An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Final Offering Circular or the offering statement in which such Final Offering Circular was filed may be obtained.

PRELIMINARY OFFERING CIRCULAR

Up to 307,883 Shares of Common Stock
at $_____ Per Share¹

We are offering for sale up to 307,883 shares¹ of our common stock on a “best efforts” basis and are also distributing, at no charge to our shareholders, transferable subscription rights to purchase all 307,883 of such shares, plus approximately 15,394 “bonus” shares as described further below. We are offering the shares first to our existing shareholders pursuant to the subscription rights, and then (if any shares remain available) to other interested investors on a non-rights basis. While the purchase price in both cases is $_____ per share, persons exercising subscription rights will receive a bonus equal to five percent (5%) of the number of shares purchased pursuant to such rights, for no additional consideration. Subscription rights will be distributed to persons who owned shares of our common stock as of 5:00 p.m., Pacific Time, on [RECORD DATE], the record date for the rights offering. There is no minimum purchase requirement and we are not required to sell any minimum number of shares in this offering. We will not escrow your subscription funds. See “TERMS OF THE OFFERING.”

Although our common stock is quoted on the OTC-Pink (symbol “CCBC”), there has been a very limited trading market in our common stock, and it is not anticipated that an active market will develop as a result of this offering. See “RISK FACTORS” and “MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS.” As of [LATEST PRACTICABLE DATE], the last reported sales price of our common stock was $_____.

Investing in our common stock involves risks. See “RISK FACTORS” beginning on page 14.

Neither the Securities and Exchange Commission nor any states securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this offering circular. Any representation to the contrary is a criminal offense.

The shares of common stock offered hereby are not deposits and are not insured by the FDIC or any other governmental agency. The shares of common stock may not be used as collateral to secure a loan from Chino Commercial Bank and loans from Chino Commercial Bank may not be used to purchase this stock.

¹ We are offering the shares first to our existing shareholders pursuant to subscription rights until [RIGHTS EXPIRATION DATE], and then (if any shares remain available) to other interested investors on a non-rights basis. While the purchase price in both cases is $_______ per share, persons exercising shareholder subscription rights will receive a bonus equal to five percent (5%) of the number of shares purchased pursuant to such rights, for no additional consideration. If all shares offered were purchased on a rights basis, the total number of shares issued would be approximately 323,277. The actual number of shares issued would actually be slightly lower than this figure due to the fact that each shareholder’s bonus shares will be rounded down to the nearest whole number. The per share price is for the purchased shares only and does not include any adjustment to reflect the bonus shares. See “TERMS OF THE OFFERING.”

² This offering is not underwritten. We are offering the shares of common stock directly to the public through our officers and directors without the services of an underwriter or selling agent. However, we may retain the services of a broker or placement agent to assist us on a best efforts basis with the non-rights portion of the offering if circumstances warrant. We are currently unable to estimate the cost of any such services. Our officers and directors are not entitled to receive any discounts or commissions for selling any shares, but may be reimbursed for reasonable expenses they incur, if any.

³ Represents the maximum proceeds from the sale of all 307,883 shares at $_______ per share (plus the bonus shares to be issued for no additional consideration) before deduction of estimated offering expenses of $_______.

The date of this offering circular is ________________, 2017

TABLE OF CONTENTS

RISK FACTORS

You should carefully consider the following risk factors and all other information contained in this offering circular before subscribing for shares of our common stock. Investing in our common stock involves risks. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties not presently known to us or that we currently believe are immaterial also may impair our business. If any of the events described in the following risk factors occur, our business, results of operations and financial condition could be materially adversely affected. In addition, the trading price of our common stock could decline due to any of the events described in these risk factors.

Risks Related to This Offering and Our Common Stock

We are selling our securities on a “best efforts” basis and there is no minimum aggregate offering amount. The shares are being offered on a “best efforts” basis. There is no requirement that we sell any particular number of shares. If we sell less than the full amount offered, the lesser amount sold would not necessarily help us fully accomplish our goals. See “TERMS OF THE OFFERING” and “USE OF PROCEEDS.”

As the offering is not underwritten, no underwriter has conducted an independent review to verify the things we say in this offering circular. Our offering is not underwritten. Thus, there has not been an independent “due diligence” review of matters covered by this offering circular, such as might be conducted by an underwriter had one been affiliated with this offering.

The offering price of our stock has been determined independently by us and should not be considered as an indication of our present or future value. The offering price of our common stock has been determined by our board of directors based on our general evaluation of our business and prospects and the current trading market for our common stock. However, we have not conducted a detailed marketing or feasibility study covering the pricing and terms of this offering, nor have we sought an independent third party valuation of our common stock. You should not consider the subscription price for the shares as an indication of our present or future value.

You may not be able to sell your shares at the times and in the amounts you want, as the trading market for Chino Commercial Bancorp stock is not active. Shares of Chino Commercial Bancorp common stock are not listed on any exchange or quoted by the Nasdaq® Stock Market, although they are quoted on the OTC-Pink under the ticker symbol “CCBC.” The OTC-Pink is an electronic, screen-based market maintained and operated by the OTC Markets Group, which imposes considerably less stringent listing standards than the Nasdaq. The volume of trading in the common stock of Chino Commercial Bancorp is limited and does not constitute an active trading market, and it is not anticipated that a more active trading market will develop as a result of this stock offering. Chino Commercial Bancorp does not expect to qualify for or seek a listing on any securities exchange in the foreseeable future. There can be no assurance that you will be able to sell your shares of Chino Commercial Bancorp common stock at any time in the future or at all, or that an active trading market will develop in the foreseeable future, if ever. See “MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS – Trading History.”

The price of our common stock may fluctuate significantly, and this may make it difficult for you to sell shares of common stock at times or at prices you find attractive. The trading price of our common stock may fluctuate widely as a result of a number of factors, many of which are outside our control. In addition, the stock market is subject to fluctuations in share prices and trading volumes that affect the market prices of the shares of many companies. These broad market fluctuations could adversely affect the market price of our common stock.

Among the factors that could affect our common stock price in the future are:

The stock market and, in particular, the market for financial institution stocks, has experienced significant volatility over the past several years. As a result, the market price of our common stock may be volatile. In addition, the trading volume in our common stock may fluctuate more than usual and cause significant price variations to occur. The trading price of the shares of our common stock also depends on many other factors which may change from time to time, including, without limitation, our financial condition, performance, creditworthiness and prospects, future sales of our equity or equity related securities, and other factors identified elsewhere in this offering circular. The capital and credit markets have been experiencing volatility and disruption for several years, at times reaching unprecedented levels. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying financial strength.

Chino Commercial Bancorp has not paid cash dividends in the past and has no specific plans to pay cash dividends in the foreseeable future. Chino Commercial Bancorp has not paid cash dividends in the past and has no specific plans to declare cash dividends in the foreseeable future. Any decision to pay cash dividends will be made by the board of directors in its discretion based on a number of factors. See “MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS – Dividends.”

There is limited public information concerning Chino Commercial Bancorp and its business, operations and financial condition. There is limited publicly available information about Chino Commercial Bancorp. Chino Commercial Bancorp’s common stock is not registered, and Chino Commercial Bancorp does not file reports, with the U.S. Securities and Exchange Commission under the Exchange Act. Chino Commercial Bancorp provides investors with periodic financial and other information, but does not make periodic disclosures of the type that would be available if it were subject to the reporting requirements of the Exchange Act.

We rely heavily on the payment of dividends from our subsidiary, Chino Commercial Bank. Other than $274 thousand in cash available at the holding company level at December 31, 2016, our ability to meet debt service requirements and to pay dividends depends on the ability of our banking subsidiary to pay dividends to us, as we have no other source of significant income. However, the Bank is subject to regulations limiting the amount of dividends it may pay. For example, the payment of dividends by the Bank is affected by the requirement to maintain adequate capital pursuant to the capital adequacy guidelines issued by the OCC. If (i) any capital ratio requirements are increased; (ii) the total risk-weighted assets of the Bank increase significantly; and/or (iii) the Bank’s income declines significantly, the Bank’s Board of Directors may decide or be required to retain a greater portion of the Bank’s earnings to achieve and maintain the required capital or asset ratios. This would reduce the amount of funds available for the payment of dividends by the Bank to us. Further, the OCC could prohibit the Bank from paying dividends if, in its view, such payments would constitute unsafe or unsound banking practices. The Bank’s ability to pay dividends to us is also limited by the national banking laws. While we have not historically and have no plans to pay cash dividends to our shareholders in the foreseeable future, whether any such dividends are paid, and the frequency and amount of such dividends will also depend on the financial condition and performance of the Bank and the decision of the Bank’s Board of Directors. Information concerning our dividend policy and historical dividend practices is set forth below under “MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS – Dividends.”

We may pursue additional capital in the future, which may not be available on acceptable terms or at all, could dilute the holders of our outstanding common stock, and may adversely affect the market price of our common stock. In the current economic environment, we believe it is prudent to consider alternatives for raising capital when opportunities to raise capital at relatively attractive prices present themselves, in order to further strengthen our capital and better position ourselves to take advantage of opportunities that may arise in the future. Our ability to raise additional capital, if needed, will depend on, among other things, conditions in the capital markets at the time, which are outside of our control, and our financial performance. We cannot provide any assurance that such capital will be available to us on acceptable terms or at all. Any such capital raising alternatives could dilute the holders of our outstanding common stock, and may adversely affect the market price of our common stock and our performance measures such as earnings per share.

Your investment may be diluted because of the ability of management to offer stock to others. The shares of our common stock do not have preemptive rights. This means that you may not be entitled to buy additional shares if shares are offered to others in the future. We are authorized to issue 10,000,000 shares of common stock, and as of December 31, 2016 we had 1,231,332 shares of our common stock outstanding. Nothing restricts our ability to offer additional shares of stock for fair value to others in the future. Any issuances of common stock would dilute our shareholders’ ownership interests and may dilute the per share book value of our common stock.

Because we have discretion in the use of the proceeds, we may not apply these funds effectively which could have an adverse effect on our business. We cannot specify with certainty the amounts we will spend on particular uses from the net proceeds we will receive from the offering. Our board of directors will have broad discretion in the application of the net proceeds. Our board of directors currently intends to use the net proceeds as described in “USE OF PROCEEDS.” The failure by our Board of Directors to apply these funds effectively could have an adverse effect on our financial position, liquidity and results of operations by reducing or eliminating our net income from operations.

The offering may not be fully subscribed. The rights offering is only being made to existing shareholders, and the –non rights offering is being made to existing shareholders and the public alike. However, there can be no assurance that all or any portion of the shares offered will be sold. To the extent that less than all of the shares offered are sold, we will have fewer funds for the uses described in “USE OF PROCEEDS.”

The holders of our debentures have rights that are senior to those of our shareholders. In 2006 we issued $3,093,000 of junior subordinated debt securities due December 15, 2036 in order to raise additional regulatory capital. These debt securities are senior to the shares of our common stock. As a result, we must make interest payments on the debentures before any dividends can be paid on our common stock, and in the event of our bankruptcy, dissolution or liquidation, the holders of the debt securities must be paid in full before any distributions may be made to the holders of our common stock. In addition, we have the right to defer interest payments on the junior subordinated debt securities for up to five years, during which time no dividends may be paid to holders of our common stock. In the event that the Bank is unable to pay dividends to us, then we may be unable to pay the amounts due to the holders of the junior subordinated debt securities and, thus, we would be unable to declare and pay any dividends on our common stock.

Our directors and executive officers control a large amount of our stock, and your interests may not always be the same as those of the board and management. As of [RECORD DATE], our directors and executive officers together with their affiliates beneficially owned approximately ___% of the Company’s outstanding voting stock. As a result, if all of these shareholders were to take a common position, they might be able to affect the election of directors as well as the outcome of corporate actions requiring shareholder approval, such as the approval of mergers or other business combinations. Such concentration may also have the effect of delaying or preventing a change in control of our company. In some situations, the interests of our directors and executive officers may be different from the shareholders. However, our directors and executive officers have a fiduciary duty to act in the best interest of the shareholders, rather than in their own best interests, when considering a proposed business combination or any of these types of matters.

Risks Related to Our Company and the Banking Business

Our business has been and may in the future be adversely affected by volatile conditions in the financial markets and unfavorable economic conditions generally. National and global economies are constantly in flux, as evidenced by recent market volatility resulting from, among other things, a new presidential administration and new economic policies associated therewith, the uncertain future relationship of the United Kingdom with the European Union (e.g., Brexit), and the ever-changing landscape of the energy industry. Future economic conditions cannot be predicted, and any renewed deterioration in the economies of the nation as a whole or in our markets could have an adverse effect, which could be material, on its business, financial condition, results of operations and prospects, and could cause the market price of our stock to decline.

From December 2007 through June 2009, the U.S. economy was officially in recession. Business activity across a wide range of industries and regions in the U.S. was greatly reduced during the recession and for a few years thereafter. The financial markets and the financial services industry in particular suffered unprecedented disruption, causing a large number of institutions to fail or to require government intervention to avoid failure. In our case, the company remained well capitalized throughout the recession, and did not post a loss for any year during that time, or since then. Several loans were negatively impacted by the economic recession; however, loan total aggregate losses did not exceed 1.0% for any year during the recession, or since that time.

Since the end of the recession economic conditions in the Inland Empire and the real estate sector have gained momentum in many of our local markets. The national unemployment rate has declined and is currently at 4.7%, GDP has reached an all-time high, personal consumption expenditures, or the consumer portion of the economy is currently at an all-time high level, and the labor participation rate is moving higher. The median price of existing residential real estate in the Inland Empire in Southern California has generally not reached the level attained prior to the recession of 2007-2009.

