MCHB

Image source: The Motley Fool. Wednesday, July 29, 2026 at 11:00 a.m. ET President and Chief Executive Officer - C.J. Johnson Executive Chairman - Carl Webb Chief Financial Officer - Nathan Duda Operator: Good morning, ladies and gentlemen, and welcome to the Mechanics Bancorp Second Quarter 2026 Earnings Conference Call. As a reminder, this conference call is being recorded. I would now like to turn the call over to Nathan Duda, Chief Financial Officer of mechanics. Please go ahead. Nathan Duda: Thank you, operator, and good morning, everyone. We appreciate you joining our earnings conference call. With me here today are C.J. Johnson, our President and CEO; and Carl Webb, our Executive Chairman. The related earnings press release and earnings presentation are available on the News and Events section of our Investor Relations website. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks uncertainties and other factors that could cause actual results to differ materially from those anticipated future results. Please see our safe harbor statements in our earnings press release and in our earnings presentation. All comments expressed or implied made during today's call are subject to those safe harbor statements. Any forward-looking statements made during this call are made only as of today's date, and we do not undertake any duty to update such forward-looking statements, except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures, which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures can also be found in our earnings release and in the earnings presentation. C.J., let me hand it over to you. C. Johnson: Thank you, Nathan, and good morning. We appreciate everyone joining our call and for your interest in Mechanics Bancorp. I'll start today by summarizing the highlights of our second quarter performance. I'll also provide another strategic update on the bank before handing things off to Nathan to review our financials in more detail. Carl, Nathan and I will then open up the call for your questions. With that, let's turn to Slide 4. We had a nice second quarter reporting $57.7 million in net income. On a fully diluted basis, we earned $0.25 per share, and our tangible book value per share increased to $7.56. This quarter, we paid a large dividend of $0.70 per share with the major driver being the successful closure of our DUS business line sale to Fifth Third in early May. Q2 did have a few noncore items, which I'll walk you through quickly. We had 3 onetime noninterest income adjustments, including a $1.8 million MSR valuation gain, a final true-up of $900,000 related to the DUS sale, and a $600,000 loss on a sale of an old branch property that's been closed for a while. We also incurred $5.9 million of merger expenses, primarily severance as we finished up our Homestreet integration and had a significant amount of head count reduction as a result. We also had a negative provision of $2.8 million, which we backed out of our core results. When you adjust for these items, we earned $59 million of core net income for the quarter, representing a core ROAA of 1.1% and a core ROATCE of 14.7%. Our total assets are now $21.2 billion with total gross loans of $13.6 billion, total deposits of $18.1 billion and tangible shareholders' equity of $1.75 billion. Our deposits decreased $153 million this quarter with $199 million of the decline from high cost CD balances and with the pace of CD decline down substantially from Q1. We Nonmaturity balances grew $46 million, but we did see some mix shift into money market accounts from noninterest-bearing accounts. We expect CDs to continue declining modestly in the third quarter. But overall, we think total deposits should begin to grow from here on out. Notably, intangibles decreased $107 million in Q2, driven by the DUS business line sale. Our capital ratios remain robust with a 14.4% CET1 ratio and an 8.7% Tier 1 leverage ratio. Net charge-offs for the quarter were minimal again with only 0.6 basis points or $220,000 of non-auto net charge-offs. Also, our runoff auto loans continue to perform in line with expectations, with net charge-offs continue to drop each quarter as the auto portfolio seasons. Our ACL dropped 1 basis point to 1.12% of loans driven by the modest negative provision I mentioned a bit ago. Our allowance remains a very robust 2.57x our total nonperforming assets as of 6/30. Our cost of deposits was 1.25% in the second quarter, down 3 bps from Q1, but our spot cost of deposits at 6/30 was back to 1.28%, primarily due to mix shift and swift deposit competition. Our NIM was 3.62% for the quarter, up 1 basis point and our CRE concentration ratio dropped to 342% from 348% in Q1 and is only 97% if you exclude lower-risk multifamily loans. Turning to Slide 5. I'd like to provide you with an update on some of the key strategic initiatives happening at the bank. We have now substantially completed our HomeStreet integration, and it's good to get back to business as usual. By any measure, the merger with HomeStreet was a financial and strategic success, but it certainly was a heavy lift operationally, and I want to once again thank our dedicated employees for a job well done. As I mentioned previously, we had $5.9 million of onetime merger charges in the quarter, which was mostly severance as our FTE went from $1,890 to $1,756 Q-over-Q. A lot of that expense reduction benefit will show up in our Q3 NIE figures. We remain on track to deliver on our budgeted cost synergies from the merger and reiterate our prior guidance of achieving an annual run rate, noninterest expense, excluding CDI of approximately $430 million by the fourth quarter of this year. Strong earnings deleveraging of the balance sheet post merger and the successful DUS business line sale generated substantial capital in the first half of 2026 with $255 million or $1.10 per Class A share in dividends paid to investors so far this year. That on its own implies a dividend yield of roughly 7% year-to-date. In addition, we continue to have approximately $100 million of excess capital above our 8.25% Tier 1 leverage ratio target at 6/30. We expect to pay a $56 million dividend or $0.25 per Class A share in Q3 and then another larger $75 million to $100 million dividend in Q4, subject to board and regulatory approval. We can also efficiently use our excess capital generated by a smaller, less risky balance sheet to enhance future earnings and expect to execute a modest restructuring of our remaining low-yielding AFS securities in Q3. The highlights of our planned restructuring includes selling approximately $310 million of 1.78% yielding AFS securities and reinvesting in MBS at current market rates close to 5.5%, which will result in a $25 million after-tax loss that will be earned back in 4 to 5 years. The AFS restructuring will improve our near-term NIM, but we expect that benefit to be somewhat offset over time by increased deposit pricing pressure and auto runoff. Our modeling assumptions continue to assume a flat forward curve with no short-term rate hikes or cuts. We will also evaluate a sale of the remaining auto loans in the coming quarters. And if we decide to sell, it will be at a modest loss. We also could decide to continue servicing the auto loans out through maturity. We continue to expect a 17% to 18% ROATCE and a 1.3% to 1.4% ROAA in 2027 and beyond. Let's flip to Slide 6, which shows an overview of Mechanics Bancorp today. We have $21.2 billion in assets with 166 branches and great deposit market share across the West Coast with a branch map spanning from Mexico to Canada and out to Hawaii. Our key stats compare very favorably to all publicly traded banks $10 billion to $100 billion in assets. But the ones I like to focus on the most are our risk-weighted assets to total assets of 58%, which ranks second. And a new one this quarter, our expected 2027 dividend yield of approximately 7%, which assumes cash dividends next year of $250 million. Our 7% expected dividend yield ranks first by a wide margin despite taking very little risk with either our funding base or our earning assets. Stopping briefly on Slide 7. We continue to be the fourth largest West Coast and California bank by deposits when measuring community banks with less than $250 billion in assets. Our unique franchise has been built over many years and without a doubt, has tremendous scarcity value. It's been a few quarters since we included Slide 8, but I wanted to refresh new investors on our market share breakdown in many highly attractive West Coast MSAs, including top 10 ranks in San Francisco, Seattle and all across the Central Coast of California. California is an economically vibrant state that has the fifth largest GDP in the world, if it was its own country. And Seattle is one of the fastest-growing large cities in the United States. We really like our market positioning post merger, and are looking forward to focusing on core deposit growth now that the integration is behind us. Slide 9 is a detailed look at the evolution of our unique deposit base, which we believe is one of the most attractive on the West Coast. Our average deposit size is only $43,000 per account with an average relationship tenure of 19 years. We also have a highly diversified customer base with 49% consumer accounts business counts and 8% public funds with no broker deposits. Our focus is on profitably growing core relationships. The top right chart shows this as prior to merger with HomeStreet, we grew core deposits over $600 million since the third quarter of 2019, despite closing 32 branches after our acquisition of Rabobank's California franchise. After merging with HomeStreet, we deliberately let noncore hot CDs leave the bank as we prioritize capital efficiency and look to minimize risk. The 2 charts on the bottom left and the bottom right highlight the strong relative position of our deposit base versus the broader U.S. banking industry. Slide 10 looks back over the past decade on the exceptional credit quality of our commercial loan portfolio. Since 2016, we've had no losses on construction or multifamily loans and only a few minor charge-offs on acquired commercial loans from both Rabobank and HomeStreet. Our credit team has a tremendous amount of experience managing through economic cycles, and we fully expect to continue our strong credit performance in the coming years. I've reworked Slide 11 a bit, but this really is key to our investment thesis. The strength of our deposits and the efficiency with which you have on our bank from both an expense and a capital management standpoint. Allow us to post great returns despite having one of the lowest risk mix of assets in the country. In turn, our strong financial performance allows us to pay a market-leading dividend yield of approximately 7%. The point I will continue to emphasize is that we will pay these significant dividends despite a very conservative balance sheet and credit profile relative to our banking peers. Over time, we hope to earn a premium earnings multiple given the superior risk-adjusted returns and the lower risk cash flows we generate for our investors. To wrap up my section, let's turn to Slide 12, which summarizes the investment highlights of Mechanics Bancorp. First and foremost, we have fantastic market share across