Mechanics Bancorp (MCHB) Business

ITEM 1.BUSINESS

Overview

Mechanics Bancorp, a Washington corporation, is a financial holding company and primarily operates through 121-year-

old Mechanics Bank, its wholly-owned subsidiary. Mechanics Bank is 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.

Prior to merging with and into Mechanics Bank on September 2, 2025, HomeStreet Bank was principally engaged in

commercial banking, consumer banking, and real estate lending, including construction and permanent loans on

commercial real estate and single-family residences. It also sold insurance products for consumer clients. It provided these

financial products and services to its customers through bank branches, loan production offices and ATMs, and through

online, mobile and telephone banking channels.

Ceasing the origination of auto loans in February 2023, Mechanics Bank continued to service its existing auto loan

portfolio until May 1, 2025, when it entered into a servicing agreement with a third-party servicer to oversee and manage

Mechanics Bank’s active portfolio of auto loans. The portfolio consisted of new and pre-owned retail automobile sales

contracts purchased from both franchised and independent automobile dealerships in the United States.

The Company’s business strategy is to offer a full range of financial products and services to our customer base consistent

with a regional bank’s offerings while providing the responsive and personalized service of a community bank. We expect

to maintain our business by:

•marketing our services directly to prospective new customers;

•obtaining new client referrals from existing customers;

•adding experienced relationship managers, branch managers and loan officers who may have established client

relationships that we can serve;

•cross-selling our products and services; and

•making opportunistic acquisitions of complementary businesses and/or establishing de novo offices in select

markets within and outside our existing market areas.

Our 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

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

institutions.

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Locations

In addition to our main office, as of December 31, 2025, we operated 166 full service branch locations throughout

California, Oregon, Washington and Hawaii, and three stand-alone commercial lending centers in Southern California,

Idaho and Utah.

Loan Products

We are committed to offering competitive lending products that meet the needs of our clients, are underwritten in a prudent

manner, and provide an adequate return based on their size, credit risk and interest rate risk. Our loan products include

commercial business loans, single family residential mortgages, consumer loans, commercial loans secured by residential

and commercial real estate, and construction loans for residential and commercial real estate development. The lending

units under which these loans are offered include: Commercial Banking; Mortgage and Consumer Lending; Multifamily

Lending; Commercial Real Estate Lending and Residential Construction Lending and Private Banking. In addition, certain

consumer loans are offered through our retail branch network.

We believe that we mitigate the risks inherent in our loan portfolio by adhering to sound underwriting practices, managed

by experienced and knowledgeable credit professionals. These practices may include, among other considerations: analysis

of a borrower’s prior credit history, financial statements, tax returns, cash flow projections, valuations of collateral based

on reports of independent appraisers and verifications of liquid assets. Although we believe that our underwriting criteria is

appropriate for the various kinds of loans we make, we may incur losses on loans that meet our underwriting criteria, and

these losses may exceed the amounts set aside as reserves in our allowance for credit losses. While we believe that our

allowance for credit losses is adequate to cover potential losses, we cannot guarantee that future increases to the allowance

for credit losses may not be required by regulators or other third-party loan review or financial audits.

Commercial Banking

Loans originated by Commercial Banking are generally supported by the cash flows generated from the business

operations of the entity to which the loan is made, and, except for loans secured by owner occupied commercial real estate,

are generally secured by non-real estate assets, such as equipment, inventories or accounts receivable. Commercial Banking

is focused on developing quality full-service business banking relationships, including loans and deposits. We typically

focus on commercial clients that are manufacturers, distributors, wholesalers and professional service companies. These

loans are generated primarily by our relationship managers and business development officers with minimal direct

marketing support.

