SANTA ROSA -- Exchange Bank saved millions of dollars last year when it bought back nearly 45 percent of stock sold to the U.S. Department of the Treasury as part of 2008's Capital Repurchase Program, partially unwinding its own involvement with the national initiative launched to boost capital at banks hit hard by the financial crisis.

The bank paid $17 million to repurchase 19,570 shares of preferred stock at auction, saving 12.5 percent versus what the Treasury paid for those shares in 2008, according to information from the bank and the Treasury. The bank plans to gradually buy back the remaining 25,430 shares held by private investors when its capital reserve is appropriate, according to information bank executives presented at the institution's annual shareholder meeting in late March.

While bank executives in July acknowledged that the bank could have repurchased shares through the auction, rules connected to the sale prohibited them from discussing their involvement at the time.

The Treasury auctioned its stake in Exchange Bank -- $43 million in newly issued stock and $2 million in related warrants -- as part of a broad effort to wind down the Troubled Asset Relief Program and other initiatives launched during the financial crisis. The July 2012 auction involved stock in 12 institutions, earning a net $248.5 million profit for taxpayers despite the discounted price for shares in Exchange Bank.

The selling of those shares by the Treasury freed Exchange Bank from a technicality that had barred it from restoring its shareholder dividend, a restriction that continued despite regulators' recognition of the bank's improved financial position. The bank had previously made offers to repurchase those shares from the Treasury -- at $10 million up front and $2 to $3 million in following quarters -- but would likely have been unable to restore the dividend until the anticipated full repayment in 2014.

The auction gave the bank the opportunity to  restore the dividend, also the sole source of funding for the Doyle scholarship at Santa Rosa Junior College, even sooner, said bank President and Chief Executive Officer William Schrader.

"Treasury had reasons to want to fully exit the program -- that's why they went with the public auction," he said.

The bank began offering a quarterly dividend of 25 cents to common shareholders in September of last year, its first since the second quarter of 2008.

Bank executives have called the restored dividend a "first step" at a time when banks are still recovering from the recession. Including a year-end bonus, Exchange Bank paid an all-time high of $6.10 per share to its shareholders in all of 2007.

Exchange Bank was among the many lenders that suffered a wave of loan losses during the worst of the recession, reporting an $18 million loss in 2008.

Portfolio quality has improved every year since, with $66.1 million in nonperforming loans as of 2008 declining to 27.3 million at the end of 2012. The bank's loan loss provision was $61.8 million in 2008, and $9.1 million last year.

"The gateway to where we want to be is credit quality," said Mr. Schrader, to shareholders.

Challenges continue today, including a low-interest-rate environment and a regulatory compliance burden that executives said currently costs the bank $2 million per year. Yet executives noted the slight upward bump for net income in 2012, along with initiatives including major upgrades to its electronic banking systems.

"Not only are we affected by our local economy -- we're increasingly affected by Washington and abroad," said William Reinking, the bank's chairman, to shareholders. "While it was a year of challenges, we were able to meet our projections."