the West Coast with a branch footprint and customer mix that's nearly impossible to replicate. We are also very profitable due to our top-notch deposits and simple, efficient business model despite taking relatively little risk. We are a core funded bank with an exceptional track record of credit outperformance, and we are also very well capitalized with a liquid balance sheet. We are prudent with our capital, and we'll continue to pay out substantial dividends with a market-leading dividend yield. There's also a complete alignment between our public and private investors as Ford Financial Fund owns 74% of the company. Finally, we have an experienced management team with strong operating and M&A track records. With that, let me turn the call over to Nathan to dig into more detail on our second quarter results. We've also added a few new pages this quarter, which I think you will find helpful. Nathan? Nathan Duda: Thank you, C.J. Starting on Slide 14. For the second quarter, net interest income declined $1.9 million or 1% to $177.2 million compared to the linked quarter. Average interest-earning assets declined approximately $468 million during the quarter, driven primarily by lower loan balances. Our net interest margin increased 1 basis point to 3.62% and driven by lower funding costs as the total cost of deposits declined to 1.25% from 1.28% in the first quarter. The improvement was primarily attributable the continued runoff and repricing of higher cost legacy HomeStreet certificates of deposit, which declined approximately $199 million during the quarter. Second quarter interest income included $13.2 million of discount accretion on loans acquired in the HomeStreet transaction compared to $12.7 million in the first quarter. As of June 30, 2026, we had approximately $136 million of remaining discount on those acquired bonds. Lastly, earning asset mix remained relatively stable during the quarter, with a modest reduction in cash balances, partially offset by additional investment securities purchases. Turning to Slide 15. This slide highlights one of the most important drivers of our future earnings growth. As we've discussed previously, the legacy mechanics balance sheet contains approximately $4.8 billion of lower-yielding assets with a weighted average yield of 3.12%, comprised primarily of multifamily loans, family residential loans and held-to-maturity securities. Over time, these assets will mature, pay down or otherwise repriced and can be reinvested at current market rates. More than half of this portfolio or approximately $2.8 billion is expected to turn over within the next 5 years. If reinvested at current market rates, that represents approximately 260 basis points of potential yield pickup relative to the existing portfolio. Importantly, this opportunity is already embedded within our balance sheet and does not require balance sheet growth or a change in our conservative risk profile. As these assets continue to reprice over time, we expect them to provide a meaningful tailwind to future net interest income and margin expansion. Turning to Slide 16. We put together this illustrative example of the potential impact of short-term rate changes by comparing our variable assets to our rate-sensitive deposits, which include our time deposits and estimating the NII impact of those rate changes. As you can see, we expect a meaningful reduction in NII for any rate hikes in the short term and would benefit from any rate cuts. I would note that the actual impact of rate hikes will diminish over time as more of the bank's fixed rate loans amortize, mature or pay off and the bank reinvest those proceeds at market rates. Turning to Slide 17. Noninterest income increased $2.8 million or 13% to $23.8 million as compared to the first quarter. The increase was primarily driven by approximately $2.2 million of nonrecurring income items, which are highlighted on the slide. Excluding these items, underlying noninterest income increased modestly from the prior quarter as trust fees increased approximately $0.4 million and bank card royalty income increased approximately $0.5 million, partially offset by a $0.3 million decline in loan servicing income. Turning to Slide 18. Noninterest expense decreased $6 million or 4.6% to $124.5 million compared to $130.4 million in the first quarter. Merger-related expenses totaled $5.9 million during the quarter compared to $4.8 million in the prior quarter and were primarily comprised of severance costs associated with the final phase of our HomeStreet integration. Excluding these merger-related expenses, noninterest expense declined $7.1 million from the linked quarter, driven primarily by lower salaries and employee benefits expense reflecting head count reductions and the realization of core conversion synergies following the successful HomeStreet conversion. As a result, our efficiency ratio improved to 58.4% and compared to 61.6% in the first quarter. Excluding CDI amortization, annualized core noninterest expense was approximately $445 million during the quarter and we remain on track to achieve our previously communicated run rate noninterest expense target of approximately $430 million by the fourth quarter of 2026. Turning to Slide 19. Loan interest income declined $3 million or 1.7% to $178.2 million compared to the first quarter. Loan yields declined 3 basis points to 5.2%, driven primarily by modestly lower contractual yields and changes in portfolio mix as residential and consumer balances grew as a percentage of the portfolio. Multifamily and single-family residential yields declined 8 and 11 basis points, respectively, reflecting lower discount accretion and modest pressure on contractual yields. During the quarter, C&I yields increased due primarily to approximately $1 million of discount accretion recognized on a small subset of loans. The CRE concentration ratio improved to 342% at quarter end from 348% at March 31. During the quarter, we originated approximately $756 million of loan commitments predominantly in construction, single-family residential and other consumer categories and sold approximately $32 million of loans, primarily multifamily dust and single-family residential loans. Turning to Slide 20. Our commercial real estate portfolio remains well diversified and continues to reflect our long-standing focus on lower-risk multifamily lending. Multi-family represents approximately 71% of the total CRE portfolio with an average loan size of $4 million, an average LTV of 56% and an average debt coverage ratio of 1.55x. The remainder of the CRE portfolio is broadly distributed across retail, office, industrial, hotel and mixed-use categories, each with relatively modest exposure and conservative credit characteristics. At quarter end, our CRE concentration ratio was 342% or 96% excluding multifamily loans. We continue to make progress reducing higher-risk segments inherited through the HomeStreet merger. Legacy HomeStreet syndicated loan balances declined from approximately $142 million at September 30, 2025, to approximately $69 million at June 30, 2026. In addition, construction and owner-occupied CRE balances continued to decline during the quarter, reflecting our disciplined approach to balance sheet risk management. Importantly, we continue to have no exposure to nondepository financial institutions. Technology-related exposure represents less than 1% of our C&I portfolio and office exposure remains modest at approximately 8% of total CRE with conservative average LTVs and debt coverage ratios. Turning to Slide 21. You can see both legacy mechanics strong historical asset quality trends and the impact of the HomeStreet merger. Mechanics has consistently maintained excellent credit quality with minimal non-auto charge-offs and a low level of nonperforming assets. As shown on the slide, the majority of our historical charge-offs have been auto-related, and that portfolio continues to perform better than our original expectations as it runs off. Non-auto net charge-offs were just 1 basis point annualized during the second quarter. At June 30, nonperforming assets represented 0.28% of total assets compared to 0.25% on March 31. The increase was primarily driven by a modest increase in nonperforming loans, including certain single-family home equity and multifamily relationships, partially offset by the sale of foreclosed assets during the quarter. Our allowance for credit losses totaled 1.12% of total loans at quarter end compared to 1.13% in the prior quarter. During the second quarter, we recorded a $2.8 million reversal of provision expense, primarily reflecting the elimination of qualitative factor adjustments established in the first quarter and a reduction in the reserves for unfunded commitments. Our ACL remains robust at approximately 2.6x nonperforming assets. Turning to Slide 22. Securities interest income was essentially unchanged at $53.1 million during the second quarter compared to the linked quarter. Securities yields also remained stable at 3.97% during the quarter. The securities portfolio increased approximately $156 million at quarter end, primarily driven by additional purchases of agency mortgage-backed securities. Securities available for sale increased approximately $186 million, while held to maturity securities declined modestly due to normal paydowns. Overall, the portfolio continues to provide stable earnings and liquidity while maintaining a conservative risk profile. Turning to Slide 23. Total deposits declined $153 million during the quarter, driven by a $199 million reduction in the higher cost time deposits, partially offset by growth in non-maturity deposits. This contributed to a $1.8 million or 3% decline in the deposit interest expense compared to the prior quarter. Total cost of deposits improved to 1.25%, down 3 basis points from the first quarter, driven primarily by the continued runoff of higher cost legacy HomeStreet time deposits. The average cost of our time deposits was down to 2.45% for the second quarter. I would note that the spot cost of deposits at June 30 was 1.28%, which reflects some competitive pressures that we are seeing in our markets. Lastly, noninterest-bearing deposits represented 35% of total deposits at quarter end. Turning to capital and liquidity on Slide 25. We remain very well capitalized with a 14.4% CET1 ratio and an 8.7% Tier 1 leverage ratio at June 30. Available liquidity totaled approximately $15.9 billion at quarter end. Book value per share was $12.15 at quarter end, while tangible book value per share increased to $7.56. During the second quarter, we paid dividends totaling $0.70 per Class A share bringing year-to-date dividend to $1.10 per share. As C.J. discussed earlier, our strong capital position continues to support significant capital returns to shareholders, subject to board and regulatory approval, we currently expect to pay a dividend of approximately $0.25 per Class A share in the third quarter, followed by an approximately $75 million to $100 million dividend in the fourth quarter. That concludes our prepared remarks. We will now open the line for questions. Operator: Your first question comes from the line of Woody Lay with KBW. Wood Lay: I wanted to start on the deposit trends that you saw in the quarter. And as you highlighted, there