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Exchange Bank reports 5% decline in 2019 earnings, citing one-time items

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Exchange Bank of Santa Rosa reported Thursday its 2019 net income decreased 5% compared to the previous year, which bank officials attributed to new technology investments and the one-time gain from a real estate transaction in 2018.

The community bank said its net income for the year ending Dec. 31 totaled $36.5 million, or $2 million less than the previous year. For the fourth quarter, Exchange Bank generated net income of $9.07 million, up 1% from $9.01 million during the October-through-December quarter in 2018.

“Every financial metric has improved. The reason the bottom line income is lower than last year is solely for primary two reasons,” said Gary Hartwick, the bank’s chief executive officer.

Hartwick said the bank, which has assets of $2.6 billion, spent almost $2 million in upgrades last year for its online and mobile banking platform for customers. Also, the bank recorded in 2018 a $3.25 million gain from the sale of a foreclosed property, but did not have any such sales last year.

“When you get rid of those expenses, our net income has actually improved over 2018 even though the financial statements will show a decline in it,” Hartwick said. “When you look at how did the bank operate? It operated far better than we did in 2018.”

The bank said its net interest income — the difference between the revenue generated from loans minus the interest paid on deposits — increased 3.8% from $93.3 million in 2018 to $96.9 million 2019. A key driver was a 4% increase in its loan portfolio to a total of $1.581 billion in 2019.

“This was a very good year for us in terms of extending credit to the community,” said Greg Jahn, the bank’s chief financial officer.

The bank was co-founded by father and son Manville Doyle and Frank Doyle in 1890 and the Doyle family placed its equity stake — 50.44% of the common stock — in a perpetual trust. The trust funds the Frank P. Doyle and Polly O’Meara Doyle Scholarship Fund for eligible students at Santa Rosa Junior College. It provided about $3.75 million in scholarship money last year through dividends, Jahn said.

The trust’s ownership stake limits the bank’s ability in terms of mergers and acquisitions, though in recent years Exchange has expanded its wealth management business via deals in the Sacramento and South Bay markets. Boosted by those deals, the bank’s trust and investment department posted an 18% increase in revenue to a total of $8.6 million in 2019.

Hartwick said the bank is open to further expansion in wealth management “especially if it gives us some geographic entrance into other markets.”

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