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SANTA ROSA – Executives at Santa Rosa’s Exchange Bank see at least two paths to restoring the bank’s shareholder dividend and with it the iconic Doyle college scholarship and are optimistic that one scenario could allow their reinstatement by the end of this year.

The faster of the two possibilities involves the chance that the U.S. Department of the Treasury may effectively release the bank from any restrictions connected with the $45 million it received through the Troubled Asset Relief Program in 2008 by selling its preferred stock holdings of Exchange Bank to private investors, an action that some see as foreshadowed by the announced selling of preferred stock in six TARP-assisted banks on Thursday.

[caption id="attachment_51950" align="alignleft" width="288"] William Schrader and Bruce DeCrona[/caption]

The second option, which bank President and CEO William Schrader said last week would possibly be complete in 2014, would be to pay the full amount to the Treasury.

Leaders at the 122-year-old bank had hoped to announce the reinstatement of the dividend at their annual shareholder meeting last month, following the improvement of Exchange Bank’s balance sheet since the dividend’s suspension in 2008. That plan included an offer to pay down $10 million of the TARP funds immediately and continue with quarterly payments to the Treasury, Mr. Schrader said.

Yet despite the blessing of the bank's board, the California Department of Financial Institutions and the Federal Deposit Insurance Corp., a technical rule from the Treasury effectively barred the reinstatement of the dividend despite an approving nod towards the bank’s financial condition, executives said.

That rule required that the new dividend be no larger than the last declared value. While Exchange Bank last distributed a dividend of $1 per share, revoking the dividend in the months prior to the TARP aid meant that the Treasury viewed the bank’s last declared value as “zero.”

Despite the setback, executives made clear that they valued the involvement of the Treasury during the turbulence of the financial crisis. The bank lost $18 million in 2008, hit like other banks by the collapse of commercial development and real estate.

Since then, the bank has posted a profit for the past 11 quarters, earning  $12.2 million in net income over the course of 2011 and increasing those earnings by 19 percent over the prior year. Problem assets decreased by 26 percent at the end of 2011, and non-performing assets decreased by 8.5 percent.

“We got through it all the old-fashioned way. We earned our way out of it, with the grateful support of the community and the employees of Exchange Bank,” Mr. Schrader said.

Some have questioned why the improving balance sheet of the community bank has not inspired a reinstatement of the dividend, whose biggest shareholder – the Frank P. Doyle and Polly O'Meara Doyle Trust– is responsible for the Doyle Scholarship that has benefitted 115,000 students attending Santa Rosa Junior College since 1948.

Mr. Schrader reiterated his sentiment that he and the bank derived great pride from the legacy of bank co-founder Frank Doyle and the Doyle Scholarship, and he considered the dividend to be a major goal.

The Treasury has given no explicit indication that it will chose to sell all of the bank holdings that it acquired through the Capital Purchase Program. Yet Mr. Schrader noted that the department advised Exchange Bank in November of its intention to wind down TARP, and investment banking advisers have forecast that the sale of securities could occur by year-end.

Given the tepid economy and low-interest-rate environment, many banks have been slow to recover through the recession. Mr. Schrader said that the bank remained purposeful in its recovery, and that it was committed to avoiding capital raises that would be dilutive to current stock.

As of the end of last year, Exchange Bank had paid a return in excess of 5 percent to the Treasury, with over $6 million paid in dividends and $2.5 million in warrants, Mr. Schrader said.

“The fact that we now feel confident enough to recommend the dividend is a big step,” said Bruce DeCrona, executive vice president and chief operating officer at Exchange Bank.