SHAREHOLDERS’ EQUITY

Regulatory Capital - The Company and the Bank are subject to certain regulatory capital requirements administered by the Board of Governors of the Federal Reserve System and the FDIC. Failure to meet these minimum capital requirements could result in mandatory or, discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

The Company and the Bank each meet specific capital guidelines that involve quantitative measures of their respective assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. These quantitative measures are established by regulation and require that the Company and the Bank maintain minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

The Bank is also subject to additional capital guidelines under the regulatory framework for prompt corrective action. To be categorized as well capitalized, the Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the following table. The most recent notification from the FDIC categorized the Bank as well capitalized under these guidelines. Management knows of no conditions or events since that notification that would change the Bank’s category.

Effective January 1, 2015, bank holding companies with consolidated assets of $1 billion or more and banks like Central Valley Community Bank must comply with new minimum capital ratio requirements to be phased-in between January 1, 2015 and January 1, 2019, which consist of the following: (i) a new common equity Tier 1 capital to total risk weighted assets ratio of 4.5%; (ii) a Tier 1 capital to total risk weighted assets ratio of 6% (increased from 4%); (iii) a total capital to total risk weighted assets ratio of 8% (unchanged from current rules); and (iv) a Tier 1 capital to adjusted average total assets (“leverage”) ratio of 4%.

In addition, a “capital conversation buffer” is established which, when fully phased-in, will require maintenance of a minimum of 2.5% of common equity Tier 1 capital to total risk weighted assets in excess of the regulatory minimum capital ratio requirements described above. The 2.5% buffer will increase the minimum capital ratios to (i) a common equity Tier 1 capital ratio of 7.0%, (ii) a Tier 1 capital ratio of 8.5%, and (iii) a total capital ratio of 10.5%. The new buffer requirement will be phased-in between January 1, 2016 and January 1, 2019. If the capital ratio levels of a banking organization fall below the capital conservation buffer amount, the organization will be subject to limitations on (i) the payment of dividends; (ii) discretionary bonus payments; (iii) discretionary payments under Tier 1 instruments; and (iv) engaging in share repurchases.

Management believes that the Company and the Bank met all their capital adequacy requirements as of December 31, 2015 and 2014. There are no conditions or events since those notifications that management believes have changed those categories. The capital ratios for the Company and the Bank under the new capital framework are presented in the table below.



	December 31, 2015				December 31, 2014
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio
Central Valley Community Bancorp and Subsidiary	$	105,825	8.65	%	$	95,936	8.36	%
Minimum regulatory requirement	$	48,950	4.00	%	$	45,894	4.00	%
Central Valley Community Bank	$	104,878	8.58	%	$	95,298	8.31	%
Minimum requirement for “Well-Capitalized” institution	$	61,148	5.00	%	$	57,341	5.00	%
Minimum regulatory requirement	$	48,918	4.00	%	$	45,873	4.00	%
Common Equity Tier 1 Ratio
Central Valley Community Bancorp and Subsidiary	$	103,152	13.44	%	N/A		N/A
Minimum regulatory requirement	$	34,650	4.50	%	N/A		N/A
Central Valley Community Bank	$	104,878	13.67	%	N/A		N/A
Minimum requirement for “Well-Capitalized” institution	$	50,017	6.50	%	N/A		N/A
Minimum regulatory requirement	$	34,627	4.50	%	N/A		N/A
Tier 1 Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	105,825	13.79	%	$	95,936	13.67	%
Minimum regulatory requirement	$	46,200	6.00	%	$	28,075	4.00	%
Central Valley Community Bank	$	104,878	13.67	%	$	95,298	13.59	%
Minimum requirement for “Well-Capitalized” institution	$	61,560	8.00	%	$	42,080	6.00	%
Minimum regulatory requirement	$	46,170	6.00	%	$	28,053	4.00	%
Total Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	115,466	15.04	%	$	104,447	14.88	%
Minimum regulatory requirement	$	61,601	8.00	%	$	56,150	8.00	%
Central Valley Community Bank	$	114,513	14.93	%	$	103,809	14.80	%
Minimum requirement for “Well-Capitalized” institution	$	76,949	10.00	%	$	70,133	10.00	%
Minimum regulatory requirement	$	61,560	8.00	%	$	56,106	8.00	%

Dividends - During 2015, the Bank declared and paid cash dividends to the Company in the amount of $2,260,000 in connection with cash dividends to the Company’s shareholders approved by the Company’s Board of Directors. The Bank may not pay any dividend that would cause it to be deemed not “well capitalized” under applicable banking laws and regulations. The Company declared and paid a total of $1,979,000 or $0.18 per common share cash dividend to shareholders of record during the year ended December 31, 2015.

