FirstSun Capital Bancorp Q2 2026 Earnings Call - Core Earnings Accelerate as Balance Sheet Repositioning Wraps and Synergies Run Ahead of Schedule

Conference Call Moderator: Good morning, welcome to the FirstSun Capital Bancorp second 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 1 on your telephone 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. Ed, you may begin.

Ed Jacks, Director of Investor Relations and Business Development, FirstSun Capital Bancorp: Thank you, good morning, and thank you for joining us. The second quarter marks an important milestone for FirstSun as we completed our acquisition of First Foundation on April 1st and continued the hard work of integrating their businesses. We believe the expanded footprint in the Southern California markets and their premier wealth management platform have added significantly and strengthens our franchise and positions us for future success. The middle-market business opportunity in Southern Cal aligns well with our C&I playbook. I would argue that Southern California is the best core deposit market in the United States, as some of you’ve heard me say. I believe that coupled with adding our Southwest Florida markets to our existing deposit markets across Texas, Kansas, New Mexico, Colorado, and Arizona well position us to drive future growth.

Neal Arnold, CEO, FirstSun Capital Bancorp: We’re very excited about all the growth opportunities in front of us with this acquisition. Our second quarter financial results were certainly mixed. Bottom line, we reported a net loss of $23 million, which included $44 million in after-tax merger-related expenses and included the $30 million in after-tax credit loss provisioning. Earlier this month, we provided a credit update on two larger loan charge-offs totaling $26 million after tax. This significantly contributed to our larger loan loss provisioning in the quarter. While the bottom line performance this quarter was below our expectations, we did see significant progress in several areas. Starting with the balance sheet repositioning, which we’ve emphasized throughout as a key strategic step in our integration plan for the First Foundation business. I’m very pleased to tell you that we’ve completed all of the downsizing that was part of our plan in the second quarter.

Our teams executed the plan with discipline and efficiency. The repositioning strategy that we executed upon was a very important strategic step in the risk profile of the balance sheet we acquired. We believe we have a strong balance sheet with less concentration risk, less liquidity risk, less interest rate sensitivity, and a stronger capital profile as a result of these repositioning actions. On the deposit side, we saw adjusted annualized growth of approximately 5%, which excludes the impact of the acquired First Foundation deposits net of the downsizing. Notably, deposit growth in Southern California drove the adjusted annualized growth rate that we mentioned. Our service fee revenue performance in the second quarter was strong as well, representing 22% of revenues this quarter, further evidencing our diversified business model. We also saw significant progress in the cost save realization in the second quarter following the closing of our acquisition.

As Rob noted in last quarter’s call, we believe we’ll overachieve the level of cost saves that we deliver in conjunction with fully integrating and converting the First Foundation business. We’re also pleased to note that the level of tangible book value dilution related to the acquisition is less than our original estimate we announced last October, with the overall level coming in at only approximately 10%. Our capital position is strong. Yesterday, we also announced a share repurchase program totaling up to $150 million, with repurchases targeted over the next four quarters and starting here in the third quarter. We see this as an integral component to driving shareholder value and realizing the impact of this transaction. On the asset quality side, we saw an elevated level of losses in the second quarter with two notable larger losses.

The first relates to a situation involving what we believe to be a fraudulent misrepresentation by a borrower in the materials distribution business. The second one, which is unrelated to the first, relates to a technology company that experienced deterioration in financial performance in the second quarter. The charge-offs on these two loans totaled approximately $35 million pre-tax, and as I said, materially drove the increase in our credit loss provisioning and charge-offs in the second quarter. While these losses were disappointing, they were driven by borrower-specific situations rather than, in our belief, an indication in broad-based significant loss content across our portfolio. Further, while the dollar amount of non-performing loans at June 30th increased from the end of the first quarter, we haven’t seen a large increase in the number of C&I loans in non-performing status.

