Mechanics Bancorp

Mechanics Bancorp and Subsidiaries

Notes to Consolidated Financial Statements (Unaudited)

NOTE 1–SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations: Founded in 1921, Mechanics Bancorp, a Washington corporation, is a financial holding company

and primarily operates through Mechanics Bank, its wholly-owned subsidiary. Mechanics Bank is a full-service

community bank that was founded in 1905, with 166 banking branches throughout California, Washington, the Portland,

Oregon area and Hawaii. Following the Merger on September 2, 2025 of HomeStreet Bank with and into Mechanics Bank,

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 personal banking, business banking, trust and estate, brokerage and wealth

management products and services. Mechanics Bank’s retail banking products include a wide range of personal checking,

savings and loan products (including credit card, home equity, home mortgage and secured/unsecured loans), as well as

online banking and a variety of wealth management services (including trust and estate, investment management and

financial planning services). Mechanics Bank’s banking products and services for businesses include business checking

and savings accounts, business debit cards, online banking, cash management services, wealth management services,

business credit cards, commercial real estate loans, equipment leasing and loans guaranteed by the Small Business

Administration.

Legacy HomeStreet Bank, which was merged with and into Mechanics Bank and whose business is now part of the

business of Mechanics 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. HomeStreet Insurance

Agency, a division of HomeStreet, Inc. (now Mechanics Bancorp), also sold insurance products for consumer clients. It

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

online, mobile and telephone banking channels.

The Company’s business is conducted primarily through its wholly-owned subsidiaries, Mechanics Bank and HomeStreet

Statutory Trusts (I, II, III and IV), as well as Mechanics Bank’s subsidiaries: MacDonald Auxiliary Corporation,

Mechanics Real Estate Holdings Inc., 3190 Klose Way, LLC, Hydrox Properties XXVI, LLC, Continental Escrow

Company, HS Properties, Inc., HS Evergreen Corporate Center LLC, Union Street Holdings LLC, HomeStreet Foundation

and 16389 Redmond Way LLC.

The Company ceased originating auto loans in February 2023, but continued to service the portfolio through April 30,

2025. Effective May 1, 2025, the Company entered into a servicing agreement with a third-party servicer to oversee and

manage the Company’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.

Basis of Presentation: The consolidated financial statements include the accounts of the Company and its wholly-owned

subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Unless the

context requires otherwise, all references to the Company include its wholly-owned subsidiaries. The accounting and

reporting policies of the Company are based upon U.S. GAAP and conform to predominant practices within the financial

services industry.

The Merger is considered a reverse acquisition in accordance with ASC 805-40, “Business Combinations-Reverse

Acquisitions.” Mechanics Bank is the accounting acquirer (legal acquiree), HomeStreet Bank is the accounting acquiree

and Mechanics Bancorp is the legal acquirer. Mechanics Bancorp’s financial results for all periods ended prior to

September 2, 2025 reflect legacy Mechanics Bank’s results only on a standalone basis. In addition, Mechanics Bancorp’s

reported financial results for the quarter and nine months ended September 30, 2025 reflect legacy Mechanics Bank’s

financial results only on a standalone basis until the closing of the Merger on September 2, 2025 and results of the

combined company for September 2, 2025 through September 30, 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. Refer to Note 2, “Business

Combination,” for additional information on the transaction.

Certain prior period amounts have been reclassified to conform to the current quarter’s presentation. These reclassifications

had no impact on the Company’s prior year net income or shareholders’ equity.

These unaudited interim financial statements reflect all adjustments that are, in the opinion of management, necessary for a

fair statement of the results for the periods presented. These adjustments are of a normal recurring nature, unless otherwise

disclosed in these accompanying notes to the financial statements. The results of operations in the interim financial

statements do not necessarily indicate the results that may be expected for the full year. Certain disclosures normally

included in annual financial statements prepared in accordance with GAAP have been condensed or omitted in the interim

financial statements, as permitted under GAAP. The unaudited interim financial statements should be read in conjunction

with Mechanics Bank’s audited Consolidated Financial Statements and Notes to Consolidated Financial Statements for the

years ended December 31, 2024, 2023 and 2022 included as Exhibit 99.1 to Mechanics Bancorp’s Amendment No. 1 to its

Current Report on Form 8-K, as filed with the SEC on September 25, 2025.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make

estimates and assumptions based on available information. These estimates and assumptions affect the amounts reported in

the financial statements and disclosures provided, and actual results could differ. A material estimate that is particularly

susceptible to significant change relates to the determination of the allowance for credit losses. Other significant estimates

that may be subject to change include fair value determinations and disclosures, evaluation of goodwill and other intangible

assets for impairment, and the realization of deferred tax assets. These estimates may be adjusted as more current

information becomes available, and any adjustments may be significant.

Business Combinations: Purchase accounting requires that the assets purchased, the liabilities assumed, and non-

controlling interests all be reported on the acquirer's financial statements at their fair value, with any excess of purchase

consideration over the net assets being reported as goodwill. A bargain purchase gain is realized when the excess of the fair

value of identifiable net assets acquired over the consideration paid and it recognized in earnings on the acquisition date.

Acquisitions of Legacy Mechanics Bank: The following are historical acquisitions of legacy Mechanics Bank that were

accounted for as business combinations under ASC 805:

Effective October 1, 2016 (the CRB Acquisition Date), the Bank completed its acquisition of California Republic Bancorp

(CRB) pursuant to the Agreement and Plan of Merger and Reorganization (the CRB Agreement), dated as of April 28,

2016, between Coast Acquisition Corporation (CAC), a wholly-owned subsidiary of Mechanics Bank and into CRB (the

CRB Merger), with CRB being the surviving corporation, followed by the merger of CRB with and into MB (the CRB

Acquisition), with MB being the surviving corporation.

On February 12, 2018 (the SVB Acquisition Date), Gold Rush Acquisition Corporation (a wholly-owned subsidiary of

Ford Financial Fund II, L.P. formed for this sole purpose), Mechanics Bank and Learner Financial Corporation, the bank

holding company for Scott Valley Bank (SVB), entered into a definitive agreement for Mechanics Bank to acquire Learner

Financial Corporation and its wholly-owned subsidiary, Scott Valley Bank, which acquisition (the SVB Acquisition) was

completed and became effective on June 1, 2018.

On March 15, 2019, Mechanics Bank and Rabobank International Holding B.V. (Rabo), entered into a definitive agreement

for Mechanics Bank to acquire Rabobank, N.A. (RNA), a subsidiary of Rabo, in a strategic business combination (the RNA

Acquisition), which became effective on August 31, 2019 (the RNA Acquisition Date).

Merger with HomeStreet: On September 2, 2025, Mechanics Bancorp (formerly known as HomeStreet, Inc.), a

Washington corporation (the Company), consummated the previously announced Merger pursuant to the terms of the

Agreement and Plan of Merger, dated as of March 28, 2025, by and among the Company, HomeStreet Bank, a Washington

state-chartered commercial bank and a wholly-owned subsidiary of the Company, and Mechanics Bank. 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 the Company. As a result of the Merger, the Company’s business became

primarily the business conducted by Mechanics Bank. Immediately 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 basisand

8.7% of the voting power of the Company. Please see Note 9, “Shareholders’ Equity and Dividend Limitations” for details

of the Company’s Class A and Class B common stock, including further information on the economic rights of the Class B

shares.

The Merger is considered a reverse acquisition. 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 at their acquisition date fair values. 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.

Trading Securities: Trading securities, consisting of U.S. Treasury notes, are carried at fair value and are used as

economic hedges of our single family mortgage servicing rights. Net gain or loss on trading securitiesare included in loan

servicing income in the consolidated income statements.

LHFS: Loans originated for sale in the secondary market or designated for whole loan sales are classified as LHFS.

Management has elected the fair value option for all single family LHFS (originated with the intent to market for sale) and

records these loans at fair value. Gains and losses from changes in fair value on LHFS are recognized in net gain on

mortgage loan origination and sale activities within other noninterest income. Direct loan origination costs and fees for

single family loans originated as held for sale are recognized as noninterest expenses.

Multifamily and SBA LHFS are accounted for at the lower of amortized cost or fair value (LOCOM). LOCOM valuations

are performed quarterly or at the time of transfer to or from LHFS. Related gains and losses are recognized in net gain on

mortgage loan origination and sale activities. Direct loan origination costs and fees for multifamily and SBA loans

classified as held for sale are deferred at origination and recognized in gain on sale in earnings at the time of sale.

