. Stockholders’ Equity and Earnings per Share

As a bank holding company, the Bancorp’s ability to pay dividends will depend upon the dividends it receives from the Bank and on the income it

may

generate from any other activities in which it

may

engage, either directly or through other subsidiaries.

Under California banking law, the Bank

may

not,

without regulatory approval, pay a cas

h dividend that exceeds the lesser of the Bank’s retained earnings or its net income for the last

three

fiscal years, less any cash distributions made during that period.

Under this regulation, the amount of retained earnings available for cash dividends to the Company immediately after

December 31, 2017,

is restricted to approximately

$39.3

million.

Activity in accumulated other comprehensive income, net of tax, and reclassification out of accumulated other comprehensive income for the

years ended

December 31, 2017

, and

2016

was as follows:

	201 7									201 6

	Pre-ta x			Tax expense/ (Benefit )			Net-of-ta x			Pre-ta x			Tax expense/ (Benefit )			Net-of-ta x
Beginning balance, loss, net of ta x	(In thousands )
Securities available-for-sal e							$	(1,545	)							$	(5,431	)
Cash flow hedge derivative s								(2,170	)								(2,995	)
Tota l							$	(3,715	)							$	(8,426	)
Net unrealized gains arising during the perio d
Securities available-for-sal e	$	1,843		$	775		$	1,068		$	11,603		$	4,878		$	6,725
Cash flow hedge derivative s		1,241			522			719			1,423			598			825
Tota l		3,084			1,297			1,787			13,026			5,476			7,550
Reclassification adjustment for net gains included in net incom e
Securities available-for-sal e		(1,006	)		(423	)		(583	)		(4,898	)		(2,059	)		(2,839	)
Cash flow hedge derivative s		-			-			-			-			-			-
Tota l		(1,006	)		(423	)		(583	)		(4,898	)		(2,059	)		(2,839	)
Total other comprehensive incom e
Securities available-for-sal e		837			352			485			6,705			2,819			3,886
Cash flow hedge derivative s		1,241			522			719			1,423			598			825
Tota l	$	2,078		$	874		$	1,204		$	8,128		$	3,417		$	4,711
Ending balance, loss, net of ta x
Securities available-for sal e							$	(1,060	)							$	(1,545	)
Cash flow hedge derivative s								(1,451	)								(2,170	)
Tota l							$	(2,511	)							$	(3,715	)

The Board of Directors of the Bancorp is authorized to issue preferred stock in

one

or more series and to fix the voting powers, designations, preferences or other rights of the shares of

each such class or series and the qualifications, limitations, and restrictions thereon. Any preferred stock issued by the Bancorp

may

rank prior to the Bancorp common stock as to dividend rights, liquidation preferences, or both,

may

have full or limited voting rights, and

may

be convertible into shares of the Bancorp common stock.

The following is the reconciliation of the numerators and denominators of the basic and diluted earnings per share computations for the years as indicated:

	201 7						201 6						201 5
					Pe r						Pe r						Pe r
	Incom e		Share s		Shar e		Incom e		Share s		Shar e		Incom e		Share s		Shar e
	(Numerator )		(Denominator )		Amoun t		(Numerator )		(Denominator )		Amoun t		(Numerator )		(Denominator )		Amoun t
	(In thousands, except shares and per share data )
Net incom e	$	176,042					$	175,099					$	161,109
Basic EPS, incom e	$	176,042		80,262,782	$	2.19	$	175,099		79,153,762	$	2.21	$	161,109		80,563,577	$	2.00
Effect of dilutive stock option s				741,768						775,500						731,219

Diluted EPS, incom e	$	176,042		81,004,550	$	2.17	$	175,099		79,929,262	$	2.19	$	161,109		81,294,796	$	1.98

Options to purchase an additional

20,443

shares at

December 31, 2017

, and

242,419

shares at

December 31, 2016,

were

not

included in the computation of diluted earnings per share because their inclusion would have had an anti-dilutive effect.