Date, and BAY shall have received a certificate, dated the Closing
Date, signed on behalf of FULB and UBB by the President and the Chief Financial Officer of each such entity to such effect.
(c)
Estoppel
Letters, Consents and Title Policies.
FULB and UBB shall have delivered fully executed estoppel letters, Consents and title
policies as required by Section 6.10.
(d)
FIRPTA
Certificate
. FULB and UBB shall have delivered to BAY a properly executed statement from FULB and UBB that meets the requirements
of Treasury Regulations Sections 1.1445-2(c)(3) and 1.897-2(h)(1), dated as of the Closing Date and in form and substance satisfactory
to BAY.
(e)
No
Material Adverse Effect
. There shall not have occurred any event, circumstance, change, occurrence or state of facts that,
individually or in the aggregate with all such other events, circumstances, changes occurrences or states of facts, has resulted
in or would reasonably be expected to result in, a Material Adverse Effect on FULB and/or UBB.
(f)
Other
Actions
. FULB and UBB shall have furnished BAY with such certificates of their respective officers or others and such other
documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.3 as BAY may reasonably request.
ARTICLE VIII
TERMINATION
8.1
Termination
.
This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective
Time:
(a)
Mutual
Consent
. By the mutual consent in writing of BAY, BHC, FULB and UBB.
(b)
Breach
.
(i) By
FULB and UBB, if FULB and UBB are not in material breach of any of the terms of this Agreement, in the event of a material breach
by BAY or BHC of any representation, warranty, covenant or agreement contained herein, which breach (A) cannot be or has not
been cured within thirty (30) Business Days after the giving of written notice to the breaching party or parties of such breach,
and (B) would entitle FULB and UBB not to consummate the transactions contemplated hereby under Section 7.2(a) or (b).
(ii) By
BAY, if neither BAY nor BHC is in material breach of any of the terms of this Agreement, in the event of a material breach by FULB
and UBB of any representation, warranty, covenant or agreement contained herein, which breach (A) cannot be or has not been
cured within thirty (30) Business Days after the giving of written notice to the breaching party of such breach, and (B) would
entitle BAY not to consummate the transactions contemplated hereby under Section 7.3(a) or (b), except for any breach of any representation,
warranty, covenant or agreement set forth in Section 6.5 or 6.6 as to which Section 8.1(j) shall apply.
(c)
No
Regulatory Approval
. By BAY and BHC, on the one hand, or FULB and UBB, on the other hand, in the event the approval of any
Governmental Authority required for consummation of the transactions contemplated hereby shall have been denied by final nonappealable
action of such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental
Authority, or in the event the approval of any Governmental Authority required for consummation of the transactions contemplated
hereby will not be granted without the imposition of a Burdensome Condition;
provided
, however, that no party shall not
have the right to terminate this Agreement pursuant to this Section 8.1(c) if such denial shall be due to the failure of such party
seeking to terminate this Agreement to perform or observe the covenants of such party or parties set forth herein.
(d)
Breach
of No Solicitation or Negotiation.
By BAY, if FULB and UBB shall have breached any covenant contained in Section 6.5 above.
(e)
Material
Adverse Change
.
(i) By
BAY in the event that any material adverse change or matter exists or is identified that would reasonably be expected to result
in a Material Adverse Effect to FULB and/or UBB.
(ii) By
FULB and UBB in the event that any material adverse change or matter exists or is identified that would reasonably be expected
to result in a Material Adverse Effect to BAY and/or BHC.
(f)
Outside
Date
. By BAY on the one hand, or FULB and UBB on the other hand, if the Merger shall not have been consummated by June 30,
2017 (the “Outside Date”); provided, that neither party shall have the right to terminate this Agreement pursuant to
this Section 8.1(f) if the failure of such party to perform or comply in all material respects with the covenants and agreements
of such party set forth in this Agreement shall have been the direct cause of, or resulted directly in, the failure of the Merger
to be consummated by the Outside Date. Also by Bay on the one hand, or FULB and UBB on the other hand, if the approval of the Governmental
Authorities related to the Merger is not received by March 31, 2017.
(g)
Requisite
Shareholder Approval
. By BAY on the one hand, or FULB on the other hand, if any Requisite Shareholder Approval shall not have
been obtained.
(h)
Actions
.
By BAY or BHC on the one hand, or FULB or UBB on the other hand, if any court of competent jurisdiction or other Governmental Entity
shall have issued a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement and such judgment, order, injunction, rule, decree or other
action shall have become final and nonappealable, provided, that the party seeking to terminate this Agreement pursuant to this
Section 8.1(h) shall have used its reasonable best efforts to contest, appeal and remove such judgment, order injunction, rule,
decree, ruling.
(i)
No
Solicitation; Recommendation
. By BAY if (A) FULB submits this Agreement to its shareholders without a recommendation for approval,
or otherwise withdraws or adversely modifies or qualifies (or discloses its intention to withdraw or adversely modify or qualify)
its recommendation as contemplated by Section 6.6; (B) FULB or the FULB Board (or any committee thereof) shall approve or recommend,
or cause or permit FULB to enter into, an Alternative Acquisition Agreement relating to an Acquisition Proposal; (C) FULB fails
publicly to reaffirm its recommendation of the Merger within five (5) Business Days after a request at any time to do so by BAY,
or within five (5) Business Days after the date any Acquisition Proposal or any material modification thereto is first commenced,
published or sent or given to FULB’s shareholders (which reaffirmation must also include, with respect to an Acquisition
Proposal, an unconditional rejection of such Acquisition Proposal, it being understood that taking no position with respect to
the acceptance of such Acquisition Proposal or modification thereto shall constitute a failure to reject such Acquisition Proposal);
(D) FULB shall have breached any of its obligations under Section 6.5 or 6.6; or (E) FULB or the FULB Board (or any committee thereof)
shall formally resolve or publicly authorize or propose to take any of the foregoing actions.
(j)
Superior
Proposal
. By FULB if the FULB Board has adopted or indicated its intention to enter into a Superior Proposal after complying
with all of FULB’s obligations under Sections 6.5 and 6.6.
(k)
Notice
of Termination
. In the event a party elects to effect any termination pursuant to Sections 8.1(b) through (d) or Section 8.1(f)
above, it shall give written notice to the other parties hereto specifying the basis for such termination.
8.2
Liabilities
and Remedies; Liquidated Damages; Expense Reimbursement
.
(a)
Fees
and Expenses
.
(i) Except
as otherwise provided in this Section 8.2(a), all fees and expenses incurred in connection with this Agreement, the Merger and
the other transactions contemplated hereby shall be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated.
(ii) In
the event that this Agreement is terminated: (A) by BAY pursuant to Section 8.1(i); (B) by either BAY or FULB pursuant to Section
8.1(g) by reason of the failure to obtain the FULB Shareholder Approval following FULB taking any action described in Section 6.6
or (C) by FULB under Section 8.1(j), FULB shall pay to BAY a termination fee of $1,500,000 (the “
BAY Termination Fee
”)
plus any Party Expenses of BAY and BHC. Payment of the BAY Termination Fee and Party Expenses shall be made by wire transfer of
same day funds to the account or accounts designated by BAY as promptly as reasonably practicable after termination. The payment
by FULB and the acceptance by BAY of the BAY Termination Fee and any Party Expenses of BAY pursuant to this Section 8.2(a)(ii)
shall be the sole and exclusive remedy of BAY and BHC with a respect to the termination of this Agreement by BAY with respect to
termination of the Agreement the Sections of the Agreement enumerated above in this Section 8.2(a)(ii).
(iii) In
the event that this Agreement is terminated by BAY pursuant to Section 8.1(b)(ii) or by FULB pursuant to Section 8.1(b)(i) then
the breaching party shall reimburse the non-breaching party all of its reasonable out-of-pocket fees and expenses (including all
fees and expenses of counsel, accountants, investment bankers, experts and consultants to the non-breaching party) incurred by
the non-breaching party or on its behalf in connection with or related to the authorization, preparation, investigation, negotiation,
execution and performance of this Agreement and the transactions contemplated hereby (the “Party Expenses”), up to
a maximum amount of $400,000. Payment of the Party Expenses shall be made by wire transfer of same day funds to the account or
accounts designated by the non-breaching party entitled to payment of the Party Expenses as promptly as reasonably possible after
the breaching party having been notified of the amount thereof by the non-breaching party.
(iv) Each
of FULB, UBB, BAY and BHC acknowledges that the agreements contained in this Section 8.2 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, FULB, UBB, BAY and BHC would not enter into this Agreement;
accordingly, if any party fails promptly to pay any amounts due to the other party pursuant to this Section 8.2, and, in order
to obtain such payment, the party to which any amount under this Section 8.2 is due and owing from the other party commences a
suit that results in a judgment against such other party for the amounts set forth in this Section 8.2, the non-prevailing party
shall pay to the prevailing party its costs and expenses (including reasonable attorneys' fees and expenses) in connection with
such suit, together with interest on the amounts due pursuant to this Section 8.2 from the date such payment was required to be
made until the date of payment at the prime lending rate as published in The Wall Street Journal in effect on the date such payment
was required to be made.
(b)
Specific
Performance
. The parties agree that irreparable damage, for which monetary damages, even if available, would not be an adequate
remedy, would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached (including failing to take such actions as are required of them hereunder to consummate this Agreement).
Accordingly, except as otherwise set forth in Section 8.2(a)(ii), each of the parties shall be entitled to specific performance
of the terms hereof, including an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any state or federal court, this being in addition to any other
remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives any defense in any action
for specific performance that a remedy at law would be adequate.
ARTICLE IX
MISCELLANEOUS
9.1
Survival
of Representations, Warranties and Agreements
. No representations, warranties, covenants and agreements of the parties hereto
set forth in this Agreement shall survive the Effective Time (other than agreements or covenants contained herein that by their
terms are to be performed in whole or in part after the Effective Time) or the termination of this Agreement if this Agreement
is terminated prior to the Effective Time (other than this Article IX, Section 6.4(c), 6.13 and Section 8.2(a)(ii)-(iii), which
shall survive such termination).
9.2
Waiver;
Amendment
. Prior to the Effective Time, any provision of this Agreement may be (i) waived, by the party benefited by the
provision or (ii) amended or modified at any time, by an agreement in writing among the parties hereto executed in the same
manner as this Agreement.
9.3
Counterparts
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood
that each party need not sign the same counterpart.
9.4
Governing
Law
. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of California applicable
to contracts made and entirely to be performed within such state, without regard to any applicable conflicts of law principles
that would require the application of the laws of any other jurisdiction.
9.5
Waiver
of Jury Trial
. Each party hereto acknowledges and agrees that any controversy that may arise under this Agreement is likely
to involve complicated and difficult issues, and therefore each party hereby irrevocably and unconditionally waives any right such
party may have to a trial by jury in respect of any litigation, directly or indirectly, arising out of, or relating to, this Agreement,
or the transactions contemplated by this Agreement. Each party certifies and acknowledges that (a) no representative, agent
or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation,
seek to enforce the foregoing waiver, (b) each party understands and has considered the implications of this waiver, (c) each
party makes this waiver voluntarily and (d) each party has been induced to enter into this Agreement by, among other things,
the mutual waivers and certifications in this Section 9.5.
9.6
Expenses
.
Except as otherwise provided for in Section 8.2, each party hereto will bear all expenses incurred by it in connection with this
Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and
counsel, provided that nothing contained herein shall limit either party’s rights to recover any liabilities or damages arising
out of the other party’s fraud or willful breach of any provision of this Agreement.
9.7
Notices
.
All notices, requests and other communications hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) or delivered by
an overnight courier (with confirmation) to such party at its address set forth below or such other address as such party may specify
by notice to the parties hereto.
If to FULB or UBB
:
First ULB Corp.
100 Hegenberger Road, Suite 220
Oakland, California 94621
Attention: Malcolm Hotchkiss, Chairman
Email: MHotchkiss@unitedbusinessbank.com
With a copy to:
Hogan Lovells
Columbia Square
555 Thirteenth Street, NW
Washington, DC 20004
Attention: Richard A. Schaberg, Esq.
Email: richard.schaberg@hoganlovells.com
If to BAY or BHC
:
Bay Commercial Bank
500 Ygnacio Valley Road, Suite 200
Walnut Creek, California 94596
Attention: George Guarini, President
Email: gguarini@bcb-ca.com
With a copy to:
Gary Steven Findley & Associates
3808 East La Palma Avenue
Anaheim, California 92807
Attention: Gary Steven Findley, Esq.
Email: gsf@findley-reports.com
9.8
Entire
Understanding; No Third-Party Beneficiaries
. This Agreement, the BAY Voting Agreements, the FULB Non-Competition and Voting
Agreements, and the Confidentiality Agreement represent the entire understanding of the parties hereto and thereto with reference
to the transactions contemplated hereby, and this Agreement, the BAY Voting Agreements, the FULB Non-Competition and Voting Agreements,
and the Confidentiality Agreement supersede any and all other oral or written agreements heretofore made. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the parties hereto or their respective successors any rights,
remedies, obligations or liabilities under or by reason of this Agreement.
9.9
Severability
.
If any provision of this Agreement or the application thereof to any person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions, or the application of such provision to persons or
circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and
will in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party hereto. Upon such determination, the parties will negotiate
in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
9.10
Enforcement
of the Agreement
. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed that
the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity. In the event attorneys’ fees or other costs are incurred to
secure performance of any of the obligations herein provided for, or to establish damages for the breach thereof, or to obtain
any other appropriate relief, whether by way of prosecution or defense, the prevailing party shall be entitled to recover reasonable
attorneys’ fees and costs incurred therein.
9.11
Interpretation
.
When a reference is made in this Agreement to Sections, Annexes or Schedules, such reference shall be to a Section of, or Annex
or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for
reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”
Whenever the words “as of the date hereof” are used in this Agreement, they shall be deemed to mean the day and year
first above written.
9.12
Assignment
.
No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
9.13
Alternative
Structure
. Notwithstanding any provision of this Agreement to the contrary, BAY and BHC may, after providing FULB at least
20 Business Days’ written notice, modify the structure of the acquisition of FULB set forth herein, provided that (i) the
consideration to be paid to the holders of FULB Common Stock is not (x) thereby changed in kind or reduced in amount as a result
of such modification or (y) negatively impacted from a Tax perspective, and (ii) the change in structure does not materially delay
the transaction. In the event BAY and BHC elect to make such a change, the parties agree to execute appropriate documents to reflect
the change.
[
signature page follows
]
IN WITNESS WHEREOF
,
the parties hereto have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
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BAY COMMERCIAL BANK
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BAYCOM CORP.
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By:
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/s/ George J. Guarini
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By:
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/s/ George J. Guarini
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Its:
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President
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Its:
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President
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By:
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/s/ Keary L. Colwell
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By:
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/s/ Keary L. Colwell
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Its:
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Secretary
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Its:
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Secretary
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FIRST ULB CORP.
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UNITED BUSINESS BANK, FSB
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By:
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/s/ Malcolm F. Hotchkiss
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By:
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/s/ Terence Street
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Its:
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Chairman
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Its:
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President
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By:
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/s/ Jeanette E. Reynolds
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By:
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/s/ Nicholas Dyer
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Its:
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Secretary
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Its:
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Secretary
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Exhibit 2.2
AGREEMENT
AND PLAN OF MERGER
DATED AS OF
JUNE 26, 2017
BY AND AMONG
BAYCOM CORP,
UNITED BUSINESS
BANK
AND
PLAZA BANK
TABLE
OF CONTENTS
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Page
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ARTICLE I CERTAIN DEFINITIONS
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2
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1.1
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Certain Definitions
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2
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ARTICLE II THE MERGER AND RELATED MATTERS
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10
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2.1
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The Merger; Surviving Entity
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10
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2.2
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Filing of Agreement of Merger
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10
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ARTICLE III EFFECT OF THE MERGER ON CAPITAL STOCK
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10
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3.1
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Effect on Capital Stock
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10
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3.2
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Outstanding Options
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12
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3.3
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Exchange of Certificates
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12
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3.4
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Withholding Rights
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14
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ARTICLE IV ACTIONS PENDING THE MERGER
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15
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4.1
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Forbearances by PLAZA
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15
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4.2
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Forbearances of BHC and BANK.
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19
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ARTICLE V REPRESENTATIONS AND WARRANTIES
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20
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5.1
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Disclosure Schedules
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20
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5.2
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Representations and Warranties of PLAZA
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20
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5.3
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Representations and Warranties of BHC and BANK
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35
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ARTICLE VI COVENANTS
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46
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6.1
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Reasonable Best Efforts
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46
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6.2
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Regulatory Filings
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46
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6.3
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Press Releases
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47
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6.4
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Access; Information
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47
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6.5
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No Solicitation
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48
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6.6
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PLAZA Shareholder Recommendation
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50
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6.7
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Requisite PLAZA Shareholder Approval
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51
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6.8
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PLAZA Minority Status
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52
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6.9
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Notification of Certain Matters
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52
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6.10
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Estoppel Letters and Consents
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52
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6.11
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Antitakeover Statutes
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52
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6.12
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Notice to PLAZA Customers
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53
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6.13
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Indemnification; Directors and Officers Insurance
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53
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6.14
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California Permit
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54
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6.15
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Benefit Plans.
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55
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6.16
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Certain Policies
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56
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ARTICLE VII CONDITIONS TO CONSUMMATION OF THE TRANSACTION
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56
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7.1
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Conditions to Each Party’s Obligation to Effect the Transactions Contemplated Hereby
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56
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7.2
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Conditions to Obligations of PLAZA
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57
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7.3
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Conditions to Obligation of BHC and BANK
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58
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ARTICLE VIII TERMINATION
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59
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8.1
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Termination
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59
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8.2
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Liabilities and Remedies; Liquidated Damages; Expense Reimbursement
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61
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ARTICLE IX MISCELLANEOUS
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62
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9.1
|
Survival of Representations, Warranties and Agreements
|
62
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9.2
|
Waiver; Amendment
|
62
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9.3
|
Counterparts
|
62
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9.4
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Governing Law
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62
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9.5
|
Waiver of Jury Trial
|
63
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9.6
|
Expenses
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63
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9.7
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Notices
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63
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9.8
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Entire Understanding; No Third-Party Beneficiaries
|
64
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9.9
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Severability
|
64
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9.10
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Enforcement of this Agreement
|
64
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9.11
|
Interpretation
|
64
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9.12
|
Assignment
|
65
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9.13
|
Alternative Structure
|
65
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ANNEX A
|
Form of PLAZA Non-Competition and Voting Agreement
|
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ANNEX B
|
Form of PLAZA Voting Agreement
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ANNEX C
|
Form of Merger Agreement
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AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of
Merger dated as of June 26, 2017, (“Agreement”) is made and entered into by and among BayCom Corp, a California corporation
that is a bank holding company (“BHC”), United Business Bank, a California state-chartered commercial bank that is
wholly-owned by BHC (“BANK”) and Plaza Bank, a Washington state-chartered commercial bank (“PLAZA”).
RECITALS
WHEREAS, BHC owns all of
the issued and outstanding capital stock of BANK;
WHEREAS, the parties hereto
wish to provide for the terms and conditions of a business combination in which, (i) in exchange for the merger consideration as
set forth herein, PLAZA would be merged with and into BANK (the “Merger”), with BANK being the surviving entity in
the Merger, and (ii) PLAZA shareholders would receive shares of BHC common stock;
WHEREAS, each of the Boards
of Directors of BANK, BHC and PLAZA has unanimously (i) approved and declared advisable this Agreement and the transactions
contemplated by this Agreement, including the Merger and (ii) determined that this Agreement and such transactions are fair
to, and in the best interests of, BHC, BANK, and PLAZA, respectively, and the shareholders of BHC, BANK and PLAZA, respectively;
WHEREAS, the parties intend
that the Merger be treated for federal income tax purposes as a reorganization described in Section 368(a) of the Internal Revenue
Code (the “Code”);
WHEREAS, as a material inducement
to BHC to enter into this Agreement, and simultaneous with the execution of this Agreement, each of the directors of PLAZA are
entering into an agreement, in the form of Annex A hereto (the “PLAZA Non-Competition and Voting Agreement”) and each
of the officers of PLAZA are entering into an agreement, in the form of Annex B hereto (the “PLAZA Voting Agreement”),
pursuant to which each such director and executive officer shall agree, among other things, to vote all shares of capital stock
of PLAZA owned by such person, in favor of the approval and adoption of this Agreement;
WHEREAS, the parties hereto
desire to make certain representations, warranties and agreements in connection with the Merger and also to prescribe certain conditions
to the Merger;
NOW, THEREFORE, in consideration
of the mutual covenants, representations, warranties and agreements contained in this Agreement, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
1.1
Certain
Definitions
. The following terms are used in this Agreement with the meanings set forth below:
“Acquisition Proposal”
means any inquiry, offer or proposal other than by BANK or BHC, whether or not in writing, contemplating, relating to, or that
could reasonably be expected to lead to: (i) any transaction or series of transactions involving any merger, consolidation, recapitalization,
share exchange, liquidation, dissolution or similar transaction involving PLAZA; (ii) any transaction pursuant to which any third
party or group acquires or would acquire (whether through sale, lease or other disposition), directly or indirectly, assets of
PLAZA representing, in the aggregate, twenty-five percent (25%) or more of the assets of PLAZA; (iii) the issuance, sale or other
disposition of (including by way of merger, consolidation, share exchange or any similar transaction) securities (or options, rights
or warrants to purchase or securities convertible into, such securities) representing twenty-five percent (25%) or more of the
votes attached to the outstanding securities of PLAZA; (iv) any tender offer or exchange offer that, if consummated, would result
in any third party or group beneficially owning twenty-five percent (25%) or more of any class of equity securities of PLAZA; or
(v) any transaction which is similar in form, substance or purpose to any of the foregoing transactions, or any combination of
the foregoing.
“Adverse Recommendation
Change” means a withdrawal, modification or qualification in any manner that is adverse to BHC or BANK of the favorable recommendation
by the PLAZA Board that the shareholders of PLAZA vote in favor of the approval of this Agreement.
“Affiliate” means,
with respect to a Person, any Person that, directly or indirectly, controls, is controlled by or is under common control with such
Person; for purposes of this definition, “control” (including, with correlative meanings, the terms “controlled
by” or “under common control with”), as applied to any Person, means the possession, directly or indirectly,
of (i) ownership, control or power to vote twenty-five percent (25%) or more of the outstanding shares of any class of voting
securities of such Person, (ii) control, in any manner, over the election of a majority of the directors, trustees or general
partners (or individuals exercising similar functions) of such Person or (iii) the power to exercise a controlling influence
over the management or policies of such Person.
“Agreement” means
this Agreement and Plan of Merger, as amended or modified from time to time in accordance with Section 9.2.
“Alternative Acquisition
Agreement” means any letter of intent, memorandum of understanding, agreement in principle, acquisition agreement, merger
agreement, option agreement, joint venture agreement, partnership agreement or other contract constituting or related to, or which
is intended to or is reasonably likely to lead to, any Acquisition Proposal.
“Antitakeover Law”
has the meaning set forth in Section 4.1(w).
“Bank Secrecy Act”
means the Bank Secrecy Act of 1970, as amended.
“BANK” has the
meaning set forth in the preamble to this Agreement.
“BANK Articles”
means the Articles of Incorporation of BANK, as amended.
“BANK Board”
means the Board of Directors of BANK.
“BANK Bylaws”
means the Bylaws of BANK, as amended.
“BANK Material Contract”
or “BANK Material Contracts” has the meaning set forth in Section 5.3(l)(i).
“BHC” has the
meaning set forth in the recitals to this Agreement.
“BHC Board” means
the Board of Directors of BHC.
“BHC Common Stock”
means shares of BHC common stock, without par value.
“BHC Financial Statements”
means (i) the audited consolidated statements of financial condition (including related notes and schedules, if any) of BANK
as of December 31, 2016, 2015 and 2014 and the consolidated statements of operations and comprehensive income, shareholders’
equity and cash flows (including related notes and schedules, if any) of BANK for each of the three years ended December 31, 2016,
2015 and 2014, (ii) the unaudited consolidated statements of financial condition (including related notes and schedules, if
any) of BHC as of March 31, 2017 and the unaudited consolidated statements of operations and comprehensive income and shareholders’
equity (including related notes and schedules, if any) of BHC for the three months ended March 31, 2017, and (iii) the unaudited
consolidated statements of financial condition of BHC (including related notes and schedules, if any) and the unaudited consolidated
statements of operations and comprehensive income and shareholders’ equity (including related notes and schedules, if any)
of BHC with respect to the monthly, quarterly and annual periods ending subsequent to March 31, 2017.
“BHCA” means
the Bank Holding Company Act of 1956, as amended.
“Burdensome Condition”
has the meaning set forth in Section 7.1(a).
“Business Day”
means Monday through Friday of each week, except a legal holiday recognized as such by the United States government or any day
on which banking institutions in either the State of California or State of Washington are authorized or obligated to close.
“Certificate”
has the meaning set forth in Section 3.1(a)(ii).
“CFC” means the
California Financial Code.
“CGCL” means
the California General Corporation Law.
“Closing” has
the meaning set forth in Section 7.1.
“Closing Date”
means the date on which the Effective Time occurs.
“Code” has the
meaning set forth in the recitals to this Agreement.
“Commissioner”
means the Commissioner of the Department of Business Oversight of the State of California.
“Community Reinvestment
Act” means the Community Reinvestment Act of 1977, as amended.
“Confidentiality Agreement”
has the meaning set forth in Section 6.4(c).
“Consents” has
the meaning set forth in Section 6.10.
“D&O Insurance”
has the meaning set forth in Section 6.13(c).
“DBO” means the
Department of Business Oversight of the State of California.
“DBO Permit”
has the meaning set forth in Section 6.14(a).
“Derivatives Contracts”
means any swap transaction, option, warrant, forward purchase or sale transaction, futures transaction, cap transaction, floor
transaction or collar transaction relating to one or more currencies, commodities, bonds, equity securities, loans, interest rates,
credit-related events or conditions or any indexes, or any other similar transaction or combination of any of these transactions,
including collateralized mortgage obligations or other similar instruments or any debt or equity instruments evidencing or embedding
any such types of transactions, and any related credit support, collateral or other similar arrangements related to such transactions.
“Disclosure Schedule”
has the meaning set forth in Section 5.1.
“Dissenting Shares”
has the meaning set forth in Section 3.1(e).
“DOL” has the
meaning set forth in Section 5.2(n)(i).
“Effective Time”
has the meaning set forth in Section 2.2.
“Environmental Laws”
means any federal, state or local law, statute, code, ordinance, injunction, regulation, order, decree, permit, authorization,
opinion or agency or Governmental Authority requirement relating to: (A) the protection or restoration of the environment,
health, safety, or natural resources, (B) the handling, use, presence, disposal, release or threatened release of any Hazardous
Substance, or (C) wetlands, indoor air, pollution, contamination or any injury or threat of injury to persons or property
in connection with any Hazardous Substance.
“Equal Credit Opportunity
Act” means the Equal Credit Opportunity Act, as amended.
“Equity Investment”
means (i) an Equity Security; and (ii) an ownership interest in any company or other entity, any membership interest
that includes a voting right in any company or other entity, any interest in real estate, and any investment or transaction which
in substance falls into any of these categories even though it may be structured as some other form of investment or transaction.
“Equity Security”
means any stock, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization
certificate or subscription, transferable share, investment contract, or voting-trust certificate; any security convertible into
such a security; any security carrying any warrant or right to subscribe to or purchase any such security; and any certificate
of interest or participation in, temporary or interim certificate for, or receipt for any of the foregoing.
“ERISA” means
the Employee Retirement Income Security Act of 1974, as amended.
“ERISA Affiliate”
has the meaning set forth in Section 5.2(n)(iii).
“Exchange Agent”
has the meaning set forth in Section 3.3(a).
“Exchange Fund”
has the meaning set forth in Section 3.3(a).
“Excluded Shares”
means shares of PLAZA Common Stock owned by BHC, or PLAZA, in each case not held (i) in trust accounts, managed accounts and
the like, or otherwise held in a fiduciary or agency capacity, that are beneficially owned by third parties or (ii) in respect
of a debt previously contracted, as held immediately prior to the Effective Time.
“Fair Housing Act”
means the Fair Housing Act, as amended.
“FDIC” means
the Federal Deposit Insurance Corporation.
“Federal Reserve Act”
means the Federal Reserve Act, as amended.
“Federal Reserve Board”
means the Board of Governors of the Federal Reserve System.
“FHLB” means
the Federal Home Loan Banks of San Francisco or Des Moines, as applicable.
“FIRPTA” means
the Foreign Investment in Real Property Tax Act of 1980.
“Former PLAZA Employees”
has the meaning set forth in Section 6.15(b).
“GAAP” means
generally accepted accounting principles and practices as in effect from time to time in the United States.
“Governmental Authority”
means any federal, territorial, state or local court, administrative agency or commission or other governmental authority or instrumentality
or self-regulatory organization.
“Hazardous Substance”
means any substance that is: (A) listed, classified or regulated pursuant to any Environmental Law, (B) any petroleum,
petroleum product or by-product, asbestos-containing material, lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials, radon or urea-formaldehyde insulation, or (C) any other substance which is the subject of regulatory action by
any Governmental Authority in connection with any Environmental Law.
“Home Mortgage Disclosure
Act” means the Home Mortgage Disclosure Act, as amended.
“Indemnified Parties”
has the meaning set forth in Section 6.13.
“IRS” has the
meaning set forth in Section 5.2(n)(i).
“Liens” means
any charge, mortgage, pledge, security interest, restriction, claim, lien or encumbrance.
“Loans” has the
meaning set forth in Section 4.1(s).
“Loan Package”
has the meaning set forth in Section 4.1(s).
“Material Adverse Effect”
means with respect to any party, any effect, change, development or occurrence that is material and adverse to the condition (financial
or otherwise), assets, deposits, results of operations, prospects, liabilities or business of such party, and its Subsidiaries,
taken as a whole;
provided
that a Material Adverse Effect shall not be deemed to include any effect on the referenced party
which is caused by (A) changes in laws and regulations or interpretations thereof, by Government Authorities, that are applicable
to the banking industry; (B) changes in GAAP or regulatory accounting principles that are applicable to the banking industry;
(C) changes in global, national or regional political conditions or general economic (including interest rates) or market
conditions in the United States and the State of California, State of New Mexico and State of Washington, including changes in
credit availability and liquidity, currency exchange rates, and price levels or trading volumes in the United States or foreign
securities markets affecting other companies in the financial services industry; (D) general changes in the credit markets
or general downgrades in the credit markets; (E) actions or omissions of a party with the prior consent of the other, in contemplation
of this Agreement as required or permitted hereunder, as required under any regulatory approval received in connection with this
Agreement or which have been waived in writing by the other party; (F) the public announcement or consummation of the transactions
contemplated hereby if such announcement is made after prior consent of the other party; (G) any modifications or changes
to valuation policies and practices in connection with the transactions contemplated by this Agreement or restructuring charges
taken in connection with the transactions contemplated by this Agreement, in each case in accordance with GAAP; (H) changes in
the market price of such party’s common stock; or (I) any outbreak or escalation of hostilities, declared or undeclared acts
of war or terrorism; except to the extent that the effects of such change (i) disproportionately affect such party and its Subsidiaries,
taken as a whole, as compared to other similarly situated companies in the industry in which such party operates; or (ii) would
materially impede the ability of such party to perform its obligations under this Agreement or otherwise materially impede the
consummation of the transactions contemplated hereby.
“Maximum Amount”
has the meaning set forth in Section 6.13(c).
“Merger” has
the meaning set forth in the recitals to this Agreement.
“National Labor Relations
Act” means the National Labor Relations Act, as amended.
“OREO” means
other real estate owned.
“Party Expenses”
has the meaning set forth in Section 8.2(a)(iii).
“Pension Plan”
has the meaning set forth in Section 5.2(n)(ii).
“Per Share Merger Consideration”
has the meaning set forth in Section 3.1(a)(i).
“Person” means
any individual, bank, corporation, partnership, association, joint-stock company, business trust, limited liability company or
unincorporated organization.
“PLAZA” has the
meaning set forth in the preamble to this Agreement.
“PLAZA Articles”
means the Articles of Incorporation of PLAZA, as amended.
“PLAZA Benefit Plans”
has the meaning set forth in Section 5.2(n)(i).
“PLAZA Board”
means the Board of Directors of PLAZA.
“PLAZA Bylaws”
means the Bylaws of PLAZA, as amended.
“PLAZA Common Stock”
means the single class of capital stock of PLAZA.
“PLAZA Financial Statements”
means (i) the audited statements of financial condition (including related notes and schedules, if any) of PLAZA as of December 31,
2016, 2015 and 2014, and the statements of operations and comprehensive income, shareholders’ equity and cash flows (including
related notes and schedules, if any) of PLAZA for each of the years ended December 31, 2016, 2015 and 2014, (ii) the
unaudited statements of financial condition (including related notes and schedules, if any) of PLAZA as of March 31, 2017 and the
unaudited statements of operations and comprehensive income and shareholders’ equity (including related notes and schedules,
if any) of PLAZA for the three months ended March 31, 2017, and (iii) the statements of financial condition of PLAZA (including
related notes and schedules, if any) and the statements of operations and comprehensive income and shareholders’ equity (including
related notes and schedules, if any) of PLAZA with respect to the monthly, quarterly and annual periods ending subsequent to March
31, 2017.
“PLAZA Loan Property”
has the meaning set forth in Section 5.2(p)
“PLAZA Material Contract”
or “PLAZA Material Contracts” has the meaning set forth in Section 5.2(l)(i).
“PLAZA Merger Related
Expenses” has the meaning set forth in Section 3.1(a)(ii).
“PLAZA Non-Competition
and Voting Agreement” has the meaning set forth in the recitals to this Agreement.
“PLAZA Shareholders
Meeting” has the meaning set forth in Section 6.7(b).
“PLAZA Voting Agreement”
has the meaning set forth in the recitals to this Agreement.
“Previously Disclosed”
with regard to a party means information set forth in its Disclosure Schedule;
provided, however
, that disclosure in any
section of such Disclosure Schedule shall apply only to the indicated section of this Agreement except to the extent that it is
reasonably apparent from the face of such disclosure that such disclosure is relevant to another section of this Agreement.
“Proxy Statement-Offering
Circular” has the meaning set forth in Section 6.7(a).
“RCW” means the
Revised Code of Washington
“Record Holder”
has the meaning set forth in Section 3.3(b)
“Regulatory Approvals”
means the approval, non-disapproval and/or non-objection of any bank regulator or other Governmental Authority that is necessary
in connection with the consummation of the Merger, and the related transactions contemplated by this Agreement.
“Representatives”
has the meaning set forth in Section 6.5(a).
“Requisite PLAZA Shareholder
Approval” means the approval of shareholders of PLAZA required to consummate the Merger in accordance with the RCW.
“Rights” means,
with respect to any Person, warrants, options, rights, convertible securities and other arrangements or commitments of any character
that obligate the Person to sell, purchase, issue or dispose of any of its capital stock or other ownership interests or other
securities representing the right to purchase or otherwise receive any of its capital stock or other ownership interests.
“SEC” means the
U.S. Securities and Exchange Commission.
“Securities Act”
means the Securities Act of 1933, as amended, and the rules and regulations thereunder.
“Shares” has
the meaning set forth in Section 3.1(a).
“Subsidiary”
has the meaning ascribed to such term in Rule l-02 of Regulation S-X of the SEC.
“Superior Proposal”
means any unsolicited, bona fide binding written Acquisition Proposal that is not obtained in breach of this Agreement and that
the PLAZA Board determines in good faith (after consultation with outside counsel and its financial advisor, taking into account
the identity of the Person making the proposal, all legal, financial, regulatory and other aspects of the Acquisition Proposal
and this Agreement (including any proposal to adjust the terms and conditions of this Agreement) including any breakup fees, expense
reimbursement provisions, conditions to and expected timing and risks of consummation and the form of consideration offered and
the ability of the Person making such proposal to obtain financing and whether such financing is then fully committed for such
Acquisition Proposal, and after taking into account all other legal, financial, strategic, regulatory and other aspects of such
proposal (i) is more favorable from a financial point of view to its shareholders than the Merger, (ii) is reasonably likely to
receive all necessary Regulatory Approvals for the consummation of the transactions contemplated by the Superior Proposal; (iii)
does not contain any condition to closing or similar contingency related to the ability of the Person making such proposal to obtain
financing; and (iv) is reasonably likely of being completed on the terms proposed on a timely basis.
“Tax” and “Taxes”
mean (i) any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including taxes under Code Section 59A), custom duties, capital stock, franchise,
profits, net worth, margin, capital production, withholding, social security (or similar excises), unemployment, disability, ad
valorem, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated,
or other tax of any kind whatsoever, including any interest, penalty, or addition thereto, whether or not disputed, by any Governmental
Authority responsible for imposition of any such tax (domestic or foreign), (ii) liability for the payment of any amount of
the type described in clause (i) as a result of being or having been on or before the Closing Date a member of an affiliated,
consolidated, combined or unitary group, or a party to any agreement or arrangement, as a result of which liability of a Person
to a Governmental Authority is determined or taken into account with reference to the liability of any other Person, and (iii) liability
for the payment of any amount as a result of being party to any tax sharing agreement or with respect to the payment of any amount
of the type described in (i) or (ii) as a result of any existing express or implied obligation (including an indemnification
obligation).
“Tax Returns”
means any return (including any amended return), declaration or other report (including elections, declarations, claims for refund,
schedules, estimates and information returns) with respect to any Taxes (including estimated taxes).
“Termination Fee”
has the meaning set forth in Section 8.2(a)(ii).
“USA PATRIOT Act”
means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of
2001, as amended.
“WSDFI” means
the Washington State Department of Financial Institutions.
ARTICLE II
THE MERGER AND RELATED MATTERS
2.1
The
Merger; Surviving Entity
.
(a)
The
Merger
. Subject to the terms and conditions of this Agreement, and pursuant to the applicable provisions of the CGCL, the CFC,
the RCW, federal law and, to the extent applicable, the rules and regulations promulgated by the DBO, Federal Reserve Board, and
WSDFI at the Effective Time, PLAZA shall be merged with and into BANK, with BANK as the surviving bank.
(b)
Surviving
Entity
. Upon the consummation of the Merger, the separate corporate existence of PLAZA shall cease and BANK shall continue
as the surviving entity under the laws of the State of California. The name of the surviving entity of the Merger shall remain
“United Business Bank.” From and after the Effective Time, BANK, as the surviving entity of the Merger, shall possess
all of the properties and rights and be subject to all of the liabilities and obligations of PLAZA.
(c)
Articles
of Incorporation and Bylaws of the Surviving Entity
. The Articles of Incorporation and Bylaws of BANK, as in effect immediately
prior to the Effective Time, shall be the Articles of Incorporation and Bylaws of BANK, as the surviving corporation of the Merger,
until either is thereafter amended in accordance with applicable law.
(d)
Directors
and Officers of BHC and BANK
. The directors and officers of BHC and BANK immediately prior to the Effective Time shall be the
directors and officers of BHC and BANK, after the Effective Time, until their respective successors shall be duly elected and qualified
or otherwise duly selected.
2.2
Filing
of Agreement of Merger
. As soon as practicable, but in no event later than the tenth (10
th
) calendar day after which
each of the conditions set forth in Article VII hereof has been satisfied or waived (other than those conditions that by their
nature are to be satisfied at Closing) or such other time as the parties may agree, BHC, BANK and PLAZA will file, or cause to
be filed, with the California Secretary of State and DBO an agreement of merger in substantially the form of Annex C to this Agreement,
effecting the Merger, and the Merger shall become effective at that time (the “Effective Time”).
ARTICLE III
EFFECT OF THE MERGER ON CAPITAL STOCK
3.1
Effect
on Capital Stock
. At the Effective Time, as a result of the Merger and without any action on the part of the holder of any
capital stock of PLAZA:
(a)
Effect
on PLAZA Common Stock
. Each share of PLAZA Common Stock (collectively, the “Shares”) issued and outstanding immediately
prior to the Effective Time (other than Excluded Shares and Dissenting Shares) shall be converted into the right to receive the
Per Share Merger Consideration, which shall be comprised of:
(i) .084795
of a share of BHC Common Stock, subject to adjustment as described below (the “Per Share Merger Consideration”).
(ii) In
the event PLAZA Merger Related Expenses exceed $1,600,000, the Per Share Merger Consideration will be reduced. PLAZA Merger Related
Expenses consist of the following expenses: (A) any contract termination fees and conversion fees associated with PLAZA Material
Contracts that will be terminated in connection with the Merger, including but not limited to data processing contracts; (B) any
severance or retention bonuses to be paid to PLAZA employees; (C) PLAZA’s legal, advisory, fairness opinion and other professional
fees and professional expenses rendered in connection with the transaction contemplated in this Agreement; (D) PLAZA’s accounting,
investment banking and valuation fees and expenses rendered in connection with the transaction contemplated in this Agreement;
(E) D&O Insurance premiums and costs; and (F) PLAZA’s costs of printing and mailing the Proxy Statement-Offering Circular
and soliciting PLAZA’s shareholder approval. Schedule 3.1(a) of the Disclosure Schedule sets forth the itemization of the
PLAZA Merger Related Expenses. The number of shares of BHC Common Stock by which the Per Share Merger Consideration will be reduced
will be calculated by dividing (i) the amount by which PLAZA Merger Related Expenses exceeds $1,600,000, by (ii) $17.10, and then
dividing that sum by (iii) 7,318,954 (the number of shares of PLAZA Common Stock outstanding.) For example, if the PLAZA Merger
Related Expenses totaled $1,700,000, the Per Share Merger Consideration would be reduced to .083996 shares of BHC Common Stock.
(iii) At
the Effective Time, all of the Shares shall cease to be outstanding, shall be cancelled and shall cease to exist subject to the
rights of Dissenting Shares, and each certificate (each, a “Certificate”, it being understood that any reference herein
to “Certificate” shall be deemed, as appropriate, to include reference to book-entry account statements relating to
the ownership of shares of PLAZA Common Stock, and it being further understood that provisions herein relating to Certificates
shall be interpreted in a manner that appropriately accounts for book-entry shares, including that, in lieu of delivery of a Certificate
and a letter of transmittal as specified herein, shares held in book-entry form may be transferred by means of an “agent’s
message” to the Exchange Agent or such other evidence of transfer as the Exchange Agent may reasonably request) formerly
representing any of the Shares (other than Excluded Shares and Dissenting Shares) shall thereafter represent only the right to
receive the Per Share Merger Consideration, without interest.
(b)
Effect
on BHC Common Stock
. The shares of BHC Common Stock issued and outstanding immediately prior to the Effective Time shall remain
issued and outstanding and shall not be converted or otherwise affected by the Merger.
(c)
No
Effect on Capital Stock of BANK
. The Merger shall have no effect on the capital stock of BANK.
(d)
Cancellation
of Excluded Shares
. Each Excluded Share shall, as a result of the Merger and without any action on the part of the holder thereof,
cease to be outstanding, be cancelled without payment of any consideration therefor and cease to exist.
(e)
Dissenting
Shares
. Any shares of PLAZA Common Stock held by a Person who dissents from the Merger in accordance with the provisions of
applicable law shall be herein called “Dissenting Shares.” Notwithstanding any other provision of this Agreement, any
Dissenting Shares shall not, after the Effective Time, be entitled to vote for any purpose or receive any dividends or other distributions
and shall be entitled only to such rights as are afforded in respect of Dissenting Shares pursuant to applicable law. The Per Share
Merger Consideration for any Dissenting Share shall be paid over to BHC by the Exchange Agent pending the determination as to the
rights of any Dissenting Share to consideration under applicable laws.
3.2
Outstanding
Options
. At the Effective Time, any outstanding options to acquire shares of PLAZA Common Stock will be canceled and shall
not be assumed by BHC. At the discretion of the option holder, the options shall either be (i) exercised prior to the Effective
Time and thereafter exchanged for the Per Share Merger Consideration, or (ii) prior to the Effective Time, cashed out by payment
to the option holder from PLAZA. In the event the option holder decides to cash out an option, the option holder shall receive
from PLAZA a cash payment calculated by multiplying (a) the difference between the exercise price and Per Share Merger Consideration
which is deemed to be $1.45, times (b) the number of shares under option. For example, if an optionee holds an option for 100 shares
with an exercise price of $1.00 per share, the optionee would receive from PLAZA cash in the amount of $45.00, calculated by multiplying
$0.45 ($1.45 - $1.00) by 100.
3.3
Exchange
of Certificates
.
(a)
Exchange
Agent
. At the Effective Time, BHC shall make available or cause to be made available to an exchange agent selected by BHC with
PLAZA’s prior approval, which shall not be unreasonably withheld (the “Exchange Agent”), a sufficient number
of shares of BHC Common Stock and a sufficient amount of cash in order for the Exchange Agent to distribute the Per Share Merger
Consideration and pay cash in lieu of fractional shares of BHC Common Stock (the “Exchange Fund”).
(b)
Exchange
Procedures
. As soon as practicable after the Effective Time (and in no event later than five (5) Business Days after the Effective
Time), BHC shall cause the Exchange Agent to mail to each Person that was, immediately prior to the Effective Time, a holder of
shares of PLAZA Common Stock (a “Record Holder”) (other than holders of Excluded Shares and Dissenting Shares) represented
by Certificates: (i) a letter of transmittal specifying that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates (or affidavits of loss in lieu of the Certificates as provided
in Section 3.3(g)) to the Exchange Agent, such customary letter of transmittal to be in such form and have such other provisions
as BHC and PLAZA may reasonably agree; and (ii) instructions for use in effecting the surrender of the Certificates (or affidavits
of loss in lieu of the Certificates as provided in Section 3.3(g)) in exchange for the Per Share Merger Consideration. Upon surrender
of the Certificates for exchange and cancellation to the Exchange Agent, together with such letter of transmittal duly completed
and executed, the Record Holder shall be entitled to promptly receive in exchange for each share of PLAZA Common Stock represented
by such surrendered Certificates, the Per Share Merger Consideration, if any, which such Record Holder has the right to receive
pursuant to Section 3.1(a) hereof. Certificates so surrendered shall be cancelled. No interest will be paid or accrued on the Per
Share Merger Consideration payable upon due surrender of the Certificates. BHC shall be entitled to rely upon the stock transfer
books of PLAZA to establish the identity of those Persons entitled to receive the Per Share Merger Consideration specified in this
Agreement, which books shall be conclusive with respect thereto. In the event of a dispute with respect to ownership of stock represented
by any Certificate, BHC shall be entitled to deposit the Per Share Merger Consideration in respect thereof in escrow with an independent
third party and thereafter be relieved with respect to any claims thereto.
(c)
Distributions
with Respect to Unexchanged Shares
. All shares of BHC Common Stock to be issued pursuant to the Merger shall be deemed issued
and outstanding as of the Effective Time and, whenever a dividend or other distribution is declared by BHC in respect of the BHC
Common Stock, the record date for which is at or after the Effective Time, that declaration shall include dividends or other distributions
in respect of all shares issuable pursuant to this Agreement. No dividends or other distributions in respect of the BHC Common
Stock shall be paid to any holder of any unsurrendered Certificate until such Certificate (or affidavits of loss in lieu of the
Certificate as provided in Section 3.3(g)) is surrendered for exchange in accordance with this Article III. Subject to the effect
of applicable laws, following surrender of any such Certificate (or affidavits of loss in lieu of the Certificate as provided in
Section 3.3(g)), there shall be issued and/or paid to the holder of the Certificates representing whole shares of BHC Common Stock
issued in exchange therefor, without interest, (A) at the time of such surrender, the dividends or other distributions with
a record date at or after the Effective Time theretofore payable with respect to such whole shares of BHC Common Stock and not
paid and (B) at the appropriate payment date, the dividends or other distributions payable with respect to such whole shares
of BHC Common Stock with a record date at or after the Effective Time and a payment date subsequent to the time of such surrender.
(d)
Transfers
.
The Per Share Merger Consideration delivered in accordance with the terms of this Article III upon the surrender of the Certificates
shall be deemed to have been delivered in full satisfaction of all rights pertaining to such Shares (other than the right to receive
the payments and deliveries contemplated by this Article III). At the Effective Time, holders of Certificates shall cease to have
rights with respect to PLAZA Common Stock previously represented by such Certificates, and such holders’ sole rights (other
than the holders of Certificates representing Dissenting Shares) shall be to exchange such Certificates for the Per Share Merger
Consideration in respect of the Shares represented thereby. From and after the Effective Time, there shall be no further registration
of transfers on the stock transfer books of PLAZA of the Shares that were outstanding immediately prior to the Effective Time.
If, after the Effective Time, any Certificate is presented to BHC or the Exchange Agent for transfer, it shall be cancelled and
exchanged for the Per Share Merger Consideration to which the holder of the Certificate is entitled pursuant to this Article III.
(e)
Fractional
Shares
. Notwithstanding any other provision of this Agreement, no fractional shares of BHC Common Stock will be issued in respect
of a holder’s Shares. In lieu thereof, any holder of Shares entitled to receive a fractional share of BHC Common Stock but
for this Section 3.3(e) shall be entitled to receive a cash payment, which payment shall be calculated by the Exchange Agent as
an amount equal to the product of (i) such fractional share interest times (ii) $17.10. All fractional shares to which a single
record holder of Shares would otherwise be entitled to receive hereunder shall be aggregated and calculations shall be rounded
to three decimal places.
(f)
Termination
of Exchange Fund
. Any portion of the Exchange Fund (including cash, certificates representing shares of BHC Common Stock and
the proceeds of any investments of the Exchange Fund) that remains unclaimed by the shareholders of PLAZA for 180 days after the
Effective Time (or such other time as shall be expressly provided in the agreement with the Exchange Agent with respect to the
Exchange Fund), shall be delivered to BHC. Any holder of Shares (other than Excluded Shares and Dissenting Shares) that has not
theretofore complied with this Article III shall, after any remaining portion of the Exchange Fund has been delivered to BHC, thereafter
look only to BHC for payment of the Per Share Merger Consideration (after giving effect to any required tax withholdings as provided
in Section 3.4) upon due surrender of its Certificates (or affidavits of loss in lieu of the Certificates), without any interest
thereon. Notwithstanding the foregoing, none of BHC, the Exchange Agent or any other Person shall be liable to any former holder
of Shares for any amount properly delivered to a public official pursuant to applicable abandoned property, escheat or similar
laws.
(g)
Lost,
Stolen or Destroyed Certificates
. In the event any Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate to be lost, stolen or destroyed and, if required by BHC, the
posting by such Person of a bond in customary amount and upon such terms as may be reasonably required by BHC as indemnity against
any claim that may be made against it with respect to such Certificate, the Exchange Agent will distribute the Per Share Merger
Consideration with respect to each Share represented by such lost, stolen or destroyed Certificate.
3.4
Withholding
Rights
. Each of BHC and Exchange Agent shall be entitled to deduct and withhold from the consideration otherwise payable pursuant
to this Agreement to any holder of shares of PLAZA Common Stock such amounts as it is required to deduct and withhold with respect
to the making of such payment under the Code, or any other applicable state, local or foreign Tax law. To the extent that amounts
are so withheld by BHC or Exchange Agent, such withheld amounts (i) shall be timely remitted by BHC to the applicable Governmental
Authority, and (ii) shall be treated for all purposes of this Agreement as having been paid to the holder of shares of PLAZA
Common Stock in respect of which such deduction and withholding was made by BHC.
ARTICLE IV
ACTIONS PENDING THE MERGER
4.1
Forbearances
by PLAZA
. From the date hereof and until the Effective Time, except as expressly contemplated or permitted by this Agreement,
required by a Governmental Authority of competent jurisdiction, or as Previously Disclosed or as reasonably requested by BANK or
BHC, without the prior written consent of BANK or BHC (which such consent shall not be unreasonably withheld or delayed), PLAZA
shall not:
(a)
Ordinary
Course
. Conduct its business other than in the ordinary and usual course consistent with past practice and in compliance with
all laws and prudent business and banking practices, or fail to use commercially reasonable best efforts to preserve its business
organization, keep available the present services of its employees and preserve for itself and the other parties hereto, the goodwill
of its customers and others with whom business relations exist.
(b)
Capital
Stock
. (i) Issue, sell or otherwise permit to become outstanding, or authorize the issuance of or creation of, any additional
shares of stock or any Rights or other Rights (other than the issuance of common stock upon exercise of stock options outstanding
on the date of this Agreement in accordance with their respective terms), (ii) adjust, split, combine or reclassify any capital
stock, (iii) enter into any agreement, understanding or arrangement with respect to the sale or voting of common stock, or
(iv) directly or indirectly redeem, purchase or otherwise acquire any shares of capital stock or equity interests or any securities
or obligations convertible (whether currently convertible or convertible only after the passage of time or the occurrence of certain
events) into or exchangeable for any shares of capital stock or equity interests.
(c)
Dividends
.
Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on, any shares
of its capital stock.
(d)
Compensation;
Employment Agreements; Etc
. Except as set forth on Schedule 4.1(d) of the Disclosure Schedule, enter into, amend, renew or
accelerate the vesting or payment under, any employment, consulting, severance, change in control, bonus, salary continuation or
other similar agreements, arrangements or benefit plans with any current or former director, officer or employee or grant any salary
or wage increase or award any incentive or other bonus payment or increase any employee benefit (including incentive or bonus payments),
except (i) for other changes that are required by applicable law, (ii) to satisfy contractual obligations existing as
of the date hereof as Previously Disclosed, or (iii) normal annual salary increases made in the ordinary course of business
consistent in amount and timing with past practices to employees.
(e)
Hiring
.
Hire any person as an employee of or promote any employee, except (i) to satisfy contractual obligations existing as of the
date hereof as Previously Disclosed or (ii) to fill any vacancies arising after the date hereof and whose employment is terminable
at will and who are not subject to or eligible for any severance or similar benefits or payments that would become payable as a
result of the transactions contemplated hereby or the consummation thereof.
(f)
Benefit
Plans
. Enter into, establish, adopt, amend or terminate, or make any contributions to, except (i) as may be required by
applicable law or (ii) to satisfy contractual obligations existing as of the date hereof as Previously Disclosed, any pension,
retirement, stock option, stock purchase, savings, profit sharing, deferred compensation, consulting, bonus, group insurance or
other employee benefit, incentive or welfare contract, plan, grant, award or arrangement, or any trust agreement (or similar arrangement)
related thereto, in respect of any current or former director, officer or employee or take any action to accelerate the vesting
or exercisability of any compensation or benefits payable thereunder, other than actions related to the transactions contemplated
by this Agreement.
(g)
Dispositions
.
Except in the ordinary course of business, (i) sell, transfer, mortgage, license, encumber or otherwise dispose of or discontinue
any of its assets, rights, deposits, business or properties outside the ordinary course of business in a transaction that, in the
aggregate, exceeds $25,000; or (ii) sell, transfer, mortgage, license, encumber or otherwise dispose of any assets, rights, deposits,
business or properties at a price that is less than the book value.
(h)
Acquisitions
.
Acquire (other than by way of foreclosures or acquisitions of control in a bona fide fiduciary capacity or in satisfaction of debts
previously contracted in good faith, in each case in the ordinary and usual course of business consistent with past practice),
including by merger or consolidation, purchasing any equity interest in or making any investment in a partnership or joint venture,
all or any portion of the assets, business, securities (other than by way of foreclosures or acquisitions in a bona fide fiduciary
capacity or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent
with past practice), deposits or properties of any other Person.
(i)
Capital
Expenditures
. Other than (i) in accordance with binding commitments existing on the date hereof as Previously Disclosed, (ii)
capital expenditures in the ordinary course of business consistent with past practice, and (iii) capital expenditures Previously
Disclosed, make any capital expenditures in amounts exceeding $15,000 per project or $50,000 in the aggregate except for emergency
repairs or replacements.
(j)
Governing
Documents
. Amend its articles of incorporation, bylaws or any other governing documents or enter into a plan of consolidation,
merger, share exchange or reorganization with any Person, or a letter of intent or agreement in principle with respect thereto,
except as provided in Section 6.5.
(k)
Accounting
Methods
. Implement or adopt any change in its accounting principles, practices or methods, other than (i) as may be required
by changes in laws, regulations or GAAP, (ii) for tax purposes or (iii) to take advantage of any beneficial tax or accounting methods.
(l)
Contracts
.
Enter into, cancel, fail to renew or terminate any PLAZA Material Contract, amend or modify in any material respect any of its
existing PLAZA Material Contracts or real or personal property leases or waive, release, relinquish or assign any PLAZA Material
Contract or real or personal property lease (or any rights thereunder), other than (i) as otherwise permitted under this Agreement,
(ii) in the ordinary course of business consistent with past practice or (iii) to replace any existing contractual arrangement
on substantially the same terms as the original agreement, including with respect to pricing and termination.
(m)
Claims
.
Enter into any settlement or similar agreement with respect to any action, suit, proceeding, order or investigation to which it
is or becomes a party after the date of this Agreement, which settlement, agreement or action involves payment of an amount which
exceeds $10,000 in excess of amounts contributed by insurance and/or would impose any material restriction on its business.
(n)
Banking
Operations
. Enter into any new line of business; introduce any significant new products or services; materially change its
lending, investment, underwriting, pricing, servicing, risk and asset liability management and other material banking and operating
policies, except as required by applicable law, regulation or policies imposed by any Governmental Authority, or the manner in
which its investment securities or loan portfolio is classified or reported; or file any application or enter into any contract
with respect to the opening, relocation or closing of, or open, relocate or close, any branch, office servicing center or other
facility.
(o)
Marketing
.
Introduce any marketing campaigns or any new sales compensation or incentive programs or arrangements.
(p)
Derivatives
Contracts
. Enter into any Derivatives Contract, except in the ordinary course of business consistent with past practice.
(q)
Indebtedness
.
Incur any indebtedness for borrowed money (other than deposits, escrow balances, federal funds purchased, cash management accounts,
FHLB advances, in each case in the ordinary course of business consistent with past practice); or assume, guarantee, endorse or
otherwise as an accommodation become responsible for the obligations of any other Person, other than with respect to the collection
of checks and other negotiable instruments in the ordinary course of business consistent with past practice.
(r)
Investment
Securities
. Acquire or otherwise invest in (other than by way of foreclosures or acquisitions in a bona fide fiduciary capacity
or in satisfaction of debts previously contracted in good faith, in each case in the ordinary course of business consistent with
past practice) any (i) Equity Investment, or (ii) debt security, in each case other than in the ordinary course of business
consistent with past practice.
(s)
Loans
.
Except to satisfy contractual obligations existing as of the date hereto, (i) make, renew or otherwise modify any loan, loan
commitment, letter of credit or other extension of credit originated or to be originated (collectively, “Loans”) in
a manner that is inconsistent with its ordinary course of business, inconsistent with its lending policies and procedures in effect
as of the date of this Agreement, or in the case of a modification or renewal would reduce the outstanding unpaid principal and
interest owed under the Loan prior to its modification or renewal; (ii) take any action that would result in any discretionary
release of collateral or guarantees or otherwise restructure the respective amounts set forth in clause (i) above; (iii) make
or commit to make any Loan to, or enter into any transaction with, any directors, officers, employees or any of its Affiliates;
or (iv) enter into any Loan securitization or create any special purpose funding entity. For any new Loan to be originated
by PLAZA or renewal in a principal amount such that the total loans outstanding to such borrower, including unfunded commitments
would be, in excess of $150,000, prior to committing to extend or renew such Loan, PLAZA shall provide BANK with a copy of the
loan underwriting analysis and credit memo of PLAZA with respect to the proposed Loan (the “Loan Package”). PLAZA shall
consider any comments that may be raised by BANK within forty-eight (48) hours of BANK’s receipt of the Loan Package. If
BANK fails to respond to PLAZA within forty-eight (48) hours after receipt by BANK of the Loan Package, BANK shall be deemed to
have no comments on such Loan.
(t)
Investments
in Real Estate
. Make any investment or commitment to invest in real estate or in any real estate development project (other
than by way of foreclosure or acquisitions in a bona fide fiduciary capacity or in satisfaction of a debt previously contracted
in good faith, in each case in the ordinary course of business consistent with past practice).
(u)
Adverse
Actions
. Knowingly take or fail to take any action: (i) that is intended or may reasonably be expected to result in (A) any
of its representations and warranties set forth in this Agreement being or becoming untrue in any material respect at any time
at or prior to the Effective Time or (B) any of the conditions to the transactions contemplated set forth in Section 7.2 not
being satisfied or (ii) which would reasonably be expected to materially and adversely impair or delay consummation of the
transactions contemplated hereby beyond the time period contemplated by this Agreement, except, in each case, as may be required
by applicable law or regulation.
(v)
Tax
Elections
. Make or change any material Tax election, settle or compromise any of its material Tax liabilities, agree to an
extension or waiver of the statute of limitations with respect to the assessment or determination of a material amount of its Taxes,
enter into any closing agreement with respect to any material amount of its Taxes or surrender any right to claim a material amount
of its Tax refund, adopt or change any method of accounting with respect to its Taxes, or file any amended Tax Return.
(w)
Antitakeover
Statutes
. Take any action (i) that would cause this Agreement or the transactions contemplated hereby to be subject to
the provisions of any state antitakeover law or state or territorial law that purports to limit or restrict business combinations
or the ability to acquire or vote shares (“Antitakeover Law”) or (ii) to exempt or make not subject to the provisions
of any Antitakeover Law or state law that purports to limit or restrict business combinations or the ability to acquire or vote
shares, any Person or any action taken thereby, which Person or action would have otherwise been subject to the restrictive provisions
thereof and not exempt therefrom.
(x)
Affiliate
Transactions
. Enter into any transaction, commitment, arrangement or other activity with a related entity, Affiliate or Subsidiary
other than (i) compensation in the ordinary course of business consistent with past practice, or (ii) deposit transactions.
(y)
Interest
on Deposits
. Increase the rate of interest paid on interest-bearing deposits or on certificates of deposit, except in a manner
and pursuant to policies and the ordinary course of business consistent with past practices and otherwise consistent with general
economic and competitive conditions in PLAZA’s market area.
(z)
Commitments
.
Enter into any contract with respect to, or otherwise agree, authorize or commit to take, or publicly recommend, propose or announce
an intention to take, any of the foregoing actions.
4.2
Forbearances
of BHC and BANK
. From the date hereof and until the Effective Time, except as expressly contemplated or permitted by this Agreement,
required by a Governmental Authority of competent jurisdiction or as Previously Disclosed, without the prior written consent of
PLAZA (which such consent shall not be unreasonably withheld or delayed), BHC and BANK shall not:
(a)
Ordinary
Course
. Conduct its respective business other than in the ordinary and usual course consistent with past practice and in compliance
with all laws and prudent business and banking practices, or fail to use commercially reasonable best efforts to preserve its respective
business organization, keep available the present services of its employees and preserve for itself and the other parties hereto
the goodwill of its customers and others with whom business relations exist.
(b)
Capital
Stock
. (i) Adjust, split, combine or reclassify any capital stock, or (ii) directly or indirectly redeem, purchase or otherwise
acquire any shares of capital stock or equity interests or any securities or obligations convertible (whether currently convertible
or convertible only after the passage of time or the occurrence of certain events) into or exchangeable for any shares of capital
stock or equity interests.
(c)
Dividends
.
Make, declare, pay or set aside for payment any dividend on or in respect of, or declare or make any distribution on, any shares
of its capital stock.
(d)
Governing
Documents
. Amend its respective articles of incorporation, bylaws or any other governing documents or enter into a plan of
consolidation, merger, share exchange or reorganization with any Person, or a letter of intent or agreement in principle with respect
thereto.
(e)
Accounting
Methods
. Implement or adopt any change in its accounting principles, practices or methods, other than (i) as may be required
by changes in laws, regulations or GAAP, (ii) for tax purposes or (iii) to take advantage of any beneficial tax or accounting methods.
(f)
Adverse
Actions
. Knowingly take or fail to take any action: (i) that is intended or may reasonably be expected to result in (A) any
of its respective representations and warranties set forth in this Agreement being or becoming untrue in any material respect at
any time at or prior to the Effective Time or (B) any of the conditions to the transactions contemplated set forth in Section
7.3 not being satisfied or (ii) which would reasonably be expected to materially and adversely impair or delay consummation
of the transactions contemplated hereby beyond the time period contemplated by this Agreement, except, in each as may be required
by applicable or regulation.
(g)
Tax
Elections
. Make or change any material Tax election, settle or compromise any of its material Tax liabilities, agree to an
extension or waiver of the statute of limitations with respect to the assessment or determination of a material amount of its Taxes,
enter into any closing agreement with respect to any material amount of its Taxes or surrender any right to claim a material amount
of its Tax refund, adopt or change any method of accounting with respect to its Taxes, or file any amended Tax Return.
(h)
Antitakeover
Statutes
. Take any action (i) that would cause this Agreement or the transactions contemplated hereby to be subject to
the provisions of Antitakeover Law or (ii) to exempt or make not subject to the provisions of any Antitakeover Law or state
law that purports to limit or restrict business combinations or the ability to acquire or vote shares, any Person or any action
taken thereby, which Person or action would have otherwise been subject to the restrictive provisions thereof and not exempt therefrom.
(i)
Commitments
.
Enter into any contract with respect to, or otherwise agree, authorize or commit to take, or publicly recommend, propose or announce
an intention to take, any of the foregoing actions.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
5.1
Disclosure
Schedules
. On or prior to the date hereof, PLAZA has delivered to BHC and BANK, and BHC and BANK have delivered to PLAZA, a
confidential schedule (the “Disclosure Schedule”) setting forth, among other things, items the disclosure of which
is necessary or appropriate either in response to an express disclosure requirement contained in a provision hereof or as an exception
to one or more representations or warranties contained in Article V or to one or more of its covenants contained in Article IV
or Article VI. Any information disclosure in any section of such party’s Disclosure Schedule shall apply only to the indicated
section of this Agreement except to the extent that it is reasonably apparent from the face of such disclosure that such disclosure
is relevant to another section of this Agreement
5.2
Representations
and Warranties of PLAZA
. PLAZA hereby represents and warrants to BHC and BANK that, except as Previously Disclosed:
(a)
Organization,
Standing and Authority
. PLAZA is a Washington state-chartered commercial bank duly organized and validly existing under the
laws of the State of Washington that is duly authorized by the WSDFI to conduct business as a state-chartered bank. PLAZA is duly
licensed or qualified to do business and is in good standing in each jurisdiction where its ownership or leasing of property or
assets or the conduct of its business requires it to be so licensed or qualified, except where failure to be so licensed or qualified
would not materially impair the ability of PLAZA to perform its obligations under this Agreement or otherwise materially impede
the consummation of the transactions contemplated hereby. PLAZA has in effect all federal, state, local and foreign governmental
authorizations necessary for it to own or lease its properties and assets and to carry on its business as it is now conducted,
except where the failure to be so authorized would not materially impair the ability of PLAZA to perform its obligations under
this Agreement or otherwise materially impede the consummation of the transactions contemplated hereby. The deposit accounts of
PLAZA are insured by the FDIC, in the manner and to the maximum extent provided by applicable law, and PLAZA has paid all deposit
insurance premiums and assessments required by applicable laws and regulations. The copies of the PLAZA Articles, the PLAZA Bylaws,
and the other governing documents of PLAZA which have been previously made available to BHC and BANK are true, complete and correct
copies of such documents as in effect on the date of this Agreement. The minute books of PLAZA contain true, complete and correct
records in all material respects of all meetings and other material corporate actions held or taken by the PLAZA Board (including
committees of the PLAZA Board), as well as the shareholders of PLAZA through the date hereof.
(b)
PLAZA
Capital Structure
.
(i) The
authorized capital stock of PLAZA consists of (i) 10,000,000 shares of PLAZA Common Stock, $1.00 par value per share, of which
7,318,954 shares are issued and outstanding as of the date hereof. PLAZA also has 870,000 shares of PLAZA Common Stock reserved
for issuance under the PLAZA Benefit Plans, and does not have any other shares of capital stock authorized, designated, issued
or outstanding. All outstanding shares of PLAZA’s capital stock (i) have been duly authorized and validly issued and
are fully paid, non-assessable and not subject to preemptive rights or similar rights created by statute, the PLAZA Articles, the
PLAZA Bylaws or any agreement to which PLAZA is a party, and (ii) have been offered, sold, issued and delivered by PLAZA in
all material respects in compliance with all applicable laws. There are no declared or accrued but unpaid dividends with respect
to any shares of PLAZA capital stock.
(ii) PLAZA
currently has in place two stock option plans and has no other plan or agreement providing for equity compensation to any Person.
(iii) Other
than options for 370,000 shares of PLAZA Common Stock, there are no Rights or agreements obligating PLAZA to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any PLAZA capital stock or any capital stock
or equity or other ownership interest of PLAZA or obligating PLAZA to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such Right. There are no outstanding or authorized stock appreciation, phantom stock, profit
participation, or other similar rights with respect to PLAZA.
(iv) Except
for the PLAZA Non-Competition and Voting Agreements and the PLAZA Voting Agreements, there are no (x) voting trusts, proxies,
or other agreements or understandings with respect to the voting stock of PLAZA to which PLAZA is a party, by which PLAZA is bound,
or of which PLAZA has knowledge, or (y) agreements or understandings to which PLAZA is a party, by which PLAZA is bound, or
of which PLAZA has knowledge relating to the registration, sale or transfer (including agreements relating to rights of first refusal,
“co-sale” rights or “drag-along” rights) of any PLAZA capital stock. Except with respect to the outstanding
options set forth in clause (iii) immediately above, there are no Rights or agreements obligating PLAZA to issue, deliver, sell,
repurchase or redeem, or causing PLAZA to issue, deliver, sell, repurchase or redeem, any PLAZA capital stock or any capital stock
or equity or other ownership interest of PLAZA or obligating PLAZA to grant, extend, accelerate the vesting of, change the price
of, otherwise amend or enter into any such Right.
(c)
Subsidiaries
.
PLAZA does not have any Subsidiaries.
(d)
Corporate
Power
. PLAZA has the corporate power and authority to carry on its business as it is now being conducted and to own all its
properties and assets; and PLAZA has the corporate power and authority to execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby, in each case, subject to receipt of the Requisite PLAZA Shareholder
Approval and all necessary approvals of Governmental Authorities.
(e)
Corporate
Authority
.
(i) Subject
to receipt of the Requisite PLAZA Shareholder Approval, this Agreement and the transactions contemplated hereby have been authorized
and approved by all necessary corporate action of PLAZA on or prior to the date hereof and will remain in full force and effect
through the earlier of the Closing or termination of this Agreement. No other corporate or shareholder action is necessary or required
to authorize and approve this Agreement or the transactions contemplated hereby. This Agreement has been duly executed and delivered
by PLAZA and, assuming due authorization, execution and delivery by BANK and BHC, this Agreement is a valid and legally binding
obligation of PLAZA, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting
creditors’ rights or by general equity principles).
(ii) The
PLAZA Board, by a unanimous vote thereof, has adopted resolutions (1) determining that this Agreement and the transactions
contemplated herein, including the Merger, are fair to, and in the best interests of, PLAZA and its shareholders, (2) approving
and declaring advisable this Agreement and the transactions contemplated hereby and (3) recommending that PLAZA’s shareholders
approve and adopt this Agreement.
(f)
Regulatory
Approvals
. No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or any
regulatory approvals from any third party are required to be made or obtained by PLAZA or any of its Affiliates in connection with
the execution, delivery or performance by PLAZA of this Agreement or to consummate the transactions contemplated hereby, except
for (A) filings of applications or notices with, and approvals or waivers by the DBO, the Federal Reserve Board and the WSDFI,
as may be required, (B) the filing of an application for, and the issuance of, a permit as contemplated by Section 6.14 herein,
(C) filings of applications and notices with certain states and the receipt of all necessary state securities and “Blue
Sky” permits or approvals, and (D) the filing of the agreement of merger with the California Secretary of State and
the DBO with respect to the Merger.
(g)
No
Conflict.
The execution and delivery by PLAZA of this Agreement and the consummation of the transactions provided for in this
Agreement (i) do not violate any provision of the PLAZA Articles, the PLAZA Bylaws, or any provision of applicable federal
or state law or any governmental rule or regulation (assuming receipt of the required approval of any Governmental Authority and
receipt of the Requisite PLAZA Shareholder Approval), and (i) except as set forth in Schedule 5.2(g) of the Disclosure
Schedule, do not require any consent of any Person under, conflict with or result in a breach of, or accelerate the performance
required by any of the terms of, any material debt instrument, lease, license, covenant, agreement or understanding to which PLAZA
is a party or by which it is bound, or any order, ruling, decree, judgment, arbitration award or stipulation to which PLAZA is
subject, or constitute a default thereunder or result in the creation of any Lien, restriction or right of any third party of any
kind whatsoever upon any of the properties or assets of PLAZA.
(h)
Financial
Statements; Material Adverse Effect
.
(i) PLAZA
has previously made available to BHC and BANK accurate and complete copies of the PLAZA Financial Statements. The PLAZA Financial
Statements as of and for the fiscal years ended December 31, 2016, 2015 and 2014 are accompanied by the audit report of Moss Adams
LLP. The PLAZA Financial Statements fairly present in all material respects, the financial condition of PLAZA as of the respective
dates set forth therein, and the results of operations, changes in shareholders’ equity and cash flows (if applicable) of
PLAZA for the respective periods or as of the respective dates set forth therein.
(ii) The
PLAZA Financial Statements have been, and are being, prepared in accordance with GAAP consistently applied during the periods involved,
except as stated therein.
(iii) Since
December 31, 2016, PLAZA has not incurred any liabilities that are required to be reflected on a balance sheet in accordance with
GAAP, except (i) as Previously Disclosed, (ii) liabilities properly accrued or reserved against in the balance sheet of PLAZA as
of December 31, 2016, (iii) liabilities and obligations incurred since December 31, 2016 in the ordinary course of business consistent
with past practice, (iv) liabilities and obligations that are not material to PLAZA, and (v) any liabilities and obligations incurred
with respect to the transactions contemplated by this Agreement.
(iv) Since
December 31, 2016, (A) PLAZA has conducted its business in the ordinary and usual course consistent with past practice, and
(B) no event has occurred or circumstance arisen that, individually or taken together with all other facts, circumstances
and events (described in any paragraph of this Section 5.2 or otherwise), has had or is reasonably likely to have a Material Adverse
Effect with respect to PLAZA.
(v) No
agreement pursuant to which any loans or other assets have been or shall be sold by PLAZA entitled the buyer of such loans or other
assets to cause PLAZA to repurchase such loan or other asset or the buyer to pursue any other form of recourse against PLAZA. No
cash, stock or other dividends or any other distribution with respect to the capital stock of PLAZA has been declared, set aside
or paid since December 31, 2016. Since December 31, 2016, no shares of capital stock of PLAZA have been purchased, redeemed or
otherwise acquired, directly or indirectly, by PLAZA and no agreements have been made by PLAZA to do any of the foregoing.
(i)
Legal
Proceedings
. No litigation, arbitration, claim or other proceeding before any court or governmental agency is pending against
PLAZA, individually or in the aggregate, that has had or could reasonably be expected to have a Material Adverse Effect with respect
to PLAZA, and, to the knowledge of PLAZA, no such litigation, arbitration, claim or other proceeding has been threatened and there
are no facts which could reasonably give rise to such litigation, arbitration, claim or other proceeding. Neither PLAZA, nor any
of the properties owned by PLAZA, is a party to or subject to any order, judgment, decree or regulatory restriction that, individually
or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect with respect to PLAZA.
(j)
Regulatory
Matters
.
(i) PLAZA
has duly filed with the appropriate Governmental Authorities in substantially the correct form the monthly, quarterly and annual
reports required to be filed by it under applicable laws and regulations, and such reports were in all material respects complete
and accurate and in compliance with the requirements of applicable laws and regulations, and PLAZA has previously made available
to BHC and BANK accurate and complete copies of all such reports. Except as Previously Disclosed, in connection with the most recent
examinations of PLAZA by the appropriate Governmental Authorities, PLAZA was not required to correct or change any action, procedure
or proceeding which PLAZA believes in good faith has not been now corrected or changed, other than corrections or changes which,
if not made, either individually or in the aggregate, could not reasonably be expected to have a Material Adverse Effect on PLAZA.
(ii) Except
as set forth in Schedule 5.2(j)(ii) of the Disclosure Schedule, PLAZA is not a party to or subject to any order, decree, directive,
agreement, memorandum of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary
supervisory letter from, nor, except in the normal course of business, has PLAZA adopted any policies, procedures or board resolutions
at the request or suggestion of, any Governmental Authority. PLAZA has paid all assessments made or imposed by any Governmental
Authority.
(iii) Except
as set forth in Schedule 5.2(j)(iii) of the Disclosure Schedule, since December 31, 2014, no Governmental Authority has initiated
or has pending any proceeding, enforcement action or, to the knowledge of PLAZA, investigation or inquiry into the business, operations,
policies, practices or disclosures of PLAZA (other than normal examinations conducted by a Governmental Authority in the ordinary
course of the business of PLAZA), or, to the knowledge of PLAZA, threatened any of the foregoing.
