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A challenging economic environment in the mortgage industry is shaping mergers and acquisitions, with one company selling itself after its stock plummeted, and another deal being put on pause due to deteriorating conditions in commercial real estate.
HomeStreet, which saw its share price plunge last year amid concerns over rising interest rates and high levels of multifamily loans, agreed to sell itself to FirstSun Capital Bancorp in an all-stock deal valued at $286 million that recaptures only some of the market value the $9.5 billion-asset company lost.
Solid fundamentals merited a serious offer, FirstSun CEO Neal Arnold said in January on a conference call with analysts. "What we saw was a great deposit base where others had seen erosion given the uncertainty of the past year. We saw a very conservative credit profile…We saw a very strong fee income profile and a very experienced management team."
Until recently, HomeStreet ranked among the top-performing banks, but in 2022 and into 2023, as the Federal Reserve aggressively hiked interest rates to combat inflation, rapidly increasing funding costs outstripped a more modest pickup in loan yields, decimating HomeStreet's profitability. Through the first nine months of 2023, HomeStreet reported a loss of $24.1 million, due largely to a $39.9 million goodwill impairment charge included in the company's second-quarter financial results.
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With the Federal Reserve poised to begin lowering rates, HomeStreet's Chairman and CEO Mark Mason said he expects the company's balance sheet to "start to heal itself" later this year. But now, the benefits will accrue to FirstSun.
At Bancorp 34, a deteriorating commercial real estate credit forced the Arizona-based company to restate third-quarter earnings and extend the deadline of its pending merger with the Commerce Bank of Arizona (CBOA), joining a number of institutions that have announced delays to planned mergers.
The $28 million, all-stock deal between Bank 34 and CBOA was announced April 27, 2023, and had to be completed within a year. Both companies agreed in December to extend the completion deadline two months to June 28.
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Credit quality matters notwithstanding, the deal is on track for completion in the first quarter, Bancorp 34 CEO Jim Crotty said in release. "While we had to address a single isolated credit with a specific reserve in the third quarter, significant progress has been made towards completing the merger," Crotty said.
Bancorp 34's difficulties come as banks around the country have dramatically scaled back commercial real estate originations in the wake of rising delinquencies. According to a report issued earlier this month by Trepp, third-quarter CRE originations by banks totaled $2.5 billion, down 46% on a linked-quarter basis and nearly 70% year over year.
Read more about the latest mergers and acquisitions below.
