Exchange Bank Announces Fourth Quarter and Year Ending 2020 Earnings

Rhea-AI Summary

Exchange Bank (OTC: EXSR) reported a net income of $9.24 million for Q4 2020, a 1.87% increase from Q4 2019, leading to a total annual net income of $33.70 million. Despite these results, 2020 net income showed a decline from $36.50 million in 2019, influenced by lower net interest income and a $1.8 million provision for loan losses. The bank successfully provided PPP loans worth approximately $260 million to 1,780 small businesses. Total assets rose to $3.14 billion, a 17.43% increase from 2019, driven by a significant rise in deposits.

Positive

• Net income for Q4 2020 increased by 1.87% compared to Q4 2019.
• Total assets increased to $3.14 billion, up 17.43% year-over-year.
• Successfully provided $260 million in PPP loans to 1,780 small businesses.

Negative

• Net income for the year fell to $33.70 million from $36.50 million in 2019.
• Decline in net interest income from $96.91 million in 2019 to $96.38 million in 2020.
• Increased provision for loan loss of $1.8 million, compared to no provision in 2019.

Exchange Bank (OTC: EXSR) today announced results for the fourth quarter and year ending 2020, reporting net income after taxes of $9.24 million in the fourth quarter of 2020, compared with $9.07 million for the same quarter in 2019, an increase of 1.87%. The Bank achieved net income for the year ended December 31, 2020 of $33.70 million.

Exchange Bank main office in downtown Santa Rosa (545 Fourth Street) (Photo: Business Wire)

“In a historically low interest rate environment, and in the midst of a significant economic disruption caused by the pandemic, the Bank posted solid operating results in 2020 by focusing on its core mission as a community bank—supporting our customers,” said Troy Sanderson, president and CEO.

The Bank continues to support its customers, providing payment deferrals to borrowers who have been negatively impacted by the COVID-19 virus. For a portion of 2020, the Bank also waived ATM and overdraft fees for their consumer and business customers. Exchange Bank expended tremendous internal resources participating in the SBA Paycheck Protection Program (PPP) under the CARES Act. As a result of this effort, they were successful in providing loans to 1,780 small businesses in the community with loan balances totaling approximately $260 million.

“I am extremely proud of our employees who worked tirelessly to secure this much needed financial support for our local small businesses through the PPP program,” said Sanderson. “Even more impressive, $22 million of these PPP loans were made to local nonprofit and charitable organizations, enabling them to continue to provide critical needed assistance to our community during these very difficult times.”

Exchange Bank’s net income for 2020 was $33.70 million, compared with $36.50 million in 2019. The decrease in earnings can be directly attributed to declines in net interest income, non-interest income and an increase in the provision for loan loss. The Bank’s 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 slightly from $96.91 million during the 12 months ended December 31, 2019 to $96.38 million the same period in 2020. During a period of time when treasury yields remained anchored near historic lows, the Bank’s margin was negatively impacted by declines in yields on loans and investments that surpassed the Bank’s ability to affect a similar decline in interest expense through a lower cost of funds. As a result, the Bank experienced a decline of $531 thousand in net interest income for the 12 months ended December 31, 2020 compared with the similar period in 2019. The loss of interest income was somewhat offset by the increase in interest income as a result of the growth of $260 million in PPP loans and other liquid investments totaling approximately $180 million. The Bank’s net interest margin decreased from 3.89% in 2019 to 3.46% in 2020. The Bank expects net interest margin challenges to continue into 2021 with the expectation that treasury yields will remain low.

Non-interest income declined from $24.23 million in 2019 to $21.54 million in 2020. During 2020, the Bank witnessed significant declines in various elements of deposit service fee income that are directly associated with a weaker level of personal consumption and low interest rates, as well as a reduction in SBA revenue due to the lack of new business formation in the midst of this crisis.

The previously discussed declines in revenue were somewhat offset by the Bank’s focus on controlling operating expenses. Adjusting to an environment of generally slower business activity, the Bank was successful in reducing operating expenses during the 12 months ending December 31, 2020, by approximately $1.70 million or 2.41%. In addition, during 2020, the Bank had one-time expenses related to its core operating system conversion of approximately $2.3 million before taxes. Without such expenses, the Bank’s 2020 income would have been closer to its 2019 results.

The quality of the Bank’s loan portfolio remains strong; however, due to the economic uncertainty that exists today, the Bank elected to strengthen its reserve for potential future losses with a provision for loan loss totaling $1.8 million during 2020. The Bank did not take a provision for loan loss during the similar period in 2019.

Overall, the Bank’s balance sheet growth for the year ending December 31, 2020 was bolstered by the PPP loans and deposit growth as previously noted. Total assets increased to $3.14 billion as of December 31, 2020 up from $2.67 billion in 2019, an increase of 17.43%. Gross loans increased from $1.58 billion in 2019 to $1.73 billion in 2020.

The Bank experienced a dramatic increase in deposit balances which were up year-over-year by approximately $424 million or 18%. This increase in deposits mainly occurred during the second quarter of 2020, resulting from business deposits totaling approximately $260 million relating to the deposit of PPP loan funds received by Bank clients. An additional source of deposits totaling $176 million came from both business and consumer customers who chose to hold more liquid assets during this period of great uncertainty. The 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. It is possible the Bank could experience a significant runoff of the excess deposits due to their unusual and short-term nature as they are used to support small business and consumer-related expenses over the next year. The effect of the 2021 PPP loan program on deposit and loan balances is uncertain at this time, but could have a material impact on the Bank’s results during the coming year.

The Bank’s capital ratios remain well in excess of the regulatory definitions of “well capitalized.” As of December 31, 2020, the Bank reported total risk-based capital of 15.92%.

