CENTRAL VALLEY COMMUNITY BANCORP (Form: 10-Q, Received: 08/16/2010 15:58:54)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2010

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER: 000—31977

CENTRAL VALLEY COMMUNITY BANCORP

(Exact name of registrant as specified in its charter)

California		77-0539125
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7100 N. Financial Dr, Suite 101, Fresno, California		93720
(Address of principal executive offices)		(Zip code)

Registrant’s telephone number (559) 298-1775

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o

Non-accelerated filer o		Smaller reporting company x
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 12, 2010 there were 9,364,016 shares of the registrant’s common stock outstanding.

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

2010 QUARTERLY REPORT ON FORM 10-Q

TABLE OF CONTENTS

PART 1: FINANCIAL INFORMATION		3

ITEM 1: FINANCIAL STATEMENTS		3

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		17

ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK		40

ITEM 4: CONTROLS AND PROCEDURES		41

PART II: OTHER INFORMATION		42

ITEM 1: LEGAL PROCEEDINGS		42

ITEM 1A: RISK FACTORS		42

ITEM 2: CHANGES IN SECURITIES AND USE OF PROCEEDS		42

ITEM 3: DEFAULTS UPON SENIOR SECURITIES		42

ITEM 4: REMOVED AND RESERVED		42

ITEM 5: OTHER INFORMATION		42

ITEM 6: EXHIBITS		42

SIGNATURES		43

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PART 1: FINANCIAL INFORMATION

ITEM 1: FINANCIAL STATEMENTS

CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(In thousands, except share amounts)	June 30, 2010		December 31, 2009
	(Unaudited)
ASSETS
Cash and due from banks	$	16,171	$	13,857
Interest-earning deposits in other banks	27,243		34,544
Federal funds sold	750		279
Total cash and cash equivalents	44,164		48,680
Available-for-sale investment securities (Amortized cost of $185,618 at June 30, 2010 and $199,744 at December 31, 2009)	186,436		197,319
Loans, less allowance for credit losses of $11,468 at June 30, 2010 and $10,200 at December 31, 2009	457,184		449,007
Bank premises and equipment, net	6,038		6,525
Other real estate owned	3,502		2,832
Bank owned life insurance	11,193		10,998
Federal Home Loan Bank stock	3,050		3,140
Goodwill	23,577		23,577
Core deposit intangibles	1,405		1,612
Accrued interest receivable and other assets	19,440		21,798
Total assets	$	755,989	$	765,488
LIABILITIES AND SHAREHOLDERS’ EQUITY
Deposits:
Non-interest bearing	$	143,556	$	159,630
Interest bearing	487,753		480,537
Total deposits	631,309		640,167
Short-term borrowings	10,000		5,000
Long-term debt	4,000		14,000
Junior subordinated deferrable interest debentures	5,155		5,155
Accrued interest payable and other liabilities	10,074		9,943
Total liabilities	660,538		674,265
Commitments and contingencies (Note 8)

Shareholders’ equity:
Preferred stock, no par value, $1,000 per share liquidation preference; 10,000,000 shares authorized;
Series A, no par value, 7,000 issued and outstanding	6,841		6,819
Series B, no par value, issued and outstanding none at June 30, 2010 and 1,359 at December 31, 2009	—		1,317
Common stock, no par value; 80,000,000 authorized; issued and outstanding 9,362,016 at June 30, 2010 and 8,949,754 at December 31, 2009	39,590		37,611
Retained earnings	48,530		46,931
Accumulated other comprehensive income (loss), net of tax	490		(1,455		)
Total shareholders’ equity	95,451		91,223
Total liabilities and shareholders’ equity	$	755,989	$	765,488

See notes to unaudited consolidated financial statements.

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

(Unaudited)

	For the Three Months					For the Six Months
	Ended June 30,					Ended June 30,
(In thousands, except earnings per share amounts)	2010			2009		2010			2009
INTEREST INCOME:
Interest and fees on loans	$	6,927		$	7,515	$	13,705		$	15,055
Interest on Federal funds sold	1			3		1			14
Interest and dividends on investment securities:
Taxable	1,364			2,128		3,017			4,339
Exempt from Federal income taxes	759			806		1,516			1,513
Total interest income	9,051			10,452		18,239			20,921
INTEREST EXPENSE:
Interest on deposits	983			1,499		2,036			3,281
Interest on junior subordinated deferrable interest debentures	25			36		48			77
Other	113			169		239			330
Total interest expense	1,121			1,704		2,323			3,688
Net interest income before provision for credit losses	7,930			8,748		15,916			17,233
PROVISION FOR CREDIT LOSSES	1,000			2,500		1,600			4,417
Net interest income after provision for credit losses	6,930			6,248		14,316			12,816
NON-INTEREST INCOME:
Service charges	863			858		1,724			1,678
Appreciation in cash surrender value of bank owned life insurance	98			97		195			195
Loan placement fees	76			75		104			121
Net realized gains on sales and calls of investment securities	30			62		51			511
Total other-than-temporary impairment on available-for-sale-investment securities	(571		)	—		18			—
Change in fair value recognized in other comprehensive income	(129		)	—		(718		)	—
Net other-than-temporary impairment loss on available-for-sale investment securities	(700		)	—		(700		)	—
Federal Home Loan Bank dividends	2			—		4			—
Gain on sale and disposal of equipment	—			—		5			—
Other income	378			309		698			634
Total non-interest income	747			1,401		2,081			3,139
NON-INTEREST EXPENSES:
Salaries and employee benefits	3,837			3,642		7,584			7,330
Occupancy and equipment	988			944		1,914			1,889
Regulatory assessments	306			642		606			1,010
Data processing expense	282			374		568			646
Advertising	183			184		375			369
Audit and accounting fees	114			111		228			228
Legal fees	167			72		289			164
Other real estate owned	127			16		441			16
Amortization of core deposit intangibles	103			103		207			207
Loss on sale of assets	—			—		—			—
Other expense	1,035			1,041		2,134			2,110
Total non-interest expenses	7,142			7,129		14,346			13,969
Income before provision for income taxes	535			520		2,051			1,986
PROVISION FOR INCOME TAXES	31			56		255			263
Net income	$	504		$	464	$	1,796		$	1,723

Net income	$	504		$	464	$	1,796		$	1,723
Preferred stock dividends and accretion	99			135		198			184
Net income available to common shareholders	$	405		$	329	$	1,598		$	1,539

Net income per common share:
Basic earnings per share	$	0.04		$	0.04	$	0.18		$	0.20
Weighted average common shares used in basic computation	9,131,753			7,651,918		9,051,168			7,647,128
Diluted earnings per share	$	0.04		$	0.04	$	0.17		$	0.20
Weighted average common shares used in diluted computation	9,210,838			7,760,014		9,148,724			7,765,519

See notes to unaudited consolidated financial statements

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CENTRAL VALLEY COMMUNITY BANCORP AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009

(Unaudited)

(In thousands)	2010			2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	1,796		$	1,723
Adjustments to reconcile net income to net cash provided by operating activities:
Net increase in deferred loan fees	184			110
Depreciation	638			694
Accretion	947			395
Amortization	(559		)	(1,401		)
Stock-based compensation	113			149
Tax benefit from exercise of stock options	(25		)	(8		)
Provision for credit losses	1,600			4,417
Net other than temporary impairment losses on investment securities	700			—
Net realized gains on sales and calls of available-for-sale investment securities	(51		)	(511		)
Net gain on sale and disposal of equipment	(5		)	—
Increase in bank owned life insurance, net of expenses	(195		)	(190		)
Write down of other real estate owned	283			—
Net decrease (increase) in accrued interest receivable and other assets	1,612			(143		)
Net decrease in prepaid FDIC Assessments	501			—
Net increase (decrease) in accrued interest payable and other liabilities	131			(1,204		)
Provision for deferred income taxes	(1,028		)	(8		)
Net cash provided by operating activities	6,642			4,023

CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of available-for-sale investment securities	(15,758		)	(25,490		)
Purchases of held-to-maturity investment securities	—			(3		)
Proceeds from sales or calls of available-for-sale investment securities	15,698			23,620
Proceeds from maturity of available-for-sale investment securities	156			2,885
Proceeds from principal repayments of available-for-sale investment securities	13,200			16,872
Proceeds from principal repayments of held-to-maturity investment securities	—			1,500
Net decrease (increase) in interest bearing deposits in other banks	7,301			(100		)
Net increase in loans	(13,095		)	(13,266		)
Proceeds from sale of other real estate owned	2,181			—
Purchases of premises and equipment	(151		)	(359		)
FHLB stock redeemed	90			—
Proceeds from bank owned life insurance	—			430
Proceeds from sale of premises and equipment	5			—
Net cash provided by investing activities	9,627			6,089

CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in demand, interest bearing and savings deposits	10,262			(19,997		)
Net (decrease) increase in time deposits	(19,120		)	6,658
Proceeds from issuance of Series A Preferred Stock and warrants	—			7,000
Proceeds from short-term borrowings from Federal Home Loan Bank	—			10,000
Repayments of short-term borrowings to Federal Home Loan Bank	(5,000		)	—
Repayments of borrowings from other financial institutions	—			(6,368		)
Proceeds from exercise of stock options	524			97
Tax benefit from exercise of stock options	25			8
Cash paid for preferred stock dividends	(175		)	(102		)
Net cash used in financing activities	(13,484		)	(2,704		)
Increase in cash and cash equivalents	2,785			7,408
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR	14,136			19,518
CASH AND CASH EQUIVALENTS AT END OF PERIOD	$	16,921		$	26,926
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid during the year for :
Interest	$	2,518		$	3,930
Income taxes	$	301		$	450
Non-Cash Investing Activities:
Net pre-tax change in unrealized gain (losses) on available-for-sale investment securities	$	3,243		$	(3,453	)
Non-Cash Financing Activities:
Transfer of loans to other real estate owned	$	3,134		$	2,550
Accrued preferred stock dividends	$	44		$	44

See notes to unaudited consolidated financial statements

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CENTRAL VALLEY COMMUNITY BANCORP

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Basis of Presentation

The interim unaudited consolidated financial statements of Central Valley Community Bancorp and subsidiary have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the SEC). These interim consolidated financial statements include the accounts of Central Valley Community Bancorp and its wholly owned subsidiary Central Valley Community Bank (the Bank) (collectively, the Company). All significant intercompany accounts and transactions have been eliminated in consolidation. Certain information and footnote disclosures normally included in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The Company believes that the disclosures are adequate to make the information presented not misleading. These interim consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s 2009 Annual Report to Shareholders on Form 10-K. In the opinion of management, all adjustments, consisting of only normal recurring adjustments, necessary to present fairly the Company’s financial position and shareholders’ equity at June 30, 2010 and December 31, 2009, and the results of its operations for the three and six month interim periods ended June 30, 2010 and June 30, 2009 and its cash flows for the six month interim periods ended June 30, 2010 and June 30, 2009 have been included. Certain reclassifications have been made to prior year amounts to conform to the 2010 presentation. The results of operations for interim periods are not necessarily indicative of results for the full year.

The preparation of these consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP) requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Management has determined that since all of the banking products and services offered by the Company are available in each branch of the Bank, all branches are located within the same economic environment and management does not allocate resources based on the performance of different lending or transaction activities, it is appropriate to aggregate the Bank branches and report them as a single operating segment. No customer accounts for more than 10 percent of revenues for the Company or the Bank.

Recent Accounting Pronouncements

Fair Value Measurements and Disclosures

In January 2010, the FASB issued ASU 2010-06, Fair Value Measurements and Disclosures (“Topic 820”): Improving Disclosures about Fair Value Measurements (“ASU 10-06”). ASU 10-06 revises two disclosure requirements concerning fair value measurements and clarifies two others. It requires separate presentation of significant transfers into and out of Levels 1 and 2 of the fair value hierarchy and disclosure of the reasons for such transfers. It will also require the presentation of purchases, sales, issuances and settlements within Level 3 on a gross basis rather than a net basis. The amendments also clarify that disclosures should be disaggregated by class of asset or liability and that disclosures about inputs and valuation techniques should be provided for both recurring and non-recurring fair value measurements. The Company’s disclosures about fair value measurements are presented in Note 5: Fair Value Measurements. These new disclosure requirements were adopted by the Company in the first quarter of 2010, with the exception of the requirement concerning gross presentation of Level 3 activity, which is effective for fiscal years beginning after December 15, 2010 and they did not have a material impact on its financial condition or results of operations. Management does not believe that the adoption of the remaining portion of this ASU will have a material impact on the Company’s financial position, results of operations, cash flows, or disclosures.

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Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses

In July 2010, the FASB issued Accounting Standards Update No. 2010-20, Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This standard expands disclosures about credit quality of financing receivables and the allowance for loan losses. The standard will require the Company to expand disclosures about the credit quality of our loans and the related reserves against them. The extra disclosures will include disaggregated matters related to our past due loans, credit quality indicators, and modifications of loans. The Company will adopt the standard beginning with our December 31, 2010 financial statements. This standard will not have an impact on the Company’s financial position or results of operations.

Impact of New Financial Accounting Standards

Accounting for Transfers of Financial Assets

In June 2009, the FASB issued ASC Topic 860 (previously SFAS No. 166), Accounting for Transfers of Financial Assets, an amendment of SFAS No. 140. This standard amends the derecognition accounting and disclosure guidance included in previously issued standards. This standard eliminates the exemption from consolidation for qualifying special-purpose entities (SPEs) and also requires a transferor to evaluate all existing qualifying SPEs to determine whether they must be consolidated in accordance with ASC Topic 810. This standard also provides more stringent requirements for derecognition of a portion of a financial asset and establishes new conditions for reporting the transfer of a portion of a financial asset as a sale. This standard is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. The Company adopted the provisions of this standard January 1, 2010 and they did not have a material impact on its financial condition or results of operations.

Transfers and Servicing

In December 2009, the FASB issued Accounting Standards Update (ASU) 2009-16, Transfers and Servicing (ASC Topic 860): Accounting for Transfers of Financial Assets, which updates the derecognition guidance in ASC Topic 860 for previously issued SFAS No. 166. This update reflects the Board’s response to issues entities have encountered when applying ASC 860, including: (1) requires that all arrangements made in connection with a transfer of financial assets be considered in the derecognition analysis, (2) clarifies when a transferred asset is considered legally isolated from the transferor, (3) modifies the requirements related to a transferee’s ability to freely pledge or exchange transferred financial assets, and (4) provides guidance on when a portion of a financial asset can be derecognized. This update is effective for financial asset transfers occurring after the beginning of an entity’s first fiscal year that begins after November 15, 2009. Early adoption is prohibited. The Company adopted the provisions of this standard January 1, 2010 and they did not have a material impact on its financial condition or results of operations.

Improvements to Financial Reporting of Interests in Variable Interest Entities

In June 2009, the FASB issued ASC Topic 810 (previously SFAS No. 167), Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This standard amends the consolidation guidance applicable to variable interest entities. The amendments to the consolidation guidance affect all entities currently within the scope of ASC Topic 810, as well as qualifying special-purpose entities that are currently excluded from the scope of ASC Topic 810. This standard is effective as of the beginning of the first annual reporting period that begins after November 15, 2009. The Company adopted the provisions of this standard January 1, 2010 and they did not have a material impact on its financial condition or results of operations.

Note 2. Share-Based Compensation

On June 30, 2010, the Company has three stock-based compensation plans which are described below.

During 1992, the Bank established a Stock Option Plan for which shares are reserved for issuance to employees and directors under incentive and nonstatutory agreements. The Company assumed all obligations under this plan as of November 15, 2000, and options to purchase shares of the Company’s common stock were substituted for options to purchase shares of common stock of the Bank. Outstanding options under this plan are exercisable until their expiration, however, no new options will be granted under this plan.

On November 15, 2000, the Company adopted, and subsequently amended on December 20, 2000, the Central Valley Community Bancorp 2000 Stock Option Plan for which 593,804 shares remain reserved for issuance for options already granted to employees and directors under incentive and nonstatutory agreements and 15,091 remain reserved for future grants as of June 30, 2010. The plan requires that the option price may not be less than the fair market value of the stock at the date the option is granted, and that the option price must be paid in full at the time it is exercised. The options under the plan expire on dates determined by the Board of Directors, but not later than ten years from the date of grant. The vesting period is determined by the Board of Directors and is generally over five years.

In May 2005, the Company adopted the Central Valley Community Bancorp 2005 Omnibus Incentive Plan (2005 Plan). The plan provides for awards in the form of incentive stock options, non-statutory stock options, stock appreciation rights, and restricted stock. The plan also allows for performance awards that may be in the form of cash or shares of the Company, including restricted stock. The maximum number of shares that can be issued with respect to all awards under the plan is 476,000. Currently under the 2005 Plan, there are 43,000 shares reserved for issuance for options already granted to employees and 433,000 remain reserved for future grants as of June 30, 2010. The plan requires that the exercise price may not be less than 100% of the market value of the stock at the date the option is granted, and that the option price must be paid in full at the time it is exercised. The options and awards under the plan expire on dates determined by the Board of Directors, but not later than 10 years from the date of grant. The vesting period for the options and option related stock appreciation rights is determined by the Board of Directors and is generally over five years.

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For the six month periods ended June 30, 2010 and 2009, the compensation cost recognized for stock option compensation was $113,000 and $149,000, respectively. For the quarter ended June 30, 2010 and 2009, compensation cost recognized was $57,000 and $72,000, respectively. The recognized tax benefit for stock option compensation expense was $26,000 and $19,000, for the six month periods ended June 30, 2010 and 2009, respectively. For the three month periods ended June 30, 2010 and 2009, recognized tax benefits were $13,000.

The Company bases the fair value of the options granted on the date of grant using a Black-Scholes Merton option pricing model that uses assumptions based on expected option life and the level of estimated forfeitures, expected stock volatility, risk free interest rate, and dividend yield. The expected term of the Company’s options was determined under the applicable guidance for estimating expected term of options. Stock volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U. S. Treasury yield curve for the periods within the contractual life of the options in effect at the time of grant. The compensation cost for options granted is based on the weighted average grant date fair value per share.

Options to purchase 1,000 shares of the Company’s common stock were issued in the first half of 2010 and in the same period of 2009, options to purchase 13,500 shares of the Company’s common stock were issued from the 2005 Plan at an exercise price equal to the fair market value at the grant date

A summary of the combined activity of the Plans for the six month period ended June 30, 2010 follows:

	Shares		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)	Aggregate Intrinsic Value
Options outstanding at January 1, 2010	789,934
Options granted	1,000		$	5.30
Options exercised	(153,400	)	$	3.42
Options canceled	(730	)	$	9.49
Options outstanding at June 30, 2010	636,804		$	7.49	3.51	$	518
Options vested or expected to vest at June 30, 2010	578,054		$	7.37	4.36	$	476
Options exercisable June 30, 2010	546,316		$	7.32	3.00	$	507

The weighted-average grant-date fair value of options granted in the six month period ended June 30, 2010 and 2009 was $2.34 and $1.33 respectively.

The total intrinsic value of 153,400 options exercised in the six months ended June 30, 2010 was $340,000. The intrinsic value of 22,522 options exercised in the six months ended June 30, 2009 was $18,000.

Cash received from options exercised for the six months ended June 30, 2010 was $524,000. The actual tax benefit realized for the tax deductions from options exercised totaled $25,000 for six months ended June 30, 2010.

As of June 30, 2010, there was $341,000 of total unrecognized compensation cost related to non-vested share-based compensation arrangements granted under all plans. The cost is expected to be recognized over a weighted average period of two years.

Note 3. Earnings per share

Basic earnings per share (EPS), which excludes dilution, is computed by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur if securities or other contracts to issue common stock, such as stock options or warrants, stock appreciation rights settled in stock or restricted stock awards, result in the issuance of common stock which shares in the earnings of the Company. There was no difference in the net income used in the calculation of basic earnings per share and diluted earnings per share for the Six month periods ended June 30, 2010 and 2009.

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A reconciliation of the numerators and denominators of the basic and diluted EPS computations is as follows:

Basic Earnings Per share	Three Months Ended June 30,				For the Six Months Ended June 30,
In thousands (except share and per share amounts)	2010		2009		2010		2009
Net Income	$	504	$	464	$	1,796	$	1,723
Less: Preferred stock dividends and accretion	99		135		198		184
Income available to common shareholders	$	405	$	329	$	1,598	$	1,539
Weighted average shares outstanding	9,131,753		7,651,918		9,051,168		7,647,128
Net income per share	$	0.04	$	0.04	$	0.18	$	0.20

Diluted Earnings Per share	Three Months Ended June 30,				For the Six Months Ended June 30,
In thousands (except share and per share amounts)	2010		2009		2010		2009
Net Income	$	504	$	464	$	1,796	$	1,723
Less: Preferred stock dividends and accretion	99		135		198		184
Income available to common shareholders	$	405	$	329	$	1,598	1,539
Weighted average shares outstanding	9,131,753		7,651,918		9,051,168		7,647,128
Effect of dilutive stock options	79,085		108,096		97,556		118,391
Weighted average shares of common stock and common stock equivalents	9,210,838		7,760,014		9,148,724		7,765,519
Net income per diluted share	$	0.04	$	0.04	$	0.17	$	0.20

Note 4. Investments

The investment portfolio consists primarily of agency securities, mortgage backed securities, and municipal securities and are classified available-for-sale. As of June 30, 2010, $126,295,000 was held as collateral for borrowing arrangements, public funds, and for other purposes. Total investments were $186,436,000 at June 30, 2010 compared to $197,319,000 at December 31, 2009, a decrease of $10,883,000, or 5.5%.

The fair value of the available-for-sale investment portfolio reflected an unrealized gain of $818,000 at June 30, 2010 compared to an unrealized loss of $2,425,000 at December 31, 2009.

The following table sets forth the carrying values and estimated fair values of our investment securities portfolio at the dates indicated:

	June 30, 2010
Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt Securities:
U.S. Government agencies	$	223	$	8	$	—		$	231
Obligations of states and political subdivisions	69,083		3,640		(556		)	72,167
U.S. Government agencies collateralized by mortgage obligations	82,452		1,622		(148		)	83,926
Other collateralized mortgage obligations	25,714		268		(4,215		)	21,767
Corporate debt securities	500		16		—			516
Other equity securities	7,646		183		—			7,829
	$	185,618	$	5,737	$	(4,919	)	$	186,436

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	December 31, 2009
Available-for-Sale Securities	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Debt Securities:
U.S. Government agencies	$	353	$	10	$	—		$	363
Obligations of states and political subdivisions	68,708		3,050		(946		)	70,812
U.S. Government agencies collateralized by mortgage obligations	85,530		1,283		(858		)	85,955
Other collateralized mortgage obligations	36,280		403		(5,413		)	31,270
Corporate debt securities	1,228		86		—			1,314
Other equity securities	7,645		—		(40		)	7,605
	$	199,744	$	4,832	$	(7,257	)	$	197,319

Investment securities with unrealized losses as of the dates indicated are summarized and classified according to the duration of the loss period as follows:

	June 30, 2010
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-Sale Securities	Value		Losses			Value		Losses			Value		Losses
Debt Securities:
Obligations of states and political subdivisions	$	5,717	$	(111	)	$	4,487	$	(445	)	$	10,204	$	(556	)
U.S. Government agencies collateralized by mortgage obligations	19,807		(148		)	226		—			20,033		(148		)
Other collateralized mortgage obligations	1,103		(9		)	16,081		(4,206		)	17,184		(4,215		)
	$	26,627	$	(268	)	$	20,794	$	(4,651	)	$	47,421	$	(4,919	)

	December 31, 2009
	Less than 12 Months					12 Months or More					Total
	Fair		Unrealized			Fair		Unrealized			Fair		Unrealized
Available-for-Sale Securities	Value		Losses			Value		Losses			Value		Losses
Debt Securities:
Obligations of states and political subdivisions	$	9,001	$	(295	)	$	4,911	$	(651	)	$	13,912	$	(946	)
U.S. Government agencies collateralized by mortgage obligations	40,691		(856		)	331		(2		)	41,022		(858		)
Other collateralized mortgage obligations	3,474		(446		)	19,878		(4,967		)	23,352		(5,413		)
Other securities	7,605		(40		)	—		—			7,605		(40		)
	$	60,771	$	(1,637	)	$	25,120	$	(5,620	)	$	85,891	$	(7,257	)

As of June 30, 2010, the Company performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). Management evaluated all available-for-sale investment securities with an unrealized loss at June 30, 2010 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at June 30, 2010 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000. In addition, management reviewed all private label residential mortgage backed securities (PLRMBS) at June 30, 2010.