(iv) PLAZA
is “well-capitalized” as defined by applicable laws and regulations. The most recent regulatory rating given to PLAZA
as to compliance with the Community Reinvestment Act is “Satisfactory” or better. Since the last regulatory examination
of PLAZA with respect to Community Reinvestment Act compliance, PLAZA has not received any complaints as to Community Reinvestment
Act compliance, and no proceedings are pending, nor to the knowledge of PLAZA, threatened with respect to any violations of consumer
fair lending laws or regulations.
(k)
Compliance
with Laws
. Except as set forth in Schedule 5.2(k) of the Disclosure Schedule, PLAZA:
(i) is
and at all times since December 31, 2014 has been in material compliance with all applicable federal, state, local and foreign
statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, decrees or policies and/or guidelines of
any Governmental Authority applicable thereto or to the employees conducting such businesses, including, without limitation, Sections
23A and 23B of the Federal Reserve Act and regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA PATRIOT Act, all other applicable
fair lending laws and other laws relating to discriminatory business practices;
(ii) has
and at all times since December 31, 2014 has had all permits, licenses, franchises, authorizations, orders and approvals of,
and has made all filings, applications and registrations with, all Governmental Authorities (and has paid all fees and assessments
due and payable in connection therewith) that are required in order to permit it to own or lease its properties and to conduct
its business as presently conducted, except where the failure to do so would not have a Material Adverse Effect on PLAZA; and all
such permits, licenses, franchises, certificates of authority, orders and approvals are in full force and effect and, to the knowledge
of PLAZA, no suspension or cancellation of any of them is pending or threatened;
(iii) has
received, since December 31, 2014, no notification or communication from any Governmental Authority (A) asserting that
PLAZA is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces or (B) threatening
to revoke any license, franchise, permit or governmental authorization (nor, to the knowledge of PLAZA, do any grounds for any
of the foregoing exist); and
(iv) has
devised and maintains a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of its financial statements, has designed disclosure controls and procedures to ensure
that material information is made known to the management of PLAZA on no less than a quarterly basis, and has disclosed, based
on its most recent evaluation prior to the date hereof, to its auditors (A) any significant deficiencies in the design or
operation of internal controls which could adversely affect in any material respect its ability to record, process, summarize and
report financial data and has identified for its auditors any material weaknesses in internal controls and (B) any fraud,
whether or not material, that involves management or other employees who have a significant role in its internal controls.
(l)
PLAZA
Material Contracts; Defaults
.
(i) Except
as set forth in Schedule 5.2(l) of the Disclosure Schedule, PLAZA is not a party to, bound by or subject to any agreement, contract,
arrangement, commitment or understanding (whether written or oral) (A) with respect to the employment of any of its directors,
officers, employees or consultants, (B) which would entitle any present or former director, officer, employee or agent of
PLAZA to indemnification from PLAZA, (C) which is an agreement (including data processing, software programming, consulting
and licensing contracts) not terminable on 60 days or less notice and involving the payment or value of more than $25,000 per annum,
(D) which is with or to a labor union or guild (including any collective bargaining agreement), (E) which relates to
the incurrence of indebtedness (other than deposit liabilities, advances and loans from the FHLB, and sales of securities subject
to repurchase, or similar obligation, in each case, in the ordinary course of business), (F) which grants any Person a right
of first refusal, right of first offer or similar right with respect to any material properties, rights, assets or business of
PLAZA, (G) which involves the purchase or sale of assets with a purchase price of $25,000 or more in any single case or $50,000
in all such cases, other than purchases and sales of investment securities and loans in the ordinary course of business consistent
with past practice, (H) which is a consulting agreement, license or service contract (including data processing, software
programming and licensing contracts and outsourcing contracts) which involves the payment of $25,000 or more in annual fees, (I) which
provides for the payment by PLAZA of payments upon a change of control thereof, (J) which is a lease for any real or material
personal property owned or presently used by PLAZA, (K) which materially restricts the conduct of any business by PLAZA or
limits the freedom of PLAZA to engage in any line of business in any geographic area (or would so restrict PLAZA after consummation
of the transactions contemplated hereby) or which requires exclusive referrals of business or requires PLAZA to offer specified
products or services to their customers or depositors on a priority or exclusive basis, (L) which is with respect to, or otherwise
commits PLAZA to do, any of the foregoing, or (M) which is a material contract (as defined in Item 601(b)(10) of Regulation
S-K of the SEC) (all of the foregoing collectively, “PLAZA Material Contracts.”)
(ii) To
the knowledge of PLAZA, each PLAZA Material Contract is valid and binding on PLAZA and is in full force and effect (other than
due to the ordinary expiration thereof) and is valid and binding on the other parties thereto. To the knowledge of PLAZA, there
is no material default under any PLAZA Material Contract and there has not occurred any event that, with the lapse of time or the
giving of notice or both, would constitute such a default. Except as provided in this Agreement, no power of attorney or similar
authorization given directly or indirectly by PLAZA is currently outstanding.
(iii) All
outstanding Loans from PLAZA to its officers and directors have been Previously Disclosed, and except as Previously Disclosed,
there has been no default on, or forgiveness or waiver of, in whole or in part, any such Loan during the two years immediately
preceding the date hereof.
(m)
No
Brokers
. Other than for financial advisory services performed for PLAZA by MJC Partners pursuant to an agreement dated June
7, 2017 and provided to BHC, no action has been taken by PLAZA that would give rise to any valid claim against any party hereto
for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated hereby. The
PLAZA Board has received the opinion (which, if initially rendered verbally, has been or will be confirmed by a written opinion,
dated the same date) of MJC Partners, to the effect that, as of the date of such opinion, and based upon and subject to the factors,
assumptions, and limitations set forth therein, the Per Share Merger Consideration to be received by the holders of PLAZA Common
Stock in the Merger is fair, from a financial point of view, to such holders.
(n)
Employee
Benefit Plans
.
(i) Schedule
5.2(n)(i) of the Disclosure Schedule lists all benefit and compensation plans, contracts, policies or arrangements covering
current or former employees of PLAZA and current or former directors or independent contractors of PLAZA, including, but not limited
to, “employee benefit plans” within the meaning of Section 3(3) of ERISA, and severance, employment, change in control,
fringe benefit, deferred compensation, stock option, stock purchase, stock appreciation rights, stock based, incentive and bonus
plans, agreements, programs, policies or other arrangements (the “PLAZA Benefit Plans”). PLAZA has previously made
available to BHC true and complete copies of (A) all PLAZA Benefit Plans including, but not limited to, any trust instruments
and insurance contracts forming a part of any PLAZA Benefit Plans and all amendments thereto; (B) the most recent annual report
(Form 5500), together with all schedules, as required, filed with the Internal Revenue Service (“IRS”) or Department
of Labor (the “DOL”), as applicable, and any financial statements and opinions required by Sections 103(a)(3) and 103(e)
of ERISA with respect to each PLAZA Benefit Plan; (C) for each PLAZA Benefit Plan which is a “top-hat” plan, a
copy of filings with the DOL; (D) the most recent determination letter issued by the IRS (or, in the case of an PLAZA Benefit
Plan maintained pursuant to the adoption of a prototype or volume submitter document a copy of an opinion or notification letter
issued by the IRS to the sponsor of the prototype or volume submitter document upon which PLAZA is entitled to rely stating that
the form of the prototype or volume submitter plan document is acceptable for the establishment of a qualified retirement plan),
for each PLAZA Benefit Plan that is intended to be “qualified” under Section 401(a) of the Code; (E) the most
recent summary plan description and any summary of material modifications, as required, for each PLAZA Benefit Plan; (F) the
most recent actuarial report, if any relating to each PLAZA Benefit Plan; (G) the most recent actuarial valuation, study or
estimate of any retiree medical and life insurance benefits plan or supplemental retirement benefits plan; and (H) the most
recent summary annual report for each PLAZA Benefit Plan required to provide summary annual reports by Section 104 of ERISA.
(ii) Each
PLAZA Benefit Plan has been established and administered to date in all material respects in accordance with the applicable provisions
of ERISA, the Code and applicable law and with the terms and provisions of all documents, contracts or agreements pursuant to which
such PLAZA Benefit Plan is maintained. Each PLAZA Benefit Plan which is an “employee pension benefit plan” within the
meaning of Section 3(2) of ERISA (a “Pension Plan”) and which is intended to be qualified under Section 401(a) of the
Code, has received a favorable determination letter from the IRS, and PLAZA is not aware of any circumstances likely to result
in revocation of any such favorable determination letter or the loss of the qualification of such Pension Plan under Section 401(a)
of the Code. PLAZA has not received any correspondence or written or verbal notice from the IRS, DOL, any other governmental agency,
any participant in or beneficiary of, an PLAZA Benefit Plan, or any agent representing any of the foregoing that brings into question
the qualification of any such PLAZA Benefit Plan. There is no material pending or, to PLAZA’s knowledge, threatened litigation
relating to the PLAZA Benefit Plans. PLAZA has not engaged in a transaction with respect to any PLAZA Benefit Plan or Pension Plan
that could subject it to a tax or penalty imposed by either Section 4975 of the Code or Section 502(i) of ERISA in an amount
which would be material. There are no matters pending before the IRS, DOL or other governmental agency with respect to any PLAZA
Benefit Plan. Since January 1, 2015, no PLAZA Benefit Plan or related trust has been the subject of an audit, investigation or
examination by a Governmental Authority.
(iii) No
liability under Title IV of ERISA has been or is expected to be incurred by PLAZA with respect to any ongoing, frozen or terminated
“single-employer plan,” within the meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by it
or the single-employer plan of any entity which is considered one employer with PLAZA under Section 4001 of ERISA or Section 414
of the Code (an “ERISA Affiliate”). PLAZA has not incurred, and does not expect to incur, any withdrawal liability
with respect to a multiemployer plan (as defined in 4001(a)(3) of ERISA) under Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate). No notice of a “reportable event,” within the meaning of Section 4043 of ERISA
for which the 30-day reporting requirement has not been waived, has been required to be filed for any Pension Plan or by any ERISA
Affiliate or will be required to be filed in connection with the transactions contemplated hereby. There has been no termination
or partial termination, as defined in Section 411(d) of the Code and the regulations thereunder, of any Pension Plan.
(iv) All
contributions required to be made under the terms of any PLAZA Benefit Plan have been timely made. Neither any Pension Plan nor
any single-employer plan of an ERISA Affiliate has an “accumulated funding deficiency” (whether or not waived) within
the meaning of Section 412 of the Code or Section 302 of ERISA and no ERISA Affiliate has an outstanding funding waiver. PLAZA
has not provided, nor is required to provide, security to any Pension Plan or to any single-employer plan of an ERISA Affiliate
pursuant to Section 401(a)(29) of the Code.
(v) Except
as set forth on Schedule 5.2(n)(v) of the Disclosure Schedule, PLAZA does not have any obligations for retiree health and life
benefits under any PLAZA Benefit Plan, other than coverage as may be required under Section 4980B of the Code or Part 6 of Subtitle
B of Title I of ERISA, or under the continuation of coverage provisions of the laws of any state or locality. PLAZA may amend or
terminate any such PLAZA Benefit Plan in accordance with and to the extent permitted by its terms at any time without incurring
any additional liability thereunder. No event or condition exists with respect to any PLAZA Benefit Plan that could subject PLAZA
to a material tax under Section 4980B of the Code.
(vi) Except
as set forth on Schedule 5.2(n)(vi) of the Disclosure Schedule, neither the execution of this Agreement nor consummation of the
transactions contemplated hereby, either alone or in connection with a subsequent event, (A) entitle any employees or any
current or former director or independent contractor of PLAZA to severance pay or any increase in severance pay upon any termination
of employment after the date hereof, (B) accelerate the time of payment or vesting or trigger any payment or funding (through
a grantor trust or otherwise) of compensation or benefits under, increase the amount payable or trigger any other material obligation
pursuant to, any of the PLAZA Benefit Plans, (C) result in any breach or violation of, or a default under, any of the PLAZA
Benefit Plans, (D) result in any payment that would be a “parachute payment” to a “disqualified individual”
as those terms are defined in Section 280G of the Code, without regard to whether such payment is reasonable compensation for personal
services performed or to be performed in the future or (E) result in any payment or portion of any payment that would not
be deductible by PLAZA under Section 162(m) of the Code when paid.
(vii) All
required reports and descriptions (including but not limited to Form 5500 annual reports and required attachments, Forms 1099-R,
summary annual reports, Forms PBGC-1 and summary plan descriptions) have been filed or distributed appropriately with respect to
each PLAZA Benefit Plan. All required tax filings with respect to each PLAZA Benefit Plan have been made, and any taxes due in
connection with such filings have been paid.
(viii) No
PLAZA Benefit Plan is or has been funded by, associated with, or related to a “voluntary employee’s beneficiary association”
within the meaning of Section 501(c)(9) of the Code, a “welfare benefit fund” within the meaning of Section 419 of
the Code, a “qualified asset account” within the meaning of Section 419A of the Code or a “multiple employer
welfare arrangement” within the meaning of Section 3(40) of ERISA.
(ix) Each
PLAZA Benefit Plan which is a “nonqualified deferred compensation plan” (within the meaning of Section 409A of the
Code) has been operated in compliance with Section 409A of the Code and the guidance issued by the IRS with respect to such plans.
(o)
Labor
Matters
. Except as set forth on Schedule 5.2(o) of the Disclosure Schedule, PLAZA is not a party to and is not bound by any
collective bargaining agreement, contract or other agreement or understanding with a labor union or labor organization, nor is
PLAZA the subject of a proceeding asserting that it has committed an unfair labor practice (within the meaning of the National
Labor Relations Act) or seeking to compel PLAZA to bargain with any labor organization as to wages or conditions of employment,
nor is there any strike or other labor dispute involving it pending or, to PLAZA’s knowledge, threatened, nor, to PLAZA’s
knowledge, are any employees of PLAZA seeking to certify a collective bargaining unit or engaging in other organizational activity.
Since January 1, 2015, PLAZA has paid in full all wages, salaries, commissions, bonuses, benefits and other compensation due to
its employees or otherwise arising under any policy, practice, agreement, plan, program, statute or other law.
(p)
Environmental
Matters
. To the knowledge of PLAZA, there are no legal, administrative, arbitral or other proceedings, claims, actions, causes
of action, private environmental investigations, remediation activities or governmental investigations of any nature seeking to
impose on PLAZA any liability or obligation arising under any Environmental Laws pending or threatened against PLAZA, which liability
or obligation could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on PLAZA. To the
knowledge of PLAZA, there is no reasonable basis for any such proceeding, claim, action, environmental remediation or investigation
that could impose any liability or obligation that could reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on PLAZA. To the knowledge of PLAZA, PLAZA is in compliance in all material respects with applicable Environmental
Laws. To the knowledge of PLAZA, no real property (including buildings or other structures) currently or formerly owned or operated
by PLAZA or any property in which PLAZA has held a security interest, Lien or a fiduciary or management role (“PLAZA Loan
Property”), has been contaminated with, or has had any release of, any Hazardous Substance that has resulted, or could reasonably
be expected to result, in a Material Adverse Effect with respect to PLAZA. PLAZA could not be deemed the owner or operator of,
nor has either participated in the management regarding Hazardous Substances of, any PLAZA Loan Property or any property of PLAZA
which has been contaminated with, or has had any release of, any Hazardous Substance that has resulted, or could reasonably be
expected to result, in a Material Adverse Effect with respect to PLAZA. To the knowledge of PLAZA, PLAZA does not have any liability
for any Hazardous Substance disposal or contamination on any third party property. To the knowledge of PLAZA, neither PLAZA nor
any Person whose liability PLAZA has assumed whether contractually or by operation of law, has received any notice, demand letter,
claim or request for information alleging any material violation of, or material liability under, any Environmental Law. PLAZA
is not subject to any order, decree, injunction or other agreement with any Governmental Authority or any third party relating
to any Environmental Law. To the knowledge of PLAZA, there are no circumstances or conditions (including the presence of asbestos,
underground storage tanks, lead products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or automotive
services) involving PLAZA, any currently or formerly owned or operated property, any PLAZA Loan Property, or, to PLAZA’s
knowledge, any Person whose liability PLAZA has assumed whether contractually or by operation of law, that could reasonably be
expected to result in any material claims, liability or investigations against PLAZA, result in any material restrictions on the
ownership, use, or transfer of any property pursuant to any Environmental Law, or adversely affect the value of any PLAZA Loan
Property or property of PLAZA. PLAZA has made available to BANK true and correct copies of all environmental reports or studies,
sampling data, correspondence and filings in its possession or reasonably available to it relating to PLAZA and any currently or
formerly owned or operated property.
(q)
Tax
Matters
.
Except as set forth
in Schedule 5.2(q) of the Disclosure Schedule:
(i) PLAZA
has timely filed all Tax Returns required to have been filed, taking into account any properly granted extensions of time to file,
with the appropriate taxing authorities, such Tax Returns are true, correct and complete in all material respects and none of such
Tax Returns has been amended.
(ii) All
material Taxes required to be paid or remitted by PLAZA on or before the date hereof have been so paid or remitted, including all
Taxes shown as due and owing on all Tax Returns, all Taxes assessed or reassessed by any Governmental Authority, all Taxes held
in trust or deemed to be held in trust for a Governmental Authority and all installments on account of Taxes for the current year
or, where payment is not yet due, are sufficiently reserved in the PLAZA Financial Statements in accordance with GAAP.
(iii) PLAZA
and its respective officers, directors or any employee responsible for Tax matters have complied in all material respects with
all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes in connection with any amounts
paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(iv) PLAZA
has not waived any statute of limitations in respect of its Taxes or agreed to any extension of time with respect to a Tax assessment
or deficiency.
(v) To
PLAZA’s knowledge, it has not engaged in any transaction that would constitute a “reportable transaction” within
the meaning of Treasury Regulations Section 1.6011-4(b).
(vi) The
unpaid Taxes of PLAZA (A) do not exceed the reserve for Tax liability (excluding any reserve for deferred Taxes established
to reflect temporary difference between book and Tax income) as shown on PLAZA’s balance sheet dated March 31, 2017 and (B) will
not exceed that reserve as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice
of PLAZA in filing its Tax Returns.
(vii) PLAZA
is not currently the beneficiary of any extension of time within which to file any Tax Returns.
(viii) There
are no liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of PLAZA.
(ix) No
Tax actions by any Governmental Authority are pending or being conducted with respect to PLAZA.
(x) PLAZA
has not received from any taxing authority (including jurisdictions in which PLAZA has filed Tax Returns) any (A) notice indicating
an intent to open an audit or other review, (B) request for information related to Tax matters or (C) notice of deficiency
or proposed adjustment for any amount of Tax, proposed, asserted or assessed by any Governmental Authority against PLAZA.
(xi) PLAZA
is not a party to or bound by any tax sharing agreement.
(xii) PLAZA
has never been a member of a group of corporations with which it has filed (or been required to file) consolidated, combined or
unitary Tax Returns.
(xiii) PLAZA
is not currently liable, nor does PLAZA have any potential liability, for the Taxes of another Person (A) under Treasury Regulations
Section 1.1502-6 (or comparable provision of state, local or foreign law), (B) as transferee or successor, or (C) by
contract or indemnity or otherwise.
(xiv) PLAZA
has never been either a “distributing corporation” or a “controlled corporation” in connection with a distribution
of stock qualifying for tax-free treatment, in whole or in part, under Section 355 of the Code.
(xv) PLAZA
has not been nor will be a “United States real property holding corporation” within the meaning of Section 897 of the
Code during the five-year period ending on the Closing Date.
(xvi) PLAZA
will not be required to include any item of income in, or exclude any item of deduction from, taxable income for any taxable period
(or portion thereof) ending after the Closing Date, as a result of any: (A) change in method of accounting for a taxable period
ending on or prior to the Closing Date under Section 481 of the Code or similar state and local Tax law, (B) any “closing
agreement” as described in Section 7121 of the Code or similar state or local Tax law executed on or prior to the Closing
Date, (C) installment sale or open transaction disposition made on or prior to the Closing Date, (D) prepaid amount received
on or prior to the Closing Date, (E) any item having been reported on the completed contract method of accounting or the percentage
of completion method of accounting, or (F) other action taken prior to the Closing Date.
(r)
Risk
Management Instruments
. PLAZA is not a party to, nor has it agreed to enter into, a Derivatives Contract.
(s)
Loans;
Nonperforming and Classified Assets
.
(i) Except
as set forth in Schedule 5.2(s)(i) of the Disclosure Schedule, each Loan on the books and records of PLAZA was made and has been
serviced in all material respects in accordance with its customary lending standards in the ordinary course of business, is evidenced
in all material respects by appropriate and sufficient documentation and, to the knowledge of PLAZA, constitutes the legal, valid
and binding obligation of the obligor named therein, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or affecting creditor’s rights or by general equity principles.
(ii) Schedule
5.2(s)(ii) of the Disclosure Schedule sets forth as of the latest practicable date prior to the date of this Agreement: (A) any
Loan under the terms of which the obligor is 30 or more days delinquent in payment of principal or interest, or to the knowledge
of PLAZA, in default of any other material provision thereof; (B) each Loan which has been classified as “substandard,”
“doubtful,” “loss” or “special mention” (or words of similar import) by PLAZA, or an applicable
regulatory authority; (C) a listing of the OREO acquired by foreclosure or by deed-in-lieu thereof, including the book value
thereof; and (D) each Loan with any director or executive officer of PLAZA or an Affiliate of PLAZA.
(iii) Schedule
5.2(s)(iii) of the Disclosure Schedule sets forth a list and description of all loan participations entered into between PLAZA
and any third party which are reflected on the books and records of PLAZA. A true and complete copy of each document relating to
each loan participation has been made available to BANK, with the exception of loan files for loans guaranteed by the SBA or another
Governmental Authority and sold in the ordinary course of business.
(t)
Properties
.
All real property owned or leased by PLAZA is set forth on Schedule 5.2(t) of the Disclosure Schedule. With respect to such real
property that is owned by PLAZA, PLAZA has good and marketable and insurable title, free and clear of all Liens, leases or other
imperfections of title or survey, except (i) Liens for current Taxes and assessments not yet due and payable and for which
adequate reserves have been established, (ii) Liens set forth in policies for title insurance of such properties delivered
to BANK, (iii) survey imperfections set forth in surveys of such properties delivered to BANK or (iv) as Previously Disclosed.
With respect to such real property that is leased by PLAZA, PLAZA has a good and valid leasehold estate in and to such property.
Except as set forth on Schedule 5.2(t) of the Disclosure Schedule: PLAZA has delivered true, correct and complete copies of such
lease(s), together with all amendments thereto, to BANK; and all such lease(s) are in full force and effect and will not lapse
or terminate prior to the Closing Date. To the knowledge of PLAZA, neither PLAZA nor the respective landlord thereunder, is in
default of any of their respective obligations under any such lease(s) and any such lease(s) constitute the valid and enforceable
obligations of the parties thereto. Other than as set forth on Schedule 5.2(t) of the Disclosure Schedule, the transactions contemplated
hereby will not require the consent of any landlord under any such lease. All real and personal property owned by PLAZA or presently
used by PLAZA in its business is in good condition (ordinary wear and tear excepted) and is sufficient to carry on its business
in the ordinary course of business consistent with its past practices. PLAZA has good and marketable title, free and clear of all
Liens to all of its owned material properties and assets, other than real property, except (i) pledges to secure deposits
and FHLB advances incurred in the ordinary course of its banking business consistent with past practice, (ii) such imperfections
of title and encumbrances, if any, as are not material in character, amount or extent and (iii) as Previously Disclosed. All
personal property which is material to PLAZA’s business and leased or licensed by PLAZA is held pursuant to leases or licenses
which are valid and enforceable in accordance with their respective terms and such leases will not terminate or lapse prior to
the Effective Time.
(u)
Intellectual
Property
. Except as Previously Disclosed, PLAZA owns or possesses valid and binding licenses and other rights to use without
payment of any material amount all material patents, copyrights, trade secrets, trade names, service marks, trademarks and other
intellectual property rights used in its business, free and clear of any material Liens, all of which have been Previously Disclosed
by PLAZA, and PLAZA has not received any notice of conflict or allegation of invalidity with respect thereto or that asserts the
intellectual property rights of others. To the knowledge of PLAZA, the operation of the business of PLAZA does not infringe or
violate the intellectual property of any third party. PLAZA has performed in all material respects all the obligations required
to be performed by it and it is not in default under any contract, agreement, arrangement or commitment relating to any of the
foregoing.
(v)
Fiduciary
Accounts
. PLAZA has properly administered all accounts for which it acts as a fiduciary, including but not limited to accounts
for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance
with the terms of the governing documents and applicable laws, regulations and common laws. To the knowledge of PLAZA, neither
PLAZA, nor any of its directors, officers or employees, has committed any breach of trust with respect to any fiduciary account
and the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
(w)
Books
and Records
. The books, records, systems, data and information of PLAZA (i) have been fully, properly and accurately maintained
in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect in all
material respects all dealings and transactions in respect of PLAZA and (ii) are recorded, stored, maintained and operated
under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under the exclusive
ownership and direct control of PLAZA (including all means of access thereto and therefrom).
(x)
Insurance
.
Schedule 5.2(x) of the Disclosure Schedule sets forth all of the material insurance policies, binders, or bonds currently maintained
by PLAZA. PLAZA is insured with reputable insurers against such risks and in such amounts as the management of PLAZA has reasonably
determined to be prudent in accordance with industry practices; all of the material insurance policies, binders, or bonds currently
maintained by PLAZA are in full force and effect; PLAZA is not in material default thereunder; and all claims thereunder have been
filed in due and timely fashion.
(y)
Allowance
For Loan Losses
. PLAZA’s allowance for loan losses is in compliance with PLAZA’s existing methodology for determining
the adequacy of its allowance for loan losses as well as the standards established by GAAP, the Financial Accounting Standards
Board and applicable bank regulatory agencies and, in the opinion of management of PLAZA, is adequate under all such standards.
(z)
Transactions
With Affiliates
. Except as set forth on Schedule 5.2(z) of the Disclosure Schedule, there are no existing or pending transactions,
nor are there any agreements or understandings, with any shareholders, directors, officers or employees of PLAZA or any Affiliate
of PLAZA, relating to, arising from or affecting PLAZA, including without limitation, any transactions, arrangements or understandings
relating to the purchase or sale of goods or services, the lending of monies or the sale, lease or use of any assets of PLAZA,
with or without adequate compensation, in any amount whatsoever.
(aa)
Material
Facts
. The representations and warranties contained in this Section 5.2, when considered as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained
in this Section 5.2 not misleading.
5.3
Representations
and Warranties of BHC and BANK
. BHC and BANK represent and warrant to PLAZA that, except as Previously Disclosed:
(a)
Organization,
Standing and Authority
. BANK is a bank duly organized and validly existing under the laws of the State of California that is
duly authorized by the DBO to conduct business as a commercial bank. BANK is duly licensed or qualified to do business and is in
good standing in each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires
it to be so licensed or qualified, except where failure to be so licensed or qualified would not materially impair the ability
of BANK to perform its obligations under this Agreement or otherwise materially impede the consummation of the transactions contemplated
hereby. BANK has in effect all federal, state, local and foreign governmental authorizations necessary for it to own or lease its
properties and assets and to carry on its business as it is now conducted, except where the failure to be so authorized would not
materially impair the ability of BANK to perform its obligations under this Agreement or otherwise materially impede the consummation
of the transactions contemplated hereby. The deposit accounts of BANK are insured by the FDIC, in the manner and to the maximum
extent provided by applicable law, and BANK has paid all deposit insurance premiums and assessments required by applicable laws
and regulations. BHC is a corporation duly organized and validly existing under the laws of the State of California and is duly
registered as a bank holding company under the BHCA. BHC is duly licensed or qualified to do business and is in good standing in
each jurisdiction where its ownership or leasing of property or assets or the conduct of its business requires it to be so licensed
or qualified, except where the failure to be so licensed or qualified would not materially impact the ability of BHC to perform
its obligations under this Agreement or otherwise impede the consummation of the transactions contemplated hereby. The copies of
BANK Articles, BHC Articles, BANK Bylaws and BHC Bylaws, and the other governing documents of BANK and BHC which have been previously
made available to PLAZA are true, complete and correct copies of such documents as in effect on the date of this Agreement. The
minute books of BHC and BANK contain true, complete and correct records in all material respects of all meetings and other material
corporate actions held or taken by their respective Boards (including committees of the Board), as well as their respective shareholders
through the date hereof.
(b)
Capital
Structure
.
(i) The
authorized capital stock of BHC consists of (i) 100,000,000 shares of BHC Common Stock, of which 6,859,566 shares are issued
and outstanding, and (ii) 10,000,000 shares of preferred stock, of which no shares are issued and outstanding. BHC does not
have any other shares of capital stock authorized, designated, issued or outstanding.
(ii) Other
than the Bay Commercial Bank 2014 Equity Incentive Plan, neither BANK nor BHC has adopted, sponsored or maintained any stock option
plan or any other plan or agreement providing for equity compensation to any Person.
(iii) Schedule
5.3(b)(iii) of the Disclosure Schedule lists each restricted stock grant and the terms thereof outstanding under the Bay Commercial
Bank 2014 Equity Incentive Plan. Other than such grants, there are no Rights or agreements obligating BHC to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any BHC capital stock or any capital stock
or equity or other ownership interest of BHC or obligating BHC to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such Right. Other than the restricted stock grants, there are no outstanding or authorized stock
option, stock appreciation, phantom stock, profit participation, or other similar rights with respect to BHC.
(iv) There
are no Rights or agreements obligating BHC to issue, deliver, sell, repurchase or redeem, or causing BHC to issue, deliver, sell,
repurchase or redeem, any BHC capital stock or any capital stock or equity or other ownership interest of BHC or obligating BHC
to grant, extend, accelerate the vesting of, change the price of, otherwise amend or enter into any such Right.
(c)
Subsidiaries
.
BHC owns all of the issued and outstanding shares of BANK and does not own, beneficially, directly or indirectly, any other Equity
Securities or similar interests of any Person or any interest in a partnership or joint venture of any kind. BANK does not own,
beneficially, directly or indirectly, any Equity Securities or similar interests of any Person or any interest in a partnership
or joint venture of any kind.
(d)
Corporate
Power
. BHC and BANK have the corporate power and authority to carry on their respective businesses as they are now being conducted
and to own all of their respective properties and assets; BHC and BANK have the corporate power and authority to execute, deliver
and perform their respective obligations under this Agreement and to consummate the transactions contemplated hereby, in each case,
subject to receipt of all necessary approvals of Governmental Authorities.
(e)
Corporate
Authority
.
(i) This
Agreement and the transactions contemplated hereby have been authorized and approved by all necessary corporate action of BHC and
BANK on or prior to the date hereof and will remain in full force and effect through the earlier of the Closing or termination
of this Agreement. No other corporate or shareholder action is necessary or required to authorize and approve this Agreement or
the transactions contemplated hereby. This Agreement has been duly executed and delivered by each of BANK and BHC and, assuming
due authorization, execution and delivery by PLAZA, this Agreement is a valid and legally binding agreement of each of BANK and
BHC, enforceable in accordance with its terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer and similar laws of general applicability relating to or affecting creditors’ rights or by
general equity principles).
(ii) BANK
Board and BHC Board, by unanimous votes thereof, have adopted resolutions (1) determining that this Agreement and the transactions
contemplated herein, including the Merger, are fair to, and in the best interests of, BANK, BHC and their respective shareholders,
and (2) approving this Agreement and the transactions contemplated hereby.
(f)
Regulatory
Approvals
. No consents or approvals of, or waivers by, or filings or registrations with, any Governmental Authority or with
any third party are required to be made or obtained by BANK, BHC or any of their Affiliates in connection with the execution, delivery
or performance by BANK and BHC of this Agreement or to consummate the transactions contemplated hereby, except for (A) filings
of applications or notices with, and approvals or waivers by the DBO, the Federal Reserve Board and the WSFDI, as may be required,
(B) the filing of an application for, and the issuance of, a permit as contemplated by Section 6.14 herein, (C) filings
of applications and notices with certain states and the receipt of all necessary state securities and “Blue Sky” permits
or approvals, and (D) the filing of the agreement of merger with the California Secretary of State and the DBO with respect
to the Merger.
(g)
No
Conflict.
The execution and delivery by each of BANK and BHC of this Agreement and the consummation of the transactions provided
for in this Agreement (i) do not violate any provision of BANK Articles, BHC Articles, BANK Bylaws, BHC Bylaws, any provision
of federal or state law or any governmental rule or regulation (assuming receipt of the required approval of any Governmental Authority
and receipt of the Requisite PLAZA Shareholder Approval) and (ii) except as set forth in Schedule 5.3(g), do not require
any consent of any Person under, conflict with or result in a breach of, or accelerate the performance required by any of the terms
of, any material debt instrument, lease, license, covenant, agreement or understanding to which either BHC or BANK is a party or
by which either is bound, or any order, ruling, decree, judgment, arbitration award or stipulation to which either BHC or BANK,
is subject, or constitute a default thereunder or result in the creation of any Lien, restriction or right of any third party of
any kind whatsoever upon any of the properties or assets of BHC and BANK.
(h)
Financial
Statements; Material Adverse Effect
.
(i) BHC
has previously made available to PLAZA accurate and complete copies of the BHC Financial Statements. The BHC Financial Statements
as of and for the years ended December 31, 2016, 2015 and 2014 are accompanied by the audit report of Vavrinek, Trine, Day
& Co. LLP (for 2016) and Moss Adams LLP (for 2015 and 2014). The BHC Financial Statements fairly present in all material respects,
the financial condition of BHC and BANK as of the respective dates set forth therein, and the results of operations, changes in
shareholders’ equity and cash flows (if applicable) of BHC and BANK for the respective periods or as of the respective dates
set forth therein.
(ii) The
BHC Financial Statements have been, and are being, prepared in accordance with GAAP consistently applied during the periods involved,
except as stated therein.
(iii) Since
December 31, 2016, BHC and BANK have not incurred any liabilities that are required to be reflected on a balance sheet in accordance
with GAAP, except (i) as Previously Disclosed, (ii) liabilities properly accrued or reserved against in the balance sheet of BANK
as of December 31, 2016, (iii) liabilities and obligations incurred since December 31, 2016 in the ordinary course of business
consistent with past practice, (iv) liabilities and obligations that are not material to BHC or BANK, and (v) any liabilities and
obligations incurred with respect to the transactions contemplated by this Agreement.
(iv) Since
December 31, 2016, (A) BHC and BANK have conducted their respective businesses in the ordinary and usual course consistent
with past practice and (B) no event has occurred or circumstance arisen that, individually or taken together with all other
facts, circumstances and events (described in any paragraph of this Section 5.3 or otherwise), has had or is reasonably likely
to have a Material Adverse Effect with respect to BHC and BANK, taken as a whole.
(v) No
agreement pursuant to which any loans or other assets have been or shall be sold by BANK entitled the buyer of such loans or other
assets to cause BANK to repurchase such loan or other asset or the buyer to pursue any other form of recourse against BANK. All
cash, stock or other dividends or any other distribution with respect to the capital stock of BHC that has been declared, set aside
or paid since December 31, 2016 has been Previously Disclosed. Other than the bank holding company reorganization which was
consummated in January 2017, since December 31, 2016, no shares of capital stock of either BHC or BANK have been purchased,
redeemed or otherwise acquired, directly or indirectly, by BHC or BANK and no agreements have been made by BHC or BANK to do any
of the foregoing.
(i)
Legal
Proceedings
. Except as set forth in Schedule 5.3(i) of the Disclosure Schedule, no litigation, arbitration, claim or other
proceeding before any court or governmental agency is pending against BHC or BANK, individually or in the aggregate, that has had
or could reasonably be expected to have a Material Adverse Effect with respect to BHC and BANK, taken as a whole, and, to the knowledge
of BHC and BANK, no such litigation, arbitration, claim or other proceeding has been threatened and there are no facts which could
reasonably give rise to such litigation, arbitration, claim or other proceeding. Neither BHC, BANK, nor any of their respective
properties, is a party to or subject to any order, judgment, decree or regulatory restriction that, individually or in the aggregate,
has had or could reasonably be expected to have a Material Adverse Effect with respect to BHC and BANK, taken as a whole.
(j)
Regulatory
Matters
.
(i) BANK
has duly filed with the appropriate Governmental Authorities in substantially the correct form the monthly, quarterly and annual
reports required to be filed by it under applicable laws and regulations, and such reports were in all material respects complete
and accurate and in compliance with the requirements of applicable laws and regulations, and BANK has made available to PLAZA accurate
and complete copies of all such reports. Except as Previously Disclosed, in connection with the most recent examination of BANK
by the appropriate Governmental Authorities, BANK was not required to correct or change any action, procedure or proceeding which
BANK believes in good faith has not been now corrected or changed, other than corrections or changes which, if not made, either
individually or in the aggregate, would not have a Material Adverse Effect on BANK.
(ii) Neither
BHC, BANK, nor any of their respective properties is a party to or is subject to any order, decree, directive, agreement, memorandum
of understanding or similar arrangement with, or a commitment letter or similar submission to, or extraordinary supervisory letter
from, nor, except in the normal course of business, has either BHC or BANK adopted any policies, procedures or board resolutions
at the request or suggestion of, any Governmental Authority. BANK has paid all assessments made or imposed by any Governmental
Authority.
(iii) Except
as Previously Disclosed, no Governmental Authority has initiated since December 31, 2014 or has pending any proceeding, enforcement
action or, to the knowledge of BANK, investigation or inquiry into the business, operations, policies, practices or disclosures
of BANK (other than normal examinations conducted by a Governmental Authority in the ordinary course of the business of BANK),
or, to the knowledge of BANK, threatened any of the foregoing.
(iv) BANK
is “well-capitalized” as defined in applicable laws and regulations. The most recent regulatory rating given to BANK
as to compliance with the Community Reinvestment Act is “Satisfactory” or better. Since the last regulatory examination
of BANK with respect to Community Reinvestment Act compliance, BANK has not received any complaints as to Community Reinvestment
Act compliance, and no proceedings are pending, nor to the knowledge of BANK, threatened with respect to any violations of consumer
fair lending laws or regulations.
(k)
Compliance
With Laws
. Except as Previously Disclosed, BHC and BANK:
(i) are
and at all times since December 31, 2014 have been in material compliance with all applicable federal, state, local and foreign
statutes, laws, codes, regulations, ordinances, rules, judgments, injunctions, orders, decrees or policies and/or guidelines of
any Governmental Authority applicable thereto or to the employees conducting such businesses, including, without limitation, Sections
23A and 23B of the Federal Reserve Act and regulations pursuant thereto, the Equal Credit Opportunity Act, the Fair Housing Act,
the Community Reinvestment Act, the Home Mortgage Disclosure Act, the Bank Secrecy Act, the USA PATRIOT Act, all other applicable
fair lending laws and other laws relating to discriminatory business practices;
(ii) have
and at all times since December 31, 2014 have had all permits, licenses, franchises, authorizations, orders and approvals
of, and have made all filings, applications and registrations with, all Governmental Authorities (and have paid all fees and assessments
due and payable in connection therewith) that are required in order to permit each of them to own or lease its respective properties
and to conduct its respective business as presently conducted, except where the failure to do so would not have a Material Adverse
Effect on BHC and BANK, taken as a whole; all such permits, licenses, franchises, certificates of authority, orders and approvals
are in full force and effect and, to the knowledge of BHC and BANK, no suspension or cancellation of any of them is pending or
threatened;
(iii) have
received, since December 31, 2014, no notification or communication from any Governmental Authority (A) asserting that
either BHC or BANK is not in compliance with any of the statutes, regulations or ordinances which such Governmental Authority enforces
or (B) threatening to revoke any license, franchise, permit or governmental authorization (nor, to the knowledge of BHC and
BANK, do any grounds for any of the foregoing exist); and
(iv) have
devised and maintain a system of internal accounting controls sufficient to provide reasonable assurances regarding the reliability
of financial reporting and the preparation of its financial statements, have designed disclosure controls and procedures to ensure
that material information is made known to the management of BHC and BANK on no less than a quarterly basis, and have disclosed,
based on its most recent evaluation prior to the date hereof, to their auditors (A) any significant deficiencies in the design
or operation of internal controls which could adversely affect in any material respect their ability to record, process, summarize
and report financial data and have identified for their auditors any material weaknesses in internal controls and (B) any
fraud, whether or not material, that involves management or other employees who have a significant role in its internal controls.
(l)
BANK
Material Contracts; Defaults
.
(i) Except
as Previously Disclosed, neither BHC nor BANK is a party to, bound by or subject to any agreement, contract, arrangement, commitment
or understanding (whether written or oral) (A) with respect to the employment of any of its respective directors, officers,
employees or consultants, (B) which would entitle any present or former director, officer, employee or agent of BHC or BANK
to indemnification from BHC or BANK, (C) which is an agreement (including data processing, software programming, consulting
and licensing contracts) not terminable on 60 days or less notice and involving the payment or value of more than $150,000 per
annum, (D) which is with or to a labor union or guild (including any collective bargaining agreement), (E) which relates
to the incurrence of indebtedness (other than deposit liabilities, advances and loans from the FHLB, and sales of securities subject
to repurchase, or similar obligation, in each case, in the ordinary course of business), (F) which grants any Person a right
of first refusal, right of first offer or similar right with respect to any material properties, rights, assets or business of
BHC or BANK, (G) which involves the purchase or sale of assets with a purchase price of $150,000 or more in any single case
or $300,000 in all such cases, other than purchases and sales of investment securities and loans in the ordinary course of business
consistent with past practice, (H) which is a consulting agreement, license or service contract (including data processing,
software programming and licensing contracts and outsourcing contracts) which involves the payment of $150,000 or more in annual
fees, (I) which provides for the payment by BHC or BANK of payments upon a change of control thereof, (J) which is a
lease for any real or material personal property owned or presently used by BHC or BANK, (K) which materially restricts the
conduct of any business by BANK or limits the freedom of BANK to engage in any line of business in any geographic area (or would
so restrict BANK after consummation of the transactions contemplated hereby) or which requires exclusive referrals of business
or requires BANK to offer specified products or services to their customers or depositors on a priority or exclusive basis, (L) which
is with respect to, or otherwise commits BHC or BANK to do, any of the foregoing, or (M) which is a material contract (as
defined in Item 601(b)(10) of Regulation S-K of the SEC) (all of the foregoing collectively, “BANK Material Contracts”).
(ii) To
the knowledge of BHC and BANK, each BANK Material Contract is valid and binding on BHC or BANK, as applicable, and is in full force
and effect (other than due to the ordinary expiration thereof) and is valid and binding on the other parties thereto. None of BHC,
BANK, or, to the knowledge of BHC or BANK, any other parties thereto, is in material default under any BANK Material Contract and
there has not occurred any event that, with the lapse of time or the giving of notice or both, would constitute such a default.
Except as provided in this Agreement, no power of attorney or similar authorization given directly or indirectly by either BHC
or BANK is currently outstanding.
(iii) All
outstanding Loans from BANK to its officers and directors have been Previously Disclosed, and except as Previously Disclosed, there
has been no default on, or forgiveness or waiver of, in whole or in part, any such Loan during the two years immediately preceding
the date hereof.
(m)
No
Brokers
. Other than for financial advisory services performed for BHC by FIG Partners pursuant to an agreement dated May 16,
2017, as Previously Disclosed, no action has been taken by BHC or BANK that would give rise to any valid claim against any party
hereto for a brokerage commission, finder’s fee or other like payment with respect to the transactions contemplated hereby.
The BHC Board has received the opinion (which, if initially rendered verbally, has been or will be confirmed by a written opinion,
dated the same date) of FIG Partners, to the effect that, as of the date of such opinion, and based upon and subject to the factors,
assumptions, and limitations set forth therein, the Per Share Merger Consideration is fair, from a financial point of view, to
BHC.
(n)
Environmental
Matters
. To the knowledge of BHC and BANK, there are no legal, administrative, arbitral or other proceedings, claims, actions,
causes of action, private environmental investigations, remediation activities or governmental investigations of any nature seeking
to impose on BHC or BANK any liability or obligation arising under any Environmental Laws pending or threatened against BHC or
BANK, which liability or obligation could reasonably be expected to have, individually or in the aggregate, a Material Adverse
Effect on BHC and BANK, taken as a whole. To the knowledge of BHC and BANK, there is no reasonable basis for any such proceeding,
claim, action, environmental remediation or investigation that could impose any liability or obligation that could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on BHC and BANK, taken as a whole. To the knowledge
of BHC and BANK, each of BHC and BANK are in compliance in all material respects with applicable Environmental Laws. To the knowledge
of BHC and BANK, no real property (including buildings or other structures) currently or formerly owned or operated by BHC or BANK,
or any property in which BHC or BANK has held a security interest, Lien or a fiduciary or management role (“BANK Loan Property”),
has been contaminated with, or has had any release of, any Hazardous Substance that has resulted, or could reasonably be expected
to result, in a Material Adverse Effect with respect to BHC and BANK, taken as a whole. Neither BHC nor BANK could be deemed the
owner or operator of, nor has either participated in the management regarding Hazardous Substances of, any BANK Loan Property or
any property of BHC or BANK which has been contaminated with, or has had any release of, any Hazardous Substance that has resulted,
or could reasonably be expected to result, in a Material Adverse Effect with respect to BHC and BANK, taken as a whole. To the
knowledge of BHC and BANK, neither BHC nor BANK has any liability for any Hazardous Substance disposal or contamination on any
third party property. To the knowledge of BHC and BANK, neither BHC, BANK, nor any Person whose liability BHC or BANK has assumed
whether contractually or by operation of law, has received any notice, demand letter, claim or request for information alleging
any material violation of, or material liability under, any Environmental Law. Neither BHC nor BANK is subject to any order, decree,
injunction or other agreement with any Governmental Authority or any third party relating to any Environmental Law. To the knowledge
of BHC and BANK, there are no circumstances or conditions (including the presence of asbestos, underground storage tanks, lead
products, polychlorinated biphenyls, prior manufacturing operations, dry-cleaning, or automotive services) involving BHC, BANK,
any currently or formerly owned or operated property, any BANK Loan Property, or, to BHC’s and BANK’s knowledge, any
Person whose liability BHC or BANK has assumed whether contractually or by operation of law, that could reasonably be expected
to result in any material claims, liability or investigations against BHC or BANK, result in any material restrictions on the ownership,
use, or transfer of any property pursuant to any Environmental Law, or adversely affect the value of any BANK Loan Property or
property of BHC or BANK. Each of BHC and BANK has made available to PLAZA true and correct copies of all environmental reports
or studies, sampling data, correspondence and filings in its possession or reasonably available to it relating to BHC or BANK and
any currently or formerly owned or operated property.
(o)
Tax
Matters
.
(i) Each
of BHC and BANK has timely filed all Tax Returns required to have been filed, taking into account any properly granted extensions
of time to file, with the appropriate taxing authorities, such Tax Returns are true, correct and complete in all material respects
and none of such Tax Returns has been amended.
(ii) All
material Taxes required to be paid or remitted by BHC or BANK on or before the date hereof have been so paid or remitted, including
all Taxes shown as due and owing on all Tax Returns, all Taxes assessed or reassessed by any Governmental Authority, all Taxes
held in trust or deemed to be held in trust for a Governmental Authority and all installments on account of Taxes for the current
year or, where payment is not yet due, are sufficiently reserved in the BHC Financial Statements in accordance with GAAP.
(iii) Each
of BHC and BANK and its respective officers, directors or any employee responsible for Tax matters have complied in all material
respects with all rules and regulations relating to the withholding of Taxes and the remittance of withheld Taxes in connection
with any amounts paid or owing to any employee, independent contractor, creditor, shareholder or other third party.
(iv) Neither
BHC or BANK has waived any statute of limitations in respect of its Taxes or agreed to any extension of time with respect to a
Tax assessment or deficiency.
(v) To
each of BHC’s and BANK’s knowledge, neither has engaged in any transaction that would constitute a “reportable
transaction” within the meaning of Treasury Regulations Section 1.6011-4(b).
(vi) There
are no Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of BHC or BANK.
(vii) No
Tax actions by any Governmental Authority are pending or being conducted with respect to BHC or BANK.
(viii) Neither
BHC or BANK has received from any taxing authority (including jurisdictions in which BHC or BANK has filed Tax Returns) any (A) notice
indicating an intent to open an audit or other review, (B) request for information related to Tax matters or (C) notice
of deficiency or proposed adjustment for any amount of Tax, proposed, asserted or assessed by any Governmental Authority against
BHC or BANK.
(ix) Neither
BHC or BANK is a party to or bound by any tax sharing agreement, except with each other.
(x) Except
for the affiliated group of which BHC is parent, neither BHC nor BANK has ever been a member of a group of corporations with which
it has filed (or been required to file) consolidated, combined or unitary Tax Returns.
(xi) Neither
BHC nor BANK is currently liable, nor does BHC or BANK have any potential liability, for the Taxes of another Person (A) under
Treasury Regulations Section 1.1502-6 (or comparable provision of state, local or foreign law), (B) as transferee or successor,
or (C) by contract or indemnity or otherwise.
(xii) Neither
BHC nor BANK has ever been either a “distributing corporation” or a “controlled corporation” in connection
with a distribution of stock qualifying for tax-free treatment, in whole or in part, under Section 355 of the Code.
(xiii) Neither
BHC nor BANK has been nor will either be a “United States real property holding corporation” within the meaning of
Section 897 of the Code during the five-year period ending on the Closing Date.
(p)
Loans;
Nonperforming and Classified Assets
.
(i) Except
as Previously Disclosed, each Loan on the books and records of BANK was made and has been serviced in all material respects in
accordance with its customary lending standards in the ordinary course of business, is evidenced in all material respects by appropriate
and sufficient documentation and, to the knowledge of BANK, constitutes the legal, valid and binding obligation of the obligor
named therein, subject to bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and similar laws of general applicability
relating to or affecting creditor’s rights or by general equity principles.
(ii) BANK
has Previously Disclosed as of the latest practicable date prior to the date of this Agreement: (A) any Loan under the terms
of which the obligor is 90 or more days delinquent in payment of principal or interest, or to the knowledge of BANK, in default
of any other material provision thereof; (B) each Loan which has been classified as “substandard,” “doubtful,”
“loss” or “special mention” (or words of similar import) by BANK, or an applicable regulatory authority;
(C) a listing of the OREO acquired by foreclosure or by deed-in-lieu thereof, including the book value thereof; and (D) each
Loan with any director or executive officer of BANK or an Affiliate of BANK.
(iii) BANK
has Previously Disclosed a list and description of all loan participations entered into between BANK and any third party which
are reflected on the books and records of BANK. A true and complete copy of each document relating to each loan participation has
been made available to PLAZA, with the exception of loan files for loans guaranteed by the SBA or another Governmental Authority
and sold in the ordinary course of business.
(q)
Properties
.
All real property owned or leased by BHC or BANK has been Previously Disclosed. With respect to such real property that is owned
by BHC or BANK, BHC or BANK has good and marketable and insurable title, free and clear of all Liens, leases or other imperfections
of title or survey, except (i) Liens for current taxes and assessments not yet due and payable and for which adequate reserves
have been established, (ii) Liens set forth in policies for title insurance of such properties delivered to PLAZA, (iii) survey
imperfections set forth in surveys of such properties delivered to PLAZA or (iv) as Previously Disclosed. With respect to
such real property that is leased by BHC or BANK, BHC or BANK has a good and valid leasehold estate in and to such property. Except
as Previously Disclosed, BHC and BANK have delivered true, correct and complete copies of such lease(s), together with all amendments
thereto, to PLAZA; and any such lease is in full force and effect and will not lapse or terminate prior to the Closing Date. To
the knowledge of BHC and BANK, neither BHC, BANK nor the landlord thereunder is in default of any of their respective obligations
under any such lease and any such lease constitutes the valid and enforceable obligations of the parties thereto. Other than as
set forth on Schedule 5.3(q) of the Disclosure Schedule, the transactions contemplated hereby will not require the consent of any
landlord under any such lease. All real and personal property owned by BHC and BANK or presently used by BHC and BANK in their
respective businesses is in good condition (ordinary wear and tear excepted) and is sufficient to carry on its business in the
ordinary course of business consistent with its past practices. BHC and BANK have good and marketable title, free and clear of
all Liens to all of their owned material properties and assets, other than real property, except (i) pledges to secure deposits
and FHLB advances incurred in the ordinary course of BANK’s banking business consistent with past practice, (ii) such
imperfections of title and encumbrances, if any, as are not material in character, amount or extent and (iii) as Previously
Disclosed. All personal property which is material to BHC’s and BANK’s businesses and leased or licensed by either
BHC or BANK is held pursuant to leases or licenses which are valid and enforceable in accordance with their respective terms and
such leases will not terminate or lapse prior to the Effective Time.
(r)
Intellectual
Property
. Except as Previously Disclosed, each of BHC and BANK owns or possesses valid and binding licenses and other rights
to use all material patents, copyrights, trade secrets, trade names, service marks, trademarks and other intellectual property
rights used in its business, free and clear of any material Liens. Neither BHC nor BANK has received any notice of conflict or
allegation of invalidity with respect thereto or that asserts the intellectual property rights of others. To the knowledge of BHC
and BANK, the operation of the businesses of BHC and BANK do not infringe or violate the intellectual property of any third party.
Each of BHC and BANK has performed in all material respects all the obligations required to be performed by it and is not in default
under any contract, agreement, arrangement or commitment relating to any of the foregoing.
(s)
Fiduciary
Accounts
. BANK has properly administered all accounts for which it acts as a fiduciary, including but not limited to accounts
for which it serves as a trustee, agent, custodian, personal representative, guardian, conservator or investment advisor, in accordance
with the terms of the governing documents and applicable laws, regulations and common laws. To the knowledge of BHC and BANK, neither
BANK nor any of its directors, officers or employees, has committed any breach of trust with respect to any fiduciary account and
the records for each such fiduciary account are true and correct and accurately reflect the assets of such fiduciary account.
(t)
Books
and Records
. The books, records, systems, data and information of BHC and BANK (i) have been fully, properly and accurately
maintained in material compliance with applicable legal and accounting requirements, and such books and records accurately reflect
in all material respects all dealings and transactions in respect of BHC and BANK and (ii) are recorded, stored, maintained
and operated under means (including any electronic, mechanical or photographic process, whether computerized or not) that are under
the exclusive ownership and direct control of BHC and BANK (including all means of access thereto and therefrom).
(u)
Allowance
For Loan Losses
. BANK’s allowance for loan losses is in compliance with BANK’s existing methodology for determining
the adequacy of its allowance for loan losses as well as the standards established by GAAP, the Financial Accounting Standards
Board and applicable bank regulatory agencies and, in the opinion of management of BANK, is adequate under all such standards.
(v)
Transactions
with Affiliates
. Except as Previously Disclosed, there are no existing or pending transactions, nor are there any agreements
or understandings, with any shareholders, directors, officers or employees of BHC and BANK or any Affiliate of BHC and BANK, relating
to, arising from or affecting BHC and BANK, including without limitation, any transactions, arrangements or understandings relating
to the purchase or sale of goods or services, the lending of monies or the sale, lease or use of any assets of BHC and BANK, with
or without adequate compensation, in any amount whatsoever.
(w)
Material
Facts
. The representations and warranties contained in this Section 5.3, when considered as a whole, do not contain any untrue
statement of a material fact or omit to state any material fact necessary in order to make the statements and information contained
in this Section 5.3 not misleading
ARTICLE VI
COVENANTS
6.1
Reasonable
Best Efforts
. Subject to the terms and conditions of this Agreement, PLAZA, on the one hand, and BANK and BHC, on the other
hand, agree to use their commercially reasonable best efforts in good faith, to take, or cause to be taken, all actions, and to
do, or cause to be done, all things necessary, proper or desirable, or advisable under applicable laws, so as to permit consummation
of the transactions contemplated hereby as promptly as practicable and otherwise to enable consummation of the transactions contemplated
hereby, including the satisfaction of the conditions set forth in Article VII hereof, and shall cooperate fully with the other
parties hereto to that end.
6.2
Regulatory
Filings
.
(a) Subject
to the other provisions of this Agreement, BANK, BHC and PLAZA shall cooperate and use their respective commercially reasonable
best efforts to prepare all documentation, to effect all filings and to obtain all permits, consents, approvals and authorizations
of all third parties and Governmental Authorities necessary to consummate the transactions contemplated hereby; and BANK and BHC
shall use their commercially reasonable best efforts to make any necessary initial filings with Governmental Authorities, within
thirty (30) days following the execution hereof.
(b) Each
party agrees, upon request, to furnish the other parties with all information concerning itself and its directors, officers and
shareholders and such other matters as may be reasonably necessary or advisable in connection with any filing, notice or application
made by or on behalf of such other parties or any of their respective Subsidiaries (if applicable) to any third party or Governmental
Authority.
(c) Each
party shall have the right to review in advance, and, to the extent practicable, each will consult the other on, in each case subject
to applicable laws relating to the confidentiality of information, all the information relating to BHC, BANK or PLAZA, as the case
may be, and any of their respective Subsidiaries, that appear in any filing made with, or written materials submitted to, any Governmental
Authority in connection with the transactions contemplated by this Agreement. In exercising the foregoing right, each of the parties
shall act reasonably and as promptly as practicable. The parties shall consult with each other with respect to the obtaining of
all permits, consents, approvals and authorizations of all Governmental Authorities necessary or advisable to consummate the transactions
contemplated by this Agreement and each party will keep the other apprised of the status of matters relating to completion of the
transactions contemplated by this Agreement.
(d) Each
party shall promptly advise the other parties upon receiving any communication from any Governmental Authority the consent or approval
of which is required for consummation of the transactions contemplated by this Agreement that causes such party to believe that
there is a reasonable likelihood that any approval will not be obtained or that the receipt of any such approval may be materially
delayed.
6.3
Press
Releases
. BANK, BHC and PLAZA shall consult with each other before issuing any press release with respect to the transactions
contemplated hereby or this Agreement and shall not issue any such press release or make any such public statements without the
prior consent of the other parties, which shall not be unreasonably withheld or delayed; provided, however, that a party may, without
the prior consent of the other parties (but after such consultation, to the extent practicable under the circumstances), issue
such press release or make such public statements as may upon the advice of outside counsel be required by law or the rules or
regulations of the securities exchange on which it trades, to the extent applicable.
6.4
Access;
Information
(a) Upon
reasonable notice from BANK and subject to applicable laws relating to the exchange of information, PLAZA shall afford BANK and
its officers, employees, counsel, accountants and other authorized representatives such access during normal business hours throughout
the period prior to the Effective Time to the books, records (including, without limitation, Tax Returns and work papers of independent
auditors), properties, personnel and advisors of PLAZA and to such other information relating to PLAZA as BANK may reasonably request
and, during such period, it shall furnish to BANK all information concerning the business, properties and personnel of PLAZA as
BANK may reasonably request. Upon reasonable notice from PLAZA and subject to applicable laws relating to the exchange of information,
BHC and BANK shall afford PLAZA and its officers, employees, counsel, accountants and other authorized representatives such access
during normal business hours throughout the period prior to the Effective Time to the books, records (including, without limitation,
Tax Returns and work papers of independent auditors), properties, personnel and advisors of BHC and BANK and to such other information
relating to BHC and BANK as PLAZA may reasonably request and, during such period, it shall furnish to PLAZA all information concerning
the business, properties and personnel of BHC and BANK as PLAZA may reasonably request.
(b) PLAZA
shall cooperate, and use its commercially reasonable best efforts to cause its independent auditor to cooperate, at PLAZA’s
expense, with BHC and BANK and their independent auditor in order to enable BHC and BANK and their Affiliates to prepare financial
statements, including, without limitation, pro forma financial information, for PLAZA that may be required by BANK and BHC in connection
with the filing of regulatory applications with Governmental Authorities or otherwise required in connection with the transactions
contemplated by this Agreement. Without limiting the generality of the foregoing, PLAZA agrees that it will execute and deliver,
and cause its officers to execute and deliver (including former officers of PLAZA after the Closing,) such “representation”
letters as are customarily delivered in connection with audits and as the independent auditors of PLAZA, or BHC and BANK may respectively
reasonably request under the circumstances.
(c) All
information furnished pursuant to this Section 6.4 shall be subject to the provisions of the confidentiality agreement, dated as
of May 4, 2017 between BANK, BHC and PLAZA (the “Confidentiality Agreement”).
(d) No
investigation by any of the parties or their respective representatives shall affect the representations, warranties, covenants
or agreements of the other parties set forth herein.
6.5
No
Solicitation
(a) PLAZA
shall not, and shall not permit or authorize any of its Subsidiaries, Affiliates, directors, officers, employees, agents and representatives
(including without limitation any investment banker, financial advisor, attorney, accountant or other representatives retained
by PLAZA) (all of the foregoing, collectively “Representatives”), directly or indirectly, to (i) solicit, initiate,
encourage or knowingly facilitate any inquiry, proposal or offer with respect to, any Acquisition Proposal, or any inquiry, proposal
or offer that is reasonably likely to lead to any Acquisition Proposal, or (ii) enter into, continue or otherwise participate in
any discussions or negotiations regarding, or furnish to any Person any information or data with respect to, or otherwise cooperate
in any way with, any Acquisition Proposal.
PLAZA shall, (A) immediately
cease and cause to be terminated all existing discussions or negotiations with any Person conducted heretofore with respect to
any Acquisition Proposal, and (B) not terminate, waive, amend, release or modify any provision of any confidentiality or standstill
agreement to which it or any of its Affiliates or Representatives is a party with respect to any Acquisition Proposal, and shall
enforce the provisions of any such agreement.
Notwithstanding the foregoing,
if at any time following the date of this Agreement and prior to obtaining the Requisite PLAZA Shareholder Approval, (1) PLAZA
receives a written Acquisition Proposal that the PLAZA Board believes in good faith to be bona fide, (2) such Acquisition Proposal
was unsolicited and did not otherwise result from a breach of this Section 6.5(a), (3) the PLAZA Board determines in good faith
that such Acquisition Proposal constitutes or is more likely than not to result in a Superior Proposal and (4) the PLAZA Board
determines in good faith (and based on the advice of outside counsel) that the failure to take the actions referred to in clause
(x) or (y) below would reasonably likely constitute a breach of its fiduciary duties to the shareholders of PLAZA under applicable
law, then PLAZA may (x) furnish information with respect to PLAZA to the Person making such Acquisition Proposal pursuant to a
customary confidentiality agreement containing terms substantially similar to, and no less favorable to PLAZA than, those set forth
in the Confidentiality Agreement; provided, that any non-public information provided to any Person given such access shall have
been previously provided to BHC and BANK or shall be provided to BHC and BANK prior to or concurrently with the time it is provided
to such Person and (y) participate in discussions or negotiations with the Person making such Acquisition Proposal regarding such
Acquisition Proposal; provided that prior to providing any nonpublic information permitted to be provided pursuant to the foregoing
provisos or engaging in any discussions or negotiations, PLAZA shall have entered into a confidentiality agreement with such third
party on terms no less favorable to PLAZA than the Confidentiality Agreement.
(b) Neither
the PLAZA Board nor any committee of the PLAZA Board shall: (i) effectuate an Adverse Recommendation Change; or (ii) cause or permit
PLAZA to enter into an Alternate Acquisition Agreement.
Notwithstanding the foregoing,
in the event PLAZA receives or negotiates (to the extent permitted by Section 6.5(a)) an unsolicited bona fide Acquisition Proposal
that the PLAZA Board concludes in good faith constitutes a Superior Proposal PLAZA may take any of the actions set forth above,
but only after: (A) PLAZA promptly notifies BHC and BANK in writing at least five (5) Business Days before taking that action of
its intention to do so, and specifying the reasons therefor, including the terms and conditions of, and the identity of any Person
making, such Superior Proposal, and contemporaneously furnishing a copy of the Superior Proposal or relevant Alternative Acquisition
Agreement and any other relevant transaction documents (it being understood and agreed that any amendment to the financial terms
or any amendment to any other material term of such Superior Proposal shall require a new written notice by PLAZA and a new five
(5) Business Day period) and (B) prior to the expiration of such five (5) Business Day period, BHC and BANK do not make a proposal
to adjust the terms and conditions of this Agreement that the PLAZA Board determines in good faith (after consultation with outside
counsel and its financial advisor) after giving effect to, among other things, the payment of the Termination Fee set forth in
Section 8.2(a)(ii)
,
that such action is no longer required by its fiduciary duties to the shareholders of PLAZA under
applicable law.
During the five (5) Business
Day period prior to its effecting any action referred to above, PLAZA shall, and shall cause its financial and legal advisors to,
negotiate with BHC and BANK in good faith (to the extent BHC and BANK seek to negotiate) regarding any revisions to the terms of
the transactions contemplated by this Agreement proposed by BHC and BANK.
(c) In
addition to the obligations of PLAZA set forth above in this Section 6.5, PLAZA shall promptly, and in any event within 24 hours
of receipt, advise BHC and BANK in writing in the event PLAZA or any of its Representatives receives (i) any Acquisition Proposal
or indication by any Person that it is considering making an Acquisition Proposal, (ii) any request for information, discussion
or negotiation that is reasonably likely to lead to or that contemplates an Acquisition Proposal or (iii) any inquiry, proposal
or offer that is reasonably likely to lead to an Acquisition Proposal, in each case together with the terms and conditions of such
Acquisition Proposal (to the extent such terms and conditions are known to PLAZA), request, inquiry, proposal or offer and the
identity of the Person making any such Acquisition Proposal, request, inquiry, proposal or offer, and shall furnish BHC and BANK
with a copy of such Acquisition Proposal (or, where such Acquisition Proposal is not in writing, with a description of the material
terms and conditions thereof). PLAZA shall keep BHC and BANK informed (orally and in writing) in all material respects on a timely
basis of the status and details (including, within 24 hours after the occurrence of any amendment, modification, discussion or
negotiation of any such Acquisition Proposal, request, inquiry, proposal or offer, including furnishing copies of any written inquiries,
correspondence and draft documentation, and written summaries of any material oral inquiries or discussions. Without limiting any
of the foregoing, PLAZA shall promptly (and in any event within 24 hours) notify BHC and BANK orally and in writing if it determines
to begin providing information or to engage in discussions or negotiations concerning an Acquisition Proposal pursuant to this
Section 6.5 and shall in no event begin providing such information or engaging in such discussions or negotiations prior to providing
such notice.
(d) PLAZA
agrees that any violation of the restrictions set forth in this Section 6.5 by any Representative of PLAZA, whether or not such
Person is purporting to act on behalf of PLAZA, shall be deemed to be a material breach of this Agreement by PLAZA.
(e) PLAZA
shall not prior to the termination of this Agreement, take any action to exempt any Person (other than BANK, BHC and their respective
Affiliates) from the restrictions on “business combinations” or any similar provision contained in any Antitakeover
Law or otherwise cause such restrictions not to apply, or agree to do any of the foregoing.
(f) PLAZA
agrees that, prior to the termination of this Agreement, it shall not submit to the vote of its shareholders any Acquisition Proposal
(whether or not a Superior Proposal) or propose to do so.
6.6
PLAZA
Shareholder Recommendation
.
Unless the PLAZA Board
makes an Adverse Change in Recommendation in compliance with Section 6.5(b) or PLAZA terminates this Agreement pursuant to Section
8.1(j) to enter into Alternative Acquisition Agreement with respect to a Superior Proposal after complying with its obligations
in Section 6.5(b), PLAZA, through the PLAZA Board, shall (i) recommend to the PLAZA shareholders that they approve this Agreement
(ii) include such recommendation in the Proxy Statement-Offering Circular and (iii) publicly reaffirm such recommendation within
24 hours after a request to do so by BHC and BANK. Without limiting the generality of the foregoing, unless PLAZA terminates this
Agreement pursuant to Section 8.1(j), PLAZA agrees that its obligations to convene and hold the PLAZA Shareholders Meeting as soon
as practicable under Section 6.7(b) shall not be affected by the commencement, public proposal, public disclosure or communication
to PLAZA or any other Person of any Acquisition Proposal. In any case in which the PLAZA Board submits this Agreement to its shareholders
after an Adverse Change in Recommendation the Proxy Statement-Offering Circular and any and all accompanying materials (including
the proxy card, (the “Proxy Materials”)) shall be identical in form and content to Proxy Materials that would have
been prepared by PLAZA had no Adverse Recommendation Change occurred, except for appropriate changes to the disclosure in the Proxy
Statement-Offering Circular stating that such Adverse Recommendation Change has been made and, if applicable, describing matters
relating to the Superior Proposal or other event giving rise to the Adverse Recommendation Change to the extent required by applicable
law.
6.7
Requisite
PLAZA Shareholder Approval
.
(a)
Proxy
Statement-Offering Circular
. For the purposes of holding the PLAZA Shareholders Meeting, BHC shall draft and prepare, and PLAZA
shall cooperate in the preparation of a proxy statement and offering circular satisfying all applicable requirements of applicable
state and federal securities laws, and the rules and regulations thereunder (such proxy statement-offering circular in the form
mailed to the shareholders of PLAZA, together with any and all amendments or supplements thereto, being herein referred to as the
“Proxy Statement-Offering Circular”). BHC shall file a draft of the Proxy Statement-Offering Circular, with the DBO
in connection with the permit application as described in Section 6.14. BHC shall use its best efforts to have the Proxy Statement-Offering
Circular approved by the DBO as promptly as practicable after such filing, and following receipt of the DBO Permit, PLAZA shall
thereafter promptly mail the Proxy Statement-Offering Circular to PLAZA’s shareholders. BHC shall also use its commercially
reasonable efforts to obtain all necessary state securities law or “Blue Sky” permits and approvals required to carry
out the transactions contemplated by this Agreement, and PLAZA shall furnish all information concerning PLAZA, and the holders
of PLAZA Common Stock, as may be reasonably requested in connection with any such action. PLAZA shall provide BHC with any information
concerning itself that BHC may reasonably request in connection with the drafting and preparation of the Proxy Statement-Offering
Circular, and BHC shall notify PLAZA promptly of the receipt of any comments of the DBO or any blue sky administrator with respect
to the Proxy Statement-Offering Circular and of any requests by the DBO or any blue sky administrator for any amendment or supplement
thereto or for additional information and shall promptly provide to PLAZA copies of all correspondence between BHC, BANK or any
of their representatives and the DBO. BHC shall give PLAZA and its counsel the opportunity to review and comment on the Proxy Statement-Offering
Circular prior to its being filed with the DBO and shall give PLAZA and its counsel the opportunity to review and comment on all
amendments and supplements to the Proxy Statement-Offering Circular and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the DBO. Each of BHC and PLAZA agrees to use reasonable efforts,
after consultation with the other party hereto, to respond promptly to all such comments of and requests by the DBO and to cause
the Proxy Statement-Offering Circular and all required amendments and supplements thereto to be mailed to the holders of PLAZA
Common Stock entitled to vote at the PLAZA Shareholders Meeting at the earliest practicable time. PLAZA and BHC shall promptly
notify the other party if at any time it becomes aware that the Proxy Statement-Offering Circular contains any untrue statement
of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements contained
therein, in light of the circumstances under which they were made, not misleading. In such event, PLAZA shall cooperate with BHC
in the preparation of a supplement or amendment to such Proxy Statement-Offering Circular that corrects such misstatement or omission,
and BHC shall file an amended Proxy Statement-Offering Circular with the DBO, as required, and shall mail such supplement or amendment
to holders of PLAZA Common Stock entitled to vote at the PLAZA Shareholders Meeting, at the earliest practicable time.
(b)
Shareholders’
Meeting and Approval
. PLAZA will as promptly as practicable after the receipt of the DBO Permit, take all steps necessary to
give notice of, convene and hold a meeting of its shareholders of PLAZA (the “PLAZA Shareholders Meeting”), for the
purpose of considering this Agreement, and for such other purposes as may be, in PLAZA’s reasonable judgment, necessary or
desirable. Notwithstanding anything to the contrary contained in this Agreement, PLAZA shall not be required to hold the PLAZA
Shareholders Meeting if this Agreement is terminated pursuant to Section 8.1 prior to the scheduled time of the PLAZA Shareholders
Meeting.
6.8
PLAZA
Minority Status
. BHC and BANK acknowledge that PLAZA is a minority institution and agree that following the Effective Time,
BANK shall continue to service PLAZA’s community.
6.9
Notification
of Certain Matters
. PLAZA shall give prompt notice to BHC and BANK, and BHC and BANK shall give prompt notice to PLAZA of any
fact, event or circumstance known to it that (i) is reasonably likely, individually or taken together with all other facts,
events and circumstances known to such party, to result in any Material Adverse Effect with respect to such party, (ii) would
cause or constitute a material breach of any of its representations, warranties, covenants or agreements contained herein, or (iii) lead
to litigation or regulatory action that would delay or prevent the consummation of the transactions contemplated by this Agreement.
6.10
Estoppel
Letters and Consents
. PLAZA shall use commercially reasonable efforts to obtain and deliver to BHC at the Closing with respect
to all real estate (i) owned by PLAZA, an estoppel letter dated as of the Closing Date in a form reasonably acceptable to
BHC from each tenant and (ii) leased by PLAZA, an estoppel letter dated as of the Closing Date in a form reasonably acceptable
to BHC from each lessor to the extent required by the applicable lease. PLAZA shall also use commercially reasonable efforts to
obtain the waiver, approval and/or consents to assignment for all PLAZA Material Contracts so identified as requiring consent on
the Disclosure Schedule (the “Consents”). Where required by law or by agreements with third parties, PLAZA shall use
commercially reasonable best efforts to obtain from third parties, prior to the Closing Date, all other consents to the transactions
contemplated by this Agreement.
6.11
Antitakeover
Statutes
. Each of BANK, BHC and PLAZA and their respective boards of directors shall, if any Antitakeover Law or similar statute
becomes applicable to this Agreement and the transactions contemplated hereby, take all action reasonably necessary to ensure that
the transactions contemplated hereby may be consummated as promptly as practicable on the terms contemplated hereby and otherwise
to minimize the effect of Antitakeover Law or similar statute on this Agreement and the transactions contemplated hereby.
6.12
Notice
to PLAZA Customers
. On and after the receipt of all Regulatory Approvals and shareholder approvals required to consummate the
transactions contemplated hereby, PLAZA shall permit BANK to provide one or more written notices (which may be joint notices from
PLAZA and BANK) to customers of PLAZA to describe the proposed transactions, the effect on customers and planned transition procedures.
PLAZA shall have the right to review and approve the substance of any such communications, provided that PLAZA shall not unreasonably
withhold, delay or condition its approval.
6.13
Indemnification;
Directors and Officers Insurance
.
(a) From
and after the Effective Time, BANK and BHC shall indemnify and hold harmless, to the fullest extent permitted under applicable
law and the PLAZA Articles, the PLAZA Bylaws (and shall also advance expenses as incurred to the fullest extent permitted under
applicable law and the PLAZA Articles and the PLAZA Bylaws), each present and former director and officer of PLAZA (in each case,
when acting in such capacity) and any other Person entitled to indemnification under the PLAZA Bylaws, determined as of the Effective
Time (collectively, the “Indemnified Parties”) against any costs or expenses (including reasonable attorneys’
fees), judgments, fines, losses, claims, damages or liabilities incurred in connection with any claim, action, suit, proceeding
or investigation, whether civil, criminal, administrative or investigative, arising out of matters existing or occurring at or
prior to the Effective Time, including the transactions contemplated by this Agreement; provided that the Indemnified Party to
whom expenses are advanced provides an undertaking to repay such advances if it is ultimately determined that such Indemnified
Party is not entitled to indemnification by BANK or BHC.
(b) Any
Indemnified Party wishing to claim indemnification under Section 6.13(a), upon learning of any claim, action, suit, proceeding
or investigation described above, will promptly notify BANK and BHC, but the failure to so notify shall not relieve indemnification
obligations which BANK or BHC may have to such Indemnified Party;
provided
that failure to so notify will not affect the
obligations of BANK and BHC under Section 6.13(a) unless and to the extent that BANK or BHC is actually and materially prejudiced
as a consequence.
(c) Prior
to the Effective Time, PLAZA shall, or if PLAZA is unable to, BANK or BHC as of the Effective Time shall, obtain at the cost and
expense of BHC as set forth on Schedule 3.1(a) of the Disclosure Schedules, “tail” insurance (providing only for the
Side A coverage for Indemnified Parties where the existing policies also include Side B coverage for PLAZA) with a claims period
of six (6) years from and after the Effective Time with respect to directors’ and officers’ liability insurance
and fiduciary liability insurance (collectively, “D&O Insurance”) with benefits and levels of coverage at least
as favorable to the Indemnified Parties as PLAZA’s existing policies with respect to matters existing or occurring at or
prior to the Effective Time (including in connection with this Agreement or the transactions or actions contemplated hereby);
provided,
however
, that in no event shall PLAZA expend for “tail” insurance policies a premium amount in excess of 200% of
the annual premiums on PLAZA’s existing policies as of the date of this Agreement (the “Maximum Amount”);
provided
,
further
, that if the annual premiums of such insurance coverage exceed such amount, PLAZA, BANK or BHC shall obtain a policy
with the greatest coverage available for a cost not exceeding such amount.
(d) The
provisions of this Section 6.13 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party as if
he or she was a party to this Agreement, and shall be binding upon the assigns and successors of BHC and BANK.
