Exchange Bank earnings fall 46% in 2023 from pension phaseout, higher interest costs

Exchange Bank (OTC: EXSR) reported earnings in the fourth quarter decreased 29.7% from the year prior, with a 46.1% decline overall for 2023 from 2022.

The Santa Rosa-based community bank Tuesday said net income was $6.77 million for the last three months of last year and $20.2 million for all of 2023.

The institution attributed the annual drop in earnings to a voluntary end to its pension plan in the second quarter and to the impact of higher interest rates on the cost of deposits and borrowing to maintain liquidity.

The cost of paying interest on deposits last year jumped to $16.7 million from $2.2 million the year before, a 721% change. The bank’s cost of borrowing skyrocketed to $8.3 million from $40,000 in the same time frame.

That huge jump in interest costs turned the 14% growth last year in interest income — banks’ primary revenue, from loans and investments — into a nearly 9% decline in net interest income.

The bank expects such interest-rate-related costs to remain higher throughout this year.

The growth in interest income was attributed to more lending plus repricing of variable-rate loans. The gross value of the loan portfolio increased 5.6% last year, to $1.59 billion. Total assets increased nearly 1% last year to $3.37 billion.

The percentage of non-performing loans to all loan was 0.26% last year, up from 0.21% in 2022.

While loans boosted the asset side of Exchange Bank’s balance sheet, the liabilities side was helped by a 7.42% fall in deposit balances, ending last year at $2.84 billion. About three-quarters of the deposits are insured by Federal Deposit Insurance Corporation, the institution said.

The Bank’s net interest income decreased from $99.14 million during the 12 months ended December 31, 2022, to $90.49 million for the same period in 2023, a decrease of 8.72%

The increased interest costs were partially offset by positive trends in interest income.

The Bank’s capital ratios remain well in excess of the regulatory minimums to be considered “well capitalized.” As of December 31, 2023, the Bank reported a total risk-based capital ratio of 18.84% and a leverage ratio of 10.52%.