A Letter to Shareholders 2015 Annual Report

Dear Shareholders, Mechanics Bank experienced a historic year in 2015, 110 years after its founding, with the successful completion of a Tender Offer by the Ford Financial Fund. The Ford Fund purchased approximately 70% of the Bank’s shares and has brought significant capital into the Bank which provides a bright outlook for both clients and investors. Plans for the Bank include a significant investment in technology, improvements in physical locations, additional staffing in the Lending and Finance areas of the Bank, and an opportunity to grow in an intelligent and strategic fashion. Family investors and Board members have expressed confidence in the new controlling ownership of the Bank, and all stakeholders continue to embrace the heritage of community, commitment and relationship banking that has been the hallmark of the Bank for over a century. We are extremely fortunate, as well as grateful, as long-time clients of the Bank have remained loyal and the Bank’s deposit base has remained stable. Change itself has been constant in the banking industry for decades. Technological improvements have grown quickly and the number of banks has steadily decreased. And while the most recent recession ended a few years ago, the industry is still feeling the effects and we have not been immune to this. The industry is experiencing reduced loan demand from clients, reduced investment income due to a historically low rate environment, continued prepayments on loans as both consumers and businesses continue to de-leverage, and increased costs related to significantly heightened compliance requirements. Despite these challenges, we are well-positioned for success. Our healthy balance sheet, solid capital structure and ample liquidity will allow us to not only remain a strong and responsive community bank, but one which can grow and continue to be an industry leader in the communities we serve. We realize the importance of active participation by both the Bank and the employees in the communities we serve, and we take this commitment to heart. We don’t simply write a check to worthwhile organizations – we encourage and enable our employees to volunteer with local nonprofits and provide nonprofits and community organizations with technical expertise whenever possible. In 2015, our employees volunteered their time in our communities, while the Bank provided financial support to over 500 organizations. I want to sincerely thank our shareholders, our clients and the communities we serve for the trust they continue to place in the Bank. Together, we will continue to enrich our communities, cultivate lasting relationships and provide a level of personal service that exceeds expectations. Sincerely,

Kenneth D. Russell President and Chief Executive Officer

Mechanics Bank 2015 Annual Report

1

$19,452 $17,226

$15,000

North Roseville

$10,000 St. Helena

80

$5,000

Stable. Steady. Strong. North Napa

2011

El Dorado Hills

Sacramento

2012

2013

2014

50

2015

Napa

29

Total Risk-Based Capital (Ratios)

80

37 $400,000

99

101

Dollars in thousands

$350,000 $326,797 (16.2%)

$300,000

780

$250,000

$150,000

$354,118 (17.3%)

680

$202,000 (10%)

$206,000 (10%)

$205,000 (10%)

$162,000 Pinole 80 (8%)

$165,000 (8%)

$164,000 (8%)

Rodeo Hercules

$200,000

San Rafael

$339,786 (16.5%)

$100,000

Hilltop San Pablo 580$50,000 Richmond

$389,139 (19.3%)

$371,354 (17.8%)

$208,000 (10%)

$202,000 (10%)

$167,000 (8%)

$161,000 (8%) 4

2014

2015

5

Pittsburg

Concord

El Sobrante 680

El Cerrito Kensington 2011

2012

Walnut Creek 2013

Headquarters

24 to be considered “well capitalized” within regulatory framework Capital required

Albany

Lafayette Minimum capital requirement levels

Berkeley

Orinda

Moraga

Banking Offices

Danville

1

980

101 80

Oakland

San Francisco

Map not to scale.

580

St. Helena

80

Sacramento North Napa

Personal/Business Banking Offices

Santa Barbara

North Roseville

El Dorado Hills

50

205

580

Commercial Banking Offices

29

Napa

5

Wealth Management Offices

80 99

37

Operations Center

5 680 780

Rodeo Hercules 101 80

San Rafael

Hilltop San Pablo Richmond

580

Pittsburg

Pinole

4

Concord

El Sobrante 680

El Cerrito

Walnut Creek

Kensington

Headquarters

24

Albany Berkeley

Lafayette Orinda Moraga Danville

980

1 101

80

San Francisco

Oakland

Santa Barbara

580

Map not to scale.

The Personal/Business Bank offersBanking a variety Officesof financial services to meet the banking and financial needs 205 580 of the communities we serve, with operations conducted through 33 banking offices in Commercial Banking Offices Contra Costa, Alameda, San Francisco, Marin, Napa, Placer, Sacramento, El Dorado, and Wealth Management Offices Santa Barbara counties. Operations Center

2

Mechanics Bank 2015 Annual Report

5

Report of Independent Auditors Crowe Horwath LLP

Board of Directors Mechanics Bank Richmond, California

Independent Member Crowe Horwath International

Report on the Financial Statements We have audited the accompanying consolidated financial statements of Mechanics Bank (Bank), which comprise the consolidated balance sheets as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the related consolidated statements of income, comprehensive income, changes in shareholders’ equity, and cash flows for the period May 1, 2015 through December 31, 2015 (Successor), January 1, 2015 through April 30, 2015 (Predecessor) and for the year ended December 31, 2014 (Predecessor), and the related notes to the financial statements. Management’s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditor’s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mechanics Bank as of December 31, 2015 (Successor) and December 31, 2014 (Predecessor), and the results of their operations and their cash flows for the period May 1, 2015 through December 31, 2015 (Successor), the period January 1, 2015 through April 30, 2015 (Predecessor), and the year ended December 31, 2014 (Predecessor), in accordance with accounting principles generally accepted in the United States of America. Emphasis of Matter As disclosed in Note 1, the Bank has elected to apply push down accounting in accordance with ASU 2014-17 in the successor period consolidated financial statements. The predecessor period consolidated financial statements have been presented using the Bank’s historic basis of accounting prior to the acquisition discussed in Note 1. Our opinion is not modified with respect to the matter. Report on Other Legal and Regulatory Requirements We have also examined, in accordance with attestation standards established by the American Institute of Certified Public Accountants, Mechanics Bank’s internal control over financial reporting as of December 31, 2015 based on criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 23, 2016 expressed an unqualified opinion.

Crowe Horwath LLP Sherman Oaks, California March 23, 2016 Mechanics Bank 2015 Annual Report

3

Mechanics Bank Consolidated Balance Sheets As of December 31, 2015 and December 31, 2014 Successor Predecessor Company Company December 31, 2015 December 31, 2014 ASSETS Cash and cash equivalents $ 128,685,318 $ 188,686,927 Securities available-for-sale, at fair value

1,166,495,130

936,675,834

Securities held-to-maturity, at amortized cost (fair value of $356,734,889 and $466,620,525 at December 31, 2015 and 2014, respectively)

357,121,540 469,436,235

Loans and leases receivable Allowance for credit losses on loans and leases

1,611,282,400 1,649,455,947 (2,293,874) (34,267,673)

Net loans and leases receivable

1,608,988,526

1,615,188,274

Federal Home Loan Bank stock, at cost 17,250,000 17,555,100 Other real estate owned - 1,943,884 Premises and equipment, net 47,073,327 40,443,757 Bank owned life insurance 45,158,518 43,842,009 Goodwill 135,147,003 Other intangible assets, net 38,745,055 Interest receivable and other assets 32,487,172 56,718,624 TOTAL ASSETS



$ 3,577,151,589

$ 3,370,490,644

LIABILITIES AND SHAREHOLDERS’ EQUITY Noninterest-bearing demand deposits $ 1,084,047,265 $ 1,109,629,349 Interest-bearing transaction accounts 1,005,713,917 995,728,164 Savings and time deposits 803,906,674 828,087,271 Total deposits Securities sold under agreements to repurchase FHLB advances Interest payable and other liabilities Dividends payable TOTAL LIABILITIES



2,893,667,856

2,933,444,784

24,903,186 33,103,761 60,000,000 71,806,099 70,464,448 - 2,131,800 3,050,377,141

3,039,144,793

SHAREHOLDERS’ EQUITY Common stock, $50 par value Authorized — 50,000 shares Issued and outstanding — 19,380 shares Additional paid in capital Retained earnings Accumulated other comprehensive loss, net of tax

969,000 969,000 519,031,000 13,250,000 10,614,498 330,946,014 (3,840,050) (13,819,163)

TOTAL SHAREHOLDERS’ EQUITY



526,774,448

331,345,851

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

3,577,151,589

$ 3,370,490,644

4

See accompanying notes to consolidated financial statements.

Mechanics Bank Consolidated Statements of Income For the Eight Months Ended December 31, 2015, the Four Months Ended April 30, 2015, and the Twelve Months Ended December 31, 2014

Successor Company

P redecessor Company

Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 INTEREST AND FEE INCOME Interest and fees on loans and leases $ 53,238,739 $ 25,598,285 $ 84,000,222 Interest on securities available-for-sale: U.S. treasury and government agency securities 12,856,982 5,666,083 15,641,579 Corporate bonds 249,404 117,122 290,082 Interest on held-to-maturity securities: U.S. government agency securities 4,258,391 2,180,605 7,082,004 Obligations of state and political subdivisions 1,868,161 1,789,320 5,886,415 Other interest income 92,833 65,429 433,683 Total interest and fee income



INTEREST EXPENSE Interest on deposits Interest on borrowed funds Total interest expense



72,564,510

35,416,844

113,333,985

975,561 521,663 2,205,707 68,516 7,463 84,952 1,044,077

529,126

2,290,659

Net interest income Provision for credit losses on loans and leases

71,520,433 34,887,718 111,043,326 2,585,791 2,117,763 -

Net interest income after provision for credit losses

68,934,642



NONINTEREST INCOME Service charges on deposit accounts Trust fees and commissions Net gains on investment securities Other Total noninterest income



3,716,842 4,143,699 171,688 8,562,390



32,769,955



111,043,326

1,986,159 6,607,216 2,419,400 7,831,748 79,359 366,274 3,461,021 12,705,196

16,594,619



7,945,939

27,510,434

NONINTEREST EXPENSE Salaries and employee benefits Occupancy Equipment Provision for credit losses on unfunded lending commitments Other

30,982,583 15,074,046 53,690,967 5,367,076 2,606,846 8,556,705 4,963,758 2,191,396 6,753,293 (558,000) 621,021 72,556 21,934,002 7,626,809 27,239,957

Total noninterest expense

63,689,419



28,120,118

96,313,478

Income before provision for income tax expense

21,839,842

PROVISION FOR INCOME TAXES



11,225,344

3,757,923

16,816,768

NET INCOME

$

10,614,498

$

8,837,853

$ 25,423,514

EARNINGS PER SHARE - Basic and Diluted

$

547.70

$

456.03

$ 1,311.84

AVERAGE COMMON SHARES OUTSTANDING - Basic and Diluted



19,380

19,380

19,380

12,595,776

42,240,282

See accompanying notes to consolidated financial statements.

5

Mechanics Bank Consolidated Statements of Comprehensive Income (Loss) For the Eight Months Ended December 31, 2015, the Four Months Ended April 30, 2015, and the Twelve Months Ended December 31, 2014 Successor Company P redecessor Company Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 NET INCOME $ 10,614,498 $ 8,837,853 $ 25,423,514 Other comprehensive income, net of tax:

Net unrealized (losses) gains on securities available-for-sale arising during the period, net of tax expense (benefit) of ($2,820,059), $2,901,526, and $14,397,808 for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively.



Net unrealized (losses) on securities that were transferred from available-for-sale portfolio into held-to-maturity portfolio, net of tax benefit of ($188,688) and $545,321 for the four months ended April 30, 2015 and the twelve months ended December 31, 2014, respectively.

-

(260,078)

(751,642)



Reclassification adjustment for net realized gains on securities available-for-sale included in net income during the period, net of tax benefit of ($12,269) and ($125,166) for the four months ended April 30, 2015 and the twelve months ended December 31, 2014, respectively.

-

(16,913)

(172,522)



Change in defined benefit pension liability obligations, net of tax expense (benefit) of $34,013, $112,042 and ($2,627,186) for the eight months ended December 31, 2015, the four months ended April 30, 2015 and the twelve months ended December 31, 2014, respectively.

(3,887,021)

3,999,312

19,845,184

46,971

154,725

(3,628,017)

Total other comprehensive (loss) income



(3,840,050)

3,877,046

15,293,003

COMPREHENSIVE INCOME

$

6,774,448

$

$

6

See accompanying notes to consolidated financial statements.

12,714,899

40,716,517

Mechanics Bank Consolidated Statements of Changes in Shareholders’ Equity For the Eight Months Ended December 31, 2015, the Four Months Ended April 30, 2015, and the Twelve Months Ended December 31, 2014 ACCUMULATED ADDITIONAL OTHER TOTAL COMMON PAID IN RETAINED COMPREHENSIVE SHAREHOLDERS’ SHARES STOCK CAPITAL EARNINGS INCOME (LOSS), NET EQUITY Predecessor Company Balance, December 31, 2013

19,380 $ 969,000 $ 13,250,000 $ 314,049,700 $

(29,112,166) $ 299,156,534

Net income

-

-

-

25,423,514

-

25,423,514

Other comprehensive income, net of tax:

-

-

-

15,293,003

15,293,003

-

-

-

Cash dividends ($440.00 per share) Balance, December 31, 2014 Net income



Other comprehensive income, net of tax:



Balance, April 30, 2015

-

(8,527,200)

(8,527,200)

19,380 $ 969,000 $ 13,250,000 $330,946,014 $ (13,819,163) $ 331,345,851



8,837,853



3,877,046

19,380 $ 969,000 $ 13,250,000 $339,783,867 $

8,837,853 3,877,046

(9,942,117) $344,060,750

Successor Company Purchase accounting adjustments

-

- 505,781,000 (339,783,867) 9,942,117

Net income

-

-

-

Other comprehensive income, net of tax:

-

-

- -

Balance, December 31, 2015

10,614,498

-

175,939,250 10,614,498

(3,840,050) (3,840,050)

19,380 $ 969,000 $ 519,031,000 $ 10,614,498 $

(3,840,050) $ 526,774,448

See accompanying notes to consolidated financial statements.

