Company: MCHB
Filing Date: 2025-03-07
Form Type: 10-K
Source: 0001518715-25-000026
Chunk: 77

Company: Mechanics Bancorp
Filing Date: 2025-03-07
Form: 10-K
Item: Item 8
Chunk 77
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 evaluation of the relevance and reliability of data utilized in the calculation of the economic Q-Factor.

•Tested the mathematical accuracy of economic Q-Factor adjustments within the ACL model.

•Tested the relevance and reliability of the data used in the determination of economic Q-Factor adjustments.

•Evaluated the reasonableness of management’s assumptions and judgments used in the determination of the economic Q-Factor adjustments and the resulting allocation to the qualitative allowance for the ACL on loans. 

Single Family Mortgage Servicing Rights — Projected Prepayment Speed and Discount Rate Assumptions — Refer to Notes 1, 9, and 13 to the financial statements

The Company initially records, and subsequently measures, single family mortgage servicing rights (“MSRs”) at fair value and categorizes its single family MSRs as “Level 3” financial instruments. Changes in the fair value of single family 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 model inputs used to estimate the fair value of single family MSRs include assumptions regarding projected prepayment speeds and discount rates. The Company's methodology for estimating the fair value of single family MSRs is highly sensitive to changes in these assumptions.

We identified the auditing of the projected prepayment speed and discount rate assumptions used in the single family MSRs valuation as a critical audit matter because of the significant judgment applied by management in evaluating these assumptions. In addition, auditing the Company’s single family MSRs valuation required a high degree of auditor judgment and an increased 

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extent of effort, including the need to involve third party fair value specialists to evaluate the reasonableness of management’s assumptions related to the selection of projected prepayment speeds and discount rates used in the valuation of the single family MSRs.

The primary audit procedures we performed to address this critical audit matter included the following:

•Tested the design and operating effectiveness of controls related to the appropriateness of the fair value of single family MSRs, including management’s review of the projected prepayment speeds and discount rates.

•Compared management’s estimate of fair value of single family MSRs to a fair value estimate independently determined by a third party fair value specialist using projected prepayment speeds and discount rates obtained from market survey data.

By:/s/ Crowe LLP

We have served as the Company's auditor since 2023.

Los Angeles, California

March 7, 2025

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