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For those bonds that met the evaluation criteria management obtained and reviewed the most recently published national credit ratings for those bonds. For those bonds that were municipal debt securities with an investment grade rating by the rating agencies, management also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded that no credit related impairment existed based on the rating. The evaluation for PLRMBS also includes estimating projected cash flows that the Company is likely to collect based on an assessment of all available information about the applicable security on an individual basis, the structure of the security, and certain assumptions, such as the remaining payment terms for the security, prepayment speeds, default rates, loss severity on the collateral supporting the security based on underlying loan-level borrower and loan characteristics, expected housing price changes, and interest rate assumptions, to determine whether the Company will recover the entire amortized cost basis of the security. In performing a detailed cash flow analysis, the Company identified the best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows (discounted at the security’s effective yield) that is less than the amortized cost basis of the security, an OTTI is considered to have occurred.

To assess whether it expects to recover the entire amortized cost basis of its PLRMBS, the Company performed a cash flow analysis for all of its PLRMBS as of June 30, 2010. In performing the cash flow analysis for each security, the Company uses a third-party model. The model considers borrower characteristics and the particular attributes of the loans underlying the Company’s securities, in conjunction with assumptions about future changes in home prices and other assumptions, to project prepayments, default rates, and loss severities. In addition for those PLRMBS that were rated below investment grade, management contracted with a third party evaluation specialist to determine if a credit loss existed.

The month-by-month projections of future loan performance are allocated to the various security classes in each securitization structure in accordance with the structure’s prescribed cash flow and loss allocation rules. When the credit enhancement for the senior securities in a securitization is derived from the presence of subordinated securities, losses are allocated first to the subordinated securities until their principal balance is reduced to zero. The projected cash flows are based on a number of assumptions and expectations, and the results of these models can vary significantly with changes in assumptions and expectations. The scenario of cash flows determined based on the model approach described above reflects a best-estimate scenario.

At each quarter end, the Company compares the present value of the cash flows expected to be collected on its PLRMBS to the amortized cost basis of the securities to determine whether a credit loss exists.

The unrealized losses associated with private residential PLRMBS are primarily driven by higher projected collateral losses, wider credit spreads, and changes in interest rates. The Company assesses for credit impairment using a discounted cash flow model. The key assumptions include home price depreciation, default rates, severities, discount rates and prepayment rates. Losses are estimated to a security by forecasting the underlying mortgage loans in each transaction. The forecasted loan performance is used to project cash flows to the various tranches in the structure. Based upon management’s assessment of the expected credit losses of the security given the performance of the underlying collateral compared with our credit enhancement (which occurs as a result of credit loss protection provided by subordinated tranches), the Company expects to recover the entire amortized cost basis of these securities, with the exception of certain securities for which OTTI was recorded.

At June 30, 2010, the Company had a total of 42 PLRMBS with a remaining principal balance of $21,767,000 and a net unrealized loss of approximately $3,947,000. 15 of these securities account for $4,215,000 of the unrealized loss at June 30, 2010 offset by 27 of these securities with gains totaling $268,000. 12 of these PLRMBS with a remaining principal balance of $17, 328,000 had credit ratings below investment grade. The Company continues to perform extensive analyses on these securities as well as all whole loan CMOs. Several of these investment securities continue to demonstrate cash flows and credit support as expected and the expected cash flows of the security discounted at the security’s effective yield are greater than the book value of the security, therefore management does not consider these securities to be other than temporarily impaired. Based on the analyses performed, eight PLRMBS with a remaining principal balance of $17,044,000 were considered to be other than temporarily impaired at June 30, 2010 for which we recorded an OTTI charge of $700,000 was recorded against earnings. This charge was taken to reflect ongoing and increasing deterioration of credit quality and increasing loss severities of the underlying mortgages. However, the cumulative unrealized loss on these securities decreased during the three and six months ended June 30, 2010 primarily due to a declining interest rate environment. This unrealized gain was recognized in other comprehensive income and is also presented in the income statement as a component of non-interest income in the presentation of other-than-temporary impairment losses.

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Investment securities as of June 30, 2010 with credit ratings below investment grade are summarized in the table below (dollars in thousands):

Description	Book Value		Market Value		Unrealized (Loss) or Gain			Rating	Agency	12 Month Historical Prepayment Rates %	Projected Default Rates %	Projected Severity Rates %	Original Purchase Price %	Current Credit Enhancement %
PHHAM	$	3,322	$	2,682	$	(640	)	CC	Fitch	13.61	23.69	50.00	97.25	5.53
RAST	2,913		2,144		(769		)	C	Fitch	12.59	24.63	56.78	98.50	1.55
CWALT 1	1,092		826		(266		)	CC	Fitch	12.90	26.60	58.35	100.73	7.81
CWALT 2	465		406		(59		)	CC	Fitch	12.01	26.66	55.13	101.38	7.03
CWALT 3	2,494		2,173		(321		)	CCC	S&P	10.39	22.07	46.08	100.25	10.16
FHAMS	2,714		2,265		(449		)	CC	Fitch	14.17	18.89	50.00	95.00	3.37
CHASE	322		320		(2		)	CC	Fitch	19.05	17.88	43.87	93.25	4.94
CWHL	192		194		2			BB-	S&P	15.58	10.06	22.01	97.42	7.24
GSR	2,712		2,371		(341		)	CC	Fitch	14.05	19.04	47.23	96.25	4.34
CONHE	98		94		(4		)	BB+	S&P	2.90	16.3	40.00	86.39	0.006
BOAA 2	214		172		(42		)	BB	Fitch	7.93	9.38	51.75	97.25	5.70
RAMP	790		782		(8		)	BB	S&P	17.95	2.14	29.49	105.69	17.63
TOTALS	$	17,328	$	14,429	$	(2,899	)

The following table provides a roll forward as of June 30, 2010 of investment securities credit losses recorded in earnings. The beginning balance represents the credit loss component for which OTTI occurred on debt securities in prior periods. Additions represent the first time a debt security was credit impaired or when subsequent credit impairments have occurred on securities for which OTTI credit losses have been previously recognized.

(Dollars in thousands)	OTTI Related to Credit Loss			OTTI Related to All Other Factors		Total OTTI
Balance, December 31, 2009	$	300		$	—	$	300
Charges on Securities for which OTTI was not previously recognized	700			3,068		3,768
Realized losses for securities sold	(300		)	—		(300		)
Balance, June 30, 2010	$	700		$	3,068	$	3,768

Note 5. Fair Value Measurements

The estimated carrying and fair values of the Company’s financial instruments are as follows (in thousands):

	June 30, 2010				December 31, 2009
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value

Financial assets:
Cash and due from banks	$	16,171	$	16,171	$	13,857	$	13,857
Interest-earning deposits in other banks	27,243		27,243		34,544		34,544
Federal funds sold	750		750		279		279
Available-for-sale investment securities	186,436		186,436		197,319		197,319
Loans, net	457,184		456,095		449,007		460,238
Bank owned life insurance	11,193		11,193		10,998		10,998
FHLB stock	3,050		3,050		3,140		3,140
Accrued interest receivable	3,286		3,286		3,608		3,608

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Financial liabilities:
Deposits	$	631,309	$	632,739	$	640,167	$	641,279
Short-term borrowings	10,000		10,000		5,000		5,000
Long-term debt	4,000		4,408		14,000		14,487
Junior subordinated defer-rable interest debentures	5,155		5,155		5,155		5,155
Accrued interest payable	458		458		416		416

These estimates do not reflect any premium or discount that could result from offering the Company’s entire holdings of a particular financial instrument for sale at one time, nor do they attempt to estimate the value of anticipated future business related to the instruments. In addition, the tax ramifications related to the realization of unrealized gains and losses can have a significant effect on fair value estimates and have not been considered in any of these estimates.

These estimates are made at a specific point in time based on relevant market data and information about the financial instruments. Because no market exists for a significant portion of the Company’s financial instruments, fair value estimates are based on judgments regarding current economic conditions, risk characteristics of various financial instruments and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect the fair values presented.

The following methods and assumptions were used to estimate the fair value of financial instruments. For cash and due from banks, interest-earning deposits in other banks, Federal funds sold, variable-rate loans, bank owned life insurance, accrued interest receivable and payable, FHLB stock, demand deposits and short-term borrowings, the carrying amount is estimated to be fair value. For investment securities, fair values are based on quoted market prices, quoted market prices for similar securities and indications of value provided by brokers. The fair values for fixed-rate loans are estimated using discounted cash flow analyses, using interest rates currently being offered at each reporting date for loans with similar terms to borrowers of comparable creditworthiness. Fair values for fixed-rate certificates of deposit are estimated using discounted cash flow analyses using interest rates offered at each reporting date by the Company for certificates with similar remaining maturities. The fair value of long-term debt and subordinated debentures was determined based on the current market for like-kind instruments of a similar maturity and structure. The fair values of commitments are estimated using the fees currently charged to enter into similar agreements and are not significant and, therefore, not included in the above table.

Fair Value Hierarchy

In accordance with applicable guidance, the Company groups its assets and liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. Valuations within these levels are based upon:

Level 1 — Quoted market prices for identical instruments traded in active exchange markets.

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable or can be corroborated by observable market data.

Level 3 — Model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect the Company’s estimates of assumptions that market participants would use on pricing the asset or liability. Valuation techniques include management judgment and estimation which may be significant.

Assets Recorded at Fair Value

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and nonrecurring basis as of June 30, 2010:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis under other accounting pronouncements (in thousands).

Description	Fair Value		Level 1		Level 2		Level 3

Available-for-sale investment securities	$	186,436	$	18	$	178,607	$	7,811

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Fair values for available-for-sale investment securities, which include debt securities of U.S. Governmental agencies and obligations of states and political subdivisions, are based on quoted market prices for similar securities. The securities in Level 3 are not actively traded therefore the pricing is internally calculated using matrix pricing.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows.

	Available-for-sale Investment Securities
	Three Months Ended			Six Months Ended
(In thousands)	June 30, 2010			June 30, 2010
Beginning balance	$	8,437		$	14,097
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)	235			248
Included in other comprehensive income	24			316
Purchases, sales and principal payments	(885		)	(3,772		)
Transfers in and/or out of Level 3	—			(3,078		)
Ending balance	$	7,811		$	7,811

Gains and losses (realized and unrealized) included in earnings (or changes in net assets) for the three month period ended June 30, 2010 totaled $30,000 and were included in other revenue.

Non-recurring Basis

The Company may be required, from time to time, to measure certain assets at fair value on a non-recurring basis. These include assets that are measured at the lower of cost or fair value that were recognized at fair value which was below cost at June 30, 2010 (in thousands).

Description	Fair Value		Level 1		Level 2		Level 3		Total Losses
Impaired loans	$	10,130	$	—	$	—	$	10,130	$	(1,611	)
Other real estate owned	3,502		—		—		3,502		—
Total assets and liabilities measured at fair value on a non-recurring basis	$	13,632	$	—	$	—	$	13,632	$	(1,611	)

The fair value of impaired loans and other real estate owned is based on the fair value of the collateral for all collateral dependent loans and for other impaired loans is estimated using a discounted cash flow model. Impaired loans and other real estate owned were determined to be collateral dependent and categorized as Level 3 due to ongoing real estate market conditions resulting in inactive market data, which in turn required the use of unobservable inputs and assumptions in fair value measurements. There were no changes in valuation techniques used during the three months ended June 30, 2010 or the year ended December 31, 2009.

Impaired loans had a principal balance of $12,428,000 with a related valuation allowance of $2,298,000 at June 30, 2010. The valuation allowance is reflected specific allocations of the allowance for credit losses for impaired loans.

The fair value of real estate is based on property appraisals at the time of transfer and as appropriate thereafter, less estimated costs to sell. Other real estate owned is periodically reviewed to determine whether the property continues to be carried at the lower of its recorded book value or estimated fair value, net of estimated selling costs. Fair value of other real estate properties was $3,502,000 at June 30, 2010.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring and non-recurring basis as of December 31, 2009:

Recurring Basis

The Company is required or permitted to record the following assets at fair value on a recurring basis under other accounting pronouncements (in thousands).

Description	Fair Value		Level 1		Level 2		Level 3

Available-for-sale investment securities	$	197,319	$	17	$	183,205	$	14,097

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Fair values for available-for-sale investment securities, which include debt securities of U.S. Governmental agencies and obligations of states and political subdivisions, are based on quoted market prices for similar securities. The securities in Level 3 are not actively traded and therefore the pricing is internally calculated using matrix pricing.

The changes in Level 3 assets and liabilities measured at fair value on a recurring basis are summarized as follows for the year ended December 31, 2009 (in thousands).

	Available-for-
	Sale Investment
	Securities

Beginning balance	$	16,164
Total gains or losses (realized/unrealized)
Included in earnings (or changes in net assets)	283
Included in other comprehensive income	809
Purchases, sales and principal payments	(884		)
Transfers in and/or out of Level 3	(2,275		)

Ending balance	$	14,097

Gains and losses (realized and unrealized) included in earnings (or changes in net assets) for the year ended December 31, 2009 totaled $283,000 and were included in other revenues.

Non-recurring Basis

Description	Fair Value		Level 1		Level 2		Level 3		Total Losses
Impaired loans	$	4,751	$	—	$	—	$	4,751	$	(3,253	)
Other real estate owned	2,832		—		—		2,832		(356		)
Other	47		—		—		47		(50		)
Total assets and liabilities measured at fair value on a non-recurring basis	$	7,630	$	—	$	—	$	7,630	$	(3,659	)

In accordance with the provisions of ASC 360-10, impaired loans with a carrying value of $9,112,000 were written down to their fair value of $4,751,000, resulting in an impairment charge of $3,253,000, which included $2,501,000 in charge offs and specific reserve of $752,000 for the period ended December 31, 2009. Other real estate properties with carrying amounts totaling $3,189,000 at foreclosure were subsequently written down to their fair values of $2,832,000, resulting in a loss of $356,000 which was included in other expense for the period. Other repossessed assets with carrying amounts totaling $97,000 were written down to their fair values of $47,000, resulting in a loss of $50,000 which was included in other expense for the period ended December 31, 2009.

Note 6. Goodwill and Intangible Assets

Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill. Total goodwill at June 30, 2010 was $23,577,000 consisting of $14,643,000 and $8,934,000 representing the excess of the cost of Service 1 st Bank and Bank of Madera County, respectively, over the net amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the purchase method of accounting. The value of goodwill is ultimately derived from the Bank’s ability to generate net earnings after the acquisitions and is not deductible for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed at least annually for impairment. Management engaged an independent valuation specialist to perform our annual impairment test in the third quarter of 2009 and no impairment was recorded.

Goodwill is also tested for impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the Company below its carrying amount. No such events or circumstances arose during the second quarter of 2010, so goodwill was not required to be retested.

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The intangible assets at June 30, 2010 represent the estimated fair value of the core deposit relationships acquired in the acquisition of Service 1 st Bank in 2008 of $1,400,000 and the 2005 acquisition of Bank of Madera County of $1,500,000. Core deposit intangibles are being amortized by the straight-line method over an estimated life of seven years from the date of acquisition. The carrying value of intangible assets at June 30, 2010 was $1,405,000 net of $1,495,000 in accumulated amortization expense. Management evaluates the remaining useful lives quarterly to determine whether events or circumstances warrant a revision to the remaining periods of amortization. Based on the evaluation, no changes to the remaining useful lives was required in the second quarter of 2010. Management engaged an independent valuation specialist to perform our annual impairment test on core deposit intangibles in the third quarter of 2009 and determined no impairment was necessary. Amortization expense recognized was $103,000 for the three month periods ended June 30, 2010 and 2009 and $207,000 for the six months period ended June 30, 2010 and 2009.

Note 7. Comprehensive Income

Total comprehensive income (loss) for the six months ended June 30, 2010 and 2009 totaled $3,741,000 and ($1,750,000) respectively. Comprehensive income (loss) is comprised of unrealized gains (losses), net of taxes, on available-for-sale investment securities, which were $1,218,000 and ($1,359,000) for the three months ended June 30, 2010 and 2009, respectively, together with net income.

At June 30, 2010 and December 31, 2009, accumulated other comprehensive loss totaled $490,000 and ($1,455,000), respectively, and is reflected, net of taxes, as a component of shareholders’ equity.

Note 8. Commitments and Contingencies

In the normal course of business, the Company is a party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit . These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement the Company has in particular classes of financial instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for loans.

Commitments to extend credit amounting to $120,147,000 and $131,139,000 were outstanding at June 30, 2010 and December 31, 2009, respectively. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract unless waived by the bank. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.

Included in commitments to extend credit are undisbursed lines of credit totaling $68,352,000 and $81,125,000 at June 30, 2010 and December 31, 2009, respectively. Undisbursed lines of credit are revolving lines of credit whereby customers can repay principal and request principal advances during the term of the loan at their discretion and most expire between one and 12 months.

The Company has undisbursed portions of construction loans totaling $6,067,000 and $6,661,000 as of June 30, 2010 and December 31, 2009, respectively. These commitments are agreements to lend to a customer, subject to meeting certain construction progress requirements established in the contract. The underlying construction loans have fixed expiration dates.

Standby letters of credit and financial guarantees amounting to $265,000 and $240,000 were outstanding at June 30, 2010 and December 31, 2009, respectively. Standby letters of credit and financial guarantees are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support private borrowing arrangements. Most standby letters of credit and guarantees carry a one year term or less. The fair value of the liability related to these standby letters of credit, which represents the fees received for their issuance, was not significant at June 30, 2010 and December 31, 2009. The Company recognizes these fees as revenue over the term of the commitment or when the commitment is used.

The Company generally requires collateral or other security to support financial instruments with credit risk. Management does not anticipate any material loss will result from the outstanding commitments to extend credit, standby letters of credit and financial guarantees.

The Company is subject to legal proceedings and claims which arise in the ordinary course of business. In the opinion of management, the amount of ultimate liability with respect to such actions will not materially affect the consolidated financial position or consolidated results of operations of the Company.

Note 9. Income Taxes

The Company files its income taxes on a consolidated basis with its subsidiaries. The allocation of income tax expense (benefit) represents each entity’s proportionate share of the consolidated provision for income taxes. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. On the consolidated balance sheets, net deferred tax assets are included in accrued interest receivable and other assets. The Company establishes a tax valuation allowance when it is more likely than not that a recorded tax benefit is not expected to be fully realized. The expense to create the tax valuation is recorded as an additional income tax expense in the period the tax valuation allowance is created. Based on management’s analysis as of June 30, 2010, no valuation allowance was deemed necessary.

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Accounting for uncertainty in income taxes - The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of tax expense in the consolidated statements of income. There have been no significant changes to unrecognized tax benefits or accrued interest and penalties for the six months ended June 30, 2010.

Note 10. Borrowing Arrangements

Federal Home Loan Bank Advances: Advances from the Federal Home Loan Bank (FHLB) of San Francisco consisted of the following:

June 30, 2010

Amount			Rate		Maturity Date
			(Dollars in thousands)
$	5,000		3.00	%	February 7, 2011
5,000			3.10	%	February 14, 2011
4,000			3.59	%	February 13, 2013

14,000
(10,000		)	Less short-term portion
$	4,000		Long-term debt

December 31, 2009

Amount			Rate		Maturity Date
			(Dollars in thousands)
$	5,000		2.73	%	February 5, 2010
5,000			3.00	%	February 7, 2011
5,000			3.10	%	February 14, 2011
4,000			3.59	%	February 13, 2013
19,000
(5,000		)	Less short-term portion
$	14,000		Long-term debt

FHLB advances are secured by investment securities with amortized costs totaling $32,642,000 and $45,239,000, and market values totaling $35,956,000 and $44,808,000 at June 30, 2010 and December 31, 2009, respectively. The Bank’s credit limit varies according to the amount and composition of the investment and loan portfolios pledged as collateral.

As of June 30, 2010 and December 31, 2009, the Company had no Federal funds purchased.

ITEM 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain matters discussed in this report constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not historical facts, such as statements regarding the Company’s current business strategy and the Company’s plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Such risks and uncertainties include, but are not limited to (1) significant increases in competitive pressure in the banking industry; (2) the impact of changes in interest rates, a decline in economic conditions at the international, national or local level on the Company’s results of operations, the Company’s ability to continue its internal growth at historical rates, the Company’s ability to maintain its net interest margin, and the quality of the Company’s earning assets; (3) changes in the regulatory environment; (4) fluctuations in the real estate market; (5) changes in business conditions and inflation; (6) changes in securities markets; and (7) risks associated with acquisitions, relating to difficulty in integrating combined operations and related negative impact on earnings, and incurrence of substantial expenses. Therefore, the information set forth in such forward-looking statements should be carefully considered when evaluating the business prospects of the Company.

When the Company uses in this Quarterly Report on Form 10-Q the words “anticipate,” “estimate,” “expect,” “project,” “intend,” “commit,” “believe” and similar expressions, the Company intends to identify forward-looking statements. Such statements are not guarantees of performance and are subject to certain risks, uncertainties and assumptions, including those described in this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those anticipated, estimated, expected, projected, intended, committed or believed. The future results and shareholder values of the Company may differ materially from those expressed in these forward-looking statements. Many of the factors that will determine these results and values are beyond the

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Company’s ability to control or predict. For those statements, the Company claims the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

The Securities and Exchange Commission (SEC) maintains a web site which contains reports, proxy statements, and other information pertaining to registrants that file electronically with the SEC, including the Company. The internet address is: www.sec.gov. In addition, our periodic and current reports are available free of charge on our website at www.cvcb.com as soon as reasonably practicable after such material is electronically filed with, or furnished to, the SEC.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are defined as those that are reflective of significant judgments and uncertainties, and could potentially result in materially different results under different assumptions and conditions. We believe that the Company’s most critical accounting policies are those which the Company’s financial condition depends upon, and which involve the most complex or subjective decisions or assessments.

There have been no material changes to the Company’s critical accounting policies during 2010. Please refer to the Company’s 2009 Annual Report to Shareholders on Form 10-K for a complete listing of critical accounting policies.

This discussion should be read in conjunction with our unaudited consolidated financial statements, including the notes thereto, appearing elsewhere in this report.

OVERVIEW

Second Quarter of 2010

In the second quarter of 2010, our consolidated net income was $504,000 compared to net income of $464,000 for the same period in 2009. Diluted EPS was $0.04 for the second quarter of June 30, 2010 compared to $0.04 for the same period in 2009. The increase in net income was primarily due to decreases in the provision for credit losses, offset by decreases in net interest income and non-interest income, and an increase in non-interest expenses. The provision for credit losses was $1,000,000 for the second quarter of 2010 compared to $2,500,000 for the second quarter of 2009, a decrease of $1,500,000. Net interest income decreased $818,000 or 9.4%. The yield on average total interest-earning assets decreased 80 basis points comparing the three month period ended June 30, 2010 to the same period in 2009 while interest rates on deposits decreased 45 basis points resulting in a 45 basis point decrease in net interest margin. Net interest margin was 5.06% for the three months ended June 30, 2010 compared to 5.51% for the same period in 2009. Non-interest income decreased $654,000 or 46.7% primarily due to an increase in other-than-temporary impairment charges of $700,000, and non-interest expense had a slight increase of $13,000 or 0.18% in the three months ended June 30, 2010 compared to 2009.

