Exchange Bank Announces Third Quarter 2022 Earnings

Rhea-AI Summary

Exchange Bank (OTC: EXSR) reported a net income of $10.07 million for Q3 2022, a 2.23% increase from $9.85 million in Q3 2021. Net interest income rose to $25.99 million, driven by higher core earning assets and a $800,000 one-time life insurance benefit. Non-interest income also improved to $6.50 million. However, non-interest expenses surged by 17.06% to $18.58 million.

Book equity dropped 40.02% due to unrealized losses from the investment portfolio, despite a strong capital ratio of 18.80% as of September 30, 2022. The Bank's regulatory capital increased by 10.17% year-over-year.

Positive

• Net income increased 2.23% to $10.07 million in Q3 2022.
• Net interest income rose by $2.0 million to $25.99 million.
• Non-interest income increased to $6.50 million, benefitting from service fees and life insurance.
• Strong capital ratios, with total risk-based capital at 18.80%.
• Regulatory capital up 10.17% year-over-year.

Negative

• Non-interest expenses up 17.06%, totaling $18.58 million.
• Book equity decreased by 40.02% due to unrealized investment losses.
• Gross loans declined from $1.59 billion to $1.50 billion.

SANTA ROSA, Calif.--(BUSINESS WIRE)-- Exchange Bank (OTC: EXSR) today announced results for the third quarter of 2022, reporting net income after taxes of $10.07 million, compared with $9.85 million for the same quarter of 2021, an increase of 2.23%. The increase in earnings in the third quarter of 2022 can be attributed to increases in net interest income of $2.0 million and a one-time life insurance benefit of $800,000.

The Bank’s net interest income increased from $23.99 million during the three months ended September 30, 2021 to $25.99 million the same period in 2022. The increase in interest income is due in large part to a growth in core earning assets and interest income earned on the Bank’s investment portfolio. The investment portfolio interest was $3.20 million more in the third quarter of 2022 compared to the third quarter of 2021. In addition, interest earned on fed funds increased $618,000 in the 2022 quarter. These positive changes were offset by a decrease in PPP loans fees of $1.76 million from the 2021 quarter to the 2022 quarter. The Bank’s net interest margin decreased from 2.94% in 2021 to 2.91% in 2022. The Bank expects net interest margin challenges to continue into 2023 as market conditions for loans remain very competitive.

Non-interest income increased from $5.55 million in the third quarter of 2021 to $6.50 million in the similar period in 2022. This improvement can be attributed to the life insurance benefit noted above and an increase in consumer and business-related usage fees including interchange fees and ATM network fees. While not at pre-pandemic levels, usage-based fees have recovered from one year ago.

Non-interest expenses increased 17.06% from 2021 to $18.58 million for the third quarter of 2022. The increase in non-interest expenses relates to several areas. Salary expense has increased $622,000 for the 2022 quarter as compared to the same quarter in 2021. Software and professional fees related to technology have increased $1.38 million to $2.39 million for the third quarter of 2022. In 2021, the Bank was utilizing credits from its core conversion to offset these expenses.

The quality of the Bank’s loan portfolio remains strong; the Bank did not take a provision for loan losses in the third quarter of 2022 or 2021.

Total assets decreased to $3.43 billion as of September 30, 2022, down from $3.53 billion. The Bank’s cash position remains elevated at $131 million but down $425 million from $556 million in 2021. The excess cash remains from prior years and was related to PPP loans and economic stimulus received by our customers.

The investment portfolio was $1.60 billion as of September 30, 2022 vs. $1.24 billion one year before. Gross loans decreased from $1.59 billion in 2021 to $1.50 billion in 2022. Overall, loan balances decreased $88 million with $109 million of the decrease coming from forgiveness of PPP loans. Core loans grew $21 million.

Deposits remain steady with balances of $3.20 billion as of September 30, 2022 as compared to $3.17 billion as of September 30, 2021. It is possible the Bank could experience a certain level of 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.

