Firstsun Capital Bancorp's Q3 2025: Contradictions Emerge on Deposit Growth and Mix, Loan Strategies, and Capital/M&A Approach

Guidance:

• Pro forma CET1 ~10.5% at close; no new capital required.
• Downsize $3.4B of non-relationship, rate‑sensitive items to reduce liquidity, interest‑rate and credit risk; target ~10% wholesale funding post‑close.
• Expect NII/NIM improvement: NII up low‑teens in 2026; NIM +~20 bps in 2026 and further mid‑20s bps in 2027; First Foundation run‑rate NIM ~1.6% to near 4% pro forma.
• Projected ROA ~1.45% by 2027, ~30% accretion in 2027; ~14% TBV dilution with TBV earn‑back slightly >3 years.
• Target ~35% cost saves (~70% from people/professional services); revenue synergies from wealth, treasury, and residential mortgage; no revenue synergies baked into deal math.
• Expect closing early Q2 with repositioning largely concurrent with close.

Business Commentary:

• Merger Announcement and Strategic Rationale:
• FirstSun Capital Bancorp announced a merger with First Foundation Inc., aiming to create a combined entity with over $10 billion in assets.

• The merger is driven by FirstSun's strategy to acquire 'unloved' companies in the banking sector, offering an opportunity for higher growth and profitability.

• Asset and Liability Repositioning:

• FirstSun plans to reduce non-relationship rate-sensitive elements on both sides of the balance sheet, targeting a total of $3.4 billion in downsizing.

• This repositioning is expected to improve the combined company's liquidity, interest rate sensitivity, and credit risk profile.

• Deposit and Branch Expansion:

• The merger will add 30 total branches, including 16 in Southern California, expanding FirstSun's deposit base.

• This expansion is expected to provide significant avenues for deposit growth and enhance the combined company's geographic footprint.

• Cost Savings and Operational Efficiency:

• The combined entity anticipates $35 million in cost savings, with 70% from personnel and professional services.

• These savings are aimed at leveraging operational efficiencies and improving overall profitability.

• Regulatory Compliance and Risk Mitigation:

• FirstSun prioritizes regulatory compliance, having conducted extensive discussions with regulators regarding the transaction.
• The company views this merger as an opportunity to reduce risk significantly by addressing issues with balance sheet management and enhancing capital ratios.

Sentiment Analysis:

Overall Tone: Positive

• Management repeatedly framed the deal as de‑risking and accretive: "double the size... while simultaneously reducing the credit risk profile, improving the rate sensitivity... and significantly reducing the liquidity risk." CFO projected a "ROA of approximately 145 basis points" and "approximate 30% level of accretion in 2027," and emphasized confidence after regulator engagement.

Q&A:

• Question from Matt Olney (Stephens): Can you walk through the mechanics and timing of the $3.4B repositioning on slide 14 and the execution risk relative to closing?
  Response: Repositioning will be achieved via bulk sales, possible securitization and natural runoff, with hedges to limit market risk; management expects the $3.4B play largely completed around closing (target early Q2).

• Question from Matt Olney (Stephens): Beyond the $3.4B repositioning, should we expect additional remixing/repositioning after close?
  Response: Yes — management expects further remixing over the next 4–6 quarters to migrate to higher‑yield assets and more core deposits, aided by hiring C&I teams and organic repricing.

• Question from Matt Olney (Stephens): How do you view normalized capital longer term given pro forma CET1 ~10.5% and projections building to ~12.7% in 2027?
  Response: Pro forma CET1 ~10.5% at close will build materially; management expects CET1 to level beyond 2027 and to employ active capital‑management strategies (dividends/other levers) to normalize capital.

• Question from Woody Leigh (KBW): What are the assumptions behind the EPS accretion — how do your internal projections compare to street estimates and is upside to consensus possible?
  Response: Accretion driven by funding‑cost led NII improvement (roughly +13% NII in 2026), NIM +~20 bps in 2026, mid‑high single‑digit expense cuts, and later fee/wealth growth — management believes consensus understates the funding‑cost tailwind and sees upside.

• Question from Woody Leigh (KBW): What gives you confidence on the regulatory front given prior experience with a terminated deal?
  Response: They've had extensive OCC/Fed engagement and designed a bigger, faster, clearer balance‑sheet restructuring (liquidity, CRE, rate sensitivity reductions), and are highly confident regulators view the plan favorably.

• Question from Woody Leigh (KBW): Any color on credit and expected charge‑offs after Q3?
  Response: Q3 included a $10M provision and $9M charge‑offs (≈55 bps), driven by two CNI loans; management expects 2025 charge‑offs in the low‑40s bps range.

• Question from Michael Rose (Raymond James): Which revenue synergies are nearer‑term vs longer‑term; what drives the $3B+ deposit growth opportunity?
  Response: Near‑term revenue upside is wealth management and treasury; residential mortgage and branch rollout take longer (18–24 months); deposit growth comes from deploying FirstSun's branch play, product/promotions and hiring C&I/treasury teams in Southern California.