7

Mechanics Bank Consolidated Statements of Cash Flows For the Eight Months Ended December 31, 2015, the Four Months Ended April 30, 2015, and the Twelve Months Ended December 31, 2014

Successor Company

P redecessor Company

Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 10,614,498 $ 8,837,853 $ 25,423,514 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan lease losses 2,585,791 2,117,763 Provision (recovery) for credit losses on unfunded lending commitments (558,000) 621,021 72,556 Net amortization of securities 2,675,774 797,230 1,917,183 Depreciation of premises and equipment 3,488,305 1,512,974 4,867,977 Amortization of intangibles 3,354,945 - - Increase in cash surrender value of bank owned life insurance (887,415) (429,094) (1,270,000) Net gain on sale of securities - - (366,274) Net (gain) loss on sales and writedowns of other real estate owned - (89,762) 222,654 Net (gain) loss on sale and disposal of property and equipment 124,191 10,872 (16,144) Deferred income tax (benefit) expense 6,344,000 (2,500,000) (1,931,286) Change in deferred loan fees (costs) (85,380) (797,243) (2,815,900) Amortization of premiums and discounts on purchased loans (4,255,891) 170,024 440,231 Changes in: Interest receivable and other assets (9,571,924) (134,530) 3,311,926 Interest payable and other liabilities (2,704,118) (577,782) (4,008,806) Net cash provided by operating activities



11,124,776



9,539,326

25,847,631

CASH FLOWS FROM INVESTING ACTIVITIES Securities available-for-sale: Purchases (110,289,316) (190,401,470) (367,137,639) Sales - - 182,770,889 Maturities/calls/paydowns 40,274,214 28,328,152 40,084,807 Securities held-to-maturity: Purchases (13,495,868) - (2,667,587) Maturities/calls/paydowns 67,430,023 57,546,370 21,884,276 Loan originations and principal collections, net 62,872,005 59,896,262 (16,733,879) Purchase of loans (96,934,298) - - Recoveries of loans charged-off 135,910 2,424,953 9,128,553 Redemption of Federal Home Loan Bank stock 305,100 - - Purchase of Federal Home Loan Bank and other bank stock - - (2,611,000) Proceeds from sales of other real estate owned - 2,033,646 4,152,346 Proceeds from sales of premises and equipment 4,567,559 28,900 172,925 Additions to premises and equipment (4,112,962) (299,298) (1,788,404) Net cash used in investing activities (49,247,633) (40,442,485) (132,744,713) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in deposits 78,739,994 (119,383,212) 6,788,561 Net decrease in securities sold under agreements to repurchase (7,084,781) (1,115,794) (40,894,217) Net increase in short-term Federal Home Loan Bank advances 40,000,000 20,000,000 Repayment of other borrowings - - (1,330,509) Cash dividends paid - (2,131,800) (8,527,200) Net cash (used in) provided by financing activities



111,655,213



(102,630,806)

(43,963,365)

Net increase in cash and cash equivalents



73,532,356

(133,533,965)

Cash and cash equivalents at beginning of period



55,152,962



188,686,927



Cash and cash equivalents at end of period

$

128,685,318

$

55,152,962

$ 188,686,927

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Interest paid $ 1,072,586 $ Income taxes paid, net of refunds 16,242,375 8

See accompanying notes to consolidated financial statements.

531,465 $ 7,930,000

(150,860,447) 339,547,374

2,444,104 13,755,000

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies Nature of Operations: Mechanics Bank and subsidiaries (the Bank, we, us and our) is headquartered in Walnut Creek, California. The Bank offers a variety of financial services to meet the banking and financial needs of the communities we serve, with operations conducted through 33 banking offices in Contra Costa, Alameda, San Francisco, Marin, Napa, Placer, Sacramento, El Dorado, and Santa Barbara counties. The Bank has two wholly owned subsidiary corporations, the MacDonald Auxiliary Corporation and The Mechanics Bank Community Development Corporation whose business purposes are lending, community development, and holding deeds of trust securing loans made by the Bank and its subsidiaries. The Bank has also formed subsidiaries that are limited liability companies (LLC’s) for the special purpose of holding real estate and other assets acquired through foreclosure proceedings that are pending sale or liquidation. Mechanics Bank operates under a California state banking charter issued by the California Department of Business Oversight, its primary regulator. The Bank is a member of the Federal Home Loan Bank (FHLB) system, and maintains insurance on deposit accounts with the Federal Deposit Insurance Corporation (FDIC). Basis of Presentation: The consolidated financial statements include the accounts of the Bank and all other entities in which it has a controlling financial interest. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless the context requires otherwise, all references to the Bank include its wholly owned subsidiaries. The accounting and reporting policies of the Bank are based upon U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the financial services industry. Significant accounting policies followed by the Bank are presented below. Certain prior period amounts have been reclassified to conform to the current year’s presentation. These reclassifications had no impact on the Bank’s consolidated financial position, results of operations or net change in cash or cash equivalents. Use of Estimates in the Financial Statements: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in the financial statements and disclosures provided, and actual results could differ. Recapitalization through the Investment Transaction and Purchase Accounting: On April 30, 2015, pursuant to the terms of the Amended and Restated Offer to Purchase, dated December 15, 2014, as amended, by and among the Bank and EB Acquisition Company LLC, a wholly owned subsidiary of Ford Financial Fund II, L.P. (the Investor), 13,433 validly tendered shares of the Bank’s stock were purchased by the Investor at a price of $26,832 per share (the Investment Transaction). The aggregate consideration paid to the shareholders by the investor for these securities was $360.4 million in cash. As a result of the Investment Transaction, pursuant to which the Investor acquired and controlled 69.31% of the voting securities of the Bank, the Bank followed the acquisition or purchase method of accounting as required by ASC 805, Business Combinations (ASC 805). As a result of this change in control, the Investor has elected pushdown accounting under ASU 2014-17, Business Combinations: Pushdown Accounting – a consensus of the Emerging Issues Task Force. Purchase accounting requires that the assets purchased, the liabilities assumed, and non-controlling interests all be reported on the acquirer’s financial statements at their fair value, with any excess of purchase consideration over the net assets being reported as goodwill. Pushdown accounting requires that the Investor’s basis in the financial assets and liabilities be reflected in the Bank’s financial statements. As a result of the adjustments required by purchase accounting and pushdown accounting, the Bank’s Consolidated Balance Sheets and Consolidated Statements of Income from periods through April 30, 2015 are labeled as “Predecessor Company” and may not be comparable to balances and statements of income from periods after the close of business on April 30, 2015 (the Transaction Date), which are labeled as “Successor Company.”

Mechanics Bank 2015 Annual Report

9

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Cash and Cash Equivalents: Cash and cash equivalents include cash on hand, interest-bearing deposits with other financial institutions with original maturities under 90 days, and daily federal funds sold. Net cash flows are reported for customer loan and deposit transactions, interest bearing deposits in other financial institutions, and federal funds purchased, including overnight borrowings with the Federal Home Loan Bank. Investment Securities: Investment securities are classified at the time of purchase as available-for-sale or held-to-maturity. Debt securities classified as held-to-maturity are recorded at amortized cost when management has the positive intent and ability to hold them to maturity. Debt securities are classified as available-for-sale when management intends that they might be sold before maturity. Equity securities with readily determinable fair values are classified as available-for-sale. Securities available-for-sale are carried at fair value with unrealized holding gains and losses. Unrealized holding gains and losses, net of taxes, are reported in Accumulated Other Comprehensive Income or Loss (AOCI) on the Consolidated Balance Sheets. Accreted discounts and amortized premiums are included in interest income using the level yield method, and realized gains or losses from sales of securities are calculated using the specific identification method. Management evaluates securities for other-than-temporary impairment (OTTI) at least on a semi-annual basis, and more frequently when economic conditions warrant such an evaluation. Investment securities classified as available-for-sale or held-to-maturity are generally evaluated for OTTI under ASC 320, Accounting for Certain Investments in Debt and Equity Securities (ASC 320). In determining OTTI under the ASC 320 model, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also considers whether the market decline was affected by macroeconomic conditions, and assesses whether the Bank intends to sell, or it is more likely than not it will be required to sell a security in an unrealized loss position before recovery of its amortized cost basis. The assessment of whether OTTI exists involves a high degree of subjectivity and judgment and is based on the information available to management at a point in time. Federal Home Loan Bank: The Bank is a member of the FHLB system. Members are required to own a certain amount of FHLB stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security, and periodically evaluated for impairment based on ultimate recovery of par value. Cash dividends are reported as income when paid. Loans and Leases: Loans and leases, other than purchased credit impaired (PCI loans), that management has the intent and ability to hold for the foreseeable future, or until maturity or payoff, are recorded at the principal balance outstanding, net of charge-offs, unamortized purchase premiums and discounts, and deferred loan fees and costs. The deferred loan fees and costs, and purchase premiums and discounts are recognized in interest income as an adjustment to yield over the term of loans and leases using the effective interest method. Interest on loans and leases is credited to interest income as earned based on the interest rate applied to principal amounts outstanding. Interest income is accrued on the unpaid principal balance and is discontinued when management believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that full collection of principal or interest becomes doubtful, regardless of the length of past due status. Generally loans and leases are placed on nonaccrual status when their payments are past due for 90 days or more. When interest accrual is discontinued, all unpaid accrued interest is reversed against interest income. Interest received on such loans and leases is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. A charge-off is generally recorded at 180 days past due if the unpaid principal balance exceeds the fair value of the collateral less costs to sell. Commercial and industrial loans, commercial real estate loans, and equipment finance leases are subject to a detailed review when 90 days past due to determine accrual status, or when payment is uncertain and a specific consideration is made to put a loan or lease on non-accrual status. Consumer loans, other than those secured by real estate, are typically charged off no later than 180 days past due. Loans and leases are returned to accrual status when the borrower has demonstrated a satisfactory payment trend subject to management’s assessment of the borrower’s ability to repay the loan or lease. 10

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Allowances for Credit Losses: The allowance for loan and lease losses (ALLL) is a reserve established through a provision for loan and lease losses charged to expense, and represents management’s best estimate of probable losses that may be incurred within the existing loan and lease portfolio as of the balance sheet date. Subsequent recoveries, if any, are credited to the allowance. The Bank performs an analysis of the adequacy of the ALLL at least on a quarterly basis. Management estimates the ALLL balance required using past loan and lease loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, economic conditions, and other factors. The ALLL consists of three elements; (i) specific valuation allowances established for probable losses on impaired loans and leases, (ii) quantitative valuation allowances calculated using loss experience for loans and leases with similar characteristics and trends, adjusted as necessary to reflect the impact of current conditions; and (iii) qualitative allowances determined based on environmental and other factors that may be internal or external to the Bank. A loan or lease is impaired when, based on current information and events, it is probable that the Bank will be unable to collect all amounts due according to the contractual terms of the loan or lease agreement. The Bank evaluates all impaired loans and leases individually under the guidance of ASC 310, Receivables, primarily through the evaluation of collateral values and estimated cash flows. Loans for which the terms have been modified by granting a concession that normally would not be provided and where the borrower is experiencing financial difficulties are considered troubled debt restructurings (TDR) and classified as impaired. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. The measured impairment on an impaired loan is charged-off to the ALLL or is set up as a specific reserve. TDRs are measured at the present value of estimated future cash flows using the loan’s effective rate at inception or at the fair value of collateral, less costs to sell, if repayment is expected solely from the collateral. The allowance for credit losses on loans and leases is maintained at a level considered adequate to provide for probable credit losses inherent in the loan and lease portfolio including losses on impaired loans and leases described below. An allowance for off-balance-sheet credit losses is also maintained for unfunded lending commitments, which is included in other liabilities. The Bank performs continuous credit reviews of the loan and lease portfolio and unfunded lending commitments and considers current economic conditions, historical credit loss experience, and other factors in determining the adequacy of the allowance balances. The allowances for credit losses are based on estimates, and ultimate losses may vary from current estimates. As additions to or reversals of the allowances for credit losses become necessary, they are reported in net income in the time periods they become known. Loans or portions of loans are charged-off when there is a distinct probability of loss identified. A distinct probability of loss exists when it has been determined that any remaining sources of repayment are not sufficient to cover all outstanding principal. The probable loss is immediately calculated based on the value of the remaining sources of repayment and charged to the allowance for loan losses. The following portfolio segments have been identified: commercial, commercial real estate, residential real estate, installment and lease financing. Commercial credits are subject to adverse market conditions which may impact the borrower’s ability to repay a loan or could cause a decline in the value of the collateral that secures the loan. Commercial, commercial real estate, residential real estate, installment and lease financing are all subject to the adverse economic conditions in our service area. Classified Assets: Federal regulations provide for the classification of loans, leases, and other assets, such as debt and equity securities considered to be of lesser quality, as “substandard,” “doubtful” or “loss.” An asset is considered “substandard” if it is inadequately protected by the current net worth and paying capacity of the obligor or of the collateral

Mechanics Bank 2015 Annual Report

11

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) pledged, if any. “Substandard” assets include those characterized by the “distinct possibility” that the insured institution will sustain “some loss” if the deficiencies are not corrected. Assets classified as “doubtful” have all of the weaknesses inherent in those classified “substandard,” with the added characteristic that the weaknesses present make “collection or liquidation in full,” on the basis of currently existing facts, conditions, and values, “highly questionable and improbable.” Assets classified as “loss” are those considered “uncollectible” and of such little value that their continuance as assets without the establishment of a specific loss reserve is not warranted. When an insured institution classifies problem assets as “loss,” it is required to charge off or provide a specific reserve for such amount. The Bank’s determination as to the classification of its assets and the amount of its valuation allowances is subject to review by its primary regulator, which may require the establishment of additional general or specific loss allowances. Troubled Debt Restructurings (TDR): A loan is identified as a TDR when a borrower is experiencing financial difficulties and for economic or legal reasons related to these difficulties, the Bank grants a concession to the borrower in the restructuring that it would not otherwise consider. The Bank has granted a concession when, as a result of the restructuring to a troubled borrower, it does not expect to collect all amounts due, including principal and/or interest accrued at the original terms of the loan. The concessions may be granted in various forms, including a below-market change in the stated interest rate, a reduction in the loan balance or accrued interest, an extension of the maturity date, or a note split with principal forgiveness. A restructuring executed at an interest rate that is at market interest rates based on the current credit characteristics of the borrower is not a TDR. The Bank places consumer loan TDRs, except those that were performing prior to TDR status, on non-accrual status for a minimum period of 6 months. Commercial TDRs are evaluated on a case-by-case basis for determination of whether or not to place on non-accrual status. Loans qualify for return to accrual status once they have demonstrated performance with the restructured terms of the loan agreement for a minimum of 6 months. Generally, TDRs are classified as impaired loans and reported as TDRs for the remaining life of the loan. As part of the Investment Transaction, all TDRs reported prior to April 30, 2015 are no longer reported as TDRs as of December 31, 2015. Purchased Credit-Impaired Loans (PCI): As part of the Investment Transaction, some loans were identified with evidence of credit quality deterioration since origination. Evidence of credit quality deterioration may include statistics such as prior loan modification history, updated borrower credit scores and updated LTV ratios. Purchased loans with evidence of credit quality deterioration where the Bank estimates that it will not receive all contractual payments are accounted for as PCI loans. The excess of the cash flows expected to be collected on PCI loans, measured as of the acquisition date, over the estimated fair value is referred to as the accretable yield and is recognized in interest income over the remaining life of the loan or lease using a level yield methodology. The difference between contractually required payments as of the acquisition date and the cash flows expected to be collected is referred to as the non-accretable difference. The Bank estimates cash flows expected to be collected over the life of the loan using management’s best estimate which is derived using current key assumptions such as default rates, loss severity and payment speeds. If, upon subsequent evaluation, the Bank determines it is probable that the present value of the expected cash flows have decreased due to a deterioration of credit, the PCI loan is considered further impaired which will result in a charge to the provision for loan and lease losses and a corresponding increase to the ALLL. If, upon subsequent evaluation, it is probable that there is an increase in the present value of the expected cash flows, the Bank will reduce any remaining allowance. If there is no remaining allowance, the Bank will recalculate the amount of accretable yield as the excess of the revised expected cash flows over the current carrying value resulting in a reclassification from non-accretable difference to accretable yield. The present value of the expected cash flows

