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.

Capital ratios are reviewed by Management on a regular basis to ensure that capital exceeds the prescribed regulatory minimums and is adequate to meet our anticipated future needs. For all periods presented, the Bank's ratios exceed the regulatory definition of "well capitalized" under the regulatory framework for prompt correct action and the Company's ratios exceed the required minimum ratios for capital adequacy purposes.

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. The capital conservation buffer as of December 31, 2016 was 0.625%. 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, 2016 and 2015. 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 are presented in the table below (exclusive of the capital conservation buffer).



	December 31, 2016				December 31, 2015
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio
Central Valley Community Bancorp and Subsidiary	$	122,601	8.75	%	$	105,825	8.65	%
Minimum regulatory requirement	$	56,057	4.00	%	$	48,950	4.00	%
Central Valley Community Bank	$	121,079	8.64	%	$	104,878	8.58	%
Minimum requirement for “Well-Capitalized” institution	$	70,080	5.00	%	$	61,148	5.00	%
Minimum regulatory requirement	$	56,064	4.00	%	$	48,918	4.00	%
Common Equity Tier 1 Ratio
Central Valley Community Bancorp and Subsidiary	$	120,080	12.48	%	$	103,152	13.44	%
Minimum regulatory requirement	$	43,426	4.50	%	$	34,650	4.50	%
Central Valley Community Bank	$	121,079	12.59	%	$	104,878	13.67	%
Minimum requirement for “Well-Capitalized” institution	$	62,665	6.50	%	$	50,017	6.50	%
Minimum regulatory requirement	$	43,383	4.50	%	$	34,627	4.50	%
Tier 1 Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	122,601	12.74	%	$	105,825	13.79	%
Minimum regulatory requirement	$	57,901	6.00	%	$	46,200	6.00	%
Central Valley Community Bank	$	121,079	12.59	%	$	104,878	13.67	%
Minimum requirement for “Well-Capitalized” institution	$	77,126	8.00	%	$	61,560	8.00	%
Minimum regulatory requirement	$	57,845	6.00	%	$	46,170	6.00	%
Total Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	132,052	13.72	%	$	115,466	15.04	%
Minimum regulatory requirement	$	77,202	8.00	%	$	61,601	8.00	%
Central Valley Community Bank	$	130,530	13.57	%	$	114,513	14.93	%
Minimum requirement for “Well-Capitalized” institution	$	96,408	10.00	%	$	76,949	10.00	%
Minimum regulatory requirement	$	77,126	8.00	%	$	61,560	8.00	%

Dividends - During 2016, the Bank declared and paid cash dividends to the Company in the amount of $13,010,000 in connection with the SVB acquisition, and 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 $2,715,000 or $0.24 per common share cash dividend to shareholders of record during the year ended December 31, 2016.

During 2015, the Bank declared and paid cash dividends to the Company in the amount of $2,260,000, 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 $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, in connection with the cash dividends 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.

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, 2016, $15,257,000 of the Bank’s retained earnings were free of these restrictions.

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,
	2016		2015		2014
Basic Earnings Per Common Share:
Net income	$	15,182	$	10,964	$	5,294
Weighted average shares outstanding	11,331,166		10,931,927		10,919,235
Net income per common share	$	1.34	$	1.00	$	0.48
Diluted Earnings Per Common Share:
Net income	$	15,182	$	10,964	$	5,294
Weighted average shares outstanding	11,331,166		10,931,927		10,919,235
Effect of dilutive stock options and warrants	104,283		83,836		80,703
Weighted average shares of common stock and common stock equivalents	11,435,449		11,015,763		10,999,938
Net income per diluted common share	$	1.33	$	1.00	$	0.48

No outstanding options and restricted stock awards were anti-dilutive at December 31, 2016. Outstanding options and restricted stock of 26,704 and 170,585 were not factored into the calculation of dilutive stock options at December 31, 2015, and 2014, respectively, because they were anti-dilutive.