Again, we don’t believe it’s an indicator of any broad-based deterioration in our C&I loan relationships across our portfolio. Our underwriting processes are thorough and include stress testing. Our loan grading considers the effect of P&I amortization, even if a loan is on interest only currently, and our reoccurring portfolio review activities emphasize identifying potential risks early. We maintain strong borrower engagement, and we work to take timely action to preserve the asset quality of the overall organization. As we’ve said before, we don’t take larger risks within our portfolio, and we have no loans even approaching any of our legal lending limits. Again, we’re disappointed in loan losses that we experienced in the past quarter. However, we believe that loan losses and provision at this level is isolated. As I look forward to the third quarter and beyond, I believe we’re making significant progress in our franchise buildup.

The acquisition has enabled us to enhance our presence in attractive high-growth markets and increases our scale across many of our core businesses. Our expanded branch network strengthens our ability to serve clients locally while enhancing our deposit gathering capabilities and overall relationship density. We believe we have enhanced our long-term growth profile and improved our revenue diversification and further strengthened the durability of this franchise. Our near-term focus is on completing our remaining integration work, including the core system conversion, which is scheduled for this quarter in the late September. As many of you know, acquisitions involve a fair amount of work beyond just computer conversions. Finally, I want to thank all our teammates for their tremendous commitment and hard work through all this integration work. Their dedication to serving our clients and our communities while executing on a large transaction like this has been exceptional.

I’m very proud of everything they have continued to help us accomplish. With that, I’ll pass the call over to Rob to review our results in more detail.

Rob, Chief Financial Officer, FirstSun Capital Bancorp: Thank you, Neil. I’ll start off by underscoring the appreciation Neil just mentioned for all the hard work across all of our teams as we continue to progress with all the business integration efforts. The collaboration and teamwork from everybody has been very inspiring. There’s a lot of activity this quarter with the merger closing and all the related significant merger activities, as well as developments on the credit side. We’ve added information into the earnings presentation we filed, and I’ll break out some data to try to provide clarity on these matters, as well as our underlying core operations. On the strategic side, I’m very pleased to say that all the balance sheet repositioning associated with the acquisition that we targeted for the second quarter was indeed completed.

This was certainly one of our highest strategic priorities immediately following the closing of the acquisition, and we can now shift our focus to leveraging our business model across our expanded geography. In terms of particulars on the downsizing during the second quarter, on the asset side, we successfully reduced acquired assets by approximately $3.9 billion, including $1.4 billion in the acquired securities portfolio and $1.3 billion in the acquired loan portfolio. In the loan portfolio, that included approximately $901 million of multifamily loans. Approximately $337 million in municipal loans and almost $100 million in SNC loans. On the liability side, we improved our funding profile with an approximate $3.9 billion total reduction in acquired funding, including $2.2 billion in broker deposits, approximately $330 million in higher cost non-relationship deposits, and $1.4 billion in FHLB borrowings.

Our wholesale funding ratio was at 6.8% at the end of the quarter. We accomplished what we set out to do on that side. A wholesale funding ratio in line with our historical legacy FSUN levels. Through these repositioning actions, we believe we have meaningfully strengthened our balance sheet by improving our funding mix, reducing wholesale funding dependency, lowering loan concentration risk, enhancing capital and liquidity flexibility, and lessening our interest rate sensitivity, which we believe will position the company with a stronger foundation to support future profitable growth. Aside from the acquired deposits, net of downsizing, in terms of core deposits, we saw approximately 5% adjusted annualized balance growth in the second quarter. Again, this is excluding the acquired balances, net of downsizing.

From a deposit mix perspective, at the end of the quarter, we see non-interest-bearing balances at 18.1% of the total, down from 23.1% at the end of the first quarter, and we see combined savings and money market balances at 40.4% of the total, up from 38% at the end of the first quarter. Balance growth in our L.A. and Orange County markets led the deposit performance during the quarter. I will note that the non-interest-bearing deposit balance mix reduction was in large part due to our strategic exiting of acquired higher rate deposits that had an interest cost to it, but it’s called customer service expense, which is part of non-interest expenses as opposed to being an interest expense. These are deposits that are classified as non-interest-bearing.

