Exchange Bank Announces Third Quarter Earnings

Exchange Bank has announced results for the third quarter of 2011 with a profit after tax of $3 million.  For the first nine months of 2011, net income of $9MM represents a 12% increase over that of 2010.

Operating within a historically low interest rate environment, the Bank’s net interest income has declined by $3 million thus far in 2011 versus 2010.  This drop has been offset by operating strength in the Bank’s other core areas such as the small business administration lending and sales, and a decline in the provision for loan losses.

Loans increased $17 million and deposits increased $36 million when compared to the third quarter of 2010, reflecting renewed loan demand that began to surface at the beginning of the second quarter of 2011. Deposit increases are largely attributable to a flight to safety from the uncertainties of the financial markets, and the bank is seeing some movement of funds from large institutions as they implement increased fees to offset reduced revenues that result from regulatory implementation of the Dodd- Frank financial reform.

Exchange Bank continues rigorously to address problem loans on a borrower-by-borrower basis.  Since 12/31/08, non?performing assets have shrunk 30% from $75MM to $52MM; however, the bank is still short of its goal for these assets to total less than $30MM.

In spite of these improved results, our community bank remains cautious about its outlook for the near term, as we see the local economy performing at an anemic and uneven pace.  As a key measurement of business conditions, the bank sees many of our consumer and business customers still struggling through this weak recovery.  The housing market is bumping along at the bottom, and the healing in the job market has been gradual at best.

“We are proud of the core strength displayed with these results and we are pleased to report our tenth consecutive profitable quarter”, stated President and Chief Executive Officer William R. Schrader. “Our work of restoring our community Bank back to a full recovery is still incomplete.  Reinstating the dividend remains our highest priority.  However, for the near term, the level of problem assets and the uncertainty we still have with regard to the sustainability of this soft recovery compel us to be practical in retaining our capital reserves and earnings.  In our view, having extra capital on hand is a wise strategy as we work through this difficult time period.

“Our recovery in asset quality will proceed throughout this year and into at least 2012 and beyond.  Our progress will track the recovery of the local economy and may perhaps be uneven at times.  This work will unquestionably lead us back to the level of balance sheet quality that we maintained for decades, and it will produce the type of performance that will again support a cash dividend”.

Contact: Brad Hunter (707)524-3392