Allowances for Credit Losses on Loans Held for Investment: The Company accounts for its allowance for credit losses

with an expected loss methodology that is referred to as the current expected credit loss (CECL) methodology. The

following discussion represents the allowance for credit losses under the CECL methodology.

Credit quality within the loans held for investment portfolio is continuously monitored by management and is reflected

within the allowance for credit losses for loans. The allowance for credit losses, or reserve, is an estimate of expected

losses over the lifetime of a loan within the Company’s existing loans held for investment portfolio. The allowance for

credit losses for loans held for investment is adjusted by a provision for (reversal of) credit losses, which is reported in

earnings, and reduced by the charge-off of loan amounts, net of recoveries.

The credit loss estimation process involves procedures to appropriately consider the unique characteristics of the

Company’s loan portfolio segments, which are further disaggregated into loan classes, the level at which credit risk is

monitored. The allowance for credit losses for loans not evaluated for specific reserves is calculated using statistical credit

factors, including PD and LGD, to the amortized cost of pools of loan exposures with similar risk characteristics over its

contractual life, adjusted for prepayments, to arrive at an estimate of expected credit losses. Third-party provided economic

forecasts are applied over the period management believes it can estimate reasonable and supportable forecasts. Reasonable

and supportable forecast periods and reversion assumptions to historical data are credit model specific. Prepayments are

estimated by loan type using historical information and adjusted for current and future conditions.

When computing allowance levels, credit loss assumptions are estimated primarily using third-party models that analyze

loans according to credit risk ratings, historic loss experience, past due status and other credit trends and risk

characteristics, including current conditions and reasonable and supportable forecasts about the future. Determining the

appropriateness of the allowance is complex and requires judgment by management about the effect of matters that are

inherently uncertain. Future factors and forecasts may result in significant changes in the allowance and provision

(reversal) for credit losses in those future periods. The allowance for credit losses will primarily reflect estimated losses for

pools of loans that share similar risk characteristics but will also consider individual loans that do not share risk

characteristics with other loans.

Collectively Evaluated Loans

In estimating the allowance for credit losses for collectively evaluated loans, segments are derived based on loans pooled

by product types and similar risk characteristics or areas of risk concentration. In determining the allowance for credit

losses, the Company utilizes third-party models for loss forecasting for the majority of the Company’s portfolio. These

models ensure that we employ methodologies and analytics for our credit loss estimations. Economic forecasts are a crucial

component of our estimation process, applied over a period deemed reasonable and supportable by management. These

forecasts, alongside historical data, credit model-specific reversion assumptions and management judgment, inform our

credit loss assumptions. The following models are utilized for the Company’s portfolios:

Auto Loans. The Company uses models which incorporate macroeconomic forecasts and loan level models for estimating

PD and prepayment. While the Company has access to national data, we use a custom model based on the Company’s

internal historical data and apply them to a blend of forecasted scenarios. Based on the portfolio’s composition of loans and

their respective credit characteristics and delinquencies, a cash flow schedule of losses is produced providing the expected

loss rate for the segment. Model outputs are back-tested on an ongoing basis to determine adequacy and accuracy on a

quarterly basis.

Commercial Real Estate – Non-Owner Occupied CRE and Multifamily Loans. The Company uses models specific to non-

owner occupied CRE and multifamily loans. The model addresses traditional commercial real estate products dependent on

cash flow generated from rents. Based on property information (DSC, LTV, geography, property type), the model

generates a PD and LGD at the individual loan level over the life of the loan, producing an expected loss rate for each

instrument across all future periods. Collectively, these form the overall loss rate for the portfolio segment. For each

scenario, all future year losses for each instrument are calculated using adjusted PD and LGD. The sum of the discounted

future losses is the allowance. When multiple scenarios are considered, the results are weighted.

Single Family Residential and Home Equity Loans. The Company uses a specific model for the SFR and home equity

portfolios. These portfolios represent traditional residential real estate products dependent on the borrower’s ability to

service debt. Based on borrower ability to repay and underwriting metrics (FICO, LTV, loan type, geography, origination

year, collateral type), the model generates loan level PD, prepayment, and LGD vectors which are then simulated through

various scenario forecasts to calculate an allowance. Past due status post-origination is also a key input in the models.

Current and future changes in economic conditions, including unemployment rates, home prices, index rates, and mortgage

rates, are also considered.

Commercial & Industrial, Commercial Real Estate – Owner Occupied, and Consumer Loans. A loss rate modelis utilized

for the C&I, CRE Owner Occupied, and Consumer portfolios other than Auto Loans and Loans secured by the cash

surrender value of life insurance. The CRE Owner Occupied segment uses the same model as the C&I portfolio because

repayment is reliant upon cash flow from associated businesses operating at these properties. The C&I loss rate model

considers loan age, credit spread at origination, loan size at origination, regulatory risk rating, loan type, industry sector and

macroeconomic factors to determine loan level lifetime expected loss rates.

Qualitative Factors

Estimating the timing and amounts of future losses is subject to significant management judgment as these loss cash flows

rely upon estimates such as default rates, loss severities, collateral valuations, the amounts and timing of principal

payments (including any expected prepayments) or other factors that are reflective of current or future expected conditions.

These estimates, in turn, depend on the duration of current overall economic conditions, industry, borrower, or portfolio

specific conditions, the expected outcome of bankruptcy or insolvency proceedings, as well as, in certain circumstances,

other economic factors, including the level of current and future real estate prices. All of these estimates and assumptions

require significant management judgment and certain assumptions that are highly subjective. Model imprecision also exists

in the allowance for credit losses estimation process due to the inherent time lag of available industry information and

differences between expected and actual outcomes.

Management considers adjustments for these conditions in its allowance for credit loss estimates qualitatively where they

may not be measured directly in its individual or collective assessments, including but not limited to: Control Environment,

Economy, Loan Growth, Management & Staffing, Loan Review, Concentrations, Competition, Legal, Regulatory Changes

and Other.

Individually Evaluated Loans

When a loan is assigned a substandard non-accrual or worse risk rating grade, the loan subsequently is evaluated on an

individual basis and no longer evaluated on a collective basis. The net realizable value of the loan is compared to the

appropriate loan basis to determine any allowance for credit losses. The Company generally considers non-accrual loans to

be collateral-dependent. The practical expedient to measure credit losses using the fair value of the collateral has been

exercised.

For collateral-dependent commercial real estate loans, the fair value of collateral is generally based on current appraisals

less selling costs.

For single-family residential loans that are graded substandard non-accrual, an assessment of value is made using the most

recent appraisal or market sales information less selling costs.

Consumer loans are charged off when they reach 120 days delinquency as a general rule. There are limited cases where the

loan is not charged off due to special circumstances and is subject to the collateral review process.

Off-Balance Sheet Credit Exposures, Including Unfunded Loan Commitments

Beyond an ACL to cover estimated expected credit losses in all outstanding loans and leases, the Company provides for

any binding commitments to cover estimated credit losses over the contractual period, including other off-balance sheet

obligations such as letters of credit (standby), and unused commitments on lines of credits and loans. In order to calculate

the allowance for credit losses on unfunded lending commitments for the collectively evaluated segments, usage rates are

supported for the unfunded commitments and then multiplied against the qualitative factor adjusted expected credit loss

rate of each pool.

Purchased Credit Deteriorated (PCD) Loans: For purchased loans, the Bank will consider internal loan grades,

delinquency status, collateral value (if secured), vintage, financial asset type, effective interest rate, geographical location

and other relevant factors in assessing whether purchased loans are PCD. Loans can be evaluated for PCD at either the

individual asset level or collectively based on similar risk characteristics. Purchased loans that have experienced more than

insignificant credit deterioration since origination are considered PCD loans.

PCD loans are recorded at the amount paid. An allowance for credit losses is determined using the same methodology as

other loans held for investment. The initial allowance for credit losses determined on a collective basis is allocated to

individual loans. The sum of the loan’s purchase price and allowance for credit losses becomes its initial amortized cost

basis. The difference between the initial amortized cost basis and the par value of the loan is a noncredit discount or

premium, which is amortized into interest income over the life of the loan. Subsequent changes to the allowance for credit

losses are recorded through credit loss expense.