These were higher rate deposits when you look at the economic cost, but there’s a subtlety here in terms of where this cost resides in the actual P&L. On the loan side, at the end of the second quarter, excluding the impact of acquired loans and net of downsizing, we saw core loan balances decline 6% on an annualized basis. New loan fundings in the second quarter totaled $377 million, down 29% from first quarter new loan fundings level, and line utilization decreased by 4%. While new loan volume in Q2 was more muted, we did see stronger new loan volume in the first quarter. Our core loan balance growth through the first six months of this year, excluding the impact of First Foundation acquired loans and net of downsizing, was 9.7%.

Coupons on second quarter new loan originations were at 6.76%, very similar to the first quarter level, which was at 6.72%. I’ll note that these average coupon levels for the new loan originations in both quarters is above the effective coupon being accreted on the acquired First Foundation loans. Shifting over to the P&L side, as Neal mentioned, second quarter results were mixed. Bottom line results reflected a net loss of $23 million or $0.49 per diluted share, with merger-related costs representing $0.94 per share. Our adjusted pre-tax, pre-provision net income or PPNR, which excludes merger-related expenses, was $70 million, or $1.50 per share. That compares to $37.3 million or $1.32 per share in the first quarter. So we’re pleased with the growth in core business per share results.

Net interest margin was 3.58% in the second quarter, which is a decline from the 4.25% in the first quarter, with the decline significantly influenced by the acquired loan portfolio and higher funding costs. Several moving pieces on the margin side this quarter. I’ll start with the timing across all the repositioning actions. All of the loan downsizing via sales occurred in the month of June. So net interest margin for the first two months of the quarter saw compression from the lower stated coupons to these acquired loans. The weighted average stated coupon for the loans sold in June was 3.94%. And to be clear, there was no accretion for purchase accounting marks on these sold loans as they were all held for sale.

Similarly, while we reduced high-cost deposit balances as a result of the $2.5 billion combined reduction in deposits associated with our repositioning activities, the timing was also spread throughout the quarter. Progress in total cost of deposits during the quarter was impactful as the deposit costs for the month of June were 20 basis points lower than the month of April. Further, when we look at what combined deposit costs would have been for the first quarter of this year, assuming First Foundation was part of our company at that time, we see a reduction in cost of deposits of 35 basis points comparing June deposit costs to the first quarter deposit cost. We are quite pleased with bringing down our deposit funding costs in a meaningful fashion like this.

Given the timing of all the repositioning activities throughout the quarter, progress in net interest margin is also pretty impactful as it improved 29 basis points comparing June versus April, with June net interest margin at 376 basis points. I know some folks have a specific interest in the component related to the accretion of the purchase accounting fair value marks. To be clear, the fair value marks are the largest component of the TBV dilution in the deal, and the accretion in net interest income is the mechanism to get the loan values back to contractual par. You will find the net impact from fair value mark accretion in net interest income in the earnings deck that we filed with the SEC. On the service fee revenue side, we saw growth of 50.7% compared to the first quarter, it was primarily related to the impact of the acquisition.

We experienced organic growth in mortgage revenues and treasury management revenues while the growth in trust and investment advisory revenue was acquisition-related. Mortgage revenues and wealth revenues on a combined basis account for 62.3% of total service fee revenues in the second quarter. Adjusted non-interest expenses in the second quarter, which exclude merger-related expenses, were up 57% compared to the first quarter, again, were primarily related to the impact of the acquisition. As Neal indicated, we are already realizing some significant cost savings following the acquisition closing, with an annualized run rate equivalent realized in Q2 of approximately 65% of our original total cost save target of $68 million estimated at the announcement date for the acquisition. We are pleased with our progress on cost saves as we are ahead of schedule on phasing so far through the end of the second quarter.

