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Steven K. Buster – President & Chief Executive OfficerPage 1 Report to Mechanics Bank Shareholders May 21,
2009
102nd Annual Meetingof Shareholders
May 21st, 2009
Steven K. Buster – President & Chief Executive OfficerPage 2 Report to Mechanics Bank Shareholders May 21,
2009
1. Review Industry Highlights 20082. Financial Review / Mechanics Bank3. Peer Group Analysis4. Capital / Margins / Asset Quality 5. Home Equity Portfolio6. Customer Satisfaction7. Outlook for 2009 / Strategy
A G E N D A
Steven K. Buster – President & Chief Executive OfficerPage 3 Report to Mechanics Bank Shareholders May 21,
2009
It’s Great to be Mechanics Bank
Banking Landscape
Large banks paralyzed with toxic assets
Small banks unable to tap growth capital and under regulatory pressure
Mark to market accounting undermining stability of industry
FDIC insurance fund being depleted
Steven K. Buster – President & Chief Executive OfficerPage 4 Report to Mechanics Bank Shareholders May 21,
2009
2008 Failures – 25YTD 2009 Failures – 33
FDIC Takeover
Source:US Department of Treasury Report to Congress – as at February 28, 2009
Steven K. Buster – President & Chief Executive OfficerPage 5 Report to Mechanics Bank Shareholders May 21,
2009
FDIC Premiums
2008 Paid Premium $1.4 million
2009 Budget $3.0 million
2009 Forecast $5.5 millionSheila Bair – FDIC Chairman
2009 special 20bp $4.4 million
New expected special (10bp) $2.2 million
Now looks like 5 bp $1.2 million
CONGRESS STILL IN SESSION
Steven K. Buster – President & Chief Executive OfficerPage 6 Report to Mechanics Bank Shareholders May 21,
2009
TARP Update
Troubled Asset Relief Program (TARP): $700B Capital Purchase Program (CPP)
• 467 Financial Institutions
(out of 8,280 FDIC Insured Institutions)• $197 billion invested in Senior Preferred Shares
Other related programs tapping funds
• TLGP ~ Treasury Liquidity Guarantee Program• TALF ~ Term Asset Backed Securities Loan Facility• SSFI ~ Systemically Significant Failing Institutions• AIFP ~ Automotive Industry Finance Program• CAP ~ Capital Assistance Program• PPIP ~ Public Private Investment Program
Source:US Department of Treasury Report to Congress – as at February 28, 2009
Steven K. Buster – President & Chief Executive OfficerPage 7 Report to Mechanics Bank Shareholders May 21,
2009
TARP / CPP
Oct 27, 2008 – First Public application program
Dec 3, 2008 – Amended Private application program
Dec 8, 2008 – Approval received
Jan 22, 2009 – MechBank says ‘no thanks’ to $60 million Treasury investment
Out of 467 Financial Institutions, only 14 banks were successful in returning disbursed CPP funds thus far
Steven K. Buster – President & Chief Executive OfficerPage 8 Report to Mechanics Bank Shareholders May 21,
2009
March 17 : &
February 11 @ 1:00 pm
January 29 on
January 27 @ 4:40 pm on Radio FM 91.7 http://www.crosscurrentsradio.org/features.php?story_id=1179
In the News
Steven K. Buster – President & Chief Executive OfficerPage 9 Report to Mechanics Bank Shareholders May 21,
2009
24,11025,113
26,505
29,008
13,017
2004 2005 2006 2007 2008
ROE 10.52% 10.65% 10.67% 11.03% 4.65%
Historical Financial Results
NET INCOME
Steven K. Buster – President & Chief Executive OfficerPage 10 Report to Mechanics Bank Shareholders May 21,
2009
1,788,993
1,967,895
2,174,2782,237,864
2,144,9662,139,050
2003 2004 2005 2006 2007 2008
AVERAGE DEPOSITS
Historical Financial Results
1,835,779
1,727,921
1,606,0441,593,172
1,456,470
1,779,808
2003 2004 2005 2006 2007 2008
AVERAGE LOANS
Steven K. Buster – President & Chief Executive OfficerPage 11 Report to Mechanics Bank Shareholders May 21,
2009
152,311
169,285
184,756
207,916
224,051
236,616 237,852
253,461
274,564
288,531
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
SHAREHOLDERS’ EQUITY
Historical Financial Results
Steven K. Buster – President & Chief Executive OfficerPage 12 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
2020thth-0.8511.0113.8414.4913.38Peer
Group(Average)
4343rdrd4.6511.0410.7010.7910.44MBMB
Annual
2008 National
Percentile
20082007200620052004
2020thth-0.8511.0113.8414.4913.38Peer
Group(Average)
4343rdrd4.6511.0410.7010.7910.44MBMB
Annual
2008 National
Percentile
20082007200620052004
Return on Equity (Annual) %
Steven K. Buster – President & Chief Executive OfficerPage 13 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
2121stst-0.031.151.371.321.20Peer
Group(Average)