6.14
California
Permit
.
(a) Preparation
and Filing of Permit Application. BANK, BHC and PLAZA contemplate that all shares of BHC Common Stock exchanged for shares of PLAZA
Common Stock in the Merger shall be exempt from the Securities Act under the provisions of Section 3(a)(10) of such act. BHC shall
promptly prepare and file an appropriate application with the Commissioner for a permit to issue and exchange securities as described
in Section 25142 of the CGCL and as will be in compliance with the California Corporate Securities Law of 1968 (the “DBO
Permit”). The DBO Permit shall approve the issuance of a sufficient number of shares of BHC Common Stock to complete the
exchange of shares of PLAZA Common Stock for shares of BHC Common Stock pursuant to Article III of this Agreement. BANK, BHC and
PLAZA shall cooperate in all reasonable respects with regard to the preparation of the related Proxy Statement-Offering Circular
in preliminary form so it can be filed with the Commissioner for purposes of a permit application under Section 25142 of the CGCL.
The Proxy Statement-Offering Circular shall constitute a disclosure document for the offer and issuance of the shares of BHC Common
Stock to be received by holders of PLAZA Common Stock in the Merger and, a proxy statement with respect to the solicitation of
the shareholders of PLAZA with respect to approval of this Agreement and the transactions contemplated hereby (including the Merger),
and shall include (i) a statement to the effect that the PLAZA Board has unanimously recommended that holders of PLAZA Common Stock
vote in favor of the approval of this Agreement and the transactions contemplated hereby (including the Merger), and (ii) such
other information as PLAZA and BHC may agree is required or advisable to be included therein. BHC and PLAZA shall each provide
promptly to the other such information concerning its business and financial condition and affairs as may be required or appropriate
for inclusion in the permit application or in the Proxy Statement-Offering Circular (or other proxy or solicitation materials),
and shall cause its legal counsel, financial advisors and independent auditors to cooperate with the other party’s legal
counsel, financial advisors and independent auditors in the preparation of the permit application and the Proxy Statement-Offering
Circular (and any other proxy or solicitation materials).
(b) Issuance
of Permit. BANK, BHC and PLAZA shall use their best efforts to have the DBO Permit (and any necessary or appropriate amendments
or supplements thereto) issued by the Commissioner under the California Corporate Securities Law of 1968 as soon as practicable.
6.15
Benefit
Plans
.
(a)
Termination
of PLAZA Benefit Plans
. At the Effective Time, PLAZA shall terminate, (i) any and all 401(k) Plans PLAZA maintains, (b) any
stock option agreements that have not been previously exercised or cashed out pursuant to Section 3.2, and (c) any other PLAZA
Benefit Plans that BANK may specify; provided, however that BANK must give prior advance written notice of any such request for
termination at least thirty (30) days prior to the Closing Date. Prior to the Effective Time, PLAZA shall take all action necessary
to fully vest participants in their account balances under any and all 401(k) Plans PLAZA maintains.
(b)
Participation
in BANK Benefit Plans
. As of and following the Effective Time, the employees of PLAZA as of the Effective Time who continue
to be employed by BANK after the Effective Time (collectively, the “Former PLAZA Employees”) shall be eligible to participate
in BANK benefit plans in which the similarly situated employees of BANK participate, to the same extent as such similarly situated
employees of BANK participate. With respect to each BANK benefit plan, BANK agrees that for purposes of determining eligibility
to participate, vesting and benefits (other than benefit accruals under any defined benefit pension plan), service with PLAZA shall
be treated as service with BANK; provided, however, that such service shall not be recognized to the extent that such recognition
would result in a duplication of benefits. To the extent permitted by any insurer of a BANK benefit plan, BANK shall cause such
BANK benefit plan to waive: (i) any pre-existing condition restriction that did not apply under the terms of any analogous PLAZA
Benefit Plan immediately prior to the Effective Time; and (ii) any waiting period limitation or evidence of insurability requirement
which would otherwise be applicable to a Former PLAZA Employee on or after the Effective Time to the extent such Former PLAZA Employee
had satisfied any similar limitation or requirement under an analogous PLAZA Benefit Plan prior to the Effective Time for purposes
of applying deductibles, co-payments and out-of-pocket maximums as though such amounts had been paid in accordance with the terms
and conditions of the BHC Benefit Plan.
(c)
Severance
Program
. Other than as set forth on Schedule 6.15(c) of the Disclosure Schedule, any former employee of PLAZA (excluding any
such employee who is party to an employment agreement, change-in-control agreement or retention bonus agreement which provides
for severance payments) whose employment is terminated (other than for cause, which is defined as willful breach of, habitual neglect
of, willful failure to perform, or inability to perform, employee’s duties and obligations to PLAZA or BANK or employee’s
fraud, gross incompetency, personal dishonesty involving PLAZA’s or BANK’s assets or willful misconduct of employee’s
duties) at the request of BANK (but by and in the sole discretion of PLAZA) prior to the Effective Time, or is terminated by BANK
within twelve (12) months following the Closing Date, shall be entitled to receive severance payments in an amount equal to two
(2) weeks base pay for each full year of service based upon the employee’s date of hire by PLAZA (plus a prorated amount
for each partial year of service, such service determined by taking into account service with PLAZA and BANK, with a minimum of
four (4) weeks of base pay; provided, however, that for purposes of this Section 6.15 an employee shall also be considered
to be terminated by BANK if such individual resigns after (i) any reduction in base salary or incentive compensation from that
paid or made available immediately prior to the Closing Date or (ii) being required to be based at any office or location more
than forty miles from where the individual was based on the date immediately preceding the Closing Date, except for travel reasonably
required in the performance of responsibilities and commensurate with the amount of travel required prior to the Closing Date.
6.16
Certain
Policies
.
Prior to the Closing Date,
PLAZA shall, consistent with GAAP and applicable banking laws and regulations, to the extent requested by BANK, modify or change
its loan, OREO, accrual, reserve, tax, litigation and real estate valuation policies and practices (including loan classifications
and levels of reserves) so as to be applied on a basis that is consistent with that of BANK; provided, however, that no such modifications
or changes need be made prior to the satisfaction of the condition set forth in Section 7.1(a); and further provided that in any
event, no accrual or reserve made by PLAZA pursuant to this Section 6.16 shall constitute or be deemed to be a breach, violation
of or failure to satisfy any representation, warranty, covenant, agreement, condition or other provision of this Agreement or otherwise
be considered in determining whether any such breach, violation or failure to satisfy shall have occurred. The recording of any
such adjustments shall not be deemed to imply any misstatement of previously furnished financial statements or information and
shall not be construed as concurrence of PLAZA or its management with any such adjustments.
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE TRANSACTION
7.1
Conditions
to Each Party’s Obligation to Effect the Transactions Contemplated Hereby
. The respective obligation of each of the parties
hereto to consummate the transactions contemplated hereby (the “Closing”) is subject to the fulfillment or, to the
extent permitted by applicable law, written waiver by the parties hereto prior to the Closing Date, of each of the following conditions:
(a)
Regulatory
Approvals
. All Regulatory Approvals required to consummate the transactions contemplated hereby, including but not limited
to the Merger, shall have been obtained and shall remain in full force and effect and all statutory waiting periods in respect
thereof shall have expired, and no such approvals shall contain any non-standard conditions, restrictions or requirements which
BANK and BHC, on the one hand, or PLAZA, on the other hand, reasonably determine in good faith would, individually or in the aggregate,
materially reduce the benefits of the transactions contemplated hereby to such a degree that BANK and BHC or PLAZA, as the case
may be, would not have entered into this Agreement had such conditions, restrictions or requirements been known at the date hereof
(any such condition, restriction or requirement, a “Burdensome Condition”).
(b)
No
Injunction
. No Governmental Authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered
any statute, rule, regulation, judgment, decree, injunction or other order (whether temporary, preliminary or permanent) which
is in effect and prohibits or makes illegal consummation of the transactions contemplated hereby.
(c)
Requisite
PLAZA Shareholder Approval
. This Agreement shall have been duly approved by the affirmative vote of the holders of two-thirds
of the outstanding shares of PLAZA Common Stock.
(d)
Issuance
of Permit
. The DBO Permit (and any necessary or appropriate amendments or supplements thereto) shall have been issued by the
Commissioner, after a hearing before the DBO upon the fairness of the terms and conditions of the issuance and exchange of shares
of BHC Common Stock for shares of PLAZA Common Stock, no stop order denying effectiveness to, or suspending or revoking the effectiveness
of such qualification shall be in effect and no proceedings for such purpose shall have been initiated or threatened by or before
the Commissioner, and the shares of BHC Common Stock qualified under the permit issued by the Commissioner shall have received
all state securities and “Blue Sky” permits or approvals required to consummate the transactions contemplated by this
Agreement.
7.2
Conditions
to Obligations of PLAZA
. The obligations of PLAZA to consummate the transactions contemplated hereby are also subject to the
fulfillment or written waiver by PLAZA prior to the Closing Date of each of the following conditions:
(a)
Representations
and Warranties
. The representations and warranties of BHC and BANK set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations
and warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such
date), except where the failure to be so true and correct (without giving effect to any limitation as to “materiality”
or “Material Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably
be expected to have a Material Adverse Effect on BANK or BHC,
provided that
(i) the representations and warranties
of BHC and BANK (A) set forth in Section 5.3(a), Section 5.3(e) and Section 5.3(g)(i) shall be true and correct
as of such dates in all respects, and (B) set forth in Section 5.3(b) shall be true and correct as of such dates in all respects
other than for such failures to be true and correct as are
de minimis
in effect, and PLAZA shall have received certificates,
dated the Closing Date, signed on behalf of BHC and BANK by the President and Chief Executive Officer and the Chief Financial Officer
of each such entity to such effect.
(b)
Performance
of Obligations of BANK and BHC
. Each of BANK and BHC shall have performed in all material respects all obligations required
to be performed by it under this Agreement at or prior to the Closing Date, and PLAZA shall have received a certificate or certificates,
dated the Closing Date, signed on behalf of BHC and BANK by the President and Chief Executive Officer and the Chief Financial Officer
of each such entity to such effect.
(c)
No
Material Adverse Effect
. There shall not have occurred any event, circumstance, change, occurrence or state of facts that,
individually or in the aggregate with all such other events, circumstances, changes occurrences or states of facts, has resulted
in or would reasonably be expected to result in, a Material Adverse Effect on BHC and BANK, taken as a whole.
(d)
Payment
of Merger Consideration
. BHC shall have delivered the merger consideration to the Exchange Agent and the Exchange Agent shall
have provided PLAZA with a certificate evidencing such delivery.
(e)
Other
Actions
. BANK and BHC shall have furnished PLAZA with such certificates of their respective officers or others and such other
documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.2 as PLAZA may reasonably request.
(f)
Exemption
.
BHC shall have received written acceptance from the applicable Government Authority if BHC intends to issue the shares of BHC Common
Stock pursuant to an exemption in lieu of the DBO Permit as required under Section 7.1(d) or registration under the Securities
Act.
7.3
Conditions
to Obligation of BHC and BANK
. The obligations of BHC and BANK to consummate the Merger and the other transactions contemplated
hereby are also subject to the fulfillment or written waiver by BHC and BANK prior to the Closing Date of each of the following
conditions:
(a)
Representations
and Warranties
. The representations and warranties of PLAZA set forth in this Agreement shall be true and correct as of the
date of this Agreement and as of the Closing Date as though made on and as of the Closing Date (except that representations and
warranties that by their terms speak as of the date of this Agreement or some other date shall be true and correct as of such date),
except where the failure to be so true and correct (without giving effect to any limitation as to “materiality” or
“Material Adverse Effect” set forth therein), individually or in the aggregate, has not had and would not reasonably
be expected to have a Material Adverse Effect on BANK, BHC or PLAZA,
provided that
the representations and warranties of
PLAZA set forth in Section 5.2(a), Section 5.2(b), Section 5.2(e), Section 5.2(g)(i) and Section 5.2(m) shall be true and correct
as of such dates in all respects, and BHC and BANK shall have received a certificate, dated the Closing Date and signed on behalf
of PLAZA by the Chairman and the Chief Financial Officer to such effect.
(b)
Performance
of Obligations of PLAZA
. PLAZA shall have performed in all material respects all obligations required to be performed by it
under this Agreement at or prior to the Closing Date, and BHC and BANK shall have received a certificate, dated the Closing Date,
signed on behalf of PLAZA by the Chairman and the Chief Financial Officer to such effect.
(c)
Estoppel
Letters and Consents.
PLAZA shall have delivered fully executed estoppel letters and Consents as required by Section 6.10.
(d)
FIRPTA
Certificate
. PLAZA shall have delivered to BANK a properly executed statement from PLAZA that meets the requirements of Treasury
Regulations Sections 1.1445-2(c)(3) and 1.897-2(h)(1), dated as of the Closing Date and in form and substance satisfactory to BANK.
(e)
No
Material Adverse Effect
. There shall not have occurred any event, circumstance, change, occurrence or state of facts that,
individually or in the aggregate with all such other events, circumstances, changes occurrences or states of facts, has resulted
in or would reasonably be expected to result in, a Material Adverse Effect on PLAZA.
(f)
Other
Actions
. PLAZA shall have furnished BHC and BANK with such certificates of their respective officers or others and such other
documents to evidence fulfillment of the conditions set forth in Sections 7.1 and 7.3 as BHC and BANK may reasonably request.
ARTICLE VIII
TERMINATION
8.1
Termination
.
This Agreement may be terminated, and the transactions contemplated hereby may be abandoned, at any time prior to the Effective
Time:
(a)
Mutual
Consent
. By the mutual consent in writing of BANK, BHC and PLAZA.
(b)
Breach
.
(i) By
PLAZA, if PLAZA is not in material breach of any of the terms of this Agreement, in the event of a material breach by BANK or BHC
of any representation, warranty, covenant or agreement contained herein, which breach (A) cannot be or has not been cured
within thirty (30) Business Days after the giving of written notice to the breaching party or parties of such breach, and (B) would
entitle PLAZA not to consummate the transactions contemplated hereby under Section 7.2(a) or (b).
(ii) By
BANK and BHC, if neither BANK nor BHC is in material breach of any of the terms of this Agreement, in the event of a material breach
by PLAZA of any representation, warranty, covenant or agreement contained herein, which breach (A) cannot be or has not been
cured within thirty (30) Business Days after the giving of written notice to the breaching party of such breach, and (B) would
entitle BHC and BANK not to consummate the transactions contemplated hereby under Section 7.3(a) or (b), except for any breach
of any representation, warranty, covenant or agreement set forth in Sections 6.5 or 6.6 as to which Section 8.1(d) shall apply.
(c)
No
Regulatory Approval
. By BANK and BHC, on the one hand, or PLAZA, on the other hand, in the event the approval of any Governmental
Authority required for consummation of the transactions contemplated hereby shall have been denied by final nonappealable action
of such Governmental Authority or an application therefor shall have been permanently withdrawn at the request of a Governmental
Authority, or in the event the approval of any Governmental Authority required for consummation of the transactions contemplated
hereby will not be granted without the imposition of a Burdensome Condition;
provided
, however, that no party shall have
the right to terminate this Agreement pursuant to this Section 8.1(c) if such denial shall be due to the failure of such party
seeking to terminate this Agreement to perform or observe the covenants of such party or parties set forth herein.
(d)
Breach
of No Solicitation or Negotiation.
By BHC and BANK, if PLAZA shall have breached any covenant contained in Section 6.5 above.
(e)
Material
Adverse Change
.
(i) By
BHC and BANK in the event that any material adverse change or matter exists or is identified that would reasonably be expected
to result in a Material Adverse Effect to PLAZA.
(ii) By
PLAZA in the event that any material adverse change or matter exists or is identified that would reasonably be expected to result
in a Material Adverse Effect to BANK and/or BHC.
(f)
Outside
Date
. By BHC and BANK on the one hand, or PLAZA on the other hand, if the Merger shall not have been consummated by January
31, 2018 (the “Outside Date”); provided, that neither party shall have the right to terminate this Agreement pursuant
to this Section 8.1(f) if the failure of such party to perform or comply in all material respects with the covenants and agreements
of such party set forth in this Agreement shall have been the direct cause of, or resulted directly in, the failure of the Merger
to be consummated by the Outside Date.
(g)
Requisite
PLAZA Shareholder Approval
. By BHC and Bank, on the one hand, or PLAZA, on the other hand, if the Requisite PLAZA Shareholder
Approval shall not have been obtained.
(h)
Actions
.
By BANK or BHC on the one hand, or PLAZA on the other hand, if any court of competent jurisdiction or other Governmental Entity
shall have issued a judgment, order, injunction, rule or decree, or taken any other action restraining, enjoining or otherwise
prohibiting any of the transactions contemplated by this Agreement and such judgment, order, injunction, rule, decree or other
action shall have become final and nonappealable, provided, that the party seeking to terminate this Agreement pursuant to this
Section 8.1(h) shall have used its reasonable best efforts to contest, appeal and remove such judgment, order injunction, rule,
decree, ruling.
(i)
No
Solicitation; Recommendation
. By BHC or BANK if (A) there is an Adverse Recommendation Change (B) PLAZA enters into an Alternative
Acquisition Agreement relating to an Acquisition Proposal; or (C) PLAZA fails publicly to reaffirm its recommendation of the Merger
within five (5) Business Days after the date any Acquisition Proposal or any material modification thereto is first communicated,
published or sent or given to PLAZA’s shareholders (which reaffirmation must also include, with respect to an Acquisition
Proposal, an unconditional rejection of such Acquisition Proposal, it being understood that taking no position with respect to
the acceptance of such Acquisition Proposal or modification thereto shall constitute a failure to reject such Acquisition Proposal.
(j)
Superior
Proposal
. By PLAZA to enter into an Alternative Acquisition Agreement with respect to a Superior Proposal.
(k)
Notice
of Termination
. In the event a party elects to effect any termination pursuant to Sections 8.1(b) through (j) above, it shall
give written notice to the other parties hereto specifying the basis for such termination.
8.2
Liabilities
and Remedies; Liquidated Damages; Expense Reimbursement
.
(a)
Fees
and Expenses
.
(i) Except
as otherwise provided in this Section 8.2(a), all fees and expenses incurred in connection with this Agreement, the Merger and
the other transactions contemplated hereby shall be paid by the party incurring such fees or expenses, whether or not the Merger
is consummated.
(ii) In
the event this Agreement is terminated pursuant to Sections 8.1(i) or Section 8.1(j), PLAZA shall pay to BHC a termination fee
of $400,000 (the “Termination Fee”). Payment of the Termination Fee shall be made by wire transfer of same day funds
to the account or accounts designated by BANK as promptly as reasonably practicable after termination. The payment by PLAZA of
the Termination Fee pursuant to this Section 8.2(a)(ii) shall be the sole and exclusive remedy of BANK and BHC with respect to
the termination of this Agreement pursuant to the Sections of the Agreement enumerated above in this Section 8.2(a)(ii).
(iii) In
the event that this Agreement is terminated by BHC and BANK pursuant to Section 8.1(b)(ii) or Section 8.1(g), or by PLAZA pursuant
to Section 8.1(b)(i) then the breaching party shall reimburse the non-breaching party for all of its reasonable out-of-pocket fees
and expenses (including all fees and expenses of counsel, accountants, investment bankers, experts and consultants to the non-breaching
party) incurred by the non-breaching party or on its behalf in connection with or related to the authorization, preparation, investigation,
negotiation, execution and performance of this Agreement and the transactions contemplated hereby (the “Party Expenses”),
up to a maximum amount of $200,000. Payment of the Party Expenses shall be made by wire transfer of same day funds to the account
or accounts designated by the non-breaching party entitled to payment of the Party Expenses as promptly as reasonably possible
after the breaching party has been notified of the amount thereof by the non-breaching party.
(iv) Each
of PLAZA, BANK and BHC acknowledges that the agreements contained in this Section 8.2 are an integral part of the transactions
contemplated by this Agreement, and that, without these agreements, PLAZA, BANK and BHC would not enter into this Agreement; accordingly,
if any party fails promptly to pay any amounts due to the other party pursuant to this Section 8.2, and, in order to obtain such
payment, the party to which any amount under this Section 8.2 is due and owing from the other party commences a suit that results
in a judgment against such other party for the amounts set forth in this Section 8.2, the non-prevailing party shall pay to the
prevailing party its costs and expenses (including reasonable attorneys' fees and expenses) in connection with such suit, together
with interest on the amounts due pursuant to this Section 8.2 from the date such payment was required to be made until the date
of payment at the prime lending rate as published in The Wall Street Journal in effect on the date such payment was required to
be made.
(b)
Specific
Performance
. The parties agree that irreparable damage, for which monetary damages, even if available, would not be an adequate
remedy, would occur in the event that any of the provisions of this Agreement were not performed in accordance with their specific
terms or were otherwise breached (including failing to take such actions as are required of them hereunder to consummate this Agreement).
Accordingly, except as otherwise set forth in Section 8.2(a)(ii), each of the parties shall be entitled to specific performance
of the terms hereof, including an injunction or injunctions to prevent breaches or threatened breaches of this Agreement and to
enforce specifically the terms and provisions of this Agreement in any state or federal court, this being in addition to any other
remedy to which such party is entitled at law or in equity. Each of the parties hereby further waives any defense in any action
for specific performance that a remedy at law would be adequate.
ARTICLE IX
MISCELLANEOUS
9.1
Survival
of Representations, Warranties and Agreements
. No representations, warranties, covenants and agreements of the parties hereto
set forth in this Agreement shall survive the Effective Time (other than agreements or covenants contained herein that by their
terms are to be performed in whole or in part after the Effective Time) or the termination of this Agreement if this Agreement
is terminated prior to the Effective Time (other than this Article IX, Section 6.4(c) and Section 8.2(a)(ii)-(iii), which shall
survive such termination).
9.2
Waiver;
Amendment
. Prior to the Effective Time, any provision of this Agreement may be (i) waived, by the party benefited by the
provision or (ii) amended or modified at any time, by an agreement in writing among the parties hereto executed in the same
manner as this Agreement.
9.3
Counterparts
.
This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement and shall
become effective when counterparts have been signed by each of the parties and delivered to the other parties, it being understood
that each party need not sign the same counterpart.
9.4
Governing
Law
. This Agreement shall be governed by, and interpreted in accordance with, the laws of the State of California applicable
to contracts made and entirely to be performed within such state, without regard to any applicable conflicts of law principles
that would require the application of the laws of any other jurisdiction.
9.5
Waiver
of Jury Trial
. Each party hereto acknowledges and agrees that any controversy that may arise under this Agreement is likely
to involve complicated and difficult issues, and therefore each party hereby irrevocably and unconditionally waives any right such
party may have to a trial by jury in respect of any litigation, directly or indirectly, arising out of, or relating to, this Agreement,
or the transactions contemplated by this Agreement. Each party certifies and acknowledges that (a) no representative, agent
or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation,
seek to enforce the foregoing waiver, (b) each party understands and has considered the implications of this waiver, (c) each
party makes this waiver voluntarily and (d) each party has been induced to enter into this Agreement by, among other things,
the mutual waivers and certifications in this Section 9.5.
9.6
Expenses
.
Except as otherwise provided for in Section 8.2, each party hereto will bear all expenses incurred by it in connection with this
Agreement and the transactions contemplated hereby, including fees and expenses of its own financial consultants, accountants and
counsel, provided that nothing contained herein shall limit either party’s rights to recover any liabilities or damages arising
out of the other party’s fraud or willful breach of any provision of this Agreement.
9.7
Notices
.
All notices, requests and other communications hereunder to a party shall be in writing and shall be deemed given if personally
delivered, telecopied (with confirmation) or mailed by registered or certified mail (return receipt requested) or delivered by
an overnight courier (with confirmation) to such party at its address set forth below or such other address as such party may specify
by notice to the parties hereto.
If to PLAZA
:
Plaza Bank.
520 Pike Street, Suite 2750
Seattle, Washington 98101
Attention: Donald M. Burton, Chairman
Facsimile: (206) 381-8895
With a copy to
:
Breyer & Associates PC
8180 Greensboro Drive, Suite 785
McLean, Virginia 22102
Attention: John F. Breyer, Jr, Esq.
Facsimile: (703) 883-2511
If to BANK or BHC
:
BayCom Corp.
United Business Bank
500 Ygnacio Valley Road, Suite 200
Walnut Creek, California 94596
Attention: George Guarini, President
Facsimile: (925) 476-1846
With a copy to
:
Gary Steven Findley & Associates
3808 East La Palma Avenue
Anaheim, California 92807
Attention: Gary Steven Findley, Esq.
Facsimile: (714) 630-7910
9.8
Entire
Understanding; No Third-Party Beneficiaries
. This Agreement, the PLAZA Non-Competition and Voting Agreements, the PLAZA Voting
Agreements, and the Confidentiality Agreement represent the entire understanding of the parties hereto and thereto with reference
to the transactions contemplated hereby, and this Agreement, the PLAZA Non-Competition and Voting Agreements, the PLAZA Voting
Agreements, and the Confidentiality Agreement supersede any and all other oral or written agreements heretofore made. Except for
the provisions of Sections 6.13 and 6.15, nothing in this Agreement, expressed or implied, is intended to confer upon any Person,
other than the parties hereto or their respective successors any rights, remedies, obligations or liabilities under or by reason
of this Agreement.
9.9
Severability
.
If any provision of this Agreement or the application thereof to any Person or circumstance is determined by a court of competent
jurisdiction to be invalid, void or unenforceable, the remaining provisions, or the application of such provision to Persons or
circumstances other than those as to which it has been held invalid or unenforceable, will remain in full force and effect and
will in no way be affected, impaired or invalidated thereby, so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to any party hereto. Upon such determination, the parties will negotiate
in good faith in an effort to agree upon a suitable and equitable substitute provision to effect the original intent of the parties.
9.10
Enforcement
of this Agreement
. The parties hereto agree that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or were otherwise breached. It is accordingly agreed
that the parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state having jurisdiction, this being in addition to any
other remedy to which they are entitled at law or in equity. In the event attorneys’ fees or other costs are incurred to
secure performance of any of the obligations herein provided for, or to establish damages for the breach thereof, or to obtain
any other appropriate relief, whether by way of prosecution or defense, the prevailing party shall be entitled to recover reasonable
attorneys’ fees and costs incurred therein.
9.11
Interpretation
.
When a reference is made in this Agreement to Sections, Annexes or Schedules, such reference shall be to a Section of, or Annex
or Schedule to, this Agreement unless otherwise indicated. The table of contents and headings contained in this Agreement are for
reference purposes only and are not part of this Agreement. Whenever the words “include,” “includes” or
“including” are used in this Agreement, they shall be deemed to be followed by the words “without limitation.”
Whenever the words “as of the date hereof” are used in this Agreement, they shall be deemed to mean the day and year
first above written.
9.12
Assignment
.
No party may assign either this Agreement or any of its rights, interests or obligations hereunder without the prior written approval
of the other parties. Subject to the preceding sentence, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
9.13
Alternative
Structure
. Notwithstanding any provision of this Agreement to the contrary, BANK and BHC may, after providing PLAZA at least
twenty (20) Business Days’ written notice, modify the structure of the acquisition of PLAZA set forth herein, provided that
(i) the consideration to be paid to the holders of PLAZA Common Stock is not (x) thereby changed in kind or reduced in amount as
a result of such modification or (y) negatively impacted from a Tax perspective, and (ii) the change in structure does not materially
delay the transaction. In the event BANK and BHC elect to make such a change, the parties agree to execute appropriate documents
to reflect the change.
IN WITNESS WHEREOF
,
the parties hereto have caused this Agreement to be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
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UNITED BUSINESS BANK
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BAYCOM CORP
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By:
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/s/ George J. Guarini
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By:
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/s/ George J. Guarini
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Its:
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President
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Its:
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President
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By:
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/s/ Keary L. Colwell
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By:
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/s/ Keary L. Colwell
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Its:
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Secretary
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Its:
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Secretary
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PLAZA BANK
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By:
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/s/ Donald M. Burton
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Its:
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Chairman
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By:
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/s/ L. Calyn Miller
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Its:
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Secretary
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Exhibit 3.1
ARTICLES OF INCORPORATION
OF
BAYCOM CORP
ONE: NAME
The name of the corporation
is:
BayCom Corp
TWO: PURPOSE
The purpose of this
corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporations
Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated
by the California Corporations Code.
THREE: AUTHORIZED
STOCK
This corporation is
authorized to issue 110,000,000 shares, which shall be divided into two classes of stock as follows: (a) 100,000,000 shares of
Common Stock, and (b) 10,000,000 shares of Preferred Stock.
The Preferred Stock
may be issued from time to time in one or more series. The board of directors is authorized to fix the number of shares of any
series of Preferred Stock and to determine the designation of any such series. The board of directors is also authorized to determine
and/or alter the rights, preferences, privileges and restrictions granted to or imposed upon any wholly unissued series of Preferred
Stock and, within the limits and restrictions stated in any resolution or resolutions of the board of directors originally fixing
the number of shares constituting any series, to increase or decrease (but not below the number of shares of such series then outstanding)
the number of shares of any such series subsequent to the issue of shares of that series.
FOUR: DIRECTOR LIABILITY
The liability of the
directors of the corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.
FIVE: INDEMNIFICATION
The corporation is
authorized to indemnify its agents (as defined from time to time in Section 317 of the California Corporations Code) to the fullest
extent permissible under California law. Any amendment, repeal or modification of the provisions of this Article shall not adversely
affect any right or protection of an agent of the corporation existing at the time of such amendment, repeal or modification.
SIX: ADDRESS OF
THE CORPORATION
The initial street
and mailing address of the corporation is
500 Ygnacio Valley
Road, Suite 200
Walnut Creek,
California 94596
SEVEN: AGENT FOR
SERVICE OF PROCESS
The name and address
in this State of this corporation’s initial agent for service of process is:
Gary Steven Findley
3808 E. La Palma Avenue
Anaheim, California 92807
IN WITNESS WHEREOF,
for the purpose of forming this corporation under the laws of the State of California, the undersigned, constituting the incorporator
of this corporation, has executed these Articles of Incorporation.
Dated: November 2, 2016
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/s/ Gary Steven Findley
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Gary Steven Findley
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I hereby declare that
I am the person who executed the foregoing Articles of Incorporation, which execution is my act and deed.
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/s/ Gary Steven Findley
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Gary Steven Findley
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Exhibit 3.2
BYLAWS
OF
BAYCOM CORP
ARTICLE I
Offices
Section 1.1
.
Principal Office
.
The principal executive office of the corporation is hereby located at such place as the board of directors (the “board”)
shall determine. The board is hereby granted full power and authority to change said principal executive office from one location
to another.
Section 1.2
.
Other Offices
.
Other business offices may, at any time, be established by the board at such other places as it deems appropriate.
ARTICLE II
Meetings of Shareholders
Section 2.1
.
Place of Meetings
.
Meetings of shareholders may be held at such place within or outside the state of California designated by the board. In the absence
of any such designation, shareholders’ meetings shall be held at the principal executive office of the corporation or at
any place consented to in writing by all persons entitled to vote at such meeting, given before or after the meeting and filed
with the Secretary of the corporation.
Section 2.2
.
Annual Meeting
.
The annual meeting of shareholders shall be held for the election of directors on a date and at a time designated by the board.
The date so designated shall be within fifteen (15) months after the last annual meeting. At such meeting, directors shall be elected,
and any other proper business within the power of the shareholders may be transacted.
Section 2.3
.
Special Meetings
.
Special meetings of the shareholders may be called at any time by the board, the chairperson of the board, the president, or by
the holders of shares entitled to cast not less than ten percent (10%) of the votes at such meeting. If a special meeting is called
by any person or persons other than the board, the request shall be in writing, specifying the time of such meeting and the general
nature of the business proposed to be transacted, and shall be delivered personally or by registered mail to the chairperson of
the board, the president, any vice president or the secretary of the corporation. The officer receiving the request shall cause
notice to be promptly given to the shareholders entitled to vote that a meeting will be held at a time requested by the person
or persons calling the meeting, not less than 35 nor more than 60 days after receipt of the request. If the notice is not given
within 20 days after receipt of the request, the person or persons requesting the meeting may give the notice. Nothing in this
paragraph shall be construed as limiting, fixing or affecting the time when a meeting of shareholders called by action of the board
may be held.
Section 2.4
.
Notice of Meetings
and Shareholder Business
.
Written notice, in accordance with Section 2.5 of this Article II, of each annual or special
meeting of shareholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each shareholder
entitled to vote thereat. Such notice shall state the place, date and hour of the meeting and (a) in the case of a special meeting,
the general nature of the business to be transacted, and no other business may be transacted, or (b) in the case of the annual
meeting, those matters which the board, at the time of the mailing of the notice, intends to present for action by the shareholders,
but, subject to the provisions of applicable law, any proper matter may be presented at the meeting for such action. The notice
of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be
presented by the board for election.
If action is proposed to be taken at any
meeting for approval of (a) a contract or transaction in which a director has a direct or indirect financial interest, pursuant
to Section 310 of the California Corporations Code, as amended (the “Code”), (b) an amendment of the articles of incorporation,
pursuant to Section 902 of the Code, (c) a reorganization of the corporation, pursuant to Section 1201 of the Code, (d) a voluntary
dissolution of the corporation, pursuant to Section 1900 of the Code, or (e) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, pursuant to Section 2007 of the Code, the notice shall also state the general
nature of that proposal.
Only such business shall be conducted as
shall have been properly brought before the meeting. To be properly brought before an annual meeting, business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the direction of the board, (b) otherwise properly brought
before the meeting by or at the direction of the board, or (c) otherwise properly brought before the meeting by a shareholder.
For business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the President of the corporation. To be timely, a shareholder’s notice must be delivered to or mailed and received
at the principal executive officers of the corporation, not more than 60 days prior to the annual meeting nor more than 10 days
after the date of the notice of such meeting is sent to shareholders; provided, however, that if less than 10 days’ notice
of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received by the
President of the corporation not later than the time fixed in the notice of the meeting for the opening of the meeting. A shareholder’s
notice to the President shall set forth as to each matter the shareholder proposes to bring before the annual meeting: (A) a brief
description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the
annual meeting; (B) the name and address, as they appear on the corporation’s books, of the shareholder proposing such business;
(C) the class and number of shares of the corporation which are beneficially owned by the shareholder; and (D) any material interest
of the shareholder in such business. Notwithstanding anything in the bylaws to the contrary, no business shall be conducted at
any annual meeting except in accordance with the procedures set forth in this Section 2.4. The Chairman of the annual meeting shall,
if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance
with the provisions of this Section 2.4, and if he should so determine, he shall so declare to the meeting and any such business
not properly brought before the meeting shall not be transacted.
Section 2.5
.
Manner of Giving
Notice
.
Notice of a shareholders’ meeting shall be given either personally or by first-class mail or telegraphic
or other written communication, charges prepaid, addressed to the shareholder at the address of that shareholder appearing on the
books of the corporation or given by the shareholder to the corporation for the purpose of notice. If no such address appears on
the corporation’s books or is given, notice shall be deemed to have been given if sent to that shareholder by first-class
mail or telegraphic or other written communication to the corporation’s principal executive office or if published at least
once in a newspaper of general circulation in the county in which the principal executive office is located. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the mail or sent by telegram or other means of written
communication. An affidavit of mailing or other means of giving any notice in accordance with the above provisions, executed by
the secretary, assistant secretary or any transfer agent, shall be prima facie evidence of the giving of the notice.
If any notice addressed to the shareholder
at the address of such shareholder appearing on the books of the corporation is returned to the corporation by the United States
Postal Service marked to indicate that the United States Postal Service is unable to deliver the notice to the shareholder at such
address, all future notices shall be deemed to have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal executive office of the corporation for a period of one
year from the date of the giving of the notice to all other shareholders.
Section 2.6
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Quorum
.
A majority of the shares entitled to vote, represented in person or by proxy, shall constitute a quorum at any meeting of shareholders.
The shareholders present at a duly called or held meeting at which a quorum is present may continue to transact business until
adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to constitute a quorum.
Section 2.7
.
Adjourned Meeting
and Notice Thereof
.
Any shareholders’ meeting, whether or not a quorum is present, may be adjourned from time to
time by the vote of a majority of the shares represented either in person or by proxy at the meeting, but in the absence of a quorum
(except as provided in Section 2.6 of this Article II) no other business may be transacted at such meeting.
When any meeting of shareholders, either
annual or special, is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place
are announced at the meeting at which the adjournment is taken. However, when any shareholders’ meeting is adjourned for
more than 45 days from the date set for the original meeting, or, if after adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. At any adjourned
meeting the corporation may transact any business which might have been transacted at the original meeting.
Section 2.8
.
Voting
.
The shareholders entitled to notice of any meeting or to vote at any such meeting shall be only persons in whose name shares stand
on the stock records of the corporation on the record date determined in accordance with Section 2.9 of this Article II.
Voting of shares of the corporation shall
in all cases be subject to the provisions of Sections 700 through 711, inclusive, of the Code.
The shareholders’ vote may be by
voice or ballot; provided, however, that any election for directors must be by ballot if demanded by any shareholder before the
voting has begun. On any matter other than election of directors, any shareholder may vote part of the shares in favor of the proposal
and refrain from voting the remaining shares or vote them against the proposal (other than the election of directors), but, if
the shareholder fails to specify the number of shares which the shareholder is voting affirmatively, it will be conclusively presumed
that the shareholder’s approving vote is with respect to all shares that the shareholder is entitled to vote. If a quorum
is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on any matter (other
than the election of directors) shall be the act of the shareholders, unless the vote of a greater number or voting by classes
is required by the Code or by the articles of incorporation.
Subject to the following sentence and the
provisions of Section 708 of the Code, every shareholder entitled to vote at any election of directors may cumulate such shareholder’s
votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes
to which the shareholder’s shares are entitled, or distribute the shareholder’s votes on the same principle among as
many candidates as the shareholder thinks fit. No shareholder shall be entitled to cumulate votes for any candidate or candidates
pursuant to the preceding sentence unless such candidate’s or candidates’ names have been placed in nomination prior
to the voting and the shareholder has given notice at the meeting and prior to the voting of the shareholder’s intention
to cumulate the shareholder’s votes. If any one shareholder has given such notice, all shareholders may cumulate their votes
for candidates in nomination.
In any election of directors, the candidates
receiving the highest number of affirmative votes of the shares entitled to be voted for them, up to the number of directors to
be elected, shall be elected. Votes against the director and votes withheld shall have no legal effect.
Section 2.9
.
Record Date
.
The board may fix, in advance, a record date for the determination of the shareholders entitled to notice of any meeting or to
vote or to receive payment of any dividend or other distribution, or allotment of any rights, or to exercise any rights in respect
of any other lawful action. The record date so fixed shall be not more than 60 days nor less than 10 days prior to the date of
the meeting nor more than 60 days prior to any other action. When a record date is so fixed, only shareholders of record on that
date are entitled to notice of and to vote at the meeting or to receive the dividend, distribution, or allotment of rights, or
to exercise rights, as the case may be, notwithstanding any transfer of shares on the books of the corporation after the record
date. A record date for a meeting of shareholders shall apply to any adjournment of the meeting unless the board fixes a new record
date for the adjourned meeting. The board shall fix a new record date if the meeting is adjourned for more than 45 days.
If no record date is fixed by the board,
the record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders shall be at the close
of business on the business day next preceding the day on which notice of the meeting is given or, if notice is waived, the close
of business on the business day next preceding the day on which the meeting is held. The record date for determining shareholders
for any purpose other than as set forth in this Section 2.9 or Section 2.11 of this Article II shall be at the close of business
on the day on which the board adopts the resolution relating thereto, or the sixtieth day prior to the date of such other action,
whichever is later.
Section 2.10
.
Consent of Absentees
.
The transactions of any meeting of shareholders, however called and noticed, and wherever held, are as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or
after the meeting, each of the persons entitled to vote, who was not present in person or by proxy, signs a written waiver of notice,
or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall
be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute
a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction
of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver
of any right to object to the consideration of matters required by the Code to be included in the notice but not so included, if
such objection is expressly made at the meeting. Neither the business to be transacted at, nor the purpose of, any regular or special
meeting of shareholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of
the minutes of the meeting, except that if action is taken or proposed to be taken for approval of any of those matters specified
in the second paragraph of Section 2.4 of this Article II, the waiver of notice, consent or approval shall state the general nature
of the proposal.
Section 2.11
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Action by Written
Consent Without a Meeting
.
Subject to Section 603 of the Code, any action which may be taken at any annual or special meeting
of shareholders may be taken without a meeting and without prior notice if a consent in writing, setting forth the action so taken,
is signed by the holders of the outstanding shares, or their proxies, having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.
All such consents shall be filed with the secretary of the corporation and shall be maintained in the corporate records; provided,
however, that (1) unless the consents of all shareholders entitled to vote have been solicited in writing, notice of any shareholder
approval without a meeting by less than unanimous consent shall be given, as provided by Section 603(b) of the Code, and (2) in
the case of election of directors, such a consent shall be effective only if signed by the holders of all outstanding shares entitled
to vote for the election of directors; provided, however, that subject to applicable law, a director may be elected at any time
to fill a vacancy on the board that has not been filled by the directors, by the written consent of the holders of a majority of
the outstanding shares entitled to vote for the election of directors. Any written consent may be revoked by a writing received
by the secretary of the corporation prior to the time that written consents of the number of shares required to authorize the proposed
action have been filed with the secretary.
Unless a record date for voting purposes
be fixed as provided in Section 2.9 of this Article II, the record date for determining shareholders entitled to give consent pursuant
to this Section 2.11, when no prior action by the board has been taken, shall be the day on which the first written consent is
given.
Section 2.12
.
Proxies
.
Every person entitled to vote shares or execute written consents has the right to do so either in person or by one or more persons
authorized by a written proxy executed and dated by such shareholder and filed with the secretary of the corporation prior to the
convening of any meeting of the shareholders at which any such proxy is to be used or prior to the use of such written consent.
A validly executed proxy which does not state that it is irrevocable continues in full force and effect unless: (1) revoked by
the person executing it prior to the vote pursuant thereto, by a writing delivered to the corporation stating that the proxy is
revoked or by a subsequent proxy executed by the person executing the prior proxy and presented to the meeting, or as to any meeting
of shareholders, by attendance at such meeting and voting in person by the person executing the proxy; or (2) written notice of
the death or incapacity of the maker of the proxy is received by the corporation before the vote pursuant thereto is counted; provided,
however, that no proxy shall be valid after the expiration of 11 months from the date of its execution unless otherwise provided
in the proxy.
Section 2.13
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Inspectors of
Election
.
In advance of any meeting of shareholders, the board may appoint any persons other than nominees for office as
inspectors of election to act at such meeting and any adjournment thereof. If no inspectors of election are so appointed, or if
any persons so appointed fail to appear or refuse to act, the chairperson of any such meeting may, and on the request of any shareholder
or shareholder’s proxy shall, appoint inspectors of election at the meeting. The number of inspectors shall be either one
(1) or three (3). If inspectors are appointed at a meeting on the request of one or more shareholders or proxies, the holders of
a majority of shares or their proxies present shall determine whether one (1) or three (3) inspectors are to be appointed.
The duties of such inspectors shall be
as prescribed by Section 707(b) of the Code and shall include: determining the number of shares outstanding and the voting power
of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity,
validity and the effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions
in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls
shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all
shareholders. If there are three inspectors of election, the decision, act or certificate of a majority is effective in all respects
as the decision, act or certificate of all.
Section 2.14
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Conduct of Meetings
.
The president shall preside at all meetings of the shareholders and shall conduct each such meeting in a businesslike and fair
manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The presiding
officer’s rulings on procedural matters shall be conclusive and binding on all shareholders, unless at the time of ruling
a request for a vote is made to the shareholders entitled to vote and represented in person or by proxy at the meeting, in which
case the decision of a majority of such shares shall be conclusive and binding on all shareholders. Without limiting the generality
of the foregoing, the presiding officer shall have all the powers usually vested in the presiding officer of a meeting of shareholders.
ARTICLE III
Directors
Section 3.1
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Powers
.
Subject to the provisions of the Code and any limitations in the articles of incorporation and these bylaws relating to actions
required to be approved by the shareholders or by the outstanding shares, the business and affairs of the corporation shall be
managed and all corporate powers shall be exercised by or under the direction of the board. The board may delegate the management
of the day-to-day operations of the business of the corporation to a management company or other person provided that the business
and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the
board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the
board shall have the following powers in addition to the other powers enumerated in these bylaws:
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(a)
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to select and remove all the other officers, agents and employees of the corporation, prescribe
any qualifications, powers and duties for them that are consistent with law, the articles of incorporation or these bylaws, fix
their compensation, and require from them security for faithful service;
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(b)
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to conduct, manage and control the affairs and business of the corporation and to make such rules
and regulations therefor not inconsistent with law, the articles of incorporation or these bylaws, as they may deem best;
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(c)
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to adopt, make and use a corporate seal, to prescribe the forms of certificates of stock, and to
alter the form of such seal and of such certificates from time to time as in their judgment they may deem best;
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(d)
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to authorize the issuance of shares of stock of the corporation from time to time, upon such terms
and for such consideration as may be lawful;
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(e)
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to borrow money and incur indebtedness for the purposes of the corporation, and to cause to be
executed and delivered therefor, in the corporate name, promissory and capital notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor and any agreements pertaining thereto;
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(f)
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to prescribe the manner in which and the person or persons by whom any or all of the checks, drafts,
notes, contracts and other corporate instruments shall be executed;
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(g)
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to appoint and designate, by resolution adopted by a majority of the authorized number of directors,
one or more committees, each consisting of two or more directors, including the appointment of alternate members of any committee
who may replace any absent member at any meeting of the committee; and
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(h)
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generally, to do and perform every act or thing whatever that may pertain to or be authorized by
the board of directors of a corporation incorporated under the laws of this state.
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Section 3.2
.
Number and Qualification
of Directors
.
The authorized number of directors of the corporation shall not be less than five (5) nor more than nine
(9) until changed by an amendment of the articles of incorporation or by a bylaw amending this Section 3.2 duly adopted by the
vote or written consent of holders of a majority of the outstanding shares entitled to vote. The exact number of directors shall
be fixed from time to time, within the range specified in the articles of incorporation or in this Section 3.2: (i) by a resolution
duly adopted by the board; (ii) by a bylaw or amendment thereof duly adopted by the vote of a majority of the shares entitled to
vote represented at a duly held meeting at which a quorum is present, or by the written consent of the holders of a majority of
the outstanding shares entitled to vote; or (iii) by approval of the shareholders (as defined in Section 153 of the Code.
Section 3.3
.
Nominations of
Directors
.
Nominations for election of members of the board may be made by the board or by any holder of any outstanding
class of capital stock of the corporation entitled to vote for the election of directors. Notice of intention to make any nominations
(other than for persons named in the notice of the meeting called for the election of directors) shall be made in writing and shall
be delivered or mailed to the president of the corporation by the later of: (i) the close of business twenty-one (21) days prior
to any meeting of shareholders called for the election of directors; or (ii) ten (10) days after the date of mailing of notice
of the meeting to shareholders. Such notification shall contain the following information to the extent known to the notifying
shareholder: (a) the name and address of each proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of capital stock of the corporation owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; (e) the number of shares of capital stock of the corporation owned by the notifying shareholder; (f) the
number of shares of capital stock of any bank, bank holding company, savings and loan association or other depository institution
owned beneficially by the nominee or by the notifying shareholder and the identities and locations of any such institutions; and
(g) whether the proposed nominee has ever been convicted of or pleaded nolo contendere to any criminal offense involving dishonesty
or breach of trust, filed a petition in bankruptcy or been adjudged bankrupt. The notification shall be signed by the nominating
shareholder and by each nominee, and shall be accompanied by a written consent to be named as a nominee for election as a director
from each proposed nominee. Nominations not made in accordance with these procedures shall be disregarded by the chairperson of
the meeting, and upon his or her instructions, the inspectors of election shall disregard all votes cast for each such nominee.
The foregoing requirements do not apply to the nomination of a person to replace a proposed nominee who has become unable to serve
as a director between the last day for giving notice in accordance with this paragraph and the date of election of directors if
the procedure called for in this paragraph was followed with respect to the nomination of the proposed nominee.
A copy of the preceding paragraph shall
be set forth in the notice to shareholders of any meeting at which directors are to be elected.
Section 3.4
.
Election and
Term of Office
.
The directors shall be elected at each annual meeting of shareholders, but if any annual meeting is not
held or the directors are not elected thereat, the directors may be elected at any special meeting of shareholders held for that
purpose. Each director shall hold office until the next annual meeting and until a successor has been elected and qualified.
Section 3.5
.
Vacancies
.
Vacancies on the board, except for a vacancy created by the removal of a director, may be filled by a majority of the remaining
directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the
next annual meeting and until such director’s successor has been elected and qualified. A vacancy on the board created by
the removal of a director may only be filled by the vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of the holders of all of the outstanding shares.
The shareholders may elect a director or
directors at any time to fill any vacancy or vacancies not filled by the directors. Any such election by written consent other
than to fill a vacancy created by removal requires the consent of a majority of the outstanding shares entitled to vote.
Any director may resign effective upon
giving written notice to the chairperson of the board, the president, secretary, or the board, unless the notice specifies a later
time for the effectiveness of such resignation. If the board accepts the resignation of a director tendered to take effect at a
future time, the board or the shareholders shall have power to elect a successor to take office when the resignation is to become
effective.
A vacancy or vacancies on the board shall
be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased,
or if the shareholders fail, at any annual or special meeting of shareholders at which any director or directors are elected, to
elect the full authorized number of directors to be voted for at that meeting.
The board may declare vacant the office
of a director who has been declared of unsound mind by an order of court or convicted of a felony.
No reduction of the authorized number of
directors shall have the effect of removing any director prior to the expiration of the director’s term of office.
Section 3.6
.
Place of Meetings
.
Regular or special meetings of the board shall be held at any place within or outside the state of California which has been designated
in the notice of meeting or if there is no notice, at the principal executive office of the corporation, or at a place designated
by resolution of the board or by the written consent of the board. Any regular or special meeting is valid wherever held if held
upon written consent of all members of the board given either before or after the meeting and filed with the secretary of the corporation.
Section 3.7
.
Regular Meetings
.
Immediately following each annual meeting of shareholders, the board shall hold a regular meeting for the purpose of organization,
any desired election of officers and the transaction of other business. Notice of this meeting shall not be required. Other regular
meetings of the board shall be held at any place within the State of California which has been designated from time to time by
resolution of the board or by written consent of all members of the board. In the absence of such designation, regular meetings
shall be held at the principal executive office of the corporation. Special meetings of the board may be held either at a place
so designated, within the State of California, or at the principal executive office. Call and notice of all regular meetings of
the board are hereby dispensed with.
Section 3.8
.
Special Meetings
.
Special meetings of the board for any purpose or purposes may be called at any time by the chairperson of the board, the president,
any vice president, the secretary or by any two directors.
Special meetings of the board shall be
held upon four days’ written notice by mail or 48 hours’ notice delivered personally or by telephone, telegraph, telex
or other similar means of communication. Any such notice shall be addressed or delivered to each director at the director’s
address as shown upon the records of the corporation or as given to the corporation by the director for purposes of notice or,
if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors
are regularly held. Such notice may, but need not, specify the purpose of the meeting, or the place if the meeting is to be held
at the principal executive office of the corporation.
Notice by mail shall be deemed to have
been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall
be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission,
or actually transmitted by the person giving the notice by electronic means or by facsimile transmission, to the recipient. Oral
notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient
or to a person at the office of the recipient whom the person giving the notice has reason to believe will promptly communicate
it to the recipient.
Section 3.9
.
Quorum
.
A majority of the authorized number of directors constitutes a quorum of the board for the transaction of business, except to adjourn
as hereinafter provided. Every act or decision done or made by a majority of the directors present at a meeting duly held at which
a quorum is present shall be regarded as the act of the board, unless a greater number be required by the articles of incorporation
and subject to the provisions of Section 310 of the Code (as to approval of contracts or transactions in which a director has a
direct or indirect material financial interest) and Section 317(e) of the Code (as to indemnification of directors). A meeting
at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such meeting.
Section 3.10
.
Participation
in Meetings by Conference Telephone
.
Members of the board may participate in a meeting through use of a conference telephone
or similar communications equipment, so long as all members participating in such meeting can hear one another. Participation in
a meeting pursuant to this Section 3.10 constitutes presence in person at such meeting.
Section 3.11
.
Waiver of Notice
.
Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval
of the minutes of the meeting, whether before or after the meeting, or who attends the meeting without protesting, before the meeting
or at its commencement, the lack of notice to such director. All such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting.
Section 3.12
.
Adjournment
.
A majority of the directors present, whether or not a quorum is present, may adjourn any directors’ meeting to another time
and place. Notice of the time and place of holding an adjourned meeting need not be given, unless the meeting is adjourned for
more than twenty-four hours, in which case notice of the time and place shall be given before the time of the adjourned meeting
to the directors who were not present at the time of the adjournment.
Section 3.13
.
Action Without
Meeting
.
Any action required or permitted to be taken by the board may be taken without a meeting if all members of the
board shall individually or collectively consent in writing to such action. Such written consent or consents shall be filed with
the minutes of the proceedings of the board. Such action by written consent shall have the same effect as a unanimous vote of the
board.
Section 3.14
.
Fees and Compensation
.
Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses,
as may be fixed or determined by the board. This Section 3.14 shall not be construed to preclude any director from serving the
corporation in any other capacity as an officer, agent, employee or otherwise, and receiving compensation for those services.
Section 3.15
.
Rights of Inspection
.
Every director of the corporation shall have the absolute right at any reasonable time to inspect and copy all books, records and
documents of every kind and to inspect the physical properties of the corporation and also of its subsidiary corporations, domestic
or foreign. Such inspection by a director may be made in person or by agent or attorney, and the right of inspection includes the
right to copy and make extracts.
Section 3.16
.
Removal of Director
without Cause
.
Any or all of the directors of the corporation may be removed without cause if the removal is approved by
the outstanding shares, subject to the following:
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(a)
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Except if the corporation has a classified board, no director may be removed (unless the entire
board is removed) when the votes cast against removal, or not consenting in writing to the removal, would be sufficient to elect
the director if voted cumulatively at an election at which the same total number of votes were cast (or, if the action is taken
by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of the director’s
most recent election were then being elected.
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(b)
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When by the provisions of the articles the holders of the shares of any class or series, voting
as a class or series, are entitled to elect one or more directors, any director so elected may be removed only by the applicable
vote of the holders of the shares of that class or series.
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(c)
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When the corporation has a classified board, a director may not be removed if the votes cast against
removal of the director, or not consenting in writing to the removal, would be sufficient to elect the director if voted cumulatively
(without regard to whether shares may otherwise be voted cumulatively) at an election at which the same total number of votes were
cast (or, if the action is taken by written consent, all shares entitled to vote were voted) and either the number of directors
elected at the most recent annual meeting of shareholders, or if greater, the number of directors for whom removal is being sought,
were then being elected.
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Section 3.17
.
Removal of Directors
by Shareholder’s Suit
.
The superior court of the proper county may, at the suit of the shareholders holding at least
10 percent of the number of outstanding shares of any class, remove from office any director in case of fraudulent or dishonest
acts or gross abuse of authority or discretion with reference to the corporation and may bar from reelection any director so removed
for a period prescribed by the court. The corporation shall be made a party to such action.
ARTICLE IV
Officers
Section 4.1
.
Officers
.
The officers of the corporation shall be a president, a secretary and a chief financial officer. The corporation may also have,
at the discretion of the board, a chairperson of the board, a vice chairperson of the board, one or more vice presidents, one or
more assistant secretaries, one or more assistant financial officers and such other officers as may be elected or appointed in
accordance with the provisions of Section 4.3 of this Article IV. One person may hold two or more offices, except those of president
and secretary.
Section 4.2
.
Appointment
.
The officers of the corporation, except such officers as may be appointed in accordance with the provisions of Section 4.3 or Section
4.5 of this Article IV, shall be chosen by, and shall serve at the pleasure of, the board, and shall hold their respective offices
until their resignation, removal or other disqualification from service, or until their respective successors shall be appointed,
subject to the rights, if any, of an officer under any contract of employment.
Section 4.3
.
Subordinate Officers
.
The board may appoint, or may empower the president to appoint, such other officers as the business of the corporation may require,
each to hold office for such period, have such authority and perform such duties as are provided in these bylaws or as the board
may from time to time determine.
Section 4.4
.
Removal and Resignation
.
Subject to the rights, if any, of an officer under any contract of employment, any officer may be removed, either with or without
cause, by the board at any time, or, except in the case of an officer chosen by the board, by any officer upon whom such power
of removal may be conferred by the board.
Any officer may resign at any time by giving
written notice to the corporation without prejudice to the rights, if any, of the corporation under any contract to which the officer
is a party. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein;
and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective.
Section 4.5
.
Vacancies
.
A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner
prescribed in these bylaws for regular appointment to such office.
Section 4.6
.
Chairperson
.
The chairperson of the board, if there shall be such an officer, shall, if present, preside at all meetings of the board and exercise
and perform such other powers and duties as may be assigned from time to time by the board.
Section 4.7
.
Vice Chairperson
.
The vice chairperson of the board, if there shall be such an officer, shall, in the absence of the chairperson of the board, preside
at all meetings of the board and exercise and perform such other powers and duties as may be assigned from time to time by the
board.
Section 4.8
.
President
.
Subject to such powers, if any, as may be given by the board to the chairperson of the board, if there shall be such an officer,
the president is the general manager and chief executive officer of the corporation and has, subject to the control of the board,
general supervision, direction and control of the business and affairs of the corporation. The president shall preside at all meetings
of the shareholders and in the absence of both the chairperson of the board and the vice chairperson, or if there be none, at all
meetings of the board. The president has the general powers and duties of management usually vested in the office of president
and chief executive officer of a corporation and such other powers and duties as may be prescribed by the board.
Section 4.9
.
Vice Presidents
.
In the absence or disability of the president, the vice presidents in order of their rank as fixed by the board or, if not ranked,
the vice president designated by the board, shall perform all the duties of the president and, when so acting, shall have all the
powers of, and be subject to all the restrictions upon, the president. The vice presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively by the bylaws, the board, the president or the chairperson
of the board.
Section 4.10
.
Secretary
.
The secretary shall keep or cause to be kept, at the principal executive office or such other place as the board may order, a book
of minutes of all meetings of shareholders, the board and its committees, with the time and place of holding, whether regular or
special, and, if special, how authorized, the notice or waivers of notice thereof given, the names of those present at the board
and committee meetings, the number of shares present or represented at shareholders’ meetings, and the proceedings thereof.
The secretary shall keep, or cause to be
kept, a copy of the bylaws of the corporation at the principal executive office or business office in accordance with Section 213
of the Code. The secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation’s
transfer agent or registrar, if one is appointed, a record of its shareholders, or a duplicate record of its shareholders, giving
the names and addresses of all shareholders and the number and class of shares held by each.
The secretary shall give, or cause to be
given, notice of all the meetings of the shareholders, of the board and of any committees thereof required by these bylaws or by
law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other
duties as may be prescribed by the board.
Section 4.11
.
Assistant Secretary
.
The assistant secretary or the assistant secretaries, in the order of their seniority, shall, in the absence or disability of the
secretary, or in the event of such officer’s refusal to act, perform the duties and exercise the powers of the secretary
and shall have such additional powers and discharge such duties as may be assigned from time to time by the president or by the
board.
Section 4.12
.
Chief Financial
Officer
.
The chief financial officer shall keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of the properties and financial and business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings and shares, and shall send or cause to be sent
to the shareholders of the corporation such financial statements and reports that by law or these bylaws are required to be sent
to them. The books of account shall at all times be open to inspection by any director of the corporation.
The chief financial officer shall deposit
all monies and other valuables in the name and to the credit of the corporation with such depositories as may be designated by
the board. The chief financial officer shall disburse the funds of the corporation as may be ordered by the board, shall render
to the president and directors, whenever they request it, an account of all transactions engaged in as chief financial officer
and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed
by the board.
Section 4.13
.
Assistant Financial
Officer
.
The assistant financial officer or the assistant financial officers, in the order of their seniority, shall, in
the absence or disability of the chief financial officer, or in the event of such officer’s refusal to act, perform the duties
and exercise the powers of the chief financial officer, and shall have such additional powers and discharge such duties as may
be assigned from time to time by the president or by the board.
Section 4.14
.
Salaries
.
The salaries of the officers shall be fixed from time to time by the board and no officer shall be prevented from receiving such
salary by reason of the fact that such officer is also a director of the corporation.
Section 4.15
.
Officers Holding
More Than One Office
.
Any two or more offices, except those of president and secretary, may be held by the same person,
but no officer shall execute, acknowledge or verify any instrument in more than one capacity.
Section 4.16
.
Inability to
Act
.
In the case of absence or inability to act of any officer of the corporation and of any person herein authorized to
act in his or her place, the board may from time to time delegate the powers or duties of such officer to any other officer, or
any director or other person whom it may select.
ARTICLE V
Indemnification
Section 5.1
.
Definitions
.
For use in this Article V, certain terms are defined as follows:
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(a)
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“Agent”: A director, officer, employee or agent of the corporation or a person who
is or was serving at the request of the corporation as a director, officer, employee or agent of another foreign or domestic corporation,
partnership, joint venture, trust, or other enterprise (including service with respect to employee benefit plans and service on
creditors’ committees with respect to any proceeding under the Bankruptcy Code, assignment for the benefit of creditors or
other liquidation of assets of a debtor of the corporation), or a person who was a director, officer, employee or agent of a foreign
or domestic corporation which was a predecessor corporation of the corporation or of another enterprise at the request of the predecessor
corporation.
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(b)
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“Loss”: All expenses, liabilities, and losses including attorneys’ fees, judgments,
fines, ERISA excise taxes and penalties, amounts paid or to be paid in settlement, any interest, assessments, or other charges
imposed thereon, and any federal, state, local, or foreign taxes imposed on any Agent as a result of the actual or deemed receipt
of any payments under this Article.
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(c)
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“Proceeding”: Any threatened, pending or completed action, suit or proceeding including
any and all appeals, whether civil, criminal, administrative or investigative.
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Section 5.2
.
Right to Indemnification
.
Each person who was or is a party or is threatened to be made a party to or is involved (as a party, witness or otherwise) in any
Proceeding, by reason of the fact that he or she, or a person of whom he or she is the legal representative, is or was an Agent,
is entitled to indemnification. Agent shall be indemnified and held harmless by the corporation to the fullest extent authorized
by law. The right to indemnification conferred in this Article V shall be a contract right. It is the corporation’s intention
that these bylaws provide indemnification in excess of that expressly permitted by Section 317 of the Code, as authorized by the
corporation’s articles of incorporation.
Section 5.3
.
Authority to
Advance Expenses
.
The right to indemnification provided in Section 5.2 of these bylaws shall include the right to be paid,
in advance of a Proceeding’s final disposition, expenses incurred in defending that Proceeding,
provided, however
,
that if required by the California General Corporation Law, as amended, the payment of expenses in advance of the final disposition
of the Proceeding shall be made only upon delivery to the corporation of an undertaking by or on behalf of the Agent to repay such
amount if it shall ultimately be determined that he or she is not entitled to be indemnified by the corporation as authorized under
this Article V or otherwise. The Agent’s obligation to reimburse the corporation for advances shall be unsecured and no interest
shall be charged thereon.
Section 5.4
.
Right of Claimant
to Bring Suit
.
If a claim under Section 5.2 or 5.3 of these bylaws is not paid in full by the corporation within thirty
(30) days after a written claim has been received by the corporation, the claimant may at any time there-after bring suit against
the corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled
to be paid also the expenses (including attorneys’ fees) of prosecuting such claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in defending a Proceeding in advance of its final disposition)
that the claimant has not met the standards of conduct that make it permissible under the California General Corporation Law for
the corporation to indemnify the claimant for the amount claimed. The burden of proving such a defense shall be on the corporation.
Neither the failure of the corporation (including its board of directors, independent legal counsel, or its shareholders) to have
made a determination prior to the commencement of such action that the indemnification of the claimant is proper under the circumstances
because he or she has met the applicable standard of conduct set forth in the California General Corporation Law, nor an actual
determination by the corporation (including its board of directors, independent legal counsel, or its shareholders) that the claimant
has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not
already met the applicable standard of conduct.
Section 5.5
.
Provisions Nonexclusive
.
The rights conferred on any person by this Article V shall not be exclusive of any other rights that such person may have or hereafter
acquire under any statute, provision of the articles of incorporation, agreement, vote of shareholders or disinterested directors,
or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office. To the
extent that any provision of the articles of incorporation, agreement, or vote of the shareholders or disinterested directors is
inconsistent with these bylaws, the provision, agreement, or vote shall take precedence.
Section 5.6
.
Authority to
Insure
.
The corporation may purchase and maintain insurance to protect itself and any Agent against any Loss asserted against
or incurred by such person, whether or not the corporation would have the power to indemnify the Agent against such Loss under
applicable law or the provisions of this Article V. If the corporation owns all or a portion of the shares of the company issuing
the insurance policy, the company and/or the policy must meet one of the two sets of conditions set forth in Section 317 of the
Code.
Section 5.7
.
Survival of Rights
.
The rights provided by this Article V shall continue as to a person who has ceased to be an Agent and shall inure to the benefit
of the heirs, executors, and administrators of such person.
Section 5.8
.
Settlement of
Claims
.
The corporation shall not be liable to indemnify any Agent under this Article V: (a) for any amounts paid in settlement
of any action or claim effected without the corporation’s written consent, which consent shall not be unreasonably withheld;
or (b) for any judicial award, if the corporation was not given a reasonable and timely opportunity, at its expense, to participate
in the defense of such action.
Section 5.9
.
Effect of Amendment
.
Any amendment, repeal or modification of this Article V shall not adversely affect any right or protection of any Agent existing
at the time of such amendment, repeal or modification.
Section 5.10
.
Subrogation
.
Upon payment under this Article V, the corporation shall be subrogated to the extent of such payment to all of the rights of recovery
of the Agent, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including
the execution of such documents necessary to enable the corporation effectively to bring suit to enforce such rights.
Section 5.11
.
No Duplication
of Payments
.
The corporation shall not be liable under this Article V to make any payment in connection with any claim
made against the Agent to the extent the Agent has otherwise actually received payment (under any insurance policy, agreement,
vote or otherwise) of the amounts otherwise indemnifiable hereunder.
ARTICLE VI
Other Provisions
Section 6.1
.
Inspection of
Corporate Records
.
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(a)
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A shareholder or shareholders of the corporation holding at least five percent (5%) in the aggregate
of the outstanding voting shares of the corporation or who hold at least one percent (1%) of the outstanding voting shares and
have filed a Schedule 14B with the United States Securities and Exchange Commission relating to the election of directors of the
corporation shall have an absolute right to do either or both of the following:
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(i)
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inspect and copy the record of shareholders’ names and addresses and shareholdings during
usual business hours upon five business days’ prior written demand upon the corporation; or
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(ii)
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obtain from the transfer agent, if any, for the corporation, upon written demand and upon the tender
of its usual charges for such a list (the amount of which charges shall be stated to the shareholder by the transfer agent upon
request), a list of the shareholders’ names and addresses who are entitled to vote for the election of directors and their
shareholdings, as of the most recent record date for which it has been compiled, or as of a date specified by the shareholder subsequent
to the date of demand. The corporation shall have a responsibility to cause the transfer agent to comply with this Section 6.1;
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(b)
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The record of shareholders shall also be open to inspection and copying by any shareholder or holder
of a voting trust certificate at any time during usual business hours upon written demand on the corporation, for a purpose reasonably
related to such holder’s interest as a shareholder or holder of a voting trust certificate. A written demand for such inspection
shall be accompanied by a statement in reasonable detail of the purpose of the inspection.
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(c)
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The accounting books and records and minutes of proceedings of the shareholders and the board and
committees of the board shall be open to inspection upon written demand on the corporation by any shareholder or holder of a voting
trust certificate at any reasonable time during usual business hours, for a purpose reasonably related to such holder’s interest
as a shareholder or as a holder of such voting trust certificate. The right of inspection created by this Section 6.1(c) shall
extend to the records of each subsidiary of the corporation. A written demand for such inspection shall be accompanied by a statement
in reasonable detail of the purpose of the inspection.
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(d)
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Any inspection and copying under this Section 6.1 may be made in person or by agent or attorney.
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Section 6.2
.
Inspection of
Bylaws
.
The corporation shall keep at its principal executive office in California the original or a copy of these bylaws
as amended to date, which shall be open to inspection by shareholders at all reasonable times during office hours.
Section 6.3
.
Execution of
Documents, Contracts
.
Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract,
share certificate, initial transaction statement or written statement, conveyance or other instrument in writing and any assignment
or endorsement thereof executed or entered into between the corporation and any other person, when signed by the chairperson of
the board, the president or any vice president and the secretary, any assistant secretary, the chief financial officer or any assistant
financial officer of the corporation, or when stamped with a facsimile signature of such appropriate officers in the case of share
certificates, shall be valid and binding upon the corporation in the absence of actual knowledge on the part of the other person
that the signing officers did not have authority to execute the same. Any such instruments may be signed by any other person or
persons and in such manner as from time to time shall be determined by the board, and unless so authorized by the board, no officer,
agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit
or to render it liable for any purpose or amount.
Section 6.4
.
Certificates
of Stock
.
Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation
by the chairperson or the vice chairperson of the board or the president or a vice president and by the secretary or an assistant
secretary or the chief financial officer or an assistant financial officer, certifying the number of shares and the class or series
of shares owned by the shareholder. The signatures on the certificates may be facsimile signatures. If any officer, transfer agent
or registrar who has signed a certificate or whose facsimile signature has been placed upon the certificate shall have ceased to
be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same
effect as if such person were an officer, transfer agent or registrar at the date of issue.
Except as provided in this Section 6.4,
no new certificate for shares shall be issued in lieu of an old certificate unless the latter is surrendered and canceled at the
same time. The board may, however, in case any certificate for shares is alleged to have been lost, stolen or destroyed, authorize
the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other
adequate security sufficient to indemnify it against any claim that may be made against it (including any expense or liability)
on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate.
Prior to the due presentment for
registration of transfer in the stock transfer book of the corporation, the registered owner shall be treated as the person
exclusively entitled to vote, to receive notifications and otherwise to exercise all the rights and powers of an owner,
except as expressly provided otherwise by the laws of the state of California.
Section 6.5
.
Representation
of Shares of Other Corporations
.
The president or any other officer or officers authorized by the board or the president
are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all shares or other
securities of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be
exercised either by any such officer in person or by any other person authorized to do so by proxy or power of attorney duly executed
by said officer.
Section 6.6
.
Seal
.
The corporate seal of the corporation shall consist of two concentric circles, between which shall be the name of the corporation,
and in the center shall be inscribed the word “Incorporated” and the date of its incorporation.
Section 6.7
.
Fiscal Year
.
The fiscal year of the corporation shall begin on the first day of January and end on the 31st day of December of each year.
Section 6.8
.
Construction
and Definitions
.
Unless the context otherwise requires, the general provisions, rules of construction and definitions contained
in the Code and the California General Corporation Law shall govern the construction of these bylaws. Without limiting the generality
of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person”
includes both a corporation and a natural person.
Section 6.9
.
Bylaw Provisions
Contrary to or Inconsistent with Provisions of Law
.
Any article, section, subsection, subdivision, sentence, clause or
phrase of these bylaws which, upon being construed in the manner provided in this Section 6.9, shall be contrary to or inconsistent
with any applicable provision of the Code or other applicable laws of the state of California or of the United States shall not
apply so long as said provisions of law shall remain in effect, but such result shall not affect the validity or applicability
of any other portions of these bylaws, it being hereby declared that these bylaws would have been adopted and each article, section,
subsection, subdivision, sentence, clause or phrase thereof, irrespective of the fact that any one or more articles, sections,
subsections, subdivisions, sentences, clauses or phrases is or are illegal.
ARTICLE VII
Amendments
Section 7.1
.
Amendment by
Shareholders
.
New bylaws may be adopted or these bylaws may be amended or repealed by the vote or written consent of holders
of a majority of the outstanding shares entitled to vote; provided, however, that if the articles of incorporation of the corporation
set forth the number of authorized directors of the corporation, the authorized number of directors may be changed only by an amendment
of the articles of incorporation
Section 7.2
.
Amendment by
Directors
.
Subject to the rights of the shareholders as provided in Section 7.1 of this Article VII, bylaws, other than
a bylaw specifying or changing a fixed number of directors or the maximum or minimum number or changing from a fixed to a variable
board or vice versa, may be adopted, amended or repealed by the board.
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
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1.
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That I am the duly elected and acting secretary of BayCom Corp, a California corporation; and
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2.
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That the foregoing Bylaws, comprising 20 pages, constitute the Bylaws of BayCom Corp as duly adopted
by action of the board of directors of BayCom Corp duly taken on Nov 15, 2016.
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/s/
Keary L. Colwell
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___________,
Secretary
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Exhibit 4.1
COMMON STOCK
INCORPORATED
UNDER THE LAWS OF THE STATE Of CALIFORNIA
This
Certifies That
is
the Registered Owner
of
Fully Paid and Non-Assessable Shares
of Common Stock of $10.00 Par Value Each of
BAYCOM CORP
Transferable on the books of the Corporation
in person or by attorney upon surrender of this Certificate duly endorsed or assigned. This Certificate and the shares represented
hereby are subject to the laws of the State of California, and to the Articles of Incorporation and Bylaws of the Corporation,
as now or hereafter amended. This Certificate is not valid until countersigned by the Transfer Agent, WITNESS the facsimile seal
of the Corporation and the facsimile signatures of its duly authorized officers.
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Countersigned:
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Dated
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OTR, INC.
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1001 SW 5TH AVE, SUITE 1230, PORTLAND, OR 97204
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TRANSFER AGENT
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BY:
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AUTHORIZED SIGNATURE
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Chairman
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President and Chief Executive Officer
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The following
abbreviations, when used in the inscription o
n
the face of this certificate, shall be construed as though they were written
out in full according to applicable laws or regulations:
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TEN
COM
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–
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as
tenants in common
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UNIF
TRAN MIN ACT—
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Custodian
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(Cust)
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(Minor)
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TEN
ENT
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–
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as
tenants by the entireties
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under
the Uniform transfer to Minors
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Act
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JT
TEN
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–
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as
joint tenants with right of survivorship and not as tenants in common
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(State)
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Additional
abbreviations may also be used though not in the above list.
For value
received
hereby sell, assign and transfer unto
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PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
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PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS,
INCLUDING ZIP CODE, OF ASSIGNEE
Shares
of the stock represented by the within Certificate and do hereby irrevocably constitute and appoint
Attorney
to transfer the said stock on the books of the within named Corporation with full power of substitution in the
premises.
Dated___________________________
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NOTICE: The signature to this assignment must correspond with the name
as it is
written
upon the face of
the
Certifi
cate
in every particular without alteration or enlargement
or
any
change w
hatsoever.
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Signature(s)
Guaranteed
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By
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THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS OR CREDIT UNIONS) WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM PURSUANT TO S.E.C. RULE 17AD - 15
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Exhibit 5.1
LAW OFFICES
Silver,
Freedman, Taff & Tiernan
LLP
A LIMITED
LIABILITY PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS
3299 K STREET,
N.W., SUITE 100
WASHINGTON,
D.C. 20007
PHONE: (202)
295-4500
FAX: (202)
337-5502 or (202) 337-5503
WWW.SFTTLAW.COM
April __, 2018
Board of Directors
BayCom Corp
500 Ygnacio Valley Road, Suite 200
Walnut Creek, CA 94596
Ladies and Gentlemen:
We are acting as special counsel to BayCom
Corp, a California corporation (the “
Company
”), in connection with its registration statement on Form S-1 (the
“
Registration Statement
”) filed with the Securities and Exchange Commission under the Securities Act of 1933,
as amended (the “
Act
”), relating to the proposed public offering of up to _________ shares of common stock,
no par value, of the Company (the “
Common Stock
”). The Common Stock is to be sold pursuant to an underwriting
agreement to be entered into by and among the Company and the underwriters named therein, the form of which has been filed as Exhibit 1.1
to the Registration Statement (the “
Underwriting Agreement
”). This opinion letter is being furnished in
connection with the requirements of Item 601(b)(5) of Regulation S-K under the Act, and no opinion is expressed herein as
to any matter pertaining to the contents of the Registration Statement or related prospectus.
For the purposes of giving the opinion
contained herein, we have examined the Registration Statement and the Underwriting Agreement. We have also examined the originals,
or duplicates or certified or conformed copies, of such corporate records, agreements, documents and other instruments, including
the articles of incorporation and bylaws of the Company, resolutions of the board of directors of the Company and a specimen stock
certificate of the Company, and have made such other investigations as we have deemed relevant and necessary in connection with
the opinions set forth below. In our examination of the aforesaid documents, we have assumed the genuineness of all signatures,
the legal capacity of all natural persons, the accuracy and completeness of all documents submitted to us, the authenticity of
all original documents, and the conformity to authentic original documents of all documents submitted to us as copies (including
telecopies). As to all matters of fact, we have relied on the representations and statements of fact made in the documents so reviewed,
and we have not independently established the facts so relied on. This opinion letter is given, and all statements herein are made,
in the context of the foregoing.