On the asset quality side, provision expense for the second quarter was $40.4 million, charge-offs were $42.4 million or 145 basis points. Provisioning and charge-offs were significantly impacted by the two credit events we disclosed in the 8-K filing from earlier this month. On the provisioning side, the magnitude of those two credits represented 86% of second quarter’s loan loss provision and 82% of our total Q2 charge-offs. The situation involving what we believe to be fraudulent misrepresentations by a borrower in the materials distribution business alone represents 75 basis points of the total 145 basis points in annualized charge-off ratio for the second quarter. Aside from the provisioning for these two larger loan losses we’ve noted, the remaining $5 million in net loan loss provisioning primarily related to net downgrades.

Our level of criticized loans and the non-performing component of criticized loans both increased at the end of the second quarter in comparison to the end of the first quarter. Criticized loans represent 7.7% of total loans, compared to 4.3% at 3/31, and non-performing loans represent 164 basis points of total loans compared to 86 basis points at 3/31. In terms of activity through the end of the second quarter, I’ll note the following. Approximately 76% of the increase in criticized loans relates to the acquired First Foundation loan portfolio. As a reminder, in conjunction with purchase accounting, the entire First Foundation loan portfolio was fair valued at the acquisition date, including in terms of the level of loan loss reserve.

The level of loan loss reserve on the entire acquired loan portfolio was assessed at 172 basis points, and the level on just the criticized component was 685 basis points. Considering 76% of the increase in criticized loans relates to the acquired loans, that leaves 24% of the increase relating to legacy Sunflower loans or $143 million in balances. Approximately $94 million of that $143 million relates to non-performing loans, and I’ll break that down further in a moment. We’ve provided some industry breakdowns in the earnings deck on pages 27 and 28 that we filed to highlight the largest drivers of the increase in both criticized loans and the non-performing component of criticized loans. Seven different NAICS categories represent 93% of the total increase in criticized loan balances from 3/31, with the multifamily component alone representing 60% of that increase.

We regraded the entire acquired loan portfolio. Our grades consider the impact of principal and interest amortization, even if a loan is currently in interest-only mode. We believe we’ve taken a fairly conservative view on loan grades on the acquired book here. The multifamily component of criticized loans at 6/30 alone represents 3.1% of total loans or approximately 40% of the criticized total. In general, we believe the LTVs on the multifamily loans support our carrying values with the weighted loan-to-value for all multifamily criticized loans being at 68%. On the non-performing side, NPLs increased to 1.64% of total loans and increased from the 0.86% last quarter. Five different NAICS categories represent 96% of the total increase in non-performing loans at 6/30, and these same five NAICS categories represented 79% of total NPLs.

Looking at these five different NAICS categories for NPLs, the multifamily component is represented by six different relationships. On a combined basis, this group has a 600 basis point ACL reserve at June 30. We have guarantees in place on approximately 94% of all of our multifamily criticized loans. Between LTV coverage and guarantees, we believe we have strong support for carrying values. Primarily driven by one non-performing loan supported by a property that has experienced a decline in value, which has thereby necessitated a specific reserve. Three of the five NAICS categories capture C&I businesses in either the information technology space, the transportation space, or across certain professional and technical fields. The total number of relationships represented for each of these three NAICS categories is small, and it’s only nine in total.

While these C&I companies are all experiencing varying levels of operating shortfalls, several of the larger exposures are supported by private equity sponsors with meaningful equity investments, we believe those sponsors have the ability to continue to support the borrowers. We also have one NPL that’s fully guaranteed by a well-capitalized and profitable corporate entity. In terms of meaningful dollars across these three NPL NAICS, we also have the remaining balance of the technology company that we realized an approximate $12.9 million charge-off in the second quarter. Again, that loan was charged down to our view of realizable value. In general, we believe there’s stronger sponsor support in many of these cases across these three NAICS categories as companies work through their operating challenges. The other NAICS category in this NPL bucket is the resi mortgage component.

In general, we believe the LTVs here support our carrying values. I’ll summarize the level of NPL increase this quarter as being largely concentrated in several larger credits, as opposed to represented by widespread stress across many borrowers across the loan portfolio. Additionally, we believe we have adequately reserved for potential loan losses through our loss assessments on the Legacy Sunflower portfolio, wherein we realized a 15 basis point increase in the level of reserve compared to 3/31, via the loss assessments completed in conjunction with the purchase accounting work on the acquired loan portfolio. Wherein we did increase the level of reserve by 49 basis points above the level in the Legacy First Foundation balance sheet at 3/31. In total, the level of ACL at 6/30 was at 150 basis points, that’s up from 120 basis points at 3/31.