“While 2020 was a financially successful year for Exchange Bank, it was also a year focused on a substantial investment in the continuity of our legacy,” said Mr. Sanderson. “Now, with two very large information technology upgrades implemented within the past two years, Exchange Bank is well-positioned to leverage these new capabilities to better support and serve our clients and community for many years to come.”

FORWARD-LOOKING INFORMATION:

The following appears in accordance with the Private Securities Litigation Reform Act of 1995: 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 $3.1 billion. Exchange Bank provides a wide range of personal, commercial and trust and investment services with 18 branches in Sonoma County and a commercial branch in Roseville, 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 15-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 Bank and Best Business Bank. The Petaluma People’s Choice Awards named Exchange Bank the Best Local Bank and 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 2020. www.exchangebank.com.

Member FDIC — Equal Housing Lender — Equal Opportunity Employer

 

EXCHANGE BANK
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31, 2020 and 2019
(In Thousands)
										Change			% Change
ASSETS			2020				2019				20/19		20/19
Cash and due from banks		$	35,316			$	33,346			$	1,970		5.91	%
Federal Reserve Bank			301,095				171,609				129,486		75.45	%
Total Cash and cash equivalents			336,411				204,955				131,456		64.14	%
Investments
Interest-earning deposits in other financial institutions			38,000				60,000				(22,000	)	-36.67	%
Securities available for sale			919,705				718,055				201,650		28.08	%
FHLB Stock			13,483				13,483				-		0.00	%
Loans and leases
Real estate			1,113,241				1,115,374				(2,133	)	-0.19	%
Consumer			477,518				130,483				347,035		265.96	%
Commercial			136,930				335,412				(198,482	)	-59.18	%
			1,727,689				1,581,269				146,420		9.26	%
Less allowance for loan and lease losses			(41,668	)			(39,907	)			(1,761	)	4.41	%
Net loans and leases			1,686,021				1,541,362				144,659		9.39	%
Bank premises and equipment			20,498				18,335				2,163		11.80	%
Other assets			124,979				116,928				8,051		6.89	%
Total Assets		$	3,139,097			$	2,673,118			$	465,979		17.43	%
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-Interest Bearing Demand		$	1,118,093			$	867,878			$	250,215		28.83	%
Interest Bearing
Transaction			875,589				491,374				384,215		78.19	%
Money market			326,327				294,817				31,510		10.69	%
Savings			267,251				514,755				(247,504	)	-48.08	%
Time			191,313				186,180				5,133		2.76	%
Total Deposits			2,778,573				2,355,004				423,569		17.99	%
Other liabilities			55,607				47,301				8,306		17.56	%
Total liabilities			2,834,180				2,402,305				431,875		17.98	%
Stockholders' equity			304,917				270,813				34,104		12.59	%
Total Liabilities and Stockholder's Equity		$	3,139,097			$	2,673,118			$	465,979		17.43	%

EXCHANGE BANK
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Period Ended December 31, 2020 and 2019
(In Thousands, except per share amounts)											Twelve Months Ended
			Quarter Ended				Twelve Months Ended				Change			% Change
			2020		2019		2020		2019		20/19			20/19
Interest Income
Interest and fees on loans			$21,953		$19,789		$82,339		$78,845		$	3,494		4.43	%
Interest on investments securities			3,867		5,274		17,337		22,744			(5,407	)	-23.77	%
Total interest income			25,820		25,063		99,676		101,589			(1,913	)	-1.88	%
Interest expense
Interest on deposits			613		1,181		3,297		4,679			(1,382	)	-29.54	%
Total interest expense			613		1,181		3,297		4,679			(1,382	)	-29.54	%
Net interest income			25,207		23,882		96,379		96,910			(531	)	-0.55	%
Provision (reversal of) for losses on loans			900		-		1,800		-			1,800		0.00	%
Net interest income after
provision for loan and leases			24,307		23,882		94,579		96,910			(2,331	)	-2.41	%
Non-interest income			5,704		6,137		21,535		24,231			(2,696	)	-11.13	%
Non interest expense
Salary and benefit costs			9,701		9,881		38,922		39,061			(139	)	-0.36	%
Other expenses			6,631		7,515		29,719		31,277			(1,558	)	-4.98	%
Total non-interest expense			16,332		17,396		68,641		70,338			(1,697	)	-2.41	%
Income before income taxes			13,679		12,623		47,473		50,803			(3,330	)	-6.55	%
Provision for income taxes			4,443		3,552		13,774		14,302			(528	)	-3.69	%
Net income			$9,236		$9,071		$33,699		$36,501		$	(2,802	)	-7.68	%
Basic earnings per common share			$5.39		$5.29		$19.66		$21.29		$	(1.63	)	-7.68	%
Dividends per share			$1.20		$1.15		$4.80		$4.40		$	0.40		9.09	%
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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FAQ

What were Exchange Bank's earnings for the fourth quarter of 2020?

Exchange Bank reported a net income of $9.24 million for Q4 2020.

How did Exchange Bank's net income change in 2020?

Exchange Bank's net income decreased to $33.70 million in 2020, down from $36.50 million in 2019.

What impact did PPP loans have on Exchange Bank's financial results?

Exchange Bank provided approximately $260 million in PPP loans to support local small businesses, contributing to asset growth.

What was the status of Exchange Bank's total assets in 2020?

Total assets increased to $3.14 billion as of December 31, 2020, a 17.43% increase from the previous year.

What challenges did Exchange Bank face in 2020 regarding interest income?

The bank faced declines in net interest income and net interest margin due to low treasury yields and decreased loan and investment yields.