In rendering the opinion set forth below,
we have also assumed that the Common Stock will be duly authenticated by the transfer agent and registrar for the Common Stock
and that the certificates, if any, evidencing the Common Stock to be issued will be manually signed by one of the authorized officers
of the transfer agent and registrar for the Common Stock and registered by such transfer agent and registrar and will conform
to the specimen certificate examined by us evidencing the Common Stock.
This opinion letter is limited to the General
Corporation Law of the State of California, and we are expressing no opinion as to the effect of the laws of any other jurisdiction.
Board of Directors
April __, 2018
Page 2
Based upon, subject to and limited by the
foregoing, we are of the opinion that following (i) execution and delivery by the Company of the Underwriting Agreement, (ii) effectiveness
of the Registration Statement, (iii) issuance of the Common Stock pursuant to the terms of the Underwriting Agreement, (iv) receipt
by the Company of the consideration for the Common Stock specified in the Underwriting Agreement and resolutions of the Company’s
board of directors and the Pricing Committee of the Company’s board of directors, the Common Stock will be validly issued,
fully paid and nonassessable.
This opinion letter has been prepared for
use in connection with the Registration Statement. We assume no obligation to advise you of any changes in the foregoing subsequent
to the effective date of the Registration Statement. In rendering the foregoing opinion, we are not passing upon, and assume no
responsibility for, any disclosure in any Registration Statement or any related prospectus or other offering material relating
to the offer and sale of the Common Stock.
We hereby consent to the filing of this
opinion letter as Exhibit 5.1 to the Registration Statement and to the reference to this firm under the caption “Legal Matters”
in the prospectus constituting a part of the Registration Statement. In giving this consent, we do not thereby admit that we are
an “expert” within the meaning of the Act.
Exhibit 10.1
Amended
and Restated Employment Agreement
This Amended and Restated
Employment Agreement (“Agreement”) is made this 22
nd
day of February 2018 (the “Effective Date”),
by and among United Business Bank (the “Bank”), having a principal place of business at 500 Ygnacio Valley Road, Suite
200, Walnut Creek, California, BayCom Corp, a California corporation (the “Company”) and the parent holding company
of the Bank, and George Guarini (“Executive”).
Recitals
A.
The
Bank is a California-chartered bank, which is validly existing and in good standing under the laws of the State of California,
with power to own property and carry on its business as it is now being conducted;
B.
The
Bank desires to avail itself of the skill, knowledge and experience of Executive in order to ensure the successful management of
its business;
C. Bay
Commercial Bank (now known as United Business Bank) entered into an Employment Agreement with Executive dated as of June 1, 2016
(the “Prior Agreement”) to specify the terms of Executive’s employment; and
D. The Bank and Executive desire to amend and restate the Prior Agreement in order to (i) reflect the change in the name of the Bank,
(ii) reflect the formation of the Company as the parent holding company of the Bank, (iii) enhance the severance benefits of Executive
in light of the Company becoming a publicly registered company under the federal securities laws, and (iv) make certain other changes
as set forth herein; and
In consideration of the
mutual covenants set forth in this Agreement, it is agreed that from and after the Effective Date, the following terms and conditions
shall apply to Executive’s said employment:
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1.1
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Term
. The Bank hereby employs Executive and Executive hereby accepts employment with the
Bank for the period commencing with the Effective Date and continuing for the three (3) years thereafter (the “Term”),
subject, however, to renewal or prior termination of this Agreement as hereinafter provided. Where used herein, “Term”
shall refer to the entire period of employment of Executive by the Bank hereunder, whether for the period provided above, or whether
renewed or terminated earlier as hereinafter provided.
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Beginning on the
first anniversary of the Effective Date, and on each subsequent anniversary of the Effective Date, the Term of the Agreement will
automatically extend for twelve (12) months unless and until either party gives written notice to the contrary not less than ninety
(90) days prior to any such anniversary date, in which case this Agreement shall terminate at the end of the Term then in effect
as of the date of such notice. Notwithstanding the foregoing, the Term shall end at such earlier date that the Executive’s
employment is terminated pursuant to Section 6 hereof.
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2.1
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Duties
. Executive shall perform the duties of President and Chief Executive Officer of the
Bank, as described more fully in the job description for such position approved by the Board of Directors, and subject to the powers
by law vested in the Board of Directors of the Bank. During the Term, Executive shall perform exclusively the services herein contemplated
to be performed by Executive faithfully, diligently and to the best of Executive’s ability, consistent with the highest and
best standards of the banking industry and in compliance with all applicable laws and regulations, the Bank’s Articles of
Incorporation, Bylaws and policies and procedures.
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2.2
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Conflicts of Interest
. Except as permitted by the prior written consent of the Board of
Directors of the Bank, Executive shall devote Executive’s entire productive time, ability and attention to the business of
the Bank during the Term, and Executive shall not directly or indirectly render any services of a business, commercial or professional
nature to any other person, firm or corporation, whether for compensation or otherwise, which are in conflict with the Bank’s
interests. Notwithstanding the foregoing, Executive may make investments of a passive nature in any business or venture, provided
however, that such business or venture is neither in competition, directly or indirectly, in any manner with the Bank nor a customer
of the Bank, and also may engage in civic and charitable activities and may also invest in any company listed on a national securities
exchange provided that Executive does not own 1% or more of such company’s outstanding shares.
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3.1
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Salary
. The Bank shall pay to Executive an annual base salary at the rate of at least four
hundred ninety-five thousand dollars ($495,000) per year beginning on the Effective Date, subject to adjustments as may be determined
from time to time by the Board of Directors in its discretion. Said salary shall be payable in equal installments in conformity
with the Bank’s normal payroll period.
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3.2
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Incentive Bonus
. Annually, the HR/Compensation Committee of the Board of Directors shall
adopt an incentive program based on factors that the Committee believes are appropriate in its discretion, including but not limited
to the financial and operational performance of the Bank. Cash incentive bonuses will be based on the programs adopted annually
and will be payable in a lump sum not later than March 15 following the end of each fiscal year. The Executive must be continuously
employed by the Bank for the whole of the fiscal year to which such incentive bonuses relate, except that the incentive program
may provide for the incentive bonus to be pro-rated if Executive dies or becomes disabled during the year or a change in control
occurs during the year. The incentive bonus will not be pro-rated if the Executive’s employment terminates for any other
reason prior to the end of such fiscal year.
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3.3
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IPO Restricted Stock Grant
. In the event the Company successfully completes an initial public
offering of its common stock for at least $30.0 million of gross proceeds (the “IPO”), the compensation committee of
the Board of Directors of the Company (the “Company Compensation Committee”) shall grant to the Executive a restricted
stock award with an aggregate grant date value (“Grant Date Value”) equal to 3.025% of the gross proceeds raised in
the initial public offering, including gross proceeds as a result of any exercise of the underwriters’ over-allotment option
(the “IPO Award”). The IPO Award will be granted over a three-year period as follows: (1) the initial grant will be
made on the date the underwriters’ over-allotment option is exercised or expires, with the number of shares of Company common
stock covered by the initial grant equal to one-third of the Grant Date Value divided by the initial public offering price, (2)
the second grant will be made on the one-year anniversary of the first grant, with the number of shares of Company common stock
covered by the second grant equal to one-third of the Grant Date Value divided by the fair market value of the Company’s
common stock as of the close of business on such grant date, and (3) the third grant will be made on the two-year anniversary of
the first grant, with the number of shares of Company common stock covered by the third grant equal to one-third of the Grant Date
Value divided by the fair market value of the Company’s common stock as of the close of business on such grant date. Each
of the three grants shall vest at the rate of one-third per year over a three-year period, with the initial vesting occurring on
the one-year anniversary of the date of grant. Each of the grants are subject to sufficient shares being available under the Company’s
Amended and Restated 2017 Omnibus Equity Incentive Plan (the “2017 Omnibus Plan”) or any subsequent plan and compliance
with the annual award limitations set forth therein.
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If prior to the IPO Award becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award (as defined below) is provided to the Executive, or (c) the Executive
terminates his employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the outstanding IPO Award
shall become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination
for Good Reason. For purposes of this Agreement, the term “Replacement Award” shall mean an award which satisfies the
following conditions: (1) it has a value at least equal to the value of the outstanding award which it is replacing; (2) it relates
to publicly traded equity securities of the Company or its successor in the Change of Control or another entity that is affiliated
with the Company or its successor following the Change of Control; and (3) its other terms and conditions are not less favorable
to the Executive than the terms and conditions of the outstanding award which it is replacing (including the provisions that would
apply in the event of a subsequent Change of Control). Without limiting the generality of the foregoing, the Replacement Award
may take the form of a continuation of the outstanding award if the requirements of the preceding sentence are satisfied. The determination
of whether the conditions to be a Replacement Award are satisfied shall be made by the Company Compensation Committee, as constituted
immediately before the Change of Control, in its sole discretion.
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3.4
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Annual Restricted Stock Grants
. In the first quarter of each calendar year during the Term,
the Company Compensation Committee shall grant the Executive a restricted stock grant for a number of shares of Company common
stock equal to 25% of the Executive’s base salary as of the end of the preceding calendar year, divided by the fair market
value of the Company’s common stock as of the date of grant, with the number of shares rounded to the nearest whole share
(the “Annual Restricted Stock Grant”), provided that sufficient shares are available under the 2017 Omnibus Plan or
any subsequent plan. The Annual Restricted Stock Grants shall vest at the rate of 20% per year over a five-year period, with the
initial vesting occurring on the one-year anniversary of the date of grant. If prior to an Annual Restricted Stock Grant becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award is provided to the Executive, or (c) the Executive terminates his
employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the Annual Restricted Stock Grant shall
become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination for Good
Reason.
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4.1
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Vacation
. Executive shall be entitled to twenty (20) business days of vacation each year
during the Term, prorated for any portion of a year, which vacation shall be taken at such times as are agreed upon by Executive
and the Board of Directors; provided, however, that during each year of the Term, Executive is required to and shall take at least
ten (10) days of vacation consecutively (the “Mandatory Vacation”). Executive may accrue a maximum of 30 days of vacation.
Once Executive reaches the maximum accrual amount, Executive will not accrue any additional vacation until Executive uses some
of his or her accrued but unused vacation and Executive’s accrued but unused vacation hours decrease to below the maximum
accrual amount.
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4.2
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Automobile
. During the Term, Bank shall pay to Executive, as an automobile allowance, the
sum of eight hundred dollars ($800) per month, which is an allowance for all automobile costs and expenses, including, but not
limited to, fuel, license, maintenance, insurance, repairs and purchase or lease payments.
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4.3
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Group Insurance Benefits
. During the Term, the Bank, at Bank’s expense, shall provide
for Executive all such group insurance benefits as the Bank provides to its most senior executives from time to time. Any additional
coverage may be obtained by Executive at Executive’s expense. Additionally, the Bank shall, at its expense, provide Executive
with a group life insurance policy, payable to a beneficiary of Executive’s choice, in an amount that is available under
the group insurance benefits program.
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4.4
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Other Equity Stock Awards
. Periodically, the Company may grant awards to Executive pursuant
to its equity incentive plans in addition to those grants set forth in Sections 3.3 and 3.4 above. Such equity awards will be in
an amount determined by the Board of Directors of the Company or a committee thereof. Any equity awards shall be evidenced by a
grant agreement in the form approved by the Board of Directors of the Company or a committee thereof. Any grant shall be subject
to such other terms and conditions as may be contained in the equity incentive plan, including, but not limited to, terms relating
to the vesting of restricted shares and grant price of equity grant, and the effect of certain events, such as termination of employment
and mergers or acquisitions, provided that all of such awards shall become fully vested upon either (a) termination of the Executive’s
employment due to death or disability or by the Bank pursuant to Section 6.3 hereof without Cause (as defined in Section 6.1.1
below), (b) a change of control of the Company or the Bank if no Replacement Award is provided to the Executive, or (c) termination
of the Executive’s employment by the Executive for Good Reason (as defined in Section 6.2 below).
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4.5
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Retirement, Profit Sharing and Other Plans
. Executive shall be entitled to participate in
any retirement plans, profit-sharing plans, salary deferral plans, medical expense reimbursement plans, and other similar plans
that Bank may establish with respect to all employees; provided, however, that nothing herein shall require Bank to establish or
maintain any of such plans.
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4.6
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Supplemental Retirement Plan.
Executive shall be entitled to participate in the nonqualified
supplemental retirement plan established by the United Business Bank Amended and Restated Executive Supplemental Compensation Agreement
between Executive and the Bank effective as of February _, 2018 (the “SERP”) according to the terms of such plan.
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5.
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Reimbursement for Business Expenses
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5.1
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Expense Reimbursement
. Executive shall be entitled to reimbursement by the Bank for any
ordinary and necessary business expenses incurred by Executive in the performance of Executive’s duties and in acting for
the Bank during the Term, and provided that:
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5.1.1
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Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state
income tax returns of the Bank as a business expense and not as compensation to Executive; and
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5.1.2
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Executive furnishes to the Bank, in accordance with the Bank’s internal policies, adequate
records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as compensation to
Executive.
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6.1
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Termination for Cause
. The Bank may terminate this Agreement for cause at any time without
further obligation or liability to Executive, by action of the Board of Directors. Notwithstanding the foregoing, upon termination
the Executive shall be entitled to payment of his accrued and unpaid salary, unreimbursed business expenses incurred prior to termination,
accrued but unpaid vacation, and such health, retirement and other benefits that may be available following termination, but only
to the extent provided by the Bank’s benefit plans and policies or as required by law.
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6.1.1
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Definition of Cause
. The following events constitute cause for termination of this Agreement:
(i) Executive fails to perform or habitually neglects the duties which Executive is required to perform hereunder; (ii) Executive
engages in illegal activity which materially adversely affects the Bank’s reputation in the community or which evidences
the lack of Executive’s fitness or ability to perform Executive’s duties as determined by the Board of Directors in
good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated disregard of the policies or procedures
of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure to act in accordance with any direction
or order of the Board of Directors or a committee thereof of the Bank, except those in contravention of any law or regulation,
or any act by Executive which causes termination of coverage of Executive under any fidelity or blanket bond; (iv) gross negligence
adversely affecting the Bank; (v) any willful or material breach of this Agreement or any other willful misconduct; (vi) if Executive
is found to be physically or mentally incapable (as hereinafter defined) of performing Executive’s duties for a continuous
period of ninety (90) days or more by the Board of Directors in good faith; (vii) the Bank is closed or taken over by regulatory
or other supervisory authority; (viii) any bank regulatory or supervisory authority successfully exercises its statutory or regulatory
powers to remove Executive; and (ix) the death of Executive.
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6.1.2
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Warning Notice
. If Executive fails to perform Executive’s duties in a satisfactory
manner or habitually neglects such duties, Bank shall take the following actions before terminating Executive for such cause: (i)
Bank shall have first given Executive written notice setting forth the specific facts and grounds for the Bank’s determination
of Executive’s unsatisfactory performance or habitual neglect (the “Warning Notice”); (ii) promptly after Bank
shall have given the Warning Notice, the Board of Directors (or a committee thereof) shall have met with Executive and informed
Executive of the grounds for termination “for cause,” the extent and nature of Executive’s unsatisfactory performance
or habitual neglect, what Executive must do to remedy such unsatisfactory performance or habitual neglect, and a reasonable period
of time (not less than thirty (30) days unless the nature of the failure, neglect or conduct of Executive is of such magnitude
that if such failure, neglect or conduct is permitted for up to an additional 30 days, such continuation would significantly and
adversely affect the Bank) by which Executive shall have demonstrated satisfactory improvement or shall have remedied the deficient
performance or habitual neglect (the “Cure Period”). If by the end of the Cure Period Executive shall not have made
sufficient progress reasonably satisfactory to the Board of Directors, Executive may be terminated for cause on the terms described
in this Agreement.
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6.1.3
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Other Terms
. Termination under this section shall not prejudice any remedy which the Bank
may have at law, in equity, or under this Agreement. Termination pursuant to this section shall become effective immediately upon
the giving of notice of termination by the Bank. For purposes of this Agreement only, physical or mental disability shall be defined
as Executive being unable to fully perform under this Agreement for a continuous period of ninety (90) days. If there should be
a dispute between the Bank and Executive as to Executive’s physical or mental disability for purposes of this Agreement,
the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or
their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then
by a physician or psychiatrist designated by an impartial third party to be mutually agreed upon. The certification of such physician
or psychiatrist as to the question in dispute shall be final and binding upon the parties hereto.
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6.2
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Termination Following a Change in Control
. If, within one year following a Change in Control
(as hereinafter defined), the employment of the Executive is terminated without cause, or if the Executive terminates his employment
for Good Reason (as hereinafter defined), then the Executive shall be entitled to a severance payment equal to three times the
sum of (a) the Executive’s annual base salary prevailing at the date of such termination, (b) the incentive bonus paid with
respect to the preceding year, and (c) the grant date value of the Annual Restricted Stock Grant for the year in which the termination
occurs or, if the termination occurs before the Annual Restricted Stock Grant is made for such year, the grant date value of the
Annual Restricted Stock Grant for the immediately preceding calendar year (the “Severance Payment”), with the Severance
Payment subject to the provisions of Sections 6.2(iii) and (iv) below. For the purposes of this section:
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(i) “Change in Control”
means: (1) the Company or the Bank is a party to a merger, consolidation, sale of assets or other reorganization, or proxy contest,
pursuant to which any one person or group of persons (as defined in Section 409A of the Code) acquires ownership of stock of the
Company or the Bank that constitutes more than 51% of the total fair market value or total voting power of the outstanding stock
of the Company or the Bank; or (2) a sale of 40% or more of the assets of the Company or the Bank.
Notwithstanding the foregoing provisions
of this section, a Change in Control will not be deemed to have occurred either solely because of (A) the issuance of additional
shares in a secondary stock offering, (B) the issuance of shares pursuant to any stock option grants, or (C) the acquisition of
additional stock of the Company or the Bank by any person or group which has already acquired more than 51% of the total fair market
value or total voting power of the outstanding stock of the Company or the Bank. In order to constitute a Change in Control, the
above events must also constitute a change in the ownership of the Company or the Bank, a change in the effective control of the
Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case
as provided under Section 409A of the Code and the regulations thereunder.
(ii) Termination of the Executive for
“Good Reason” after a Change in Control means any of the following: (1) a material permanent reduction in the Executive’s
total compensation or benefits; (2) a material permanent reduction in the Executive’s title or responsibilities; or (3) a
relocation of the Executive’s principal office so that the Executive’s commute distance is increased by more than forty
(40) miles from Walnut Creek.
The Executive may only terminate his
employment with the Bank for Good Reason by first giving the Bank written notice of the matter or matters which, in the Executive’s
opinion, form a basis for such Good Reason and a statement of his intent to terminate his employment on such basis, which notice
must be provided within ninety (90) days of the initial existence of the condition. The Bank shall thereafter have the right to
remedy the condition within thirty (30) days after the Bank received the written notice from Executive. If the basis for such Good
Reason is remedied by the Bank within the thirty (30) day cure period following receipt of such notice, Executive shall either
rescind his notice of intent to terminate and continue his employment, or terminate his employment under Section 6.3 hereof in
which case the Executive shall not be entitled to any severance pay hereunder. If such Good Reason continues to the end of the
thirty (30) day period without being remedied by the Bank, then the Executive’s employment shall end on the last day of the
thirty (30) day period and the Executive will be entitled to the severance pay as defined in this section.
(iii) The payment of severance pursuant
to this Section 6.2 shall be subject to the following: (1) As a condition for receiving any severance pay hereunder, the Executive
hereby agrees to execute a full and complete release of any and all claims against the Bank, its officers, directors, agents, attorneys,
insurers, employees and successors in interest arising from or in any way related to the Executive’s employment with the
Bank or the termination thereof. Such release shall be executed by the Executive and returned to the Bank so that the revocation
period specified therein expires no later than 60 days after the date of the Executive’s termination of employment, and the
Executive shall not revoke such release during the revocation period. (2) All benefits otherwise enjoyed by the Executive shall
automatically cease. Notwithstanding the foregoing, the Executive shall be entitled to payment of unreimbursed business expenses
incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior to termination, and such health, retirement
and other benefits that may be available following termination but only to the extent provided by the Bank’s benefit plans
and policies (including the SERP), or required by law. (3) Upon termination, the Executive shall immediately return all Bank property
including, but not limited to, documents, credit cards, records, keys, fixed assets, and all other Bank property within the Executive’s
custody or control. (4) Notwithstanding these provisions, the provisions of Section 7 shall also apply to a termination as a result
of a Change in Control.
(iv) The Severance Payment (subject
to deductions for withholding and applicable employment taxes) shall be paid in a cash lump sum in the Bank’s first payroll
period following the date the Executive satisfies all of the conditions set forth in clauses (1) and (3) of Section 6.2(iii) above;
provided however, that if the time period given to the Executive to consider the terms of the release of claims (including any
revocation period under such release) commences in one calendar year and ends in the succeeding calendar, then the Severance Payment
shall not be paid until the succeeding calendar year. The Severance Payment under this Section 6.2 shall be deemed to be exempt
from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), pursuant to the short-term deferral
exemption set forth in Section 409A of the Code and Treasury Regulation §1.409A-1(b)(4).
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6.3
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Termination without Cause
. Notwithstanding anything to the contrary contained in this Agreement,
this Agreement may be terminated at any time by either party without cause, effective thirty (30) days after written notice of
termination is given to the other party. In the event Executive elects to terminate this Agreement without cause pursuant to this
paragraph, Executive shall not be entitled to any salary, benefits or other compensation of any kind under this Agreement, except
for such compensation as may be due and payable through and including the effective date of termination or as may be required by
this Agreement or applicable law. In the event the Bank terminates this Agreement without cause, the Bank shall pay to Executive
an amount equal to the Severance Payment (as defined in Section 6.2 hereof), which aggregate amount shall be payable in equal monthly
installments during the succeeding twenty-four (24) month period beginning on the date of termination. Such Severance Payment shall
be subject to applicable withholding taxes and other normal payroll deductions. Any health insurance benefits provided by the Bank
to Executive at the time of Executive’s termination without cause under this section shall be continued for twenty-four (24)
months on the same terms as when the Executive was employed by Bank, and thereafter, Executive shall have the right to continue
health insurance benefits in effect at the time of Executive’s termination, at Executive’s expense, to the extent permitted
by applicable law. Notwithstanding anything in this section to the contrary, upon termination the Executive shall be entitled to
payment of unreimbursed business expenses incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior
to termination, and such health, retirement and other benefits that may be available following termination but only to the extent
provided by the Bank’s benefit plans and policies (including the SERP), this Agreement, or as required by law. After notice
of termination is given, whether by the Bank or Executive, the Bank may require Executive to cease performing services for the
Bank and may prohibit Executive from coming onto the Bank’s premises through the effective date of termination, provided
that the Bank nonetheless compensates Executive through the effective date of termination. All references in this Section 6.3 to
a termination of employment shall mean shall mean a cessation or reduction in the Executive’s services for the Bank (and
any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation
§1.409A-1(h)(3)) that constitutes a “separation from service” as defined in Section 409A of the Code and the regulations
thereunder, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h).
With respect to amounts payable to the Executive under this Section 6.3 that exceed what may then be paid to him under a separation
pay plan (pursuant to Treasury Regulation Section 1.409A-1(b)(9) (the “Excess Amount”), then (1) the Excess Amount,
if any, shall be treated as deferred compensation for purposes of Section 409A, and (2) if the Executive is a “specified
employee” within the meaning of Section 409A, then any Excess Amounts payable before the 185
th
day following the
date of the Executive’s separation from service shall not be paid until that 185
th
day. For purposes of subparagraph
(2), Excess Amounts shall be treated as paid after amounts payable under this Section 6.3 that are not considered Excess Amounts,
as permitted under Section 409A. No severance or other benefits shall be provided to Executive under this Section 6.3 if severance
payments or benefits are provided under Section 6.2 of this Agreement.
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6.4
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Effect of Termination
. In the event of the termination of this Agreement prior to the completion
of the Term specified herein, Executive shall be entitled to the salary earned by Executive prior to the date of termination as
provided for in this Agreement, computed
pro rata
up to and including that date. Executive shall not be entitled to any
further compensation after the date of termination, except as expressly provided in this Section 6. Except as may otherwise be
expressly agreed or provided, on the expiration of the Term, this Agreement shall be terminated and shall be of no further force
or effect and Executive shall not be entitled to any compensation or benefits of any kind.
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6.5
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Golden Parachute Provision.
Notwithstanding anything in this Agreement to the contrary,
in the event it is determined that any payment or distribution by the Bank to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (such benefits, payments or distributions
are hereinafter referred to as “Payments”) would, if paid, be subject to the excise tax imposed by Code Section 4999
of the Code (the “Excise Tax”), then, prior to the making of any Payments to the Executive, a calculation shall be
made comparing (i) the net after-tax benefit to the Executive of the Payments after payment by the Executive of the Excise Tax,
to (ii) the net after-tax benefit to the Executive if the Payments had been limited to the extent necessary to avoid being subject
to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments
shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). The reduction
of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary,
reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date
of the Change in Control, as determined by the Determination Firm (as defined below). For purposes of this Section 6.5, present
value shall be determined in accordance with Code Section 280G(d)(4). The “Parachute Value” of a Payment means the
present value as of the date of the Change in Control of the portion of such Payment that constitutes a “parachute payment”
under Code Section 280G(b)(2), as determined by the Determination Firm for purposes of determining whether and to what extent the
Excise Tax will apply to such Payment.
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All determinations required to be made
under this Section 6.5, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the
amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an accounting
firm, law firm or compensation consulting firm mutually acceptable to the Bank and the Executive (the “Determination Firm”),
which shall provide detailed supporting calculations both to the Bank and the Executive. All fees and expenses of the Determination
Firm shall be borne solely by the Bank. Any determination by the Determination Firm shall be binding upon the Bank and the Executive.
As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Determination
Firm hereunder, it is possible that Payments which the Executive was entitled to, but did not receive pursuant to Section 6.2 or
6.3, could have been made without the imposition of the Excise Tax (“Underpayment”), consistent with the calculations
required to be made hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Bank to or for the benefit of the Executive, but no later than March l5th
of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment
arises. In the event it is determined that the Executive received Payments that should have been reduced pursuant to the preceding
paragraph (with such excess over the Reduced Amount referred to herein as the “Overpayment”), then the Determination
Firm shall determine the amount of the Overpayment that has occurred and any such Overpayment shall be promptly paid by the Executive
to or for the benefit of the Bank, but no later than March l5th of the year after the year in which the Overpayment is determined
to exist.
In the event that the provisions of
Code Section 280G and 4999 or any successor provisions are repealed without succession, the preceding paragraphs concerning adjustments
to account for the Excise Tax shall be of no further force or effect.
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7.1
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Trade Secrets and Confidential Information
. During the Term, Executive will have access
to and become acquainted with the Bank’s trade secrets and confidential information, including, but not limited to, proprietary
information and data concerning the Bank’s operations, business, sources of business, know-how, customer lists and information
about customers’ financial condition, needs, and methods of doing business. Executive shall not disclose any of such trade
secrets or confidential information, directly or indirectly, or use them in any way, either during the Term or for a period of
one (1) year after the termination of Executive’s employment, except as required in the course of Executive’s employment
with the Bank. Nothing contained in this Agreement limits the Executive’s ability to file a charge or complaint with the
Equal Employment Opportunity Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve
System, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission that has
jurisdiction over the Company or the Bank or any of their subsidiaries or affiliates (the “Government Agencies”). The
Executive further understands that this Agreement does not limit his ability to communicate with any Government Agencies or otherwise
participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or
other information, without notice to the Bank or any of its subsidiaries or affiliates. This Agreement does not limit the Executive’s
right to receive an award for information provided to any Government Agencies. In addition, pursuant to the Defend Trade Secrets
Act of 2016, the Executive understands that an individual may not be held criminally or civilly liable under any federal or state
trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state or local government
official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected
violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose
the employer's trade secrets to the attorney and use the trade secret information in the court proceeding if the individual (y)
files any document containing the trade secret under seal; and (z) does not disclose the trade secret, except pursuant to court
order.
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7.2
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No Solicitation
. During the Term and for a period of one year following the termination
of the Executive’s employment with the Bank, Executive hereby covenants and agrees that the Executive shall not solicit any
customers or employees of the Bank to move their banking or employment relationships from the Bank.
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7.3
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Indemnification
. To the maximum extent permitted by law and applicable regulations, the
Bank shall pay any and all expenses incurred by Executive in connection with the defense or settlement of, and shall pay and satisfy
any judgments, awards, fines and penalties rendered, assessed or levied against Executive in, any judicial, arbitration, mediation
or administrative suit, action, hearing, inquiry or proceeding (whether or not the Bank is joined as a party) relating to acts
or omissions of Executive alleged to have occurred while an “agent” of the Bank, or by the Bank, or by both, provided,
however, that the Bank shall not be obligated to defend, indemnify or hold harmless Executive from the consequences of Executive’s
own grossly negligent or reckless acts or omissions or willful misconduct or dishonesty. In addition, to the maximum extent permitted
by law, the Bank shall advance to Executive, upon receipt of the undertaking required by California Corporations Code Section 317(f),
any expenses incurred in defending against any such proceeding to which Executive is a party or has been threatened to be made
a party. The Bank shall provide Executive with coverage under such directors’ and officers’ liability insurance and
any additional insurance to indemnify and insure the Bank and the Executive from and against the aforementioned liabilities. The
provisions of this Subsection shall apply to the estate, executor, administrator, heirs, legatees or devisees of Executive.
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7.4
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Return of Documents
. Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used and/or developed by Executive during the Term are solely the property of the Bank,
and that Executive has no right, title or interest therein. Upon termination of this Agreement, Executive or Executive’s
representative shall promptly deliver possession of all of said property to the Bank in original or good operating condition, normal
wear and tear excepted.
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7.5
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Notices
. Any notice, request, demand or other communication required or permitted hereunder
shall be deemed to be properly given when personally served in writing, when deposited in the United States mail by either certified
or registered mail with return receipt requested, postage prepaid, or when delivered to a generally recognized overnight courier
service (such as Federal Express, Express Mail or United Parcel Service) for transmittal, addressed to the party at the address
given below for the receipt of notices, or such changed address as may be requested in writing by a party.
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If to the Bank:
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United Business Bank- Corporate Offices
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500 Ygnacio Valley Road
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Suite 200
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Walnut Creek, CA 94596
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If to the Executive:
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George Guarini
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At the last address appearing on the
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personnel records of the Employer
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7.6
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Governing Law
. The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of California.
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7.7
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Captions and Section Headings
. Captions and section headings used herein are for convenience
only and are not a part of this Agreement and shall not be used in construing it.
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7.8
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Invalid Provisions
. Should any provision of this Agreement for any reason be declared invalid,
void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not
be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed
with said provision eliminated.
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7.9
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Entire Agreement
. This Agreement contains the entire agreement of the parties. It supersedes
any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive
by the Bank, including without limitation the Employment Agreement between Executive and the Bank dated as of June 1, 2016, which
agreement shall terminate and have no further force and effect as of the Effective Date. Each party to this Agreement acknowledges
that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, that are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement
shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing
signed by the Bank and Executive.
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7.10
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Receipt of Agreement
. Each of the parties hereto acknowledges that it or he has read this
Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy thereof. A fully executed copy shall be
an original for all purposes, and is a duplicate original.
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7.11
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Attorneys’ Fees
. Each party shall bear such party’s own attorneys’ fees
and costs in connection with the negotiation, preparation and delivery of this Agreement. If any action is instituted to enforce
or interpret this Agreement, the party determined to be the prevailing party shall be entitled to recover its reasonable attorneys’
fees and costs incurred in connection with the enforcement or interpretation of this Agreement.
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7.12
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Assignment
. This Agreement shall inure to the benefit of and be binding upon the parties
and their respective successors and assigns, administrators and executors. This Agreement is for the personal services of Executive
and may not be assigned by Executive.
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7.13
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Arbitration
. Any controversy or claim arising out of, or relating to this Agreement, or
the making, performance or interpretation of this Agreement, shall be settled by arbitration before a single arbitrator in the
City of Walnut Creek, California, under the commercial arbitration rules of the American Arbitration Association (the “AAA”)
then existing, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter or
the controversy. The arbitrator shall be selected by the mutual agreement of the parties within ten (10) business days of the date
when the parties shall first have the opportunity to select an arbitrator (the “Selection Period”); provided, however,
that if the parties fail to agree upon an arbitrator by the expiration of the Selection Period, each party shall, within five (5)
business days after the expiration of the Selection Period, select an arbitrator from the list of arbitrators provided by the AAA
and the two arbitrators so selected by each party, acting independently, shall, within thirty (30) days of both being selected,
agree upon the selection of the arbitrator to arbitrate the controversy or claim.
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7.14
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Regulatory Approval.
The terms of this Agreement
may be subject to approval by any state or federal regulatory authority having jurisdiction over the Bank, as and to the extent
required by applicable law and regulation.
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7.15
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Regulatory Prohibition.
Notwithstanding any other provision
of this Agreement to the contrary, any renewal of this Agreement and any payments made to Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12
U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.
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(Signature
page follows)
The parties to this Agreement
have executed this Agreement as of the dates set forth below, effective as of the Effective Date.
United Business Bank
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By:
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/s/Keary L. Colwell
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Date: February 22, 2018
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Attest:
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/s/Janet L. King
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Date: February 22, 2018
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BayCom Corp
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By:
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/s/Keary L. Colwell
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Date: February 22, 2018
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Attest:
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/s/Janet L. King
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Date: February 22, 2018
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Executive:
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/s/George J. Guarini
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Date: February 22, 2018
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George Guarini
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Exhibit 10.2
Amended
and Restated Employment Agreement
This Amended and Restated
Employment Agreement (“Agreement”) is made this 22
nd
day of February 2018 (the “Effective Date”),
by and among United Business Bank (the “Bank”), having a principal place of business at 500 Ygnacio Valley Road, Suite
200, Walnut Creek, California, BayCom Corp, a California corporation (the “Company”) and the parent holding company
of the Bank, and Janet King (“Executive”).
Recitals
A.
The
Bank is a California-chartered bank, which is validly existing and in good standing under the laws of the State of California,
with power to own property and carry on its business as it is now being conducted;
B.
The
Bank desires to avail itself of the skill, knowledge and experience of Executive in order to ensure the successful management of
its business;
C. Bay
Commercial Bank (now known as United Business Bank) entered into an Employment Agreement with Executive dated as of June 1, 2016
(the “Prior Agreement”) to specify the terms of Executive’s employment; and
D. The Bank and Executive desire to amend and restate the Prior Agreement in order to (i) reflect the change in the name of the Bank,
(ii) reflect the formation of the Company as the parent holding company of the Bank, (iii) enhance the severance benefits of Executive
in light of the Company becoming a publicly registered company under the federal securities laws, and (iv) make certain other changes
as set forth herein; and
In consideration of the
mutual covenants set forth in this Agreement, it is agreed that from and after the Effective Date, the following terms and conditions
shall apply to Executive’s said employment:
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1.1
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Term
. The Bank hereby employs Executive and Executive hereby accepts employment with the
Bank for the period commencing with the Effective Date and continuing for the three (3) years thereafter (the “Term”),
subject, however, to renewal or prior termination of this Agreement as hereinafter provided. Where used herein, “Term”
shall refer to the entire period of employment of Executive by the Bank hereunder, whether for the period provided above, or whether
renewed or terminated earlier as hereinafter provided.
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Beginning on the
first anniversary of the Effective Date, and on each subsequent anniversary of the Effective Date, the Term of the Agreement will
automatically extend for twelve (12) months unless and until either party gives written notice to the contrary not less than ninety
(90) days prior to any such anniversary date, in which case this Agreement shall terminate at the end of the Term then in effect
as of the date of such notice. Notwithstanding the foregoing, the Term shall end at such earlier date that the Executive’s
employment is terminated pursuant to Section 6 hereof.
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2.1
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Duties
. Executive shall perform the duties of Senior Executive Vice President and Chief
Operating Officer of the Bank, as described more fully in the job description for such position approved by the Board of Directors,
and subject to the powers by law vested in the Board of Directors of the Bank. During the Term, Executive shall perform exclusively
the services herein contemplated to be performed by Executive faithfully, diligently and to the best of Executive’s ability,
consistent with the highest and best standards of the banking industry and in compliance with all applicable laws and regulations,
the Bank’s Articles of Incorporation, Bylaws and policies and procedures.
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2.2
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Conflicts of Interest
. Except as permitted by the prior written consent of the Board of
Directors of the Bank, Executive shall devote Executive’s entire productive time, ability and attention to the business of
the Bank during the Term, and Executive shall not directly or indirectly render any services of a business, commercial or professional
nature to any other person, firm or corporation, whether for compensation or otherwise, which are in conflict with the Bank’s
interests. Notwithstanding the foregoing, Executive may make investments of a passive nature in any business or venture, provided
however, that such business or venture is neither in competition, directly or indirectly, in any manner with the Bank nor a customer
of the Bank, and also may engage in civic and charitable activities and may also invest in any company listed on a national securities
exchange provided that Executive does not own 1% or more of such company’s outstanding shares.
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3.1
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Salary
. The Bank shall pay to Executive an annual base salary at the rate of at least three
hundred fifty-seven thousand five hundred dollars ($357,500) per year beginning on the Effective Date, subject to adjustments as
may be determined from time to time by the Board of Directors in its discretion. Said salary shall be payable in equal installments
in conformity with the Bank’s normal payroll period.
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3.2
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Incentive Bonus
. Annually, the HR/Compensation Committee of the Board of Directors shall
adopt an incentive program based on factors that the Committee believes are appropriate in its discretion, including but not limited
to the financial and operational performance of the Bank. Cash incentive bonuses will be based on the programs adopted annually
and will be payable in a lump sum not later than March 15 following the end of each fiscal year. The Executive must be continuously
employed by the Bank for the whole of the fiscal year to which such incentive bonuses relate, except that the incentive program
may provide for the incentive bonus to be pro-rated if Executive dies or becomes disabled during the year or a change in control
occurs during the year. The incentive bonus will not be pro-rated if the Executive’s employment terminates for any other
reason prior to the end of such fiscal year.
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3.3
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IPO Restricted Stock Grant
. In the event the Company successfully completes an initial public
offering of its common stock for at least $30.0 million of gross proceeds (the “IPO”), the compensation committee of
the Board of Directors of the Company (the “Company Compensation Committee”) shall grant to the Executive a restricted
stock award with an aggregate grant date value (“Grant Date Value”) equal to 0.825% of the gross proceeds raised in
the initial public offering, including gross proceeds as a result of any exercise of the underwriters’ over-allotment option
(the “IPO Award”). The IPO Award will be granted over a three-year period as follows: (1) the initial grant will be
made on the date the underwriters’ over-allotment option is exercised or expires, with the number of shares of Company common
stock covered by the initial grant equal to one-third of the Grant Date Value divided by the initial public offering price, (2)
the second grant will be made on the one-year anniversary of the first grant, with the number of shares of Company common stock
covered by the second grant equal to one-third of the Grant Date Value divided by the fair market value of the Company’s
common stock as of the close of business on such grant date, and (3) the third grant will be made on the two-year anniversary of
the first grant, with the number of shares of Company common stock covered by the third grant equal to one-third of the Grant Date
Value divided by the fair market value of the Company’s common stock as of the close of business on such grant date. Each
of the three grants shall vest at the rate of one-third per year over a three-year period, with the initial vesting occurring on
the one-year anniversary of the date of grant. Each of the grants are subject to sufficient shares being available under the Company’s
Amended and Restated 2017 Omnibus Equity Incentive Plan (the “2017 Omnibus Plan”) or any subsequent plan and compliance
with the annual award limitations set forth therein.
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If prior to the IPO Award becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award (as defined below) is provided to the Executive, or (c) the Executive
terminates her employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the outstanding IPO Award
shall become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination
for Good Reason. For purposes of this Agreement, the term “Replacement Award” shall mean an award which satisfies the
following conditions: (1) it has a value at least equal to the value of the outstanding award which it is replacing; (2) it relates
to publicly traded equity securities of the Company or its successor in the Change of Control or another entity that is affiliated
with the Company or its successor following the Change of Control; and (3) its other terms and conditions are not less favorable
to the Executive than the terms and conditions of the outstanding award which it is replacing (including the provisions that would
apply in the event of a subsequent Change of Control). Without limiting the generality of the foregoing, the Replacement Award
may take the form of a continuation of the outstanding award if the requirements of the preceding sentence are satisfied. The determination
of whether the conditions to be a Replacement Award are satisfied shall be made by the Company Compensation Committee, as constituted
immediately before the Change of Control, in its sole discretion.
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3.4
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Annual Restricted Stock Grants
. In the first quarter of each calendar year during the Term,
the Company Compensation Committee shall grant the Executive a restricted stock grant for a number of shares of Company common
stock equal to 15% of the Executive’s base salary as of the end of the preceding calendar year, divided by the fair market
value of the Company’s common stock as of the date of grant, with the number of shares rounded to the nearest whole share
(the “Annual Restricted Stock Grant”), provided that sufficient shares are available under the 2017 Omnibus Plan or
any subsequent plan. The Annual Restricted Stock Grants shall vest at the rate of 20% per year over a five-year period, with the
initial vesting occurring on the one-year anniversary of the date of grant. If prior to an Annual Restricted Stock Grant becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award is provided to the Executive, or (c) the Executive terminates her
employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the Annual Restricted Stock Grant shall
become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination for Good
Reason.
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4.1
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Vacation
. Executive shall be entitled to twenty (20) business days of vacation each year
during the Term, prorated for any portion of a year, which vacation shall be taken at such times as are agreed upon by Executive
and the President of the Bank; provided, however, that during each year of the Term, Executive is required to and shall take at
least ten (10) days of vacation consecutively (the “Mandatory Vacation”). Executive may accrue a maximum of 30 days
of vacation. Once Executive reaches the maximum accrual amount, Executive will not accrue any additional vacation until Executive
uses some of her accrued but unused vacation and Executive’s accrued but unused vacation hours decrease to below the maximum
accrual amount.
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4.2
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Automobile
. During the Term, Bank shall pay to Executive, as an automobile allowance, the
sum of eight hundred dollars ($800) per month, which is an allowance for all automobile costs and expenses, including, but not
limited to, fuel, license, maintenance, insurance, repairs and purchase or lease payments.
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4.3
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Group Insurance Benefits
. During the Term, the Bank, at Bank’s expense, shall provide
for Executive all such group insurance benefits as the Bank provides to its most senior executives from time to time. Any additional
coverage may be obtained by Executive at Executive’s expense. Additionally, the Bank shall, at its expense, provide Executive
with a group life insurance policy, payable to a beneficiary of Executive’s choice, in an amount that is available under
the group insurance benefits program.
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4.4
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Other Equity Stock Awards
. Periodically, the Company may grant awards to Executive pursuant
to its equity incentive plans in addition to those grants set forth in Sections 3.3 and 3.4 above. Such equity awards will be in
an amount determined by the Board of Directors of the Company or a committee thereof. Any equity awards shall be evidenced by a
grant agreement in the form approved by the Board of Directors of the Company or a committee thereof. Any grant shall be subject
to such other terms and conditions as may be contained in the equity incentive plan, including, but not limited to, terms relating
to the vesting of restricted shares and grant price of equity grant, and the effect of certain events, such as termination of employment
and mergers or acquisitions, provided that all of such awards shall become fully vested upon either (a) termination of the Executive’s
employment due to death or disability or by the Bank pursuant to Section 6.3 hereof without Cause (as defined in Section 6.1.1
below), (b) a change of control of the Company or the Bank if no Replacement Award is provided to the Executive, or (c) termination
of the Executive’s employment by the Executive for Good Reason (as defined in Section 6.2 below).
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4.5
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Retirement, Profit Sharing and Other Plans
. Executive shall be entitled to participate in
any retirement plans, profit-sharing plans, salary deferral plans, medical expense reimbursement plans, and other similar plans
that Bank may establish with respect to all employees; provided, however, that nothing herein shall require Bank to establish or
maintain any of such plans.
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4.6
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Supplemental Retirement Plan.
Executive shall be entitled to participate in the nonqualified
supplemental retirement plan established by the United Business Bank Amended and Restated Executive Supplemental Compensation Agreement
between Executive and the Bank effective as of February _, 2018 (the “SERP”) according to the terms of such plan.
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5.
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Reimbursement for Business Expenses
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5.1
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Expense Reimbursement
. Executive shall be entitled to reimbursement by the Bank for any
ordinary and necessary business expenses incurred by Executive in the performance of Executive’s duties and in acting for
the Bank during the Term, subject to the approval of such expenditures by the President of the Bank, and provided that:
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5.1.1
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Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state
income tax returns of the Bank as a business expense and not as compensation to Executive; and
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5.1.2
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Executive furnishes to the Bank, in accordance with the Bank’s internal policies, adequate
records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as compensation to
Executive.
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6.1
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Termination for Cause
. The Bank may terminate this Agreement for cause at any time without
further obligation or liability to Executive, by action of the Board of Directors. Notwithstanding the foregoing, upon termination
the Executive shall be entitled to payment of her accrued and unpaid salary, unreimbursed business expenses incurred prior to termination,
accrued but unpaid vacation, and such health, retirement and other benefits that may be available following termination, but only
to the extent provided by the Bank’s benefit plans and policies or as required by law.
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6.1.1
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Definition of Cause
. The following events constitute cause for termination of this Agreement:
(i) Executive fails to perform or habitually neglects the duties which Executive is required to perform hereunder; (ii) Executive
engages in illegal activity which materially adversely affects the Bank’s reputation in the community or which evidences
the lack of Executive’s fitness or ability to perform Executive’s duties as determined by the Board of Directors in
good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated disregard of the policies or procedures
of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure to act in accordance with any direction
or order of the Board of Directors or a committee thereof of the Bank, except those in contravention of any law or regulation,
or any act by Executive which causes termination of coverage of Executive under any fidelity or blanket bond; (iv) gross negligence
adversely affecting the Bank; (v) any willful or material breach of this Agreement or any other willful misconduct; (vi) if Executive
is found to be physically or mentally incapable (as hereinafter defined) of performing Executive’s duties for a continuous
period of ninety (90) days or more by the Board of Directors in good faith; (vii) the Bank is closed or taken over by regulatory
or other supervisory authority; (viii) any bank regulatory or supervisory authority successfully exercises its statutory or regulatory
powers to remove Executive; and (ix) the death of Executive.
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6.1.2
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Warning Notice
. If Executive fails to perform Executive’s duties in a satisfactory
manner or habitually neglects such duties, Bank shall take the following actions before terminating Executive for such cause: (i)
Bank shall have first given Executive written notice setting forth the specific facts and grounds for the Bank’s determination
of Executive’s unsatisfactory performance or habitual neglect (the “Warning Notice”); (ii) promptly after Bank
shall have given the Warning Notice, the Board of Directors (or a committee thereof) shall have met with Executive and informed
Executive of the grounds for termination “for cause,” the extent and nature of Executive’s unsatisfactory performance
or habitual neglect, what Executive must do to remedy such unsatisfactory performance or habitual neglect, and a reasonable period
of time (not less than thirty (30) days unless the nature of the failure, neglect or conduct of Executive is of such magnitude
that if such failure, neglect or conduct is permitted for up to an additional 30 days, such continuation would significantly and
adversely affect the Bank) by which Executive shall have demonstrated satisfactory improvement or shall have remedied the deficient
performance or habitual neglect (the “Cure Period”). If by the end of the Cure Period Executive shall not have made
sufficient progress reasonably satisfactory to the Board of Directors, Executive may be terminated for cause on the terms described
in this Agreement.
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6.1.3
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Other Terms
. Termination under this section shall not prejudice any remedy which the Bank
may have at law, in equity, or under this Agreement. Termination pursuant to this section shall become effective immediately upon
the giving of notice of termination by the Bank. For purposes of this Agreement only, physical or mental disability shall be defined
as Executive being unable to fully perform under this Agreement for a continuous period of ninety (90) days. If there should be
a dispute between the Bank and Executive as to Executive’s physical or mental disability for purposes of this Agreement,
the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or
their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then
by a physician or psychiatrist designated by an impartial third party to be mutually agreed upon. The certification of such physician
or psychiatrist as to the question in dispute shall be final and binding upon the parties hereto.
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6.2
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Termination Following a Change in Control
. If, within one year following a Change in Control
(as hereinafter defined), the employment of the Executive is terminated without cause, or if the Executive terminates her employment
for Good Reason (as hereinafter defined), then the Executive shall be entitled to a severance payment equal to two times the sum
of (a) the Executive’s annual base salary prevailing at the date of such termination, (b) the incentive bonus paid with respect
to the preceding year, and (c) the grant date value of the Annual Restricted Stock Grant for the year in which the termination
occurs or, if the termination occurs before the Annual Restricted Stock Grant is made for such year, the grant date value of the
Annual Restricted Stock Grant for the immediately preceding calendar year (the “Severance Payment”), with the Severance
Payment subject to the provisions of Sections 6.2(iii) and (iv) below. For the purposes of this section:
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(i) “Change in Control”
means: (1) the Company or the Bank is a party to a merger, consolidation, sale of assets or other reorganization, or proxy contest,
pursuant to which any one person or group of persons (as defined in Section 409A of the Code) acquires ownership of stock of the
Company or the Bank that constitutes more than 51% of the total fair market value or total voting power of the outstanding stock
of the Company or the Bank; or (2) a sale of 40% or more of the assets of the Company or the Bank.
Notwithstanding the foregoing provisions
of this section, a Change in Control will not be deemed to have occurred either solely because of (A) the issuance of additional
shares in a secondary stock offering, (B) the issuance of shares pursuant to any stock option grants, or (C) the acquisition of
additional stock of the Company or the Bank by any person or group which has already acquired more than 51% of the total fair market
value or total voting power of the outstanding stock of the Company or the Bank. In order to constitute a Change in Control, the
above events must also constitute a change in the ownership of the Company or the Bank, a change in the effective control of the
Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case
as provided under Section 409A of the Code and the regulations thereunder.
(ii) Termination of the Executive for
“Good Reason” after a Change in Control means any of the following: (1) a material permanent reduction in the Executive’s
total compensation or benefits; (2) a material permanent reduction in the Executive’s title or responsibilities; or (3) a
relocation of the Executive’s principal office so that the Executive’s commute distance is increased by more than forty
(40) miles from Walnut Creek.
The Executive may only terminate her
employment with the Bank for Good Reason by first giving the Bank written notice of the matter or matters which, in the Executive’s
opinion, form a basis for such Good Reason and a statement of her intent to terminate her employment on such basis, which notice
must be provided within ninety (90) days of the initial existence of the condition. The Bank shall thereafter have the right to
remedy the condition within thirty (30) days after the Bank received the written notice from Executive. If the basis for such Good
Reason is remedied by the Bank within the thirty (30) day cure period following receipt of such notice, Executive shall either
rescind her notice of intent to terminate and continue her employment, or terminate her employment under Section 6.3 hereof in
which case the Executive shall not be entitled to any severance pay hereunder. If such Good Reason continues to the end of the
thirty (30) day period without being remedied by the Bank, then the Executive’s employment shall end on the last day of the
thirty (30) day period and the Executive will be entitled to the severance pay as defined in this section.
(iii) The payment of severance pursuant
to this Section 6.2 shall be subject to the following: (1) As a condition for receiving any severance pay hereunder, the Executive
hereby agrees to execute a full and complete release of any and all claims against the Bank, its officers, directors, agents, attorneys,
insurers, employees and successors in interest arising from or in any way related to the Executive’s employment with the
Bank or the termination thereof. Such release shall be executed by the Executive and returned to the Bank so that the revocation
period specified therein expires no later than 60 days after the date of the Executive’s termination of employment, and the
Executive shall not revoke such release during the revocation period. (2) All benefits otherwise enjoyed by the Executive shall
automatically cease. Notwithstanding the foregoing, the Executive shall be entitled to payment of unreimbursed business expenses
incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior to termination, and such health, retirement
and other benefits that may be available following termination but only to the extent provided by the Bank’s benefit plans
and policies (including the SERP), or required by law. (3) Upon termination, the Executive shall immediately return all Bank property
including, but not limited to, documents, credit cards, records, keys, fixed assets, and all other Bank property within the Executive’s
custody or control. (4) Notwithstanding these provisions, the provisions of Section 7 shall also apply to a termination as a result
of a Change in Control.
(iv) The Severance Payment (subject
to deductions for withholding and applicable employment taxes) shall be paid in a cash lump sum in the Bank’s first payroll
period following the date the Executive satisfies all of the conditions set forth in clauses (1) and (3) of Section 6.2(iii) above;
provided however, that if the time period given to the Executive to consider the terms of the release of claims (including any
revocation period under such release) commences in one calendar year and ends in the succeeding calendar, then the Severance Payment
shall not be paid until the succeeding calendar year. The Severance Payment under this Section 6.2 shall be deemed to be exempt
from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), pursuant to the short-term deferral
exemption set forth in Section 409A of the Code and Treasury Regulation §1.409A-1(b)(4).
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6.3
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Termination without Cause
. Notwithstanding anything to the contrary contained in this Agreement,
this Agreement may be terminated at any time by either party without cause, effective thirty (30) days after written notice of
termination is given to the other party. In the event Executive elects to terminate this Agreement without cause pursuant to this
paragraph, Executive shall not be entitled to any salary, benefits or other compensation of any kind under this Agreement, except
for such compensation as may be due and payable through and including the effective date of termination or as may be required by
this Agreement or applicable law. In the event the Bank terminates this Agreement without cause, the Bank shall pay to Executive
an amount equal to the Severance Payment (as defined in Section 6.2 hereof), which aggregate amount shall be payable in equal monthly
installments during the succeeding twelve (12) month period beginning on the date of termination. Such Severance Payment shall
be subject to applicable withholding taxes and other normal payroll deductions. Any health insurance benefits provided by the Bank
to Executive at the time of Executive’s termination without cause under this section shall be continued for twelve (12) months
on the same terms as when the Executive was employed by Bank, and thereafter, Executive shall have the right to continue health
insurance benefits in effect at the time of Executive’s termination, at Executive’s expense, to the extent permitted
by applicable law. Notwithstanding anything in this section to the contrary, upon termination the Executive shall be entitled to
payment of unreimbursed business expenses incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior
to termination, and such health, retirement and other benefits that may be available following termination but only to the extent
provided by the Bank’s benefit plans and policies (including the SERP), this Agreement, or as required by law. After notice
of termination is given, whether by the Bank or Executive, the Bank may require Executive to cease performing services for the
Bank and may prohibit Executive from coming onto the Bank’s premises through the effective date of termination, provided
that the Bank nonetheless compensates Executive through the effective date of termination. All references in this Section 6.3 to
a termination of employment shall mean shall mean a cessation or reduction in the Executive’s services for the Bank (and
any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation
§1.409A-1(h)(3)) that constitutes a “separation from service” as defined in Section 409A of the Code and the regulations
thereunder, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h).
With respect to amounts payable to the Executive under this Section 6.3 that exceed what may then be paid to him under a separation
pay plan (pursuant to Treasury Regulation Section 1.409A-1(b)(9) (the “Excess Amount”), then (1) the Excess Amount,
if any, shall be treated as deferred compensation for purposes of Section 409A, and (2) if the Executive is a “specified
employee” within the meaning of Section 409A, then any Excess Amounts payable before the 185
th
day following the
date of the Executive’s separation from service shall not be paid until that 185
th
day. For purposes of subparagraph
(2), Excess Amounts shall be treated as paid after amounts payable under this Section 6.3 that are not considered Excess Amounts,
as permitted under Section 409A. No severance or other benefits shall be provided to Executive under this Section 6.3 if severance
payments or benefits are provided under Section 6.2 of this Agreement.
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6.4
|
Effect of Termination
. In the event of the termination of this Agreement prior to the completion
of the Term specified herein, Executive shall be entitled to the salary earned by Executive prior to the date of termination as
provided for in this Agreement, computed
pro rata
up to and including that date. Executive shall not be entitled to any
further compensation after the date of termination, except as expressly provided in this Section 6. Except as may otherwise be
expressly agreed or provided, on the expiration of the Term, this Agreement shall be terminated and shall be of no further force
or effect and Executive shall not be entitled to any compensation or benefits of any kind.
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6.5
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Golden Parachute Provision.
Notwithstanding anything in this Agreement to the contrary,
in the event it is determined that any payment or distribution by the Bank to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (such benefits, payments or distributions
are hereinafter referred to as “Payments”) would, if paid, be subject to the excise tax imposed by Code Section 4999
of the Code (the “Excise Tax”), then, prior to the making of any Payments to the Executive, a calculation shall be
made comparing (i) the net after-tax benefit to the Executive of the Payments after payment by the Executive of the Excise Tax,
to (ii) the net after-tax benefit to the Executive if the Payments had been limited to the extent necessary to avoid being subject
to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments
shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). The reduction
of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary,
reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date
of the Change in Control, as determined by the Determination Firm (as defined below). For purposes of this Section 6.5, present
value shall be determined in accordance with Code Section 280G(d)(4). The “Parachute Value” of a Payment means the
present value as of the date of the Change in Control of the portion of such Payment that constitutes a “parachute payment”
under Code Section 280G(b)(2), as determined by the Determination Firm for purposes of determining whether and to what extent the
Excise Tax will apply to such Payment.
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All determinations required to be made
under this Section 6.5, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the
amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an accounting
firm, law firm or compensation consulting firm mutually acceptable to the Bank and the Executive (the “Determination Firm”),
which shall provide detailed supporting calculations both to the Bank and the Executive. All fees and expenses of the Determination
Firm shall be borne solely by the Bank. Any determination by the Determination Firm shall be binding upon the Bank and the Executive.
As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Determination
Firm hereunder, it is possible that Payments which the Executive was entitled to, but did not receive pursuant to Section 6.2 or
6.3, could have been made without the imposition of the Excise Tax (“Underpayment”), consistent with the calculations
required to be made hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Bank to or for the benefit of the Executive, but no later than March l5th
of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment
arises. In the event it is determined that the Executive received Payments that should have been reduced pursuant to the preceding
paragraph (with such excess over the Reduced Amount referred to herein as the “Overpayment”), then the Determination
Firm shall determine the amount of the Overpayment that has occurred and any such Overpayment shall be promptly paid by the Executive
to or for the benefit of the Bank, but no later than March l5th of the year after the year in which the Overpayment is determined
to exist.
In the event that the provisions of
Code Section 280G and 4999 or any successor provisions are repealed without succession, the preceding paragraphs concerning adjustments
to account for the Excise Tax shall be of no further force or effect.
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7.1
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Trade Secrets and Confidential Information
. During the Term, Executive will have access
to and become acquainted with the Bank’s trade secrets and confidential information, including, but not limited to, proprietary
information and data concerning the Bank’s operations, business, sources of business, know-how, customer lists and information
about customers’ financial condition, needs, and methods of doing business. Executive shall not disclose any of such trade
secrets or confidential information, directly or indirectly, or use them in any way, either during the Term or for a period of
one (1) year after the termination of Executive’s employment, except as required in the course of Executive’s employment
with the Bank. Nothing contained in this Agreement limits the Executive’s ability to file a charge or complaint with the
Equal Employment Opportunity Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve
System, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission that has
jurisdiction over the Company or the Bank or any of their subsidiaries or affiliates (the “Government Agencies”). The
Executive further understands that this Agreement does not limit her ability to communicate with any Government Agencies or otherwise
participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or
other information, without notice to the Bank or any of its subsidiaries or affiliates. This Agreement does not limit the Executive’s
right to receive an award for information provided to any Government Agencies. In addition, pursuant to the Defend Trade Secrets
Act of 2016, the Executive understands that an individual may not be held criminally or civilly liable under any federal or state
trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state or local government
official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected
violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose
the employer's trade secrets to the attorney and use the trade secret information in the court proceeding if the individual (y)
files any document containing the trade secret under seal; and (z) does not disclose the trade secret, except pursuant to court
order.
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7.2
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No Solicitation
. During the Term and for a period of one year following the termination
of the Executive’s employment with the Bank, Executive hereby covenants and agrees that the Executive shall not solicit any
customers or employees of the Bank to move their banking or employment relationships from the Bank.
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7.3
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Indemnification
. To the maximum extent permitted by law and applicable regulations, the
Bank shall pay any and all expenses incurred by Executive in connection with the defense or settlement of, and shall pay and satisfy
any judgments, awards, fines and penalties rendered, assessed or levied against Executive in, any judicial, arbitration, mediation
or administrative suit, action, hearing, inquiry or proceeding (whether or not the Bank is joined as a party) relating to acts
or omissions of Executive alleged to have occurred while an “agent” of the Bank, or by the Bank, or by both, provided,
however, that the Bank shall not be obligated to defend, indemnify or hold harmless Executive from the consequences of Executive’s
own grossly negligent or reckless acts or omissions or willful misconduct or dishonesty. In addition, to the maximum extent permitted
by law, the Bank shall advance to Executive, upon receipt of the undertaking required by California Corporations Code Section 317(f),
any expenses incurred in defending against any such proceeding to which Executive is a party or has been threatened to be made
a party. The Bank shall provide Executive with coverage under such directors’ and officers’ liability insurance and
any additional insurance to indemnify and insure the Bank and the Executive from and against the aforementioned liabilities. The
provisions of this Subsection shall apply to the estate, executor, administrator, heirs, legatees or devisees of Executive.
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7.4
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Return of Documents
. Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used and/or developed by Executive during the Term are solely the property of the Bank,
and that Executive has no right, title or interest therein. Upon termination of this Agreement, Executive or Executive’s
representative shall promptly deliver possession of all of said property to the Bank in original or good operating condition, normal
wear and tear excepted.
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7.5
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Notices
. Any notice, request, demand or other communication required or permitted hereunder
shall be deemed to be properly given when personally served in writing, when deposited in the United States mail by either certified
or registered mail with return receipt requested, postage prepaid, or when delivered to a generally recognized overnight courier
service (such as Federal Express, Express Mail or United Parcel Service) for transmittal, addressed to the party at the address
given below for the receipt of notices, or such changed address as may be requested in writing by a party.
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If to the Bank:
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United Business Bank- Corporate Offices
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500 Ygnacio Valley Road
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Suite 200
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Walnut Creek, CA 94596
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If to the Executive:
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Janet King
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At the last address appearing on the
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personnel records of the Employer
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7.6
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Governing Law
. The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of California.
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7.7
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Captions and Section Headings
. Captions and section headings used herein are for convenience
only and are not a part of this Agreement and shall not be used in construing it.
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7.8
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Invalid Provisions
. Should any provision of this Agreement for any reason be declared invalid,
void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not
be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed
with said provision eliminated.
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7.9
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Entire Agreement
. This Agreement contains the entire agreement of the parties. It supersedes
any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive
by the Bank, including without limitation the Employment Agreement between Executive and the Bank dated as of June 1, 2016, which
agreement shall terminate and have no further force and effect as of the Effective Date. Each party to this Agreement acknowledges
that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, that are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement
shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing
signed by the Bank and Executive.
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7.10
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Receipt of Agreement
. Each of the parties hereto acknowledges that it or he has read this
Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy thereof. A fully executed copy shall be
an original for all purposes, and is a duplicate original.
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7.11
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Attorneys’ Fees
. Each party shall bear such party’s own attorneys’ fees
and costs in connection with the negotiation, preparation and delivery of this Agreement. If any action is instituted to enforce
or interpret this Agreement, the party determined to be the prevailing party shall be entitled to recover its reasonable attorneys’
fees and costs incurred in connection with the enforcement or interpretation of this Agreement.
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7.12
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Assignment
. This Agreement shall inure to the benefit of and be binding upon the parties
and their respective successors and assigns, administrators and executors. This Agreement is for the personal services of Executive
and may not be assigned by Executive.
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7.13
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Arbitration
. Any controversy or claim arising out of, or relating to this Agreement, or
the making, performance or interpretation of this Agreement, shall be settled by arbitration before a single arbitrator in the
City of Walnut Creek, California, under the commercial arbitration rules of the American Arbitration Association (the “AAA”)
then existing, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter or
the controversy. The arbitrator shall be selected by the mutual agreement of the parties within ten (10) business days of the date
when the parties shall first have the opportunity to select an arbitrator (the “Selection Period”); provided, however,
that if the parties fail to agree upon an arbitrator by the expiration of the Selection Period, each party shall, within five (5)
business days after the expiration of the Selection Period, select an arbitrator from the list of arbitrators provided by the AAA
and the two arbitrators so selected by each party, acting independently, shall, within thirty (30) days of both being selected,
agree upon the selection of the arbitrator to arbitrate the controversy or claim.
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7.14
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Regulatory Approval.
The terms of this Agreement
may be subject to approval by any state or federal regulatory authority having jurisdiction over the Bank, as and to the extent
required by applicable law and regulation.
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7.15
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Regulatory Prohibition.
Notwithstanding any other provision
of this Agreement to the contrary, any renewal of this Agreement and any payments made to Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12
U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.
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(Signature
page follows)
The parties to this Agreement
have executed this Agreement as of the dates set forth below, effective as of the Effective Date.
United Business Bank
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By:
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/s/Keary L. Colwell
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Date: February 22, 2018
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Attest:
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/s/George J. Guarini
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Date: February 22, 2018
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BayCom Corp
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By:
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/s/Keary L. Colwell
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Date: February 22, 2018
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Attest:
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/s/George J. Guarani
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Date: February 22, 2018
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Executive:
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/s/Janet L. King
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Date: February 22, 2018
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Janet King
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Exhibit 10.3
Amended
and Restated Employment Agreement
This Amended and Restated
Employment Agreement (“Agreement”) is made this 22
nd
day of February 2018 (the “Effective Date”),
by and among United Business Bank (the “Bank”), having a principal place of business at 500 Ygnacio Valley Road, Suite
200, Walnut Creek, California, BayCom Corp, a California corporation (the “Company”) and the parent holding company
of the Bank, and Keary Colwell (“Executive”).
Recitals
A.
The
Bank is a California-chartered bank, which is validly existing and in good standing under the laws of the State of California,
with power to own property and carry on its business as it is now being conducted;
B.
The
Bank desires to avail itself of the skill, knowledge and experience of Executive in order to ensure the successful management of
its business;
C. Bay
Commercial Bank (now known as United Business Bank) entered into an Employment Agreement with Executive dated as of June 1, 2016
(the “Prior Agreement”) to specify the terms of Executive’s employment; and
D. The Bank and Executive desire to amend and restate the Prior Agreement in order to (i) reflect the change in the name of the Bank,
(ii) reflect the formation of the Company as the parent holding company of the Bank, (iii) enhance the severance benefits of Executive
in light of the Company becoming a publicly registered company under the federal securities laws, and (iv) make certain other changes
as set forth herein; and
In consideration of the
mutual covenants set forth in this Agreement, it is agreed that from and after the Effective Date, the following terms and conditions
shall apply to Executive’s said employment:
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1.1
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Term
. The Bank hereby employs Executive and Executive hereby accepts employment with the
Bank for the period commencing with the Effective Date and continuing for the three (3) years thereafter (the “Term”),
subject, however, to renewal or prior termination of this Agreement as hereinafter provided. Where used herein, “Term”
shall refer to the entire period of employment of Executive by the Bank hereunder, whether for the period provided above, or whether
renewed or terminated earlier as hereinafter provided.
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Beginning on the
first anniversary of the Effective Date, and on each subsequent anniversary of the Effective Date, the Term of the Agreement will
automatically extend for twelve (12) months unless and until either party gives written notice to the contrary not less than ninety
(90) days prior to any such anniversary date, in which case this Agreement shall terminate at the end of the Term then in effect
as of the date of such notice. Notwithstanding the foregoing, the Term shall end at such earlier date that the Executive’s
employment is terminated pursuant to Section 6 hereof.
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2.1
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Duties
. Executive shall perform the duties of Senior Executive Vice President, Chief Financial
Officer and Secretary of the Bank, as described more fully in the job description for such position approved by the Board of Directors,
and subject to the powers by law vested in the Board of Directors of the Bank. During the Term, Executive shall perform exclusively
the services herein contemplated to be performed by Executive faithfully, diligently and to the best of Executive’s ability,
consistent with the highest and best standards of the banking industry and in compliance with all applicable laws and regulations,
the Bank’s Articles of Incorporation, Bylaws and policies and procedures.
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2.2
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Conflicts of Interest
. Except as permitted by the prior written consent of the Board of
Directors of the Bank, Executive shall devote Executive’s entire productive time, ability and attention to the business of
the Bank during the Term, and Executive shall not directly or indirectly render any services of a business, commercial or professional
nature to any other person, firm or corporation, whether for compensation or otherwise, which are in conflict with the Bank’s
interests. Notwithstanding the foregoing, Executive may make investments of a passive nature in any business or venture, provided
however, that such business or venture is neither in competition, directly or indirectly, in any manner with the Bank nor a customer
of the Bank, and also may engage in civic and charitable activities and may also invest in any company listed on a national securities
exchange provided that Executive does not own 1% or more of such company’s outstanding shares.
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3.1
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Salary
. The Bank shall pay to Executive an annual base salary at the rate of at least three
hundred fifty-seven thousand five hundred dollars ($357,500) per year beginning on the Effective Date, subject to adjustments as
may be determined from time to time by the Board of Directors in its discretion. Said salary shall be payable in equal installments
in conformity with the Bank’s normal payroll period.
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3.2
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Incentive Bonus
. Annually, the HR/Compensation Committee of the Board of Directors shall
adopt an incentive program based on factors that the Committee believes are appropriate in its discretion, including but not limited
to the financial and operational performance of the Bank. Cash incentive bonuses will be based on the programs adopted annually
and will be payable in a lump sum not later than March 15 following the end of each fiscal year. The Executive must be continuously
employed by the Bank for the whole of the fiscal year to which such incentive bonuses relate, except that the incentive program
may provide for the incentive bonus to be pro-rated if Executive dies or becomes disabled during the year or a change in control
occurs during the year. The incentive bonus will not be pro-rated if the Executive’s employment terminates for any other
reason prior to the end of such fiscal year.
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3.3
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IPO Restricted Stock Grant
. In the event the Company successfully completes an initial public
offering of its common stock for at least $30.0 million of gross proceeds (the “IPO”), the compensation committee of
the Board of Directors of the Company (the “Company Compensation Committee”) shall grant to the Executive a restricted
stock award with an aggregate grant date value (“Grant Date Value”) equal to 0.825% of the gross proceeds raised in
the initial public offering, including gross proceeds as a result of any exercise of the underwriters’ over-allotment option
(the “IPO Award”). The IPO Award will be granted over a three-year period as follows: (1) the initial grant will be
made on the date the underwriters’ over-allotment option is exercised or expires, with the number of shares of Company common
stock covered by the initial grant equal to one-third of the Grant Date Value divided by the initial public offering price, (2)
the second grant will be made on the one-year anniversary of the first grant, with the number of shares of Company common stock
covered by the second grant equal to one-third of the Grant Date Value divided by the fair market value of the Company’s
common stock as of the close of business on such grant date, and (3) the third grant will be made on the two-year anniversary of
the first grant, with the number of shares of Company common stock covered by the third grant equal to one-third of the Grant Date
Value divided by the fair market value of the Company’s common stock as of the close of business on such grant date. Each
of the three grants shall vest at the rate of one-third per year over a three-year period, with the initial vesting occurring on
the one-year anniversary of the date of grant. Each of the grants are subject to sufficient shares being available under the Company’s
Amended and Restated 2017 Omnibus Equity Incentive Plan (the “2017 Omnibus Plan”) or any subsequent plan and compliance
with the annual award limitations set forth therein.
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If prior to the IPO Award becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award (as defined below) is provided to the Executive, or (c) the Executive
terminates her employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the outstanding IPO Award
shall become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination
for Good Reason. For purposes of this Agreement, the term “Replacement Award” shall mean an award which satisfies the
following conditions: (1) it has a value at least equal to the value of the outstanding award which it is replacing; (2) it relates
to publicly traded equity securities of the Company or its successor in the Change of Control or another entity that is affiliated
with the Company or its successor following the Change of Control; and (3) its other terms and conditions are not less favorable
to the Executive than the terms and conditions of the outstanding award which it is replacing (including the provisions that would
apply in the event of a subsequent Change of Control). Without limiting the generality of the foregoing, the Replacement Award
may take the form of a continuation of the outstanding award if the requirements of the preceding sentence are satisfied. The determination
of whether the conditions to be a Replacement Award are satisfied shall be made by the Company Compensation Committee, as constituted
immediately before the Change of Control, in its sole discretion.
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3.4
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Annual Restricted Stock Grants
. In the first quarter of each calendar year during the Term,
the Company Compensation Committee shall grant the Executive a restricted stock grant for a number of shares of Company common
stock equal to 15% of the Executive’s base salary as of the end of the preceding calendar year, divided by the fair market
value of the Company’s common stock as of the date of grant, with the number of shares rounded to the nearest whole share
(the “Annual Restricted Stock Grant”), provided that sufficient shares are available under the 2017 Omnibus Plan or
any subsequent plan. The Annual Restricted Stock Grants shall vest at the rate of 20% per year over a five-year period, with the
initial vesting occurring on the one-year anniversary of the date of grant. If prior to an Annual Restricted Stock Grant becoming
fully vested either (a) the Executive’s employment is terminated due to death or disability or by the Bank pursuant to Section
6.3 hereof without Cause (as defined in Section 6.1.1 below), or (b) a Change of Control (as defined in the 2017 Omnibus Plan or
any applicable subsequent plan) occurs and no Replacement Award is provided to the Executive, or (c) the Executive terminates her
employment for Good Reason (as defined in Section 6.2 below), then the unvested portion of the Annual Restricted Stock Grant shall
become fully vested as of the date of such death, disability, termination without Cause, Change of Control or termination for Good
Reason.
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4.1
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Vacation
. Executive shall be entitled to twenty (20) business days of vacation each year
during the Term, prorated for any portion of a year, which vacation shall be taken at such times as are agreed upon by Executive
and the President of the Bank; provided, however, that during each year of the Term, Executive is required to and shall take at
least ten (10) days of vacation consecutively (the “Mandatory Vacation”). Executive may accrue a maximum of 30 days
of vacation. Once Executive reaches the maximum accrual amount, Executive will not accrue any additional vacation until Executive
uses some of her accrued but unused vacation and Executive’s accrued but unused vacation hours decrease to below the maximum
accrual amount.
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4.2
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Automobile
. During the Term, Bank shall pay to Executive, as an automobile allowance, the
sum of five hundred dollars ($500) per month, which is an allowance for all automobile costs and expenses, including, but not limited
to, fuel, license, maintenance, insurance, repairs and purchase or lease payments.
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4.3
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Group Insurance Benefits
. During the Term, the Bank, at Bank’s expense, shall provide
for Executive all such group insurance benefits as the Bank provides to its most senior executives from time to time. Any additional
coverage may be obtained by Executive at Executive’s expense. Additionally, the Bank shall, at its expense, provide Executive
with a group life insurance policy, payable to a beneficiary of Executive’s choice, in an amount that is available under
the group insurance benefits program.
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4.4
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Other Equity Stock Awards
. Periodically, the Company may grant awards to Executive pursuant
to its equity incentive plans in addition to those grants set forth in Sections 3.3 and 3.4 above. Such equity awards will be in
an amount determined by the Board of Directors of the Company or a committee thereof. Any equity awards shall be evidenced by a
grant agreement in the form approved by the Board of Directors of the Company or a committee thereof. Any grant shall be subject
to such other terms and conditions as may be contained in the equity incentive plan, including, but not limited to, terms relating
to the vesting of restricted shares and grant price of equity grant, and the effect of certain events, such as termination of employment
and mergers or acquisitions, provided that all of such awards shall become fully vested upon either (a) termination of the Executive’s
employment due to death or disability or by the Bank pursuant to Section 6.3 hereof without Cause (as defined in Section 6.1.1
below), (b) a change of control of the Company or the Bank if no Replacement Award is provided to the Executive, or (c) termination
of the Executive’s employment by the Executive for Good Reason (as defined in Section 6.2 below).
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4.5
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Retirement, Profit Sharing and Other Plans
. Executive shall be entitled to participate in
any retirement plans, profit-sharing plans, salary deferral plans, medical expense reimbursement plans, and other similar plans
that Bank may establish with respect to all employees; provided, however, that nothing herein shall require Bank to establish or
maintain any of such plans.
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4.6
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Supplemental Retirement Plan.
Executive shall be entitled to participate in the nonqualified
supplemental retirement plan established by the United Business Bank Amended and Restated Executive Supplemental Compensation Agreement
between Executive and the Bank effective as of February _, 2018 (the “SERP”) according to the terms of such plan.
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5.