On the capital side, TBV per share was $35.16, down almost 9% from 3/31. As we noted in the earnings presentation deck, dilution from the acquisition was at approximately 10%, down from the estimated 14% at announcement. The lesser level of TBV dilution from the acquisition is attributable to a lesser overall level of estimated total merger-related expenses and a better overall level of net fair value impacts compared to original estimates. With the net fair value impact driven primarily by better performance on the loan downsizing and higher values on resulting tax assets, including the acquired NOLs. Our capital ratios, while down from the higher levels at 3/31, remain quite strong. The CET1 at 11.95%, Total Risk-Based Capital at 14.13%, and Tier 1 Leverage at 9.47%. Our capital priorities are focused on supporting organic growth looking forward, as well as supporting share buyback activities.

To that end, as Neil noted earlier, just yesterday, we announced a share repurchase program totaling up to $150 million, with repurchases targeted over the next four quarters starting in August. Our capital priorities are currently based on our company-wide risk assessments and risk appetites and are calibrated in our plans with maintaining an 11% minimum targeted operating level for CET1. Next, I’d like to make some comments on our full-year 2026 financial outlook, including the fourth quarter. You should also refer to page 24 in the earnings presentation deck for important key assumptions. On the balance sheet side, for loans, we expect low double-digit balance growth compared to Q2 period end through the end of the year. Then we expect mid-single-digit growth as we look to next year.

While we expect healthy new loan origination levels, we also expect to continue to remix the acquired First Foundation loan portfolio. This means we will have additional balance runoff pressure. In terms of the acquired multifamily loan portfolio and near-term scheduled repricing, we expect up to an estimated $100 million in balance runoff in the second half of this year and up to an estimated $285 million in balance runoff in 2027. Our focus in the multifamily book will be on keeping true relationships rather than where it’s simply a credit-only situation. To us, credit-only is not a value relationship, and this is where we want to continue to refocus the portfolio. Again, in total, as we look to next year, we expect mid-single-digit balance growth.

In terms of deposits, given our continued focus on remix of the acquired balances and scheduled maturities of broker deposits, we also expect low-single-digit balance growth through the end of the year compared to Q2 period end, then expect mid-single-digit growth as we look to next year. We have approximately $300 million in brokered maturities coming during the second half of this year with a weighted rate of 4.77% today on those $300 million in brokered maturities. We have another approximate $340 million in brokered maturities coming in 2027 with a weighted rate of 4.83% on those brokered maturities. We believe we will see some repricing benefit ahead in the broker deposits. In terms of wholesale funding ratio percentage, as I noted earlier, at the end of Q2, our ratio was relatively in line with our historical legacy FSUN percentage levels, and that’s our expectation.

On the NIM side, as I noted earlier, the timing of all the repositioning in Q2 had a significant impact on margin as we saw margin increase 29 basis points from the month of April to the month of June, with the month of June finishing at 376 basis points. Our focus is on continuing to improve our cost of funds as we believe it will be the primary driver of our margin improvement over the second half of this year. We expect to see margin increasing slightly in the third quarter from our June margin level with a further increase into the mid-380s in the fourth quarter. We expect to see this margin trend continuing into the first quarter of 2027 where we expect to be in the high-380s range.

In terms of revenue mix for both the full year and the fourth quarter of 2026, we expect our level of non-interest income to total revenue to be in the low-20s. In terms of adjusted efficiency ratio, which excludes merger-related expenses, we expect to operate in the mid-to-low 60s range in the second half of 2026, with the fourth quarter expected to be in the low-60s. We expect additional cost savings to be realized in the fourth quarter following our core system conversion scheduled for the end of September, which we expect to result in an efficiency ratio in the first quarter of 2027 in the high-50s to low-60s range.

