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BUSINESS COMBINATION | 9 Months Ended
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Sep. 30, 2025
Business Combination, Asset Acquisition, Transaction between Entities under Common Control, and Joint Venture Formation [Abstract] |
BUSINESS COMBINATION | BUSINESS COMBINATION As discussed in Note 1, “Summary of Significant Accounting Policies,” on September 2, 2025, the Merger by and among Mechanics Bancorp (formerly known as HomeStreet, Inc.), HomeStreet Bank and Mechanics Bank was consummated. In connection with the Merger, HomeStreet Bank merged with and into Mechanics Bank, with Mechanics Bank surviving the Merger and becoming a wholly-owned subsidiary of Mechanics Bancorp. The Merger is considered a reverse acquisition in which Mechanics Bank is the accounting acquirer (legal acquiree), HomeStreet Bank is the accounting acquiree and Mechanics Bancorp is the legal acquirer. 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. In connection with the Merger, each share of common stock, par value $50 per share, of Mechanics Bank voting common stock issued and outstanding was converted into 3,301.0920 shares of the Company’s Class A common stock, no par value, and existing shares of the Company common stock held by legacy Company shareholders were redesignated as the Company’s Class A common stock. In addition, each share of common stock, par value $50 per share, of Mechanics Bank non-voting common stock was converted into 330.1092 shares of the Company’s Class B common stock, no par value. Class A common stock, which was previously known as Company common stock and was previously listed on Nasdaq and traded under the symbol “HMST” through the close of business on August 29, 2025, commenced trading on Nasdaq under the ticker symbol “MCHB” on September 2, 2025. Immediatel y following the Merger, (1) legacy Mechanics Bank shareholders owned approximately 91.7% of the Company on an economic basis and 91.3% of the voting power of the Company and (2) legacy Company shareholders owned approximately 8.3% of the Company on an economic basis and 8.7% of the voting power of the Company. The Merger was accounted for as a reverse acquisition, the purchase price was determined based on the number of equity interests the legal acquiree would have had to issue to give the owners of the legal acquirer the same percentage equity interest in the combined entity that results from the reverse acquisition. Therefore, the first step in calculating the purchase price is to determine the ownership of the combined company following the Merger. The table below shows the calculation to determine the ownership of the Company following the Merger using shares of Company common stock and Mechanics Bank common stock outstanding as of September 2, 2025 and the fixed exchange ratio of 3,301.0920 applied to shares of outstanding Mechanics Bank voting common stock and 330.1092 to shares of outstanding Mechanics Bank non-voting common stock.
|  | Company |  | Mechanics Bank
Shares of voting common stock outstanding and converted to shares as of September 2, 2025 |  | 18,920,808 |  | 60,859
Shares of PSUs outstanding that vested and converted to shares as of September 2, 2025 |  | 243,096 |  | —
Shares of voting common stock outstanding and converted to shares as of September 2, 2025, after PSU vesting |  | 19,163,904 |  | 60,859
Fixed exchange ratio |  |  |  | 3,301.0920
Shares of non-voting common stock outstanding as of September 2, 2025 |  |  |  | 3,376
Fixed exchange ratio |  |  |  | 330.1092
Company shares issued to Mechanics Bank shareholders |  |  |  | 202,015,832
Company Ownership as of September 2, 2025 |  | Number of Shares |  | Percentage Ownership
Mechanics Bank shareholders |  | 202,015,832 |  | 91.34%
Company shareholders |  | 19,163,904 |  | 8.66%
|  | 221,179,736 |  | 100%
Ratio of Company to Mechanics Bank |  |  |  | 9%
Reverse Acquisition Purchase Price Determination |  |  |  |
Number of Mechanics Bank shares issued to Company shareholders |  |  |  | 19,163,904
Company price per share as of August 29, 2025 |  |  |  | $13.87
Purchase price for accounting purposes |  |  |  | $265,803,348
The following table provides the preliminary purchase price allocation and the assets acquired and liabilities assumed at their estimated fair values as of the Merger date, resulting in a preliminary bargain purchase gain of $90.4 million. The preliminary bargain purchase gain resulted from a combination of factors. First, HomeStreet was a company in financial distress, losing $27.5 million after-tax in 2023, $144.3 million after-tax in 2024 and $8.9 million across the first two quarters of 2025. As such, public market investors priced its shares at a significant discount to HomeStreet’s reported tangible book value. Second, HomeStreet was subject to a failed merger attempt with FirstSun Capital Bancorp in 2024. This failed merger occurred due to an inability to obtain regulatory approval, which may have contributed to the sense of financial distress around the company. Any failed merger causes difficulty retaining key employees, which may have contributed to HomeStreet’s desire to