Mechanics Bancorp (MCHB)·Q3 2025 Earnings Summary

Executive Summary

• Mechanics Bancorp delivered Q3 2025 net income of $55.2mm ($0.25 diluted EPS) as a rare $90.4mm bargain purchase gain from the Sept 2 HomeStreet merger outweighed $63.9mm of one‑time integration costs and a $47.0mm provision build .
• Balance sheet stepped up materially: total assets $22.7bn, loans $14.6bn, and deposits $19.5bn, with noninterest-bearing deposits at 35% and no remaining wholesale funding after payoff of HomeStreet FHLB advances and brokered deposits .
• Core profitability metrics were mixed: net interest income rose 12% QoQ to $145.7mm, but NIM compressed 8 bps to 3.36% on acquired funding costs; management noted NIM improved 20 bps in September and expects modest expansion as deposit costs decline and assets reprice .
• Capital and liquidity remain strong with CET1 13.42% (Bancorp), TCE ratio 8.23%, loans/deposits 74.9%, and ~$14.8bn available funding capacity; insured deposits were 66% of total at quarter‑end .
• Street estimates: S&P Global consensus for Q3 2025 EPS and revenue was not available, likely reflecting limited coverage post reverse acquisition; we cannot quantify beats/misses this quarter (attempted via S&P Global, no data returned).

What Went Well and What Went Wrong

What Went Well

• Closed the HomeStreet merger on Sept 2, recognized a $90.4mm bargain purchase gain, and eliminated wholesale funding (paid down FHLB advances and brokered CDs), positioning MCHB as a core-funded, premier West Coast community bank .
• Strong deposit growth and mix: total deposits +$5.5bn QoQ to $19.5bn with 35% noninterest-bearing; deposit costs were 1.45% for Q3 and 1.53% in September, supporting a favorable funding base .
• Management confidence on synergy and earnings trajectory: cost savings ~$82mm fully phased by end of Q2’26; 2026E net income $302mm and ROATCE 18% unchanged; CEO: “create the premier West Coast community bank… excited to add the attractive markets of Washington, Oregon and Hawaii” .

What Went Wrong

• Margin and efficiency pressure from acquisition accounting and costs: NIM fell 8 bps QoQ to 3.36% and the non‑GAAP efficiency ratio rose to 62.3% as $63.9mm of one‑time merger expenses hit Q3 .
• Credit costs and asset quality: provision for credit losses surged to $47.0mm (including ~$20.2mm day‑2 provision on non‑PCD acquired loans), boosting ACL/loans to 1.16%; NPAs increased to $64.9mm (0.29% of assets) on acquired balances .
• CRE concentration jumped to 360% with the addition of HomeStreet loans; loan yields dipped 3 bps QoQ partly from lower PCI accretion and auto runoff, weighing on core spread until repricing and deposit cost normalization progress .

Financial Results

Income and EPS (oldest → newest)

Margins and Efficiency (oldest → newest)

Balance and Funding (oldest → newest)

Segment Breakdown – Loans HFI ($mm, period‑end; oldest → newest)

KPIs and Asset Quality (oldest → newest)

Guidance Changes

Earnings Call Themes & Trends

(Transcript not available; themes reflect press release and investor slides. The company held a call/webcast Oct 31, 2025 at 11:00 a.m. ET) .

Management Commentary

• Strategic positioning (CEO): “We are pleased to close our acquisition of HomeStreet and create the premier West Coast community bank… excited to add the attractive markets of Washington, Oregon and Hawaii to our unique California franchise.”
• Margin mechanics (CFO): “The legacy HomeStreet assets and liabilities have been fully marked to current market rates as of the merger date, which will provide accretion in interest income in addition to the contractual rates on the loans acquired.”
• One‑time gain context (CFO): “Bargain purchase gains are rare and only occur in unique circumstances. The bargain purchase gain reflects the fair value of the net assets acquired less the consideration paid.”
• Funding posture (CFO): “Mechanics Bank’s deposit base permits the Bank to be core funded without wholesale funding… borrowing capacity with the FHLB will increase in the fourth quarter when the legacy HomeStreet loans are pledged.”
• Integration costs timing (CEO): “Mechanics has already incurred a significant amount of our estimated restructuring charges related to the merger and these one-time expenses will decrease materially moving forward.”

Q&A Highlights

• A live call/webcast was held Oct 31, 2025; a transcript was not available in our document set. The press release provides dial‑in, webcast and replay details . No Q&A themes can be summarized without an official transcript.

Estimates Context

• We attempted to retrieve S&P Global (Capital IQ) consensus for Q3 2025 EPS and revenue; no estimates were available for MCHB for the period. As a result, we cannot provide a beat/miss analysis vs. Wall Street this quarter (S&P Global query returned no data).
• Given the lack of consensus, we anchor our assessment on reported results and management’s guidance. Future quarters should see estimates build as coverage normalizes post reverse acquisition.

Key Takeaways for Investors

• Merger economics are tracking: ~$82mm cost saves intact, 2026E net income $302mm and ROATCE 18% maintained; integration milestones (core conversion March 2026) support synergy capture .
• Funding base is a competitive advantage: 35% NIB deposits, no wholesale funding, cost of deposits 1.45% for Q3 (1.53% in Sept) underpin management’s view of modest NIM expansion ahead as deposits reprice lower .
• One‑time noise vs. steady‑state: Q3 included $63.9mm acquisition costs and a $47.0mm provision (day‑2 and factor updates), partially offset by a $90.4mm bargain gain; underlying run‑rate should normalize as integration costs roll off .
• Credit watch items: NPAs/Assets rose to 0.29% and ACL/Loans to 1.16% on acquired balances; CRE concentration at 360% needs active management—management plans to reduce over the next three years .
• Capital/liquidity cushion is solid: CET1 13.42%, L/D 74.9%, and ~$14.8bn available funding capacity; plan to return ~80% of earnings as regular dividends beginning Q1’26 introduces a clear capital return framework .
• Near‑term stock catalysts: evidence of NIM expansion in Q4/Q1 as deposit costs roll down; visible synergy capture in expense run‑rate; progress on CRE concentration reduction; and clarity on auto book runoff/sale timing .

Appendix: Additional Quantitative Details

Deposit Composition ($mm, period‑end; oldest → newest)

Capital & Liquidity Snapshot (current)

• CET1 (Bancorp) 13.42%; Tier 1 leverage 10.33%; Total risk‑based 15.59% (preliminary) .
• Available funding capacity ~$14.8bn at 9/30/25 (FRB/FHLB/other lines and unencumbered securities) .

Notes: All figures are as reported. EPS, margins, and KPIs are per the company’s press release and furnished investor materials. Where Wall Street consensus estimates are requested, S&P Global data was not available for Q3 2025.