Company: MCHB
Filing Date: 2025-03-07
Form Type: 10-K
Source: 0001518715-25-000026
Chunk: 43

Company: Mechanics Bancorp
Filing Date: 2025-03-07
Form: 10-K
Item: Item 7
Chunk 43
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ITEM 7MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

General

Management’s discussion and analysis of results of operations and financial condition ("MD&A") is intended to assist the reader in understanding and assessing significant changes and trends related to the results of operations and financial condition of our consolidated Company. This discussion and analysis should be read in conjunction with the consolidated financial statements and accompanying footnotes in Part II, Item 8 of this Form 10-K. A comparison of the financial results for the year ended December 31, 2023 to the year ended December 31, 2022, is incorporated by reference to Part II, Item 7, "Management Discussion and Analysis of Financial Condition and Results of Operations" in our Annual Report on Form 10-K for the year ended December 31, 2023.

Management's Overview of 2024 Financial Performance

Recent Developments

In the fourth quarter of 2024, the definitive merger agreement with FirstSun Capital Bancorp was terminated by mutual agreement. We then implemented a new strategic plan, which included selling $990 million of multifamily loans in the fourth quarter, that repositioned our balance sheet and accelerated our return to profitability, which we expect to occur in the first half of 2025. We sold loans with a weighted average interest rate of 3.30% and used the proceeds to pay off Federal Home Loan Bank advances and brokered deposits with a weighted average interest rate of 4.65%. The brokered deposits were paid off in early January 2025. 

Economic and Market Conditions

The current level of interest rates continues to adversely impact our results of operations as our overall cost of funds are high in relation to the yield on our earning assets, resulting in a low net interest margin. With the decrease in short term interest rates in the latter part of 2024, our cost of funds have stabilized and started to decrease. As a result of the fourth quarter loan sale, we have been able to improve our net interest margin by selling lower yielding loans and paying off higher cost wholesale funding. With the market expectation of ongoing reductions in short term interest rates by the Federal Reserve, we expect continued decreases in our funding costs and improvements in our gain on sale of loans as lower rates positively impact the volume of our loans originated and sold.

We have significant exposure in commercial real estate, primarily multifamily, and single-family loans in or near the areas affected by the wildfires in Southern California. We have been