A rebound for its customers helped Richmond-based Mechanics Bank power to sharply improved profits during the final three months of 2010.

The regional bank earned $4.3 million and generated revenue of $39.2 million for its fourth quarter, according to a regulatory filing. Compared with the year-ago quarter, the earnings were up 48 percent, but revenue fell 3 percent.

"Our clients are now feeling some recovery from the 'Great Recession' and the beginnings of renewed growth for our economy," said Steve Buster, chief executive officer of Mechanics Bank.

In tandem with that upswing, the bank's bottom line has improved.

"This looks very positive," said Jeffry Pilcher, publisher of Financial Brands, a website that tracks the financial services industry. "These are very positive signs."

Mechanics Bank also appears to be seeing a brighter horizon.

"We made significant provisions for loan losses over the past two years to protect against a double-dip recession," Buster said. "This now seems unlikely, and the year 2011 looks much better to us."

During the fourth quarter that ended in December, Mechanics Bank set aside $4.8 million as a provision against future losses from bad loans. That was down 46 percent from the $9 million the bank set aside for such provisions in the third quarter that ended in December.

"One of the most reassuring aspects in their report is the provision for loan losses," Pilcher said. "This means the bank doesn't think things will get worse."

The bank also has managed to cling to profitability in the face of a stubborn financial meltdown.

Deposits are on the rise. Mechanics Bank said it had $2.44 billion in deposits at the end of December. That was up 2 percent from the quarter that ended in September, the regulatory filing showed.

The picture for bad loans has improved. The bank in the fourth quarter had $45 million in loans that were 90 days past due or that had ceased to generate revenue. That was 9.6 percent below the bad loan totals in the third quarter.

Even better, the bad loans account for a decreasing chunk of the total loan portfolio. At the end of December, failed loans represented 2.5 percent of the loan portfolio, down from 2.8 percent at the end of September.

Rather than retrench, Mechanics Bank has taken steps to expand. The bank is planning a major new regional complex in Walnut Creek. It also is about to launch a new generation of online banking technology.

That should give Mechanics a leg up on its foes, bank executives said.

"Mechanics Bank continues to search for other opportunities, while many banks remain handicapped as a result of their weak earnings over the past three years," Buster said.

Contact George Avalos at 925-977-8477.