was a little bit of mix shift and the spot cost is I think, a little bit higher than where we were at average. So I was just interested to know -- just interested in your thoughts on how you think that mix shift trends over the back half of the year? And it sounds like there could be a little more pressure on the deposit cost front over the back half of the year? C. Johnson: Yes, I'll start, and I'll see if Carl and Nathan want to add anything. It's a good question. Obviously, in the second quarters and we saw kind of rates back up. I think we've seen -- and we've priced up a bit on some of our CDs and some of our money markets as we've seen rate competition increase in the market. And so -- and we also had, at the end of March, a lower spot rate, April is tax season. And so there's some -- a little bit of noise there in the cost as a data point in the month of June, our deposit costs rose 0.08 basis points is slightly less than 1 basis point. So we saw a bit of a pickup really in May. The deposit costs slowed down in June. We do expect Woody that mix shift will continue through the rest of the year. We are seeing some continued mix shift into money market. Our CDs will continue to decline a bit. So we expect deposit cost to increase modestly through the rest of the year, overall, very encouraged by just general pipelines and kind of the refocus that we have on growing the core business. Obviously, it's very competitive out there, but -- and we've got -- our deposit base is very low cost to begin with. So it's -- when we have these elevated rates and a lot of competition in markets, it creates a bit of pressure, but overall, we still through a least solid about our deposit base. I don't know, Nathan, or Carl, do you want to add anything to that? Nathan Duda: I'd just note that we've seen a consistent pickup in our CD renewal rate in the second quarter. Obviously, you write off the acquisition on purpose, it was relatively low. But second quarter, we saw that pick up to historical levels and our renewal rate overall in the entire CD portfolio is still relatively low, as noted by our cost of CDs being lower than our money market accounts at the end of the second quarter. So we feel that's a positive trend. But yes, there certainly been additional pressures in the second quarter with elevated rate. C. Johnson: Yes. I'd now say we kind of have all deposits are core, right? Our CD costs are very solid core client relationships. There's still some pressure. There's a lot of competition there. But -- we've -- I think we've mostly -- we've basically gotten through what we wanted to do, which was manage out high rate seekers, noncore relationships. You've actually seen our tenure -- average tenure in our that we share go from 17 years to 19 years, and that's also a function of some of these rates seeking CDs moving on, and that also creates a lot of excess capital for us. Wood Lay: Yes. That's really helpful color. And then maybe just as my follow-up on the loans or on the asset side, and I appreciate Slide 15. It's super helpful color that you provided and it's pretty interesting to see the rate on multifamily loans is only 30 basis points higher than new securities. So given a pretty tight spread there, how does that impact your thoughts on where you see asset growth as you get some of these cash flows from both the bond and the loan side. C. Johnson: Yes, that's a good question. I think Carl and I and Nathan, we talk about it, there's not a lot of incremental spread between where we're seeing commercial real estate, multifamily, relative to where we can reinvest and like duration securities. And so we put a lot of effort to try to be prudent about where we're lending, who we're lending to. We want to lend at core client relationships, a lot of the multifamily relationships we've had go back decades. And so it's an allocation, and I think you'll continue to see us manage our commercial real estate down modestly, and we'll eventually get below that 300% level. We've made good progress on that, and it will continue. But yes, as some of that CRE low-yielding CRE rolls off, the reinvestment rate on securities is pretty competitive, and it's also a lot lower risk. And that's a trade that we've been willing to make. And I think we'll continue to see some of that. Operator: Our next question comes from the line of Tim Mitchell with Raymond James. Unknown Analyst: This is Tim on for David. To follow-up kind of on Woody's question there and just talk about the outlook for the margin. All the details you gave on Slide 15, it's great. You have a lot of tailwinds just from back book repricing may have the bond restructure, some continued runoff of the CD book. You also noted some potential pressure kind of on the deposit cost side, just given the competitive backdrop. So could you just like overall help us kind of unpack some of the puts and takes for the margin and where you think the core margin can shake out over the next few quarters? C. Johnson: Sure. I'm happy to go first. There's a couple of moving pieces. We didn't want to add these 2 new slides to try to give investors additional insights and detail into kind of our near-term short-term sensitivity to changes in Fed funds up or down. We are modestly liability sensitive, as you can see on Page 16, where we have a greater amount of rate-sensitive deposits than we do floating rate assets. And so rates down, near term is good for us. Rates up near term would be a modest drag. Trying to provide more information there. And we'll see how that develops in the coming quarters. Long run, we feel very positive that there will be margin expansion given the repricing we have on a lot of these very low-yielding $4.8 billion at 3.12% that are cash flowing that those cash flows will pick up. And there's a lot of margin enhancement that comes from that over the long run. So -- it's -- I think you'll -- and then we also, on top of that, we are planning to execute an AFS restructure that we've sold the remaining $310 million low-yielding securities we have in the AFS portfolio. We already had that out of our tangible equity. We expect a 4- to 5-year earn back. That will be a modest bump to margin near term and into next year, and you bring up, again, a good point that we do -- but we do expect deposit cost to increase modestly from here on out. So that will offset it somewhat. We expect modest NIM improvement in a flat rate environment. If we get rate hikes, that would cut into it. Unknown Analyst: Okay. That's super helpful. And then just on the size of the balance sheet overall. It's obviously kind of declined in the past couple of quarters. There are a lot of moving parts here as you continue to optimize it post merger. But if you could just kind of walk us through some of the puts and takes around when we could see the size of the balance sheet to stabilize and start to grow a little bit. Obviously, loan originations were up nicely this quarter, but also understand there may be some work to be done on the auto book and maybe some multifamily portfolios. C. Johnson: Yes, sure. From a balance sheet overall size standpoint, it's going to be driven really by our deposits, and I think we have reached the bottom of our deposits decline. We expect to grow modestly, I would say, modestly grow 1%, 2%-ish moving forward on deposits, I do think there will be some continued mix shift and a bit of pressure on costs. But that should stabilize. And on the asset side, I think there'll be continued remixing. We are growing single-family and HELOC modestly and our partnership with Inclined lending against the cash under value of whole life is growing nicely. We will continue to be prudent on commercial real estate, construction lending, C&I, we're selectively looking at all of our relationships and making sure we feel like they're priced appropriately on a risk-adjusted basis. I don't know, Carl, if you want to add anything to that or... Carl Webb: No, I think that says it well. It's back to what we said earlier. It's very competitive out there. It's competitive for deposits and deposits to a large extent, dictate the size of the balance sheet. And to say that some credit pricing is irrational in the market today. I believe that we're not going to give away credit at this bank. I think we've always been very disciplined in our extension of credit. And to that comment earlier, you got a 30 basis point spread between securities and multifamily lending. And so I don't see us really pressing hard to grow loans that we cannot always, number one, underwrite well and price at a point that makes sense for us, and we're not necessarily going to always be able to meet the competition. So I guess that would be some of my thoughts on balance sheet side. I think we're what, 1.2 billion today I think that's a pretty good level to look for us going forward. Unknown Analyst: Awesome. And then since I took the question cap off, I'll ask one more just on capital. Obviously, the ratios continue to build. The HomeStreet integration is kind of moving into the rearview mirror. So I'm just kind of curious your updated thoughts around M&A. There's been some deals in your footprint recently. Just kind of curious if you could give us an update on your attitude, what conversations are like and just your overall thoughts there. Carl Webb: Yes. I'll make a couple of quick comments and then C.J. and Nathan can certainly join in. I understand the question because you look at the past 40 years of Ford organization, we've been extremely acquisitive. We've never tried to do a transaction just to get bigger. It always has to meet the first test of making us better. We've always defined better as it relates to franchise value, namely liabilities, deposit costs. And I think when you've got fairly top decile deposits and the deposit franchise, it makes it very difficult when you're screening for M&A opportunities, particularly in our geographic footprint, and that being the West Coast. So we're just coming off an extremely successful deal. We still had digestion to do and some assimilation with HomeStreet. I tend to think that our biggest bang for our resources is to focus internally. We still have some work to do there. Although I think our integration, our conversion, our transition of HomeStreet -- Home to the Mechanics platform is going very, very well. A lot of people get a lot of credit for that. So I don't see anything on the horizon right now because it does have to meet this deposit test. And I think that's increasingly a high bar for potential M&A candidate to Chen for it to be attractive to us. So we're not going to do anything just for the sake of getting larger, and it helps -- it has to help us on the deposit franchise side, and that's hard. C. Johnson: Yes. I don't really have anything to add to that. Unknown Analyst: Awesome. Operator: Your next question comes from the line of David Rochester with Cantor. David Rochester: I just wanted to touch on the guidance, I think you had last quarter for 2027 GAAP net income in the $275 million to $300 million range. I realize it's long way off and a lot happens between now and then, but I still want to get your updated thoughts on that range, just given the results, your comments on deposit pricing and just on the loan front as well. C. Johnson: Sure, Dave. No problem, I'll take that. Yes, I think our guidance is very consistent with what it was last time. We want to focus on the ROTCE target. And I think when you take the 17% ROTCE for '27, it should fall right in that same net income range. And it is -- as you know, it's hard to forecast out into '27, there's moving pieces. But -- we have a significant amount of confidence in kind of ever increasing ROTCE about 15% today. I think that's going to be up next quarter. And we've got some tailwinds heading into '27 on repricing and just generally being efficient. I feel very good about our expense guide. I feel very good about our credit and I feel increasingly positive about kind of deposits bottoming out and looking to grow those moving forward. So that's my thought on that. David Rochester: Okay. Great. And then you just mentioned the expense guide. But it also -- I think earlier you mentioned getting a lot of those cost saves hitting in the third quarter. Are you expecting to get pretty close to that $430 million in the third quarter and then kind of leveling out in the fourth quarter? C. Johnson: Yes. I mean we did -- the core conversion was completed at the end of March. There was -- there's a lot of layoffs as part of mergers that happened in the -- this quarter, our head count, I think, was down 130-something in the quarter. So a lot of layoffs, a lot of that happened later in the quarter. So yes, I think you'll see a pretty substantial pickup or reduction in our noninterest expense in the third quarter. And I think some of that will even continue in the fourth quarter. So I feel pretty confident about that. And we should also see a significant reduction in the onetime charges related to the merger. We just don't -- there'll still be a couple of things here some leases here or there, but we're basically through it. David Rochester: Yes. Okay. And maybe one on capital. You mentioned having $100 million in excess at the end of June. How much cushion would you guys target to have at the end of 4Q after something like a cleanup dividend, which is kind of implied by that range that you gave, the $75 million to $100 million, which is above our estimate and consensus at this point. Just trying to get a sense for how you think about that going forward. C. Johnson: Yes. So we're kind of managing 8 in a quarter to 1 quarter in arrears, which effectively puts us at 8.5% leverage ratio, 8.6% leverage ratio. The bank is generating a lot of capital and our risk-weighted assets continue to drop. And so we're now at a 14.4% CET1. I think peers I look at, I don't know, maybe around 11% average, 12% average something like that. So we have a lot of capital flexibility. And I think that creates optionality. We are going to continue to pay a lot of dividends. We feel confident in the $250 million dividend guide for next year that we mentioned. And I guess the main thing I'd say is we're probably still running with capital above peers, and that gives us some flexibility. David Rochester: Yes. Okay. Just one last one on the margin. You talked a lot about this already. But just with the restructuring you mentioned you had the deposit cost comments, it seems like you're looking for maybe a little bit of a bump in the third quarter. do you stabilize at that point and then kind of grind higher? You mentioned NIM may be increasing modestly in this kind of rate backdrop so that would assume that these rates continue to hold. But is that kind of how you're thinking about it? Nathan Duda: Yes. I think when we look at this quarter's results and the continued generation of capital, we have adjusted some of our assumptions around deposit growth and betas and mix shift that would be a negative to earnings. Obviously, the AFS restructure where we -- again, we have all this capital, we can use it sometimes to add earnings moving forward. I think that basically offsets it. And so that's why we think our guidance is relatively consistent with last quarter due to those competing factors. We do think, over the long run, our margin should increase. In the short run, it's going to be pretty dependent on what the Fed does in hikes. Either way, it's not going to be a huge needle mover to our NIM, which should be -- remain pretty strong. Operator: There are no further questions at this time. I will now turn the call back to C.J. Johnson for closing remarks. C. Johnson: Thank you, operator, and to all who joined us today. As we closed out the quarter, we believe Mechanics Bancorp is exceptionally well positioned. The HomeStreet integration is substantially complete, Expenses continue to trend favorably, Credit quality remains strong, and we maintain capital levels that are among the strongest in our peer group. We also believe the earnings power of the franchise continues to improve. We have meaningful embedded asset repricing opportunities, significant flexibility to optimize our balance sheet and the ability to deploy excess capital in ways that enhance shareholder value. Perhaps most importantly, we continue to offer shareholders a unique combination of low-risk earnings, a strong and granular deposit franchise, substantial excess capital, what we believe is one of the most attractive dividend yields in the banking industry. We are proud of the progress we made since closing the HomeStreet acquisition, confident in the opportunities ahead and focused on delivering attractive long-term returns for our shareholders. Thanks for your time today. We look forward to speaking with you next quarter. Operator: This concludes today's call. Thank you for attending. You may now disconnect. 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This article is a transcript of this conference call produced for The Motley Fool. While we strive for our Foolish Best, there may be errors, omissions, or inaccuracies in this transcript. As with all our articles, The Motley Fool does not assume any responsibility for your use of this content, and we strongly encourage you to do your own research, including listening to the call yourself and reading the company's SEC filings. Please see our Terms and Conditions for additional details, including our Obligatory Capitalized Disclaimers of Liability. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Mechanics Bancorp (MCHB) Q2 2026 Earnings Call Transcript was originally published by The Motley Fool

This story was originally published on CRE Daily. Join 70,000+ commercial real estate professionals getting daily news, market insights, and industry analysis delivered straight to their inbox with the free CRE Daily newsletter. Q2 2026 earnings show major differences among community banks with multifamily exposure, influenced by risk strategy and geography. Banks with similar multifamily concentrations produced sharply different results, highlighting the limits of concentration as a risk metric. Outcomes in New York rent-regulated multifamily underline the outsized impact of local policy and underwriting discipline on loan performance. Second-quarter results from community banks with large multifamily portfolios reveal sharp performance differences. Those gaps also stand out against larger super-regional banks. Trepp’s Q2 review shows banks with similar balance sheets followed very different strategies. Merchants Bancorp continued expanding its multifamily portfolio. Mechanics Bancorp kept reducing its exposure. Trepp and CRE analysts say strategy and risk appetite matter more than loan concentration alone. Business models, risk transfer, and regulation now shape performance more than portfolio size. Government policies also influenced results this quarter. Trepp says income-based programs squeezed margins, while supply-focused federal programs supported selected lenders. Meanwhile, bank mergers reduced the number of community lenders. As a result, isolated losses now carry greater weight across the sector. Trepp reviewed 10 banks with meaningful multifamily exposure. Results and lending pipelines varied widely. Merchants Bancorp increased net income by 106%. It also posted its 30th consecutive record quarter for tangible book value. The bank expanded its multifamily portfolio by 10% to $5.86B. That portfolio now represents 47% of total loans receivable. Meanwhile, Bank of California reported a $251.3M loss. It sold $2.3B of lower-yielding securities and started selling $827M of CRE and multifamily construction loans. Most banks reported their strongest net interest margins in years. However, six banks continued reducing multifamily exposure. Legacy thrifts tied to New York’s rent-stabilized market led that trend. Only Merchants and Columbia expanded their portfolios. Dime is lowering multifamily exposure toward 25% of its portfolio. Kearny continues shifting toward C&I and construction lending. Mechanics kept its multifamily portfolio flat through a conservative runoff strategy. It also maintained strict underwriting and avoided nondepository exposure. These approaches produced very different risk and return profiles across similar banks. Exposure alone does not explain performance differences. Trepp says ConnectOne, with large New York rent-stabilized holdings, recorded a $13.8M charge-off on troubled loans. Reserve releases partly offset those losses. The bank is also considering a bulk sale of its rent-stabilized portfolio. Merchants uses sophisticated risk distribution strategies. Criticized loans and provisions declined sharply. However, its non-performing loan ratio remains 1.67%. Mechanics follows a hold-to-maturity model with low leverage. It has not reported multifamily losses since 2016. Loan performance also varies by financing structure. Trepp reports agency multifamily special servicing rates at 0.36%. Conduit CMBS reached 2.06%, while CRE CLOs hit 3.58%. Those figures show multifamily risk depends on loan structure and investment strategy. Geography also shapes outcomes. Legacy New York thrifts face mounting pressure from the 2019 rent law. A citywide rent freeze begins for most leases in October 2026. Similar regulatory pressures have also reshaped commercial property performance, especially for retail landlords navigating New York’s evolving rent rules. That policy has already sparked litigation from affected banks. Meanwhile, Los Angeles lenders like Mechanics continue reporting low non-performing loan rates through conservative underwriting and modest leverage. Q2 2026 earnings reinforce a key point. Multifamily exposure alone does not determine bank risk. Trepp’s data shows underwriting discipline, portfolio seasoning, risk transfer, and local housing policy drive results. Legacy New York thrifts face ongoing pressure. The 2019 Housing Stability and Tenant Protection Act limits rent growth. A citywide rent freeze for 2026 and 2027 adds further pressure. Those policies compress margins and increase loss reserves. ConnectOne and Dime responded with charge-offs, additional provisions, and, in one case, a proposed portfolio sale. Meanwhile, Merchants spreads risk through GSE securitizations, credit default swaps, and warehouse lending. Those strategies help contain losses despite relatively high non-performing loan ratios. Mechanics demonstrates a different path. Conservative runoff, seasoned loans, and low leverage continue protecting asset quality. Those factors help reduce volatility despite meaningful multifamily exposure. For CRE investors and lenders, headline concentration ratios rarely tell the full story. Community bank mergers have reduced the number of comparable lenders. Consequently, one bank’s losses can shift sentiment across the entire segment. Trepp argues investors should evaluate business models, risk management, and local legislative risks before judging multifamily credit exposure. Community bank mergers continue shrinking the sector. That trend increases the market impact of each bank’s quarterly results. New York’s rent freeze begins for most leases in October 2026. Litigation over rent regulations also remains unresolved. Banks outside legacy rent-stabilized markets appear better positioned. Lenders that distribute risk through securitizations and swaps also have stronger prospects for stable margins and asset quality. Investors should expect continued segmentation across multifamily lending. Underwriting standards will receive closer scrutiny. Market concentration will likely increase among institutions able to tailor strategies to specific portfolios and local markets. Procore Launches Asset Register to Streamline Digital Handovers NYC CMBS Loan Faces $80M Loss Risk as Rent Freeze Looms Snapchat Signs 199K SF Lease at Manhattan’s PENN 2

