Exchange Bank earnings jumped 28 percent last year as business increased in both deposits and loans.
Sonoma County's largest community bank posted net income of $15.7 million last year, compared to $12.3 million in 2012.
"Every key area of our bank showed improvement last year," said William R. Schrader, the bank's president and chief executive officer.
The county's economic recovery remains "frustratingly slow," he said, but officials still see steady movement forward.
Deposits grew 8 percent last year to $1.58 billion. The bank's loan portfolio grew 8.4 percent to $1.1 billion.
"This is the first year of meaningful loan growth in five years," said Greg Jahn, the bank's chief financial officer.
In 2013, the bank posted growth in consumer and commercial loans, two areas that had experienced declines in 2012. Real estate loans, the bank's largest loan category and an area of growth in 2012, increased last year by 8.8 percent to $764 million.
The 124-year-old bank suffered steep losses in 2008 and 2009. In 2012 it restored its dividend for the first time in four years and last summer increased the quarterly dividend to 30 cents.
The dividend provides more than $1 million a year to the Doyle Trust, which funds the Doyle Scholarship for Santa Rosa Junior College students. Fifty-one percent of the bank's cash dividend goes to the trust.
Although the bank's loan business grew last year, net interest income declined 6 percent to $59.6 million. Officials explained that was because today's loans and other investments typically earn a lower interest rate than those they are replacing in the bank's portfolio -#8212; similar to a saver who gets a lower rate of return today when renewing a certificate of deposit.
As a result, the bank's earnings rose last year largely because officials were able to dramatically reduce the funds they set aside for problem loans. In what they described as a positive step, officials cut provisions for loan losses nearly 73 percent to $2.5 million last year from $9.2 million in 2012.
In 2013, more businesses took out loans to purchase equipment or make other capital investments, said Gary Hartwick, the bank's chief operating officer.
"There has been some evidence of that," Hartwick said. "It certainly isn't robust."
The wine industry and tourism once more performed well in 2013, officials said. However, the construction industry still has "relatively weak legs," Schrader said. Its lackluster showing continues to be a drag on many related businesses.
When construction workers build new homes and commercial facilities, Schrader said, "it has a powerful multiplier effect on the local economy."