Mechanics Bancorp (MCHB) 2025 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Mechanics Bancorp third-quarter 2025 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the call over to Nathan Duda, Chief Financial Officer of Mechanics. Please go ahead.

Thank you, operator, and good morning, everyone. We appreciate you joining our earnings conference call. With me here today are CJ Johnson, our President and CEO; and Carl Webb, our Executive Chairman.

The related earnings press release and earnings presentation are available on the News and Events section of our Investor Relations website. Before we begin, I'd like to remind everyone that any forward-looking statements are subject to risks, uncertainties, and other factors that could cause actual results to differ materially from those anticipated future results. Please see our Safe Harbor statements in our earnings press release and in our earnings presentation.

All comments expressed or implied made during today's call are subject to those Safe Harbor statements. Any forward-looking statements made during this call are made only as of today's date and we do not undertake any duty to update such forward-looking statements except as required by law. Additionally, during today's call, we may discuss certain non-GAAP financial measures which we believe are useful in evaluating our performance. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measure can also be found in our earnings release and in the earnings presentation.

CJ, let me hand it over to you.

Thank you, Nathan, and good morning. Thank you for joining our call. I'm going to start by hitting the highlights of our third-quarter results and then provide an update on the progress we've made since our merger with HomeStreet Bank on September 2. I'm also going to lay out for you an overview of Mechanics, including some of the key investment highlights for our company. I'll also hit on our future strategy before handing things over to Nathan, who will review our third-quarter results in more detail. Carl will also say a few words, and then we'll open up the call for your questions.

With that, let's turn to slide 4. We had a great third quarter reporting $55.2 million of net income for a 1.18% ROAA and a 14.2% ROATCE. On a fully diluted basis, our earnings per share was $0.25 and our tangible book value per share ended the quarter at $7.73. There was a lot going on this quarter given the merger, so I will walk you through some of major items.

After taking into account all of the fair value marks, we are very pleased to report a preliminary $90.4 million after-tax bargain purchase gained for the quarter. However, we did record substantial one-time expenses related to the merger, notably $27.8 million of compensation costs, including changing control payments to departing executives, severance, and stock vesting expense. $21.2 million of costs associated with terminating HomeStreet's core systems contract, and $14.9 million of other one-time acquisition charges, primarily advisor fees and other professional services related to our integration.

In addition, we built substantial loan loss reserves during the quarter. This is reflected in the $47 million provision expense due to the one-time non-PCD double count and increases to CECL factors. At September 30, our ACL equaled 1.16% of total loans. Our total assets are now $22.7 billion, with total gross loans of $14.6 billion, total deposits of $19.5 billion, and tangible shareholder's equity of $1.8 billion.

I am happy to report that we are 100% core funded as all legacy HomeStreet wholesale funding was paid off in September, and there are no remaining broker deposits or FHLB borrowings. Our balance sheet will continue to shrink modestly in the coming quarters as we tighten pricing and continue to run off high-cost legacy HomeStreet CDs.

Our cost of deposits was 1.53% in September. And we are in great shape, in my view, to deliver on our original 1.4% cost of deposit forecast for the fourth quarter of 2025. Our NIM was 3.5% in September and should modestly expand moving forward as our deposit cost decline and legacy Mechanics Bank earning assets reprice.

Turning to slide 5, I'd like to update you on some of the key highlights of our merger with HomeStreet. As you can see on the left-hand side of the page, across the board, we have met or exceeded our expectations for key metrics. Wholesale funding is 0% and non-interest-bearing deposits is 35% as budgeted.

However, our 75% loan to deposit ratio is more favorable than anticipated, primarily driven by higher-than-expected payoffs of legacy HomeStreet commercial real estate owners. Our CET1 ratio at 13.4% is 100 basis points higher than expected due to both greater capital at close and lower risk weighted assets. Our TCE to TA ratio at 9/30 is also modestly higher than expected at 8.2%. And our CRE concentration ratio is lower than projected at 360%. And only 115% if you exclude multifamily loans.

We remain very confident in the future earnings power of Mechanics and reiterate our earnings forecast that we initially provided you back in March, which is for $302 million of fully synergized earnings in 2026 and $325 million of GAAP net income in 2027. For 2026, this approximates an 18% ROTC and a 1.4% ROAA.