Commercial Loans: We offer commercial term loans and commercial lines of credit to our clients. Commercial loans

generally are made to businesses that have demonstrated a history of profitable operations. To qualify for such loans,

prospective borrowers generally must have operating cash flow sufficient to meet their obligations as they become due,

good payment histories, responsible balance sheet management and experienced management. Commercial term loans are

either fixed rate or adjustable rate loans with interest rates tied to a variety of independent indices and are generally made

for terms ranging from one to seven years based in part on the useful life of the asset financed. Commercial lines of credit

are adjustable rate loans with interest rates usually tied to our prime lending rate or other independent indices and are made

for terms typically ranging from one to two years. These loans contain various covenants, including possible requirements

that the borrower reduce its credit line borrowings to zero for specified time periods during the term of the line of credit,

maintain required levels of liquidity with advances tied to periodic reviews of amounts borrowed based upon a percentage

of accounts receivable, and inventory or unmonitored lines for those with significant financial strength and liquidity.

Commercial loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the

borrower and guarantors, the borrower’s ability to repay, debt service coverage ratios, historical and projected client

income, borrower liquidity and credit history and the trends in income and balance sheet management. In addition, we

perform stress testing for changes in interest rates and other factors and review general economic trends in the client’s

industry. We typically require full recourse from the owners of the entities to which we make such loans.

Commercial Real Estate Loans - Owner Occupied: Owner occupied CRE loans are generally made to businesses that have

demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers generally must have

operating cash flow sufficient to meet their obligations as they become due, good payment histories, proper balance sheet

management of key cash flow drivers, and experienced management. Our commercial real estate loans are secured by first

liens on nonresidential real property, typically office, industrial or warehouse properties. These loans generally have fixed

interest rates for periods ranging from three to ten years and adjust thereafter based on an applicable indices and terms. We

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may also offer adjustable rate loans with interest rates tied to a variety of independent indices. These loans generally have

interest rate floors, payment caps, and prepayment fees. The loans are underwritten based on a variety of criteria, including

an evaluation of the creditworthiness of the borrower and guarantors, the borrower’s ability to repay, loan-to-value and

debt service coverage ratios, borrower liquidity and credit history and the trends in balance sheet and income statement

management. We typically require full recourse from the owners of the entities to which we make such loans.

Shared National Credits/Participation Lending: We may participate in multi-bank transactions referred to as Shared

National Credits or Participations when an individual loan may be too large to be made by a single institution or an

institution wants to reduce their credit exposure from a single loan. These loans are typically originated and led by other

larger banks and Mechanics Bank is a participant in the transaction. The loans are sourced through relationships with

originating lenders as well as through purchases of loans in the secondary market. These loans are generally made to

businesses that have demonstrated a history of profitable operations. To qualify for such loans, prospective borrowers

generally must have operating cash flow sufficient to meet their obligations as they become due, good payment histories,

proper balance sheet management of key cash flow drivers, and experienced management. Syndicated/Participated term

loans are either fixed rate or adjustable rate loans with interest rates tied to a variety of independent indices and are

generally made for terms ranging from one to seven years based in part on the useful life of the asset financed. Lines of

credit are adjustable rate loans with interest rates tied to a variety of independent indices and are generally made with terms

from one to five years, and contain various covenants, including possible requirements that the borrower maintain liquidity

requirements with advances tied to periodic reviews. These loans are underwritten independently by us based on a variety

of criteria, including an evaluation of the creditworthiness of the borrower, the borrower’s ability to repay, debt service

coverage ratios, historical and projected client income, borrower liquidity and credit history, and their trends in income and

balance sheet management. In addition, we perform stress testing for changes in interest rates and other factors and review

general economic trends in the client’s industry. Full recourse from the owners of these entities is usually not required for

these loans.

