Steven K. Buster – President & Chief Executive Officer Page 1 Report to Mechanics Bank...

Steven K. Buster – President & Chief Executive Officer Report to Mechanics Bank Shareholders May 21,

2009

102nd Annual Meetingof Shareholders

May 21st, 2009


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


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


2009

2008 Failures – 25YTD 2009 Failures – 33

FDIC Takeover

Source:US Department of Treasury Report to Congress – as at February 28, 2009


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


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


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


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


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


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


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


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



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) %


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) %


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) %


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 %


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 %


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 %


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


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


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


1Q’08 2Q’08 3Q’08 4Q’08 1Q’09


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.


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


1Q’08 2Q’08 3Q’08 4Q’08 1Q’09


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


1Q’08 2Q’08 3Q’08 4Q’08 1Q’09


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


2009

Geographic Distribution by County

Commitments - $247,760,550Commitments - $247,760,550

56%

5%

19%

19%

Contra Costa

Alameda

Placer,Sacramento &El Dorado

other


2009

Geographic Distribution by County

Outstandings - $100,194,848Outstandings - $100,194,848

16%

12%

22%

51%

Contra Costa

Alameda

Placer,Sacramento & El Doradoother


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


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%


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


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


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


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


2009

Safety & Soundness

Retain & Support our Clients

Attract the Best Prospects

Manage Down Expenses

Look for Deposit Growth

Await Acquisition Opportunities

Mechanics Bank Strategy

Steven K. Buster – President & Chief Executive Officer Page 1 Report to Mechanics Bank...

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