Exchange Bank Announces Third Quarter Earnings

SANTA ROSA, Calif.--()--Exchange Bank (OTC: EXSR) today announced earnings of $9.35 million in the third quarter of 2019, compared to $9.0 million in the second quarter of 2019, a 4% increase over the prior quarter. The $9.35 million earned in the third quarter of 2019 represented a 2% decline from $9.53 million earned in the third quarter of 2018.

“The small decline in net income in the quarter ended September 30, 2019 compared to the similar quarter in 2018 does not paint a true picture of the Bank’s very positive financial success. During this current quarter, operating expenses were heavily influenced by the Bank’s conversion to a new online and mobile banking platform to better serve our valued clients. In aggregate, the Bank recognized approximately $800 thousand of increased operating expenses during the third quarter relating to the Banks new digital delivery systems. Our third quarter performance was very good and the Bank’s core business remains strong,” said Gary Hartwick, president and CEO of Exchange Bank.

The Bank continues to experience strong growth in its core business as evidenced by an increase in net interest income which increased from $23.74 million in the third quarter of 2018 to $24.93 million during the quarter ending September 30, 2019, an increase of 5.0%. Contributing to the positive trend in net interest income was growth in the loan portfolio of approximately $82 million, an increase of 5.5% over similar balances as of September 30, 2018. Additionally, the Bank’s increased net interest income was strongly influenced by the generally rising interest rate environment during much of 2018. As a result of the lagged effect of higher treasury yields during much of 2018, the Bank was able to increase its net interest margin from 3.70% for the nine months in 2018 to 3.91% for the similar period ending September 30, 2019. As interest rates have declined materially during the first nine months of 2019, the Bank will be challenged to continue this expansion of net interest margin into the foreseeable future.

The Bank’s balance sheet experienced a small decline during the 12-month period ending September 30, 2019 as the Bank continued to witness deposit withdrawals from clients who were impacted by the wildfires of 2017. As the rebuild efforts have continued to accelerate, those clients have had the opportunity to utilize cash reserves from their insurance proceeds held at the Bank to rebuild or relocate their primary residence. As a result, deposits declined from $2.357 billion at September 30, 2018 to $2.295 billion at September 30, 2019. The growth of $82 million in loans and the run-off of $62 million in fire-related insurance deposits were primarily funded by liquid investments totaling $95 million.

Non-interest income increased in the third quarter of 2019 by $581 thousand compared to the similar quarter ending September 30, 2018. A comparison of second quarter non-interest income year-over-year was primarily influenced by an increase of approximately $440 thousand in revenue generated by our Trust and Investment Management business. The increase in Trust revenue was largely the result of recent acquisitions of Trust business in the Sacramento and South Bay markets.

During the nine months ending September 30, 2019, the Bank achieved net earnings of $27.43 million, compared to $29.51 million during the similar period in 2018, a decrease of approximately $2.08 million or 7.0%. The nine-month period ending September 30, 2018 was positively influenced by the one-time gain of $3.25 million on the sale of other real estate (OREO) that did not exist in the similar period ending September 30, 2019. Additionally, during the nine months ending September 30, 2019, the Bank recognized operating expenses totaling approximately $1.3 million that were not present during the similar period in 2018, relating to the conversion of the Bank’s internet and mobile banking platform. Absent this unusual gain of $3.25 million in 2018, and the one-time expense relating to the Bank’s digital conversion, the Bank would have experienced net income of approximately $27.15 million during the nine months ending September 30, 2018 compared to net income of $28.28 million during the similar period in 2019, an increase of 4.2%. For the nine months ending September 30, 2019, the Bank’s net interest income increased $3.79 million over the similar period in 2018, an increase of 5.5%.

When excluding the OREO gain of $3.25 million from non-interest income during the nine months ending September 30, 2018, non-interest income would have increased from $16.86 million to $18.09 million during the similar period ending in 2019. Operating expenses for the nine months ending September 30, 2019 increased by 9.5% over the similar period in 2018 as the Bank continued to invest in technology and personnel necessary to support future growth. The Bank recognized approximately $1.3 million of expenses during the nine months ending September 30, 2019 relating to the implementation of a new online and mobile banking platform. Exclusive of these non-recurring expenses, the Bank’s total operating expenses would have increased by $3.3 million or 6.8%.

“We believe the investment in a new state-of-the-art online and mobile banking platform will meet the needs of our valued clients today and well into the future," said Mr. Hartwick.

Exchange Bank paid a quarterly cash dividend of $1.10 per share on common stock outstanding to shareholders on September 20, 2019. 50.44% of the cash dividend goes to the Doyle Trust which funds the Doyle Scholarships at the Santa Rosa Junior College.

Forward looking information

This press release may contain forward-looking statements about the Company, including descriptions of plans or objectives of its management for future operations, products or services, and forecasts of its revenues, earnings or other measures of economic performance. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include the words “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning, or future or conditional verbs such as “will,” “would,” “should,” “could,” or “may.”

Forward-looking statements, by their nature, are subject to risks and uncertainties. A number of factors—many of which are beyond the Company’s control—could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Forward-looking statements speak only as of the date they are made. The Company does not undertake to update forward-looking statements to reflect circumstances or events that occur after the date forward looking statements are made.

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 14-time winner of the North Bay Business Journal’s (NBBJ) Best Places to Work survey, a recipient of the 2019 North Bay Community Philanthropy Award and the 2019 Healthiest Companies in the North Bay Award. NorthBay biz magazine named Exchange Bank the 2019 Best Consumer Bank and Gold Medal Winner for Best Business Bank. The North Bay Bohemian’s Best of 2019 Readers Poll named Exchange Bank the Best Business Bank and Best Consumer Bank. Exchange Bank can also be found in the NBBJ’s Book of Lists as a leading lender and wealth management advisor—claiming the #1 position in SBA 7(a) lending in Sonoma County for 2018. www.exchangebank.com.

