FirstSun Capital Bancorp (the holding company of Dallas-based Sunflower Bank, N.A.) and HomeStreet (the holding company of HomeStreet Bank) announced today that they have entered into a definitive merger agreement, which was unanimously approved by the board of directors of both companies. And under the terms of the agreement, HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively, with HomeStreet Bank continuing to operate under its tradename in its current markets.
Under the terms of the deal, the companies 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, which represents a value of $14.75 per share, representing a 37% premium to the closing price per share of HomeStreet Shares on January 12, 2024. The combined entity is expected to be listed on the NASDAQ upon closing.
FirstSun also revealed today that 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: (a) $80 million of which will be issued to Wellington immediately following today’s merger announcement, and (b) the remaining $95 million of which will be issued concurrently with, and subject to, the closing of the merger. The proceeds of these funds are expected to support the pro forma company’s balance sheet, resulting in CET1 of 9%+ pro forma at the consolidated BHC level and 10%+ at the bank level.
Upon the 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.
After completion, 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 United States. 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.
Mollie Hale Carter (Executive Chairman of FirstSun) and Neal Arnold (CEO, President, and Director of FirstSun) will retain their current roles at the combined company. And Mark Mason, who currently serves as Executive Chairman, President & CEO of HomeStreet, will serve as Executive Vice Chairman at the combined company following the merger. Plus, three current HomeStreet directors, inclusive of Mason, will join the combined company board of directors at closing.
These are the strategic benefits of the deal:
1.) Operating in the largest and fastest-growing markets – Presence in 6 of the top 10 fastest-growing MSAs in the United States and 8 of the 10 largest Central and Western United States MSAs.
2.) 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 multi-family lending platform and two similarly sized single-family lending platforms.
3.) Combination of two top-tier core deposit franchises – Granular deposit relationships with an emphasis on generating low-cost core deposits support overall growth prospects.
4.) 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.
5.) Material and immediate upside to current valuation – Major valuation upside as the combined company is expected to generate profitability returns above peer levels.
The financial benefits of the transaction are compelling, with an estimated 2025 EPS accretion of 30%+ and a < 2 years earn back on tangible book value dilution. And the pro forma combined company financial metrics are based on management estimates for FirstSun and HomeStreet, estimated combined company cost synergies, anticipated purchase accounting adjustments, the expected merger closing time-frame, and the capital raise. On a pro forma basis, the business is expected to deliver compelling operating and return metrics in 2025 with cost savings on a fully phased in basis, including:
1.) Total Assets of approximately $17 Billion
2.) Tangible Common Equity at Closing of approximately $1.2 Billion
3.) Tangible Common Equity to Tangible Assets Ratio of ~ 7.2%
4.) Common Equity Tier 1 Capital Ratio of about 9.1%
5.) Net Interest Margin of about 3.9%
6.) Fee Income to Total Revenue of about 22%
7.) Return on Average Assets of about 1.4%; and
8.) Return on Average Tangible Common Equity of about 17%
Deal Details
FirstSun will be the legal and accounting acquirer and HomeStreet and HomeStreet Bank will merge with and into FirstSun and Sunflower Bank, respectively. And HomeStreet Bank will continue to operate under its name in its current markets of operation. Under the terms of the merger agreement, HomeStreet shareholders will receive 0.4345 of a share of FirstSun common stock for each share of HomeStreet common stock.
In the equity capital raise transaction, FirstSun will sell about (i) 2.46 million shares of its common stock at an issuance price of $32.50 per share at the announcement of the merger and (ii) 2.92 million shares of its common stock at an issuance price of $32.50 per share at the closing of the merger.
KEY QUOTES:
“It brings us great excitement to welcome aboard HomeStreet’s valued customers and associates. We are 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. 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.”
— Mollie Hale Carter, Executive Chairman of FirstSun and Sunflower
“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. 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.”
— Mark Mason, Chairman, CEO and President of HomeStreet
“We are excited to be an anchor investor in the creation of a new $17 billion asset bank serving customers in high growth markets in the US. 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.”
— Nick Adams, portfolio manager, Wellington Management