Focusing on the highlights of the merger on the right-hand side of the page, we were pleased to get this complicated reverse merger closed so quickly and appreciate our strong relationship with our key regulatory partners at the FDIC, California DFPI, and Federal Reserve. Our core systems integration is on track for March 2026. And we expect to deliver on our initial cost savings estimate of $82 million, which should be fully phased in by the end of June 2026.

Importantly, this cost savings figure implies an annual run rate, non-interest expense for mechanics of approximately $450 million to be achieved starting next July. Our preliminary purchase accounting marks, including the final interest rate mark of $188 million, even better than expected and contributed to the $90.4 million after-tax bargain purchase gain.

To sum it up, our merger with HomeStreet was both financially and strategically compelling. Top decile deposits, a clean balance sheet, a strong ACL, and robust capital levels, which positions Mechanics to be the leading West Coast community bank.

Over the next few pages, I'll walk you through some of the highlights of our unique franchise and why this merger was so advantageous for our company. So let's flip to slide 6, which shows an overview of Mechanics Bancorp today. Again, we are just under $23 billion in assets with 166 branches and tremendous deposit market share across the West Coast.

On the right-hand side of the page is our new branch map. And we are very excited to add 56 solid branches in the attractive markets of Washington, Oregon, Hawaii, and Southern California. We believe by any standard, Mechanics will be a high performing company once our merger integration is complete. I'll draw your attention to a few statistics about halfway down the page on the left-hand side.

This is a comparison of Mechanics versus the KRX index, which including us has 51 banks in the comparative group. What you can see is that our cost of deposit for the third quarter was 1.45% as compared to the average for the KRX of 1.98%, giving us a rank of number 10. And I expect this rank to improve over the next few quarters as we continue to run off high-cost legacy HomeStreet CDs.

Next, our non-interest-bearing deposit mix is 35%, which is in the top three of the KRX. And the last one I will mention is our expected 2026 ROATCE of 18%, which would be in the top five of the KRX. A theme that you will hear us speak to often is our belief that mechanics will achieve these great returns despite a mix of relatively low risk earning assets, primarily because our funding base is so outstanding. We are also efficient with both our expenses and our capital, which adds up to a high-performing, low-risk bank and, in our view, should command a premium multiple over time as we execute on our business plan and deliver results.

The final point I'll highlight at the bottom left of this page is the runoff of our auto loan portfolio. We have $4 billion in loans with Mechanics Bank Auto Finance at the beginning of 2023 and made a very strategic and difficult decision that February to exit the line of business. That decision de-risked our balance sheet, improved profitability, and freed up tremendous liquidity, which will continue to benefit Mechanics into 2026.

Turning to slide 7, here, we compare our key profitability and capital metrics against those of our West Coast peers. As you can see, we compare very, very well. We project an 18% fully synergized ROATCE in 2026, which is significantly higher than that of our nearest competitor. Our ROAA should reach 1.4% next year, and our third-quarter CET1 ratio is the second highest among our peers.

Slide 8, we are excited to now be the fourth largest West Coast bank and third largest California bank by deposit and measuring community banks with less than $250 billion assets. We have created a full west coast footprint from Mexico to Canada all the way out to Hawaii through the merger. Seattle and Los Angeles are fantastic markets. And Southern California was the one part of the state where we lacked branch density; and that's now been solved. There is tremendous scarcity value in the franchise we have built. And it's very difficult, if not impossible, to replicate our branch footprint, especially with the quality of deposits that we possess.

Let's turn to slide 9. Mechanics Bank now has top 10 deposit market share in many highly attractive West Coast MSAs, including San Francisco, Seattle, and all across the central coast of California. Washington and California are especially attractive states for banking, with large hybrid economies, leading technology media and healthcare companies, and many exceptional universities. California is the fifth largest GDP in the world, if it was its own country. And Seattle is one of the fastest growing large cities in the US. The breadth of our branch footprint and the strength of our market share across the West Coast will allow us to compete very effectively against the big banks.

Turning to slide 10, we believe that Mechanics Bank has one of the most attractive high quality deposit franchises in the US. Our average deposit size is only 43,000 per account, with an average account tenure of just over 17 years. We also have a highly diversified customer base, with 52% consumer accounts, 41% business accounts, and 7% public funds. Most importantly, we have no broker deposits or wholesale relationships. You can look in the appendix for a very detailed stratification of our deposit.