Member FDIC — Equal Housing Lender — Equal Opportunity Employer

EXCHANGE BANK
and Subsidiaries
 
Consolidated Balance Sheets
(Unaudited)
 
September 30, 2019 and 2018
(In Thousands)
Change % Change
ASSETS

2019

 

2018

 

19/18

 

19/18

 
Cash and due from banks

$

45,973

 

$

41,573

 

$

4,400

 

10.58

%

Federal Reserve Bank

 

100,158

 

 

95,026

 

 

5,132

 

5.40

%

Total Cash and cash equivalents

 

146,131

 

 

136,599

 

 

9,532

 

6.98

%

 
Investments
Interest-earning deposits in other financial institutions

 

59,000

 

 

46,000

 

 

13,000

 

28.26

%

Securities available for sale

 

719,069

 

 

838,139

 

 

(119,070

)

-14.21

%

FHLB Stock

 

13,483

 

 

11,303

 

 

2,180

 

19.29

%

 
Loans and leases
Real estate

 

1,095,141

 

 

1,042,860

 

 

52,281

 

5.01

%

Consumer

 

127,676

 

 

121,412

 

 

6,264

 

5.16

%

Commercial

 

356,186

 

 

332,890

 

 

23,296

 

7.00

%

 

 

1,579,003

 

 

1,497,162

 

 

81,841

 

5.47

%

Less allowance for loan and lease losses

 

(39,573

)

 

(39,373

)

 

(200

)

0.51

%

 
Net loans and leases

 

1,539,430

 

 

1,457,789

 

 

81,641

 

5.60

%

 
Bank premises and equipment

 

17,971

 

 

18,154

 

 

(183

)

-1.01

%

Other assets

 

108,452

 

 

104,530

 

 

3,922

 

3.75

%

 
Total Assets

$

2,603,536

 

$

2,612,514

 

$

(8,978

)

-0.34

%

 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Deposits
Non-Interest Bearing Demand

$

829,410

 

$

856,310

 

$

(26,900

)

-3.14

%

Interest Bearing
Transaction

 

481,744

 

 

478,409

 

 

3,335

 

0.70

%

Money market

 

293,537

 

 

315,377

 

 

(21,840

)

-6.93

%

Savings

 

511,009

 

 

523,894

 

 

(12,885

)

-2.46

%

Time

 

179,621

 

 

183,451

 

 

(3,830

)

-2.09

%

 
Total Deposits

 

2,295,321

 

 

2,357,441

 

 

(62,120

)

-2.64

%

 
Other borrowings

 

-

 

 

-

 

 

-

 

Other liabilities

 

46,155

 

 

34,543

 

 

11,612

 

33.62

%

 
Total liabilities

 

2,341,476

 

 

2,391,984

 

 

(50,508

)

-2.11

%

 
Stockholders' equity

 

262,060

 

 

220,530

 

 

41,530

 

18.83

%

 
Total Liabilities and Stockholder's Equity

$

2,603,536

 

$

2,612,514

 

$

(8,978

)

-0.34

%

EXCHANGE BANK
and Subsidiaries
 
Consolidated Statements of Operations
(Unaudited)
 
For the Period Ended September 30, 2019 and 2018
(In Thousands, except per share amounts) Nine Months Ended
Quarter Ended Nine Months Ended Change % Change

2019

 

2018

 

2019

 

2018

 

19/18

 

19/18

 
Interest Income
Interest and fees on loans

$

20,324

$

19,010

$

59,056

$

55,506

$

3,550

 

6.40

%

Interest on investments securities

 

5,832

 

5,444

 

17,471

 

15,396

 

2,075

 

13.48

%

 
Total interest income

 

26,156

 

24,454

 

76,527

 

70,902

 

5,625

 

7.93

%

 
Interest expense
Interest on deposits

 

1,229

 

714

 

3,496

 

1,658

 

1,838

 

110.86

%

Other interest expense

 

-

 

-

 

-

 

-

 

Total interest expense

 

1,229

 

714

 

3,496

 

1,658

 

1,838

 

110.86

%

 
Net interest income

 

24,927

 

23,740

 

73,031

 

69,244

 

3,787

 

5.47

%

 
Provision (reversal of) for losses on loans

 

-

 

-

 

-

 

-

 

-

 

0.00

%

 
Net interest income after provision for loan and leases

 

24,927

 

23,740

 

73,031

 

69,244

 

3,787

 

5.47

%

 
Non-interest income

 

6,196

 

5,615

 

18,093

 

20,106

 

(2,013

)

-10.01

%

 
Non interest expense
Salary and benefit costs

 

9,965

 

8,774

 

29,179

 

26,661

 

2,518

 

9.44

%

Other expenses

 

8,081

 

7,358

 

23,765

 

21,682

 

2,083

 

9.61

%

Total non-interest expense

 

18,046

 

16,132

 

52,944

 

48,343

 

4,601

 

9.52

%

 
Income before income taxes

 

13,077

 

13,223

 

38,180

 

41,007

 

(2,827

)

-6.89

%

 
Provision for income taxes

 

3,724

 

3,692

 

10,750

 

11,502

 

(752

)

-6.54

%

 
Net income

$

9,353

$

9,531

$

27,430

$

29,505

$

(2,075

)

-7.03

%

 
 
Basic earnings per common share

$

5.46

$

5.56

$

16.00

$

17.21

$

(1.21

)

-7.03

%

Dividends per share

$

1.10

$

0.95

$

3.25

$

2.85

$

0.40

 

14.04

%

 
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 2019 and 2018 was 1,714,344

 

Contacts

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

Contacts

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