During 2014, the Bank declared and paid cash dividends to the Company in the amount of $2,350,000, connection with cash dividends to the Company’s shareholders approved by the Company’s Board of Directors. The Company declared and paid a total of $2,190,000 or $0.20 per common share cash dividend to shareholders of record during the year ended December 31, 2014.

During 2013, the Bank declared and paid cash dividends to the Company in the amount of $18,000,000, in connection with the VCB acquisition, the Series C Preferred redemption, and cash dividends approved by the Company’s Board of Directors. The Company declared and paid a total of $2,048,000 or $0.20 per common share cash dividend to shareholders of record during the year ended December 31, 2013.

The Company’s primary source of income with which to pay cash dividends is dividends from the Bank. The California Financial Code restricts the total amount of dividends payable by a bank at any time without obtaining the prior approval of the California Department of Business Oversight to the lesser of (1) the bank’s retained earnings or (2) the Bank’s net income for its last three fiscal years, less distributions made to shareholders during the same three-year period. At December 31, 2015, $2,991,000 of the Bank’s retained earnings were free of these restrictions.

Capital Purchase Program — Small Business Lending Fund - On August 18, 2011, the Company entered into a Securities Purchase Agreement (SPA) with the Small Business Lending Fund of the United States Department of the Treasury (the Treasury), under which the Company issued 7,000 shares of Senior Non-Cumulative Perpetual Preferred Stock, Series C (Series C Preferred) to the Treasury for an aggregate purchase price of $7,000,000. Simultaneously, the Company agreed with Treasury under a Letter Agreement to redeem, for an aggregate price of $7,000,000, the 7,000 shares of the Company’s Series A Fixed Rate Cumulative Preferred Stock (Series A Stock) originally issued pursuant to the Treasury’s Capital Purchase Program (CPP) in 2009. The redemption of the Series A Stock resulted in an acceleration of the remaining discount booked at the time of the CPP transaction. In connection with the repurchase of the Series A Stock, the Company also repurchased the warrant (the Warrant) to purchase 79,037 shares of the Company’s common stock that was originally issued to Treasury in connection with the CPP transaction for total consideration of $185,000.

On December 31, 2013, the Company redeemed all 7,000 outstanding shares of its Series C Preferred from the Treasury, in exercise of its optional redemption rights pursuant to the terms of the Series C Preferred under the Company’s charter and the SPA. The Company paid the Treasury $7,087,500 in connection with the redemption, representing $1,000 per share of the Series C Preferred plus all accrued and unpaid dividends through the date of the redemption. The obligations of the Company under the SPA are terminated as a result of the redemption. No additional shares of Series C Preferred are outstanding.

A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations is as follows (in thousands, except share and per share amounts):



	For the Years Ended December 31,
	2015		2014		2013
Basic Earnings Per Common Share:
Net income	$	10,964	$	5,294	$	8,250
Less: Preferred stock dividends and accretion	—		—		(350		)
Income available to common shareholders	$	10,964	$	5,294	$	7,900
Weighted average shares outstanding	10,931,927		10,919,235		10,245,448
Net income per common share	$	1.00	$	0.48	$	0.77
Diluted Earnings Per Common Share:
Net income	$	10,964	$	5,294	$	8,250
Less: Preferred stock dividends and accretion	—		—		(350		)
Income available to common shareholders	$	10,964	$	5,294	$	7,900
Weighted average shares outstanding	10,931,927		10,919,235		10,245,448
Effect of dilutive stock options and warrants	83,836		80,703		62,592
Weighted average shares of common stock and common stock equivalents	11,015,763		10,999,938		10,308,040
Net income per diluted common share	$	1.00	$	0.48	$	0.77

Outstanding options, restricted stock, and warrants of 26,704, 170,585, and 202,355 were not factored into the calculation of dilutive stock options at December 31, 2015, 2014, and 2013, respectively, because they were anti-dilutive.