find a new merger partner quickly. Third, HomeStreet recorded a valuation allowance in 2024 against its deferred tax asset due to uncertainty surrounding its prospects of achieving future profitability. However, Mechanics Bancorp is a profitable company and expects to be able to utilize the deferred tax assets acquired from HomeStreet over time. $81.4 million of the net assets acquired from HomeStreet came from deferred tax assets, which significantly contributed to the $90.4 million preliminary bargain purchase gain. The estimates of fair value were recorded based on initial valuations at the Merger date and these estimates, including initial accounting for deferred taxes, are considered preliminary as of September 30, 2025 and subject to adjustment for up to one year after the Merger date. In many cases, the determination of fair value required management to make estimates about discount rates, expected future cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Additional information may be obtained during the measurement period that could result in changes to the estimated fair value amounts, and that could result in adjustments to the valuation amounts presented herein. These estimates are considered preliminary as of September 30, 2025, are subject to change for up to one year after the Merger date, and any changes could be material. The measurement period ends on the earlier of one year after the Merger date or the date the Company concludes that all necessary information about the facts and circumstances that existed as of the Merger date have been obtained.
(in thousands) | September 2, 2025
Net assets identified |  |
Purchase price consideration |  | $265,803
Fair value of assets acquired: |  |
Cash and cash equivalents | $156,890 |
Total investment securities | 1,028,627 |
Loans held for sale | 39,489 |
Loans held for investment | 5,625,463 |
Allowance for credit losses | (63,494) |
Mortgage servicing rights | 89,704 |
Premises and equipment, net | 31,979 |
Other intangible assets, net | 114,207 |
Deferred tax assets | 81,420 |
Other assets | 283,208 |
Total assets acquired | $7,387,493 |
Fair value of liabilities assumed: |  |
Deposits | $5,743,725 |
FHLB advances | 1,005,370 |
Long-term debt | 193,466 |
Accrued interest payable and other liabilities | 88,766 |
Total liabilities assumed | $7,031,327 |
Net assets acquired |  | 356,166
Bargain purchase gain |  | $90,363
The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above. Cash and cash equivalents: The carrying amount of these assets is a reasonable estimate of fair value based on the short- term nature of these assets. Investment securities: Fair values for investment securities are based on quoted market prices, where available. If quoted market prices are not available, fair value estimates are based on observable inputs including quoted market prices for similar instruments, quoted market prices that are not in an active market or other inputs that are observable in the market. In the absence of observable inputs, fair value is estimated based on pricing models and/or discounted cash flow methodologies. Loans held for sale: The loans held for sale portfolio was recorded at fair value based on quotes or bids from third party investors and/or recent sale prices. Loans held for investment: A valuation of the loans held for investment portfolio was performed by a third party as of the Merger date to assess the fair value. The loans held for investment portfolio were segmented into three groups, including performing PCD loans, non-performing PCD loans and non-PCD loans. Non-performing PCD loans were evaluated based on individual risk characteristics such as nonaccrual status. A subset of the performing PCD loans that did not meet specific credit quality indicators were collectively assessed for PCD designation based on their vintage and financial asset type. Certain commercial real estate loans with an unpaid principal balance of $2.4 billion, which were originated during the COVID pandemic period between March 2020 and May 2023, have experienced more than insignificant credit deterioration since origination as a collective. This population of loans is characterized by a historically low-interest rate environment at origination and rates have since risen significantly as of the acquisition date, which has impacted this loan population’s creditworthiness as a result of declining collateral values and debt-service coverage ratios. The ACL related to these COVID pandemic period loans at the Merger date was $29.5 million. The loans were further pooled based on loan type and risk rating bands. Most of the loans were valued at the loan level using a discounted cash flow methodology. The methodology included projecting cash flows based on the contractual terms of the loans and the cash flows were adjusted to reflect credit loss expectations along with prepayments. Discount rates were developed based on the relative risk of the cash flows, taking into consideration the loan type, market rates as of the valuation date, recent originations in the portfolio, credit loss expectations, and liquidity expectations. Lastly, cash flows adjusted for credit loss expectations were discounted to present value and summed to arrive at the fair value of the loans. Other loans were valued based on recent quotes, bids or recent sale prices of similar loans and for one loan portfolio it was concluded the fair value equaled the portfolio's par value due to the short-term nature of the loan product, combined with the low expected credit losses and the variable interest rates being at market. Of the loans held for investment acquired, $3.0 billion were identified as PCD loans on the Merger date. The following table provides a summary of these PCD loans at acquisition:
(in thousands) | September 2, 2025
Principal of PCD loans acquired | $2,956,577
PCD ACL at acquisition | (63,494)
Non-credit discount on PCD loans | (108,617)
Fair value of PCD loans | $2,784,466
Mortgage servicing rights: The fair values of single family mortgage and SBA servicing rights are based on a marke t approach, developed by a third party. The fair values of non-DUS multifamily and DUS servicing rights are based on a market approach, developed by internal models. Premises and equipment: The fair values of premises are based on a market approach, by obtaining third-party appraisals and broker opinions of value for land, office and branch space. Other intangible assets: Core deposit intangibles assets of $90.8 million were recognized as a result of the Merger. Core deposit intangible assets values were determined by an analysis of the cost differential between the core deposits inclusive of estimated servicing costs and alternative funding sources for core deposits acquired through business combinations. The core deposit intangible assets recorded are amortized on an accelerated basis over a period of 8 years. No impairment losses separate from the scheduled amortization have been recognized in the periods presented. Other intangibles acquired of $23.5 million related to a DUS license was recognized related to the Merger. The value of the DUS licenses was determined by the average value implied under the Base and Growth scenarios using market data available from comparable public companies. C urrent and deferred tax assets, n et: The acquired net tax assets represent the estimated amount of tax benefits to be recognized on tax returns. Deposits: The fair values used for the demand and savings deposits equal the amount payable on demand at the Merger date. The fair values for time deposits are estimated using a discounted cash flow calculation that applies interest rates currently being offered to the contractual interest rates on such time deposits. Borrowings: The fair values of FHLB advances and long-term debt instruments are estimated based on quoted market prices for the instrument if available, or for similar instruments if not available, or by using discounted cash flow analyses, based on current incremental borrowing rates for similar types of instruments. The Company’s operating results for quarter and nine months ended September 30, 2025 include the operating results of the acquired assets and assumed liabilities of historical HomeStreet, Inc. subsequent to the Merger date. The following table shows the amount of the expenses related to the Merger for the quarter and nine months ended September 30, 2025:
(in thousands) | Quarter Ended September 30, 2025 |  | Nine Months Ended September 30, 2025
Severance and employee related | $27,795 |  | $27,795
Legal and professional | 11,947 |  | 17,683
System conversion, integration and other | 24,127 |  | 24,380
| $63,869 |  | $69,858
From the Merger date through September 30, 2025, HomeStreet contributed approximately $20 million of revenue (consisting of net interest income and noninterest income) to the Company’s consolidated results. Pro-forma Financial Information The following unaudited pro forma consolidated financial information reflects the results of operations of the Company for the three and nine months ended September 30, 2025 and 2024, respectively, as if the Merger had been completed on January 1, 2024, after giving effect to certain purchase accounting adjustments, primarily related to the preliminary bargain purchase gain, amortization of intangible assets and non-recurring transaction costs. These pro forma results have been prepared for comparative purposes only and are based on estimates and assumptions that have been made solely for purposes of developing such pro forma information and are not necessarily indicative of what the Company’s operating results would have been, had the acquisitions actually taken place at the beginning of the previous annual period.
| Quarter Ended September 30, |  | Nine Months Ended September 30,
(in thousands) | 2025 |  | 2024 |  | 2025 |  | 2024
Net interest income | $171,854 |  | $290,698 |  | $502,713 |  | $878,684
Noninterest income (loss) | 117,263 |  | 26,994 |  | 178,812 |  | (37,220)
Net income before income taxes (1) | 38,205 |  | 170,919 |  | 144,157 |  | 337,865
(1) The pro forma net income before income taxes includes $69.9 million of acquisition and integration costs from the Merger for the nine months ended September 30, 2024.

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