• Question from Michael Rose (Raymond James): How do you respond to pushback on price paid relative to adjusted tangible equity (~$606M) and purchase price implying limited tangible paid?
  Response: Management says the strategic franchise, transformative upside and ability to rapidly de‑risk and drive organic growth justify the price despite TBV dilution; they prioritized balance‑sheet cleanup to enable offensive growth.

• Question from Matthew Clark (Piper Sandler): Will the $3.4B repositioning be completed by closing, and how should we think about the wholesale‑funding tail?
  Response: They expect the $3.4B repositioning largely concurrent with close (target early Q2); some wholesale term maturities will roll down later and are over and above the immediate $3.4B actions.

• Question from Matthew Clark (Piper Sandler): Can you break down the source of the 35% cost saves and confidence in hitting that number?
  Response: About 70% of cost saves are expected from people reductions, plus meaningful professional‑services/back‑office consolidation; management is comfortable and conservative in its estimate.

• Question from Matthew Clark (Piper Sandler): What will remain of NDFI exposure and how is it composed (mortgage warehouse, capital call lines, private credit, etc.) after reductions?
  Response: They identified ~$450–460M in NDFI within the SNCC book; on a combined basis NDFI should be ~5–6% (down from ~11% at First Foundation), with exposure spread across mortgage warehouse, mortgage/consumer and business‑credit intermediary buckets.

Contradiction Point 1

Deposit Growth Strategy and Mix

It involves the bank's strategy for deposit growth, specifically regarding the mix of deposit accounts, which impacts the cost of funds and overall profitability.

Can you discuss the balance between fee income and spread income and the $3 billion deposit growth opportunity? - Michael Rose (Raymond James)

2025Q3: Deposit growth will involve leveraging our current presence in Southern California and expanding our reach, with a focus on commercial and residential mortgage opportunities. - Neal Arnold(CEO), Rob Cafera(CFO)

Can you clarify the deposit growth strategy and any changes in deposit composition due to temporary factors? - Michael Rose (Raymond James)

2025Q2: Deposit growth comes at a cost, and we're focused on shifting toward transaction accounts and money market accounts. We expect improved mix without significant pricing changes absent macro rate moves. - Rob Cafera(CFO)

Contradiction Point 2

Loan Growth Strategy

It involves the bank's plans for loan growth, which is a key driver of interest income and overall profitability.

Can you discuss the emphasis on fee versus spread income and the $3 billion deposit growth potential? - Michael Rose (Raymond James)

2025Q3: Retail branch transformation will happen over 18-24 months. The rest of the asset remix will occur faster. - Neal Arnold(CEO), Rob Cafera(CFO)

How is loan growth being driven, particularly from newer markets and announced M&A transactions? - Michael Rose (Raymond James)

2025Q2: Newer markets like Southern California are driving loan growth. We're optimistic about opportunities from a potential macro disruption and remain opportunistic for M&A. - Rob Cafera(CFO)

Contradiction Point 3

Capital and M&A Strategy

It involves the bank's approach to capital management and M&A, which affects shareholder returns and growth opportunities.

What is the normalized capital level at the bank after the acquisition? - Matt Olney (Stephens)

2025Q3: Our capital strategy involves operating thresholds for organic growth and M&A support. We expect significant accretion, positioning us for ongoing flexibility post-merger. - Rob Cafera(CFO)

How have your capital priorities changed, and are there plans for buybacks or M&A? - Michael Rose (Raymond James)

2025Q2: Our primary focus remains on organic growth. While buybacks are considered annually, we're focused on leveraging our strong capital position to expand opportunities. - Neal Arnold(CEO)

Contradiction Point 4

Deposit Growth Strategy and Mix (Additional Perspective)

It further underscores the discrepancy in the bank's approach to deposit growth, highlighting a shift in strategic focus.

Can you clarify the balance between fee and spread income, and the $3 billion deposit growth potential? - Michael Rose (Raymond James)

2025Q3: We started to see some deposit growth in Southern California on a year-over-year basis. So we did improve the deposit growth since the beginning of the year, and we want to leverage our current presence there to try and grow. - Neal Arnold(CEO)

Can you comment on the deposit growth strategy and any potential mix shifts in the deposit portfolio, considering temporary factors? - Michael Rose (Raymond James)

2025Q2: The focus has been on shifting that mix towards transaction accounts and money market accounts where we've got the opportunity for a little bit more pricing there and less price sensitivity. - Rob Cafera(CFO)

Contradiction Point 5

Loan Growth Strategy (Additional Perspective)

This additional perspective emphasizes the different views on the key driver of loan growth, impacting investor understanding of the bank's strategic direction.

Can you discuss the balance between fee and spread income and the $3 billion deposit growth opportunity? - Michael Rose (Raymond James)

2025Q3: As we look at the asset remix and loan growth, I think we'll start to see some momentum in the spot, mainly because we've obviously got more commercial loan opportunities here in Southern California, which will help. - Neal Arnold(CEO)

What is your strategy for loan growth, including contributions from new markets and potential M&A impacts? - Michael Rose (Raymond James)

2025Q2: One of the areas that's been a positive for us is our newer markets, not just Southern California, but also South Florida. - Rob Cafera(CFO)