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Exchange Bank Announces Second Quarter Earnings

Exchange Bank (OTC: EXSR) today announced results for the second quarter of 2018 with a profit after tax of $8.87 million, compared to $6.51 million in the second quarter of 2017. This represents a 36% increase compared to the same period a year ago. The Bank continues to experience solid growth in its core business as evidenced by an increase in net interest income of $3.88 million, a 20% increase for the quarter ending June 30, 2018 compared to the similar quarter in 2017. Contributing to the positive trend in net interest income was growth in the loan portfolio of $48 million and an increase in the investment portfolio of $251 million, representing increases of 3.3% and 44.3% respectively over similar balances as of June 30, 2017. This strong growth in assets was funded by an increase in deposits totaling $362 million, an increase of 18.1% above deposit balances at June 30, 2017. Deposit growth during this period was strongly influenced by fire related insurance proceeds received by customers of the Bank. The Bank estimates that such short term insurance related deposits contributed in excess of $300 million of the Bank’s total growth.

Non-interest income declined in the second quarter of 2018 by $1.32 million compared to the similar quarter ending June 30, 2017. A comparison of second quarter non-interest income year-over-year was influenced by an unusual event in 2017 that was not replicated in 2018. During the quarter ending June 30, 2017, the Bank experienced a gain of $1.4 million relating to a litigation settlement. Contributing to the increased profitability during the first quarter of 2018, was the impact of a lower federal income tax rate, which declined from 35% in 2017 to 21% in 2018. The Bank estimates that the effect of this lower income tax rate in 2018 contributed approximately $1.4 million to net income after tax during the second quarter of 2018.

During the six months ending June 30, 2018, the Bank achieved net earnings of $19.97 million, compared to $13.15 million during the similar six month period in 2017, an increase of approximately $6.8 million or 52%. During the six-months ending June 30, 2018, the Bank’s net interest income increased $6.9 million over the similar six month period in 2017, an increase of 17.8%. Non-interest income for the six-months ended June 20, 2018 was positively influenced by gains on the sale of other real estate owned in the first quarter totaling approximately $3.25 million. Similarly, non-interest income for the six months ended June 30, 2017 was positively influenced by the aforementioned litigation settlement of $1.4 million in the second quarter of 2017 as well as gains on sale of other real estate owned totaling approximately $1.38 million in the first quarter of 2017. Removing the after tax impact of these nonrecurring events during both six month periods in 2018 and 2017 would have produced net income after tax of approximately $17.8 million in 2018, compared to $11.4 million in 2017. The Bank estimates that the effect of a decline in the Federal tax rate from 35% in 2017 to 21% during 2018 contributed approximately $3.2 million to net income after tax for the six month period ended June 30, of 2018.

“While this was another strong quarter of financial performance, as demonstrated by the increased net interest income, it is important to note that the unusual nature of the gains on the sale of other real estate owned totaling $3.25 million will not reoccur in future periods. We are very pleased with the significant improvement in financial results, and I am proud of the hard work and dedication of our employees as well as the continued loyalty of our clients and support from the communities we serve,” stated President and Chief Executive Officer, Gary Hartwick.

Exchange Bank paid a quarterly cash dividend of $0.95 per share on common stock outstanding to shareholders on June 15, 2018. 50.44% of the cash dividend goes to the Doyle Trust which funds the Doyle Scholarships at the Santa Rosa Junior College.

