The Board of Directors of Central Valley Community Bancorp (Company) (NASDAQ: CVCY), the parent company of Central Valley Community Bank (Bank), reported today unaudited consolidated net income of $16,008,000, and fully diluted earnings per common share of $1.16 for the nine months ended September 30, 2018, compared to $13,691,000 and $1.11 per fully diluted common share for the nine months ended September 30, 2017.

THIRD QUARTER FINANCIAL HIGHLIGHTS

• Net loans increased $11.0 million or 1.23%, and total assets decreased $142.2 million or 8.56% at September 30, 2018 compared to December 31, 2017.
• Total deposits decreased 10.53% to $1.28 billion at September 30, 2018 compared to December 31, 2017.
• Total cost of deposits remain at record low levels at 0.10% and 0.06% at September 30, 2018 and 2017, respectively.
• Average non-interest bearing demand deposit accounts as a percentage of total average deposits was 42.09% and 39.92% for the quarters ended September 30, 2018 and 2017, respectively.
• Capital positions remain strong at September 30, 2018 with a 11.16% Tier 1 Leverage Ratio; a 15.17% Common Equity Tier 1 Ratio; a 15.64% Tier 1 Risk-Based Capital Ratio; and a 16.51% Total Risk-Based Capital Ratio.
• The Company increased its quarterly dividend to $0.09 per common share, payable on November 16, 2018 to shareholders of record on November 2, 2018.

“Our financial results for the three months and nine months ended September 30, 2018, confirm that we are successfully executing our Strategic Plan for 2018. With our continual growth in earnings, our Board of Directors has increased our quarterly dividend for the third consecutive quarter to $0.09 per share,” stated James M. Ford, President & CEO of Central Valley Community Bank and Central Valley Community Bancorp.

Net income for the nine months ended September 30, 2018 increased 16.92% compared to the same period in 2017, primarily driven by an increase in net interest income and a decrease in provision for income taxes, partially offset by a decrease in net realized gains on sales and calls of investment securities and an increase in non-interest expense compared to the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Company recorded a $50,000 provision for credit losses, compared to a $1,150,000 reverse provision during the nine months ended September 30, 2017. Net interest income before the provision for credit losses for the nine months ended September 30, 2018 was $46,730,000, compared to $40,672,000 for the nine months ended September 30, 2017, an increase of $6,058,000 or 14.89%. The impact to interest income from the accretion of the loan marks on acquired loans was $906,000 and $806,000 for the nine months ended September 30, 2018 and 2017, respectively. In addition, net interest income before the provision for credit losses for the nine months ended September 30, 2018 was benefited by approximately $355,000 in nonrecurring income from prepayment penalties and payoff of loans previously on nonaccrual status, as compared to a $1,218,000 net benefit for the nine months ended September 30, 2017. Excluding these reversals and benefits, net interest income for the nine months ended September 30, 2018 increased by $6,921,000 compared to the nine months ended September 30, 2017. Approximately, $3,743,000 of the increase in net interest income was attributed to the Folsom Lake Bank (FLB) acquisition completed in 2017, and approximately $3,178,000 from our continued organic growth.

During the nine months ended September 30, 2018, the Company’s shareholders’ equity increased $3,876,000, or 1.85%, compared to December 31, 2017. The increase in shareholders’ equity was driven by the retention of earnings, net of dividends paid, offset by a decrease in net unrealized gains on available-for-sale (AFS) securities recorded, net of estimated taxes, in accumulated other comprehensive income (AOCI).

Return on average equity (ROE) for the nine months ended September 30, 2018 was 10.16%, compared to 10.55% for the nine months ended September 30, 2017. The decrease in ROE was primarily due to the increase in average shareholders’ equity. The Company declared and paid $0.22 and $0.18 per share in cash dividends to holders of common stock during the nine months ended September 30, 2018 and 2017, respectively. Annualized return on average assets (ROA) was 1.34% for the nine months ended September 30, 2018 and 1.27% for the nine months ended September 30, 2017. During the nine months ended September 30, 2018, the Company’s total assets decreased 8.56%, and total liabilities decreased 10.06%, compared to December 31, 2017.

