FirstSun Capital Bancorp NASDAQ: FSUN reported third-quarter adjusted net income of $48.2 million, or $1.03 per diluted share, as the company continued integrating the acquired First Foundation businesses and repositioning its balance sheet.
Adjusted results excluded $9.8 million of merger-related expenses after tax, equal to $0.21 per share, Chief Financial Officer Rob Cafera said during the company’s earnings call. Adjusted pre-tax, pre-provision net income was $66.4 million, or $1.42 per share, compared with $1.50 per share in the second quarter and $1.32 per share in the first quarter.
Margin Expansion and Balance-Sheet Repositioning
Net interest margin increased 24 basis points sequentially to 3.82% in the third quarter from 3.58% in the second quarter. Cafera attributed the improvement to higher loan yields, the sale of lower-yielding acquired multifamily and public-finance loans late in the second quarter, and the company’s variable-rate loan portfolio.
Funding costs also improved despite higher interest rates, helped by the disposition of higher-cost acquired certificates of deposit and a shift in the mix of noninterest-bearing and interest-bearing deposits. However, Cafera said competition for deposits has intensified and created pricing pressure.
Chief Executive Officer Neal Arnold said the company’s efforts to move away from rate-sensitive, non-relationship deposits and shift loan originations toward floating-rate commercial and industrial loans from fixed-rate commercial real estate lending contributed to the improved margin profile. FirstSun expects incremental net interest margin improvement in the fourth quarter and first quarter of 2027.
The company projected fourth-quarter net interest margin in the mid-3.80% range, slightly above the third-quarter level. Cafera said FirstSun is slightly asset sensitive and its fourth-quarter outlook assumes one rate increase in December, with no rate increases incorporated into its 2027 assumptions.
Loans, Deposits and Fee Revenue
Total loans declined about $110 million from the second quarter, representing a 3.8% annualized decline. Commercial and industrial balances increased about $84 million, or about 9% on an annualized basis, but that growth was more than offset by paydowns in commercial real estate, residential real estate and public-finance portfolios. Those three portfolios collectively fell about $173 million, including a $69 million decline in multifamily loans.
New loan pricing improved, with the average coupon on new loans rising to 6.91% from 6.76% in the second quarter. The rate exceeded the effective coupon on acquired First Foundation loans, which was slightly below 6.2%, Cafera said.
Total deposits declined about $447 million at quarter-end. About 80% of the decline was related to targeted runoff or seasonal contraction, including a $40 million reduction in brokered balances, a $255 million decline in higher-rate non-relationship balances, and roughly $65 million of typical third-quarter seasonal contraction. The remaining decline included customer attrition and general balance reductions, including about $50 million tied to one customer’s deployment of proceeds from a business sale.
FirstSun ended the quarter with a loan-to-deposit ratio of 88.3% and a wholesale funding ratio of 6.7%. The company expects mid-single-digit fourth-quarter growth in loans and deposits excluding broker balances, supported by pipelines that Cafera said were 30% to 40% higher than earlier in the year.
Service-fee revenue totaled approximately $39.4 million, down 4% from the prior quarter but representing 21.9% of total revenue. Mortgage banking revenue declined as higher interest rates slowed origination activity, although mortgage revenue increased from the third quarter of the prior year. The company reported improved fee revenue in wealth management, treasury management, consumer banking, and commercial loan swap and syndication activity.
Credit Trends, Expenses and Integration Savings
Provision expense was $4.4 million, primarily reflecting specific reserves on two commercial real estate loans, partially offset by a decline in the loan portfolio. The allowance for credit losses was 1.52% of loans, up 2 basis points from the second quarter. Net charge-offs totaled $3.3 million, or 11 basis points on an annualized basis, and were primarily concentrated in two acquired credits.
Special mention loans declined by about $23.8 million and substandard loans fell by about $39.9 million from the second quarter. Cafera later said criticized loans were split roughly evenly between legacy Sunflower and legacy First Foundation portfolios. The company is not considering bulk loan sales comparable with the sale it completed in the second quarter, though it continues to evaluate one-off strategies.
Adjusted noninterest expense declined about $800,000 sequentially. Salaries and employee benefits expense fell $5.4 million, partly offset by a $4.5 million increase in other noninterest expense, primarily from elevated loan collection costs related to several workout situations. Cafera characterized those costs as more specific to the third quarter than a normal run-rate expense.
FirstSun completed the First Foundation core-system conversion in late September. The company had achieved an annualized run rate equal to approximately 70% of its original $68.8 million cost-savings target by the third quarter and expects to capture most of the remaining savings in the fourth quarter. Management expects total savings to slightly exceed the original target, with additional savings anticipated in the first quarter of 2027.
Capital Return and Outlook
The company repurchased approximately $50 million of common stock during the quarter under its $150 million authorization and expects to complete the remaining $100 million over the following three quarters. Tangible book value per share rose to $35.60 from $35.16 at the end of the second quarter.
For the fourth quarter, FirstSun expects an efficiency ratio in the low 60% range, which Cafera said implies a mid-single-digit percentage decline in expenses from third-quarter levels. Arnold said the company remains focused on organic growth, relationship-based deposits, fee revenue expansion and further integration benefits, adding that management is seeing strong loan and deposit pipelines across its major markets.
About FirstSun Capital Bancorp (NASDAQ:FSUN)
FirstSun Capital Bancorp is a bank holding company that operates primarily through Sunflower Bank, N.A. The company provides banking and financial services to individuals, businesses, agricultural customers and institutions.
Its offerings include checking and savings accounts, certificates of deposit, residential and commercial real estate lending, consumer loans, commercial and industrial financing, agricultural loans, treasury management and online and mobile banking services. The company also provides wealth management, trust and investment services through affiliated operations.
Sunflower Bank serves customers through branches and other delivery channels in Colorado, Kansas, New Mexico, Oklahoma and Texas.
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