Mechanics Bank (MCHB) came out with quarterly earnings of $0.27 per share, beating the Zacks Consensus Estimate of $0.25 per share. This compares to a loss of $0.16 per share a year ago. These figures are adjusted for non-recurring items. This quarterly report represents an earnings surprise of +8.00%. A quarter ago, it was expected that this real estate lender would post earnings of $0.26 per share when it actually produced earnings of $0.21, delivering a surprise of -19.23%. Over the last four quarters, the company has surpassed consensus EPS estimates just once. Mechanics Bank, which belongs to the Zacks Banks - Southeast industry, posted revenues of $200.97 million for the quarter ended June 2026, surpassing the Zacks Consensus Estimate by 1.35%. This compares to year-ago revenues of $48.97 million. The company has topped consensus revenue estimates just once over the last four quarters. The sustainability of the stock's immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management's commentary on the earnings call. Mechanics Bank shares have added about 8.3% since the beginning of the year versus the S&P 500's gain of 8.5%. While Mechanics Bank has underperformed the market so far this year, the question that comes to investors' minds is: what's next for the stock? There are no easy answers to this key question, but one reliable measure that can help investors address this is the company's earnings outlook. Not only does this include current consensus earnings expectations for the coming quarter(s), but also how these expectations have changed lately. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. Investors can track such revisions by themselves or rely on a tried-and-tested rating tool like the Zacks Rank, which has an impressive track record of harnessing the power of earnings estimate revisions. Ahead of this earnings release, the estimate revisions trend for Mechanics Bank was mixed. While the magnitude and direction of estimate revisions could change following the company's just-released earnings report, the current status translates into a Zacks Rank #3 (Hold) for the stock. So, the shares are expected to perform in line with the market in the near future. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here. It will be interesting to see how estimates for the coming quarters and the current fiscal year change in the days ahead. The current consensus EPS estimate is $0.27 on $201.4 million in revenues for the coming quarter and $1.00 on $803.1 million in revenues for the current fiscal year. Investors should be mindful of the fact that the outlook for the industry can have a material impact on the performance of the stock as well. In terms of the Zacks Industry Rank, Banks - Southeast is currently in the top 21% of the 250 plus Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1. StepStone Group Inc. (STEP), another stock in the broader Zacks Finance sector, has yet to report results for the quarter ended June 2026. The results are expected to be released on August 6. This company is expected to post quarterly earnings of $0.52 per share in its upcoming report, which represents a year-over-year change of +30%. The consensus EPS estimate for the quarter has been revised 5.3% lower over the last 30 days to the current level. StepStone Group Inc.'s revenues are expected to be $307.17 million, up 29.4% from the year-ago quarter. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Mechanics Bancorp (MCHB) : Free Stock Analysis Report StepStone Group Inc. (STEP) : Free Stock Analysis Report This article originally published on Zacks Investment Research (zacks.com). Zacks Investment Research

WALNUT CREEK, Calif., July 29, 2026--(BUSINESS WIRE)--Mechanics Bancorp (NASDAQ: MCHB): Mechanics Bancorp (Nasdaq: MCHB) ("Mechanics" or the "Company"), the financial holding company of Mechanics Bank, today announced its financial results for the quarter ended June 30, 2026. Mechanics reported net income of $57.7 million, or $0.25 per diluted share (3), for the second quarter of 2026, compared to $44.1 million, or $0.19 per diluted share, for the first quarter of 2026. For the six months ended June 30, 2026, Mechanics reported net income of $101.8 million, or $0.44 per diluted share, compared to $86.3 million, or $0.41 per diluted share, for the six months ended June 30, 2025. Second Quarter 2026 Highlights: Total assets of $21.2 billion at June 30, 2026, compared with $21.4 billion at March 31, 2026. Total loans of $13.6 billion at June 30, 2026, compared with $13.9 billion at March 31, 2026. Loans-to-deposits ratio of 75% at June 30, 2026, compared with 76% at March 31, 2026. Total deposits of $18.1 billion at June 30, 2026, compared with $18.2 billion at March 31, 2026, and noninterest-bearing deposits of $6.4 billion at June 30, 2026, compared with $6.5 billion at March 31, 2026. Total cost of deposits was 1.25% for the second quarter of 2026 and 1.28% for the first quarter of 2026. Dividends paid in the second quarter of 2026 were $0.70 per share of Class A common stock and $7.00 per share of Class B common stock. Strong capital ratios (1), including an estimated 16.70% Total risk-based capital ratio, 14.39% Tier 1 capital ratio, 14.39% CET1 capital ratio and 8.71% Tier 1 leverage ratio at June 30, 2026. Allowance for credit losses ("ACL") to total loans of 1.12%, down from 1.13% at the prior quarter-end. Non-recurring acquisition and integration costs of $5.9 million for the second quarter of 2026, compared to $4.8 million in the prior quarter. C.J. Johnson, President and CEO of Mechanics, said, "We had a strong second quarter financially and substantially completed our merger with HomeStreet. We also successfully sold our Fannie Mae DUS business line and paid $162 million in cash dividends during the quarter. Our merger was an unqualified success and I am very grateful to our employees for a job well-done on the integration. I look forward to getting back to "business as usual" and believe Mechanics is well-positioned for future growth." Nathan Duda, CFO of Mechanics, added, "Our second quarter results demonstrated the underlying earnings power of the franchise as we continued to realize merger-related cost savings, reduced our funding costs and maintained a stable net interest margin. While we continue to incur certain integration-related expenses, the benefits of the HomeStreet merger are increasingly evident in our results." Presentation of Results – HomeStreet Bank Merger On September 2, 2025, the merger of HomeStreet Bank, the wholly owned subsidiary of Mechanics Bancorp (formerly known as HomeStreet, Inc.) with and into Mechanics Bank, was completed. Mechanics Bank is the accounting acquirer (legal acquiree), HomeStreet Bank is the accounting acquiree and Mechanics Bancorp is the legal acquirer. Mechanics’ financial results for all periods ended prior to September 2, 2025 reflect Mechanics Bank’s historical financial results on a standalone basis and results of the combined company beginning September 2, 2025. In addition, for periods prior to September 2, 2025, the number of shares issued and outstanding, earnings per share, and all references to share quantities or metrics of Mechanics have been retrospectively restated to reflect the equivalent number of shares issued in the merger since the merger was accounted for as a reverse acquisition. As the accounting acquirer, Mechanics Bank remeasured the identifiable assets acquired and liabilities assumed in the merger as of September 2, 2025 at their acquisition date fair values. The estimates of fair value were recorded based on valuations as of the merger date. These estimates are considered preliminary as of June 30, 2026, are subject to change for up to one year after the merger date, and any changes could be material. Adoption of Purchased Seasoned Loans Accounting Standard The Company early adopted Accounting Standards Update ("ASU") 2025-08, "Financial Instruments–Credit Losses (Topic 326): Purchased Loans," during the fourth quarter of 2025. This new standard, which the Company elected to early adopt as of January 1, 2025, requires acquired loans that meet certain criteria at acquisition (purchased seasoned loans) to be recognized at their purchase price plus the amount of the allowance for expected credit losses (gross-up approach). As a result, for purchased seasoned loans acquired in the HomeStreet merger, the Company established an allowance for credit losses of $20.3 million at the date of acquisition for these loans and reversed the provision for credit losses recorded in the third quarter of 2025, and recorded it as part of the acquired loans initial amortized cost basis. Required disclosures regarding the impact of the adoption were presented when the Company filed its annual report on Form 10-K for the year ended December 31, 2025. In addition, third quarter 2025 results will be retrospectively adjusted when the Company files its quarterly report on Form 10-Q for the quarter ended September 30, 2026. The impact of the adoption is reflected in the comparative prior period results as of September 30, 2025 presented in this earnings release. INCOME STATEMENT HIGHLIGHTS Summary Income Statement Net Interest Income Second Quarter of 2026 vs. First Quarter of 2026 Net interest income in the second quarter of 2026 was $1.9 million lower than the first quarter of 2026 primarily as a result of a decrease in average interest earning assets of $468.4 million, partially offset by lower interest expense on certificates of deposit. Mechanics’ net interest margin increased from 3.61% to 3.62% primarily due to runoff of higher cost certificates of deposit. Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025 Net interest income for the six months ended June 30, 2026 increased $97.6 million as compared to the six months ended June 30, 2025 due primarily to an increase of $4.7 billion in average interest-earning assets, as well as an increase in net interest margin from 3.44% in the six months ended June 30, 2025 to 3.61% in the six months ended June 30, 2026, as a result of the HomeStreet merger. Provision for Credit Losses Second Quarter of 2026 vs. First Quarter of 2026 The reversal of provision for credit losses in the second quarter of 2026, which consists of the provision for loans and unfunded commitments, was $2.8 million, compared to a provision of $7.8 million for the first quarter of 2026. The reversal of provision for the second quarter was primarily driven by the combination of an increase in modeled loss rates for multifamily loans, the elimination of economic qualitative adjustments now that the Middle East conflict and corresponding economic impact are embedded in expected loss rate modeling, and a reduction in residential construction and HELOC unfunded commitments. Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025 The provision for credit losses was $5.0 million for the six months ended June 30, 2026, compared to a reversal of provision of $4.0 million for the six months ended June 30, 2025. The increase in provision for the six months ended June 30, 2026 was driven primarily by an increase in modeled loss rates for multifamily loans during 2026, offset slightly by downward qualitative adjustments and lower balances. The increase in provision was partially offset by a reduction in the unfunded commitments reserve. Noninterest Income Second Quarter of 2026 vs. First Quarter of 2026 Noninterest income in the second quarter of 2026 increased $2.8 million from the first quarter of 2026 primarily due to higher other noninterest income from the gain on sale of the Fannie Mae Multifamily Delegated Underwriting and Servicing ("DUS®") business line and a mortgage servicing rights valuation adjustment. Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025 Noninterest income for the six months ended June 30, 2026 increased $10.2 million from the six months ended June 30, 2025 primarily due to higher loan servicing income, ATM network fee income and other noninterest income, which were all driven by the HomeStreet merger. In addition, the increase in other noninterest income resulted from the gain on sale of the DUS business line and a mortgage servicing rights valuation adjustment. The increases in noninterest income were partially offset by lower gain on sales and calls of investment securities. Noninterest Expense Second Quarter of 2026 vs. First Quarter of 2026 Noninterest expense decreased $6.0 million in the second quarter of 2026 compared to the first quarter of 2026, primarily due to lower salaries and employee benefits expense from a decrease in headcount as a result of integration following the HomeStreet merger. Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025 Noninterest expense increased $78.2 million for the six months ended June 30, 2026 compared to the six months ended June 30, 2025 primarily due to higher salaries and employee benefits expense, occupancy costs, equipment expense, amortization of intangibles and acquisition and integration related costs from the HomeStreet merger. Income Taxes Second Quarter of 2026 vs. First Quarter of 2026 Our effective tax rate during the second quarter of 2026 was 27.2% as compared to 28.7% in the first quarter of 2026 and our federal statutory rate was 21.0%. The effective tax rate decreased compared to the prior quarter as a result of a $1.7 million remeasurement of deferred tax assets in the first quarter. Six Months Ended June 30, 2026 vs. Six Months Ended June 30, 2025 Our effective tax rate for the six months ended June 30, 2026 was 27.9% as compared to 28.4% for the six months ended June 30, 2025 and our federal statutory rate was 21.0%. The effective tax rate decreased compared to the six months ended June 30, 2025 as a result of a lower state tax rate due to more taxable income being apportioned to states with lower tax rates and an increase in tax exempt investments and loans, both a result of the HomeStreet merger. These were partially offset by the $1.7 million remeasurement of deferred tax assets in the current year. BALANCE SHEET HIGHLIGHTS Selected Balance Sheet Items Investment Securities Trading securities totaled $46.6 million and $49.5 million at June 30, 2026 and March 31, 2026. Securities available-for-sale increased by $185.5 million during the second quarter of 2026 to $4.1 billion at June 30, 2026, primarily due to purchases of agency MBS, partially offset by paydowns. Securities held-to-maturity decreased by $26.7 million in the second quarter of 2026, due to paydowns, and totaled $1.3 billion at June 30, 2026. Loans Total loans at June 30, 2026 were $13.6 billion, a decrease of $276.0 million from $13.9 billion at March 31, 2026, due primarily to loan repayments during the quarter, partially offset by originations. Deposits Total deposits decreased by $153.3 million during the second quarter of 2026 to $18.1 billion at June 30, 2026. The decrease was due to $199.2 million certificates of deposit runoff, partially offset by $45.9 million of core deposit growth. Noninterest-bearing demand deposits totaled $6.4 billion and represented 35% of total deposits at June 30, 2026, compared to $6.5 billion, or 36% of total deposits, at March 31, 2026. Borrowings Total borrowings were $80.0 million at June 30, 2026, compared to zero at March 31, 2026. The increase in the second quarter of 2026 was due to short-term Federal Reserve Discount Window borrowings during the quarter. Equity During the second quarter of 2026, total shareholders’ equity decreased by $101.5 million to $2.7 billion and tangible common equity (1) increased slightly by $5.9 million, and was $1.75 billion at June 30, 2026. The decrease in total shareholders’ equity for the second quarter of 2026 primarily resulted from a net decrease in retained earnings in the second quarter of 2026 from net income, less dividends paid to common shareholders. Tangible common equity remained relatively flat due to the reduction in intangibles from the sale of the DUS business line, which offset the decrease in total shareholders’ equity. At June 30, 2026, book value per common share decreased to $12.15, compared to $12.61 at March 31, 2026. At June 30, 2026, tangible book value per common share (1) increased to $7.56, compared to $7.53 at March 31, 2026. CAPITAL AND LIQUIDITY Capital ratios remain strong with Total risk-based capital at 16.70% and a Tier 1 leverage ratio of 8.71% at June 30, 2026. The following table presents our regulatory capital ratios as of the dates indicated: At June 30, 2026, Mechanics had available borrowing capacity of $5.9 billion from the FHLB, $4.4 billion from the Federal Reserve and $5.0 billion under borrowing lines established with other financial institutions. CREDIT QUALITY Asset Quality Information and Ratios At June 30, 2026, total delinquent loans were $95.4 million, compared to $77.0 million at March 31, 2026. The increase was primarily due to two matured commercial real estate loans that became past due during the quarter and were in process of refinance or extension as of June 30, 2026. Total delinquent loans as a percentage of total loans were 0.70% at June 30, 2026, as compared to 0.56% at March 31, 2026. At June 30, 2026, nonperforming assets were $59.4 million, compared to $53.1 million at March 31, 2026. The slight increase was primarily due to additional single family, home equity and multifamily nonperforming loans during the quarter, partially offset by $2.4 million of foreclosed assets sold. Nonperforming assets as a percentage of total assets increased to 0.28% at June 30, 2026, as compared to 0.25% at March 31, 2026. Allowance for Credit Losses The allowance for credit losses on loans totaled $152.6 million, or 1.12% of total loans at June 30, 2026, compared to $156.8 million, or 1.13% of total loans at March 31, 2026. The decrease in allowance was the result of a decrease in qualitative factors across loan types, with the greatest impact on commercial real estate loans due to the size of the portfolio, partially offset by higher expected loss rates due to a weaker economic outlook stemming from the conflict in the Middle East. Conference Call The Company will host a conference call and webcast to discuss its second quarter 2026 financial results at 11:00 a.m. Eastern Time (ET) on Wednesday, July 29, 2026. Investors and analysts interested in participating in the call are invited to dial 1-833-461-5787 (international callers please dial 1-585-542-9983) approximately 10 minutes prior to the start of the call. The pin to access the call is 513809929. A live audio webcast of the conference call will be available on the Company’s website at https://ir.mechanicsbank.com. The earnings presentation for the call will also be available on the Company’s Investor Relations website prior to the call. A replay of the conference call will be available within two hours of the conclusion of the call and can be accessed through the News & Events tab of the Company’s website as well as through the webcast link: https://events.q4inc.com/attendee/513809929. About Mechanics Bancorp Mechanics Bancorp is headquartered in Walnut Creek, Calif., and is the financial holding company of Mechanics Bank, a full-service, FDIC-insured bank with $21.2 billion in assets as of June 30, 2026, and 166 branches across California, Oregon, Washington and Hawaii. Founded in 1905 to help families, businesses and communities prosper, Mechanics Bank offers a wide range of products and services in consumer and business banking, commercial lending, cash management services, private banking, and comprehensive wealth management and trust services. To learn more, visit www.MechanicsBank.com. Cautionary Note The information contained herein is preliminary and based on Company data available at the time of this earnings release. It speaks only as of the particular date or dates included in the earnings release. Except as required by law, Mechanics does not undertake an obligation to, and disclaims any duty to, update any of the information herein. Forward-Looking Statements This earnings release, including information incorporated by reference herein, contains, and future oral and written statements of the Company and its management may contain, forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended ("Exchange Act"). All statements, other than statements of historical fact, contained or incorporated by reference in this earnings release, including statements regarding our plans, objectives, expectations, strategies, beliefs, or future performance or events, are forward-looking statements. Generally, forward-looking statements include the words "anticipate," "believe," "could," "estimate," "expect," "intend," "look," "may," "optimistic," "plan," "potential," "projection," "should," "will," and "would" and similar expressions (or the negative of these terms), although not all forward-looking statements contain these identifying words. Forward-looking statements involve known and unknown risks, uncertainties, assumptions, estimates, and other important factors that could cause actual results to differ materially from any results, performance or events expressed or implied by such forward-looking statements. Furthermore, the following factors, among others, may cause actual results to differ materially from