12

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) for PCI purchased loan pools is determined using the PCI loans’ effective interest rate, adjusted for changes in the PCI loans’ interest rate indexes. Adjustments in interest rate assumptions and prepayment behavior do not impact the Bank’s assessment of credit impairment. The present value of the expected cash flows for PCI loans and leases acquired includes, in addition to the above, an evaluation of the credit worthiness of the borrower. Other Real Estate Owned: Other real estate owned (OREO), which represents real estate acquired through foreclosure in satisfaction of commercial and real estate loans, is initially recorded at fair value less estimated selling costs of the real estate. This valuation is based on current independent appraisals obtained at the time of acquisition, less costs to sell when acquired, thus establishing a new cost basis. Loan balances in excess of fair value of the real estate acquired at the date of acquisition are charged to the ALLL. Gains and losses on the sale of OREO are included in Other Noninterest Expense. Any subsequent operating expenses or income of such properties are included in Other Noninterest Expense on the Consolidated Statements of Income. Bank Premises and Equipment: Land is carried at cost. Buildings and equipment are stated at cost less accumulated depreciation. Estimated useful lives of buildings and equipment are from 10 to 40 years and from 3 to 10 years, respectively. Depreciation is computed generally on a straight-line basis. Leasehold improvements are included in buildings and fixtures, and are amortized over the shorter of the original lease term or their economic useful lives. As of December 31, 2015, the Bank held $20,288,000 of land, $21,165,409 of buildings and $5,619,918 of furnishings, fixtures and equipment, net of accumulated depreciation. As of December 31, 2014, the Bank held $9,826,438 of land, $24,144,499 of buildings and $6,502,819 of furnishings, fixtures and equipment, net of accumulated depreciation. Bank Owned Life Insurance (BOLI): The Bank has purchased life insurance policies on certain key current and former executives. BOLI is recorded at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or other amounts due that are probable at settlement. Goodwill and Other Intangible Assets: Goodwill represents the excess purchase price of businesses acquired over the fair value of the identifiable net assets acquired. Goodwill is not subject to amortization and is evaluated for impairment annually or more frequently in the interim if events occur or circumstances change indicating it would more likely than not result in a reduction of the fair value of a reporting unit below its carrying value. Goodwill is evaluated for impairment by either performing a qualitative evaluation or a two-step quantitative test. The qualitative evaluation is an assessment of factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount, including goodwill. Discounted cash flow estimates, which include significant management assumptions relating to revenue growth rates, net interest margins, weighted average cost of capital, and future economic and market conditions, are used to determine fair value under the two-step quantitative test. In Step 1, the fair value of a reporting unit is compared to its carrying amount, including goodwill. If the fair value of the reporting unit exceeds its carrying amount, goodwill of the reporting unit is not considered impaired, and it is not necessary to continue to Step 2 of the impairment process. Otherwise, Step 2 is performed where the implied fair value of goodwill is compared to the carrying value of goodwill in the reporting unit. If a reporting unit’s carrying value exceeds fair value, the difference is charged to noninterest expense. Other intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill because of contractual or other legal rights, or because the asset is capable of being sold or exchanged either separately or in combination with a related contract, asset or liability. Other intangible assets with finite useful lives are amortized to noninterest expense over their estimated useful lives and are evaluated for impairment whenever events occur or circumstances change indicating the carrying amount of the asset may not be recoverable.

Mechanics Bank 2015 Annual Report

13

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Operating Leases: The Bank provides customer financing of automobiles and equipment pursuant to operating lease contracts. The original acquisition cost of leased assets is reported net of accumulated depreciation within interest receivable and other assets on the Consolidated Balance Sheets. Rental income earned from operating leases is reflected in other noninterest income and depreciation expense is reflected in other noninterest expense on the Consolidated Statements of Income. As of December 31, 2015 and 2014, the Bank held $4,101,463 and $5,631,218, respectively, of operating lease assets, net of accumulated depreciation. For the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, the Bank earned $786,669, $451,728 and $1,318,395, respectively, of operating lease rental income, and incurred $676,523, $385,383, and $1,081,745, respectively, of depreciation expense from operating lease assets. Reserve for Unfunded Commitments: The reserve for unfunded commitments provides for probable losses inherent with funding the unused portion of legal commitments to lend. The reserve for unfunded commitments calculation includes factors that are consistent with ALLL methodology for funded loans using the expected loss factors and a draw down factor. Changes in the reserve for unfunded commitments are relected within interest payable and other liabilities on the Consolidated Balance Sheets and other noninterest expense on the Consolidated Statements of Income. Impairment of Long-Lived Assets: The Bank reviews its long-lived assets for impairment whenever events or changes indicate that the carrying amount of an asset may not be recoverable. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated. Management does not believe there are now such matters that will have a material effect on the financial statements. Income Taxes: The Bank’s accounting for income taxes is based on an asset and liability approach. The Bank recognizes the amount of taxes payable or refundable for the current year, and recognizes deferred tax liabilities and assets for the future tax consequences for transactions that have been recognized in the Bank’s consolidated financial statements or tax returns. The measurement of tax assets and liabilities is based on enacted tax laws and rates. A valuation allowance, if needed, will reduce deferred tax assets to the amount expected to be realized. The Bank recognizes interest and penalties related to income tax matters in income tax expense. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained under an audit, based upon the technical merits of the position, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Statement of Cash Flows: Cash and cash equivalents include cash and due from banks and federal funds sold with original maturities less than 90 days. Net cash flows are reported for customer loan and deposit transactions and for short-term borrowings with an original maturity of 90 days or less. Fair Values of Financial Instruments: The Bank measures certain assets and liabilities on a fair value basis, in accordance with ASC 820, Fair Value Measurement (ASC 820). Fair value is used on a recurring basis for certain assets and liabilities in which fair value is the primary basis of accounting. Examples of this includes available-for-sale securities. Additionally, fair value is used on a non-recurring basis to evaluate assets or liabilities for impairment in accordance with ASC 825, Financial Instruments (ASC 825). Examples of these include impaired loans, long-lived assets, OREO, goodwill, and core deposit intangible assets accounted for at the lower of cost or fair value.

14

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies (continued) Fair value is the exchange price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants. When observable market prices are not available, fair value is estimated using modeling techniques such as discounted cash flow analysis. These modeling techniques utilize assumptions that market participants would use in pricing the asset or the liability, including assumptions about the risk inherent in a particular valuation technique, the effect of a restriction on the sale or use of an asset, and the risk of nonperformance. Depending on the nature of the asset or liability, the Bank uses various valuation techniques and assumptions when estimating the instrument’s fair value. Considerable judgment may be involved in determining the amount that is most representative of fair value. To increase consistency and comparability of fair value measures, ASC 820 established a three-level hierarchy to prioritize the inputs used in valuation techniques between observable inputs among (i) observable inputs that reflect quoted prices in active markets; (ii) inputs other than quoted prices with observable market data; and (iii) unobservable data such as the Bank’s own data or single dealer non-binding pricing quotes. The Bank assesses the valuation hierarchy for each asset or liability measured at the end of each quarter, and as a result assets or liabilities may be transferred within hierarchy levels due to changes in availability of observable market inputs to measure fair value at the measurement date. Further information regarding the Bank’s policies and methodology used to measure fair value is presented in Note 19. Subsequent Events: The Bank has evaluated subsequent events for recognition or disclosure through March 23, 2016 which is the date that the financial statements were available to be issued. Note 2. Business Combination – Investment Transaction As disclosed in Note 1, “Summary of Significant Accounting Policies,” of these Consolidated Financial Statements, on April 30, 2015, the Bank closed the Investment Transaction under the terms of the Amended and Restated Offer to Purchase, dated December 15, 2014, as amended. The following table summarizes the Investment Transaction: Purchase Price: $ 360,434,256 Financial Assets Cash and cash equivalents 55,152,962 Investment securities 1,527,264,471 Loan and leases 1,573,306,663 Goodwill 135,147,003 Intangible assets 42,100,000 Other assets 139,413,575 3,472,384,674 Financial Liabilities Deposits 2,814,927,862 Other liabilities 137,456,812 2,952,384,674 Net Financial Assets 520,000,000 Less: Non-controlling interest (159,565,744) $ 360,434,256

Mechanics Bank 2015 Annual Report

15

Notes to Consolidated Financial Statements Note 2. Business Combination – Investment Transaction (continued) A summary and description of the assets, liabilities and non-controlling interests fair valued in conjunction with applying purchase accounting is as follows: Cash and cash equivalents: The fair value of cash and cash equivalents is the balance held at the Transaction Date and did not require a fair value adjustment. Investment securities: The fair value of the investment securities is based on values obtained from a third party which are based on recent activity for the same or similar securities. Loans and leases: The fair value of loans and leases acquired was estimated by utilizing a methodology wherein similar loans were aggregated into pools. Cash flows for each pool were determined by estimating future credit losses and the rate of prepayments. Projected monthly cash flows were then discounted to present value based on a market rate for similar loans. There was no carryover of predecessor company’s allowance for loan and lease losses associated with the acquired loans as the loans were recorded at fair value on the Transaction Date. Other intangible assets: The Bank recorded core deposit intangible assets of $26.5 million as part of the Investment Transaction. Core deposit intangible assets were valued using a net cost savings method and was calculated as the present value of the estimated net cost savings attributable to the core deposit base over the expected remaining life of the deposits. The cost savings derived from the core deposit balance were calculated as the difference between the prevailing alternative cost of funds and the estimated cost of the core deposits. The core deposit intangible is being amortized over its estimated useful life of nine to ten years using the sum of the years-digits amortization methodology. The Bank recorded a trade name intangible asset of $15.6 million as part of the investment transaction. The trade name intangible was valued using the relief-from-royalty method under the income approach. The valuation method is based upon the application of a royalty rate to forecasted revenue under the trade name. The trade name for Mechanics Bank has an indefinite life. Other assets: The majority of the Bank’s other assets did not have a fair value adjustment as part of purchase accounting as their carrying value approximated fair value. The most significant fair value adjustments in other assets related to property plant and equipment. Deposits: The fair value of savings and transaction deposit accounts was assumed to approximate the carrying value as these accounts have no stated maturity and are payable on demand. Certificates of deposit were valued by projecting the expected cash flows based on the remaining contractual terms of the certificates of deposit. These cash flows were discounted based on market rates for certificates of deposit with corresponding remaining maturities. Other liabilities: The majority of the Bank’s other liabilities did not have a fair value adjustment as part of purchase accounting as their carrying values approximated fair values. The most significant fair value adjustments in other liabilities related to retirement plan and supplemental executive retirement plan liabilities.

16

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 3. Investment Securities The following table presents the amortized cost and fair value of the investment securities portfolio as of the dates indicated:

Successor Company December 31, 2015

GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES

ESTIMATED FAIR VALUE

Securities available-for-sale U.S. treasuries securities $ 290,285,778 $ - $ (2,016,198) $ 288,269,580 U.S. government agency securities 472,670,313 812,755 (2,583,847) 470,899,221 Mortgage-backed securities – residential 366,058,271 58,509 (2,732,629) 363,384,151 Corporate bonds 44,007,085 - (125,379) 43,960,289 Equity securities 169,600 - - 89,200 Total securities available-for-sale

$ 1,173,202,209

$

871,264

$ (7,578,343)

GROSS GROSS AMORTIZED UNRECOGNIZED UNRECOGNIZED COST GAINS LOSSES Securities held-to-maturity U.S. government agency securities $ 223,630,206 $ Obligations of states and political subdivisions 117,161,904 Mortgage-backed securities – residential 16,329,430 Total securities held-to-maturity



$ 357,121,540

$ 1,166,495,130



ESTIMATED FAIR VALUE

320,654 $ (1,483,055) $ 1,169,998 (178,586) - (215,662)

222,467,805 118,153,316 16,113,768

$ 1,490,652

$ (1,877,303)

$ 356,734,889

Total investment securities

$ 1,523,230,019



Predecessor Company December 31, 2014

GROSS GROSS AMORTIZED UNREALIZED UNREALIZED COST GAINS LOSSES Securities available-for-sale U.S. treasuries securities $ 149,576,174 $ U.S. government agency securities 385,145,609 Mortgage-backed securities – residential 367,472,039 Corporate bonds 44,007,085 Equity securities - Total securities available-for-sale

$ 946,200,907

$

60,545 $ (64,219) $ 149,572,500 - (7,863,609) 377,282,000 18,720 (1,739,714) 365,751,045 78,583 (125,379) 43,960,289 110,000 - 110,000

267,848

$ (9,792,921)

GROSS GROSS AMORTIZED UNRECOGNIZED UNRECOGNIZED COST GAINS LOSSES Securities held-to-maturity U.S. government agency securities $ Obligations of states and political subdivisions Mortgage-backed securities – residential Total securities held-to-maturity



326,617,783 $ 135,179,157 7,639,295

$ 469,436,235

$

ESTIMATED FAIR VALUE

$ 936,675,834



ESTIMATED FAIR VALUE

15,961 $ (5,230,613) $ 4,676,402 (2,103,166) - (174,294)

321,403,131 137,752,393 7,465,001

4,692,363



$ (7,508,073)

$ 466,620,525

Total investment securities

$ 1,403,296,359

Mechanics Bank 2015 Annual Report

17

Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) As part of our ongoing review of the investment securities portfolio, the Bank reassessed the classification of certain obligations of state and political subdivisions. Effective December 1, 2012, the Bank transferred an aggregate of $120,837,487 of municipal bonds from available-for-sale securities to held-to-maturity. The transfer was effected at fair market value. The related unrealized pretax gain of $6,935,877 included in other comprehensive income remained in other comprehensive income, to be amortized as a yield adjustment through earnings over the remaining terms of the securities, which offsets the amortization of the newly established premium which is also amortized over the remaining terms of the securities as a yield adjustment. No gain or loss was recognized at the time of transfer. Amortization expense was $448,766 for the four months ended April 30, 2015 and $1,296,963 for the twelve months ended December 31, 2014. There was no amortization expense for the eight months ended December 31, 2015, as a result of purchase accounting associated with the Investment Transaction. In addition to the reported fair values of the investment securities reflected above, the Bank is entitled to receive accrued interest and dividends from its securities. Included in interest receivable and other assets on the consolidated balance sheets as of December 31, 2015 and 2014 was $5,780,693 and $5,789,764, respectively, of interest and dividends receivable from the Bank’s investment securities. Accrued interest receivable from securities available-for-sale totaled $3,195,578 and $2,605,751 at December 31, 2015 and 2014, respectively. Accrued interest receivable from securities held-to-maturity totaled $2,585,115 and $3,184,013 at December 31, 2015 and 2014, respectively. In accordance with accounting standards, only the realized gains and losses from securities transactions involving availablefor-sale securities are included in the Consolidated Statements of Income as net gains on securities available-for-sale. The Bank realized $0, $29,182, and $297,688 of gross gains on total proceeds of $0, $10,000,000, and $182,702,302 from securities transactions involving securities available-for-sale during the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively. The Bank also realized $171,688, $50,177, and $68,586 of gross gains from $66,135,000, $57,480,000 and $20,995,000 in early calls on the held-to-maturity portfolio during the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively. There were no gross realized losses arising from the security investment portfolio for any of the periods presented. As of December 31, 2015 and 2014, the Bank held impaired securities with gross fair value of $1,123,047,247 and $1,178,285,564, respectively, in the available-for-sale category and held-to-maturity categories, which had gross unrealized losses of $9,455,646 and $17,300,994 as of December 31, 2015 and 2014, respectively. These unrealized losses have not been charged to net income and are considered to be temporary impairments of value. The Bank continuously reviews the individual securities held in the portfolio for any impairment of values which may be other-than-temporary. All of the impairment appearing in the securities portfolio valuations is considered to be temporary in 2015 and 2014. The measured impairment in the securities values is primarily attributable to changes in short term interest rates, market shifts of the Treasury yield curve, and other variable market and economic conditions. The measured impairment in securities values did not result from any significant or persistent deterioration in the underlying credit quality of any of the investments. The securities portfolio consists primarily of debt securities with noncontingent contractual cash flows. Full realization of the principal balance is expected upon final maturity. Management has the intent and ability to hold the securities until recovery of the carrying value, which could be at the final stated maturity.

