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 can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements.

Under capital adequacy guidelines, the Company and the Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. These quantitative measures are established by regulation and require that minimum amounts and ratios of total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to average assets be maintained. 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. There are no conditions or events since that notification that management believes have changed the Bank’s category.

Management believes that the Company and the Bank met all their capital adequacy requirements as of December 31, 2011 and 2010. There are no conditions or events since those notifications that management believes have changed those categories.



	December 31, 2011				December 31, 2010
	Amount		Ratio		Amount		Ratio
	(Dollars in thousands)
Tier 1 Leverage Ratio
Central Valley Community Bancorp and Subsidiary	$	82,571	10.13	%	$	70,669	9.48	%
Minimum regulatory requirement	$	32,612	4.00	%	$	29,832	4.00	%
Central Valley Community Bank	$	81,599	10.01	%	$	69,457	9.32	%
Minimum requirement for “Well-Capitalized” institution	$	40,743	5.00	%	$	37,264	5.00	%
Minimum regulatory requirement	$	32,594	4.00	%	$	29,811	4.00	%
Tier 1 Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	82,571	16.20	%	$	70,669	14.16	%
Minimum regulatory requirement	$	20,383	4.00	%	$	19,965	4.00	%
Central Valley Community Bank	$	81,599	16.02	%	$	69,457	13.92	%
Minimum requirement for “Well-Capitalized” institution	$	30,554	6.00	%	$	29,929	6.00	%
Minimum regulatory requirement	$	20,369	4.00	%	$	19,953	4.00	%
Total Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	89,136	17.49	%	$	76,982	15.42	%
Minimum regulatory requirement	$	40,767	8.00	%	$	39,931	8.00	%
Central Valley Community Bank	$	88,159	17.31	%	$	75,766	15.19	%
Minimum requirement for “Well-Capitalized” institution	$	50,923	10.00	%	$	49,881	10.00	%
Minimum regulatory requirement	$	40,738	8.00	%	$	39,905	8.00	%

Dividends

No dividends on common shares were declared in 2011, 2010, or 2009.

The Company’s primary source of income with which to pay cash dividends are 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 Financial Institutions 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, 2011, retained earnings of $13,382,000 were free of such restrictions.

Stock Purchase Agreements

On December 23, 2009, the Company entered into Stock Purchase Agreements (Agreements) with a limited number of accredited investors (collectively, the “Purchasers”) to sell to the Purchasers a total of 1,264,952 shares of common stock, (Common Stock) at $5.25 per share and 1,359 shares of non-voting Series B Convertible Adjustable Rate Non-Cumulative Perpetual Preferred Stock (Series B Preferred Stock) at $1,000 per share, for an aggregate gross purchase price of $8,000,000 (the “Offering”) offset by issuance costs totaling $242,000. The Offering closed on December 23, 2009, and the Company issued an aggregate of 1,264,952 shares of its Common Stock and an aggregate of 1,359 shares of its Preferred Stock upon its receipt of consideration in cash.

The Series B Preferred Stock was eligible to receive a semi-annual non-cumulative preferred dividend with an initial annualized coupon of 10%, payable at the end of the first six months the shares are outstanding. The annual dividend rate would have increased to 15% for the second six month period and 20% for each six month period thereafter. Dividends may not be paid on any other class or series of the Company’s stock unless dividends are currently paid on the Preferred Stock in any period.

In May 2010, the shareholders of the Company approved an amendment to the Company’s governing instruments to create a series of non-voting common stock. In June 2010, the Company exercised its option to require the Purchasers to exchange 1,359 shares of Series B Preferred Stock for 258,862 shares of non-voting common stock. In August, 2011, the Company agreed to exchange of 258,862 shares of the Company’s non-voting common stock to 258,862 shares of the Company’s voting common stock. The issuance of voting common stock was conducted in a privately negotiated transaction exempt from registration pursuant to Sections 3(a)(9) and 4(2) of the Securities Act of 1933, as amended.

Capital Purchase Program — Small Business Lending Fund

On August 18, 2011, the Company entered into a Securities Purchase Agreement 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 (the “Preferred Shares”) 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 notified the Treasury of the Company’s intent to repurchase 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. On September 28, 2011, the Company completed the repurchase of the Warrant for total consideration of $185,000.

The Preferred Shares will qualify as Tier 1 capital and will pay non-cumulative dividends at an initial rate of 5% per annum. The dividend rate may vary, but not exceed 5%, with any reductions in interest rate to be calculated by reference to increases over a baseline amount in the Company's small business lending activities. The Preferred Stock may be redeemed by the Company, or by Treasury in the event that it is statutorily prevented from continuing to hold the Preferred Stock.

The Preferred Stock was issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended.

The Series C Preferred Stock is non-voting, other than class voting rights on (i) any authorization or issuance of shares ranking senior to the Series C Preferred Stock, (ii) any amendment to the rights of the Series C Preferred Stock, or (iii) any merger, exchange or similar transaction which would adversely affect the rights of the Series C Preferred Stock.

If dividends on the Series C Preferred Stock are not paid in full for six dividend periods, whether or not consecutive, the holders of the Series C Preferred Stock will have the right to elect 2 directors. The right to elect directors will end when full dividends have been paid for four consecutive dividend periods. The Company has paid all scheduled dividend payments as of December 31, 2011.

A reconciliation of the numerators and denominators of the basic and diluted earnings per common share computations is as follows:



	For the Years Ended December 31,
	2011			2010			2009
	(In thousands, except share and per share amounts)
Basic Earnings Per Common Share:
Net income	$	6,477		$	3,279		$	2,588
Less: Preferred stock dividends and accretion	(486		)	(395		)	(365		)
Income available to common shareholders	$	5,991		$	2,884		$	2,223
Weighted average shares outstanding	9,522,066			9,209,858			7,685,789
Net income per common share	$	0.63		$	0.31		$	0.29
Diluted Earnings Per Common Share:
Net income	$	6,477		$	3,279		$	2,588
Less: Preferred stock dividends and accretion	(486		)	(395		)	(365		)
Income available to common shareholders	$	5,991		$	2,884		$	2,223
Weighted average shares outstanding	9,522,066			9,209,858			7,685,789
Effect of dilutive stock options and warrants	16,596			80,813			117,975
Weighted average shares of common stock and common stock equivalents	9,538,662			9,290,671			7,803,764
Net income per diluted common share	$	0.63		$	0.31		$	0.28

Outstanding options and warrants of 436,619, 531,996, and 512,301 were not factored into the calculation of dilutive stock options at December 31, 2011, 2010, and 2009, respectively, because they were anti-dilutive.