Firstsun Capital Reports Q3 Adjusted Net Income of $48.2 Million

Firstsun Capital Bancorp (NASDAQ: FSUN ) reported third-quarter financial results on Tuesday. The transcript from the company's third-quarter earnings call has been provided below. This transcript is brought to you APIs. For real-time access to our entire catalog, please visit for a consultation.

View the webcast at Summary Firstsun Capital Bancorp reported adjusted net income of $48.2 million for Q3 2026, with an adjusted return on average assets of 1.23%. Net interest margin expanded to 3.82%, driven by strategic balance sheet repositioning and a focus on floating-rate C&I loans. The company repurchased $50 million in common shares, with plans to complete the remaining $100 million buyback over the next three quarters. Asset quality improved with reductions in special mention and substandard loans, and the core system conversion of First Foundation was completed successfully.

Strong loan and deposit pipelines are expected to drive organic growth in 2027, with a focus on expanding service fee revenue businesses. Management remains optimistic about achieving target performance for 2027, despite a competitive deposit landscape and macroeconomic uncertainties. Full Transcript OPERATOR (Moderator) Good morning and welcome to the Firstsun Capital Bancorp third quarter 2026 earnings conference call. At this time all participants are in listen-only mode.

Later we will conduct a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on the phone keypad. If you would like to withdraw your question, press star one again. Also, as a reminder, this call may be recorded.

I'd now like to turn the call over to Ed Jacks, Firstsun's Director of Investor Relations and Business Development. You may begin. Ed Jacks (Director of Investor Relations and Business Development) Thank you and good morning. I'm joined today by Neil Arnold, our Chief Executive Officer and President, Rob Cafera, our Chief Financial Officer, and Jennifer Norris, our Chief Credit Officer.

We will start the call with some brief remarks about our third quarter results before moving into questions. Our comments will reference the earnings release and earnings presentation which you will find on our website under the Investor Relations section. During this call we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release.

During this call we will make remarks about future expectations, plans, and prospects for the Company that constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. Please refer to our earnings presentation as well as our annual report on Form 10-K and our other SEC filings for a further discussion of the Company's risk factors and other important information regarding our forward-looking statements.

We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. I will now turn the call over to Neil Arnold. Neil Arnold (Chief Executive Officer and President) Thanks, Ed. Good morning and thank you for joining us.

The third quarter represented another important milestone for Firstsun as we continue to progress on our strategic priorities and on the integration of the First Foundation businesses acquired. For the quarter, adjusted net income, which excluded merger-related expenses, totaled $48.2 million, or $1.03 per diluted share, with an adjusted return on average assets of 1.23%.

In addition to the strong bottom-line performance and continued integration of the acquired business, highlights in the third quarter included our net interest margin expansion to 3.82% over the last quarter and continued strong service fee income revenues, which again accounted for 21.9% of total revenue. We are very pleased with the progress we've made on our balance sheet profile. We significantly repositioned the acquired balance sheet in the second quarter and the remix efforts continued into the third quarter.

As we move away from more rate-sensitive, non-relationship deposits, and as our loan origination activity continues to be more heavily centered on floating-rate C&I loans versus fixed-rate CRE loans, our focus continues on expanding and deepening relationships across our entire customer base. A diversified and strong balance sheet enables us to focus on the growth opportunities across all of our great markets. All our work to reposition the acquired balance sheet, which helped to address the challenges inherent in the rate profile of that acquired balance sheet, was a key driver in the improved net interest margin that we saw in the third quarter.

While deposit competition has been very strong, our focus has been on continued improvement in our net interest margin. We expect the balance sheet repositioning work to drive further incremental improvement in our net interest margin in Q4 and into the first quarter of 2027. Growing our service fee revenue businesses will also continue to be one of our strategic priorities. We believe a diversified revenue, management side, but also in treasury management, syndication, and swaps provide a meaningful opportunity to deepen our client relationships and further enhance our overall revenue mix.

Our capital position remains very strong and continues to provide us with meaningful flexibility as we execute on our overall strategy. During the third quarter we repurchased approximately $50 million of common shares under our previously announced $150 million share repurchase program, and we currently expect to complete the remaining $100 million over the next three quarters. We believe the continued strength of our capital position provides us with the capacity to return capital to stockholders while also supporting our organic growth and maintaining overall balance sheet flexibility.