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Reimbursement for Business Expenses
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5.1
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Expense Reimbursement
. Executive shall be entitled to reimbursement by the Bank for any
ordinary and necessary business expenses incurred by Executive in the performance of Executive’s duties and in acting for
the Bank during the Term, subject to the approval of such expenditures by the President of the Bank, and provided that:
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5.1.1
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Each such expenditure is of a nature qualifying it as a proper deduction on the federal and state
income tax returns of the Bank as a business expense and not as compensation to Executive; and
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5.1.2
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Executive furnishes to the Bank, in accordance with the Bank’s internal policies, adequate
records and other documentary evidence required by federal and state statutes and regulations issued by the appropriate taxing
authorities for the substantiation of such expenditures as deductible business expenses of the Bank and not as compensation to
Executive.
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6.1
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Termination for Cause
. The Bank may terminate this Agreement for cause at any time without
further obligation or liability to Executive, by action of the Board of Directors. Notwithstanding the foregoing, upon termination
the Executive shall be entitled to payment of her accrued and unpaid salary, unreimbursed business expenses incurred prior to termination,
accrued but unpaid vacation, and such health, retirement and other benefits that may be available following termination, but only
to the extent provided by the Bank’s benefit plans and policies or as required by law.
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6.1.1
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Definition of Cause
. The following events constitute cause for termination of this Agreement:
(i) Executive fails to perform or habitually neglects the duties which Executive is required to perform hereunder; (ii) Executive
engages in illegal activity which materially adversely affects the Bank’s reputation in the community or which evidences
the lack of Executive’s fitness or ability to perform Executive’s duties as determined by the Board of Directors in
good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated disregard of the policies or procedures
of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure to act in accordance with any direction
or order of the Board of Directors or a committee thereof of the Bank, except those in contravention of any law or regulation,
or any act by Executive which causes termination of coverage of Executive under any fidelity or blanket bond; (iv) gross negligence
adversely affecting the Bank; (v) any willful or material breach of this Agreement or any other willful misconduct; (vi) if Executive
is found to be physically or mentally incapable (as hereinafter defined) of performing Executive’s duties for a continuous
period of ninety (90) days or more by the Board of Directors in good faith; (vii) the Bank is closed or taken over by regulatory
or other supervisory authority; (viii) any bank regulatory or supervisory authority successfully exercises its statutory or regulatory
powers to remove Executive; and (ix) the death of Executive.
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6.1.2
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Warning Notice
. If Executive fails to perform Executive’s duties in a satisfactory
manner or habitually neglects such duties, Bank shall take the following actions before terminating Executive for such cause: (i)
Bank shall have first given Executive written notice setting forth the specific facts and grounds for the Bank’s determination
of Executive’s unsatisfactory performance or habitual neglect (the “Warning Notice”); (ii) promptly after Bank
shall have given the Warning Notice, the Board of Directors (or a committee thereof) shall have met with Executive and informed
Executive of the grounds for termination “for cause,” the extent and nature of Executive’s unsatisfactory performance
or habitual neglect, what Executive must do to remedy such unsatisfactory performance or habitual neglect, and a reasonable period
of time (not less than thirty (30) days unless the nature of the failure, neglect or conduct of Executive is of such magnitude
that if such failure, neglect or conduct is permitted for up to an additional 30 days, such continuation would significantly and
adversely affect the Bank) by which Executive shall have demonstrated satisfactory improvement or shall have remedied the deficient
performance or habitual neglect (the “Cure Period”). If by the end of the Cure Period Executive shall not have made
sufficient progress reasonably satisfactory to the Board of Directors, Executive may be terminated for cause on the terms described
in this Agreement.
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6.1.3
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Other Terms
. Termination under this section shall not prejudice any remedy which the Bank
may have at law, in equity, or under this Agreement. Termination pursuant to this section shall become effective immediately upon
the giving of notice of termination by the Bank. For purposes of this Agreement only, physical or mental disability shall be defined
as Executive being unable to fully perform under this Agreement for a continuous period of ninety (90) days. If there should be
a dispute between the Bank and Executive as to Executive’s physical or mental disability for purposes of this Agreement,
the question shall be settled by the opinion of an impartial reputable physician or psychiatrist agreed upon by the parties or
their representatives, or if the parties cannot agree within ten (10) days after a request for designation of such party, then
by a physician or psychiatrist designated by an impartial third party to be mutually agreed upon. The certification of such physician
or psychiatrist as to the question in dispute shall be final and binding upon the parties hereto.
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6.2
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Termination Following a Change in Control
. If, within one year following a Change in Control
(as hereinafter defined), the employment of the Executive is terminated without cause, or if the Executive terminates her employment
for Good Reason (as hereinafter defined), then the Executive shall be entitled to a severance payment equal to two times the sum
of (a) the Executive’s annual base salary prevailing at the date of such termination, (b) the incentive bonus paid with respect
to the preceding year, and (c) the grant date value of the Annual Restricted Stock Grant for the year in which the termination
occurs or, if the termination occurs before the Annual Restricted Stock Grant is made for such year, the grant date value of the
Annual Restricted Stock Grant for the immediately preceding calendar year (the “Severance Payment”), with the Severance
Payment subject to the provisions of Sections 6.2(iii) and (iv) below. For the purposes of this section:
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(i) “Change in Control”
means: (1) the Company or the Bank is a party to a merger, consolidation, sale of assets or other reorganization, or proxy contest,
pursuant to which any one person or group of persons (as defined in Section 409A of the Code) acquires ownership of stock of the
Company or the Bank that constitutes more than 51% of the total fair market value or total voting power of the outstanding stock
of the Company or the Bank; or (2) a sale of 40% or more of the assets of the Company or the Bank.
Notwithstanding the foregoing provisions
of this section, a Change in Control will not be deemed to have occurred either solely because of (A) the issuance of additional
shares in a secondary stock offering, (B) the issuance of shares pursuant to any stock option grants, or (C) the acquisition of
additional stock of the Company or the Bank by any person or group which has already acquired more than 51% of the total fair market
value or total voting power of the outstanding stock of the Company or the Bank. In order to constitute a Change in Control, the
above events must also constitute a change in the ownership of the Company or the Bank, a change in the effective control of the
Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company or the Bank, in each case
as provided under Section 409A of the Code and the regulations thereunder.
(ii) Termination of the Executive for
“Good Reason” after a Change in Control means any of the following: (1) a material permanent reduction in the Executive’s
total compensation or benefits; (2) a material permanent reduction in the Executive’s title or responsibilities; or (3) a
relocation of the Executive’s principal office so that the Executive’s commute distance is increased by more than forty
(40) miles from Walnut Creek.
The Executive may only terminate her
employment with the Bank for Good Reason by first giving the Bank written notice of the matter or matters which, in the Executive’s
opinion, form a basis for such Good Reason and a statement of her intent to terminate her employment on such basis, which notice
must be provided within ninety (90) days of the initial existence of the condition. The Bank shall thereafter have the right to
remedy the condition within thirty (30) days after the Bank received the written notice from Executive. If the basis for such Good
Reason is remedied by the Bank within the thirty (30) day cure period following receipt of such notice, Executive shall either
rescind her notice of intent to terminate and continue her employment, or terminate her employment under Section 6.3 hereof in
which case the Executive shall not be entitled to any severance pay hereunder. If such Good Reason continues to the end of the
thirty (30) day period without being remedied by the Bank, then the Executive’s employment shall end on the last day of the
thirty (30) day period and the Executive will be entitled to the severance pay as defined in this section.
(iii) The payment of severance pursuant
to this Section 6.2 shall be subject to the following: (1) As a condition for receiving any severance pay hereunder, the Executive
hereby agrees to execute a full and complete release of any and all claims against the Bank, its officers, directors, agents, attorneys,
insurers, employees and successors in interest arising from or in any way related to the Executive’s employment with the
Bank or the termination thereof. Such release shall be executed by the Executive and returned to the Bank so that the revocation
period specified therein expires no later than 60 days after the date of the Executive’s termination of employment, and the
Executive shall not revoke such release during the revocation period. (2) All benefits otherwise enjoyed by the Executive shall
automatically cease. Notwithstanding the foregoing, the Executive shall be entitled to payment of unreimbursed business expenses
incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior to termination, and such health, retirement
and other benefits that may be available following termination but only to the extent provided by the Bank’s benefit plans
and policies (including the SERP), or required by law. (3) Upon termination, the Executive shall immediately return all Bank property
including, but not limited to, documents, credit cards, records, keys, fixed assets, and all other Bank property within the Executive’s
custody or control. (4) Notwithstanding these provisions, the provisions of Section 7 shall also apply to a termination as a result
of a Change in Control.
(iv) The Severance Payment (subject
to deductions for withholding and applicable employment taxes) shall be paid in a cash lump sum in the Bank’s first payroll
period following the date the Executive satisfies all of the conditions set forth in clauses (1) and (3) of Section 6.2(iii) above;
provided however, that if the time period given to the Executive to consider the terms of the release of claims (including any
revocation period under such release) commences in one calendar year and ends in the succeeding calendar, then the Severance Payment
shall not be paid until the succeeding calendar year. The Severance Payment under this Section 6.2 shall be deemed to be exempt
from Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), pursuant to the short-term deferral
exemption set forth in Section 409A of the Code and Treasury Regulation §1.409A-1(b)(4).
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6.3
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Termination without Cause
. Notwithstanding anything to the contrary contained in this Agreement,
this Agreement may be terminated at any time by either party without cause, effective thirty (30) days after written notice of
termination is given to the other party. In the event Executive elects to terminate this Agreement without cause pursuant to this
paragraph, Executive shall not be entitled to any salary, benefits or other compensation of any kind under this Agreement, except
for such compensation as may be due and payable through and including the effective date of termination or as may be required by
this Agreement or applicable law. In the event the Bank terminates this Agreement without cause, the Bank shall pay to Executive
an amount equal to the Severance Payment (as defined in Section 6.2 hereof), which aggregate amount shall be payable in equal monthly
installments during the succeeding twelve (12) month period beginning on the date of termination. Such Severance Payment shall
be subject to applicable withholding taxes and other normal payroll deductions. Any health insurance benefits provided by the Bank
to Executive at the time of Executive’s termination without cause under this section shall be continued for twelve (12) months
on the same terms as when the Executive was employed by Bank, and thereafter, Executive shall have the right to continue health
insurance benefits in effect at the time of Executive’s termination, at Executive’s expense, to the extent permitted
by applicable law. Notwithstanding anything in this section to the contrary, upon termination the Executive shall be entitled to
payment of unreimbursed business expenses incurred prior to termination, accrued but unpaid vacation, incentive bonus earned prior
to termination, and such health, retirement and other benefits that may be available following termination but only to the extent
provided by the Bank’s benefit plans and policies (including the SERP), this Agreement, or as required by law. After notice
of termination is given, whether by the Bank or Executive, the Bank may require Executive to cease performing services for the
Bank and may prohibit Executive from coming onto the Bank’s premises through the effective date of termination, provided
that the Bank nonetheless compensates Executive through the effective date of termination. All references in this Section 6.3 to
a termination of employment shall mean shall mean a cessation or reduction in the Executive’s services for the Bank (and
any other affiliated entities that are deemed to constitute a “service recipient” as defined in Treasury Regulation
§1.409A-1(h)(3)) that constitutes a “separation from service” as defined in Section 409A of the Code and the regulations
thereunder, taking into account all of the facts, circumstances, rules and presumptions set forth in Treasury Regulation §1.409A-1(h).
With respect to amounts payable to the Executive under this Section 6.3 that exceed what may then be paid to him under a separation
pay plan (pursuant to Treasury Regulation Section 1.409A-1(b)(9) (the “Excess Amount”), then (1) the Excess Amount,
if any, shall be treated as deferred compensation for purposes of Section 409A, and (2) if the Executive is a “specified
employee” within the meaning of Section 409A, then any Excess Amounts payable before the 185
th
day following the
date of the Executive’s separation from service shall not be paid until that 185
th
day. For purposes of subparagraph
(2), Excess Amounts shall be treated as paid after amounts payable under this Section 6.3 that are not considered Excess Amounts,
as permitted under Section 409A. No severance or other benefits shall be provided to Executive under this Section 6.3 if severance
payments or benefits are provided under Section 6.2 of this Agreement.
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6.4
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Effect of Termination
. In the event of the termination of this Agreement prior to the completion
of the Term specified herein, Executive shall be entitled to the salary earned by Executive prior to the date of termination as
provided for in this Agreement, computed
pro rata
up to and including that date. Executive shall not be entitled to any
further compensation after the date of termination, except as expressly provided in this Section 6. Except as may otherwise be
expressly agreed or provided, on the expiration of the Term, this Agreement shall be terminated and shall be of no further force
or effect and Executive shall not be entitled to any compensation or benefits of any kind.
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6.5
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Golden Parachute Provision.
Notwithstanding anything in this Agreement to the contrary,
in the event it is determined that any payment or distribution by the Bank to or for the benefit of the Executive (whether paid
or payable or distributed or distributable pursuant to the terms of this Agreement or otherwise) (such benefits, payments or distributions
are hereinafter referred to as “Payments”) would, if paid, be subject to the excise tax imposed by Code Section 4999
of the Code (the “Excise Tax”), then, prior to the making of any Payments to the Executive, a calculation shall be
made comparing (i) the net after-tax benefit to the Executive of the Payments after payment by the Executive of the Excise Tax,
to (ii) the net after-tax benefit to the Executive if the Payments had been limited to the extent necessary to avoid being subject
to the Excise Tax. If the amount calculated under (i) above is less than the amount calculated under (ii) above, then the Payments
shall be limited to the extent necessary to avoid being subject to the Excise Tax (the “Reduced Amount”). The reduction
of the Payments due hereunder, if applicable, shall be made by first reducing cash Payments and then, to the extent necessary,
reducing those Payments having the next highest ratio of Parachute Value to actual present value of such Payments as of the date
of the Change in Control, as determined by the Determination Firm (as defined below). For purposes of this Section 6.5, present
value shall be determined in accordance with Code Section 280G(d)(4). The “Parachute Value” of a Payment means the
present value as of the date of the Change in Control of the portion of such Payment that constitutes a “parachute payment”
under Code Section 280G(b)(2), as determined by the Determination Firm for purposes of determining whether and to what extent the
Excise Tax will apply to such Payment.
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All determinations required to be made
under this Section 6.5, including whether an Excise Tax would otherwise be imposed, whether the Payments shall be reduced, the
amount of the Reduced Amount, and the assumptions to be utilized in arriving at such determinations, shall be made by an accounting
firm, law firm or compensation consulting firm mutually acceptable to the Bank and the Executive (the “Determination Firm”),
which shall provide detailed supporting calculations both to the Bank and the Executive. All fees and expenses of the Determination
Firm shall be borne solely by the Bank. Any determination by the Determination Firm shall be binding upon the Bank and the Executive.
As a result of the uncertainty in the application of Code Section 4999 at the time of the initial determination by the Determination
Firm hereunder, it is possible that Payments which the Executive was entitled to, but did not receive pursuant to Section 6.2 or
6.3, could have been made without the imposition of the Excise Tax (“Underpayment”), consistent with the calculations
required to be made hereunder. In such event, the Determination Firm shall determine the amount of the Underpayment that has occurred
and any such Underpayment shall be promptly paid by the Bank to or for the benefit of the Executive, but no later than March l5th
of the year after the year in which the Underpayment is determined to exist, which is when the legally binding right to such Underpayment
arises. In the event it is determined that the Executive received Payments that should have been reduced pursuant to the preceding
paragraph (with such excess over the Reduced Amount referred to herein as the “Overpayment”), then the Determination
Firm shall determine the amount of the Overpayment that has occurred and any such Overpayment shall be promptly paid by the Executive
to or for the benefit of the Bank, but no later than March l5th of the year after the year in which the Overpayment is determined
to exist.
In the event that the provisions of
Code Section 280G and 4999 or any successor provisions are repealed without succession, the preceding paragraphs concerning adjustments
to account for the Excise Tax shall be of no further force or effect.
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7.1
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Trade Secrets and Confidential Information
. During the Term, Executive will have access
to and become acquainted with the Bank’s trade secrets and confidential information, including, but not limited to, proprietary
information and data concerning the Bank’s operations, business, sources of business, know-how, customer lists and information
about customers’ financial condition, needs, and methods of doing business. Executive shall not disclose any of such trade
secrets or confidential information, directly or indirectly, or use them in any way, either during the Term or for a period of
one (1) year after the termination of Executive’s employment, except as required in the course of Executive’s employment
with the Bank. Nothing contained in this Agreement limits the Executive’s ability to file a charge or complaint with the
Equal Employment Opportunity Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve
System, the Securities and Exchange Commission or any other federal, state or local governmental agency or commission that has
jurisdiction over the Company or the Bank or any of their subsidiaries or affiliates (the “Government Agencies”). The
Executive further understands that this Agreement does not limit her ability to communicate with any Government Agencies or otherwise
participate in any investigation or proceeding that may be conducted by any Government Agency, including providing documents or
other information, without notice to the Bank or any of its subsidiaries or affiliates. This Agreement does not limit the Executive’s
right to receive an award for information provided to any Government Agencies. In addition, pursuant to the Defend Trade Secrets
Act of 2016, the Executive understands that an individual may not be held criminally or civilly liable under any federal or state
trade secret law for the disclosure of a trade secret that (i) is made (A) in confidence to a federal, state or local government
official, either directly or indirectly, or to an attorney; and (B) solely for the purpose of reporting or investigating a suspected
violation of law; or (ii) is made in a complaint or other document that is filed under seal in a lawsuit or other proceeding.
Further, an individual who files a lawsuit for retaliation by an employer for reporting a suspected violation of law may disclose
the employer's trade secrets to the attorney and use the trade secret information in the court proceeding if the individual (y)
files any document containing the trade secret under seal; and (z) does not disclose the trade secret, except pursuant to court
order.
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7.2
|
No Solicitation
. During the Term and for a period of one year following the termination
of the Executive’s employment with the Bank, Executive hereby covenants and agrees that the Executive shall not solicit any
customers or employees of the Bank to move their banking or employment relationships from the Bank.
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7.3
|
Indemnification
. To the maximum extent permitted by law and applicable regulations, the
Bank shall pay any and all expenses incurred by Executive in connection with the defense or settlement of, and shall pay and satisfy
any judgments, awards, fines and penalties rendered, assessed or levied against Executive in, any judicial, arbitration, mediation
or administrative suit, action, hearing, inquiry or proceeding (whether or not the Bank is joined as a party) relating to acts
or omissions of Executive alleged to have occurred while an “agent” of the Bank, or by the Bank, or by both, provided,
however, that the Bank shall not be obligated to defend, indemnify or hold harmless Executive from the consequences of Executive’s
own grossly negligent or reckless acts or omissions or willful misconduct or dishonesty. In addition, to the maximum extent permitted
by law, the Bank shall advance to Executive, upon receipt of the undertaking required by California Corporations Code Section 317(f),
any expenses incurred in defending against any such proceeding to which Executive is a party or has been threatened to be made
a party. The Bank shall provide Executive with coverage under such directors’ and officers’ liability insurance and
any additional insurance to indemnify and insure the Bank and the Executive from and against the aforementioned liabilities. The
provisions of this Subsection shall apply to the estate, executor, administrator, heirs, legatees or devisees of Executive.
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7.4
|
Return of Documents
. Executive expressly agrees that all manuals, documents, files, reports,
studies, instruments or other materials used and/or developed by Executive during the Term are solely the property of the Bank,
and that Executive has no right, title or interest therein. Upon termination of this Agreement, Executive or Executive’s
representative shall promptly deliver possession of all of said property to the Bank in original or good operating condition, normal
wear and tear excepted.
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7.5
|
Notices
. Any notice, request, demand or other communication required or permitted hereunder
shall be deemed to be properly given when personally served in writing, when deposited in the United States mail by either certified
or registered mail with return receipt requested, postage prepaid, or when delivered to a generally recognized overnight courier
service (such as Federal Express, Express Mail or United Parcel Service) for transmittal, addressed to the party at the address
given below for the receipt of notices, or such changed address as may be requested in writing by a party.
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If to the Bank:
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United Business Bank- Corporate Offices
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500 Ygnacio Valley Road
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Suite 200
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Walnut Creek, CA 94596
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If to the Executive:
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Keary Colwell
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At the last address appearing on the
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personnel records of the Employer
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7.6
|
Governing Law
. The validity, interpretation, construction and performance of this Agreement
shall be governed by the laws of the United States where applicable and otherwise by the substantive laws of the State of California.
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7.7
|
Captions and Section Headings
. Captions and section headings used herein are for convenience
only and are not a part of this Agreement and shall not be used in construing it.
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7.8
|
Invalid Provisions
. Should any provision of this Agreement for any reason be declared invalid,
void or unenforceable by a court of competent jurisdiction, the validity and binding effect of any remaining portion shall not
be affected, and the remaining portions of this Agreement shall remain in full force and effect as if this Agreement had been executed
with said provision eliminated.
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7.9
|
Entire Agreement
. This Agreement contains the entire agreement of the parties. It supersedes
any and all other agreements, either oral or in writing, between the parties hereto with respect to the employment of Executive
by the Bank, including without limitation the Employment Agreement between Executive and the Bank dated as of June 1, 2016, which
agreement shall terminate and have no further force and effect as of the Effective Date. Each party to this Agreement acknowledges
that no representations, inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting
on behalf of any party, that are not embodied herein, and that no other agreement, statement or promise not contained in this Agreement
shall be valid or binding. This Agreement may not be modified or amended by oral agreement, but only by an agreement in writing
signed by the Bank and Executive.
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7.10
|
Receipt of Agreement
. Each of the parties hereto acknowledges that it or he has read this
Agreement in its entirety and does hereby acknowledge receipt of a fully executed copy thereof. A fully executed copy shall be
an original for all purposes, and is a duplicate original.
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7.11
|
Attorneys’ Fees
. Each party shall bear such party’s own attorneys’ fees
and costs in connection with the negotiation, preparation and delivery of this Agreement. If any action is instituted to enforce
or interpret this Agreement, the party determined to be the prevailing party shall be entitled to recover its reasonable attorneys’
fees and costs incurred in connection with the enforcement or interpretation of this Agreement.
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7.12
|
Assignment
. This Agreement shall inure to the benefit of and be binding upon the parties
and their respective successors and assigns, administrators and executors. This Agreement is for the personal services of Executive
and may not be assigned by Executive.
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7.13
|
Arbitration
. Any controversy or claim arising out of, or relating to this Agreement, or
the making, performance or interpretation of this Agreement, shall be settled by arbitration before a single arbitrator in the
City of Walnut Creek, California, under the commercial arbitration rules of the American Arbitration Association (the “AAA”)
then existing, and judgment on the arbitration award may be entered in any court having jurisdiction over the subject matter or
the controversy. The arbitrator shall be selected by the mutual agreement of the parties within ten (10) business days of the date
when the parties shall first have the opportunity to select an arbitrator (the “Selection Period”); provided, however,
that if the parties fail to agree upon an arbitrator by the expiration of the Selection Period, each party shall, within five (5)
business days after the expiration of the Selection Period, select an arbitrator from the list of arbitrators provided by the AAA
and the two arbitrators so selected by each party, acting independently, shall, within thirty (30) days of both being selected,
agree upon the selection of the arbitrator to arbitrate the controversy or claim.
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7.14
|
Regulatory Approval.
The terms of this Agreement
may be subject to approval by any state or federal regulatory authority having jurisdiction over the Bank, as and to the extent
required by applicable law and regulation.
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7.15
|
Regulatory Prohibition.
Notwithstanding any other provision
of this Agreement to the contrary, any renewal of this Agreement and any payments made to Executive pursuant to this Agreement,
or otherwise, are subject to and conditioned upon their compliance with Section 18(k) of the Federal Deposit Insurance Act (12
U.S.C. §1828(k)) and the regulations promulgated thereunder, including 12 C.F.R. Part 359.
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(Signature
page follows)
The parties to this Agreement
have executed this Agreement as of the dates set forth below, effective as of the Effective Date.
United Business Bank
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By:
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/s/George J. Guarani
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Date: February 22, 2018
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Attest:
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/s/Janet L. King
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Date: February 22, 2018
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BayCom Corp
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By:
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/s/George J. Guarani
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Date: February 22, 2018
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Attest:
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/s/Janet L. King
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Date: February 22, 2018
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Executive:
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/s/Keary L. Colwell
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Date: February 22, 2018
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Keary L. Colwell
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Exhibit 10.4
UNITED BUSINESS BANK
AMENDED AND RESTATED EXECUTIVE
SUPPLEMENTAL COMPENSATION AGREEMENT
(By and Between United Business
Bank and George J. Guarini)
This Amended
and Restated Executive Supplemental Compensation Agreement (hereinafter “Agreement”) is made and entered into effective
as of February _, 2018, by and between United Business Bank (hereinafter the “Bank” or the “Employer”),
a California-chartered bank with its principal offices located in the city of Walnut Creek, California, and George J. Guarini,
an Executive of the Bank (the “Executive”).
WHEREAS, it
is the consensus of the Employer and its Board of Directors that Executive’s employment with the Bank in the past has been
of exceptional merit and has constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to
its present status of operating efficiency and present position in its field of activity;
WHEREAS,
the Employer has established a compensation benefit program as a fringe benefit for executives of the Employer in order to attract
and retain individuals with extensive and valuable experience in the banking industry;
WHEREAS,
Executive’s experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS,
it is deemed to be in the best interests of the Employer to provide Executive with certain fringe benefits, on the terms and conditions
set forth herein, in order to reasonably induce Executive to remain in the Bank’s employ during Executive’s lifetime
or until the age of retirement;
WHEREAS,
Bay Commercial Bank (now known as United Business Bank) entered into an Executive Supplemental Compensation Agreement with Executive
effective as of January 1, 2014 (the “Prior SERP”) to provide for supplemental retirement benefits;
WHEREAS,
the Employer and Executive desire to amend and restate the Prior SERP in order to reflect the existence of a holding company for
the Employer and to make certain other changes, with the Employer to provide supplemental retirement benefits to Executive on the
terms and conditions set forth in this Agreement; and
WHEREAS, it
is the intent of the parties hereto that this Executive plan be considered an unfunded arrangement maintained primarily to provide
supplemental retirement benefits for Executive, and be considered a non-qualified benefit plan for the purposes of the Employee
Retirement Income Security Act of 1974, as amended (“ERISA”);
NOW, THEREFORE,
in consideration of the past employment performance and the services to be performed by Executive in the future, as well as the
mutual promises and covenants contained herein, Executive and the Employer agree as follows:
AGREEMENT
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1.0
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Terms and Definitions.
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1.1
Accrued
Liability Balance.
For the purposes of this Agreement, the “Accrued Liability Balance” (“ALB”)
means the liability accrued by the Bank in accordance with generally accepted accounting principles in order to fully fund the
future benefit payments associated with this Agreement. The ALB shall reflect Annual Contribution Amounts made to the ALB each
Service Period based on the satisfaction of performance criteria established in the Bank Performance Plan (as defined in Paragraph
1.7 below). Annual Contribution Amounts shall be reflected in the ALB within thirty (30) days of the end of any given Service Period.
The ALB shall be credited with interest as defined below in Paragraph 1.2.
1.2
Accrued
Liability Balance Interest Rate.
Until such time as Executive Separates From Service, becomes Disabled or forfeits a benefit
by operation of this Agreement, the ALB shall be credited with interest compounding annually at the Accrued Liability Interest
Rate, which shall be determined as follows: the average of the Citigroup Pension Liability Index (CPU) over the preceding twelve
(12) months. In the event the CPU is no longer available, an equivalent instrument shall be determined by the Bank’s actuaries
and shall be utilized.
1.3
Administrator.
The Bank shall be the “Administrator” and, solely for the purposes of ERISA (as defined below), the “fiduciary”
of this Agreement where a fiduciary is required by ERISA.
1.4
Annual
Base Salary.
The term “Annual Base Salary” shall mean the annual compensation (excluding bonuses, commissions,
overtime, incentive payments, non-monetary awards or fees) paid to Executive for services rendered to the Bank, before reduction
for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any employer.
1.5
Annual
Contribution Amounts.
Provided that the Bank meets the minimum annual goals as defined in the annual Bank Performance Plan
as approved by the HR/Compensation Committee of the Board of Directors, the Bank will make an annual contribution to the ALB for
services provided through the Final Service Period (as defined in Paragraph 1.19). The forgoing shall be referred to as the “Annual
Contribution Amount” and shall be calculated as a percent of the Executive’s Annual Base Salary. The Annual Contribution
Amount ranges between 0% and 61.36% of Annual Base Salary as shown in the table below. No Annual Contribution Amount will be made
if the Bank does not achieve a minimum of seventy five percent (75%) of goals as defined in the BPP, and there will be no incremental
or pro rata increase in Annual Contribution Amounts for achievement of over one hundred and twenty-five percent (125%) of the goals
defined in the BPP. Other than as provided in the forgoing sentence, it is intended that the below chart provides benchmark contribution
amounts based on the percentage of BPP goals achieved, and that any increase in percentage of BPP achieved will correlate to a
pro rata increase in Annual Contribution Amounts to the ALB.
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%of BPP Achieved in a Given Service
Period
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Contribution to ALB
(by Service Period & Expressed as a %
of
Annual Base Salary)
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0%
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0%
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75%
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6.19%
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80%
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12.51%
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85%
|
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20.69%
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90%
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30.74%
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95%
|
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37.64%
|
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100%
|
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45.00%
|
|
105%
|
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48.27%
|
|
110%
|
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51.55%
|
|
115%
|
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54.82%
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120%
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58.09%
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125%
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61.36%
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All Annual Contribution
Amounts shall cease upon the earlier of (i) the triggering of any payment event under Paragraphs 4, 5 or 6 or (ii) the expiration
of the Final Service Period.
1.6
Applicable
Percentage.
The term “Applicable Percentage” means the percentage of the Executive Benefit to which Executive
may be entitled based on the date and circumstances associated with Executive’s Separation from Service with the Bank. The
specific benefit to which Executive shall be entitled shall be determined by the facts and circumstances surrounding such Separation
from Service. Subject to the foregoing, the Applicable Percentage shall be determined in accordance with the following:
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Date of Separation from Service
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Applicable Percentage
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January 1, 2014- October 6, 2016
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0%
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October
7, 2016- October 6, 2017
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30%
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October 7, 2017- October 6, 2018
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40%
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October 7, 2018- October 6, 2019
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50%
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October 7, 2019- October 6, 2020
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60%
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October 7, 2020- October 6, 2021
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70%
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October 7, 2021- October 6, 2022
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80%
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October 7, 2022- October 6, 2023
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90%
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October 7, 2023 and Thereafter
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100%
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1.7
Bank
Performance Plan.
The “Bank Performance Plan” (“BPP”) defines the performance criteria to be used
to measure the annual financial performance of the Bank and the amount to be contributed annually to the ALB under this Agreement
and is incorporated herein by reference. A copy of the 2018 BPP goals are attached hereto and incorporated by reference herein
as “Exhibit A”. For years after 2018, the BPP goals will either remain as specified for the prior Service Period, or
will be modified by the HR/Compensation Committee of the Board of Directors, and Annual Contribution Amounts will be pro-rated
to reflect such partial year modification of “the BPP goals. Any changes to the BPP goals will be provided to the Executive
in a timely manner.
1.8
Beneficiary(ies).
The “Beneficiary(ies)” shall mean any individual(s) or entities designated to receive any Executive Benefit due or
outstanding to the Executive upon the death of the Executive. The Beneficiary(ies) shall be designated in accordance with the provisions
of Paragraph 11 (and the subsequent subparagraphs). A Bank approved Beneficiary Designation Form has been attached hereto and is
incorporated by reference herein as “Exhibit B”.
1.9
Board
of Directors.
The “Board of Directors” shall mean the Board of Directors of the Bank.
1.10
Change
in Control.
For the purpose of this Agreement, a Change in Control shall include any of the following events:
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A.
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Change in the Ownership of the Company or the Bank
.
A change in the ownership of the Company or the Bank occurs on the date that any one person or persons acting as a group (as defined
in Code Section 409A) acquires ownership of stock of the Company or the Bank that, together with stock held by such person or
group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company
or the Bank. The acquisition of additional stock by the same person or group which has already acquired such stock or voting power
is not considered to cause an additional change in the ownership of the Company or the Bank.
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B.
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Change in the Effective Control of the Company or the Bank.
A change in the effective control
of the Company or the Bank shall be deemed to occur on the date any one person or persons acting as a group acquires (or has acquired
during the twelve ( 12) month period ending on the date of the most recent acquisition by such person or group) ownership of stock
of the Company or the Bank possessing thirty percent (30%) or more of the total voting power of the stock of the Company or the
Bank.
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C.
|
Change in the Effective Control of the Company
.
A change in the effective control of the Company shall be deemed to occur on the date a majority of members of the Company’s
board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed
by a majority of the members of the Company’s board of directors before the date of the appointment or election.
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D.
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Change in the Ownership of a Substantial Portion
of the Assets of the Company or the Bank
. A change in the ownership of a substantial portion of the assets of the Company
or the Bank shall be deemed to occur on the date that any one person or group acquires (or has acquired during the twelve (12)
month period ending on the date of the most recent acquisition by such person or persons) assets from the Company or the Bank
that have a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all
of the assets of the Company or the Bank immediately before such acquisition or acquisitions. No Change in Control shall result
if the assets are transferred to certain entities controlled directly or indirectly by the shareholders of the transferring corporation.
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In addition,
to constitute a Change in Control event with respect to the Executive, the change in control event must relate to (i) the corporation
for whom Executive is performing services at the time of the Change in Control; (ii) the corporation that is liable for the payment
of the amounts described herein (or all corporations liable for the payment if more than one corporation is liable) but only if
either the deferred compensation is attributable to the performance of service by the Executive for such corporation(s) or there
is a bona fide business purpose for such corporation(s) to be liable for such payment and, in either case, no significant purpose
of making such corporation(s) liable for such payment is the avoidance of federal income tax; or (iii) a corporation that is a
majority shareholder of a corporation identified in (i) or (ii) above, or any corporation in a chain of corporations in which each
corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in (i) or (ii) above.
In order
to constitute a Change in Control, the above events must also constitute a change in the ownership of the Company or the Bank,
a change in the effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets
of the Company or the Bank, in each case as provided under Code Section 409A and the regulations thereunder.
1.11
Code.
The “Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
1.12
Company
.
The term “Company” shall mean BayCom Corp, a California corporation and the parent holding company of the Bank.
1.13
Disability/Disabled.
For the purposes of this Agreement, the term “Disability” shall be interpreted in accordance with Code Section 409A.
Pursuant to Code Section 409A, the Executive will be considered Disabled if:
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A.
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He is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental impairment that can be expected to result in death or can
be expected to last for a continuous period of not less than twelve (12) months; or
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B.
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He is, by reason of any medically determinable physical
or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than
twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and
health plan covering employees of the Employer.
|
In the event
a disability policy has been purchased by Employer for Executive, then the individual or entity responsible for determining such
disability thereunder shall determine Executive’s Disability under this Agreement (using the forgoing disability definition).
In the event no such disability policy exists, then the Plan Administrator shall make a good faith determination of Disability
using the definition provided herein.
1.14
Effective
Date.
The term “Effective Date” shall mean the date first written above.
1.15
ERISA.
The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.16
Executive
Benefit.
The term “Executive Benefit” shall mean the annual benefit amounts determined pursuant to Paragraphs
4 through 7 (including sub-paragraphs, as applicable), forfeited, reduced or adjusted to the extent: (a) required under the other
provisions of this Agreement; (b) required by reason of the lawful order of any regulatory agency or body having jurisdiction over
the Employer; or (c) required in order for the Employer to comply with any and all applicable state and federal laws, including,
but not limited to, income, employment and disability income tax laws
(e.g.,
FICA, FUTA, SDI).
1.17
Involuntary
Separation from Service.
The term “Involuntary Separation from Service” shall mean a Separation from Service
due to the independent exercise of the unilateral authority of the Bank to terminate Executive’s services, other than due
to Executive’s implicit or explicit request, where Executive was willing and able to continue performing services.
1.18
Joint
Beneficiary Agreement.
The term “Joint Beneficiary Agreement” shall refer to any agreement between the parties
pursuant to which a life insurance policy on the life of Executive is owned by the Bank, and pursuant to which the Bank and Executive’s
designated beneficiaries will share in policy proceeds upon Executive’s death.
1.19
Service
Period.
For the purposes of this Agreement, the term “Service Period” shall refer to the consecutive period
of time between January 1 and December 31 of a given calendar year, during which time, and unless stated otherwise, Executive must
remain employed (shall not Separate from Service) in order to receive an Annual Contribution Amount for such year. In addition,
the first Service Period covered by this Agreement shall be January 1, 2014 through December 31, 2014. The Final Service Period
for which an Annual Contribution Amount shall be made to the ALB shall be January 1, 2023 through December 31, 2023. There shall
be no Annual Contribution to the ALB for the Service Year 2024 or any year thereafter.
1.20
Separation
from Service.
The term Separation from Service (or “Separates from Service”) shall be interpreted in accordance
with the provisions of Code Section 409A and shall exclude death or Disability. Currently, under Code Section 409A, whether a Separation
from Service has occurred is determined based on whether the facts and circumstances indicate that the Employer (together with
all corporations with whom the Employer would be considered a single employer under Code Section 414(b)) and Executive reasonably
anticipate that no further services will be performed after a certain date or that the level of bona fide services Executive will
perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty
percent (20%) of the average level of bona fide services performed (as an employee or an independent contractor) over the immediately
preceding thirty-six (36) month period (or the full period of services to the Employer if the Executive has been providing services
to the Employer less than thirty-six (36) months). There shall be no Separation from Service while Executive is on military leave,
sick leave or other bona fide leave of absence, as long as such leave does not exceed six (6) months, or if longer, so long as
the individual retains a right to re-employment with the service recipient under an applicable statute or by contract.
1.21
Specified
Employee.
The term “Specified Employee” shall be defined in accordance with Code Section 409A and its related
guidance. Code Section 409A currently provides that a Specified Employee means an employee who, as of the date of his Separation
from Service, is a “key employee” of an Employer of which any stock is publicly traded on an established securities
market or otherwise. An Executive is a key employee if Executive meets the requirements of Section 416(i)(l)(A)(i), (ii) or (iii)
of the Code (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the twelve
(12) month period ending on a specified employee identification date. If Executive is a key employee as of a specified employee
identification date, then Executive shall be treated as a key employee for the entire twelve (12) month period beginning on the
specified employee effective date as determined under Code Section 409A.
1.22
Termination
for Cause.
A “Termination for Cause” shall be defined by the terms of the then effective Employment Agreement
between Bank and Executive, and shall be synonymous with a for cause termination under such agreement. In the event there is no
Employment Agreement in effect between the parties, then a “Termination for Cause” shall mean termination of Executive’s
employment by the Bank for any of the following reasons: (i) Executive fails to perform or habitually neglects the duties which
Executive is required to perform hereunder; (ii) Executive engages in illegal activity which materially adversely affects the Bank’s
reputation in the community or which evidences the lack of Executive’s fitness or ability to perform Executive’s duties
as determined by the Board of Directors in good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated
disregard of the policies or procedures of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure
to act in accordance with any direction or order of the Board of Directors or a committee thereof of the Bank, except those in
contravention of any law or regulation, or any act by Executive which causes termination of coverage of Executive under any fidelity
or blanket bond; (iv) gross negligence adversely affecting the Bank; (v) any willful or material breach of this Agreement or any
other willful misconduct; (vi) if Executive is found to be physically or mentally incapable (as hereinafter defined) of performing
Executive’s duties for a continuous period of ninety (90) days or more by the Board of Directors in good faith; (vii) the
Bank is closed or taken over by regulatory or other supervisory authority; or (viii) any bank regulatory or supervisory authority
successfully exercises its statutory or regulatory powers to remove Executive.
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|
2.0
|
Scope, Purpose and Effect.
|
2.1
Contract
of Employment.
Although this Agreement is intended to provide Executive with an additional incentive to remain in the employ
of the Employer, this Agreement shall not be deemed to constitute a contract of employment between Executive and the Employer nor
shall any provision of this Agreement restrict or expand the right of the Employer to terminate Executive’s employment. This
Agreement shall have no impact or effect upon any separate written employment agreement which Executive may have with the Employer,
it being the parties’ intention and agreement that unless this Agreement is specifically referenced in said employment agreement
(or any modification thereto), this Agreement (and the Employer’s obligations hereunder) shall stand separate and apart and
shall have no effect on or be affected by, the terms and provisions of said employment agreement.
2.2
Fringe
Benefit.
The benefits provided by this Agreement are granted by the Bank as a fringe benefit to Executive and are not a
part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take
any payments or bonus in lieu of the benefits provided by this Agreement.
2.3
Prohibited
Payments.
Notwithstanding anything in this Agreement to the contrary, if any payment made under this Agreement is a “golden
parachute payment” as defined in Section 28(k) of the Federal Deposit Insurance Act (12 U.S.C. Section 1828(k) and Part 359
of the Rules and Regulations of the Federal Deposit Insurance Corporation (collectively, the “FDIC Rules”) or is otherwise
prohibited, restricted or subject to the prior approval of a banking regulator, no payment shall be made hereunder without complying
with said FDIC Rules.
3.0
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance With Code Section 409A.
3.1
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance with Code Section 409A.
In
the case of any employee who is a Specified Employee under Code Section 409A as of the date of a Separation from Service, then
a payment conditioned upon a Separation from Service may not be made before the date that is six (6) months after the date of Separation
from Service (or, if earlier than the end of the six-month period, the date of death of the Specified Employee, if such death benefit
is provided).
Therefore,
it is the parties’ understanding and intention that any benefit which is to be made pursuant to this Agreement and to a Specified
Employee within the meaning of Code Section 409A, and whose payment is triggered by a Separation from Service, shall be withheld
for six (6) months in accordance with the foregoing. In the event payments to which Executive would otherwise be entitled during
the first six (6) months are subject to this six (6) month delay in payment, then such payments shall be accumulated and paid on
the first day of the seventh (7
th
) month following the date of Separation from Service. Payments will then continue
thereafter as called for pursuant to the terms of this Agreement.
Notwithstanding
any provision existing in this Agreement or any amendment thereto, it is the intent of the Bank and Executive that any payment
or benefit provided pursuant to this Agreement shall be made and paid in a manner, at a time and in a form which complies with
the applicable requirements of Code Section 409A, in order to avoid any unfavorable tax consequences resulting from any such failure
to comply.
3.2
Compliance
with Code Section 409A.
In the event of any ambiguity in definitions or terms, or in the event further clarification of
any term or provision is necessary, all interpretations and payouts of benefits based thereon shall be in accordance with Code
Section 409A and any related notices or guidance.
3.3
Executive
Bears Sole Responsibility for Code Section 409A Violations.
Executive understands and agrees that, in the event of a Code
Section 409A violation, Executive will be solely responsible for any and all resulting taxes and penalties, and furthermore agrees
that he shall not seek, in any manner, to hold Employer responsible, financially or otherwise, for any such potential taxes and/or
penalties he may incur as a result of a Code Section 409A violation. Executive further acknowledges and agrees that, in the event
of a Code Section 409A violation, Employer’s sole obligation under this Agreement shall be to reasonably cooperate with Executive
in good faith.
4.0
Executive
Benefit upon a Separation from Service for Reasons Other than a Termination for Cause or Following a Change in Control.
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|
4.1.
|
Benefit Amount.
In the event Executive
Separates from Service for reasons other than For Cause or under the provisions of Paragraph 5 (Change in Control), then Executive
shall be entitled to be paid the Applicable Percentage of the ALB as of the date of Separation from Service, subject to the following
distinguishing circumstances and resulting consequences:
|
|
|
A.
|
In the event of an Involuntary Separation From Service,
the Applicable Percentage shall be accelerated and shall be deemed to be one hundred percent (100%); and
|
|
|
B.
|
If Executive’s Separation from Service occurs after October 6 of any given calendar year
and prior to the expiration of the Final Service Period, then the ALB shall include the Annual Contribution Amount Executive would
have received had his Separation from Service occurred on December 31 of such given year.
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|
|
4.2
|
Payment Method and Duration.
The foregoing amount shall be used to calculate an annuity
payable on a monthly basis for a period of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest
Rate. The Executive Benefit amount determined above in Paragraph 4.1 shall be paid in substantially equal monthly payments, with
payments commencing on the first (1st) day of the fourth (4th) month following Executive’s Separation from Service and shall
continue for a period of one hundred eighty (180) months.
|
5.0
Upon
a Change in Control.
Upon a Change in Control, Executive shall be entitled to one of the following:
|
|
A.
|
Change in Control on or Before December 31, 2023
. Upon a Change in Control occurring on
or before December 31, 2023, then Executive shall become entitled to receive an amount equal to the ALB as of the date of the Change
in Control, plus the amount of all projected Annual Contribution Amounts expected to be included in the ALB through the expiration
of the Final Service Period (i.e., including contributions for 2023). This calculation shall be made assuming that remaining Annual
Contribution Amounts through December 31, 2023 are equal to the amounts the Bank would have made assuming a performance level for
each remaining Service Period equal to the average performance level for the three (3) year period preceding the Change in Control.
In addition, this ALB amount shall be credited with interest as though the Annual Contribution Amounts had been made on the same
annual schedule they would have been made through December 31, 2023 and applying the Accrued Liability Balance Interest Rate from
the date of the Change in Control through December 31, 2023.
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|
|
B.
|
Change in Control After December 31, 2023.
Upon a Change in Control occurring after December
3 I, 2023, then Executive shall receive the ALB.
|
|
|
5.2
|
Payment Method and Duration.
The foregoing
amount shall be used to calculate an annuity payable on a monthly basis for a period of one hundred eighty ( 180) months, and
by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined above in Paragraph 5.1 shall
be paid in substantially equal monthly payments, with payments commencing on the first (1
st
) day of the fourth (4
th
)
month following Executive’s Separation from Service and shall continue for a period of one hundred eighty (180) months.
|
6.0
Disability.
In the event Executive becomes Disabled at any time prior to Separating from Service with the Bank, then
Executive shall be entitled to be paid the following benefit in lieu of any other benefits herein:
|
|
A.
|
If Disability Occurs on or Before December 31, 2023.
In the event Executive becomes Disabled
on or before December 31, 2023, then Executive shall be entitled to receive an amount equal to the ALB as of the date of Disability,
plus the amount of all projected Annual Contribution Amounts expected to be included in the ALB had Executive not become Disabled
until December 31, 2023. This calculation shall be made assuming that remaining Annual Contribution Amounts through December 31,
2023 are equal to the amounts the Bank would have made assuming a performance level for each remaining Service Period equal to
the average performance level for the three (3) year period preceding Executive’s Disability. In addition, this ALB amount
shall be credited with interest as though the Annual Contributions had been made on the same annual schedule they would have been
made had there been no Disability until December 31, 2023 and applying the Accrued Liability Balance Interest Rate from the date
of Disability through December 31, 2023.
|
|
|
B.
|
If Disability Occurs After December 31, 2023.
In
the event Executive becomes Disabled after December 31, 2023, then Executive shall receive the ALB.
|
|
|
6.2
|
Payment Method and Duration.
The foregoing
amount shall be used to calculate an annuity payable on a monthly basis for a period of one hundred eighty (180) months, and by
applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined above in Paragraph 6.1 shall be
paid in substantially equal monthly payments, with payments commencing on the first (1
st
) day of the fourth (4
th
)
month following Executive’s Disability and shall continue for a period of one hundred eighty (180) months.
|
7.0
Death.
In the event Executive dies prior to Separating from Service, prior to a Change in Control, and prior to becoming Disabled, then
all benefits amounts under this Agreement, including all amounts to which Executive and/or his Beneficiaries may have become entitled
in the future, shall be forfeited, and any benefits payable upon death shall only be paid pursuant to a Joint Beneficiary Agreement
should one exist.
In the event
Executive dies after Separating from Service, or after becoming entitled to receive benefits pursuant to Paragraph 5 (Change in
Control) or Paragraph 6 (Disability), then both the Executive Benefit amount and payout method determined as of the Separation
from Service, Change in Control or Disability date will remain unchanged and shall instead be paid to Executive’s designated
Beneficiary.
8.0
Termination
for Cause.
Executive agrees
that if his employment with the Bank is terminated at any time For Cause as defined in this Agreement (and regardless of whether
he has become entitled to a benefit pursuant to Paragraphs 5 or 6 addressing Change in Control and Disability), then he shall forfeit
any and all rights and benefits he may have under the terms of this Agreement and shall have no right to be paid any of the amounts
which would otherwise be due or paid to Executive by the Bank pursuant to the terms of this Agreement.
9.0
Non-Compete
Clause.
If the Executive
is entitled to receive a benefit pursuant to the provisions of Paragraphs 4 or 6, then as a condition of the Executive’s
entitlement to such benefit, the Executive agrees not to engage in Competitive Activity in the Employer’s Market Area within
the three (3) year period beginning on the date of the Executive’s Separation from Service. The term “Competitive Activity”
means acting directly or indirectly as an employee, agent, member, director, co-partner or in any other individual or representative
capacity on behalf of any FDIC insured financial institution. The term “Employer’s Market Area” is defined as
the area within a forty (40) mile radius from any deposit taking office (not ATM location) of the Employer at the time immediately
prior to the Executive’s employment termination. If the Executive shall breach the covenant not to compete contained herein,
the Employer shall be entitled to injunctive relief as well as monetary relief. The Executive acknowledges that injunctive relief
is appropriate because the Employer’s remedies at law are inadequate.
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|
10.0
|
Right to Determine Funding Methods.
|
The Bank reserves
the right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for
the payment of the amounts which may be payable to Executive under the terms of this Agreement. In the event that the Bank elects
to fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Bank shall determine
the ownership and beneficial interests of any such policy of life insurance or annuity. The Bank further reserves the right, in
its sole and absolute discretion, to terminate any such policy, and any other devise used to fund its obligations under this Agreement,
at any time, in whole or in part. Executive shall have no right, title or interest in or to any funding source or amount utilized
by the Bank pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance
of the Bank’s obligations pursuant to this Agreement. In connection with the foregoing, Executive agrees to execute such
documents and undergo such medical examinations or tests which the Bank may request and which may be reasonably necessary to facilitate
any funding for this Agreement including, without limitation, the Bank’s acquisition of any policy of insurance or annuity.
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|
11.0
|
Beneficiary Designation.
|
11.1
Beneficiary
Designation.
Executive shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries
(both primary as well as secondary) to whom benefits under this Agreement shall be paid in the event of his death prior to complete
distribution to the Executive of the benefits due under this Agreement. Each Beneficiary designation shall be in a written form
approved by the Bank and will be effective only when notarized and filed with the Bank during the Executive’s lifetime. Attached
hereto as “Exhibit B” is a Beneficiary Designation Form approved by the Bank; however, the Bank reserves the right
to modify such Beneficiary Designation Form as it deems necessary in the future.
11.2
Amendments
to Beneficiary Designation.
Any Beneficiary Designation Form may be changed by the Executive without the consent of any
designated Beneficiary by the filing of a new Beneficiary Designation Form with the Bank. The filing of a new Beneficiary Designation
Form will cancel all Beneficiary(ies) previously designated. If an Executive’s compensation is community property, any Beneficiary
designation shall be valid or effective only as permitted under applicable law.
11.3
No
Beneficiary Designated.
In the absence of an effective Beneficiary Designation Form, or if all stated Beneficiaries predecease
the Executive or die prior to complete distribution of the Executive’s Benefit, then the Executive’s designated Beneficiary
shall be deemed to be Executive’s lawful spouse or registered domestic partner, or if none exists, Executive’s estate.
11.4
Doubt
as to Beneficiary.
If there is a doubt as to the proper Beneficiary to receive payments pursuant to this Agreement, then
the Bank shall have the right to withhold such payments until this matter is resolved to the satisfaction of Employer. In the event
of any such doubt or dispute, Employer reserves all rights to file an interpleader action or to require a court decree or order
directing the payment of benefits or to require indemnification from any claimant or to require claimants to otherwise finally
resolve such claims prior to Employer paying any benefits under this Plan.
11.5
Effect
of Payment to the Beneficiary.
The payment to the deemed Beneficiary shall fully and completely discharge the Bank from
all further obligations under this Agreement.
12.1
Named
Fiduciary and Plan Administrator.
The “Named Fiduciary” and “Plan Administrator” of this executive
plan shall be the Bank until its resignation or removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the
Bank shall be responsible for the management, control and administration of this executive plan. The Named Fiduciary may delegate
to others certain aspects of the management and operation responsibilities of the plan, including employment of advisors and the
delegation of ministerial duties to qualified individuals.
In the event
a dispute arises over the benefits under this executive plan and benefits are not paid to Executive (or to the Executive’s
beneficiary[ies], if applicable) and such claimants feel they are entitled to receive such benefits, then a written claim must
be made to the Named Fiduciary and Plan Administrator named above in accordance with the following procedures:
|
|
A.
|
Written Claim.
The claimant may file a written
request for such benefit to the Plan Administrator.
|
|
|
B.
|
Claim Decision.
Upon receipt of such claim, the
Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator
determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the
response period by an additional ninety (90) days for reasonable cause by notifying the claimant in writing, prior to the end
of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special
circumstances and the date by which the Plan Administrator expects to render its decision.
|
If the claim
is denied in whole or in part, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administrator
shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
|
|
(i)
|
The specific reasons for the denial;
|
|
|
(ii)
|
The specific reference to pertinent provisions of the Agreement
on which the denial is based;
|
|
|
(iii)
|
A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
|
|
|
(iv)
|
Appropriate information as to the steps to be taken if
the claimant wishes to submit the claim for review and the time limits applicable to such procedures; and
|
|
|
(v)
|
A statement of the claimant’s right to bring a civil
action under ERISA Section 502(a) following an adverse benefit determination on review.
|
|
|
C.
|
Request for Review.
Within sixty (60) days after receiving notice from the Plan Administrator
that a claim has been denied (in part or all of the claim), then claimant (or their duly authorized representative) may file with
the Plan Administrator a written request for a review of the denial of the claim.
|
The claimant (or his duly authorized
representative) shall then have the opportunity to submit written comments, documents, records and other information relating to
the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access to, and copies
of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s
claim for benefits.
|
|
D.
|
Decision on Review
. The Plan Administrator shall
respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines
that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished
to the claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period
of sixty (60) days from the end of the initial period. The notice of extension must set forth the special circumstances requiring
an extension of time and the date by which the Plan Administrator expects to render its decision.
|
In considering
the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim,
without regard to whether such information was submitted or considered in the initial benefit determination.
The Plan
Administrator shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification
in a manner calculated to be understood by the claimant. The notification shall set forth:
|
|
(i)
|
The specific reasons for the denial;
|
|
|
(ii)
|
A reference to the specific provisions of the Agreement
on which the denial is based;
|
|
|
(iii)
|
A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined
in applicable ERISA regulations) to the claimant’s claim for benefits; and
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|
|
(iv)
|
A statement of the claimant’s right to bring a civil
action under ERISA Section 502(a).
|
14.1
Arbitration
of Disputes.
A claimant whose claims have been denied pursuant to the claims and appeals procedures above (and other than
those matters which are to be determined by the Bank in its sole and absolute discretion and/or those matters which are governed
by ERISA), shall then be subject to non-binding arbitration before a member of the Judicial Arbitration and Mediation Services
(JAMS) in accordance with JAMS rules and procedures. In no event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute
of limitations. Any arbitration hereunder shall be conducted in San Francisco, California, unless otherwise agreed to by the parties.
In the event arbitration is not successful in resolving matters, the parties may then pursue alternate dispute resolution methods
available.
14.2
Attorneys’
Fees.
In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto,
arising out of or relating to this Agreement or the breach hereof; or the interpretation hereof; (a) each party shall pay its own
arbitration and attorneys’ fees incurred (pursuant to the terms of this Agreement); and (b) the prevailing party shall be
entitled to recover from the other party reasonable expenses, attorneys’ fees and costs incurred in the enforcement or collection
of any judgment or award rendered. The “prevailing party” means any party (one party or both parties, as the case may
be) determined by the arbitrator(s) or court to be entitled to money payments from the other, not necessarily the party in whose
favor a judgment is rendered.
14.3
Attorneys’
Fees in the Event of a Change in Control.
The Employer desires that the Executive not be required to incur the expenses
associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and
expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. The Employer desires
that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly,
if after a Change in Control occurs, it appears to the Executive that (i) the Employer has failed to comply with any of its obligations
under this Agreement, or (ii) the Employer or any other person has taken any action to declare this Agreement void or unenforceable,
or instituted any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits intended
to be provided to the Executive hereunder, the Employer irrevocably authorizes the Executive from time to time to retain counsel
of Executive’s choice, at Employer’s expense as provided in this subparagraph, to represent the Executive in the initiation
or defense of any litigation or other legal action, whether by or against the Employer or any director, officer, stockholder or
other person affiliated with the Employer, in any jurisdiction. Notwithstanding any existing or previous attorney-client relationship
between the Employer and any counsel chosen by the Executive under this subparagraph, the Employer irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and the Executive and Employer agree that a confidential
relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by
Executive as provided in this section shall be paid or reimbursed to the Executive by the Employer on a regular periodic basis
upon presentation by the Executive of a statement or statements prepared by such counsel in accordance with such counsel’s
customary practices up to a maximum aggregate amount of fifty thousand dollars ($50,000), whether suit be brought or not, and whether
or not incurred in trial, bankruptcy or appellate proceedings. The Employer’s obligation to pay Executive’s legal fees
provided by this subparagraph operate separately from and in addition to any legal fees reimbursement obligation the Employer may
have with the Executive under any separate employment, severance or other Agreement between the Executive and the Employer. Despite
any contrary provision within this Agreement, however, the Employer shall not be required to pay or reimburse the Executive’s
legal expenses if doing so would violate Section 18(k) of the Federal Deposit Insurance Act [12 U.S.C. 1828(k)] and the regulations
promulgated thereunder, including 12 C.F.R. Part 359.
15.0
Status
as an Unsecured General Creditor and Rabbi Trust.
Notwithstanding anything contained herein to the contrary: (i) Executive
shall have no legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result
of this Agreement; (ii) none of the Bank’s assets shall be held in or under any trust for the benefit of Executive or held
in any way as security for the fulfillment of the obligations of the Bank under this Agreement; (iii) all of the Bank’s assets
shall be and remain the general unpledged and unrestricted assets of the Bank; (iv) the Bank’s obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Bank to pay money in the future; and (v) Executive shall be an unsecured
general creditor with respect to any benefits which may be payable under the terms of this Agreement.
Notwithstanding
subparagraphs (i) through (v) above, the Bank and Executive acknowledge and agree that, in the event of a Change in Control, upon
request of Executive, or in the Bank’s discretion if Executive does not so request and the Bank nonetheless deems it appropriate,
the Bank shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the
“Trust” or “Trusts”) upon such terms and conditions as the Bank, in its sole discretion, deems appropriate
and in compliance with applicable provisions of the Code, in order to permit the Bank to make contributions and/or transfer assets
to the Trust or Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings
thereon shall be held separate and apart from other funds of the Bank to be used exclusively for discharge of the Bank’s
obligations pursuant to this Agreement and shall continue to be subject to the claims of the Bank’s general creditors until
paid to Executive in such manner and at such times as specified in this Agreement.
16.1
Opportunity
to Consult with Independent Advisors.
Executive acknowledges that he has been afforded the opportunity to consult with
independent advisors of his choosing including, without limitation, accountants or tax advisors and counsel regarding both the
benefits granted to him under the terms of this Agreement and the (i) terms and conditions which may affect Executive’s right
to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which
in any of the foregoing instances Executive acknowledges and agrees shall be the sole responsibility of Executive notwithstanding
any other term or provision of this Agreement. Executive further acknowledges and agrees that the Bank shall have no liability
whatsoever related to any such personal tax effects or other personal costs, expenses or liabilities applicable to Executive and
further specifically waives any right for himself or herself, and his or her heirs, beneficiaries, legal representatives, agents,
successors and assigns to claim or assert liability on the part of the Bank related to the matters described above in this paragraph.
Executive further acknowledges that he has read, understands and consents to all of the terms and conditions of this Agreement,
and that he enters into this Agreement with a full understanding of its terms and conditions.
16.2
Notice.
Any notice required or permitted of either Executive or the Bank under· this Agreement shall be deemed to have been duly
given, if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission
to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the
party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after
mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the
party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a patty.
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|
If to the Bank:
|
United Business Bank- Corporate Offices
|
|
|
|
500 Ygnacio Valley Road
|
|
|
|
Suite 200
|
|
|
|
Walnut Creek, CA 94596
|
|
|
|
|
|
|
If to the Executive:
|
George J. Guarini
|
|
|
|
At the last address appearing on the
|
|
|
|
personnel records of the Bank
|
16.3
Assignment.
Executive shall have no power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all
of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such
amounts be: (i) subject to seizure by any creditor of Executive, by a proceeding at law or in equity, for the payment of any debts,
judgments, alimony or separate maintenance obligations which may be owed by Executive; or (ii) transferable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void. In the event Executive
or any beneficiary attempts assignment, communication, hypothecation, transfer or disposal of the benefits hereunder, any such
attempted transfer or assignment shall be void.
16.4
IRS
Section 280G Issues.
If all or any portion of the amounts payable to Executive under this Agreement, either alone or together
with other payments which Executive has the right to receive from the Employer, constitute “excess parachute payments”
within the meaning of Section 280G of the Code, that are subject to the excise tax imposed by Section 4999 of the Code (or similar
tax and/or assessment), Executive shall be responsible for the payment of such excise tax and Employer (and its successor) shall
be responsible for any loss of deductibility related thereto; provided, however, that Employer and Executive shall cooperate with
each other and use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax imposed by Section
4999 of the Code. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by Executive
is greater than the amount initially so determined, then Executive shall pay an amount equal to the sum of such additional excise
taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise
taxes shall be made by the independent accounting firm or law firm employed by the Employer immediately prior to the change in
control or such other independent accounting firm or law firm as may be mutually agreeable to the Employer and Executive in the
exercise of their reasonable good faith judgment.
16.5
Binding
Effect/Merger or Reorganization.
This Agreement shall be binding upon and inure to the benefit of Executive and the Bank.
Accordingly, the Bank shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all
of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Bank under this Agreement. In the alternative, a holding company which is
a party to any such transaction may agree to assume and discharge the obligation of the Bank under this Agreement. Upon the occurrence
of such event, the term “Bank” as used in this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation, or the holding company, as the case may be.
16.6
Nonwaiver.
The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that party’s right thereafter to enforce each and every
term and condition of this Agreement.
16.7
Partial
Invalidity.
If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court,
as the case may be, to be invalid, void or unenforceable, such determination shall not render any other term, provision, covenant
or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
16.8
Entire
Agreement.
This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement (including without limitation, the Prior SERP) and contains all of the covenants
and agreements between the patties with respect thereto. Each party to this Agreement acknowledges that no other representations,
inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which
are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding
on either party.
16.9
Modifications.
Any modification of this Agreement shall be effective only if it is in writing and signed by each patty or such party’s authorized
representative, and only to the extent that it is compliant with all applicable codes and statutes, including but not limited to
Code Section 409A.
16.10
Paragraph
Headings.
The paragraph headings used in this Agreement are included solely for the convenience of the patties and shall
not affect or be used in connection with the interpretation of this Agreement.
16.11
No
Strict Construction.
The language used in this Agreement shall be deemed to be the language chosen by the parties hereto
to express their mutual intent, and no rule of strict construction will be applied against any person.
16.12
Governing
Law.
Other than as required by ERISA, the laws of the State of California, other than those laws denominated choice of
law rules, and where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, or any other regulatory agency or governmental authority having
jurisdiction over the Bank or the Company, shall govern the validity, interpretation, construction and effect of this Agreement.
16.13
General
Release.
As a condition of receiving severance, Disability or Change in Control benefits pursuant to this Agreement, Executive
must sign and complete a General Release Form provided by the Employer prior to the scheduled commencement date of such benefits.
|
|
17.0
|
Termination or Modification of Agreement.
|
17.1
Termination
of Agreement When Permissible by Code Section 409A.
Provided Employer satisfies the requirements of Code Section 409A,
Employer may terminate this Agreement in the event of the following: (i) corporate dissolution or bankruptcy (as ordered by the
bankruptcy court); (ii) upon a Change in Control; or (iii) as a matter of Employer discretion.
17.2
Termination
or
Modification of Agreement
by
Reason
of
Changes in the Law, Rules or Regulations
.
The Bank
i
s
entering
into
this Agreement upon
t
he
assumption that
certain existing
tax
law
s,
the
Code,
rules
and
regulations
will continue in effect
in their
c
urren
t
form.
If
a
ny
sai
d
assumptions
s
hould
change and
sai
d
change
has a detrimental effect
on
thi
s
executive p
l
an,
th
en
the Bank
r
ese
r
ves
th
e
ri
g
ht
to
terminate o
r
modify
this
Agree
m
ent
accordingly.
IN
WITNESS WHEREOF
,
the Bank and
th
e
Executive
hav
e
executed
this Agreement
effective as of t
he date fir
st
writt
en above
in th
e
C
ity
of
Walnut
C
r
eek,
California.
|
UNITED BUSINESS BANK
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EXECUTIVE
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By:
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/s/Keary L. Colwell
|
|
/s/George J. Guarini
|
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|
|
|
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/s/Janet L. King
|
|
/s/Janet L. King
|
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Witness
|
|
Witness
|
Exhibit 10.5
UNITED BUSINESS BANK
AMENDED AND RESTATED EXECUTIVE
SUPPLEMENTAL COMPENSATION AGREEMENT
(By and Between United Business Bank
and Janet King)
This Amended and Restated
Executive Supplemental Compensation Agreement (hereinafter “Agreement”) is made and entered into effective as of February
_, 2018, by and between United Business Bank (hereinafter the “Bank” or the “Employer”), a California-chartered
bank with its principal offices located in the city of Walnut Creek, California, and Janet King, an executive of the Bank (the
“Executive”).
WHEREAS, it is the
consensus of the Employer and its Board of Directors that Executive’s employment with the Bank in the past has been of exceptional
merit and has constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status
of operating efficiency and present position in its field of activity;
WHEREAS, the Employer
has established a compensation benefit program as a fringe benefit for executives of the Employer in order to attract and retain
individuals with extensive and valuable experience in the banking industry;
WHEREAS, Executive’s
experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed
to be in the best interests of the Employer to provide Executive with certain fringe benefits, on the terms and conditions set
forth herein, in order to reasonably induce Executive to remain in the Bank’s employ during Executive’s lifetime or
until the age of retirement;
WHEREAS, the Employer
entered into an Executive Supplemental Compensation Agreement with Executive effective as of July 1, 2017 (the “Prior SERP”)
to provide for supplemental retirement benefits;
WHEREAS, the Employer
and Executive desire to amend and restate the Prior SERP in order to reflect the existence of a holding company for the Employer
and to make certain other changes, with the Employer to provide supplemental retirement benefits to Executive on the terms and
conditions set forth in this Agreement; and
WHEREAS, it is the
intent of the parties hereto that this Executive Plan be considered an unfunded management maintained primarily to provide supplemental
retirement benefits for Executive, and be considered a non-qualified benefit plan for the purposes of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”);
NOW, THEREFORE, in
consideration of the past employment performance and the services to be performed by Executive in the future, as well as the mutual
promises and covenants contained herein, Executive and the Employer agree as follows:
AGREEMENT
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1.0
|
Terms and Definitions
.
|
1.1
Accrued
Liability Balance
. For the purposes of this Agreement, the “Accrued Liability Balance” (“ALB”)
means the liability accrued by the Bank in accordance with generally accepted accounting principles in order to fully fund the
future benefit payments associated with this Agreement. The ALB shall reflect Annual Contribution Amounts made to the ALB each
Service Period based on the satisfaction of performance criteria established in the Bank Performance Plan (as defined in Paragraph
1.7 below). Annual Contribution Amounts shall be reflected in the ALB within thirty (30) days of the end of any given Service Period.
The ALB shall be credited with interest as defined below in Paragraph 1.2.
1.2
Accrued
Liability Balance Interest Rate
. Until such time as Executive Separates from Service, becomes Disabled or forfeits a benefit
by operation of this Agreement, the ALB shall be credited with interest compounding annually at the Accrued Liability Interest
Rate, which shall be determined as follows: the average of the Citigroup Pension Liability Index (CPU) over the preceding twelve
(12) months. In the event the CPU is no longer available, an equivalent instrument shall be determined by the Bank’s actuaries
and shall be utilized.
1.3
Administrator
.
The Bank shall be the “Administrator” and, solely for the purposes of ERISA (as defined below), the “fiduciary”
of this Agreement where a fiduciary is required by ERISA.
1.4
Annual
Base Salary
. The term “Annual Base Salary” shall mean the annual compensation (excluding bonuses, commissions,
overtime, incentive payments, non-monetary awards or fees) paid to Executive for services rendered to the Bank, before reduction
for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any employer.
1.5
Annual
Contribution Amounts
. Provided that the Bank meets the minimum annual goals as defined in the annual Bank Performance Plan
as approved by the HR/Compensation Committee of the Board of Directors, the Bank will make an annual contribution to the ALB for
services provided throughout a given Service Period (as defined in Paragraph 1.19). The forgoing shall be referred to as the “Annual
Contribution Amount” and shall be calculated as a percent of the Executive’s Annual Base Salary. The Annual Contribution
Amount ranges between zero percent (0%) and twenty-seven point two seven percent (27.27%) of Annual Base Salary as shown in the
table below. No Annual Contribution Amount will be made if the Bank does not achieve a minimum of seventy-five percent (75%) of
goals as defined in the BPP, and there will be no incremental or pro rata increase in Annual Contribution Amounts for achievement
of over one hundred and twenty-five percent (125%) of the goals defined in the BPP. Other than as provided in the forgoing sentence,
it is intended that the below chart provides benchmark contribution amounts based on the percentage of BPP goals achieved, and
that any increase in percentage of BPP achieved will correlate to a pro rata increase in Annual Contribution Amounts to the ALB.
%
of BPP Achieved in a Given
Service Period
|
|
Contribution
to ALB
(by Service Period
&
Expressed as a % of
Annual Base Salary)
|
|
0
|
|
0
|
|
75%
|
|
2.75%
|
|
80%
|
|
5.56%
|
|
85%
|
|
9.19%
|
|
90%
|
|
13.66%
|
|
95%
|
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16.73%
|
|
100%
|
|
20.00%
|
|
105%
|
|
21.45%
|
|
110%
|
|
22.91%
|
|
115%
|
|
24.36%
|
|
120%
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25.82%
|
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125%
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27.27%
|
All Annual Contribution
Amounts shall cease upon Separation from Service or the triggering of any payment event under Paragraphs 4, 5 or 6.
1.6
Applicable
Percentage
. The term “Applicable Percentage” means the percentage of the Executive Benefit to which Executive
may be entitled based on the date and circumstances associated with Executive’s Separation from Service with the Bank. The
specific benefit to which Executive shall be entitled shall be determined by the facts and circumstances surrounding such Separation
from Service. Subject to the foregoing, the Applicable Percentage shall be determined in accordance with the following:
|
Date of Separation from Service
|
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Applicable Percentage
|
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January 1, 2017- December 31, 2018
|
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0%
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|
January 1, 2019- December 31, 2019
|
|
30%
|
|
January 1, 2020- December 31, 2020
|
|
40%
|
|
January 1, 2021- December 31, 2021
|
|
50%
|
|
January 1, 2022- December 31, 2022
|
|
60%
|
|
January 1, 2023- December 31, 2023
|
|
70%
|
|
January 1, 2024- December 31, 2024
|
|
80%
|
|
January 1, 2025- December 31, 2025
|
|
90%
|
|
January 1, 2026- December 31, 2026
|
|
99%
|
|
January 1, 2027
|
|
100%
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1.7
Bank
Performance Plan
. The “Bank Performance Plan” (“BPP”) defines the performance criteria to be used
to measure the annual financial performance of the Bank and the amount to be contributed annually to the ALB under· this
Agreement and is incorporated herein by reference. A copy of the 2018 BPP goals are attached hereto and incorporated by reference
herein as “Exhibit A”, and the Annual Contribution Amount shall be pro-rated for 2017 to address partial year participation
in the Plan.
For years after 2018,
the BPP goals will either remain as specified for the prior Service Period, or will be modified by the HR/Compensation Committee
of the Board of Directors, and Annual Contribution Amounts will be pro-rated to reflect such partial year modification of the BPP
goals. Any changes to the BPP goals will be provided to the Executive in a timely manner.
1.8
Beneficiary(ies)
.
The “Beneficiary(ies)” shall mean any individual(s) or entities designated to receive any Executive Benefit due or
outstanding to the Executive upon the death of the Executive. The Beneficiary(ies) shall be designated in accordance with the provisions
of Paragraph 11 (and the subsequent subparagraphs). A Bank approved Beneficiary Designation Form has been attached hereto and is
incorporated by reference herein as “Exhibit B”.
1.9
Board
of Directors
. The “Board of Directors” shall mean the Board of Directors of the Bank.
1.10
Change
in Control
. For the purposes of this Agreement, a Change in Control shall include any of the following events:
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A.
|
Change in the Ownership of the Company or the Bank
. A change in the ownership of the Company
or the Bank occurs on the date that any one person or persons acting as a group (as defined in Code Section 409A) acquires ownership
of stock of the Company or the Bank that, together with stock held by such person or group, constitutes more than fifty percent
(50%) of the total fair market value or total voting power of the stock of the Company or the Bank. The acquisition of additional
stock by the same person or group which has already acquired such stock or voting power is not considered to cause an additional
change in the ownership of the Company or the Bank.
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B.
|
Change in the Effective Control of the Company or the Bank
. A change in the effective control
of the Company or the Bank shall be deemed to occur on the date any one person or persons acting as a group acquires (or has acquired
during the twelve (12) month period ending on the date of the most recent acquisition by such person or group) ownership of stock
of the Company or the Bank possessing thirty percent (30%) or more of the total voting power of the stock of the Company or the
Bank.
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C.
|
Change in the Effective Control of the Company
. A change in the effective control of the
Company shall be deemed to occur on the date a majority of the members of the Company’s board of directors is replaced during
any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Company’s
board of directors before the date of the appointment or election.
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D.
|
Change in the Ownership of a Substantial Portion of the Assets of the Company or the Bank
.
A change in the ownership of a substantial portion of the assets of the Company or the Bank shall be deemed to occur on the date
that any one person or group acquires (or has acquired during the twelve (12) month period ending on the date of the most recent
acquisition by such person or persons) assets from the Company or the Bank that have a total gross fair market value equal to or
more than forty percent (40%) of the total gross fair market value of all of the assets of the Company or the Bank immediately
before such acquisition or acquisitions. No Change in Control shall result if the assets are transferred to certain entities controlled
directly or indirectly by the shareholders of the transferring corporation.
|
In addition, to constitute
a Change in Control event with respect to the Executive, the change in control event must relate to (i) the corporation for whom
Executive is performing services at the time of the Change in Control; (ii) the corporation that is liable for the payment of the
amounts described herein (or all corporations liable for the payment if more than one corporation is liable) but only if either
the deferred compensation is attributable to the performance of service by the Executive for such corporation(s) or there is a
bona fide business purpose for such corporation(s) to be liable for such payment and, in either case, no significant purpose of
making such corporation(s) liable for such payment is the avoidance of federal income tax; or·(iii) a corporation that is
a majority shareholder of a corporation identified in (i) or (ii) above, or any corporation in a chain of corporations in which
each corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in (i) or (ii)
above.
In order to constitute
a Change in Control, the above events must also constitute a change in the ownership of the Company or the Bank, a change in the
effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company
or the Bank, in each case as provided under Code Section 409A and the regulations thereunder.
1.11
Code
.
The “Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
1.12
Company
.
The term “Company” shall mean BayCom Corp, a California corporation and the parent holding company of the Bank.
1.13
Disability/Disabled
.
For the purposes of this Agreement, the term “Disability” shall be interpreted in accordance with Code Section 409A.
Pursuant to Code Section 409A, the Executive will be considered Disabled if:
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A.
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She is unable to engage in any substantial gainful activity by reason of any medically determinable
physical or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not
less than twelve (12) months; or
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B.
|
She is, by reason of any medically determinable physical or mental impairment that can be expected
to result in death or can be expected to last for a continuous period of not less than twelve (12) months, receiving income replacement
benefits for a period of not less than three (3) months under an accident and health plan covering employees of the Employer.
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In the event a disability
policy has been purchased by Employer for Executive, then the individual or entity responsible for determining such disability
thereunder shall determine Executive’s Disability under this Agreement (using the foregoing disability definition). In the
event no such disability policy exists, then the Plan Administration shall make a good faith determination of Disability using
the definition provided herein.
1.14
Effective
Date
. The term “Effective Date” shall mean the date first written above.
1.15
ERISA
.
The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.16
Executive
Benefit
. The term “Executive Benefit” shall mean the annual benefit amounts determined pursuant to Paragraphs
4 through 7 (including sub-paragraphs, as applicable), forfeited, reduced or adjusted to the extent: (a) required under the other
provisions of this Agreement; (b) required by reason of the lawful order of any regulatory agency or body having jurisdiction over
the Employer; or (c) required in order for the Employer to comply with any and all applicable state and federal laws, including,
but not limited to, income, employment and disability income tax laws (
e.g.
, FICA, FUTA, SDI).
