Mechanics Bancorp (MCHB)

ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited consolidated financial statements and related notes appearing elsewhere in this Quarterly Report and in our Annual Report on Form 10-K for the year ended December 31, 2025 (“2025 Annual Report on Form 10-K”) filed with the SEC. This Quarterly Report contains forward-looking statements that involve risks and uncertainties, including those described in the section entitled “Cautionary Note Regarding Forward-Looking Statements.” There are a number of important risks and uncertainties that could cause our actual results to differ materially from those discussed in these forward-looking statements. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. Factors that could cause or contribute to such differences include, but are not limited to, those identified below and those discussed in our other disclosures and filings.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, 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. All statements, other than statements of historical fact, contained or incorporated by reference in this Quarterly Report, 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.

We caution readers that actual results may differ materially from those expressed in or implied by the Company’s forward-looking statements. Factors that could affect the Company’s future results from those expressed or implied in any forward-looking statements include, but are not limited to:

•substantial non-recurring and integration costs, which may be greater than anticipated due to unexpected events;

•failure to realize the anticipated benefits of the 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 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 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 Quarterly Report 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 Quarterly Report 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.

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Overview

Mechanics Bancorp is a financial holding company and primarily operates through 121-year-old Mechanics Bank, a full-service community bank with 166 branches throughout California, Washington, Oregon and Hawaii. Following the strategic Merger of HomeStreet Bank with and into Mechanics Bank on September 2, 2025, with Mechanics Bank surviving the Merger as a wholly owned subsidiary of the Company, the assets, liabilities and operations of HomeStreet Bank became the assets, liabilities and operations of Mechanics Bank. Headquartered in Walnut Creek, California, Mechanics Bank provides 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.

General

The Company’s management’s discussion and analysis of results of operations and financial condition (“MD&A”) is intended to assist the reader in understanding and assessing significant changes and trends related to the results of operations and financial condition of the Company. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying footnotes in this Quarterly Report on Form 10-Q.

Recent Developments

Presentation of Results - HomeStreet Bank Merger

On September 2, 2025, we completed the Merger of HomeStreet Bank, the wholly-owned subsidiary of Mechanics Bancorp (formerly known as “HomeStreet, Inc.”) with and into Mechanics Bank, with Mechanics Bank as the surviving bank. Mechanics Bank is the accounting acquirer (“legal acquiree”), HomeStreet Bank is the accounting acquiree and Mechanics Bancorp is the legal acquirer. In this Quarterly Report on Form 10-Q, our financial results for all periods ended prior to September 2, 2025 reflect Mechanics Bank’s results on a standalone basis. In addition, our reported financial results reflect Mechanics Bank’s financial results on a standalone basis until the closing of the Merger on September 2, 2025 and results of the combined company beginning September 2, 2025. The number of shares issued and outstanding, earnings per share, and all references to share quantities or metrics of Mechanics Bancorp 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 recor

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ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with

our audited consolidated financial statements and related notes appearing elsewhere in this Annual Report. This Annual

Report contains forward-looking statements that involve risks and uncertainties, including those described in the section

entitled “Forward-Looking Statements.” There are a number of important risks and uncertainties that could cause our

actual results to differ materially from those discussed in these forward-looking statements. We may not actually achieve

the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance

on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and

expectations disclosed in the forward-looking statements we make. Factors that could cause or contribute to such

differences include, but are not limited to, those identified below and those discussed in the section entitled “Risk Factors”

under Part I, Item 1A. of this Annual Report, and those discussed in our other disclosures and filings.

Overview

Mechanics Bancorp is a financial holding company and primarily operates through 121-year-old Mechanics Bank, a full-

service community bank with 166 branches throughout California, Washington, Oregon and Hawaii. Following the

strategic Merger of HomeStreet Bank with and into Mechanics Bank on September 2, 2025, with Mechanics Bank

surviving the Merger as a wholly owned subsidiary of the Company, the assets, liabilities and operations of HomeStreet

Bank became the assets, liabilities and operations of Mechanics Bank. Headquartered in Walnut Creek, California,

Mechanics Bank provides 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.