Small Business Lending and SBA Lending: We provide small business lending term loans and lines of credit through our

retail branch network. These products typically have a maximum loan amount of $250,000 and are generally supported by

the cash flows generated from the business operations of the entity to which the loan is made. These loans are generally

secured by perfected UCC filings on the assets of the borrowing entity and typically require full recourse from the owners

of the borrowing entity. Mechanics Bank has applied for approval as a SBA preferred lender. We are committed to our

small business commercial lending to serve our communities and small businesses that operate in proximity to our network

of retail branch locations. As these are government guaranteed programs, we are required to comply with the relevant

agency’s underwriting guidelines, servicing and monitoring requirements, and terms and conditions set forth under the

related programs standard operating procedures. SBA loans generally follow our underwriting guidelines established for

non-SBA commercial and industrial loans and meet the criteria set forth by the SBA.

Mortgage and Consumer Lending

Loans originated by Mortgage and Consumer Lending are generally supported by cash flows of the borrower and are

secured by one to four unit residential properties. Mortgage and Consumer Lending loans are originated for sale or to be

held for investment. We also make construction loans to qualified borrowers, which upon completion of the construction

phase convert to long-term Mortgage and Consumer Lending loans that are eligible for sale in the secondary market. Home

equity loans are originated to be held for investment. In addition to leads generated by our loan officers, we utilize referrals

from various sources in the Bank, including consumer and business banking, commercial lending, private banking, and

wealth management to generate leads. We do not originate loans defined as high cost by state or federal banking regulators.

Mortgage and Consumer Lending Loans Originated for Sale: These loans are generally underwritten and documented in

accordance with the guidelines established by the FHLMC and FNMA. These loans are delivered/sold into securities issued

by either FNMA or FHLMC. Government insured loans are underwritten and documented in accordance with the

guidelines established by HUD and the VA. These loans are delivered/sold into securities issued by GNMA. We also

participate in correspondent and broker relationships under which we originate and sell loans to other financial institutions

in compliance with their underwriting guidelines. As part of these guidelines, we underwrite these loans based on a variety

of criteria, including an evaluation of the creditworthiness of the borrower, the borrower’s ability to repay, loan-to-value

and debt-to-income ratios, borrower liquidity, income verification and credit history. Our loan-to-value limits are generally

up to 80% of the lesser of the appraised value or purchase price of the property. We offer both fixed and adjustable rate

loans. The majority of our fixed rate loans have terms of 15 or 30 years. Our adjustable rate loans are typically amortized

over a 30-year period with fixed rate periods ranging between three to ten years and adjust thereafter based on the

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applicable index and terms. Adjustable rate loans generally have interest rate floors and caps. Mortgage and Consumer

Lending loans are generally sold servicing retained.

Mortgage and Consumer Lending Loans Held for Investment: These loans take the form of Conforming and Non-

conforming loans collateralized by real properties located in our market areas. These loans have fixed or adjustable rates

with initial fixed rate periods ranging from three to ten years and a term not exceeding 30 years. These loans generally have

interest rate floors and caps. The loans are underwritten based on a variety of criteria, including an evaluation of the

creditworthiness of the borrower, the borrower’s ability to repay, loan-to-value and debt-to-income ratios, borrower

liquidity, income verification and credit history.

Home Equity Lines of Credit: HELOCs are secured by first or second liens on residential properties and are structured as

revolving lines of credit whereby the borrower can draw upon and repay the loan at any time. These loans have adjustable

rates with interest rates tied to a variety of independent indices, with interest rate floors and caps and with terms of up to

ten years. We underwrite these loans based on a variety of criteria, including an evaluation of the creditworthiness of the

borrower, the borrower’s ability to repay, loan-to-value and debt-to-income ratios, borrower liquidity, income verification

and credit history.

Cash Surrender Value of Life Insurance (“CSVLI”) Lending: Credit facilities secured by CSVLI are structured as lines of

credit. The lines are originated and serviced through a third-party program partnership. Line limits are primarily based on

the underlying cash collateral. The lines are renewable annually and priced at promotional fixed rates or variable rates

based on the WSJ Prime Rate.

