FirstSun Capital’s Earnings Call: Integration Wins, Credit Pain

FirstSun Capital Bancorp ((FSUN)) has held its Q2 earnings call. Read on for the main highlights of the call.

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FirstSun Capital Bancorp’s latest earnings call painted a mixed picture for investors. Management showcased solid execution on the First Foundation acquisition, stronger fee income and capital, and a fresh buyback, but these positives were weighed down by a GAAP net loss, elevated credit costs from two large problem loans, and a jump in criticized and non‑performing assets.

Acquisition Integration and Balance Sheet Repositioning Completed

FirstSun closed the First Foundation acquisition on April 1 and quickly executed a sizable balance sheet repositioning in the second quarter. The bank shed about $3.9 billion of acquired assets and an equal amount of funding, including $2.2 billion in brokered deposits, bringing wholesale funding to 6.8%, roughly back to legacy levels.

Deposit Growth and Improved Deposit Mix

Adjusted for acquisition downsizing, deposits grew at about a 5% annualized pace, signaling underlying franchise momentum. While non‑interest bearing deposits fell to 18.1% of the mix, rising savings and money market balances to 40.4% reflect a healthier, lower‑cost funding profile as higher‑priced acquired balances are run off.

Service Fee Revenue Strength

Fee income emerged as a key bright spot, representing 22% of total revenue and climbing more than 50% from the first quarter. The combined mortgage and wealth businesses were particularly strong, accounting for over 62% of fee revenue and underscoring management’s push to diversify away from spread‑dependent earnings.

Cost Savings Ahead of Plan

Integration synergies are tracking ahead of schedule, with the second‑quarter annualized cost‑save run rate already at about 65% of the original $68 million target. Management expects further expense reductions after the core conversion slated for late September, which should provide additional operating leverage into 2026.

Improved Tangible Book, Capital and Buyback

The deal proved less dilutive than feared, with tangible book value per share at $35.16 and dilution of roughly 10% versus a 14% estimate at announcement. Capital remains robust, with CET1 at 11.95% and total risk‑based capital at 14.13%, supporting a newly announced $150 million share repurchase program beginning in the third quarter.

PPNR Growth Excluding Merger Costs

Underlying profitability improved meaningfully, as adjusted pre‑tax, pre‑provision net income reached $70 million, or $1.50 per share, versus $37.3 million, or $1.32 per share, in the prior quarter. This step‑up shows stronger core earnings power once merger‑related costs and credit noise are stripped out.

NIM Trajectory and Cost of Funds Progress

Net interest margin was pressured by acquisition timing, but the monthly trend firmed with June NIM at about 3.76%, up 29 basis points from April. Management expects margin to grind higher into the mid‑380s basis points by the fourth quarter and into the high‑380s in early 2027 as deposit costs fall and brokered funds reprice.

Net Loss and Merger and Credit Charges

Despite better core earnings, FirstSun reported a GAAP net loss of $23 million, or $0.49 per diluted share, for the quarter. The loss was driven mainly by roughly $44 million after tax in merger‑related charges and heavy provision expense and charge‑offs, masking the underlying profitability.

Elevated Charge‑Offs from Two Large Credits

Credit costs spiked as two large problem credits dominated second‑quarter losses, accounting for about 86% of the provision and 82% of charge‑offs. Total net charge‑offs annualized at 145 basis points, including a roughly $12.9 million hit on a deteriorating technology borrower and another sizable loss tied to a materials distribution fraud.

Rising Criticized and Non‑Performing Loans

Risk metrics deteriorated, with criticized loans swelling to 7.7% of total loans from 4.3% and non‑performers rising to 1.64% from 0.86% since March. Management stressed that about three‑quarters of the criticized loan increase stems from the acquired portfolio, with concentrations in multifamily and select commercial and industrial niches.

NIM Compression Versus First Quarter

On a reported basis, second‑quarter net interest margin fell sharply to 3.58% from 4.25% in the first quarter, a 67‑basis‑point decline. The compression reflects the mix and timing of the acquired loan book and the sequencing of balance sheet repositioning actions across the quarter.

Slower Loan Growth and Core Loan Pressure

New loan fundings dropped to $377 million, down 29% from the prior quarter, and core loan balances, excluding acquisition run‑off, declined at roughly a 6% annualized rate. Management expects continued runoff and remixing in the acquired multifamily segment, with notable paydowns projected into 2026 and 2027.

Higher Operating Expenses Post‑Acquisition

Adjusted non‑interest expenses, excluding merger costs, jumped about 57% from the first quarter as the bank absorbed First Foundation’s cost base and integration activity. However, executives emphasized a clear path to lower expenses as synergies ramp and the post‑conversion operating model takes hold.

Guidance and Forward‑Looking Outlook

Looking ahead, FirstSun is guiding to low‑single‑digit loan and deposit growth through 2026, stepping up to mid‑single‑digit in 2027, with meaningful runoff in the acquired multifamily and brokered funding books aiding mix and margin. Management targets NIM in the mid‑380s basis points by year‑end, an efficiency ratio sliding into the high‑50s to low‑60s in 2027, and net charge‑offs normalizing to mid‑teens annualized in the back half of this year while keeping CET1 near 11% and executing the $150 million buyback.

FirstSun’s call left investors weighing near‑term credit and integration volatility against improving core profitability, solid capital and a clearer path to higher margins and better efficiency. If management delivers on its cost‑save, credit normalization and NIM expansion roadmap, the stock could offer upside leverage as the benefits of the First Foundation deal more fully surface over the next two years.