v3.26.1
MORTGAGE BANKING OPERATIONS
 6 Months Ended
Jun. 30, 2026
Mortgage Banking [Abstract]  
MORTGAGE BANKING OPERATIONS MORTGAGE BANKING OPERATIONS
LHFS consisted of the following:
(in thousands)June 30, 2026December 31, 2025
Single family$5,345 $5,967 
Total$5,345 $5,967 
Loans sold consisted of the following for the periods indicated:
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Single family$23,728 $1,672 $55,958 $3,309 
Multifamily and other7,773 — 37,001 — 
Total$31,501 $1,672 $92,959 $3,309 
For the quarters and six months ended June 30, 2026 and 2025, there were no loans sold as part of securitizations.
Gain (loss) on loan origination and sale activities, including the effects of derivative risk management instruments, consisted of the following: 
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Single family (1)
$2,432 $(7)$3,259 $— 
Multifamily and other (1)
45 — 361 — 
Total$2,477 $(7)$3,620 $— 
(1)Gain (loss) on loan origination and sale activities is included in other noninterest income in the consolidated income statements.
The Company’s portfolio of loans serviced for others is primarily comprised of loans held in U.S. government and agency MBS issued by Fannie Mae and Freddie Mac. The unpaid principal balance of loans serviced for others is as follows:
(in thousands)June 30, 2026December 31, 2025
Single family$4,192,680 $4,370,577 
CRE, multifamily and SBA (1)
87,438 1,866,799 
Total$4,280,118 $6,237,376 
(1)On May 1, 2026, Mechanics Bank completed the previously announced sale of its Fannie Mae DUS business line to Fifth Third. Fifth Third acquired Mechanics Bank’s $1.7 billion in unpaid principal balance of multifamily loans serviced for Fannie Mae. As part of the transition in servicing to Fifth Third, Mechanics Bank is the sub-servicer of the DUS loans on an interim basis following the sale.
The following is a summary of changes in the Company’s liability for estimated single-family mortgage repurchase losses:
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Balance, beginning of period$674 $— $708 $— 
Additions, net of adjustments (1)
— — (32)— 
Realized (losses) recoveries, net (2)
— — (2)— 
Balance, end of period$674 $— $674 $— 

(1)Includes additions for new loan sales and changes in estimated probable future repurchase losses on previously sold loans.
(2)Includes principal losses and accrued interest on repurchased loans, “make-whole” settlements, settlements with claimants and certain related expenses.
The Company has agreements with certain investors to advance scheduled principal and interest amounts on delinquent loans. Advances are also made to fund the foreclosure and collection costs of delinquent loans prior to the recovery of reimbursable amounts from investors or borrowers. Advances of $871 thousand and $1.2 million were recorded in interest receivable and other assets as of June 30, 2026 and December 31, 2025, respectively.
When the Company has the unilateral right to repurchase Ginnie Mae pool loans it has previously sold (generally loans that are more than 90 days past due), the Company records the balance of the loans within assets as interest receivable and other assets and within liabilities as interest payable and other liabilities. At June 30, 2026 and December 31, 2025, there were no delinquent or defaulted mortgage loans currently in Ginnie Mae pools that the Company has recognized on its consolidated balance sheets.
Revenue from mortgage servicing, including the effects of derivative risk management instruments, consisted of the following:
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Servicing income, net:
Servicing fees and other$3,673 $168 $8,864 $345 
Changes in fair value of single family MSRs - other (1)
(1,482)— (2,924)— 
Amortization of multifamily and SBA MSRs(771)— (2,409)— 
Total1,420 168 3,531 345 
Risk management, single family MSRs:
Changes in fair value of MSRs due to assumptions (2)
646 — 1,348 — 
Net gain from economic hedging (3)
(484)— (1,370)— 
Total162 — (22)— 
Loan servicing income$1,582 $168 $3,509 $345 
(1)Represents changes due to collection/realization of expected cash flows and curtailments.
(2)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(3)Comprised of net gains on derivatives used as economic hedges of single family MSRs, and net gains on U.S. Treasury notes trading securities used for hedging purposes.
Single Family MSRs
Balances and activity for single family MSRs are reported beginning on the Merger date of September 2, 2025, therefore there were no balances or activity for the quarter and six months ended June 30, 2025.