Our focus is on profitably growing core deposits. Top right chart shows this as prior to our merger with HomeStreet, we grew core deposits $700 million since the third quarter of 2019 despite closing 32 branches after our acquisition of Rabobank California franchise. I won't spend too much time on them now, but the bottom two charts highlight how our cost of deposits, our non-interest-bearing mix, and our deposit data are outstanding relative to the competition.

Slide 11 shows a 10-year look back on the top-notch credit quality of Mechanics Bank's loan portfolio. Since 2016, we've had no losses on construction or multifamily loans, and only nominal losses on commercial real estate from a few legacy Rabobank loans. Our non-performing assets to total assets have also consistently been well below peer levels. Without a doubt, Mechanics Bank has delivered consistently superior credit quality for the past decade.

Slide 12 is an important page, and I'll take some time going through it with you. Our commercial loan book is highly granular and well-diversified across both collateral types and geography. Looking at our CRE portfolio, we've always had a focus on multifamily lending as we believe it's an attractive form of lending with superior risk-adjusted returns, particularly on the West Coast and in Southern California, where demand for apartments is strong and supply is relatively limited.

Our average multifamily loan size is $4 million, with an average LTV of 54% and average debt service coverage ratio of 1.59 times. What we have seen over time, year in and year out, cycle in and cycle out, is that multifamily performs significantly better than any other commercial real estate type. And it's a fundamentally different asset class that is driven by individuals needing housing as opposed to businesses occupying commercial space.

We have modest concentrations in retail, office, and other non-multi-family categories of CRE, all of which have been significantly de-risked since the Rabobank acquisition in 2019. Again, our loans are quite granular. With our average size of CRE retail and CRE office at $3.4 million and $2.1 million, respectively. Low LTVs and strong debt coverage. Our CRE concentration ratio requiring HomeStreet is now 360%. But again, you net out multifamily, it's only 115%.

Few other important items of note. First, we only have eight CRE office loans totaling $36 million in the various central business districts of major cities across the West Coast. Also, given the recent news out there, now we'd share that we only have $43 million of outstanding NDFI loans, or 29 basis points of our total loans, all acquired from HomeStreet and performing. We have no exposure to First Brands, TriColor, or the Cantor of the entities.

We do have $74 million of legacy HomeStreet multifamily loans to Cantor-affiliated individuals, which are all paying as agreed with full recourse and perfected first lien positions. One additional note to mention is that we plan to run off all the acquired HomeStreet syndicated loans over time, which today total $142 million in outstanding balance.

Turning to slide 13, I'd like to make a few points about how our management team thinks about not only growing the bank but also delivering operational excellence as we scale. For more than 40 years, the Ford Fund has been opportunistically acquisitive. We have built a skill set in bank M&A and integrations. We focus on trying to buy great deposit franchises that have addressable challenges.

Historically, those challenges have been credit issues. But with the banks we've acquired in the Mechanics platform, it's actually been a combination of operational and interest rate problems. M&A is our primary focus and expertise. We have long held to the philosophy that we can acquire market share more effectively and more efficiently that we can grow organically.

In our view, organic growth is important. It should approximate GDP. When you see outsized organic growth, oftentimes there are troubles ahead. While M&A is key, just as important is operational excellence. We are very focused on being great community partners, which helps us build exceptional deposit tenure and long-standing ties in our local markets.

We are continuously investing in technology to make sure we can compete and efficiently grow our bank. Importantly, we are conservative asset allocators as credit quality always comes first. We simply don't need to take excess risk, given how low cost our deposits are.

To wrap up, let's move to slide 14. I want to conclude my prepared remarks with a few thoughts on our strategy looking forward over the medium term. First and foremost, we will continue to opportunistically evaluate M&A while pursuing operational excellence. Our team has tremendous experience integrating acquisitions. And we look forward to a successful core systems conversion for HomeStreet which is scheduled for March 2026.

Our business model is a simple one and that will stay consistent. We will continue our prudence around mortgage and commercial real estate lending, which means we'll be a balance sheet lender with very little gain on sale. The CRE concentration ratio will decline over time, and we will explore strategic options to maximize the value of our multifamily lending business.

