Exchange Bank profits flattened in 2012, a stable performance that emboldened the bank last fall to resume dividends that fund Doyle scholarships for Santa Rosa Junior College students.

Sonoma County's largest community bank on Thursday reported annual net income of $12.3 million last year, an increase of less than 1 percent.

The Santa Rosa bank reduced its nonperforming assets in 2012, but provided fewer loans to businesses and consumers.

"They're just not yet confident to make those kind of decisions," said William R. Schrader, the bank's president and chief executive officer.

Even so, he expressed "guarded optimism" that the local economy will continue to improve this year. As it does, he said, the bank also will make gains.

For six decades, Exchange Bank dividends have financed the Doyle scholarships, which have helped roughly 120,000 students pay for junior college.

After losses in 2008 and 2009, the bank stopped paying stock dividends. But in September, Exchange Bank paid its first dividend in nearly four years. Officials estimated the quarterly dividend of 25 cents a share would provide about $850,000 a year for scholarships.

For 2012, the bank's delinquent loans, foreclosed properties and other nonperforming assets decreased 18 percent to $39.5 million. The amount of such assets rose in the fourth quarter by roughly $5 million due to one troubled account, bank officials said. But Schrader pointed out that the bank had reduced the overall amount from $75 million in 2008.

Net interest income fell 3.8 percent to $63.5 million, a decline that Schrader attributed to the reduced profitability in times of low interest rates. The bank more than offset that drop by reducing the required amount of money set aside for possible loan losses by 27 percent to $9.2 million.

Total assets grew 6.2 percent to $1.7 billion. Deposits increased 8 percent to $1.46 billion.

Fred Ptucha, an adviser at Financial West Group in Santa Rosa who tracks local community banks, said Exchange Bank and other community banks continue to face weak loan demand.

Businesses are "still kind of hunkering down," Ptucha said. They remain reluctant to take on debt "because the recovery is so fragile, so uncertain."

Schrader said the county's recovery remains mixed. Technology, wine, food manufacturing and tourism have shown good growth, and the housing market has started to improve.

But construction remains slow and the budgets of many government agencies seem "very problematic," he said.

Even so, Schrader expressed confidence in the resilience of Sonoma County's economy.

"It may not be next month or next quarter," he said. "but it will slowly come back."

You can reach Staff Writer Robert Digitale at 521-5285 or