Other Recent Developments

Presentation of Results - HomeStreet Bank Merger

On September 2, 2025, we completed the Merger of HomeStreet Bank, the wholly-owned subsidiary of Mechanics

Bancorp (formerly known as “HomeStreet, Inc.”) with and into Mechanics Bank, with Mechanics Bank as the surviving

bank. Mechanics Bank is the accounting acquirer (“legal acquiree”), HomeStreet Bank is the accounting acquiree and

Mechanics Bancorp is the legal acquirer. In this Annual Report on Form 10-K, our financial results for all periods ended

prior to September 2, 2025 reflect Mechanics Bank’s historical financial results on a standalone basis. In addition, our

reported financial results for 2025 reflect Mechanics Bank’s financial results on a standalone basis until the closing of the

Merger on September 2, 2025 and results of the combined company from September 2, 2025 through December 31, 2025.

The number of shares issued and outstanding, earnings per share, and all references to share quantities or metrics of

Mechanics Bancorp 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 initial valuations at the Merger date. These estimates are

considered preliminary as of December 31, 2025, are subject to change for up to one year after the Merger date, and any

changes could be material.

Unless we state otherwise or the content otherwise requires, references in this Annual Report on Form 10-K to

“Mechanics,” “we,” “our,” “us” or the “Company” refer collectively to Mechanics Bancorp, Mechanics Bank (the “Bank”)

and other direct and indirect subsidiaries of Mechanics Bancorp, following completion of the Merger. In some instances,

we refer to Mechanics Bank prior to the effective time of the Merger as “legacy Mechanics Bank,” HomeStreet Bank prior

to the effective time of the Merger as “legacy HomeStreet Bank,” and HomeStreet, Inc. prior to the effective time of the

Merger as “legacy HomeStreet, Inc.”

Asset Sale

On December 3, 2025, Mechanics Bank and Fifth Third Bank, National Association (“Fifth Third”), a wholly-owned,

indirect subsidiary of Fifth Third Bancorp, entered into an asset purchase agreement (the “Agreement”), pursuant to and

subject to the terms and conditions of which Mechanics Bank has agreed to sell, and Fifth Third has agreed to purchase,

Mechanics Bank’s Fannie Mae Delegated Underwriting and Servicing (“DUS”) business line (the “Transaction”), which

was acquired in the HomeStreet acquisition, for cash consideration. In connection with the Agreement, Fifth Third will

acquire the DUS servicing portfolio, including the DUS multifamily mortgage servicing rights. The aggregate purchase

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price in the Transaction is approximately $130 million, subject to adjustment for changes in the fair value at closing of the

DUS multifamily mortgage servicing rights being transferred in connection with the Transaction.

The closing of the Transaction is subject to customary closing conditions, including (a) approval of the Transaction by

Fannie Mae and other regulatory approvals to the extent applicable, (b) the absence of any order, injunction, decree or law

making the Transaction illegal or otherwise preventing the consummation of the Transaction, (c) the accuracy of each

party’s representations and warranties as of the closing date, subject to materiality qualifications, and (d) each party’s

performance of its covenants under the Agreement in all material respects. The sale is expected to close in the first or

second quarter of 2026.

Critical Accounting Estimates

The following discussion and analysis of financial condition and results of operations are based upon our consolidated

financial statements and the notes thereto, which have been prepared in accordance with GAAP and accounting practices in

the banking industry. Certain of those accounting policies are considered critical accounting policies because they require

us to make estimates and assumptions regarding circumstances or trends that could materially affect the value of those

assets, such as economic conditions or trends that could impact our ability to fully collect our loans or ultimately realize the

carrying value of certain of our other assets. Those estimates and assumptions are made based on current information

available to us regarding those economic conditions or trends or other circumstances. If changes were to occur in the

events, trends or other circumstances on which our estimates or assumptions were based, these changes could have a

material adverse effect on the carrying value of assets and liabilities and on our results of operations. As a result of the

Merger, the Company updated critical accounting estimates. Management believes the ACL policy and estimate, the

valuation of single family MSRs and business combinations estimates are important to the portrayal of the Company’s

financial condition and results of operations and requires difficult, subjective, or complex judgments and, therefore,

management considers the following to be critical accounting estimates.