Mortgage Servicing Rights: MSRs are recognized as separate assets on our consolidated balance sheets when we retain

the right to service loans that we have sold or purchase rights to service. We initially record all MSRs at fair value. For

subsequent measurements, single family MSRs are accounted for at fair value, with changes in fair value recorded through

current period earnings, while multifamily and SBA MSRs are accounted for at the lower of amortized cost or fair value.

Subsequent fair value measurements of MSRs are determined by considering the present value of estimated future net

servicing cash flows. Changes in the fair value of MSRs result from changes in (1) model inputs and assumptions and (2)

modeled amortization, representing the collection and realization of expected cash flows and curtailments over time. The

significant model inputs used to measure the fair value of MSRs include assumptions regarding market interest rates,

projected prepayment speeds, discount rates, estimated costs of servicing and other income and additional expenses

associated with the collection of delinquent loans.

Multifamily and SBA MSRs are evaluated periodically for impairment based upon the fair value of the MSRs as compared

to amortized cost. Impairment is determined by comparing the fair value of the portfolio based on predominant risk

characteristic loan type, to amortized cost. Impairment is recognized to the extent that fair value is less than the capitalized

amount of the portfolio.

For single family MSRs, loan servicing income includes fees earned for servicing the loans and the changes in fair value

over the reporting period of both our MSRs and the derivatives used to economically hedge our MSRs. For other MSRs,

loan servicing income includes fees earned for servicing the loans less the amortization of the related MSRs and any

impairment adjustments.

Goodwill and Other Intangible Assets: Goodwill arises from business combinations and is determined as the excess of

the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the

fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill and intangible assets

acquired in a business combination and determined to have an indefinite useful life are not amortized, but tested for

impairment at least annually or more frequently if events and circumstances exist that indicate that an impairment test

should be performed. The Company has selected November 30, as the date to perform the annual impairment test.

Intangible assets with finite useful lives are amortized over their estimated useful lives to their estimated residual values.

Amortized intangibles must be reviewed for impairment whenever events or changes in circumstances indicate that the

carrying amount of the long-lived asset might not be recoverable. An impairment loss related to intangible assets with finite

useful lives is recognized if the carrying amount of the intangible asset is not recoverable and its carrying amount exceeds

its fair value. After the impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new

accounting basis.

Other intangible assets primarily consist of core deposit intangible assets, trade name intangibles and a DUS license

intangible arising from whole bank and branch acquisitions. The core deposit intangibles are amortized on an accelerated

method over their estimated useful lives, which range from 6 to 10 years and the trade name intangibles and DUS license

intangible are not amortized as they have indefinite lives.

Stock-Based Compensation: Stock-based compensation expense for all share-based awards granted is based on the grant

date fair value estimated in accordance with the provisions of ASC 718 - Stock Compensation. The Company recognizes

these compensation costs for only those awards expected to vest over the service period of the award.

The Mechanics Bancorp 2025 Equity Incentive Plan (the 2025 Equity Plan), adopted by shareholders in August 2025,

provides for the issuance of incentive stock options, nonqualified stock options, stock appreciation rights, restricted shares

(RSU shares), Performance Awards, dividend equivalent awards and other awards. All share-based awards that are granted

after the Merger date will be issued under the 2025 Equity Plan. As of September 30, 2025, only RSUs have been granted

under the 2025 Equity Plan. Total shares issuable under the 2025 Equity Plan are 7,750,000, excluding shares that may be

delivered pursuant to outstanding awards under prior plans.

Any share-based awards outstanding as of the Merger date are considered outstanding under prior plans of legacy

HomeStreet, Inc. and legacy Mechanics Bank, as appliable. No additional awards may be made under the prior plans, but

prior plans remain in effect as to outstanding awards. Outstanding awards under the prior plans continue to be subject to the

terms and conditions of their respective plan.

In connection with Mechanics Bank becoming a wholly-owned subsidiary of the Company, which is publicly traded, and

the stock of Mechanics Bank being exchanged for shares of Class A common stock of the Company as a result of the

Merger, the Company has elected to settle share-based compensation awards in Class A common stock of the Company

that were outstanding following the Merger that historically were settled in cash by Mechanics Bank. Accordingly, during

the quarter ended September 30, 2025, the Company modified the classification of these outstanding awards from liability

to equity. These outstanding awards also were remeasured at the modification date fair value, and the previously

recognized liability was reclassified to common stock within the consolidated balance sheet. Compensation cost for these

remeasured awards will be recognized over the remaining applicable award vesting period.

Earnings per Share: The Company computes net income per share of Class A and Class B common stock using the two-

class method. Basic earnings per share excludes potential dilution from common equivalent shares, such as those associated

with stock-based compensation awards, and is computed by dividing net income allocated to common stockholders by the

weighted average number of common shares outstanding for the period. Diluted earnings per share reflects the potential

dilution that could occur if securities or other contracts to issue common stock, such as common equivalent shares

associated with stock-based compensation awards, were exercised or converted into common stock that would then share in

the net earnings of the Company. Potential dilution from common equivalent shares is determined using the treasury stock

method, reflecting the potential settlement of stock-based compensation awards resulting in the issuance of additional

shares of the Company’s common stock. Stock-based compensation awards that would have an anti-dilutive effect have

been excluded from the determination of diluted earnings per share.

Loss Contingencies: Loss contingencies, including claims and legal actions arising in the ordinary course of business, are

recorded as liabilities when the likelihood of a loss is probable and an amount or range of loss can be reasonably estimated.

The Company is occasionally named as a defendant in or threatened with claims and legal actions arising in the ordinary

course of business. The outcomes of claims and legal actions brought against the Company are subject to many

uncertainties. For claims and legal actions where it is not reasonably possible that a loss may be incurred, or where the

Company is not currently able to estimate the reasonably possible loss or range of loss, the Company does not establish an

accrual. Any potential recoveries from insurance are not considered when determining an accrual. As of September 30,

2025 and December 31, 2024, the Company recorded an accrued contingent liability of$4.2 million and$3.1 million,

Recent Accounting Developments

In December 2023, the FASB issued ASU 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax

Disclosures,” which expands disclosures in an entity’s income tax rate reconciliation table and taxes paid both in the U.S.

and foreign jurisdictions. The update will be effective for annual periods beginning after December 15, 2024. The adoption

of ASU 2023-09 will not have an impact on the Company’s financial position or results of operation as it impacts

disclosures only. We are assessing the impact on our disclosures.

In November 2024, the FASB issued ASU 2024-03, “Income Statement—Reporting Comprehensive Income—Expense

Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” ASU 2024-03 requires

public companies to disclose, in the notes to the financial statements, specific information about certain costs and expenses

at each interim and annual reporting period. This includes disclosing amounts related to employee compensation,

depreciation, and intangible asset amortization. In addition, public companies will need to provide qualitative description of

the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. ASU 2024-03 is

effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting

periods beginning after December 15, 2027. Implementation of ASU 2024-03 may be applied prospectively or

retrospectively. The adoption of ASU 2024-03 will not have an impact on the Company’s financial position or results of

operation as it impacts disclosures only. We are assessing the impact on our disclosures.

In November 2025, the FASB issued ASU 2025-08, “Financial instruments – Credit Losses (Topic 326): Purchased

Loans,” which amends the guidance in ASC 326 on the accounting for certain purchased loans. Under the ASU, entities

must account for acquired loans (excluding credit cards) that meet certain criteria at acquisition (purchased seasoned loans)

by recognizing them at their purchase price plus an allowance for expected credit losses (gross-up approach). Purchased

seasoned loans are defined as either: (1) non-PCD loans that are obtained in a business combination, or (2) non-PCD loans

that (a) are obtained in an asset acquisition or upon consolidation of a variable interest entity that is not a business and (b)

are acquired more than 90 days after their origination date by a transferee that was not involved in their origination. ASU

2025-08 also introduces an accounting policy election related to the subsequent measurement of expected credit losses for

entities that use a method other than a discounted cash flow analysis to estimate credit losses on purchased seasoned loans.

If this accounting policy is elected, entities can use the amortized cost basis of the asset to subsequently measure their

credit loss allowance. ASU 2025-08 is effective for interim and annual reporting periods beginning after December 15,

2026. Early adoption is permitted in an interim or annual reporting period in which financial statements have not yet been

issued or made available for issuance. We are currently assessing the impact of ASU 2025-08 on our consolidated financial

statements.

NOTE 2-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.

Immediately 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.

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.

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:

Mortgage servicing rights: The fair values of single family mortgage and SBA servicing rights are based on a market

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.

