Despite a slump in profits, Mechanics Bank says it is looking to the future by seeking to scoop up some banks and finds sites for expansion.
Richmond-based Mechanics Bank earned $2.2 million on revenues of $35.1 million for its second quarter that ended June 30, according to a bank regulatory filing. The profits slumped 36.7 percent below the levels of the same quarter a year ago.
The tough quarter has not deterred Mechanics Bank. It seeks to expand its business amid a fearsome economic downtown that has tattered the balance sheets of corporate America.
"We are looking for opportunities to acquire banks," said Steve Buster, chief executive officer for Mechanics Bank. "We have purchased a new administrative headquarters in Walnut Creek at discounted property values. We have contracted to purchase a site for a new office in North Berkeley."
This may sound foolhardy at first. After all, the economy is feeble, at best. However, Buster does not see the bank's expansion gambit as a blunder.
"These are unusual times in which a liquid and well-capitalized bank should prosper with expansion and by active and steady lending to clients and prospects," he said.
During the second quarter, which covered the April-June period, Mechanics Bank generated $35.1 million in revenue. That was up 6.3 percent from the year-ago quarter. The revenues were derived from a combination of net interest income and noninterest income that the bank reported.
At the end of June, Mechanics Bank had $2.43 billion in deposits. That was up 2.8 percent from the deposit totals at the end of March, the regulatory filing showed.
"Overall, Mechanics Bank is on the right track," said Kenneth Thomas, a Miami-based independent banking analyst.
However, the bank's financial picture cannot escape blemishes.
For one thing, Mechanics Bank had $47.1 million in nonperforming loans at the end of June. These loans, which are more than 90 days past due or are no longer generating income for the bank, were 19.7 percent above the levels at the end of March.
The nonperforming loans represented 2.6 percent of the bank's total loan portfolio the regulatory filing showed. That's a pretty decent ratio, according to Thomas.
"That ratio has jumped around in the last five quarters, but remains in the 2 percent to 3 percent range, which is good in this economic and banking environment," he said.
Plus, Mechanics Bank appears to be seeing a better pattern for its loans that could sour over time.
The bank set aside $10.5 million as a provision for loan losses in the second quarter. That was up only 0.4 percent from the provision in the first quarter, the regulatory filing showed.
"We are hoping for the best but preparing for the worst," Buster said. "That's the story behind our loan-loss reserves."
Mechanics executives say they will continue to pursue the balancing act between setting aside capital to ward off the effects of bad loans with having cash on hand to purchase banks or expand branches.
"We are in a jobless recovery," Buster said. "But these difficult times are an opportunity for Mechanics Bank."
Contact George Avalos at 925-977-8477.