ACL

The Company utilizes a blend of economic forecast scenarios from Moody’s Analytics, specifically, the baseline, upside

(“S1”), and downside (“S3”) scenarios, as key inputs in estimating our ACL. These scenarios are refreshed quarterly and

provide forward-looking assumptions on key macroeconomic indicators such as Gross Domestic Product (“GDP”) growth,

unemployment rates, commercial real estate conditions, interest rates and other market risk factors. Within this framework,

our current expected credit loss models generate PD and LGD at the individual loan or pooled segment level. These

components are modeled using borrower characteristics, loan terms, and scenario-specific economic conditions. The

product of PD and LGD results in the expected credit loss for each instrument, which aggregates into the Bank’s total

ACL. In addition to model-driven outputs, we incorporate qualitative adjustments where management determines other

considerations may be warranted. These adjustments consider factors not fully captured in the models and are reassessed

regularly to ensure reserves remain appropriate. Changes in the Company’s assumptions and economic forecasts could

significantly affect its estimate of expected credit losses, which could potentially lead to significant changes in the estimate

from one reporting period to the next.

MSRs

MSRs are recognized as separate assets when servicing rights are acquired through the sale of loans or through purchases

of MSRs. For sales of mortgage loans, the fair value of the MSR is estimated and capitalized. Purchased MSRs are

capitalized at the cost to acquire. Initial and subsequent fair value measurements are determined using a discounted cash

flow model that is owned and operated by a third party valuation firm. To determine the fair value of the MSR, the present

value of expected net future cash flows is estimated. Assumptions used include market discount rates, anticipated

prepayment speeds, delinquency and foreclosure rates, and ancillary fee income net of servicing costs. The model

assumptions and the MSR fair value estimates are also compared to observable trades of similar portfolios as well as to

MSR broker valuations and industry surveys, as available. We also utilize a separate third-party valuation firm to value our

MSRs on a periodic basis, the results of which we use to evaluate the reasonableness of the modeled values. Actual market

conditions could vary significantly from current conditions which could result in the estimated life of the underlying loans

being different which would change the fair value of the MSR. We carry our single family residential MSRs at fair value

and report changes in fair value through earnings. MSRs for loans other than single family loans are adjusted to fair value

if the carrying value is higher than fair value and are amortized into noninterest income in proportion to, and over the

period of, the estimated future net servicing income of the underlying financial assets.

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Business Combinations

The Company accounts for business combinations using the acquisition method of accounting. Under this accounting

method, the acquired company’s assets and liabilities are recorded at fair value at the date of the acquisition, except as

provided for by the applicable accounting guidance, and the results of operations of the acquired company are combined

with the acquiree’s results from the date of the acquisition forward. The difference between the purchase price and the fair

value of the net assets acquired (including identifiable intangible assets) is recorded as goodwill or bargain purchase gain.

Management uses significant estimates and assumptions to value such items, including projected cash flows, repayment

rates, default rates and losses assuming default, discount rates, and realizable collateral values. The allowance for credit

losses for PCD loans and PSL is recognized within acquisition accounting. Fair value adjustments are amortized or

accreted into the statement of operations over the estimated life of the acquired assets or assumed liabilities. The purchase

date valuations and any subsequent adjustments determine the amount of goodwill or bargain purchase gain recognized in

connection with the acquisition. The use of different assumptions could produce significantly different valuation results,

which could have material positive or negative effects on our results of operations.

The determination of fair values is based on valuations using management’s assumptions of future growth rates, future

attrition, discount rates, multiples of earnings or other relevant factors. In addition, the Company engages third-party

specialists to assist in the development of fair values. Preliminary estimates of fair values may be adjusted for up to one

year after the date of acquisition, and any changes could be material. Additional information may be obtained during the

measurement period about facts and circumstances that existed as of the effective time of the acquisition that, if known,

would have affected the measurement of the amounts recognized as of that date.

Adjustments recorded during the measurement period are recognized in the reporting period they are identified.

Management uses various valuation methodologies to estimate the fair value of these assets and liabilities and often

involves a significant degree of judgment, particularly when liquid markets do not exist for the particular item being

valued.

Changes in these factors, as well as downturns in economic or business conditions, could have a significant adverse impact

on the carrying value of assets, including goodwill and liabilities, which could result in impairment losses affecting our

financial statements as a whole and our banking subsidiary in which the goodwill is recorded.

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Summary Financial Data

(1)Return on average tangible equity, efficiency ratio (excluding the impact of intangible amortization), tangible book value per share, and tangible

common equity ratio are non-GAAP financial measures. For a reconciliation of these measures to the comparable GAAP financial measure or the

computation of the measure, see “Non-GAAP Financial Measures and Reconciliations.”