The changes in single family MSRs measured at fair value are as follows:
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Beginning balance$57,630 $— $58,095 $— 
Additions:
Originations205 — 480 — 
Changes in fair value:
Changes in fair value assumptions (1)
646 — 1,348 — 
Other (2)
355 — (1,087)— 
Ending balance$58,836 $— $58,836 $— 
(1)Principally reflects changes in model assumptions, including prepayment speed assumptions, which are primarily affected by changes in mortgage interest rates.
(2)Represents changes due to collection/realization of expected cash flows and curtailments. In addition, includes a mortgage servicing rights valuation adjustment of $1.8 million for the quarter and six months ended June 30, 2026.
Key economic assumptions used in measuring the initial fair value of capitalized single family MSRs were as follows:
Quarter Ended June 30,Six Months Ended June 30,
(rates per annum) (1)
2026202520262025
Constant prepayment rate (CPR) (2)
12.30 %n/a12.20 %n/a
Discount rate (3)
8.90 %n/a8.85 %n/a
(1)Based on a weighted average.
(2)Represents an expected lifetime average CPR used in the model.
(3)Based on market observations.
For the fair value of single family MSRs as of June 30, 2026 and December 31, 2025, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant unobservable inputs as noted in the table below:
June 30, 2026December 31, 2025
(rates per annum)
Range of Inputs
Average (1)
Range of Inputs
Average (1)
CPRs (2)
5.03% - 12.83%
6.42 %
5.07% - 12.14%
6.96 %
Discount Rates (3)
8.89% - 17.33%
9.27 %
8.65% - 16.05%
8.97 %
(1) Weighted average rates for sales during the period for sales of loans with similar characteristics.
(2) Represents the expected lifetime average CPR used in the model.
(3) Based on market observations.
To compute hypothetical sensitivities of the fair value of our single family MSRs to immediate adverse changes in key assumptions, we computed the impact of changes to CPRs and in discount rates as outlined below:
(dollars in thousands)June 30, 2026
Fair value of single family MSRs$58,836 
Expected weighted-average life (in years) 8.13
CPR shock
    Impact on fair value of 10% increase in CPR$(1,085)
    Impact on fair value of 20% increase in CPR$(2,218)
Discount rate shock
Impact on fair value of 100 basis points increase$(2,463)
Impact on fair value of 200 basis points increase$(4,846)
Multifamily and SBA MSRs
Balances and activity for multifamily and SBA MSRs are reported beginning on the Merger date of September 2, 2025, therefore there were no balances or activity for the quarter and six months ended June 30, 2025.
The changes in multifamily and SBA MSRs measured at the lower of amortized cost or fair value were as follows: 
Quarter Ended June 30,Six Months Ended June 30,
(in thousands)2026202520262025
Beginning balance$26,370 $— $27,737 $— 
Originations— — 271 — 
Sale of MSRs - DUS business line (1)
(25,293)— (25,293)— 
Amortization(771)— (2,409)— 
Ending balance$306 $— $306 $— 
(1)On May 1, 2026, Mechanics Bank completed the previously announced sale of its Fannie Mae DUS business line to Fifth Third, which included DUS multifamily mortgage servicing rights of $25.3 million.
The fair value of multifamily and SBA MSRs was $412 thousand and $28.3 million at June 30, 2026 and December 31, 2025, respectively.
Key economic assumptions used in measuring the initial fair value of capitalized multifamily MSRs were as follows:
Quarter Ended June 30,Six Months Ended June 30,
(rates per annum) (1)
2026202520262025
Discount rate— %n/a13.00%n/a
(1) Weighted averages of all the inputs within the range.
For multifamily MSRs, we use a discounted cash flow valuation technique which utilizes CPRs and discount rates as significant unobservable inputs as noted in the table below. Multifamily DUS loans typically contain yield maintenance features that significantly reduce loan prepayments, resulting in a CPR of zero for valuation purposes.
June 30, 2026December 31, 2025
Range of Inputs
Average (1)
Range of Inputs
Average (1)
Discount rates
   15.00%
15.00 %
13.00% - 15.00%
13.07 %
(1) Weighted averages of all the inputs within the range.