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Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) The following tables show the impaired securities’ gross fair values and gross unrealized losses, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at December 31, 2015 and 2014:









Successor Company December 31, 2015 LESS THAN 12 MONTHS

12 MONTHS OR MORE

Fair Unrealized Value Losses

Fair Unrealized Value Losses

TOTAL Fair Value

Unrealized Losses

Description of impaired securities U.S. treasury securities $ 288,269,580 $ (2,016,198) $ - $ - $ 288,269,580 $ (2,016,198) U.S. government agency securities 393,046,624 (4,066,902) - - 393,046,624 (4,066,902) Obligations of states and political subdivisions 25,440,775 (178,586) - - 25,440,775 (178,586) Mortgage-backed securities – residential 372,348,090 (2,948,291) - - 372,348,090 (2,948,291) Corporate bonds 43,852,978 (165,269) - - 43,852,978 (165,269) Equity securities 89,200 (80,400) - - 89,200 (80,400)

Total temporarily impaired securities

$1,123,047,247 $ (9,455,646) $

Number of securities with unrealized losses









- $

- $1,123,047,247 $ (9,455,646)

119

-

119

Predecessor Company December 31, 2014 LESS THAN 12 MONTHS

12 MONTHS OR MORE

Fair Unrealized Value Losses

Fair Unrealized Value Losses

TOTAL Fair Value

Unrealized Losses

Description of impaired securities U.S. treasury securities $ 49,862,500 $ (64,219) $ - $ - $ 49,862,500 $ (64,219) U.S. government agency securities 65,209,500 (90,103) 621,899,991 (13,004,119) 687,109,491 (13,094,222) Obligations of states and political subdivisions 2,315,997 (53,535) 63,832,831 (2,049,631) 66,148,828 (2,103,166) Mortgage-backed securities – residential 42,622,387 (70,494) 303,601,576 (1,843,514) 346,223,963 (1,914,008) Corporate bonds 28,940,782 (125,379) - - 28,940,782 (125,379) Total temporarily impaired securities

$188,951,166 $ (403,730) $ 989,334,398 $ (16,897,264) $1,178,285,564 $ (17,300,994)

Number of securities with unrealized losses

20

181

201

As a result of the Investment Transaction, the cost basis of all the securities acquired were updated to the fair market values as of April 30, 2015. As such, no securities have any unrealized losses 12 months or more. Securities with a gross carrying value of $420,428,000 and $368,966,000 at December 31, 2015 and 2014, respectively, were pledged to secure the Bank’s obligations for securities sold under agreements to repurchase and to collateralize certain public and trust deposits as required by law. To meet these various collateral requirements, the Bank was obliged to pledge only $295,548,000 and $212,639,000 of securities at December 31, 2015 and 2014, respectively. There were surplus pledged securities totaling $124,880,000 and $156,327,000 at December 31, 2015 and 2014, respectively, which the Bank was entitled to withdraw from pledged status.

Mechanics Bank 2015 Annual Report

19

Notes to Consolidated Financial Statements Note 3. Investment Securities (continued) Contractual maturities of securities as of December 31, 2015 are as follows: Successor Company





AMORTIZED ESTIMATED COST FAIR VALUE Available-for-Sale securities Due in one year or less $ 50,204,077 $ 50,067,125 Due after one year through five years 617,455,909 615,593,539 Due after five year through ten years 139,314,352 137,361,115 Due after ten years - Subtotal Mortgage-backed securities – residential Equity securities Total available-for-sale investment securities

806,974,338

803,021,779

366,058,271 363,384,151 169,600 89,200

$ 1,173,202,209

$ 1,166,495,130

Held-to-Maturity securities Due in one year or less $ - $ Due after one year through five years 6,268,835 6,272,865 Due after five year through ten years 234,529,679 233,389,269 Due after ten years 99,993,596 100,958,987 Subtotal Mortgage-backed securities – residential Equity securities

340,792,110

340,621,121

16,329,430 16,113,768 - -

Total held-to-maturity investment securities

$

357,121,540

$ 356,734,889



$ 1,530,323,749

$ 1,523,230,019

Total Securities

Note 4. Loans The loan and lease portfolio at December 31, 2015 and 2014, consisted of the following:

Successor Company

Predecessor Company

December 31, 2015

December 31, 2014

Commercial & Industrial $ 184,059,079 $ 194,490,528 Commercial Real Estate: Construction & Land Development 95,939,130 113,755,255 Other 876,164,697 920,928,649 Residential Real Estate 311,405,846 214,308,791 Installment: Revolving Plans 2,104,061 5,036,973 Other 130,984,376 186,698,907 Lease Financing 10,625,211 14,236,844 Total loans and leases before allowance for credit losses 1,611,282,400 1,649,455,947 Allowance for credit losses on loans and leases (2,293,874) (34,267,673) Net loans and leases

20

Mechanics Bank 2015 Annual Report

$ 1,608,988,526

$ 1,615,188,274

Notes to Consolidated Financial Statements Note 4. Loans (continued) The following table presents the activity in the allowance for credit losses by portfolio segment for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014: Successor Company Commercial Commercial Residential Lease December 31, 2015 & Industrial Real Estate Real Estate Installment Financing Unallocated

Total

Allowance for loan losses: Beginning balance $ - $ - $ - $ - $ - $ - $ Provision for loan losses 579,697 1,402,792 439,383 168,674 (4,755) - 2,585,791 Loans charged-off (231,214) (117,793) - (78,820) - - (427,827) Recoveries 68,953 31,267 - 30,935 4,755 - 135,910 Total ending allowance balance $ 417,436 $ 1,316,266 $ 439,383 $ 120,789 $ - $ - $ 2,293,874 Predecessor Company Commercial Commercial Residential Lease April 30, 2015 & Industrial Real Estate Real Estate Installment Financing Unallocated

Total

Allowance for loan losses: Beginning balance $ 10,255,737 $ 15,622,636 $ 4,352,795 $ 2,228,538 $ 366,426 $ 1,441,541 $ 34,267,673 Provision for loan losses 2,304,749 2,025,070 (192,039) (561,829) (16,647) (1,441,541) 2,117,763 Loans charged-off (165,442) (78,072) - (77,331) (59,325) - (380,170) Recoveries 131,533 2,189,529 18,483 80,646 4,762 - 2,424,953 Total ending allowance balance $12,526,577 $19,759,163 $ 4,179,239 $ 1,670,024 $ 295,216 $ - $ 38,430,219 Predecessor Company Commercial Commercial Residential Lease December 31, 2014 & Industrial Real Estate Real Estate Installment Financing Unallocated

Total

Allowance for loan losses: Beginning balance $ 6,445,566 $ 16,761,999 $ 3,998,001 $ 1,895,645 $ 265,849 $ 552,864 $ 29,919,924 Provision for loan losses (260,860) (1,122,958) (83,935) 424,993 154,083 888,677 Loans charged-off (1,451,339) (2,830,182) (155,000) (277,943) (66,341) - (4,780,805) Recoveries 5,522,370 2,813,777 593,729 185,843 12,835 - 9,128,554 Total ending allowance balance $ 10,255,737 $15,622,636 $ 4,352,795 $ 2,228,538 $ 366,426 $ 1,441,541 $ 34,267,673

Mechanics Bank 2015 Annual Report

21

Notes to Consolidated Financial Statements Note 4. Loans (continued) Changes in the allowances for credit losses for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014:

Successor Company

P redecessor Company

Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 Allowance for credit losses on loans and leases at the beginning of the period Provision for credit losses on loans and leases Recoveries on loans and leases previously charged off Loans and leases charged off during the year

$

-

$ 34,267,673

2,585,791 135,910 (427,827)

$ 29,919,924

2,117,763 2,424,953 9,128,554 (380,170) (4,780,805)

Allowance for credit losses on loans and leases at the end of the period



Allowance for credit losses on unfunded lending commitments at the beginning of the period Provision of credit losses on unfunded lending commitments

1,678,000 (558,000)

Allowance for credit losses on unfunded lending commitments at the end of the period



1,120,000



1,678,000



1,056,980

Total allowances for credit losses on loans, leases and unfunded lending commitments

$

3,413,874

$

40,108,219

$

35,324,653

2,293,874



38,430,219



1,056,980 621,020

34,267,673 984,424 72,556

The allowance for credit losses on loans and leases is reflected in total assets as an offset to the loan and lease portfolio. The allowance for credit losses on unfunded lending commitments is reflected in total liabilities in the interest payable and other liabilities caption. The recorded investment in loans excludes accrued interest receivable. The recorded investment approximates the unpaid principal balance for these disclosures. For purposes of this disclosure, the unpaid principal balance is reduced for net chargeoffs. As noted in NOTE 2, there was no carryover from the Predecessor Company’s ALLL as of April 30, 2015. Acquired loans were fair valued and future credit losses are reflected in the loan discount on the acquired loans. As of December 31, 2015, the remaining discount on the acquired loans in the Investment Transaction was $5.3 million, which represented 0.45% of outstanding UPB.

22

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 4. Loans (continued) As a result of the Investment Transaction, loans were booked at their fair values as of April 30, 2015. Future expected credit losses were booked as a discount to the loan portfolio unpaid principal balances and the ALLL was removed as of April 30, 2015. The following table presents the balance in the allowance for credit losses and the recorded investment in loans by portfolio segment and is based on the impairment method as of December 31, 2015 and 2014: Successor Company Commercial December 31, 2015 & Industrial

Commercial Residential Lease Real Estate Real Estate Installment Financing Unallocated Total

Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 97,274 $ - $ 29,047 $ - $ - $ - $ 126,321 Collectively evaluated for impairment 320,162 1,316,266 410,336 120,789 - - 2,167,553 Acquired with deteriorated credit quality - - - - - - Total ending allowance balance $ 417,436 $ 1,316,266 $ 439,383 $ 120,789 $ - $ - $ 2,293,874 Loans: Individually evaluated for impairment $ 2,081,089 $ 2,900,901 $ 1,621,550 $ 25,834 $ - $ - $ 6,629,374 Collectively evaluated for impairment 181,190,331 960,481,051 308,543,438 133,062,603 10,625,211 - 1,593,902,634 Acquired with deteriorated credit quality 787,659 8,721,875 1,240,858 - - - 10,750,392 Total ending loans balance $184,059,079 $ 972,103,827 $ 311,405,846 $ 133,088,437 $ 10,625,211 $ - $ 1,611,282,400 Predecessor Company Commercial December 31, 2014 & Industrial

Commercial Residential Lease Real Estate Real Estate Installment Financing Unallocated Total

Allowance for loan losses: Ending allowance balance attributable to loans: Individually evaluated for impairment $ 1,454,327 $ 122,807 $ 1,262,729 $ 155,939 $ - $ - $ 2,995,802 Collectively evaluated for impairment 8,801,410 15,499,829 3,090,066 2,072,599 366,426 1,441,541 31,271,871 Total ending allowance balance $ 10,255,737 $ 15,622,636 $ 4,352,795 $ 2,228,538 $ 366,426 $ 1,441,541 $ 34,267,673 Loans: Individually evaluated for impairment Collectively evaluated for impairment Total ending loans balance

$ 5,163,549 $ 46,607,061 $ 6,407,829 $ 302,283 $

- $

- $ 58,480,722

189,326,979 988,076,843 207,900,962 191,433,597 14,236,844 - 1,590,975,225 $194,490,528 $ 1,034,683,904 $ 214,308,791 $ 191,735,880 $ 14,236,844 $ - $ 1,649,455,947

Mechanics Bank 2015 Annual Report

23

Notes to Consolidated Financial Statements Note 4. Loans (continued) The following table presents information related to impaired loans by class of loans as of December 31, 2015 and 2014: Allowance for Successor Company Unpaid Principal Loan Losses Interest Income Cash Basis Interest December 31, 2015 Balance Allocated Average Balance Recognized Recognized With no related allowance recorded: Commercial & Industrial $ 956,846 $ - $ 1,502,722 $ 3,179 $ 2,815 Commercial Real Estate: Construction & Land Development - - - - Other 2,840,269 - 3,176,207 - Residential Real Estate 1,533,729 - 1,770,675 9,959 6,304 Installment: Other 25,324 - 44,225 - Subtotal

5,356,168

-

6,493,829

13,138

9,119

With an allowance recorded: Commercial & Industrial 1,172,632 97,274 1,389,479 71,764 74,133 Commercial Real Estate: Other - - - - Residential Real Estate 136,963 29,047 136,973 3,281 3,513 Installment: Other - - - - Subtotal