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(1)Return on average tangible equity, efficiency ratio (excluding the impact of intangible amortization), tangible book value per share, and tangible

common equity ratio are non-GAAP financial measures. For a reconciliation of these measures to the comparable GAAP financial measure or the

computation of the measure, see “Non-GAAP Financial Measures and Reconciliations.”

(2)On September 2, 2025, HomeStreet Bank merged with and into Mechanics Bank, with Mechanics Bank surviving the Merger and becoming a

wholly-owned subsidiary of Mechanics Bancorp. As a result, for December 31, 2024, regulatory capital ratios are only presented for Mechanics

Bank.

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Management’s Overview of Financial Performance

2025 Compared to 2024

General: Our net income and income before taxes were $265.7 million and $319.6 million, respectively, for 2025 as

compared to a net income and net income before taxes of $29.0 million and $35.7 million, respectively, for 2024. The

$283.9 million increase in income before taxes compared to 2024 was primarily due to an increase in noninterest income

due to the bargain purchase gain of $145.5 million from the HomeStreet merger in 2025 and the $207.2 million loss on the

sale of lower yielding AFS investment securities as part of a balance sheet restructure in 2024. The increases were partially

offset by an increase in provision for credit losses and an increase in noninterest expense primarily due to acquisition and

integration related costs from the HomeStreet merger of $73.4 million.

Income Taxes: Our effective tax rate for 2025 was 16.8% as compared to 18.8% for 2024 and our federal statutory rate was

21.0%. The $145.5 million bargain purchase gain was the primary reason for the low effective tax rate in 2025.

Net Interest Income: The following table sets forth, for the periods indicated, information regarding (i) the total dollar

amount of interest income from interest-earning assets and the resultant average yields on those assets; (ii) the total dollar

amount of interest expense and the average rate of interest on our interest-bearing liabilities; (iii) net interest income; (iv)

net interest rate spread; and (v) net interest margin. The average yields and rates are based on annualized interest income or

expense for the periods presented.

(1)Includes loans held for sale.

(2)Cost of deposits including noninterest-bearing deposits, was 1.40% and 1.35% for 2025 and 2024, respectively.

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Rate and Volume Analysis

The following table presents the extent to which changes in interest rates and changes in the volume of our interest-earning

assets and interest-bearing liabilities have affected our interest income and interest expense. Information is provided in

each category with respect to: (1) changes attributable to changes in rate, (2) changes attributable to changes in volume and

(3) changes attributable to both rate and volume (which have been allocated proportionally between the rate and volume

variances).

(1)Includes loans held for sale.

Net interest income in 2025 increased $66.5 million as compared to 2024 due primarily to an increase in net interest margin

from 3.31% in 2024 to 3.43% in 2025, and as a result of the HomeStreet merger. The increase in net interest margin is

primarily due to a 15 basis point reduction in the rates paid on interest-bearing liabilities and a 7 basis point increase on

interest-earning asset yields. The decrease in rates paid on interest-bearing liabilities was primarily driven by the payoff of

the Company’s $750 million of BTFP borrowings in 2024 and the decrease in rates paid on deposits after the Federal

Reserve cut federal funds rates in 2025, partially offset by higher borrowing costs on acquired debt from the HomeStreet

merger. The increase in earning asset yields was primarily driven by investment securities and loans acquired in the

HomeStreet merger, as well as higher yields on investment securities purchases in 2025.

Provision for Credit Losses on Loans: The provision for credit losses for loans and unfunded commitments was $19.5

million in 2025, compared to a $1.5 million reversal of provision in 2024. The increase in provision for 2025 was primarily

driven by future economic scenario assumptions and increased concentration risk due to the acquisition of HomeStreet.

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Noninterest income (loss) consisted of the following:

Loan servicing income, a component of noninterest income, consisted of the following:

(1)Represents changes due to collection/realization of expected cash flows and curtailments.

(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage

interest rates.

(3)Comprised of net gains on derivatives used as economic hedges of single family MSRs, and net gains on U.S. Treasury notes trading securities used

for hedging purposes.

Noninterest income for 2025 increased from 2024 primarily due to the bargain purchase gain of $145.5 million from the

HomeStreet merger in 2025 and the $207.2 million loss on the sale of lower yielding AFS investment securities as part of a

balance sheet restructure in 2024.

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Noninterest Expense consisted of the following:

Noninterest expense increased $123.7 million for 2025 compared to 2024 primarily due to acquisition and integration

related costs of $73.4 million, increases in salaries and employee benefits expense, and four months of legacy HomeStreet

operating expenses after the Merger.

