Mechanics Bank harvested a fourth-quarter profit amid a forbidding landscape for regional banks, but the bank's earnings dwindled compared to the third quarter.

Richmond-based Mechanics Bank nevertheless earned $2.9 million during the October-December period. Those figures reversed a year-ago loss of $4.8 million.

Still, the bank's profits during the fourth quarter were the smallest of any of the four quarters during 2009.

"Mechanics Bank is known to be a strong institution," said Walter Mix, a managing director with LECG Corp., an expert services and consulting firm. "But almost no bank has gone untouched by the current environment."

For all of 2009, Mechanics Bank earned $15.3 million. That was 17.7 percent higher than the $13 million the bank earned in 2008.

"Although 2009 earnings were below average by historical comparison to more prosperous economic times, we were consistently profitable throughout all of 2009," Steven Buster, the bank's chief executive officer, said in a prepared release. "Our overall performance marks an improving trend for Mechanics Bank."

The fourth-quarter profits, though, were 23.7 percent lower than the $3.8 million the bank earned during the third quarter.

What's more, the October-December profits were below the $3.4 million Mechanics Bank earned in the second quarter, and less than the $5.1 million in profits for the bank in the first quarter.


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"Especially in light of the economic stresses over the past two years, our results were quite respectable," Buster said. "Profits held up despite some unusual items such as increased provisions for loan losses and escalating FDIC premiums, which adversely impacted our earnings."

During the fourth quarter, Mechanics Bank added $14.5 million to its reserves to cover future loan losses. At the end of the quarter, the bank had a cumulative total of $32.4 million set aside to cover losses from bad loans, a regulatory filing for the bank showed.

"We had a very big loan-loss provision in the fourth quarter, but we continued to be profitable despite that," said Garrett Lambert, the bank's treasurer.

Mechanics Bank also reported it had $42.1 million in non-performing loans on its books at the end of December. That was down 8.7 percent from the $46.1 million in non-performing loans at the end of October. These non-performing loans consist of loans that were past due by more than 90 days, as well as loans that have stopped generating income for the bank.

"The issues are primarily related to losses from commercial real estate lending," Lambert said. "That includes existing commercial real estate properties, as well as construction, and some unsecured loans for commercial development."

Smaller and medium sized banks expected to remain under pressure for some time, Mix, the LECG expert, said.

"Commercial real estate faces an impending meltdown," Mix said. "That will have an impact on community and regional banks."

Contact George Avalos at 925-977-8477