Financial institution HomeStreet set to merge with Mechanics Bank, a California-based bank.
In a strategic move to expand its market presence, HomeStreet Bank has completed a merger with Mechanics Bank. This decision comes four months after the termination of its proposed merger with FirstSun Capital Bancorp, due to regulatory and lending disparities issues related to the Community Reinvestment Act (CRA).
The transaction values HomeStreet at around $300 million, and the combined bank will have a significant asset size of $23 billion and 168 branches. HomeStreet's CRE concentration, which currently stands at roughly 575% of its capital, will decrease in the combined company, with a concentration of around 390%.
Mark Mason, HomeStreet's CEO, expressed his confidence in the merger, stating that the combined company will have a strong branch footprint, deposit market share in the best markets in the west, strong core deposit funding, a well-diversified, conservatively underwritten loan portfolio, and a growing wealth management and trust business.
Carl Webb, the chair of Mechanics' board, also welcomed the merger, noting that it provides an opportunity to become a publicly traded bank holding company.
Mechanics' officers will continue as officers in the combined company, and one member of the HomeStreet board will become a director for the combined company, yet to be named. Notably, Mason will remain with the combined company in a consulting capacity as part of the Mechanics deal.
HomeStreet's executives plan to reduce the CRE concentration over time, aiming to get it closer to 300%. In preparation for the merger, HomeStreet has already sold $990 million in multifamily loans to Bank of America since the termination of the FirstSun deal.
Both HomeStreet and Mechanics share similar banking strategies, strong credit cultures, and a deep commitment to customers, community service, and being good corporate citizens. The deal, expected to close in the third quarter, will expand Mechanics Bank into Washington, Oregon, and Hawaii.
HomeStreet's shareholders are expected to own approximately 8.3% of the combined company with Mechanics Bank. The Mechanics deal values HomeStreet slightly higher than the $286 million FirstSun transaction would have.
This sequence reflects the regulatory complexities and community lending accountability considerations that increasingly influence bank merger approvals in the current environment. The terminated FirstSun-HomeStreet merger and the subsequent merger with Mechanics Bank highlight the importance of CRA compliance and the strategic rationale behind bank mergers in the banking sector.
Sources: [1] HomeStreet Bank Press Release, "HomeStreet Bank and Mechanics Bank Announce Merger Agreement" [2] American Banker, "Regulatory Scrutiny Dooms HomeStreet-FirstSun Deal"
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