Notwithstanding the current improved economic and market conditions, if the economy again goes into recession the ensuing economic weakness could have one or more of the following undesirable effects on our business:

Concentrations of real estate and real estate secured loans could subject us to increased risks in the event of a prolonged real estate recession or natural disaster. At December 31, 2016, approximately $103 million or 94% of our loan portfolio consisted of loans secured by real property in California, including approximately $85 million in loans secured by commercial real estate, $2 million in loans secured by single family residences, $11 million in loans secured by residential income property, and $5 million in other commercial and industrial loans secured by real estate. Total nonperforming loans and nonperforming assets both increased to $522 thousand at December 31, 2016, compared to $0 at December 31, 2015. One hundred percent of nonperforming assets at December 31, 2016 and 2015 were real estate loans and we had no OREO at either date. Nonperforming assets represented 0.5% and 0% of total loans and other real estate owned at December 31, 2016 and December 31, 2015, respectively.

Since the last recession of 2007-2009, the Inland Empire residential real estate market has experienced significant price appreciation and the rate of foreclosures has declined substantially. If residential real estate values were to enter another recessionary decline as before, and/or if this weakness were to further impact commercial real estate, our nonperforming assets could increase from current levels. Such an increase could have a material adverse effect on our financial condition and results of operations, by reducing our income, increasing our expenses, and leaving less cash available for lending and other activities. As noted above, the primary collateral for many of our loans consists of commercial real estate properties, and a material deterioration in the real estate market in the areas we serve would likely reduce the value of the collateral value for many of our loans and could negatively impact the repayment ability of many of our borrowers. It might also reduce further the amount of loans we make to businesses in the construction and real estate industry, which could negatively impact our organic growth prospects. Similarly, the occurrence of a natural disaster like those California has experienced in the past, including earthquakes, brush fires, and flooding, could impair the value of the collateral we hold for real estate secured loans and negatively impact our results of operations.

In addition, banking regulators now give commercial real estate or “CRE” loans close scrutiny, due to risks relating to the cyclical nature of the real estate market and the related risks for lenders with high concentrations of such loans. The regulators have required banks with relatively high levels of CRE loans to implement enhanced underwriting standards, internal controls, risk management policies and portfolio stress testing, which has resulted in higher allowances for possible loan losses. Expectations for higher capital levels have also materialized, and the Bank is subject to higher than standard capital requirements.

Our concentration of commercial real estate loans exposes us to increased lending risks. Commercial real estate loans, totaling approximately $85 million or 78% of our total loan portfolio as of December 31, 2016, expose us to a greater risk of loss than residential real estate and consumer loans, which were a smaller percentage of our total loan portfolio. Commercial real estate loans typically involve larger loan balances to a borrower or a group of related borrowers compared to residential loans, and an adverse development with respect to a larger commercial loan relationship would expose us to greater risk of loss than an adverse development with respect to a smaller residential mortgage loan.

Repayment of our commercial loans is often dependent on the cash flows of the borrowers, which may be unpredictable, and the collateral securing these loans may fluctuate in value. At December 31, 2016, we had $21.8 million or 20% of total loans in commercial loans. Commercial lending involves risks that are different from those associated with real estate lending. Real estate lending is generally considered to be collateral based lending with loan amounts based on predetermined loan to collateral values and liquidation of the underlying real estate collateral being viewed as the primary source of repayment in the event of borrower default. Our commercial loans are primarily made based on the cash flows of the borrowers and secondarily on any underlying collateral provided by the borrowers. A borrower’s cash flows may be unpredictable, and collateral securing those loans may fluctuate in value. Although commercial loans are often collateralized by equipment, inventory, accounts receivable, or other business assets, the liquidation of collateral in the event of default is often an insufficient source of repayment because accounts receivable may be uncollectible and inventories may be obsolete or of limited use, among other things.

We may experience loan losses in excess of our allowance for loan and lease losses. We endeavor to limit the risk that borrowers might fail to repay; nevertheless, losses can and do occur. We create an allowance for estimated loan losses in our accounting records, based on estimates of the following:

We maintain our allowance for loan and lease losses at a level that we believe is adequate to absorb specifically identified probable losses as well as any other losses inherent in our loan portfolio at a given date. While we strive to carefully monitor credit quality and to identify loans that may become nonperforming, at any time there are loans in the portfolio that could result in losses, but that have not been identified as nonperforming or potential problem loans. We cannot be sure that we will be able to identify deteriorating loans before they become nonperforming assets, or that we will be able to limit losses on those loans that have been identified. Changes in economic, operating and other conditions, including changes in interest rates, deteriorating values in underlying collateral (most of which consists of real estate), and the financial condition of borrowers, which are beyond our control, may cause our estimate of probable losses or actual loan losses to exceed our current allowance. In addition, the OCC, as part of its supervisory function, periodically reviews our allowance for loan losses. The OCC may require us to increase our provision for loan losses or to recognize further losses, based on its judgment, which may be different from that of our management. Any increase in the allowance required by the OCC could reduce our earnings.

Our use of appraisals in deciding whether to make a loan secured by real property does not ensure the value of the real property collateral. In considering whether to make a loan secured by real property, we generally require an appraisal of the property. However, an appraisal is only an estimate of the value of the property at the time the appraisal is made, and an error in fact or judgment could adversely affect the reliability of an appraisal. In addition, events occurring after the initial appraisal may cause the value of the real estate to decrease. As a result of any of these factors the value of collateral backing a loan may be less than supposed, and if a default occurs we may not recover the outstanding balance of the loan.

Our expenses could increase as a result of increases in FDIC insurance premiums or other regulatory assessments. The FDIC charges insured financial institutions a premium to maintain the DIF at a certain level. In the event that deteriorating economic conditions increase bank failures, the FDIC ensures payments of deposits up to insured limits from the DIF. In August 2016, the FDIC announced that the DIF reserve ratio had surpassed 1.15% as of June 30, 2016. As a result, beginning in the third quarter of 2016, the range of initial assessment rates for all institutions was adjusted downward, although institutions with $10 billion or more in assets were assessed a quarterly surcharge. The quarterly surcharge, which does not apply to the Bank, will continue to be assessed until such time as the reserve ratio reaches the statutory minimum of 1.35% required by the Dodd-Frank Act. Although the Bank's FDIC insurance assessments have not increased as a result of these changes, there can be no assurance that the FDIC will not increase assessment rates in the future or that the Bank will not be subject to higher assessment rates as a result of a change in its risk category, either of which could have an adverse effect on the Bank’s earnings.

Our business has been, and may continue to be, affected by a significant concentration of deposits within one industry, and a significant portion of such deposits are controlled by related parties. As of December 31, 2016, deposits from escrow companies represented $11.8 million, or 8.6% of our total deposits. The five largest escrow depositors accounted for $10.7 million, or 7.7% of total deposits at December 31, 2016. Further, approximately $6.5 million, or 55% of all deposits from escrow companies at December 31, 2016 and representing 4.7% of total deposits at that date, were from escrow companies affiliated with certain of our directors. Historically, escrow deposits had comprised very high percentage of our deposits, but management has made a deliberate effort to diversify the deposit base and grow deposits from other industries.

We may not be able to continue to attract and retain banking customers at current levels, and our efforts to compete may reduce our profitability. Competition in the banking industry in the markets we serve may limit our ability to continue to attract and retain banking customers. The banking business in our current and intended future market areas is highly competitive with respect to virtually all products and services. In California generally, and in our service areas specifically, branches of major banks dominate the commercial banking industry. Such banks have substantially greater lending limits than we have, offer certain services we cannot offer directly, and often operate with “economies of scale” that result in lower operating costs than ours on a per loan or per asset basis. We also compete with numerous financial and quasi-financial institutions for deposits and loans, including providers of financial services over the Internet. New technology and other changes are allowing parties to effectuate financial transactions that previously required the involvement of banks. For example, consumers can maintain funds that would have historically been held as bank deposits in brokerage accounts or mutual funds. Consumers can also complete transactions such as paying bills and/or transferring funds directly without the assistance of banks. The process of eliminating banks as intermediaries, known as “disintermediation,” could result in the loss of fee income, as well as the loss of customer deposits and the related income generated from those deposits. The loss of these revenue streams and the lower cost deposits as a source of funds could have a material adverse effect on our financial condition and results of operations.

Furthermore, with the large number of bank failures in the past decade, customers have become more concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect our funding costs and net income. Ultimately, competition can and does increase our cost of funds, reduce loan yields and drive down our net interest margin, thereby reducing profitability. It can also make it more difficult for us to continue to increase the size of our loan portfolio and deposit base, and could cause us to rely more heavily on wholesale borrowings which are generally more expensive than retail deposits.

If we are not able to successfully keep pace with technological changes affecting the industry, our business could be hurt. The financial services industry is constantly undergoing technological change with the frequent introduction of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better service clients and reduce costs. Our future success depends, in part, upon our ability to address the needs of our clients by using technology to provide products and services that will satisfy client demands, as well as create additional efficiencies within our operations. Some of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our clients. Failure to successfully keep pace with technological change in the financial services industry could have a material adverse impact on our business and, in turn, on our financial condition and results of operations.

Our operations could be adversely impacted if our third-party service providers experience difficulty. We depend on a number of relationships with third-party service providers, including core systems processing and web hosting. These providers are well established vendors that provide these services to a significant number of financial institutions. If these third-party service providers experience difficulty or terminate their services and we are unable to replace them with other providers, our operations could be interrupted which would adversely impact our business.

Unauthorized disclosure of sensitive or confidential customer information, whether through a cyber-attack, other breach of our computer systems or any other means, could severely harm our business. In the normal course of business we collect, process and retain sensitive and confidential customer information. Despite the security measures we have in place, our facilities and systems may be vulnerable to cyber-attacks, security breaches, acts of vandalism, computer viruses, misplaced or lost data, programming and/or human errors, or other similar events.

In recent periods there has been a rise in fraudulent electronic activity, security breaches, and cyber-attacks within the financial services industry, especially in the banking sector. Some financial institutions have reported breaches of their websites and systems which have involved sophisticated and targeted attacks intended to misappropriate sensitive or confidential information, destroy or corrupt data, disable or degrade service, disrupt operations or sabotage systems. These breaches can remain undetected for an extended period of time. Furthermore, our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications that may appear to be legitimate messages sent by the Bank, in attempts to misappropriate passwords, card numbers, bank account information or other personal information or to introduce viruses or malware to personal computers. Information security risks for financial institutions have increased in part because of new technologies, mobile services and other Internet or web-based products used to conduct financial and other business transactions, and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and others. The secure maintenance and transmission of confidential information, as well as the secure and reliable execution of transactions over our systems, are essential to protect us and our customers and to maintain our customers’ confidence. Despite our efforts to identify, contain and mitigate these threats through detection and response mechanisms, product improvement, the use of encryption and authentication technology, and customer and employee education, such attempted fraudulent activities directed against us, our customers, and third party service providers remain a serious issue. The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve.

We also face risks related to cyber-attacks and other security breaches in connection with debit card transactions that typically involve the transmission of sensitive information regarding our customers through various third parties. Some of these parties have in the past been the target of security breaches and cyber-attacks, and because the transactions involve third parties and environments that we do not control or secure, future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely on third party service providers to conduct certain other aspects of our business operations, and face similar risks relating to them. While we regularly conduct security assessments on these third parties, we cannot be sure that their information security protocols are sufficient to withstand a cyber-attack or security breach.

Any cyber-attack or other security breach involving the misappropriation or loss of Company assets or those of its customers, or unauthorized disclosure of confidential customer information, could severely damage our reputation, erode confidence in the security of our systems, products and services, expose us to the risk of litigation and liability, disrupt our operations, and have a material adverse effect on our business.

If our information systems were to experience a system failure, our business and reputation could suffer. We rely heavily on communications and information systems to conduct our business. The computer systems and network infrastructure we use could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to minimize service disruptions by protecting our computer equipment, systems, and network infrastructure from physical damage due to fire, power loss, telecommunications failure or a similar catastrophic event. We have protective measures in place to prevent or limit the effect of the failure or interruption of our information systems, and will continue to upgrade our security technology and update procedures to help prevent such events. However, if such failures or interruptions were to occur, they could result in damage to our reputation, a loss of customers, increased regulatory scrutiny, or possible exposure to financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

We are subject to a variety of operational risks, including reputational risk, legal risk and compliance risk, and the risk of fraud or theft by employees or outsiders, which may adversely affect our business and results of operations. We are exposed to many types of operational risks, including reputational risk, legal and compliance risk, the risk of fraud or theft by employees or outsiders, and unauthorized transactions by employees or operational errors, including clerical or record-keeping errors or those resulting from faulty or disabled computer or telecommunications systems.

If personal, non-public, confidential or proprietary information of customers in our possession were to be mishandled or misused, we could suffer significant regulatory consequences, reputational damage and financial loss. Such mishandling or misuse could occur, for example, if information were erroneously provided to parties who are not permitted to have the information, either by fault of our systems, employees, or counterparties, or where such information is intercepted or otherwise inappropriately taken by third parties.

Because the nature of the financial services business involves a high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. Our necessary dependence upon automated systems to record and process transactions may further increase the risk that technical flaws or employee tampering or manipulation of those systems could result in losses that are difficult to detect. We also may be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control (for example, computer viruses or electrical or telecommunications outages, or natural disasters, disease pandemics or other damage to property or physical assets) which may give rise to disruption of service to customers and to financial loss or liability. We are further exposed to the risk that our external vendors may be unable to fulfill their contractual obligations (or will be subject to the same risk of fraud or operational errors by their respective employees as we are) and to the risk that we (or our vendors’) business continuity and data security systems prove to be inadequate. The occurrence of any of these risks could result in a diminished ability to operate our business (for example, by requiring us to expend significant resources to correct the defect), as well as potential liability to clients, reputational damage and regulatory intervention, which could adversely affect our business, financial condition and results of operations, perhaps materially.