Our $955 million in outstanding auto loans will continue to run off. And at some point, we are likely to sell the remaining loans which will generate additional liquidity for the bank. We will maintain legacy HomeStreets residential construction lending business, which is well run. We will keep investing in and growing our wealth management line business.

We will always prioritize profitably growing core deposits across our retail and commercial channels. We know that in order to do this, we must continue to invest in technology across our bank to create a seamless customer experience. Finally, I'd like to add some commentary around our future capital strategy. As you know from our initial M&A presentation and callback in March, we plan to return a substantial amount of our excess capital in the form of dividends.

Ford Financial Fund owns 74% of Mechanics today. And our public market investors are highly aligned with both the general and limited partners of the fund. Going forward, we plan to return approximately 80% of our earnings as a regular recurring dividend beginning in the first quarter of 2026. We will efficiently allocate any other excess capital, first and foremost, to support the growth of the company.

If our capital generation exceeds our organic growth, we expect to repurchase shares or pay a special dividend depending on market conditions. To conclude, I can't emphasize enough how lucky I am to work with our many dedicated teammates at Mechanics, including our new colleagues who have joined us from HomeStreet.

We have a fantastic group of employees and a talented senior management team who make my job easy. I'd to especially call out our amazing finance team who has worked many late nights to get our books closed on a tight timeline following this complicated reverse merger that made us a public company. Overall, I could not be more excited with the opportunities that I see ahead for our customers, employees, and shareholders.

Let me now turn the call over to Nathan to dig into more detail on our third-quarter results. Nathan?

Thank you, CJ. Given that CJ covered the highlights of our third-quarter results, I'm going to skip to slide 17 and start with NII and our margin.

For the third quarter, net interest income increased $15.5 million or 11.9% to $145.7 million from $130.1 million in the linked quarter. Our net interest margin decreased 8 bps to 3.36%, primarily due to the deposits and long-term debt acquired from HomeStreet and non-recurring interest recoveries recognized in the second quarter.

As CJ discussed, our NIM was 3.5% in September, and we expect modest margin expansion looking forward as our deposit costs decline from the runoff of higher cost CDs and the recent and any future Fed rate cuts. In addition, going forward, we will have the full impact of the marked HomeStreet assets acquired in our yield, earning asset mix optimization, as well as the continued repricing of our legacy Mechanic Bank asset.

We also continue to expect a 1.4% cost of deposit at year end 2025, which will be 100% core funded, given that all of HomeStreet's legacy FHLB advances and broker deposits have been paid off. Focusing on the five-quarter trend, you can see the NIM expansion that occurred shortly after last year's Federal Reserve rate cuts.

While not all of the NIM expansion noted on the slide was attributable to the Fed rate cuts, including the noted $3.2 million of purchase credit impaired income in the second quarter, a meaningful portion of the NIM expansion was directly attributable to the Fed rate cut. When looking at the average earning assets mixed trend, you can see the modest impact of the merger and we expect to manage down our cash concentrations over the coming quarters to allow for the continued runoff of high-cost CD balances, fund profitable loans, or purchase additional investment.

Turning to slide 18, third-quarter non-interest income increased $90.2 million to $109.8 million from $19.6 million in the linked quarter. The rise was largely the result of a $90.4 million bargain purchase gain related to the merger with HomeStreet. Looking to the fourth quarter, we expect our run rate non-interest income to increase as we will have the benefits of two additional months of revenues from the merger.

Turning to slide 19, non-interest expense for the third quarter increased $72.2 million to $163.3 million from $91.1 million in the linked quarter. Merger related costs during the quarter were $63.9 million compared to $5.6 million in the linked quarter and included severance and control payout, merger-related professional services expenses, and termination contract related expenses.

Excluding these one-time merger related costs, salaries and benefits increased $6.4 million during the third quarter, mainly due to higher salary and employee benefits related to the addition of HomeStreet Bank personnel. Occupancy and equipment increased $2.2 million, mainly due to new location expenses and equipment expenses related to the merger. Professional services decreased $0.3 million. Amortization of intangibles increased $1.6 million, mainly from the addition of CDI amortization from HomeStreet. And other expense increased $4.1 million, mainly due to data processing fees, loan-related expenses, and regulatory expenses.

