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WALNUT CREEK -- The boards of directors of Bay Commercial Bank and Charter Oak Bank announced that Bay Commercial Bank has agreed to acquire Charter Oak Bank in an all-stock transaction by issuing 0.1579 shares of Bay Commercial Bank common stock for each outstanding share of Charter Oak Bank.

Based on Bay Commercial Bank's October 29, 2010 stock price of $7.80 per share this equates to a total deal value of $2.3 million or a price of $1.23 per share.

The acquisition of the Napa-headquartered bank will provide Bay Commercial Bank with $135.6 million in assets including, $115.4 million in loans and $115.4 million in deposits in two bank branches located in Napa and St. Helena California.

"This move is a great next step in our strategy to leverage our strong capital position in markets with attractive demographics and long-term growth potential," said Bay Commercial's President and Chief Executive Officer George Guarini. "We're also pleased to welcome Charter Oak employees into the Bay Commercial Bank Family, while providing them the resources they need to continue providing clients the high level of personalized service they've come to expect."

The companies signed a definitive purchase agreement for the transaction, which is expected to close in the first quarter of 2011. Bay Commercial Bank expects the transaction have a negligible impact on tangible book value per share and over the next twelve months expects to achieve significant cost savings resulting in accretion to earnings per share. Upon closing of the Charter Oak acquisition Bay Commercial expects to maintain well-capitalized Tier 1 and Total Risk Based Capital ratios.

Under the terms of the agreement, Bay Commercial Bank expects to issue 291,687 shares in the transaction. The exchange ratio and subsequent amount of shares issued is subject to adjustment to the extent Charter Oak's stockholder's equity is below $4.6 million upon the closing of the merger.

"We're very pleased to have found an acquirer with experience in our markets," said Charter Oak President and Chief Executive Officer Brian Kelly, who will continue with Bay Commercial Bank, as Director of the North Bay Region. "In Bay Commercial Bank, we have a strong and profitable partner that will allow us to maintain our focus on community banking clients, while offering employees and investors attractive growth prospects. This is a great transaction for our clients, our employees, and our shareholders."

The transaction has received approvals from the parties' boards of directors, but remains subject to regulatory approval, and other customary closing conditions, as well as the approval of Charter Oak shareholders.

Bay Commercial was advised by the investment banking firm of Sterne, Agee & Leach, Inc., as well as the law firm of Silver, Freedman & Taff, L.L.P. Charter Oak was advised by the investment banking firm of Howe, Barnes, Hoefer & Arnett and the law firm of Bingham McCutchen, L.L.P.

Bay Commercial and Charter Oak will file a proxy statement and other relevant documents concerning the proposed transaction with the California Department of Financial Institutions ("DFI"). Shareholders are urged to read this document when it becomes available as well as any amendments or supplements to those documents, because they will contain important information.

Bay Commercial Bank was incorporated in 2004 and licensed to operate as a commercial bank under the California Banking Law by the DFI. Through its headquarters office located in Walnut Creek and two branches located in Castro Valley and Oakland, California, it offers a full range of business banking services. As of September 30, 2010, Bay Commercial had total assets of $164.0 million, loans of $127.6 million, total deposits of $130.2 million, and total shareholders' equity of $33.5 million. The Bank offers a full line of business-related loan and deposit products and select related financial services to individuals, small and medium-sized businesses, entrepreneurs and professionals located in the service areas of its offices.

Charter Oak Bank was incorporated in 2004 and licensed to operate as a commercial bank under the California Banking Law by the DFI. Through its offices in Napa and St. Helena, California, it offers a full range of business banking services. As of September 30, 2010, Charter Oak Bank had total assets of $135.6 million, loans of $115.4 million, total deposits of $115.4 million, and total shareholders' equity of $4.7 million. The Bank offers a full line of business-related loan and deposit products and select related financial services to individuals, small and medium-sized businesses, entrepreneurs and professionals located in the service areas of its offices.