CRE Lending

Loans originated by CRE Lending are supported by the underlying cash flow from operations of the related real estate

collateral for loans except for construction related loans. The loans originated by CRE Lending consist of multifamily, non-

owner occupied CRE and CRE construction loans, including bridge loans. The business is primarily sourced through our

loan officers’ relationships and through brokers with little direct marketing support.

CRE Residential Mortgage Loans-Multifamily: We make multifamily residential mortgage loans for terms up to 15 years,

but offer 30 year amortization for five or greater unit properties. These loans generally have fixed interest rates for periods

ranging from three to ten years and adjust thereafter based on an applicable indices and terms. We may also offer

adjustable rates with interest rates tied to a variety of independent indices. These loans generally have interest rate floors,

payment caps, and prepayment fees. The loans are underwritten based on a variety of criteria, including an evaluation of

the subject real estate collateral cash flow, the creditworthiness of the borrower and guarantors, the borrower’s ability to

repay, loan-to-value and debt service coverage ratios, borrower liquidity and credit history. In addition, we perform stress

testing for changes in interest rates, capitalization rates and other factors and review general economic trends such as rental

rates, market values and vacancy rates. We typically require full or limited recourse from the owners of the entities to

which we make such loans. Our multifamily real estate loans originated under our Fannie Mae DUS© lender service

authorization are sold to or securitized by Fannie Mae after origination, with the Company generally retaining the servicing

rights. We may sell multifamily loans to other financial institutions, usually servicing released. See discussion in Item 7.

“Management’s Discussion and Analysis of Financial Conditions and Results of Operations—Other Recent Developments

—Asset Sale” for details on the pending sale of the DUS business line.

CRE Loans-Non-owner Occupied: Our commercial real estate loans are secured by first liens on nonresidential real

property with terms typically up to ten years. We typically focus on multi-tenant industrial, office and retail real estate

collateral with strong, stable tenancy, and strong, stable historical cash flow located in submarket locations with strong,

stable demand. These loans generally have fixed interest rates for periods ranging from three to ten years and adjust

thereafter based on an applicable indices and terms. We may also offer adjustable rates with interest rates tied to a variety

of independent indices. These loans generally have interest rate floors, payment caps, and prepayment fees. The loans are

underwritten based on a variety of criteria, including an evaluation of the subject real estate collateral cash flow, the

creditworthiness of the borrower and guarantors, the borrower’s ability to repay, loan-to-value and debt service coverage

ratios, borrower liquidity and credit history. In addition, we perform stress testing for changes in interest rates,

capitalization rates and other factors and review general economic trends such as lease rates, values and absorption rates.

We typically require full recourse from the owners of the entities to which we make such loans.

CRE Construction Loans: CRE construction loans are provided to borrowers with extensive construction experience and

are primarily focused on multifamily, commercial building and warehouse developments. These loans are custom tailored

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to fit the individual needs of each specific request. We typically consider CRE construction loan requests in the submarket

locations where we have experience and offer permanent real estate loans. We may also offer bridge loans which are

designed to fund a project for a short period of time until permanent financing can be arranged. Construction loans and

bridge loans usually only require interest payments which are usually supported by an interest reserve established at the

time the loan is originated. Construction loans typically are disbursed as construction progresses and are subject to

inspection by third party experts. Construction loans, including bridge loans, carry a higher degree of risk because

repayment of these loans is dependent, in part, on the successful completion of the project or, to a lesser extent, the ability

of the borrower to refinance the loan or sell the property upon completion of the project, rather than the ability of the

borrower or guarantor to repay principal and interest. Because of these factors, these loans require equity either as up-front

cash equity in the project or equity in the value of the underlying property. These loans are typically secured by the

underlying development and, even if we foreclose on the loan, we may be required to fund additional amounts to complete

the project and may have to hold the property for an unspecified period of time while we attempt to dispose of it. CRE

construction and bridge loans are secured by first liens on real property. These loans typically have adjustable rates with

interest rates tied to a variety of independent indices. These loans generally have interest rate floors and payment caps. The

loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of the borrower and

guarantors, the borrower’s ability to repay, loan to value and debt service coverage ratios, borrower liquidity and credit

history. In addition, we perform stress testing for changes in interest rates and other factors and review general economic

trends such as lease rates, values and absorption rates. We typically require full recourse from the owners of the entities to

which we make such loans.