Annualized return on average equity for the second quarter of 2010 was 2.11% compared to 2.28% for the same period in 2009. Total average equity was $95,512,000 for the second quarter 2010 compared to $81,537,000 for the second quarter 2009. Equity increased primarily due to capital raised from the private sale of equity in the later part of 2009 to certain accredited investors who purchased preferred and common shares of the Company for a total of $8,000,000. Net income included in retained earnings and a decrease in other comprehensive loss also contributed to the growth in capital.

First Six Months of 2010

For the six months ended June 30, 2010, our consolidated net income was $1,796,000 compared to net income of $1,723,000 for the same period in 2009. Diluted EPS was $0.17 for the first six months of 2010 compared to $0.20 for the first six months of 2009. The increase in net income was primarily due to a decrease in the provision for loan losses offset by decreases in net interest income and non-interest income as well as an increase in non-interest expenses. During the six month period ended June 30, 2010 our net interest margin decreased 35 basis points to 5.02%. Net interest income decreased $1,317,000 or 7.6%. Non-interest income decreased $1,058,000 or 33.7.0%, provision for credit losses decreased $2,817,000 and non-interest expense increased $377,000 in the first six months of 2010 compared to 2009.

Annualized return on average equity for the six months ended June 30, 2010 was 3.80% compared to 4.21% for the same period in 2009. Annualized return on average assets for the six months ended June 30, 2010 was 0.48% compared to 0.46% for the same period in 2009. Total average equity was $94,422,000 for the six months ended June 30, 2010 compared to $81,819,000 for the same period in 2009. Equity increased primarily due to capital raised from the private sale of equity in the later part of 2009 to certain accredited investors who purchased preferred and common shares of the Company for a total of $8,000,000. Net income included in retained earnings and a decrease in other comprehensive loss also contributed to the growth in capital.

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Our average total assets decreased $3,900,000 or 0.52% in the first half of 2010 compared to the first half of 2009. Total average interest-earning assets decreased $5,582,000 or 0.83% comparing the first half of 2010 to the first half of 2009. Average total loans decreased $33,473,000 or 6.9% while average total investments increased $31,128,000 or 16.1% in the six month period ended June 30, 2010 compared to the same period in 2009. Average interest-bearing liabilities decreased only $8,679,000 or 1.7% over the same period.

Our net interest margin for the first six months ended June 30, 2010 was 5.02% compared to 5.37% for the same period in 2009. The margin decreased principally due to the decrease in yields on interest-earning assets outpacing the decrease in rates on interest-bearing liabilities. The effective yield on interest earning assets decreased 75 basis points to 5.72% for the six month period ended June 30, 2010 compared to 6.47% for the same period in 2009. For the six months ended June 30, 2010, the effective yield on investment securities including Federal funds sold and interest-earning deposits in other banks decreased 214 basis points and the effective yield on loans decreased 9 basis points. The cost of total interest-bearing liabilities decreased 53 basis points to 0.93% compared to 1.46% for the same period in 2009. The cost of total deposits, including noninterest bearing accounts decreased 40 basis points to 0.65% for the six months ended June 30, 2010 compared to 1.05% for the same period in 2009.

Net interest income for the first half of 2010 was $15,916,000 compared to $17,233,000 for the same period in 2009, a decrease of $1,317,000 or 7.6%. Net interest income decreased as a result of the decrease in net interest margin as discussed above and a decrease in earning assets. The Bank had non-accrual loans totaling $14,994,000 at June 30, 2010, compared to $18,959,000 at December 31, 2009 and $14,524,000 at June 30, 2009. The Company had other real estate owned at June 30, 2010 totaling $3,502,000, compared to $2,832,000 at December 31, 2009, and $2,550,000 at June 30, 2009.

We participated in the U. S. Treasury Capital Purchase Program (CPP) under the Emergency Economic Stabilization Act. In 2009, the Company issued preferred stock and warrants to issue common stock and received $7,000,000 in cash under this program. The Company agreed to restrict dividend payments on common stock to no more than historic levels while our preferred stock is owned by the U. S. Treasury.

Central Valley Community Bancorp (Company)

We are a central California-based bank holding company for a one-bank subsidiary, Central Valley Community Bank (Bank). We provide traditional commercial banking services to small and medium-sized businesses and individuals in the communities along the Highway 99 corridor in the Fresno, Madera, Merced, Sacramento, Stanislaus, and San Joaquin Counties of central California. Additionally, we have a private banking office in Sacramento County, and a loan production office in Modesto, California. As a bank holding company, the Company is subject to supervision, examination and regulation by the Federal Reserve Bank.

At June 30, 2010, we had total loans of $468,652,000, total assets of $755,989,000, total deposits of $631,309,000, and shareholders’ equity of $95,451,000.

Central Valley Community Bank (Bank)

The Bank commenced operations in January 1980 as a state-chartered bank. As a state-chartered bank, the Bank is subject to primary supervision, examination and regulation by the Department of Financial Institutions. The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to the applicable limits thereof, and the Bank is subject to supervision, examination and regulations of the FDIC.

The Bank is participating in the FDIC Transaction Account Guarantee Program (TAG) under which all noninterest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. On June 28, 2010, the FDIC adopted a final rule extending TAG for six months to December 31, 2010 with the possibility of an additional extension not to exceed December 31, 2011 without further rulemaking. The recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act permanently raises the current standard maximum deposit insurance amount to $250,000 and extended unlimited FDIC deposit insurance to qualifying noninterest-bearing transaction accounts for two years beginning December 31, 2010.

Coverage under the TAGP is in addition to and separate from the coverage available under the FDIC’s general deposit insurance rules. As a participant in TAG, the Bank is assessed an annual fee of 10 basis points for all deposit amounts exceeding the existing deposit insurance limit of $250,000.

The Bank operates 16 branches which serve the communities of Clovis, Fresno, Kerman, Lodi, Madera, Merced, Oakhurst, Prather, Sacramento, Stockton, and Tracy, California; and a loan production office which serves the Modesto, California community. Additionally the Bank operates Real Estate, Agribusiness and SBA departments that originate loans in California. According to the June 30, 2009 FDIC data, the Bank’s branches in Fresno, Madera and San Joaquin Counties had a 3.50% combined deposit market share of all depositories including credit unions, thrifts, and savings banks.

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Key Factors in Evaluating Financial Condition and Operating Performance

As a publicly traded community bank holding company, we focus on several key factors including:

·		Return to our stockholders;
·		Return on average assets;
·		Development of core earnings, including net interest income and non-interest income;
·		Asset quality;
·		Asset growth;
·		Capital adequacy;
·		Operating efficiency; and
·		Liquidity

Return to Our Stockholders

Our return to our stockholders is measured in the form of return on average equity (ROE). Our annualized ROE was 3.80% for the six months ended June 30, 2010 compared to 3.10 % for the year ended December 31, 2009 and 4.21% for the six months ended June 30, 2009. Our net income for the six months ended June 30, 2010 increased $73,000 or 4.2% to $1,796,000 compared to $1,723,000 for the six months ended June 30, 2009. Net income increased due to decreases in the provision for credit losses offset by decreases in net interest income and non-interest income, and an increase in non-interest expenses. Net interest margin (NIM) decreased 35 basis points comparing the three month periods ended June 30, 2010 and 2009. Diluted EPS was $0.17 for the six months ended June 30, 2010 and $0.20 for the same period in 2009.

Return on Average Assets

Our return on average assets (ROA) is a measure we use to compare our performance with other banks and bank holding companies. Our annualized ROA for the six months ended June 30, 2010 was 0.48% compared to 0.34% for the year ended December 31, 2009 and 0.46% for the six months ended June 30, 2009. The increase in ROA compared to December 2009 is due to the increase in net income relative to total average assets. Average assets for the six months ended June 30, 2010 were $750,038,000 compared to $752,509,000 for the year ended December 31, 2009. ROA for our peer group was (0.20%) at March 31, 2010. Peer group from SNL Financial data includes certain bank holding companies in central California with assets from $300 million to $1 billion.

Development of Core Earnings

Over the past several years, we have focused on not only improving net income, but improving the consistency of our revenue streams in order to create more predictable future earnings and reduce the effect of changes in our operating environment on our net income. Specifically, we have focused on net interest income through a variety of processes, including increases in average interest earning assets as a result of loan generation and retention, and minimizing the effects of the recent interest rate decline on our net interest margin by focusing on core deposits and managing the cost of funds. The Company’s net interest margin (fully tax equivalent basis) was 5.02% for the first half of June 30, 2010, compared to 5.37 % for the same period in 2009. The decrease in net interest margin is principally due to a decrease in the yield on earning assets which was greater than the decrease in our rates on interest-bearing liabilities. In comparing the two periods, the effective yield on total earning assets decreased 75 basis points, while the cost of total interest bearing liabilities decreased 53 basis points and the cost of total deposits decreased 40 basis points. The Company’s total cost of deposits for first half of June 30, 2010 was 0.65% compared to 1.05% for the same period in 2009. At June 30, 2010, 23.3% of the Company’s average deposits were non-interest bearing compared to 23.0% for the Company’s peer group as of March 31, 2010. Net interest income for the first half of 2010 was $15,916,000 compared to $17,233,000 for the same period in 2009.

Our non-interest income is generally made up of service charges and fees on deposit accounts, fee income from loan placements and other services, and gains from sales of investment securities. Non-interest income for the six months ended June 30, 2010 decreased $1,058,000 or 33.7% to $2,081,000 compared to $3,139,000 for the six months ended June 30, 2009. The decrease is mainly due to a $700,000 other than-temporary impairment loss related to our investment portfolio and a $460,000 decrease in gains from sales and calls of investment securities. Further detail of non-interest income is provided below.

Asset Quality

For all banks and bank holding companies, asset quality has a significant impact on the overall financial condition and results of operations. Asset quality is measured in terms of non-performing assets as a percentage of total assets, and is a key element in estimating the future earnings of a company. The Company had non-performing loans totaling $14,994,000 or 3.2% of total loans as of June 30, 2010 and $18,959,000 or 4.13% of total loans at December 31, 2009. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on non-accrual status until such time as management has determined that the loans are likely to remain current in future periods and collectability has been reasonably assured. The Company had $3,502,000 in other real estate owned at June 30, 2010 and $2,832,000 at December 31, 2009. The Company held collateralized mortgage obligations with credit ratings below investment grade totaling $17,751,000 at June 30, 2010 and $24,230,000 at December 31, 2009.

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Asset Growth

As revenues from both net interest income and non-interest income are a function of asset size, the growth in assets has a direct impact in increasing net income and therefore ROE and ROA. The majority of our assets are loans and investment securities, and the majority of our liabilities are deposits, and therefore the ability to generate deposits as a funding source for loans and investments is fundamental to our asset growth. Total assets decreased slightly by 1.2% during the six months ended June 30, 2010 to $755,989,000 compared to $765,488,000 as of December 31, 2009. Total gross loans decreased 2.1% to $468,652,000 as of June 30, 2010 compared to $459,207,000 as of December 31, 2009. Total deposits decreased 1.4% to $631,309,000 as of June 30, 2010 compared to $640,167,000 as of December 31, 2009. Our loan to deposit ratio at June 30, 2010 was 74.2% compared to 71.7% at December 31, 2009. The loan to deposit ratio of our peers was 84.24% at March 31, 2010. Further discussion of loans and deposits is below.

Capital Adequacy

Capital serves as a source of funds and helps protect depositors and shareholders against potential losses. The Company has historically maintained substantial levels of capital. The assessment of capital adequacy is dependent on several factors including asset quality, earnings trends, liquidity and economic conditions. Maintenance of adequate capital levels is integral to providing stability to the Company. The Company needs to maintain substantial levels of regulatory capital to give it maximum flexibility in the changing regulatory environment and to respond to changes in the market and economic conditions.

At June 30, 2010, we had a total risk-based capital to risk-weighted assets ratio of 14.24%, a Tier 1 risk-based capital ratio of 12.96% and a Tier 1 leverage ratio of 9.94%. At December 31, 2009, we had a total risk-based capital to risk-weighted assets ratio of 13.54%, a Tier 1 risk-based capital ratio of 12.28% and a Tier 1 leverage ratio of 9.30%. At June 30, 2010, on a stand-alone basis, the Bank had a total risk-based capital ratio of 14.05%, a Tier 1 risk based capital ratio of 12.77% and a Tier 1 leverage ratio of 9.80%. At December 31, 2009, the Bank had a total risk-based capital ratio of 13.38%, a Tier 1 risk based capital ratio of 12.12% and a Tier 1 leverage ratio of 9.20%. The improvement in 2010 is due to an increase in risk adjusted capital that was relatively greater than the growth in risk weighted assets and average assets.

Operating Efficiency

Operating efficiency is the measure of how efficiently earnings before provision for credit losses and taxes are generated as a percentage of revenue. The Company’s efficiency ratio (operating expenses, excluding amortization of intangibles and foreclosed property expense divided by net interest income plus non-interest income, excluding gains from sales of securities) was 73.5% for the first six months of 2010 compared to 69.3% for the first six months of 2009. The deterioration in the efficiency ratio is due to a decrease in net interest income and non-interest income as well as an increase in operating expenses.

The Company’s net interest income before provision for credit losses plus non-interest income decreased 11.7% to $17,997,000 for the first six months of 2010 compared to $20,372,000 for the same period in 2009, while operating expenses increased 2.7% to $14,346,000 from $13,969,000 for the same period in 2009.

Liquidity

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include providing for customers’ credit needs, funding of securities purchases, and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Directors’ Asset/Liability Committee. This process is intended to ensure the maintenance of sufficient liquidity to meet our funding needs, including adequate cash flow for off-balance sheet commitments. Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities and advances from the Federal Home Loan Bank of San Francisco (FHLB). We have available unsecured lines of credit with correspondent banks totaling approximately $39,000,000 and secured borrowing lines of approximately $113,845,000 with the FHLB. These funding sources are augmented by collection of principal and interest on loans, the routine maturities and pay downs of securities from our investment securities portfolio, the stability of our core deposits, and the ability to sell investment securities. Primary uses of funds include origination and purchases of loans, withdrawals of and interest payments on deposits, purchases of investment securities, and payment of operating expenses.

RESULTS OF OPERATIONS

Net Income for the First Six Months of 2010 Compared to the Six Months Ended June 30, 2009:

Net income increased to $1,796,000 for the six months ended June 30, 2010 compared to $1,723,000 for the six months ended June 30, 2009. Basic earnings per share were $0.18 and $0.20 for the six months ended June 30, 2010 and 2009, respectively. Diluted earnings per share were $0.17 for the six months ended June 30, 2010 and $0.20 for the same period in 2009. Annualized ROE was 3.80% for the six months ended June 30, 2010 compared to 4.21% for the six months ended June 30, 2009. Annualized ROA for the six months ended June 30, 2010 was 0.48% compared to 0.46% for the six months ended June 30, 2009.

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Net income for the six months ended June 30, 2010 compared to the same period in the prior year increased due mainly to decreases in the provision for credit losses offset by decreases in net interest income and non-interest income, and an increase in non-interest expenses. Net interest income decreased due to a decrease in the yield on our investment securities and a decrease in earning assets. The decrease in non-interest income is due to a decrease in realized gains on sales of securities and an other-than-temporary loss on investment securities. Non-interest expenses increased primarily due to the write down to fair value of one OREO property. Further discussion of non-interest expenses is below.

Interest Income and Expense

Net interest income is the most significant component of our income from operations. Net interest income (the “interest rate spread”) is the difference between the gross interest and fees earned on the loan and investment portfolio and the interest paid on deposits and other borrowings. Net interest income depends on the volume of and interest rate earned on interest earning assets and the volume of and interest rate paid on interest bearing liabilities.

The following table sets forth a summary of average balances with corresponding interest income and interest expense as well as average yield and cost information for the periods presented. Average balances are derived from daily balances, and non-accrual loans are not included as interest earning assets for purposes of this table.

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CENTRAL VALLEY COMMUNITY BANCORP

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES

(Dollars in thousands)

	For the Six Months Ended June 30, 2010							For the Six Months Ended June 30, 2009
	Average Balance			Interest Income/ Expense		Average Interest Rate		Average Balance			Interest Income/ Expense		Average Interest Rate
ASSETS
Interest-earning deposits in other banks	$	30,694		$	39	0.25	%	$	1,196		$	5	0.84	%
Securities
Taxable securities	128,102			2,978		4.65	%	118,943			4,334		7.29	%
Non-taxable securities (1)	64,689			2,297		7.10	%	62,980			2,292		7.28	%
Total investment securities	192,791			5,275		5.47	%	181,923			6,626		7.28	%
Federal funds sold	898			1		0.22	%	10,136			14		0.28	%
Total securities	224,383			5,315		4.74	%	193,255			6,645		6.88	%
Loans (2) (3)	437,768			13,705		6.31	%	474,456			15,055		6.40	%
Federal Home Loan Bank stock	3,118			4		—		3,140			—		—
Total interest-earning assets	665,269			$	19,024	5.72	%	670,851			$	21,700	6.47	%
Allowance for credit losses	(10,601		)					(7,665		)
Nonaccrual loans	17,162							13,947
Other real estate owned	2,808							2,038
Cash and due from banks	15,657							18,357
Bank premises and equipment	6,268							6,722
Other non-earning assets	53,475							49,688
Total average assets	$	750,038						$	753,938
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and NOW accounts	$	141,383		$	274	0.39	%	$	130,370		$	452	0.70	%
Money market accounts	152,579			558		0.74	%	131,539			668		1.02	%
Time certificates of deposit, under $100,000	63,927			406		1.28	%	87,588			877		2.02	%
Time certificates of deposit, $100,000 and over	124,251			798		1.30	%	125,916			1,284		2.06	%
Total interest-bearing deposits	482,140			2,036		0.85	%	475,413			3,281		1.39	%
Other borrowed funds	20,122			287		2.88	%	35,528			407		2.31	%
Total interest-bearing liabilities	502,262			$	2,323	0.93	%	510,941			$	3,688	1.46	%
Non-interest bearing demand deposits	146,642							153,995
Other liabilities	6,712							7,183
Shareholders’ equity	94,422							81,819
Total average liabilities and shareholders’ equity	$	750,038						$	753,938
Interest income and rate earned on average earning assets				$	19,024	5.72	%				$	21,700	6.47	%
Interest expense and interest cost related to average interest-bearing liabilities				2,323		0.93	%				3,688		1.46	%
Net interest income and net interest margin (4)				$	16,701	5.02	%				$	18,012	5.37	%

(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $781 and $779 in 2010 and 2009 respectively.

(2) Loan interest income includes loan fees of $226 in 2010 and $274 in 2009

(3) Average loans do not include non-accrual loans.

(4) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

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Interest and fee income from loans decreased $1,350,000 or 9.0% in the first six months of 2010 compared to the same period in 2009. Average total loans, including non-accrual loans, for the first six months of 2010 decreased $33,473,000 or 6.9% to $454,930,000 compared to $488,403,000for the same period in 2009. The yield on average total loans decreased 9 basis points to 6.31% for the first six months of 2010 compared to 6.40% for the same period in 2009. The lower yield is attributed to the sustained low interest rate environment. In addition to the decline in yield, loan yields for 2010 reflect an increase in the balance of average nonaccrual loans. We have been successful in implementing interest rate floors on many of our new adjustable rate loans to partially offset the effects of the decrease in the prime interest rate experienced in the last two years. We are committed to providing our customers with competitive pricing without sacrificing strong asset quality and value to our shareholders.

Interest income from total investments on a non tax equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits with other banks, and other securities) decreased $1,332,000 in the first six months of 2010 to $4,534,000 compared to $5,866,000, for the same period in 2009. The decrease is attributed to lower yields on the portfolio. The yield on average investments decreased 214 basis points to 4.74% for the six month period ended June 30, 2010 compared to 6.88% for the same period in 2009. We experienced a decrease in yield in our investment securities in 2010 due to purchases of lower yielding debt securities. In 2009 we experienced large prepayments on CMOs which created more accretion resulting in increased income. Additionally, several CMO bonds with higher yields were called in 2009. In 2010 we are holding higher levels of deposits with the Federal Reserve Bank of San Francisco which have lower yields. Average total investments for the first six months of 2010 increased $31,083,000 or 16.1% to $224,338,000 compared to $193,255,000 for the same period in 2009. Income from investments represents 28.5% of net interest income for the first six months of 2010 compared to 34.0% for the same period in 2009.

In an effort to increase yields, without accepting unreasonable risk, a significant portion of the investment purchases have been in mortgage-backed securities (MBS) and collateralized mortgage obligations (CMOs). At June 30, 2010, we held $105,693,000 or 56.7% of the total fair value of the investment portfolio in MBS and CMOs with an average yield of 4.68%. We invest in Collateralized Mortgage Obligations (CMO) and Mortgage Backed Securities, (MBS) as part of the overall strategy to increase our net interest margin. CMOs and MBS by their nature react to changes in interest rates. In a normal declining rate environment, prepayments from MBS and CMOs would be expected to increase and the expected life of the investment would be expected to shorten. Conversely, if interest rates increase, prepayments normally would be expected to decline and the average life of the MBS and CMOs would be expected to extend. However, in the current economic environment, prepayments may not behave according to historical norms. Premium amortization and discount accretion of these investments affects our net interest income. Our management monitors the prepayment speed of these investments and adjusts premium amortization and discount accretion based on several factors. These factors include the type of investment, the investment structure, interest rates, interest rates on new mortgage loans, expectation of interest rate changes, current economic conditions, the level of principal remaining on the bond, the bond coupon rate, the bond origination date, and volume of available bonds in market. The calculation of premium amortization and discount accretion is by nature inexact, and represents management’s best estimate of principal pay downs inherent in the total investment portfolio.

The net of tax effect value of the change in fair value of the available-for-sale investment portfolio was a gain of $490,000 at June 30, 2010 and is reflected in the Company’s equity. At June 30, 2010, the average life of the investment portfolio was 8.2 years and the fair value reflected a pre-tax gain of $818,000. Management reviews fair value declines on individual investment securities to determine whether they represent an other-than-temporary impairment (OTTI) and recorded a $700,000 OTTI loss for the six months ended June 30, 2010. Refer to Note 4 of the Notes to Consolidated Financial Statements for more detail. Future deterioration in the market values of our investment securities may require the Company to recognize future OTTI losses.

A component of the Company’s strategic plan has been to use its investment portfolio to offset, in part, its interest rate risk relating to variable rate loans. At June 30, 2010, an immediate rate increase of 200 basis points would result in an estimated decrease in the market value of the investment portfolio by approximately $17,378,000. Conversely, with an immediate rate decrease of 200 basis points, the estimated increase in the market value of the investment portfolio is $11,473,000. The modeling environment assumes management would take no action during an immediate shock of 200 basis points. However, the Company uses those increments to measure its interest rate risk in accordance with regulatory requirements and to measure the possible future risk in the investment portfolio. For further discussion of the Company’s market risk, refer to Item 3 - Quantitative and Qualitative Disclosures about Market Risk.

Management’s review of all investments before purchase includes an analysis of how the security will perform under several interest rate scenarios to monitor whether investments are consistent with our investment policy. The policy addresses issues of average life, duration, and concentration guidelines, prohibited investments, impairment, and prohibited practices.

Total interest income for the first six months of 2010 decreased $2,682,000 or 12.8% to $18,239,000 compared to $20,921,000 for the six months ended June 30, 2009. The decrease was due to the 75 basis point decrease in the tax equivalent yield on average interest earning assets and the decrease in average interest earning assets. The yield on interest earning assets decreased to 5.72% for the six months ended June 30, 2010 from 6.47% for the six months ended June 30, 2009. Average interest earning assets decreased to $665,269,000 for the six months ended June 30, 2010 compared to $670,851,000 for the six months ended June 30, 2009. The $5,582,000 decrease in average earning assets can be attributed to the $36,688,000 decrease in loans offset by a $31,128,000 increase in total investments.

