Exchange Bank Announces Fourth Quarter and Year Ending 2017 Earnings

SANTA ROSA, Calif.--()--Exchange Bank (OTC: EXSR) announces results for the fourth quarter and year ending 2017. “We have a great story to tell about the financial performance of Exchange Bank during 2017. However, throughout the fourth quarter, our focus was on assisting our employees, customers and the community after the most devastating wildfires in California history. We are grateful that because of our positive financial position we are able to help our community move forward through the rebuild process,” said Gary Hartwick, President and CEO.

Exchange Bank reported income before taxes of $10.86 million in the fourth quarter of 2017, compared to $8.80 million for the same period in 2016, an increase of 23%. Income before taxes for the year ended December 31, 2017 totaled $43.57 million, compared to $34.67 million a year ago, an increase of 26%. As a result of the enactment of the “Tax Cuts and Jobs Act” (Tax Act) as signed into law on December 22, 2017, the Bank reported an additional adjustment to income tax expense totaling $6.9 million in the fourth quarter of 2017, which had a material impact on net income for both the year and quarter ending December 31, 2017. As a result of this additional tax expense, the Bank reported a net loss of $293 thousand in the fourth quarter of 2017 and net income for the year ending December 31, 2017 of $19.5 million, as compared to net income of $5.45 million and $21.50 million for the quarter and year ended December 31, 2016. Without this additional income tax expense, net income would have been $6.6 million and $26.4 million for the quarter and year ending December 31, 2017.

The increase in income tax expense was the result of a remeasurement related to the carrying value of the Bank’s net deferred tax assets due to the reduction in federal income tax rates from 35% to 21%. Net deferred tax assets represent the tax effected timing difference between revenues and expenses recorded for book purposes as compared to the timing of revenues and expense recorded for tax purposes. “While the Bank was required to remeasure its net deferred tax assets in the fourth quarter of 2017, the reduction in federal tax rates beginning January 1, 2018 is expected to have a significant and positive impact on net income in future periods. Based on the projected level of Bank earnings, the 2017 impact on tax expense resulting from the net deferred tax asset remeasurement is expected to be earned back through a reduction in income tax expense in less than eighteen months,” stated Greg Jahn, Executive Vice President and Chief Financial Officer.

The Bank did benefit from two unusual and nonrecurring items of income during 2017 that contributed to this elevated level of earnings, including a gain of $1.6 million on the sale of other real estate held for sale and a $1.4 million litigation settlement. These benefits were partially offset by the reversal of loan loss provisions of $900 thousand during 2016, which were not repeated in 2017.

The earnings of the Bank were driven primarily by continued growth in loans and investments, which were funded by a significant increase in deposits. The growth in loans and investments led to an increase in net interest income of approximately $8.3 million for the year ending December 31, 2017, an 11% increase over the year ending December 31, 2016. The Bank experienced loan growth of approximately $71 million and an increase in investments and interest earning deposits primarily held with the Federal Reserve Bank totaling $322 million, which represent increases of 5% and 51% respectively. This increase in interest earning assets was funded primarily by growth in deposits of approximately $400 million, an increase of 21% over 2016. The extraordinary growth in deposits occurred during the fourth quarter and to a large extent related to the inflow of insurance settlements received by the Bank’s clients who suffered losses as a result of the unprecedented wildfires in the communities we serve. “Through this heartbreaking time, we used our financial resources and personnel in a number of innovative ways to support disaster relief efforts, and we continue to be a resource for liquidity and credit to our clients. We have recently announced a number of innovative and low-cost financial solutions to assist our community through the rebuild efforts. During this period of extraordinary devastation in Northern California, we have never been more proud to be a part of this generous and caring community,” said Gary Hartwick, President and CEO.

The Bank’s credit quality remains strong, with non-accrual loans declining to just 0.18% of total loans at December 31, 2017. Despite continued loan growth, as a result of the continued improvement in asset quality and net loan recoveries, the Bank did not make any provision for loan losses in 2017 and was able to maintain a ratio of loan loss reserves to total loans of 2.70%. In addition, the Bank’s capital ratios remain in excess of the regulatory definitions of “well capitalized.” As of December 31, 2017, the Bank reported total risk-based capital of 12.92%.

Exchange Bank paid a quarterly cash dividend of $0.90 per share on common stock outstanding to shareholders on December 8, 2017. Total dividends paid to Exchange Bank common shareholders during 2017 were $5.8 million and represented an increase of approximately 21% above total dividends of $4.8 million paid to common shareholders during 2016. The Doyle Trust, which funds the Doyle Scholarships at the Santa Rosa Junior College, receives 50.44% of all cash dividends paid by the Bank.

About Exchange Bank

Headquartered in Sonoma County and founded in 1890, Exchange Bank is a premier community bank with assets of $2.6 billion. Exchange Bank provides a wide range of personal, commercial and trust and investment services with 18 branches in Sonoma County and a commercial and SBA lending office in Roseville and Marin, California. The Bank’s legacy of financial leadership and community support is grounded in its core values of Commitment, Respect, Integrity and Teamwork.

