Mechanics Bancorp (MCHB)·Q4 2025 Earnings Summary

Mechanics Bancorp Delivers $124M Net Income as HomeStreet Integration Drives Record Quarter

January 30, 2026 · by Fintool AI Agent

Mechanics Bancorp (NASDAQ: MCHB) reported Q4 2025 net income of $124.3 million, or $0.54 per diluted share, more than doubling the $55.2 million ($0.25 EPS) reported in Q3 2025. The dramatic improvement reflects the first full quarter of combined operations following the September 2025 merger with HomeStreet Bank, along with a $55.1 million bargain purchase gain from the transaction.

For full year 2025, the combined company reported net income of $265.7 million, or $1.22 per diluted share, compared to $29.0 million ($0.14 EPS) in 2024.

Did Mechanics Bancorp Beat Earnings?

EPS came in slightly below consensus, but operating metrics exceeded expectations. Diluted EPS of $0.54 missed the $0.56 consensus estimate by 3.6%. However, several factors complicate the comparison:

Core earnings tell a different story. Excluding the $55.1M bargain purchase gain, $20.2M one-time provision reversal from ASU 2025-08 adoption, and $3.5M merger costs, core net income was ~$60 million with a core ROAA of 1.06% and core ROATCE of 14.3%.

What Did Management Say About Integration Progress?

CEO C.J. Johnson expressed confidence in the merger trajectory:

"We had a great fourth quarter, reporting $124.3 million in net income for a 2.2% ROAA and a 28.5% ROTCE."

"Our integration of HomeStreet is proceeding smoothly, and the core systems conversion will occur in March, which is a major milestone that will allow us to complete the restructuring of the combined companies and deliver on our cost savings estimate of $82 million by the fourth quarter."

CFO Nathan Duda highlighted the better-than-expected deal economics:

"With the updated valuation on the DUS intangible, our bargain purchase gain recognized on the HomeStreet acquisition has increased to a total of $145.5 million, which significantly exceeds our original expectations."

Executive Chairman Carl Webb emphasized the rare combination of strategic and economic success:

"In my 40+ years of banking, seldom do we have the opportunity to combine a great strategic acquisition with an equally outstanding economic outcome. Typically, one outcome is skewed versus the other... We were pleased with a closing purchase price of $265 million, and we have now recorded a bargain purchase gain in both the third and fourth quarters, totaling $146 million. So you can do the math on consideration."

What Changed From Last Quarter?

Balance Sheet Transformation Complete

The HomeStreet merger closed September 2, 2025, making Q4 the first full quarter of combined operations. Key changes:

Wholesale Funding Eliminated

All HomeStreet FHLB borrowings and brokered deposits have been paid off—the company now operates with 100% core funding and no wholesale borrowings or broker deposits.

High-Cost CD Runoff

Legacy HomeStreet CDs are running off as planned—$603M ran off during Q4. Management expects total CD runoff to reach $1B, and perhaps more, by end of Q1 2026. Cost of deposits improved to 1.43% with spot rate of 1.30% at year-end.

Importantly, core deposit attrition has been minimal despite the integration: "Our team has done a great job staying in front of legacy HomeStreet clients." The deposit base has an average relationship tenure of roughly 18 years.

Provision Reversal from Accounting Change

The company early adopted ASU 2025-08 ("Purchased Loans"), resulting in a $20.2 million one-time negative loan loss provision (reversal). This eliminated the credit discount double-count rule. The ACL was unaffected and remains at 1.08% of total loans.

What Did Management Guide?

Management provided detailed targets for the combined franchise:

Key assumptions: Two more Fed rate cuts in 2026, continued deposit cost improvement, and completion of HomeStreet integration.

DUS Sale Proceeds: The pending sale of the Fannie Mae DUS business to Fifth Third Bank for $130M is expected to close in Q1 2026. Management plans to return substantially all excess capital from this sale as part of a Q2 2026 dividend.

Credit Quality and Capital Position

Asset Quality Remains Solid

A $7M net charge-off on a legacy HomeStreet syndicated C&I credit was fully expected from merger due diligence and was fully reserved. Management sold ~$39M UPB ($70M in commitments) of legacy HomeStreet syndicated and C&I loans at close to par during Q4.

Strong Capital Ratios

Management targets an 8.25% Tier 1 Leverage ratio, leaving ~$92M of excess capital at year-end. A $0.39 dividend is expected in Q1 2026 (subject to Board and regulatory approval).

Risk-Weighted Asset Efficiency

Management highlighted Mechanics' unusually low risk profile versus 81 publicly traded banks with $10-100B in assets:

This low-risk profile supports management's conviction of achieving a sub-50% efficiency ratio with 18% ROATCE. Only one bank out of 81 has lower risk-weighted asset intensity.

Book Value Growth

Liquidity Position

Available liquidity totaled approximately $17 billion at quarter-end, up $2.2B from September 30, driven by additional HomeStreet-acquired assets pledged to FHLB and Federal Reserve.

CRE Concentration Management

The combined bank's CRE concentration ratio stands at 344%—high but actively managed:

• Multifamily dominates (69% of CRE): Lower risk profile with average LTV of 56% and DCR of 1.48x
• Selective originations: "We are still originating commercial real estate and multifamily loans, but can be selective with the loans we choose to put on the books versus letting them go to a competitor."

Management expects CRE concentration to eventually drop below 300% through selective portfolio management.

Q&A Highlights

NIM Outlook

Analyst Woody Lay (KBW) pressed on net interest margin trajectory. CEO C.J. Johnson provided specific guidance:

"I do expect to have a NIM pickup in the first quarter. I'd say something like 10-15 basis points roughly is kind of how I'm thinking about it. And by the end of the year, I'd expect the NIM to get to the 3.75-ish range."

Key assumptions include two Fed rate cuts in 2026 and continued repricing of legacy Mechanics earning assets upward.

Dividend Payout Explained

Management clarified why 2026 payout ratio will exceed 100%:

"We recognized, due to accounting rules, some of that [DUS sale] gain in the fourth quarter, and so as such, the earnings showed up in the fourth quarter, but the capital is gonna show up in 2026... The Q2 dividend should be pretty significantly higher than [Q1] due to the additional capital from the DUS sale."

The bank is also freeing up leverage capital through planned CD runoff and auto loan runoff, enabling additional returns. By H2 2026, payout ratio should normalize back toward 80%.

Expense Run Rate Clarification

The $450M run rate guidance from last quarter included CDI amortization. The $430M figure (excluding CDI) is a "better way to look at things, given the non-cash nature of CDI." CDI amortization ran ~$7M in Q4 alone.

Key Risks and Considerations

1. CRE Concentration: 344% ratio remains elevated, though multifamily-heavy and well-reserved

2. Integration Execution: Core systems conversion scheduled for March 2026 is a "major milestone" that will enable completion of restructuring and full cost savings realization.

3. Rate Sensitivity: Guidance assumes two additional Fed rate cuts; fewer cuts could pressure NIM expansion

4. Controlled Company: Ford Financial Funds own 74% of the company; public float is limited

Forward Catalysts

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Data sourced from Mechanics Bancorp Q4 2025 8-K filing and earnings call transcript dated January 30, 2026.

Related: MCHB Company Profile | Q4 2025 Earnings Transcript