Current and deferred tax assets, net: 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:

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 andnon-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.

(1) The pro forma net income before income taxes includes$69.9 million of acquisition and integration costs from the Mergerfor thenine months ended

September 30, 2024.

NOTE 3–DEBT SECURITIES

The following table presents the amortized cost and fair value of the debt securities portfolio as of the dates indicated:

In addition to the reported fair values of the debt securities reflected above, the Company is entitled to receive accrued

interest and dividends from its securities. Included in interest receivable and other assets on the consolidated balance sheets

as of September 30, 2025 and December 31, 2024 was$19.6 million and$15.9 million, respectively, of interest and

dividends receivable from the Company’s debt securities. Accrued interest receivable from securities available-for-sale

totaled$17.4 million and$13.6 million at September 30, 2025 and December 31, 2024, respectively. Accrued interest

receivable from securities held-to-maturity totaled$2.2 million and$2.4 million at September 30, 2025 and December 31,

2024, respectively.

Substantially all the mortgage-backed securities represent securities issued or guaranteed by government sponsored

enterprises and government entities. Municipal bonds are comprised of general obligation bonds (i.e., backed by the

general credit of the issuer) and revenue bonds (i.e., backed by either collateral or revenues from the specific project being

financed) issued by various municipal and corporate entities. As of September 30, 2025 and December 31, 2024,

substantially all securities held, including municipal bonds, corporate debt securities, and collateralized loan obligations

were rated investment grade based upon nationally recognized statistical rating organizations where available.

At September 30, 2025, the Company held$50.4 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 andreported as trading

securities on the consolidated balance sheet. For both the quarter andnine months ended September 30, 2025, the Company

had net gains of$98 thousand on trading securities, which were recorded in loan servicing income. At December 31, 2024,

there wereno trading securities, and there wereno net gains or losses on trading securities for the quarter andnine months

ended September 30, 2024.

In accordance with accounting standards, only the realized gains and losses from securities transactions are included in the

consolidated income statement as net gain (loss) on sale of investment securities. In 2025, investment securities were sold

primarily to generate liquidity for the Merger. During the first quarter of 2024, the Company executed an investment

portfolio restructuring of its AFS investment securities portfolio. The Company sold$1.8 billion of lower yielding AFS

securities and realized a loss of$207.2 million. The proceeds from the sale were used to purchase$1.6 billion of higher

yielding investments. No gross gains were realized on the sales.

The following table presents proceeds, gross realized gains and gross realized losses from sales and calls of available-for-

sale investments:

Tax-exempt interest income on investment securities was$1.9 million and$776 thousand for the quarter ended September

30, 2025 and 2024, and$3.4 million and$2.4 million for thenine months ended September 30, 2025 and 2024,

The Company reassessed classification of certain investments and effective January 1, 2022, transferred$1.7 billion in

residential and commercial mortgage-backed securities from available-for-sale to held-to-maturity securities. The transfer

occurred at fair value. The related net unrealized loss of$23.5 million, or$16.7 million net of deferred taxes, included in

other comprehensive income remained in other comprehensive income. For the three andnine months ended September 30,

2025 and 2024, $627 thousand,$648 thousand, $1.9 million and$1.9 million, respectively, of the unrealized loss was

accreted to interest income as a yield adjustment through earnings and will be accreted over the remaining term of the

securities. No gain or loss was recorded at the time of transfer.

The following table summarizes available-for-sale securities with unrealized and unrecognized losses at September 30,

2025 and December 31, 2024 aggregated by major security type and length of time in a continuous unrealized and

unrecognized loss position:

The Company didnot record an ACL on the debt securities portfolio at September 30, 2025 or December 31, 2024. As of

both dates, the Company considers any unrealized loss across the classes of major security-type to be related to fluctuations

in market conditions, primarily interest rates, and not reflective of a deterioration in credit quality. The Company maintains

that it has intent and ability to hold these securities until the amortized cost basis of each security is recovered and likewise

concluded as of September 30, 2025 that it was not more likely than not that any of the securities in an unrealized loss

position would be required to be sold. The following factors were considered in determining that an ACL wasnot required

at September 30, 2025 or December 31, 2024.

Obligations of States and Political Subdivisions: The unrealized losses on the Company’s investments in obligations of

states and political subdivisions are primarily due to changes in interest rates and not due to credit losses. Management

monitors these securities on an ongoing basis and performs an internal analysis which takes into account the impact from

market rates movements, severity and duration of the unrealized loss position, viability of the issuer, recent downgrades in

ratings, and external credit rating assessments. As a result, management expects to recover the entire amortized cost basis

of these securities.

Mortgage-Backed Securities - Residential and Commercial: The unrealized losses on the Company’s investments in

residential and commercial MBS are primarily due to changes in interest rates. These securities are either implicitly or

explicitly guaranteed by the U.S. government, as such management expects to recover the entire amortized cost basis of

these securities.

Collateralized Loan Obligations: There were no unrealized losses on the Company’s collateralized loan obligations.

Corporate Bonds: The unrealized losses on the Company’s investments in corporate bonds are due to slight discount

margin variances related to changes in market rates and not due to credit losses. Management monitors these securities on

an ongoing basis and performs an internal analysis which includes a review of credit quality, changes in ratings, assessment

of regulatory and financial ratios, and general standing versus peer group. Management expects to recover the entire

amortized cost basis of these securities.

U.S. Treasury Securities: The unrealized losses on the Company’s investments in U.S. Treasury securities are primarily

due to changes in interest rates. These securities are backed by the full faith and credit of the U.S. government, as such

management expects to recover the entire amortized cost basis of these securities.

Agency Debentures: The unrealized losses on the Company’s investments in agency debentures are primarily due to

changes in interest rates. These securities are either implicitly or explicitly guaranteed by the U.S. government, as such

management expects to recover the entire amortized cost basis of these securities.

At September 30, 2025, investment securities with a carrying value of$3.0 billion were pledged to secure borrowings from

the Federal Reserve, and investment securities with a carrying value of$1.5 billion were pledged to secure the Company’s

obligations for securities sold under agreements to repurchase and to collateralize certain public, trust and bankruptcy

deposits as required by law.

As of September 30, 2025, there wereno past due or nonaccrual available-for-sale or held-to-maturity securities.

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

shown by contractual maturity in the following tables. Expected maturities may differ from contractual maturities if

borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Contractual maturities

of securities as of September 30, 2025 were as follows:

NOTE 4-LOANS AND CREDIT QUALITY

The loan and lease receivable portfolio consisted of the following as of the dates indicated:

At September 30, 2025,$6.6 billion of loans were pledged to secure borrowings from the FHLB, and$1.4 billion of loans

were pledged to secure borrowings from the Federal Reserve.

Credit Risk Concentrations

The Company’s portfolio of non-owner occupied and owner occupied commercial real estate, multifamily and residential

real estate loans are primarily to borrowers in California, or are secured by real estate collateral located in California. Such

loans represented 76% of total loans in these segments as of September 30, 2025. In addition, substantial portions of the

Company’s loans are multifamily and residential real estate. At September 30, 2025, multifamily loans represented 37% of

the loan portfolio and residential real estate loans represented 27% of the loan portfolio.

Allowance for Credit Losses

The following tables present the activity in the allowance for credit losses on loans and leases by portfolio segment for the

quarter andnine months ended September 30, 2025 and 2024:

(1)ACL on loans identified as PCD on the Merger date. For additional discussion on PCD loans, refer to Note 1, “Summary of Significant

Accounting Policies,” and Note 2, “Business Combination.”

(1)ACL on loans identified as PCD on the Merger date. For additional discussion on PCD loans, refer to Note 1, “Summary of Significant

Accounting Policies,” and Note 2, “Business Combination.”

In addition to the ACL for LHFI, the Company maintains a separate allowance for unfunded loan commitments, which is

included in interest payable and other liabilities on the consolidated balance sheets. The following table presents changes in

the allowance for credit losses on unfunded lending commitments for the quarter andnine months ended September 30,

2025 and 2024:

Management considers the level of ACL to be appropriate to cover credit losses expected over the life of the loans for the

LHFI portfolio. The cumulative loss rate used as the basis for the estimate of credit losses is comprised of the Company’s

historical loss experience and qualitative factors for current and forecasted periods.

As of September 30, 2025, the historical expected loss rates decreased when compared to December 31, 2024 due to

product mix, composition changes and lower modeled losses. During the quarter andnine months ended September 30,

2025, the qualitative factors increased due to increased maturity, repricing, collateral, concentration and other model risk.