1,309,595

126,321

1,526,452

75,045

77,646

Total

$ 6,665,763

$ 126,321

$ 8,020,281

$ 88,183

$ 86,765

Allowance for Predecessor Company Unpaid Principal Loan Losses Interest Income Cash Basis Interest December 31, 2014 Balance Allocated Average Balance Recognized Recognized With no related allowance recorded: Commercial & Industrial $ 2,341,000 $ - $ 3,043,380 $ 74,211 $ 71,917 Commercial Real Estate: Construction & Land Development 12,119,955 - 14,862,452 946,955 946,944 Other 32,619,861 - 30,550,093 1,521,499 1,513,593 Residential Real Estate 2,223,729 - 2,774,530 115,414 115,150 Installment: Other 5,983 - - 739 739 Subtotal

49,310,528

- 51,230,455 2,658,818 2,648,343

With an allowance recorded: Commercial & Industrial 2,822,549 1,454,327 3,043,380 182,105 181,524 Commercial Real Estate: Other 1,867,245 122,807 682,611 26,745 26,745 Residential Real Estate 4,184,100 1,262,729 2,946,107 126,778 126,778 Installment: Other 296,300 155,939 306,734 17,402 17,129 Subtotal

9,170,194

2,995,802

6,978,832

353,030

352,176

Total

$ 58,480,722

$ 2,995,802

$ 58,209,287

$ 3,011,848

$ 3,000,519

24

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 4. Loans (continued) Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. The following table presents the recorded investment in nonaccrual and loans past due over 90 days still on accrual by class of loans as of December 31, 2015 and 2014: Successor Company Loans Past Due Over December 31, 2015 Nonaccrual 90 Days Still Accruing Commercial & Industrial $ 806,888 $ Commercial Real Estate: Construction & Land Development - Other 2,900,901 2,324,208 Residential Real Estate 674,565 Installment Other 25,835 Total

$ 4,408,189

$ 2,324,208

Predecessor Company Loans Past Due Over December 31, 2014 Nonaccrual 90 Days Still Accruing Commercial & Industrial $ 2,506,694 $ Commercial Real Estate: Construction & Land Development 555,758 Other 12,643,307 Residential Real Estate 891,305 Installment Other 230,705 Total

$ 16,827,769

$ -

Mechanics Bank 2015 Annual Report

25

Notes to Consolidated Financial Statements Note 4. Loans (continued) The following table presents the aging of the recorded investment in past due loans as of December 31, 2015 and 2014 by class of loans: Greater than Successor Company 30-59 Days 60–89 Days 89 Days December 31, 2015 Past Due Past Due Past Due

Total Past Due

Loans Not Past Due



Total Loans

Commercial & Industrial $ 271,824 $ - $ 806,888 $ 1,078,712 $ 182,980,367 $ 184,059,079 Commercial Real Estate: Construction & Land Development 6,174 793,272 - 799,446 95,139,684 95,939,130 Other 3,687,224 - 1,928,885 5,616,109 870,548,588 876,164,697 Residential Real Estate 81,336 136,963 143,706 362,005 311,043,841 311,405,846 Installment: Revolving Plans 13,000 - - 13,000 2,091,061 2,104,061 Other 188,958 3,260 18,449 210,667 130,773,709 130,984,376 Lease Financing 12,406 - - 12,406 10,612,805 10,625,211 Total

$ 4,260,922

$ 933,495

$ 2,897,928

$ 8,092,345

Greater than Predecessor Company 30-59 Days 60–89 Days 89 Days December 31, 2014 Past Due Past Due Past Due

$1,603,190,055

Total Past Due

Loans Not Past Due

$ 1,611,282,400



Total Loans

Commercial & Industrial $ 484,576 $ 235,435 $ 2,042,579 $ 2,762,590 $ 191,727,938 $ 194,490,528 Commercial Real Estate: Construction & Land Development - - - - 113,755,255 113,755,255 Other 1,003,388 - 1,281,967 2,285,355 918,643,294 920,928,649 Residential Real Estate 366,889 - 1,674,420 2,041,309 212,267,482 214,308,791 Installment: Revolving Plans - - - - 5,036,973 5,036,973 Other 310,225 226,536 29,894 566,655 186,132,252 186,698,907 Lease Financing 81,079 - - 81,079 14,155,765 14,236,844 Total

$ 2,246,157

$ 461,971

$ 5,028,860

$ 7,736,988

$1,641,718,959

$ 1,649,455,947

Troubled Debt Restructurings: As of December 31, 2015 and 2014, the Bank had a recorded investment in trouble debt restructurings of $1,477,077 and $34,732,190, respectively. The Bank allocated $0 and $266,645 of the allowance for credit losses to customers whose loan terms have been modified in troubled debt restructurings as of December 31, 2015 and 2014, respectively. The Bank has committed to lend additional amounts totaling up to $0 and $1,260,000 as of December 31, 2015 and 2014, respectively, to customers with outstanding loans that are classified as troubled debt restructurings.

26

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 4. Loans (continued) During the eight months ended December 31, 2015, the terms of certain loans were modified as troubled debt restructurings. The modifications of the terms of such loans included one or a combination of the following: an extension of the maturity dates and additional funds provided that otherwise would not have been provided. During the four months ended April 30, 2015 and the twelve months ended December 31, 2014, the terms of certain loans were modified as troubled debt restructurings. The modifications of the terms of such loans included one or a combination of the following: a reduction of the stated interest rate of the loan; an extension of the maturity date at a state rate of interest lower than the current market rate for new debt with similar risk; or a permanent reduction of the recorded investment in the loan. The following table presents loans by class modified as troubled debt restructurings that occurred during the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014: Pre-Modification Post-Modification Successor Company Outstanding Recorded Outstanding Recorded December 31, 2015 Number of Loans Investment Investment Troubled Debt Restructurings Commercial & Industrial 2 $ 736,421 $ 838,381 Commercial Real Estate: Construction & Land Development - - Other - - Residential Real Estate 1 279,271 628,871 Installment Other - - Total

3

$ 1,015,692

$ 1,467,252

Pre-Modification Post-Modification Predecessor Company Outstanding Recorded Outstanding Recorded April 30, 2015 Number of Loans Investment Investment Troubled Debt Restructurings Commercial & Industrial 3 $ 796,800 $ 803,482 Commercial Real Estate: Construction & Land Development - - Other 3 9,221,498 9,371,558 Residential Real Estate - - Installment Other - - Total

6

$

10,018,298

$ 10,175,040

Pre-Modification Post-Modification Predecessor Company Outstanding Recorded Outstanding Recorded December 31, 2014 Number of Loans Investment Investment Troubled Debt Restructurings Commercial & Industrial 1 $ 250,000 $ 250,000 Commercial Real Estate: Construction & Land Development 2 706,174 561,933 Other 3 8,933,999 8,933,999 Residential Real Estate 1 70,061 69,223 Installment Other - - Total

7

$

9,960,234

$ 9,815,155

Mechanics Bank 2015 Annual Report

27

Notes to Consolidated Financial Statements Note 4. Loans (continued) The troubled debt restructures described above increased the allowance for loan losses by $0 and $133,300 as of December 31, 2015 and 2014, respectively. There were $0 charge-offs related to these loans during the periods shown. During the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, the Bank had no loans that were modified as troubled debt restructurings for which there was a payment default within twelve months following the modification. A loan is considered to be in payment default once it is 30 days contractually past due under the modified terms. In order to determine whether a borrower is experiencing financial difficulty, an evaluation is performed of the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under the company’s internal underwriting policy. Credit Quality Indicators: The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis includes all loans regardless of balances. This analysis is performed on a quarterly basis. The Bank uses the following definitions for risk ratings: Special Mention. Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.

28

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 4. Loans (continued) Based on the most recent analysis performed, the risk category of loans by class of loans is as follows: Successor Company December 31, 2015

Pass

Special Mention

Substandard

Doubtful

Total

Commercial & Industrial $ 173,835,623 $ 4,295,919 $ 5,927,537 $ - $ 184,059,079 Commercial Real Estate: Construction & Land Development 90,625,533 4,520,325 793,272 - 95,939,130 Other 841,801,196 19,819,818 14,543,683 - 876,164,697 Residential Real Estate 303,838,500 2,875,728 4,691,618 - 311,405,846 Installment: Revolving Plans 2,104,061 - - - 2,104,061 Other 130,903,245 7,718 73,413 - 130,984,376 Lease Financing 10,625,211 - - - 10,625,211 Total

$ 1,553,733,369

$ 31,519,508

$ 26,029,523

$ -

$ 1,611,282,400

Predecessor Company December 31, 2014

Pass

Special Mention

Substandard

Doubtful

Total



Commercial & Industrial $ 161,020,630 $ 23,332,037 $ 9,853,702 $ 284,159 $ 194,490,528 Commercial Real Estate: Construction & Land Development 99,113,233 7,045,240 7,596,782 - 113,755,255 Other 836,611,197 46,826,299 36,843,650 647,503 920,928,649 Residential Real Estate 203,388,536 3,998,432 6,921,823 - 214,308,791 Installment: Revolving Plans 5,036,973 - - - 5,036,973 Other 186,300,771 101,012 264,390 32,734 186,698,907 Lease Financing 14,236,844 - - - 14,236,844

Total

$ 1,505,708,184

$ 81,303,020

$ 61,480,347

$ 964,396

$ 1,649,455,947

Mechanics Bank 2015 Annual Report

29

Notes to Consolidated Financial Statements Note 4. Loans (continued) Purchased Credit Impaired Loans and Leases: As a result of the Investment Transaction, the Bank acquired loans and leases in which there was, at acquisition, evidence of deterioration of credit quality subsequent to origination and it was probable, at acquisition, that all contractually required payments would not be collected. The Bank did not have any purchased credit impaired loans and leases as of December 31, 2014. The following table presents the outstanding balance and carrying amount of purchase credit impaired loans and leases as of December 31, 2015: Successor Company December 31, 2015





OUTSTANDING CARRYING PRINCIPAL BALANCE AMOUNT Commercial & Industrial $ 3,428,800 $ 787,659 Commercial Real Estate Construction and Land Development - - Other 12,340,811 8,721,875 Residential Real Estate 3,591,823 1,240,858 Installment Other 144,553 Total

$

19,505,987

$ 10,750,392

The following table presents a summary of accretable yield, or income expected to be collected: Eight Months Ended December 31, 2015 Successor Company Balance at April 30, 2015 $ New loans or leases acquired 2,320,283 Accretion income (721,804) Increase (decrease) in expected cash flows Disposals Balance at December 31, 2015

$ 1,598,479

For those PCI loans discussed above, the Bank had no allowance for loan loss adjustments during the eight months ended December 31, 2015. The following table presents the outstanding balances, expected cash flows, and fair values of purchased credit impaired loans and leases as of the acquisition dates for the period indicated:

Eight Months Ended December 31, 2015



Commercial & Industrial $ 4,996,154 Commercial Real Estate Construction and Land Development Other 12,993,464 Residential Real Estate 3,651,316 Installment Other 222,373 Outstanding unpaid principal balance at acquisition

$ 21,863,307

Cash flows expected to be collected at acquisition

$

14,677,843

Fair values of acquired loans at acquisition

$

12,357,561

The Bank purchased a pool of residential loans with outstanding unpaid principal balance of $95.1 million at a price of 101.8 during the eight months ended December 31, 2015. The Bank paid a premium of $1.7 million and purchased outstanding accrued interest of $136 thousand.

30

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 5. Bank Owned Life Insurance The Bank has purchased life insurance policies on certain key officers and directors in connection with its supplemental executive retirement plans and other employee fringe benefit plans. Investments in bank owned life insurance policies totaled $45,158,518 and $43,842,009 as of December 31, 2015 and 2014, respectively. This carrying value includes both the Bank’s original premiums invested in the life insurance policies and the accumulated accretion of policy income since the inception of the policies. Income recognized on these life insurance policies is reported in other noninterest income. For the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, the Bank recognized policy income totaling $887,415, $429,094 and $1,270,000, respectively, related to increases in cash surrender value of the policies. The Bank intends to hold these insurance policies for the remaining lives of the insureds and it expects to recover these values from the death benefits payable by the insurance companies that issued the policies. Note 6. Goodwill and Intangibles At December 31, 2015, the Bank had goodwill of $135.1 million as a result of the Investment Transaction that occurred on April 30, 2015. The Company will test its goodwill for impairment annually as of April 30 (the Measurement Date). Core deposit intangibles are amortized over their useful lives ranging from 9-10 years using sum of the years digits. As of December 31, 2015, the weighted average remaining amortization period for core deposit intangibles was approximately 9 years. Trade name intangibles have an indefinite life and are not amortized. The following table presents a summary of other intangibles assets as of December 31, 2015. Successor Company December 31, 2015 Gross Carrying Value Core deposit intangibles $ Trade name intangibles

Accumulated Amortization

26,500,000 $ 15,600,000



3,354,945 $ -

Net Carrying Value 23,145,055 15,600,000

Aggregate amortization of intangible assets was $3.4 million for the eight months ended December 31, 2015. The following table presents estimated future amortization expenses as of December 31, 2015: 2016 2017 2018 2019 2020 and After Total Estimated future amortization expense $ 4,679,467 $ 4,150,041 $ 3,620,615 $ 3,091,188 $ 7,603,744 $ 23,145,055

Note 7. FHLB Stock The Bank has purchased stock in the Federal Home Loan Bank of San Francisco to qualify for membership benefits and financial services. Pursuant to the FHLB Guide to the Credit Program, the FHLB also requires the Bank to purchase additional FHLB stock investments, which partially collateralize its borrowings from the FHLB. The fair value of the stock is not determinable, as the stock is restricted in terms of its marketability. The Bank owns FHLB stock with a cost of $17,250,000 as of December 31, 2015 and $17,555,100 as of December 31, 2014. FHLB stock is classified as a restricted security and is periodically evaluated for impairment based on ultimate recovery of par value. Dividends on this stock investment are reported in other interest income. For the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, the Bank recognized $1,796,804, $14,607, and $1,528,586, respectively, of income from its investments in FHLB stock.

Mechanics Bank 2015 Annual Report

31

Notes to Consolidated Financial Statements Note 8. Income Taxes The components of the provision for income taxes for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended 2014 are as follows:

Successor Company

P redecessor Company

Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 Federal Current Deferred

$ 13,233,000 $ (5,080,000)

430,000 $ 10,239,000 2,219,000 1,660,000

Total Federal



2,649,000

8,153,000

11,899,000

State Current Deferred Total State Total tax provision

4,336,000 828,000 4,647,000 (1,264,000) 281,000 271,000 3,072,000 1,109,000 4,918,000 $

11,225,000

$

3,758,000

$

16,817,000

The provision for income taxes for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014 differs from the amounts that would be computed by applying the statutory Federal income tax rate of 35%. The Bank’s effective tax rate and the statutory federal income tax rate are reconciled as follows:

Successor Company

P redecessor Company

Eight Months Four Months Twelve Months Ended December 31, Ended April 30, Ended December 31, 2015 2015 2014 35.0%

Federal statutory income tax rate State income taxes, net of federal tax benefit

7.9

35.0%

35.0%

7.4

7.6

Tax exempt income

(3.0)

(4.9)

(4.8)

Cash value increase of bank owned life insurance

(1.4)

(1.2)

(1.1)



0.0

4.3

0.0

Return to provision true-up

-

(9.8)

-

ASC 740-10 reserve

6.6

-

Other

5.7



0.1

50.8%



Merger costs

Effective Tax Rate



-





3.1

30.9%



39.8%

Net deferred taxes are reported in other assets and other liabilities in the consolidated balance sheets as a result of temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and their related tax bases.

