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The U.S. Treasury Department announced plans Monday to auction off shares it owns in Exchange Bank this week, raising hopes the Doyle scholarships for Santa Rosa Junior College students could soon be restored.

The sale would help clear the way for Exchange Bank to resume paying dividends, the sole funding source for Doyle scholarships used by generations of students to attend SRJC.

In March, Exchange Bank Chairman Bill Reinking said the dividends could resume very quickly after the federal government divests its shares in the Santa Rosa bank.

On Monday, Exchange Bank President Bill Schrader stopped short of making that promise. It could take a week or two for the auction process to unfold, he said. The final decision on whether to resume dividends would be made by the bank's board of directors, he said.

"I know the anticipation surrounding this, but it's a little early at this point," Schrader said. "The shares have not been sold. They're in the process of prepping them for sale."

For 60 years, an uninterrupted flow of dividends from Exchange Bank powered the Doyle scholarship program, which has helped 115,000 students attend Santa Rosa Junior College. SRJC stopped issuing new Doyle scholarships after the bank suspended dividend payments in 2008.

If restored, the Doyle scholarship would improve access for students who otherwise could not afford to attend college, said Frank Chong, president of Santa Rosa Junior College.

"I'm really looking forward to seeing the Doyle scholarship restored," Chong said. "The bank has been working hard to pay their dividend again, and it looks like we're right there, we're close. So I think it will be a great benefit to our community."

That, in turn, could increase enrollment and the school is concerned about its ability to meet demand, due to cutbacks, Chong said. Whether the size of the scholarship will change remains to be seen.

"The auction is a pretty new process for the banks, so there's a lot of uncertainty," Chong said.

Exchange Bank lost more than $22 million in 2008 and 2009, forcing it to suspend dividends. It borrowed $43 million in 2008 from the Treasury Department under the Troubled Asset Relief Program, or TARP, which was designed to help shore up the U.S. financial sector. In exchange, the federal government received shares of preferred stock in Exchange Bank, along with the power to regulate its dividends.

In March, the Treasury Department rejected a proposal by the bank to repay the TARP loan in installments over three years and resume dividend payments.

Now, the Treasury Department is seeking to recoup its money by selling its shares in Exchange Bank and 11 other banks to private investors this week in an auction. If the sale is completed, Exchange Bank would then be free of restrictions set by the Treasury Department, including its rules on the resumption of dividends.

"Right now, any bank where they hold preferred stock, they hold a control over the bank's ability to pay dividends," Schrader said. "Once they sell their holdings, that restriction goes away. But the institutions themselves have to make a conclusion as to whether they will pay a dividend at this point."

The auction process began Monday and is scheduled to end Thursday, according to the Treasury Department. But Schrader said a minimum price for the shares had not yet been set, and there are legal issues to be worked out.

<NO1><NO>Ultimately, the bank's board of directors will make the decision on whether or not to reinstate the dividend, Schrader said.

"It's not appropriate for me to say this is the single, final matter to close out," Schrader said, referring to the auction. "However, we intend to present everything in its entirety to the board if the sale is finished."

Schrader said the auction of the preferred stock would not change the bank's ownership structure. The Frank P. Doyle and Polly O'Meara Doyle Trust, which funds the Doyle scholarship at SRJC, is the largest shareholder of Exchange Bank.

"That will continue to remain how it is," Schrader said. "Nothing changes as far as that's concerned."

Exchange Bank reported its 13th straight quarterly profit last week.