In terms of net charge-offs to average loans, as we noted in our 8-K filing earlier this month, we expect the charge-off level for the full year to be in the high 50s range in basis points. Looking at the math, that translates to an expectation of an annualized charge-off level of mid-teens for the second half this year to get to that full year level in the high 50s range. Further, we expect the ACL to loans to be in the mid-140s to 150 basis point range for the full year. We believe we’ll return to a more normalized level of charge-offs to average loans looking forward into 2027, which we’d expect to be in line with the projected 4Q 2026 level.

We are pleased with the significant progress that we’ve made on integrating the First Foundation business so far. We believe the combined earnings profile will further emerge in Q3, then further again in Q4 following the late September core system conversion as our NIM and efficiency ratios stabilize in the normalized range we expect to operate in. We believe this earnings profile is taking the shape of what you have been accustomed to from legacy FirstSun. I will now turn the call back to the moderator to open the line for questions.

Conference Call 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 Matt Olney with Stephens. Matt, your line is open. Please go ahead.

Matt Olney, Analyst, Stephens: Hey, thanks. Good morning. Appreciate you taking my question. You mentioned that much of the downsizing strategy occurred towards the end of the quarter in 2Q. Any more color on the average earning asset outlook for third quarter as it compares to, I think that 2Q number was closer to $16 billion? Any color there?

Rob, Chief Financial Officer, FirstSun Capital Bancorp: I’d say on that, Matt, that in terms of our guidance on low single digit growth from a period end perspective, I’d guide you to the same on an average basis. On the lower end of low single digit growth, if you’re looking at the third quarter average versus a Q2 month end, and through the end of the year. Low single digit growth on both a period end and an average basis compared to the period end of Q2 is your range.

Matt Olney, Analyst, Stephens: Appreciate that, Rob. As far as the margin improvement the back half of the year, relative to what that June margin was that you disclosed I think you mentioned much of that would be on lower cost of funds. Any more color on this? Is it just going to be working down the brokered deposit balance and replacing that with core? Do you plan to just replace the higher cost brokered with some more current brokered deposits? Just any color on that strategy.

Rob, Chief Financial Officer, FirstSun Capital Bancorp: Absolutely. Yes, you’re right. Given the timing on the downsizing, the margin picture for each of the three months in the second quarter was dramatically different, where we landed at a 3.76% in the month of June. As I referenced, we do see, looking out to certainly the fourth quarter on the margin side, we do see that margin picking up. As I mentioned, mid-3.80s% for the fourth quarter. Cost of funds is where we see outsized potential for continuing to improve that. Certainly bringing down those brokered rates which are at the 4.80% level, is going to be a meaningful impact. Certainly some remix, if you will, with call it normal core deposits versus brokered.

I think the overall level of wholesale, in terms of wholesale funding ratio, as I mentioned, where we landed at 6.8% is pretty in line with our historic FSUN levels. I’d expect that to come down just a little bit, which is a little bit more of that remix, which is going to favorably impact that margin, as you were kind of highlighting in your question, Matt.

Matt Olney, Analyst, Stephens: Okay. Thanks for the color. I’ll step back.

Conference Call Moderator: Your next question comes from the line of Michael Rose with Raymond James. Michael, your line is open. Please go ahead.

Michael Rose, Analyst, Raymond James: Hey, good morning, guys. Thanks for taking my questions. I just wanted to go back to credit. I appreciate all the color that you walked through, Rob. I guess the bigger question is, when I look at slide 28, you did see kind of four FirstSun or legacy FirstSun criticized loans increase about 50% on a balance basis. I certainly understand that you explained some of those, a good portion of that is NPLs. When I look at slide 28, almost every category except for one was up sequentially. I guess the real question is how should investors feel comfort that you have kind of the underwriting process under control? We have seen some larger charge-offs here over the past couple of years and many others haven’t seen similar types of events. Have you guys done or started the process of a third-party credit review?

Just trying to get a better appreciation of how investors can be comfortable that you have the portfolio under control, that losses will normalize because they have been elevated now for the past couple of years relative to peers. I know there’s a lot in there, but just looking for some color.