I would note that we have already incurred a significant amount of our estimated $115 million of restructuring charges related to the merger, which includes severance and change in control payments for former HomeStreet employees, merger-related professional services expenses, and contract termination charges. Looking to the fourth quarter and into 2026, we would expect our reported non-interest expense and our core non-interest expense to decline as our merger and integration costs are completed, and we continue to execute on the operational efficiencies that we expect to achieve with the merger.

Turning to slide 20, loan interest income increased $21.7 million or 18% to $141.8 million from $120.1 million in the linked quarter. This increase was primarily driven by the impact of the acquired loans for one month. Loan yields decreased 3 bps in the third quarter, driven by $3.2 million of lower purchase credit impaired accretion on our CRE and C&I loan portfolios and continued runoff of our higher yielding auto loan portfolio.

These declines were partially offset by one-month benefit from the acquired marked HomeStreet loans. Our CRE concentration ratio increased to 360% in the quarter from 276% at the end of the second quarter, driven by acquired CRE loans from HomeStreet. At September 30, our loan portfolio was $14.6 billion, with a 5.37% yield on loans.

Turning to slide 21, health and maturity securities decreased $27.6 million to $1.4 billion while available-for-sale securities increased by $928 million to $3.5 billion as of September 30, 2025. The increase during the third quarter was due to the $1.1 million of par value securities acquired from the HomeStreet merger. These securities received a preliminary $93.4 million fair value discount as of day one.

Our securities interest income decreased by $1.7 million to $40.3 million from $42 million in the linked quarter. Despite the increase in balances due to the merger, average security balances for the third quarter was lower than the second quarter as we sold $926 million of securities in the second quarter to generate liquidity to pay down HomeStreet's non-core funding sources which drove the decline in interest income. Our updated portfolio yield in September was 3.94%.

Turning to slide 22, our deposit balances increased $5.4 billion to $19.5 billion at September 30, driven by $5.8 billion of acquired HomeStreet deposit which were partially offset by the plant runoff of high cost, money market and CDs during the quarter. Our total deposit cost were 1.53% in September.

As CJ discussed, we have a significant opportunity to reduce high cost HomeStreet funding, which will gradually improve our already low cost of funds. And we remain on track to achieve our target cost of funds of 1.4% by year end that we outlined at the time of our merger. Non-interest-bearing deposits represent 35% of total deposit at September 30, 2025, compared to 39% of total deposits at June 30, 2025. This decline was driven by the merger as HomeStreet's non-interest-bearing deposits relative to their total deposits was lower than legacy Mechanics.

Turning to slide 23, we remain well capitalized following our merger with HomeStreet as we have significant excess capital above an 8% Tier 1 leverage ratio at September 30. Our available liquidity totaled approximately $14.8 billion at quarter end, an increase of $1.6 billion compared to June 30, 2025. We expect our available liquidity to increase significantly in the fourth quarter as we complete the process of pledging the HomeStreet acquired loans with the federal home loan bank of San Francisco.

Turning to slide 24, you can see the legacy mechanics asset quality trends and the impact of the HomeStreet merger in the third quarter. As you can see from the charts, Mechanics has very little history of non-auto charge off or non-performing assets. The majority of Mechanics historical charge off were auto relates, and as mentioned earlier, that portfolio is in runoff mode and has consistently outperformed our modeled loss expectations.

At September 30, 2025, non-performing assets were $64.9 million compared to $19.3 million at June 30, 2025. The increase was mostly due to non-performing loans and leases and forth closed assets acquired from HomeStreet Bank. Performing assets as percentage of total assets increased to 0.29% at September 30, 2025, as compared to 0.12% at June 30, 2025.

Our loan loss reserves to total loans held for investment increased to 1.16%, mainly to establish reserves on the HomeStreet acquired assets as well as some factor increases to legacy Mechanics linked loan portfolio. This concludes my overview of our third-quarter results. I would now like to turn the call over to Carl for concluding remarks. Carl?

Thank you, CJ and Nathan. I have just a couple of very brief closing comments to add to our first earnings call for the new Mechanic's Bank. Next year, 2026, will mark 50 years of bank investing at the Ford Bank Group. We had the good fortune of being around for 43 of those 50 years.

In my opinion, and without reservation, today's Mechanics Bank is by far the best banking platform we have ever owned and controlled. And we've had some very highly valued banks over the years and through the cycles.

