FirstSun Posts Record Q3 Profit as Margin Expands

FirstSun Capital Bancorp (NASDAQ: FSUN) reported record third-quarter 2026 net income as lower merger-related costs and a wider net interest margin helped the bank return to profitability following its second-quarter loss. The lender also projected mid-single-digit loan and deposit growth for the fourth quarter, while credit metrics remained mixed as criticized loans declined but nonperforming loans increased.

For the quarter ended September 30, FirstSun posted GAAP net income of $38.4 million, or $0.82 per diluted share, compared with a net loss of $22.9 million, or $0.49 per share, in the second quarter. Adjusted net income, which excludes merger-related expenses, was $48.2 million, or $1.03 per diluted share, up from $21.0 million and $0.45 per share in the prior quarter. FirstSun described both reported and adjusted net income as quarterly records.

The results followed FirstSun’s April 1 acquisition of First Foundation Inc. and the completion of the acquired bank’s core-system conversion during the third quarter. Merger-related expenses fell to $13.2 million from $57.6 million in the second quarter. The company said it had achieved about 70% of the total announced cost savings through September, with additional savings expected through the fourth quarter.

Margin expands as funding mix improves

Net interest margin rose 24 basis points sequentially to 3.82%. Loan yields increased 17 basis points to 6.33%, reflecting the second-quarter sale of lower-yielding multifamily and public-finance loans acquired from First Foundation, as well as the effect of higher rates on variable-rate loans. About 70% of FirstSun’s loan portfolio was variable-rate at quarter-end, including roughly 58% scheduled to reprice within one year.

The total cost of funds declined eight basis points to 2.26%, primarily because of an improved funding mix. The cost of interest-bearing deposits decreased two basis points following the disposition of higher-cost certificates of deposit acquired in the transaction.

Net interest income was $140.3 million, down from $143.2 million in the second quarter. The third-quarter total included $25.6 million of net accretion income from acquisition-related fair-value marks. Those purchase-accounting adjustments remain preliminary and subject to change.

Noninterest income totaled $39.4 million, compared with $40.9 million in the preceding quarter, and represented 21.9% of total revenue. Mortgage banking remained the largest component at 32% of fee income. Mortgage origination volume declined sequentially but was 16% above the third quarter of 2025, while the secondary-market gain-on-sale margin was 3.19%. Trust and investment advisory services accounted for 25% of noninterest income.

GAAP noninterest expense declined to $126.6 million from $171.7 million in the second quarter. Excluding merger-related items, adjusted expense was $113.3 million, compared with $114.2 million. The adjusted efficiency ratio was 63.06%, versus 61.99% in the prior quarter, while the reported efficiency ratio improved to 70.43% from 93.25%.

Loans and deposits decline during the quarter

Loans held for investment ended the quarter at $11.46 billion, down $110.6 million from June 30, equivalent to a 3.8% annualized decline. FirstSun continues to emphasize commercial and industrial lending, which represented 31.9% of the portfolio. Multifamily balances declined at an 11% annualized rate from the second quarter, while line utilization decreased by one percentage point.

Deposits fell $447.0 million to $12.97 billion, an annualized decline of 13.2%. The decrease included $255 million of higher-rate, nonrelationship deposits, $42 million of brokered deposits and $65 million of seasonal outflows. Noninterest-bearing deposits increased to 20.3% of the average deposit mix, while wholesale funding represented 6.7% of funding at quarter-end. The loan-to-deposit ratio was 88.3%, up from 86.2% at the end of June.

Credit indicators remain mixed

Annualized net charge-offs were 0.11% of average loans, primarily associated with one commercial and industrial loan and one multifamily loan acquired from First Foundation. The provision for credit losses declined to $4.4 million from $40.4 million in the second quarter and mainly reflected specific reserves on two commercial real estate loans.

Criticized loans decreased by $63.8 million to $831.4 million, including a $39.9 million reduction in substandard loans and a $23.8 million reduction in special-mention loans. However, nonperforming loans increased by $12.7 million to $202.9 million, or 1.77% of total loans, mainly because of two commercial real estate credits. The allowance for credit losses rose to 1.52% of loans from 1.50% in June.

FirstSun ended the quarter with a common equity Tier 1 ratio of 11.99% and a total capital ratio of 14.29%. The company repurchased 1.25 million shares for $49.7 million during the quarter and had $100 million of remaining authorization available through the second quarter of 2027.

Fourth-quarter outlook

For the fourth quarter, management expects mid-single-digit growth in loans and deposits excluding brokered balances, high-single-digit investment growth and a net interest margin in the mid-3.80% range. It also projects noninterest income in the low-20% range as a percentage of total revenue and an efficiency ratio in the low-60% range.

The credit outlook calls for net charge-offs in the low-20-basis-point range and an allowance ratio in the low-150-basis-point range. Management expects the CET1 ratio to remain between 11.75% and 12% and the loan-to-deposit ratio to stay in the mid- to high-80% range.

For 2027, FirstSun expects mid-single-digit loan and deposit growth. Management also anticipates net interest margin reaching the high-3.80% range in the first quarter of 2027 and further acquisition-related savings contributing to a low-60% efficiency ratio. The forecast assumes one 25-basis-point Federal Reserve rate increase by year-end and includes estimated pre-tax net accretion of $20 million to $25 million in the fourth quarter and $85 million to $90 million in 2027.

The outlook is subject to changes in interest rates, deposit behavior, credit quality and broader economic conditions. FirstSun also identified risks related to the First Foundation integration, including the possibility that expected cost savings and strategic benefits may take longer to achieve or may not be realized.