Financial Condition-December 31, 2025 compared to December 31, 2024

During 2025, total assets increased $5.9 billion, total liabilities increased $5.3 billion and shareholders’ equity increased

$560.5 million.

Investment Securities

Trading securities totaled $49.5 million at December 31, 2025 and were acquired in the HomeStreet merger. Securities

held-to-maturity decreased by $103.9 million due to maturities and calls during 2025 and totaled $1.3 billion at

December 31, 2025. Securities available-for-sale increased by $928.1 million during 2025 to $4.0 billion at December 31,

2025. The net increase in investment securities was primarily due to the securities acquired in the HomeStreet merger,

offset by the sale of $925.8 million of securities in the second quarter of 2025 to generate liquidity for the Merger.

Loans

Total loans at December 31, 2025 were $14.2 billion, up $4.5 billion from $9.6 billion at December 31, 2024, due primarily

to the addition of $5.6 billion of legacy HomeStreet Bank loans recorded at fair value, offset by run-off in our auto loan

portfolio of $805.9 million.

Deposits

Total deposits increased by $5.1 billion during 2025 to $19.0 billion at December 31, 2025 from $13.9 billion at

December 31, 2024, due primarily to balances acquired in the Merger.

Noninterest-bearing accounts totaled $6.7 billion and represented 35% of total deposits at December 31, 2025, compared to

$5.6 billion, or 40% of total deposits, at December 31, 2024. Noninterest-bearing deposit balances increased in 2025

primarily due to balances acquired in the Merger.

Insured deposits of $12.2 billion represented 64% of total deposits at December 31, 2025, compared to insured deposits of

$7.8 billion, or 56% of total deposits at December 31, 2024.

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Borrowings

Total borrowings were $192.0 million at December 31, 2025, representing subordinated notes, senior notes and trust

preferred debt acquired in the Merger. For additional discussion of these borrowings, refer to Note 11, “Borrowings and

Long-Term Debt” in the financial statements.

Equity

During 2025, total shareholders’ equity increased by $560.5 million to $2.9 billion and tangible common equity (1)

increased by $386.8 million to $1.8 billion at December 31, 2025. The increase in total shareholders’ equity for 2025

resulted from Mechanics Bancorp shares issued as Merger consideration, an increase in retained earnings, a decrease in the

unrealized losses on our AFS securities portfolio, partially offset by dividends paid to common shareholders.

At December 31, 2025, book value per common share increased to $12.93, compared to $11.40 at December 31, 2024. The

year-to-date change in book value per share reflects Mechanics Bancorp shares issued as Merger consideration and an

increase in retained earnings. Tangible book value per common share (1) increased to $7.81, compared to $6.70 at

December 31, 2024, mainly as a result of Mechanics Bancorp shares issued as Merger consideration and an increase in

retained earnings, offset by the additional $190.9 million of intangibles added as part of the Merger.

(1)Tangible common equity and tangible book value per share are non-GAAP financial measures. For a reconciliation of these measures to the

comparable GAAP financial measure or the computation of the measure, see “Non-GAAP Financial Measures and Reconciliations.”

Debt Securities

Debt securities AFS and HTM are as follows:

In addition to AFS and HTM securities, at December 31, 2025, the Company held $49.5 million of trading securities,

consisting of U.S. Treasury notes used as economic hedges of our single family mortgage servicing rights, which are

carried at fair value and reported as trading securities on the consolidated balance sheets. The trading securities were

acquired in the Merger and we had no trading securities at December 31, 2024.

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The fair value of available-for-sale securities and the amortized cost of held-to-maturity debt securities are shown by

contractual maturities and weighted average yields in the following table:

(1)Weighted-average yields are calculated based on the contractual coupon, including amortization of premiums and accretion of discounts, weighted

by amortized cost.

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Loans

The composition of our LHFI portfolio is as follows:

The following table shows the contractual maturity of our loan portfolio by loan type:

The following table shows the activity in loan balances:

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The following table shows loan originations and advances:

Deposits

Deposit balances and weighted average rates were as follows for the periods indicated:

The following table presents the schedule of maturities of certificates of deposit as of December 31, 2025:

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Credit Risk Management: Delinquent Loans, Nonperforming Assets and Provision for Credit Losses

Asset Quality Information and Ratios

At December 31, 2025, total delinquent loans were $93.1 million, compared to $97.4 million at December 31, 2024. The

decrease was primarily due to decreases in the auto loan portfolio and loans that improved to current status during the year.