Interest expense on deposits for the six months ended June 30, 2010 decreased $1,245,000 or 38.0% to $2,036,000 compared to $3,281,000 for the six months ended June 30, 2009. This decrease in interest expense was primarily due to repricing of interest bearing deposits which decreased 54 basis points to 0.85% for the six months ended June 30, 2010 from 1.39% in 2009 as a result of the ongoing low interest rate environment. Average interest-bearing deposits increased 1.4% or $6,727,000 to $482,140,000 for the six months ended June 30, 2010 compared to $475,413,000 for the same period ended June 30, 2009.

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Average other borrowed funds decreased $15,406,000 or 43.4% to $20,122,000 with an effective rate of 2.88% for the six months ended June 30, 2010 compared to $35,528,000 with an effective rate of 2.31% for the six months ended June 30, 2009. As a result, total interest expense on other borrowed funds decreased $120,000 to $287,000 for the six months ended June 30, 2010 from $407,000 for the six months ended June 30, 2009. Other borrowings include advances from the Federal Home Loan Bank (FHLB) and junior subordinated deferrable interest debentures. The FHLB advances are fixed rate short-term and long term borrowings. The effective rate of the FHLB advances was 3.20% for the six month period ended June 30, 2010. Advances were utilized as part of a leveraged strategy in the first quarter of 2008 to purchase investment securities. The debentures were acquired in the merger with Service 1 st and carry a floating rate based on the three month Libor plus a margin of 1.6%. The rate at June 30, 2010 was 1.90%. See the section on Financial Condition for more detail.

The cost of all of our interest-bearing liabilities decreased 53 basis points to 0.93% for the six month period ended June 30, 2010 compared to 1.46% for 2009 while the cost of total deposits decreased to 0.65% for the six month period ended June 30, 2010 compared to 1.05% for same period in 2009. Average demand deposits decreased 4.8% to $146,642,000 in 2010 compared to $153,995,000 for 2009. The ratio of demand deposits to total deposits decreased to 23.3% in the first half of 2010 compared to 24.5% for 2009.

Net Interest Income before Provision for Credit Losses

Net interest income before provision for credit losses for the six months ended June 30, 2010 decreased by $1,317,000 or 7.6% to $15,916,000 compared to $17,233,000 for the six months ended in 2009. The decrease was due to the 35 basis point decrease in our net interest margin and the decrease in average interest earning assets. Average interest earning assets were $665,269,000 for the six months ended June 30, 2010 with a net interest margin of 5.02% compared to $670,851,000 with a net interest margin of 5.37% for the six months ended June 30, 2009. The $5,582,000 decrease in average earning assets can be attributed to the $36,688,000 decrease in loans offset by a $31,128,000 increase in total investments. Average interest bearing liabilities decreased 1.7% to $502,262,000 for the six months ended June 30, 2010 compared to $510,941,000 for the same period in 2009. For a discussion of the repricing of our assets and liabilities, see “Item 3 — Quantitative and Qualitative Disclosure about Market Risk.”

Provision for Credit Losses

We provide for probable credit losses by a charge to operating income based upon the composition of the loan portfolio, delinquency levels, losses and nonperforming assets, economic and environmental conditions and other factors which, in management’s judgment, deserve recognition in estimating credit losses. Loans are charged off when they are considered uncollectible or of such little value that continuance as an active earning bank asset is not warranted.

The establishment of an adequate credit allowance is based on both an accurate risk rating system and loan portfolio management tools. The Board has established initial responsibility for the accuracy of credit risk grades with the individual credit officer. The grading is then submitted to the Chief Credit Administrator (CCA), who reviews the grades for accuracy and gives final approval. The CCA is not involved in loan originations. The risk grading and reserve allocation is analyzed quarterly by the CCA and the Board and at least annually by a third party credit reviewer and by various regulatory agencies.

Quarterly, the CCA sets the specific reserve for all adversely risk-graded credits. This process includes the utilization of loan delinquency reports, classified asset reports, and portfolio concentration reports to assist in accurately assessing credit risk and establishing appropriate reserves. Reserves are also allocated to credits that are not impaired.

The allowance for credit losses is reviewed at least quarterly by the Board’s Audit/Compliance Committee and by the Board of Directors. Reserves are allocated to loan portfolio categories using percentages which are based on both historical risk elements such as delinquencies and losses and predictive risk elements such as economic, competitive and environmental factors. We have adopted the specific reserve approach to allocate reserves to each impaired asset for the purpose of estimating potential loss exposure. Although the allowance for credit losses is allocated to various portfolio categories, it is general in nature and available for the loan portfolio in its entirety. Additions may be required based on the results of independent loan portfolio examinations, regulatory agency examinations, or our own internal review process. Additions are also required when, in management’s judgment, the allowance does not properly reflect the portfolio’s potential loss exposure.

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The allocation of the allowance for credit losses is set forth below:

Loan Type (Dollars in thousands)	June 30, 2010		% of Total Loans		December 31, 2009		% of Total Loans

Commercial and industrial	$	2,739	23.6	%	$	2,861	24.7	%
Agricultural land and production	633		10.8	%	708		7.8	%
Real estate	5,035		50.2	%	3,813		49.4	%
Real estate - construction and other land loans	662		5.8	%	836		7.9	%
Equity loans and lines of credit	764		7.5	%	334		7.8	%
Consumer and installment	486		2.0	%	423		2.3	%
Other	78		0.1	%	48		0.1	%
Unallocated reserves	1,071				1,177
Total allowance for credit losses	$	11,468			$	10,200

The unallocated reserves as of June 30, 2010 are principally due to qualitative and quantitative factors (Q factors). Q factors include reserves held for the effects of lending policies, economic trends, and portfolio trends along with other dynamics which may cause additional stress to the portfolio.

Managing credits identified through the risk evaluation methodology includes developing a business strategy with the customer to mitigate our potential losses. Management continues to monitor these credits with a view to identifying as early as possible when, and to what extent, additional provisions may be necessary.

Additions to the allowance for credit losses in the first six months of 2010 were $1,600,000 compared to $4,417,000 for the same period in 2009. These provisions are primarily the result of our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section below. During the six months ended June 30, 2010, the Company had net charge offs totaling $332,000 compared $3,048,000 for the same period in 2009. The period-to-period decrease in provision for credit losses resulted from a decrease in the level of outstanding loans and a decrease in our nonperforming loans. In addition, recoveries of previously charged off loan balances during the quarter ended June 30, 2010 were $339,000.

Nonperforming loans were $14,994,000 and $18,959,000 at June 30, 2010 and December 31, 2009, respectively and $14,524,000 at June 30, 2009. Nonperforming loans as a percentage of total loans were 3.20% at June 30, 2010 compared to 4.13% at December 31, 2009 and 2.95% at June 30, 2009. Other real estate owned at June 30, 2010 was $3,502,000, net of a valuation allowance of $270,000, compared to $2,832,000, net of a valuation allowance of $356,000, at December 31, 2009, and $2,550,000 at June 30, 2009.

The annualized net charge off ratio, which reflects net charge-offs to average loans for the six months ended June 30, 2010, was 0.15% compared to 1.25% for the same period in 2009. The annual net charge off ratios for 2009, 2008, and 2007 were 1.56%, 0.20% and 0.12%, respectively.

We believe the significant economic downturn witnessed during 2008 that has continued through to 2010 has had a considerable impact on the ability of certain borrowers to satisfy their obligations, resulting in loan downgrades and corresponding increases in credit loss provisions. Additionally, we estimate the impact certain economic factors will have on various credits within the portfolio.

While the Company saw a decline in the balance of non-accruing loans when compared to that reported at December 31, 2009, non-accruing balances remain elevated relative to historical periods. Continued increases in the level of charge-offs and the number and dollar volume of past due and non-performing loans may result in further provisions to the allowance for credit losses.

We anticipate weakness in economic conditions on national, state and local levels to continue. Continued economic pressures may negatively impact the financial condition of borrowers to whom the Company has extended credit and as a result we may be required to make further significant provisions to the allowance for credit losses during 2010. We have been and will continue to be proactive in looking for signs of deterioration within the loan portfolio in an effort to manage credit quality and work with borrowers where possible to mitigate any further losses.

As of June 30, 2010, we believe, based on all current and available information, the allowance for credit losses is adequate to absorb current estimable losses within the loan portfolio. However, no assurance can be given that we may not sustain charge-offs which are in excess of the allowance in any given period. Refer to “Allowance for Credit Losses” below for further information.

Net Interest Income after Provision for Credit Losses

Net interest income, after the provision for credit losses, was $14,316,000 for the six month period ended June 30, 2010 and $12,816,000 for the same period in 2009.

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Non-Interest Income

Non-interest income is comprised of customer service charges, loan placement fees, gains on sales of investment securities, appreciation in cash surrender value of bank owned life insurance, Federal Home Loan Bank dividends, and other income. Non-interest income was $2,081,000 for the six months ended June 30, 2010 compared to $3,139,000 for the same period ended June 30, 2009. The $1,058,000 or 33.7% decrease in non-interest income was primarily due to decreases in gains on sales and calls of investment securities and an other-than-temporary impairment write down on certain investment securities, offset by increases in customer service charges and other income.

During the first six months of 2010, we realized net gains on sales and calls of investment securities of $51,000 compared to $511,000 for the same period in 2009. In 2009, investment securities that had been marked to market when we acquired Service 1 st were subsequently called at par value resulting in gains. For the six month period ended June 30, 2010, we realized a $700,000 other-than-temporary impairment write down on certain investment securities. See Footnote 4 for more detail.

Customer service charges increased $46,000 or 2.7% to $1,724,000 for the first six months of 2010 compared to $1,678,000 for the same period in 2009, mainly due to an increase in transaction account service charge income.

The Bank holds stock from the Federal Home Loan Bank in relationship with the borrowing capacity and generally earns quarterly dividends. We currently hold $3,050,000 in FHLB stock. We received dividends totaling $4,000 in the six months ended June 30, 2010 compared to no dividends during the same period in 2009.

Non-Interest Expenses

Salaries and employee benefits, occupancy, regulatory assessments, professional services, and data processing are the major categories of non-interest expenses. Non-interest expenses increased $377,000 or 2.7% to $14,346,000 for the six months ended June 30, 2010 compared to $13,969,000 for the six months ended June 30, 2009

The Company’s efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangible assets and foreclosure expenses) to net interest income before provision for credit losses plus non-interest income (exclusive of realized gains on sale and calls of investments) was 73.5% for the first six months of 2010 compared to 69.2% for the six months ended June 30, 2009. The deterioration in the ratio resulted from decreases in net interest income and non-interest income as well as an increase in operating expenses.

Salaries and employee benefits increased $254,000 or 3.5 % to $7,584,000 for the first six months of 2010 compared to $7,330,000 for the six months ended June 30, 2009. The increase in salaries and employee benefits for the 2009 period can be attributed to the addition of personnel in connection with the opening of the new Merced office and other new positions along with normal cost increases.

Occupancy and equipment expense increased $25,000 or 1.3% to $1,914,000 for the six months ended June 30, 2010 compared to $1,889,000 for the six months ended June 30, 2009. The increase can be attributed to the new Merced office as well as the relocation of our Oakhurst office in 2009.

Regulatory assessments decreased to $606,000 for the six month period ended June 30, 2010 compared to $1,010,000 for the same period in 2009. In 2009, we recorded a $353,000 FDIC Special Assessment, in addition to the regular recurring assessments. With the three year prepayment of FDIC premiums in the fourth quarter of 2009, we expect that regulatory assessments will remain at historically high levels for the foreseeable future.

Total other real estate owned (OREO) expenses were $441,000 for the six months ended June 30, 2010 and $16,000 for the same period in 2009. The increase in 2010 is the result of the write down of one OREO property to its estimated fair value resulting in a valuation expense totaling $283,000 and $158,000 in expenses related to the OREO portfolio for the six month period ended June 30, 2010.

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Other categories of non-interest expenses increased $24,000 or 1.1% in the period under review. The following table shows significant components of other non-interest expense as a percentage of average assets.

For the Six Months Ended June 30,	Other Expense 2010		% Average Assets		Other Expense 2009		% Average Assets
(Dollars in thousands)
ATM/debit card expenses	$	181	0.05	%	$	207	0.05	%
Telephone	142		0.04	%	133		0.04	%
Stationery/supplies	118		0.03	%	125		0.03	%
Postage	109		0.03	%	109		0.03	%
License & maintenance contracts	104		0.03	%	100		0.03	%
Director fees and related expenses	104		0.03	%	102		0.03	%
Appraisal fees	96		0.03	%	15		0.00	%
Amortization of software	93		0.02	%	96		0.03	%
Donations	78		0.02	%	48		0.01	%
Consulting	68		0.02	%	105		0.03	%
Education/training	66		0.02	%	62		0.02	%
General Insurance	50		0.01	%	67		0.02	%
Operating losses	25		0.01	%	20		0.01	%
Other	900		0.18	%	921		0.19	%
Total other non-interest expense	$	2,134	0.57	%	$	2,110	0.56	%

Provision for Income Taxes

Our effective income tax rate was 12.4% for the six months ended June 30, 2010 compared to 13.2% for the six months ended June 30, 2009. The Company reported an income tax provision of $255,000 for six months ended June 30, 2010, compared to $263,000 for the six months ended June 30, 2009. Our low effective tax rate is due primarily to federal tax deductions for tax free municipal bond income, solar tax credits, the state tax deduction for loans in designated enterprise zones in California, and state hiring tax credits.

Preferred Stock Dividends and Accretion

On January 30, 2009, we entered into a Letter Agreement with the United States Department of the Treasury under the Capital Purchase Program. We received $7,000,000 in proceeds and the Treasury owns 7,000 shares of the Company’s Series A Fixed Rate Cumulative Perpetual Preferred Stock (“Preferred Stock”) and a warrant to purchase 79,089 shares, at $6.64 per share, of the Company’s common stock, no par value. The Company accrued preferred stock dividends to the United States Department of the Treasury and accretion of the warrants in the amount of $197,000 during the six months ended June 30, 2010.

Net Income for the Second Quarter of 2010 Compared to the Second Quarter of 2009:

Net income was $504,000 for the second quarter ended June 30, 2010 compared to $464,000 for the second quarter ended June 30, 2009. Basic and diluted earnings per share were $0.04 for the quarters ended June 30, 2010 and 2009. Annualized ROE was 2.11% for the quarter ended June 30, 2010 compared to 2.28% for the quarter ended June 30, 2009. Annualized ROA for the three months ended June 30, 2010 was 0.27% compared to 0.25% for the quarter ended June 30, 2009.

The slight increase in net income for the quarter ended June 30, 2010 compared to the same period in the prior year was due to the decreases in the provision for credit losses and in our FDIC insurance assessments, partially offset by decreases in net interest income and non-interest income. Net interest income decreased due to a decrease in the yield and level of average earning assets offset by a decrease in our cost of interest bearing liabilities and a decrease in the level of average interest-bearing liabilities, and non-interest income decreased due to a $700,000 charge related to an other-than-temporary impairment of investment securities.

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Interest Income and Expense

CENTRAL VALLEY COMMUNITY BANCORP

SCHEDULE OF AVERAGE BALANCES AND AVERAGE YIELDS AND RATES

(Dollars in thousands)

	For the Three Months Ended June 30, 2010							For the Three Months Ended June 30, 2009
	Average Balance			Interest Income/ Expense		Average Interest Rate		Average Balance			Interest Income/ Expense		Average Interest Rate
ASSETS
Interest-earning deposits in other banks	$	24,390		$	15	0.25	%	$	2,341		$	5	0.84	%
Securities
Taxable securities	124,586			1,349		4.33	%	110,402			2,123		7.69	%
Non-taxable securities (1)	64,750			1,150		7.10	%	67,499			1,221		7.24	%
Total investment securities	189,336			2,499		5.28	%	177,901			3,344		7.52	%
Federal funds sold	937			1		0.25	%	4,831			3		0.25	%
Total securities	214,663			2,515		4.69	%	185,073			3,352		7.24	%
Loans (2) (3)	439,988			6,927		6.31	%	476,924			7,515		6.32	%
Federal Home Loan Bank stock	3,097			2		0.26	%	3,140			—		0.00	%
Total interest-earning assets	657,748			$	9,444	5.74	%	665,137			$	10,867	6.54	%
Allowance for credit losses	(10,596		)					(8,005		)
Non-accrual loans	15,628							13,341
Other real estate owned	2,790							2,550
Cash and due from banks	15,856							15,840
Bank premises & equipment	6,123							6,617
Other non-earning assets	53,720							48,885
Total average assets	$	741,269						$	744,365
LIABILITIES AND SHAREHOLDERS’ EQUITY
Interest-bearing liabilities:
Savings and NOW accounts	$	139,920		$	134	0.38	%	$	127,008		$	199	0.63	%
Money market accounts	156,262			287		0.74	%	130,488			292		0.90	%
Time certificates of deposit, under $100,000	57,085			152		1.07	%	75,157			367		1.96	%
Time certificates of deposit, $100,000 and over	123,635			410		1.33	%	136,681			641		1.88	%
Total interest-bearing deposits	476,902			983		0.83	%	469,334			1,499		1.28	%
Other borrowed funds	19,155			138		2.89	%	37,201			205		2.21	%
Total interest-bearing liabilities	496,057			$	1,121	0.91	%	506,535			$	1,704	1.35	%
Non-interest bearing demand deposits	143,322							147,788
Other liabilities	6,378							8,505
Shareholders’ equity	95,512							81,537
Total average liabilities and shareholders’ equity	$	741,269						$	744,365

Interest income and rate earned on average earning assets				$	9,444	5.74	%				$	10,867	6.54	%
Interest expense and interest cost related to average interest-bearing liabilities				1,121		0.91	%				1,704		1.35	%

Net interest income and net interest margin (4)				$	8,323	5.06	%				$	9,163	5.51	%

(1) Calculated on a fully tax equivalent basis, which includes Federal tax benefits relating to income earned on municipal bonds totaling $391 and $415 in 2010 and 2009, respectively.

(2) Loan interest income includes loan fees of $123 in 2010 and $126 in 2009.

(3) Average loans do not include non-accrual loans.

(4) Net interest margin is computed by dividing net interest income by total average interest-earning assets.

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Interest and fee income from loans decreased $588,000 or 7.8% to $6,927,000 for the second quarter of 2010 compared to $7,515,000 for the same period in 2009. Average total loans, including nonaccrual loans, for the second quarter of 2010 decreased $34,649,000 or 7.1% to $455,616,000 compared to $490,265,000 for the same period in 2009. Yield on the loan portfolio was 6.31% and 6.32% for the second quarters ending June 30, 2010 and 2009, respectively. We have been successful in implementing interest rate floors on many of our new adjustable rate loans to partially offset the effects of the decrease in the prime interest rate experienced in the last two years. We are committed to providing our customers with competitive pricing without sacrificing strong asset quality and value to our shareholders.

Income from investments represents 26.8% of net interest income for the second quarter of 2010 compared to 33.6% for the same quarter in 2009. Interest income from total investments on a non tax equivalent basis (total investments include investment securities, Federal funds sold, interest bearing deposits with other banks, and other securities) decreased $813,000 in the second quarter of 2010 to $2,124,000 compared to $2,937,000, for the same period in 2009. The decrease is attributed to lower yields on the portfolio. The yield on average investments decreased 255 basis points to 4.69% for the second quarter of 2010 compared to 7.24% for the second quarter of 2009. We experienced a decrease in yield in our investment securities in 2010 due to purchases of lower yielding debt securities. In 2009 we experienced large pay downs and calls of higher yielding CMOs. Additionally, we are holding higher levels of deposits with the Federal Reserve Bank of San Francisco which have lower yields. Average total investments for the second quarter of 2010 increased $29,590,000 or 16.0% to $214,663,000 compared to $185,073,000for the second quarter of 2009.

Total interest income for the second quarter of 2010 decreased $1,401,000 or 13.4% to $9,051,000 compared to $10,452,000 for the second quarter ended June 30, 2009. The decrease was due to the 80 basis point decrease in the tax equivalent yield on average interest earning assets and the decrease in average interest earning assets. The yield on interest earning assets decreased to 5.74% for the second quarter ended June 30, 2010 from 6.54% for the second quarter ended June 30, 2009. Average interest earning assets decreased to $657,748,000 for the second quarter ended June 30, 2010 compared to $665,137,000 for the second quarter ended June 30, 2009. The $7,389,000 decrease in average earning assets can be attributed to the $36,936,000 decrease in loans offset by a $29,590,000 increase in total investments.

Interest expense on deposits for the quarter ended June 30, 2010 decreased $516,000 or 34.4% to $983,000 compared to $1,499,000 for the quarter ended June 30, 2009. The cost of deposits, calculated by dividing annualized interest expense on interest bearing deposits by total deposits, decreased 33 basis points to 0.64% for the quarter ended June 30, 2010 compared to 0.97% for the same period in 2009. This decrease was due to the repricing of interest bearing deposits in the lower current interest rate environment. Average interest bearing deposits increased 1.6% or $7,568,000 comparing the second quarter of 2010 to the same period in 2009. Average interest-bearing deposits were $476,902,000 for the quarter ended June 30, 2010, with an effective rate paid of 0.83%, compared to $469,334,000 for the same period in 2009, with an effective rate paid of 1.28%.

Average other borrowed funds decreased $18,046,000 to $19,155,000 with an effective rate of 2.89% for the quarter ended June 30, 2010 compared to $37,201,000 with an effective rate of 2.21% for the quarter ended June 30, 2009. As a result, interest expense on borrowed funds decreased $56,000 to $113,000 for the quarter ended June 30, 2010 from $169,000 for the quarter ended June 30, 2009. Other borrowings include advances from the Federal Home Loan Bank (FHLB) and junior subordinated deferrable interest debentures. The FHLB advances are fixed rate short-term and long term borrowings. The debentures were acquired in the merger with Service 1 st and carry a floating rate based on the three month Libor plus a margin of 1.6%. The rate at June 30, 2010 was 1.90%. See the section on Financial Condition for more detail.

The cost of all of our interest bearing liabilities decreased 44 basis points to 0.91% for the quarter ended June 30, 2010 compared to 1.35% for the quarter ended June 30, 2009. The decrease is due to the lower current interest rate environment as mentioned above. The cost of total deposits decreased to 0.64% for the quarter ended June 30, 2010 compared to 0.97% for quarter ended June 30, 2009. Average demand deposits decreased 3.0% to $143,322,000 in 2010 compared to $147,788,000 for 2009. The ratio of demand deposits to total deposits was 23.1% in the second quarter of 2010 compared to 23.9% for 2009.

Net Interest Income before Provision for Credit Losses

Net interest income before provision for credit losses for the quarter ended June 30, 2010 decreased $818,000 or 9.4% to $7,930,000 compared to $8,748,000 for the quarter ended June 30, 2009. The decrease was due to the 45 basis point decrease in our net interest margin and the decrease in average interest earning assets. Average interest earning assets were $657,748,000 for the three months ended June 30, 2010 with a net interest margin of 5.06% compared to $665,137,000 with a net interest margin of 5.51% for the three months ended June 30, 2009. The $7,389,000 decrease in average earning assets can be attributed to the $36,936,000 decrease in loans offset by a $29,590,000 increase in total investments. Average interest bearing liabilities decreased 2.1% to $496,057,000 for the three months ended June 30, 2010 compared to $506,535,000 for the same period in 2009. For a discussion of the repricing of our assets and liabilities, see “Item 3 — Quantitative and Qualitative Disclosure about Market Risk.”

Provision for Credit Losses

Additions to the allowance for credit losses in the second quarter of 2010 were $1,000,000 compared to $2,500,000 for the second quarter of 2009. These provisions are primarily the result of our assessment of the overall adequacy of the allowance for credit losses considering a number of factors as discussed in the “Allowance for Credit Losses” section below. The annualized net charge-off ratio, which reflects net charge-offs to average loans, was 0.11% for the quarter ended June 30, 2010 compared to 1.28% for the quarter ended June 30, 2009. During the three months ended June 30, 2010, the Company had net charge offs totaling $127,000 compared $1,574,000 for the same period in 2009. The period-to-period decrease in provision for credit losses resulted from a decrease in the level of outstanding loans and nonperforming loans. Recoveries of previously charged off loan balances during the quarter ended June 30, 2010 were $67,000.

