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Exchange Bank Announces Fourth Quarter and Year Ending 2017 Earnings

EXSR | February 5, 2018

Exchange Bank Announces Fourth Quarter and Year Ending 2017 Earnings

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	%