1.17
Involuntary
Separation from Service
. The terms “Involuntary Separation from Service” or “Involuntary Termination”
(or “Involuntarily Terminated”) shall mean a Separation from Service due to the independent exercise of the unilateral
authority of the Bank to terminate Executive’s services, other· than due to Executive’s implicit or explicit
request, where Executive was willing and able to continue performing services.
1.18
Joint
Beneficiary Agreement
. The term “Joint Beneficiary Agreement” shall refer to any agreement between the parties
pursuant to which a life insurance policy on the life of Executive is owned by the Bank, and pursuant to which the Bank and Executive’s
designated beneficiaries will share in policy proceeds upon Executive’s death.
1.19
Service
Period
. For the purposes of this Agreement, the term “Service Period” shall refer to the consecutive period
of time between January 1 and December 31 of a given calendar year, during which time Executive must remain employed (shall not
Separate from Service) in order to receive an Annual Contribution Amount for such Service Period. If, however, Executive Separates
from Service after October 1 of a given calendar year (other than the calendar year 2017), then Executive shall be deemed to have
completed the entire Service Period, thereby entitling Executive to the Annual Contribution Amount she would have received had
Separation from Service occurred on December 31 of such given year.
The first Service Period
covered by this Agreement shall be July 1, 2017 through December 31, 2017. Thereafter, and as stated above, a Service Period shall
refer to a calendar year.
1.20
Separation
from Service
. The term Separation from Service (or “Separates from Service”) shall be interpreted in accordance
with the provisions of Code Section 409A and shall exclude death or Disability. Currently, under Code Section 409A, whether a Separation
from Service has occurred is determined based on whether the facts and circumstances indicate that the Employer (together with
all corporations with whom the Employer would be considered a single employer under Code Section 414(b)) and Executive reasonably
anticipate that no further services will be performed after a certain date or that the level of bona fide services Executive will
perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty
percent (20%) of the average level of bona fide services performed (as an employee or an independent contractor) over the immediately
preceding thirty six (36) month period (or the full period of services to the Employer if the Executive has been providing services
to the Employer less than thirty-six (36) months). There shall be no Separation from Service while Executive is on military leave,
sick leave or other bona fide leave of absence, as long as such leave does not exceed six (6) months, or if longer, so long as
the individual retains a right to re-employment with the service recipient under an applicable statute or by contract.
1.21
Specified
Employee
. The term “Specified Employee” shall be defined in accordance with Code Section 409A and its related
guidance. Code Section 409A currently provides that a Specified Employee means an employee who, as of the date of his or her Separation
from Service, is a “key employee” of an Employer of which any stock is publicly traded on an established securities
market or otherwise. An Executive is a key employee if Executive meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii)
of the Code (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the twelve
(12) month period ending on a specified employee identification date. If Executive is a key employee as of a specified employee
identification date, then Executive shall be treated as a key employee for the entire twelve (12) month period beginning on the
specified employee effective date as determined under Code Section 409A.
1.22
Termination
for Cause
. A “Termination for Cause” shall be defined by the terms of the then effective Employment Agreement
between Bank and Executive, and shall be synonymous with a for cause termination under such agreement. In the event there is no
Employment Agreement in effect between the parties, then a “Termination for Cause” shall mean termination of Executive’s
employment by the Bank for any of the following reasons: (i) Executive fails to perform or habitually neglects the duties which
Executive is required to perform hereunder; (ii) Executive engages in illegal activity which materially adversely affects the Bank’s
reputation in the community or which evidences the lack of Executive’s fitness or ability to perform Executive’s duties
as determined by the Board of Directors in good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated
disregard of the policies or procedures of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure
to act in accordance with any direction or order of the Board of Directors or a committee thereof of the Bank, except those in
contravention of any law or regulation, or any act by Executive which causes termination of coverage of Executive under any fidelity
or blanket bond; (iv) gross negligence adversely affecting the Bank; (v) any willful or material breach of this Agreement or any
other willful misconduct; (vi) the Bank is closed or taken over by regulatory or other supervisory authority; or (vii) any bank
regulatory or supervisory authority successfully exercises its statutory or regulatory powers to remove Executive.
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2.0
|
Scope, Purpose and Effect
.
|
2.1
Contract
of Employment
. Although this Agreement is intended to provide Executive with an additional incentive to remain in the employ
of the Employer, this Agreement shall not be deemed to constitute a contract of employment between Executive and the Employer,
nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate Executive’s employment.
This Agreement shall have no impact or effect upon any separate written employment agreement which Executive may have with the
Employer, it being the parties’ intention and agreement that unless this Agreement is specifically referenced in said employment
agreement (or any modification thereto), this Agreement (and the Employer’s obligations hereunder) shall stand separate and
apart and shall have no effect on or be affected by, the terms and provisions of said employment agreement.
2.2
Fringe
Benefit
. The benefits provided by this Agreement are granted by the Bank as a fringe benefit to Executive and are not a
part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take
any payments or bonus in lieu of the benefits provided by this Agreement.
2.3
Prohibited
Payments
. Notwithstanding anything in this Agreement to the contrary, if any payment made under this Agreement is a “golden
parachute payment” as defined in Section 28(k) of the Federal Deposit Insurance Act (12 U.S.C. Section l828(k) and Part 359
of the Rules and Regulations of the Federal Deposit Insurance Corporation (collectively, the “FDlC Rules”) or·
is otherwise prohibited, restricted or subject to the prior approval of a banking regulator, no payment shall be made hereunder
without complying with said FDIC Rules.
3.0
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance With Code Section 409A
.
3.1
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance with Code Section 409A
. In
the case of any employee who is a Specified Employee under Code Section 409A as of the date of a Separation from Service, then
a payment conditioned upon a Separation from Service may not be made before the date that is six (6) months after the date of Separation
from Service (or, if earlier than the end of the six-month period, the date of death of the Specified Employee, if such death benefit
is provided).
Therefore,
it is the parties’ understanding and intention that any benefit which is to be made pursuant to this Agreement and to a Specified
Employee within the meaning of Code Section 409A, and whose payment is triggered by a Separation from Service, shall be withheld
for six (6) months in accordance with the foregoing. In the event payments to which Executive would otherwise be entitled during
the first six (6) months are subject to this six (6) month delay in payment, then such payments shall be accumulated and paid on
the first day of the seventh (7
th
) month following the date of Separation from Service. Payments will then continue
thereafter as called for pursuant to the terms of this Agreement.
Notwithstanding
any provision existing in this Agreement or any amendment thereto, it is the intent of the Bank and Executive that any payment
or benefit provided pursuant to this Agreement shall be made and paid in a manner, at a time and in a form which complies with
the applicable requirements of Code Section 409A, in order to avoid any unfavorable tax consequences resulting from any such failure
to comply.
3.2
Compliance
with Code Section 409A
. In the event of any ambiguity in definitions or terms, or in the event further clarification of
any term or provision is necessary, all interpretations and payouts of benefits based thereon shall be in accordance with Code
Section 409A and any related notices or guidance.
3.3
Executive
is Solely Responsible for Code Section 409A Violations
. Executive understands and agrees that, in the event of a Code Section
409A violation, Executive will be solely responsible for any and all resulting taxes and penalties, and furthermore agrees that
she shall not seek, in any manner, to hold Employer responsible, financially or otherwise, for any such potential taxes and/or
penalties she may incur as a result of a Code Section 409A violation. Executive further acknowledges and agrees that, in the event
of a Code Section 409A violation, Employer’s sole obligation under this Agreement shall be to reasonably cooperate with Executive
in good faith.
4.0
Executive Benefit upon a Separation from Service for Reasons Other than a Termination for Cause or Following a Change in Control
.
4.1.
Benefit
Amount
. In the event Executive Separates from Service for reasons other than For Cause or under the provisions of Paragraph
5 (Change in Control), then Executive shall be entitled to be paid the Applicable Percentage of the ALB as of the date of Separation
from Service. Notwithstanding the forgoing, if Executive is Involuntarily Terminated, the Applicable Percentage shall be accelerated
and shall be deemed to be one hundred percent (100%).
4.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 4.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
day of the fourth (4
th
) month following Executive’s Separation from Service and shall continue for a period of
one hundred eighty (180) months.
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5.0
|
Upon a Change in Control
. Upon a Change
in Control, Executive shall be entitled to one of the following:
|
5.1
Benefit
Amount
.
|
|
A.
|
Change in Control on or Before December 31, 2026
. Upon a Change in Control occurring on
or before December 31, 2026, then Executive shall become entitled to receive an amount equal to the ALB as of the date of the Change
in Control, plus the amount of all projected Annual Contribution Amounts expected to be included in the ALB through December 31,
2026 (i.e., including contributions for the 2026 Service Period). This calculation shall be made assuming that remaining Annual
Contribution Amounts through December 31, 2026 are equal to the amounts the Bank would have made assuming a performance level for
each remaining Service Period equal to the average performance level for the three (3) year period preceding the Change in Control.
In addition, this ALB amount shall be credited with interest as though the Annual Contribution Amounts had been made on the same
annual schedule they would have been made through December 31, 2026 and applying the Accrued Liability Balance Interest Rate from
the date of the Change in Control through December 31,2026.
|
|
|
B.
|
Change in Control After December 31, 2026
. Upon a Change in Control occurring after December
31, 2026, then Executive shall receive the ALB.
|
5.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 5.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
)
day of the fourth (4
th
) month following Executive’s Separation from Service and shall continue for a period of
one hundred eighty (180) months.
6.0
Disability
.
In the event Executive becomes Disabled at any time prior to Separating from Service with the Bank, then Executive shall be entitled
to be paid the following benefit in lieu of any other benefits herein:
6.1
Benefit
Amount
.
|
|
A.
|
If Disability Occurs on or Before December 31, 2026
. In the event Executive becomes Disabled
on or before December 31, 2026, then Executive shall be entitled to receive an amount equal to the ALB as of the date of Disability,
plus the amount of all projected Annual Contribution Amounts expected to be included in the ALB had Executive not become Disabled
until December 31, 2026. This calculation shall be made assuming that remaining Annual Contribution Amounts through December 31,
2026 are equal to the amounts the Bank would have made assuming a performance level for each remaining Service Period equal to
the average performance level for the three (3) year period preceding Executive’s Disability. In addition, this ALB amount
shall be credited with interest as though the Annual Contributions had been made on the same annual schedule they would have been
made had there been no Disability until December 31,2026 and applying the Accrued Liability Balance Interest Rate from the date
of Disability through December 31, 2026.
|
|
|
B.
|
If Disability Occurs After December 31, 2026
. In the event Executive becomes Disabled after
December 31, 2026, then Executive shall receive the ALB.
|
6.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 6.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
)
day of the fourth (4
th
) month following Executive’s Disability and shall continue for a period of one hundred
eighty (180) months.
7.0
Death
.
In the event Executive dies prior to Separating from Service, prior to a Change in Control, and prior to becoming Disabled, then
all benefit amounts under this Agreement, including all amounts to which Executive and/or his Beneficiaries may have become entitled
in the future, shall be forfeited, and any benefits payable upon death shall only be paid pursuant to a Joint Beneficiary Agreement
should one exist.
In the event Executive
dies after Separating from Service, or after becoming entitled to receive benefits pursuant to Paragraph 5 (Change in Control)
or Paragraph 6 (Disability), then both the Executive Benefit amount and payout method determined as of the Separation from Service,
Change in Control or Disability date will remain unchanged and shall instead be paid to Executive’s designated Beneficiary.
|
|
8.0
|
Termination for Cause
.
|
Executive agrees that
if his employment with the Bank is terminated at any time For Cause as defined in this Agreement (and regardless of whether he
has become entitled to a benefit pursuant to Paragraphs 5 or 6 addressing Change in Control and Disability), then he shall forfeit
any and all rights and benefits he may have under the terms of this Agreement and shall have no right to be paid any of the amounts
which would otherwise be due or paid to Executive by the Bank pursuant to the terms of this Agreement.
If the Executive is
entitled to receive a benefit pursuant to the provisions of Paragraphs 4 or 6, then as a condition of the Executive’s entitlement
to such benefit, the Executive agrees not to engage in Competitive Activity in the Employer’s Market Area within the three
(3) year period beginning on the date of the Executive’s Separation from Service. The term “Competitive Activity”
means acting directly or indirectly as an employee, agent, member, director, co-partner or in any other individual or representative
capacity on behalf of any FDIC insured financial institution. The term “Employer’s Market Area” is defined as
the area within a forty (40) mile radius from any deposit taking office (not ATM location) of the Employer at the time immediately
prior to the Executive’s employment termination. If the Executive shall breach the covenant not to compete contained herein,
the Employer shall be entitled to injunctive relief as well as monetary relief. The Executive acknowledges that injunctive relief
is appropriate because the Employer’s remedies at law are inadequate.
|
|
10.0
|
Right to Determine Funding Methods
.
|
The Bank reserves the
right to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the
payment of the amounts which may be payable to Executive under the terms of this Agreement. In the event that the Bank elects to
fund this Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Bank shall determine the
ownership and beneficial interests of any such policy of life insurance or annuity. The Bank further reserves the right, in its
sole and absolute discretion, to terminate any such policy, and any other devise used to fund its obligations under this Agreement,
at any time, in whole or in part. Executive shall have no right, title or interest in or to any funding source or amount utilized
by the Bank pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance
of the Bank’s obligations pursuant to this Agreement. In connection with the foregoing, Executive agrees to execute such
documents and undergo such medical examinations or tests which the Bank may request and which may be reasonably necessary to facilitate
any funding for this Agreement including, without limitation, the Bank’s acquisition of any policy of insurance or annuity.
|
|
11.0
|
Beneficiary Designation
.
|
11.1
Beneficiary
Designation
.
Executive shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries
(both primary as well as secondary) to whom benefits under this Agreement shall be paid in the event of his death prior to complete
distribution to the Executive of the benefits due under this Agreement. Each Beneficiary designation shall be in a written form
approved by the Bank and will be effective only when notarized and filed with the Bank during the Executive’s lifetime. Attached
hereto as “Exhibit B” is a Beneficiary Designation Form approved by the Bank; however, the Bank reserves the right
to modify such Beneficiary Designation Form as it deems necessary in the future.
11.2
Amendments
to Beneficiary Designation
.
Any Beneficiary Designation Form may be changed by the Executive without the consent of any
designated Beneficiary by the filing of a new Beneficiary Designation Form with the Bank. The filing of a new Beneficiary Designation
Form will cancel all Beneficiary(ies) previously designated. If an Executive’s compensation is community property, any Beneficiary
designation shall be valid or effective only as permitted under applicable law.
11.3
No
Beneficiary Designated
.
In the absence of an effective Beneficiary Designation Form, or if all stated Beneficiaries predecease
the Executive or die prior to complete distribution of the Executive’s Benefit, then the Executive’s designated Beneficiary
shall be deemed to be Executive’s lawful spouse or registered domestic partner, or if none exists, Executive’s estate.
11.4
Doubt
as to Beneficiary
.
If there is a doubt as to the proper Beneficiary to receive payments pursuant to this Agreement, then
the Bank shall have the right to withhold such payments until this matter is resolved to the satisfaction of Employer. In the event
of any such doubt or dispute, Employer reserves all rights to file an interpleader action or to require a court decree or order
directing the payment of benefits or to require indemnification from any claimant or to require claimants to otherwise finally
resolve such claims prior to Employer paying any benefits under this Plan.
11.5
Effect
of Payment to the Beneficiary
.
The payment to the deemed Beneficiary shall fully and completely discharge the Bank from
all further obligations under this Agreement.
12.1
Named
Fiduciary and Plan Administrator
.
The “Named Fiduciary” and “Plan Administrator” of this executive
plan shall be the Bank until its resignation to removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the
Bank shall be responsible for the management, control and administration of this executive plan. The Named Fiduciary may delegate
to others certain aspects of the management and operation responsibilities of the plan, including employment of advisors and the
delegation of ministerial duties to qualitied individuals.
13.0
Claims
Procedure
.
In the event a dispute
arises over the benefits under this executive plan and benefits are not paid to Executive (or to the Executive’s beneficiary[ies],
if applicable) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named
Fiduciary and Plan Administrator named above in accordance with the following procedures:
|
|
A.
|
Written Claim
. The claimant may file a written request for such benefit to the Plan Administrator.
|
|
|
B.
|
Claim Decision
. Upon receipt of such claim, the Plan Administrator shall respond to such
claimant within ninety (90) days after receiving the claim. If the Plan Administrator determines that special circumstances require
additional time for processing the claim, the Plan Administrator can extend the response period by an additional ninety (90) days
for reasonable cause by notifying the claimant in writing, prior to the end of the initial ninety (90) day period, that an additional
period is required. The notice of extension must set forth the special circumstances and the date by which the Plan Administrator
expects to render its decision.
|
If the claim
is denied in whole or in part, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administration·
shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
|
|
(i)
|
The specific reasons for the denial;
|
|
|
(ii)
|
The specific reference to pertinent provisions of the Agreement on which the denial is based;
|
|
|
(iii)
|
A description of any additional information or material necessary for the claimant to perfect the
claim and an explanation of why such material or information is necessary;
|
|
|
(iv)
|
Appropriate information as to the steps to be taken if the claimant wishes to submit the claim
for review and the time limits applicable to such procedures; and
|
|
|
(v)
|
A statement of the claimant’s right to bring a civil action under ERISA Section 502(a) following
an adverse benefit determination on review.
|
|
|
C.
|
Request for Review
. Within sixty (60) days after receiving notice from the Plan Administrator
that a claim has been denied (in part or all of the claim), then claimant (or their duly authorized representative) may file with
the Plan Administrator a written request for a review of the denial of the claim.
|
The claimant
(or his duly authorized representative) shall then have the opportunity to submit written comments, documents, records and other
information relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable
access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to
the claimant’s claim for benefits.
|
|
D.
|
Decision on Review
. The Plan Administrator shall respond in writing to such claimant within
sixty (60) days after receiving the request for review. If the Plan Administrator determines that special circumstances require
an extension of time for processing the claim, written notice of the extension shall be furnished to the claimant prior to the
termination of the initial sixty (60) day period. In no event shall such extension exceed a period of sixty (60) days from the
end of the initial period. The notice of extension must set forth the special circumstances requiring an extension of time and
the date by which the Plan Administrator expects to render its decision.
|
In considering
the review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim,
without regard to whether such information was submitted or considered in the initial benefit determination.
The Plan Administrator
shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
|
|
(i)
|
The specific reasons for the denial;
|
|
|
(ii)
|
A reference to the specific provisions of the Agreement on which the denial is based;
|
|
|
(iii)
|
A statement that the claimant is entitled to receive, upon request and free of charge, reasonable
access to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to
the claimant’s claim for benefits; and
|
|
|
(iv)
|
A statement of the claimant’s right to bring a civil action under ERISA Section 502(a).
|
|
|
14.0
|
Dispute Resolution
.
|
14.1
Arbitration
of Disputes
.
A claimant whose claims have been denied pursuant to the claims and appeals procedures above (and other than
those matters which are to be determined by the Bank in its sole and absolute discretion and/or those matters which arc governed
by ERISA), shall then be subject to non-binding arbitration before a member of the Judicial Arbitration and Mediation Services
(JAMS) in accordance with JAMS rules and procedures. In no event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute
of limitations. Any arbitration hereunder shall be conducted in San Francisco, California, unless otherwise agreed to by the parties.
In the event arbitration is not successful in resolving matters, the parties may then pursue alternate dispute resolution methods
available.
14.2
Attorneys’
Fees
.
In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto,
arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, (a) each party shall pay its own
arbitration and attorneys’ fees incurred (pursuant to the terms of this Agreement); and (b) the prevailing party shall be
entitled to recover from the other party reasonable expenses, attorneys’ fees and costs incurred in the enforcement or collection
of any judgment or award rendered. The “prevailing party” means any party (one party or both parties, as the case may
be) determined by the arbitrator(s) or court to be entitled to money payments from the other, not necessarily the party in whose
favor a judgment is rendered.
14.3
Attorneys’
Fees in the Event of a Change in Control
.
The Employer desires that the Executive not be required to incur the expenses
associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and
expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. The Employer desires
that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly,
if after a Change in Control occurs, it appears to the Executive that (i) the Employer has failed to comply with any or its obligations
under this Agreement, or (ii) the Employer or any other person has taken any action to declare this Agreement void or unenforceable,
or instituted any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits intended
to be provided to the Executive hereunder, the Employer irrevocably authorizes the Executive from time to time to retain counsel
of Executive’s choice, at Employer’s expense as provided in this subparagraph, to represent the Executive in the initiation
or defense of any litigation or other legal action, whether by or against the Employer or any director, officer, stockholder or
other person affiliated with the Employer, in any jurisdiction. Notwithstanding any existing or previous attorney-client relationship
between the Employer and any counsel chosen by the Executive under this subparagraph, the Employer irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and the Executive and Employer agree that a confidential
relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by
Executive as provided in this section shall be paid or reimbursed to the Executive by the Employer on a regular periodic basis
upon presentation by the Executive or a statement or statements prepared by such counsel in accordance with such counsel’s
customary practices up to a maximum aggregate amount of fifty thousand dollars ($50,000), whether suit be brought or not, and whether
or not incurred in trial, bankruptcy or appellate proceedings. The Employer’s obligation to pay Executive’s legal tees
provided by this subparagraph operate separately from and in addition to any legal fees reimbursement obligation the Employer may
have with the Executive under any separate employment, severance or other Agreement between the Executive and the Employer. Despite
any contrary provision within this Agreement, however, the Employer shall not be required to pay or reimburse the Executive’s
legal expenses if doing so would violate Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)] and the regulations
promulgated thereunder, including 12 C.F.R. Part 359.
15.0
Status
as an Unsecured General Creditor and Rabbi Trust
. Notwithstanding anything contained herein to the contrary: (i) Executive
shall have no legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result
of this Agreement; (ii) none of the Bank’s assets shall be held in or under any trust for the benefit of Executive or held
in any way as security for the fulfillment of the obligations of the Bank under this Agreement; (iii) all of the Bank’s assets
shall be and remain the general unpledged and unrestricted assets of the Bank; (iv) the Bank’s obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Bank to pay money in the future; and (v) Executive shall be an unsecured
general creditor with respect to any benefits which may be payable under the terms of this Agreement.
Notwithstanding subparagraphs
(i) through (v) above, the Bank and Executive acknowledge and agree that, in the event of a Change in Control, upon request of
Executive, or in the Bank’s discretion if Executive does not so request and the Bank nonetheless deems it appropriate, the
Bank shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the “Trust”
or “Trusts”) upon such terms and conditions as the Bank, in its sole discretion, deems appropriate and in compliance
with applicable provisions of the Code, in order to permit the Bank to make contributions and/or transfer assets to the Trust or
Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall
be held separate and apart from other funds of the Bank to be used exclusively for discharge of the Bank’s obligations pursuant
to this Agreement and shall continue to be subject to the claims of the Bank’s general creditors until paid to Executive
in such manner and at such times as specified in this Agreement.
16.1
Opportunity
to Consult with Independent Advisors
. Executive acknowledges that she has been afforded the opportunity to consult with
independent advisors of her choosing including, without limitation, accountants or tax advisors and counsel regarding both the
benefits granted to her under the terms of this Agreement and the (i) terms and conditions which may affect Executive’s right
to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which
in any of the foregoing instances Executive acknowledges and agrees shall be the sole responsibility of Executive notwithstanding
any other term or provision of this Agreement. Executive further acknowledges and agrees that the Bank shall have no liability
whatsoever related to any such personal tax effects or other personal costs, expenses or liabilities applicable to Executive and
further specifically waives any right for himself or herself, and his or her heirs, beneficiaries, legal representatives, agents,
successors and assigns to claim or assert liability on the part of the Bank related to the matters described above in this paragraph.
Executive further acknowledges that she has read, understands and consents to all of the terms and conditions of this Agreement,
and that she enters into this Agreement with a full understanding of its terms and conditions.
16.2
Notice
.
Any notice required or permitted of either Executive or the Bank under this Agreement shall be deemed to have been duly given,
if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission
to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the
party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after
mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the
party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
|
|
If to the Bank:
|
United Business Bank- Corporate Offices
|
|
|
|
500 Ygnacio Valley Road
|
|
|
|
Suite 200
|
|
|
|
Walnut Creek, CA 94596
|
|
|
|
|
|
|
If to the Executive:
|
Janet King
|
|
|
|
At the last address appearing on the
|
|
|
|
personnel records of the Bank
|
16.3
Assignment
.
Executive shall have no power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all
of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such
amounts be: (i) subject to seizure by any creditor of Executive, by a proceeding at law or in equity, for the payment of any debts,
judgments, alimony or separate maintenance obligations which may be owed by Executive; or (ii) transferrable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void. In the event Executive
or any beneficiary attempts assignment, communication, hypothecation, transfer or disposal of the benefits hereunder, any such
attempted transfer or assignment shall be void.
16.4
IRS
Section 280G Issues
.
If all or any portion of the amounts payable to Executive under this Agreement, either alone or together
with other payments which Executive has the right to receive from the Employer, constitute “excess parachute payments”
within the meaning of Section 280G of the Code that are subject to the excise tax imposed by Section 4999 of the Code (or similar
tax and/or assessment), Executive shall be responsible for the payment of such excise tax and Employer (and its successor) shall
be responsible for any loss of deductibility related thereto; provided, however, that Employer and Executive shall cooperate with
each other and use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax imposed by Section
4999 of the Code. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by Executive
is greater than the amount initially so determined, then Executive shall pay an amount equal to the sum of such additional excise
taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise
taxes shall be made by the independent accounting firm or law firm employed by the Employer immediately prior to the change in
control or such other independent accounting firm or law firm as may be mutually agreeable to the Employer and Executive in the
exercise of their reasonable good faith judgment.
16.5
Binding
Effect/Merger or Reorganization
.
This Agreement shall be binding upon and inure to the benefit of Executive and the Bank.
Accordingly, the Bank shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all
of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Bank under this Agreement. In the alternative, a holding company which is
a party to any such transaction may agree to assume and discharge the obligation of the Bank under this Agreement. Upon the occurrence
of such event, the term “Bank” as used in this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation, or the holding company, as the case may be.
16.6
Nonwaiver
.
The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that party’s right thereafter to enforce each and every
term and condition of this Agreement.
16.7
Partial
Invalidity
.
If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court,
as the case may be, to be invalid, void or unenforceable, such determination shall not render any other term, provision, covenant
or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
16.8
Entire
Agreement
.
This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement (including without limitation the Prior SERP) and contains all of the covenants
and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations,
inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which
are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding
on either party.
16.9
Modifications
.
Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party’s authorized
representative, and only to the extent that it is compliant with all applicable codes and statutes, including but not limited to
Code Section 409A.
16.10
Paragraph
Headings
.
The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
16.11
No
Strict Construction
.
The language used in this Agreement shall be deemed to be the language chosen by the parties hereto
to express their mutual intent, and no rule of strict construction will be applied against any person.
16.12
Governing
Law
.
Other than as required by ERISA, the laws of the State of California, other than those laws denominated choice of
law rules, and where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, or any other regulatory agency or governmental authority having
jurisdiction over the Bank or the Company, shall govern the validity, interpretation, construction and effect of this Agreement.
16.13
General
Release
.
As a condition of receiving severance, Disability or Change in Control benefits pursuant to this Agreement, Executive
must sign and complete a General Release Form provided by the Employer prior to the scheduled commencement date of such benefits.
|
|
17.0
|
Termination or Modification of Agreement
.
|
17.1
Termination
of Agreement When Permissible by Code Section 409A
.
Provided Employer satisfies the requirements of Code Section 409A,
Employer may terminate this Agreement in the event of the following: (i) corporate dissolution or bankruptcy (as ordered by the
bankruptcy court); (ii) upon a Change in Control; or (iii) as a matter of Employer discretion.
17.2
Termination
or Modification of Agreement by Reason of Changes in the Law, Rules or Regulations
.
The Bank is entering into this Agreement
upon the assumption that certain existing tax laws, the Code, rules and regulations will continue in effect in their current form.
If any said assumptions should change and said change has a detrimental effect on this executive plan, then the Bank reserves the
right to terminate or modify this Agreement accordingly.
IN WITNESS WHEREOF,
the Bank and the Executive have executed this Agreement effective as of the date first written above in the City of Walnut Creek,
California.
|
UNITED BUSINESS BANK
|
EXECUTIVE
|
|
By:
|
/s/George J. Guarani
|
|
/s/Janet L. King
|
|
|
|
|
|
|
|
|
|
/s/Keary L. Colwell
|
|
|
Witness
|
|
Witness
|
Exhibit 10.6
UNITED BUSINESS BANK
AMENDED AND RESTATED EXECUTIVE
SUPPLEMENTAL COMPENSATION AGREEMENT
(By and Between United Business Bank and
Keary Colwell)
This Amended and Restated
Executive Supplemental Compensation Agreement (hereinafter “Agreement”) is made and entered into effective as of February
_, 2018, by and between United Business Bank (hereinafter the “Bank” or the “Employer”), a California-chartered
bank with its principal offices located in the city of Walnut Creek, California, and Keary Colwell, an executive of the Bank (the
“Executive”).
WHEREAS, it is the consensus
of the Employer and its Board of Directors that Executive’s employment with the Bank in the past has been of exceptional
merit and has constituted an invaluable contribution to the general welfare of the Bank in bringing the Bank to its present status
of operating efficiency and present position in its field of activity;
WHEREAS, the Employer has
established a compensation benefit program as a fringe benefit for executives of the Employer in order to attract and retain individuals
with extensive and valuable experience in the banking industry;
WHEREAS, Executive’s
experience and knowledge of the affairs of the Employer and the banking industry are extensive and valuable;
WHEREAS, it is deemed to
be in the best interests of the Employer to provide Executive with certain fringe benefits, on the terms and conditions set forth
herein, in order to reasonably induce Executive to remain in the Bank’s employ during Executive’s lifetime or until
the age of retirement;
WHEREAS, the Employer entered
into an Executive Supplemental Compensation Agreement with Executive effective as of July 1, 2017 (the “Prior SERP”)
to provide for supplemental retirement benefits;
WHEREAS, the Employer and
Executive desire to amend and restate the Prior SERP in order to reflect the existence of a holding company for the Employer and
to make certain other changes, with the Employer to provide supplemental retirement benefits to Executive on the terms and conditions
set forth in this Agreement; and
WHEREAS, it is the intent
of the parties hereto that this Executive Plan be considered an unfunded management maintained primarily to provide supplemental
retirement benefits for Executive, and be considered a non-qualified benefit plan for the purposes of the Employee Retirement Income
Security Act of 1974, as amended (“ERISA”);
NOW, THEREFORE, in consideration
of the past employment performance and the services to be performed by Executive in the future, as well as the mutual promises
and covenants contained herein, Executive and the Employer agree as follows:
AGREEMENT
1.0
Terms
and Definitions
.
1.1
Accrued
Liability Balance
. For the purposes of this Agreement, the “Accrued Liability Balance” (“ALB”)
means the liability accrued by the Bank in accordance with generally accepted accounting principles in order to fully fund the
future benefit payments associated with this Agreement. The ALB shall reflect Annual Contribution Amounts made to the ALB each
Service Period based on the satisfaction of performance criteria established in the Bank Performance Plan (as defined in Paragraph
1.7 below). Annual Contribution Amounts shall be reflected in the ALB within thirty (30) days of the end of any given Service Period.
The ALB shall be credited with interest as defined below in Paragraph 1.2.
1.2
Accrued
Liability Balance Interest Rate
. Until such time as Executive Separates from Service, becomes Disabled or forfeits a benefit
by operation of this Agreement, the ALB shall be credited with interest compounding annually at the Accrued Liability Interest
Rate, which shall be determined as follows: the average of the Citigroup Pension Liability Index (CPU) over the preceding twelve
(12) months. In the event the CPU is no longer available, an equivalent instrument shall be determined by the Bank’s actuaries
and shall be utilized.
1.3
Administrator
.
The Bank shall be the “Administrator” and, solely for the purposes of ERISA (as defined below), the “fiduciary”
of this Agreement where a fiduciary is required by ERISA.
1.4
Annual
Base Salary
. The term “Annual Base Salary” shall mean the annual compensation (excluding bonuses, commissions,
overtime, incentive payments, non-monetary awards or fees) paid to Executive for services rendered to the Bank, before reduction
for compensation deferred pursuant to all qualified, non-qualified and Code Section 125 plans of any employer.
1.5
Annual
Contribution Amounts
. Provided that the Bank meets the minimum annual goals as defined in the annual Bank Performance Plan
as approved by the HR/Compensation Committee of the Board of Directors, the Bank will make an annual contribution to the ALB for
services provided throughout a given Service Period (as defined in Paragraph 1.19). The forgoing shall be referred to as the “Annual
Contribution Amount” and shall be calculated as a percent of the Executive’s Annual Base Salary. The Annual Contribution
Amount ranges between zero percent (0%) and twenty-seven point two seven percent (27.27%) of Annual Base Salary as shown in the
table below. No Annual Contribution Amount will be made if the Bank does not achieve a minimum of seventy-five percent (75%) of
goals as defined in the BPP, and there will be no incremental or pro rata increase in Annual Contribution Amounts for achievement
of over one hundred and twenty-five percent (125%) of the goals defined in the BPP. Other than as provided in the forgoing sentence,
it is intended that the below chart provides benchmark contribution amounts based on the percentage of BPP goals achieved, and
that any increase in percentage of BPP achieved will correlate to a pro rata increase in Annual Contribution Amounts to the ALB.
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% of BPP Achieved in a Given
Service Period
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Contribution to ALB
(by Service Period & Expressed as a % of
Annual Base Salary)
|
|
|
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0
|
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|
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0
|
|
|
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75%
|
|
|
|
2.75%
|
|
|
|
80%
|
|
|
|
5.56%
|
|
|
|
85%
|
|
|
|
9.19%
|
|
|
|
90%
|
|
|
|
13.66%
|
|
|
|
95%
|
|
|
|
16.73%
|
|
|
|
100%
|
|
|
|
20.00%
|
|
|
|
105%
|
|
|
|
21.45%
|
|
|
|
110%
|
|
|
|
22.91%
|
|
|
|
115%
|
|
|
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24.36%
|
|
|
|
120%
|
|
|
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25.82%
|
|
|
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125%
|
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27.27%
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All Annual Contribution
Amounts shall cease upon Separation from Service or the triggering of any payment event under Paragraphs 4, 5 or 6.
1.6
Applicable
Percentage
. The term “Applicable Percentage” means the percentage of the Executive Benefit to which Executive
may be entitled based on the date and circumstances associated with Executive’s Separation from Service with the Bank. The
specific benefit to which Executive shall be entitled shall be determined by the facts and circumstances surrounding such Separation
from Service. Subject to the foregoing, the Applicable Percentage shall be determined in accordance with the following:
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Date of Separation from Service
|
|
Applicable Percentage
|
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January 1, 2017- December 31, 2018
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0%
|
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January 1, 2019- December 31, 2019
|
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30%
|
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January 1, 2020- December 31, 2020
|
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40%
|
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January 1, 2021- December 31, 2021
|
|
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50%
|
|
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January 1, 2022- December 31, 2022
|
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60%
|
|
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January 1, 2023- December 31, 2023
|
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70%
|
|
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January 1, 2024- December 31, 2024
|
|
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80%
|
|
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January 1, 2025- December 31, 2025
|
|
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90%
|
|
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January 1, 2026- December 31, 2026
|
|
|
99%
|
|
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January 1, 2027
|
|
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100%
|
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1.7
Bank
Performance Plan
. The “Bank Performance Plan” (“BPP”) defines the performance criteria to be used
to measure the annual financial performance of the Bank and the amount to be contributed annually to the ALB under· this
Agreement and is incorporated herein by reference. A copy of the 2018 BPP goals are attached hereto and incorporated by reference
herein as “Exhibit A”, and the Annual Contribution Amount shall be pro-rated for 2017 to address partial year participation
in the Plan.
For years after 2018, the
BPP goals will either remain as specified for the prior Service Period, or will be modified by the HR/Compensation Committee of
the Board of Directors, and Annual Contribution Amounts will be pro-rated to reflect such partial year modification of the BPP
goals. Any changes to the BPP goals will be provided to the Executive in a timely manner.
1.8
Beneficiary(ies)
.
The “Beneficiary(ies)” shall mean any individual(s) or entities designated to receive any Executive Benefit due or
outstanding to the Executive upon the death of the Executive. The Beneficiary(ies) shall be designated in accordance with the provisions
of Paragraph 11 (and the subsequent subparagraphs). A Bank approved Beneficiary Designation Form has been attached hereto and is
incorporated by reference herein as “Exhibit B”.
1.9
Board
of Directors
. The “Board of Directors” shall mean the Board of Directors of the Bank.
1.10
Change
in Control
. For the purposes of this Agreement, a Change in Control shall include any of the following events:
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A.
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Change in the Ownership of the Company or the Bank
.
A change in the ownership of the Company or the Bank occurs on the date that any one person or persons acting as a group (as defined
in Code Section 409A) acquires ownership of stock of the Company or the Bank that, together with stock held by such person or
group, constitutes more than fifty percent (50%) of the total fair market value or total voting power of the stock of the Company
or the Bank. The acquisition of additional stock by the same person or group which has already acquired such stock or voting power
is not considered to cause an additional change in the ownership of the Company or the Bank.
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B.
|
Change in the Effective Control of the Company or the
Bank
. A change in the effective control of the Company or the Bank shall be deemed to occur on the date any one person or
persons acting as a group acquires (or has acquired during the twelve (12) month period ending on the date of the most recent
acquisition by such person or group) ownership of stock of the Company or the Bank possessing thirty percent (30%) or more of
the total voting power of the stock of the Company or the Bank.
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C.
|
Change in the Effective Control of the Company
.
A change in the effective control of the Company shall be deemed to occur on the date a majority of the members of the Company’s
board of directors is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed
by a majority of the members of the Company’s board of directors before the date of the appointment or election.
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D.
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Change in the Ownership of a Substantial Portion of
the Assets of the Company or the Bank
. A change in the ownership of a substantial portion of the assets of the Company or
the Bank shall be deemed to occur on the date that any one person or group acquires (or has acquired during the twelve (12) month
period ending on the date of the most recent acquisition by such person or persons) assets from the Company or the Bank that have
a total gross fair market value equal to or more than forty percent (40%) of the total gross fair market value of all of the assets
of the Company or the Bank immediately before such acquisition or acquisitions. No Change in Control shall result if the assets
are transferred to certain entities controlled directly or indirectly by the shareholders of the transferring corporation.
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In addition, to constitute
a Change in Control event with respect to the Executive, the change in control event must relate to (i) the corporation for whom
Executive is performing services at the time of the Change in Control; (ii) the corporation that is liable for the payment of the
amounts described herein (or all corporations liable for the payment if more than one corporation is liable) but only if either
the deferred compensation is attributable to the performance of service by the Executive for such corporation(s) or there is a
bona fide business purpose for such corporation(s) to be liable for such payment and, in either case, no significant purpose of
making such corporation(s) liable for such payment is the avoidance of federal income tax; or·(iii) a corporation that is
a majority shareholder of a corporation identified in (i) or (ii) above, or any corporation in a chain of corporations in which
each corporation is a majority shareholder of another corporation in the chain, ending in a corporation identified in (i) or (ii)
above.
In order to constitute
a Change in Control, the above events must also constitute a change in the ownership of the Company or the Bank, a change in the
effective control of the Company or the Bank or a change in the ownership of a substantial portion of the assets of the Company
or the Bank, in each case as provided under Code Section 409A and the regulations thereunder.
1.11
Code
.
The “Code” shall mean the Internal Revenue Code of 1986, as amended, and the Treasury Regulations promulgated thereunder.
1.12
Company
.
The term “Company” shall mean BayCom Corp, a California corporation and the parent holding company of the Bank.
1.13
Disability/Disabled
.
For the purposes of this Agreement, the term “Disability” shall be interpreted in accordance with Code Section 409A.
Pursuant to Code Section 409A, the Executive will be considered Disabled if:
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A.
|
She is unable to engage in any substantial gainful activity
by reason of any medically determinable physical or mental impairment that can be expected to result in death or can be expected
to last for a continuous period of not less than twelve (12) months; or
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B.
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She is, by reason of any medically determinable physical
or mental impairment that can be expected to result in death or can be expected to last for a continuous period of not less than
twelve (12) months, receiving income replacement benefits for a period of not less than three (3) months under an accident and
health plan covering employees of the Employer.
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In the event a disability
policy has been purchased by Employer for Executive, then the individual or entity responsible for determining such disability
thereunder shall determine Executive’s Disability under this Agreement (using the foregoing disability definition). In the
event no such disability policy exists, then the Plan Administration shall make a good faith determination of Disability using
the definition provided herein.
1.14
Effective
Date
. The term “Effective Date” shall mean the date first written above.
1.15
ERISA
.
The term “ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.
1.16
Executive
Benefit
. The term “Executive Benefit” shall mean the annual benefit amounts determined pursuant to Paragraphs
4 through 7 (including sub-paragraphs, as applicable), forfeited, reduced or adjusted to the extent: (a) required under the other
provisions of this Agreement; (b) required by reason of the lawful order of any regulatory agency or body having jurisdiction over
the Employer; or (c) required in order for the Employer to comply with any and all applicable state and federal laws, including,
but not limited to, income, employment and disability income tax laws (
e.g.
, FICA, FUTA, SDI).
1.17
Involuntary
Separation from Service
. The terms “Involuntary Separation from Service” or “Involuntary Termination”
(or “Involuntarily Terminated”) shall mean a Separation from Service due to the independent exercise of the unilateral
authority of the Bank to terminate Executive’s services, other· than due to Executive’s implicit or explicit
request, where Executive was willing and able to continue performing services.
1.18
Joint
Beneficiary Agreement
. The term “Joint Beneficiary Agreement” shall refer to any agreement between the parties
pursuant to which a life insurance policy on the life of Executive is owned by the Bank, and pursuant to which the Bank and Executive’s
designated beneficiaries will share in policy proceeds upon Executive’s death.
1.19
Service
Period
. For the purposes of this Agreement, the term “Service Period” shall refer to the consecutive period
of time between January 1 and December 31 of a given calendar year, during which time Executive must remain employed (shall not
Separate from Service) in order to receive an Annual Contribution Amount for such Service Period. If, however, Executive Separates
from Service after October 1 of a given calendar year (other than the calendar year 2017), then Executive shall be deemed to have
completed the entire Service Period, thereby entitling Executive to the Annual Contribution Amount she would have received had
Separation from Service occurred on December 31 of such given year.
The first Service Period
covered by this Agreement shall be July 1, 2017 through December 31, 2017. Thereafter, and as stated above, a Service Period shall
refer to a calendar year.
1.20
Separation
from Service
. The term Separation from Service (or “Separates from Service”) shall be interpreted in accordance
with the provisions of Code Section 409A and shall exclude death or Disability. Currently, under Code Section 409A, whether a Separation
from Service has occurred is determined based on whether the facts and circumstances indicate that the Employer (together with
all corporations with whom the Employer would be considered a single employer under Code Section 414(b)) and Executive reasonably
anticipate that no further services will be performed after a certain date or that the level of bona fide services Executive will
perform after such date (whether as an employee or as an independent contractor) will permanently decrease to no more than twenty
percent (20%) of the average level of bona fide services performed (as an employee or an independent contractor) over the immediately
preceding thirty six (36) month period (or the full period of services to the Employer if the Executive has been providing services
to the Employer less than thirty-six (36) months). There shall be no Separation from Service while Executive is on military leave,
sick leave or other bona fide leave of absence, as long as such leave does not exceed six (6) months, or if longer, so long as
the individual retains a right to re-employment with the service recipient under an applicable statute or by contract.
1.21
Specified
Employee
. The term “Specified Employee” shall be defined in accordance with Code Section 409A and its related
guidance. Code Section 409A currently provides that a Specified Employee means an employee who, as of the date of his or her Separation
from Service, is a “key employee” of an Employer of which any stock is publicly traded on an established securities
market or otherwise. An Executive is a key employee if Executive meets the requirements of Section 416(i)(1)(A)(i), (ii) or (iii)
of the Code (applied in accordance with the regulations thereunder and disregarding Section 416(i)(5)) at any time during the twelve
(12) month period ending on a specified employee identification date. If Executive is a key employee as of a specified employee
identification date, then Executive shall be treated as a key employee for the entire twelve (12) month period beginning on the
specified employee effective date as determined under Code Section 409A.
1.22
Termination
for Cause
. A “Termination for Cause” shall be defined by the terms of the then effective Employment Agreement
between Bank and Executive, and shall be synonymous with a for cause termination under such agreement. In the event there is no
Employment Agreement in effect between the parties, then a “Termination for Cause” shall mean termination of Executive’s
employment by the Bank for any of the following reasons: (i) Executive fails to perform or habitually neglects the duties which
Executive is required to perform hereunder; (ii) Executive engages in illegal activity which materially adversely affects the Bank’s
reputation in the community or which evidences the lack of Executive’s fitness or ability to perform Executive’s duties
as determined by the Board of Directors in good faith; (iii) any breach of fiduciary duty, personal dishonesty, deliberate or repeated
disregard of the policies or procedures of the Bank as adopted by the Board of Directors or a committee thereof or refusal or failure
to act in accordance with any direction or order of the Board of Directors or a committee thereof of the Bank, except those in
contravention of any law or regulation, or any act by Executive which causes termination of coverage of Executive under any fidelity
or blanket bond; (iv) gross negligence adversely affecting the Bank; (v) any willful or material breach of this Agreement or any
other willful misconduct; (vi) the Bank is closed or taken over by regulatory or other supervisory authority; or (vii) any bank
regulatory or supervisory authority successfully exercises its statutory or regulatory powers to remove Executive.
2.0
Scope,
Purpose and Effect
.
2.1
Contract
of Employment
. Although this Agreement is intended to provide Executive with an additional incentive to remain in the employ
of the Employer, this Agreement shall not be deemed to constitute a contract of employment between Executive and the Employer,
nor shall any provision of this Agreement restrict or expand the right of the Employer to terminate Executive’s employment.
This Agreement shall have no impact or effect upon any separate written employment agreement which Executive may have with the
Employer, it being the parties’ intention and agreement that unless this Agreement is specifically referenced in said employment
agreement (or any modification thereto), this Agreement (and the Employer’s obligations hereunder) shall stand separate and
apart and shall have no effect on or be affected by, the terms and provisions of said employment agreement.
2.2
Fringe
Benefit
. The benefits provided by this Agreement are granted by the Bank as a fringe benefit to Executive and are not a
part of any salary reduction plan or any arrangement deferring a bonus or a salary increase. The Executive has no option to take
any payments or bonus in lieu of the benefits provided by this Agreement.
2.3
Prohibited
Payments
. Notwithstanding anything in this Agreement to the contrary, if any payment made under this Agreement is a “golden
parachute payment” as defined in Section 28(k) of the Federal Deposit Insurance Act (12 U.S.C. Section l828(k) and Part 359
of the Rules and Regulations of the Federal Deposit Insurance Corporation (collectively, the “FDlC Rules”) or·
is otherwise prohibited, restricted or subject to the prior approval of a banking regulator, no payment shall be made hereunder
without complying with said FDIC Rules.
3.0
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance With Code Section 409A
.
3.1
Delay
in Payments for Specified Employee in the Event of a Separation from Service and Compliance with Code Section 409A
. In
the case of any employee who is a Specified Employee under Code Section 409A as of the date of a Separation from Service, then
a payment conditioned upon a Separation from Service may not be made before the date that is six (6) months after the date of Separation
from Service (or, if earlier than the end of the six-month period, the date of death of the Specified Employee, if such death benefit
is provided).
Therefore,
it is the parties’ understanding and intention that any benefit which is to be made pursuant to this Agreement and to a Specified
Employee within the meaning of Code Section 409A, and whose payment is triggered by a Separation from Service, shall be withheld
for six (6) months in accordance with the foregoing. In the event payments to which Executive would otherwise be entitled during
the first six (6) months are subject to this six (6) month delay in payment, then such payments shall be accumulated and paid on
the first day of the seventh (7
th
) month following the date of Separation from Service. Payments will then continue
thereafter as called for pursuant to the terms of this Agreement.
Notwithstanding
any provision existing in this Agreement or any amendment thereto, it is the intent of the Bank and Executive that any payment
or benefit provided pursuant to this Agreement shall be made and paid in a manner, at a time and in a form which complies with
the applicable requirements of Code Section 409A, in order to avoid any unfavorable tax consequences resulting from any such failure
to comply.
3.2
Compliance
with Code Section 409A
. In the event of any ambiguity in definitions or terms, or in the event further clarification of
any term or provision is necessary, all interpretations and payouts of benefits based thereon shall be in accordance with Code
Section 409A and any related notices or guidance.
3.3
Executive
is Solely Responsible for Code Section 409A Violations
. Executive understands and agrees that, in the event of a Code Section
409A violation, Executive will be solely responsible for any and all resulting taxes and penalties, and furthermore agrees that
she shall not seek, in any manner, to hold Employer responsible, financially or otherwise, for any such potential taxes and/or
penalties she may incur as a result of a Code Section 409A violation. Executive further acknowledges and agrees that, in the event
of a Code Section 409A violation, Employer’s sole obligation under this Agreement shall be to reasonably cooperate with Executive
in good faith.
4.0
Executive
Benefit upon a Separation from Service for Reasons Other than a Termination for Cause or Following a Change in Control
.
4.1.
Benefit
Amount
. In the event Executive Separates from Service for reasons other than For Cause or under the provisions of Paragraph
5 (Change in Control), then Executive shall be entitled to be paid the Applicable Percentage of the ALB as of the date of Separation
from Service. Notwithstanding the forgoing, if Executive is Involuntarily Terminated, the Applicable Percentage shall be accelerated
and shall be deemed to be one hundred percent (100%).
4.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 4.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
day of the fourth (4
th
) month following Executive’s Separation from Service and shall continue for a period of
one hundred eighty (180) months.
5.0
Upon
a Change in Control
. Upon a Change in Control, Executive shall be entitled to one of the following:
5.1
Benefit
Amount
.
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|
A.
|
Change in Control on or Before December 31, 2026
.
Upon a Change in Control occurring on or before December 31, 2026, then Executive shall become entitled to receive an amount equal
to the ALB as of the date of the Change in Control, plus the amount of all projected Annual Contribution Amounts expected to be
included in the ALB through December 31, 2026 (i.e., including contributions for the 2026 Service Period). This calculation shall
be made assuming that remaining Annual Contribution Amounts through December 31, 2026 are equal to the amounts the Bank would
have made assuming a performance level for each remaining Service Period equal to the average performance level for the three
(3) year period preceding the Change in Control. In addition, this ALB amount shall be credited with interest as though the Annual
Contribution Amounts had been made on the same annual schedule they would have been made through December 31, 2026 and applying
the Accrued Liability Balance Interest Rate from the date of the Change in Control through December 31,2026.
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B.
|
Change in Control After December 31, 2026
. Upon
a Change in Control occurring after December 31, 2026, then Executive shall receive the ALB.
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5.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 5.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
)
day of the fourth (4
th
) month following Executive’s Separation from Service and shall continue for a period of
one hundred eighty (180) months.
6.0
Disability
.
In the event Executive becomes Disabled at any time prior to Separating from Service with the Bank, then Executive shall be entitled
to be paid the following benefit in lieu of any other benefits herein:
6.1
Benefit
Amount
.
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|
A.
|
If Disability Occurs on or Before December 31, 2026
.
In the event Executive becomes Disabled on or before December 31, 2026, then Executive shall be entitled to receive an amount
equal to the ALB as of the date of Disability, plus the amount of all projected Annual Contribution Amounts expected to be included
in the ALB had Executive not become Disabled until December 31, 2026. This calculation shall be made assuming that remaining Annual
Contribution Amounts through December 31, 2026 are equal to the amounts the Bank would have made assuming a performance level
for each remaining Service Period equal to the average performance level for the three (3) year period preceding Executive’s
Disability. In addition, this ALB amount shall be credited with interest as though the Annual Contributions had been made on the
same annual schedule they would have been made had there been no Disability until December 31,2026 and applying the Accrued Liability
Balance Interest Rate from the date of Disability through December 31, 2026.
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B.
|
If Disability Occurs After December 31, 2026
. In
the event Executive becomes Disabled after December 31, 2026, then Executive shall receive the ALB.
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6.2
Payment
Method and Duration
. The foregoing amount shall be used to calculate an annuity payable on a monthly basis for a period
of one hundred eighty (180) months, and by applying the Accrued Liability Balance Interest Rate. The Executive Benefit amount determined
above in Paragraph 6.1 shall be paid in substantially equal monthly payments, with payments commencing on the first (1
st
)
day of the fourth (4
th
) month following Executive’s Disability and shall continue for a period of one hundred
eighty (180) months.
7.0
Death
.
In the event Executive dies prior to Separating from Service, prior to a Change in Control, and prior to becoming Disabled, then
all benefit amounts under this Agreement, including all amounts to which Executive and/or his Beneficiaries may have become entitled
in the future, shall be forfeited, and any benefits payable upon death shall only be paid pursuant to a Joint Beneficiary Agreement
should one exist.
In the event Executive
dies after Separating from Service, or after becoming entitled to receive benefits pursuant to Paragraph 5 (Change in Control)
or Paragraph 6 (Disability), then both the Executive Benefit amount and payout method determined as of the Separation from Service,
Change in Control or Disability date will remain unchanged and shall instead be paid to Executive’s designated Beneficiary.
8.0
Termination
for Cause
.
Executive agrees that if
his employment with the Bank is terminated at any time For Cause as defined in this Agreement (and regardless of whether he has
become entitled to a benefit pursuant to Paragraphs 5 or 6 addressing Change in Control and Disability), then he shall forfeit
any and all rights and benefits he may have under the terms of this Agreement and shall have no right to be paid any of the amounts
which would otherwise be due or paid to Executive by the Bank pursuant to the terms of this Agreement.
9.0
Non-Compete
Clause
.
If the Executive is entitled
to receive a benefit pursuant to the provisions of Paragraphs 4 or 6, then as a condition of the Executive’s entitlement
to such benefit, the Executive agrees not to engage in Competitive Activity in the Employer’s Market Area within the three
(3) year period beginning on the date of the Executive’s Separation from Service. The term “Competitive Activity”
means acting directly or indirectly as an employee, agent, member, director, co-partner or in any other individual or representative
capacity on behalf of any FDIC insured financial institution. The term “Employer’s Market Area” is defined as
the area within a forty (40) mile radius from any deposit taking office (not ATM location) of the Employer at the time immediately
prior to the Executive’s employment termination. If the Executive shall breach the covenant not to compete contained herein,
the Employer shall be entitled to injunctive relief as well as monetary relief. The Executive acknowledges that injunctive relief
is appropriate because the Employer’s remedies at law are inadequate.
10.0
Right
to Determine Funding Methods
.
The Bank reserves the right
to determine, in its sole and absolute discretion, whether, to what extent and by what method, if any, to provide for the payment
of the amounts which may be payable to Executive under the terms of this Agreement. In the event that the Bank elects to fund this
Agreement, in whole or in part, through the use of life insurance or annuities, or both, the Bank shall determine the ownership
and beneficial interests of any such policy of life insurance or annuity. The Bank further reserves the right, in its sole and
absolute discretion, to terminate any such policy, and any other devise used to fund its obligations under this Agreement, at any
time, in whole or in part. Executive shall have no right, title or interest in or to any funding source or amount utilized by the
Bank pursuant to this Agreement, and any such funding source or amount shall not constitute security for the performance of the
Bank’s obligations pursuant to this Agreement. In connection with the foregoing, Executive agrees to execute such documents
and undergo such medical examinations or tests which the Bank may request and which may be reasonably necessary to facilitate any
funding for this Agreement including, without limitation, the Bank’s acquisition of any policy of insurance or annuity.
11.0
Beneficiary
Designation
.
11.1
Beneficiary
Designation
.
Executive shall have the right, at any time, to designate any person or persons as his Beneficiary or Beneficiaries
(both primary as well as secondary) to whom benefits under this Agreement shall be paid in the event of his death prior to complete
distribution to the Executive of the benefits due under this Agreement. Each Beneficiary designation shall be in a written form
approved by the Bank and will be effective only when notarized and filed with the Bank during the Executive’s lifetime. Attached
hereto as “Exhibit B” is a Beneficiary Designation Form approved by the Bank; however, the Bank reserves the right
to modify such Beneficiary Designation Form as it deems necessary in the future.
11.2
Amendments
to Beneficiary Designation
.
Any Beneficiary Designation Form may be changed by the Executive without the consent of any
designated Beneficiary by the filing of a new Beneficiary Designation Form with the Bank. The filing of a new Beneficiary Designation
Form will cancel all Beneficiary(ies) previously designated. If an Executive’s compensation is community property, any Beneficiary
designation shall be valid or effective only as permitted under applicable law.
11.3
No
Beneficiary Designated
.
In the absence of an effective Beneficiary Designation Form, or if all stated Beneficiaries predecease
the Executive or die prior to complete distribution of the Executive’s Benefit, then the Executive’s designated Beneficiary
shall be deemed to be Executive’s lawful spouse or registered domestic partner, or if none exists, Executive’s estate.
11.4
Doubt
as to Beneficiary
.
If there is a doubt as to the proper Beneficiary to receive payments pursuant to this Agreement, then
the Bank shall have the right to withhold such payments until this matter is resolved to the satisfaction of Employer. In the event
of any such doubt or dispute, Employer reserves all rights to file an interpleader action or to require a court decree or order
directing the payment of benefits or to require indemnification from any claimant or to require claimants to otherwise finally
resolve such claims prior to Employer paying any benefits under this Plan.
11.5
Effect
of Payment to the Beneficiary
.
The payment to the deemed Beneficiary shall fully and completely discharge the Bank from
all further obligations under this Agreement.
12.0
Administrator
.
12.1
Named
Fiduciary and Plan Administrator
.
The “Named Fiduciary” and “Plan Administrator” of this executive
plan shall be the Bank until its resignation to removal by the Board of Directors. As Named Fiduciary and Plan Administrator, the
Bank shall be responsible for the management, control and administration of this executive plan. The Named Fiduciary may delegate
to others certain aspects of the management and operation responsibilities of the plan, including employment of advisors and the
delegation of ministerial duties to qualitied individuals.
13.0
Claims
Procedure
.
In the event a dispute
arises over the benefits under this executive plan and benefits are not paid to Executive (or to the Executive’s beneficiary[ies],
if applicable) and such claimants feel they are entitled to receive such benefits, then a written claim must be made to the Named
Fiduciary and Plan Administrator named above in accordance with the following procedures:
|
|
A.
|
Written Claim
. The claimant may file a written request
for such benefit to the Plan Administrator.
|
|
|
B.
|
Claim Decision
. Upon receipt of such claim, the
Plan Administrator shall respond to such claimant within ninety (90) days after receiving the claim. If the Plan Administrator
determines that special circumstances require additional time for processing the claim, the Plan Administrator can extend the
response period by an additional ninety (90) days for reasonable cause by notifying the claimant in writing, prior to the end
of the initial ninety (90) day period, that an additional period is required. The notice of extension must set forth the special
circumstances and the date by which the Plan Administrator expects to render its decision.
|
If the claim is denied
in whole or in part, the Plan Administrator shall notify the claimant in writing of such denial. The Plan Administration·
shall write the notification in a manner calculated to be understood by the claimant. The notification shall set forth:
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(i)
|
The specific reasons for the denial;
|
|
|
(ii)
|
The specific reference to pertinent provisions of
the Agreement on which the denial is based;
|
|
|
(iii)
|
A description of any additional information or material
necessary for the claimant to perfect the claim and an explanation of why such material or information is necessary;
|
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|
(iv)
|
Appropriate information as to the steps to be taken
if the claimant wishes to submit the claim for review and the time limits applicable to such procedures; and
|
|
|
(v)
|
A statement of the claimant’s right to bring
a civil action under ERISA Section 502(a) following an adverse benefit determination on review.
|
|
|
C.
|
Request for Review
. Within sixty (60) days after
receiving notice from the Plan Administrator that a claim has been denied (in part or all of the claim), then claimant (or their
duly authorized representative) may file with the Plan Administrator a written request for a review of the denial of the claim.
|
The claimant (or
his duly authorized representative) shall then have the opportunity to submit written comments, documents, records and other information
relating to the claim. The Plan Administrator shall also provide the claimant, upon request and free of charge, reasonable access
to, and copies of, all documents, records and other information relevant (as defined in applicable ERISA regulations) to the claimant’s
claim for benefits.
|
|
D.
|
Decision on Review
. The Plan Administrator shall
respond in writing to such claimant within sixty (60) days after receiving the request for review. If the Plan Administrator determines
that special circumstances require an extension of time for processing the claim, written notice of the extension shall be furnished
to the claimant prior to the termination of the initial sixty (60) day period. In no event shall such extension exceed a period
of sixty (60) days from the end of the initial period. The notice of extension must set forth the special circumstances requiring
an extension of time and the date by which the Plan Administrator expects to render its decision.
|
In considering the
review, the Plan Administrator shall take into account all materials and information the claimant submits relating to the claim,
without regard to whether such information was submitted or considered in the initial benefit determination.
The Plan Administrator
shall notify the claimant in writing of its decision on review. The Plan Administrator shall write the notification in a manner
calculated to be understood by the claimant. The notification shall set forth:
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(i)
|
The specific reasons for the denial;
|
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|
(ii)
|
A reference to the specific provisions of the Agreement
on which the denial is based;
|
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|
(iii)
|
A statement that the claimant is entitled to receive, upon
request and free of charge, reasonable access to, and copies of, all documents, records and other information relevant (as defined
in applicable ERISA regulations) to the claimant’s claim for benefits; and
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(iv)
|
A statement of the claimant’s right to bring a civil
action under ERISA Section 502(a).
|
14.0
Dispute
Resolution
.
14.1
Arbitration
of Disputes
.
A claimant whose claims have been denied pursuant to the claims and appeals procedures above (and other than
those matters which are to be determined by the Bank in its sole and absolute discretion and/or those matters which arc governed
by ERISA), shall then be subject to non-binding arbitration before a member of the Judicial Arbitration and Mediation Services
(JAMS) in accordance with JAMS rules and procedures. In no event shall the demand for arbitration be made after the date when institution
of legal or equitable proceedings based on such claim, dispute or other matter in question would be barred by the applicable statute
of limitations. Any arbitration hereunder shall be conducted in San Francisco, California, unless otherwise agreed to by the parties.
In the event arbitration is not successful in resolving matters, the parties may then pursue alternate dispute resolution methods
available.
14.2
Attorneys’
Fees
.
In the event of any arbitration or litigation concerning any controversy, claim or dispute between the parties hereto,
arising out of or relating to this Agreement or the breach hereof, or the interpretation hereof, (a) each party shall pay its own
arbitration and attorneys’ fees incurred (pursuant to the terms of this Agreement); and (b) the prevailing party shall be
entitled to recover from the other party reasonable expenses, attorneys’ fees and costs incurred in the enforcement or collection
of any judgment or award rendered. The “prevailing party” means any party (one party or both parties, as the case may
be) determined by the arbitrator(s) or court to be entitled to money payments from the other, not necessarily the party in whose
favor a judgment is rendered.
14.3
Attorneys’
Fees in the Event of a Change in Control
.
The Employer desires that the Executive not be required to incur the expenses
associated with the enforcement of rights under this Agreement, whether by litigation or other legal action, because the cost and
expense thereof would substantially detract from the benefits intended to be granted to the Executive hereunder. The Employer desires
that the Executive not be forced to negotiate settlement of rights under this Agreement under threat of incurring expenses. Accordingly,
if after a Change in Control occurs, it appears to the Executive that (i) the Employer has failed to comply with any or its obligations
under this Agreement, or (ii) the Employer or any other person has taken any action to declare this Agreement void or unenforceable,
or instituted any litigation or other legal action designed to deny, diminish or to recover from the Executive the benefits intended
to be provided to the Executive hereunder, the Employer irrevocably authorizes the Executive from time to time to retain counsel
of Executive’s choice, at Employer’s expense as provided in this subparagraph, to represent the Executive in the initiation
or defense of any litigation or other legal action, whether by or against the Employer or any director, officer, stockholder or
other person affiliated with the Employer, in any jurisdiction. Notwithstanding any existing or previous attorney-client relationship
between the Employer and any counsel chosen by the Executive under this subparagraph, the Employer irrevocably consents to the
Executive entering into an attorney-client relationship with that counsel, and the Executive and Employer agree that a confidential
relationship shall exist between the Executive and that counsel. The fees and expenses of counsel selected from time to time by
Executive as provided in this section shall be paid or reimbursed to the Executive by the Employer on a regular periodic basis
upon presentation by the Executive or a statement or statements prepared by such counsel in accordance with such counsel’s
customary practices up to a maximum aggregate amount of fifty thousand dollars ($50,000), whether suit be brought or not, and whether
or not incurred in trial, bankruptcy or appellate proceedings. The Employer’s obligation to pay Executive’s legal tees
provided by this subparagraph operate separately from and in addition to any legal fees reimbursement obligation the Employer may
have with the Executive under any separate employment, severance or other Agreement between the Executive and the Employer. Despite
any contrary provision within this Agreement, however, the Employer shall not be required to pay or reimburse the Executive’s
legal expenses if doing so would violate Section 18(k) of the Federal Deposit Insurance Act (12 U.S.C. 1828(k)] and the regulations
promulgated thereunder, including 12 C.F.R. Part 359.
15.0
Status
as an Unsecured General Creditor and Rabbi Trust
. Notwithstanding anything contained herein to the contrary: (i) Executive
shall have no legal or equitable rights, interests or claims in or to any specific property or assets of the Employer as a result
of this Agreement; (ii) none of the Bank’s assets shall be held in or under any trust for the benefit of Executive or held
in any way as security for the fulfillment of the obligations of the Bank under this Agreement; (iii) all of the Bank’s assets
shall be and remain the general unpledged and unrestricted assets of the Bank; (iv) the Bank’s obligation under this Agreement
shall be that of an unfunded and unsecured promise by the Bank to pay money in the future; and (v) Executive shall be an unsecured
general creditor with respect to any benefits which may be payable under the terms of this Agreement.
Notwithstanding subparagraphs
(i) through (v) above, the Bank and Executive acknowledge and agree that, in the event of a Change in Control, upon request of
Executive, or in the Bank’s discretion if Executive does not so request and the Bank nonetheless deems it appropriate, the
Bank shall establish, not later than the effective date of the Change in Control, a Rabbi Trust or multiple Rabbi Trusts (the “Trust”
or “Trusts”) upon such terms and conditions as the Bank, in its sole discretion, deems appropriate and in compliance
with applicable provisions of the Code, in order to permit the Bank to make contributions and/or transfer assets to the Trust or
Trusts to discharge its obligations pursuant to this Agreement. The principal of the Trust or Trusts and any earnings thereon shall
be held separate and apart from other funds of the Bank to be used exclusively for discharge of the Bank’s obligations pursuant
to this Agreement and shall continue to be subject to the claims of the Bank’s general creditors until paid to Executive
in such manner and at such times as specified in this Agreement.
16.0
Miscellaneous
.
16.1
Opportunity
to Consult with Independent Advisors
. Executive acknowledges that she has been afforded the opportunity to consult with
independent advisors of her choosing including, without limitation, accountants or tax advisors and counsel regarding both the
benefits granted to her under the terms of this Agreement and the (i) terms and conditions which may affect Executive’s right
to these benefits and (ii) personal tax effects of such benefits including, without limitation, the effects of any federal or state
taxes, Section 280G of the Code, and any other taxes, costs, expenses or liabilities whatsoever related to such benefits, which
in any of the foregoing instances Executive acknowledges and agrees shall be the sole responsibility of Executive notwithstanding
any other term or provision of this Agreement. Executive further acknowledges and agrees that the Bank shall have no liability
whatsoever related to any such personal tax effects or other personal costs, expenses or liabilities applicable to Executive and
further specifically waives any right for himself or herself, and his or her heirs, beneficiaries, legal representatives, agents,
successors and assigns to claim or assert liability on the part of the Bank related to the matters described above in this paragraph.
Executive further acknowledges that she has read, understands and consents to all of the terms and conditions of this Agreement,
and that she enters into this Agreement with a full understanding of its terms and conditions.
16.2
Notice
.
Any notice required or permitted of either Executive or the Bank under this Agreement shall be deemed to have been duly given,
if by personal delivery, upon the date received by the party or its authorized representative; if by facsimile, upon transmission
to a telephone number previously provided by the party to whom the facsimile is transmitted as reflected in the records of the
party transmitting the facsimile and upon reasonable confirmation of such transmission; and if by mail, on the third day after
mailing via U.S. first class mail, registered or certified, postage prepaid and return receipt requested, and addressed to the
party at the address given below for the receipt of notices, or such changed address as may be requested in writing by a party.
|
If to the Bank:
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United Business Bank- Corporate Offices
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500 Ygnacio Valley Road
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Suite 200
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Walnut Creek, CA 94596
|
|
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If to the Executive:
|
Keary Colwell
|
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At the last address appearing on the
|
|
|
personnel records of the Bank
|
16.3
Assignment
.
Executive shall have no power or right to transfer, assign, anticipate, hypothecate, modify or otherwise encumber any part or all
of the amounts payable hereunder, nor, prior to payment in accordance with the terms of this Agreement, shall any portion of such
amounts be: (i) subject to seizure by any creditor of Executive, by a proceeding at law or in equity, for the payment of any debts,
judgments, alimony or separate maintenance obligations which may be owed by Executive; or (ii) transferrable by operation of law
in the event of bankruptcy, insolvency or otherwise. Any such attempted assignment or transfer shall be void. In the event Executive
or any beneficiary attempts assignment, communication, hypothecation, transfer or disposal of the benefits hereunder, any such
attempted transfer or assignment shall be void.
16.4
IRS
Section 280G Issues
.
If all or any portion of the amounts payable to Executive under this Agreement, either alone or together
with other payments which Executive has the right to receive from the Employer, constitute “excess parachute payments”
within the meaning of Section 280G of the Code that are subject to the excise tax imposed by Section 4999 of the Code (or similar
tax and/or assessment), Executive shall be responsible for the payment of such excise tax and Employer (and its successor) shall
be responsible for any loss of deductibility related thereto; provided, however, that Employer and Executive shall cooperate with
each other and use all reasonable efforts to minimize to the fullest extent possible the amount of excise tax imposed by Section
4999 of the Code. If, at a later date, it is determined (pursuant to final regulations or published rulings of the Internal Revenue
Service, final judgment of a court of competent jurisdiction, or otherwise) that the amount of excise taxes payable by Executive
is greater than the amount initially so determined, then Executive shall pay an amount equal to the sum of such additional excise
taxes and any interest, fines and penalties resulting from such underpayment. The determination of the amount of any such excise
taxes shall be made by the independent accounting firm or law firm employed by the Employer immediately prior to the change in
control or such other independent accounting firm or law firm as may be mutually agreeable to the Employer and Executive in the
exercise of their reasonable good faith judgment.
16.5
Binding
Effect/Merger or Reorganization
.
This Agreement shall be binding upon and inure to the benefit of Executive and the Bank.
Accordingly, the Bank shall not merge or consolidate into or with another corporation, or reorganize or sell substantially all
of its assets to another corporation, firm or person, unless and until such succeeding or continuing corporation, firm or person
agrees to assume and discharge the obligations of the Bank under this Agreement. In the alternative, a holding company which is
a party to any such transaction may agree to assume and discharge the obligation of the Bank under this Agreement. Upon the occurrence
of such event, the term “Bank” as used in this Agreement shall be deemed to refer to such surviving or successor firm,
person, entity or corporation, or the holding company, as the case may be.
16.6
Nonwaiver
.
The failure of either party to enforce at any time or for any period of time any one or more of the terms or conditions of this
Agreement shall not be a waiver of such term(s) or condition(s) or of that party’s right thereafter to enforce each and every
term and condition of this Agreement.
16.7
Partial
Invalidity
.
If any term, provision, covenant or condition of this Agreement is determined by an arbitrator or a court,
as the case may be, to be invalid, void or unenforceable, such determination shall not render any other term, provision, covenant
or condition invalid, void or unenforceable, and the Agreement shall remain in full force and effect notwithstanding such partial
invalidity.
16.8
Entire
Agreement
.
This Agreement supersedes any and all other agreements, either oral or in writing, between the parties with
respect to the subject matter of this Agreement (including without limitation the Prior SERP) and contains all of the covenants
and agreements between the parties with respect thereto. Each party to this Agreement acknowledges that no other representations,
inducements, promises or agreements, oral or otherwise, have been made by any party, or anyone acting on behalf of any party, which
are not set forth herein, and that no other agreement, statement or promise not contained in this Agreement shall be valid or binding
on either party.
16.9
Modifications
.
Any modification of this Agreement shall be effective only if it is in writing and signed by each party or such party’s authorized
representative, and only to the extent that it is compliant with all applicable codes and statutes, including but not limited to
Code Section 409A.
16.10
Paragraph
Headings
.
The paragraph headings used in this Agreement are included solely for the convenience of the parties and shall
not affect or be used in connection with the interpretation of this Agreement.
16.11
No
Strict Construction
.
The language used in this Agreement shall be deemed to be the language chosen by the parties hereto
to express their mutual intent, and no rule of strict construction will be applied against any person.
16.12
Governing
Law
.
Other than as required by ERISA, the laws of the State of California, other than those laws denominated choice of
law rules, and where applicable, the rules and regulations of the Board of Governors of the Federal Reserve System, Federal Deposit
Insurance Corporation, Office of the Comptroller of the Currency, or any other regulatory agency or governmental authority having
jurisdiction over the Bank or the Company, shall govern the validity, interpretation, construction and effect of this Agreement.
16.13
General
Release
.
As a condition of receiving severance, Disability or Change in Control benefits pursuant to this Agreement, Executive
must sign and complete a General Release Form provided by the Employer prior to the scheduled commencement date of such benefits.
17.0
Termination
or Modification of Agreement
.
17.1
Termination
of Agreement When Permissible by Code Section 409A
.
Provided Employer satisfies the requirements of Code Section 409A,
Employer may terminate this Agreement in the event of the following: (i) corporate dissolution or bankruptcy (as ordered by the
bankruptcy court); (ii) upon a Change in Control; or (iii) as a matter of Employer discretion.
17.2
Termination
or Modification of Agreement by Reason of Changes in the Law, Rules or Regulations
.
The Bank is entering into this Agreement
upon the assumption that certain existing tax laws, the Code, rules and regulations will continue in effect in their current form.
If any said assumptions should change and said change has a detrimental effect on this executive plan, then the Bank reserves the
right to terminate or modify this Agreement accordingly.
IN WITNESS WHEREOF, the
Bank and the Executive have executed this Agreement effective as of the date first written above in the City of Walnut Creek, California.
|
UNITED BUSINESS BANK
|
EXECUTIVE
|
|
By:
|
/s/Janet L. King
|
|
/s/Keary L. Colwell
|
|
|
/s/George J. Guarani
|
|
/s/George J. Guarani
|
|
|
Witness
|
|
Witness
|
Exhibit 10.7
BAY COMMERCIAL BANK
2014 EQUITY INCENTIVE PLAN
The purposes of the Bay Commercial Bank
2014 Omnibus Equity Incentive Plan (the “Plan”) are to foster and promote the long-term financial success of Bay Commercial
Bank (the “Bank”) and its affiliates and materially increase shareholder value by (i) motivating superior performance
by Participants, (ii) providing Participants with an ownership interest in the Bank, and (iii) enabling the Bank to attract and
retain the services of outstanding Employees upon whose judgment, interest and special effort the successful conduct of its operations
is largely dependent.
ARTICLE I:
DEFINITIONS
In addition to the terms defined in the
preamble above and elsewhere in the Plan, the following capitalized terms used in this Plan have the meanings set forth below.
Except when otherwise indicated by the context, reference to the masculine gender shall include, when used, the feminine gender
and any term used in the singular shall also include the plural.
“
Award Agreement
” means
any written agreement, contract, certificate or other instrument or document evidencing any Award granted under the Plan, which
may, but need not, be executed or acknowledged by a Participant.
“
Award
” means any Option, SAR, award
of Restricted Stock or Restricted Stock Units, Stock Award, Other Stock-Based Award, or Performance Award granted under the Plan.
“
Board
” or “
Board
of Directors
” means the Board of Directors of the Bank, as it may be constituted from time to time.
“
Cause
” means, except
as otherwise defined in an Award Agreement, with respect to any Participant (as determined by the Committee in its sole discretion)
(i) the continued and willful failure of the Participant substantially to perform the duties of his or her employment or service
for the Bank (other than any such failure due to the Participant’s disability); (ii) the participant’s engaging in
willful or serious misconduct that has caused or could reasonably be expected to result in material injury to the Bank or any of
its affiliates, including, but not limited to by way of damage to the Bank’s or an affiliate’s reputation or public
standing; (iii) the Participant’s conviction of, or entering a plea of guilty or nolo contendere to, a crime constituting
a felony or (iv) the Participant’s material violation or breach of the Bank’s or any affiliate’s code of conduct
or ethics or other Bank policy or rule or the material breach by the Participant of any of his or her obligation sunder any written
covenant or agreement with the Bank or any of its affiliates; or (v) any failure by the Participant to cooperate, if requested
by the Bank, with any investigation or inquiry into the Participant’s or the Bank’s business practices, whether internal
or external, including, but not limited to, the Participant’s refusal to be deposed or to provide testimony at any trial
or inquiry; provided that, with respect to any Participant who is a party to an employment agreement or service contract with the
Bank or any affiliates, “Cause” shall have the meaning specified in such agreement.