Total delinquent loans as a percentage of total loans declined to 0.66% at December 31, 2025, as compared to 1.01% at

December 31, 2024.

At December 31, 2025, nonperforming assets were $51.8 million, compared to $26.5 million at December 31, 2024. The

increase was mostly due to nonperforming loans acquired from legacy HomeStreet Bank. Nonperforming assets as a

percentage of total assets increased to 0.23% at December 31, 2025 as compared to 0.16% at December 31, 2024.

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Delinquent, nonaccrual and current loans by loan type consisted of the following:

Management considers the current level of the allowance for credit losses on loans to be appropriate to cover estimated

lifetime losses within our LHFI portfolio. For additional information on the Company’s allowance for credit losses, refer to

Note 4, “Loans and Credit Quality.”

The following table presents the amount of allowance for credit losses on loans by product type, as well as the percentage

of each respective portfolio's loan balance to total loans:

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As of December 31, 2025, the expected loss rates decreased when compared to December 31, 2024 due to product mix and

credit risk composition changes from the HomeStreet acquisition and runoff of the auto portfolio. During 2025, the

qualitative factors primarily increased due to commercial real estate concentration risk, and interest rate and maturity

repricing risks.

The following table presents net charge-offs for the loan portfolio for the dates indicated:

Liquidity and Sources of Funds

Liquidity risk management is primarily intended to ensure we are able to maintain sources of cash to adequately fund

operations and meet our obligations, including demands from depositors, draws on lines of credit and paying any creditors,

on a timely and cost-effective basis, in various market conditions. Our liquidity profile is influenced by changes in market

conditions, the composition of the balance sheet and risk tolerance levels. Mechanics has established liquidity guidelines

and operating plans that detail the sources and uses of cash and liquidity.

Mechanics’ primary sources of liquidity include deposits, loan repayments and investment securities payments, both

principal and interest, borrowings, and proceeds from the sale of loans and investment securities. Borrowings may include

advances from the FHLB, borrowings from the Federal Reserve, federal funds purchased and borrowings from other

financial institutions. While scheduled principal repayments on loans and investment securities are a relatively predictable

source of funds, deposit inflows and outflows and prepayments of loans and investment securities are greatly influenced by

interest rates, economic conditions and competition.

Mechanics’ contractual cash flow obligations include the maturity of certificates of deposit, short-term and long-term

borrowings, interest on certificates of deposit and borrowings, operating leases and fees for information technology-related

services and professional services. Obligations for certificates of deposit are typically satisfied through excess cash reserve

balances, the renewal of these instruments or the generation of new deposits. Interest payments and obligations related to

leases and services are typically met by cash generated from our operations.

At December 31, 2025, Mechanics had available borrowing capacity of $6.2 billion from the FHLB, $4.4 billion from the

Federal Reserve and $5.3 billion under borrowing lines established with other financial institutions. We believe that our

current unrestricted cash and cash equivalents, cash flows from operations and borrowing capacity will be sufficient to

meet our liquidity needs for at least the next 12 months. We are currently not aware of any other trends or demands,

commitments, events or uncertainties that will result in or that are reasonably likely to result in our liquidity increasing or

decreasing in any material way that will impact our liquidity needs during or beyond the next 12 months.

Cash Flows

For 2025, cash and cash equivalents increased by $30.3 million compared to a decrease of $457.9 million during 2024. As

a banking institution, Mechanics has extensive access to liquidity. Mechanics manages its cash positions to conservative

minimum cash buffer levels and does not attempt to maximize the level of cash and cash equivalents. The following

discussion highlights the major activities and transactions that affected our cash flows during these periods.

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Cash flows from operating activities

Mechanics’ operating assets and liabilities are used to support our lending activities, including the origination and sale of

mortgage loans. For 2025, net cash of $193.6 million was provided by operating activities from ongoing bank operations.

For 2024, net cash of $292.3 million was provided by operating activities primarily due to our net income for the year,

excluding the impact of the $207.2 million loss on sale of securities.

