Company: MCHB
Filing Date: 2025-07-03
Form Type: S-4
Source: 0001140361-25-024872
Chunk: 87

Company: Mechanics Bancorp
Filing Date: 2025-07-03
Form: S-4
Chunk 87
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 for the federal funds rate by 525 basis points. Between September 2024 and December 2024, the Federal Reserve Board decreased its target range for the federal funds rate by 100 basis points and indicated that further changes may occur in 2025. Changes in interest rates have in the past and may continue to impact Mechanics’ net interest income in the future as well as the valuation of its assets and liabilities. Mechanics’ earnings are significantly dependent on its net interest income, which is the difference between interest income on interest-earning assets, such as loans and securities, and interest expense on interest-bearing liabilities, such as deposits and borrowings. Mechanics expects to periodically experience “gaps” in the interest rate sensitivities of its bank assets and liabilities, meaning that either Mechanics’ interest-bearing liabilities will be more sensitive to changes in market interest rates than Mechanics’ interest-earning assets, or vice versa. In either event, if market interest rates should move contrary to Mechanics’ position, this “gap” may work against Mechanics, and Mechanics’ results of operations and financial condition may be adversely affected. Given the potential for an adverse impact on Mechanics’ net interest income associated with interest rate cycle transitions, Mechanics periodically evaluates its current “gap” position and determines whether a repositioning of Mechanics’ balance sheet is appropriate. Asymmetrical changes in interest rates, such as if short-term rates increase or decrease at a faster rate than long-term rates, can affect the slope of the yield curve. A continued inversion of the yield curve, as measured by the difference between 10-year U.S. Treasury bond yields and 3-month yields, could adversely impact the net interest income of Mechanics’ business as the spread between interest-earning assets and interest-bearing liabilities becomes further compressed. A subset of Mechanics’ loans are advanced to its customers on a variable or adjustable-rate basis and a subset of Mechanics’ loans were advanced to Mechanics’ customers on a fixed-rate basis. As a result, an increase in interest rates could result in increased loan defaults, foreclosures and charge-offs and could necessitate further increases to the allowance for credit losses, any of which could have a material adverse effect on Mechanics’ business, financial condition or results of operations. The inability of certain of Mechanics’ loans to adjust downward can contribute to increased income in periods of declining interest rates, although this result is subject to the risks that borrowers may refinance these loans during periods of declining interest rates. Also, when adjustable rate loans have interest rate floors, there is a further risk that Mechanics