KBRA Assigns Ratings to Mechanics Bancorp; Upgrades and Subsequently Withdraws Ratings for HomeStreet, Inc.

Core Viewpoint - KBRA has assigned various credit ratings to Mechanics Bancorp and its subsidiary Mechanics Bank, indicating a stable outlook and reflecting the company's strong management and financial performance [1][3]. Ratings Summary - Mechanics Bancorp received a senior unsecured debt rating of BBB+, a subordinated debt rating of BBB, and a short-term debt rating of K2 [1]. - Mechanics Bank was assigned deposit and senior unsecured debt ratings of A-, a subordinated debt rating of BBB+, and short-term deposit and debt ratings of K2 [1]. - HomeStreet, Inc. was upgraded to a senior unsecured debt rating of BBB+ from BBB- and subsequently had all ratings withdrawn following its merger with Mechanics [2]. Management and Ownership - The management team, led by Ford Financial Fund, has a strong track record in community banking, with the fund holding approximately 74% ownership post-merger [3]. - Mechanics has achieved significant scale with approximately $23 billion in assets and a solid deposit market share in West Coast markets [3]. Funding and Profitability - The funding base is characterized by a high share of noninterest-bearing deposits (35% of total), minimal reliance on wholesale funding, and a total cost of funds of 1.45% in 3Q25 [3]. - Earnings are projected to improve from a core ROA of approximately 1.2% in 3Q25 to around 1.4% in 2026, driven by cost synergies and loan repricing opportunities [3]. Asset Quality - Mechanics' loan portfolio shows strong credit performance, with a conservative underwriting approach and a focus on a granular commercial real estate (CRE) portfolio [4]. - The CET1 ratio was solid at 13.4% in 3Q25 and is expected to rise toward 14% by year-end 2026, indicating a robust capital position [4].