They Take a Licking and Keep on Ticking; Northern California Businesses Optimistic Despite Adversity.

RICHMOND, Calif. -- They're expecting higher taxes, more regulation, and a tougher time finding qualified employees. But do Northern California business owners and managers let little things like that get them down? Not on your life.

The just-completed first annual Mechanics Bank Northern California Business Optimism Survey and Index shows that Northern California business owners and managers are more optimistic than their counterparts responding to recent national and statewide polls. Nearly four out of five of the randomly selected 1,214 respondents expected increased 2005 profits and revenue; nearly nine out of ten expected their businesses to improve more in 2006. (By comparison, just 47% of respondents expected improvement in The Conference Board's first quarter 2005 nationwide CEO Confidence Survey.) Best of all, businesses appear ready to put their money where their mouths are; over 54% plan to hire new staff.

"Faced with some of the highest costs and most challenging state and local government regulations, doing business in Northern California requires a high degree of optimism," said Steve Buster, president and chief executive officer of The Mechanics Bank, a 100-year-old Richmond, California-based community bank with over 6,800 business customers. "Our local businesses have that in spades -- yet they also are highly realistic about the challenges they face. Their perseverance in the face of adversity is simply awesome."

The Mechanics Bank's Business Optimism Index was designed to illuminate business owners' intentions regarding their own businesses and their expectations of the economic and regulatory environment. Businesses were asked how likely they were to hire, reduce or replace staff with temporary contractors; invest in new equipment or develop new product or service lines; have increased sales/revenue or profits; expand to new domestic or international markets; and borrow to finance expansion. Businesses also were asked about their expectations of the governmental, regulatory and institutional environments in which they operate.

Though generally upbeat about their business prospects, a significant majority also said doing business in Northern California is harder than in other parts of the country. Across the board, business owners and managers expected things to get worse over the course of the coming year, with the cost of employee benefits (78%), transportation issues (71%) and Workers Compensation (66%) at the top of the list. Sixty percent also anticipate a worsening local regulatory environment. These expectations held consistently across geography, industry and size of the business.

"The overall picture created by the survey is one of little faith that government at either the local or the state level will improve business conditions or reduce the constraints under which business people labor," said Buster. "These findings make it abundantly clear that the optimism that business people feel is firmly grounded in their own business skills and talents and in their own abilities to succeed in a difficult environment."

In addition to questions designed to underpin the Optimism Index, The Mechanics Bank survey offered business owners the chance to sound off on a variety of issues. Respondents confirmed that workers compensation, taxes, regulations and the cost of health insurance are their biggest headaches. "I would say that unless the tax burden and regulatory burden is lifted California will fall into the ocean long before the San Andreas pushes us in," said one respondent. "We need a better healthcare system so that we can afford to give more health benefits to employees and also workers compensation fees need to be affordable," said another.

Despite all that, they love their independence. Asked what they found most satisfying, a typical comment was: "I love being a self employed businesswoman and being able to see my business grow before my own eyes." Another said, "It's mine. It's my business and it's what I make of it and I get to do what I love doing and make money at it."

For more details of the survey, please visit www.mechbank.com.

About The Mechanics Bank

The Mechanics Bank, headquartered in Richmond, California, celebrates a century of innovative community banking this year. An independent community bank with almost $2.5 billion in assets, it has become one of the largest banks headquartered in the San Francisco Bay Area.

The Mechanics Bank's Bay Area Business Optimism Index is based on a telephone survey of 1,214 conducted in February and March, 2005, of randomly selected owners and senior managers of Bay Area businesses with annual revenues ranging from $50,000 to $20,000,000. Survey results are accurate to within +/- 2.8 percent at the 95% confidence level. The Optimism Index defines 17 business indicators that represent Optimism in business. Periodic tracking of those indicators will allow The Mechanics Bank to analyze and report upon future increases and decreases in Optimism over time. The survey was conducted for The Mechanics Bank by Seldin Research, an independent market research company located in Half Moon Bay. Full results of the survey can be found on The Mechanics Bank's website, at www.mechbank.com.