Non-performing assets increased by $1,188,000, or 40.34%, to $4,133,000 at September 30, 2018, compared to $2,945,000 at December 31, 2017. During the nine months ended September 30, 2018, the Company recorded $197,000 in net loan recoveries, compared to $740,000 in net recoveries for the nine months September 30, 2017. The net charge-off (recovery) ratio, which reflects annualized net recoveries to average loans, was (0.03)% for the nine months ended September 30, 2018, compared to (0.13)% for the same period in 2017. Total non-performing assets were 0.27% and 0.18% of total assets as of September 30, 2018 and December 31, 2017, respectively.

At September 30, 2018, the allowance for credit losses was $9,025,000, compared to $8,778,000 at December 31, 2017, a net increase of $247,000 reflecting the net recoveries and provision during the period. The allowance for credit losses as a percentage of total loans was 0.99% at September 30, 2018, and 0.97% at December 31, 2017. Total loans includes loans acquired in the acquisitions of FLB on October 1, 2017, Sierra Vista Bank on October 1, 2016 and Visalia Community Bank on July 1, 2013 that, at their respective acquisition dates, were recorded at fair value and did not have a related allowance for credit losses. The recorded value of acquired loans totaled $198,413,000 at September 30, 2018 and $243,712,000 at December 31, 2017. Excluding these acquired loans from the calculation, the allowance for credit losses to total gross loans was 1.26% and 1.34% as of September 30, 2018 and December 31, 2017, respectively, and general reserves associated with non-impaired loans to total non-impaired loans was 1.24% and 1.34%, respectively. The Company believes the allowance for credit losses is adequate to provide for probable incurred credit losses within the loan portfolio at September 30, 2018.

The Company’s net interest margin (fully tax equivalent basis) was 4.40% for the nine months ended September 30, 2018, compared to 4.42% for the nine months ended September 30, 2017. The decrease in net interest margin in the period-to-period comparison resulted primarily from the decrease in the effective yield on average investment securities, and the decrease in the yield on the Company’s loan portfolio, offset by the increase in the effective yield on interest earning deposits in other banks and Federal Funds sold.

For the nine months ended September 30, 2018, the effective yield on average total earning assets decreased 1 basis point to 4.50% compared to 4.51% for the nine months September 30, 2017, while the cost of average total interest-bearing liabilities increased to 0.18% for the nine months ended September 30, 2018 as compared to 0.14% for the nine months ended September 30, 2017. Over the same periods, the cost of average total deposits increased to 0.08% for the nine months ended September 30, 2018 compared to 0.07% for the same period in 2017.

For the nine months ended September 30, 2018, the Company’s average investment securities, including interest-earning deposits in other banks and Federal funds sold, totaled $537,551,000, a decrease of $18,288,000, or 3.29%, compared to the nine months ended September 30, 2017. The effective yield on average investment securities, including interest earning deposits in other banks and Federal funds sold, decreased to 2.83% for the nine months ended September 30, 2018, compared to 3.12% for the nine months ended September 30, 2017.

Total average loans (including nonaccrual), which generally yield higher rates than investment securities, increased $151,210,000, from $760,652,000 for the nine months ended September 30, 2017 to $911,862,000 for the nine months September 30, 2018. The increase in loans was partially offset by the sale of the Company’s credit card portfolio of approximately $2,504,000 during the second quarter of 2018. The year-over-year loan growth compared to the prior year was primarily due to the acquisition of FLB in 2017. The effective yield on average loans decreased to 5.48% for the nine months ended September 30, 2018, compared to 5.52% for the nine months September 30, 2017 primarily due to competitive pressures in the Company’s lending markets.

