Increased business activity and a drop in problem loans helped first-quarter profits at Santa Rosa's Exchange Bank grow nearly 27 percent to $4.06 million.

Sonoma County's largest community bank reported Thursday that its loan portfolio increased 10.8 percent from a year earlier to $1.14 billion. And the bank's delinquent loans, foreclosed properties and other nonperforming assets decreased 19 percent since Dec. 31 to $29 million.

"That certainly is an indication that things are getting better," said Gary Hartwick, the bank's president and CEO.

Some of the loan growth came as business people purchased existing companies or invested in new equipment, officials said. Key sectors remain tourism, wine, food processing and technology.

"There's a little bit of traction that's occurring in the economy," said Greg Jahn, the bank's chief financial officer.

The bank, founded in 1890, has been profitable for five straight years after suffering steep losses in 2008 and early 2009 that were tied primarily to troubled real estate loans.

In 2008, the bank halted its stock dividend, which in turn temporarily ended new Doyle scholarships for Santa Rosa Junior College students. The scholarship is funded by the Frank P. Doyle and Polly O'Meara Doyle Trust, which owns a majority of Exchange Bank's stock.

The bank resumed the dividend in 2011 and on March 21 paid shareholders 35 cents per share on common stock. That amounts to an annual payment to the trust of about $1.2 million.

In the first quarter, the growth in the bank's loan portfolio resulted in the first significant growth of interest income in several years, officials said. Net interest income increased 16.9 percent from a year earlier to $15.4 million.

Deposits increased 7.3 percent to $1.58 billion and total assets grew 4.4 percent to $1.77 billion.

For the quarter, the bank set aside no funds for possible loan losses, compared to $1.45 million a year earlier. Officials said the change demonstrated the improving quality of the bank's loans.

Looking ahead, Hartwick said the bank will seek to keep increasing its loan portfolio. The ratio of loans to deposits is currently about 72 percent, but officials want to see that figure rise to about 80 percent.

However, Hartwick emphasized the bank will continue to use prudent lending standards. "We're not out to grow the loan portfolio just for the sake of loan growth," he said.