“
Code
” means the Internal
Revenue Code of 1986, as amended and in effect from time to time, or any successor statute.
“
Committee
” means the
HR/Compensation Committee of the Board of Directors, or any successor committee thereto, or such other committee of the Board of
Directors as is appointed or designated by the Board to administer the Plan; provided, however, that the number of members of the
committee and their qualifications shall at all times that the Bank or its officers and directors, by reason of their status as
officers or directors of the Bank, are subject to such laws, satisfy the requirements for exemptions under Rule 16b-3 and tax deductibility
under Section 162(m). The full Board may perform any function of the Committee hereunder, except with respect to matters which
under Rule 16b-3, Section 162(m) or other applicable law (including stock exchange rules) are required to be determined in the
sole discretion of the Committee.
“
Common Stock
” means
the common stock, par value $0.01 per share (as such par value may be adjusted from time to time), of the Bank.
“
Covered Person
” means
an Eligible Individual who is determined by the Committee to be a “covered employee” as defined in Section 162(m) for
the purpose of receiving performance-based compensation complying with Section 162(m).
“
Eligible Individual
”
means any Employee, Non-Employee Director or natural person who is a consultant to the Bank.
“
Employee
” means any
officer or other employee of the Bank.
“
Exchange Act
” means the Securities
Exchange Act of 1934, as amended.
“
Fair Market Value
”
of a share of Common Stock as of any date and unless otherwise determined by the Committee, shall be determined as follows:
(i) If the Common Stock is listed on any established stock
exchange, system or market, the Fair Market Value of a share of Common Stock shall be (1) the closing price for a share of Common
Stock as quoted on such exchange, system or market, as reported in the Wall Street Journal or other such source as the Committee
deems reliable, on the date on which such value is being determined or the last trading day immediately before such day; (2) the
sale price for the last sale before or the first sale after the time on which such value is being determined; or (3) such other
reasonable method using actual transactions in such market as reported by such market as may be determined by the Committee.
(ii) In the absence of an established market for shares
of Common Stock, the Fair Market Value of a share of Common Stock shall be determined in good faith by the Committee by a reasonable
valuation method, taking into account factors consistent with Treas. Reg. § 1.409A-1(b)(5)(iv)(B) as the Committee deems appropriate.
In all cases Fair Market Value shall be determined in accordance
with Treas. Reg. §1.409A-1(b)(5)(iv).
“
Incentive Stock Option
”
or “
ISO
” means an option granted under Article V designated by the Committee as an incentive stock option within
the meaning of Section 422 of the Code or any successor provision thereto and qualifying thereunder.
“
Non-Employee Director
” means a member of the
Board who is not an Employee.
“
Non-Qualified Stock Option
”
means an option granted under Article V that is not designated as an incentive stock option by the Committee, or an option that
is designated as an incentive stock option to the extent such option does not comply with the provisions of Section 422 of the
Code.
“
Option
” means an Incentive Stock Option
or a Non-Qualified Stock Option.
“
Other Stock-Based Award
” means any
right granted under Section 8.2.
“
Participant
” means any Eligible Individual
who has been granted an Award under the Plan which remains outstanding, including a person who is no longer an Eligible Individual.
“
Person
” means any individual, corporation,
joint venture, association, partnership, limited liability company, joint stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
“
Reporting Person
” means any Eligible
Individual subject to Section 16 of the Exchange Act with respect to the Bank.
“
Restricted Stock
” means a grant of
shares of Common Stock pursuant to Article VI which is subject to certain restrictions and to a risk of forfeiture.
“
Restricted Stock Unit
”
means a contractual right underlying an Award granted under Article VI that is denominated in shares of Common Stock, which unit
represents a right to receive a share of Common Stock (or the value of a share of Common Stock) upon the terms and conditions set
forth in the Plan and the applicable Award Agreement.
“
Rule 16b-3
”
means Rule 16b-3, as from time to time in effect and applicable to Participants, promulgated by the Securities and Exchange Commission
under Section 16 of the Exchange Act.
“
SAR
” or “
Stock
Appreciation Right
” means the right to receive a payment in cash or shares of Common Stock equal to the amount of appreciation,
if any, in the Fair Market Value of a share of Common Stock from the date of grant of the right to the date of its payment, and
which may be awarded to Eligible Individuals under Article V.
“
Section 162(m)
” means Section 162(m) of the
Code and regulations promulgated thereunder.
“
Section 409A
” means Section 409A of the Code
and regulations promulgated thereunder.
“
Separation from Service
”
means (i) with respect to an Eligible Individual who is an employee of the Bank, the termination of his employment with the Bank
that constitutes a “separation from service” within the meaning of Treas. Reg. Section 1.409A-1(h)(1), (ii) with respect
to an Eligible Individual who is a consultant of the Bank, the expiration of his contract or contracts under which services are
performed that constitutes a “separation from service” within the meaning of Treas. Reg. Section 1.409A-1(h)(2), or
(iii) with respect to an Eligible Individual who is a Non-Employee Director, the date on which such Non-Employee Director ceases
to be a member of the Board for any reason.
“
Specified Employee
”
means “specified employee” as such term is defined in Section 409A.
“
Stock Award
” means
award of shares of Common Stock pursuant to Section 8.1.
“
Substitute Award
”
means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a Person acquired by
the Bank or with which the Bank combines.
“
Successor
” means the
legal representative of an incompetent Participant and, if the Participant is deceased, the legal representative of the estate
of the Participant or the person or persons who may, by bequest or inheritance, or under the terms of an Award or of forms submitted
by the Participant to the Committee, acquire the right to receive cash and/or shares of Common Stock issuable in satisfaction of
an Award.
ARTICLE II:
ADMINISTRATION
2.1
Generally
.
The Committee shall have the authority to control and manage the operation and administration of the Plan; provided, however,
that all acts and authority of the Committee pursuant to this Plan are subject to the provisions of the Committee’s charter,
as amended from time to time, and such other authority as may be delegated to the Committee by the Board.
2.2
Grant
of Awards
. The Committee has the exclusive power to make Awards, to determine when and to which Eligible Individuals Awards
will be granted, the types of Awards and the number of shares of Common Stock covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards, and, subject to the terms of the Plan and applicable law,
to cancel, suspend or amend existing Awards.
2.3
Section
162(m)
. Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent
to which Awards under the Plan will be structured to conform to the requirements applicable to performance-based compensation as
described in Section 162(m), and to take such action, establish such procedures, and impose such restrictions as necessary to conform
to such requirements. Notwithstanding any provision of the Plan to the contrary, if an Award under this Plan is intended to qualify
as performance-based compensation under Section 162(m) and the regulations issued thereunder and a provision of this Plan would
prevent such Award from so qualifying, such provision shall be administered, interpreted and construed to carry out such intention
(or disregarded to the extent such provision cannot be so administered, interpreted or construed).
2.4
Payment
of Awards
. The Committee may, subject to Section 12.3, determine whether, to what extent and under what circumstances Awards
may be settled, paid or exercised in cash, shares of Common Stock or other Awards or other property, or canceled, forfeited or
suspended.
2.5
Interpretation
.
The Committee has the authority to interpret the Plan and any Award made under the Plan, to establish, amend, waive and rescind
any rules and regulations relating to the administration of the Plan, to determine the terms and provisions of any Award Agreements
entered into hereunder (not inconsistent with the Plan), to amend the terms and provisions of any such Award Agreement (not inconsistent
with the Plan) and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent
it deems desirable. The determinations of the Committee in the administration of the Plan as described herein will be final, binding
and conclusive on all interested parties.
2.6
Delegation
of Authority
. Except to the extent prohibited by applicable law or regulation, the Committee may allocate all or any portion
of its responsibilities and powers to any one or more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it; provided, however, the Committee shall not delegate any such authority with respect
to any Awards made to a Reporting Person. The Committee may revoke any such allocation or delegation at any time.
2.7
Cooperation
.
The Bank and any affiliate will, to the fullest extent permitted by law, furnish the Committee with such data and information as
may be required for it to discharge its duties. The records of the Bank and any affiliate as to an Eligible Individual’s
employment, or other provision of services, termination of employment, or cessation of the provision of services, leave of absence,
reemployment and compensation will be conclusive on all persons unless determined to be incorrect. Participants and other persons
entitled to benefit under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable
to carry out the terms of the Plan.
2.8
Indemnification
.
To the fullest extent permitted by law, each member and former member of the Committee and each person to whom the Committee delegates
or has delegated authority under this Plan shall be entitled to indemnification by the Bank against and from any loss, liability,
judgment, damage, cost and reasonable expense incurred by such member, former member or other person by reason of any action taken,
failure to act or determination made in good faith under or with respect to this Plan.
ARTICLE III:
SHARES AVAILABLE FOR AWARDS
3.1
Number
.
Subject to adjustment as provided in Section 3.4, the maximum number of shares of Common Stock that may be delivered
pursuant to Awards granted under the Plan is 300,000. Shares of Common Stock to be issued under the Plan may be made
available from authorized but unissued shares of Common Stock, shares of Common Stock held by the Bank in its treasury, or
shares of Common Stock purchased by the Bank on the open market or otherwise.
3.2
Award
Limitations
. No Participant receiving an Award will be granted any Award with respect to more than 50,000 shares of
Common Stock during any fiscal year.
3.3
Share
Counting
. If any shares of Common Stock covered by an Award other than a Substitute Award, or to which such an Award relates,
terminate, lapse or are forfeited or cancelled, or such an Award is otherwise settled without the delivery of the full number of
shares of Common Stock underlying the Award, then the shares of Common Stock covered by such Award, or to which such Award relates,
to the extent of any such forfeiture, termination, lapse, cancellation, etc., shall again be, or shall become available for issuance
under the Plan. Shares of Common Stock underlying Substitute Awards shall not reduce the number of shares of Common Stock available
for delivery under this Plan. Shares of Common Stock delivered in payment of the purchase price in connection with the exercise
of Options or shares of Common Stock delivered or withheld to pay tax-withholding obligations or otherwise under the Plan shall
not be added to and shall not increase the number of shares of Common Stock available for purposes of the Plan.
3.4
Adjustments
.
In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares of
Common Stock, other securities, or other property), recapitalization, share split, reverse share split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of the Bank,
issuance of warrants or other rights to purchase shares of Common Stock or other securities of the Bank, or other similar corporate
transaction or event affects the shares of Common Stock such that an adjustment is determined by the Committee to be appropriate
in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and type of shares of Common
Stock (or other securities or property) which thereafter may be made the subject of Awards, including without limitation the individual
limits set forth in Sections 4(a); (ii) the number and type of shares of Common Stock (or other securities or property) subject
to outstanding Awards; and (iii) the grant, purchase, or exercise price with respect to any Award or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided, however, that the number of shares of Common Stock
subject to any Award shall always be a whole number. The Committee’s adjustment shall be effective and binding for all purposes
of this Plan, provided that no adjustment shall be made which will cause an Incentive Stock Option to lose its status as such,
and further provided that no such adjustment shall constitute (i) a modification of a stock right within the meaning of Treas.
Reg. Section 1.409A-1(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an extension of a stock right, including
the addition of any feature for the deferral of compensation within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(C), or
(iii) an impermissible acceleration of a payment date or a subsequent deferral of a stock right subject to Section 409A within
the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(E). Furthermore, no adjustment as the result of a change in capitalization
shall cause the exercise price to be less than the Fair Market Value of such shares (as adjusted to reflect the change in capitalization)
on the date of grant, and any adjustment as the result of the substitution of a new stock right or the assumption of an outstanding
stock right pursuant to a corporate transaction shall satisfy the conditions described in Treas. Reg. Section 1.409A-1(b)(5)(v)(D).
ARTICLE IV:
ELIGIBILITY
All Eligible Individuals are eligible
to participate in this Plan and receive Awards hereunder. Holders of equity-based awards issued by a company acquired by the Bank
or with which the Bank combines are eligible to receive Substitute Awards hereunder.
ARTICLE V:
OPTIONS AND SARS
5.1
Grant
.
The Committee is hereby authorized to grant Options and SARs to Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee determines.
The grant of Options or SARS shall be evidenced by an Award Agreement that contains the terms of the Award, including, but not
limited to: (i) the number of shares of Common Stock that may be issued upon exercise of an Option or number of SARs subject to
an Award; (ii) the exercise or base price of each Option or SAR; (iii) the term of the Option or SAR; (iv) such terms and conditions
on the vesting and/or exercisability of an Option or SAR as may be determined by the Committee; (v) any restrictions on transfer
of the Option or SAR and forfeiture provisions; (vi) the effect on the term of the Option or SAR of the Separation from Service
of the Participant; and (vii) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined
from time to time by the Committee.
5.2
Exercise
Price
. The exercise price per share of Common Stock under an Option or SAR will be determined by the Committee; provided, however,
that, except in the case of Substitute Awards, such exercise price shall not be less than the Fair Market Value of a share of Common
Stock on the date of grant of such Option or SAR; and provided further that in the case of ISOs granted to an individual then owning
(within the meaning of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of
the Bank, such price shall not be less than 110% of the Fair Market Value of a share of Common Stock on the date the ISO is granted.
The Committee shall not have the authority to reprice Options or SARs to reduce the exercise price without first obtaining shareholder
approval for such repricing.
5.3
Term
.
The term of each Option and SAR will be fixed by the Committee in its discretion; provided , however, that the term shall not be
more than ten (10) years from the date the Option or SAR is granted.
5.4
Exercisability
.
Subject to the terms of the Plan and the related Award Agreement, any Option or SAR may be exercised at any time during the period
commencing with either the date that Option or SAR is granted or the first date permitted under a vesting schedule established
by the Committee and ending with the expiration date of the Option or SAR. A Participant may exercise his Option or SAR for all
or part of the number of shares of Common Stock or rights which he is eligible to exercise under terms of the Option or SAR. No
shares of Common Stock shall be delivered pursuant to any exercise of an Option until payment in full of the exercise price is
received by the Bank. The Committee will determine the method or methods by which payment may be made, including, without limitation,
payment (i) in cash, or its equivalent, (ii) by exchanging shares of Common Stock owned by the Participant for at least six months
(which are not the subject of any pledge or other security interest), (iii) by having the Bank “net settle” the shares
by withholding from the shares of Common Stock which would otherwise be delivered to the Participant such shares with a Fair Market
Value sufficient to satisfy the minimum withholding required with respect thereto as determined by the Committee, (iv) through
any broker’s cashless exercise procedure approved by the Committee, or (v) by a combination of the foregoing, provided that
the combined value of all cash and cash equivalents and the Fair Market Value of any such shares of Common Stock so tendered to
the Bank as of the date of such tender is at least equal to such exercise price.
5.5
Separation
from Service
. Except as otherwise provided in the Award Agreement documenting an Option or SAR Award, the following general
rules will apply to outstanding Option and SAR Awards at the time of Separation from Service:
(a) In
the event of Separation from Service for Cause, unless otherwise determined by the Committee, all outstanding Option and SAR Awards,
whether vested or unvested, will immediately terminate and be forfeited.
(b) In
all other events of Separation from Service, the Participant shall have a period of ninety (90) days following such Separation
from Service (or, if shorter, until the end of the term of a particular Option or SAR as established in the original Award Agreement)
to exercise any vested and unexercised Options and SARs then outstanding; all unvested Option and SAR Awards shall immediately
terminate and be forfeited.
5.6
Incentive
Stock Options
. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. No Incentive Stock
Option shall be granted to any Eligible Individual who is not an Employee of the Bank. Options designated as Incentive Stock Options
shall not be eligible for treatment under the Code as “incentive stock options” (and will be deemed to be Non-Qualified
Stock Options) to the extent that either (i) the aggregate Fair Market Value of shares of Common Stock (determined as of the date
of grant) with respect to such Options are exercisable for the first time by the Participant during any calendar year (under all
plans of the Bank) exceeds $100,000, taking Options into account in the order in which they were granted or (ii) such Options otherwise
remain exercisable but are not exercised within two and one-half (2 1/2) months of termination of employment (or such other period
of time provided in Section 422 of the Code).
5.7
Disqualifying
Disposition Notice
. Each Participant awarded an Incentive Stock Option under the Plan shall notify the Bank in writing immediately
after the date he or she makes a disqualifying disposition of any shares of Common Stock acquired pursuant to the exercise of such
Incentive Stock Option. A disqualifying disposition is any disposition (including any sale) of such shares of Common Stock before
the later of (i) two years after the date of grant of the Incentive Stock Option or (ii) one year after the date the Participant
acquired the shares of Common Stock by exercising the Incentive Stock Option. The Bank may, if determined by the Committee and
in accordance with procedures established by it, retain possession of any shares of Common Stock acquired pursuant to the exercise
of an Incentive Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence,
subject to complying with any instructions from such Participant as to the sale of such shares of Common Stock.
ARTICLE VI:
RESTRICTED STOCK AWARDS
6.1
Grant
.
The Committee is hereby authorized to grant Awards of Restricted Stock to Eligible Individuals. The grant of Restricted Stock shall
be evidenced by an Award Agreement that contains the terms of the Award, including, but not limited to: (i) the number of shares
of Restricted Stock subject to such Award; (ii) the purchase price, if any, of the shares of Restricted Stock and the means of
payment for such shares; (iii) the performance criteria, if any, and level of achievement in relation to the criteria that shall
determine the number of shares of Restricted Stock granted, issued, retainable and/or vested; provided, however, that any such
performance criteria shall be selected from the criteria set forth in Section 9.2 to the extent the Committee intends that the
Award comply with Section 162(m); (iv) such terms and conditions of the grant, issuance, vesting and/or forfeiture of the Restricted
Stock as may be determined from time to time by the Committee; (v) restrictions on transferability of the Restricted Stock; and
(vi) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined from time to time by
the Committee.
6.2
Vesting
and Forfeiture
. Restricted Stock granted under this Article VI is subject to such restrictions as the Committee may impose,
which restrictions may lapse separately or in combination at such time or times, in such installments or otherwise, as the Committee
may deem appropriate. Except as otherwise determined by the Committee, upon a Separation from Service during the applicable restriction
period, Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Bank; provided that
the Committee may provide, by rule or regulation or in any Award Agreement, or may determine in any individual case, that restrictions
or forfeiture conditions relating to Restricted Stock will lapse in whole or in part, including in the event of terminations of
employment resulting from specified causes.
6.3
Stock
Certificates
. An Award of Restricted Stock may be evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate
is issued in respect of shares of Restricted Stock, such certificate will be registered in the name of the Participant and bear
an appropriate legend referring to the terms, conditions, and restrictions applicable to such shares of Common Stock.
6.4
Dividends
and Voting Rights
. Unless otherwise determined by the Committee, a Participant holding an outstanding Award of Restricted Stock
shall be entitled to (i) receive all dividends and distributions paid in respect of shares of Common Stock underlying such award;
provided, that if any such dividends or distributions are paid in shares of Common Stock or other securities, such shares and other
securities shall be subject to the same vesting and other restrictions as apply to the Restricted Stock with respect to which they
were paid, and (ii)
exercise full voting rights and other rights as a stockholder
with respect to the shares of Common Stock underlying such Award during the period during which such shares remain subject to restriction.
ARTICLE VII:
RESTRICTED STOCK UNIT AWARDS
7.1
Grant
.
The Committee is hereby authorized to grant Awards of Restricted Stock Units to Eligible Individuals. The grant of Restricted Stock
Units shall be evidenced by an Award Agreement that contains the terms of the Award, including, but not limited to: (i) the number
of Restricted Stock Units subject to such Award; (ii) the purchase price, if any, of the Restricted Stock Units and the means of
payment for such Restricted Stock Units; (iii) the performance criteria, if any, and level of achievement in relation to the criteria
that shall determine the number of Restricted Stock Units granted, issued, retainable and/or vested; provided, however, that any
such performance criteria shall be selected from the criteria set forth in Section 9.2 to the extent the Committee intends that
the Award comply with Section 162(m); (iv) such terms and conditions of the grant, issuance, vesting and/or forfeiture of the Restricted
Stock Units as may be determined from time to time by the Committee; (v) restrictions on transferability of the Restricted Stock
Units; and (vi) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined from time
to time by the Committee.
7.2
Vesting
.
The Awards of Restricted Stock Units granted under this Article VII are subject to such restrictions as the Bank may impose, which
restrictions may lapse separately or in combination, at such time or times, in such installments or otherwise, as the Committee
may deem appropriate.
7.3
Separation
from Service
. Without limiting the foregoing, and except as otherwise revised in the Award Agreement documenting a Restricted
Stock Unit Award (“RSUs”) or otherwise determined by the Committee, in the event of Separation from Service for Cause
(as determined by the Bank), unless otherwise determined by the Committee, all outstanding RSUs will immediately terminate and
be forfeited. In all other events of Separation from Service, to the extent not previously paid, the Participant shall be paid
any vested RSUs in accordance with the payment provisions of Section 7.4, and all unvested RSUs shall immediately terminate and
be forfeited.
7.4
Payment
of Award
. The shares of Common Stock or cash underlying a Restricted Stock Unit Awards shall (subject to satisfaction of any
purchase price requirement) be transferred or paid to the Participant as soon as practicable following the Award date or the termination
of the vesting or other restrictions set forth in the Plan or the applicable Award Agreement and the satisfaction of any and all
other conditions of the Award applicable to such Restricted Stock Unit Award (the “Restriction End Date”), but in no
event later than two and one-half (2½) months following the end of the calendar year that includes the later of the Award
date or the Restriction End Date, as the case may be. Notwithstanding any of the foregoing, to the extent that the provisions of
Section 7.3 hereof or the provisions of any Award Agreement for Restricted Stock Units require, distributions of shares of Common
Stock under circumstances that constitute a “deferral of compensation” shall conform to the applicable requirements
of Section 409A, including, without limitation, the requirement that a distribution to a Participant who is a Specified Employee
which is made on account of the Specified Employee’s Separation from Service shall not be made before the date which is six
(6) months after the date of Separation from Service.
ARTICLE VIII:
STOCK AWARDS AND OTHER STOCK-BASED
AWARDS
8.1
Stock
Awards
. The Committee is hereby authorized to grant Stock Awards to Eligible Individuals. Stock Awards may be issued by the
Committee in addition to, or in tandem with, other Awards granted under this Plan, and may be issued in lieu of any cash compensation
or fees for services to the Bank as the Committee, in its discretion, determines or authorizes. Stock Awards shall be evidenced
by an Award Agreement or in such other manner as the Committee may deem necessary or appropriate, including, without limitation,
book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect
of shares of Common Stock underlying a Stock Award, such certificate will be registered in the name of the Participant.
8.2
Other
Stock-Based Awards
. The Committee is hereby authorized to grant to Participants such other Awards (including, without limitation,
rights to dividends and dividend equivalents) that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without limitation, securities convertible into shares of
Common Stock) as are deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan,
the Committee will determine the terms and conditions of such Awards and set forth such terms and conditions in an Award Agreement
related to such Award. Shares of Common Stock or other securities delivered pursuant to a purchase right granted under this Section
8.2 shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including,
without limitation, cash, shares of Common Stock, other securities, other Awards or other property, or any combination thereof,
as the Committee determines, the value of which consideration, as established by the Committee, shall, except in the case of Substitute
Awards, not be less than the Fair Market Value of such shares or other securities as of the date such purchase right is granted.
8.3
Payment
.
Stock Awards and Other Stock-Based Awards shall be transferred or paid to the Participant as soon as practicable following the
Award date and the satisfaction of any and all other conditions of the applicable Award Agreement (the “Satisfaction Date”),
but in no event later than two and one-half (2 1/2) months following the end of the calendar year that includes the later of the
Award date or the Satisfaction Date, as the case may be. Notwithstanding any of the foregoing, to the extent that the provisions
of Article VIII hereof or the provisions of any Award Agreement for Stock Awards or other Stock-Based Awards require, distributions
of shares of Common Stock under circumstances that constitute a “deferral of compensation” shall conform to the applicable
requirements of Section 409A, including, without limitation, the requirement that a distribution to a Participant who is a Specified
Employee which is made on account of the Specified Employee’s Separation from Service shall not be made before the date which
is six (6) months after the date of Separation from Service.
ARTICLE IX:
SECTION 162(m) PERFORMANCE BASED
COMPENSATION
9.1
General
Requirements
. To the extent that a Restricted Stock Award, Restricted Stock Unit Award, Stock Award, Other Stock-Based Award,
or Annual Short-term Cash Incentive Award is intended to qualify as performance-based compensation under Section 162(m) (a “Performance
Award”) such Award shall satisfy the requirements set forth in this Article IX.
9.2
Performance
Goals
. Performance Awards shall be conditioned upon the achievement of objective pre-established goal(s) relating to one or
more of the following performance measures established in writing by the Committee within 90 days after the beginning of the applicable
performance period (and in no event after 25% of the performance period has lapsed) subject to such modifications as specified
by the Committee: earnings (including earnings before taxes); earnings per share, diluted or basic; return on investment; stock
price; return on equity; total shareholder return; return on capital; return on average assets; credit quality measures; loan and
deposit growth; other financial performance ratios such as efficiency ratio; internal control measures; regulatory compliance measures;
and mergers and/or acquisitions. To the extent consistent with Section 162(m), the Committee may determine that certain adjustments
apply, in whole or in part, in such manner as determined by the Committee, to exclude the effect of any of the following events
that occur during a performance period: the impairment of tangible or intangible assets; litigation or claim judgments or settlements;
the effect of changes in tax law, accounting principles or other such laws or provisions affecting reported results; accruals for
reorganization and restructuring programs, including, but not limited to, reductions in force and early retirement incentives;
and any extraordinary, unusual, infrequent or non-recurring items described in management’s discussion and analysis of financial
condition and results of operations or the financial statements and notes thereto appearing in the Bank’s annual report to
shareholders for the applicable year. Performance measures may be determined either individually, alternatively or in any combination,
applied to either the Bank as a whole or to a business unit, either individually, alternatively or in any combination, and measured
over a period of time including any portion of a year, annually or cumulatively over a period of years, on an absolute basis or
relative to a pre-established target, to previous years’ results or to a designated comparison group, in each case as specified
by the Committee.
9.3
Certification
of Performance Goals
. Achievement of the performance goals established in accordance with Section 9.2 shall be certified in
writing prior to payment of the Performance Award, as required by Section 162(m). In addition to establishing minimum performance
goal(s) below which no compensation shall be payable pursuant to a Performance Award, the Committee, in its discretion, may create
a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goal(s)
have been achieved.
9.4
Committee
Discretion
. Notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion, may retain the
discretion to reduce the amount of any Performance Award to a Participant if it concludes that such reduction is necessary or appropriate.
The Committee shall not use its discretionary authority to increase any award that is intended to be performance-based compensation
under Section 162(m).
9.5
Payment
.
Performance Awards shall be transferred or paid to the Participant as soon as practicable following the termination of the vesting
or other restrictions set forth in the Plan or the applicable Award Agreement and the satisfaction of any and all other conditions
of the Award Agreement applicable to such Performance Award (the “Performance End Date”), but in no event later than
two and one-half (2 1/2) months following the end of the calendar year that includes the Performance End Date.
ARTICLE X:
GENERAL TERMS APPLICABLE TO AWARDS
10.1
Exemptions
from Section 16(b) Liability
. With respect to a Reporting Person, the Committee shall implement transactions under the Plan
and administer the Plan in a manner that will ensure that each transaction with respect to such a Participant is exempt under Rule
16b-3 or otherwise not subject to liability under Section 16(b), except that this provision shall not limit sales by such a Participant,
and such a Participant may engage in other non-exempt transactions under the Plan. The Committee may authorize the Bank to repurchase
any Award or shares of Stock deliverable or delivered in connection with any Award in order to avoid a Participant who is subject
to Section 16 of the Exchange Act incurring liability under Section 16(b).
10.2
Non-Assignment
.
Except as the Committee may otherwise determine from time to time: (i) no Award and no right under any Award shall be assignable,
alienable, saleable or transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided,
however, that, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise
the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant;
and provided, further, however, that in no event shall the Committee authorize any assignment, alienation, sale, or other transfer
under this paragraph that would provide a Participant or beneficiary with the opportunity to receive consideration from a third
party; (ii) each Award, and each right under any Award, shall be exercisable during the Participant’s lifetime only by the
Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative; and (iii) no
Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable against the Bank. The provisions of this paragraph
shall not apply to any Award which has been fully exercised, earned or paid, as the case may be, and shall not preclude forfeiture
of an Award in accordance with the terms thereof.
10.3
Repurchase
Right
. Prior to the time that shares of Common Stock are publicly traded on a national securities exchange registered with
the Securities and Exchange Commission under Section 6(a) of the Exchange Act, after a Participant's Separation from Service ,
the Bank has the right (but not the obligation) to repurchase such Participant’s shares of Common Stock which were issued
pursuant to the exercise or vesting of Awards issued under the Plan (herein, such shares of Common Stock are referred to as the
“Plan Shares”) at Fair Market Value as of the date of repurchase. Such right of repurchase shall be exercisable at
any time and from time to time at the discretion of the Bank.
10.4
Right
of First Refusal
. Prior to the time that shares of Common Stock are publicly traded on a national securities exchange registered
with the Securities and Exchange Commission under Section 6(a) of the Exchange Act, any Plan Shares shall be subject to a right
of first refusal on behalf of the Bank. By virtue of this right, such Plan Shares may not be transferred during the Participant's
lifetime to any person, unless such transfer occurs within fifteen days following the expiration of thirty days after the Bank
was given a written notice which correctly identified the prospective transferee or transferees and which offered the Bank an opportunity
to purchase such shares at their Fair Market Value as of the date of repurchase in cash, and such offer was not accepted within
thirty days after the Bank’s receipt of that notice.
10.5
Section
409A Compliance
. Notwithstanding any other provision of this Plan to the contrary, all Awards under this Plan shall be designed
and administered in a manner that does not result in the imposition of tax or penalties under Section 409A. Accordingly, Awards
under this Plan shall comply with the following requirements, as applicable.
(a)
Distributions
to Specified Employees Upon Separation from Service
. To the extent that payment under an Award which is subject to Section
409A is due to a Specified Employee on account of the Specified Employee’s Separation from Service from the Bank such payment
shall be delayed until the first day of the seventh month following such Separation from Service (or as soon as practicable thereafter).
The Committee, in its discretion, may provide in the Award Agreement for the payment of interest at a rate set by the Committee
for such six-month period.
(b)
No
Acceleration of Payment
. To the extent that an Award is subject to Section 409A, payment under such Award shall not be accelerated
from the date(s) specified in the Award Agreement as of the date of grant.
(c)
Subsequent
Delay in Payment
. To the extent that an Award is subject to Section 409A, payment under such Award shall not be deferred beyond
the dates specified in the Award Agreement as of the date of grant, unless the Committee makes the decision to delay payment at
least one year prior to the scheduled payment date, and payment is delayed at least five years.
10.6
Exemptions
from Section 409A
. The following Awards are intended to be exempt from the requirements of Section 409A.
(a)
Non-Discounted
Options
. Any Option issued with an exercise price that is at least equal to the Fair Market Value of a share of Common Stock
on the date of grant.
(b)
Non-Discounted
SARs. Any SAR issued with an exercise or base price at least equal to the Fair Market Value of a share of Common Stock on the date
of grant.
(c)
Restricted
Stock and Stock Awards
. Restricted Stock, Stock Awards and any other property right subject to tax under Section 83 of the
Code.
(d)
Short-Term
Deferrals
. Any Award which is paid no later than two and one-half (2 1/2) months following the year in which the Award vests.
10.7
Capital
Requirements of the Bank.
The Bank’s primary federal regulator may direct the Bank to require all Specified Employees
to exercise or forfeit their Options if the Bank’s capital falls below minimum regulatory requirements, as determined by
the Bank’s state or primary federal regulator. If a Specified Employee fails to exercise any Options which such Specified
Employee is required to exercise pursuant to this Section 10.7, such Options shall be cancelled and forfeited.
ARTICLE XI:
CHANGE OF
CONTROL
11.1
Generally
.
The Committee may, in its discretion, at the time an Award is made hereunder or at any time prior to, coincident with or after
the time of a Change of Control (a) subject to Section 10.5, provide for the acceleration of any time periods relating to the exercise
or realization of such Awards, so that such Awards may be exercised or realized in full on or before a date fixed by the Committee;
(b) provide for the purchase of such Awards, upon the Participant’s request, for an amount of cash equal to the amount which
could have been obtained upon the exercise or realization of such Awards had such Awards been currently exercisable or payable;
(c) make such adjustment to the Awards then outstanding as the Committee deems appropriate to reflect such Change of Control; or
(d) cause the Awards then outstanding to be assumed, or new rights substituted therefore, by the surviving corporation in such
Change of Control. The Committee may, in its discretion, include such further provisions and limitations in any Award Agreement
as it may deem equitable and in the best interests of the Bank.
11.2
Definition
.
“Change of Control” means a change of control of the Bank of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A promulgated under the Exchange Act, or Item 5.01 of a Current Report on Form 8-K or any successor
rule, whether or not the Bank is then subject to such reporting requirements; provided that, without limitation, such a Change
of Control shall be deemed to occur if:
(a) any
“person” (as such term is used in Sections 13(d) and 14 (d) of the Exchange Act) is or becomes the “beneficial
owner” (as determined for purposes of Regulation 13D-G under the Exchange Act as currently in effect), directly or indirectly,
in a transaction or series of transactions, of securities of the Bank representing more than 50% of the voting power of the Bank’s
voting capital stock (the “Voting Stock”); or
(b) The
consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50%
or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange
or other transfer in a transaction or series of transactions of all or substantially all of the assets of the Bank; or
(c) A
majority of the Board is replaced in any twelve (12) month period by individuals whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of the appointment or election.
Any good faith determination by the Committee
as to whether a Change of Control within the meaning of this Section has occurred shall be conclusive and binding on the Participants.
ARTICLE XII:
EFFECTIVE DATE, AMENDMENT, MODIFICATION
AND TERMINATION OF PLAN
12.1
Effective
Date
. The Plan is effective as of
. No Award may be granted under the Plan after the tenth anniversary of the date
at which this Plan is approved by shareholders of the Bank. However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to administer the
Plan and to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under
any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.
12.2
Plan
Amendment and Termination
. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an
Award Agreement or in the Plan, the Board may amend, alter, suspend, discontinue, or terminate the Plan or any portion thereof
at any time; provided, however, that no such amendment, alteration, suspension, discontinuation or termination shall be made without:
(i) shareholder approval if such approval is necessary to comply with any tax, legal or regulatory (including, for this purpose,
the rules of any national securities exchange(s) on which the Common Stock is then listed) requirement for which or with which
the Board deems it necessary or desirable to qualify or comply; or (ii) the consent of the affected Participant, if such action
would adversely affect any material rights of such Participant under any outstanding Award. Notwithstanding the foregoing or any
provision of the Plan to the contrary, the Committee may at any time (without the consent of the Participant) modify, amend or
terminate any or all of the provisions of this Plan to the extent necessary to conform the provisions of the Plan with Section
409A regardless of whether such modification, amendment, or termination of the Plan shall adversely affect the rights of a Participant
under the Plan.
12.3
Award
Amendment
. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue
or terminate, any Award theretofore granted, prospectively or retroactively, without the consent of any Participant or holder or
beneficiary of an Award; provided, however, that no such action shall impair any material rights of a Participant or holder or
beneficiary under any Award theretofore granted under the Plan. The Committee may, in its discretion, vest part or all of a Participant’s
Award that would otherwise be forfeited; provided that, in the case of a Restricted Stock Unit Award, Stock Award, Other Stock-Based
Award or Performance Award, distribution thereof to the Participant shall be made no later than two and one-half (2 1/2) months
following the end of the calendar year in which such vesting occurs. Notwithstanding the foregoing, no waiver, amendment, alteration,
suspension, discontinuation or termination of the Award by the Committee shall constitute (i) a modification of a stock right within
the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an extension of
a stock right, including the addition of any feature for the deferral of compensation, within the meaning of Treas. Reg. Section
1.409A-1(b)(5)(v)(C), or an impermissible acceleration of a payment date or a subsequent deferral of a stock right subject to Code
Section 409A within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(E). Furthermore, in no event may the Committee exchange
Awards previously granted for Awards of a different type.
12.4
Adjustment
of Awards
. The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation, an event affecting the Bank, or the financial
statements of the Bank, or of changes in applicable laws, regulations or accounting principles), whenever the Committee determines
that such adjustments are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, subject, with respect to Awards intended to meet the requirements of Section 162(m), compliance
with the provisions of Section 162(m).
ARTICLE XIII:
MISCELLANEOUS
13.1
No
Right to Continued Employment
. Nothing in the Plan or in any Award Agreement confers upon any Eligible Individual who is a
Participant the right to continue in the service or employment of the Bank or any affiliate or affect any right which the Bank
or any affiliate may have to terminate or modify the employment or provision of service of the Participant with or without cause.
13.2
No Rights
as a Stockholder
. Notwithstanding anything to the contrary in the Plan, no Participant or Successor shall have any voting or
other rights as a stockholder of the Bank with respect to any Common Stock covered by an Award until the issuance of a certificate
or certificates to the Participant for such Common Stock. Adjustment to Restricted Stock Units may be made for dividends or other
rights for which the record date is prior to the issuance of such certificates.
13.3
Withholding
.
A Participant may be required to pay to the Bank, and the Bank shall have the right and is hereby authorized to withhold from any
Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other amount owing to
a Participant the amount (in cash shares of Common Stock, other securities, other Awards or other property) of any applicable withholding
and taxes, including the Participant’s social security and Medicare taxes (FICA) and federal, state, local income tax or
such other applicable taxes (“Taxes”), in respect of any Award, its exercise, or any payment or transfer under an Award
or under the Plan and to take such other action as may be necessary in the opinion of the Bank to satisfy all obligations for the
payment of such Taxes. The Bank may require the Participant to make arrangements satisfactory to it for the payment of any Taxes
before issuing any Stock pursuant to the Award. The Committee may, if it deems appropriate in the case of a Participant, withhold
such Taxes through a reduction of the number of shares of Common Stock delivered to such individual having a Fair Market Value
sufficient to satisfy the minimum amount of Taxes required to be withheld, as determined by the Committee. Such reduction of shares
of Common Stock delivered to the Participant is hereby specifically authorized as an alternative for the satisfaction of withholding
obligations.
13.4
No
effect on Compensation
. Awards received by a Participant under this Plan are not be deemed a part of a
Participant’s regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and
shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan,
contract or similar arrangement provided by the Bank or an affiliate , unless expressly so provided by such other plan,
contract or arrangement, or unless the Committee so determines. No provision of the Plan shall prevent the Bank from adopting
or continuing in effect other or additional compensation arrangements, including incentive arrangements providing for the
issuance of options and stock, and awards that do not qualify under Section 162(m), and such arrangements may be generally
applicable or applicable only in specific cases.
13.5
Unfunded
Plan
. This Plan is unfunded and the Bank is not required to segregate any assets that may at any time be represented by Awards
under this Plan. Neither the Bank, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under
this Plan nor shall anything contained in this Plan or any action taken pursuant to its provisions create or be construed to create
a fiduciary relationship between the Bank or other affiliates, and a Participant or Successor. To the extent any person acquires
a right to receive an Award under this Plan, such right shall be no greater than the right of an unsecured general creditor of
the Bank.
13.6
Limitation
of Liability
. Any liability of the Bank to any Participant with respect to an Award shall be based solely upon contractual
obligations created by this Plan and the applicable Award Agreement. Except as may be required by law, neither the Bank nor any
member or former member of the Board or of the Committee, nor any other person participating (including participation pursuant
to a delegation of authority under Section 2.6 hereof) in any determination of any question under this Plan, or in the interpretation,
administration or application of this Plan, shall have any liability to any party for any action taken, or not taken, under this
Plan.
13.7
Legal
Requirements
. No certificate for shares of Common Stock distributable pursuant to this Plan will be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with
the provisions of Section 409A, applicable state securities laws, the Securities Act of 1933, as amended and in effect from time
to time or any successor statute, the Exchange Act and the requirements of the national securities exchange(s) on which the Bank’s
Stock may, at such time, be listed.
13.8
Governing
Law
. To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant
to this Plan shall be governed by the laws of the state of Delaware, without giving effect to its conflict of law provisions.
13.9
Severability
.
In the event that any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall
not affect the remaining provisions of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
13.10
No Fractional Shares
. No
fractional shares shall be issued or delivered pursuant to this Plan or any Award Agreement, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional shares, or whether such
fractional shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
13.11
Headings
.
Headings are provided herein for convenience only and not to serve as a basis for interpretation or construction of the Plan.
Exhibit 10.8
BAY COMMERCIAL
BANK
Award
Agreement
(2014 Equity Incentive Plan)
Date of Award: ____________________.
_______________________________, Eligible Individual:
Bay Commercial Bank (the
“Bank”) has this day granted to you, the “Eligible Individual” named above, an award (“Award”)
of shares of the Common Stock of the Bank, par value $0.01 per share (“Common Stock”), pursuant and subject to the
terms and conditions set forth in this Award Agreement and in the 2014 Equity Incentive Plan (the “2014 Plan”). The
Award of Common Stock hereunder (“Restricted Stock”) represents the right to receive that number of shares of the Common
Stock in the Company indicated below and subject to the vesting and forfeiture provisions in the 2014 Plan and in Section 3 of
this Award Agreement. This Award of Restricted Stock does not qualify within the meaning of Section 422 of the Internal Revenue
Code of 1986, as amended (the “Code”) and is exempt from the requirements of Section 409A of the Code. Capitalized
terms used herein and not otherwise defined shall have the same meanings given to such terms in the 2014 Plan.
The details of your Award
are as follows:
1. The
total number of shares of Restricted Stock subject to this Award is _________________________________________.
2. The
fair value of the Award is $_______ per share, which is not less than the Fair Market Value of the Common Stock on the date of
this Award (as determined under the 2014 Plan).
3. Subject
to the vesting and forfeiture limitations contained herein and in the 2014 Plan, as amended from time to time, the Restricted Stock
granted hereunder shall vest with respect to each installment shown below on or after the date of vesting applicable to such installment,
as follows:
Number of Shares
(Installment)
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Date of Vesting
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Any Restricted Stock that is subject to the
vesting schedule set forth above and which has not yet vested shall be forfeited and reacquired by the Bank on the earlier to occur
of (a) ninety (90) days after your Separation from Service (as defined in the 2014 Plan) with the Bank for any reason, unless such
termination is due to your permanent and total disability (within the meaning of Section 22(e)(3) of the Code) in which case the
Award shall vest in full, or (b) the date of your Separation of Service if such termination is for Cause (as defined in the 2014
Plan), in which case the Award shall terminate on the date of such Separation of Service.
4. The
Restricted Stock Award is not assignable, saleable or transferable, except by will or by the laws of descent and distribution.
The Eligible Individual may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise the
rights of the Eligible Individual, and to receive any property distributable, with respect to any Award upon the death of the Eligible
Individual. The terms of this Award shall be binding on the executors, administrators, heirs and successors of the Eligible Individual.
5. Any
notices provided for in this Award or the 2014 Plan shall be given in writing and shall be deemed effectively given upon receipt
or, in the case of notices delivered by the Bank to you, five (5) days after deposit in the United States mail, postage prepaid,
addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Bank.
6. An
Eligible Individual holding an outstanding Award of Restricted Stock shall be entitled to (i) receive all dividends and distributions
paid in respect of shares of Common Stock underlying such award; provided, that if any such dividends or distributions are paid
in shares of Common Stock or other securities, such shares and other securities shall be subject to the same vesting and other
restrictions as apply to the Restricted Stock with respect to which they were paid, and (ii) exercise full voting rights and other
rights as a stockholder with respect to the shares of Common Stock underlying such Award during the period during which such shares
remain subject to restriction.
7. Except
as otherwise expressly agreed, this Award is subject to all the provisions of the 2014 Plan, a copy of which is attached hereto,
and its provisions are hereby made a part of this Award, including without limitation, the provisions of the 2014 Plan relating
to Award provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time
be promulgated and adopted pursuant to the 2014 Plan. In the event of any conflict between the provisions of this Award and those
of the 2014 Plan, the provisions of the 2014 Plan shall control.
8. The
Bank is not providing you with advice, warranties, or representations regarding any of the legal or tax effects to you with respect
to this Award. You are encouraged to seek legal and tax advice from your own legal and tax advisers as soon as possible.
9. By
accepting this Award and the shares of Common Stock covered thereby, and by signing this instrument, you acknowledge that you are
familiar with the terms of this Award and the 2014 Plan, that you have been encouraged by the Bank to discuss the Award and the
2014 Plan with your own legal and tax advisers, and that you agree to be bound by the terms of this Award and the 2014 Plan.
If all or any one of the
preceding conditions are not satisfied while Eligible Individual holds the Award of Restricted Stock, all unvested shares granted
in this Award shall terminate on the 90
th
day following the date that the Bank gives Eligible Individual notice of such
termination.
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Name:
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Keary Colwell
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Title:
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Chief Administrative Officer,
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Chief Financial Officer, and
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Executive Vice President
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ACKNOWLEDGEMENT:
The undersigned Eligible
Individual:
(a) Acknowledges
receipt of the foregoing Award and understands that all rights and liabilities with respect to this Award are set forth in the
Award and the 2014 Plan; and
(b) Acknowledges
that as of the date of grant of this Award, it sets forth the entire understanding between the undersigned Eligible Individual
and the Bank and its affiliates regarding this Award Agreement and supersedes all prior oral and written agreements on that subject.
Attachments: Bay Commercial Bank 2014 Equity Incentive Plan.
DESIGNATION OF BENEFICIARIES
Date: ______________
Eligible Individual: ____________________
The Eligible Individual designates the following
beneficiary or beneficiaries to exercise the rights pursuant to the Award Agreement dated ___________________, to receive any property
distributable, with respect to any Award upon the death of the Eligible Individual.
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Contact Information
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The Eligible Participant designates the foregoing
individuals as beneficiaries to the Award under the Award Agreement dated: __________________ and attached hereto.
Exhibit 10.9
BAYCOM CORP
AMENDED AND RESTATED
2017 OMNIBUS EQUITY INCENTIVE PLAN
The purposes of the BayCom
Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (the “Plan”) are to foster and promote the long-term financial
success of BayCom Corp (“BCML”) and its wholly- owned subsidiary, United Business Bank (the “Bank”) and
its affiliates and materially increase shareholder value by (i) motivating superior performance by Participants, (ii) providing
Participants with an ownership interest in BCML and the Bank, and (iii) enabling the Bank to attract and retain the services of
outstanding employees upon whose judgment, interest and special effort the successful conduct of its operations is largely dependent.
As used in the Plan, “BCML” may sometimes refer jointly and severally to BCML, Bank and any other affiliate, as the
context may require. It is intended that the arrangements being provided hereunder be exempt from adverse income tax consequences
for the Plan Participants under Section 409A of the Internal Revenue Code added by legislation entitled American Jobs Creation
Act of 2004 Public Law 108-357, 118 Stat., which imposes various requirements affecting non-qualified deferred compensation programs
as defined thereunder.
This Plan was initially
approved by the Board of Directors of BCML on October 17, 2017 and was subsequently approved by the stockholders of BCML. The Plan
was amended and restated effective as of January 16, 2018.
ARTICLE I
DEFINITIONS
In addition to the terms
defined in the preamble above and elsewhere in the Plan, the following capitalized terms used in this Plan have the meanings set
forth below. Except when otherwise indicated by the context, reference to the masculine gender shall include, when used, the feminine
gender and any term used in the singular shall also include the plural.
“
Annual Short-Term
Cash Incentive Award
” shall mean a cash Award granted to a Participant based on the achievement of annual Performance
Goals such as those outlined in Section 9.2.
“
Award Agreement
”
means any written (or electronic) agreement, contract, certificate or other instrument or document evidencing any Award granted
under the Plan, which may, but need not, be executed or acknowledged by a Participant.
“
Award
”
means any Option, SAR, award of Restricted Stock or Restricted Stock Units, Stock Award, Other Stock-Based Award, or Performance
Award or Deferral Award granted under the Plan.
“
Board
”
or “
Board of Directors
” means the Board of Directors of BCML, as it may be constituted from time to time.
“
Cause
”
means, except as otherwise defined in an Award Agreement, with respect to any Participant (as determined by the Committee in its
sole discretion) (i) the continued and willful failure of the Participant substantially to perform the duties of his or her employment
or service for BCML or the Bank (other than any such failure due to the Participant’s disability); (ii) the participant’s
engaging in willful or serious misconduct that has caused or could reasonably be expected to result in material injury to BCML
or any of its affiliates, including, but not limited to by way of damage to BCML’s or an affiliate’s reputation or
public standing; (iii) the Participant’s conviction of, or entering a plea of guilty or nolo contendere to, a crime constituting
a felony or (iv) the Participant’s material violation or breach of BCML’s or any affiliate’s code of conduct
or ethics or other BCML policy or rule or the material breach by the Participant of any of his or her obligation sunder any written
covenant or agreement with BCML or any of its affiliates; or (v) any failure by the Participant to cooperate, if requested by BCML,
with any investigation or inquiry into the Participant’s or BCML’s business practices, whether internal or external,
including, but not limited to, the Participant’s refusal to be deposed or to provide testimony at any trial or inquiry, provided
that, with respect to any Participant who is a party to an employment agreement or service contract with BCML or any affiliates,
“Cause” shall have the meaning specified in such agreement.
“
Change of Control
”
shall have the meaning set forth in Article XII below.
“
Code
”
means the Internal Revenue Code of 1986, as amended and in effect from time to time, or any successor statute.
“
Committee
”
means the HR/Compensation Committee of the Board of Directors, or any successor committee thereto, or such other committee of the
Board of Directors as is appointed or designated by the Board to administer the Plan; provided, however, that the number of members
of the Committee and their qualifications shall at all times that BCML or its officers and directors, by reason of their status
as officers or directors of BCML, are subject to such laws, satisfy the requirements for exemptions under Rule 16b-3 and tax deductibility
under Section 162(m). The full Board may perform any function of the Committee hereunder, except with respect to matters which
under Rule 16b-3, Section 162(m) or other applicable law (including stock exchange rules) are required to be determined in the
sole discretion of the Committee.
“
Common Stock
”
means the common stock, par value $0.01 per share (as such par value may be adjusted from time to time), of BCML.
“
Covered Person
”
means an Eligible Individual who is determined by the Committee to be a “covered employee” as defined in Section 162(m)
for the purpose of receiving performance-based compensation complying with Section 162(m).
“
Deferral Award
”
means any compensation payment (whether regular compensation or other bonus or Performance Award) which would otherwise be fully
vested (or become fully vested) but which the Participant is allowed by the Committee to further defer taxation of such Award through
any non-qualified deferred compensation arrangement as described in Section 10.1 below.
“
Eligible Individual
”
means any Employee, Non-Employee Director or natural person who is a consultant to BCML or its affiliates.
“
Employee
”
means any officer or other employee of the Bank.
“
Exchange Act
”
means the Securities Exchange Act of 1934, as amended.
“
Fair Market Value
”
of a share of Common Stock as of any date and unless otherwise determined by the Committee, shall be determined as follows:
(i) If
the Common Stock is listed on any established stock exchange, system or market, the Fair Market Value of a share of Common Stock
shall be (1) the closing price for a share of Common Stock as quoted on such exchange, system or market, as reported in the Wall
Street Journal or other such source as the Committee deems reliable, on the date on which such value is being determined or the
last trading day immediately before such day; (2) the sale price for the last sale before or the first sale after the time on which
such value is being determined; or (3) such other reasonable method using actual transactions in such market as reported by such
market as may be determined by the Committee.
(ii) In
the absence of an established market for shares of Common Stock, the Fair Market Value of a share of Common Stock shall be determined
in good faith by the Committee by a reasonable valuation method, taking into account factors consistent with Treas. Reg. §
1.409A- 1(b)(5)(iv)(B) as the Committee deems appropriate.
In all cases involving benefits
under this Plan that are deemed subject to Section 409A, Fair Market Value shall be determined in accordance with Treas. Reg. §
1.409A-1(b)(5)(iv).
“
Incentive Stock
Option
” or “
ISO
” means an option granted under Article V designated by the Committee as an incentive
stock option within the meaning of Section 422 of the Code or any successor provision thereto and qualifying thereunder.
“
Non-Employee Director
”
means a member of the Board who is not an Employee.
“
Non-Qualified
Stock Option
” means an option granted under Article V that is not designated as an incentive stock option by the Committee,
or an option that is designated as an incentive stock option to the extent such option does not comply with the provisions of Section
422 of the Code.
“
Option
”
means an Incentive Stock Option or a Non-Qualified Stock Option.
“
Other Stock-Based
Award
” means any right granted under Section 8.2.
“
Participant
”
means any Eligible Individual who has been granted an Award under the Plan which remains outstanding, including a person who is
no longer an Eligible Individual.
“
Performance Award
” shall
have the meaning set forth in Section 9.1 below.
“
Person
”
means any individual, corporation, joint venture, association, partnership, limited liability company, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision thereof.
“
Reporting Person
”
means any Eligible Individual subject to Section 16 of the Exchange Act with respect to BCML.
“
Restricted Stock
”
means a grant of shares of Common Stock pursuant to Article VI which is subject to certain restrictions and to a risk of forfeiture.
“
Restricted Stock
Unit
” means a contractual right underlying an Award granted under Article VII that is denominated in shares of Common
Stock, which unit represents a right to receive a share of Common Stock (or the value of a share of Common Stock) upon the terms
and conditions set forth in the Plan and the applicable Award Agreement.
“
Rule 16b-3
”
means Rule 16b-3, as from time to time in effect and applicable to Participants, promulgated by the Securities and Exchange Commission
under Section 16 of the Exchange Act.
“
SAR
”
or “
Stock Appreciation Right
” means the right to receive a payment in cash or shares of Common Stock equal to
the amount of appreciation, if any, in the Fair Market Value of a share of Common Stock from the date of grant of the right to
the date of its payment, and which may be awarded to Eligible Individuals under Article V.
“
SAR Strike Price
”
means the Fair Market Value of a Share of Common Stock on the date of the grant of a SAR or Stock Appreciation Right.
“
Section 162(m)
”
means Section 162(m) of the Code and regulations promulgated thereunder.
“
Section 409A
”
means Section 409A of the Code and regulations promulgated thereunder.
“
Separation from
Service
” means (i) with respect to an Eligible Individual who is an employee of the Bank, the termination of his employment
or reduction of his services with the Bank (and any other affiliated entities that are deemed to constitute a “service recipient”
as defined in Treas. Reg. Section 1.409A-1(h)(3)) that constitutes a “separation from service” within the meaning of
Treas. Reg. Section 1.409A-l(h)(l), (ii) with respect to an Eligible Individual who is a consultant of the Bank, the expiration
of his contract or contracts under which services are performed that constitutes a “separation from service” within
the meaning of Treas. Reg. Section 1.409A-1(h)(2), or (iii) with respect to an Eligible Individual who is a Non- Employee Director,
the date on which such Non-Employee Director ceases to be a member of the Board for any reason.
“
Specified Employee
”
means “specified employee” as such term is defined in Section 409A.
“
Stock Award
”
means award of shares of Common Stock pursuant to Section 8.1.
“
Substitute Award
”
means an Award granted in assumption of, or in substitution for, an outstanding award previously granted by a Person acquired by
the Bank or with which the Bank combines.
“
Successor
”
means the legal representative of an incompetent Participant and, if the Participant is deceased, the legal representative of the
estate of the Participant or the person or persons who may, by bequest or inheritance, or under the terms of an Award or of forms
submitted by the Participant to the Committee, acquire the right to receive cash and/or shares of Common Stock issuable in satisfaction
of an Award.
“
Treas. Reg
.”
means regulations promulgated from time to time by the U.S. Secretary of the Treasury with regard to provisions of the Code.
ARTICLE II
ADMINISTRATION
2.1
Generally
.
The Committee shall have the authority to control and manage the operation and administration of the Plan; provided, however, that
all acts and authority of the Committee pursuant to this Plan are subject to the provisions of the Committee’s charter, as
amended from time to time, and such other authority as may be delegated to the Committee by the Board.
2.2
Grant
of Awards
. The Committee has the exclusive power to make Awards, to determine when and to which Eligible Individuals Awards
will be granted, the types of Awards and the number of shares of Common Stock covered by the Awards, to establish the terms, conditions,
performance criteria, restrictions, and other provisions of such Awards, and, subject to the terms of the Plan and applicable law,
to cancel, suspend or amend existing Awards.
2.3
Section
162(m)
. Subject to the provisions of the Plan, the Committee will have the authority and discretion to determine the extent
to which Awards under the Plan will be structured to conform to the requirements applicable to performance-based compensation as
described in Section 162(m), and to take such action, establish such procedures, and impose such restrictions as necessary to conform
to such requirements. Notwithstanding any provision of the Plan to the contrary, if an Award under this Plan is intended to qualify
as performance-based compensation under Section 162(m) and the regulations issued thereunder and a provision of this Plan would
prevent such Award from so qualifying, such provision shall be administered, interpreted and construed to carry out such intention
(or disregarded to the extent such provision cannot be so administered, interpreted or construed). In making the foregoing determinations,
the Committee shall take into account the provisions of the Tax Cuts and Jobs Act, which eliminated the performance-based compensation
exemption from Section 162(m) for taxable years beginning after December 31, 2017, other than pursuant to written binding contracts
that were in effect on November 2, 2017.
2.4
Payment
of Awards
. The Committee may, subject to Section 12.3, determine whether, to what extent and under what circumstances Awards
may be settled, paid or exercised in cash, shares of Common Stock or other Awards or other property, or canceled, forfeited or
suspended.
2.5
Interpretation
.
The Committee has the authority to interpret the Plan and any Award made under the Plan, to establish, amend, waive and rescind
any rules and regulations relating to the administration of the Plan, to determine the terms and provisions of any Award Agreements
entered into hereunder (not inconsistent with the Plan), to amend the terms and provisions of any such Award Agreement (not inconsistent
with the Plan) and to make all other determinations necessary or advisable for the administration of the Plan. The Committee may
correct any defect, supply any omission or reconcile any inconsistency in the Plan or in any Award in the manner and to the extent
it deems desirable. The determinations of the Committee in the administration of the Plan as described herein will be final, binding
and conclusive on all interested parties.
2.6
Delegation
of Authority
. Except to the extent prohibited by applicable law or regulation, the Committee may allocate all or any portion
of its responsibilities and powers to anyone or more of its members and may delegate all or any part of its responsibilities and
powers to any person or persons selected by it; provided, however, the Committee shall not delegate any such authority with respect
to any Awards made to a Reporting Person. The Committee may revoke any such allocation or delegation at any time.
2.7
Cooperation
.
BCML and any affiliate will, to the fullest extent permitted by law, furnish the Committee with such data and information as may
be required for it to discharge its duties. The records of the Bank and any affiliate as to an Eligible Individual’s employment,
or other provision of services, termination of employment, or cessation of the provision of services, leave of absence, reemployment
and compensation will be conclusive on all persons unless determined to be incorrect. Participants and other persons entitled to
benefit under the Plan must furnish the Committee such evidence, data or information as the Committee considers desirable to carry
out the terms of the Plan.
2.8
Indemnification
.
To the fullest extent permitted by law, each member and former member of the Committee and each person to whom the Committee delegates
or has delegated authority under this Plan shall be entitled to indemnification by the Bank against and from any loss, liability,
judgment, damage, cost and reasonable expense incurred by such member, former member or other person by reason of any action taken,
failure to act or determination made in good faith under or with respect to this Plan.
ARTICLE III
SHARES AVAILABLE FOR AWARDS
3.1
Number
.
Subject to adjustment as provided in Section 3.4, the maximum number of shares of Common Stock that may be delivered pursuant to
Awards granted under the Plan is 450,000 Shares. Common Stock to be issued under the Plan may be made available from authorized
but unissued shares of Common Stock, shares of Common Stock held by BCML in its treasury, or shares of Common Stock purchased by
BCML on the open market or otherwise.
3.2
Award
Limitations
. In no event shall the aggregate Awards granted to any individual Participant for any fiscal year exceed the lesser
of 50,000 shares of Common Stock or $2,000,000 in fair market value. Further, in no event shall the aggregate amount of Awards
granted to any individual member of the Board of Directors of BCML for any fiscal year exceed 25,000 shares of Common Stock. The
Committee may specify other limitations on grants of Awards under this Plan in its sole discretion, including such limitations
as may be necessary to comply with applicable law and regulations and to preserve certain tax benefits.
3.3
Share
Counting
. If any shares of Common Stock covered by an Award other than a Substitute Award, or to which such an Award relates,
terminate, lapse or are forfeited or cancelled, (but excluding shares for an Award that is otherwise settled without the delivery
of the full number of shares of Common Stock underlying the Award), then the shares of Common Stock covered by such Award, or to
which such Award relates, to the extent of any such forfeiture, termination, lapse, cancellation, etc., shall again be, or shall
become available for issuance under the Plan. Shares of Common Stock underlying Substitute Awards shall not reduce the number of
shares of Common Stock available for delivery under this Plan. Shares of Common Stock delivered in payment of the purchase price
in connection with the exercise of Options or shares of Common Stock delivered or withheld to pay tax-withholding obligations or
otherwise under the Plan shall not be added to and shall not increase the number of shares of Common Stock available for purposes
of the Plan.
3.4
Adjustments
.
In the event that the Committee shall determine that any dividend or other distribution (whether in the form of cash, shares of
Common Stock, other securities, or other property), recapitalization, share split, reverse share split, reorganization, merger,
consolidation, split-up, spin-off, combination, repurchase or exchange of shares of Common Stock or other securities of BCML, issuance
of warrants or other rights to purchase shares of Common Stock or other securities of BCML, or other similar corporate transaction
or event affects the shares of Common Stock such that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended to be made available under the Plan, then the Committee
shall, in such manner as it may deem equitable, adjust any or all of: (i) the number and type of shares of Common Stock (or other
securities or property) which thereafter may be made the subject of Awards, including without limitation the individual limits
set forth in Sections 4(a); (ii) the number and type of shares of Common Stock (or other securities or property) subject to outstanding
Awards; and (iii) the grant, purchase, or exercise price with respect to any Award or, if deemed appropriate, make provision for
a cash payment to the holder of an outstanding Award; provided, however, that the number of shares of Common Stock subject to any
Award shall always be a whole number. The Committee’s adjustment shall be effective and binding for all purposes of this
Plan, provided that no adjustment shall be made which will cause an Incentive Stock Option to lose its status as such, and further
provided that no such adjustment shall constitute (i) a modification of a stock right within the meaning of Treas. Reg. Section
1.409A-l(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an extension of a stock right, including the addition
of any feature for the deferral of compensation within the meaning of Treas. Reg. Section 1.409A-l(b)(5)(v)(C), or (iii) an impermissible
acceleration of a payment date or a subsequent deferral of a stock right subject to Section 409A within the meaning of Treas. Reg.
Section 1.409A-l(b)(5)(v)(E). Furthermore, no adjustment as the result of a change in capitalization shall cause the exercise price
to be less than the Fair Market Value of such shares (as adjusted to reflect the change in capitalization) on the date of grant,
and any adjustment as the result of the substitution of a new stock right or the assumption of an outstanding stock right pursuant
to a corporate transaction shall satisfy the conditions described in Treas. Reg. Section 1.409A-l(b)(5)(v)(D).
ARTICLE IV
ELIGIBILITY
All Eligible Individuals
are eligible to participate in this Plan and receive Awards hereunder. Holders of equity-based awards issued by a company acquired
by BCML or with which BCML combines are eligible to receive Substitute Awards hereunder.
ARTICLE V
OPTIONS AND SARS
5.1
Grant
.
The Committee is hereby authorized to grant Options and SARs to Participants with the following terms and conditions and with such
additional terms and conditions, in either case not inconsistent with the provisions of the Plan, as the Committee determines.
The grant of Options or SARS shall be evidenced by an Award Agreement that contains the terms of the Award, including, but not
limited to: (i) the number of shares of Common Stock that may be issued upon exercise of an Option or number of SARs subject to
an Award; (ii) the exercise or base price of each Option or SAR; (iii) the term of the Option or SAR; (iv) such terms and conditions
on the vesting and/or exercisability of an Option or SAR as maybe determined by the Committee; (v) any restrictions on transfer
of the Option or SAR and forfeiture provisions; (vi) the effect on the term of the Option or SAR of the Separation from Service
of the Participant; and (vii) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined
from time to time by the Committee.
5.2
Exercise
Price
. The exercise price per share of Common Stock under an Option or the SAR Strike Price regarding a SAR will be determined
by the Committee; provided, however, that, except in the case of Substitute Awards, such exercise price or SAR Strike Price shall
not be less than the Fair Market Value of a share of Common Stock on the date of grant of such Option or SAR; and provided further
that in the case of ISOs granted to an individual then owning (within the meaning of Section 424(d) of the Code) more than 10%
of the total combined voting power of all classes of stock of BCML, such price shall not be less than 110% of the Fair Market Value
of a share of Common Stock on the date the ISO is granted.
5.3
Repricing
.
The Committee shall not have the authority to reprice Options or SARs, including cash buyouts and voluntary surrender of “underwater
options,” to reduce the exercise price or SAR Strike Price without first obtaining shareholder approval for such repricing.
5.4
Term
.
The term of each Option and SAR will be fixed by the Committee in its discretion; provided, however, that the term shall not be
more than ten (10) years from the date the Option or SAR is granted.
5.5
Exercisability
.
Subject to the terms of the Plan and the related Award Agreement, any Option or SAR may be exercised at any time during the period
commencing with either the date that Option or SAR is granted or the first date permitted under a vesting schedule established
by the Committee and ending with the expiration date of the Option or SAR, provided however that the vesting schedule for any Option
or SAR provides for a minimum period of at least one year or more before vesting. A Participant may exercise his Option or SAR
for all or part of the number of shares of Common Stock or rights which he is eligible to exercise under terms of the Option or
SAR. No shares of Common Stock shall be delivered pursuant to any exercise of an Option until payment in full of the exercise price
is received by BCML. The Committee will determine the method or methods by which payment may be made, including, without limitation,
payment (i) in cash, or its equivalent, (ii) by having BCML “net settle” the shares by withholding from the shares
of Common Stock which would otherwise be delivered to the Participant such shares with a Fair Market Value sufficient to satisfy
the minimum withholding required with respect thereto as determined by the Committee, (iii) through any broker’s cashless
exercise procedure approved by the Committee, or (v) by a combination of the foregoing, provided that the combined value of all
cash and cash equivalents and the Fair Market Value of any such shares of Common Stock so tendered to BCML as of the date of such
tender is at least equal to such exercise price.
5.6
Separation
from Service
. Except as otherwise provided in the Award Agreement documenting an Option or SAR Award, the following general
rules will apply to outstanding Option and SAR Awards at the time of Separation from Service:
(a) In
the event of Separation from Service for Cause, unless otherwise determined by the Committee, all outstanding Option and SAR Awards,
whether vested or unvested, will immediately terminate and be forfeited.
(b) In
all other events of Separation from Service, the Participant shall have a period of ninety (90) days following such Separation
from Service (or, if shorter, until the end of the term of a particular Option or SAR as established in the original Award Agreement)
to exercise any vested and unexercised Options and SARs then outstanding: all unvested Option and SAR Awards shall immediately
terminate and be forfeited.
5.7
Incentive
Stock Options
. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provision thereto, and any regulations promulgated thereunder. No Incentive Stock
Option shall be granted to any Eligible Individual who is not an Employee of the Bank. Options designated as Incentive Stock Options
shall not be eligible for treatment under the Code as “incentive stock options” (and will be deemed to be Non-Qualified
Stock Options) to the extent that either (i) the aggregate Fair Market Value of shares of Common Stock (determined as of the date
of grant) with respect to such Options are exercisable for the first time by the Participant during any calendar year (under all
plans of BCML) exceeds $100,000, taking Options into account in the order in which they were granted or (ii) such Options otherwise
remain exercisable but are not exercised within two and one-half (2 1/2) months of termination of employment (or such other period
of time provided in Section 422 of the Code).
5.8
Disqualifying
Disposition Notice
. Each Participant awarded an Incentive Stock Option under the Plan shall notify BCML in writing immediately
after the date he or she makes a disqualifying disposition of any shares of Common Stock acquired pursuant to the exercise of such
Incentive Stock Option. A disqualifying disposition is any disposition (including any sale) of such shares of Common Stock before
the later of (i) two years after the date of grant of the Incentive Stock Option or (ii) one year after the date the Participant
acquired the shares of Common Stock by exercising the Incentive Stock Option. BCML may, if determined by the Committee and in accordance
with procedures established by it, retain possession of any shares of Common Stock acquired pursuant to the exercise of an Incentive
Stock Option as agent for the applicable Participant until the end of the period described in the preceding sentence, subject to
complying with any instructions from such Participant as to the sale of such shares of Common Stock.
ARTICLE VI
RESTRICTED STOCK AWARDS
6.1
Grant
.
The Committee is hereby authorized to grant Awards of Restricted Stock to Eligible Individuals. The grant of Restricted Stock shall
be evidenced by an Award Agreement that contains the terms of the Award, including, but not limited to: (i) the number of shares
of Restricted Stock subject to such Award; (ii) the purchase price, if any, of the shares of Restricted Stock and the means of
payment for such shares; (iii) the performance criteria, if any, and level of achievement in relation to the criteria that shall
determine the number of shares of Restricted Stock granted, issued, retainable and/or vested: provided, however, that any such
performance criteria shall be selected from the criteria set forth in Section 9.2 to the extent the Committee intends that the
Award comply with Section 162(m); (iv) such terms and conditions of the grant, issuance, vesting and/or forfeiture of the Restricted
Stock as may be determined from time to time by the Committee; (v) restrictions on transferability of the Restricted Stock; and
(vi) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined from time to time by
the Committee.
6.2
Vesting
and Forfeiture
. Restricted Stock granted under this Article VI is subject to such restrictions as the Committee may impose,
including restrictions pertaining to vesting and voting, which restrictions may lapse separately or in combination at such time
or times, in such installments or otherwise, as the Committee may deem appropriate, provided however that the vesting schedule
for any Restricted Stock provides for a minimum period of at least one year or more before vesting. Except as otherwise determined
by the Committee, upon a Separation from Service during the applicable restriction period, Restricted Stock that is at that time
subject to restrictions shall be forfeited and reacquired by BCML; provided that the Committee may provide, by rule or regulation
or in any Award Agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted
Stock will lapse in whole or in part, including in the event of terminations of employment resulting from specified causes.
6.3
Stock
Certificates
. An Award of Restricted Stock may be evidenced in such manner as the Committee may deem appropriate, including,
without limitation, book-entry registration or issuance of a stock certificate or certificates. In the event any stock certificate
is issued in respect of shares of Restricted Stock, such certificate will be registered in the name of the Participant and bear
an appropriate legend referring to the terms, conditions, and restrictions applicable to such shares of Common Stock
6.4
Dividends
and Voting Rights
. Unless otherwise determined by the Committee, a Participant holding an outstanding Award of Restricted Stock
shall be entitled to (i) receipt or accrual ( in the case of an Award that has not yet been delivered in full), as the case may
be, of all dividends and distributions paid in respect of shares of Common Stock underlying such award; provided, that if any such
dividends or distributions are paid in shares of Common Stock or other securities, such shares and other securities shall be subject
to the same vesting and other restrictions as apply to the Restricted Stock with respect to which they were paid and further provided
that dividends and distributions accrued with respect to an unpaid Award of Restricted Stock shall be accumulated and paid when
the shares underlying the Award of Restricted Stock are issued, and (ii) exercise full voting rights and other rights as a stockholder
with respect to the shares of Common Stock underlying such Award during the period during which such shares remain subject to restriction.
ARTICLE VII
RESTRICTED STOCK UNIT AWARDS
7.1
Grant
.
The Committee is hereby authorized to grant Awards of Restricted Stock Units to Eligible Individuals. The grant of Restricted Stock
Units shall be evidenced by an Award Agreement that contains the terms of the Award, including, but not limited to: (i) the number
of Restricted Stock Units subject to such Award; (ii) the purchase price, if any, of the Restricted Stock Units and the means of
payment for such Restricted Stock Units; (iii) the performance criteria, if any, and level of achievement in relation to the criteria
that shall determine the number of Restricted Stock Units granted, issued, retainable and/or vested; provided, however, that any
such performance criteria shall be selected from the criteria set forth in Section 9.2 to the extent the Committee intends that
the Award comply with Section 162(m); (iv) such terms and conditions of the grant, issuance, vesting and/or forfeiture of the Restricted
Stock Units as may be determined from time to time by the Committee; (v) restrictions on transferability of the Restricted Stock
Units; and (vi) such further terms and conditions, in each case, not inconsistent with this Plan as may be determined from time
to time by the Committee.
7.2
Vesting
.
The Awards of Restricted Stock Units granted under this Article VII are subject to such restrictions as BCML may impose, which
restrictions may lapse separately or in combination, at such time or times, in such installments or otherwise, as the Committee
may deem appropriate.
7.3
Separation
from Service
. Without limiting the foregoing, and except as otherwise revised in the Award Agreement documenting a Restricted
Stock Unit Award (“RSUs”) or otherwise determined by the Committee, in the event of Separation from Service for Cause
(as determined by BCML), unless otherwise determined by the Committee, all outstanding RSUs will immediately terminate and be forfeited.
In all other events of Separation from Service, to the extent not previously paid, the Participant shall be paid any vested RSUs
in accordance with the payment provisions of Section 7.4, and all unvested RSUs shall immediately terminate and be forfeited.
7.4
Payment
of Award
. The shares of Common Stock or cash underlying a Restricted Stock Unit Awards shall (subject to satisfaction of any
purchase price requirement) be transferred or paid to the Participant as soon as practicable following the Award date or the termination
of the vesting or other restrictions set forth in the Plan or the applicable Award Agreement and the satisfaction of any and all
other conditions of the Award applicable to such Restricted Stock Unit Award (the “Restriction End Date”), but in no
event later than two and one-half (2 1/2) months following the end of the calendar year that includes the later of the Award date
or the Restriction End Date, as the case may be. Notwithstanding any of the foregoing, to the extent that the provisions of Section
7.3 hereof or the provisions of any Award Agreement for Restricted Stock Units require, distributions of shares of Common Stock
under circumstances that constitute a “deferral of compensation” shall conform to the applicable requirements of Section
409A, including, without limitation, the requirement that a distribution to a Participant who is a Specified Employee which is
made on account of the Specified Employee’s Separation from Service shall not be made before the date which is six (6) months
after the date of Separation from Service.
ARTICLE VIII
STOCK AWARDS AND OTHER STOCK-BASED AWARDS
8.1
Stock
Awards
. The Committee is hereby authorized to grant Stock Awards to Eligible Individuals. Stock Awards maybe issued by the
Committee in addition to, or in tandem with, other Awards granted under this Plan, and may be issued in lieu of any cash compensation
or fees for services to BCML as the Committee, in its discretion, determines or authorizes. Stock Awards shall be evidenced by
an Award Agreement or in such other manner as the Committee may deem necessary or appropriate, including, without limitation, book-entry
registration or issuance of a stock certificate or certificates. In the event any stock certificate is issued in respect of shares
of Common Stock underlying a Stock Award, such certificate will be registered in the name of the Participant.
8.2
Other
Stock-Based Awards
. The Committee is hereby authorized to grant to Participants such other Awards (including, without limitation,
rights to dividends and dividend equivalents) that are denominated or payable in, valued in whole or in part by reference to, or
otherwise based on or related to, shares of Common Stock (including, without limitation, securities convertible into shares of
Common Stock) as are deemed by the Committee to be consistent with the purposes of the Plan. Subject to the terms of the Plan,
the Committee will determine the terms and conditions of such Awards and set forth such terms and conditions in an Award Agreement
related to such Award. Shares of Common Stock or other securities delivered pursuant to a purchase right granted under this Section
8.2 shall be purchased for such consideration, which may be paid by such method or methods and in such form or forms, including,
without limitation, cash, shares of Common Stock, other securities, other Awards or other property, or any combination thereof,
as the Committee determines, the value of which consideration, as established by the Committee, shall, except in the case of Substitute
Awards, not be less than the Fair Market Value of such shares or other securities as of the date such purchase right is granted.
8.3
Payment
.
Stock Awards and Other Stock-Based Awards shall be transferred or paid to the Participant as soon as practicable following the
Award date and the satisfaction of any and all other conditions of the applicable Award Agreement (the “Satisfaction Date”),
but in no event later than two and one-half (2 1/2) months following the end of the calendar year that includes the later of the
Award date or the Satisfaction Date, as the case may be. Notwithstanding any of the foregoing, to the extent that the provisions
of Article VIII hereof or the provisions of any Award Agreement for Stock Awards or other Stock-Based Awards require, distributions
of shares of Common Stock under circumstances that constitute a “deferral of compensation” shall conform to the applicable
requirements of Section 409A, including, without limitation, the requirement that a distribution to a Participant who is a Specified
Employee which is made on account of the Specified Employee’s Separation from Service shall not be made before the date which
is six (6) months after the date of Separation from Service.