Previously enacted and potential future financial regulatory reforms could have a significant impact on our business, financial condition and results of operations. Dodd-Frank, which was enacted in 2010, is having a broad impact on the financial services industry, including significant regulatory and compliance changes. Many of the requirements called for in Dodd-Frank will be implemented over time, and most will be facilitated by the enactment of regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of Dodd-Frank will be implemented, the full extent to which it will impact our operations is unclear. The changes resulting from Dodd-Frank may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business. In particular, the potential impact of Dodd-Frank on our operations and activities, both currently and prospectively, include, among others:

Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act, which could negatively impact results of operations and financial condition. We cannot predict whether there will be additional laws or reforms that would affect the U.S. financial system or financial institutions, when such changes may be adopted, how such changes may be interpreted and enforced or how such changes may affect us. However, the costs of complying with any additional laws or regulations could have a material adverse effect on our financial condition and results of operations.

The repeal of the prohibition on payment of interest on business demand deposits could increase our interest expense. Since July 2011, financial institutions have been authorized to offer interest on business demand deposits, as the Dodd-Frank Act repealed federal prohibitions against paying interest on demand deposits. We do not know how competing financial institutions will address this issue, but if we were to offer interest on demand deposits it could negatively impact our net interest income, particularly in a rising interest rate environment.

A substantial portion of our non-interest income has historically come from overdraft and NSF fees, generated from commercial and individual checking accounts; such fee income has declined in recent years and is expected to continue to decline. Since 2015, our fee income relating to overdraft and NSF fees has been declining because of decreased use of paper checks by customers in favor of electronic payment methods. The use of electronic payment methods does not allow an overdraft to occur and hence neither overdraft nor NSF fees are generated. Beginning January 1, 2017 our service charges were updated, including an increase in NSF fees from $18.00 per occurrence to $22.00 per occurrence. Despite this increase, aggregate fees relating to overdrafts and returned items are projected to decline further based upon lower volumes of checks being presented. The total reduction of such fee income and the timing of same is difficult to estimate, as the rate of adoption of electronic payment methods by customers is inconsistent and is subject to partial offset by additional new account formations.

We depend on our executive officers and key personnel to implement our business strategy and could be harmed by the loss of their services. We believe that our continued growth and success depends in large part upon the skills of our management team and other key personnel. The competition for qualified personnel in the financial services industry is intense, and the loss of key personnel or an inability to continue to attract, retain or motivate key personnel could adversely affect our business. If we are not able to retain our existing key personnel or attract additional qualified personnel, our business operations would be hurt. Only our Chief Executive Officer, who has been with the Company and the Bank since inception, has an employment agreement.

We may be adversely affected by the financial stability of other financial institutions. Our ability to engage in routine funding transactions could be adversely affected by the actions and liquidity of other financial institutions. Financial institutions are often interconnected as a result of trading, clearing, counterparty, or other business relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. Even if the transactions are collateralized, credit risk could exist if the collateral held by us cannot be liquidated at prices sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could adversely affect our business, financial condition or results of operations.

Changes in interest rates could adversely affect our profitability, business and prospects. Net interest income, and therefore earnings, can be adversely affected by differences or changes in the interest rates on, or the re-pricing frequency of, our financial instruments. In addition, fluctuations in interest rates can affect the demand of customers for products and services, and an increase in the general level of interest rates may adversely affect the ability of certain borrowers to make variable-rate loan payments. Accordingly, changes in market interest rates could have a material adverse effect on our asset quality, loan origination volume, financial condition, results of operations, and cash flows. This interest rate risk can arise from Federal Reserve Board monetary policies, as well as other economic, regulatory and competitive factors that are beyond our control.

The value of the securities in our investment portfolio may be negatively affected by market disruptions, adverse credit events or fluctuations in interest rates, which could have a material adverse impact on capital levels. Our available-for-sale investment securities are reported at their estimated fair values, and fluctuations in fair values can result from changes in market interest rates, rating agency actions, issuer defaults, illiquid markets and limited investor demand, among other things. As long as the change in the fair value of a security is not considered to be “other than temporary,” we directly increase or decrease our shareholders’ equity by the amount of the change in fair value, net of the tax effect. Because of the size of our fixed income bond portfolio relative to total assets, a relatively large increase in market interest rates, in particular, could result in a material drop in fair values and, by extension, in our capital. Investment securities that have an amortized cost in excess of their current fair value at the end of a reporting period are also evaluated for other-than-temporary impairment. If such impairment is indicated, the difference between the amortized cost and the fair value of those securities will be recorded as a charge in our income statement, which could also have a material adverse effect on our results of operations and capital levels.

We are exposed to risk of environmental liabilities with respect to properties to which we obtain title. Approximately $103 million or 94% of our loan portfolio at December 31, 2016 was secured by real estate. In the normal course of business, we may foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, if we are the owner or former owner of a contaminated site, we may be subject to common law claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. These costs and claims could adversely affect our business and prospects.

TERMS OF THE OFFERING

General

We are offering up to 307,883 shares¹ of our common stock, no par value. We are offering the shares first to our existing shareholders on a subscription rights basis, and then (if any shares remain available) to other interested investors on a non-rights basis. While the purchase price in both cases is $_____ per share, persons exercising subscription rights will receive bonus shares equal to 5% of the number of shares purchased pursuant to such rights, for no additional consideration. Shareholders must own at least four shares as of the record date to be eligible to participate in the rights portion of the offering. There is no minimum purchase requirement. Once you subscribe, your subscription is irrevocable.

Shareholders and non-shareholders alike may subscribe for any number of shares being offered hereby, but only shareholders of record as of the close of business on [RECORD DATE] are being given transferable subscription rights entitling them to receive certain bonus shares in connection with their investments, as described more fully below. Shares which are not subscribed for pursuant to such rights by [RIGHTS EXPIRATION DATE], will be available to other interested investors at a purchase price of $_____ per share without any bonus shares attached.

Except with respect to persons exercising subscription rights, we reserve the right to reject any subscription, in whole or in part, in our sole discretion. In determining which subscriptions to accept, in whole or in part, we may take into account a subscriber's potential to do business with, or to direct customers to, Chino Commercial Bank, and the order in which subscriptions are received.

In the event we reject all or a portion of a requested subscription, we will refund to the subscriber all, or the appropriate portion, of the amount remitted with the subscription agreement, without interest or deduction. We will decide which subscriptions to accept, and will mail all appropriate refunds, no later than 30 days after the expiration of the offering, when and as extended.

¹ If all shares offered were purchased on a rights basis as described herein, the total number of shares issued would be approximately 323,277 due to the issuance of bonus shares. The actual number of shares issued would actually be slightly lower than this figure due to the fact that each shareholder's bonus shares will be rounded down to the nearest whole number. 

We are not required to secure or accept subscriptions for the maximum number of shares offered, and we can accept aggregate subscriptions for any lesser number of shares at any time. We may also, in our sole discretion, close the offering at any time by accepting all or a portion of the subscriptions then received.

Shareholder subscription rights will expire if not exercised by 5:00 p.m., Pacific Time, on [RIGHTS EXPIRATION DATE]; and the offering in its entirety will expire at 5:00 p.m., Pacific Time, on [PUBLIC EXPIRATION DATE]; unless this offering is terminated earlier or either date is extended without notice to subscribers. Except in connection with subscription rights, we may, in our sole discretion, reject any subscriptions, in whole or in part, for any reason whatsoever. With respect to subscription rights exercised by rights holders and received by us no later than 5:00 p.m., Pacific Time, on [RIGHTS EXPIRATION DATE], we agree not to reject any such subscriptions unless we elect to withdraw the offering in its entirety, in which case payments received from holders in connection with the exercise of their subscription rights will be returned in full without interest or deduction. We also reserve the right not to honor subscription rights from any person (including a shareholder) who is not a resident of California.

We may cancel this offering at any time, and accepted subscriptions are subject to cancellation in the event that we should elect to terminate the offering in its entirety. Further, except in connection with shareholder subscription rights, we reserve the right to accept subscriptions for any number of shares offered hereby up to the maximum number of shares offered, and may, in our sole discretion, terminate the offering after accepting subscriptions for any lesser number of shares.

Plan of Distribution

We are offering these shares on a “best efforts” basis through our directors and officers, who will not be compensated in connection with their procurement of subscriptions, but who will be reimbursed for any reasonable out-of-pocket expenses incurred in connection with the offering, if any. We do not expect, however, that any such expenses will be significant. We do not presently intend to engage an underwriter or placement agent in connection with this offering. However, we may retain the services of a broker or placement agent to assist us on a best efforts basis with the non-rights portion of the offering if circumstances warrant. We are offering the shares first to existing shareholders on a subscription rights basis, and then, to the extent available, to other interested investors on a non-rights basis. See “PLAN OF DISTRIBUTION” for further details.

Subscription Procedure

For Existing Registered Shareholders

If you wish to exercise your subscription rights in this offering, and you are a “registered” shareholder, i.e., you hold your shares directly in certificate or book-entry form, you must complete the following steps before [RIGHTS EXPIRATION DATE]:

The number of shares covered by each shareholder's subscription rights and the aggregate purchase price for the full exercise of such subscription rights are set forth on each shareholder's subscription rights agreement. To exercise your subscription rights, your completed agreement and payment must be received by us by [RIGHTS EXPIRATION DATE], unless such date is extended. If you wish to subscribe for additional shares pursuant to your oversubscription privilege, or if you should miss the deadline for exercising subscription rights and wish to purchase shares in the non-rights portion of the offering, please so indicate on your subscription rights agreement. Any subscriptions for shares which do not involve the exercise of subscription rights must be received by [PUBLIC EXPIRATION DATE], unless such date is extended.

Important: The full subscription price for the shares must be remitted with the shareholder subscription rights agreement in order to be valid. Failure to include the full purchase price shall give us the right to reject the subscription. If we do not receive your shareholder subscription rights agreement and payment in full by 5:00 p.m., Pacific Time, on [RIGHTS EXPIRATION DATE], your subscription rights in this offering will be waived, unless such date is extended. However, we will consider any subscriptions received after that date on a non-rights basis, i.e., without entitlement to any bonus shares.

The subscription price will be deemed to have been received by us only upon (i) clearance of any uncertified check; (ii) receipt by us of any certified check or cashier’s check or money order; or (iii) receipt of wired funds in the stock offering account designated above. If paying by uncertified personal check, please be aware that funds paid in this manner may take at least five business days to clear. Accordingly, if you wish to pay the subscription price by means of uncertified personal check, we urge you to send in your subscription materials sufficiently in advance of [RIGHTS EXPIRATION DATE] to ensure that such payment is received and clears by that date. We also encourage you to consider paying by means of certified or cashier’s check, money order or wire transfer of funds.

If you have questions as to how to complete the shareholder subscription rights agreement, please contact Dann H. Bowman, President and Chief Executive Officer or Melinda M. Milincu, Chief Financial Officer, at (909) 393 8880 or mmilincu@chinocommercialbank.com.

For Existing “Street Name” Shareholders

If you do not hold your shares directly in certificate or book-entry form, but hold them instead through a custodian bank, broker, dealer or other nominee, then your nominee is the record holder of the shares you own. If you are not contacted by your nominee, you should contact your nominee as soon as possible. Your nominee must exercise the subscription rights on your behalf for the shares of common stock you wish to purchase. You will not receive a shareholder subscription rights agreement. Please follow the instructions of your nominee. Your nominee may establish a deadline that may be before the [RIGHTS EXPIRATION DATE] expiration date that we have established for the rights offering.

For Non-Rights Subscribers

If you wish to subscribe to purchase shares of our common stock in this offering on a non-rights basis, you must complete the same steps as described above under “Subscription Procedure – For Existing Shareholders” except using the subscription agreement designed for non-rights subscribers rather than a shareholder subscription rights agreement, and you must do so before [PUBLIC EXPIRATION DATE] rather than [RIGHTS EXPIRATION DATE].

If you have questions as to how to complete the subscription agreement, please contact Dann H. Bowman, President and Chief Executive Officer or Melinda M. Milincu, Chief Financial Officer, at (909) 393 8880 or mmilincu@chinocommercialbank.com.

Expiration Dates

The subscription rights granted to shareholders of record as of [RECORD DATE] will expire if not validly exercised by 5:00 p.m., Pacific Time, on [RIGHTS EXPIRATION DATE], unless extended.

We will accept subscriptions on a non-rights basis until 5:00 p.m., Pacific Time on [PUBLIC EXPIRATION DATE], unless extended, or if we decide to close the offering prior to that date, which we may do without further notice to you. While potential investors may subscribe for shares in the non-rights portion of the offering during the rights offering period, we can only hold, but not accept, subscriptions pending the conclusion of the rights portion of the offering, as we will not know until that time how many shares, if any, will be available in the non-rights portion of the offering. If you have subscribed on a non-rights basis during the rights period, we will let you know as soon as practicable after the conclusion of the rights offering whether your non-rights subscription has been accepted. We may also extend either or both expiration dates without notice to subscribers. Any such extension shall not affect the rights of those who have already subscribed.

Closings and Issuance of Shares

The rights portion of the offering will close on the [RIGHTS EXPIRATION DATE] rights expiration date, which date may be extended. The offering in its entirety will close on the [PUBLIC EXPIRATION DATE] offering expiration date, but this date may also be extended.

If you currently hold your stock directly in certificate or book-entry form, we will mail you a stock certificate or statement of ownership for your book-entry shares as soon as practicable after the close of the offering. If your shares as of [RECORD DATE] were held by a custodian bank, broker, dealer or other nominee, you will not receive stock certificates or statements of ownership from us for your new shares. Instead, your nominee will be credited with the shares of common stock you purchase, according to the same timeframe as described above with respect to stock certificates.