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 Best Places to Work survey, a recipient of the 2018 North Bay Community Philanthropy Award and the 2017 Healthiest Companies in the North Bay Award. NorthBay biz magazine named Exchange Bank the 2018 Best Consumer Bank and Gold Medal Winner for Best Business Bank. The North Bay Bohemian’s “Best of 2018” Readers Poll named Exchange Bank the Best Business Bank and 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)
June 30, 2018 and 2017
(In Thousands)
Change % Change
ASSETS 2018 2017 18/17 18/17
Cash and due from banks $ 39,816 $ 35,482 $ 4,334 12.21 %
Fed Funds Sold 104,517 27,886 76,631 274.80 %
Total Cash and cash equivalents144,333 63,368 80,965 127.77 %
Investments
Interest-earning deposits in other financial institutions 51,000 65,305 (14,305 ) -21.90 %
Securities available for sale 818,837 567,629 251,208 44.26 %
FHLB Stock 11,303 10,015 1,288 12.86 %
Loans and leases
Real estate 1,049,898 1,029,194 20,704 2.01 %
Consumer 120,937 114,042 6,895 6.05 %
Commercial 335,632 315,096 20,536 6.52 %
1,506,467 1,458,332 48,135 3.30 %
Less allowance for loan and lease losses (39,765 ) (39,093 ) (672 ) 1.72 %
Net loans and leases1,466,702 1,419,239 47,463 3.34 %
Bank premises and equipment 18,871 17,790 1,081 6.08 %
Other assets 100,804 100,295 509 0.51 %
Total Assets$2,611,850 $ 2,243,641 $ 368,209 16.41 %
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits
Non-Interest Bearing Demand $ 841,535 $ 728,081 $ 113,454 15.58 %
Interest Bearing
Transaction 492,991 383,619 109,372 28.51 %
Money market 319,568 294,233 25,335 8.61 %
Savings 521,764 411,195 110,569 26.89 %
Time 189,493 185,963 3,530 1.90 %
Total Deposits2,365,351 2,003,091 362,260 18.09 %
Other borrowings - 2,000 (2,000 ) -100.00 %
Other liabilities 32,162 37,281 (5,119 ) -13.73 %
Total liabilities2,397,513 2,042,372 355,141 17.39 %
Stockholders' equity214,337 201,269 13,068 6.49 %
Total Liabilities and Stockholder's Equity$2,611,850 $ 2,243,641 $ 368,209 16.41 %
EXCHANGE BANK
and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Period Ended June 30, 2018 and 2017
(In Thousands, except per share amounts) Six Months Ended
Quarter Ended Six Months Ended Change % Change
2018 2017 2018 2017 18/17 18/17
Interest Income
Interest and fees on loans $ 18,596 $ 16,917 $ 36,496 $ 33,781 $ 2,715 8.04 %
Interest on investments securities 5,173 2,905 9,952 5,626 4,326 76.89 %
Total interest income 23,769 19,822 46,448 39,407 7,041 17.87 %
Interest expense
Interest on deposits 570 188 944 363 581 160.06 %
Other interest expense - 313 - 407 (407 ) -100.00 %
Total interest expense 570 501 944 770 174 22.60 %
Net interest income23,19919,32145,50438,6376,867 17.77 %
Provision (reversal of) for losses on loans - - - - - 0.00 %

Net interest income after provision for loan and leases

23,19919,32145,50438,6376,867 17.77 %
Non-interest income 5,394 6,714 14,491 13,505 986 7.30 %
Non interest expense
Salary and benefit costs 8,918 8,448 17,887 16,865 1,022 6.06 %
Other expenses 7,398 6,833 14,324 13,553 771 5.69 %
Total non-interest expense 16,316 15,281 32,211 30,418 1,793 5.89 %
Income before income taxes 12,277 10,754 27,784 21,724 6,060 27.90 %
Provision for income taxes 3,403 4,245 7,810 8,578 (768 ) -8.95 %
Net income$8,874 $ 6,509 $19,974 $ 13,146 $ 6,828 51.94 %
Basic earnings per common share $ 5.18 $ 3.80 $ 11.65 $ 7.67 $ 3.98 51.94 %
Dividends per share $ 0.95 $ 0.85 $ 1.90 $ 1.65 $ 0.25 15.15 %

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 2018 and 2017 was 1,714,344

Contacts:

Exchange Bank
Greg Jahn, 707-524-3218
EVP, Chief Financial Officer

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