32

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 8. Income Taxes (continued) The Bank’s net deferred tax asset included the following components at December 31, 2015 and 2014:

sSuccessor Company

Predecessor Company

December 31, 2015 December 31, 2014 Deferred tax assets: Credit losses $ 964,000 $ 14,408,000 Employee benefits 3,068,000 2,878,000 State taxes 1,671,000 1,743,000 Loan fair value adjustments 5,399,000 Unrealized loss on securities 2,820,000 4,005,000 Retirement plan 8,613,000 7,912,000 Supplemental retirement plan 1,651,000 1,517,000 Other accrued expenses 544,000 628,000 Other-than-temporary impairment on securities 391,000 420,000 Other real estate owned - 84,000 Other 5,251,000 2,742,000 Total deferred tax assets



30,372,000

36,337,000

Deferred tax liabilities: Income on leased assets (547,000) (423,000) Federal Home Loan Bank stock (1,090,000) (1,090,000) Customer deposit intangibles (9,732,000) Trade Name (6,559,000) Land (4,399,000) Other (3,132,000) (3,149,000)

Total deferred tax liability

$

(25,459,000)

$

(4,662,000)



Net deferred tax asset

$

4,913,000

$

31,675,000

Management believes it is more likely than not that it will realize the deferred tax assets in future periods; therefore, no valuation allowance has been provided against its deferred tax assets. The Bank recorded unrecognized tax benefits of $1.4 million during the eight months ended December 31, 2015. The bank did not record or have any unrecognized tax benefits as of and for the four months ended April 30, 2015 and as of and for the twelve months ended December 30, 2014. The total unrecognized tax benefits as of December 31, 2015 was $2.1 million. The Bank does not expect the total amount of unrecognized tax benefits to significantly increase or decrease in the next twelve months. The Bank recorded provision to return adjustments during the four months ended April 30, 2015, for acquisition costs related to the Investment Transaction that were previously considered nondeductible in the prior period. The Bank and its subsidiaries are subject to U.S. federal income tax as well as income tax of the State of California. The Bank is no longer subject to examination by federal taxing authorities for tax years 2011 and prior and by California taxing authorities for tax years 2010 and prior. The Bank has not accrued any potential interest or penalties as of December 31, 2015 and 2014 for uncertainties related to income taxes.

Mechanics Bank 2015 Annual Report

33

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans The Bank has a qualified retirement plan (Retirement Plan) covering substantially all of its employees. The Retirement Plan is a noncontributory defined benefit retirement plan, which generally provides for the payment of a monthly pension to employee participants upon their reaching normal retirement at age 65. The Retirement Plan also allows for the payment of joint and survivor pension benefits and early retirement benefits at substantially reduced amounts. The pension benefit of the Retirement Plan vests after five years of accredited employee service. The pension benefit amount is determined according to a percentage formula, which considers an employee’s total number of years of accredited service at the time of their eventual retirement, and also the average annual compensation paid to the employee during a five-year period, as defined in the plan. This Retirement Plan has been established under a qualified pension trust. The Bank uses a December 31 measurement date. The Bank has also implemented a non-qualified defined benefit retirement plan (Supplemental Plan) that supplements the benefits provided under the qualified Retirement Plan. The Supplemental Plan provides additional retirement and death benefits to a discrete group of key executive employees and their designated beneficiaries. The Supplemental Plan is an unfunded obligation of the Bank. At the end of 2008, participation and benefits in both the Retirement Plan and the Supplemental Plan were frozen. All current and certain former employees who were participants in the Retirement Plan, who had at least one year of accredited service, and who had not yet vested in their benefits from the plan, became 100% vested at the end of 2008. All current participants of the Supplemental Plan employed by the Bank at the end of 2008, who had at least one year of accredited service, and who had not yet vested in their benefits, also became 100% vested at the end of 2008. At the end of 2008 the benefits of certain employees participating in the Supplemental Plan were settled.

34

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans (continued) The following table reflects the funded status, net periodic benefit cost and other information about the Retirement Plan and the Supplemental Plan as of and for the periods ended December 31, 2015, April 30, 2015, and December 31, 2014: RETIREMENT PLAN

Successor Company Predecessor Company



SUPPLEMENTAL PLAN Successor Company

Predecessor Company

Eight Months Four Months Twelve Months Eight Months Four Months Twelve Months Ended Ended Ended Ended Ended Ended December 31, April 30, December 31, December 31, April 30, December 31, 2015 2015 2014 2015 2015 2014 Change in benefit obligation Projected benefit obligation (PBO) at beginning of period $ 63,085,000 $ 61,126,838 $ 54,981,448 $ 8,369,000 $ 8,388,765 $ 9,257,254 Service cost 247,480 - - - - Interest cost 1,661,714 717,379 2,410,765 209,838 94,884 347,815 Benefits paid (1,686,750) (823,096) (2,309,699) (56,494) (419,615) (451,502) Expenses paid (361,673) - - - - Actuarial loss (gain) (2,703,747) 17,947 6,044,324 (558,740) - (764,802) Projected benefit obligation (PBO) at end of period $ 60,242,024 $ 61,039,068 $ 61,126,838 $ 7,963,604 $ 8,064,034 $ 8,388,765 Change in plan assets Fair value of plan assets at beginning of period $ 47,656,000 $ 47,271,955 $ 45,198,139 $ - $ - $ Actual return on plan assets (736,982) 1,207,141 3,085,058 - - Employer contribution - - 1,298,457 56,494 419,615 451,502 Benefits paid (1,686,750) (823,096) (2,309,699) (56,494) (419,615) (451,502) Expenses paid (361,673) - - - - Fair value of plan assets at end of period $ 44,870,595 $ 47,656,000 $ 47,271,955 $ - $ - $ Funded status at end of period $ (15,371,429) $ (13,383,068) $ (13,854,883) $ (7,963,604) $ (8,064,034) $ (8,388,765) Amounts recognized in consolidated balance sheets Current liabilities Noncurrent liabilities

- - - (578,861) (476,109) (451,502) (15,371,429) (13,383,068) (13,854,883) (7,384,743) (7,587,925) (7,937,263)

Total amounts recognized

$ (15,371,429) $ (13,383,068) $ (13,854,883) $ (7,963,604) $ (8,064,034) $ (8,388,765)

Mechanics Bank 2015 Annual Report

35

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans (continued) RETIREMENT PLAN

Successor Company Predecessor Company



SUPPLEMENTAL PLAN Successor Company

Predecessor Company

Eight Months Four Months Twelve Months Eight Months Four Months Twelve Months Ended Ended Ended Ended Ended Ended December 31, April 30, December 31, December 31, April 30, December 31, 2015 2015 2014 2015 2015 2014 Amounts recognized in accumulated other comprehensive loss Net accumulated loss (gain)

$ 477,756 $

15,986,579 $ 16,253,346 $ (558,740) $

2,585,319 $ 2,585,319

Total amounts recognized

$ 477,756 $ 15,986,579 $ 16,253,346 $ (558,740) $ 2,585,319 $ 2,585,319

Accumulated benefit obligation (ABO) at end of period

$ 60,242,024 $ 61,021,121 $ 61,126,838 $ 7,963,604 $ 8,064,034 $ 8,388,765

Net periodic benefit cost Service cost $ 247,480 $ - $ - $ - $ - $ Interest cost 1,661,714 717,379 2,410,765 209,838 94,884 347,815 Expected return on plan assets (2,444,521) (1,225,088) (3,482,521) - - Benefits adjustments recognized - - - - 27,808 (1,227,196) Amortization of unrecognized loss - 284,714 249,783 - - 399,195 Total net periodic benefit cost $ (535,327) $ (222,995) $ (821,973) $ 209,838 $ 122,692 $ (480,186) Other changes in plan assets and benefit obligations recognized in other comprehensive loss (gain) Net loss (gain) Amortization of loss Total recognized in other comprehensive loss (gain)

$ 477,756 $ 17,947 $ 6,441,787 $ (558,740) $ - (284,714) (249,783) -

- $ 462,392 - (399,195)

$ 477,756 $ (266,767) $ 6,192,004 $ (558,740) $ - $ 63,197

Assumptions used in determining net periodic benefit costs Beginning of period assumptions for net periodic benefit cost Discount rate 4.00% 3.60% 4.70% 4.00% 3.60% 4.70% Expected return on plan assets 8.00% 8.00% 8.00% N/A N/A N/A Year end assumptions for reconciliation of funded status Discount rate 4.50% 4.00% 3.60% 4.50% 4.00% 3.60% Expected return on plan assets 8.00% 8.00% 8.00% N/A N/A N/A

36

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans (continued) As of December 31, 2015, the estimated net loss that will be amortized from accumulated other comprehensive income or loss into net periodic benefit cost during the next fiscal year is estimated to be $0 for the Retirement Plan and the Supplemental Plan. As of December 31, 2015, there was no deferred prior service cost to be amortized into net periodic benefit cost for either the Retirement Plan or the Supplemental Plan. The Bank contributed $56,494, $419,615 and $451,502 to the Supplemental Executive Retirement Plan during the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively, to cover the benefit payments due in those years. Currently, the Bank estimates the contribution amount for 2016 to cover expected annuity payments will be $578,861. The applicable mortality of Revenue code §430(h) was used for the calculation of the net periodic benefit cost for the four months ended April 30, 2015, and the twelve months ended December 31, 2014. Financial disclosures from April 30, 2015 and the calculation of net periodic benefit cost for the eight months ended December 31, 2015 is based on an adaptation of the benefit weighted RP-2014 table, white collar, separate employee and retiree tables, with fully generational projection scale derived based on MP-2014 though 2007, grading down over 10 years to an ultimate improvement rate of 0.75% per year. Only deferred net actuarial losses are being amortized for the Retirement Plan and the Supplemental Plan in net periodic benefit cost during the four months ended April 30, 2015 and the twelve months ended December 31, 2014. The assets of the Retirement Plan are carried in a separate qualified pension trust which is not recorded in the consolidated balance sheets of the Bank. The Bank’s current funding policy is to contribute annually to the qualified Retirement Plan the minimum funding requirements prescribed by ERISA. In accordance with its funding policies, the Bank contributed $0 to the Retirement Plan in 2015, and is not expected to be required to contribute to the Retirement Plan in 2016. The long-term expected rate of return on Retirement Plan assets is estimated based on the expected future returns and historic returns that the Retirement Plan trust assets earned in the last twenty years. The following table summarizes the composition of the Retirement Plan trust assets as of December 31, 2015 and 2014: Successor Company Plan Assets: December 31, 2015 Equity securities Debt securities Money market instruments and other Total

Predecessor Company December 31, 2014

67% 32 1

70% 16 14

100% 100%

The investment policy of the Retirement Plan is to continuously allocate plan assets in a prudent, diversified and flexible manner among various asset classes to achieve an acceptable long-term total rate of return in line with broader financial market experience while taking into consideration return opportunities and potential risks presented by the overall economy and financial markets.

Mechanics Bank 2015 Annual Report

37

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans (continued) The Retirement Plan assets reflected in the tables below are the fair values of the plan assets as of the respective reporting dates shown at December 31, 2015 and 2014. Fair value is generally the exchange price that would be received for an asset in the principal or most advantageous market for the asset in an orderly transaction between market participants on the measurement date. The fair value of all equity securities has been determined based upon quoted market prices at the close of market trading on nationally recognized securities exchanges (Level 1) on the report date. The fair value of all debt securities has been determined at the close of market trading on the report date, utilizing matrix pricing, which is a mathematical technique widely used in the financial industry to value debt securities without relying exclusively on quoted prices for specific securities (Level 2). The fair value of money market instruments and other assets was the cash value for the financial instruments or other accounts as of the close of the market on the report date (Level 1). The Retirement Plan did not hold any assets on the respective report dates that were not traded in established markets, requiring alternative fair value determinations utilizing significant unobservable inputs (Level 3). The fair value of the Retirement Plan assets at December 31, 2015 and 2014, by asset category, were as follows: December 31, 2015 FAIR VALUE MEASUREMENTS USING Successor Company LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Plan Assets Equity securities: Common Stocks $ 23,175,644 $ - $ - $ 23,175,644 Exchange Traded Funds 6,882,068 - - 6,882,068 Debt securities: U.S. Government Agencies - 1,004,546 - 1,004,546 Fixed Income Corporate Bonds - 4,606,786 - 4,606,786 Fixed Income Mutual Funds - 8,746,540 - 8,746,540 Money Market Mutual Funds 365,490 - - 365,490 Other 89,521 - - 89,521 Total Fair Value of Plan Assets

$30,512,723

$ 14,357,872

$

-

$ 44,870,595

December 31, 2014 FAIR VALUE MEASUREMENTS USING Predecessor Company LEVEL 1 LEVEL 2 LEVEL 3 TOTAL Plan Assets Equity securities: Common Stocks $ 25,498,316 $ - $ - $ 25,498,316 Exchange Traded Funds 7,898,623 - - 7,898,623 Debt securities: U.S. Government Agencies - 4,214 - 4,214 Fixed Income Corporate Bonds - - - Fixed Income Mutual Funds - 7,458,173 - 7,458,173 Money Market Mutual Funds 6,343,311 - - 6,343,311 Other 69,318 - - 69,318 Total Fair Value of Plan Assets

38

Mechanics Bank 2015 Annual Report

$39,809,568

$ 7,462,387

$

-

$ 47,271,955

Notes to Consolidated Financial Statements Note 9. Retirement Benefit and Profit Sharing Plans (continued) The following pension benefits and reserves for death benefits are expected to be paid in future years based upon the benefits and life insurance commitments of the two plans as of December 31, 2015 and based on expected employment turnover and actuarially determined life expectancies of participants and beneficiaries: RETIREMENT SUPPLEMENTAL YEARS   PLAN PLAN

TOTAL

2016 $ 3,074,514 $ 578,861 $ 3,653,375 2017 3,201,672 583,238 3,784,910 2018 3,309,253 586,429 3,895,682 2019 3,412,055 579,474 3,991,529 2020 3,455,530 581,432 4,036,962 2021-2025 17,922,729 2,285,291 20,208,020

