Market Overview

Exchange Bank Announces Second Quarter Earnings

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Exchange Bank (OTC:EXSR) today announced results for the second quarter
of 2018 with a profit after tax of $8.87 million, compared to $6.51
million in the second quarter of 2017. This represents a 36% increase
compared to the same period a year ago. The Bank continues to experience
solid growth in its core business as evidenced by an increase in net
interest income of $3.88 million, a 20% increase for the quarter ending
June 30, 2018 compared to the similar quarter in 2017. Contributing to
the positive trend in net interest income was growth in the loan
portfolio of $48 million and an increase in the investment portfolio of
$251 million, representing increases of 3.3% and 44.3% respectively over
similar balances as of June 30, 2017. This strong growth in assets was
funded by an increase in deposits totaling $362 million, an increase of
18.1% above deposit balances at June 30, 2017. Deposit growth during
this period was strongly influenced by fire related insurance proceeds
received by customers of the Bank. The Bank estimates that such short
term insurance related deposits contributed in excess of $300 million of
the Bank's total growth.

Non-interest income declined in the second quarter of 2018 by $1.32
million compared to the similar quarter ending June 30, 2017. A
comparison of second quarter non-interest income year-over-year was
influenced by an unusual event in 2017 that was not replicated in 2018.
During the quarter ending June 30, 2017, the Bank experienced a gain of
$1.4 million relating to a litigation settlement. Contributing to the
increased profitability during the first quarter of 2018, was the impact
of a lower federal income tax rate, which declined from 35% in 2017 to
21% in 2018. The Bank estimates that the effect of this lower income tax
rate in 2018 contributed approximately $1.4 million to net income after
tax during the second quarter of 2018.

During the six months ending June 30, 2018, the Bank achieved net
earnings of $19.97 million, compared to $13.15 million during the
similar six month period in 2017, an increase of approximately $6.8
million or 52%. During the six-months ending June 30, 2018, the Bank's
net interest income increased $6.9 million over the similar six month
period in 2017, an increase of 17.8%. Non-interest income for the
six-months ended June 20, 2018 was positively influenced by gains on the
sale of other real estate owned in the first quarter totaling
approximately $3.25 million. Similarly, non-interest income for the six
months ended June 30, 2017 was positively influenced by the
aforementioned litigation settlement of $1.4 million in the second
quarter of 2017 as well as gains on sale of other real estate owned
totaling approximately $1.38 million in the first quarter of 2017.
Removing the after tax impact of these nonrecurring events during both
six month periods in 2018 and 2017 would have produced net income after
tax of approximately $17.8 million in 2018, compared to $11.4 million in
2017. The Bank estimates that the effect of a decline in the Federal tax
rate from 35% in 2017 to 21% during 2018 contributed approximately $3.2
million to net income after tax for the six month period ended June 30,
of 2018.

"While this was another strong quarter of financial performance, as
demonstrated by the increased net interest income, it is important to
note that the unusual nature of the gains on the sale of other real
estate owned totaling $3.25 million will not reoccur in future periods.
We are very pleased with the significant improvement in financial
results, and I am proud of the hard work and dedication of our employees
as well as the continued loyalty of our clients and support from the
communities we serve," stated President and Chief Executive Officer,
Gary Hartwick.

Exchange Bank paid a quarterly cash dividend of $0.95 per share on
common stock outstanding to shareholders on June 15, 2018. 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 $2.6 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
Best Places to Work survey, a recipient of the 2018 North Bay Community
Philanthropy Award and the 2017 Healthiest Companies in the North Bay
Award. NorthBay biz magazine named Exchange Bank the 2018 Best Consumer
Bank and Gold Medal Winner for Best Business Bank. The North Bay
Bohemian's "Best of 2018" Readers Poll named Exchange Bank the Best
Business Bank and 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)
 
June 30, 2018 and 2017
(In Thousands)
Change % Change
ASSETS       2018     2017     18/17     18/17
 