There were no material changes to the methodologies for estimating credit losses for the periods presented.

Disclosures related to the amortized cost in loans excludes accrued interest receivable. The Company has elected to exclude

accrued interest receivable from the evaluation of the allowance for credit losses. Accrued interest receivable on loans held

for investment was$54.9 million and$33.6 million at September 30, 2025 and December 31, 2024, respectively, and is

included in interest receivable and other assets on the consolidated balance sheets.

Credit Quality

Nonaccrual loans include both smaller balance homogeneous loans that are collectively evaluated for impairment and

individually classified impaired loans. Loans whose repayments are insured by the Federal Housing Administration (FHA),

guaranteed by the Department of Veterans’ Affairs (VA) or Ginnie Mae (GNMA) are maintained on accrual status even if

90 days or more past due.

The following table presents the amortized cost in nonaccrual loans and loans past due 90 days or more and still accruing

by class of loans as of September 30, 2025 and December 31, 2024:

The following table presents the amortized cost of collateral-dependent loans by class and collateral type as of

September 30, 2025 and December 31, 2024:

The following tables present the aging of the amortized cost in past due loans as of September 30, 2025 and December 31,

2024 by class of loans:

The following tables present the amortized cost of loans at September 30, 2025 and 2024 that were both experiencing

financial difficulty and modified during the quarters andnine months ended September 30, 2025 and 2024, by class and by

type of modification. The percentage of the amortized cost of loans that were modified to borrowers in financial distress as

compared to the amortized cost of each class of financing receivable is also presented below.

The Company has committed to lend no additional amounts to the borrowers included in the previous tables.

The following tables present the financial effect of the loan modifications presented above to borrowers experiencing

financial difficulty for the quarters andnine months ended September 30, 2025 and 2024:

The Company closely monitors the performance of loans that are modified to borrowers experiencing financial difficulty to

understand the effectiveness of its modification efforts.

The following table presents the amortized cost of loans thathad a payment default (i.e. borrower missed a regularly

scheduled payment) and were past duefor the quarter ended September 30, 2025 and that were modified in the last 12

months.

The following table presents the amortized cost of loans that had a payment default and were past duefor the quarter ended

September 30, 2024 and that were modified in the last 12 months.

The following table presents the amortized cost of loans that had a payment default and were past due for thenine months

ended September 30, 2025 that were modified in the last 12 months.

The following table presents the amortized cost of loans that had a payment default and were past due for thenine months

ended September 30, 2024 that were modified in the last 12 months.

Upon the Company’s determination that a modified loan (or portion of a loan) has subsequently been deemed uncollectible,

the loan (or a portion of the loan) is written off. Therefore, the amortized cost of the loan is reduced by the uncollectible

amount and the allowance for credit losses is adjusted by the same amount.

Credit Quality Indicators:

The Company categorizes loans into risk categories based on relevant information about the ability of borrowers to service

their debt such as: current financial information, historical payment experience, credit documentation, public information,

current economic trends and other factors. The Company analyzes loans individually by classifying the loans as to credit

risk. This analysis includes all loans regardless of balances. This analysis is performed on a quarterly basis.

The Company uses the following definitions for risk ratings:

Special Mention. Loans classified as special mention have a potential weakness that deserves management's

close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment

prospects for the loan or of the institution's credit position at some future date.

Substandard. Loans classified as substandard are inadequately protected by the current net worth and paying

capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or

weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the

institution will sustain some loss if the deficiencies are not corrected.

Doubtful. Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with

the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently

existing facts, conditions, and values, highly questionable and improbable.

Loans not meeting the criteria above are considered to be pass rated loans.

Based on the most recent analysis performed, the following table presents the amortized cost, by risk category of loans and

origination year, for commercial and industrial and commercial real estate loan classes at September 30, 2025 and

December 31, 2024. In addition, year-to-date charge-offs for the nine months ended September 30, 2025 and the twelve

months ended December 31, 2024 are presented by origination year.

The Company considers the performance of the loan portfolio and its impact on the allowance for credit losses. For

residential and consumer loan classes, the Company also evaluates credit quality based on the aging status of the loan,

which was previously presented, and by payment activity. The following table presents the amortized cost in residential

and consumer loans based upon year of origination at September 30, 2025 and December 31, 2024. In addition, year-to-

date charge-offs for the nine months ended September 30, 2025 and the twelve months ended December 31, 2024 are

presented by origination year.

Loan Purchases

The following table presents loan and lease receivables purchased by portfolio segment, excluding loans acquired in

business combinations and PCD loans and leases for the periods indicated:

The Company purchased the above loan and lease receivables at a premium of$140 thousand,$657 thousand,$767

thousand and$1.6 million for the quarters andnine months ended September 30, 2025 and 2024, respectively. For the

purchased loan and lease receivables disclosed above, the Company did not incur any specific allowances for credit losses

during the periods indicated.

NOTE 5–GOODWILL AND OTHER INTANGIBLES

At September 30, 2025 and December 31, 2024, the Company had goodwill of$843.3 million, from prior acquisitions.

Goodwill represents the excess of the total acquisition price paid over the fair value of the assets acquired, net of fair value

of liabilities assumed. As discussed in Note 2, “Business Combination,” a bargain purchase gain was recorded as a result of

the Merger, therefore, no goodwill was recognized.

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.

The Company’s core deposit intangibles are amortized over their useful lives ranging from 6 to 10 years using the sum of

years digits. The weighted average remaining amortization period for core deposit intangibles was approximately 8 years as

of September 30, 2025. Trade name intangibles and DUS license intangibles have an indefinite life and are not amortized.

The following table summarizes other intangible assets:

Aggregate amortization of intangible assets was$4.3 million,$3.3 million,$9.7 million and$10.7 million for the quarters

andnine months ended September 30, 2025 and 2024, respectively. The following table presents estimated future

amortization expense as of September 30, 2025:

NOTE 6–LOW INCOME HOUSING TAX CREDIT AND COMMUNITY REINVESTMENT ACT

INVESTMENTS

The Company has LIHTC investments that are designed to promote qualified affordable housing programs and generate a

return primarily through the realization of federal tax credits. The Company accounts for these investments by amortizing

the cost of tax credit investments over the life of the investment using the proportional amortization method. At

September 30, 2025 and December 31, 2024, the balance of LIHTC investments, which is included in interest receivable

and other assets on the consolidated balance sheets, was$45.4 million and$14.6 million, respectively. Remaining

unfunded commitments related to the investments in qualified affordable housing projects totaled$1.1 million as of both

September 30, 2025 and December 31, 2024. The Company expects to fulfill these commitments through 2032.

The following table presents other information related to the Company’s LIHTC investments for the periods indicated:

The Company also has a portfolio of CRA Investments. The majority of the CRA investments represent investments in

small to mid-sized businesses throughout California. At September 30, 2025 and December 31, 2024, the balance of CRA

investments, which is included in interest receivable and other assets on the consolidated balance sheets, was$77.9 million

and$55.9 million, respectively. The Company recognized dividend income on CRA investments of$2.3 million,$1.6

million,$3.3 million and$2.4 million for the quarter andnine months ended September 30, 2025 and 2024, respectively,

which are included within other interest income in the consolidated income statements.

NOTE 7–DEPOSITS

The aggregate amount of time certificates of deposits that meet or exceed the FDIC insurance limit of$250 thousand at

September 30, 2025 and December 31, 2024 was$648.1 million and$407.7 million, respectively. At September 30, 2025,

certificates of deposit outstanding mature as follows:

The Company accepts public deposits from various state, city and municipal agencies. Public deposits totaling$1.3 billion

and$1.2 billion are included in demand deposits, interest bearing transaction accounts, savings accounts and time

certificates of deposit as presented in the consolidated balance sheets at September 30, 2025 and December 31, 2024,

respectively. As required by law, the Company pledges marketable securities as collateral for its public deposits in

quantities of not less than 110% of the Company’s deposit obligations for these public funds. The Company had investment

securities with a carrying value of$1.5 billion pledged as collateralas of September 30, 2025.

The Company accepts deposits from its Investment Management and Trust Department for the benefit of certain trust

customers. In accordance with state trust regulations, the Company is required to secure any trust deposits that are in excess

of the$250 thousand FDIC insurance limits by pledging marketable securities equal to those excess deposit balances. As of

September 30, 2025 and December 31, 2024, the Company held trust deposits of $901 thousand and$884 thousand,

respectively, that were in excess of$250 thousand and which required securities collateralization.