current expectations in the forward-looking statements, including those set forth in this earnings release: substantial non-recurring and integration costs, which may be greater than anticipated due to unexpected events; failure to realize the anticipated benefits of the HomeStreet merger; our ability to effectively manage our expanded operations; negative developments and events impacting the financial services industry; the soundness of other financial institutions; our ability to maintain sufficient liquidity, or an increase in the cost of liquidity; unpredictable economic, market and business conditions; interest rate risk, and fluctuations in interest rates; inflationary pressures and rising prices; adverse changes in real estate market values; the impact of climate change, including indirectly through impacts on our customers; the adequacy of our allowances for credit losses for loans and debt securities; incurring losses in our loan portfolio despite strict adherence to our underwriting practices; fluctuations in our mortgage origination business based upon seasonal and other factors; our geographic concentration, which may magnify the adverse effects and consequences of any regional or local economic downturn; the accuracy of independent appraisals to determine the value of the real estate that secures a substantial portion of our loans; the ability of our small- to medium-sized borrowers to weather adverse business developments; our ability to fully identify and mitigate exposure to the various risks that we face, including interest rate, credit, liquidity and market risk; our ability to mitigate our exposure to interest rate risk; negative publicity regarding us, or financial institutions in general; environmental liability risk associated with our lending activities; our ability to manage risks associated with new lines of business, products, product enhancements and services; our ability to adapt our services to changes in the marketplace related to mortgage servicing or origination, technology or in changes in the requirements of governmental authorities and customers; our ability to develop, implement and maintain an effective system of internal control over financial reporting; the potential that we may identify material weaknesses in our internal control over financial reporting in the future, which may result in material misstatements of our financial statements; the potential that we may write off goodwill and other intangible assets resulting from business combinations; dependence on our management team; exposure to fraudulent and negligent acts by our customers and the parties they do business with, as well as from employees, contractors and vendors; legal claims and litigation, including potential securities law liabilities; employee class action lawsuits or other legal proceedings; our ability to raise additional capital, if needed; competition from other financial institutions and financial service companies; regulatory restrictions that may delay, impede or prohibit our ability to consider certain acquisitions and opportunities; extensive supervision and regulation that could restrict our activities and impose financial requirements or limitations on the conduct of our business and limit our ability to generate income; our ability to comply with stringent capital requirements; the impact of federal and state regulators’ examination of our business; our ability to comply with the Bank Secrecy Act and other anti-money laundering statutes and regulations; our reliance on dividends from Mechanics Bank; our ability to raise debt or capital to pay off our debts upon maturity; our level of indebtedness following the completion of the HomeStreet merger; increasing and continually evolving cybersecurity and other technological risks; our ability to adapt to rapid technological change; our ability to effectively implement new technological solutions or enhancements to existing systems or platforms; our ability to manage risks and challenges relating to the development and use of artificial intelligence; our dependence on our computer and communications systems; our ability to effectively manage and aggregate data; Ford Financial Funds and their controlled affiliates control approximately 77% of the voting power of Mechanics Bancorp, and have the ability to elect all of our directors and control most other matters submitted to our shareholders for approval; we are a "controlled company" within the meaning of the rules of Nasdaq and, as a result, we qualify for, and rely on, exemptions from certain corporate governance standards; future sales of shares by existing shareholders could cause our stock price to decline; our reliance on certain entities affiliated with the Ford Financial Funds for services; reduced disclosure requirements as a smaller reporting company; and certain of our shareholders have registration rights, the exercise of which could adversely affect the trading price of our common stock. A discussion of the factors, risks and uncertainties that could affect our financial results, business goals and operational and financial objectives is also contained in Item 1A "Risk Factors" included in our 2025 Annual Report on Form 10-K, filed with the U.S. Securities and Exchange Commission (the "SEC"). We strongly recommend readers review those disclosures in conjunction with the discussions herein. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified, and should not be relied upon as a prediction of actual results or future events. Forward-looking statements in this earnings release are based on management’s expectations at the time such statements are made and speak only as of the date made. We do not assume any obligation or undertake to update any forward-looking statements after the date of this earnings release as a result of new information, future events or developments, except as required by federal securities or other applicable laws, although we may do so from time to time. All future written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to above. New risks and uncertainties arise from time to time, and factors that we currently deem immaterial may become material, and it is impossible for us to predict these events or how they may affect us. CONSOLIDATED BALANCE SHEETS (UNAUDITED) CONSOLIDATED INCOME STATEMENTS (UNAUDITED) LOANS HELD FOR INVESTMENT (1) COMPOSITION OF DEPOSITS SUMMARY FINANCIAL DATA NET INTEREST MARGIN NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS This document contains non-GAAP financial measures of our financial performance, including return on average tangible equity, efficiency ratio (excluding the impact of intangible amortization), tangible book value per share and tangible common equity ratio. We believe that these non-GAAP financial measures provide useful information because they are used by management to evaluate our operating performance, without the impact of goodwill and other intangible assets. However, these financial measures are not intended to be considered in isolation of or as a substitute for, or superior to, financial information prepared and presented in accordance with GAAP and should be viewed in addition to, and not as an alternative to, its GAAP results. The non-GAAP financial measures Mechanics presents may differ from similarly captioned measures presented by other companies. The following tables present the calculations of our non-GAAP financial measures. View source version on businesswire.com: https://www.businesswire.com/news/home/20260728661123/en/ Contacts Investor Relations Inquiries Mechanics Bancorp Nathan DudaExecutive Vice President and Chief Financial [email protected]

Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management successfully completed the HomeStreet integration, shifting focus from operational heavy-lifting to core deposit growth and capital efficiency. Performance was driven by the sale of the DUS business line to Fifth Third, which significantly reduced intangibles and generated substantial excess capital. The bank is deliberately allowing non-core, high-cost certificates of deposit to run off to prioritize capital efficiency and minimize risk-weighted assets. Operational efficiency improved as full-time equivalent headcount dropped from 1,890 to 1,756 quarter-over-quarter, with further expense benefits expected in Q3. Management attributes their strong credit performance to a conservative focus on low-risk multifamily lending, which represents 71% of the CRE portfolio. Strategic positioning emphasizes a 'scarcity value' franchise on the West Coast, maintaining high-tenure, granular deposits with an average account size of $43,000. Management plans a Q3 restructuring of $310 million in low-yielding AFS securities into current market-rate MBS to improve near-term net interest margin. The bank expects to achieve an annual run rate noninterest expense of approximately $430 million by the fourth quarter of 2026 as merger synergies fully realize. Guidance assumes a flat forward curve with no rate hikes or cuts; however, management noted the bank is modestly liability-sensitive and would benefit from rate cuts. Future earnings growth is anchored by $2.8 billion in lower-yielding assets expected to turn over within five years, providing a potential 260 basis point yield pickup. Management targets a 17% to 18% ROATCE and a 1.3% to 1.4% ROAA for 2027 and beyond, supported by a projected $250 million total dividend payout next year. Q2 results included $5.9 million in merger-related expenses, primarily severance, which management expects to taper off significantly in the second half of the year. A $25 million after-tax loss is anticipated in Q3 related to the planned AFS securities restructuring, with an estimated earn-back period of 4 to 5 years. Management flagged 'irrational' credit pricing in the current market, stating they will prioritize yield and risk discipline over aggressive loan growth. The bank is evaluating a potential sale of its remaining auto loan portfolio, which would result in a modest loss if executed. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here. Management acknowledged that while average deposit costs fell in Q2, the spot cost at quarter-end rose to 1.28% due to tax season outflows and intense competition. They expect modest deposit cost increases through the end of the year as mix shift into money market accounts continues. Management noted a tight 30 basis point spread between multifamily lending and new securities, leading to a strategy of managing CRE concentrations down below 300%. The bank will prioritize securities reinvestment over low-spread lending to maintain a lower-risk profile while capturing similar yields. Executive Chairman Carl Webb indicated a high bar for future M&A, stating any deal must improve the bank's deposit franchise value, which is already in the top decile. The team is currently focused on internal optimization rather than external acquisitions, as few targets meet their strict liability-cost criteria. Management intends to manage to an 8.25% Tier 1 leverage ratio target, using excess capital for substantial dividends including a projected $75M-$100M payout in Q4. They emphasized that the bank's high CET1 ratio of 14.4% provides significant optionality compared to peers who average 11-12%.

