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The Prospector

September 12, 2014

Dear Shareholder:

The first half of 2014 brought exciting changes to Mother Lode Bank. In my last report, I introduced Mr. Dennis Reed, Senior Vice President, who has been with us for seven months and proven to be very capable in performing his duties as credit administrator by providing both credit oversight as well as bringing new lending opportunities to Mother Lode Bank.
In March, Mr. Rene’ Kakebeen joined us, filling the vacant, but important, position as Executive Vice President/Chief Credit Officer.  Mr. Kakebeen brings many years of experience in all facets of banking with an emphasis on lending and credit administration.  I am very pleased to report Rene’ immediately assumed his leadership role by aggressively strengthening loan policy and enhancing portfolio management procedures. Rene’ and Dennis introduced several significant new business relationships which provided us with new lending and deposit opportunities.  Both foster a teamwork environment and are valuable additions to our existing management team. Please stop by our Downtown Office and take a moment to meet both of these talented bankers.

Although we were encouraged to celebrate 2013 as our first profitable year, we also acknowledged this was due in large part to the sale of investment securities which provided a nonrecurring gain.  As of June 30, 2014, we reported a year-to-date loss of $169,000.  Although negative earnings are disappointing, I am pleased to report significant balance sheet components trending in a positive direction.  For example, outstanding loans increased $3.5 million so far this year, resulting in a higher return on assets.  Most of the new volume was booked during the second quarter so, as the year progresses, its contribution to earnings will grow.  Increased revenue will be realized as new loans fund and net interest margins from new loan volumes improve.  In fact, our net interest margin improved 18 basis points from 3.31% to 3.49% for period ending June 30, 2014 representing over a 5% increase in total loan portfolio interest margin.

Key economic drivers for Tuolumne County are also beginning to strengthen and we are encouraged to report that the Tuolumne County unemployment rate of 7.6% reflects a solid 2% year over year improvement ending June 30, 2014. Also, the median sales price of single family homes for same period increased by 26% to $222,500 from $177,000 a year earlier; as reported by the Tuolumne County Association of Realtors.

I am pleased to report non-performing assets continued their decline from 4.02% to 2.39% for the twelve months ending June 30, 2014, primarily due to the sale of Other Bank Owned Real Estate.

With your support, I am optimistic that as we enter the second half of 2014 with continued quality loan growth the metrics leading to sustained earnings will be realized in the near future.

As always, our directors, management and staff extend our sincere gratitude for your business and for the confidence that you have placed in us.  We continue to look to each of you for referrals of your friends, neighbors, and business associates to Mother Lode Bank.

We are your community bank and we are here to serve you.

Sincerely, Charles W. Milazzo - President & CEO

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