Determination of the Offering Price

Prior to this offering there has been a very limited trading market in our common stock. See “MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS – Trading History.” We determined the offering price after analyzing and taking into consideration several factors including, but not limited to, our current financial condition, recent trading prices of our common stock, book value per share, management’s analysis of our growth potential, the prices of shares of common stock of similarly situated independent banks, and our market position in the geographical areas in which we operate. The offering price will not necessarily reflect the market price of our common stock after this offering.

No Board Recommendation

An investment in the common stock must be made pursuant to each investor's evaluation of such security. Accordingly, neither our board of directors nor management makes any recommendation to potential investors regarding whether they should subscribe for or purchase any shares.

USE OF PROCEEDS

The net proceeds to us from the sale of the common stock offered in the offering will be approximately $_______, net of offering expenses, assuming the sale of all shares offered hereby. The actual net proceeds to be raised in the offering will depend upon the number of shares sold in the offering and the actual amount of offering expenses incurred, which may differ from the foregoing estimate.

We intend to use the net proceeds from this offering for general and corporate working capital purposes, including funding for loans and to support future growth, and enabling our subsidiary, Chino Commercial Bank, N.A., to continue to meet applicable capital requirements. Future growth is expected to occur by establishing new branch offices and increasing loans and deposits at existing branches. The amount and timing of the use of proceeds from this offering will depend on our capital needs and local loan demand. No assurance can be given that any new branches will be established in the future or, if established, that the resulting impact on our financial condition will be favorable.

PLAN OF DISTRIBUTION

General

We are offering these shares on a “best efforts” basis through our directors and officers, who will not be entitled to receive any discounts or commissions for selling any shares, but may be reimbursed for any reasonable out-of-pocket expenses incurred in connection with the offering, if any. We do not expect, however, that any such expenses will be significant. The offering is not underwritten and we do not presently intend to engage an underwriter or placement agent in connection with this offering. However, we may retain the services of a broker or placement agent to assist us on a best efforts basis with the non-rights portion of the offering if circumstances warrant. If we do so, we do not expect such broker or agent to be obligated to sell or to purchase any of the shares, and we would expect to pay such firm, as compensation for its services on completion of the offering, a placement fee representing a percentage of the dollar amount of shares purchased by investors introduced by such firm, which percentage is not yet known, plus reasonable out-of-pocket expenses.

Distribution to Existing Shareholders

Shareholders of record of our common stock as of the close of business on [RECORD DATE] are being given transferable subscription rights in this offering. Shareholders will have “basic subscription rights” to purchase one share for every four shares owned of record on that date, at a purchase price of $_____ per share, and an “over-subscription privilege” whereby they may subscribe for additional shares of our common stock unclaimed by other holders of rights in this offering at the same subscription price. In addition, persons exercising subscription rights, including over-subscription privileges, will receive bonus shares equal to _____ percent (__%) of the number of shares purchased pursuant to such rights, for no additional consideration.

We believe that it is in our best interests and those of our shareholders to give these subscription rights, although our common stock does not carry any preemptive rights and such subscription rights are therefore not legally required. These subscription rights will enable shareholders to eliminate the potential dilution of their respective percentage ownership of our stock which may occur through this offering. If all shareholder subscription rights are exercised, the aggregate number of shares subscribed for thereby will be approximately 307,883¹ or 100% of the maximum number of shares available for sale pursuant to the offering, leaving no shares remaining to be purchased on a non-rights basis.

The number of shares for which each shareholder is entitled to subscribe by virtue of these subscription rights, along with the aggregate price required for full exercise of these subscription rights, are set forth in the shareholder subscription rights agreement accompanying this offering circular. If any shareholder loses or misplaces his or her shareholder subscription rights agreement, the number of shares for which each shareholder is entitled to subscribe can be calculated by dividing by four the number of shares owned of record by such shareholder as of [RECORD DATE]. If the resulting number contains a fraction, the fraction should be rounded down to the nearest whole number.

Shareholders may also obtain information concerning the number of shares constituting their subscription rights entitlement by contacting Dann H. Bowman, President and Chief Executive Officer or Melinda M. Milincu, Chief Financial Officer, at (909) 393 8880 or mmilincu@chinocommercialbank.com.

While the subscription rights given to shareholders have been made transferable or assignable, they may be transferred or assigned to California residents only. In addition, we will not be involved in assisting shareholders in soliciting or locating transferees of such subscription rights. Subscription rights have been made transferable only as an accommodation to our shareholders. The method of transferring subscription rights is described in the instructions to the shareholder subscription rights agreement.

¹ This figure does not include bonus shares.

Distribution to Non-Shareholders

The balance of shares offered hereby which are not subscribed for on a subscription rights basis by [RIGHTS EXPIRATION DATE] (unless extended) will be available to other interested investors on a non-rights basis at a purchase price of $_____ per share without entitlement to any bonus shares. However, it is not possible to determine as of the date of this offering circular the exact number of shares which will be available on this basis. We intend to allocate such shares primarily to our existing and potential customers and members of the communities we serve, including persons who are in business or reside in Chino, Ontario and Rancho Cucamonga, California. However, we reserve the right to sell such shares in any manner as we, in our sole discretion, deem appropriate and we may reject all or any part of any non-rights subscription.

MARKET INFORMATION AND DIVIDEND POLICY AND RELATED MATTERS

Trading History

Our common stock is not listed on any exchange or quoted by the Nasdaq® Stock Market, although they are quoted on the OTC-Pink under the ticker symbol “CCBC.” Trades may also occur in unreported private transactions. The OTC-Pink is an electronic, screen-based market maintained and operated by the OTC Markets Group, which imposes considerably less stringent listing standards than the Nasdaq. The OTC-Pink is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities.

Trading volume in the Company’s stock not been extensive and such trades cannot be characterized as constituting an active trading market. Although the Company’s stock is not subject to any specific restrictions on transfer, there can be no assurance that a more active trading market will develop in the future, or if developed, that it will be maintained. Management is aware of the following securities dealers which make a market in the Company’s common stock: D.A. Davidson & Company, Big Bear Lake, California; and Raymond James and Associates, Inc., San Francisco, California.

The information in the following table indicates the high and low sales prices and approximate trading volume for our common stock for each quarterly period since January 1, 2015, and is based upon information provided by Thompson Reuters. The information does not include transactions for which no public records are available.

The “bid” and “asked” quotations on [LATEST PRACTICABLE DATE] were $_____ and $_____, respectively.

Holders

As of March 10, 2017 there were approximately 564 shareholders of our common stock, including approximately 349 registered holders, and approximately 215 beneficial owners whose shares were held in street name.

Dividends

To date, we have not paid any cash dividends, but we paid stock dividends in 2014 through 2016 and plan to continue paying stock dividends when deemed appropriate by our board of directors based on a number of factors. We have no plans to pay cash dividends at this time; however, if conditions warrant, the board of directors may declare a stock dividend within the next 12 months. Any decision to pay cash or stock dividends will be made by our board of directors in its discretion based on a number of factors including our earnings and financial condition.

As a bank holding company which currently has no significant assets other than its equity interest in the Bank, our ability to pay dividends primarily depends upon the dividends we receive from the Bank. The Bank’s dividend practice, like our dividend practice, will depend upon its earnings, financial position, current and anticipated cash requirements and other factors deemed relevant by the Bank’s board of directors at that time. Moreover, during any period in which we have deferred payment of interest otherwise due and payable on our subordinated debt securities, we may not pay any dividends or make any distributions with respect to our capital stock. See Note 8 to the consolidated financial statements contained herein.

Shareholders are entitled to receive dividends only when and if declared by our board of directors. To the extent that we receive cash dividends from the Bank, we presently use such funds primarily to service the subordinated debt related to our trust preferred securities (see Note 8 to the consolidated financial statements included herein), as well as to pay our operating expenses. No assurance can be given that our earnings will permit the payment of dividends of any kind in the future.

The Bank’s ability to pay cash dividends to us is also subject to certain legal limitations under federal laws and regulations. No national bank may, pursuant to 12 U.S.C. Section 56, pay dividends from its capital; all dividends must be paid out of net profits then on hand, after deducting for expenses including losses and bad debts. The payment of dividends out of net profits of a national bank is further limited by 12 U.S.C. Section 60(a) which prohibits a bank from declaring a dividend on its shares of common stock until the surplus fund equals the amount of capital stock, or if the surplus fund does not equal the amount of capital stock, until one-tenth of the Bank's net profits of the preceding half-year in the case of quarterly or semiannual dividends, or the preceding two consecutive half-year periods are transferred to the surplus fund before each dividend is declared.

Pursuant to 12 U.S.C. Section 60(b), the approval of the OCC shall be required if the total of all dividends declared by the Bank in any calendar year shall exceed the total of its net profits for that year combined with its net profits for the two preceding years, less any required transfers to surplus or a fund for the retirement of any preferred stock. The OCC has adopted guidelines, which set forth factors which are to be considered by a national bank in determining the payment of dividends. A national bank, in assessing the payment of dividends, is to evaluate the bank’s capital position, its maintenance of an adequate allowance for loan losses, and the need to review or develop a comprehensive capital plan, complete with financial projections, budgets and dividend guidelines. Therefore, the payment of dividends by Chino Commercial Bank is also governed by its ability to maintain minimum required capital levels and an adequate allowance for loan and lease losses. Additionally, pursuant to 12 U.S.C. Section 1818(b), the OCC may prohibit the payment of any dividend which would constitute an unsafe and unsound banking practice.

Our ability to pay dividends is also limited by state corporation law. The California General Corporation Law allows a California corporation to pay dividends if the company’s retained earnings equal at least the amount of the proposed dividend. If such corporation does not have sufficient retained earnings available for the proposed dividend, it may still pay a dividend to its shareholders if immediately after the dividend the sum of the company’s assets (exclusive of goodwill and deferred charges) would be at least equal to 125% of its liabilities (not including deferred taxes, deferred income and other deferred liabilities) and the current assets of the company would be at least equal to its current liabilities, or, if the average of its earnings before taxes on income and before interest expense for the two preceding fiscal years was less than the average of its interest expense for the two preceding fiscal years, at least equal to 125% of its current liabilities. Most bank holding companies cannot meet the second test and therefore are eligible to pay dividends only out of retained earnings. In addition, as noted above, during any period in which we have deferred payment of interest otherwise due and payable on our subordinated debt securities, we may not pay any dividends or make any distributions with respect to our capital stock.

CAPITALIZATION

The following table¹ sets forth our capitalization at December 31, 2016, actual and as adjusted to give effect to the sale of all 307,883 shares of common stock offered in this offering, plus related “bonus” shares to be issued pursuant to the exercise of shareholder subscription rights, less estimated expenses, at the offering price of $_____ per share. This table should be read in conjunction with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS” and the financial statements and the notes related thereto appearing elsewhere in this offering circular.

¹ This table assumes that all shares sold will be sold pursuant to the exercise of shareholder subscription rights at $____ per share, so that in addition to the 307,883 shares being offered hereby, we would issue bonus shares amounting to an additional 5% of the amount of such shares (15,394 additional shares), for a total of 323,277 shares. If all shares were purchased by non-rights subscribers, the total number of shares would be 307,883. The total net proceeds would not be affected.

² Actual book value per share equals total stockholders’ equity of $13,536,294, divided by 1,231,332 shares issued and outstanding at December 31, 2016. Book value per share as adjusted equals total stockholders’ equity of $_______ (assuming net proceeds of this offering of $_______), divided by 1,554,609 shares (assuming issuance and sale of 307,883 shares plus 15,394 bonus shares issued to shareholders exercising subscription rights).

³ For definitions and further information relating to these capital ratios, see “Supervision and Regulation – Capital Adequacy Requirements” herein.

BUSINESS

General

The Company

Chino Commercial Bancorp (the “Company”) is a California corporation registered as a bank holding company under the Bank Holding Company Act of 1956, as amended, and is headquartered in Chino, California. The Company was incorporated on March 2, 2006 and acquired all of the outstanding shares of Chino Commercial Bank, N.A. (the “Bank”) effective July 1, 2006. The Company’s principal subsidiary is the Bank, and the Company exists primarily for the purpose of holding the stock of the Bank and of such other subsidiaries it may acquire or establish. The Company’s only other direct subsidiary is Chino Statutory Trust I, which was formed on October 25, 2006 solely to facilitate the issuance of capital trust pass-through securities. Pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 810-10 (formerly Interpretation No. 46, Consolidation of Variable Interest Entities), Chino Statutory Trust I is not reflected on a consolidated basis in the financial statements of the Company. References herein to the “Company” include Chino Commercial Bancorp and its consolidated subsidiary, the Bank, unless the context indicates otherwise.

The Company’s principal source of income has historically been dividends from the Bank. The Company may also explore supplementary sources of income in the future. The expenditures of the Company, include (but are not limited to) the payment of dividends to shareholders, if and when declared by the Board of Directors, the cost of servicing debt, legal fees, audit fees, and shareholder costs will generally be paid from dividends paid to the Company by the Bank.

At December 31, 2016, the Company had consolidated assets of $175.1 million, deposits of $137.6 million and shareholders’ equity of $13.5 million. The Company’s liabilities include $3.1 million in debt obligations due to Chino Statutory Trust I, related to capital trust pass-through securities issued by that entity.

The Company’s administrative offices are located at 14245 Pipeline Avenue, Chino California 91710 and the telephone number is (909) 393-8880.

The Bank

The Bank is a national bank which was organized under the laws of the United States in December 1999 and commenced operations on September 1, 2000. The Bank operates three full-service banking offices. The Bank’s main branch office and administrative offices are located at 14245 Pipeline Avenue, Chino, California. In January 2006 the Bank opened its Ontario branch located at 1551 South Grove Avenue, Ontario, California. In April 2010, the Bank opened its Rancho Cucamonga branch located at 8229 Rochester Avenue, Rancho Cucamonga, California.

