$7.90
$15.40
bear $7.90
base $12.70
bull $15.40
margin of safety $7.50
market price* $14.35
Mechanics Bancorp is the holding company for Mechanics Bank, a 121-year-old community bank with 166 branches in California, Washington, Oregon and Hawaii. It formed on September 2, 2025, when HomeStreet Bank merged into Mechanics Bank in a reverse merger; the combined company is run by the legacy Mechanics team and is controlled by the Ford Financial Funds, which hold most of the voting power. Because the business we are valuing is the combined bank, we look only at results from the legacy Mechanics side (2024 and 2025). HomeStreet's earlier history describes a different, weaker business and is not used. How we measured earnings. We start from operating cash flow, remove swings in other assets and liabilities, and subtract stock compensation and equipment spending. On that basis owner earnings were about $1.39 per share in 2024 and $0.95 per share in 2025. Two items matter. First, 2024 cash flow adds back a $207.2 million loss from selling low-yielding bonds in a balance-sheet restructuring; that loss is a one-time reinvestment of the portfolio, so we treat the add-back as legitimate but do not think 2024 is the level to expect going forward. Second, 2025 includes $73.4 million of merger and integration costs and only four months of HomeStreet, while the $145.5 million accounting gain on the merger is non-cash and is not counted. Owner earnings fell about 32 percent from 2024 to 2025. We assume no growth in the first year (above that trailing decline) because the decline was driven by the disclosed one-time merger costs and the unusual 2024 base, not by a fall in underlying earning power; we still do not lift the starting level for the costs disappearing. Net income for the first half of 2026 was $0.46 per share ($0.26 in the second quarter), consistent with a run rate near $0.95 per share, so we anchor at $0.95. Base case, $12.70 per share. Owner earnings stay at about $0.95 per share for ten years, then drift down 3 percent a year. We credit no growth: loans and deposits are not on a proven, repeatable growth path (deposits fell $660 million in 2025), and merger savings or share gains are not yet evidenced. What keeps earnings going is the deposit and branch franchise built over 121 years, which is why we fade rather than end them. Bear case, $7.9 per share. Owner earnings drop to about $0.65 and stay there, fading 5 percent a year after year ten. Named pressures: problem loans rose to $42.9 million from $10.7 million (0.30 percent of loans) while reserves fell to 1.08 percent of loans coverage relative to nonaccrual loans, deposit costs have to be paid on a mix shifting toward certificates of deposit, $192.0 million of long-term debt carries a 9.85 percent average cost, and the controlling holder can influence capital decisions. The 2024 bond-portfolio loss shows the bank will take losses to reposition. Bull case, $15.4 per share. Owner earnings reach about $1.15 per share, the level implied if the $73.4 million of disclosed one-time costs do not repeat, then fade 3 percent a year after year ten. Second-quarter 2026 earnings of $0.26 per share annualise near that level. What would make this wrong: a credit downturn in the acquired HomeStreet loan book (acquired loans are recorded at fair value estimates that are described as preliminary), or a sharp move in funding costs. Not reconciled from the filings: how much of the 2025 loan growth in nonaccrual loans is acquired versus originated. We do not subtract debt from value; leverage is reflected in the bear case.