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Non-Interest Income

Non-interest income is comprised primarily of customer service charges, loan placement fees and other service fees, net gains on sales of investments and assets, appreciation in cash surrender value of bank owned life insurance, FHLB stock dividends, and other income. Non-interest income was $747,000 for the quarter ended June 30, 2010 compared to $1,401,000 for the same period ended June 30, 2009. The $654,000 or 46.7% decrease in non-interest income comparing the quarter ended June 30, 2010 to the same period in 2009 was primarily due to an increase in other-than-temporary impairment loss on investment securities of $700,000.

Customer service charges increased $5,000 or 0.6% to $863,000 for the second quarter of 2010 compared to $858,000 for the same period in 2009 due primarily to an increase in analysis service charges on business checking. Net realized gains from sales and calls of investment securities in the quarter ended June 30, 2010 were $30,000 compared to $62,000 during the same period in 2009. Other income increased $69,000 or 22.3% to $378,000 for the second quarter of 2010 compared to $309,000 for the same period in 2009. The increase is principally due to an increase in fees from electronic funds transfers and fee income from merchant credit card services.

Non-Interest Expenses

Salaries and employee benefits, occupancy, regulatory assessments, data processing, professional services, and other real estate owned expenses are the major categories of non-interest expenses. Non-interest expenses increased $13,000 or 0.2% to $7,142,000 for the quarter ended June 30, 2010 compared to $7,129,000 for the same period in 2009 along with normal cost increases.

The Company’s efficiency ratio, measured as the percentage of non-interest expenses (exclusive of amortization of core deposit intangible assets) to net interest income before provision for credit losses plus non-interest income (excluding net gains from sales of securities and assets), was 73.5% for the second quarter of 2010 compared to 69.3% for the second quarter of 2009.

Salaries and employee benefits increased $195,000 or 5.4% to $3,837,000 for the second quarter of 2010 compared to $3,642,000 for the second quarter of 2009. The increase in salaries and employee benefits for the second quarter of 2010 can be attributed to an increase in the number of employees attributed to the opening of the Merced office and the addition of new positions along with normal cost increases.

Occupancy and equipment expense increased $44,000 to $988,000 for the second quarter of 2010 compared to $944,000 for the second quarter of 2009. The 4.7% increase in occupancy expense for the quarter ended June 30, 2010 is due mainly to the addition of the Merced office and the relocation of our Oakhurst office to a new location.

Regulatory assessments decreased $336,000 or 52.3% to $306,000 for the second quarter of 2010 compared to $642,000 for the second quarter of 2009. Second quarter 2009 included a non-recurring FDIC Special Assessment. Data processing expenses decreased $92,000 or 24.6% to $282,000 for the second quarter of 2010 compared to $374,000 for the same quarter of 2009. The decrease can be attributed to new a fee structure for our core processing expense. Other real estate owned expenses increased $111,000 comparing the two periods due to an increase in the number of properties in the portfolio.

Provision for Income Taxes

The effective income tax rate was 5.79% for the second quarter of 2010 compared to 10.77% for the same period in 2009. Provision for income taxes totaled $31,000 and $56,000 for the quarters ended June 30, 2010, and 2009, respectively. The decrease in the effective tax rate for the three months ended June 30, 2010 compared to the prior year comparable period is due primarily to increases in the federal tax deduction for tax-free municipal bonds and solar tax credits, the state tax deduction for loans in designated enterprise zones in California, and state hiring tax credits.

Preferred Stock Dividends and Accretion

On January 30, 2010, the Company entered into a Letter Agreement with the United States Department of the Treasury under the Capital Purchase Program. We received $7,000,000 in proceeds and the Treasury owns 7,000 shares of the Company’s Series A Fixed Rate Cumulative Perpetual Preferred Stock (“Preferred Stock”) and a warrant to purchase 79,089 shares, at $6.64 per share, of the Company’s common stock, no par value. The Company accrued preferred stock dividends to the United States Department of the Treasury and accretion of the warrants in the amount of $99,000 during the three months ended June 30, 2010.

FINANCIAL CONDITION

Summary of Changes in Consolidated Balance Sheets

June 30, 2010 compared to December 31, 2009

As of June 30, 2010, total assets were $755,989,000, compared to $765,488,000 as of December 31, 2009, a decrease of 1.2%, or $9,499,000. Total gross loans decreased 2.1% or $9,445,000, to $468,652,000 as of June 30, 2010 compared to $459,207,000 as of December 31, 2009. The total investment portfolio (including Federal funds sold) decreased 5.3% or $10,412,000 to $187,186,000. Total deposits decreased 1.4% or $8,858,000 to $631,309,000 as of June 30, 2010 compared to $640,167,000 as of December 31, 2009.

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Stockholders’ equity increased $2,937,000 or 3.2% to $95,451,000 as of June 30, 2010 compared to $91,223,000 as of December 31, 2009 due to net income included in retained earnings, a decrease in other comprehensive loss and issuance of common stock from the exercise of stock options.

Fair Value

The Company measures the fair values of its financial instruments utilizing a hierarchical disclosure framework associated with the level of observable pricing scenarios utilized in measuring financial instruments at fair value. The degree of judgment utilized in measuring the fair value of financial instruments generally correlates to the level of the observable pricing scenario. Financial instruments with readily available actively quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of observable pricing and a lesser degree of judgment utilized in measuring fair value. Conversely, financial instruments rarely traded or not quoted will generally have little or no observable pricing and a higher degree of judgment utilized in measuring fair value. Observable pricing scenarios are impacted by a number of factors, including the type of financial instrument, whether the financial instrument is new to the market and not yet established and the characteristics specific to the transaction.

See Note 5 of the Notes to Consolidated Financial Statements for additional information about the level of pricing transparency associated with financial instruments carried at fair value.

Investments

Our investment portfolio consists primarily of agency securities, mortgage backed securities, municipal securities, collateralized mortgage obligations, corporate debt securities, and overnight investments in the Federal funds market and are classified at the date of acquisition as available for sale or held to maturity. As of June 30, 2010, investment securities with a fair value of $126,295,000, or 67.5% of our investment securities portfolio, were held as collateral for public funds, short and long-term borrowings, treasury, tax, and for other purposes. Our investment policies are established by the Board of Directors and implemented by our Investment/Asset Liability Committee. They are designed primarily to provide and maintain liquidity, to enable us to meet our pledging requirements for public money and borrowing arrangements, to generate a favorable return on investments without incurring undue interest rate and credit risk, and to complement our lending activities.

The level of our investment portfolio is generally considered higher than our peers due primarily to a comparatively low loan to deposit ratio. Our loan to deposit ratio at June 30, 2010 was 74.2% compared to 71.7% at December 31, 2009. The loan to deposit ratio of our peers was 81.9% at March 31, 2010. The total investment portfolio, including Federal funds sold, decreased 5.3% or $10,412,000 to $187,186,000 at June 30, 2010 from $197,598,000 at December 31, 2009 due to sales and calls of securities and principal pay downs. The market value of the portfolio reflected an unrealized gain of $818,000 at June 30, 2010 compared to a $2,425,000 unrealized loss at December 31, 2009.

We periodically evaluate each investment security for other-than-temporary impairment, relying primarily on industry analyst reports, observation of market conditions and interest rate fluctuations.

As of June 30, 2010, we performed an analysis of the investment portfolio to determine whether any of the investments held in the portfolio had an other-than-temporary impairment (OTTI). We evaluated all available-for-sale investment securities with an unrealized loss at June 30, 2010 and identified those that had an unrealized loss for at least a consecutive 12 month period, which had an unrealized loss at June 30, 2010 greater than 10% of the recorded book value on that date, or which had an unrealized loss of more than $10,000. In addition, we reviewed all private label residential mortgage backed securities (PLRMBS) at June 30, 2010.

For those bonds that met the evaluation criteria we obtained and reviewed the most recently published national credit ratings for those bonds. For those bonds that were municipal debt securities with an investment grade rating by the rating agencies, we also evaluated the financial condition of the municipality and any applicable municipal bond insurance provider and concluded that no credit related impairment existed based on the rating. Our evaluation for PLRMBS also includes estimating projected cash flows that the Company is likely to collect based on an assessment of all available information about the applicable security on an individual basis, the structure of the security, and certain assumptions, such as the remaining payment terms for the security, prepayment speeds, default rates, loss severity on the collateral supporting the security based on underlying loan-level borrower and loan characteristics, expected housing price changes, and interest rate assumptions, to determine whether the Company will recover the entire amortized cost basis of the security. In performing a detailed cash flow analysis, the Company identified the best estimate of the cash flows expected to be collected. If this estimate results in a present value of expected cash flows (discounted at the security’s effective yield) that is less than the amortized cost basis of the security, OTTI is considered to have occurred.

To assess whether it expects to recover the entire amortized cost basis of its PLRMBS, the Company performed a cash flow analysis for all of its PLRMBS as of June 30, 2010. In performing the cash flow analysis for each security, the Company uses a third-party model. The model considers borrower characteristics and the particular attributes of the loans underlying the Company’s securities, in conjunction with assumptions about future changes in home prices and other assumptions, to project prepayments, default rates, and loss severities. In addition, for those PLRMBS that were rated below investment grade, we contracted with a third party evaluation specialist to determine if a credit loss existed.

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The unrealized losses associated with private residential PLRMBS are primarily driven by higher projected collateral losses, wider credit spreads, and changes in interest rates. The Company assesses for credit impairment using a discounted cash flow model. The key assumptions include home price depreciation, default rates, severities, discount rates and prepayment rates. We estimate losses to a security by forecasting the underlying mortgage loans in each transaction. The forecasted loan performance is used to project cash flows to the various tranches in the structure. Based upon management’s assessment of the expected credit losses of the security given the performance of the underlying collateral compared with our credit enhancement (which occurs as a result of credit loss protection provided by subordinated tranches), we expect to recover the entire amortized cost basis of these securities, with the exception of certain securities for which we recorded an OTTI.

At June 30, 2010, the Company had a total of 42 PLRMBS with a remaining principal balance of $21,767,000 and a net unrealized loss of approximately $3,947,000. 15 of these securities account for $4,215,000 of the unrealized loss at June 30, 2010 offset by 27 of these securities with gains totaling $268,000. 12 of these PLRMBS with a remaining principal balance of $17,328,000 had credit ratings below investment grade. The Company continues to perform extensive analyses on these securities as well as all whole loan CMOs. Several of these investment securities continue to demonstrate cash flows and credit support as expected and the expected cash flows of the security discounted at the security’s effective yield are greater than the book value of the security, therefore we do not consider these to be other than temporarily impaired. Based on the analyses performed, eight PLRMBS with a remaining principal balance of $17,044,000 were considered to be impaired at June 30, 2010 for which we recorded an OTTI charge of $700,000. This charge was taken to reflect ongoing and increasing deterioration of credit quality and increasing loss severities of the underlying mortgages. However, the cumulative unrealized loss on these securities decreased during the three and six months ended June 30, 2010 primarily due to a declining interest rate environment. This unrealized gain was recognized in other comprehensive income and is also presented in the income statement as a component of non-interest income in the presentation of other-than-temporary impairment losses.

See Note 4 of the Notes to Consolidated Financial Statements included in this report for carrying values and estimated fair values of our investment securities portfolio.

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Loans

Total gross loans decreased 2.1% or $9,445,000, to $468,652,000 as of June 30, 2010 compared to $459,207,000 as of December 31, 2009.

The following table sets forth information concerning the composition of our loan portfolio at the dates indicated:

Loan Type	June 30, 2010			% of Total loans		December 31, 2009			% of Total loans
(Dollars in thousands)
Commercial:
Commercial and industrial	$	110,724		23.6	%	$	107,726		23.4	%
Agricultural land and production	50,506			10.8	%	35,796			7.8	%
Total commercial	161,230			34.4	%	143,522			31.2	%
Real estate:
Owner occupied	112,638			24.0	%	106,606			23.2	%
Real estate-construction and other land loans	27,396			5.8	%	36,169			7.9	%
Commercial real estate	68,373			14.6	%	71,977			15.7	%
Other	54,244			11.5	%	53,996			11.8	%
Total real estate	262,651			56.0	%	268,748			58.6	%
Consumer:
Equity loans and lines of credit	35,120			7.5	%	36,110			7.8	%
Consumer and installment	9,559			2.0	%	10,545			2.3	%
Other	668			0.1	%	674			0.1	%
Total consumer	45,347			9.6	%	47,329			10.2	%
Deferred loan fees, net	(576		)			(392		)
Total gross loans	468,652			100.0	%	459,207			100.0	%
Allowance for credit losses	(11,468		)			(10,200		)
Total loans	$	457,184				$	449,007

As of June 30, 2010, in management’s judgment, a concentration of loans existed in commercial loans and loans collateralized by real-estate-related loans, representing approximately 97.9% of total loans of which 34.4% were commercial and 63.5% were real-estate-related. This level of concentration is consistent with 97.6% at December 31, 2009. Although management believes the loans within this concentration have no more than the normal risk of collectibility, a substantial further decline in the performance of the economy in general or a further decline in real estate values in our primary market areas, in particular, could have an adverse impact on collectibility, increase the level of real estate-related non-performing loans, or have other adverse effects which alone or in the aggregate could have a material adverse effect on our business, financial condition, results of operations and cash flows. The Company was not involved in any sub-prime mortgage lending activities at June 30, 2010 or December 31, 2009.

We believe that our commercial real estate loan underwriting policies and practices result in prudent extensions of credit, but recognize that our lending activities result in relatively high reported commercial real estate lending levels. Commercial real estate loans include certain loans which represent low to moderate risk and certain loans with higher risks.

The Board of Directors reviews and approves concentration limits and exceptions to limitations of concentration are reported to the Board of Directors at least quarterly.

Nonperforming Assets

Nonperforming assets consist of nonperforming loans, other real estate owned (OREO), and repossessed assets. Nonperforming loans are those loans which have (i) been placed on nonaccrual status; (ii) been subject to troubled debt restructuring; (iii) been classified as doubtful under our asset classification system; or (iv) become contractually past due 90 days or more with respect to principal or interest and have not been restructured or otherwise placed on nonaccrual status. A loan is classified as nonaccrual when 1) it is maintained on a cash basis because of deterioration in the financial condition of the borrower; 2) payment in full of principal or interest under the original contractual terms is not expected; or 3) principal or interest has been in default for a period of 90 days or more unless the asset is both well secured and in the process of collection.

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At June 30, 2010, total nonperforming assets totaled $18,496,000, or 2.45% of total assets, compared to $21,838,000, or 2.85% of total assets, at December 31, 2009. Total nonperforming assets included nonaccrual loans totaling $14,994,000 and OREO of $3,502,000. At June 30, 2010, we had six loans considered troubled debt restructurings totaling $3,547,000, which are included in nonaccrual loans. At December 31, 2009, nonperforming assets included nonaccrual loans totaling $18,959,000, OREO of $2,832,000, and repossessed assets of $47,000. We had seven restructured loans totaling $4,568,000 at December 31, 2009.

A summary of nonaccrual, restructured, and past due loans at June 30, 2010 and December 31, 2009 is set forth below. The Company had no loans past due more than 90 days and still accruing interest at June 30, 2010 or December 31, 2009. Management can give no assurance that nonaccrual and other nonperforming loans will not increase in the future.

Composition of Non-accrual, Past Due and Restructured Loans

(Dollars in thousands)	June 30, 2010			December 31, 2009
Non-accrual Loans
Commercial and industrial	$	3,035		$	3,386
Real Estate	1,738			3,183
Real estate construction and land development	5,836			7,474
Consumer	336			348
Equity loans and lines of credit	502			—
Troubled debt restructured loans (non-accruing)
Commercial and industrial	23			28
Real Estate	3,524			4,540
Total non-accrual	14,994			18,959
Accruing loans past due 90 days or more	—			—
Total non-performing loans	$	14,994		$	18,959
Nonperforming loans to total loans	3.20		%	4.13		%
Ratio of non-performing loans to allowance for credit losses	130.75		%	185.87		%
Loans considered to be impaired	$	14,994		$	18,959
Related allowance for credit losses on impaired loans	$	2,298		$	752

We measure our impaired loans by using the fair value of the collateral if the loan is collateral dependent and the present value of the expected future cash flows discounted at the loan’s effective interest rate if the loan is not collateral dependent. As of June 30, 2010 and December 31, 2009, we had impaired loans totaling $14,994,000 and $18,959,000, respectively. For collateral dependent loans secured by real estate, we obtain external appraisals which are updated at least annually to determine the fair value of the collateral, and we record an immediate charge off for the difference between the book value of the loan and the appraised value of collateral. We perform quarterly internal reviews on substandard loans. We place loans on nonaccrual status and classify them as impaired when it becomes probable that we will not receive interest and principal under the original contractual terms, or when loans are delinquent 90 days or more unless the loan is both well secured and in the process of collection. Management maintains certain loans that have been brought current by the borrower (less than 30 days delinquent) on nonaccrual status until such time as management has determined that the loans are likely to remain current in future periods.

The following table provides a reconciliation of the change in non-accrual loans for the first half of 2010.

(Dollars in thousands)	Balances December 31, 2009		Additions to Nonaccrual Loans		Net Pay Downs			Transfer to Foreclosed Collateral - OREO			Returns to Accrual Status			Charge Offs			Balance June 30, 2010
Non-accrual Loans
Commercial and industrial	$	3,386	$	780	$	(951	)	$	—		$	(165	)	$	(15	)	$	3,035
Real Estate	3,183		578		(319		)	(1,478		)	(126		)	(100		)	1,738
Real estate construction and land development	7,474		51		(33		)	(1,656		)	—			—			5,836
Consumer	348		14		—			—			—			(26		)	336
Equity loans and lines of credit	—		509		(7		)	—			—			—			502
Troubled debt restructured loans (non-accruing	28				(5		)										23
Commercial and industrial
Real Estate	4,540		—		(1,016		)	—			—			—			3,524
Total non-accrual	$	18,959	$	1,932	$	(2,331	)	$	(3,134	)	$	(291	)	$	(141	)	$	14,994

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The following table provides a summary of the change in the OREO balance for the six months ended June 30, 2010:

(Dollars in thousands)	Six Months Ended June 30, 2010
Balance, December 31, 2009	$	2,832
Additions	3,134
Dispositions	(2,181		)
Write-downs	(283		)
Balance, June 30, 2010	$	3,502

OREO represents real property taken either through foreclosure or through a deed in lieu thereof from the borrower. OREO is carried at the lesser of cost or fair market value, less selling costs. OREO holdings represented five properties with a fair value totaling $3,502,000 at June 30, 2010 and two properties totaling $2,832,000 at December 31, 2009.

Allowance for Credit Losses

We have established a methodology for the determination of provisions for credit losses. The methodology is set forth in a formal policy and takes into consideration the need for an overall allowance for credit losses as well as specific allowances that are tied to individual loans. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance and a specific allowance for identified problem loans.

In originating loans, we recognize that losses will be experienced and that the risk of loss will vary with, among other things, the type of loan being made, the creditworthiness of the borrower over the term of the loan, general economic conditions and, in the case of a secured loan, the quality of the collateral securing the loan. The allowance is increased by provisions charged against earnings and reduced by net loan charge offs. Loans are charged off when they are deemed to be uncollectible, or partially charged off when portions of a loan are deemed to be uncollectible. Recoveries are generally recorded only when cash payments are received.

The allowance for credit losses is maintained to cover probable losses inherent in the loan portfolio. The responsibility for the review of our assets and the determination of the adequacy lies with management and our Audit Committee. They delegate the authority to the Chief Credit Administrator (CCA) to determine the loss reserve ratio for each type of asset and reviews, at least quarterly, the adequacy of the allowance based on an evaluation of the portfolio, past experience, prevailing market conditions, amount of government guarantees, concentration in loan types and other relevant factors.

The allowance for credit losses is an estimate of the losses that may be sustained in our loan and lease portfolio. The allowance is based on principles of accounting: (1) ASC 310-10 which requires that losses be accrued when they are probable of occurring and can be reasonably estimated and (2) ASC 450-20 which requires that losses be accrued based on the differences between the value of collateral, present value of future cash flows or values that are observable in the secondary market and the loan balance.

Credit Administration adheres to an internal asset review system and loss allowance methodology designed to provide for timely recognition of problem assets and adequate valuation allowances to cover expected asset losses. The Bank’s asset monitoring process includes the use of asset classifications to segregate the assets, largely loans and real estate, into various risk categories. The Bank uses the various asset classifications as a means of measuring risk and determining the adequacy of valuation allowances by using a nine-grade system to classify assets. All credit facilities exceeding 90 days of delinquency require classification.

The following table sets forth information regarding our allowance for credit losses at the dates and for the periods indicated:

(Dollars in thousands)	For the Six Months Ended June 30, 2010			For the Year Ended December 31, 2009			For the Six Months Ended June 30, 2009

Balance, beginning of period	$	10,200		$	7,223		$	7,223
Provision charged to operations	1,600			10,514			4,417
Losses charged to allowance	(670		)	(7,926		)	(3,334		)
Recoveries	338			389			286
Balance, end of period	$	11,468		$	10,200		$	8,592
Ratio of non-performing loans to allowance for credit losses at end of period	130.75		%	185.87		%	169.04		%
Allowance for credit losses to total loans at end of period	2.45		%	2.22		%	1.75		%

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As of June 30, 2010 the balance in the allowance for credit losses was $11,468,000 compared to $10,200,000 as of December 31, 2009. The increase was due to net charge offs during the six months ended June 30, 2010 being less than the amount of the provision for credit losses. Net charge offs totaled $332,000 while the provision for credit losses was $1,600,000. The balance of commitments to extend credit on undisbursed construction and other loans and letters of credit was $120,147,000 as of June 30, 2010 compared to $131,139,000 as of December 31, 2009. Risks and uncertainties exist in all lending transactions and our management and Directors’ Loan Committee have established reserve levels based on economic uncertainties and other risks that exist as of each reporting period.

As of June 30, 2010, the allowance for credit losses was 2.45% of total gross loans compared to 2.22% as of December 31, 2009. During the six months ended June 30, 2010, there were no major changes in loan concentrations that significantly affected the allowance for credit losses. There have been no significant changes in estimation methods during the periods presented. Assumptions regarding the collateral value of various under performing loans may affect the level and allocation of the allowance for credit losses in future periods. The allowance may also be affected by trends in the amount of charge offs experienced or expected trends within different loan portfolios.

Non-performing loans totaled $14,994,000 as of June 30, 2010, and $18,959,000 as of December 31, 2009. The allowance for credit losses as a percentage of nonperforming loans was 76.5% and 53.8% as of June 30, 2010 and December 31, 2009, respectively. Management believes the allowance at June 30, 2010 is adequate based upon its ongoing analysis of the loan portfolio, historical loss trends and other factors. However, no assurance can be given that the Company may not sustain charge-offs which are in excess of the allowance in any given period.

Goodwill and Intangible Assets

Business combinations involving the Company’s acquisition of the equity interests or net assets of another enterprise give rise to goodwill. Total goodwill at June 30, 2010 was $23,577,000 consisting of $14,643,000 and $8,934,000 representing the excess of the cost of Service 1 st and Bank of Madera County, respectively, over the net of the amounts assigned to assets acquired and liabilities assumed in the transactions accounted for under the purchase method of accounting. The value of goodwill is ultimately derived from the Bank’s ability to generate net earnings after the acquisitions and is not deductible for tax purposes. A decline in net earnings could be indicative of a decline in the fair value of goodwill and result in impairment. For that reason, goodwill is assessed at least annually for impairment.