Total average assets for the nine months ended September 30, 2018 was $1,589,365,000 compared to $1,440,139,000 for the nine months ended September 30, 2017, an increase of $149,226,000 or 10.36%. During the nine months ended September 30, 2018 and 2017, the average loan-to-deposit ratio was 67.79% and 61.18%, respectively. Total average deposits increased $101,863,000 or 8.19% to $1,345,198,000 for the nine months ended September 30, 2018, compared to $1,243,335,000 for the nine months ended September 30, 2017. Average interest-bearing deposits increased $27,774,000, or 3.62%, and average non-interest bearing demand deposits increased $74,089,000, or 15.53%, for the nine months ended September 30, 2018, compared to the nine months ended September 30, 2017. The Company’s ratio of average non-interest bearing deposits to total deposits was 40.97% for the nine months September 30, 2018, compared to 38.37% for the nine months September 30, 2017. The year over year growth was primarily driven by the FLB acquisition which closed on October 1, 2017.

Non-interest income for the nine months ended September 30, 2018 decreased by $976,000 to $7,920,000, compared to $8,896,000 for the nine months ended September 30, 2017, primarily driven by a decrease of $1,531,000 in net realized gains on sales and calls of investment securities. A net gain of $462,000 on the sale of the Company’s credit card portfolio, an increase in appreciation in cash surrender value of bank owned life insurance of $72,000, a $36,000 increase in Federal Home Loan Bank dividends, a $31,000 increase in interchange fees, and an increase in loan placement fees of $20,000, were offset by a $65,000 decrease in service charge income.

Non-interest expense for the nine months ended September 30, 2018 increased $2,361,000, or 7.54%, to $33,658,000 compared to $31,297,000 for the nine months ended September 30, 2017. The net increase year over year was primarily attributable to the FLB acquisition, which resulted in increases in salaries and employee benefits of $1,771,000, occupancy and equipment expenses of $927,000, offset by decrease in acquisition and integration expenses of $401,000, and a decrease of $111,000 in directors’ expenses in 2018 compared to 2017.

The Company recorded an income tax provision of $4,934,000 for the nine months September 30, 2018, compared to $5,730,000 for the nine months September 30, 2017. The effective tax rate for the nine months ended September 30, 2018 was 23.56% compared to 29.50% for the nine months ended September 30, 2017. The signing of the Tax Cuts and Jobs Act on December 22, 2017 changed the Company’s federal income tax rate from 35% to 21% effective as of the beginning of 2018.

Quarter Ended September 30, 2018

For the quarter ended September 30, 2018, the Company reported unaudited consolidated net income of $5,752,000 and earnings per diluted common share of $0.42, compared to consolidated net income of $4,494,000 and $0.36 per diluted share for the same period in 2017. The increase in net income during the third quarter of 2018 compared to the same period in 2017 was primarily due to an increase in net interest income of $2,329,000 and a decrease in the provision for income taxes of $317,000, partially offset by a decrease in non-interest income of $91,000 and an increase in total non-interest expenses of $397,000. The effective tax rate decreased to 24.11% from 32.30% for the quarters ended September 30, 2018 and September 30, 2017, respectively, due to the prospective change in the marginal 2018 federal tax rate from 35% to 21%. Net income for the immediately trailing quarter ended June 30, 2018 was $4,965,000, or $0.36 per diluted common share.

Annualized return on average equity (ROE) for the third quarter of 2018 was 10.80%, compared to 10.05% for the same period of 2017. The increase in ROE reflects increase in net income, notwithstanding an increase in shareholders’ equity. Annualized return on average assets (ROA) was 1.48% for the third quarter of 2018 compared to 1.26% for the same period in 2017. This increase is due to an increase in net income outpacing an increase in average assets.

In comparing the third quarter of 2018 to the third quarter of 2017, average total loans increased by $143,508,000, or 18.62%. The majority of the loan growth was due to the FLB acquisition. During the third quarter of 2018, the Company recorded net loan recoveries of $105,000 compared to $519,000 for the same period in 2017. The net charge-off (recovery) ratio, which reflects annualized net charge-offs to average loans, was (0.05)% for the quarter ended September 30, 2018 compared to (0.27)% for the quarter ended September 30, 2017.