The Bank’s deposit accounts are insured under the Federal Deposit Insurance Act up to the maximum amounts allowable by law. The Bank is subject to periodic examinations of its operations and compliance by the office of the Comptroller of the Currency (“Comptroller”). The Bank is a member of the Federal Reserve System (FRS) and a member of the Federal Home Loan Bank. See “Supervision and Regulation.”

The Bank provides a wide variety of lending products for both businesses and consumers. Commercial loan products include lines of credit, letters of credit, term loans, equipment loans, commercial real estate loans, construction loans, accounts receivable financing, working capital financing. Financing products for individuals include auto, home equity, overdraft protection lines and, through a third party provider, MasterCard debit cards. Real estate loan products include construction loans, land loans, mini-perm commercial real estate loans, and home mortgages. As of December 31, 2016, the Company had total assets of $175.1 million and net loans of $107.4 million. The Company’s lending activity is concentrated primarily in real estate loans, which constituted 80% of the Company’s loan portfolio as of December 31, 2016; and commercial loans, which constituted 20%, of the Company’s loan portfolio as of December 31, 2016.

As a community-oriented bank, the Bank offers a wide array of personal, consumer and commercial services generally offered by a locally-managed, independently-operated bank. The Bank provides a broad range of deposit instruments and general banking services, including checking, savings accounts (including money market demand accounts), certificates of deposit for both business and personal accounts; internet banking services, such as cash management and Bill Pay; mobile banking services, including mobile capture, POP Money electronic payments, External Transfers, from other banks; debit card payment systems; telebanking (banking by phone); and courier services. The $137.6 million in deposits at December 31, 2016 included $68.6 million in non-interest bearing deposits and $68.9 million in interest-bearing deposits, representing 50% and 50%, respectively, of total deposits.

Recent Accounting Pronouncements

Information on recent accounting pronouncements is contained in Note 1 to the consolidated financial statements included herein.

Market Area and Competition

The banking business in California tends to be highly competitive, including in our specific market areas. Continued consolidation within the banking industry has contributed to the competitive environment in recent periods, following on the heels of a relatively large number of FDIC-assisted takeovers of failed banks and other acquisitions of troubled financial institutions in the aftermath of the Great Recession. There are also a number of unregulated companies competing for business in our markets with financial products targeted at profitable customer segments. Many of those companies are able to compete across geographic boundaries and provide meaningful alternatives to significant banking products and services. These competitive trends are likely to continue.

With respect to commercial bank competitors, the business is dominated by a relatively small number of major banks that operate a large number of offices within our geographic footprint. These banks have, among other advantages, the ability to finance businesses and geographic area with effective advertising campaigns and to allocate their investment resources to regions of highest yield and demand. Many of the major banks operating in the area offer certain services, that the Company does not offer directly (but some of which the Company offers through correspondent institutions). By virtue of their greater total capitalization, such banks also have substantially higher lending limits than the Company.

In addition to other banks, our competitors include savings institutions, credit unions, and numerous non-banking institutions such as finance companies, leasing companies, insurance companies, brokerage firms, asset management groups, mortgage banking firms and internet-based companies. Technological innovations have lowered traditional barriers of entry and enabled many of these companies to offer services that previously were considered traditional banking products, and we have witnessed increased competition from specialized companies, including those that circumvent the banking system by facilitating payments via the internet, wireless devices, prepaid cards, or other means.

Strong competition for deposits and loans among financial institutions and non-banks alike affects interest rates and other terms on which financial products are offered to customers. Mergers between financial institutions have created additional pressures within the financial services industry to streamline operations, reduce expenses, and increase revenues in order to remain competitive. Competition is also impacted by federal and state interstate banking laws which permit banking organizations to expand into other states. The relatively large California market has been particularly attractive to out-of-state institutions.

In an effort to compete effectively, the Company provides quality, personalized service with prompt, local decision-making, which cannot always be matched by major banks. The Company relies on local promotional activities, personal relationships established by the Company’s officers, directors, and employees with the Company’s customers, and specialized services tailored to meet the needs of the Company’s primary service area.

The Company’s primary geographic service area consists of the western portion of San Bernardino County, with a particular emphasis on Chino, Chino Hills, Ontario and Rancho Cucamonga. This primary service area is currently served by approximately 20 competing banks represented by 60 full service branches. The Company competes in its service area by using to the fullest extent possible the flexibility that its independent status and strong community ties permit. This status includes an emphasis on specialized services, local promotional activity, and personal contacts by the Company's officers, directors, organizers and employees. Programs have and will continue to be developed which are specifically addressed to the needs of small businesses, professionals and consumers. If our customers’ loan demands exceed the Company's lending limit, the Company is able to arrange for such loans on a participation basis with other financial institutions and intermediaries. The Company can also assist those customers requiring other services not offered by the Company to obtain such services from its correspondent banks.

Employees

As of December 31, 2016, the Company had 37 full-time and two part-time employees. Of these individuals, 13 were officers of the Bank holding titles of Assistant Vice President or above.

Properties

The Bank's main office and administrative headquarters as well as the Company’s principal offices are located at 14245 Pipeline Avenue, Chino, California. The Company purchased this property on July 1, 2010 at a purchase price of $2,202,421. Building improvements were completed in December 2010 and the cost of construction was $802,968. The two-story building consists of approximately 17,500 square feet of space. The office has a vault, teller windows, customer parking and one automated teller machine located on the exterior of the building. The Company and the Bank moved into these new facilities on January 6, 2011.

On January 5, 2006 the Bank opened its second branch facility at 1551 South Grove Avenue, Ontario, California. The initial land purchase was finalized in June 2005 for $639,150 and construction of the 6,390 square foot Bank premises was completed in late 2005. The final cost of construction and equipment totaled $1,287,208. This single story building has a vault, teller windows, customer parking and one automated teller machine located on the exterior of the building.

On December 30, 2009 the Bank purchased property to open a third branch facility at 8229 Rochester Avenue, Rancho Cucamonga, California. The purchase price was $1,263,420. The cost of construction and equipment was $572,279 and was opened April 5, 2010. This single story building has a vault, teller windows, customer parking and one automated teller machine located on the exterior of the building.

In the opinion of Management, the Company’s properties are adequately covered by insurance.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

At a meeting on March 26, 2015, the Audit Committee dismissed Hutchinson as the Company’s principal independent auditors. At the same meeting, the Audit Committee selected the accounting firm of Vavrinek, Trine, Day & Co., LLP as the independent auditors for the Company’s 2015 fiscal year.

Hutchinson audited the Company’s consolidated financial statements for the fiscal years ended December 31, 2014 and 2013. Hutchinson’s report on the Company’s financial statements for 2014 and 2013 did not contain an adverse opinion or disclaimer of opinion, nor were such reports qualified or modified as to uncertainty, audit scope or accounting principles.

During the subsequent interim period from January 1, 2015 through March 26, 2015 and for the fiscal years ended December 31, 2014 and 2013, there were no disagreements between Hutchinson and the Company on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of Hutchinson, would have caused it to make reference to the subject matter of the disagreements in connection with its reports.

Legal Proceedings

From time to time, Chino Commercial Bancorp or Chino Commercial Bank may be involved in litigation relating to claims arising out of its normal course of business. As of the date of this offering circular, we did not have any material pending legal matters or litigation for either entity.

Supervision and Regulation

Banks and bank holding companies are heavily regulated by federal and state laws and regulations. Most banking regulations are intended primarily for the protection of depositors and the deposit insurance fund and not for the benefit of shareholders. The following is a summary of certain statutes, regulations and regulatory guidance affecting the Company and the Bank. This summary is not intended to be a complete explanation of such statutes, regulations and guidance, all of which are subject to change in the future, nor does it fully address their effects and potential effects on the Company and the Bank.

Regulation of the Company Generally

The Company is a legal entity separate and distinct from the Bank and its other subsidiaries. The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”) and is registered as such with the Federal Reserve. The Company is subject to supervision, regulation and inspection by the Federal Reserve and is required to file annual reports and other information with the Federal Reserve regarding its business operations and those of its subsidiaries. In general, the BHC Act limits the business of bank holding companies to banking, managing or controlling banks and other activities that the Federal Reserve has determined to be so closely related to banking as to be a proper incident thereto, including securities brokerage services, investment advisory services, fiduciary services, and management advisory and data processing services, among others. A bank holding company that also qualifies as and elects to become a “financial holding company” may engage in a broader range of activities that are financial in nature or complementary to a financial activity (as determined by the Federal Reserve or Treasury regulations), such as securities underwriting and dealing, insurance underwriting and agency, and making merchant banking investments. The Company has not elected to become a financial holding company but may do so at some point in the future if deemed appropriate in view of opportunities or circumstances at the time.

The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition of more than five percent of the voting shares of a commercial bank or its parent holding company. Acquisitions by the Bank are subject instead to the Bank Merger Act, which requires the prior approval of an acquiring bank’s primary federal regulator for any merger with or acquisition of another bank.

The Company and the Bank are deemed to be “affiliates” of each other and thus are subject to Sections 23A and 23B of the Federal Reserve Act as well as related Federal Reserve Regulation W which impose both quantitative and qualitative restrictions and limitations on transactions between affiliates. The Bank is also subject to laws and regulations requiring that all loans and extensions of credit to our executive officers, directors, principal shareholders and related parties must, among other things, be made on substantially the same terms and follow credit underwriting procedures no less stringent than those prevailing at the time for comparable transactions with persons not related to the Bank.

Under certain conditions, the Federal Reserve has the authority to restrict the payment of cash dividends by a bank holding company as an unsafe and unsound banking practice, and may require a bank holding company to obtain the prior approval of the Federal Reserve prior to purchasing or redeeming its own equity securities, unless certain conditions are met. The Federal Reserve also has the authority to regulate the debt of bank holding companies.

A bank holding company is required to act as a source of financial and managerial strength for its subsidiary banks and must commit resources as necessary to support such subsidiaries. In this connection, the Federal Reserve may require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may disapprove of the payment of dividends to the shareholders if the Federal Reserve Board believes the payment of such dividends would be an unsafe or unsound practice.

Regulation of the Bank Generally

As a national banking association, the Bank is subject to regulation, supervision and examination by the Comptroller, and is also a member of the FRS, and as such, is subject to applicable provisions of the Federal Reserve Act and the regulations promulgated thereunder by the Board of Governors of the Federal Reserve System ("FRB"). Furthermore, the deposits of the Bank are insured by the Federal Deposit Insurance Corporation (FDIC) to the maximum limits thereof. For this protection, the Bank pays a quarterly assessment to the FDIC and is subject to the rules and regulations of the FDIC pertaining to deposit insurance and other matters. The regulations of those agencies govern most aspects of the Bank's business, including the making of periodic reports by the Bank, and the Bank's activities relating to dividends, investments, loans, borrowings, capital requirements, certain check-clearing activities, branching, mergers and acquisitions, reserves against deposits, the issuance of securities and numerous other areas. The Bank is also subject to requirements and restrictions of various consumer laws and regulations, as well as, applicable provisions of California law, insofar as they do not conflict with, or are not preempted by, federal banking laws. Supervision, legal action and examination by the regulatory agencies are generally intended to protect depositors and are not intended for the protection of shareholders.

Capital Adequacy Requirements

The Company and the Bank are subject to the regulations of the FRB and the Comptroller, respectively, governing capital adequacy. However, the Company is currently a “small bank holding company” under the FRB’s guidelines, and thus qualifies for an exemption from the consolidated risk-based and leverage capital adequacy guidelines applicable to bank holding companies with assets of $1 billion or more. Each of the federal regulators has adopted risk-based capital guidelines to provide a systematic analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among banking organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes disincentives to holding liquid, low-risk assets. Capital levels, as measured by these standards, are also used to categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.

Prior to January 1, 2015, the guidelines included a minimum required ratio of qualifying Tier 1 plus Tier 2 capital to total risk weighted assets of 8% (“Total Risk-Based Capital Ratio” or “Total RBC Ratio”), and a minimum required ratio of Tier 1 capital to total risk weighted assets of 4% (“Tier 1 Risk-Based Capital Ratio” or “Tier 1 RBC Ratio”). The guidelines also provided for a minimum Leverage Ratio, which is defined as Tier 1 capital to adjusted average assets (quarterly average assets less the disallowed capital items discussed below). The minimum Leverage Ratio is 3% for institutions having the highest regulatory rating, and 4% for all other institutions. Tier 1 capital is generally defined as the sum of core capital elements, less goodwill and other intangible assets, accumulated other comprehensive income, disallowed deferred tax assets, and certain other deductions. The following items are defined as core capital elements: (i) common shareholders’ equity; (ii) qualifying non-cumulative perpetual preferred stock and related surplus (and, in the case of holding companies, senior perpetual preferred stock issued to the U.S. Treasury Department pursuant to the Troubled Asset Relief Program); (iii) minority interests in the equity accounts of consolidated subsidiaries; and (iv) “restricted” core capital elements (which include qualifying trust preferred securities) up to 25% of all core capital elements. Tier 2 capital includes the following supplemental capital elements: (i) allowance for loan and lease losses (but not more than 1.25% of an institution’s risk-weighted assets); (ii) perpetual preferred stock and related surplus not qualifying as core capital; (iii) hybrid capital instruments, perpetual debt and mandatory convertible debt instruments; and, (iv) term subordinated debt and intermediate-term preferred stock and related surplus. The maximum amount of Tier 2 capital is capped at 100% of Tier 1 capital.