Exchange Bank is a 12-time winner of the North Bay Business Journal’s North Bay Best Places to Work survey and received the 2017 Healthiest Companies in the North Bay award. NorthBay biz magazine named Exchange Bank 2017 Best Consumer Bank. Exchange Bank can also be found in the North Bay Business Journal’s listing of leading SBA 7(a) Lenders, Wealth Management Advisors and Wine Industry Lenders. www.exchangebank.com.

Member FDIC — Equal Housing Lender — Equal Opportunity Employer

 

EXCHANGE BANK

and Subsidiaries
 
Consolidated Balance Sheets
(Unaudited)
       

December 31, 2017 and 2016

(In Thousands)
Change % Change
ASSETS   2017   2016   17/16   17/16
 
Cash and due from banks $ 49,422 $ 31,519 $ 17,903 56.80 %
Fed Funds Sold   258,895     36,470     222,425   609.88 %
Total Cash and cash equivalents   308,317     67,989     240,328   353.48 %
 
Investments
Interest-earning deposits in other financial institutions 52,000 76,500 (24,500 ) -32.03 %
Securities available for sale 638,912 514,245 124,667 24.24 %
FHLB Stock 10,015 10,015 - 0.00 %
 
Loans and leases
Real estate 1,051,559 994,452 57,107 5.74 %
Consumer 120,349 114,261 6,088 5.33 %
Commercial   325,877     317,979     7,898   2.48 %
 
1,497,785 1,426,692 71,093 4.98 %
Less allowance for loan and lease losses   (40,323 )   (38,009 )   (2,314 ) 6.09 %
 
Net loans and leases   1,457,462     1,388,683     68,779   4.95 %
 
Bank premises and equipment 18,762 17,681 1,081 6.11 %
Other assets   98,623     104,288     (5,665 ) -5.43 %
 
Total Assets $ 2,584,091   $ 2,179,401   $ 404,690   18.57 %
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deposits
Non-Interest Bearing Demand $ 894,899 $ 726,107 $ 168,792 23.25 %
Interest Bearing
Transaction 469,418 369,441 99,977 27.06 %
Money market 319,104 261,296 57,808 22.12 %
Savings 474,789 396,591 78,198 19.72 %
Time   185,459     189,975     (4,516 ) -2.38 %
 
Total Deposits 2,343,669 1,943,410 400,259 20.60 %
 
Other borrowings - 8,000 (8,000 ) -100.00 %
Other liabilities   37,217     38,819     (1,602 ) -4.13 %
 
Total liabilities   2,380,886     1,990,229     390,657   19.63 %
 
Stockholders' equity   203,205     189,172     14,033   7.42 %
 
Total Liabilities and Stockholder's Equity $ 2,584,091   $ 2,179,401   $ 404,690   18.57 %
 
EXCHANGE BANK
and Subsidiaries
             
Consolidated Statements of Operations
(Unaudited)
 

For the Period Ended December 31, 2017 and 2016

(In Thousands, except per share amounts) Twelve Months Ended
Quarter Ended Twelve Months Ended Change % Change
    2017   2016   2017   2016   17/16   17/16
 
Interest Income
Interest and fees on loans $ 18,756 $ 16,474 $ 70,186 $ 63,226 $ 6,960 11.01 %
Interest on investments securities   3,498     2,890   12,183   10,868     1,315   12.10 %
 
Total interest income   22,254     19,364   82,369   74,094     8,275   11.17 %
 
Interest expense
Interest on deposits 254 182 830 767 63 8.22 %
Other interest expense   156     96   587   382     205   53.77 %
Total interest expense   410     278   1,417   1,149     268   23.36 %
 
Net interest income   21,844     19,086   80,952   72,945     8,007   10.98 %
 
Provision (reversal of) for losses on loans   -     -   -   (900 )   900   -100.00 %

 

Net interest income after provision for loan and leases

  21,844     19,086   80,952   73,845     7,107   9.62 %
 
Non-interest income 5,224 4,948 24,291 20,304 3,987 19.64 %
 
Non interest expense
Salary and benefit costs 8,339 8,673 33,528 34,029 (501 ) -1.47 %
Other expenses   7,867     6,563   28,144   25,451     2,692   10.58 %
Total non-interest expense   16,206     15,236   61,672   59,480     2,191   3.69 %
 
Income before income taxes 10,862 8,798 43,571 34,668 8,903 25.68 %
 
Provision for income taxes   11,155     3,346   24,063   13,167     10,896   82.75 %
 
Net income $ (293 ) $ 5,452 $ 19,508 $ 21,502   $ (1,993 ) -9.28 %
 
 
Basic earnings per common share $ (0.17 ) $ 3.18 $ 11.38 $ 12.54 $ (1.16 ) -9.28 %
Dividends per share   $ 0.90     $ 0.75   $ 3.40   $ 2.80     $ 0.60     21.43 %

 

Earnings per share is computed by dividing net income, by the weighted averaged number of shares outstanding during the year.

Total average shares outstanding for both 2017 and 2016 was 1,714,344.

Contacts

Exchange Bank
Greg Jahn, 707-524-3218
EVP, Chief Financial Officer

Release Summary

Exchange Bank Announces Fourth Quarter and Year Ending 2017 Earnings

Contacts

Exchange Bank
Greg Jahn, 707-524-3218
EVP, Chief Financial Officer