Mechanics Bank’s First Quarter 2011 Earnings SurgeLower loan loss provisions, higher fee income contribute to profit momentum
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RICHMOND, CA, April 20, 2011 -- Mechanics Bank today reported first quarter 2011 net income of $3,808,000, up 89% over the same period in 2010.
“Improved fees and operational efficiencies played a role in our results, but the predominant reason for this change is the reduced need to contribute to the allowance for loan losses,” said Mechanics Bank CEO Steve Buster. “As the economy recovers from a severe recession, we’ve been able to cut our provision for loan losses from the $10.5 million expense level in the first quarter of 2010 to a much lower $4.5 million of expense incurred this current quarter of 2011. Our allowance for loan losses has increased to 2.25% of total loans at March 31, 2011 as compared to 1.79% a year ago in 2010, and we believe these reserves are more than sufficient to cover the inherent risks in our entire portfolio. As a result, we expect to see enhanced profit performance in 2011 as the economy continues its recovery, real estate values stabilize and other risk exposures improve.”
Mechanics Bank’s nonperforming loans (non-accrual loans plus loans 90 days past due and still accruing) stood at 2.49% of total loans. Most of those loans were secured to some degree by real estate or other collateral.
This quarter was the ninth straight profitable earnings period for Mechanics Bank, which has not reported an annual loss throughout this great recession. In fact, Mechanics Bank has reported consistent annual profits for many decades, going back to the great depression.
“We have maintained annual profitability, in contrast to the majority of banks,” Buster said. “The banking industry in California has seen over 50% of its state chartered banks suffer at least one loss year during the period from 2008 through 2010. Compared both to the industry and to our peer banks, we have performed significantly better.”
Buster also pointed out that while it has been building substantial reserves, Mechanics Bank has made significant new investments in service capabilities, as well.
“Notwithstanding the difficult financial climate, we’ve leveraged several opportunities to position ourselves well for the economic recovery,” said Buster. “For example we have invested in state-of-the-art online and mobile banking platforms, to be launched this month. We have purchased a new administrative headquarters in Walnut Creek at a bargain price for future expansion. And we have made a commitment to grow our Commercial and Industrial loan portfolio while continuing to support our core real estate lending business.”
Buster said the bank’s Wealth Management and Retail groups saw improved profitability during the first quarter of 2011, as trust assets grew 6.4% to $1.345 billion under management. “Rebounding asset values and growing confidence among our Wealth Management clients has contributed to significant fee growth,” said Buster. “Additionally, our Retail group has continued to achieve operational efficiencies while growing core deposits and maintaining exceptional levels of client satisfaction.”
While the bank’s deposits grew a modest 0.78% ($18.4 million) compared to the same quarter end in 2010, the bank’s loan portfolio declined by 3.33% ($60.7 million). “Loan demand continues to be sluggish although we are beginning to see renewed demand from creditworthy borrowers,” Buster said. “Many qualified borrowers chose to sit this one out, but are now feeling more confident. We expect to see growth in loan demand throughout 2011.”
Mechanics Bank’s total risk-based capital ratio of 15.57% continued to surpass the regulatory standard of 10% for being considered “well capitalized.” The bank’s liquidity ratio stood at 32.91%, with $926 million held in liquid assets at quarter-end.
“After more than three years of the most severe economic downturn in three generations—during which time the FDIC closed 350 banks and many of the big banks that were “too big to fail” suffered a crisis of credibility—Mechanics Bank has been a benchmark for stability and trust. We are certainly well-positioned for future growth and profitability,” said Buster. “We enjoy high liquidity and a solid capital position, with plenty of capacity for making more loans. We have been and will continue to be a strong competitive force in our markets for decades to come.”
About Mechanics Bank
For more than a century, Mechanics Bank has been committed to helping people build prosperous communities as a trusted financial partner, forging lasting relationships through teamwork, respect and integrity. The $2.9 billion independent bank, headquartered in Richmond, California, offers personal banking, business banking, trust, brokerage and wealth management services across Northern California. For more information, please visit www.mechanicsbank.com.
Mr. David Louis