4242ndnd0.491.100.990.981.04MBMB
Annual
2008 National
Percentile
20082007200620052004
2121stst-0.031.151.371.321.20Peer
Group(Average)
4242ndnd0.491.100.990.981.04MBMB
Annual
2008 National
Percentile
20082007200620052004
Return on Assets (Annual) %
Steven K. Buster – President & Chief Executive OfficerPage 14 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
6464thth1.762.232.452.392.21Peer
Group(Average)
6060thth1.671.961.761.691.92MBMB
Annual
2008 National
Percentile
20082007200620052004
6464thth1.762.232.452.392.21Peer
Group(Average)
6060thth1.671.961.761.691.92MBMB
Annual
2008 National
Percentile
20082007200620052004
Operating Yield (Annual) %
Steven K. Buster – President & Chief Executive OfficerPage 15 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
88thth-10.65%-19.25%0.37%5.35%8.95%Peer
Group(Average)
5959thth7.19%-6.66%7.82%8.02%9.75 %MBMB
1st Quarter
2009 National
Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
88thth-10.65%-19.25%0.37%5.35%8.95%Peer
Group(Average)
5959thth7.19%-6.66%7.82%8.02%9.75 %MBMB
1st Quarter
2009 National
Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
Return on Equity %
Steven K. Buster – President & Chief Executive OfficerPage 16 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
1111thth-0.83%-1.74%0.16%0.57%0.91%Peer
Group(Average)
5959thth0.74%-0.69%0.81%0.84%1.02 %MBMB
1st Quarter 2009
National Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
1111thth-0.83%-1.74%0.16%0.57%0.91%Peer
Group(Average)
5959thth0.74%-0.69%0.81%0.84%1.02 %MBMB
1st Quarter 2009
National Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
Return on Asset %
Steven K. Buster – President & Chief Executive OfficerPage 17 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
5050thth1.45%1.39%1.78%1.92%1.95%Peer
Group(Average)
5757thth1.60%1.61%1.56%1.49%1.85 %MBMB
1st Quarter 2009
National Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
5050thth1.45%1.39%1.78%1.92%1.95%Peer
Group(Average)
5757thth1.60%1.61%1.56%1.49%1.85 %MBMB
1st Quarter 2009
National Percentile
Quarter
Mar 09
Quarter
Dec 08
Quarter
Sep 08
Quarter
Jun 08
Quarter
Mar 08
Operating Yield %
Steven K. Buster – President & Chief Executive OfficerPage 18 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
Mechanics Bank5 Quarters Net Income (Loss) & Loan Losses
(1,824)
(21,002)
(4,157)(4,755)
5,564 5,473 5,1166,735
(897) (702)
(22,000)
(17,000)
(12,000)
(7,000)
(2,000)
3,000
8,000
Net Inc (Loss) Prov LL
1Q’08 2Q’08 3Q’08 4Q’08 1Q’09
Steven K. Buster – President & Chief Executive OfficerPage 19 Report to Mechanics Bank Shareholders May 21,
2009
Return on Average Assets (ROAA)
-0.02%
-1.26%
-0.02%
0.73%
-0.70%
0.82%0.84%1.01%
0.58%0.89%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
RO
AA
% .
Mechanics Bank Peer Group
Financial Review
1Q’08 2Q’08 3Q’08 4Q’08 1Q’09
Steven K. Buster – President & Chief Executive OfficerPage 20 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
Net Interest Margin
3.87% 3.91%4.00%3.94%3.95%
3.05%3.22%3.41%3.40%3.40%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
NIM
% o
f A
sset
s
Mechanics Bank Peer Group
1Q’08 2Q’08 3Q’08 4Q’08 1Q’09
Steven K. Buster – President & Chief Executive OfficerPage 21 Report to Mechanics Bank Shareholders May 21,
2009
Interest Bearing Deposits Cost of Funds Benchmarking
Our performance at the 13th percentile as compared to our peer banks average performance at the 50th percentile represents a savings of $9,760,00 over the last 4 quarters.
Steven K. Buster – President & Chief Executive OfficerPage 22 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
Past Due and Non Performing Assets
0.27%
2.76% 2.58%
3.92%
2.70%3.38
3.92
5.02
6.25
3.08
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
As
% o
f L
oan
s &
OR
E
Mechanics Bank Peer Group
1Q’08 2Q’08 3Q’08 4Q’08 1Q’09
Steven K. Buster – President & Chief Executive OfficerPage 23 Report to Mechanics Bank Shareholders May 21,
2009
Financial Review
Risk Based Capital Ratio
14.66%14.60%14.96%14.99%14.75%
12.45%12.24%12.17%12.08%12.17%
10.00%
11.00%
12.00%
13.00%
14.00%
15.00%
16.00%
% R
ati
o
RB
C /
RW
A
Mechanics Bank Peer Group
1Q’08 2Q’08 3Q’08 4Q’08 1Q’09
Steven K. Buster – President & Chief Executive OfficerPage 24 Report to Mechanics Bank Shareholders May 21,
2009
HELOC Portfolio Information
Home Equity Line of Credit (HELOC) is a line of credit secured by 1st or 2nd deed of trust on residential property.
