Commerce Street Investment Management Letter to Orange County Business Bank Chairman, President and CEO

SAN DIEGO–([1])–Commerce Street Investment Management (“CSIM”) sent the following letter
to J.P. Gough, Chairman, President and CEO of Orange County Business
Bank (OTCQB: OCBB), on the morning of Feb. 9, 2015. CSIM is the manager
of three private equity funds that invest growth equity in community
banks. Service Equity Partners, LP, one of the funds managed by CSIM, is
one of the largest, non-inside shareholders in OCBB and has been
invested in OCBB since 2004.

February 9, 2015

Mr. James Peter Gough, Chairman, President & CEO
Orange County
Business Bank
17901 Von Karman Avenue
Suite 100
CA 92614

Dear Mr. Gough:

We received your January 12, 2015 response to the concerns expressed in
our December 9, 2014 letter to the Orange County Business Bank (“OCBB”
or the “Bank”) Board of Directors. Your response stated that the Board
“does not at this time believe a meeting [with Commerce Street
Investment Management] would be productive or appropriate.” Your
rejection of our request, without any substantive explanation, is in
fact unproductive and inappropriate given your fiduciary duties as
directors of a publicly traded company.

After reviewing the January 29, 2015 OCBB earnings release, the team at
Commerce Street Investment Management (“CSIM”) has noted the continued
subpar performance and overcapitalization of OCBB. In addition, our
concerns have been further heightened because of the misleading
presentation of the Bank’s 2014 performance in this earnings release. We
believe this earnings release should have informed OCBB investors of the

  • OCBB’s fourth quarter 2014 pre-tax net income was $190,000 – on an
    annualized basis, this is a 37 bps pre-tax ROAA (this excludes the
    $4.644 million one-time recovery of the Bank’s deferred tax asset in
    this quarter). Tax-effected at 40%, this is equivalent to a 22 bps
    ROAA for the fourth quarter 2014.
  • Excluding the one-time special allowance release of $1.922 million
    related to a loan recovery in the third quarter 2014, OCBB’s 2014
    pre-tax net income was $613,000 – this is a 31 bps pre-tax ROAA (this
    excludes the $4.644 million one-time recovery of the Bank’s deferred
    tax asset in the fourth quarter 2014). Tax-effected at 40%, this is
    equivalent to a 19 bps ROAA for 2014.

We believe the metrics above accurately reflect OCBB’s 2014 fourth
quarter and annual operating profitability, and are a strong indicator
of the Bank’s future performance potential.

To address OCBB’s performance related issues, our December 9 letter
requested the Board’s consideration of the following recommendations:

  1. Retention of a recognized bank advisor to evaluate an auction of OCBB
    and other methods to maximize shareholder value (e.g., special
    dividend, share repurchase);
  2. Reduction of CEO salary by 35%, and reduction of salary for the next
    three highest compensated officers by 25%, to bring executive
    compensation in line with industry peers;
  3. Retention of a bank compensation consultant to evaluate the entire
    compensation structure for all OCBB employees; and
  4. Bifurcation of the Chairman of the Board and CEO roles, and the
    nomination of an independent member of the Board to the position of

Service Equity Partners, LP, a private equity fund managed by CSIM, has
been an investor in OCBB since 2004. CSIM has patiently supported the
OCBB management team in the 10+ years that the Service Equity Partners
fund has been a shareholder. The Board’s unwillingness to open a
dialogue given the Bank’s subpar performance, overcapitalization,
excessive executive compensation, and failure to initiate a strategic
plan designed to maximize shareholder value demonstrates the
dismissiveness of this Board to the owners of OCBB.

Thus, CSIM will, on behalf of Service Equity Partners, offer shareholder
proposals to all shareholders in OCBB’s 2015 proxy materials. We believe
our only recourse is to go directly to OCBB shareholders in order that
they may consider the merits of our four recommendations in an open
forum. We will also send you materials that indicate our intent to
nominate up to three candidates for election to the Board of Directors
at the 2015 Annual Meeting of OCBB Shareholders.

We regret that you have rejected our collegial efforts to address issues
so vital to the creation of shareholder value, but the status quo at
OCBB is no longer tolerable to your outside investors.

Mark R. Ruh, Managing Director Thomas J. Lykos, Managing Director

About Commerce Street Investment Management

Commerce Street Capital, LLC (Member FINRA/SIPC) and Commerce
Street Investment Advisor LLC (“CSIA”), dba Commerce Street Investment
Management (“CSIM”), are wholly-owned subsidiaries of Commerce Street
Holdings LLC, a Texas limited liability company. The firm is
headquartered at 1445 Ross Avenue, Suite 2700, Dallas, TX 75202. CSIM
provides asset management services for private equity and credit
opportunity funds which invest in bank and financial institution-related

This press release is for information purposes only and does not
constitute a solicitation or offer by Commerce Street Investment
Management to buy or sell any securities, futures, options, foreign
exchange or other financial instrument or to provide any investment
advice or service.


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