Exchange Bank Announces Second Quarter Earnings

Exchange Bank (OTC: EXSR) today announced results for the second quarter of 2020 with a profit after tax of $7.85 million, compared to $8.63 million in the previous quarter ending March 31, 2020.

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Exchange Bank main office in downtown Santa Rosa (545 Fourth Street)

“As we navigate through this period of extreme uncertainty created by the coronavirus pandemic, the Bank continues to respond to the needs of our clients and community. Our current focus is on the health and well-being of our employees and customers. We have waived certain deposit-related fees and provided payment deferrals to many loan clients who have been negatively impacted by the COVID-19 virus. We have also expended tremendous resources participating in the SBA Paycheck Protection Program (PPP) under the CARES Act. As a result of this effort, we have extended credit to 1,696 of our clients through PPP loans, totaling loan balances of approximately $255 million. We are grateful for the opportunity to support the preservation of jobs in our community and extremely proud of the extraordinary efforts of our employees to meet the needs of our customers,” said Gary Hartwick, president and CEO.

The Bank generated a net income of $7.85 million as compared to $9.01 million in the second quarter of 2019. The decrease in earnings can be attributed to declines in both net interest income and non-interest income. The Bank’s second quarter 2020 results were heavily influenced by the changing patterns of behavior by both business and consumer clients as well as the fiscal and monetary response of the U.S. Government to the coronavirus pandemic. The Bank’s net interest income declined from $24.01 million during the second quarter of 2019 to $23.19 million during the second quarter of 2020. During a period of time when treasury yields were in a long, steady, downward decline that accelerated to historical lows with the onset of the coronavirus pandemic, the Bank’s margin was negatively impacted by declines in yields on loans and investments that could not be equally matched by declines in the Bank’s cost of funds. The loss of interest income due to lower yields on loans and investments more than offsets the increase in interest income as a result of the growth of $255 million in PPP loans and other liquid investments totaling approximately $179 million.

At the same time, non-interest income declined from the $6.04 million in the second quarter of 2019 to $4.74 million during the second quarter of 2020. During the second quarter of 2020, the Bank witnessed significant declines in several areas of non-interest income that are directly associated with a weaker level of personal consumption, such as interchange fees and overdraft fee income, as well as reduction in SBA revenue due to the lack of new business formation in the midst of this crisis.

The Bank experienced a dramatic increase in deposit balances which were up year-over-year by approximately $415 million or 18%. Much of this increase in deposits occurred during the second quarter of 2020 and were the result of PPP loan funds received by Bank clients. An additional source of deposits totaling approximately $155 million came from both business and consumer clients who chose to hold more liquid assets during this period of great uncertainty. This increase in deposits led to a material decline in deposit service fee income as a result of the waiver of fees associated with higher customer compensating balances. The Bank expects to witness a significant run-off of this recent deposit growth due to the unusual and short-term nature of these excess deposits as funds are used to support small business and consumer related expenses over the next year.

During the six months ending June 30, 2020, the Bank achieved net earnings of $16.49 million, compared to $18.08 million during the similar six-month period in 2019, a decrease of $1.59 million or 8.8%. The decline was driven by the same declines in net interest income and non-interest income as described previously and which occurred primarily during the second quarter of 2020 as a result of pandemic-related events. During the six months ending June 30, 2020, the growth in the Bank’s Trust and Investment Management business, which was up approximately $340 thousand, helped offset larger declines in deposit fee and SBA income, compared to the similar six-month period in 2019. The increase in Trust revenue was largely the result of a recent acquisition of Trust business in the South Bay.

“Given the significant negative impact of the coronavirus pandemic on businesses and households, the Bank is relatively pleased with the second quarter results. While our outlook for a quick economic turnaround is guarded, the Bank is well-positioned to meet future challenges that may arise. We entered this pandemic from a position of strength, with levels of capital, liquidity and reserves for loan losses near record levels,” said Mr. Hartwick.

Exchange Bank paid a quarterly cash dividend of $1.20 per share on common stock outstanding to shareholders on June 19, 2020. 50.44% of the cash dividend goes to the Doyle Trust which funds the Doyle Scholarships at the Santa Rosa Junior College.

