SANTA ROSA -- Seen by many as a barometer for the health of the Sonoma County economy, Santa Rosa-based Exchange Bank experienced what its top executive said was the "first year in five years we've seen meaningful loan growth" in 2013.

[caption id="attachment_87377" align="alignleft" width="154"] Bill Schrader[/caption]

That 8.2 percent increase in loan volume represents what Bill Schrader, president and CEO, said was a gradual recovery of the confidence of businesses and willingness for those companies to be more bullish on prospects for growth in 2014.

Yet unknowns remain, including the financial implications of health care reform for business and the idea of a "new normal" in consumer and business spending, he said.Household finances 'heal'

"I feel we have more optimism about the U.S. economy, the state economy and the local economy than in the past three years," Mr. Schrader said. "I think households are beginning to feel secure, and are seeing their finances begin to heal."

While grateful that many key areas of the economy have rebounded, he said many areas still need to improve.

Exchange Bank ended 2013 with a 28 percent increase in annual earnings. Loans totaled $1.1 billion, and deposits $1.6 billion. The bank had $1.78 billion in assets at year-end.

Active economic sectors included tourism, tech and agriculture, with benefits rippling out from the fast-moving economies of San Francisco and Silicon Valley, Mr. Schrader said.

The year also marked the onset of the Federal Reserve's gradual tapering of billions in monthly bond purchases that have, among other activities, kept interest rates at historic lows. Coupled with uncertainties around the Affordable Care Act, federal policies' effect on the regional economy is likely to be a topic of close interest in 2014, according to Greg Jahn, chief financial officer.

"I think there are a lot of unknowns -- both for individuals and businesses, as far as the Affordable Care Act -- and I believe we'll begin to see those effects in 2014," he said.

Mr. Schrader agreed, saying "there are some extremely compassionate aspects of the health care law, but elements of it that remain in flux have created uncertainty."

On the Fed, Mr. Jahn said, "At some point, we need to get off this Fed stimulus and see -- can the economy stand on its own?"

The executives noted improvements in consumer spending and gross domestic product toward the end of last year. The question, they said, is how those habits will continue.

"What does 'normal' look like anymore?" Mr. Jahn asked, citing factors like GDP, inflation and unemployment. "I think those are questions that remain unanswered."

Exchange Bank itself stepped further away from the worst of the recession in 2013. The quality of its portfolio improved, allowing a 72.5 percent decrease in its loan-loss provision expense and a 77.4 percent decrease in charged-off loans.Rolling back TARP

The bank also reduced its remaining connection to the Troubled Asset Relief Program in 2013, buying back and retiring $16 million in special preferred shares that the U.S. Department of the Treasury purchased in 2008 as part of its initiative to boost capital at hundreds of banks hit hard in the financial crisis.

The Treasury in 2012 auctioned its stake in Exchange Bank to the private market along with holdings in a number of other banks. Exchange Bank purchased and retired around 45 percent of those shares at that time. Around $9.1 million in shares remain to buy, according to Mr. Schrader.

"We are working to fine-tune a plan to retire that remaining balance," he said.

The purchase stands to reduce the bank’s long-term expenses by relieving it of a corresponding quarterly dividend obligation that rose from 5 percent to 9 percent after five years.