Average total deposits for the third quarter of 2018 increased $92,525,000 or 7.57% to $1,315,450,000 compared to $1,222,925,000 for the same period of 2017, primarily due to the FLB acquisition. In comparing the third quarter of 2018 to the third quarter of 2017, average borrowed funds decreased $245,000 or (3.36)% to $7,052,000 compared to $7,297,000.

The Company’s net interest margin (fully tax equivalent basis) was 4.53% for the quarter ended September 30, 2018, compared to 4.39% for the quarter ended September 30, 2017. Net interest income, before provision for credit losses, increased $2,329,000, or 17.15%, to $15,907,000 for the third quarter of 2018, compared to $13,578,000 for the same period in 2017. The accretion of the loan marks on acquired loans increased interest income by $316,000 and $189,000 during the quarters ended September 30, 2018 and 2017, respectively. Net interest income during the third quarters of 2018 and 2017 benefited by approximately $180,000 and $100,000, respectively, from prepayment penalties and payoff of loans previously on nonaccrual status. The net interest margin period-to-period comparisons were impacted by a decrease in the yield on the average investment securities and the loan portfolio. Over the same periods, the cost of total deposits increased to 0.10% from 0.06%.

For the quarter ended September 30, 2018, the Company’s average investment securities, including interest-earning deposits in other banks and Federal funds sold, decreased by $28,721,000, or 5.40%, compared to the quarter ended September 30, 2017, and decreased by $29,300,000, or 5.50%, compared to the quarter ended June 30, 2018.

The effective yield on average investment securities, including interest earning deposits in other banks and Federal funds sold, was 3.05% for the quarter ended September 30, 2018, compared to 3.15% for the quarter ended September 30, 2017 and 2.67% for the quarter ended June 30, 2018. Total average loans, which generally yield higher rates than investment securities, increased by $143,508,000 to $914,285,000 for the quarter ended September 30, 2018, from $770,777,000 for the quarter ended September 30, 2017 and decreased by $3,986,000 from $918,271,000 for the quarter ended June 30, 2018. The effective yield on average loans was 5.53% for the quarter ended September 30, 2018, compared to 5.39% and 5.49% for the quarters ended September 30, 2017 and June 30, 2018, respectively.

Total average assets for the quarter ended September 30, 2018 were $1,555,704,000 compared to $1,427,070,000 for the quarter ended September 30, 2017 and $1,588,644,000 for the quarter ended June 30, 2018, an increase of $128,634,000 and a decrease of $32,940,000, or 9.01% and (2.07)%, respectively.

Total average deposits increased $92,525,000, or 7.57%, to $1,315,450,000 for the quarter ended September 30, 2018, compared to $1,222,925,000 for the quarter ended September 30, 2017. Total average deposits decreased $20,800,000, or 1.56%, for the quarter ended September 30, 2018, compared to $1,336,250,000 for the quarter ended June 30, 2018. The Company’s ratio of average non-interest bearing deposits to total deposits was 42.09% for the quarter ended September 30, 2018, compared to 39.92% and 40.85% for the quarters ended September 30, 2017 and June 30, 2018, respectively.

Non-interest income decreased $91,000, or 3.56%, to $2,463,000 for the third quarter of 2018 compared to $2,554,000 for the same period in 2017. For the quarter ended September 30, 2018, non-interest income included $380,000 net realized gains on sales and calls of investment securities compared to $169,000 for the same period in 2017, a $211,000 increase. During the third quarter 2018, the Company recorded $116,000 of additional deconversion costs against the net gain on the sale of its credit card portfolio recorded in the second quarter of 2018. In addition, the third quarter 2018 loan placement fees decreased $72,000, and service charge income decreased $26,000, partially offset by an increase of $3,000 in interchange fees compared to the same period in 2017. On July 12, 2018, the Company closed its Tracy branch office and sold deposits with a balance of $8,205,000, to BAC Community Bank. The Company recorded a gain on the transaction of $85,000. Non-interest income for the quarter ended September 30, 2018 decreased by $223,000 to $2,463,000, compared to $2,686,000 for the quarter ended June 30, 2018. The decrease compared to the trailing quarter was primarily due to the $578,000 gain on the sale of the credit card portfolio recorded in the second quarter, offset by a $298,000 increase in net realized gains on sales and calls of investment securities, a $13,000 increase in service charges, and a $125,000 increase in other income.