Cash flows from investing activities

Mechanics’ investing activities are primarily related to investment securities and LHFI. For 2025, net cash of $1.5 billion

was provided by investing activities primarily from AFS investment security sales, maturities and calls, net loan

originations and principal collections, and cash acquired in the Merger, partially offset by AFS investment security

purchases. For 2024, net cash of $476.2 million was provided by investing activities primarily from net loan originations

and principal collections partially offset by AFS investment security purchases, net of maturities and sales.

Cash flows from financing activities

Mechanics’ financing activities are primarily related to deposits, net proceeds from borrowings and equity transactions. For

2025, net cash of $1.7 billion was used by financing activities, due to repayment of FHLB advances acquired in the

Merger, a decrease in deposits and dividends paid. For 2024, net cash of $1.2 billion was used in financing activities

primarily due to a net decrease in bank term funding, decreases in deposits and cash dividends paid.

Off-Balance Sheet Arrangements

In the normal course of business, we are a party to financial instruments that carry off-balance sheet risk. These financial

instruments (which include commitments to originate loans and commitments to purchase loans) include potential credit

risk in excess of the amount recognized in the accompanying consolidated financial statements. These transactions are

designed to (1) meet the financial needs of our customers, (2) manage our credit, market or liquidity risks, (3) diversify our

funding sources and/or (4) optimize capital.

These commitments include the following:

(1)Within the commercial portfolio lines, undistributed construction loan proceeds, where the Company has an obligation to advance funds for

construction progress payments were $361.4 million and $129.9 million at December 31, 2025 and 2024, respectively.

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Capital Resources

The capital rules applicable to United States based bank holding companies and federally insured depository institutions

require Mechanics Bancorp and Mechanics Bank to meet specific capital adequacy requirements that, for the most part,

involve quantitative measures, primarily in terms of the ratios of their capital to their assets, liabilities, and certain off-

balance sheet items, calculated under regulatory accounting practices. In addition, prompt corrective action regulations

place a federally insured depository institution, such as Mechanics Bank, into one of five capital categories on the basis of

its capital ratios: (i) well capitalized; (ii) adequately capitalized; (iii) undercapitalized; (iv) significantly undercapitalized;

or (v) critically undercapitalized. A depository institution’s primary federal regulatory agency may determine that, based on

certain qualitative assessments, the depository institution should be assigned to a lower capital category than the one

indicated by its capital ratios. At each successive lower capital category, a depository institution is subject to greater

operating restrictions and increased regulatory supervision by its federal bank regulatory agency.

The following tables present the regulatory capital amounts and ratios (inclusive of the capital 2.5% conservation buffer,

where applicable) for Mechanics Bancorp and Mechanics Bank as of the dates indicated:

(1)On September 2, 2025, HomeStreet Bank merged with and into Mechanics Bank, with Mechanics Bank surviving the Merger and becoming a

wholly-owned subsidiary of Mechanics Bancorp. As a result, for December 31, 2024, regulatory capital ratios are only presented for Mechanics

Bank.

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As of the dates set forth in the above table, Mechanics Bancorp exceeded the minimum required capital ratios applicable to

it and Mechanics Bank’s capital ratios exceeded the minimums necessary to qualify as a well-capitalized depository

institution under the prompt corrective action regulations. In addition to the minimum capital ratios, Mechanics Bancorp

and Mechanics Bank are required to maintain a capital conservation buffer consisting of additional Common Equity Tier 1

Capital of 5% in addition to the required minimum levels in order to avoid limitations on paying dividends, engaging in

share repurchases, and paying discretionary bonuses. Mechanics maintained capital ratios necessary to satisfy the capital

conservation buffer requirements as of the dates indicated. At December 31, 2025, the capital conservation buffers for

Mechanics Bancorp and Mechanics Bank were 8.81% and 8.09%, respectively.

The Company paid cash dividends of $0.21 per share for Class A shareholders and $2.10 per share for Class B

shareholders in the fourth quarter of 2025 and on February 25, 2026, we declared a cash dividend of $0.40 per Class A

common share and $4.00 per Class B common share, payable on March 19, 2026 to shareholders of record as of the close

of business on March 9, 2026. The Company did not pay cash dividends in the first three quarters of 2025. The amount and

declaration of future cash dividends are subject to approval by our Board of Directors and certain statutory requirements

and regulatory restrictions. See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer

Purchases of Equity Securities—Dividends” for more information.

We had no material commitments for capital expenditures as of December 31, 2025.

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 table presents the calculations of our non-GAAP financial measures.

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