NOTE 8–BORROWINGS AND LONG-TERM DEBT

Federal Home Loan Bank (FHLB) Advances

The Company didnot have any outstanding FHLB Advances as of September 30, 2025 and December 31, 2024.

As of September 30, 2025 and December 31, 2024, the Company’s investment in capital stock of the FHLB of San

Francisco totaled$17.3 million. The Company had$6.6 billion of loans pledged to the FHLB, which permits up to$3.8

billion of additional borrowing capacity as of September 30, 2025.

Federal Reserve Bank Discount Window

The Company hadno outstanding Discount Window borrowings as of September 30, 2025 and December 31, 2024.

The Company had pledged$1.4 billion of consumer loans through the Borrower-In-Custody Program and investment

securities with a carrying value of$3.0 billion to the Federal Reserve Bank Discount Window, which permits$4.0 billion

of additional borrowing capacity as of September 30, 2025.

Brokered and Other Wholesale Funding

The Company hadno brokered or other wholesale funding outstanding as of September 30, 2025 and December 31, 2024.

The Company had$5.3 billion of available borrowing capacity under borrowing lines established with other financial

institutions as of September 30, 2025.

Long-Term Debt

As a result of the Merger, the Company assumed Subordinated Notes, Senior Notes and TRUPS debt. These balances are

reported beginning on the Merger date of September 2, 2025, therefore there areno balances or activity for the quarters and

nine months ended September 30, 2024 and as of December 31, 2024.

The trust preferred securities were issued by legacy HomeStreet, Inc. during the period from 2005 through 2007. In

connection with the issuance of trust preferred securities, legacy HomeStreet, Inc. issued to HomeStreet Statutory Trust,

Junior Subordinated Deferrable Interest Debentures. The sole assets of the HomeStreet Statutory Trust are the Subordinated

Debt Securities I, II, III, and IV.

The Company’s outstanding long-term debt as of September 30, 2025 are as follows:

(1) Includes discounts from purchase accounting adjustments as a result of the Merger on September 2, 2025.

(2) The Subordinated Notes bear interest at a rate of 3.5% per annum until January 30, 2027. From January 30, 2027, until the maturity date or the date of

earlier redemption, the notes will bear interest equal to the three-month term SOFR plus 215 basis points.

(3) These rates reflect the floating rates as of September 30, 2025.

(4) Call options are exercisable at par and are callable, without penalty, on a quarterly basis.

NOTE 9 -SHAREHOLDERS’ EQUITY AND DIVIDEND LIMITATIONS

On September 2, 2025, HomeStreet Bank merged with and into Mechanics Bank, and Mechanics Bank became a wholly-

owned subsidiary of Mechanics Bancorp (formerly known as HomeStreet, Inc.).

In connection with the Merger, the Company amended its articles of incorporation to increase the number of authorized

shares of Company common stock from 160,000,000 to 1,900,000,000 and Company preferred stock from 100,000 to

120,000 and authorize the issuance of two (2) classes of Company common stock,1,897,500,000 shares of which are

designated Class A common stock and 2,500,000 shares of which are designated Class B common stock.

Legacy Mechanics Bank’s number of shares issued and outstanding have been retrospectively restated for periods prior to

the Merger to reflect the equivalent number of shares issued in the Merger since the Merger was accounted for as a reverse

acquisition. In all prior periods, the fixed exchange ratio of 3,301.0920 was applied to shares of outstanding Mechanics

Bank voting common stock, which were converted to Class A common stock, and the fixed exchange ratio of 330.1092

was applied to shares of outstanding Mechanics Bank non-voting common stock, which were converted to Class B

common stock.

Class A common stock: Our voting common stock is listed on Nasdaq under the symbol “MCHB” and there were

220,088,687 shares outstanding at September 30, 2025 and 200,884,880 shares outstanding at December 31, 2024.

Class B common stock: Our Class B common stock is not listed or traded on any national securities exchange or

automated quotation system, and there currently is no established trading market for such stock. There were 1,114,448

shares outstanding at September 30, 2025 and December 31, 2024.

Each holder of Class A common stock and Class B common stock is entitled to one (1) vote per share of combined

company common stock on matters submitted to the vote of holders of combined company common stock. The Class A

common stock and Class B common stock vote together as a single class on all matters submitted to a vote of combined

company shareholders, except as may otherwise be required by law or certain adverse amendments to the rights of Class B

common stock. The Company’s common shareholders are entitled to equally share in all dividends and distributions based

on such shareholders’ pro rata ownership interest in the Company, except that each share of Class B common stock is

treated as if such share had been converted into ten Class A Shares for purposes of calculating the economic rights of the

Class B Shares, including upon liquidation of the Company or the declaration of dividends or distributions by the

Company.

Mechanics is a separate legal entity from Mechanics Bank, which is the primary source of funds available to Mechanics to

service its debt, fund its operations, pay dividends to shareholders, repurchase shares and otherwise satisfy its obligations.

The availability of dividends from Mechanics Bank is limited by various statutes and regulations, capital rules regarding

requirements to maintain a “well capitalized” position at Mechanics Bank, as well as by our policy of retaining a significant

portion of our earnings to support Mechanics Bank’s operations. Under California law, Mechanics Bank, or any majority

owned subsidiary of Mechanics Bank, generally may not declare a cash dividend on its capital stock in an amount that

exceeds the lesser of the retained earnings of Mechanics Bank or the net income of Mechanics Bank in the last three fiscal

years, less the amount of any distributions made by Mechanics Bank or any majority owned subsidiary of Mechanics Bank

to shareholders of Mechanics Bank, unless approved by the California Department of Financial Protection and Innovation.

NOTE 10–DERIVATIVES AND HEDGING ACTIVITIES

To reduce the risk of significant interest rate fluctuations on the value of certain assets and liabilities, such as single family

mortgage LHFS and MSRs, the Company utilizes derivatives as economic hedges.

As a part of its mortgage origination process, the Company enters into contracts that qualify as derivatives, including

forward sale commitments and interest rate lock commitments. It is the Company’s practice to enter into forward

commitments for the future delivery of residential mortgage loans when interest rate lock commitments are entered into to

economically hedge the effect of changes in the interest rates resulting from its commitments to fund the loans. These

mortgage banking derivatives are not designated in hedge relationships.

The Company enters into interest rate swaps with loan customers. The specific terms of the interest rate swap agreements

are tied to the terms of the underlying loan agreements. To avoid increasing internal interest rate risk as a result of these

business activities, the Company enters into offsetting swap agreements. The Company enters into interest rate swaps

executed with commercial banking customers and broker dealer counterparties. The Company’s customer related interest

rate swaps provide an economic hedge but do not qualify for hedge accounting treatment.

Cooperative Rabobank, U.A. (CRUA) and a subsidiary of Rabo’s parent also provided various interest rate swap services

to the Company. The applicable Rabo counterparties deposited$5.5 million in cash collateral with the Company to secure

underlying derivative contracts as of September 30, 2025. B&F Capital Markets, LLC (a Stifel Company) has provided the

interest rate swap services to the Company since 2023.

The notional amounts and fair values for derivatives, all of which are economic hedges, are included in interest receivable

and other assets or interest payable and other liabilities on the consolidated balance sheet, consist of the following:

(1)Includes net cash collateral received of$5.9 million andzero at September 30, 2025 and December 31, 2024, respectively.

The collateral used under the Company’s master netting agreements is typically cash, but securities may be used under

agreements with certain counterparties. Receivables related to cash collateral that has been paid to counterparties are

included in interest receivable and other assets. Payables related to cash collateral that has been received from

counterparties are included in interest payable and other liabilities. Interest is owed on amounts received from

counterparties and we earn interest on cash paid to counterparties. Any securities pledged to counterparties as collateral

remain on the consolidated balance sheets. At September 30, 2025 and December 31, 2024, the Company had liabilities of

$6.1 million andzero, respectively, in cash collateral received from counterparties and receivables of$193 thousand and

zero, respectively, in cash collateral paid to counterparties.

The following table presents the net gain (loss) recognized on economic hedge derivatives, within the respective line items

in the consolidated income statements for the periods indicated:

(1)Comprised of forward contracts used as an economic hedge of loans held for sale and IRLCs to customers. Included in other noninterest income in

the consolidated income statements.