Effective January 1, 2015, a new capital class known as Common Equity Tier 1 capital was added, and most financial institutions were given the option of a one-time election to continue to exclude accumulated other comprehensive income (“AOCI”) from regulatory capital. Since the Bank exercised its option to exclude AOCI with its first regulatory filings for 2015, our Common Equity Tier 1 capital includes common stock, additional paid-in capital, and retained earnings, less the following: disallowed goodwill and intangibles, disallowed deferred tax assets, and any insufficient additional capital to cover the deductions. The definitions of Tier 1 and Tier 2 capital are essentially unchanged, although disallowed amounts increased with the new rules. The final rules include new regulatory minimums of 4.5% for the common equity Tier 1 capital to total risk weighted assets ratio (“Common Equity Tier 1 RBC Ratio”), 6.0% for the Tier 1 RBC Ratio, 8.0% for the Total RBC Ratio, and 4.0% for the Leverage Ratio. The final rules also require a Common Equity Tier 1 capital conservation buffer of 2.5% of risk-weighted assets which is in addition to the other minimum risk-based capital standards in the rule. The capital buffer requirement will be phased in over three years beginning in 2016, and will effectively raise the minimum required Common Equity Tier 1 RBC Ratio to 7.0%, the Tier 1 RBC Ratio to 8.5%, and the Total RBC Ratio to 10.5% on a fully phased-in basis. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases, and on the payment of discretionary bonuses to executive management.

The final rules also increase the required capital for certain categories of assets, including higher-risk construction and real estate loans, certain past-due or nonaccrual loans, and certain exposures related to securitizations. The new minimum capital ratios became effective for us on January 1, 2015, and the capital buffers will be fully phased in by January 1, 2019. Based on our capital levels at December 31, 2016 and 2015, the Bank would have met all capital adequacy requirements under the Basel III Capital Rules on a fully phased-in basis.

For more information on the Company’s capital, see “ Management’s Discussion and Analysis of Financial Condition and Results of Operation – Capital Resources.” Risk-based capital ratio (“RBC”) requirements are discussed in greater detail in the following section.

Prompt Corrective Action Provisions

Federal law requires each federal banking agency to take prompt corrective action to resolve the problems of insured financial institutions, including but not limited to those that fall below one or more prescribed minimum capital ratios. The federal banking agencies have by regulation defined the following five capital categories: “well capitalized” (Total RBC Ratio of 10%; Tier 1 RBC Ratio of 8%; Common Equity Tier 1 RBC Ratio of 6.5%; and Leverage Ratio of 5%); “adequately capitalized” (Total RBC Ratio of 8%; Tier 1 RBC Ratio of 6%; Common Equity Tier 1 RBC Ratio of 4.5%; and Leverage Ratio of 4%); “undercapitalized” (Total RBC Ratio of less than 8%; Tier 1 RBC Ratio of less than 6%; Common Equity Tier 1 RBC Ratio of less than 4.5%; or Leverage Ratio of less than 4%); “significantly undercapitalized” (Total RBC Ratio of less than 6%; Tier 1 RBC Ratio of less than 4%; Common Equity Tier 1 RBC Ratio of less than 3%; or Leverage Ratio less than 3%); and “critically undercapitalized” (tangible equity to total assets less than or equal to 2%). A bank may be treated as though it were in the next lower capital category if, after notice and the opportunity for a hearing, the appropriate federal agency finds an unsafe or unsound condition or practice so warrants, but no bank may be treated as “critically undercapitalized” unless its actual capital ratio warrants such treatment. As of December 31, 2016 and 2015, both the Company and the Bank were deemed to be well capitalized for regulatory capital purposes.

At each successively lower capital category, an insured bank is subject to increased restrictions on its operations. For example, a bank is generally prohibited from paying management fees to any controlling persons or from making capital distributions if to do so would make the bank “undercapitalized.” Asset growth and branching restrictions apply to undercapitalized banks, which are required to submit written capital restoration plans meeting specified requirements (including a guarantee by the parent holding company, if any). “Significantly undercapitalized” banks are subject to broad regulatory authority, including among other things capital directives, forced mergers, restrictions on the rates of interest they may pay on deposits, restrictions on asset growth and activities, and prohibitions on paying bonuses or increasing compensation to senior executive officers without FDIC approval. Even more severe restrictions apply to “critically undercapitalized” banks. Most importantly, except under limited circumstances, not later than 90 days after an insured bank becomes critically undercapitalized the appropriate federal banking agency is required to appoint a conservator or receiver for the bank.

In addition to measures taken under the prompt corrective action provisions, insured banks may be subject to potential actions by the federal regulators for unsafe or unsound practices in conducting their businesses or for violations of any law, rule, regulation or any condition imposed in writing by the agency or any written agreement with the agency. Enforcement actions may include the issuance of cease and desist orders, termination of insurance on deposits (in the case of a bank), the imposition of civil money penalties, the issuance of directives to increase capital, formal and informal agreements, or removal and prohibition orders against “institution-affiliated” parties.

Safety and Soundness Standards

The federal banking agencies have also adopted guidelines establishing safety and soundness standards for all insured depository institutions. Those guidelines relate to internal controls, information systems, internal audit systems, loan underwriting and documentation, compensation, and liquidity and interest rate exposure. In general, the standards are designed to assist the federal banking agencies in identifying and addressing problems at insured depository institutions before capital becomes impaired. If an institution fails to meet the requisite standards, the appropriate federal banking agency may require the institution to submit a compliance plan and could institute enforcement proceedings if an acceptable compliance plan is not submitted or adhered to.

The Dodd-Frank Wall Street Reform and Consumer Protection Act

Legislation and regulations enacted and implemented since 2008 in response to the U.S. economic downturn and financial industry instability continue to impact most institutions in the banking sector. Certain provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank”), which was enacted in 2010, are now effective and have been fully implemented, including revisions in the deposit insurance assessment base for FDIC insurance and a permanent increase in coverage to $250,000; the permissibility of paying interest on business checking accounts; the removal of barriers to interstate branching; and, required disclosures and shareholder advisory votes on executive compensation. Additional actions taken to implement Dodd-Frank provisions include (i) final capital rules, (ii) a final rule to implement the so called Volcker rule restrictions on certain proprietary trading and investment activities, and (iii) final rules and increased enforcement action by the Consumer Finance Protection Bureau (discussed further below in connection with consumer protection).

Some aspects of Dodd-Frank are still subject to rulemaking, making it difficult to anticipate the ultimate financial impact on the Company, its customers or the financial services industry more generally. However, certain provisions of Dodd-Frank are already affecting our operations and expenses, including but not limited to changes in FDIC assessments, the permitted payment of interest on demand deposits, and enhanced compliance requirements. Some of the rules and regulations promulgated or yet to be promulgated under Dodd-Frank will apply directly only to institutions much larger than ours, but could indirectly impact smaller banks, either due to competitive influences or because certain required practices for larger institutions may subsequently become expected “best practices” for smaller institutions. We expect to see continued attention and resources devoted by the Company to ensure compliance with the statutory and regulatory requirements engendered by Dodd-Frank.

Deposit Insurance

The Bank’s deposits are insured up to maximum applicable limits under the Federal Deposit Insurance Act, and the Bank is subject to deposit insurance assessments to maintain the FDIC’s Deposit Insurance Fund (the “DIF”). In October 2010, the FDIC adopted a revised restoration plan to ensure that the DIF’s designated reserve ratio (“DRR”) reaches 1.35% of insured deposits by September 30, 2020, the deadline mandated by the Dodd-Frank Act. In August 2016 the FDIC announced that the DIF reserve ratio had surpassed 1.15% as of June 30, 2016, so institutions with $10 billion or more in assets are now being assessed a quarterly surcharge which will continue until the reserve ratio reaches the statutory minimum of 1.35%. However, financial institutions like Chino Commercial Bank with assets of less than $10 billion are exempted from the cost of this surcharge. Furthermore, the restoration plan proposed an increase in the DRR to 2% of estimated insured deposits as a long-term goal for the fund. The FDIC also proposed future assessment rate reductions in lieu of dividends, when the DRR reaches 1.5% or greater.

As noted above, the Dodd-Frank Act provided for a permanent increase in FDIC deposit insurance per depositor from $100,000 to $250,000 retroactive to January 1, 2008. Furthermore, effective in the second quarter of 2011, FDIC deposit insurance premium assessment rates were adjusted, and the assessment base was established as an institution’s total assets less tangible equity. We are generally unable to control the amount of premiums that we are required to pay for FDIC deposit insurance. If there are additional bank or financial institution failures or if the FDIC otherwise determines, we may be required to pay higher FDIC premiums, which could have a material adverse effect on our earnings and/or on the value of, or market for, our common stock.

In addition to DIF assessments, banks must pay quarterly assessments that are applied to the retirement of Financing Corporation bonds issued in the 1980’s to assist in the recovery of the savings and loan industry. The assessment amount can fluctuate, but was 0.56 basis points of insured deposits for the fourth quarter of 2016. Those assessments will continue until the Financing Corporation bonds mature in 2019.

Community Reinvestment Act

The Bank is subject to certain requirements and reporting obligations involving Community Reinvestment Act (“CRA”) activities. The CRA generally requires federal banking agencies to evaluate the record of a financial institution in meeting the credit needs of its local communities, including low and moderate income neighborhoods. The CRA further requires the agencies to consider a financial institution’s efforts in meeting its community credit needs when evaluating applications for, among other things, domestic branches, mergers or acquisitions, or the formation of holding companies. In measuring a bank’s compliance with its CRA obligations, the regulators utilize a performance-based evaluation system under which CRA ratings are determined by the bank’s actual lending, service, and investment performance, rather than on the extent to which the institution conducts needs assessments, documents community outreach activities or complies with other procedural requirements. In connection with its assessment of CRA performance, the FDIC assigns a rating of “outstanding,” “satisfactory,” “needs to improve” or “substantial noncompliance.” The Bank most recently received a “satisfactory” CRA assessment rating in 2012.

Privacy and Data Security

The Gramm-Leach-Bliley Act, also known as the Financial Modernization Act of 1999 (the “Financial Modernization Act”), imposed requirements on financial institutions with respect to consumer privacy. Financial institutions, however, are required to comply with state law if it is more protective of consumer privacy than the Financial Modernization Act. The Financial Modernization Act generally prohibits disclosure of consumer information to non-affiliated third parties unless the consumer has been given the opportunity to object and has not objected to such disclosure. The statute also directed federal regulators, including the Federal Reserve and the FDIC, to establish standards for the security of consumer information, and requires financial institutions to disclose their privacy policies to consumers annually.

Overdrafts

The Electronic Funds Transfer Act, as implemented by the Federal Reserve’s Regulation E, governs transfers initiated through automated teller machines (“ATMs”), point-of-sale terminals, and other electronic banking services. Regulation E prohibits financial institutions from assessing an overdraft fee for paying ATM and one-time point-of-sale debit card transactions, unless the customer affirmatively opts in to the overdraft service for those types of transactions. The opt-in provision establishes requirements for clear disclosure of fees and terms of overdraft services for ATM and one-time debit card transactions. The rule does not apply to other types of transactions, such as check, automated clearinghouse (“ACH”) and recurring debit card transactions. Additionally, in November 2010 the FDIC issued its Overdraft Guidance on automated overdraft service programs, to ensure that a bank mitigates the risks associated with offering automated overdraft payment programs and complies with all consumer protection laws and regulations. We do not offer an automated overdraft payment program and were therefore not affected by this change.

Consumer Financial Protection and Financial Privacy

Dodd-Frank created the Consumer Finance Protection Bureau (the “CFPB”) as an independent entity with broad rulemaking, supervisory and enforcement authority over consumer financial products and services including deposit products, residential mortgages, home-equity loans and credit cards. The CFPB’s functions include investigating consumer complaints, conducting market research, rulemaking, supervising and examining bank consumer transactions, and enforcing rules related to consumer financial products and services. CFPB regulations and guidance apply to all financial institutions, including the Bank, although only banks with $10 billion or more in assets are subject to examination by the CFPB. Banks with less than $10 billion in assets, including the Bank, are examined for compliance by their primary federal banking agency.

In January 2013, the CFPB issued final regulations governing primarily consumer mortgage lending. Certain rules which became effective in January 2014 impose additional requirements on lenders, including the directive that lenders need to ensure the ability of their borrowers to repay mortgages. The CFPB also finalized a rule on escrow accounts for higher priced mortgage loans and a rule expanding the scope of the high-cost mortgage provision in the Truth in Lending Act. The CFPB also issued final rules implementing provisions of the Dodd-Frank Act that relate to mortgage servicing. In November 2013 the CFPB issued a final rule on integrated and simplified mortgage disclosures under the Truth in Lending Act and the Real Estate Settlement Procedures Act, which became effective in October 2015.

The CFPB has broad rulemaking authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit “unfair, deceptive or abusive” acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer’s ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer’s: (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer’s interests.

The Bank continues to be subject to numerous other federal and state consumer protection laws that extensively govern its relationship with its customers. Those laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Right to Financial Privacy Act, the Service Members Civil Relief Act, and respective state-law counterparts to these laws, as well as state usury laws and laws regarding unfair and deceptive acts and practices. These and other laws require disclosures including the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict the Company’s ability to raise interest rates and subject the Company to substantial regulatory oversight.

In addition, as is the case with all financial institutions, the Bank is required to maintain the privacy of its customers’ non-public, personal information. Such privacy requirements direct financial institutions to: (i) provide notice to customers regarding privacy policies and practices; (ii) inform customers regarding the conditions under which their non-public personal information may be disclosed to non-affiliated third parties; and (iii) give customers an option to prevent disclosure of such information to non-affiliated third parties.

Interstate Banking and Branching

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the “Interstate Act”), together with Dodd-Frank, relaxed prior interstate branching restrictions under federal law by permitting, subject to regulatory approval, state and federally chartered commercial banks to establish branches in states where the laws permit banks chartered in such states to establish branches. The Interstate Act requires regulators to consult with community organizations before permitting an interstate institution to close a branch in a low-income area. Federal banking agency regulations prohibit banks from using their interstate branches primarily for deposit production and the federal banking agencies have implemented a loan-to-deposit ratio screen to ensure compliance with this prohibition. Dodd-Frank effectively eliminated the prohibition under California law against interstate branching through de novo establishment of California branches. Interstate branches are subject to certain laws of the states in which they are located. The Bank presently does not have any interstate branches.

