8-K: FirstSun Capital Bancorp to Acquire HomeStreet in Strategic Merger, Announces $175 Million Equity Raise

FirstSun Capital Bancorp and HomeStreet, Inc. have agreed to merge in an all-stock transaction, creating a premier regional bank with approximately $17 billion in assets, supported by a $175 million equity raise.

Summary

• FirstSun Capital Bancorp will acquire HomeStreet, Inc. in an all-stock merger, with HomeStreet shareholders receiving 0.4345 shares of FirstSun for each HomeStreet share.
• The merger is expected to close in mid-2024, pending regulatory and shareholder approvals.
• A $175 million equity raise, led by Wellington Management, will support the merger, with $80 million invested immediately and $95 million upon closing.
• The combined entity will have approximately $17 billion in assets and 129 branch locations.
• The merger is projected to result in a 30%+ accretion to FirstSun's 2025 estimated EPS and a less than 2-year earn back on tangible book value dilution.
• The pro forma company is expected to have a return on average assets of approximately 1.4% and a return on average tangible common equity of approximately 17%.

Sentiment

Score: 8

Explanation: The document conveys a highly positive outlook on the merger, highlighting significant financial benefits, strategic advantages, and strong management teams. The equity raise and projected financial metrics suggest a well-structured and promising transaction. However, there are some risks and uncertainties associated with the integration and regulatory approvals.

Positives

• The merger creates a premier regional bank with a strong presence in high-growth markets.
• The combined entity will have a diversified loan portfolio and a strong deposit base.
• The transaction is expected to be significantly accretive to FirstSun's earnings.
• The merger is expected to result in a less than 2-year earn back on tangible book value dilution.
• The combined company will have a well-positioned balance sheet and revenue streams.
• The merger brings together experienced management teams from both companies.
• The equity raise strengthens the pro forma company's capital position with a CET1 of 9%+ at the consolidated BHC level and 10%+ at the bank level.

Negatives

• The merger involves some tangible book value dilution at close, estimated at approximately 6.5%.
• There are integration risks associated with combining the two companies.
• The transaction is subject to regulatory and shareholder approvals, which could introduce delays or conditions.
• There are potential costs and expenses related to the merger that could be greater than anticipated.
• The combined company will have a combined Durbin pre-tax dis-synergy of ~$7 million annually on a fully phased in basis.

Risks

• The merger may not achieve the expected cost savings and synergies.
• There is a risk of disruption to customer, supplier, and employee relationships.
• The transaction could be delayed or terminated due to various factors, including regulatory hurdles.
• Changes in the interest rate environment could adversely affect the combined company's financial performance.
• There is a risk of potential litigation or regulatory action related to the transaction.
• The integration of HomeStreet's operations into FirstSun's may be more costly or difficult than expected.
• The combined company faces risks related to data security, competition, and economic conditions.

Future Outlook

The combined company is expected to be a premier regional bank with strong growth potential, operating in attractive markets and delivering superior financial performance. The merger is expected to enhance the ability to deliver stronger and more sustainable growth with greater earnings power and shareholder value creation.

Management Comments

• Mollie Hale Carter, Executive Chairman of FirstSun, stated that the merger will enhance the ability to deliver stronger and more sustainable growth.
• Neal Arnold, CEO of FirstSun, expressed excitement about the strategic synergies and opportunities created by the merger.
• Mark Mason, Chairman, CEO and President of HomeStreet, believes the merger validates the intrinsic value of HomeStreet and allows shareholders to participate in the benefits of the combination.
• Nick Adams, portfolio manager at Wellington Management, stated they are excited to be an anchor investor in the creation of a new $17 billion asset bank.

Industry Context

This merger reflects a trend of consolidation in the banking industry, particularly among mid-sized regional banks seeking to achieve greater scale, diversification, and efficiency. The combination of FirstSun and HomeStreet aims to create a stronger competitor in the Southwest and West Coast markets.

Comparison to Industry Standards

• The pro forma company's projected ROAA of 1.4% and ROATCE of 17% are expected to be above peer levels, which are around 1.2% and 16% respectively for banks with assets between $15 and $30 billion.
• The merger is expected to result in a less than 2-year earn back on tangible book value dilution, which is favorable compared to some recent M&A deals.
• The combined company's capital ratios are projected to be strong, with a CET1 ratio of 9%+ at the BHC level and 10%+ at the bank level, which is in line with or better than recently closed M&A comps.
• The pro forma company's fee income to total revenue of 22% is higher than the peer median of 17% for banks with assets between $15 and $30 billion.

Management Changes

Stakeholder Impact

• Shareholders of HomeStreet will receive shares of FirstSun, participating in the potential upside of the combined company.
• Shareholders of FirstSun will benefit from the accretive nature of the merger and the enhanced growth prospects.
• Customers of both banks will have access to a broader range of products and services.
• Employees of both banks will have opportunities for career growth within the larger organization.
• The merger is expected to create a stronger and more stable financial institution, benefiting the communities it serves.

Next Steps

• Obtain regulatory approvals for the merger.
• Secure shareholder approvals from both FirstSun and HomeStreet.
• Complete the $175 million equity raise.
• Integrate the operations of HomeStreet into FirstSun.
• List the combined entity on the NASDAQ.

Key Dates

Keywords

merger, acquisition, bank, FirstSun Capital Bancorp, HomeStreet, equity raise, regional bank, financial services, Wellington Management, shareholders