(2)Comprised of futures, U.S. Treasury options and forward contracts used as economic hedges of single family MSRs.

(3)Impact of interest rate swap agreements executed with commercial banking customers and broker dealer counterparties.

The interest income from U.S. Treasury notes trading securities used for hedging purposes, which is included in interest

income on the consolidated income statements, was $160 thousand for both the quarter and nine months ended

September 30, 2025, and waszero for thequarter and nine months ended September 30, 2024, respectively.

NOTE 11–MORTGAGE BANKING OPERATIONS

LHFS consisted of the following:

Loans sold consisted of the following for the periods indicated:

For loan and lease receivables sold for the quarters andnine months ended September 30, 2025 and 2024, there were no

loans sold as part of securitizations.

Gain on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of

the following:

(1)Gain on loan origination and sale activities is included in other noninterest income in the consolidated income statements.

The Company’s portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency

MBS issued by Fannie Mae and Freddie Mac. The unpaid principal balance of loans serviced for others is as follows:

The following is a summary of changes in the Company’s liability for estimated single-family mortgage repurchase losses:

(1)Represents the reserve liability acquired from the Merger on September 2, 2025.

(2)Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans.

The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent

loans. Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of

reimbursable amounts from investors or borrowers. Advances of$1.1 million were recorded in interest receivable and other

assets as of September 30, 2025. There wereno advances as of December 31, 2024.

When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that

are more than 90 days past due), the Company records the balance of the loans within assets as interest receivable and other

assets and within liabilities as interest payable and other liabilities. At September 30, 2025, there wereno delinquent or

defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance

sheets and there wereno such delinquent or defaulted mortgage loans as of December 31, 2024.

Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the

following:

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

Single Family MSRs

Balances and activity for single family MSRs are reported beginning on the Merger date of September 2, 2025, therefore

there wereno balances or activity for the quarters and nine months ended September 30, 2024 and as of December 31,

The changes in single family MSRs measured at fair value are as follows:

(1)Represents MSRs acquired from the Merger on September 2, 2025.

interest rates

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

Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows:

(1)Based on a weighted average.

(2)Represents an expected lifetime average CPR used in the model.

For single family MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as

significant unobservable inputs as noted in the table below:

(1) Weighted averages of all the inputs within the range.

(2) Represents the expected lifetime average CPR used in the model.

To compute hypothetical sensitivities of the value of our single family MSRs to immediate adverse changes in key

assumptions, we computed the impact of changes to CPRs and in discount rates as outlined below:

Multifamily and SBA MSRs

Balances and activity for multifamily and SBA MSRs are reported beginning on the Merger date of September 2, 2025,

therefore there wereno balances or activity for the quarters and nine months ended September 30, 2024 and as of

December 31, 2024.

The changes in multifamily and SBA MSRs measured at the lower of amortized cost or fair value were as follows:

(1)Represents MSRs acquired from the Merger on September 2, 2025.

The fair value of multifamily and SBA MSRs was$29.2 million at September 30, 2025.

Key economic assumptions used in measuring the initial fair value of capitalized multifamily MSRs were as follows:

(1)Based on a weighted average.

For multifamily MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as

significant unobservable inputs as noted in the table below. Multifamily DUS loans typically contain yield maintenance

features that significantly reduce loan prepayments, resulting in a CPR ofzero for valuation purposes.

(1) Weighted averages of all the inputs within the range.

NOTE 12–GUARANTEES AND MORTGAGE REPURCHASE LIABILITY

In the ordinary course of business, the Company sells loans through the Fannie Mae Multifamily Delegated Underwriting

and Servicing Program (DUS®) that are subject to a credit loss sharing arrangement. The Company services the loans for

Fannie Mae and shares in the risk of loss with Fannie Mae under the terms of the DUS contracts. Under the DUS program,

the Company and Fannie Mae share losses on a pro rata basis, where the Company is responsible for losses incurred up to

one-third of the principal balance on each loan with two-thirds of the loss covered by Fannie Mae. For loans that have been

sold through this program, a liability is recorded for this loss sharing arrangement under the accounting guidance for

guarantees. At September 30, 2025, the total unpaid principal balance of loans sold under this programwas$1.8 billion and

the Company’s reserve liability related to this arrangement totaled$554 thousand. There was a reversal of provision of

$340 thousand andno actual losses were incurred for the quarter and nine months ended September 30, 2025. Balances and

activity from the DUS Program are reported beginning on the Merger date of September 2, 2025, therefore there were no

balances or activity for the quarters and nine months ended September 30, 2024 and as of December 31, 2024.

In the ordinary course of business, the Company sells residential mortgage loans to government sponsored enterprises and

other entities. Under the terms of these sales agreements, the Company has made representations and warranties that the

loans sold meet certain requirements. The Company may be required to repurchase mortgage loans or indemnify loan

purchasers due to defects in the origination process of the loan, such as documentation errors, underwriting errors and

judgments, early payment defaults and fraud. The total unpaid principal balance of loans sold on a servicing-retained basis

that were subject to theterms and conditions of these representations and warranties totaled$4.5 billion as of

September 30, 2025.

At September 30, 2025, the Company had recorded a mortgage repurchase liability for loans sold on a servicing-retained

and servicing-released basis, included in accounts payable and other liabilities on the consolidated balance sheets of$738

thousand. There was a provision of$4 thousand andno actual losses were incurred for the quarter and nine months ended

September 30, 2025. Balances from loans sold on a servicing retained basis and the mortgage repurchase liability are

reported beginning on the Merger date of September 2, 2025, therefore there wereno balances as of December 31, 2024.

NOTE 13–FAIR VALUE

The term “fair value” is defined as the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. A fair value measurement assumes that the

transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability or, in the absence

of a principal market, the most advantageous market for the asset or liability. The Company’s approach is to maximize the

use of observable inputs and minimize the use of unobservable inputs when developing fair value measurements.

Fair Value Hierarchy

A three-level valuation hierarchy has been established under ASC 820 for disclosure of fair value measurements. The

valuation hierarchy is based on the observability of inputs to the valuation of an asset or liability as of the measurement

date. A financial instrument’s categorization within the valuation hierarchy is based on the lowest level of input that is

significant to the fair value measurement. The levels are defined as follows:

•Level 1–Quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity

can access at the measurement date. An active market for the asset or liability is a market in which transactions for

the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing

basis.

•Level 2–Inputs other than quoted prices included within Level 1 that are observable for the asset or liability,

either directly or indirectly. This includes quoted prices for similar assets and liabilities in active markets and

inputs that are observable for the asset or liability for substantially the full term of the financial instrument.

•Level 3–Unobservable inputs for the asset or liability. These inputs reflect the Company’s assumptions of what

market participants would use in pricing the asset or liability.

The Company’s policy regarding transfers between levels of the fair value hierarchy is that all transfers are assumed to

occur at the end of the reporting period.

Estimation of Fair Value

Fair value is based on quoted market prices, when available. In cases where a quoted price for an asset or liability is not

available, the Company uses valuation models to estimate fair value. These models incorporate inputs such as forward

yield curves, loan prepayment assumptions, expected loss assumptions, market volatilities and pricing spreads utilizing

market-based inputs where readily available. The Company believes its valuation methods are appropriate and consistent

with those that would be used by other market participants. However, imprecision in estimating unobservable inputs and

other factors may result in these fair value measurements not reflecting the amount realized in an actual sale or transfer of

the asset or liability in a current market exchange.

The following table summarizes the fair value measurement methodologies, including significant inputs and assumptions

and classification of the Company’s assets and liabilities valued at fair value on a recurring basis.

The following tables present the levels of the fair value hierarchy for the Company’s assets and liabilities measured at fair

value on a recurring basis:

There wereno transfers between levels of the fair value hierarchy during the quarters andnine months ended September

30, 2025 and 2024.

Level 3 Recurring Fair Value Measurements

The Company’s Level 3 recurring fair value measurements consist of investment securities AFS, single family MSRs, and

interest rate lock commitments, which are accounted for as derivatives. For information regarding fair value changes and

activity for single family MSRs during the quarter andnine months ended September 30, 2025, see Note 11, “Mortgage

Banking Operations.”