About Exchange Bank

Headquartered in Sonoma County and founded in 1890, Exchange Bank is a premier community bank with assets of $2.8 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 2020 North Bay Community Philanthropy Award and the 2019 Healthiest Companies in the North Bay Award. NorthBay biz magazine named Exchange Bank the 2020 Best Consumer and 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 2019. www.exchangebank.com.

Member FDIC — Equal Housing Lender — Equal Opportunity Employer

EXCHANGE BANK
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
June 30, 2020 and 2019
(In Thousands)
										Change				% Change
ASSETS		2020				2019				20/19				20/19
Cash and due from banks		$	36,320			$	36,347			$	(27	)		-0.07	%
Federal Reserve Bank			277,489				30,872				246,617			798.84	%
Total Cash and cash equivalents			313,809				67,219				246,590			366.85	%
Investments
Interest-earning deposits in other financial institutions			45,000				56,000				(11,000	)		-19.64	%
Securities available for sale			734,407				791,257				(56,850	)		-7.18	%
FHLB Stock			13,483				13,483				-			0.00	%
Loans and leases
Real estate			1,140,206				1,064,862				75,344			7.08	%
Consumer			136,493				128,035				8,458			6.61	%
Commercial			558,746				353,300				205,446			58.15	%
			1,835,445				1,546,197				289,248			18.71	%
Less allowance for loan and lease losses			(39,878	)			(39,857	)			(21	)		0.05	%
Net loans and leases			1,795,567				1,506,340				289,227			19.20	%
Bank premises and equipment			19,115				18,112				1,003			5.54	%
Other assets			114,510				111,827				2,683			2.40	%
Total Assets		$	3,035,891			$	2,564,238			$	471,653			18.39	%
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-Interest Bearing Demand		$	1,107,509			$	805,686			$	301,823			37.46	%
Interest Bearing
Transaction			513,679				487,151				26,528			5.45	%
Money market			307,380				287,772				19,608			6.81	%
Savings			561,152				510,737				50,415			9.87	%
Time			193,196				176,357				16,839			9.55	%
Total Deposits			2,682,916				2,267,703				415,213			18.31	%
Other liabilities			60,798				42,512				18,286			43.01	%
Total liabilities			2,743,714				2,310,215				433,499			18.76	%
Stockholders' equity			292,177				254,023				38,154			15.02	%
Total Liabilities and Stockholder's Equity		$	3,035,891			$	2,564,238			$	471,653			18.39	%

EXCHANGE BANK
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Period Ended June 30, 2020 and 2019
(In Thousands, except per share amounts)															Six Months Ended
			Quarter Ended						Six Months Ended						Change				% Change
			2020			2019			2020			2019			20/19				20/19
Interest Income
Interest and fees on loans			$	19,775		$	19,538		$	39,565		$	38,732		$	833			2.15	%
Interest on investments securities				4,268			5,669			9,490			11,639			(2,149	)		-18.46	%
Total interest income				24,043			25,207			49,055			50,371			(1,316	)		-2.61	%
Interest expense
Interest on deposits				858			1,199			1,967			2,267			(300	)		-13.23	%
Total interest expense				858			1,199			1,967			2,267			(300	)		-13.23	%
Net interest income				23,185			24,008			47,088			48,104			(1,016	)		-2.11	%
Provision (reversal of) for losses on loans				-			-			-			-			-			0.00	%
Net interest income after provision for loan and leases				23,185			24,008			47,088			48,104			(1,016	)		-2.11	%
Non-interest income				4,743			6,039			10,613			11,897			(1,284	)		-10.79	%
Non interest expense
Salary and benefit costs				9,409			9,471			19,435			19,214			221			1.15	%
Other expenses				7,714			8,121			15,473			15,684			(211	)		-1.35	%
Total non-interest expense				17,123			17,592			34,908			34,898			10			0.03	%
Income before income taxes				10,805			12,455			22,793			25,103			(2,310	)		-9.20	%
Provision for income taxes				2,952			3,446			6,308			7,026			(718	)		-10.22	%
Net income			$	7,853		$	9,009		$	16,485		$	18,077		$	(1,592	)		-8.81	%
Basic earnings per common share			$	4.58		$	5.26		$	9.57		$	10.54		$	(0.97	)		-8.81	%
Dividends per share			$	1.20		$	1.10		$	2.40		$	2.15		$	0.25			11.63	%
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 2020 and 2019 was 1,714,344

 

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