USA Patriot Act of 2001

The impact of the USA Patriot Act of 2001 (the “Patriot Act”) on financial institutions of all kinds has been significant and wide ranging. The Patriot Act substantially enhanced anti-money laundering and financial transparency laws, and required certain regulatory authorities to adopt rules that promote cooperation among financial institutions, regulators, and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. Under the Patriot Act, financial institutions are subject to prohibitions regarding specified financial transactions and account relationships, as well as enhanced due diligence and “know your customer” standards in their dealings with foreign financial institutions and foreign customers. The Patriot Act also requires all financial institutions to establish anti-money laundering programs. The Bank expanded its Bank Secrecy Act compliance staff and intensified due diligence procedures concerning the opening of new accounts to fulfill the anti-money laundering requirements of the Patriot Act, and also implemented systems and procedures to identify suspicious banking activity and report any such activity to the Financial Crimes Enforcement Network.

Commercial Real Estate Lending Concentrations

As a part of their regulatory oversight, the federal regulators have issued guidelines on sound risk management practices with respect to a financial institution’s concentrations in commercial real estate (“CRE”) lending activities. These guidelines were issued in response to the agencies’ concerns that rising CRE concentrations might expose institutions to unanticipated earnings and capital volatility in the event of adverse changes in the commercial real estate market. The guidelines identify certain concentration levels that, if exceeded, will expose the institution to additional supervisory analysis with regard to the institution’s CRE concentration risk. The guidelines are designed to promote appropriate levels of capital and sound loan and risk management practices for institutions with a concentration of CRE loans. In general, the guidelines establish the following supervisory criteria as preliminary indications of possible CRE concentration risk: (1) the institution’s total construction, land development and other land loans represent 100% or more of total risk-based capital; or (2) total CRE loans as defined in the regulatory guidelines represent 300% or more of total risk-based capital, and the institution’s CRE loan portfolio has increased by 50% or more during the prior 36 month period. The Bank believes that the guidelines are applicable to it, as it has a relatively high concentration in CRE loans. The Bank and its board of directors have discussed the guidelines and believe that the Bank’s underwriting policies, management information systems, independent credit administration process, and monitoring of real estate loan concentrations are sufficient to address the guidelines.

Other Pending and Proposed Legislation

Other legislative and regulatory initiatives which could affect the Company, the Bank and the banking industry in general are pending, and additional initiatives may be proposed or introduced before the United States Congress, the California legislature and other governmental bodies in the future. Such proposals, if enacted, may further alter the structure, regulation and competitive relationship among financial institutions, and may subject the Bank to increased regulation, disclosure and reporting requirements. In addition, the various banking regulatory agencies often adopt new rules and regulations to implement and enforce existing legislation. It cannot be predicted whether, or in what form, any such legislation or regulations may be enacted or the extent to which the business of the Company or the Bank would be affected thereby.

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This discussion presents management’s analysis of the Company’s financial condition and results of operations as of December 31, 2016 and 2015, and for each of the years in the two year period ended December 31, 2016, and includes the statistical disclosures required by SEC Guide 3 (“Statistical Disclosure by Bank Holding Companies”). The discussion should be read in conjunction with the Company’s financial statements and the notes related thereto which appear elsewhere in this offering circular. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward looking statements as a result of many factors, including those set forth under “RISK FACTORS” in this offering circular.

Critical Accounting Policies

The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires management to make a number of judgments, estimates and assumptions that affect the reported amount of assets, liabilities, income and expenses in the Company’s financial statements and accompanying notes. Management believes that the judgments, estimates and assumptions used in preparation of the Company’s financial statements are appropriate given the factual circumstances as of December 31, 2016.

Various elements of the Company’s accounting policies, by their nature, are inherently subject to estimation techniques, valuation assumptions and other subjective assessments. Critical accounting policies are those that involve the most complex and subjective decisions and assessments and have the greatest potential impact on the Company’s results of operation. In particular, management has identified one accounting policy that, due to judgments, estimates and assumptions inherent in this policy, and the sensitivity of the Company’s financial statements to those judgments, estimates and assumptions, are critical to an understanding of the Company’s financial statements. This policy relates to the methodology that determines the allowance for loan losses. Management has discussed the development and selection of this critical accounting policy with the Audit Committee of the Board of Directors. Although Management believes the level of the allowance at December 31, 2016 was adequate to absorb losses inherent in the loan portfolio, a further decline in the regional economy may result in increasing losses that cannot reasonably be predicted at this time with any degree of certainty. For detailed information regarding the allowance for loan losses see “Financial Condition — Allowance for Loan Losses,” and Note 5 to the consolidated financial statements included herein.

Recently Issued Accounting Standards

Refer to Note 1 to the consolidated financial statements contained herein for discussion of the recently issued accounting standards.

Summary of Performance

The Company recognized net after tax income of $1.453 million in 2016, as compared with $1.327 million in 2015. Net income per diluted share was $1.18 in 2016, as compared to $1.08 in 2015. The Company’s return on average assets and return on average equity were 0.85% and 11.28%, respectively in 2016, as compared to 0.88% and 11.54%, respectively in 2015. The Company’s financial performance improved in 2016, as compared with 2015, due in part to increase lending which was enhanced by low relative loan loss provisions during the year; and increased low cost core deposit accumulation. Those conditions have incrementally improved year over year since 2010.

The following are some of the major factors impacting the Company’s results of operations for the years presented in the consolidated financial statements.

The Company’s assets totaled $175.1 million at December 31, 2016, compared to $161.3 million at December 31, 2015. Total liabilities were $161.5 million at December 31, 2016 compared to $149.3 million at December 31, 2015; and shareholders’ equity totaled $13.5 million at December 31, 2016 compared to $12.1 million at December 31, 2015.

The following is a summary of key balance sheet changes during 2016.

Results of Operations

The Company earns income from two primary sources: the first is net interest income, which is interest income generated by earning assets less interest expense on interest-bearing liabilities; the second is non-interest income, which primarily consists of customer service charges and fees but also comes from non-customer sources such as bank-owned life insurance and dividends on correspondent bank restricted stock. The majority of the Company’s non-interest expenses are operating costs that relate to providing a full range of banking services to the Bank’s customers.

Net Interest Income and Net Interest Margin

Net interest income was $5.768 million in 2016, compared to $5.139 million in 2015. This equates to an increase of 12.25% in 2016. The level of net interest income the Company recognizes in any given period depends on a combination of factors including the average volume and yield for interest-earning assets, the average volume and cost of interest-bearing liabilities, and the mix of products which comprise the Company’s earning assets, deposits, and other interest-bearing liabilities. Net interest income is also impacted by the reversal of interest for loans placed on non-accrual status during the reporting period, and the recovery of interest on loans that had been on non-accrual and were paid off, sold or returned to accrual status.

The following Distribution, Rate and Yield table shows, for each of the past two years, the average balance for each principal balance sheet category, and the amount of interest income or interest expense associated with that category. This table also shows the calculated yields on each major component of the Company’s investment and loan portfolio, the average rates paid on each key segment of the Company’s interest bearing liabilities, and our net interest margin.

Distribution, Rate and Yield

Rate/Volume Analysis

The following table sets forth the dollar difference in interest earned and paid for each major category of interest-earning assets and interest-bearing liabilities for the noted periods, and the amount of each change attributable to changes in average balances (volume) or changes in average interest rates. Volume variances are equal to the increase or decrease in the average balance multiplied by the prior period rate, and rate variances are equal to the increase or decrease in the average rate times the prior period average balances. Variances attributable to both rate and volume changes are equal to the change in rate times the change in average balance, and have been allocated to the rate and volume variance proportionately.

¹ Average Rate/Yield is based upon actual days on 365 and 366 day count. Yields and net interest margin have not been computed on a tax equivalent basis because the tax impact on yields is nominal.

² Loan fees (costs) have been included in the calculation of interest income. Loan fees were approximately $171,116 and $151,568 for the years ended December 31, 2016 and 2015, respectively. Loans are net of deferred fees and related direct costs.

³ Represents the weighted average yield on interest-earning assets less the weighted average cost of interest-bearing liabilities.

⁴ Represents net interest income (after provision for loan losses) as a percentage of average interest-earning assets.

The volume variance calculated for 2016 over 2015 was a favorable $795 thousand, due primarily to a $19.4 million increase in the average balance of interest-earning assets from organic growth. The volume variance was enhanced by the fact that the average total loans outstanding grew by 16.9% relative to a 25.5% growth in the average balance of lower-yielding investments, which was partially offset by a shift within investments portfolio into lower-yielding balances held at the Federal Reserve Bank.

The impact of interest rate changes resulted in an unfavorable rate variance of $164 million in net interest income for 2016 relative to 2015.

The Company’s net interest margin, which is net interest income expressed as a percentage of average interest-earning assets, is affected by the same factors discussed above relative to rate and volume variances. Our net interest margin was 3.70% in 2016, a drop of only 7 basis points relative to 2015. The principal developments impacting our net interest margin in 2016 include lower yields on loans and investments, and a shift within loans to lower-yielding loan segments.

Provision for Loan Losses

Credit risk is inherent in the business of making loans. The Company sets aside an allowance or reserve for loan losses through charges to earnings, which are shown in the income statement as the provision for loan losses. Specifically identifiable and quantifiable losses are immediately charged off against the allowance. The loan loss provision is determined by conducting a quarterly evaluation of the adequacy of the Company’s allowance for loan and lease losses, and charging the shortfall, if any, to the current quarter’s expense. This has the effect of creating variability in the amount and frequency of charges to the Company’s earnings. The procedures for monitoring the adequacy of the allowance, as well as detailed information concerning the allowance itself, are included below under “Allowance for Loan Losses.”

Provisions to the allowance for loan losses are made quarterly or more frequently if needed, in anticipation of future probable loan losses. The quarterly provision is calculated on a predetermined formula to ensure adequacy as the portfolio grows. The formula is composed of various components which include economic forecasts on a local and national level. Allowance factors are utilized in estimating the allowance for loan losses. The allowance is determined by assigned quantitative and qualitative factors for all loans. As higher allowance levels become necessary as a result of this analysis, the allowance for loan losses will be increased through the provision for loan losses.

During 2016 the Company made periodic provisions to the allowance totaling $200 thousand, compared to $42 thousand during 2015. The allowance as a percent of total outstanding loans at December 31, 2016 was 1.68%, compared to 1.79% at December 31, 2015. (See “Allowance for Loan Losses” below).

Non-interest Income

The following table sets forth the various components of non-interest income for the years indicated:

Non-interest income increased by $83.3 thousand, or 5.6%, to $1.567 million in 2016 compared to $1.483 million in 2015. Non-interest income was favorably impacted by extraordinary cash dividends received from restricted stock, including the Federal Home Loan Bank, which added $66 thousand to income in 2016 bringing to the total up to $221 thousand, or a 46.3% increase as compared with $151 thousand 2015. This increase in revenue was partially offset by a decline in service charge income of $86 thousand, which was caused by a reduction in the number of NSF charges being collected because of lower volumes of checks being issued by the Bank’s customers. The Company’s income from its holdings of bank-owned life insurance (“BOLI”) remained relatively unchanged in 2016 at $102 thousand.

Non-interest Expense

The following table sets forth the non-interest expenses for the years indicated:

Non-interest expenses increased by $326 thousand or 7.36% to $4.75 million in 2016, as compared with an increase of $276 thousand or 6.65% in 2015. The majority (or 75%) of the increase in non-interest expenses in 2016 was an escalation of salaries and benefit expense, which rose by $228 thousand or 8.59% to $2.88 million as compared with $2.65 million in 2015. Salaries and benefits expense was higher in 2016 because of a higher number of full time equivalent employees in addition to cost of living and promotional salary increases for existing employees. Net salary and benefit expenses were partially offset by capitalized loan origination expenses totaling $140 thousand in 2016, which was $2 thousand lower than in 2015. This capitalization of loan origination costs reduced the salary and benefit expense in 2016. Audit and Legal expenses were also up $26.3 thousand or 16.6% to $185 thousand in 2016, as compared with $159 thousand in 2015. The causes for this increase includes higher costs for audit work performed by third party auditors, as well as higher costs for legal services associated with several loan collection actions. Data processing expenses were also up $1 thousand in 2016 which resulted from the Company’s conversion of Core Data processing services from Fidelity Information Services to Fiserv. This conversion is anticipated to result in moderate cost savings going forward, with realized savings being dependent upon the volume of transactions and future growth rate if any. Total non-interest expenses of $4.75 million in 2016 resulted in an efficiency ratio of 64.8% in 2016 as compared with total non-interest expenses in 2015 of $4.42 million or an efficiency ratio of 66.9%.

Provision for Income Taxes

Our income tax provision was $928 thousand or 39.0% of pre-tax income in 2016, compared to $824 thousand, or 38.4% of pre-tax income in 2015. Higher taxable income and a declining level of available tax credits were the primary factors impacting the increase in our tax accrual rate in 2016.

The Company sets aside a provision for income taxes on a monthly basis. The amount of that provision is deter-mined by first applying the Company’s statutory income tax rates to estimated taxable income, which is pre-tax book income adjusted for permanent differences, and then subtracting available tax credits. Permanent differences include but are not limited to tax-exempt interest income, BOLI income, and certain book expenses that are not allowed as tax deductions. The Company’s investments in municipal bonds provided $29 thousand in federal tax-exempt income in 2016, $41 thousand in 2015. Our bank-owned life insurance also generated $102 thousand in tax-exempt income in 2016, and 2015, respectively.

