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 is being phased-in between January 1, 2016 and January 1, 2019. The capital conservation buffer as of December 31, 2017 was 1.250% and 0.625% as of December 31, 2016. 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, 2017 and 2016. 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).

The following table presents the Company’s regulatory capital ratios as of December 31, 2017 and December 31, 2016.



(Dollars in thousands)	Actual Ratio				Minimum regulatory requirement (1)
December 31, 2017	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio	$	153,676	9.71	%	$	63,338	4.00	%
Common Equity Tier 1 Ratio (CET 1)	$	149,186	12.90	%	$	52,081	5.75	%
Tier 1 Risk-Based Capital Ratio	$	153,676	13.28	%	$	69,441	7.25	%
Total Risk-Based Capital Ratio	$	162,780	14.07	%	$	92,588	9.25	%

December 31, 2016
Tier 1 Leverage Ratio	$	122,601	8.75	%	$	56,057	4.00	%
Common Equity Tier 1 Ratio (CET 1)	$	120,080	12.48	%	$	43,426	5.13	%
Tier 1 Risk-Based Capital Ratio	$	122,601	12.74	%	$	57,901	6.63	%
Total Risk-Based Capital Ratio	$	132,052	13.72	%	$	77,202	8.63	%
(1) The 2017 and 2016 minimum regulatory requirement threshold includes the capital conservation buffer of 1.250% and 0.625%, respectively. These ratios are not reflected on a fully phased-in basis, which will occur in January 2019.

The following table presents the Bank’s regulatory capital ratios as of December 31, 2017 and December 31, 2016.



(Dollars in thousands)	Actual Ratio				Minimum regulatory requirement (1)
December 31, 2017	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio	$	149,779	9.46	%	$	63,332	4.00	%
Common Equity Tier 1 Ratio (CET 1)	$	149,779	12.96	%	$	52,040	5.75	%
Tier 1 Risk-Based Capital Ratio	$	149,779	12.96	%	$	69,387	7.25	%
Total Risk-Based Capital Ratio	$	158,882	13.74	%	$	92,516	9.25	%

December 31, 2016
Tier 1 Leverage Ratio	$	121,079	8.64	%	$	56,064	4.00	%
Common Equity Tier 1 Ratio (CET 1)	$	121,079	12.59	%	$	43,383	5.13	%
Tier 1 Risk-Based Capital Ratio	$	121,079	12.59	%	$	57,845	6.63	%
Total Risk-Based Capital Ratio	$	130,530	13.57	%	$	77,126	8.63	%
(1) The 2017 and 2016 minimum regulatory requirement threshold includes the capital conservation buffer of 1.250% and 0.625%, respectively. These ratios are not reflected on a fully phased-in basis, which will occur in January 2019.

Dividends - During 2017, the Bank declared and paid cash dividends to the Company in the amount of $3,133,000 in connection with the 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 $3,010,000 or $0.24 per common share cash dividend to shareholders of record during the year ended December 31, 2017.

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 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, in connection with the cash dividends 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.

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, 2017, $23,185,000 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,
	2017		2016		2015
Basic Earnings Per Common Share:
Net income	$	14,026	$	15,182	$	10,964
Weighted average shares outstanding	12,472,095		11,331,166		10,931,927
Net income per common share	$	1.12	$	1.34	$	1.00
Diluted Earnings Per Common Share:
Net income	$	14,026	$	15,182	$	10,964
Weighted average shares outstanding	12,472,095		11,331,166		10,931,927
Effect of dilutive stock options and warrants	250,255		104,283		83,836
Weighted average shares of common stock and common stock equivalents	12,722,350		11,435,449		11,015,763
Net income per diluted common share	$	1.10	$	1.33	$	1.00

No outstanding options and restricted stock awards were anti-dilutive at December 31, 2017 and 2016. Outstanding options and restricted stock of 26,704 were not factored into the calculation of dilutive stock options at December 31, 2015, because they were anti-dilutive.