During the nine months ending September 30, 2022, the Bank achieved net earnings of $27.84 million, compared to $26.56 million during the similar nine-month period in 2022, an increase of $1.28 million or 4.83%. The change was driven by factors related to net interest income and customer usage fees as described previously. Net interest income increased $2.41 million from $70.50 million for the nine months ended September 30, 2021 to $72.91 million for the same period in 2022. $2.25 million of PPP loan fees are included in 2022 net interest income while $7.30 million were included in 2021, a decrease of $5.05 million. Interest on earning assets increased $7.46 million to more than cover the loss of PPP fee income. Included in this net increase is an additional $7.74 million generated from the Bank’s investment portfolio in 2022 and an additional $1.05 million earned on fed funds.

The Bank’s capital ratios remain well in excess of the regulatory minimums to be considered “well capitalized.” As of September 30, 2022, the Bank reported total risk-based capital of 18.80%. The Bank’s book equity decreased $126.5 million, or 40.02%, since September 30, 2021 and $28.41 million, or 13.03%, since June 30, 2022. This change in the Bank’s book equity is due to the unrealized losses associated with the investment portfolio. The unrealized losses have arisen due to the significant increase in interest rates since the end of 2021. The Bank has the intent and ability to hold the investments until maturity, expects full collection of the carrying amount of these securities, and does not expect to recognize the losses. On an ongoing basis, the Bank reviews its liquidity sources. As of September 30, 2022, the Bank has in excess of $1 billion in available liquidity. The Bank does not view the temporary nature of the book unrealized losses to be a significant risk to its long-term capital position. The unrealized losses reduce the Bank’s accumulated other comprehensive income, which the Bank has opted to exclude from its common equity tier 1 capital. Therefore, the Bank’s regulatory capital is not impacted by the changes in the market value of the debt securities in the Bank’s investment portfolio. The Bank’s regulatory capital, as defined by the FDIC, was $348.2 million as of September 30, 2022, an increase of $32 million, or 10.17%, over the same period in 2021 and an increase of $7.9 million, or 2.33%, since June 30, 2022.

50.44% of the Bank’s cash dividend goes to the Doyle Trust which funds the Doyle Scholarships at the Santa Rosa Junior College.

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 full-service community bank with assets of $3.43 billion. Exchange Bank provides a wide range of personal, commercial and trust and investment management services with 16 retail branches in Sonoma County, a commercial branch in Roseville and Trust & Investment Management offices in Santa Rosa, Roseville and Silicon Valley. 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 known for its people who care about their customers, their company and the communities where they live and work. Exchange Bank is a 17-year winner of the North Bay Business Journal’s Best Places to Work survey and the 2022 San Francisco Business Times Corporate Philanthropy Award. Exchange Bank was named Best Consumer Bank by the NorthBay biz Magazine’s Best of the North Bay readers’ poll. The Petaluma Argus Courier People’s Choice Awards named Exchange Bank Best Local Bank 2022 and the Bohemian Magazine’s Best of the North Bay 2022 named Exchange Bank Best Business Bank and Best Consumer Bank. www.exchangebank.com