Neal Arnold, CEO, FirstSun Capital Bancorp: Yeah. Michael, this is Neal. Appreciate the question. Certainly understand it. We don’t like losing money any better than anyone else. A couple of things I’d say. We’re more of a C&I lender than a lot of peers, so I think we’ve often said ours is going to be lumpy. The reality is we have no loans anywhere close to our legal lending limit, and we take concentration seriously. I’d say if you look at by category, we don’t have large dollar exposures to any of people’s worry points. We’ve not changed any of our underwriting approach. We’ve always been pretty thoughtful about it. Things do happen in this size credit space. I would say we constantly go back and look by industry, and we look at them side by side to try to compare what’s going on.

Once a quarter, we do some deep dives in those categories. It’s just the uncomfortableness is that it’s hard to forecast when an operator tips over. Is that indicative of a bad process? No, I think it’s an indicative as our portfolio has matured. We don’t see it coming in one geography. We don’t see it happening in one industry. It’s not we did something wrong in, whether it’s SaaS or data centers or MDFI. You look at all those categories, we don’t come away going, "Gee, we shouldn’t have done that." It’s really borrower-driven. We’ve tried to get on top of it and look at it, and we constantly challenge ourselves to say, "Is there something more missing?" Honestly, we’ve looked hard at this multiple times. I think we’re trying to be as clear on our exposure in areas so that people can look at it.

It’s not something we run from. We are a big lender, and that’s the piece of the puzzle that we’ve been at it. Like I said, I can’t say, "Hey, we stepped in it here." We, in general, take smaller size positions than banks of our similar size. We see that constantly. I think we also have looked top-down at concentrations and never came away going, "Gee, we don’t want to lend any more to that segment." I don’t know, Jennifer?

Rob, Chief Financial Officer, FirstSun Capital Bancorp: Yeah. I would just underscore one item there, thank you for the question, Michael, that Neal emphasized earlier, and that is the nature of our business. It is different than a lot of those in our size category. Of course, we’re always looking at our credit performance and everything there as Neal described. We also look at excuse me, what we reference as credit-adjusted NIM, which we believe actually adjusts out for difference in mix between CRE and C&I to give another economic measure. Credit-adjusted NIM is something else we look at from a performance standpoint that I would also emphasize is something that we look at from a relativity standpoint. I know our credit-adjusted NIM is above, so our charge-off has been above, but our credit-adjusted NIM is also above those peer levels.

Jennifer, Executive/Manager, FirstSun Capital Bancorp: Yeah. No, this is Jennifer. I agree with obviously what everyone said. We’ve taken deep dives in to look at these in terms of process. The other just of note that Rob mentioned earlier is it’s a limited number of NAICS and a limited number of loans within those.

Neal Arnold, CEO, FirstSun Capital Bancorp: Yeah.

Jennifer, Executive/Manager, FirstSun Capital Bancorp: So-

Neal Arnold, CEO, FirstSun Capital Bancorp: Yeah

Jennifer, Executive/Manager, FirstSun Capital Bancorp: That would be my point.

Neal Arnold, CEO, FirstSun Capital Bancorp: Obviously in conjunction with the diligence that we both did in the merger, we did have a third party go through our portfolio as did First Foundation.

Michael Rose, Analyst, Raymond James: Okay. I appreciate all the color and the discussion. Rob, maybe just one clarification going back to the customer service expense. I just want to make sure I understand it. I think what happened here is you ran off those deposits, which resulted in a lower or smaller balance sheet, lower reported NII, but also lower operating costs. I think those two net out. Is that the way to understand it?

Rob, Chief Financial Officer, FirstSun Capital Bancorp: That’s exactly right, Michael. We ultimately don’t know where some of our, if you will, negotiations are going to go with some of these larger, higher rate depositors. There’s certainly First Foundation had some larger, higher rates in this NIB category that had economic costs, just like we see coming through interest expense, but it’s down to the customer service and very high rate. We presented where we would come out on rate and some of those just aren’t going to work out. We saw $hundreds of millions, and that was part of our high rate runoff, and those were rates above-

Neal Arnold, CEO, FirstSun Capital Bancorp: Above

Rob, Chief Financial Officer, FirstSun Capital Bancorp: overnight Fed.

