Homestreet moves on, merges into Mechanics Bank

Homestreet is merging with California-based Mechanics Bank, moving on after a prior engagement fell through. 

Mechanics will emerge as the banking corporation and subsidiary of the publicly traded Homestreet, the companies said Monday. The deal values the Seattle-based Homestreet at a pre-transaction estimated equity value of $300 million, and Mechanics at $3.3 billion. It's slightly higher than the $286 million value in the proposed all-stock transaction between Homestreet and Denver-based FirstSun Capital, which the firms nixed last November. 

Those companies announced that transaction last January and amended it in April to secure regulatory approvals, which never came. In a conference call Monday afternoon, Mechanics Bank chairman Carl B. Webb said the new deal was "highly discussed and highly vetted" with regulators. 

The merger is expected to be completed in the third quarter this year. Homestreet shareholders are expected to own around 8.3% of the combined company, while the remaining 91.7% will be held by existing Mechanics shareholders. Dallas-based private equity firm Ford Financial Fund will own approximately 74.3% of the combined business, Monday's press release said. 

The $8 billion-asset Homestreet is reeling from a $144.3 million net loss in 2024. Late last year, it moved to shore up its financials, which included a nearly $1 billion sale of multifamily loans to Bank of America. That was an effort to reduce its commercial real estate concentration. The companies said Monday that concentration was about 575% for Homestreet, while Mechanics' concentration was 289%. The combined companies' CRE concentration should close around 390%. 

"They are very aware of that, and we have discussed our plans to reduce that concentration over time," said Webb, noting the concentration should get closer to 300% over the pro forma projection period. 

Mechanics, based in Walnut Creek east of the San Francisco Bay, counts 112 branches and over $16 billion in assets. Executives highlighted the bank's strengthened West Coast presence in adding Homestreet's 56 branches up and down the coast. 

The new board will include a Homestreet director to be named later. Mark Mason, Homestreet's chairman, president and CEO, will stay on in a consulting role, according to a press release. 

"The combined company will have a strong branch footprint and 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," he said in a press release. 

Homestreet was a top-performing bank in 2021 but its profitability took a huge hit with the Federal Reserve's interest rate hikes in 2022 and 2023. The mortgage lender recorded over $3.3 billion in origination volume in 2022, but $747 million in 2023, according to Home Mortgage Disclosure Act data. 

Mechanics, founded in 1905, entered the residential mortgage space in 2016 and has a slightly smaller business, amassing $620 million in originations in 2023. In 2019, the depository expanded its operations with its large acquisition of Dutch-based Rabobank Group's U.S. bank. It named C.J. Johnson as its permanent president and CEO in January. 

Homestreet's stock rose nearly 25% to $11.62 per share as of late Monday afternoon, following the early morning announcement.

Mechanics got legal counsel from Wachtell, Rosen and Katz while JPMorgan served as financial advisor. Homestreet got legal counsel from Sullivan and Cromwell LLP, and Keefe, Bruyette and Woods was its financial advisor.