The fair value of IRLCs considers several factors, including the fair value in the secondary market of the underlying loan

resulting from the exercise of the commitment, the expected net future cash flows related to the associated servicing of the

loan (referred to as the value of servicing) and the probability that the commitment will not be converted into a funded loan

(referred to as a fall-out factor). The fair value of IRLCs on LHFS, while based on interest rates observable in the market,

is highly dependent on the ultimate closing of the loans. The significance of the fall-out factor to the fair value

measurement of an individual IRLC is generally highest at the time that the rate lock is initiated and declines as closing

procedures are performed and the underlying loan gets closer to funding. The fall-out factor applied is based on historical

experience. The value of servicing is impacted by a variety of factors, including prepayment assumptions, discount rates,

delinquency rates, contractually specified servicing fees, servicing costs and underlying portfolio characteristics. Because

these inputs are not observable in market trades, the fall-out factor and value of servicing are considered to be Level 3

inputs. The fair value of IRLCs decreases in value upon an increase in the fall-out factor and increases in value upon an

increase in the value of servicing. Changes in the fall-out factor and value of servicing do not increase or decrease based on

movements in other significant unobservable inputs.

The Company recognizes unrealized gains and losses from the time that an IRLC is initiated until the gain or loss is

realized at the time the loan closes, which generally occurs within 30-90 days. For IRLCs that fall out, any unrealized gain

or loss is reversed, which generally occurs at the end of the commitment period. The gains and losses recognized on IRLC

derivatives generally correlates to volume of single family interest rate lock commitments made during the reporting period

(after adjusting for estimated fallout) while the amount of unrealized gains and losses realized at settlement generally

correlates to the volume of single family closed loans during the reporting period.

The following information presents significant Level 3 unobservable inputs used to measure fair value of certain assets as

of September 30, 2025. As of December 31, 2024, there were no assets measured at fair value using Level 3 unobservable

inputs.

The following table presents fair value changes and activity for certain Level 3 assets for the periods indicated:

(1)Includes the assets acquired from the Merger on September 2, 2025

The following table presents fair value changes and activity for Level 3 interest rate lock commitments:

(1)Represents the interest rate lock commitments acquired from the Merger on September 2, 2025.

Assets and Liabilities Measured on a Nonrecurring Basis

Collateral Dependent Loan and Lease Receivables: The fair value of collateral dependent loan and lease receivables

with specific allocations of the allowance for credit losses based on collateral values is generally based on recent real estate

appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable

sales and the income approach. Adjustments are routinely made in the appraisal process by the appraisers to adjust for

differences between the comparable sales and income data available. Such adjustments are typically significant and result

in a Level 3 classification of the inputs for determining fair value. Loss exposure for collateral dependent loans is typically

determined by the “practical expedient” which allows these loans to be assessed using the fair value of collateral method,

which compares the net realizable value of the collateral (fair value less costs of sale) to the amortized cost basis of the loan

(carrying value). The fair value of real estate collateral is based on appraisals, evaluations or internal values.

As of September 30, 2025 and December 31, 2024 there wereno collateral dependent loans with specific allowance

allocations of the allowance for credit losses, which are measured for impairment using the fair value of the collateral.

Other real estate owned: Nonrecurring adjustments to certain commercial and residential real estate properties classified

as other real estate owned are measured at the lower of the carrying amount or fair value, less costs to sell. Fair values are

generally based on third party appraisals of the property or internal evaluations based on comparable sales, resulting in a

Level 3 classification. Appraisals for both collateral-dependent impaired loans and real estate owned are performed by

certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose

qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Appraisal

Department reviews the assumptions and approaches utilized in the appraisal as well as the overall resulting fair value in

comparison with independent data sources such as recent market data or industry-wide statistics. These appraisals may

utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. In

cases where the carrying amount exceeds the fair value, less cost to sell, an impairment loss is recognized. Management

also considers inputs regarding market trends or other relevant factors and selling and commission costs.

Other real estate owned assets fall under a Level 3 fair value measurement methodology. The following table presents other

real estate owned recorded at fair value on a nonrecurring basis and still held on the consolidated balance sheet for the

periods indicated. Other real estate owned of$1.7 million as of September 30, 2025 was acquired in the Merger and

recorded at fair value as of the Merger date.

The following table presents losses due to write-downs of other real estate owned for the periods indicated and that were

still held at the end of each respective reporting period.

(1)Losses are included in other real estate owned related expense within noninterest expense on the consolidated income statements.

The following is a summary of the estimated fair value and carrying value of the Company’s financial instruments not

recorded at fair value in the consolidated financial statements as of September 30, 2025 and December 31, 2024:

Fair Value Option

Single family loans held for sale accounted under the fair value option are measured initially at fair value with subsequent

changes in fair value recognized in earnings. Gains and losses from such changes in fair value are recognized in net gain on

mortgage loan origination and sale activities within other noninterest income. The change in fair value of loans held for

sale is primarily driven by changes in interest rates subsequent to loan funding and changes in fair value of the related

servicing asset, resulting in revaluation adjustments to the recorded fair value. The use of the fair value option allows the

change in the fair value of loans to more effectively offset the change in fair value of derivative instruments that are used as

economic hedges of loans held for sale.

The following table presents the difference between the aggregate fair value and the aggregate unpaid principal balance of

loans held for sale accounted for under the fair value option as of September 30, 2025. As of December 31, 2024, there

wereno single family loans held for sale accounted for under the fair value option, since this election was made following

the Merger.

NOTE 14 –REVENUE FROM CONTRACTS WITH CUSTOMERS

All of the Company’s revenue from contracts with customers in the scope of ASC 606 is recognized within noninterest

income in the consolidated statements of income. A description of the Company’s revenue streams accounted for under

ASC 606 are as follows:

Service Charges on Deposit Accounts and Other Deposit Service Fees: The Company earns fees from its deposit

customers for transaction-based, account maintenance, and overdraft services. Transaction-based fees are recognized at the

time the transaction is executed as that is the point in time the Company fulfills the customer’s request. Account

maintenance fees, which relate primarily to monthly maintenance, are earned over the course of a month, representing the

period over which the Company satisfies the performance obligation. Overdraft fees are recognized at the point in time that

the overdraft occurs. Service charges on deposits are withdrawn from the customer’s account balance. Other deposit service

fees are recognized at the point in time that the transaction occurs or the services provided.

Trust Fees: The Company earns trust fees from its contracts with trust customers to manage assets for investment services.

These fees are primarily earned over time as the Company provides the contracted monthly services and are generally

assessed based on a tiered scale of the market value of assets under management (AUM) at month-end. Other related

services provided, which are based on a fixed fee schedule, are recognized when the services are rendered.

Merchant Processing Services, ATM processing and Debit Card Fees: ATM processing fees are recognized at the point

in time that the transaction occurs or the services provided. The Company earns interchange fees from cardholder

transactions conducted through the payment networks. Interchange fees from cardholder transactions represent a

percentage of the underlying transaction value and are recognized daily, concurrently with the transaction processing

services provided to the cardholder.

The following is a summary of the revenue from contracts with customers in the scope of ASC 606 that is recognized

within noninterest income (loss):

NOTE 15–EARNINGS PER SHARE

The Company has two classes of common stock and, as such applies the “two-class method” of computing earnings per

share in accordance with ASC 260, “Earnings Per Share.” Earnings are allocated in the same manner as dividends would be

distributed. The Company’s common shareholders are entitled to equally share in all dividends and distributions based on

such shareholders’ pro rata ownership interest in the Company, except that each share of Class B common stock is treated

as if such share had been converted into ten Class A Shares for purposes of calculating the economic rights of the Class B

Shares, including upon liquidation of the Company or the declaration of dividends or distributions by the Company.

The following tables summarize the calculation of earnings per share under the two-class method:

(1) Periods prior to September 2, 2025 have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from

the Merger of 3,301.0920 for Class A common stock and 330.1092 for Class B common stock.

(1) Periods prior to September 2, 2025 have been restated as a result of the adjustment to common shares outstanding based on the exchange ratio from

the Merger of 3,301.0920 for Class A common stock and 330.1092 for Class B common stock.

(2)Excluded from the computation of diluted earnings per share (due to their antidilutive effect) for the nine months ended September 30, 2024 were

certain unvested RSUs. On a weighted average basis,112,237 unvested RSUs were excluded because their effect would have been anti-dilutive.

NOTE 16–SUBSEQUENT EVENTS

The Company has evaluated and concluded that no subsequent events have occurred through the date of issuance of the

financial statements that would require recognition in the consolidated financial statements or disclosure in the notes to the

consolidated financial statements.