Residential Construction Lending

Loans originated by Residential Construction Lending include single family residential construction loans, lot acquisition

loans and land development loans. Our residential construction loans are generally to experienced local developers with

extensive track records in building single family homes. Our lot acquisition loans and land development loans are typically

on entitled land, versus raw land, and are used to support our vertically integrated and experienced local developers who

maintain inventory for building single family projects. Construction loans are disbursed as construction progresses. These

loans require repayment as residences or lots are sold. The business is primarily sourced through our relationship managers

with minimal direct marketing support.

We typically consider residential construction loan requests in the submarket locations where we have experience and a

relationship manager is located. Construction loans, lot acquisition loans and land development loans usually only require

interest payments which may be supported by an interest reserve established at the time the loan is originated. Construction

loans typically are disbursed as construction progresses. Construction loans carry a higher degree of risk because

repayment of these loans is dependent, in part, on the success of the ultimate project or, to a lesser extent, the ability of the

borrower to sell the home or lots upon completion of the project. Because of these factors, these loans require equity either

as up-front cash equity in the project or equity in the value of the underlying property. These loans are secured by the

underlying real estate and improvements. In the event of a foreclosure on the loan, we may be required to fund additional

amounts to complete the project and may have to hold the property for an unspecified period of time while we attempt to

dispose of it. Residential Construction Lending loans are secured by first liens on real property. These loans generally have

adjustable rates with interest rates tied to our prime lending rate. These loans generally have interest rate floors and

payment caps. The loans are underwritten based on a variety of criteria, including an evaluation of the creditworthiness of

the borrower and guarantors, the borrower’s ability to repay, loan to value and loan to cost ratios, borrower leverage and

liquidity, credit history and guarantor support. In addition, we perform stress testing for changes in interest rates and other

factors and review general economic trends such as values and absorption rates. We typically require full recourse from the

owners of the entities to which we make such loans.

Private Banking

Loans originated by Private Banking include the partner loan program, personal lines of credit and investment management

& trust lines of credit. Private Banking also originates mortgages and HELOCs, using the same product types, features, and

pricing as Mortgage and Consumer Lending. Additionally, Private Banking also refers and originates certain Commercial

Banking loans in partnership with the applicable business units.

Partner Loan Program (“PLP”): We make installment loans to assist newly promoted partners with their buy-in into a

professional firm, such as a legal or accounting firm. The loan is made to an individual, with a guarantee from the firm.

Loan amounts are offered up to $350,000 with terms of three, five, or seven years. The rate is based on prime, plus an

additional rate component depending on the client’s deposit relationship with the Company.

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Personal Line of Credit (“PLOC”): We extend lines of credit to assist Private Banking clients with personal liquidity needs

and management. Loan amounts are offered up to $300,000, with terms of three, five, or seven years. There is an initial

draw period of 18 months, with the balance termed out over the remainder of the loan. The rate is based on prime, plus an

additional rate component depending on the client’s deposit relationship with the Company.

Investment Management & Trust Line of Credit (“IMT LOC”): We extend lines of credit to individuals secured by an

investment account held and managed by our wealth management department. Advances are limited to 65% of the account

value. The rate is based on prime and renewed every two years.

Other

Through our retail branch network, we offer unsecured consumer installment loans and personal reserve accounts serving

as overdraft lines of credit to our customers allowing them to meet short term cash flow needs. Installment loans are

generally fixed rate loans made for terms ranging from one to three years. Personal reserve accounts are open ended lines

of credit tied to a consumer checking account. The loans are underwritten based on a variety of criteria, including an

evaluation of the creditworthiness and credit history of the borrower and guarantors, the borrower’s ability to repay, debt-

to-income ratios, borrower liquidity and income verification.

