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Mechanics Bank Applies For An Exception To CPP Rule Concerning Dividends



Capital Purchase Program participation may preclude special dividend



RICHMOND, CA, January 6-- Mechanics Bank has applied for U.S. Treasury approval to declare a special dividend for 2008, which otherwise would be prohibited under the terms of participation in the Capital Purchase Program (CPP.) The CPP has restrictions on the payment of dividends, including limiting participating banks to four dividends per year, unless the Treasury grants approval on a case-by-case basis.

"Pending finalization of our arrangements with the Treasury, Mechanics Bank's Board of Directors has deferred the decision on whether to declare a special dividend for 2008," said E. M. "Eddie" Downer III, Chairman of the Board of Mechanics Bank. "Given the Bank’s lengthy history of paying five dividends a year, we hope the Treasury will grant approval for us to continue the practice. However, we cannot offer any assurance that a special dividend will be allowed or declared."

Yesterday, the bank's Board voted to approve participation in the CPP, for which Mechanics Bank already had been granted preliminary Treasury approval. Under the program's terms, the bank will receive $60 million of additional capital in exchange for preferred stock paying a dividend rate of 5 percent per annum for the first five years of the program.

“Although we are extremely well capitalized and don't need additional capital, we felt there were compelling reasons to participate,” said Downer. “Principally, the economy is deteriorating rapidly and there is no way to know how deep and how long this recession may last. If 2009 becomes a worst-case scenario, we might regret not taking this low-cost capital and the additional safety it will give us.”

The CPP is part of the Troubled Assets Relief Program (TARP). It is intended to inject additional capital into the banking system to create more stability during these volatile times. Qualifying banks--and only strong banks were eligible--were invited to apply for up to 3% of risk-weighted assets in exchange for preferred stock. Capital given to participating banks must be paid back, along with a 5% dividend. For more information, go to the U.S. Treasury Press Release.

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 $2.7 billion independent bank, headquartered in Richmond, California, offers personal banking, business banking, trust, brokerage and wealth management services through 33 offices across Northern California. For more information, please visit www.mechbank.com.



Press contacts:
Ms. Hatti Hamlin
925.872.4328
HattiHamlin@aol.com

Mr. David Louis
510.741.3328
David_Louis@mechbank.com

Additional information provided in our CPP Q/A section.