Now we have a mature West Coast franchise. And you've heard from CJ and Nathan the key financial metrics that exemplify our pride in this company and what we've assembled over the past 10.5 years. Importantly, I also feel we have tremendous optionality with this bank as we look to the future

As we think about next steps and the road ahead for this unique franchise, one thing we know for certain: no bank ownership or management group is more highly aligned nor more keenly focused on total shareholder return, capital efficiency and maximizing economic returns for both public and private investors that we hear at Ford Financial Funds.

Thank you for your participation in this morning's call, and now we will open the line for questions.

(Operator Instructions) Wood Lay, KBW.

Hey, good morning, guys. Thanks for taking my question. I wanted to start on the net interest margin, and you highlighted a 350 margin in the month of September. Outlook is for it to keep expanding from here. I think at deal announcement, you all kind of highlighted a fully synergized 390 NIM. I was just wondering if you all could walk through sort of the structural differences In the margin. Is the lower margin driven by lower fair value accretion, or is there another dynamic at play there?

I think for the fully synergized, that would be kind of back half of '26 is when we expect to be fully synergized. And so in my view, it almost right in line with what we had expected. I think as two components, that's going to be driving the modest increase over the coming quarters in the margin, which is we do expect deposit costs at the bank to decline.

We do benefit from cuts in the -- at funds rate as we are modestly liability sensitive on the short end of the curve. And we will have earning assets from legacy mechanics repricing, whether it's our legacy mortgages or multifamily loans or HTM portfolio that we can reinvest that will also lead to margin expansion.

Got it. So just to clarify, you all still believe that 390 margin is achievable by the back half of '26.

It's hard to predict net interest margins because they're obviously dependent on the curve. But we do think it's, potentially achievable, yes.

Got it. That's helpful. And then it's great to see sort of the net income assumptions unchanged. Could you just remind us the rate forecast that's baked into that assumption and kind of remind us how the impact of lower rate to NII?

The rate forecast that's baked into that assumption is 3 cuts, and that was as of March. I think we're now expecting it's been a lot of movement, but 4 to 5 cuts, moving forward. And I think it's -- we are liability sensitive as I mentioned on the short end. And so that would benefit us moving forward.

All right, and then last for me, I just wanted to talk about capital. And in the capital target I think at the announcement you all were sort of framing the target capital position at the Tier 1 leverage ratio around 8.25%. It seems like capital has certainly come in higher relative to initial expectations. So as the capital target moved up, in your mind, is that 8.25% a good target?

I think it's still good. We're -- I think that place is unchanged to eventually pay dividends in arrears to 8.25% leverage. If you looked at our Tier 1 leverage on a spot basis, it'd be 8.4% in September. So we were ahead from both TCE to TA leverage, and especially CET1, 100 basis points ahead of where we thought we'd be. So the capital position of the bank is favorable, and that's a very good thing.

Yes. All right. Well, thanks for taking my questions. First quarter was a good one, so congrats.

Woody, we appreciate it

Tim Coffey, Janney.

Good morning, everybody. I guess my first question has to do with -- my first question has to do with the how close you are to get into a full run rate on net interest income.

I think it's going to be -- again, the cuts that are forecast or happening predominantly over the coming 6 to 9 months. And so our view is it's probably going to be -- or probably back half of '26 where we see the full benefit of the rate cuts. And our margin reaching kind of that 390-ish run rate.

Okay.

(multiple speakers) we expected to increment up modestly over the next call it 3 to 4 quarters.

Okay. Great, thank you. And on the loan to deposit ratio, is it possible you could run a bit higher in the near term? Or have most of the (inaudible) but selective excess of HomeStreet deposit already taken place.

Well, there's a couple of things going on. We're still running off auto, and autoo's $955 million. And that's going to go to 0 or or close to it in the next 12 to 18 months. So that's a factor.

We expect to be growing certain parts of the balance sheet, mortgage. There are certain parts for other consumer lending we're very favorable on. There will be continued management down of multifamily and commercial real estate exposure over time. We are planning producing our CRE concentration ratio. So I would expect our loan to deposit ratio to modestly decrease. I think it'll be approaching closer to 70% in the near term. I think in the long-term, I do expect loan growth.

Right. And then this kind of follow-up on the M&A comments. I mean, you look at the footprint and the side deck does a great job of kind of pushing that into context. As one of three banks from the West Coast with sizable footings in the three major port markets out here, do you think that gives you a competitive advantage in looking at possible tucking deals?

