Exchange Bank posts $11.5 million loss

<p>Exchange Bank posted an $11.5 million loss Wednesday, the result of continuing problems with bad construction loans.</p><p>Sonoma County’s largest local bank, which had reported uninterrupted profits for more than a half-century, has now lost money in three of the last four quarters.</p><p>The primary reason for the latest loss was a decision by the bank to increase its reserves for delinquent construction loans.</p><p>“Our problems are in an isolated segment of our loan portfolio – one that we have identified and have moved quickly to contain and correct,” William Reinking, chairman and CEO of Exchange Bank, said in a statement.</p><p>“While this is a challenging economic period, we remain well capitalized by regulatory standards and we believe we have put the worst behind us,” Reinking said.</p><p>The greatest cause of Exchange Bank’s problems is its level of construction lending, including a move into the Sacramento area near the peak of the housing boom.</p><p>Loans to residential real estate developers account for about 10 percent of Exchange Bank’s $1.2 billion loan portfolio. </p><p>“As disclosed earlier in the quarter, we have moved decisively to identify problem loans, make changes and take prudent reserves,” Reinking said.</p><p>Despite the losses, the bank’s core business remains strong, including deposits, other loans, and non-interest income, officials said.</p><p>But the bank’s losses have caused reverberations throughout the community. In September, Exchange Bank halted dividend payments to its shareholders for the first time in more than 60 years.</p><p>In response, Santa Rosa Junior College was forced to turn away hundreds of students seeking aid from the popular Doyle scholarship program, which is funded by the dividends.</p><p>After awarding 3,108 scholarships in the spring, the school eliminated the second round of applications for the fall semester, which normally adds hundreds more students to the program, said Robert Agrella, president of SRJC.</p><p>The Doyle fund will draw on reserves to provide scholarships next year to students currently receiving aid, although it could reduce the amount of money given to each student, Agrella said. It will not accept new students into the program until dividends resume, he said.</p><p>If the bank begins paying dividends by March, the Doyle fund would be able to reopen the scholarship program to incoming students for the 2009 fall semester, Agrella said.</p><p>“We can probably turn it around very, very rapidly, once we know we’ve got a dividend,” he said. </p><p>Exchange Bank shares have tumbled over the past year, falling to their lowest level since 2001. On Monday, its stock closed at $50 a share in over-the-counter trading. A year ago, Exchange Bank stock traded at $125.</p>