During the third quarter of 2009, we engaged an independent valuation specialist to test goodwill for impairment. Goodwill impairment testing is a two step process. The first step compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount exceeds the fair value, the second step of the goodwill impairment test is performed to measure the impairment loss, if any. If the fair value of the reporting unit exceeds the carrying value, then goodwill is not impaired and step two is unnecessary. Since the Company is considered to be one reporting unit, the fair value of the Company was compared to the carrying value. Based on the results of the testing performed, the fair value of the Company exceeded the carrying value so step two was not required and goodwill was not impaired. The fair value of the Company was determined based on an analysis of three different valuation methods including the analysis of discounted future cash flows, comparable whole bank transactions, and the Company’s market capitalization plus a control premium.

The intangible assets represent the estimated fair value of the core deposit relationships acquired in the acquisition of Service 1 st in 2008 of $1,400,000 and the 2005 acquisition of Bank of Madera County of $1,500,000 at December 31, 2009. Core deposit intangibles are being amortized using the straight-line method over an estimated life of seven years from the date of acquisition. The carrying value of intangible assets at June 30, 2010 was $1,405,000, net of $1,495,000 in accumulated amortization expense. The carrying value at December 31, 2009 was $1,612,000, net of $1,288,000 accumulated amortization expense. We evaluate the remaining useful lives quarterly to determine whether events or circumstances warrant a revision to the remaining periods of amortization. Based on the evaluation, no changes to the remaining useful lives was required in the second quarter of 2010. We performed our annual impairment test on core deposit intangibles in the third quarter of 2009 and determined no impairment was necessary. Amortization expense recognized was $207,000 for the six month periods ended June 30, 2010 and 2009.

Deposits and Borrowings

The Bank’s deposits are insured by the Federal Deposit Insurance Corporation (FDIC) up to applicable legal limits. The Bank is also participating in the FDIC Transaction Account Guarantee Program (TAGP). Under that program, through December 31, 2010, all non-interest-bearing transaction accounts are fully guaranteed by the FDIC for the entire amount in the account. Coverage under the TAGP is in addition to and separate from the coverage available under the FDIC’s general deposit insurance rules.

Total deposits decreased $8,858,000 or 1.4% to $631,309,000 as of June 30, 2010 compared to $640,167,000 as of December 31, 2009. Interest-bearing deposits increased $7,216,000 or 1.5% to $487,753,000 as of June 30, 2010 compared to $480,537,000 as of December 31, 2009. Non-interest bearing deposits decreased $16,074,000 or 10.1% to $143,556,000 as of June 30, 2010 compared to $159,630,000 as of December 31, 2009. Average non-interest bearing deposits to average total deposits was 23.3% for the six months ended June 30, 2010 compared to 24.5% for the save period in 2009.

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The composition of the deposits and average interest rates paid at June 30, 2010 and December 31, 2009 is summarized in the table below.

(Dollars in thousands)	June 30, 2010		% of Total Deposits		Effective Rate		December 31, 2009		% of Total Deposits		Effective Rate

NOW accounts	$	113,032	17.9	%	0.36	%	$	112,493	17.6	%	0.66	%
MMA accounts	167,534		26.5	%	0.74	%	142,917		22.3	%	0.93	%
Time deposits	181,562		28.8	%	1.29	%	200,681		31.4	%	1.82	%
Savings deposits	25,625		4.1	%	0.20	%	24,446		3.8	%	0.22	%
Total interest-bearing	487,753		77.3	%	0.81	%	480,537		75.1	%	1.22	%
Non-interest bearing	143,556		22.7	%			159,630		24.9	%
Total deposits	$	631,309	100.0	%			$	640,167	100.0	%

Other Borrowings

Short-term borrowings totaled $10,000,000 as of June 30, 2010 compared to $5,000,000 as of December 31, 2009. Short-term borrowings at June 30, 2010, represent FHLB advances with weighted average interest rates of 3.05% and coming due the first quarter of 2011. We maintain a line of credit with the FHLB collateralized by government securities and certain of our loans. Refer to Liquidity below for further discussion of FHLB advances.

Long-term borrowings of $4,000,000 at June 30, 2010 represent FHLB advances with weighted average interest of 3.59% and weighted average maturity of 2.6 years. Long-term borrowings at December 31, 2009 were $14,000,000.

The Company holds junior subordinated deferrable interest debentures (trust preferred securities). Under applicable regulatory guidance, the amount of trust preferred securities that is eligible as Tier 1 capital is limited to 25% of the Company’s Tier 1 capital on a pro forma basis. At June 30, 2010, all of the trust preferred securities that have been issued qualify as Tier 1 capital. Interest on the trust preferred securities is payable and the rate is adjusted to equal the three month LIBOR plus 1.60% each January 7, April 7, July 7 or October 7 of each year. As of June 30, 2010, the rate was 1.90%. Interest expense recognized by the Company for the three months ended June 30, 2010 was $48,000.

Capital

Our stockholders’ equity was $95,451,000 as of June 30, 2010 compared to $91,223,000 as of December 31, 2009. The increase in stockholders’ equity is the result of net income of $1,796,000 for the six months ended June 30, 2010 the effect of stock-based compensation expense of $113,000, proceeds from the exercise of employee stock options of $549,000, an increase in other comprehensive income net of tax of $1,945,000, offset by preferred stock dividends of $198,000 and accretion of discount on preferred stock of $23,000.

Management considers capital requirements as part of its strategic planning process. The strategic plan calls for continuing increases in assets and liabilities, and the capital required may therefore be in excess of retained earnings. The ability to obtain capital is dependent upon the capital markets as well as our performance. Management regularly evaluates sources of capital and the timing required to meet its strategic objectives.

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The following table presents the Company’s and the Bank’s capital ratios as of June 30, 2010 and December 31, 2009.

	June 30, 2010				December 31, 2009
(Dollars in thousands)	Amount		Ratio		Amount		Ratio
Tier 1 Leverage Ratio
Central Valley Community Bancorp and Subsidiary	$	70,820	9.94	%	$	67,547	9.30	%
Minimum regulatory requirement	$	28,485	4.00	%	$	29,056	4.00	%
Central Valley Community Bank	$	69,759	9.80	%	$	66,624	9.20	%
Minimum requirement for “Well-Capitalized” institution	$	35,595	5.00	%	$	36,210	5.00	%
Minimum regulatory requirement	$	28,476	4.00	%	$	28,968	4.00	%

Tier 1 Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	70,820	12.96	%	$	67,547	12.28	%
Minimum regulatory requirement	$	21,856	4.00	%	$	21,998	4.00	%
Central Valley Community Bank	$	69,759	12.77	%	$	66,624	12.12	%
Minimum requirement for “Well-Capitalized” institution	$	32,777	6.00	%	$	32,977	6.00	%
Minimum regulatory requirement	$	21,851	4.00	%	$	21,985	4.00	%

Total Risk-Based Capital Ratio
Central Valley Community Bancorp and Subsidiary	$	77,789	14.24	%	$	74,463	13.54	%
Minimum regulatory requirement	$	43,711	8.00	%	$	43,996	8.00	%
Central Valley Community Bank	$	76,727	14.05	%	$	73,535	13.38	%
Minimum requirement for “Well-Capitalized” institution	$	54,628	10.00	%	$	54,962	10.00	%
Minimum regulatory requirement	$	43,702	8.00	%	$	43,970	8.00	%

Liquidity

Liquidity management involves our ability to meet cash flow requirements arising from fluctuations in deposit levels and demands of daily operations, which include funding of securities purchases, providing for customers’ credit needs and ongoing repayment of borrowings. Our liquidity is actively managed on a daily basis and reviewed periodically by our management and Director’s Asset/Liability Committees. This process is intended to ensure the maintenance of sufficient funds to meet our needs, including adequate cash flow for off-balance sheet commitments.

Our primary sources of liquidity are derived from financing activities which include the acceptance of customer and, to a lesser extent, broker deposits, Federal funds facilities with correspondent banks, and advances from the Federal Home Loan Bank of San Francisco. These funding sources are augmented by payments of principal and interest on loans, the routine maturities and pay downs of securities from the securities portfolio, the stability of our core deposits and the ability to sell investment securities. As of June 30, 2010, the Company had unpledged securities totaling $53,033,000 available as a secondary source of liquidity. Primary uses of funds include withdrawal of and interest payments on deposits, originations and purchases of loans, purchases of investment securities, and payment of operating expenses.

As a means of augmenting our liquidity, we have established federal funds lines with correspondent banks. At June 30, 2010 our available borrowing capacity includes approximately $39,000,000 in unsecured credit lines with our correspondent banks, $99,845,000 in unused FHLB advances and $1,849,000 secured credit line at the Federal Reserve Bank. We believe our liquidity sources to be stable and adequate. At June 30, 2010, we were not aware of any information that was reasonably likely to have a material effect on our liquidity position.

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The following table reflects the Company’s credit lines, balances outstanding, and pledged collateral at June 30, 2010 and December 31, 2009:

Credit Lines (In thousands)	June 30, 2010		December 31, 2009

Unsecured Credit Lines
(interest rate varies with market):
Credit limit	$	39,000	$	39,000
Balance outstanding	$	—	$	—

Federal Home Loan Bank
(interest rate at prevailing interest rate):
Credit limit	$	113,845	$	113,451
Balance outstanding	$	14,000	$	19,000
Collateral pledged	$	135,359	$	139,726
Fair value of collateral	$	138,673	$	144,903

Federal Reserve Bank
(interest rate at prevailing discount interest rate):
Credit limit	$	1,849	$	917
Balance outstanding	$	—	$	—
Collateral pledged	$	1,805	$	922
Fair value of collateral	$	1,887	$	956

The liquidity of the parent company, Central Valley Community Bancorp, is primarily dependent on the payment of cash dividends by its subsidiary, Central Valley Community Bank, subject to limitations imposed by the regulations.

OFF-BALANCE SHEET ITEMS

In the ordinary course of business, the Company is a party to financial instruments with off-balance risk. These financial instruments include commitments to extend credit and standby letters of credit. Such financial instruments are recorded in the financial statements when they are funded or related fees are incurred or received. For a fuller discussion of these financial instruments, refer to Note 9 of the Notes to Consolidated Financial Statements included herein and Note 11 of the Notes to Consolidated Financial Statements in the Company’s 2009 Annual Report to Shareholders on Form 10-K.

In the ordinary course of business, the Company is party to various operating leases. For a fuller discussion of these financial instruments, refer to Note 11 of the Notes to Consolidated Financial Statements in the Company’s 2009 Annual Report to Shareholders on Form 10-K.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Interest rate risk (“IRR”) and credit risk constitute the two greatest sources of financial exposure for insured financial institutions. IRR represents the impact that changes in absolute and relative levels of market interest rates may have upon our net interest income (“NII”). Changes in the NII are the result of changes in the net interest spread between interest-earning assets and interest-bearing liabilities (timing risk), the relationship between various rates (basis risk), and changes in the shape of the yield curve.

We realize income principally from the differential or spread between the interest earned on loans, investments, other interest-earning assets and the interest incurred on deposits and borrowings. The volumes and yields on loans, deposits and borrowings are affected by market interest rates. The majority of our adjustable rate loans are tied to prime and reprice within 90 days. However, in the current low rate environment, several of our loans, tied to prime, are at their floors and will not reprice until prime plus the factor is greater than the floor. As of June 30, 2010 approximately 77.6% of our loan portfolio was tied to adjustable rate indices. The majority of our time deposits have a fixed rate of interest. As of June 30, 2010 77.6% of our time deposits mature within one year or less. As of June 30, 2010, $10,000,000 of our short term debt and $4,000,000 of our long-term debt was fixed rate. Our long term debt matures in 2013.

Changes in the market level of interest rates directly and immediately affect our interest spread, and therefore profitability. Sharp and significant changes to market rates can cause the interest spread to shrink or expand significantly in the near term, principally because of the timing differences between the adjustable rate loans and the maturities (and therefore repricing) of the deposits and borrowings.

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Our management Asset/Liability Committees (“ALCO”) is responsible for managing our assets and liabilities in a manner that balances profitability, IRR and various other risks including liquidity. The ALCO operates under policies and within risk limits prescribed by, reviewed and approved by the Board of Directors.

The ALCO seeks to stabilize our NII by matching rate-sensitive assets and liabilities through maintaining the maturity and repricing of these assets and liabilities at appropriate levels given the interest rate environment. When the amount of rate-sensitive liabilities exceeds rate-sensitive assets within specified time periods, NII generally will be negatively impacted by an increasing interest rate environment and positively impacted by a decreasing interest rate environment. Conversely, when the amount of rate-sensitive assets exceeds the amount of rate-sensitive liabilities within specified time periods, net interest income will generally be positively impacted by an increasing interest rate environment and negatively impacted by a decreasing interest rate environment. The speed and velocity of the repricing of assets and liabilities will also contribute to the effects on our NII, as will the presence or absence of periodic and lifetime interest rate caps and floors.

Simulation of earnings is the primary tool used to measure the sensitivity of earnings to interest rate changes. Earnings simulations are produced using a software model that is based on actual cash flows and repricing characteristics for all of our financial instruments and incorporate market-based assumptions regarding the impact of changing interest rates on current volumes of applicable financial instruments.

Interest rate simulations provide us with an estimate of both the dollar amount and percentage change in NII under various rate scenarios. All assets and liabilities are normally subjected to up to 300 basis point increases and decreases in interest rates in 100 basis point increments. Under each interest rate scenario, we project our net interest income. From these results, we can then develop alternatives in dealing with the tolerance thresholds.

Approximately 77.6% of our loan portfolio is tied to adjustable rate indices and 47.9% of our loan portfolio reprices within 90 days. As of June 30, 2010, we had 557 loans totaling $198,806,000 with floors ranging from 4.0% to 8.5% and ceilings ranging from 7.0% to 25.0%.

The following table shows the effects of changes in projected net interest income for the twelve months ending June 30, 2011 under the interest rate shock scenarios stated. The table was prepared as of June 30, 2010, at which time prime interest rate was 3.25%. The amounts identified in the table are not materially different from what we reported at December 31, 2009.

Sensitivity Analysis of Impact on Interest Income of Rate Changes (Dollars in thousands)

Hypothetical Change in Rates	Projected Net Interest Income		$ Change from Rates at June 30, 2010		Percent Change from Rates at June 30, 2010
UP 300 bps	$	33,896	$	1,616	5.01	%
UP 200 bps	33,062		782		2.42	%
UP 100 bps	32,324		44		0.14	%
UNCHANGED	32,280		—		—
DOWN 25 bps	32,377		97		0.30	%

Assumptions are inherently uncertain, and, consequently, the model cannot precisely measure net interest income or precisely predict the impact of changes in interest rates on net interest income. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and management strategies which might moderate the negative consequences of interest rate deviations. In the model above, the simulation shows that the Company is neutral over the one-year horizon. If interest rates increase or decline, there will be similar positive and negative impact to net interest income.

ITEM 4. CONTROLS AND PROCEDURES

As of the end of the period covered by this report, management, including the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures with respect to the information generated for use in this Quarterly Report. The evaluation was based in part upon reports provided by a number of executives. Based upon, and as of the date of that evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures, as so amended, were effective to provide reasonable assurances that information required to be disclosed in the reports the Company files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that information required to be disclosed by the Company in the reports that it files or submits is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.

There was no change in the Company’s internal controls over financial reporting during the quarter ended June 30, 2010 that has materially affected, or is reasonably likely to materially affect, the Company’s internal controls over financial reporting.

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In designing and evaluating disclosure controls and procedures, the Company’s management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurances of achieving the desired control objectives and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

PART II OTHER INFORMATION

ITEM 1 LEGAL PROCEEDINGS

None to report.

ITEM 1A RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2009, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS

None to report.

ITEM 3 DEFAULTS UPON SENIOR SECURITIES

None to report.

ITEM 4 REMOVED AND RESERVED

ITEM 5 OTHER INFORMATION

None to report.

ITEM 6 EXHIBITS

(a) Exhibits

Exhibit No.		Description

3.1		Articles of Incorporation, as amended
31.1		Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Central Valley Community Bancorp

Date: August 16, 2010	/s/ Daniel J. Doyle
	Daniel J. Doyle
	President and Chief Executive Officer

Date: August 16, 2010	/s/ David A. Kinross
	David A. Kinross
	Senior Vice President and Chief Financial Officer

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EXHIBIT INDEX

3.1	Articles of Incorporation, as amended
31.1	Certification of the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 3.1

AMENDED AND RESTATED ARTICLES OF INCORPORATION

CENTRAL VALLEY COMMUNITY BANCORP

CERTIFICATE OF AMENDMENT OF

ARTICLES OF INCORPORATION

The undersigned certify that:

1. They are the President and Chief Executive Officer, and Secretary, respectively, of CENTRAL VALLEY COMMUNITY BANCORP, a California corporation.

2. The Articles of Incorporation of CENTRAL VALLEY COMMUNITY BANCORP are amended and restated as follows:

NAME

The name of this corporation is Central Valley Community Bancorp.

II.

PURPOSE

The purpose of the corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of California other than the banking business, the trust company business or the practice of a profession permitted to be incorporated by the California Corporations Code.

III.

AUTHORIZED STOCK

(a) Central Valley Community Bancorp (hereinafter the “ Corporation ”) is authorized to issue two classes of shares designated “ Preferred Stock ” and “ Common Stock ” respectively. The number of shares of Common Stock authorized to be issued is 81,000,000 and the number of shares of Preferred Stock authorized to be issued is 10,000,000.

(b) The shares of Common Stock shall be divided into two series, 80,000,000 shares of which shall be designated “ Common Stock ,” and 1,000,000 shares of which shall be designated “ Non-Voting Common Stock .” The Non-Voting Common Stock shall not be entitled to cast votes for the election of directors, nor shall it vote on other matters except as provided by the California Corporations Code, but shall have all other rights of the voting Common Stock, including without limitation the same rights to dividends and distributions in cash or other property. The Corporation shall not register the Non-Voting Common Stock for trading on any exchange.

(c) Except as provided in Section (d), the shares of Preferred Stock may be divided into such number of series as the Board of Directors may determine. The Board of Directors is authorized to determine and alter the rights, preferences, privileges and restrictions granted to and imposed upon any wholly unissued series of Preferred Stock, and to fix the number of shares of any series

of Preferred Stock and the designation of any such series of Preferred Stock. The Board of Directors, within the limits and restrictions stated in any resolution or resolutions of the Board of Directors originally fixing the number of shares constituting any series, may increase or decrease (but not below the number of shares of such series then outstanding) the number of shares of any series subsequent to the issue of shares of that series.

(d) The rights, preferences, privileges and restrictions of the Company’s existing series of Preferred Stock, created by previously filed Certificates of Determination, are as set forth in Articles IV and V below.

IV.

SERIES A FIXED RATE CUMULATIVE PERPETUAL PREFERRED STOCK

This Article IV restates, as an Article in these Amended and Restated Articles of Incorporation pursuant to Section 910(c) of the California Corporations Code, that certain Certificate of Determination of the Corporation, filed January 20, 2009.

Designation and Number of Shares . The Corporation is authorized to issue a series of Preferred Stock designated as the “Series A Fixed Rate Cumulative Perpetual Preferred Stock” (the “ Designated Preferred Stock ”). The authorized number of shares of Designated Preferred Stock is 7,000.

Section 1. General Matters . Each share of Designated Preferred Stock shall be identical in all respects to every other share of Designated Preferred Stock. The Designated Preferred Stock shall be perpetual, subject to the provisions of Section 5 of this Article IV. The Designated Preferred Stock shall rank equally with Parity Stock and shall rank senior to Junior Stock with respect to the payment of dividends and the distribution of assets in the event of any dissolution, liquidation or winding up of the Corporation.

Section 2. Standard Definitions . As used herein with respect to Designated Preferred Stock:

(a) “ Applicable Dividend Rate ” means (i) during the period from the Original Issue Date to, but excluding, the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 5% per annum and (ii) from and after the first day of the first Dividend Period commencing on or after the fifth anniversary of the Original Issue Date, 9% per annum.

(b) “ Appropriate Federal Banking Agency ” means the “appropriate Federal banking agency” with respect to the Corporation as defined in Section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. Section 1813(q)), or any successor provision.

(c) “ Business Combination ” means a merger, consolidation, statutory share exchange or similar transaction that requires the approval of the Corporation’s stockholders.

(d) “ Business Day ” means any day except Saturday, Sunday and any day on which banking institutions in the State of New York generally are authorized or required by law or other governmental actions to close.

(e) “ Bylaws ” means the bylaws of the Corporation, as they may be amended from time to time.

(f) “ Charter ” means the Corporation’s certificate or articles of incorporation, articles of association, or similar organizational document.

(g) “ Dividend Payment Date ” means February 15, May 15, August 15 and November 15 of each year.

(h) “ Dividend Period ” has the meaning set forth in Section 3(a).

(i) “ Dividend Record Date ” has the meaning set forth in Section 3(a).

(j) “ Junior Stock ” means the Common Stock and any other class or series of stock of the Corporation the terms of which expressly provide that it ranks junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation.

(k) “ Liquidation Amount ” means $1,000 per share of Designated Preferred Stock.

(l) “ Liquidation Preference ” has the meaning set forth in Section 4(a).

(m) “ Original Issue Date ” means the date on which shares of Designated Preferred Stock are first issued.

(n) “ Minimum Amount ” means $1,750,000.

(o) “ Parity Stock ” means any class or series of stock of the Corporation (other than Designated Preferred Stock) the terms of which do not expressly provide that such class or series will rank senior or junior to Designated Preferred Stock as to dividend rights and/or as to rights on liquidation, dissolution or winding up of the Corporation (in each case without regard to whether dividends accrue cumulatively or non-cumulatively). Without limiting the foregoing, Parity Stock shall include the Corporation’s authorized but unissued Preferred Stock.

(p) “ Preferred Director ” has the meaning set forth in Section 7(b).

(q) “ Preferred Stock ” means any and all series of preferred stock of the Corporation, including the Designated Preferred Stock.

(r) “ Qualified Equity Offering ” means the sale and issuance for cash by the Corporation to persons other than the Corporation or any of its subsidiaries after the Original Issue Date of shares of perpetual Preferred Stock, Common Stock or any combination of such stock, that, in each case, qualify as and may be included in Tier 1 capital of the Corporation at the time of issuance under the applicable risk-based capital guidelines of the Corporation’s Appropriate

Federal Banking Agency (other than any such sales and issuances made pursuant to agreements or arrangements entered into, or pursuant to financing plans which were publicly announced, on or prior to October 13, 2008).

(s) “ Share Dilution Amount ” has the meaning set forth in Section 3(b).

(t) “ Signing Date ” means the Original Issue Date.

(u) “ Successor Preferred Stock ” has the meaning set forth in Section 5(a).

(v) “ Voting Parity Stock ” means, with regard to any matter as to which the holders of Designated Preferred Stock are entitled to vote as specified in Sections 7(a) and 7(b) of this Article IV, any and all series of Parity Stock upon which like voting rights have been conferred and are exercisable with respect to such matter.

Section 3. Dividends .

(a) Rate . Holders of Designated Preferred Stock shall be entitled to receive, on each share of Designated Preferred Stock if, as and when declared by the Board of Directors or any duly authorized committee of the Board of Directors, but only out of assets legally available therefor, cumulative cash dividends with respect to each Dividend Period (as defined below) at a rate per annum equal to the Applicable Dividend Rate on (i) the Liquidation Amount per share of Designated Preferred Stock and (ii) the amount of accrued and unpaid dividends for any prior Dividend Period on such share of Designated Preferred Stock, if any. Such dividends shall begin to accrue and be cumulative from the Original Issue Date, shall compound on each subsequent Dividend Payment Date ( i.e. , no dividends shall accrue on other dividends unless and until the first Dividend Payment Date for such other dividends has passed without such other dividends having been paid on such date) and shall be payable quarterly in arrears on each Dividend Payment Date, commencing with the first such Dividend Payment Date to occur at least 20 calendar days after the Original Issue Date. In the event that any Dividend Payment Date would otherwise fall on a day that is not a Business Day, the dividend payment due on that date will be postponed to the next day that is a Business Day and no additional dividends will accrue as a result of that postponement. The period from and including any Dividend Payment Date to, but excluding, the next Dividend Payment Date is a “Dividend Period”, provided that the initial Dividend Period shall be the period from and including the Original Issue Date to, but excluding, the next Dividend Payment Date.