ARTICLE IX
SECTION 162(M) PERFORMANCE BASED COMPENSATION
9.1
General
Requirements
. To the extent that a Restricted Stock Award, Restricted Stock Unit Award, Stock Award, Other Stock-Based Award,
or Annual Short-Term Cash Incentive Award is intended to qualify as performance-based compensation under Section 162(m) (a “Performance
Award”) such Award shall satisfy the requirements set forth in this Article IX. As previously noted, the Tax Cuts and Jobs
Act eliminated the performance-based compensation exemption from Section 162(m) for taxable years beginning after December 31,
2017, other than pursuant to written binding contracts that were in effect on November 2, 2017.
9.2
Performance
Goals
. Performance Awards shall be conditioned upon the achievement of objective pre-established goal(s) relating to one or
more of those performance measures established in writing by the Committee within 90 days after the beginning of the applicable
performance period (and in no event after 25% of the performance period has lapsed), subject to such modifications as specified
by the Committee, including but not limited to the following: earnings and income (whether before or after taxes); earnings per
share, diluted or basic; return on investment; stock price: return on equity, total shareholder return; return on capital; return
on average assets; credit quality measures; loan and deposit growth; other financial performance ratios such as efficiency ratio;
internal control measures; regulatory compliance measures; and mergers and/or acquisitions. To the extent consistent with Section
162(m), the Committee may determine that certain adjustments apply, in whole or in part, in such manner as determined by the Committee,
to exclude the effect of any of the following events that occur during a performance period: the impairment of tangible or intangible
assets; litigation or claim judgments or settlements; the effect of changes in tax law, accounting principles or other such laws
or provisions affecting reported results; accruals for reorganization and restructuring programs, including, but not limited to,
reductions in force and early retirement incentives; and any extraordinary, unusual, infrequent or non-recurring items described
in management’s discussion and analysis of financial condition and results of operations or the financial statements and
notes thereto appearing in BCML’s annual report to shareholders for the applicable year. Performance measures may be determined
either individually, alternatively in any combination, applied to either BCML as a whole or to a business unit, either individually,
alternatively or in any combination, and measured over a period of time including a portion of a year, annually or cumulatively
over a period of years, on an absolute basis or relative to a pre-established target, to previous years’ results or to a
designated comparison group, in each case as specified by the Committee.
9.3
Certification
of Performance Goals
. Achievement of the performance goals established in accordance with Section 9.2 shall be certified in
writing prior to payment of the Performance Award, as required by Section 162(m). In addition to establishing minimum performance
goal(s) below which no compensation shall be payable pursuant to a Performance Award, the Committee, in its discretion, may create
a performance schedule under which an amount less than or more than the target award may be paid so long as the performance goal(s)
have been achieved.
9.4
Committee
Discretion
. Notwithstanding any provision of this Plan to the contrary, the Committee, in its sole discretion, may retain the
discretion to reduce the amount of any Performance Award to a Participant if it concludes that such reduction is necessary or appropriate.
The Committee shall not use its discretionary authority to increase any award that is intended to be performance-based compensation
under Section 162(m).
9.5
Payment
.
Performance Awards shall be transferred or paid to the Participant as soon as practicable following the termination of the vesting
or other restrictions set forth in the Plan or the applicable Award Agreement and the satisfaction of any and all other conditions
of the Award Agreement applicable to such Performance Award (the “Performance End Date”)’ but in no event later
than two and one-half (2 1/2) months following the end of the calendar year that includes the Performance End Date.
ARTICLE X
DEFERRAL AWARDS
10.1
Grants
of Deferral Awards
. The Committee is hereby authorized to allow selected Participants to make elections in a manner that is
timely under Section 409A and otherwise under the Code, pertinent government promulgations and applicable judicial authority to
otherwise defer income taxation of any Awards made under this Plan and any other payments of current compensation (including bonuses
or Performance Based Payments) subject to an Award Agreement containing appropriate provisions to properly accomplish such deferral
of taxation and to comply with Section 409A.
10.2
Deferral
Elections
. The Committee shall be responsible for establishing necessary rules and procedures regarding the completion and
filing with the Committee of the forms for elections by the Participants to defer the benefits established under any Deferral Awards
hereunder as required under Section 409A and Treasury Reg. 1.409A-2.
ARTICLE XI
GENERAL TERMS APPLICABLE TO AWARDS
11.1
Exemptions
from Section 16(b) Liability
. With respect to a Reporting Person, the Committee shall implement transactions under the Plan
and administer the Plan in a manner that will ensure that each transaction with respect to such a Participant is exempt under Rule
16b-3 or otherwise not subject to liability under Section 16(b), except that this provision shall not limit sales by such a Participant,
and such a Participant may engage in other non-exempt transactions under the Plan. The Committee may authorize BCML to repurchase
any Award or shares of Stock deliverable or delivered in connection with any Award in order to avoid a Participant who is subject
to Section 16 of the Exchange Act incurring liability under Section 16(b).
11.2
Non-Assignment
.
Except as the Committee may otherwise determine from time to time: (i) no Award and no right under any Award shall be assignable,
alienable, saleable or transferable by a Participant otherwise than by will or by the laws of descent and distribution; provided,
however, that, a Participant may, in the manner established by the Committee, designate a beneficiary or beneficiaries to exercise
the rights of the Participant, and to receive any property distributable, with respect to any Award upon the death of the Participant;
and provided, further, however, that in no event shall the Committee authorize any assignment, alienation, sale, or other transfer
under this paragraph that would provide a Participant or beneficiary with the opportunity to receive consideration from a third
party, (ii) each Award, and each right under any Award, shall be exercisable during the Participant’s lifetime only by the
Participant or, if permissible under applicable law, by the Participant’s guardian or legal representative; and (iii) no
Award and no right under any such Award, may be pledged, alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment or encumbrance thereof shall be void and unenforceable against BCML. The provisions of this paragraph shall
not apply to any Award which has been fully exercised, earned or paid, as the case maybe, and shall not preclude forfeiture of
an Award in accordance with the terms thereof.
11.3
Repurchase
Right
. Prior to the time that shares of Common Stock are publicly traded on a national securities exchange registered with
the Securities and Exchange Commission under Section 6(a) of the Exchange Act, after a Participant’s Separation from Service,
BCML has the right (but not the obligation) to repurchase such Participant’s shares of Common Stock which were issued pursuant
to the exercise or vesting of Awards issued under the Plan (herein, such shares of Common Stock are referred to as the “Plan
Shares”) at Fair Market Value as of the date of repurchase. Such right of repurchase shall be exercisable at any time and
from time to time at the discretion of BCML.
11.4
Right
of First Refusal
. Prior to the time that shares of Common Stock are publicly traded on a national securities exchange registered
with the Securities and Exchange Commission under Section 6(a) of the Exchange Act, any Plan Shares shall be subject to a right
of first refusal on behalf of BCML. By virtue of this right, such Plan Shares may not be transferred during the Participant’s
lifetime to any person, unless such transfer occurs within fifteen days following the expiration of thirty days after BCML was
given a written notice which correctly identified the prospective transferee or transferees and which offered BCML an opportunity
to purchase such shares at their Fair Market Value as of the date of repurchase in cash, and such offer was not accepted within
thirty days after BCML’s receipt of that notice.
11.5
Section
409A Compliance
. Notwithstanding any other provision of this Plan to the contrary, all Awards under this Plan shall be designed
and administered in a manner that does not result in the imposition of tax or penalties under Section 409A. Accordingly, Awards
under this Plan shall comply with the following requirements, as applicable.
(a) Distributions
to Specified Employees upon Separation from Service. To the extent that payment under an Award which is subject to Section 409A
is due to a Specified Employee on account of the Specified Employee’s Separation from Service from BCML, such payment shall
be delayed until the first day of the seventh month following such Separation from Service (or as soon as practicable thereafter).
The Committee, in its discretion, may provide in the Award Agreement for the payment of interest at a rate set by the Committee
for such six-month period.
(b) No
Acceleration of Payment. To the extent that an Award is subject to Section 409A, payment under such Award shall not be accelerated
from the date(s) specified in the Award Agreement as of the date of grant.
(c) Subsequent
Delay in Payment. To the extent that an Award is subject to Section 409A, payment under such Award shall not be deferred beyond
the dates specified in the Award Agreement as of the date of grant, unless the Committee makes the decision to delay payment at
least one year prior to the scheduled payment date, and payment is delayed at least five years.
(d) Separate
Payment. If any amount is to be paid under this Plan in two or more installments, each such installment that is deemed for any
reason to be subject to Section 409A shall be treated as a separate payment for purposes of such statute and the Treasury Regulations
promulgated thereunder.
11.6
Income
Tax Consequences to Participants
. Anything herein to the contrary notwithstanding, BCML shall have no obligation to any person
entitled to benefits under this Plan with respect to any tax obligation any such person incurs because of or attributable to benefits
under this Plan, including without limitation, any adverse consequences under Code Section 409A. While BCML agrees to reasonably
cooperate to assist any Participant or Beneficiary in avoiding such adverse consequences, BCML shall not be liable for any failure
in achieving that objective. Any administrative examination or review of the income tax returns of any Participant, appeal from
any adverse administrative determination or litigation regarding any such failure shall be the sole responsibility of and at the
sole cost of any Participants involved in such proceedings.
11.7
Capital
Requirements of BCML
. BCML’s primary federal regulator may direct BCML to require all Specified Employees to exercise
or forfeit their Options if BCML’s capital falls below minimum regulatory requirements, as determined by BCML state or primary
federal regulator. If a Specified Employee fails to exercise any Options which such Specified Employee is required to exercise
pursuant to this Section 10.7, such Options shall be cancelled and forfeited.
ARTICLE XII
CHANGE OF CONTROL
12.1
Generally
.
The Committee may, in its discretion, at the time an Award is made hereunder or at any time prior to, coincident with or after
the time of a Change of Control (a) subject to Section 11.5, provide for the acceleration of any time periods relating to the exercise
or realization of such Awards, so that such Awards may be exercised or realized in full on or before a date fixed by the Committee;
(b) provide for the purchase of such Awards, upon the Participant’s request, for an amount of cash equal to the amount which
could have been obtained upon the exercise or realization of such Awards had such Awards been currently exercisable or payable;
(c) make such adjustment to the Awards then outstanding as the Committee deems appropriate to reflect such Change of Control; or
(d) use its best efforts to cause the Awards then outstanding to be assumed, or new rights substituted therefore, by the surviving
corporation in such Change of Control. Subject to consultation with the holder of the Award and to the terms of the Change of Control,
where possible the Committee shall seek to cause the assumption of outstanding Awards in the event of a Change of Control, as provided
in the foregoing clause (d). The Committee may, in its discretion, include such further provisions and limitations in any Award
Agreement as it may deem equitable and in the best interests of BCML.
12.2
Definition
.
“Change of Control” means a change of control of BCML of a nature that would be required to be reported in response
to Item 6(e) of Schedule 14A promulgated under the Exchange Act, or Item 5.01 of a Current Report on Form 8-K or any successor
rule, whether or not BCML is then subject to such reporting requirements; provided that, without limitation, such a Change of Control
shall be deemed to occur if:
(a) any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial
owner” (as determined for purposes of Regulation 13D- G under the Exchange Act as currently in effect), directly or indirectly,
in a transaction or series of transactions, of securities of BCML representing more than 50% of the voting power of BCML’s
voting capital stock (the “Voting Stock”); or
(b) The
consummation of a merger, or other business combination after which the holders of the Voting Stock do not collectively own 50%
or more of the voting capital stock of the entity surviving such merger or other business combination, or the sale, lease, exchange
or other transfer in a transaction or series of transactions of all or substantially all of the assets of BCML; or
(c) A
majority of the Board is replaced in any twelve (12) month period by individuals whose appointment or election is not endorsed
by a majority of the members of the Board prior to the date of the appointment or election.
Any good faith
determination by the Committee as to whether a Change of Control within the meaning of this Section has occurred shall be conclusive
and binding on the Participants.
12.3
Section
409A Benefit Payments.
(a) Notwithstanding
any other provision of this Plan or any Award, for purposes of determining if any benefit payments under any Award can be made
in accordance with this Article XII with regard to benefits that are subject to Section 409A, any Change of Control that causes
any payment of such benefits in accordance with any such Award shall be deemed to have occurred if, on the date that any one person,
or more than one person acting as a group (as defined below), either:
(1) acquires
ownership of stock of BCML that, together with stock held by such person or group, constitutes more than fifty percent (50%) of
the total fair market value or total voting power of the stock of BCML; provided, however, that if any one person, or more than
one person acting as a group, is considered to own more than fifty percent (50%) of the total fair market value or total voting
power of the stock of BCML, the acquisition of additional stock by the same person or persons shall not be a Change of Ownership
for purposes hereof; provided, further, that an increase in the percentage of stock owned by any one person, or persons acting
as a group, as a result of a transaction in which BCML acquires its stock in exchange for property will be treated as an acquisition
of stock for purposes of this section; and provided, further, that this provision applies only when there is a transfer of stock
of BCML (or issuance of stock of BCML) and stock in BCML remains outstanding after the transaction; or
(2) acquires
(or has acquired during the 12-month period ending on the date of the most recent acquisition by such person or persons) assets
from BCML that have a total gross fair market value equal to or more than fifty percent (50%) of the total gross fair market value
of all of the assets of BCML immediately before such acquisition or acquisitions (for this purpose, gross fair market value means
the value of the assets of the corporation, or the value of the assets being disposed of, determined without regard to any liabilities
associated with such assets); provided, however, that no Change of Ownership shall result under this subparagraph (ii) if there
is a transfer of assets by BCML to any of the following:
(i) an
entity that is controlled by the shareholders of BCML immediately after the transfer;
(ii) A
shareholder of BCML (immediately before the asset transfer) in exchange for or with respect to such shareholder’s stock in
BCML;
(iii) An
entity, fifty percent (50%) or more of the total value or voting power of which is owned, directly or indirectly, by BCML;
(iv) A
person, or more than one person acting as a group, that owns, directly or indirectly, fifty percent (50%) or more of the total
value or voting power of all the outstanding stock of BCML; or
(v) An
entity, at least fifty percent (50%) of the total value or voting power of which is owned, directly or indirectly, by a person
described in sub-paragraph (4) immediately above.
For purposes hereof, persons
will not be considered to be acting as a group solely because they purchase or own stock of the same corporation at the same time,
or as a result of the same public offering. However, persons will be considered to be acting as a group if they are owners of a
corporation which enters into a merger, consolidation, purchase or acquisition of stock, or similar business transaction with or
involving BCML. If a person, including an entity, owns stock in both BCML and any other corporation that enters into a merger,
consolidation, purchase or acquisition of stock, or similar transaction with BCML, such shareholder is considered to be acting
as a group with other shareholders only with respect to the ownership in such other corporation before the transaction giving rise
to the change and not with respect to such ownership interest in BCML.
(b) Payments
attributable to benefits subject to Section 409A hereunder shall be payable at the same time and in the same proportions as the
Change in Ownership proceeds are paid to BCML or its shareholders, at or after the completion of the Change in Ownership, including
the same form of consideration received by BCML or its shareholders (except that BCML will have the right to substitute cash for
any non-cash consideration) and shall be subject to the same indemnity obligations owed to the acquirer that are imposed on BCML
or its shareholders; provided, however, that present value of all amounts that will not otherwise be paid hereunder to a Participant
on or before the fifth (5th) anniversary of the Change in Ownership shall be paid as of such fifth (5th) anniversary, with such
determination in value to be made as of such date using reasonable present value discounting and/or other reasonable and generally
accepted valuation methods. In any event, the payments of benefits described hereunder must comply with Treas. Reg. 1.409-3(i)(5)(iv))(A).
ARTICLE XIII
EFFECTIVE DATE, AMENDMENT, MODIFICATION
AND TERMINATION OF PLAN
13.1
Effective
Date
. The Plan is effective as of November 21, 2017. No Award may be granted under the Plan after the tenth anniversary of
the earlier of (i) the date this Plan is adopted or (ii) the date on which this Plan is approved by shareholders of BCML, and the
applicable tenth anniversary is October 17, 2027. However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond such date, and the authority of the Committee to administer the
Plan and to amend, alter, adjust, suspend, discontinue, or terminate any such Award, or to waive any conditions or rights under
any such Award, and the authority of the Board to amend the Plan, shall extend beyond such date.
13.2
Plan
Amendment and Termination
. Except to the extent prohibited by applicable law and unless otherwise expressly provided in an
Award Agreement or in the Plan, including, without limitation, the provisions of Section 13.6 below, the Board may amend, alter,
suspend, discontinue, or terminate the Plan or any portion thereof at any time; provided, however, that no such amendment, alteration,
suspension, discontinuation or termination shall be made without: (i) shareholder approval if such approval is necessary to comply
with any tax, legal or regulatory (including, for this purpose, the rules of any national securities exchange(s) on which the Common
Stock is then listed) requirement for which or with which the Board deems it necessary or desirable to qualify or comply; or (ii)
the consent of the affected Participant, if such action would adversely affect any material rights of such Participant under any
outstanding Award. Notwithstanding the foregoing or any provision of the Plan to the contrary, the Committee may at any time (without
the consent of the Participant) modify, amend or terminate any or all of the provisions of this Plan to the extent necessary to
conform the provisions of the Plan with Section 409A regardless of whether such modification, amendment, or termination of the
Plan shall adversely affect the rights of a Participant under the Plan, and in any event, no such amendment shall be considered
prejudicial to any interest of a Participant or a Beneficiary in the Plan. Anything in this Plan to the contrary notwithstanding,
the Company shall have the right but not the obligation to make any amendments to the Plan to comply with any applicable requirements
of Section 409A of the Code.
13.3
Award
Amendment
. The Committee may waive any conditions or rights under, amend any terms of, or amend, alter, suspend, discontinue
or terminate, any Award theretofore granted, prospectively or retroactively, without the consent of any Participant or holder or
beneficiary of an Award; provided, however, that no such action shall impair any material rights of a Participant or holder or
beneficiary under any Award theretofore granted under the Plan. The Committee may, in its discretion, vest part or all of a Participant’s
Award that would otherwise be forfeited; provided that, in the case of a Restricted Stock Unit Award, Stock Award, Other Stock-
Based Award or Performance Award, distribution thereof to the Participant shall be made no later than two and one-half (2 1/2)
months following the end of the calendar year in which such vesting occurs. Notwithstanding the foregoing, no waiver, amendment,
alteration, suspension, discontinuation or termination of the Award by the Committee shall constitute (i) a modification of a stock
right within the meaning of Treas. Reg. Section 1.409A-l(b)(5)(v)(B) so as to constitute the grant of a new stock right, (ii) an
extension of a stock right, including the addition of any feature for the deferral of compensation, within the meaning of Treas.
Reg. Section 1.409A-1(b)(5)(v)(C), or an impermissible acceleration of a payment date or a subsequent deferral of a stock right
subject to Code Section 409A within the meaning of Treas. Reg. Section 1.409A-1(b)(5)(v)(E). Furthermore, in no event may the Committee
exchange Awards previously granted for Awards of a different type.
13.4
Adjustment
of Awards
. The Committee is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards
in recognition of unusual or nonrecurring events (including, without limitation, an event affecting BCML, or the financial statements
of BCML, or of changes in applicable laws, regulations or accounting principles), whenever the Committee determines that such adjustments
are appropriate in order to prevent dilution or enlargement of the benefits or potential benefits intended to be made available
under the Plan, subject, with respect to Awards intended to meet the requirements of Section 162(m), compliance with the provisions
of Section 162(m).
13.5
Permitted
Accelerations
. BCML or the Committee , in its discretion (without any direct or indirect election on the part of any Participant),
may accelerate a distribution under the Plan to the extent permitted under Reg. 1.409A-3(j)(4)), including, but not limited to,
(i) making payments necessary to comply with a domestic relations order, (ii) payments necessary to comply with certain conflict
of interest rules, (iii) payments made to settle bona fide disputes as to the Participant’s right to receive benefits hereunder
(subject to the requirements of Reg. 1.409A-3(j)(4)(xiv)), (iv) certain
de minimis
payments related to the participant's
termination of his or her interest in the Plan; and (v) plan terminations and liquidations under Reg. 1.409A-3(j)(4)(ix). Except
as provided in the preceding sentence, no benefit payment under the Plan may be accelerated.
13.6
Voluntary
Dissolution or Bankruptcy
. This Plan shall terminate upon the voluntary dissolution of BCML or dissolution upon the approval
of a bankruptcy court, provided that any benefits hereunder that may become subject to Section 409A are included in the gross income
of the Participants for income tax purposes in the latest of (i) the calendar year in which such amount is no longer subject to
a substantial risk of forfeiture, or (ii) the first calendar year in which the distribution is administratively practical.
13.7
Termination
of 409A Benefits
. BCML may elect to terminate and liquidate this Plan to the extent its benefits are subject to Section 409A
as long as it also terminates any and all other arrangements that would be aggregated with this Plan pursuant to U. S. Treasury
Regulations Section 1.409A-1(c) if the Employees are participating in such arrangements (“Similar Arrangements”) provided
that (i) such termination and liquidation does not occur proximate to the downturn in the financial health of BCML; (ii) all distributions
resulting from such termination and liquidation are made no earlier than twelve (12) months and no later than twenty four (24)
months following such termination; and (iii) BCML does not adopt any new arrangement that would be a Similar Arrangement within
the thirty six (36) month period following the date BCML has taken all necessary action to irrevocably terminate and liquidate
this Plan to the extent its benefits are subject to Section 409A.
ARTICLE XIV
MISCELLANEOUS
14.1
No
Right to Continued Employment
. Nothing in the Plan or in any Award Agreement confers upon any Eligible Individual who is a
Participant the right to continue in the service or employment of BCML or any affiliate or affect any right which BCML or any affiliate
may have to terminate or modify the employment or provision of service of the Participant with or without cause.
14.2
No
Rights as a Stockholder
. Notwithstanding anything to the contrary in the Plan, no Participant or Successor shall have any voting
or other rights as a stockholder of BCML with respect to any Common Stock covered by an Award until the issuance of a certificate
or certificates to the Participant for such Common Stock. Adjustment to Restricted Stock Units may be made for dividends or other
rights for which the record date is prior to the issuance of such certificates.
14.3
Withholding
.
A Participant may be required to pay to BMCL or the Bank, and BCML or the Bank shall have the right and is hereby authorized to
withhold from any Award, from any payment due or transfer made under any Award or under the Plan or from any compensation or other
amount owing to a Participant the amount (in cash shares of Common Stock, other securities, other Awards or other property) of
any applicable withholding and taxes, including the Participant’s social security and Medicare taxes (FICA) and federal,
state, local income tax or such other applicable taxes (“Taxes”), in respect of any Award, its exercise, or any payment
or transfer under an Award or under the Plan and to take such other action as may be necessary in the opinion of the Bank to satisfy
all obligations for the payment of such Taxes. BCML or the Bank may require the Participant to make arrangements satisfactory to
it for the payment of any Taxes before issuing any Stock pursuant to the Award. The Committee may, if it deems appropriate in the
case of a Participant, withhold such Taxes through a reduction of the number of shares of Common Stock delivered to such individual
having a Fair Market Value sufficient to satisfy the maximum amount of Taxes required to be withheld, as determined by the Committee.
Such reduction of shares of Common Stock delivered to the Participant is hereby specifically authorized as an alternative for the
satisfaction of withholding obligations.
14.4
No
Effect on Compensation
. Awards received by a Participant under this Plan are not to be deemed a part of a Participant’s
regular, recurring compensation for purposes of any termination, indemnity or severance pay laws and shall not be included in,
nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided
by the Bank or an affiliate, unless expressly so provided by such other plan, contract or arrangement, or unless the Committee
so determines. No provision of the Plan shall prevent the Bank from adopting or continuing in effect other or additional compensation
arrangements, including incentive arrangements providing for the issuance of options and stock, and awards that do not qualify
under Section 162(m), and such arrangements may be generally applicable or applicable only in specific cases.
14.5
Unfunded
Plan
. This Plan is unfunded and BCML is not required to segregate any assets that may at any time be represented by Awards
under this Plan. Neither BCML, the Committee, nor the Board shall be deemed to be a trustee of any amounts to be paid under this
Plan nor shall anything contained in this Plan or any action taken pursuant to its provisions create or be construed to create
a fiduciary relationship between BCML or other affiliates, and a Participant or Successor. To the extent any person acquires a
right to receive an Award under this Plan, such right shall be no greater than the right of an unsecured general creditor of BCML.
14.6
Limitation
of Liability
. Any liability of BMCL to any Participant with respect to an Award shall be based solely upon contractual obligations
created by this Plan and the applicable Award Agreement. Except as may be required by law, neither BMCL nor any member or former
member of the Board or of the Committee, nor any other person participating (including participation pursuant to a delegation of
authority under Section 2.6 hereof) in any determination of any question under this Plan, or in the interpretation, administration
or application of this Plan, shall have any liability to any party for any action taken, or not taken, under this Plan.
14.7
Legal
Requirements
. No certificate for shares of Common Stock distributable pursuant to this Plan will be issued and delivered unless
the issuance of such certificate complies with all applicable legal requirements including, without limitation, compliance with
the provisions of Section 409A, applicable state securities laws, the Securities Act of 1933, as amended and in effect from time
to time or any successor statute, the Exchange Act and the requirements of the national securities exchange(s) on which BCML’s
stock may, at such time, be listed.
14.8
Governing
Law
. To the extent that federal laws do not otherwise control, this Plan and all determinations made and actions taken pursuant
to this Plan shall be governed by the laws of the state of California, without giving effect to its conflict of law provisions.
14.9
Severability
.
The event that any provision of this Plan is held to be illegal or invalid for any reason, the illegality or invalidity shall not
affect the remaining provisions of this Plan, and this Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
14.10
No
Fractional Shares
. No fractional shares shall be issued or delivered pursuant to this Plan or any Award Agreement, and the
Committee shall determine whether cash, other securities, or other property shall be paid or transferred in lieu of any fractional
shares, or whether such fractional shares or any rights thereto shall be canceled, terminated, or otherwise eliminated.
14.11
Headings
.
Headings are provided herein for convenience only and not to serve as a basis for interpretation or construction of the Plan.
Exhibit 10.10
BAYCOM CORP
AMENDED AND RESTATED 2017 OMNIBUS EQUITY
INCENTIVE PLAN
RESTRICTED STOCK AWARD AGREEMENT
[Time-based Vesting]
Date of Grant: _____________ __, 2018
Participant: ______________________
Restricted Stock is
hereby awarded as of the above Date of Grant by BayCom Corp, a California corporation (the “Company”), to the above-named
Participant pursuant to the BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (as the same may from time to time
be amended, the “Plan”), and upon the terms and conditions and subject to the restrictions set forth in the Plan and
hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and either is attached hereto
or has been delivered previously to the Participant. Capitalized terms used but not defined in this Agreement shall have the meanings
ascribed to them in the Plan.
1.
Share
Award
. The Company hereby awards to the Participant ________ shares (the “Shares”) of the common stock, par value
$0.01 per share (“Common Stock”), of the Company.
2.
Restrictions
on Transfer and Restricted Period
. Until the Shares become vested as provided in this Section 2 or in Sections 3 or 4 of this
Agreement, during the period commencing on the Date of Grant and terminating on _______________ (the “Restricted Period”),
the Shares may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated by the Participant, except by
will or the laws of descent and distribution in the event of the death of the Participant. The lapsing of the restrictions described
above is sometimes referred to in this Agreement as “vesting.”
Subject to Section
3 of this Agreement, the restrictions described above shall lapse, and the Shares will vest, pursuant to the following schedule:
|
Date
|
|
Number
of Shares
|
|
|
|
|
|
[Insert vesting schedule]
|
|
|
3.
Termination
of Service
. If the Participant’s employment or service with the Company or United Business Bank is terminated due to
(a) death, (b) permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto), (c) involuntary termination for other than Cause or (d) a resignation for good reason
under an employment, severance or other agreement applicable to the Participant upon or after a Change of Control (each a “Qualifying
Termination”) prior to the vesting of the Shares, then all unvested Shares shall vest in full on the date of such Qualifying
Termination. If the Participant’s employment or service is terminated for any reason that does not constitute a Qualifying
Termination, then the unvested Shares shall be forfeited and returned to the Company; provided, however, that the Committee, in
its sole discretion, may, in the event of a termination of employment or service other than due to a Qualifying Termination or
Cause, provide for the lapsing of such restrictions upon such terms and provisions as it deems proper.
4.
Effect
of Change of Control
. A Change of Control shall not, by itself, result in acceleration of vesting of the Shares, except as
provided in this Section 4.
Upon a Change of Control
prior to the final scheduled vesting date set forth in Section 2 above, except to the extent that another award meeting the requirements
of this Section 4 (a “Replacement Award”) is provided to the Participant to replace this award (the “Replaced
Award”), the Shares shall vest in full on the effective date of such Change of Control.
An award shall meet
the conditions of this Section 4 (and thereby qualify as a Replacement Award) if the following conditions are met:
(a) The
award has a value at least equal to the value of the Replaced Award;
(b) The
award relates to publicly traded equity securities of the Company or its successor following the Change of Control or another entity
that is affiliated with the Company or its successor following the Change of Control; and
(c) The
other terms and conditions of the award are not less favorable to the Participant than the terms and conditions of the Replaced
Award (including the provisions that would apply in the event of a subsequent Change of Control and the provisions of Section 3
relating to vesting in the event of a Qualifying Termination).
Without limiting the
generality of the foregoing, a Replacement Award may take the form of a continuation of a Replaced Award if the requirements of
the preceding sentence are satisfied. The determination of whether the conditions of this Section 4 are satisfied shall be made
by the Committee, as constituted immediately before the Change of Control, in its sole discretion.
5.
Certificates
for the Shares
. The Company shall issue stock certificates or evidence of the issuance of such Shares in book-entry form, in
the name of the Participant, reflecting the number of Shares granted as set forth in Section 1. The Company shall retain these
certificates or evidence of the issuance of Shares in book-entry form until the Shares represented thereby become vested. Prior
to vesting, the Shares shall be subject to the following restriction, communicated in writing to the Company’s stock transfer
agent:
The sale
or other transfer of the shares of stock represented by this certificate, whether voluntary, involuntary or by operation of law,
is subject to certain restrictions on transfer as set forth in the BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive
Plan and in a Restricted Stock Award Agreement. A copy of the Plan and such Restricted Stock Award Agreement may be obtained from
the Corporate Secretary of BayCom Corp.
In the event Sections
11.3 and 11.4 of the Plan are applicable upon the vesting of the Shares, the Company may impose an additional restriction on the
Shares to reflect such provisions.
The Participant further
agrees that simultaneously with his/her execution of this Agreement, he/she shall execute a stock power(s) endorsed in blank in
favor of the Company with respect to the Shares and he/she shall promptly deliver such stock power to the Company.
6.
Participant’s
Rights; Dividends
. Except as otherwise provided herein, the Participant, as owner of the Shares, shall have the rights of a
stockholder to vote the Shares. Cash dividends paid on the Shares shall be paid to the Participant at the same time as they are
paid to other holders of the Company’s Common Stock. If any dividends or distributions are paid in shares of Common Stock
or other securities, such shares of Common Stock or other securities shall be subject to the same restrictions on transferability
and forfeitability as the Shares with respect to which they were paid.
7.
Vesting
.
Upon the vesting of the Shares, (a) the Company shall deliver to the Participant (or, in the event of a transfer of Shares by will
or the laws of descent and distribution as permitted by Section 2 of this Agreement, the person to whom the transferred Shares
are so transferred) the certificate or evidence of the issuance of such Shares in book-entry form in respect of such vested Shares
and the related stock power held by the Company pursuant to Section 5 above, and (b) the Shares which shall have vested shall be
free of the restrictions referred to in Section 2 above and the certificate or other evidence of issuance relating to such vested
Shares shall not bear the legend provided for in the first paragraph of Section 5 above.
8.
Adjustments
for Changes in Capitalization of the Company
. In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split up, share combination or other change in the corporate structure of the Company
affecting the shares of the Company’s Common Stock, such adjustment shall be made in the number and class of shares subject
to this Agreement, as shall be determined to be appropriate and equitable by the Committee to prevent dilution or enlargement of
rights, provided that the number of shares covered by this Agreement shall always be a whole number and the average closing price
shall be rounded to the nearest whole cent.
9.
Delivery
and Registration of Shares of Common Stock
. The Company’s obligation to deliver the Shares hereunder shall, if the Committee
so requests, be conditioned upon the receipt of a representation as to the investment intention of the Participant or any other
person to whom such Shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable to comply
with the provisions of the Securities Act of 1933, as amended, or any other federal, state or local securities regulation. Unless
the foregoing representation is provided, the Company shall not be required to deliver any shares of Common Stock under the Plan
prior to (i) the admission of such shares to listing on any stock exchange or automated quotation system on which the shares of
Common Stock may then be listed or quoted, and (ii) the completion of such registration or other qualification of such shares under
any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable. The foregoing representation
requirement shall become inoperative upon a registration of such shares or other action eliminating the necessity of such representation
under the Securities Act of 1933 or other securities regulation.
10.
Participant
Employment or Service
. Nothing in this Agreement shall limit the right of the Company or any subsidiary to terminate the Participant’s
employment or service, or otherwise impose upon the Company or any subsidiary any obligation to employ or accept the services of
the Participant.
11.
Withholding
Tax
. Upon the vesting of the Shares (or at any such earlier time, if any, that an election is made by the Participant under
Section 83(b) of the Internal Revenue Code of 1986, as amended, or any successor provision thereto), the Company may withhold from
any payment or distribution made under the Plan Shares with a Fair Market Value sufficient to satisfy any applicable income, employment
or other taxes required by law to be withheld. The Company shall have the right to deduct from all dividends paid with respect
to Shares the amount of any taxes which the Company is required to withhold at the time such dividends are paid to the Participant
pursuant to Section 6 of this Agreement.
12.
Regulatory,
Recoupment and Holding Period Requirements
. The Participant acknowledges and agrees that this award and the Participant’s
receipt of any Shares hereunder is subject to (a) such reduction, cancellation, forfeiture or recoupment (clawback), delayed payment
or holding period requirements as the Committee shall impose, in its absolute discretion, upon the occurrence of any of the following
events: (i) termination of employment or service for Cause, (ii) fraudulent or illegal actions or other misconduct, (iii) violation
of any Company and/or subsidiary code of ethics, conflict of interest, insider trading or similar policy or code of conduct applicable
to the Participant, (iv) the breach of any non-competition, non-solicitation, confidentiality or other restrictive covenant
that may apply to the Participant, (v) other conduct by the Participant that is detrimental to the business or reputation
of the Company and/or its subsidiaries or (vi) requirements of applicable laws, rules or regulations, and (b) any policies
which the Company has adopted or may adopt in furtherance of any regulatory requirements (including, but not limited to, the Dodd-Frank
Wall Street Reform and Consumer Protection Act) or otherwise.
13.
Conformity
with Plan
. The grant of Shares is intended to conform in all respects with, and is subject to all applicable provisions of,
the Plan (which is incorporated herein by reference), including Sections 11.3 and 11.4 of the Plan to the extent applicable. Any
inconsistencies between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and
returning the enclosed copy of this Agreement, the Participant acknowledges his or her receipt of this Agreement and the Plan and
agrees to be bound by all of the terms of this Agreement and the Plan.
14.
Electronic
Signature
. All references to signatures and delivery of documents in this Agreement may be satisfied by procedures the Company
has established or may establish from time to time for an electronic system for execution and delivery of any such documents, including
this Agreement. The Participant’s electronic signature, including, without limitation, “click-through” acceptance
of this Agreement through a website maintained by or on behalf of the Company, is the same as, and shall have the same force and
effect as, the Participant’s manual signature. Any such procedures and delivery may be effected by a third party engaged
by the Company to provide administrative services relating to this Agreement.
15.
Entire
Agreement
. This Agreement and the terms of the Plan constitute the entire understanding between the Participant and the Company,
and supersede all other agreements, whether written or oral, with respect to this award of Shares.
16.
Participant
Acceptance
. The Participant shall signify his/her acceptance of the terms and conditions of this Agreement by signing in the
space provided on the signature page and signing the attached stock power and returning signed copies of this Agreement and of
the attached stock power to the Company. To the extent the terms of any employment, severance or other agreement to which the Participant
is a party with the Company or any subsidiary that is then in effect provide for any rights that conflict with or are otherwise
contrary to the terms contained in this Agreement, including the vesting rights contained in Sections 2, 3 and 4, the terms of
this Agreement shall control.
The undersigned Participant:
(a) Acknowledges
that BayCom Corp is not providing the Participant with advice, warranties or representations regarding any of the legal or tax
effects to the Participant with respect to this Agreement and that the Participant is encouraged to seek legal and tax advice from
the Participant’s own legal and tax advisers as soon as possible;
(b) Acknowledges
that the Participant is familiar with the terms of this Agreement and the Plan, that the Participant has been encouraged by BayCom
Corp to discuss the Agreement and the Plan with the Participant’s own legal and tax advisers, and that the Participant agrees
to be bound by the terms of this Agreement and the Plan;
(c) Acknowledges
receipt of this Agreement and understands that all rights and liabilities with respect to this Agreement are set forth in the Agreement
and the Plan; and
(d) Acknowledges
that as of the date of grant, this Agreement sets forth the entire understanding between the undersigned Participant and the Company
and its affiliates regarding this Agreement and supersedes all prior oral and written agreements on that subject.
(Signatures contained on following page)
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed effective as of the date first written above.
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BAYCOM CORP
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Name: Keary Colwell
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Title: Senior Executive Vice President,
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Chief Financial Officer and Corporate Secretary
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ACCEPTED BY PARTICIPANT:
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(Signature)
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(Street Address)
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(City, State, and Zip Code)
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DESIGNATION OF BENEFICIARIES
Date: ______________
Participant: ____________________
The Participant designates the following
beneficiary or beneficiaries to exercise the rights pursuant to a Restricted Stock Award Agreement dated ___________________, to
receive any Shares, cash or other property distributable upon the death of the Participant with respect to the Award granted pursuant
to such Agreement.
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The Participant designates the foregoing
individuals as beneficiaries to the Award under the Restricted Stock Award Agreement dated __________________ and attached hereto.
STOCK POWER
For value received,
I hereby authorize BayCom Corp (the “Company”) to hold __________ shares of the common stock of the Company (the “Shares”),
representing all of the shares of common stock of the Company granted to me on ________, 20__ pursuant to a Restricted Stock Award
Agreement (the “Agreement”), standing in my name on the books and records of the Company,
[represented by Certificate
No. _____,][in book-entry form]
, and do hereby irrevocably constitute and appoint the Corporate Secretary of the Company, with
full power of substitution, to cause such Shares to be either (a) transferred to me on the books and records of the Company upon
the vesting of such Shares, or (b) forfeited, in each case in accordance with the terms of the Agreement.
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Name of Participant
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Dated: ____________________________
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In the presence of: ______________________
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83(b) ELECTION FORM
TO: Internal Revenue Service Center
[Address where the
Participant files his or her personal income tax return]
ELECTION UNDER SECTION 83(b) OF THE INTERNAL
REVENUE CODE OF 1986
Social Security Number _____ - ____ - _____
Property with respect to which this Election
is made: _________ shares of the common stock of BayCom Corp.
Date of Grant or Transfer: _________________.
Taxable Year for which Election is made:
Calendar Year _____.
Nature of the Restrictions to which the
Property is Subject: a vesting schedule pursuant to which the taxpayer will not be fully vested in the shares of common stock until
___________.
Fair Market Value of the Property upon
receipt by taxpayer: $___________.
Amount Paid for the Property: ____________.
Copies of this Election have been furnished
to the Corporate Secretary of BayCom Corp.
A copy of this Election shall also be
attached to my IRS Form 1040 for calendar year _____.
Exhibit 10.11
BAYCOM CORP
AMENDED AND RESTATED 2017 OMNIBUS EQUITY INCENTIVE PLAN
NON-QUALIFIED STOCK OPTION AGREEMENT
Date of Grant: _____________ __, 2018
Optionee: ______________________
NQSO NO. _____
This option, intended
to be a Non-Qualified Stock Option, is granted as of the above Date of Grant by BayCom Corp (the “Company”) to
the above-named Optionee, in accordance with the following terms and conditions:
1.
Option Grant
and Exercise Period
. The Company hereby grants to the Optionee an Option (the “Option”) to purchase,
pursuant to the BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (as the same may from time to time be amended,
the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of ______ shares (the
“Option Shares”) of the common stock, par value $0.01 per share (“Common Stock”), of the Company at the
price (the “Exercise Price”) of $____ per share. A copy of the Plan, as currently in effect, is incorporated
herein by reference, and either is attached hereto or has been delivered previously to the Optionee. Capitalized terms used but
not otherwise defined in this Agreement shall have the meanings ascribed to them in the Plan.
Except as set forth
in Section 5 below or Section 6 below, this Option shall be exercisable only during the period (the “Exercise Period”)
commencing on __________ and ending at 5:00 p.m., Pacific time, on _____________, such later time and date being hereinafter referred
to as the “Expiration Date.” Subject to Sections 5 and 6 below, this Option shall vest and become exercisable
according to the following schedule:
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Vesting Date
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Cumulative Percentage of
Initial Award Vested
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[Insert vesting schedule]
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During the Exercise
Period, to the extent vested, this Option shall be exercisable in whole at any time or in part from time to time subject to the
provisions of this Agreement.
2.
Method of
Exercise of This Option
. This Option may be exercised during the Exercise Period by providing written notice to
the Chief Financial Officer or Corporate Secretary of the Company specifying the number of Option Shares to be purchased; provided
however, that the minimum number of Option Shares which may be purchased at any time shall be 100 or, if less, the total number
of vested Option Shares relating to the Option which remain un-purchased. The notice must be in the form prescribed
by the Committee. The date of exercise is the date on which such notice is received by the Company. Such
notice must be accompanied by payment in full of the aggregate Exercise Price for the Option Shares to be purchased upon such exercise. Payment
shall be made (i) in cash or its equivalent (including cash or its equivalent paid through a broker-assisted exercise program),
(ii) by tendering previously acquired shares of Common Stock having an aggregate fair market value at the time of exercise
equal to the aggregate Exercise Price, (iii) by net exercise (a cashless exercise whereby the Company will reduce the number of
Option Shares issuable upon exercise by the number of Shares having a Fair Market Value equal to the exercise price for the Option
Shares to be purchased upon exercise), or (iv) by a combination of (i), (ii) and (iii). Promptly after such payment,
subject to Section 3 below, the Company shall issue and deliver to the Optionee or other person exercising this Option (pursuant
to Section 11.2 of the Plan in the event of the death of the Optionee) a certificate or certificates representing the shares
of Common Stock so purchased, registered in the name of the Optionee (or such other person), or, upon request, in the name of the
Optionee (or such other person) and in the name of another jointly with right of survivorship.
3.
Delivery
and Registration of Shares of Common Stock
. The Company’s obligation to deliver shares of Common Stock hereunder
shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the
Optionee or any other person to whom such shares are to be delivered pursuant to Section 11.2 of the Plan in the event of
the death of the Optionee, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions
of the Securities Act of 1933, as amended (the “Securities Act”), or any other federal, state or local securities law
or regulation. In requesting any such representation, it may be provided that such representation requirement shall
become inoperative upon a registration of such shares or other action eliminating the necessity of such representation under the
Securities Act or other securities law or regulation. Unless the foregoing representation is provided, the Company shall
not be required to deliver any shares upon exercise of this Option prior to (i) the admission of such shares to listing on
any stock exchange or system on which the shares of Common Stock may then be listed, and (ii) the completion of such registration
or other qualification of such shares under any state or federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable. In addition, in the event Sections 11.3 and 11.4 of the Plan are applicable upon the exercise of this Option,
the Company may impose an additional restriction on the Option Shares to reflect such provisions.
4.
Non-transferability
of This Option
. This Option may not be assigned, encumbered or transferred except, in the event of the death of
the Optionee, by will or the laws of descent and distribution. This Option is exercisable during the Optionee’s
lifetime only by the Optionee. The provisions of this Option shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto, the successors and assigns of the Company and any person to whom this Option is transferred by will or by
the laws of descent and distribution.
5.
Termination
of Employment or Service
. Except as otherwise provided in this Section 5, if the Optionee’s employment or
service with the Company or United Business Bank is terminated (a) voluntarily by the Optionee, (b) involuntarily without Cause,
or (c) for good reason by the Optionee under an employment, severance or other agreement applicable to the Optionee) upon or after
a Change of Control, then the Optionee shall have ninety (90) days after such termination of employment or service to exercise
this Option to the extent it is otherwise exercisable on the date of termination, but in no event later than the Expiration Date.
If the Optionee’s employment or service is terminated for Cause, all rights under this Option shall expire immediately upon
the giving to the Optionee of notice of such termination.
If the Optionee’s
employment or service is terminated due to death or Disability, then all unvested Option Shares shall become immediately vested
and exercisable, and this Option may be exercised until the earlier of (1) one year from the date of termination due to dearth
or Disability, or (2) the Expiration Date. For purposes of this Agreement, “Disability” shall mean permanent and total
disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended, or any successor provision
thereto).
In accordance with
Section 6 below, the foregoing provisions of this Section 5 shall apply following a Change of Control to this Option or, if applicable,
the Replacement Award (as defined in Section 6) which continues in effect after the Change of Control, provided, that if the Optionee’s
employment terminates upon or after a Change of Control under circumstances constituting involuntary termination without Cause
or termination for good reason (as described above), then this Option, or, if applicable, the Replacement Award, shall
become immediately exercisable (to the extent not already exercisable) and shall remain exercisable for a period of 90 days after
such termination of employment, but in no event later than the Expiration Date.
6.
Effect of
Change of Control
. A Change of Control shall not, by itself, result in acceleration of the vesting and exercisability
of the Option, except as provided in this Section 6.
Upon a Change of Control
prior to the final scheduled vesting date set forth in Section 1 above, except to the extent that another Award meeting the requirements
of this Section 6 (a “Replacement Award”) is provided to the Optionee to replace this Award (the “Replaced Award”),
the Option shall vest and be exercisable in full on the effective date of such Change of Control.
An award shall meet
the conditions of this Section 6 (and thereby qualify as a Replacement Award) if the following conditions are met:
(a) The award has
a value at least equal to the value of the Replaced Award;
(b) The award relates
to publicly traded equity securities of the Company or its successor following the Change of Control or another entity that is
affiliated with the Company or its successor following the Change of Control; and
(c) The other terms
and conditions of the award are not less favorable to the Optionee than the terms and conditions of the Replaced Award (including
the provisions that would apply in the event of a subsequent Change of Control and the provisions of Section 5 relating to vesting
and exercisability in the event of termination of employment).
Without limiting the
generality of the foregoing, a Replacement Award may take the form of a continuation of a Replaced Award if the requirements of
the preceding sentence are satisfied. The determination of whether the conditions of this Section 6 are satisfied shall
be made by the Committee, as constituted immediately before the Change of Control, in its sole discretion.
7.
Regulatory,
Recoupment and Holding Period Requirements
. The Optionee acknowledges and agrees that this Award and the Optionee’s receipt
of any Shares hereunder is subject to (a) such reduction, cancellation, forfeiture or recoupment (clawback), delayed payment or
holding period requirements as the Committee shall impose, in its absolute discretion, upon the occurrence of any of the following
events: (i) termination of employment for Cause, (ii) fraudulent or illegal actions or other misconduct, (iii) violation
of any Company and/or subsidiary code of ethics, conflict of interest, insider trading or similar policy or code of conduct applicable
to the Optionee, (iv) the breach of any non-competition, non-solicitation, confidentiality or other restrictive covenant
that may apply to the Optionee, (v) other conduct by the Optionee that is detrimental to the business or reputation of the
Company and/or its subsidiaries or (vi) requirements of applicable laws, rules or regulations, and (b) any policies which
the Company has adopted or may adopt in furtherance of any regulatory requirements (including, but not limited to, the Dodd-Frank
Wall Street Reform and Consumer Protection Act) or otherwise.
8.
Adjustments
for Changes in Capitalization of the Company
. In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split up, share combination or other change in the corporate structure of the Company
affecting the shares of the Company’s Common Stock, such adjustment shall be made in the number and class of shares covered
by this Option and the Exercise Price of this Option as shall be determined to be appropriate and equitable by the Committee to
prevent dilution or enlargement of rights, provided that the number of shares subject to this Option shall always be a whole number.
9.
Shareholder
Rights Not Granted by This Option
. The Optionee is not entitled by virtue hereof to any rights of a shareholder
of the Company or to notice of meetings of shareholders or to notice of any other proceedings of the Company.
10.
Withholding
Tax
. The Company shall have the power and the right to deduct or withhold from shares of Common Stock issuable upon
exercise of the Option, shares with a Fair Market Value equal to the amount sufficient to satisfy any applicable income, employment
or other taxes required by law to be withheld, unless the Optionee has made arrangements acceptable to the Company for the payment
of such taxes.
11.
Notices
. All
notices hereunder to the Company shall be delivered or mailed to it addressed to the Secretary of BayCom Corp, 500 Ygnacio Valley
Road, Suite 200, Walnut Creek, CA 94596. Any notices hereunder to the Optionee shall be delivered personally or mailed to
the Optionee’s last address on file with the Company. Such addresses for the service of notices may be changed
at any time, provided written notice of the change is furnished in advance to the Company or to the Optionee, as the case may be.
12.
Plan and
Plan Interpretations as Controlling
. This Option and the terms and conditions herein set forth are subject in all
respects to the terms and conditions of the Plan, which are controlling. All determinations and interpretations of the
Committee shall be binding and conclusive upon the Optionee or his legal representatives with regard to any question arising hereunder
or under the Plan.
13.
Optionee’s
Employment or Service
. Nothing in this Option shall limit the right of the Company or any of its subsidiaries to
terminate the Optionee’s employment or service, or otherwise impose upon the Company or any of its subsidiaries any obligation
to employ or accept the services of the Optionee.
14.
Optionee
Acceptance
. The Optionee shall signify his acceptance of the terms and conditions of this Option by signing in the
space provided on the signature page and returning a signed copy hereof to the Company at the address set forth in Section 11
above. To the extent the terms of any employment, severance or other agreement to which the Optionee is a party with the Company
or any subsidiary that is then in effect provide for any rights that conflict with or are otherwise contrary to the terms contained
in this Award Agreement, including the vesting or exercise rights contained in Sections 5 and 6, the terms of this Award Agreement
shall control.
15.
Electronic
Signature
. All references to signatures and delivery of documents in this Option may be satisfied by procedures
the Company has established or may establish from time to time for an electronic system for execution and delivery of any such
documents, including this Option. The Optionee’s electronic signature, including, without limitation, “click-through”
acceptance of this Option through a website maintained by or on behalf of the Company, is the same as, and shall have the same
force and effect as, the Optionee’s manual signature. Any such procedures and delivery may be effected by a third
party engaged by the Company to provide administrative services relating to this Option.
IN WITNESS WHEREOF, the parties hereto have
caused this NON-QUALIFIED STOCK OPTION AGREEMENT to be executed as of the date first written above.
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BAYCOM CORP
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[Name/Title]
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ACCEPTED:
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Optionee
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(Street Address)
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(City, State, and Zip Code)
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Exhibit 10.12
BAYCOM CORP
AMENDED AND RESTATED 2017 OMNIBUS EQUITY
INCENTIVE PLAN
INCENTIVE STOCK OPTION AGREEMENT
Date of Grant: _____________ __, 2018
Optionee: ______________________
ISO NO. _____
This option, intended to
qualify as an Incentive Stock Option under Section 422 of the Internal Revenue Code of 1986, as amended, is granted as of the above
Date of Grant by BayCom Corp (the “Company”) to the above-named Optionee, in accordance with the following terms and
conditions:
1.
Option Grant
and Exercise Period
. The Company hereby grants to the Optionee an Option (the “Option”) to purchase,
pursuant to the BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (as the same may from time to time be amended,
the “Plan”), and upon the terms and conditions therein and hereinafter set forth, an aggregate of ______ shares (the
“Option Shares”) of the common stock, par value $0.01 per share (“Common Stock”), of the Company at the
price (the “Exercise Price”) of $____ per share. A copy of the Plan, as currently in effect, is incorporated
herein by reference, and either is attached hereto or has been delivered previously to the Optionee. Capitalized terms used but
not otherwise defined in this Agreement shall have the meanings ascribed to them in the Plan.
Except as set forth in
Section 5 below or Section 6 below, this Option shall be exercisable only during the period (the “Exercise Period”)
commencing on _________ and ending at 5:00 p.m., Pacific time, on ______________, such later time and date being hereinafter referred
to as the “Expiration Date.” Subject to Sections 5 and 6 below, this Option shall vest and become exercisable
according to the following schedule:
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Vesting
Date
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Cumulative Percentage
of Initial Award Vested
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[Insert vesting schedule]
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During the Exercise Period,
to the extent vested, this Option shall be exercisable in whole at any time or in part from time to time subject to the provisions
of this Agreement. In the event this Option or any portion thereof fails to qualify as an Incentive Stock Option for
any reason whatsoever, this Option or such portion thereof shall automatically be deemed a Non-Qualified Stock Option. For
example, to the extent that this Option or any portion thereof becomes or remains exercisable after the expiration of three months
following the Optionee’s termination of employment (other than by reason of death or Disability with respect to that
portion of this Option that is exercisable at time of death or Disability), this Option shall no longer qualify as an Incentive
Stock Option but shall be deemed to be a Non-Qualified Stock Option for tax purposes. For purposes of this Agreement, “Disability”
shall mean permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended,
or any successor provision thereto).
2.
Method of Exercise
of This Option
. This Option may be exercised during the Exercise Period by providing written notice to the Chief
Financial Officer or Corporate Secretary of the Company specifying the number of Option Shares to be purchased; provided however,
that the minimum number of Option Shares which may be purchased at any time shall be 100 or, if less, the total number of vested
Option Shares relating to the Option which remain un-purchased. The notice must be in the form prescribed by the Committee. The
date of exercise is the date on which such notice is received by the Company. Such notice must be accompanied by payment
in full of the aggregate Exercise Price for the Option Shares to be purchased upon such exercise. Payment shall be made
(i) in cash or its equivalent (including cash or its equivalent paid through a broker-assisted exercise program), (ii) by
tendering previously acquired shares of Common Stock having an aggregate fair market value at the time of exercise equal to the
aggregate Exercise Price, (iii) by net exercise (a cashless exercise whereby the Company will reduce the number of Option Shares
issuable upon exercise by the number of Shares having a Fair Market Value equal to the exercise price for the Option Shares to
be purchased upon exercise), or (iv) by a combination of (i), (ii) and (iii). Promptly after such payment, subject
to Section 3 below, the Company shall issue and deliver to the Optionee or other person exercising this Option (pursuant to
Section 11.2 of the Plan in the event of the death of the Optionee) a certificate or certificates representing the shares
of Common Stock so purchased, registered in the name of the Optionee (or such other person), or, upon request, in the name of the
Optionee (or such other person) and in the name of another jointly with right of survivorship.
3.
Delivery and
Registration of Shares of Common Stock
. The Company’s obligation to deliver shares of Common Stock hereunder
shall, if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the
Optionee or any other person to whom such shares are to be delivered pursuant to Section 11.2 of the Plan in the event of
the death of the Optionee, in such form as the Committee shall determine to be necessary or advisable to comply with the provisions
of the Securities Act of 1933, as amended (the “Securities Act”), or any other federal, state or local securities law
or regulation. In requesting any such representation, it may be provided that such representation requirement shall
become inoperative upon a registration of such shares or other action eliminating the necessity of such representation under the
Securities Act or other securities law or regulation. Unless the foregoing representation is provided, the Company shall
not be required to deliver any shares upon exercise of this Option prior to (i) the admission of such shares to listing on
any stock exchange or system on which the shares of Common Stock may then be listed, and (ii) the completion of such registration
or other qualification of such shares under any state or federal law, rule or regulation, as the Committee shall determine to be
necessary or advisable. In addition, in the event Sections 11.3 and 11.4 of the Plan are applicable upon the exercise of this Option,
the Company may impose an additional restriction on the Option Shares to reflect such provisions.
4.
Non-transferability
of This Option
. This Option may not be assigned, encumbered or transferred except, in the event of the death of
the Optionee, by will or the laws of descent and distribution. This Option is exercisable during the Optionee’s
lifetime only by the Optionee. The provisions of this Option shall be binding upon, inure to the benefit of and be enforceable
by the parties hereto, the successors and assigns of the Company and any person to whom this Option is transferred by will or by
the laws of descent and distribution.
5.
Termination
of Employment
. Except as otherwise provided in this Section 5, if the Optionee’s employment with the Company
or United Business Bank is terminated (a) voluntarily by the Optionee, (b) involuntarily without Cause, or (c) for good reason
by the Optionee under an employment, severance or other agreement applicable to the Optionee) upon or after a Change of Control,
then the Optionee shall have ninety (90) days after such termination of employment to exercise this Option to the extent it is
otherwise exercisable on the date of termination, but in no event later than the Expiration Date. If the Optionee’s employment
is terminated for Cause, all rights under this Option shall expire immediately upon the giving to the Optionee of notice of such
termination.
If the Optionee’s
employment is terminated due to death or Disability, then all unvested Option Shares shall become immediately vested and exercisable,
and this Option may be exercised until the earlier of (1) one year from the date of termination due to dearth or Disability, or
(2) the Expiration Date.
In accordance with Section
6 below, the foregoing provisions of this Section 5 shall apply following a Change of Control to this Option or, if applicable,
the Replacement Award (as defined in Section 6) which continues in effect after the Change of Control, provided, that if the Optionee’s
employment terminates upon or after a Change of Control under circumstances constituting involuntary termination without Cause
or termination for good reason (as described above), then this Option, or, if applicable, the Replacement Award, shall
become immediately exercisable (to the extent not already exercisable) and shall remain exercisable for a period of 90 days after
such termination of employment, but in no event later than the Expiration Date.
6.
Effect of Change
of Control
. A Change of Control shall not, by itself, result in acceleration of the vesting and exercisability of
the Option, except as provided in this Section 6.
Upon a Change of Control
prior to the final scheduled vesting date set forth in Section 1 above, except to the extent that another Award meeting the requirements
of this Section 6 (a “Replacement Award”) is provided to the Optionee to replace this Award (the “Replaced Award”),
the Option shall vest and be exercisable in full on the effective date of such Change of Control.
An award shall meet the
conditions of this Section 6 (and thereby qualify as a Replacement Award) if the following conditions are met:
(a) The award has a
value at least equal to the value of the Replaced Award;
(b) The award relates
to publicly traded equity securities of the Company or its successor following the Change of Control or another entity that is
affiliated with the Company or its successor following the Change of Control; and
(c) The other terms
and conditions of the award are not less favorable to the Optionee than the terms and conditions of the Replaced Award (including
the provisions that would apply in the event of a subsequent Change of Control and the provisions of Section 5 relating to vesting
and exercisability in the event of termination of employment).
Without limiting the generality
of the foregoing, a Replacement Award may take the form of a continuation of a Replaced Award if the requirements of the preceding
sentence are satisfied. The determination of whether the conditions of this Section 6 are satisfied shall be made by
the Committee, as constituted immediately before the Change of Control, in its sole discretion.
7.
Regulatory,
Recoupment and Holding Period Requirements
. The Optionee acknowledges and agrees that this Award and the Optionee’s receipt
of any Shares hereunder is subject to (a) such reduction, cancellation, forfeiture or recoupment (clawback), delayed payment or
holding period requirements as the Committee shall impose, in its absolute discretion, upon the occurrence of any of the following
events: (i) termination of employment for Cause, (ii) fraudulent or illegal actions or other misconduct, (iii) violation
of any Company and/or subsidiary code of ethics, conflict of interest, insider trading or similar policy or code of conduct applicable
to the Optionee, (iv) the breach of any non-competition, non-solicitation, confidentiality or other restrictive covenant
that may apply to the Optionee, (v) other conduct by the Optionee that is detrimental to the business or reputation of the
Company and/or its subsidiaries or (vi) requirements of applicable laws, rules or regulations, and (b) any policies which
the Company has adopted or may adopt in furtherance of any regulatory requirements (including, but not limited to, the Dodd-Frank
Wall Street Reform and Consumer Protection Act) or otherwise.
8.
Adjustments
for Changes in Capitalization of the Company
. In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split up, share combination or other change in the corporate structure of the Company
affecting the shares of the Company’s Common Stock, such adjustment shall be made in the number and class of shares covered
by this Option and the Exercise Price of this Option as shall be determined to be appropriate and equitable by the Committee to
prevent dilution or enlargement of rights, provided that the number of shares subject to this Option shall always be a whole number.
9.
Shareholder
Rights Not Granted by This Option
. The Optionee is not entitled by virtue hereof to any rights of a shareholder
of the Company or to notice of meetings of shareholders or to notice of any other proceedings of the Company.
10.
Withholding
Tax
. The Company shall have the power and the right to deduct or withhold from shares of Common Stock issuable upon
exercise of the Option, shares with a Fair Market Value equal to the amount sufficient to satisfy any applicable income, employment
or other taxes required by law to be withheld, unless the Optionee has made arrangements acceptable to the Company for the payment
of such taxes.
11.
Notices
. All
notices hereunder to the Company shall be delivered or mailed to it addressed to the Secretary of BayCom Corp, 500 Ygnacio Valley
Road, Suite 200, Walnut Creek, CA 94596. Any notices hereunder to the Optionee shall be delivered personally or mailed to
the Optionee’s last address on file with the Company. Such addresses for the service of notices may be changed
at any time, provided written notice of the change is furnished in advance to the Company or to the Optionee, as the case may be.
12.
Plan and Plan
Interpretations as Controlling
. This Option and the terms and conditions herein set forth are subject in all respects
to the terms and conditions of the Plan, which are controlling. All determinations and interpretations of the Committee
shall be binding and conclusive upon the Optionee or his legal representatives with regard to any question arising hereunder or
under the Plan.
13.
Optionee’s
Employment
. Nothing in this Option shall limit the right of the Company or any of its subsidiaries to terminate
the Optionee’s employment as an officer or employee, or otherwise impose upon the Company or any of its subsidiaries any
obligation to employ or accept the services of the Optionee.
14.
Optionee Acceptance
. The
Optionee shall signify his acceptance of the terms and conditions of this Option by signing in the space provided on the signature
page and returning a signed copy hereof to the Company at the address set forth in Section 11 above. To the extent the terms
of any employment, severance or other agreement to which the Optionee is a party with the Company or any subsidiary that is then
in effect provide for any rights that conflict with or are otherwise contrary to the terms contained in this Award Agreement, including
the vesting or exercise rights contained in Sections 5 and 6, the terms of this Award Agreement shall control.
15.
Electronic
Signature
. All references to signatures and delivery of documents in this Option may be satisfied by procedures
the Company has established or may establish from time to time for an electronic system for execution and delivery of any such
documents, including this Option. The Optionee’s electronic signature, including, without limitation, “click-through”
acceptance of this Option through a website maintained by or on behalf of the Company, is the same as, and shall have the same
force and effect as, the Optionee’s manual signature. Any such procedures and delivery may be effected by a third
party engaged by the Company to provide administrative services relating to this Option.
16.
Notice of Sale
. The
Optionee or any person to whom this Option or the Option Shares shall have been transferred by will or by the laws of descent and
distribution promptly shall give notice to the Company in the event of the sale or other disposition of Option Shares within the
later of (a) two years from the date of grant of this Option or (b) one year from the date of exercise of this Option. Such
notice shall specify the number of Option Shares sold or otherwise disposed of and be directed to the address set forth in Section
11 above.
IN WITNESS WHEREOF, the
parties hereto have caused this INCENTIVE STOCK OPTION AGREEMENT to be executed as of the date first written above.
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BAYCOM CORP
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[Name/Title]
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ACCEPTED:
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Optionee
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(Street Address)
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(City, State, and Zip Code)
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Exhibit 10.13
BAYCOM CORP
AMENDED AND RESTATED 2017 OMNIBUS EQUITY
INCENTIVE PLAN
RESTRICTED STOCK UNIT AGREEMENT
[Time-based Vesting]
Date of Grant: _____________ __, 2018
Participant: ______________________
This award of restricted
stock units (“RSUs”) is granted as of the above Date of Grant by BayCom Corp, a California corporation (the “Company”),
to the above-named Participant pursuant to the BayCom Corp Amended and Restated 2017 Omnibus Equity Incentive Plan (as the same
may from time to time be amended, the “Plan”), and upon the terms and conditions and subject to the restrictions set
forth in the Plan and hereinafter set forth. A copy of the Plan, as currently in effect, is incorporated herein by reference and
either is attached hereto or has been delivered previously to the Participant. Capitalized terms used but not defined in this Agreement
shall have the meanings ascribed to them in the Plan.
1.
RSU
Award
. The Company hereby awards to the Participant ________ RSUs, with each RSU representing the right to receive one share
of common stock, par value $0.01 per share (“Common Stock”), of the Company.
2.
Restrictions
on Transfer; Vesting
. Until the RSUs become vested as provided in this Section 2 or in Sections 3 or 4 of this Agreement, the
RSUs and the underlying shares of Common Stock may not be sold, transferred, pledged, assigned or otherwise alienated or hypothecated
by the Participant, except by will or the laws of descent and distribution in the event of the death of the Participant. The lapsing
of the restrictions described above is sometimes referred to in this Agreement as “vesting.”
Subject to Sections
3 and 4 of this Agreement, the restrictions described above shall lapse, and the RSUs will vest, pursuant to the following schedule:
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Date
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Number
of RSUs
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[Insert vesting schedule]
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When vested, each RSU
will entitle the Participant to receive one share of Common Stock, together with any cash payable pursuant to the dividend equivalent
rights described in Section 5 below.
3.
Termination
of Service
. If the Participant’s employment or service with the Company or United Business Bank is terminated due to
(a) death, (b) permanent and total disability (within the meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended, or any successor provision thereto), (c) involuntary termination for other than Cause or (d) a resignation for good reason
under an employment, severance or other agreement applicable to the Participant upon or after a Change of Control (each a “Qualifying
Termination”) prior to the vesting of the RSUs, then all unvested RSUs and related dividend equivalent rights shall vest
in full on the date of such Qualifying Termination. If the Participant’s employment or service is terminated for any reason
that does not constitute a Qualifying Termination, then the unvested RSUs and related dividend equivalent rights shall be forfeited;
provided, however, that the Committee, in its sole discretion, may, in the event of a termination of employment or service other
than due to a Qualifying Termination or Cause, provide for the lapsing of such restrictions upon such terms and provisions as it
deems proper.
4.
Effect
of Change of Control
. A Change of Control shall not, by itself, result in acceleration of vesting of the RSUs, except as provided
in this Section 4.
Upon a Change of Control
prior to the final scheduled vesting date set forth in Section 2 above, except to the extent that another award meeting the requirements
of this Section 4 (a “Replacement Award”) is provided to the Participant to replace this award (the “Replaced
Award”), the RSUs shall vest in full on the effective date of such Change of Control.
An award shall meet
the conditions of this Section 4 (and thereby qualify as a Replacement Award) if the following conditions are met:
(a) The
award has a value at least equal to the value of the Replaced Award;
(b) The
award relates to publicly traded equity securities of the Company or its successor following the Change of Control or another entity
that is affiliated with the Company or its successor following the Change of Control; and
(c) The
other terms and conditions of the award are not less favorable to the Participant than the terms and conditions of the Replaced
Award (including the provisions that would apply in the event of a subsequent Change of Control and the provisions of Section 3
relating to vesting in the event of a Qualifying Termination).
Without limiting the
generality of the foregoing, a Replacement Award may take the form of a continuation of a Replaced Award if the requirements of
the preceding sentence are satisfied. The determination of whether the conditions of this Section 4 are satisfied shall be made
by the Committee, as constituted immediately before the Change of Control, in its sole discretion.
5.
Participant’s
Rights; Dividend Equivalent Rights
. The Participant shall have no voting rights with respect to the shares of Common Stock
underlying the RSUs unless and until such shares of Common Stock are issued to the Participant in payment of the RSUs. The Participant
shall be entitled to receive an amount equal to any cash dividends that would have been paid on the shares of Common Stock underlying
the RSUs (had such shares been issued and outstanding) between the Date of Grant and the date such vested RSU is paid (“Dividend
Equivalent Right”), which amount shall be paid in cash at the time the RSUs are paid under Section 6, or shall be forfeited
at the time the RSUs are forfeited.
6,
Payment of
Award
. Each RSU that has vested (“Vested RSU”) shall be paid in the form of a share of Common Stock as of the earliest
vesting date set forth in Sections 2, 3 or 4 above (“Vesting Date. Such payment shall be effective as of the applicable
Vesting Date. The Company shall issue stock certificates or evidence of the issuance of the shares underlying the Vested
RSUs in book-entry form, in the name of the Participant, reflecting the number of shares underlying the Vested RSUs. In the event
Sections 11.3 and 11.4 of the Plan are applicable upon the vesting of the RSUs, the Company may impose an additional restriction
on the shares underlying the Vested RSUs to reflect such provisions. In addition, the Participant shall be entitled to receive
a lump sum cash payment equal to the Dividend Equivalent Rights with respect to any Vested RSUs at the same time as the payment
of shares underlying the Vested RSUs.
7.
Adjustments
for Changes in Capitalization of the Company
. In the event of any merger, reorganization, consolidation, recapitalization,
separation, liquidation, stock dividend, split up, share combination or other change in the corporate structure of the Company
affecting the shares of the Company’s Common Stock, such adjustment shall be made in the number and class of shares underlying
the RSUs subject to this Agreement, as shall be determined to be appropriate and equitable by the Committee to prevent dilution
or enlargement of rights, provided that the number of shares underlying the RSUs covered by this Agreement shall always be a whole
number.
8.
Delivery
and Registration of Shares of Common Stock
. The Company’s obligation to deliver shares of Common Stock hereunder shall,
if the Committee so requests, be conditioned upon the receipt of a representation as to the investment intention of the Participant
or any other person to whom such shares are to be delivered, in such form as the Committee shall determine to be necessary or advisable
to comply with the provisions of the Securities Act of 1933, as amended, or any other federal, state or local securities regulation.
Unless the foregoing representation is provided, the Company shall not be required to deliver any shares of Common Stock under
the Plan prior to (i) the admission of such shares to listing on any stock exchange or automated quotation system on which the
shares of Common Stock may then be listed or quoted, and (ii) the completion of such registration or other qualification of such
shares under any state or federal law, rule or regulation, as the Committee shall determine to be necessary or advisable. The foregoing
representation requirement shall become inoperative upon a registration of such shares or other action eliminating the necessity
of such representation under the Securities Act of 1933 or other securities regulation.
9.
Participant
Employment or Service
. Nothing in this Agreement shall limit the right of the Company or any subsidiary to terminate the Participant’s
employment or service, or otherwise impose upon the Company or any subsidiary any obligation to employ or accept the services of
the Participant.
10.
Withholding
Tax
. Upon the vesting of the RSUs, the Company may withhold from any distribution of shares of Common Stock made under the
Plan such number of shares that have a Fair Market Value sufficient to satisfy any applicable income, employment or other taxes
required by law to be withheld. The Company shall have the right to deduct from all dividends paid with respect to Vested RSUs
the amount of any taxes which the Company is required to withhold (including with respect to the shares of Common Stock underlying
the Vested RSUs) at the time such dividends are paid to the Participant pursuant to Section 5 of this Agreement.
11.
Regulatory,
Recoupment and Holding Period Requirements
. The Participant acknowledges and agrees that this award and the Participant’s
receipt of any shares of Common Stock or dividends hereunder is subject to (a) such reduction, cancellation, forfeiture or recoupment
(clawback), delayed payment or holding period requirements as the Committee shall impose, in its absolute discretion, upon the
occurrence of any of the following events: (i) termination of employment or service for Cause, (ii) fraudulent or illegal
actions or other misconduct, (iii) violation of any Company and/or subsidiary code of ethics, conflict of interest, insider
trading or similar policy or code of conduct applicable to the Participant, (iv) the breach of any non-competition, non-solicitation,
confidentiality or other restrictive covenant that may apply to the Participant, (v) other conduct by the Participant that
is detrimental to the business or reputation of the Company and/or its subsidiaries or (vi) requirements of applicable laws,
rules or regulations, and (b) any policies which the Company has adopted or may adopt in furtherance of any regulatory requirements
(including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act) or otherwise.
12.
Conformity
with Plan
. The grant of RSUs is intended to conform in all respects with, and is subject to all applicable provisions of, the
Plan (which is incorporated herein by reference), including Sections 11.3 and 11.4 of the Plan to the extent applicable. Any inconsistencies
between this Agreement and the Plan shall be resolved in accordance with the terms of the Plan. By executing and returning the
enclosed copy of this Agreement, the Participant acknowledges his or her receipt of this Agreement and the Plan and agrees to be
bound by all of the terms of this Agreement and the Plan.
13.
Electronic
Signature
. All references to signatures and delivery of documents in this Agreement may be satisfied by procedures the Company
has established or may establish from time to time for an electronic system for execution and delivery of any such documents, including
this Agreement. The Participant’s electronic signature, including, without limitation, “click-through” acceptance
of this Agreement through a website maintained by or on behalf of the Company, is the same as, and shall have the same force and
effect as, the Participant’s manual signature. Any such procedures and delivery may be effected by a third party engaged
by the Company to provide administrative services relating to this Agreement.
14.
Section
409A
. The RSUs are intended to be exempt from Section 409A of the Internal Revenue Code of 1986, as amended, based upon the
short-term deferral exemption set forth therein. Notwithstanding anything herein to the contrary, this Agreement shall
be interpreted, operated and administered in a manner consistent with this intention.
15.
Entire
Agreement
. This Agreement and the terms of the Plan constitute the entire understanding between the Participant and the Company,
and supersede all other agreements, whether written or oral, with respect to this award of RSUs.
16.
Participant
Acceptance
. The Participant shall signify his/her acceptance of the terms and conditions of this Agreement by signing in the
space provided on the signature page and returning a signed copy of this Agreement to the Company. To the extent the terms of
any employment, severance or other agreement to which the Participant is a party with the Company or any subsidiary that is then
in effect provide for any rights that conflict with or are otherwise contrary to the terms contained in this Agreement, including
the vesting rights contained in Sections 2, 3 and 4, the terms of this Agreement shall control.
The undersigned Participant:
(a) Acknowledges
that BayCom Corp is not providing the Participant with advice, warranties or representations regarding any of the legal or tax
effects to the Participant with respect to this Agreement and that the Participant is encouraged to seek legal and tax advice from
the Participant’s own legal and tax advisers as soon as possible;
(b) Acknowledges
that the Participant is familiar with the terms of this Agreement and the Plan, that the Participant has been encouraged by BayCom
Corp to discuss the Agreement and the Plan with the Participant’s own legal and tax advisers, and that the Participant agrees
to be bound by the terms of this Agreement and the Plan;
(c) Acknowledges
receipt of this Agreement and understands that all rights and liabilities with respect to this Agreement are set forth in this
Agreement and the Plan; and
(d) Acknowledges
that as of the date of grant, this Agreement sets forth the entire understanding between the undersigned Participant and the Company
and its affiliates regarding this Agreement and supersedes all prior oral and written agreements on that subject.
(Signatures contained on following page)
IN WITNESS WHEREOF,
the parties hereto have caused this Agreement to be executed effective as of the date first written above.
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BAYCOM CORP
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Name:
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Keary Colwell
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Title:
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Senior Executive Vice President,
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Chief Financial Officer and
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Corporate Secretary
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ACCEPTED BY PARTICIPANT:
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(Signature)
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(Street Address)
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(City, State, and Zip Code)
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DESIGNATION OF BENEFICIARIES
Date: ______________
Participant: ____________________
The Participant designates the following
beneficiary or beneficiaries to exercise the rights pursuant to a Restricted Stock Unit Agreement dated ___________________, to
receive any shares of Common Stock, cash or other property distributable upon the death of the Participant with respect to the
RSUs granted pursuant to such Agreement.
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Name
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Relationship
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Contact Information
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Percentage
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The Participant designates the foregoing
individuals as beneficiaries to the RSUs under the Restricted Stock Unit Agreement dated __________________ and attached hereto.
Exhibit 21.1
SUBSIDIARIES OF BAYCOM CORP
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Subsidiary
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Jurisdiction of
Incorporation/Organization/Charter
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United Business Bank
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California
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First ULB Statutory Trust I
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Delaware
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Exhibit 23.1
Vavrinek, Trine, Day & Co., LLP
Certified Public Accountants
CONSENT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
We hereby consent to the use in this Registration
Statement on Form S-1 of our report dated February 23, 2018, with respect to the consolidated financial statements of BayCom Corp,
which are included in the Prospectus that is part of this Registration Statement.
We also consent to the reference to our firm
under the caption “Experts” in the Prospectus.
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/s/ Vavrinek, Trine, Day & Co., LLP
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Laguna Hills, California
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April 10, 2018
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