Exchange Bank Announces Third Quarter 2021 Earnings

Santa Rosa, CA – On November 2, 2021, Exchange Bank announced results for the third quarter of 2021, reporting net income after taxes of $9.85 million, compared with $7.98 million for the same quarter in 2020, an increase of 23.43%.

The Bank’s net interest income decreased slightly from $24.08 million during the three months ended September 30, 2020 to $23.99 million during the same period in 2021. The 2021 interest income was supported by the PPP loans booked in both 2020 and 2021 and the fees associated with these loans. In the third quarter of 2021, the Bank recognized $1.82 million in PPP loan fees. 

The Bank’s results continue to be 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. Non-interest income increased from $5.22 million in the third quarter of 2020 to $5.55 million in the similar period in 2021. A highlight of the favorable non-interest income is Trust and Investment Management with an increase of $0.45 million over the third quarter of 2020 to $2.52 million for the three months ended September 30, 2021. This favorable income was offset by three main factors: slightly lower account service fees due to higher than normal compensating balances across both business and consumer deposit accounts; a decline in interchange fees as a result of reduced consumer spending; and lower SBA fee income due to diminished business activities during this period. These fee-based decreases are a continuing trend from 2020 which the Bank expects to continue for the remainder of 2021.

The quality of the Bank’s loan portfolio remains strong and the Bank did not add to its reserve during the third quarter of 2021. The Bank did take a provision for loan loss of $0.9 million during the similar period in 2020.  

The previously discussed increases in revenue were supplemented by the Bank’s decreased operating expenses. The Bank had a decrease operating expenses during the three months ending September 30, 2021 of $1.53 million or 8.80% in comparison to the three months ended September 30, 2020.  The 2020 expenses include approximately $2.00 million related to the Bank’s core system conversion.

The Bank experienced a dramatic increase in deposit balances which were up year-over-year by approximately $497 million or 18.59%. This increase in deposits started during the second quarter of 2020, resulting from business deposits relating to the deposit of PPP loan funds received by Bank clients. The PPP loans issued in 2021 have added to the increase in deposits. Additional sources of the increase in deposits are the economic stimulus received by our customers and 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.

Overall, the Bank’s balance sheet growth for the year-ending September 30, 2021 was bolstered by the PPP loans and deposit growth as previously noted. Total assets increased to $3.53 billion as of September 30, 2021 up from $3.04 billion as of September 30, 2020, an increase of 16.37%. Gross loans decreased from $1.82 billion in 2020 to $1.59 billion in 2021. A significant portion of the decrease relates to PPP loans which had a balance of $260 million as of September 30, 2020 vs. $110 million as of September 30, 2021. The Bank’s investment portfolio increased $435 million during the 12 months ended September 30, 2021. The Bank expects net interest margin to be a challenge for the remainder of 2021 and into the near future with the expectation that treasury yields will remain low. 

During the nine months ending September 30, 2021, the Bank achieved net earnings of $26.56 million, compared with $24.46 million during the similar nine-month period in 2020, an increase of $2.10 million or 8.58%. The change was driven by the same factors related to net interest income and non-interest income as described previously. Net interest income declined $0.67 million from $71.17 million for the nine months ended September 30, 2020 to $70.50 million for the same period in 2021. $7.30 million of PPP loan fees are included in 2021 net interest income. During the nine months ending September 30, 2021, the growth in the Bank’s Trust and Investment Management income, which was up approximately $1.45 million, helped offset declines in deposit fee and SBA income, compared with the similar nine-month period in 2020.

The Bank’s capital ratios remain well in excess of the regulatory definitions of “well capitalized.” As of September 30, 2021, the Bank reported total risk-based capital of 20.29%.

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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