Exchange Bank: dividends unlikely in 2010

<p>Exchange Bank on Thursday reported its most profitable quarter in 2 1/2-years, but the still fragile economy will likely prevent the bank from resuming dividend payments this year that fund the Doyle scholarships at Santa Rosa Junior College.</p><p>“We don't want to renew the dividend until we're sure we can sustain it into the future,” said William Schrader, the bank's president and chief executive. “This economic recovery is going to be very slow.”</p><p>Despite notching a profit of $3.2 million during the last three months of 2009 — its third consecutive profitable quarter after nearly two years of losses — the bank remains weighed down by borrowers who are not repaying loans.</p><p>The bank still has $63 million in so-called nonperforming assets — down from $75 million a year ago but still too high to safely revive the dividend payments that fund the Doyle scholarships, bank officials said Tuesday.</p><p>“The first thing we had to do was get the profits back, which we've done. Now we have to get the nonperforming assets down,” said Bruce DeCrona, chief operating officer.</p><p>The bank needs to reduce its nonperforming assets to about $30 million, while maintaining profitability and trusting that the economic recovery is real, before it can renew the dividend, they said.</p><p>“I just cannot pinpoint a date on the calendar when that will happen,” Schrader said. “This is a slower economic recovery than anything that we've seen in our lifetime.”</p><p>A year ago, bank officials said they needed to see at least two consecutive quarters of profits before they could resume the dividends. But Tuesday they said the failure of the economy to improve with any gusto has severely diminished the likelihood of it resuming in 2010, despite the three consecutive quarters of profit.</p><p>Robert Agrella, president of Santa Rosa Junior College, had hoped the dividend might be renewed as early as this spring.</p><p>“I would be ecstatic if after four quarters of profit we received some sort of dividend. If that doesn't occur, we'll just have to adjust accordingly,” he said.</p><p>The Doyle scholarship program was scaled back in the fall of 2008 and suspended last year for the first time in its 60-year history. It had provided $76 million to 112,000 students before the bank's financial problems resulted in its suspension. Now students are lining up in droves to receive financial aid, Agrella said.</p><p>The bank's problems began appearing in late 2007 and it would lose money in five of the next six quarters. Bank officials stopped issuing dividend payments in September 2008. At its peak, the bank issued $8 million a year in dividend payments to its shareholders.</p><p>The bank's string of losses were originally rooted in residential building loans to developers who were unable to repay their debts after the collapse of the real estate market. About 90 percent of the bank's problem loans in the first quarter of 2009 were in construction and development. The bank has set aside $102 million for bad loans during the last two years, bank officials said Tuesday.</p><p>Now as the Great Recession works through the broader economy the bank is dealing with loan problems from a broader array of customers — from Main Street retailers to wineries and dairy farmers. These new loan troubles account for about 50 percent of the bank's $63 million in nonperforming assets, Schrader said.</p><p>Despite the continued problems the bank appeared to have tentatively turned the corner in the middle of last year, after losing $18.5 million in 2008. In addition to last quarter's earnings, the bank eked out a profit of $2.4 million in the second quarter of 2009 and $816,000 in the third quarter.</p><p>“The core operating strength of the bank is very strong,” Schrader said.</p><p>Total deposits at the bank in 2009 increased 2 percent to $1.3 billion compared to the previous year. Total assets fell to $1.5 billion at year end, down 6 percent from 2008. Total loans fell to $1.1 billion, a decline of 6 percent.</p><p>Overall, the bank lost $3.8 million last year due to a first-quarter loss of $10 million.</p><p>Bank officials warned Tuesday that while they expect to remain profitable going forward, profits are likely to remain erratic.</p><p>“We are on the road to recovery,” Schrader said. “But there is additional progress that has to be made.”</p><p>Schrader, who has served as president of the bank since 2008, became chief executive at the beginning of the year. He replaces William Reinking, who returned to the bank as CEO in 2008 following the unexpected departure of Barrie Graham. Reinking has retained his role as chairman of the board.</p>