Mechanics BancorpMCHB
Mechanics Bancorp Income Taxes Disclosure
INCOME TAXES
For the years ended December 31, 2025 and 2024, domestic pre-tax income was $319.6 million and $35.7 million,
respectively. The Company does not have income or income taxes related to foreign operations.
Income taxes are summarized as follows:
Year Ended December 31, | |||
(in thousands) | 2025 | 2024 | |
Current expense (benefit) | |||
Federal | $29,249 | $(2,314) | |
State | 13,551 | (218) | |
Total | 42,800 | (2,532) | |
Deferred expense | |||
Federal | 6,015 | 7,096 | |
State | 4,996 | 2,134 | |
Total | 11,011 | 9,230 | |
Total tax expense | $53,811 | $6,698 | |
The provision for income taxes for 2025 and 2024 differs from the amounts that would be computed by applying the
statutory federal income tax rate of 21.0%. The Company’s income tax expense, statutory federal income tax rate and
effective tax rate are reconciled as follows:
Year Ended December 31, | |||||||
2025 | 2024 | ||||||
(dollars in thousands) | Amount | Rate | Amount | Rate | |||
Federal statutory income tax expense (benefit) and tax rate | $67,105 | 21.0% | $7,496 | 21.0% | |||
State income taxes, net of federal tax benefit (1) | 14,652 | 4.6 | 1,514 | 4.2 | |||
Nontaxable or nondeductible items | |||||||
Tax exempt income | (1,270) | (0.4) | (602) | (1.7) | |||
Bank owned life insurance | (1,005) | (0.3) | (494) | (1.4) | |||
Nondeductible expenses | 4,223 | 1.3 | 370 | 1.0 | |||
Bargain purchase gain | (30,547) | (9.6) | — | — | |||
Tax credits | |||||||
LIHTC investments | (442) | (0.1) | (1,306) | (3.6) | |||
LIHTC credits | (5,015) | (1.6) | (3,317) | (9.3) | |||
LIHTC amortization | 5,176 | 1.6 | 3,412 | 9.6 | |||
Change in valuation allowance | — | — | (667) | (1.8) | |||
Other, net | 934 | 0.3 | 292 | 0.8 | |||
Total income tax expense | $53,811 | 16.8% | $6,698 | 18.8% | |||
(1)State taxes in California make up the majority (greater than 50%) of the tax effect in this category.
The effective tax rates differ from the federal statutory tax rate as a result of state taxes for which the Company is liable, as
well as permanent differences between amounts reported for financial statement purposes and taxable income. Temporary
differences between the amounts reported in the financial statements and tax bases of assets and liabilities result in deferred
taxes.
The net deferred taxes are reported in interest receivable and other assets in the consolidated balance sheets as of
December 31, 2025 and 2024. Deferred tax assets and liabilities at December 31, 2025 and 2024 are as follows:
December 31, | |||
(in thousands) | 2025 | 2024 | |
Deferred tax assets: | |||
Credit losses | $45,340 | $26,782 | |
Accrued liabilities | 26,294 | 25,039 | |
State taxes | 2,665 | 121 | |
Net operating loss and tax credit carryforwards | 37,772 | 2,668 | |
Loan valuation | 45,032 | — | |
Operating lease liabilities | 24,329 | 16,167 | |
Interest receivable and other | 944 | 936 | |
Unrealized loss on available-for-sale securities | 23,775 | 24,640 | |
Total deferred tax assets | 206,151 | 96,353 | |
Valuation allowance | (9,947) | — | |
Total deferred tax assets, net of valuation allowance | 196,204 | 96,353 | |
Deferred tax liabilities: | |||
Operating lease right-of-use asset | (23,007) | (15,432) | |
Intangible assets | (74,948) | (11,111) | |
Non marketable securities | (1,233) | (1,585) | |
Bank premises and equipment | (5,656) | (11,754) | |
Deferred loan costs | (3,937) | (3,710) | |
Deposits and long-term debt | (8,178) | — | |
Other | (3,544) | (1,115) | |
Total deferred tax liabilities | (120,503) | (44,707) | |
Total net deferred tax assets | $75,701 | $51,646 | |
The Company’s effective income tax rates (income tax expense as a percentage of income before income taxes) were
16.8% and 18.8% for the years ended December 31, 2025 and 2024 respectively. The effective income tax rates differ from
federal statutory rate as result of state income taxes for which the Company is liable, as well as permanent differences
between amounts reported for financial statement purposes and amount reported for income tax purposes, including the
recognition of excess tax benefits or deficiencies associated with share-based payment transactions through income tax
expense. The effective income tax rates also reflect the impact on pretax earnings from the recognition of a bargain
purchase gain in 2025 recorded in connection with the HomeStreet acquisition and realized losses from securities in an
unrealized loss position in connection with the Company’s portfolio rebalancing. In addition, the effective income tax rate
for 2024 reflects tax credits claimed in current and prior years.
The Company recorded no material unrecognized tax benefits for 2025 and 2024.
Management assesses the available positive and negative evidence to estimate if sufficient future taxable income will be
generated to permit use of the existing deferred tax assets.
In connection with the Merger, the Company acquired federal and state net operating losses and tax credit carryforwards.
At December 31, 2025, the Company had available net operating loss carryforwards for income tax purposes totaling
$184.3 million, consisting of federal and state losses of $117.7 million and $66.6 million respectively. Of the aggregate net
operating losses, $120.2 million has an indefinite expiration and $64.1 million will begin to expire in various years starting
in 2035.
In addition, the Company has various tax credit carryforwards in the amount of $8.4 million. The credits begin to expire in
2043.
Utilization of the net operating loss and tax credit carryforwards is subject to annual limitations due to the change in
ownership provisions of the Internal Revenue Code of 1986, as amended.
The Company believes that it is more likely than not that all of the acquired credits and a portion of the acquired net
operating losses will not be utilized within the statutory carryforward periods and recorded a valuation allowance through
purchase accounting.
The Company recorded a valuation allowance as of December 31, 2023, against certain capital loss carryforwards. The
capital losses were fully utilized against capital gains and the valuation allowance was released in the year ended
December 31, 2024.
The Company and its subsidiaries are subject to U.S. federal income tax as well as income in various state jurisdictions.
The primary non-federal jurisdiction is California. The Company’s federal tax returns are open and subject to examination
from the 2022 tax return year and forward. The years open to examination by state and local government authorities varies
by jurisdiction.
Income taxes paid, net of refunds, by jurisdiction for 2025 and 2024 are as follows:
Year Ended December 31, | |||
(in thousands) | 2025 | 2024 | |
Federal | $22,400 | $(356) | |
California | 8,403 | 3,282 | |
Other states (less than 5%) | 582 | 629 | |
Total | $31,385 | $3,555 | |
Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2025 | Mar 17, 2026 | Showing above |
| 2024 | Mar 7, 2025 | |
| 2023 | Mar 6, 2024 | |
| 2022 | Mar 6, 2023 | |
| 2021 | Mar 4, 2022 | |
| 2020 | Mar 12, 2021 | |
| 2019 | Mar 6, 2020 | |
| 2018 | Mar 6, 2019 | |
| 2017 | Mar 6, 2018 | |
| 2016 | Mar 9, 2017 | |
| 2015 | Mar 11, 2016 | |
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.