Total Commitments are $248mm. Outstanding balances total $100mm for current advance rate of 40%.
There are 1,622 Notes in this portfolio with an average line of credit commitment of $153m. One third of the Notes have zero balance.
Portfolio Attributes
Minimal losses
Strong underwriting at inception
Current credit quality is excellent
Steven K. Buster – President & Chief Executive OfficerPage 25 Report to Mechanics Bank Shareholders May 21,
2009
Geographic Distribution by County
Commitments - $247,760,550Commitments - $247,760,550
56%
5%
19%
19%
Contra Costa
Alameda
Placer,Sacramento &El Dorado
other
Steven K. Buster – President & Chief Executive OfficerPage 26 Report to Mechanics Bank Shareholders May 21,
2009
Geographic Distribution by County
Outstandings - $100,194,848Outstandings - $100,194,848
16%
12%
22%
51%
Contra Costa
Alameda
Placer,Sacramento & El Doradoother
Steven K. Buster – President & Chief Executive OfficerPage 27 Report to Mechanics Bank Shareholders May 21,
2009
HELOC Portfolio Monitoring
Home Equity Line of Credit (HELOC) portfolio was scored with Experian – March 31st, 2009
Portfolio scoring will be done quarterly, including internet appraisal values
Exception management of high-risk borrowers is coordinated between Loan Services and Collections Department
Watchlist reports are managed by Collections Department for loans identified with past due issues and by line officers for loans that are part of relationships
Under consideration : Stress testing with Banc Investment Group
Steven K. Buster – President & Chief Executive OfficerPage 28 Report to Mechanics Bank Shareholders May 21,
2009
2008 Client Research Suggests Opportunities
Selected Service Attributes as Rated by New Personal Checking Clients
(Six Months after Opening Account)
% Satisfied or Very
Satisfied
Friendliness and courtesy 98.3%Effort to make your banking experience a pleasant one 95.8%Willingness to listen and respond to your needs 95.0%Fast and efficient service 95.0%Recognition of you as a valued client 94.1%Knowledge and experience 94.1%
Steven K. Buster – President & Chief Executive OfficerPage 29 Report to Mechanics Bank Shareholders May 21,
2009
2008 Client Research Suggests Opportunities
Top 10 Brand Attributes as Rated by Mechanics Bank ClientsImportance
Rating (1-4 scale)
Mechanics Bank
Rating (1-10 scale)
Makes it easy and convenient to do my banking 3.8 8.5Real people, not machines, answer the customer service number 3.7 8.4Highly professional 3.6 8.6Makes me feel wanted as a customer 3.4 8.2Trusted financial partner 3.3 7.8Has long-term, knowledgeable employees 3.3 7.8Technologically advanced and up to date 3.3 7.7Offers free access to any ATM in the world 3.1 7.2Is actively involved in the local community 3.1 7.7Robust online banking services 2.9 6.4
Steven K. Buster – President & Chief Executive OfficerPage 30 Report to Mechanics Bank Shareholders May 21,
2009
2008 Client Research Suggests Opportunities Online Banking Users: opportunity for improvement
– 72.3% very satisfied with overall service quality– 95.7%95.7% very satisfied or satisfied with overall service quality– 40.1% very satisfied with online banking services– 81.6%81.6% very satisfied or satisfied with online banking services
Latino Market: opportunity for growth– Fastest growing minority group; 58% have a checking account– Four offices have populations 43% to 46% Latino within 1.5 mile
• San Pablo, Mira Vista, Point Richmond, Pittsburg
Nonprofit Sector: opportunity for expansion– Aligns with the Bank’s Corporate Social Responsibility commitment– Nonprofit clients describe us as a community partner, caring, cooperative,
reliable, supportive, and trustworthy
Youth Market: opportunity for future– Gen X and Gen Y together outnumber Boomers– More educated, diverse, technology savvy
All four markets are High Priority Innovation Projects
Steven K. Buster – President & Chief Executive OfficerPage 31 Report to Mechanics Bank Shareholders May 21,
2009
Currently reviewing 34 opportunities
Estimated savings for 2009 is between $1.5 and $2 million
Estimated on going annualized savings is between $2 and $2.5 million
Expense Management Opportunities
Steven K. Buster – President & Chief Executive OfficerPage 32 Report to Mechanics Bank Shareholders May 21,
2009
Current Facility Leases: “discount and extend”
Storage Area Network: DMX to Clarion
Consulting and Professional Fees
Travel and Entertainment
eDelivery
Retail Forecasting and Scheduling Software
Cash Recyclers
Money Service Business
ATM Surcharge Rebate
Expense Management Opportunities
Steven K. Buster – President & Chief Executive OfficerPage 33 Report to Mechanics Bank Shareholders May 21,
2009
Safety & Soundness
Retain & Support our Clients
Attract the Best Prospects
Manage Down Expenses
Look for Deposit Growth
Await Acquisition Opportunities
Mechanics Bank Strategy