Member FDIC — Equal Housing Lender — Equal Opportunity Employer

EXCHANGE BANK
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
September 30, 2022 and 2021
(In Thousands)
										Change			% Change
ASSETS		2022				2021				22/21			22/21
Cash and due from banks		$	37,681			$	32,869			$	4,812		14.64	%
Federal Reserve Bank			93,103				523,082				(429,979	)	-82.20	%
Total Cash and cash equivalents			130,784				555,951				(425,167	)	-76.48	%
Investments
Interest-earning deposits in other financial institutions			2,000				17,000				(15,000	)	-88.24	%
Securities available for sale			1,596,054				1,244,297				351,757		28.27	%
FHLB Stock			15,000				14,465				535		3.70	%
Loans and leases
Real estate			1,120,668				1,077,009				43,659		4.05	%
Consumer			143,332				131,542				11,790		8.96	%
Commercial			239,759				383,618				(143,859	)	-37.50	%
			1,503,759				1,592,169				(88,410	)	-5.55	%
Less allowance for loan and lease losses			(43,912	)			(43,638	)			(274	)	0.63	%
Net loans and leases			1,459,847				1,548,531				(88,684	)	-5.73	%
Bank premises and equipment			17,664				18,955				(1,291	)	-6.81	%
Other assets			208,049				135,244				72,805		53.83	%
Total Assets		$	3,429,398			$	3,534,443			$	(105,045	)	-2.97	%
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-Interest Bearing Demand		$	1,244,439			$	1,256,952			$	(12,513	)	-1.00	%
Interest Bearing
Transaction			630,756				614,291				16,465		2.68	%
Money market			425,212				408,423				16,789		4.11	%
Savings			734,617				713,497				21,120		2.96	%
Time			164,364				178,680				(14,316	)	-8.01	%
Total Deposits			3,199,388				3,171,843				27,545		0.87	%
Other liabilities			40,439				46,541				(6,102	)	-13.11	%
Total liabilities			3,239,827				3,218,384				21,443		0.67	%
Stockholders' equity			189,571				316,059				(126,488	)	-40.02	%
Total Liabilities and Stockholder's Equity		$	3,429,398			$	3,534,443			$	(105,045	)	-2.97	%

EXCHANGE BANK
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Period Ended September 30, 2022 and 2021
(In Thousands, except per share amounts)														Nine Months Ended
		Quarter Ended						Nine Months Ended						Change			% Change
		2022			2021			2022			2021			22/21			22/21
Interest Income
Interest and fees on loans		$	18,055		$	19,870		$	52,862		$	59,346		$	(6,484	)	-10.93	%
Interest on investments securities			8,360			4,542			21,284			12,488			8,796		70.44	%
Total interest income			26,415			24,412			74,146			71,834			2,312		3.22	%
Interest expense
Interest on deposits			424			424			1,232			1,336			(104	)	-7.78	%
Total interest expense			424			424			1,232			1,336			(104	)	-7.78	%
Net interest income			25,991			23,988			72,914			70,498			2,416		3.43	%
Provision (reversal of) for losses on loans			-			-			-			2,000			(2,000	)	-100.00	%
Net interest income after
provision for loan and leases			25,991			23,988			72,914			68,498			4,416		6.45	%
Non-interest income			6,500			5,550			18,676			16,905			1,771		10.48	%
Non interest expense
Salary and benefit costs			10,057			9,385			29,212			27,419			1,793		6.54	%
Other expenses			8,520			6,485			23,936			21,185			2,751		12.99	%
Total non-interest expense			18,577			15,870			53,148			48,604			4,544		9.35	%
Income before income taxes			13,914			13,668			38,442			36,799			1,643		4.46	%
Provision for income taxes			3,847			3,821			10,598			10,238			360		3.52	%
Net income		$	10,067		$	9,847		$	27,844		$	26,561		$	1,283		4.83	%
Basic earnings per common share		$	5.87		$	5.74		$	16.24		$	15.49		$	0.75		4.83	%
Dividends per share		$	1.25		$	1.20		$	3.65		$	3.60		$	0.05		1.39	%
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 2022 and 2021 was 1,714,344

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20221103006314/en/

Shari DeMaris, EVP, Chief Financial Officer

(707) 524-3067

Source: Exchange Bank

FAQ

What were Exchange Bank's earnings for Q3 2022?

Exchange Bank reported net income of $10.07 million for Q3 2022.

How much did net interest income increase for Exchange Bank?

Net interest income increased by $2.0 million to $25.99 million.

What is the current capital ratio of Exchange Bank?

As of September 30, 2022, Exchange Bank's total risk-based capital is 18.80%.

Did Exchange Bank experience loan growth in Q3 2022?

No, gross loans decreased from $1.59 billion in 2021 to $1.50 billion in 2022.

How much did non-interest expenses rise in Q3 2022?

Non-interest expenses increased by 17.06% to $18.58 million.