Dividends that are payable on Designated Preferred Stock in respect of any Dividend Period shall be computed on the basis of a 360-day year consisting of twelve 30-day months. The amount of dividends payable on Designated Preferred Stock on any date prior to the end of a Dividend Period, and for the initial Dividend Period, shall be computed on the basis of a 360-day year consisting of twelve 30-day months, and actual days elapsed over a 30-day month.

Dividends that are payable on Designated Preferred Stock on any Dividend Payment Date will be payable to holders of record of Designated Preferred Stock as they appear on the stock register of the Corporation on the applicable record date, which shall be the 15th calendar day immediately preceding such Dividend Payment Date or such other record date fixed by the Board of Directors or any duly authorized committee of the Board of Directors that is not more than 60 nor less than 10 days prior to such Dividend Payment Date (each, a “Dividend Record Date”). Any such day that is a Dividend Record Date shall be a Dividend Record Date whether or not such day is a Business Day.

Holders of Designated Preferred Stock shall not be entitled to any dividends, whether payable in cash, securities or other property, other than dividends (if any) declared and payable on Designated Preferred Stock as specified in this Section 3 (subject to the other provisions of the this Article IV).

(b) Priority of Dividends . So long as any share of Designated Preferred Stock remains outstanding, no dividend or distribution shall be declared or paid on the Common Stock or any other shares of Junior Stock (other than dividends payable solely in shares of Common Stock) or Parity Stock, subject to the immediately following paragraph in the case of Parity Stock, and no Common Stock, Junior Stock or Parity Stock shall be, directly or indirectly, purchased, redeemed or otherwise acquired for consideration by the Corporation or any of its subsidiaries unless all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been or are contemporaneously declared and paid in full (or have been declared and a sum sufficient for the payment thereof has been set aside for the benefit of the holders of shares of Designated Preferred Stock on the applicable record date). The foregoing limitation shall not apply to (i) redemptions, purchases or other acquisitions of shares of Common Stock or other Junior Stock in connection with the administration of any employee benefit plan in the ordinary course of business (including purchases to offset the Share Dilution Amount (as defined below) pursuant to a publicly announced repurchase plan) and consistent with past practice, provided that any purchases to offset the Share Dilution Amount shall in no event exceed the Share Dilution Amount; (ii) purchases or other acquisitions by a broker-dealer subsidiary of the Corporation solely for the purpose of market-making, stabilization or customer facilitation transactions in Junior Stock or Parity Stock in the ordinary course of its business; (iii) purchases by a broker-dealer subsidiary of the Corporation of capital stock of the Corporation for resale pursuant to an offering by the Corporation of such capital stock underwritten by such broker-dealer subsidiary; (iv) any dividends or distributions of rights or Junior Stock in connection with a stockholders’ rights plan or any redemption or repurchase of rights pursuant to any stockholders’ rights plan; (v) the acquisition by the Corporation or any of its subsidiaries of record ownership in Junior Stock or Parity Stock for the beneficial ownership of any other persons (other than the Corporation or any of its subsidiaries), including as trustees or custodians; and (vi) the exchange or conversion of Junior Stock for or into other Junior Stock or of Parity Stock for or into other Parity Stock (with the same or lesser aggregate liquidation amount) or Junior Stock, in each case, solely to the extent required pursuant to binding contractual agreements entered into prior to the Signing Date or any subsequent agreement for the accelerated exercise, settlement or exchange thereof for Common Stock. “ Share Dilution Amount ” means the increase in the number of diluted shares outstanding (determined in accordance with generally accepted accounting principles in the United States, and as measured from the date of the Corporation’s consolidated financial statements most recently filed with the Securities and Exchange Commission prior to the Original Issue Date) resulting from the grant, vesting or exercise of equity-based compensation to employees and equitably adjusted for any stock split, stock dividend, reverse stock split, reclassification or similar transaction.

When dividends are not paid (or declared and a sum sufficient for payment thereof set aside for the benefit of the holders thereof on the applicable record date) on any Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within a Dividend Period related to such Dividend Payment Date) in full upon Designated Preferred Stock and any shares of Parity Stock, all dividends declared on Designated Preferred Stock and all such Parity Stock and payable on such Dividend

Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) shall be declared pro rata so that the respective amounts of such dividends declared shall bear the same ratio to each other as all accrued and unpaid dividends per share on the shares of Designated Preferred Stock (including, if applicable as provided in Section 3(a) above, dividends on such amount) and all Parity Stock payable on such Dividend Payment Date (or, in the case of Parity Stock having dividend payment dates different from the Dividend Payment Dates, on a dividend payment date falling within the Dividend Period related to such Dividend Payment Date) (subject to their having been declared by the Board of Directors or a duly authorized committee of the Board of Directors out of legally available funds and including, in the case of Parity Stock that bears cumulative dividends, all accrued but unpaid dividends) bear to each other. If the Board of Directors or a duly authorized committee of the Board of Directors determines not to pay any dividend or a full dividend on a Dividend Payment Date, the Corporation will provide written notice to the holders of Designated Preferred Stock prior to such Dividend Payment Date.

Subject to the foregoing, and not otherwise, such dividends (payable in cash, securities or other property) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any securities, including Common Stock and other Junior Stock, from time to time out of any funds legally available for such payment, and holders of Designated Preferred Stock shall not be entitled to participate in any such dividends.

Section 4. Liquidation Rights .

(a) Voluntary or Involuntary Liquidation . In the event of any liquidation, dissolution or winding up of the affairs of the Corporation, whether voluntary or involuntary, holders of Designated Preferred Stock shall be entitled to receive for each share of Designated Preferred Stock, out of the assets of the Corporation or proceeds thereof (whether capital or surplus) available for distribution to stockholders of the Corporation, subject to the rights of any creditors of the Corporation, before any distribution of such assets or proceeds is made to or set aside for the holders of Common Stock and any other stock of the Corporation ranking junior to Designated Preferred Stock as to such distribution, payment in full in an amount equal to the sum of (i) the Liquidation Amount per share and (ii) the amount of any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount), whether or not declared, to the date of payment (such amounts collectively, the “ Liquidation Preference ”).

(b) Partial Payment . If in any distribution described in Section 4(a) above the assets of the Corporation or proceeds thereof are not sufficient to pay in full the amounts payable with respect to all outstanding shares of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution, holders of Designated Preferred Stock and the holders of such other stock shall share ratably in any such distribution in proportion to the full respective distributions to which they are entitled.

(c) Residual Distributions . If the Liquidation Preference has been paid in full to all holders of Designated Preferred Stock and the corresponding amounts payable with respect of any other stock of the Corporation ranking equally with Designated Preferred Stock as to such distribution has been paid in full, the holders of other stock of the Corporation shall be entitled to receive all remaining assets of the Corporation (or proceeds thereof) according to their respective rights and preferences.

(d) Merger, Consolidation and Sale of Assets Not Liquidation . For purposes of this Section 4, the merger or consolidation of the Corporation with any other corporation or other entity, including a merger or consolidation in which the holders of Designated Preferred Stock receive cash, securities or other property for their shares, or the sale, lease or exchange (for cash, securities or other property) of all or substantially all of the assets of the Corporation, shall not constitute a liquidation, dissolution or winding up of the Corporation.

Section 5. Redemption .

(a) Optional Redemption . Except as provided below, the Designated Preferred Stock may not be redeemed prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date. On or after the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, out of funds legally available therefor, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption.

Notwithstanding the foregoing, prior to the first Dividend Payment Date falling on or after the third anniversary of the Original Issue Date, the Corporation, at its option, subject to the approval of the Appropriate Federal Banking Agency, may redeem, in whole or in part, at any time and from time to time, the shares of Designated Preferred Stock at the time outstanding, upon notice given as provided in Section 5(c) below, at a redemption price equal to the sum of (i) the Liquidation Amount per share and (ii) except as otherwise provided below, any accrued and unpaid dividends (including, if applicable as provided in Section 3(a) above, dividends on such amount) (regardless of whether any dividends are actually declared) to, but excluding, the date fixed for redemption; provided that (x) the Corporation (or any successor by Business Combination) has received aggregate gross proceeds of not less than the Minimum Amount (plus the “ Minimum Amount ” as defined in the relevant certificate of determination for each other outstanding series of preferred stock of such successor that was originally issued to the United States Department of the Treasury (the “ Successor Preferred Stock ”) in connection with the Troubled Asset Relief Program Capital Purchase Program) from one or more Qualified Equity Offerings (including Qualified Equity Offerings of such successor), and (y) the aggregate redemption price of the Designated Preferred Stock (and any Successor Preferred Stock) redeemed pursuant to this paragraph may not exceed the aggregate net cash proceeds received by the Corporation (or any successor by Business Combination) from such Qualified Equity Offerings (including Qualified Equity Offerings of such successor).

The redemption price for any shares of Designated Preferred Stock shall be payable on the redemption date to the holder of such shares against surrender of the certificate(s) evidencing such shares to the Corporation or its agent. Any declared but unpaid dividends payable on a redemption date that occurs subsequent to the Dividend Record Date for a Dividend Period shall not be paid to the holder entitled to receive the redemption price on the redemption date, but rather shall be paid to the holder of record of the redeemed shares on such Dividend Record Date relating to the Dividend Payment Date as provided in Section 3 above.

(b) No Sinking Fund . The Designated Preferred Stock will not be subject to any mandatory redemption, sinking fund or other similar provisions. Holders of Designated Preferred Stock will have no right to require redemption or repurchase of any shares of Designated Preferred Stock.

(c) Notice of Redemption . Notice of every redemption of shares of Designated Preferred Stock shall be given by first class mail, postage prepaid, addressed to the holders of record of the shares to be redeemed at their respective last addresses appearing on the books of the Corporation. Such mailing shall be at least 30 days and not more than 60 days before the date fixed for redemption. Any notice mailed as provided in this Subsection shall be conclusively presumed to have been duly given, whether or not the holder receives such notice, but failure duly to give such notice by mail, or any defect in such notice or in the mailing thereof, to any holder of shares of Designated Preferred Stock designated for redemption shall not affect the validity of the proceedings for the redemption of any other shares of Designated Preferred Stock. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Company or any other similar facility, notice of redemption may be given to the holders of Designated Preferred Stock at such time and in any manner permitted by such facility. Each notice of redemption given to a holder shall state: (1) the redemption date; (2) the number of shares of Designated Preferred Stock to be redeemed and, if less than all the shares held by such holder are to be redeemed, the number of such shares to be redeemed from such holder; (3) the redemption price; and (4) the place or places where certificates for such shares are to be surrendered for payment of the redemption price.

(d) Partial Redemption . In case of any redemption of part of the shares of Designated Preferred Stock at the time outstanding, the shares to be redeemed shall be selected either pro rata or in such other manner as the Board of Directors or a duly authorized committee thereof may determine to be fair and equitable. Subject to the provisions hereof, the Board of Directors or a duly authorized committee thereof shall have full power and authority to prescribe the terms and conditions upon which shares of Designated Preferred Stock shall be redeemed from time to time. If fewer than all the shares represented by any certificate are redeemed, a new certificate shall be issued representing the unredeemed shares without charge to the holder thereof.

(e) Effectiveness of Redemption . If notice of redemption has been duly given and if on or before the redemption date specified in the notice all funds necessary for the redemption have been deposited by the Corporation, in trust for the pro rata benefit of the holders of the shares called for redemption, with a bank or trust company doing business in the Borough of Manhattan, The City of New York, and having a capital and surplus of at least $500 million and selected by the Board of Directors, so as to be and continue to be available solely therefor, then, notwithstanding that any certificate for any share so called for redemption has not been surrendered for cancellation, on and after the redemption date dividends shall cease to accrue on all shares so called for redemption, all shares so called for redemption shall no longer be deemed outstanding and all rights with respect to such shares shall forthwith on such redemption date cease and terminate, except only the right of the holders thereof to receive the amount payable on such redemption from such bank or trust company, without interest. Any funds unclaimed at the end of three years from the redemption date shall, to the extent permitted by law, be released to the Corporation, after which time the holders of the shares so called for redemption shall look only to the Corporation for payment of the redemption price of such shares.

(f) Status of Redeemed Shares . Shares of Designated Preferred Stock that are redeemed, repurchased or otherwise acquired by the Corporation shall revert to authorized but unissued shares of Preferred Stock ( provided that any such cancelled shares of Designated Preferred Stock may be reissued only as shares of any series of Preferred Stock other than Designated Preferred Stock).

Section 6. Conversion . Holders of Designated Preferred Stock shares shall have no right to exchange or convert such shares into any other securities.

Section 7. Voting Rights .

(a) General . The holders of Designated Preferred Stock shall not have any voting rights except as set forth below or as otherwise from time to time required by law.

(b) Preferred Stock Directors . Whenever, at any time or times, dividends payable on the shares of Designated Preferred Stock have not been paid for an aggregate of six quarterly Dividend Periods or more, whether or not consecutive, the holders of the Designated Preferred Stock shall have the right, with holders of shares of any one or more other classes or series of Voting Parity Stock outstanding at the time, voting together as a class, to elect two directors (hereinafter the “ Preferred Directors ” and each a “ Preferred Director ” ) at the Corporation’s next annual meeting of stockholders (or at a special meeting called for that purpose prior to such next annual meeting) and at each subsequent annual meeting of stockholders until all accrued and unpaid dividends for all past Dividend Periods, including the latest completed Dividend Period (including, if applicable as provided in Section 3(a) above, dividends on such amount), on all outstanding shares of Designated Preferred Stock have been declared and paid in full at which time such right shall terminate with respect to the Designated Preferred Stock, except as herein or by law expressly provided, subject to revesting in the event of each and every subsequent default of the character above mentioned; provided that it shall be a qualification for election for any Preferred Director that the election of such Preferred Director shall not cause the Corporation to violate any corporate governance requirements of any securities exchange or other trading facility on which securities of the Corporation may then be listed or traded that listed or traded companies must have a majority of independent directors. Upon any termination of the right of the holders of shares of Designated Preferred Stock and Voting Parity Stock as a class to vote for directors as provided above, the Preferred Directors shall cease to be qualified as directors and the term of office of all Preferred Directors then in office shall terminate immediately. Any Preferred Director may be removed at any time, with or without cause, and any vacancy created thereby may be filled, only by the affirmative vote of the holders a majority of the shares of Designated Preferred Stock at the time outstanding voting separately as a class together with the holders of shares of Voting Parity Stock, to the extent the voting rights of such holders described above are then exercisable. If the office of any Preferred Director becomes vacant for any reason other than removal from office as aforesaid, the remaining Preferred Director may choose a successor who shall hold office for the unexpired term in respect of which such vacancy occurred.

(c) Class Voting Rights as to Particular Matters . So long as any shares of Designated Preferred Stock are outstanding, in addition to any other vote or written consent of stockholders required by law or by the Charter, the vote or written consent of the holders of at least 66 2/3% of the shares of Designated Preferred Stock at the time outstanding, voting as a separate class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i) Authorization of Senior Stock . Any amendment or alteration of this Article IV for the Designated Preferred Stock or the Charter to authorize or create or increase the authorized amount of, or any issuance of, any shares of, or any securities convertible into or exchangeable or exercisable for shares of, any class or series of capital stock of the Corporation ranking senior to Designated Preferred Stock with respect to either or both the payment of dividends and/or the distribution of assets on any liquidation, dissolution or winding up of the Corporation;

(ii) Amendment of Designated Preferred Stock . Any amendment, alteration or repeal of any provision of this Article IV for the Designated Preferred Stock or the Charter (including, unless no vote on such merger or consolidation is required by Section 7(c)(iii) below, any amendment, alteration or repeal by means of a merger, consolidation or otherwise) so as to adversely affect the rights, preferences, privileges or voting powers of the Designated Preferred Stock; or

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations . Any consummation of a binding share exchange or reclassification involving the Designated Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Designated Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, and (y) such shares remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of Designated Preferred Stock immediately prior to such consummation, taken as a whole;

provided , however , that for all purposes of this Section 7(c), any increase in the amount of the authorized Preferred Stock, including any increase in the authorized amount of Designated Preferred Stock necessary to satisfy preemptive or similar rights granted by the Corporation to other persons prior to the Signing Date, or the creation and issuance, or an increase in the authorized or issued amount, whether pursuant to preemptive or similar rights or otherwise, of any other series of Preferred Stock, or any securities convertible into or exchangeable or exercisable for any other series of Preferred Stock, ranking equally with and/or junior to Designated Preferred Stock with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and the distribution of assets upon liquidation, dissolution or winding up of the Corporation will not be deemed to adversely affect the rights, preferences, privileges or voting powers, and shall not require the affirmative vote or consent of, the holders of outstanding shares of the Designated Preferred Stock.

(d) Changes after Provision for Redemption . No vote or consent of the holders of Designated Preferred Stock shall be required pursuant to Section 7(c) above if, at or prior to the time when any such vote or consent would otherwise be required pursuant to such Section, all outstanding shares of the Designated Preferred Stock shall have been redeemed, or shall have been called for redemption upon proper notice and sufficient funds shall have been deposited in trust for such redemption, in each case pursuant to Section 5 above.

(e) Procedures for Voting and Consents . The rules and procedures for calling and conducting any meeting of the holders of Designated Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall conform to the requirements of the Charter, the Bylaws, and applicable law and the rules of any national securities exchange or other trading facility on which Designated Preferred Stock is listed or traded at the time.

Section 8. Record Holders . To the fullest extent permitted by applicable law, the Corporation and the transfer agent for Designated Preferred Stock may deem and treat the record holder of any share of Designated Preferred Stock as the true and lawful owner thereof for all purposes, and neither the Corporation nor such transfer agent shall be affected by any notice to the contrary.

Section 9. Notices . All notices or communications in respect of Designated Preferred Stock shall be sufficiently given if given in writing and delivered in person or by first class mail, postage prepaid, or if given in such other manner as may be permitted in this Article IV, in the Charter or Bylaws or by applicable law. Notwithstanding the foregoing, if shares of Designated Preferred Stock are issued in book-entry form through The Depository Trust Company or any similar facility, such notices may be given to the holders of Designated Preferred Stock in any manner permitted by such facility.

Section 10. No Preemptive Rights . No share of Designated Preferred Stock shall have any rights of preemption whatsoever as to any securities of the Corporation, or any warrants, rights or options issued or granted with respect thereto, regardless of how such securities, or such warrants, rights or options, may be designated, issued or granted.

Section 11. Replacement Certificates . The Corporation shall replace any mutilated certificate at the holder’s expense upon surrender of that certificate to the Corporation. The Corporation shall replace certificates that become destroyed, stolen or lost at the holder’s expense upon delivery to the Corporation of reasonably satisfactory evidence that the certificate has been destroyed, stolen or lost, together with any indemnity that may be reasonably required by the Corporation.

Section 12. Other Rights . The shares of Designated Preferred Stock shall not have any rights, preferences, privileges or voting powers or relative, participating, optional or other special rights, or qualifications, limitations or restrictions thereof, other than as set forth herein or in the Charter or as provided by applicable law.

SERIES B ADJUSTABLE RATE NON-CUMULATIVE PERPETUAL PREFERRED

This Article V restates, as an Article in these Amended and Restated Articles of Incorporation pursuant to Section 910(c) of the California Corporations Code, that certain Certificate of Determination of the Corporation, filed December 22, 2009.

Section 1. Designation of Series and Number of Shares .

(a) The Corporation is authorized to issue a series of Preferred Stock designated as the “Series B Adjustable Rate Non-Cumulative Perpetual Preferred Stock” (the “ Series B Preferred Stock ”), and the authorized number of shares that shall constitute such series shall be 1,359 shares, which may be decreased (but not below the number of shares of Series B Preferred Stock then issued and outstanding) from time to time by the Board of Directors. Shares of outstanding Series B Preferred Stock that are purchased or otherwise acquired by the

Corporation shall be cancelled and, if the Board of Directors so expressly provides by resolution, shall revert to authorized but unissued shares of Preferred Stock of the Corporation undesignated as to series; provided, nevertheless, that, except to the extent a statement of designations adopted by resolution of the Board of Directors in accordance with applicable law and the Articles of Incorporation expressly reduces the authorized number of shares of Series B Preferred Stock, cancelled shares may be reissued as Series B Preferred Stock up to a maximum aggregate of 1,000 at any time issued and outstanding as Series B Preferred Stock shall remain 1,000.

(b) The number of shares of Series B Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by a further statement of designations hereafter adopted by resolution of the Board of Directors in accordance with applicable law and the Articles of Incorporation. In case the authorized number of shares of Series B Preferred Stock shall be so decreased, any excess shares shall revert to authorized but unissued shares of preferred stock of the Corporation undesignated as to series.

Section 2. Ranking . The Series B Preferred Stock will rank, with respect to the payment of dividends and distributions and upon liquidation, dissolution or winding-up, (1) on a parity with the Corporation’s Series A Fixed Rate Cumulative Perpetual Preferred Stock issued on January 30, 2009 (the “ EESA Preferred Shares ”), and each class or series of capital stock the Corporation may issue in the future the terms of which expressly provide that such class or series will rank on a parity with the Series B Preferred Stock as to dividend rights and rights on liquidation, winding up or dissolution of the Corporation (collectively, the “ Parity Securities ”), and (2) senior to Common Stock and each other class or series of capital stock, not referred to in clauses (1) or (2) above, that the Corporation may issue in the future the terms of which do not expressly provide that it ranks on a parity with or senior to the Series B Preferred Stock as to dividend rights and rights on liquidation, winding-up or dissolution of the Corporation (the “ Junior Securities ”).

Section 3. Definitions . As used herein with respect to the Series B Preferred Stock:

(a) “ Articles of Incorporation ” shall mean the articles of incorporation of the Corporation, as they may be amended from time to time.

(b) “ Board of Directors ” means the board of directors of the Corporation or any committee thereof duly authorized to act on behalf of such board of directors.

(c) “ Business Day ” means any day that is not Saturday or Sunday and that, in California, is not a day on which banking institutions generally are authorized or obligated by law or executive order to be closed.

(d) “ Bylaws ” means the Amended and Restated Bylaws of the Corporation, as may be amended from time to time.

(e) “ Common Stock ” means the common stock of the Corporation.

(f) “ Corporation ” means Central Valley Community Bancorp, a California business corporation.

(g) “ Depositary ” means DTC or its nominee or any successor depositary appointed by the Corporation.

(h) “ Dividend Payment Date ” has the meaning set forth in Section 4(b).

(i) “ Dividend Period ” has the meaning set forth in Section 4(b).

(j) “ DTC ” means The Depository Trust Company and its successors or assigns.

(k) “ Exchange Election ” means the proper election by the Corporation of any contractual right it may have to cause the holders of the outstanding shares of Series B Preferred exchange all of their respective shares of Series A Preferred into other shares of capital stock of the Corporation.

(l) “ Holder ” means the Person in whose name the shares of the Series B Preferred Stock are registered, which may be treated by the Corporation, Transfer Agent, Registrar, and paying agent as the absolute owner of the shares of Series B Preferred Stock for the purpose of making payment and settling the related conversions and for all other purposes.

(m) “ Issue Date ” means the date on which shares of the Series B Preferred Stock are first issued.

(n) “ Junior Securities ” has the meaning set forth in Section 2.

(o) “ Liquidation Preference ” means, as to the Series B Preferred Stock, $1,000.00 per share.

(p) “ Mandatory Exchange Date ” means the date upon which all of the shares of Series B Preferred Stock are exchanged, at the Corporation’s election, for capital stock of the Corporation in accordance with a proper Exchange Election.