The Bank also sponsors a profit sharing plan covering substantially all of its employees (Profit Sharing Plan). The Profit Sharing Plan is a qualified defined contribution plan that contains a cash or deferred arrangement (CODA) authorized under section 401(k) of the Internal Revenue Code. The Bank may make profit sharing contributions to this plan at the discretion of the Board of Directors of the Bank. The Board may terminate the plan at any time. The employee participants also have the option of contributing directly to their individual participant accounts a percentage of their pre-tax wage compensation through salary deductions. In addition to its profit sharing contributions (if any), the Bank also provides a company match of individual employee contributions. For both 2015 and 2014, the company match was up to 3.50% of individual employee participant pay. The Bank also accrued benefit costs attributable to the company matching contribution, totaling $966,795 in 2015 and $1,176,000 in 2014, which are included in interest payable and other liabilities on the Consolidated Balance Sheets as of December 31, 2015 and 2014. The Bank has established a supplemental income and retirement plan for a key director (DSRP) of the Bank. This DSRP provides for the payment of a lifetime annual pension benefit to the director beginning in 2007 upon his retirement from the Board of Directors. The DSRP also provides for the payment of a death benefit to the director’s designated beneficiary. Pursuant to accounting rules, the Bank has recognized in interest payable and other liabilities on its Consolidated Balance Sheets the discounted present value of the DSRP benefit obligation, totaling $311,030 as of December 31, 2015 and $321,442 as of December 31, 2014. Expense recognized for the DSRP was $12,788, $6,800 and $20,400 during the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively. The Bank has established a supplemental executive retirement plan for key executives of the Bank (ESERP), which is an unfunded, non-qualified plan for the payment of deferred compensation. The ESERP obligates the Bank to pay the key executives certain specified amounts of deferred compensation with accrued interest as a post retirement benefit. This plan was terminated due to change control provisions as part of the Investment Transaction (Note 1) and all $1.8 million of liabilities were accrued as part of purchase accounting and $2.0 million was paid to participants during the eight months ended December 31, 2015. There are no outstanding liabilities as of December 31, 2015. During 2011, the Bank established a new unfunded, non-qualified deferred compensation plan for a discrete group of key executives. Eligible participants are allowed to make elective payroll deferrals from their current wages and other short term incentive compensation to save for retirement or other planned expenditures. Participants are fully vested in their elective payroll deferrals, although plan liabilities remain an unfunded obligation of the Bank. For the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31 2015, participants elected to make net payroll deferrals totaling $298,045, $221,608, and $494,213, respectively. As of December 31, 2015 and 2014, the Bank had accrued liabilities of $1,360,223 and $1,301,281, respectively, on its Consolidated Balance Sheets for the current market value of its obligations due to participants. For the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, the Bank recognized $23,236, ($45,792), and ($83,000) of net valuation gains (losses), respectively, from the operation of the deferred compensation plan that is included in salaries and employee benefits expense on the Bank’s Consolidated Statements of Income. Mechanics Bank 2015 Annual Report

39

Notes to Consolidated Financial Statements Note 10. Related Party Transactions The Bank, in the ordinary course of business, has loan and deposit transactions with directors, officers and shareholders. At December 31, 2015 and 2014, respectively, there were $455,232 and $1,079,964 in loans outstanding to directors, officers and their related interests. During 2015 and 2014, respectively, new loans to these related parties amounted to $179,301 and $984,075 and repayments and reclassifications were $804,033 and $773,484 in 2015 and 2014. Reclassifications include loans to former related parties and refinanced loans to current related parties. At December 31, 2015 and 2014, respectively, there were approximately $3,945,305 and $3,637,000 in deposit balances from directors, officers and their related interests. In addition, during the eight months ended December 31, 2015, certain legal and litigation expenses were accrued and paid as a result of claims made by former employees of the Bank. Total legal settlement expenses incurred during the eight months ended December 31, 2015 totaled $5.4 million, of which $1.0 million remains outstanding as of December 31, 2015. Note 11. Commitments The Bank leases certain premises. The total annual rental expense included in occupancy expense was $2,538,503 for the eight months ended December 31, 2015, $1,232,419 for the four months ended April 30, 2015, and $3,871,163 for the year ended December 31, 2014. At December 31, 2015, the approximate minimum future lease payments under noncancellable lease agreements were:

2016 $ 3,604,749 2017 3,545,145 2018 2,761,442 2019 1,567,519 2020 1,296,660 Thereafter 3,644,449

$ 16,419,964

The Bank makes commitments to extend credit in the normal course of business to meet the financial needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. The Bank’s exposure to credit loss is the contract amount of the commitment in the event of nonperformance by the borrower. The Bank uses the same credit policies in making commitments as it does for on-balance-sheet instruments and evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Bank, is based on management’s credit evaluation of the borrower. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and real property. The Bank also issues standby letters of credit, which are unconditional commitments to guarantee the performance of a customer to a third party. These guarantees are primarily issued to support construction bonds, private borrowing arrangements, and similar transactions. Most of these guarantees are short-term commitments expiring in 2016 and are not expected to be drawn on. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral as deemed necessary, as described above. The contract amounts of commitments not reflected on the Consolidated Balance Sheets at December 31, 2015 and 2014 were as follows:

40

Loan commitments Standby letters of credit

Mechanics Bank 2015 Annual Report

Successor Company December 31, 2015 $

Predecessor Company December 31, 2014

345,348,720 $ 393,792,939 2,910,407 4,921,350

Notes to Consolidated Financial Statements Note 12. Contingencies The Bank is occasionally named as a defendant in or threatened with claims and legal actions arising in the ordinary course of business. As of December 31, 2015, the Bank had accrued $1.0 million in potential legal settlement liabilities. Note 13. Significant Concentrations of Credit Risk The Bank grants commercial & industrial, commercial real estate, residential real estate and consumer loans to customers principally in the eastern and northern counties of the greater San Francisco Bay Area and the Sacramento Valley. Substantial portions of the Bank’s loans are real estate related. Note 14. Deposits The aggregate amount of time certificates of deposits that meet or exceed the FDIC insurance limit of $250,000 at year-end 2015 and 2014 were $142,378,049 and $161,965,818, respectively. At December 31, 2015, the scheduled maturities of time certificates of deposit were as follows: 2016 $ 351,980,340 2017 28,027,412 2018 9,875,394 2019 3,823,041 2020 3,926,393 Thereafter 19,704,353 $ 417,336,933

The Bank accepts public deposits from various state, city and municipal agencies. Public deposits totaling $186,777,521 and $160,013,623 are included in demand deposits, interest bearing transaction accounts, savings accounts and time certificates of deposit as presented in the Consolidated Balance Sheets at December 31, 2015 and 2014, respectively. As required by law, the Bank pledges marketable securities as collateral for its public deposits in quantities of not less than 110% of the Bank’s deposit obligations for these public funds. The Bank accepts deposits from its Investment Management and Trust Department for the benefit of certain trust customers. In accordance with state trust regulations, the Bank is required to secure any trust deposits that are in excess of the $250,000 FDIC insurance limits by pledging marketable securities equal to those excess deposit balances. As of December 31, 2015 and 2014, the Bank held trust deposits of $1,048,460 and $2,525,648, respectively, that were in excess of $250,000 and which required securities collateralization. Note 15. Securities Sold Under Agreements to Repurchase Securities sold under agreements to repurchase (REPO) generally mature within one business day from the transaction date and are recorded at the amount of cash received in connection with the transaction. The Bank grants its customers a security interest in marketable securities, which are pledged as collateral in an amount equal to or in excess of the Bank’s obligations. As of December 31, 2015, the Bank held two U.S. Government Agency securities with a total market value of $48,720,709 as REPO collateral. These quasi government debt securities are considered to be of very high credit quality with readily available market values. To ensure that the market value of the underlying collateral remains sufficient, the collateral is valued daily and if required, the Bank may post additional collateral or return collateral pledged when appropriate. The Bank’s obligations for REPO transactions totaled $24,903,186 and $33,103,761 as of December 31, 2015 and 2014, respectively. Interest rates paid on REPO transactions ranged from 0.01% to 0.10% as of December 31, 2015 and 2014, depending upon the tier size of individual customer account balances.

Mechanics Bank 2015 Annual Report

41

Notes to Consolidated Financial Statements Note 16. FHLB Advances At December 31, 2015, the Bank had open-ended overnight variable rate advances of $60 million at a weighted average rate of .25 percent from the FHLB. The Bank did not have any borrowings from the FLHB as of December 31, 2014. As of December 31, 2015 and 2014, the Bank’s investment in capital stock of the FHLB of San Francisco totaled $17.3 million and $17.6 million, respectively. The Bank had $95.6 million of investment securities and $141.4 million of loans pledged to the FHLB which permits up to $134.2 million of additional borrowing capacity as of December 31, 2015. The Bank also pledged $27.1 million of investment securities to the FRB discount window, which permits another $27.1 million of borrowing capacity. Note 17. Shareholders’ Equity, Earnings Per Share and Dividend Limitations Basic earnings per share are computed by dividing net income by weighted average shares outstanding. There were 19,380 shares outstanding for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014. As reflected in the Consolidated Statements of Income, the Bank’s basic earnings per share were computed to be $547.70, $456.03 and $1,311.84 for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014, respectively. Diluted earnings per share are computed by dividing net income by the weighted average shares outstanding including the dilutive effects of potential common shares (e.g. stock options). The Bank has no potentially dilutive common shares. Therefore, diluted earnings per share are equal to basic earnings per share for the eight months ended December 31, 2015, the four months ended April 30, 2015, and the twelve months ended December 31, 2014. The Federal Deposit Insurance Corporation and the State of California Department of Business Oversight regulate the Bank. California banking laws limit cash dividends to the lesser of retained earnings or net income for the last three years, net of any distributions made to shareholders during such period. At December 31, 2015, an aggregate of approximately $10,614,498 of retained earnings was available for the payment of future dividends or distributions under this restriction.

42

Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 18. Regulatory Matters The Bank is subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory - and possibly additional discretionary – actions by regulators that, if undertaken, could have a direct material effect on the Bank’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of the Bank’s assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. The Bank’s capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors. Failure to meet capital requirements can initiate regulatory action. Management believes as of December 31, 2015, the Bank met all capital adequacy requirements to which it was then subject. Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If only adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At December 31, 2015, the most recent notifications from the Federal Deposit Insurance Corporation categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. The following table presents the regulatory capital amounts and ratios for the Bank as of the dates indicated: MINIMUM CAPITAL AMOUNT REQUIREMENTS Successor Company As of December 31, 2015 Total risk-based capital ratio Tier 1 risk-based capital ratio Common equity tier 1 capital ratio Tier 1 leverage ratio

$ 389,139,000 19.3% $ 161,418,320 385,685,000 19.1% 121,063,740 385,685,000 19.1% 90,797,805 385,685,000 11.2% 137,523,680

Predecessor Company As of December 31, 2014 Total risk-based capital ratio Tier 1 risk-based capital ratio Tier 1 leverage ratio

$ 371,354,000 345,166,000 345,166,000

AMOUNT RATIO

17.8% 16.6% 10.4%



AMOUNT

$ 166,550,880 83,275,440 133,373,160

RATIO



MINIMUM REQUIRED TO BE WELL CAPITALIZED UNDER PROMPT CORRECTIVE ACTION PROVISIONS AMOUNT

RATIO

8.0% $ 201,772,900 6.0% 161,418,320 4.5% 131,152,385 4.0% 171,904,600

8.0% 4.0% 4.0%

$ 208,188,600 124,913,160 166,716,450

10.0% 8.0% 6.5% 5.0%

10.0% 6.0% 5.0%

In July 2013, the Federal banking regulators approved a final rule to implement the revised capital adequacy standards of the Basel Committee on Banking Supervision, commonly called Basel III, and to address relevant provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). The final rule strengthens the definition of regulatory capital, increases risk-based capital requirements, makes selected changes to the calculation of risk-weighted assets, and adjusts the prompt corrective action thresholds. The Bank became subject to the new rule on January 1, 2015 and certain provisions of the new rule will be phased in over the period of 2015 through 2019.

Mechanics Bank 2015 Annual Report

43

Notes to Consolidated Financial Statements Note 18. Regulatory Matters (continued) The final rule: •

Permits banking organizations that had less than $15 billion in total consolidated assets as of December 31, 2009, to include in Tier 1 capital trust preferred securities and cumulative perpetual preferred stock that were issued and included in Tier 1 capital prior to May 19, 2010, subject to a limit of 25 percent of Tier 1 capital elements, excluding any nonqualifying capital instruments and after all regulatory capital deductions and adjustments have been applied to Tier 1 capital.

•

Establishes new qualifying criteria for regulatory capital, including new limitations on the inclusion of deferred tax assets and mortgage servicing rights.

•

Requires a minimum ratio of common equity Tier 1 capital to risk-weighted assets of 4.5 percent.

•

Increases the minimum Tier 1 capital to risk-weighted assets ratio requirement from 4 percent to 6 percent.

•

Retains the minimum total capital to risk-weighted assets ratio requirement of 8 percent.

•

Retains a minimum leverage ratio requirement of 4 percent.

•

Changes the prompt corrective action standards so that in order to be considered well-capitalized, a depository institution must have a ratio of common equity Tier 1 capital to risk-weighted assets of 6.5 percent (new), a ratio of Tier 1 capital to risk-weighted assets of 8 percent (increased from 6 percent), a ratio of total capital to risk-weighted assets of 10 percent (unchanged), and a leverage ratio of 5 percent (unchanged).

•

Retains the existing regulatory capital framework for one-to-four family residential mortgage exposures.

•

Permits banking organizations that are not subject to the advanced approaches rule, such as the Bank, to retain, through a one-time election, the existing treatment for most accumulated other comprehensive income, such that unrealized gains and losses on securities available-for-sale will not affect regulatory capital amounts and ratios.

•

Implements a new capital conservation buffer requirement for a banking organization to maintain a common equity capital ratio more than 2.5 percent above the minimum common equity Tier 1 capital, Tier 1 capital and total risk-based capital ratios in order to avoid limitations on capital distributions, including dividend payments, and certain discretionary bonus payments. The capital conservation buffer requirement will be phased in beginning on January 1, 2016 at 0.625 percent and will be fully phased in at 2.50 percent by January 1, 2019. A banking organization with a buffer of less than the required amount would be subject to increasingly stringent limitations on such distributions and payments as the buffer approaches zero. The new rule also generally prohibits a banking organization from making such distributions or payments during any quarter if its eligible retained income is negative and its capital conservation buffer ratio was 2.5 percent or less at the end of the previous quarter. The eligible retained income of a banking organization is defined as its net income for the four calendar quarters preceding the current calendar quarter, based on the organization’s quarterly regulatory reports, net of any distributions and associated tax effects not already reflected in net income.

•

Increases capital requirements for past-due loans, high volatility commercial real estate exposures, and certain short term commitments and securitization exposures.

•

Expands the recognition of collateral and guarantors in determining risk-weighted assets.

• Removes

references to credit ratings consistent with the Dodd Frank Act and establishes due diligence requirements for securitization exposures.