Yeah, Tim, this is Carl Webb. I think if you look at our history and you look at our past, it may give you an indication of our future. To some extent, we for many years and through the cycles and in different geographies who have been acquisitive by nature. We like to think of ourselves as opportunistic situational buyers banks.

We do feel like we have a mature franchise, and we are essentially from San Diego to Seattle. Not surprisingly, we constantly monitor potential additive bolt-on acquisitions. And we've got a list of what a handful right now. Some are more actionable than others. But we think we do a pretty good job at it.

If we don't, it's certainly our fault because we've been doing it a long time. But I have great confidence in our through diligence, a potential acquisition. I have great confidence in our ability to model it. And I have great confidence in our ability to integrate it.

So yeah, we've always got an eye as to how we can -- and we never -- going to get bigger just for the sake of getting bigger. And that limits in some ways our opportunity because there aren't a lot of opportunities out there. And again, we always start on the left-hand side, and we finish on the left. And we think the true indicator of franchise value is your deposit cost, the percent of non-interest-bearing deposits to total deposits.

And we do want to get bigger just for the sake of getting bigger. We want to always be very protective of that deposit franchise. And you look around, there aren't a lot of opportunities that make us better on the liability side when you're in the top desk out of deposit cost in the entire country. But I think to your question, yeah, we're always looking. And obviously, the M&A market is so different today, both as a buyer and a seller. Then it has been in certainly recent memory. So we're always looking in all, I'll kind of leave it at that, and if that didn't answer your question, give me a follow-up.

No, that's perfect. I appreciate all that stuff. That's great. And then I just wanted to follow-up on a comment made in the previous question of mine about the multifamily concentration in the portfolio. Is kind of bringing that down, that concentrations down just a risk management proposal? Or is it something else because if you look at the multifamily market in Southern California, it is the second biggest apartment market outside of the five boroughs in New York, right?

And HomeStreet, although (inaudible) Northwest Bank was very active in that market. And the number of banks that that HomeStreet competed with has slowly started to decline over time. So it seemed to me that there's that more opportunity there, given kind of the number of vendors that have exited the market. But I'm just kind of wondering if the declining, bringing down the multifamiliies was really a function of just a risk management.

I get the question, and I think it's a good question. I'd say that pre-merger, we were sub-300 on our CRE concentrate of our total capital. Obviously, with the HomeStreet merger, they were north of 500%. And so that leaves us I think where we are today at 360%.

We are extremely comfortable with the rest of our multi-family portfolio. But we're also sensitive to the optics. And there's a -- and we have great regulatory relationship and we're we're very proud of our regulatory relationships. And there's a line out there that they like to see, and I understand it.

And so you will see us manage the multi-family portfolio down. I would also say, it's come down -- we thought it would be in the 390 range, and it's in the 360 range today. I think it's going to come down more quickly because of chaos, and obviously, ratio coming down.

So we will be opportunistic to kind of recycle some of these paydowns and some of the opportunities. And I 100% agree with your comments around Southern California multifamily. We're not managing it down for the risk profile as much as we are for -- and I don't want to use the word -- I don't want to overuse the word optics, some of it frankly is optics.

But whether it's our multifamily and we had quite a bit of information in the deck about our other CRE classes of office and retail and hospitality and the others. We're very comfortable with our commercial real estate portfolio. And I think our losses, our historic losses bear that out. And we managed it down significantly, post the Rabo acquisition in all subclasses of commercial real estate. So we're -- as you'd expect to say, but really, we have a lot of conviction around the asset quality of the bank in general and specifically in CRE. And again, we've always like multifamily; and it's been an asset class we're extremely comfortable with.

All right, that's great. Those are my questions. Thank you very much.

Thank you. We currently have no further questions. And I would like to hand the call over back to CJ Johnson for any closing remarks.

Thank you to everyone for participating in our call this morning. We appreciate your questions and your continued interest in mechanics. We are excited about the progress we've made in a short period of time and look forward to updating you on the fourth quarter earnings call in January.

If you have any follow-up questions, please reach out to us through our investor's email on the resources section of our Mechanics Bank Investor Relations website. Thank you very much for joining the call.

This now concludes today's call. Thank you for joining.