Exchange Bank: worst is over

<p>Exchange Bank reported its second straight quarterly profit Wednesday, but bank officials said they must see further improvement before they resume dividends that funded scholarships for generations of Santa Rosa Junior College students.</p><p>William Reinking, chairman and chief executive officer, said he believes Exchange Bank has finally turned the corner after a string of losses that forced Sonoma County’s largest community bank to withdraw its financial support for the popular Doyle scholarship program.</p><p>“Much is left to do, and the economic recovery remains fragile, but we believe the worst is, indeed, behind us,” Reinking said.</p><p>The Santa Rosa bank eked out a profit of $816,000 in the third quarter, compared to a loss of $11 million a year ago, according to its earnings report released Wednesday.</p><p>But executives were quick to warn that more signs of prosperity were necessary before the bank would resume its dividends. The bank’s dividends fund the Doyle scholarships, which for 60 years helped students afford an education at Santa Rosa Junior College.</p><p>But starting in late 2007, the bank lost money in five of six quarters, prompting bank officials to stop dividend payments last fall. As a result, Doyle scholarships were scaled back in 2008 and put on hold early this year.</p><p>Robert Agrella, president of Santa Rosa Junior College, does not expect the Doyle scholarships will be funded for the next fall semester.</p><p>“It’s a possibility, but I’m not real hopeful about being able to start it up by then,” he said.</p><p>Agrella thinks the bank needs to show at least four quarters of profitability before it can even consider resuming the dividends.</p><p>“But ultimately it’s the bank’s call,” he said.</p><p>Yet Wednesday’s report buoyed his spirits.</p><p>“It’s positive, and that’s what we’re looking for,” he said. “The fact they are showing a profit in this economy is a very promising sign.”</p><p>The bank does not anticipate it will be in a position to resume dividends until 2010 at the earliest, said William Schrader, bank president. The eventual return of dividends is the bank’s “highest priority,” he said.</p><p>“But we can’t point at a date on the calendar when we’re going to start the dividend,” he said. “We’re going to have to continue this growth in our profitability, and that’s going to take some more time.”</p><p>The bank announced in July it had earned $2.4 million in the second quarter, after losing $10.3 million in the first quarter of the year.</p><p>If funding for the Doyle scholarships is not available by next fall, the Junior College plans to try to raise additional funds through donations to fund some scholarships. This year it ran a similar campaign, called “Bridging the Doyle,” which raised about $270,000.</p><p>But Agrella doesn’t think they will be able to raise as much money next year and the fund-raising program will have to be revised.</p><p>“We can’t continue to go back to donors and expect the same success,” he said. “But we think we’ll be able to do something. We just might not have as much money for it.”</p><p>The bank does not want to start issuing dividends and funding Doyle scholarships until it is sure its financial difficulties are behind it, Schrader said.</p><p>“We are still dealing with some very fragile conditions,” he said. “I think we have to recognize that this road is going to be a challenging road.”</p><p>At its peak, the bank distributed about $8 million a year in dividends, Schrader said. So far this year, the bank has lost $7 million, even with two straight quarterly profits, due to a large loss in the first quarter.</p><p>Total deposits at the bank dipped to $1.3 billion on Sept. 30, down $39 million from a year ago. The lower deposits reflect a planned reduction in wholesale and municipal balances, according to the bank.</p><p>The bank reported $1.1 billion in loans on Sept. 30, down from $1.197 billion a year ago. The decline in loans reflects reduced demand due to the recession, according to the bank.</p><p>The bank set aside $6 million to cover bad loans or reduce the value of the property underlying loans in the third quarter.</p><p>The quarterly profit amounted to 48 cents a share.</p><p>“We, like many, have been confronted with some of the most difficult conditions seen in our lifetimes,” Schrader said. “While it would be premature to declare victory, we are proud of our progress.”</p><p>Exchange Bank stock closed at $40.50 a share Wednesday, down $2.50 in over-the-counter trading. It has climbed 40 percent since hitting its lowest point this decade on April 15.</p>