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Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 19. Fair Value ASC 820-10 established a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The topic describes three levels of inputs that may be used to measure fair value: Level 1 – Quoted prices (unadjusted) for identical assets or liabilities in active markets that the reporting entity has the ability to access at the measurement date. Level 2 – Significant observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data. Level 3 – Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Assets and Liabilities Measured on a Recurring Basis Securities Available-for-Sale: The fair values of U.S. treasury securities are generally determined by quoted market prices in active markets, if available (Level 1). If quoted market prices are not available, the Bank employs an independent pricing service that utilizes matrix pricing to calculate fair value. Such fair value measurements consider observable data such as dealer quotes, market spreads, cash flows, yield curves, live trading levels, trade execution data, market consensus prepayment speeds, credit information, and respective terms and conditions for debt instruments. The Bank employs procedures to monitor the pricing service’s assumptions and establishes processes to challenge the pricing service’s valuations that appear unusual or unexpected. Level 2 securities include U.S. government agency securities, mortgage-backed securities – residential, and corporate bonds. When a market is illiquid or there is a lack of transparency around the inputs to valuation, the securities are classified as Level 3 and reliance is placed upon internally developed models, and management judgment and evaluation for valuation. The Bank had no securities available-for-sale classified as Level 3 at December 31, 2015 and 2014.

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Notes to Consolidated Financial Statements Note 19. Fair Value (continued) The following table presents the Bank’s Financial Assets and Liabilities measured at fair value on a recurring basis as of the dates indicated:



F AIR VALUE MEASUREMENTS USING



QUOTED PRICES IN ACTIVE MARKETS SIGNIFICANT OTHER SIGNIFICANT FOR IDENTICAL OBSERVABLE UNOBSERVABLE Successor Company DECEMBER 31, 2015 ASSETS (LEVEL 1) INPUTS (LEVEL 2) INPUTS (LEVEL 3) Available-for-sale securities: U.S. treasury securities $ 288,269,580 $ U.S. government agency securities 470,899,221 Mortgage-backed securities – residential 363,384,151 Corporate bonds 43,852,978 Equity securities 89,200 Total securities available-for-sale



$

288,269,580 $ - $ - 470,899,221 - - 363,384,151 - 43,852,978 89,200 - -

1,166,495,130 $ 288,358,780 $ 878,136,350 $ -





FAIR VALUE MEASUREMENTS USING

QUOTED PRICES IN ACTIVE MARKETS SIGNIFICANT OTHER SIGNIFICANT FOR IDENTICAL OBSERVABLE UNOBSERVABLE Predecessor Company DECEMBER 31, 2015 ASSETS (LEVEL 1) INPUTS (LEVEL 2) INPUTS (LEVEL 3) Available-for-sale securities: U.S. treasury securities $ 149,572,500 $ U.S. government agency securities 377,282,000 Mortgage-backed securities – residential 365,751,045 Corporate bonds 43,960,289 Equity securities 110,000 Total securities available-for-sale

$ 936,675,834 $

149,572,500 $ - $ - 377,282,000 - 365,751,045 - 43,960,289 110,000 - 149,682,500 $

786,993,334 $ -

Assets and Liabilities Measured on a Non-Recurring Basis Impaired Loans and Leases: The fair value of impaired loans and leases with specific allocations of the allowance for loan and lease losses based on collateral values is generally based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. Other Real Estate Owned Assets: Other real estate owned assets (OREO) are recorded at the fair value less estimated costs to sell at the time of foreclosure. The fair value of other real estate owned assets is generally based on recent real estate appraisals adjusted for estimated selling costs. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments may be significant and result in a Level 3 classification of the inputs for determining fair value. Only OREO with a valuation allowance are considered to be carried at fair value.

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Mechanics Bank 2015 Annual Report



Notes to Consolidated Financial Statements Note 19. Fair Value (continued) The following table presents the Bank’s Financial Assets and Liabilities measured at fair value on a non-recurring basis as of the dates indicated:

Successor Company





FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2015 USING



QUOTED PRICES IN SIGNIFICANT OTHER ACTIVE MARKETS OBSERVABLE FOR IDENTICAL ASSETS INPUTS





(LEVEL 1)

(LEVEL 2)

SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)

Impaired Loans with Specific Loss Allocations Commercial & Industrial Residential Real Estate

$ - -

$ - -

$ 1,076,238 107,916

Total impaired loans with specific loss allocations

$

$

$

-



-

1,184,154

Predecessor Company





FAIR VALUE MEASUREMENTS AT DECEMBER 31, 2014 USING



QUOTED PRICES IN SIGNIFICANT OTHER ACTIVE MARKETS OBSERVABLE FOR IDENTICAL ASSETS INPUTS



(LEVEL 1)



(LEVEL 2)

SIGNIFICANT UNOBSERVABLE INPUTS (LEVEL 3)

Impaired Loans with Specific Loss Allocations Commercial Real Estate Other

$ -

$ -

$ 1,744,438

Total impaired loans with specific loss allocations

$

-

$

-

$

Commercial Real Estate Construction & Land Development



-



-

1,943,884

Total other real estate owned, net

$

-

$

-

$

1,744,438

Other Real Estate Owned, net



1,943,884

The following represents impairment charges recognized during the period: Impaired loans with specific allowance allocations of the allowance for loan losses, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying value of $1,310,475, with a valuation allowance of $126,321 at December 31, 2015, resulting in an additional provision for loan losses of $126,321 for the eight months ended December 31, 2015. Impaired loans with specific allowance allocations of the allowance for loan losses, which are measured for impairment using the fair value of the collateral for collateral dependent loans, had a carrying value of $1,867,000, with a valuation allowance of $123,000 at December 31, 2014, resulting in an additional provision for loan losses of $123,000 for the twelve months ended December 31, 2014.

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Notes to Consolidated Financial Statements Note 19. Fair Value (continued) At December 31, 2015, the Bank did not have any other real estate owned. At December 31, 2014, other real estate owned had a net carrying amount of $1,943,884, which is made up of outstanding balance of $2,143,884, net of a valuation allowance of $200,000, resulting in a write down of $200,000 for the twelve months ended December 31, 2014. Following is a summary of the estimated fair value and carrying value of the Bank’s financial instruments as of December 31, 2015 and 2014, and the methods and assumptions used to evaluate them:

Successor Company



Predecessor Company



December 31, 2015



December 31, 2014

Estimated Carrying Estimated Carrying Fair Value Value Fair Value Value Assets: Cash and cash equivalents $ 128,685,318 $ 128,685,318 $ 188,686,927 $ 188,686,927 Securities available-for-sale 1,166,495,129 1,166,495,129 936,675,834 936,675,834 Securities held-to-maturity 356,734,890 357,121,540 466,620,525 469,436,235 Loans and leases, net 1,608,988,526 1,608,988,526 1,639,934,323 1,615,188,274 FHLB stock N/A 17,250,000 N/A 17,250,000 Accrued interest receivable 10,585,747 10,585,747 11,701,075 11,701,075 Liabilities: Deposits: Noninterest-bearing demand deposits (1,084,047,265) (1,084,047,265) (1,109,629,349) Interest-bearing transaction accounts (1,005,713,917) (1,005,713,917) (995,728,164) Savings and time deposits (804,285,272) (803,906,674) (828,888,586) Total deposits Securities sold under agreements to repurchase FHLB advances

$ (2,894,046,454) $ (2,893,667,856) $

Accrued interest payable

$ (2,934,246,099) $ (2,933,444,784)

(24,903,186) $ (24,903,186) $ (60,000,000) (60,000,000) (256,300)

(1,109,629,349) (995,728,164) (828,087,271)

(256,300)

(33,103,761) $ - (294,611)

(33,103,761) (294,611)

Cash and cash equivalents: For these short-term instruments, the carrying value is a reasonable approximation of fair value. Securities: Fair value of securities is determined by reference to quoted market prices, if available. Fair value of securities was determined pursuant to the fair value measurements hierarchy, utilizing either Level 1, 2 or 3 valuation inputs. Level 1 and Level 2 inputs were utilized to determine fair value of all securities investments disclosed previously. Loans and leases, net: The fair value of loans with fixed rates of interest and remaining maturities of one year or more has been estimated by discounting future cash flows of existing loans using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. For loans with adjustable rates (which are in most cases tied to the Bank’s prime rate) and loans with remaining maturities of one year or less, the carrying values are a reasonable estimate of the fair value. The Bank’s allowance for credit losses is a reasonable estimate of the valuation allowance needed to adjust computed fair values for credit quality of certain loans in the portfolio. FHLB stock: FHLB stock is recorded at cost. Ownership of FHLB stock is restricted to member banks, and purchases and sales of these securities are at par value with the issuer.

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Mechanics Bank 2015 Annual Report

Notes to Consolidated Financial Statements Note 19. Fair Value (continued) Deposits: The fair value of fixed rate certificates of deposit have been estimated by discounting all future cash flows of certificates using the current rate at which similar certificates are being offered to depositors for the same average life of the portfolio. All other deposits are either noninterest-bearing or are tied to competitive money market deposit rates and are assumed to be due or able to be repriced on demand. For these deposits, the carrying amount is a reasonable estimate of fair value. Accrued interest receivable: The carrying value is a reasonable approximation of fair value. Securities sold under agreements to repurchase: Securities sold under agreements to repurchase and demand notes issued to the U.S. Treasury are either due on demand or within a few days, therefore, carrying amounts are a reasonable estimate of fair value. FHLB advances: The fair values of advances from the FHLB are estimated based on the discounted cash flows approach. All advances outstanding as of December 31, 2015 are open-variable rate and the interest rate is always at the current market rate. Accrued interest payable: The carrying value is a reasonable approximation of fair value. Commitments to extend credit and standby and trade letters of credit: The fair value of these commitments is not a significant amount and is not disclosed.

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Board of Directors

Pictured, from left to right: Patricia Cochran, E. Michael Downer, Meheriar Hasan, Carl B. Webb (Chairman), Mark F. Wilson, Gerald J. Ford, Daniel M. Daiss, Kenneth D. Russell (President and CEO), Adrienne Crowe, Daniel W. Albert, Douglas Downer, Dianne Daiss Felton.

Executive Committee

Pictured, from left to right: Raulin J. Butler, EVP and Director of Retail Banking; Scott A. Givans, EVP and Chief Credit Officer; Judy Ditchey, EVP and Director of Human Resources (retired April 2016); Doug Lutz, EVP and Director of Bank Operations; Kenneth D. Russell, President and CEO; C.J. Johnson, EVP and Chief Financial Officer; Deberah B. Kelley, EVP and Director of Wealth Management; Brian P. Zeitler, EVP and Chief Information Officer; Lawrence Fountain, EVP and Director of Commercial Banking.

50

As of December 31, 2015 Mechanics Bank 2015 Annual Report

Officers of the Bank CHIEF EXECUTIVE OFFICER Kenneth D. Russell

EXECUTIVE VICE PRESIDENTS Raulin J. Butler Lawrence Fountain Scott A. Givans C.J. Johnson Deberah B. Kelley Doug Lutz Brian P. Zeitler

SENIOR VICE PRESIDENTS Fernando Buesa Nathan Duda Gregg B. Gardner Kelly Gaynor Ramesh M. Govindan Kimberlea M. Gray Peggy Herzog George McCullagh David Mikami Michelle C. Monaco Fernando Pelayo Lynda Rodriguez Glenn C. Shrader Gary M. Staring Randal W. Stoller Marc R. Thompson Arthur J. Troy Pamela L. Tulley Peggy A. Wanlass David Wissinger

VICE PRESIDENTS Xavier C. Abrams Mary Ann Abreu Stewart P. Aikawa Jason R. Alabanza Madhuri R. Anji Walter Aozasa Julie A. Avary Patricia Barsotti Alexey Bulankov Stephen Cairns Tracy E. Calkins Martha D. Cifuentes Joseph B. Cobern Deborah L. Cooper Joanne Cordova Mae O. Davis Apryl M. Demarco Jeffrey A. Devine Christopher E. Duffek Tammy Espland Jay Fischler Robert L. Foster III Michael D. Frith Donna L. Gilbert Judy L. Godbey Susan M. Hall Laura Hansen

Todd W. Horne Paiman M. Jabbari Laura C. Jacob Candice M. Kellems Freddie Lambright Jr. Helen Lantz Debra A. Larrick Robert C. LeBeau Agnes E. Ledeboer Thomas K. Leong Daniel A. Lewis Bruce E. Lofgren David V. Louis Thomas W. Lowe Jr. Nancy J. McCarthy Mara C. Meisner Nicholas F. Mellon Thomas A. Mitchell Michael Mulligan Antonio A. Nunes Jr. John M. Osborn Tina M. Papucci Angelamaria N. Peluso Douglas V. Pena Darren L. Peterie Thomas J. Peters William S. Peterson Sulochna D. Raj Mark C. Schmidt Kevin J. Schwartz Eleanor C. Sebastian Grant S. Shoaf Liza M. Silva Bert T. Simons Gregory Smith Selim Stiti Steven Tochihara Deanna Walker Christopher Williams Quinn M. Wirth Alda Woo

ASSISTANT VICE PRESIDENTS Sophia A. Agafonow Paula M. Allen Niles Almarinez Sherif A. Basta Blake A. Brydon Baltazar Cerda Charmagne A. Compean Robert R. Connolly Josemari B. Esplanada Joyce K. Gellepes Patricia I. Gross Diane D. Marieiro Florence M. Mendoza Jennifer A. Moffatt Sophia Z. Montes-Castaneda Eric D. Nelson Thuy N. Nguyen Cindy K. Pederson Alfredo R. Pedroza

Clirian R. Porras Vanessa S. Rietdorf Nicholas B. Roffe Cris A. Rosales Phyllis M. Scipi Shawna R. Shelton Ronald Sparrow Cynthia E. Sprinkel Anthony F. Strain-Flores Kathleen E. Strong Tanya D. Sturm Sherria R. Tavares Sug Vatan Luis E. Vera Robert J. Waldau

CORPORATE OFFICERS Orshala J. Allen Christopher P. Angle Julia M. Beach Maria A. Betancourt Cheryl A. Buenvenida Maureen A. Byrne Karyn L. Charm Marina M. Cotto-Sediles Tina M. Dunaway MaryJayne Elmore Valerie Frazier Dylan J. Gano Debra Geringer Ryan P. Gilbert James D. Hauer Jhia Yunn Ho George A. Kerr Lana M. Lau Tina L. Laviolette Sonja R. Malaga Diana S. Martyn Jeffrey A. McPhee Ana K. Naringahon Diana S. Ng Eric S. Page Magdalena M. Pieracki Jamie R. Pringle Blanca Rivas Arjuni D. Samerawickreme Deepinder S. Sandhu Cassandra Sedeno Frederick F. Siegmund IV Zehra F. Vahidy Barbara M. Vigil Dena D. Villarreal

Officers listed as of March 15, 2016

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Mechanics Bank 2015 Annual Report