Financial Condition

Assets totaled $175 million at the end of 2016, reflecting an increase of $13.7 million, or 8.5%, for the year due to growth in loans and slightly higher cash balances. Total deposits experienced an increase of 5.5% in 2016 as a result of continued core deposit growth in our branches, and non-deposit borrowings were also increased to support our strong loan growth. Total Capital was up $1.5 million or 12% in 2016 over 2015. The Company maintained high capital levels in 2016 as well as throughout the recession period attributed to increases from retained earnings in the normal course of business. Furthermore, our liquidity position has been exceptionally strong for the past few years due to growth in customer deposits and high levels of funds availability from the Federal Home Loan Bank. Our healthy capital position and access to liquidity resources position us to take advantage of potential growth opportunities, although no assurance can be provided in that regard. The major components of the Company’s balance sheet are individually analyzed below, along with information on off-balance sheet activities and exposure.

Loan Portfolio Composition

The Company’s loan portfolio represents the single largest portion of invested assets, substantially greater than the investment portfolio or any other asset category, and the quality and diversification of the loan portfolio are important considerations when reviewing the Company’s financial condition. The Company is not involved with chemicals or toxins that might have an adverse effect on the environment, thus its primary exposure to environmental legislation is through its lending activities. The Company’s lending procedures include steps to identify and monitor this exposure in an effort to avoid any related loss or liability.

The Selected Financial Data table reflects the amount of loans outstanding at December 31st for each year from 2012 through 2016, net of the allowance for loan losses and unearned loan fees. The following table sets forth by major category the composition of the Company’s loan portfolio before the allowance for loan losses, both in dollar amount and percentage of the portfolio at the dates indicated:

Distribution of Loans and Percentage Composition

The Company provides credit primarily to small businesses and consumers. Because many small businesses lack sufficient internal controls and recordkeeping needed to support and monitor unsecured commercial lines of credit or term loans, the Company enhances these loans by taking a collateral position against the borrower’s commercial real estate. This process of taking additional collateral results in many loans being categorized as commercial real estate loans. The Company’s investment in commercial real estate loans increased by approximately $13.8 million during 2016, and the percentage of the total rose from 76.4% to 77.7%. Because this lending practice typically results in relatively low net credit losses, it will continue to be used in future periods and both nominal dollar amounts and percentages are anticipated to increase.

The following table shows the maturity distribution and repricing intervals of the Company’s outstanding loans at December 31, 2016. Balances of fixed rate loans are displayed in the column representative of the loan’s stated maturity date. Balances for variable rate loans are displayed in the column representative of the loan’s next interest rate change. Variable rate loans that are currently at their minimum rates are displayed at the loan’s stated maturity date.

Loan Maturities and Repricing Schedule

Nonperforming Assets

Nonperforming assets are comprised of loans for which the Company is no longer accruing interest, and foreclosed assets or “other real estate owned” referred to as “OREO.” If the Company grants a concession to a borrower in financial difficulty, the loan falls into the category of a troubled debt restructuring (“TDR”), which may be classified as either nonperforming or performing depending on the loan’s accrual status. Loans are generally placed on non-accrual status when they become 90 days past due unless Management believes the loan is adequately collateralized and in the process of collection. Loans may be restructured by Management when a borrower has experienced some change in financial status, causing an inability to meet the original repayment terms, and where the Company believes the borrower will eventually overcome those circumstances and repay the loan in full. OREO consists of properties acquired by foreclosure or similar means that Management intends to offer for sale.

¹ Excludes non-accrual loans.

Management’s classification of a loan as non-accrual is an indication that there is a reasonable doubt as to the full collectability of principal or interest on the loan; at this point, the Company stops recognizing income from the interest on the loan and may reserve any uncollected interest that had been accrued but unpaid if it is determined uncollectible or the collateral is inadequate to support such accrued interest amount. These loans may or may not be collateralized, but collection efforts are continuously pursued.

On occasion, a well collateralized loan will be downgraded to nonaccrual status or classified as nonperforming because of the borrower’s apparent inability to continue to make payments as called for, based upon tax returns or financial statements. These downgrades can be made despite the fact that the borrower continues to make all payments as agreed.

At December 31, 2016 the Company had one loan classified at nonperforming (nonaccrual) in the amount of $522 thousand. The loan is collateralized by an owner occupied single family residence in Rancho Cucamonga, California. A non-judicial foreclosure process has been initiated against the collateral and the borrower has listed the property for sale at an amount which is expected to repay all principal, interest and accrued costs of collection.

The following table provides information with respect to the components of the Company’s nonperforming assets as of the dates indicated:

Nonperforming Assets and Performing TDRs

¹ During the years ended December 31, 2016 and 2015, approximately $11,546 and $0, respectively, of interest income related to these loans was included in net income. Additional interest income of approximately $27,257 and $0 would have been recorded for the years ended December 31, 2016 and 2015 if these loans had been paid in accordance with their original terms and had been outstanding throughout the applicable period then ended or, if not outstanding throughout the applicable period then ended, since origination.

² A TDR, or troubled debt restructuring, is a loan for which the original terms were renegotiated to provide a reduction or deferral of interest or principal because of deterioration in the financial position of the borrower. Performing TDRs are not included in nonperforming loans above, nor are they included in the numerators used to calculate this ratio.

³ Total loans are gross of the allowance for loan losses, and net of deferred fees and discounts on SBA loans.

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level Management considers adequate to cover the inherent risk of loss associated with its loan portfolio under prevailing and anticipated economic conditions. In determining the adequacy of the allowance for loan losses, Management takes into consideration growth trends in the portfolio, examination by financial institution supervisory authorities, prior loan loss history, concentrations of credit risk, delinquency trends, general economic conditions, the interest rate environment, and internal and external credit reviews.

The Company formally assesses the adequacy of the allowance on a quarterly basis. This assessment is comprised of: (i) reviewing the adversely graded, delinquent or otherwise questionable loans; (ii) generating an estimate of the loss potential in each loan; (iii) adding a risk factor for industry, economic or other external factors; and (iv) evaluating the present status of each loan and the impact of potential future events.

Allowance factors are utilized in the analysis of the allowance for loan losses. Allowance factors ranging from 1.00% to 2.60% are applied to disbursed loans that are unclassified and uncriticized. Allowance factors averaging approximately 0.30% are applied to undisbursed loans. Allowance factors are not applied either to loans secured neither by bank deposits nor to loans held for sale, which are recorded at the lower of cost or market. Allowance factors include qualitative factors for Pass loans other that deposit collateralized loans. The provision factor for undisbursed loans is approximately 0.25%.

The process of providing for loan losses involves judgmental discretion, and eventual losses may therefore differ from even the most recent estimates. Due to these limitations, the Company assumes that there are losses inherent in the current loan portfolio, which may have been sustained, but have not yet been identified; therefore, the Company attempts to maintain the allowance at an amount sufficient to cover such unknown but inherent losses.

There can be no assurance that future economic or other factors will not adversely affect the Company’s borrowers, or that the Company’s asset quality may not deteriorate through rapid growth, failure to identify and monitor potential problem loans or for other reasons, thereby causing loan losses to exceed the current allowance.

The Company continues to collect on loans previously charged or fractionally charged off. In 2016 total recoveries were $42, thousand, as compared with recoveries of $88.7 thousand in 2015. In the absence of these collections, the provisions to the allowance would have been greater and net earnings before tax reduced by a similar amount. Continued collection of previously charged off balances cannot be assured, and may not happen in future periods.

During 2016 only one loan was charged-off for a total of $63.8 thousand. This loan was advanced in order to collect on an overdrawn deposit account. The loan was charged-off immediately upon boarding the loan because of the borrower’s apparent inability to make timely payments as called for under the promissory note, and therefore represented an un-bankable asset. At December 31, 2016 the borrower has continued to make all payments of principal and interest within the terms of the agreement. Total recovery under this note in 2016 was $4.7 thousand in 2016.

The table below summarizes, for the years ended December 31, 2016 and 2015, the loan balances at the end of the period and the daily average loan balances during the period; changes in the allowance for loan losses arising from loan charge offs, recoveries on loans previously charged off, and additions to the allowance which have been charged against earnings, and certain ratios related to the allowance for loan losses.

Allowance for Loan Losses

The Company concentrates the majority of its earning assets in loans where there are inherent risks. The Company anticipates continuing concentrating the preponderance of its loan portfolio in both commercial and real estate loans. A smaller part of the loan portfolio is represented by installment loans.

While the Company believes that its underwriting criteria are prudent, outside factors, such as the recession or a natural disaster in Southern California could adversely impact credit quality. The Company attempts to mitigate collection problems by supporting its loans with collateral. The Company also utilizes an outside credit review firm in an effort to verify and maintain loan quality. The firm reviews a sample of loans over $100,000 semi-annually with new loans and those that are delinquent receiving special attention. The use of this outside service provides the Company with an independent look at its lending activities. In addition to the Company’s internal grading system, loans criticized by this outside review may be downgraded, with appropriate reserves added if required.

As indicated above, the Company formally assesses the adequacy of the allowance on a quarterly basis by (i) reviewing the adversely graded, delinquent or otherwise questionable loans; (ii) generating an estimate of the loss potential in each loan; (iii) adding a risk factor for industry, economic or other external factors; and (iv) evaluating the present status of each loan type and the impact of potential future events. Although Management believes the allowance is adequate to absorb losses as they arise, no assurances can be given that the Company will not sustain losses in any given period, which could be substantial in relation to the size of the allowance.

¹ Performing TDRs are not included in nonperforming loans and are therefore not included in the numerators used to calculate this ratio.

Allocation of Allowance for Loan Losses

The following table provides a breakdown of the allowance for loan losses by categories as of the dates indicated:

Investment Portfolio

The Company’s investment policy, as established by the Board of Directors, attempts to provide and maintain adequate liquidity and a high quality portfolio that complements the Company’s lending activities and generates a favorable return on investments without incurring undue interest rate or credit risk. The Company’s existing investment security portfolio consists of U.S. government agency securities, mortgaged-backed securities, municipal bonds and corporate bonds. Investment securities held to maturity are carried at cost, which equates to the unpaid principal balances adjusted for amortization of premium and accretion of discounts. Investment securities available for sale are carried at fair value. Excluded from the components of the Company’s investment portfolio are restricted stock investments in the Federal Reserve Bank, the Federal Home Loan Bank of San Francisco (“FHLB”), and Pacific Coast Bankers’ Bank (“PCBB”). Restricted stock investments totaled $1,935,300 and $1,766,500 at December 31, 2016 and 2015, respectively, and are carried at cost.

We had no fed funds sold at December 31, 2016 or 2015, but interest-bearing balances held at other banks decreased, to $2.4 million at December 31, 2016, due to low interest rates offered by other banks for time certificates of deposits in comparison to the overnight fed funds rate paid on our FRB account. The Company’s investment portfolio reflects a reduction of $5.7 million, or 20%, during 2016, ending the period with a book balance of $22.3 million. The Company carries available for sale investments at their fair market values and held to maturity investments at amortized cost. We currently have the intent and ability to hold our investment securities to maturity. The available for sale investments allow maximum flexibility with regard to interest rate risk and liquidity management. The expected weighted average life for all bonds in our investment portfolio was 4.3 years and their average effective duration was 3.9 years as of December 31, 2016, both up slightly relative to year-end 2015.

The following table summarizes the amortized cost, fair value and the distribution of the Company’s investment securities as of the dates indicated:

Investment Portfolio

The following table summarizes contractual maturities for the Company’s investment securities and their weighted average yields at December 31, 2016. The actual timing of principal payments may differ from remaining contractual maturities, because obligors may have the right to prepay certain obligations. The table excludes mortgage-backed securities for which the Company receives monthly principal and interest payments.

Investment Maturities and Repricing Schedule

Deposits

Total deposits at December 31, 2016 and 2015 were $137.6 million and $130.3 million, respectively. Deposits are the Company’s primary source of funds. As the Company’s need for lendable funds grows, dependence on deposits increases. Deposits are another key balance sheet component impacting the Company’s net interest margin and other profitability metrics. Deposits provide liquidity to fund growth in earning assets, and the Company’s net interest margin is improved to the extent that growth in deposits is concentrated in less volatile and typically less costly non-maturity deposits such as demand deposit accounts, NOW accounts, savings accounts, and money market demand accounts. Information concerning average balances and rates paid by deposit type for the past two fiscal years is contained in the Distribution, Rate, and Yield table located in the previous section under “Results of Operations – Net Interest Income and Net Interest Margin.”

A comparative distribution of the Company’s deposits at December 31, 2016 and 2015, by outstanding balance as well as by percentage of total deposits, is presented in the following table:

Deposit Distribution and Percentage Composition

Total deposit balances increased by $7.2 million, or 5.5%, during 2016 due to organic growth within the Company’s three branches. Non-maturity deposits declined by $5.8 million, or 7.8%, during the year as depositors sought to take advantage of generally rising interest rates by moving deposits into other interest bearing accounts. Interest bearing deposit accounts such as NOW and Money Market accounts increased by $11.9 million or 29%. Deposits into Savings accounts also increased by $350 thousand or 7.28%. Deposits into Certificates of Deposit also increased, but not equally. CD deposits less than FDIC insured limits of $250 thousand increased by $263 thousand or 4.2%, while CDs over FDIC insured limits increased by $525 thousand or 13.4%. Management is of the opinion that a relatively high level of core customer deposits is one of the Company’s key strengths and we continue to strive for deposit retention and growth, although no assurance can be provided with regard to future core deposit increases or runoff.

Looking forward, the Company will be making a concerted effort to increase total deposits in order to accommodate anticipated future loan demand. And while historically the Company has enjoyed a very high percentage of non-interest bearing demand accounts, that percentage may continue to decline as depositors seek to earn interest. These factors in addition to market competition may cause the cost of funds to increase and thereby affect the net interest margin in the future.

The scheduled maturity distribution of the Company’s time deposits at December 31, 2016 was as follows: