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North Bay Business Journal

Monday, February 24, 2014, 11:11 am

Exchange Bank increases dividend as outlook improves; will boost SRJC scholarships

Growing confidence in regional economy

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    SANTA ROSA — Exchange Bank’s board of directors has approved a 17 percent increase to the bank’s quarterly cash dividend, its second increase since the institution announced the resumption of its regular shareholder dividend in August 2012.

    The bank will pay 35 cents per share on March 21 to shareholders of record as of March 7, the Santa Rosa-based institution announced. The increase amounts to an additional five cents per share, equal to an earlier increase approved on the one-year anniversary of the dividend’s restoration in August 2013.

    With 51 percent of thosExchange Banke shares held in a trust that administers the Doyle Scholarship at Santa Rosa Junior College, the increased dividend will fund approximately $306,000 towards new scholarships every quarter, according to information from the bank’s latest statement of condition.

    The dividend represents an annualized yield of 1.81 percent based on a current stock price of $77.31. Exchange Bank trades over the counter as EXSR.

    “The board recognizes substantial improvement in our credit quality and the quality of our balance sheet, as well as the dependability of our earnings,” said William Schrader, president and chief executive.

    The bank reported what its executives said was the first year of meaningful post-recession loan growth — an important measure for community banks –in 2013. Loan volume was up 8.2 percent for the year, along with improvements in asset quality and a 28 percent increase in annual earnings. Exchange Bank had $1.78 billion in assets as of Dec. 31, 2013.

    Exchange Bank suspended its quarterly shareholder dividend in 2008 during the height of the financial crisis, after paying an all-time annual peak of $6.10 to shareholders in 2007.

    While the bank’s position improved in the following years, a technicality connected to the $45 million it received through 2008′s federal Troubled Asset Relief Program remained a barrier to restoring the dividend. The U.S. Department of the Treasury effectively released that barrier after auctioning its special TARP shares in the bank on the private market in July 2012.

    Bill Schrader

    Exchange Bank itself has purchased a total of $33 million in those shares, with around $9.1 million remaining on the private market. Those purchases have lowered the bank’s long-term expenses by freeing it of a corresponding dividend obligation, which rises from 5 percent to 9 percent for TARP preferred shares for all banks after five years.

    Executives at Exchange Bank have noted that any plan to retire those remaining shares will occur with caution towards maintaining a strong cash reserve. The bank’s current risk-based capital ratio, which reflects a ratio of liquid assets like cash as a cushion to loans and other assets with varying degrees of risk, well exceeds industry standards at 14.42 percent. Banks are required to maintain a minimum of 8 percent.

    While the bank’s board of directors considers the dividend each quarter, Mr. Schrader said that there is no set schedule for further increases.

    “It will be tied more intimately to our outlook and confidence in the economy,” he said.

    Yet that outlook is indeed improving for a 124-year-old bank with deep ties in the Sonoma County economy.

    “We know the significance of the dividend, and we hope our confidence is infectious,” said Mr. Schrader.

    He added: “As the Sonoma County economy goes, so goes Exchange Bank.”

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