Neal Arnold, CEO, FirstSun Capital Bancorp: Fed Funds, yeah.

Rob, Chief Financial Officer, FirstSun Capital Bancorp: They’re high rates. It’s a good trade. You’re right, we took on more shrink in the second quarter. Essentially, I’d characterize it a little bit as we fast-forwarded some of the activity that we’re going to continue to tackle throughout the remainder of 2026 in the second quarter. Obviously we tackled a lot with all the downsizing, but we are tackling those conversations as well. That’s ultimately as you link back up to where our growth expectations on the balance sheet are through the remainder of the year as well. Yes, on the deposit side, that geography can get a little overlooked at times by folks in terms of, for some of these banks, we’ve never had this customer service aspect-

Neal Arnold, CEO, FirstSun Capital Bancorp: Right

Rob, Chief Financial Officer, FirstSun Capital Bancorp: buried in our NIV. We did acquire some of that, and we’ve taken a good chunk out of it already.

Michael Rose, Analyst, Raymond James: Okay. Very helpful. There’s just a last follow-up is in light of that, and maybe back to Matt’s question, how should we think about NII growth in the back half of the year? Just based on the earlier cost savings, is the $5 plus EPS target for next year still in play? Thanks.

Rob, Chief Financial Officer, FirstSun Capital Bancorp: Got you. I think on the margin side, as I mentioned earlier, we expect to be for the fourth quarter, expect to be in the mid-380s on margin with our projection on the asset side, low single digit. That’s going to get you to fairly stable on an absolute dollar amount in NII as it’ll be up slightly in Q4 over Q2. Again, those are, if you will, the math behind those two pieces, just in terms of our NII expectation there.

Neal Arnold, CEO, FirstSun Capital Bancorp: I don’t think we’ve changed our guidance on

Rob, Chief Financial Officer, FirstSun Capital Bancorp: In terms of looking forward at 2027, I think with the balance sheet growth that we referenced, with the net interest margin that we referenced, I think as you look at our expectations on credit and efficiency ratio, I actually think combined with expectations on the share buyback side, I think we’re north of a flat 5. Yeah, we’re very optimistic of looking into 2027 and performance there.

Neal Arnold, CEO, FirstSun Capital Bancorp: I would just say, Michael, certainly the second quarter was plenty busy with the hard work of this integration. Obviously, this quarter we have the computer conversion, so we’ve got whole teams working on that. We also recognize we’re not done on the cleanup of First Foundation and now the credit piece of the story. I promise the reality is we know we had work to do when we bought First Foundation, and we’re not shy about rolling up sleeves and quickly tackling it. That’s what you can expect us to do. I think there’s nothing we’ve discovered that makes us believe that the profile of the underlying franchise is completing the playbook that we’ve strategically set out to build across the Southwest. We now have a meaningful presence in Southern Cal. We obviously have added a piece in Southwest Florida.

To us, driving core deposits, some banks get distracted away from that. That’s our everyday job. We think the fee income story here is a strong one and getting better. I have often said I love the flexibility that this balance sheet and franchise gives us to not only grow organically, but to navigate whatever interest rate or economic profile. I think we’re in good shape recognizing we still have work to do.

Michael Rose, Analyst, Raymond James: All right, thanks. I’ll step back. Appreciate all the color.

Rob, Chief Financial Officer, FirstSun Capital Bancorp: Absolutely.

Conference Call Moderator: We have reached the end of the Q&A session. I will now turn the call back to Neal Arnold for closing remarks.

Neal Arnold, CEO, FirstSun Capital Bancorp: We thank you all for joining us this morning. As always, we appreciate your interest in continuing to follow us. Thank you.

Conference Call Moderator: This concludes today’s call. Thank you for attending. You may now disconnect.