Dive Brief:
- FirstSun Capital Bancorp will switch to a Texas state charter rather than a national one as it continues to pursue its acquisition of HomeStreet, the bank announced last week.
- FirstSun also revised downward the amount it is paying to HomeStreet shareholders. Under Tuesday’s amended agreement, HomeStreet investors will receive 0.3867 shares of FirstSun common stock for every HomeStreet common-stock share they own, or $13.53 per share. That’s down from 0.4345 FirstSun shares, or $14.75 per share, when the transaction was announced in January.
- HomeStreet will sell or dispose of $300 million in commercial real estate loans around the time the deal closes, FirstSun said Tuesday.
Dive Insight:
The charter change appears to be a way to avoid needing sign-off from the Office of the Comptroller of the Currency to complete the deal, now expected in the fourth quarter rather than mid-2024.
"In our discussions with the OCC in Washington, it became obvious that we would not gain near-term approval given their recent experience with multifamily and CRE positions," FirstSun CEO Neal Arnold said on a call Tuesday, according to American Banker.
Commercial real estate exposure has become a hot-button issue with regulators — particularly since New York Community Bank disclosed a surprise $252 million loss, owing mostly to CRE exposure, in January.
Charter changes have also turned into somewhat of a red flag in the banking merger sphere — again pointing back to NYCB. The Long Island-based bank restructured to complete its acquisition of Flagstar in 2022, such that Flagstar would be the surviving entity, and the company would be regulated by the OCC rather than the Federal Deposit Insurance Corp.
The FDIC, at the time, had misgivings about NYCB’s CRE exposure. The OCC, however, gave the deal a green light, calling the charter change “a business decision.”
That has since prompted Sens. Elizabeth Warren, D-MA, and Richard Blumenthal, D-CT, to accuse the OCC of being “asleep at the wheel” regarding its merger approval process.
On the call Tuesday, the CEOs of FirstSun and HomeStreet took pains to make a geographic contrast between CRE portfolios.
"Ours is a West Coast-based portfolio, which is significantly different from the East Coast, particularly relative to New York City," HomeStreet CEO Mark Mason said Tuesday, according to American Banker.
“Our belief is CRE is not the same across all categories and all geographies, and it's particularly distinguished when comparing West Coast multifamily and East Coast, New York multifamily," Arnold said.
Arnold said the OCC’s slow approach to the HomeStreet deal also stems from the fact that it is not the primary regulator for the Seattle-based bank.
FirstSun has withdrawn its application with the OCC. The HomeStreet transaction now awaits approval from the Texas Department of Banking and the Federal Reserve. FirstSun is based in Denver, but its subsidiary, Sunflower Bank, has headquarters in Dallas.
“The Fed is taking a very different approach, in part due to the changes we have made through the transaction,” Arnold said.
Among those changes, FirstSun is increasing the amount it aims to raise in equity as part of the HomeStreet deal. FirstSun said Tuesday it would raise an extra $45 million to $60 million — bringing the aggregate capital raise to as much as $235 million, rather than the $175 million it announced it was seeking in January. FirstSun is also issuing $48.5 million in subordinated debt, which it will channel into Sunflower Bank.
FirstSun also reduced — to $2.6 million plus reimbursement of transaction fees and expenses — the termination fee it would demand from HomeStreet if the Seattle bank were to receive another acquisition offer within 30 days.
To that point, Mason reaffirmed his bank’s commitment to the deal.
"Our view of the attractiveness of the merger remains intact," Mason said Tuesday.