On the asset quality side, we are encouraged by the improvement this quarter across several key measures, including a meaningful reduction in special mention loans of about $23.8 million as well as a reduction in substandard of nearly $40 million. We continue to take a disciplined approach to underwriting, portfolio management, early risk identification, and we believe the improvement this quarter reflects the continued work of our teams to actively manage our loan portfolio. On the integration side, in late September our team successfully completed the core system conversion of First Foundation.

This was another important milestone in our integration plans and certainly resulted from a tremendous amount of hard work across the organization. We're pleased to have completed this phase of the business integration and look forward to expected additional operating synergies that will result. As we look forward to the next several quarters, we are seeing very strong pipelines in all of our major markets for both loan and deposit relationships. I believe the strong pipelines are the result of our investment that we've made in further building our sales force over the last several years, particularly in Texas and Southern California.

I expect this to be a driver of our organic growth going forward in 2027. Our priorities remain very focused: driving disciplined organic growth, deepening our client relationships, growing core deposits, improving service fee revenue, and realizing the benefits from the integration of First Foundation businesses, and delivering strong financial results that result in sustained, long-term value for our stockholders. Before turning the call over to Rob, I want to recognize and thank all of our teammates for the extraordinary effort that went into completing the recent core systems conversion.

An undertaking of this scale requires significant planning, collaboration, and execution across virtually every area of the company, and our teams delivered while continuing to serve clients throughout the process. I'm incredibly proud of the commitment and the teamwork and professionalism demonstrated by our team. It is a true reflection of the strength of our organization and our culture. Rob Cafera (Executive Vice President & Chief Financial Officer) Financial results.

Thank you, Neil. I would also like to add my thanks to all our teammates for the very hard work that went into completing the recent core system conversion. Very inspiring teamwork shown by everybody involved and definitely a real testament to our culture here. Turning to our third quarter financial results, I'll start with the P&L and highlight several key drivers.

As Neil noted, we're pleased with our earnings performance in the third quarter with adjusted earnings per diluted share of $1.03. This excludes merger-related expenses incurred in the third quarter totaling $9.8 million on an after-tax basis, or the equivalent of $0.21 in EPS. Further, our adjusted pre-tax, pre-provision net income, or PPNR, which again excludes merger-related expenses, was $66.4 million, or $1.42 per share in Q3, compared to $1.50 per share in Q2 and $1.32 per share in Q1 of this year. We're pleased with the expansion of our net interest margin in Q3, which increased 24 basis points to 3.82% compared to the 3.58% we saw in the second quarter.

The improvement was largely attributable to both loan yield. We saw loan yields increase by 17 basis points over Q2 due primarily to the sales completed late in 2Q of lower-yielding acquired multifamily and acquired public finance loans. In addition, given the heavier variable rate nature of our loan portfolio, we have also benefited from the recent rising interest rate environment.

On the funding side, despite the rising interest rate environment, our funding costs also improved, of the disposition of acquired higher-cost certificates of deposit late in the second quarter and during the third quarter, as well as a favorable mix shift between our noninterest-bearing and interest-bearing deposits. We do see the competition for deposits of late intensifying, and certainly pricing pressure has resulted. Our objective is to continue to remain disciplined and to seek to balance rates and growth, particularly as we move into the fourth quarter and beyond.

Service fee revenue totaled approximately $39.4 million in the third quarter, a decrease of approximately 4% compared to the prior quarter and representing 21.9% of total revenue. The decrease was driven primarily by a decrease in mortgage banking revenues, which was attributable to the slowing impact to origination activity as a result of the rising interest rates we saw during the quarter. Although I will note that mortgage revenues were up in the third quarter this year.

Income revenue trend we saw in Q3, we did see some nice improvement in service fee revenues across most of our other service fee revenue business lines, including wealth management, treasury management, consumer banking, and swap and syndication activities for our commercial business customers. Overall, we continue to be very excited about the opportunities we are seeing to further grow and diversify our business mix from our service fee revenues.

Turning to expenses, third quarter adjusted noninterest expenses, which exclude merger-related expenses, declined approximately $800,000 from the second quarter, with salaries and employee benefits expenses down approximately $5.4 million, partially offset by a $4.5 million increase in other noninterest expenses, which was primarily driven by higher loan collection expenses. In terms of realization of operating synergies from the First Foundation acquisition, during the third quarter we were at an annualized run rate equivalent of approximately 70% of our original total cost save target of $68.8 million.