Non-interest expense for the quarter ended September 30, 2018 increased $397,000, or 3.82%, to $10,791,000 compared to $10,394,000 for the quarter ended September 30, 2017. The net increase quarter over quarter was a result of an increase in salaries and employee benefits of $398,000, an increase in occupancy and equipment expenses of $203,000, an increase in professional services of $85,000, an increase of $47,000 in amortization of core deposit intangibles, and an increase of $38,000 in advertising expenses, partially offset by a decrease in acquisition and integration expenses of $163,000, a $14,000 decrease in license and maintenance contract expense, and a decrease of $7,000 in regulatory assessments.

Non-interest expense for the quarter ended September 30, 2018 decreased by $708,000 compared to $11,499,000 for the trailing quarter ended June 30, 2018. The decrease compared to the trailing quarter was primarily due to a decrease in salaries and employee benefits of $446,000, a decrease in occupancy and equipment expense of $88,000, a $48,000 decrease in license and maintenance contracts, and a $20,000 decrease in professional services, partially offset by an increase of $39,000 in data processing, and an increase of $25,000 in directors’ expenses.

The Company recorded an income tax provision of $1,827,000 for the quarter ended September 30, 2018, compared to $2,144,000 for the quarter ended September 30, 2017. The effective tax rate for the quarter ended September 30, 2018 was 24.11% compared to 32.30% for the same period in 2017. The decrease in the effective tax rate was the result of the change in the federal rate offset by a sizable decrease in tax exempt interest.

On October 17, 2018, the Board of Directors of the Company declared an increase in the regular quarterly cash dividend to $0.09 per share on the Company’s common stock. The dividend is payable on November 16, 2018 to shareholders of record as of November 2, 2018.

Central Valley Community Bancorp trades on the NASDAQ stock exchange under the symbol CVCY. Central Valley Community Bank, headquartered in Fresno, California, was founded in 1979 and is the sole subsidiary of Central Valley Community Bancorp. Central Valley Community Bank operates 20 full-service offices throughout California’s San Joaquin Valley and Greater Sacramento Region. Additionally, the Bank maintains Commercial Real Estate, Agribusiness and SBA Lending Departments. Central Valley Investment Services are provided by Raymond James Financial, Inc.

Members of Central Valley Community Bancorp’s and the Bank’s Board of Directors are: Daniel J. Doyle (Chairman), Daniel N. Cunningham (Lead Independent Director), Edwin S. Darden, Jr., F. T. “Tommy” Elliott, IV, James M. Ford, Robert J. Flautt, Gary D. Gall, Steven D. McDonald, Louis C. McMurray, Karen Musson, and William S. Smittcamp. Sidney B. Cox is Director Emeritus.

More information about Central Valley Community Bancorp and Central Valley Community Bank can be found at www.cvcb.com. Also, visit Central Valley Community Bank on Twitter and Facebook.

Forward-looking Statements- Certain matters discussed in this press release constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements contained herein that are not historical facts, such as statements regarding the Company’s current business strategy and the Company’s plans for future development and operations, are based upon current expectations. These statements are forward-looking in nature and involve a number of risks and uncertainties. Such risks and uncertainties include, but are not limited to (1) significant increases in competitive pressure in the banking industry; (2) the impact of changes in interest rates, a decline in economic conditions at the international, national or local level on the Company’s results of operations, the Company’s ability to continue its internal growth at historical rates, the Company’s ability to maintain its net interest margin, and the quality of the Company’s earning assets; (3) changes in the regulatory environment; (4) fluctuations in the real estate market; (5) changes in business conditions and inflation; (6) changes in securities markets; and (7) the other risks set forth in the Company’s reports filed with the Securities and Exchange Commission (“SEC”), including its Annual Report on Form 10-K for the year ended December 31, 2017. Therefore, the information set forth in such forward-looking statements should be carefully considered when evaluating the business prospects of the Company.

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