Cash and due from banks $ 39,816 $ 35,482 $ 4,334 12.21 %
Fed Funds Sold   104,517     27,886     76,631       274.80 %
Total Cash and cash equivalents   144,333     63,368     80,965       127.77 %
 
Investments
Interest-earning deposits in other financial institutions 51,000 65,305 (14,305 ) -21.90 %
Securities available for sale 818,837 567,629 251,208 44.26 %
FHLB Stock 11,303 10,015 1,288 12.86 %
 
Loans and leases
Real estate 1,049,898 1,029,194 20,704 2.01 %
Consumer 120,937 114,042 6,895 6.05 %
Commercial   335,632     315,096     20,536       6.52 %
 
1,506,467 1,458,332 48,135 3.30 %
Less allowance for loan and lease losses   (39,765 )   (39,093 )   (672 )     1.72 %
 
Net loans and leases   1,466,702     1,419,239     47,463       3.34 %
 
Bank premises and equipment 18,871 17,790 1,081 6.08 %
Other assets   100,804     100,295     509       0.51 %
 
Total Assets $ 2,611,850   $ 2,243,641   $ 368,209       16.41 %
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY                          
 
Deposits
Non-Interest Bearing Demand $ 841,535 $ 728,081 $ 113,454 15.58 %
Interest Bearing
Transaction 492,991 383,619 109,372 28.51 %
Money market 319,568 294,233 25,335 8.61 %
Savings 521,764 411,195 110,569 26.89 %
Time   189,493     185,963     3,530       1.90 %
 
Total Deposits 2,365,351 2,003,091 362,260 18.09 %
 
Other borrowings - 2,000 (2,000 ) -100.00 %
Other liabilities   32,162     37,281     (5,119 )     -13.73 %
 
Total liabilities   2,397,513     2,042,372     355,141       17.39 %
 
Stockholders' equity   214,337     201,269     13,068       6.49 %
 
Total Liabilities and Stockholder's Equity $ 2,611,850   $ 2,243,641   $ 368,209       16.41 %
 
                         
EXCHANGE BANK
and Subsidiaries
 
Consolidated Statements of Operations
(Unaudited)
 
For the Period Ended June 30, 2018 and 2017
(In Thousands, except per share amounts) Six Months Ended
Quarter Ended Six Months Ended Change % Change
        2018     2017     2018     2017     18/17     18/17
 
Interest Income
Interest and fees on loans $ 18,596 $ 16,917 $ 36,496 $ 33,781 $ 2,715 8.04 %
Interest on investments securities   5,173   2,905   9,952   5,626   4,326       76.89 %
 
Total interest income   23,769   19,822   46,448   39,407   7,041       17.87 %
 
Interest expense
Interest on deposits 570 188 944 363 581 160.06 %
Other interest expense   -   313   -   407   (407 )     -100.00 %
Total interest expense   570   501   944   770   174       22.60 %
 
Net interest income   23,199   19,321   45,504   38,637   6,867       17.77 %
 
Provision (reversal of) for losses on loans   -   -   -   -   -       0.00 %
 

Net interest income after provision for loan and leases

23,199 19,321 45,504 38,637 6,867 17.77 %
 
Non-interest income 5,394 6,714 14,491 13,505 986 7.30 %
 
Non interest expense
Salary and benefit costs 8,918 8,448 17,887 16,865 1,022 6.06 %
Other expenses   7,398   6,833   14,324   13,553   771       5.69 %
Total non-interest expense   16,316   15,281   32,211   30,418   1,793       5.89 %
 
Income before income taxes 12,277 10,754 27,784 21,724 6,060 27.90 %
 
Provision for income taxes   3,403   4,245   7,810   8,578   (768 )     -8.95 %
 
Net income $ 8,874 $ 6,509 $ 19,974 $ 13,146 $ 6,828       51.94 %
 
 
Basic earnings per common share $ 5.18 $ 3.80 $ 11.65 $ 7.67 $ 3.98 51.94 %
Dividends per share       $ 0.95     $ 0.85     $ 1.90     $ 1.65     $ 0.25       15.15 %

 

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 2018 and 2017 was 1,714,344

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