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anticipated or pending investigations, proceedings, or litigation that involve or affect us; and
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domestic and international economic factors unrelated to our performance.
The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility in
the past, including in recent years. As a result, the market price of our common stock has at times been volatile, and
could be in the future, as well. The capital and credit markets have also experienced volatility and disruption over the
past several years, at times reaching unprecedented levels. In some cases, the markets have produced downward
pressure on stock prices and credit availability for certain issuers without regard to the issuers’ underlying financial
strength.
We may pursue additional capital in the future, which may not be available on acceptable terms or at all, could
dilute the holders of our outstanding common stock, and may adversely affect the market price of our common
stock.
Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital
markets at the time, which are outside of our control, and our financial performance. Furthermore, any capital raising
activity could dilute the holders of our outstanding common stock, and may adversely affect the market price of our
common stock and our performance measures such as return on equity and earnings per share.
The Company relies heavily on the payment of dividends from the Bank.
Other than $2.2 million in cash available
at the holding company level at December 31, 2015, the Company’s ability to meet debt service requirements and to
pay dividends depends on the Bank’s ability to pay dividends to the Company, as the Company has no other source of
significant income. However, the Bank is subject to regulations limiting the amount of dividends it may pay. For
example, the payment of dividends by the Bank is affected by the requirement to maintain adequate capital pursuant to
the capital adequacy guidelines issued by the Federal Deposit Insurance Corporation. If (i) any capital ratio
requirements are increased; (ii) the total risk-weighted assets of the Bank increase significantly; and/or (iii) the Bank’s
income declines significantly, the Bank’s Board of Directors may decide or be required to retain a greater portion of
the Bank’s earnings to achieve and maintain the required capital or asset ratios. This would reduce the amount of funds
available for the payment of dividends by the Bank to the Company. Further, one or more of the Bank’s regulators
could prohibit the Bank from paying dividends if, in their view, such payments would constitute unsafe or unsound
banking practices. The Bank’s ability to pay dividends to the Company is also limited by the California Financial Code.
Whether dividends are paid, and the frequency and amount of such dividends will also depend on the financial condition
and performance of the Bank and the decision of the Bank’s Board of Directors. Information concerning the Company’s
dividend policy and historical dividend practices is set forth in Item 5 below under “Dividends.” However, no assurance
can be given that our future performance will justify the payment of dividends in any particular year.
Your investment may be diluted because of our ability to offer stock to others, and from the exercise of stock
options.
The shares of our common stock do not have preemptive rights. This means that you may not be entitled to
buy additional shares if shares are offered to others in the future. We are authorized to issue up to 24,000,000 shares
of common stock, and as of December 31, 2015 we had 13,254,088 shares of common stock outstanding. Except for
certain limitations imposed by NASDAQ, nothing restricts our ability to offer additional shares of stock for fair value
to others in the future. Any issuances of common stock would dilute our shareholders’ ownership interests and may
dilute the per share book value of our common stock. In addition, when our directors and officers exercise in-the-
money stock options your ownership in the Company is diluted. As of December 31, 2015, there were outstanding
options to purchase an aggregate of 499,600 shares of our common stock with an average exercise price of $14.83 per
share. At the same date there were an additional 808,980 shares available to grant under our 2007 Stock Incentive Plan.
Shares of our preferred stock issued in the future could have dilutive and other effects on our common stock.
Our Articles of Incorporation authorize us to issue 10,000,000 shares of preferred stock, none of which is presently
outstanding. Although our Board of Directors has no present intent to authorize the issuance of shares of preferred
stock, such shares could be authorized in the future. If such shares of preferred stock are made convertible into shares
of common stock, there could be a dilutive effect on the shares of common stock then outstanding. In addition, shares
of preferred stock may be provided a preference over holders of common stock upon our liquidation or with respect to
the payment of dividends, in respect of voting rights or in the redemption of our common stock. The rights, preferences,
privileges and restrictions applicable to any series or preferred stock would be determined by resolution of our Board
of Directors.