(q) “ Officer ” means the President, the Chief Executive Officer, the Chief Operating Officer, any Senior Executive Vice President, any Executive Vice President, any Senior Vice President, the Chief Financial Officer, the Treasurer or the Secretary of the Corporation.

(r) “ Officer’s Certificate ” means a certificate of the Corporation, signed by any duly authorized Officer of the Corporation.

(s) “ Parity Securities ” has the meaning set forth in Section 2.

(t) “ Person ” means a legal person, including any individual, corporation, estate, partnership, joint venture, association, joint-stock company, limited liability company or trust.

(u) “ Record Date ” has the meaning set forth in Section 4(b).

(v) “ Registrar ” shall mean the Transfer Agent acting in its capacity as registrar for the Series B Preferred Stock, and its successors and assigns or any other registrar duly appointed by the Corporation.

(w) “ Transfer Agent ” means the Corporation, acting as Transfer Agent, Registrar, and paying agent for the Series B Preferred Stock, and its successors and assigns, including any successor transfer agent appointed by the Corporation. The Corporation may act as its own transfer agent.

(x) “ Voting Preferred Stock ” means any and all series of preferred stock of the Corporation that rank equally with Series B Preferred Stock either or both as to the payment of dividends and/or the distribution of assets upon liquidation, dissolution or winding up of the Corporation and upon which like voting rights have been conferred and are exercisable.

Section 4. Dividends .

(a) From and after the Issue Date, Holders shall be entitled to receive, when, as and if authorized and declared by the Board of Directors, out of legally available funds, on a non-cumulative basis, cash dividends in the amount determined as set forth in Section 4(c), and no more.

(b) Subject to Section 4(a), dividends shall be payable in semi-annual installments commencing on the six (6) month anniversary of the Series B Issuance Date and continuing on each six (6) month anniversary thereafter (each, a “ Dividend Payment Date ”). Each dividend will be payable to Holders of record as they appear in the stock register of the Corporation at the close of business on the first day of the month, whether or not a Business Day, in which the relevant Dividend Payment Date occurs (each, a “ Record Date ”). Each period from and including a Dividend Payment Date (or the date of the issuance of the Series B Preferred Stock (the “ Series B Issuance Date ”)) to but excluding the following Dividend Payment Date is herein referred to as a “ Dividend Period .”

(c) Dividends, if, when and as authorized and declared by the Board of Directors, will be payable, for each outstanding share of Series B Preferred Stock, at the following respective rates during each of the following respective periods (each rate expressed as an annual rate on the $1,000.00 per share liquidation preference):

(i) 10% per annum for the Dividend Period beginning on the Series B Issuance Date and ending on the six (6) month anniversary of the Series B Issuance Date (the “ First Period End Date ”);

(ii) 15% per annum for the Dividend Period beginning on the First Period End Date and ending on the six (6) month anniversary of the First Period End Date (the “ Second Period End Date ”); and

(iii) 20% per annum for the dividends accruing during all Dividend Periods subsequent to the Second Period End Date.

Dividends payable for a Dividend Period will be computed on the basis of a 360-day year of twelve 30-day months. If a scheduled Dividend Payment Date falls on a day that is not a Business Day, the dividend will be paid on the next Business Day as if it were paid on the scheduled Dividend Payment Date, and no interest or other amount will accrue on the dividend so payable for the period from and after that Dividend Payment Date to the date the dividend is paid. No interest or sum of money in lieu of interest will be paid on any dividend payment on shares of Series B Preferred Stock paid later than the scheduled Dividend Payment Date.

(d) Dividends on the Series B Preferred Stock are non-cumulative. If the Board of Directors does not authorize and declare a dividend on the Series B Preferred Stock or if the Board of Directors authorizes and declares less than a full dividend in respect of any Dividend Period, the Holders will have no right to receive any dividend or a full dividend, as the case may be, for the Dividend Period, and the Corporation will have no obligation to pay a dividend or to pay full dividends for that Dividend Period, whether or not dividends are authorized, declared and paid for any future Dividend Period with respect to the Series B Preferred Stock or the Common Stock or any other class or series of the Corporation’s preferred stock.

(e) So long as any share of Series B Preferred Stock remains outstanding, (1) no dividend shall be declared and paid or set aside for payment and no distribution shall be declared and made or set aside for payment on any Junior Securities (other than a dividend payable solely in shares of Junior Securities) and (2) no shares of Junior Securities shall be purchased, redeemed or otherwise acquired for consideration by the Corporation, directly or indirectly (other than (a) as a result of a reclassification of Junior Securities for or into other Junior Securities or the exchange or conversion of one share of Junior Securities for or into another share of Junior Securities, (b) repurchases in support of the Corporation’s employee benefit and compensation programs and (c) through the use of the proceeds of a substantially contemporaneous sale of other shares of Junior Securities), unless, in each case, the full dividends for the most recent Dividend Payment Date on all outstanding shares of Series B Preferred Stock and Parity Securities have been paid or declared and a sum sufficient for the payment thereof has been set aside.

Subject to the succeeding sentence, for so long as any shares of Series B Preferred Stock remain outstanding, no dividends shall be declared or paid or set aside for payment on any Parity Securities for any period unless full dividends on all outstanding shares of Series B Preferred Stock for the then-current Dividend Period have been paid in full or declared and a sum sufficient for the payment thereof set aside for all outstanding shares of Series B Preferred Stock. To the extent the Corporation declares dividends on the Series B Preferred Stock and on any Parity Securities but does not make full payment of such declared dividends, the Corporation shall allocate the dividend payments on a pro rata basis among the holders of the shares of Series B Preferred Stock and the holders of any Parity Securities then outstanding. For purposes of calculating the pro rata allocation of partial dividend payments, the Corporation shall allocate those payments so that the respective amounts of those payments bear the same ratio to each other as all accrued and unpaid dividends per share on the Series B Preferred Stock and all Parity Securities bear to each other.

The Corporation is not obligated to pay Holders of the Series B Preferred Stock any dividend in excess of the dividends on the Series B Preferred Stock that are payable as described herein. Subject to the foregoing, and not otherwise, such dividends (payable in cash, stock or otherwise) as may be determined by the Board of Directors or any duly authorized committee of the Board of Directors may be declared and paid on any Junior Securities from time to time out of any assets legally available therefor, and the shares of Series B Preferred Stock shall not be entitled to participate in any such dividend.

(f) Payments of cash for dividends will be delivered to the Holder by check or, at any time that shares of Series B Preferred Stock are held by book-entry with DTC or any successor Depositary, through a book-entry transfer through DTC or such successor Depositary.

(g) If the shares of Series B Preferred Stock are cancelled or reaquired by the Corporation by any means (including share exchanges) (a “ Termination Event ”) on or prior to the Record Date for any declared dividend for the Dividend Period, the Holder will not have the right to receive any declared dividends for that Dividend Period. If a Termination Event occurs after the Record Date for any declared dividend and prior to the Dividend Payment Date, such Holder shall receive that dividend on the relevant Dividend Payment Date if such Holder was the Holder of record on the Record Date for that dividend.

Section 5. Liquidation .

(a) In the event the Corporation voluntarily or involuntarily liquidates, dissolves or winds up, the Holders at the time shall be entitled to receive liquidating distributions in the amount of $1,000.00 per share of Series B Preferred Stock, plus an amount equal to any authorized and declared but unpaid dividends thereon to and including the date of such liquidation, out of assets legally available for distribution to the Corporation’s stockholders, before any distribution of assets is made to the holders of the Common Stock or any other Junior Securities. After payment of the full amount of such liquidating distributions, the Holders will not be entitled to any further participation in any distribution of assets by, and shall have no right or claim to any remaining assets of, the Corporation.

(b) In the event the assets of the Corporation available for distribution to stockholders upon any liquidation, dissolution or winding-up of the affairs of the Corporation, whether voluntary or involuntary, shall be insufficient to pay in full the amounts payable with respect to all outstanding shares of the Series B Preferred Stock and the corresponding amounts payable on any Parity Securities, Holders and the holders of such Parity Securities shall share ratably in any distribution of assets of the Corporation in proportion to the full respective liquidating distributions to which they would otherwise be respectively entitled.

(c) The Corporation’s consolidation or merger with or into any other entity, the consolidation or merger of any other entity with or into the Corporation, or the sale of all or substantially all of the Corporation’s property or business will not constitute its liquidation, dissolution or winding up.

Section 6. Perpetual; No Maturity . The Series B Preferred Stock shall be perpetual and shall be without maturity.

Section 7. Non-Redeemable . The Series B Preferred Stock shall not be redeemable either at the Corporation’s option or at the option of Holders at any time. The Series B Preferred Stock shall not be subject to any sinking fund or other obligation to redeem, repurchase or retire the Series B Preferred Stock.

Section 8. Voting Rights . The holders of Series B Preferred Stock shall not have any voting rights except as set forth in this Section 8 or as otherwise from time to time required by law.

(a) Voting Rights. So long as any shares of Series B Preferred Stock are outstanding, in addition to any other vote or consent of stockholders required by law or by the Articles of Incorporation, the vote or consent of the holders of at least two-thirds of the outstanding shares of Series B Preferred Stock and any Voting Preferred Stock then outstanding (subject to the last paragraph of this Section 8(a)) at the time outstanding and entitled to vote thereon, voting together as a single class, given in person or by proxy, either in writing without a meeting or by vote at any meeting called for the purpose, shall be necessary for effecting or validating:

(i) Authorization of Senior Stock . Any amendment or alteration of the Articles of Incorporation or this Article V to authorize or create, or increase the authorized amount of, any shares of any specific class or series of capital stock of the Corporation ranking senior to the Series B Preferred Stock with respect to either or both the payment of dividends or the distribution of assets on any liquidation, dissolution or winding up of the Corporation, provided, however, that no vote, approval or consent of the holders of the Series B Preferred Stock shall be required in any event to authorize, or in any way as a condition to the issuance of, the EESA Preferred Shares even if the EESA Preferred Shares rank senior to the Series B Preferred Stock, and regardless of whether the terms of the EESA Preferred Shares are consistent with, or less favorable to the holders of Series B Preferred Stock than, proposed terms of the EESA Preferred Shares as may have been disclosed to the holders of Series B Preferred Stock in connection with their subscriptions for Series B Preferred Stock or as may have been otherwise published or disclosed in any manner;

(ii) Amendment of Series B Preferred Stock . Any amendment, alteration or repeal of any provision of the Articles of Incorporation or this Article V so as to materially and adversely affect the special rights, preferences, privileges or voting powers of the Series B Preferred Stock, taken as a whole; or

(iii) Share Exchanges, Reclassifications, Mergers and Consolidations . Any consummation of a binding share exchange or reclassification involving the Series B

Preferred Stock, or of a merger or consolidation of the Corporation with another corporation or other entity, unless in each case (x) the shares of Series B Preferred Stock remain outstanding or, in the case of any such merger or consolidation with respect to which the Corporation is not the surviving or resulting entity, are converted into or exchanged for preference securities of the surviving or resulting entity or its ultimate parent, in each case, that is an entity organized and existing under the laws of the United States of America, any state thereof of the District of Columbia and (y) such shares of Series B Preferred Stock remaining outstanding or such preference securities, as the case may be, have such rights, preferences, privileges and voting powers, and limitations and restrictions thereof, taken as a whole, as are not materially less favorable to the holders thereof than the rights, preferences, privileges and voting powers, and limitations and restrictions thereof, of the Series B Preferred Stock immediately prior to such consummation, taken as a whole;

provided, however, that for all purposes of this Section 8(a), (1) any increase in the amount of the Corporation’s authorized but unissued shares of Preferred Stock, (2) any increase in the amount of the Corporation’s authorized or issued Series B Preferred Stock, and (3) the creation and issuance, or an increase in the authorized or issued amount, of other series of preferred stock of the Corporation ranking equally with or junior to the Series B Preferred Stock either or both with respect to the payment of dividends (whether such dividends are cumulative or non-cumulative) and/or the distribution of assets upon the liquidation, dissolution or winding up of the Corporation, will not be deemed to materially and adversely affect the special rights, preferences, privileges or voting powers of the Series B Preferred Shares.

The Series B Preferred Stock shall rank at least equally with any other series of Preferred Stock that may be issued (except for the EESA Preferred Stock and any other senior series that may be issued with the requisite consent of the holders of the Series B Preferred Stock), and will rank senior to the shares of Common Stock and any other stock that ranks junior to the Series B Preferred Stock either or both with respect to the payment of dividends and/or the distributions of assets upon liquidation, dissolution or winding up of the Corporation.

If any amendment, alteration, repeal, share exchange, reclassification, merger or consolidation specified in this Section 8(a) would materially and adversely affect one or more but not all series of Voting Preferred Stock (including the Series B Preferred Stock for the purpose of this paragraph), then only the series of Voting Preferred Stock materially and adversely affected and entitled to vote shall vote as a class in lieu of all other series of Voting Preferred Stock.

(b) Procedures for Voting and Consents . The rules and procedures for calling and conducting any meeting of the holders of Series B Preferred Stock (including, without limitation, the fixing of a record date in connection therewith), the solicitation and use of proxies at such a meeting, the obtaining of written consents and any other aspect or matter with regard to such a meeting or such consents shall be governed by any rules the Board of Directors or a duly authorized committee of the Board of Directors, in its discretion, may adopt from time to time, which rules and procedures shall conform to the requirements of the Articles of Incorporation, the Bylaws, applicable law and any national securities exchange or other trading facility, if any, on which the Series B Preferred Stock is listed or traded at the time. Whether the vote or consent

of the holders of a plurality, majority or other portion of the shares of Series B Preferred Stock and any Voting Preferred Stock has been cast or given on any matter on which the holders of shares of Series B Preferred Stock are entitled to vote shall be determined by the Corporation by reference to the specified liquidation preference amounts of the Series B Preferred Stock and such other Voting Preferred Stock voted or covered by the consent.

Section 9. Transfer Agent, Registrar and Paying Agent . The duly appointed Transfer Agent, Registrar, and paying agent for the Series B Preferred Stock shall initially be the Corporation. The Corporation may, in its sole discretion, remove the Transfer Agent; provided that the Corporation shall appoint a successor transfer agent who shall accept such appointment prior to the effectiveness of such removal.

Section 10. Miscellaneous . All notices referred to herein shall be in writing, and, unless otherwise specified herein, all notices hereunder shall be deemed to have been given upon the earlier of receipt thereof or three Business Days after the mailing thereof if sent by registered or certified mail (unless first-class mail shall be specifically permitted for such notice under the terms of this Article V) with postage prepaid, addressed: (i) if to the Corporation, to the principal executive office of the Corporation or to the Transfer Agent at its principal office in the United States of America, or other agent of the Corporation designated as permitted by this Article V, or (ii) if to any Holder or holder of shares of Common Stock, as the case may be, to such Holder at the address of such Holder as listed in the stock record books of the Corporation (which may include the records of any transfer agent for the Series B Preferred Stock or the Common Stock, as the case may be), or (iii) to such other address as the Corporation or any such Holder, as the case may be, shall have designated by notice similarly given.

VI.

LIABILITY LIMITATION

The liability of the directors of the Corporation for monetary damages shall be eliminated to the fullest extent permissible under California law.

VI.

INDEMNIFICATION

The Corporation is authorized to provide indemnification of agents (as defined in Section 317 of the California Corporations Code) through bylaws, agreements with agents, vote of shareholders or disinterested directors or otherwise, in excess of the indemnification otherwise permitted by Section 317 of the California Corporations Code, subject only to the applicable limits set forth in Section 204 of the California Corporations Code.

VII.

BUSINESS COMBINATIONS

Section 1. The provisions of this Article shall apply to any of the following transactions (hereinafter referred to as “Business Combinations”):

(a) any merger of the Corporation with or into any other corporation, person or other entity which is the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation; or

(b) any sale, lease, exchange or other disposition (in one transaction or series of related transactions) of all or substantially all of the assets of the Corporation to any other corporation, person or other entity which is the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation; or

(c) any sale, lease, exchange or other disposition (in one transaction or a series of related transactions) to the Corporation or any subsidiary of the Corporation of any assets in exchange for voting securities (or securities convertible into or exchangeable for voting securities, or options, warrants or rights to purchase voting securities or securities convertible into or exchangeable for voting securities) constituting 5% or more of the outstanding securities of the Corporation after such exchange by any other corporation, person or entity which is the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation; or

(d) any reclassification of securities, recapitalization or other transaction designed to decrease the number of holders of the Corporation’s voting securities remaining after any other corporation, person or other entity has acquired 5% or more of the total voting power of the outstanding voting securities of the Corporation.

A corporation, person or other entity which is the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation is herein referred to as the “Acquiring Entity.”

Section 2. Without the affirmative vote in person or by proxy of the holders of not less than one hundred percent (100%) of the outstanding voting securities of the Corporation, no Business Combination may be effected unless all of the following conditions, to the extent applicable, are fulfilled:

(a) The Acquiring Entity shall not have acquired any voting securities, directly or indirectly, from the Corporation except in a Business Combination to which this Article did not apply or in a Business Combination to which this Article did apply and which satisfied all of the requirements of this Article.

(b) After the time when the Acquiring Entity became the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation, the Acquiring Entity shall not have (i) received the benefit, directly or indirectly, of any loans, advances, extensions of credit, guarantees, pledges or other financial assistance or tax benefits provided, directly or indirectly, by the Corporation, or (ii) made or caused to be made any major change in the Corporation’s business or equity capital structure without the unanimous approval of the directors of the Corporation then in office.

(c) A proxy statement complying with the requirements of the Securities Exchange Act of 1934, or any similar or superseding federal statute, as at the time in effect (whether or not the provisions of such act or statute shall be applicable to the Corporation) shall be mailed to shareholders of the Corporation for the purpose of soliciting shareholder approval of the Business Combination and shall contain at the front thereof, in a prominent place, any recommendations as to the advisability (or inadvisability) of the Business Combination which any of the directors may choose to state and an opinion of a reputable investment banking firm stating that the terms of the Business Combination are fair from the point of view of both the Corporation and the shareholders of the Corporation other than an Acquiring Entity.

Section 3. No Business Combination shall be effected unless it is approved at an annual meeting or a special meeting of the Corporation’s shareholders called for that purpose. The affirmative vote in person or by proxy of the holders of not less than eighty percent (80%) of the voting power of the outstanding securities of the Corporation shall be required for approval of any such Business Combination. No Business Combination may be approved by action by written consent of the shareholders of the Corporation.

Section 4. For the purpose of this Article, any corporation, person or entity will be deemed to be the beneficial owner of any voting securities of the Corporation:

(a) which it owns directly, whether or not of record; or

(b) which it has the right to acquire pursuant to any agreement or arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants or options or otherwise, or

(c) which are beneficially owned, directly or indirectly (including shares deemed to be owned through application of clause (b) above), by any “affiliate” or “associate” as those terms as defined in the Regulations of the Securities and Exchange Commission adopted pursuant to the Securities Exchange Act of 1934 as in effect on the date hereof; or

(d) which are beneficially owned, directly or indirectly (including shares deemed owned through application of clause (b) above), by any other corporation, person or entity with which it or any of its “affiliates” or “associates” has any agreement or arrangement or understanding for the purpose of acquiring, holding, voting or disposing of voting securities of the Corporation.

For the purposes only of determining whether a corporation, person or other entity owned beneficially, directly or indirectly, 5% or more of the total voting power of the outstanding voting securities of the Corporation, the outstanding voting securities of the Corporation will be deemed to include any voting securities that may be issuable pursuant to any agreement, arrangement or understanding or upon exercise of conversion rights, exchange rights, warrants, options or otherwise which are deemed to be beneficially owned by such corporation, person or other entity pursuant to the foregoing provisions of this Section 4.

Section 5. The provisions of this Article shall not apply to a Business Combination which (a) (i) does not change any voting security holder’s percentage ownership of voting power in any successor to the Corporation from the percentage of voting power beneficially owned by such holder in the Corporation, (ii) provides for the provisions of this Article, without any amendment, change, alteration or deletion, to apply to any successor to the Corporation, and (iii) does not transfer all or substantially all of the Corporation’s assets other than to a wholly-owned subsidiary of the Corporation, or (b) shall have been authorized by the Board of Directors of the Corporation prior to the time that the Acquiring Entity became the beneficial owner, directly or indirectly, of 5% or more of the total voting power of the outstanding voting securities of the Corporation.

Section 6. The affirmative vote required by this Article will he in addition to the vote of the holders of any class or series of stock of the Corporation otherwise required by law, or these Articles of Incorporation, or the resolution providing for the issuance of a class or series of stock which has been adopted by the Board of Directors, or any agreement between the Corporation and any national securities exchange.

Section 7. The Board of Directors of the Corporation shall make all determinations pursuant to this Article, including, without limitation, (i) the amount of voting power beneficially owned directly or indirectly, by any corporation, person or entity, and (ii) the status of any corporation, person or entity as an affiliate or associate of another. Any such determination reasonably made in good faith by the Board of Directors on the basis of available information shall he conclusive and binding.

3. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the board of directors.

4. The foregoing amendment and restatement of Articles of Incorporation has been duly approved by the required vote of shareholders in accordance with Section 902, California Corporations Code. The total number of outstanding shares of the corporation eligible to vote on the foregoing amendment was 8,876,518 shares of Common Stock. The number of shares voting in favor of the amendment equaled or exceeded the vote required. The percentage vote required was more than 50 percent.

[Certificate Signature Page To Follow]

We further declare under penalty of perjury under the laws of the State of California that the matters set forth in this certificate are true and correct of our own knowledge.

DATE: June 10, 2010	/s/ Daniel J. Doyle
	Daniel J. Doyle , President


	/s/ Cathy Ponte
	Cathy Ponte, Assistant Secretary

EXHIBIT 31.1

RULE 13a-14(a) [SECTION 302] CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Daniel J. Doyle, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the Quarter Ended June 30, 2010 of CENTRAL VALLEY COMMUNITY BANCORP;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and have:

a. designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c. evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures as of the end of the period covered by this report based on such evaluation; and

d. disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and;

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Daniel J. Doyle		Date: August 16, 2010
Daniel J. Doyle,
President and Chief Executive Officer (principal executive officer)

EXHIBIT 31.2

RULE 13a-14(a) [SECTION 302] CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, David Kinross, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the Quarter Ended June 30, 2010 of CENTRAL VALLEY COMMUNITY BANCORP;

b. any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ David A. Kinross		Date: August 16, 2010
David A. Kinross,
Senior Vice President and Chief Financial Officer
(principal accounting officer and principal financial officer)

EXHIBIT 32.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certification accompanies the issuer’s Quarterly Report on Form 10-Q and is not filed, as provided in Release 33-8212, 34-47551 dated June 30, 2003.

In connection with the accompanying Quarterly Report of Central Valley Community Bancorp (“CVCB”) on Form 10-Q for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel J. Doyle, President and Chief Executive Officer of CVCB, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CVCB.

A signed original of this written statement required by Section 906 has been provided to Central Valley Community Bancorp and will be retained by Central Valley Community Bancorp and furnished to the Securities and Exchange Commission or its staff upon request.

Dated: August 16, 2010

	/s/ Daniel J. Doyle
	DANIEL J. DOYLE
	President and Chief Executive Officer

EXHIBIT 32.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The following certification accompanies the issuer’s Quarterly Report on Form 10-Q and is not filed, as provided in Release 33-8212, 34-47551 dated June 30, 2003.

In connection with the accompanying Quarterly Report of Central Valley Community Bancorp (“CVCB”) on Form 10-Q for the quarter ended June 30, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, David A. Kinross, Senior Vice President and Chief Financial Officer of CVCB, hereby certify pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 that:

(1) the Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CVCB.

Dated: August 16, 2010

	/s/ David A. Kinross
	DAVID A. KINROSS
	Senior Vice President and Chief Financial Officer