Deposit Products and Services

FDIC-insured deposits represent our principal source of funds for making loans and acquiring other interest-earning assets.

These deposits are serviced through our retail branch network, which includes 166 branches as of December 31, 2025.

These retail branches serve as one of our primary contact points with our customers. These branches are typically staffed

with three to six employees, including a branch manager who is responsible for servicing our existing customers and

generating new business. As part of our asset-liability management strategy, we closely monitor customer deposit

maturities and interest rate trends to effectively manage our cost of funds. Our pricing approach is designed to align with

our broader product and service offerings, enabling us to grow and retain client relationships without relying primarily on

offering the highest rate in the market.

We offer a wide range of deposit products including personal, business and analyzed checking, savings accounts,

individual retirement accounts, money market accounts, time certificates of deposit, and safe deposit boxes.

Our suite of specialty deposit services is tailored to deposit-rich industry segments, including real estate, escrow services,

title, labor unions, nonprofits and property management. Additionally, we serve government entities and international

clients with customized banking solutions designed to meet their unique operational needs. These niche offerings support

our strategy to attract and retain stable, relationship-based deposits across diversified markets.

Treasury Management: Treasury Management products and services provide our customers tools to bank with us

conveniently without having the need to visit one of our offices and are necessary to attract complex commercial and

specialty deposit clients. These products and services include automated bill payments, remote and mobile deposit capture,

automated clearing house origination, wire transfer, lockbox, payee positive pay, and direct deposit. We participate in the

IntraFi Network, utilizing deposit placement services such as Insured Cash Sweep (“ICS”) and Certificate of Deposit

Account Registry Service (“CDARS”). These solutions are intended to optimize liquidity management while ensuring that

large deposits remain fully eligible for FDIC insurance, enhancing flexibility for our clients.

Digital Banking: We provide online access to a comprehensive range of banking services for both consumer and business

clients. This includes account management information reporting functions, transaction review and processing through our

full suite of treasury management solutions. Additionally, our mobile banking platform extends these capabilities, offering

convenient and secure 24/7 access.

Mergers and Acquisitions History

On April 30, 2015, an affiliate of the Ford Financial Funds acquired a majority of the voting shares of legacy Mechanics

Bank from certain shareholders. Since that date, legacy Mechanics Bank, and now Mechanics Bancorp, has been a

controlled company of the Ford Financial Funds.

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On October 1, 2016, legacy Mechanics Bank completed its acquisition of California Republic Bancorp in a transaction

pursuant to which California Republic Bancorp and its subsidiary, California Republic Bank, were merged with and into

legacy Mechanics Bank.

On June 1, 2018, legacy Mechanics Bank completed its acquisition of Scott Valley Bank in a transaction pursuant to which

Scott Valley Bank was merged with and into legacy Mechanics Bank.

On August 31, 2019, legacy Mechanics Bank completed its acquisition of Rabobank, N.A., a subsidiary of Rabobank

International Holding B.V., in a transaction pursuant to which Rabobank, N.A. was merged with and into legacy

Mechanics Bank.

On September 2, 2025, the Company consummated the strategic reverse merger pursuant to the terms of the Merger

Agreement, by and among the Company, HomeStreet Bank and legacy Mechanics Bank, whereby (i) legacy HomeStreet

Bank merged with and into legacy Mechanics Bank, with legacy Mechanics Bank surviving the Merger and becoming a

wholly-owned subsidiary of the Company and (ii), pursuant to the amended and restated articles of incorporation effective

immediately before the Merger on September 2, 2025, the Company changed its name to “Mechanics Bancorp”. As a result

of the Merger, the Company’s business became primarily the business conducted by legacy Mechanics Bank, and the

combined company is run by the leadership team of legacy Mechanics Bank.