With the core system conversion now complete, we expect to capture the vast majority of the remaining incremental 30% run rate savings in the fourth quarter. We're very pleased with our progress and continue to expect total cost savings to slightly exceed our original dollar target, with additional savings above that original target expected to come in the first quarter next year. Shifting to the balance sheet, on the loan side, balances declined approximately $110 million from the second quarter, or 3.8% annualized.

From a portfolio mix perspective, we saw encouraging growth in our C&I business, with balances increasing approximately $84 million from the second quarter, or approximately 9% annualized. This growth was more than offset by paydowns across our commercial real estate, residential real estate, and public finance portfolios, which collectively declined from the second quarter by approximately $173 million, including a decline of approximately $69 million in the multifamily portfolio.

While we did experience a higher overall level of total loan portfolio paydowns this quarter, very similar to the elevated level in the second quarter, the proportional shift to more variable rate C&I loans in the portfolio further improved our overall balance sheet sensitivity profile. $9 million for the quarter, that's up 14% from $377 million in the second quarter. We also saw improvement in new loan pricing, with the average coupon on new loans increasing to 6.91% compared to 6.76% in the second quarter, which exceeded again this quarter the effective coupon being accreted on the acquired First Foundation loans, which was slightly below 6.2%.

On the deposit side, we saw total balances decline approximately $447 million at quarter end. While our deposit remixing strategy improved our overall portfolio mix and managed higher-rate acquired deposits, we did not generate net balance growth for the quarter due to the combination of intentional runoff and some attrition.

In terms of the components of the Q3 balance decline, we saw approximately 80% of the decline related to either targeted runoff or seasonal contraction, with a breakdown of an approximate $40 million decline in brokered balances, an approximate $255 million decline in higher-rate non-relationship balances, and an approximate $65 million decline due to typical seasonal contraction in the third quarter. The remaining approximate $85 million decline included some attrition and general balance decline across the customer base, including approximately $50 million in balance outflow involving the deployment by one customer of proceeds from the sale of a business.

Our loan-to-deposit ratio was at 88.3% at the end of the quarter, and our wholesale funding ratio was at 6.7%. On the asset quality side, provision expense for the quarter was $4.4 million, primarily due to specific reserves on two CRE loans and partially offset by a decrease in the loan portfolio. Our allowance for credit losses as a percentage of loans was 1.52%, an increase of 2 basis points from the second quarter. Net charge-offs totaled $3.3 million, or 11 basis points on an annualized basis, and were concentrated primarily in two acquired credits.

As Neil noted, we saw meaningful improvement in both special mention and substandard loans, which declined approximately $23.8 million and $39.9 million, respectively, compared to the second quarter. Overall, we are encouraged by the improvements in criticized credit grades this quarter and remain focused on our disciplined approach to portfolio management and early risk identification. On the capital side, we continue to strengthen our position, as TBV per share improved to $35.60, up from $35.16 at the end of the second quarter.

I'll further note, and as Neil referenced earlier, we repurchased approximately $50 million of common shares under our share repurchase program in the third quarter, and we still saw an increase in TBV per share over the second quarter. In terms of our expected financial outlook for the fourth quarter, I will refer everybody to page 19 in the earnings presentation we filed last night.

I'll underscore a few points on our Q4 outlook and key assumptions: mid-single-digit growth for loans and deposits excluding broker balances — we are seeing a very strong pipeline for the fourth quarter; net interest margin in the mid-380s, up slightly from our Q3 performance level; efficiency ratio in the low 60s and improved slightly from our Q3 performance level, as we expect to realize further cost synergies in the fourth quarter; and continued common share repurchases. So overall, we're encouraged by our third quarter results and the significant progress we've made on our integration efforts for the acquired First Foundation business.

We believe our balance sheet liquidity and net interest margin profile, along with synergies on the expense side, position us well as we move into the fourth quarter and will ultimately keep us on track to drive further operating leverage and achieve our target performance for 2027. With that, I will now turn the call back to the moderator to open the line for questions. OPERATOR (Moderator) We will now begin the question and answer session. If you would like to ask a question, please press star one to raise your hand.

To withdraw your question, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster.

Your first question comes from the line of Matthew Clark with Piper Sandler. Matthew, your line is now open. Please go ahead. Matthew Clark (Analyst at Piper Sandler) Hey, good morning everyone.

Just on your reserves, do you have the credit mark on the First Foundation portfolio?