Management attributed a $6.5 million provision to qualitative factors regarding geopolitical uncertainty in Iran rather than specific credit deterioration, citing a conservative stance on potential oil price impacts. The bank deliberately allowed $640 million in high-cost CD runoff from the legacy HomeStreet portfolio to exit, prioritizing long-term ROE over maintaining a larger, lower-margin balance sheet. Strategic de-risking included a $100 million reduction in construction loans and the sale of syndicated loan exposure to minimize credit risk in a highly competitive lending environment. The successful March conversion of all legacy HomeStreet customers to the core banking platform marks the transition from integration work to focusing on core business line growth. Management highlighted a significant competitive advantage in their deposit structure, with 36% noninterest-bearing deposits and a cost of deposits significantly below the peer median. The bank reported a CRE concentration ratio of 348% and is intentionally managing its asset profile toward a target below 300% to maintain a low-risk profile relative to its peer group. Management expects a relatively flat Net Interest Margin (NIM) for the next two to three quarters as auto loan runoff and the absence of Fed rate cuts offset deposit cost improvements. NIM expansion is projected to resume in early 2027, driven by the repricing of approximately $5 billion in low-yielding legacy assets into higher market rates over the next five years. The bank reiterated its target to achieve an annual noninterest expense run-rate of approximately $430 million by the fourth quarter of 2026 through realized merger synergies. Guidance for 2027 includes a projected ROTCE of 17% to 18% and GAAP net income between $275 million and $300 million, assuming a modestly smaller but higher-quality balance sheet. Future capital allocation will shift toward an 80% dividend payout ratio to balance shareholder returns with the retention of capital for core growth and strategic optionality. Incurred approximately $5 million in merger-related expenses during Q1, with these costs expected to conclude by the end of the second quarter. Recorded a $1.7 million tax provision due to the remeasurement of deferred tax assets following a downward revision of the anticipated effective tax rate to 26.5%. The $130 million sale of the DUS business line to Fifth Third is now expected to close in the second quarter after experiencing minor delays. Management flagged the competitive landscape for loans as 'thin and tight,' noting that credit spreads and terms are currently not healthy enough to justify aggressive growth. Our analysts just identified a stock with the potential to be the next Nvidia. Tell us how you invest and we'll show you why it's our #1 pick. Tap here. Management explained that the lack of Fed rate cuts and a $3 billion gap between rate-sensitive liabilities and floating-rate assets creates near-term pressure. The ongoing runoff of $600 million in auto loans at a 6.5% yield acts as a margin drag, though this is partially offset by reduced servicing expenses. Management indicated they remain open to 'situational opportunities' but emphasized that any acquisition must improve the bank's liability structure, not just increase size. There are currently no active deals as the team is focused on completing the current integration and protecting their low-cost deposit franchise. Growth is expected in consumer segments, specifically single-family mortgages and loans against cash surrender value of life insurance policies. Construction and multifamily CRE balances are expected to decrease as the bank prioritizes de-risking and managing concentration ratios over volume. The bank intends to pay a $0.70 per share special dividend in Q2, utilizing approximately $165 million in excess capital generated from the DUS sale and balance sheet contraction. Management targets a Tier 1 leverage ratio of approximately 8.5% to 8.6% on an effective basis, holding back some capital for strategic flexibility. One stock. Nvidia-level potential. 30M+ investors trust Moby to find it first. Get the pick. Tap here.

This article first appeared on GuruFocus. Net Income: $44.1 million for Q1 2026. Earnings Per Share (EPS): $0.19 on a fully diluted basis. Tangible Book Value Per Share: $7.53 at the end of Q1. Dividends Paid: $0.40 per share in Q1. Provision for Credit Losses: $6.5 million related to CECL factors. Merger-Related Expenses: Just under $5 million. Tax Provision: $1.7 million due to remeasurement of deferred tax asset. Core Net Income: $53.8 million after adjustments. Total Assets: $21.4 billion. Total Gross Loans: $13.9 billion. Total Deposits: $18.2 billion. Tangible Shareholders' Equity: $1.7 billion. Net Interest Margin (NIM): 3.61% for the quarter. Cost of Deposits: 1.28% in Q1, down 15 bps from Q4. Common Equity Tier 1 (CET1) Ratio: 13.9%. Tier 1 Leverage Ratio: 8.7%. Non-Interest Income: $21 million, down 73% from the previous quarter. Non-Interest Expense: $130.4 million, up 0.7% from Q4. Loan Loss Reserves: 1.13% of loans at quarter end. CRE Concentration Ratio: 348%. Branches: 166 branches. Special Dividend: Expected $0.70 per share in Q2, subject to approval. Warning! GuruFocus has detected 8 Warning Signs with XFABF. Is MCHB fairly valued? Test your thesis with our free DCF calculator. Release Date: April 30, 2026 For the complete transcript of the earnings call, please refer to the full earnings call transcript. Mechanics Bancorp (NASDAQ:MCHB) reported a net income of $44.1 million for the first quarter, with a core net income of $53.8 million after adjusting for non-core items. The company successfully converted all legacy HomeStreet customers onto its core banking platform, marking a significant milestone in the merger integration process. Mechanics Bancorp (NASDAQ:MCHB) has a strong deposit base, with a cost of deposits at 1.28%, ranking it 10th among 77 comparable banks. The bank's capital ratios remain healthy, with a CET1 ratio of 13.9% and a Tier 1 leverage ratio of 8.7%. Mechanics Bancorp (NASDAQ:MCHB) plans to pay a special dividend of approximately $0.70 per share in the second quarter, subject to regulatory and Board approval, reflecting strong capital management. The company incurred $6.5 million in provisions related to geopolitical uncertainties from the Iran war, impacting earnings. Merger-related expenses totaled nearly $5 million, contributing to higher non-interest expenses for the quarter. Non-interest income declined significantly by 73% to $21 million, primarily due to the absence of a prior quarter's bargain purchase gain. The bank experienced a $640 million reduction in CD balances, which was deliberate but negatively impacted earnings. Loan interest income declined by $12.9 million, or 6.7%, due to lower contractual yields and reduced discount accretion. Q: Can you explain why the net interest margin (NIM) is expected to remain flat over the next few quarters despite the lower spot rate of deposits? A: C.J. Johnson, President and CEO, explained that while the spot cost of deposits is down, the overall deposit cost for the quarter is expected to be slightly higher due to the completion of CD repricing. Additionally, the bank is liability sensitive, with a significant portion of deposits at low rates, and the absence of expected Fed rate cuts is a negative factor. The runoff of auto loans, which are high-yielding, also pressures the margin. However, the bank is working to offset this through expense reductions. Q: What is the expected net interest margin range for 2027 to achieve the projected net income? A: C.J. Johnson anticipates a NIM of approximately 3.7% to 3.8% in 2027. The bank is 100% core funded, and deposit costs should remain stable. There is a significant amount of low-yielding legacy assets that will reprice over time, providing a tailwind to the margin. Q: How is the balance sheet expected to change after the planned CD runoff and potential auto portfolio sale? A: C.J. Johnson stated that after the remaining CD reductions in the second quarter, the balance sheet should stabilize and begin to grow modestly. The sale of auto loans will not change the size of the balance sheet as proceeds will be reinvested. The bank is focused on growing core deposits and expects minimal further shrinkage. Q: What are the prospects for additional M&A activity after the HomeStreet integration? A: Carl Webb, Executive Chairman, mentioned that while the bank is always looking for opportunities, there is nothing currently on the front burner. The focus is on completing the HomeStreet integration. Any future M&A would need to make the bank better, not just bigger, and align with their strategic goals. Q: Can you provide an update on the Delaware trust business and its expected impact? A: C.J. Johnson noted that the Delaware trust business is expected to open in May, slightly delayed from the original timeline. There is demand waiting for this service, and it is seen as a significant step for the bank's wealth group. The team build-out is complete, and the bank is optimistic about growth in this area. For the complete transcript of the earnings call, please refer to the full earnings call transcript.