Denver-based FirstSun Capital Bancorp, the holding company of Dallas-based Sunflower Bank NA, and Seattle-based HomeStreet Inc. have agreed to merge, the companies announced. They also announced a $175 million investment raise to support the merger.
The companies said HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively, with HomeStreet Bank continuing to operate under its trade name in its current markets.
Sunflower Bank recently relocated its headquarters from Denver to the westernmost building of the Preston Commons in Dallas, at 8117 Preston Road, only months before the merger’s announcement.
“It brings us great excitement to welcome aboard HomeStreet’s valued customers and associates,” Mollie Hale Carter, executive chairman of FirstSun and Sunflower Bank, said in a statement. “We’re very confident that this merger will enhance our ability to deliver stronger and more sustainable growth with greater earnings power and shareholder value creation to our combined shareholders.”
“Each entity brings a presence in large, dynamic markets that are ripe for future organic growth,” Hale Carter added. “The combination of FirstSun and HomeStreet creates a premier midcap bank in the nation’s best markets and an opportunity to deploy FirstSun’s proven playbook of C&I focused growth. FirstSun is excited about the strategic synergies of this merger and the opportunities created to deliver strong sustainable growth and superior shareholder value creation. The HomeStreet team brings additional talent to enhance our specialty business line capabilities across this expanded footprint.”
Once completed, the merger will create a premier regional bank with $17 billion in total assets and 129 branch locations across some of the most attractive markets in the U.S., the companies said.
The combined entity is expected to be listed on the NASDAQ upon closing.
The financial picture
Under the terms of the agreement, the companies said they will combine in an all-stock transaction in which HomeStreet shareholders will receive 0.4345 of a share of FirstSun common stock for each share of HomeStreet common stock, representing a value of $14.75 per share. That’s a 37% premium to the closing price per share of HomeStreet Shares on Jan. 12, the companies said.
FirstSun also announced it has entered into investment agreements with investors to raise capital to support the merger, led by Wellington Management.
In aggregate, $175 million of common stock will be issued to those Investors: $80 million of which will be issued to Wellington immediately following the merger announcement, and the remaining $95 million of which will be issued concurrently with, and subject to, closing of the merger.
Upon completion of the merger, the shares issued to HomeStreet shareholders are expected to comprise 22% of the outstanding shares of the combined company, the shares issued to investors in the common stock issuance are expected to represent 14% of the combined company, and the expected remaining ownership of 64% will be held by legacy FirstSun common shareholders.
Combining markets and leadership
The companies said that the expanded footprint complements FirstSun’s current presence in the high growth markets of the Southwest to include HomeStreet’s strong presence in Southern California, Hawaii, and other key markets in the Pacific Northwest.
Hale Carter and Neal Arnold, CEO, president & director of FirstSun, will retain their current roles at the combined company.
Mark Mason, currently executive chairman, president & CEO of HomeStreet, will serve as executive vice chairman at the combined company following the merger. The companies said that three current HomeStreet directors, including Mason, will join the combined company board of directors at closing.
“This merger validates the intrinsic value of HomeStreet’s loyal customer base, strong management and dynamic markets in which we operate and allows our shareholders to participate in the benefits of the combination going forward,” Mason said in a statement. “The combined company will have an attractive and comprehensive product suite and market footprint as well as a more diversified loan portfolio and increased lending capabilities across asset classes, geographies and industry verticals. We believe this merger will also improve our customers’ experience and create new opportunities for our employees enabling us to retain and attract top talent. Both organizations share strong credit and risk management cultures and a deep commitment to our customers, community service and being good corporate citizens.”
Wellington Portfolio Manager Nick Adams said the combination is good for shareholders.
“We’re excited to be an anchor investor in the creation of a new $17 billion asset bank serving customers in high growth markets in the U.S.,” Adams said in a statement. “We believe bringing together these companies and combining their management teams will bolster the scale and diversification of their business and create greater value for shareholders.”
Per the companies, here are some of the advantages of the merger:
Operating in the largest and fastest growing markets: Presence in six of the top 10 fastest-growing MSAs in the nation and a presence in eight of the 10 largest Central and Western United States MSAs.
Complementary business lines and lending expertise: Minimal geographic operating overlap between FirstSun and HomeStreet provides for a complementary merger that combines a strong C&I platform with an extensive multifamily lending platform and two similarly sized single family lending platforms.
Combination of two top-tier core deposit franchises: Granular deposit relationships with an emphasis on generating low-cost, core deposits support overall growth prospects.
Well-positioned balance sheet and revenue streams regardless of macro-environment conditions: Interest rate neutral balance sheet through combining an asset sensitive FirstSun and a liability sensitive HomeStreet, as well as a fully marked HomeStreet loan and securities portfolio, and strong fee income sources, including HomeStreet’s Fannie Mae Delegated Underwriter and Servicer business.
Material and immediate upside to current valuation: Significant valuation upside as the combined company is expected to generate profitability returns above peer levels.
The companies said that the financial benefits of the transaction are “compelling,” with estimated 2025 EPS accretion of 30%+ and a less-than two years earn-back on tangible book value dilution.
FirstSun will be the legal and accounting acquirer and HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively.
The merger’s closing is expected in mid-2024.
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