Exchange Bank Announces Second Quarter 2022 Earnings

Santa Rosa, CA – On July 28, 2022, Exchange Bank announced results for the second quarter of 2022, reporting net income after taxes of $9.52 million, compared with $8.22 million for the same quarter of 2021, an increase of 15.82%. The increase in earnings in the second quarter of 2022 can be attributed to increases in net interest income of $1.3 million and a decrease in provision expense of $0.8 million. 

The Bank’s net interest income increased from $23.24 million during the three months ended June 30, 2021 to $24.54 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 $2.80 million more in the second quarter of 2022 compared to the second quarter of 2021. In addition, interest earned on fed funds increased $350,000 in the 2022 quarter. These positive changes were offset by a decrease in PPP loans fees of $468,000 from 2021 to 2022. The Bank’s net interest margin decreased from 2.90% in 2021 to 2.80% in 2022. The Bank expects net interest margin challenges to continue into 2022 as market conditions for loans remain very competitive.

Non-interest income increased from $5.95 million in the second quarter of 2021 to $6.07 million in the similar period in 2022. This improvement can be attributed to 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 2.67% from 2021 to $17.47 million for the second quarter of 2022.

The quality of the Bank’s loan portfolio remains strong; the Bank did not take a provision for loan losses in the second quarter of 2022. Due to the economic uncertainty in the second quarter of 2021, the Bank elected to strengthen its reserve for potential future losses with a provision for loan loss totaling $0.8 million during the second quarter of 2021.

Total assets increased to $3.45 billion as of June 30, 2022 up from $3.43 billion. The Bank’s cash position remains elevated at $163 million but down $336 million from $499 million in 2021. The excess cash remains from prior years and was related to PPP loans and economic stimulus received by our customers.

The Bank continues to deploy excess cash into its investment portfolio. The investment portfolio was $1.61 billion as of June 30, 2022 vs. $1.14 billion one year before. Gross loans decreased from $1.68 billion in 2021 to $1.52 billion in 2022. Overall, loan balances decreased $155 million with $189 million of the decrease coming from forgiveness of PPP loans. Core loans grew $34 million.

Deposits remain elevated with balances of $3.20 billion as of June 30, 2022. This is a year-over-year increase in core deposits of $126 million or 4%. 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 six months ending June 30, 2022, the Bank achieved net earnings of $17.78 million, compared to $16.71 million during the similar six-month period in 2021, an increase of $1.06 million or 6.36%. The change was driven by factors related to net interest income and customer usage fees as described previously. Net interest income increased $0.41 million from $46.51 million for the six months ended June 30, 2021 to $46.92 million for the same period in 2022. $2.19 million of PPP loan fees are included in 2022 net interest income while $5.49 million was included in 2021, a decrease of $3.30 million. Interest on earning assets increased $3.71 million to more than cover the loss of PPP fee income. During the six months ending June 30, 2022, customer usage fees increased $0.82 million over 2021 to $4.25 million in 2022.  

The Bank’s capital ratios remain well in excess of the regulatory minimums to be considered “well capitalized.” As of June 30, 2022, the Bank reported total risk-based capital of 19.37%. The Bank’s book equity decreased $91.0 million, or 29.45%, since June 30, 2021. 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.  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 tangible equity, which can also be described as 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 tangible equity was $340.3 million as of June 30, 2022, an increase of $29 million over the same period in 2021 and an increase of $7.5 million since March 31, 2022. 

“In this rising interest rate environment, the Bank continues to maintain a very strong and stable liquidity position, focusing on smart loan growth within our community while maintaining excellent portfolio credit quality,” said Troy Sanderson, president and CEO.

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

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Forward looking information

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