Why FirstSun is again trying to buy an 'unloved' bank

• Key insight: The transaction will help the troubled First Foundation shape up its balance sheet, while giving FirstSun new retail share in the Golden State.
• What's at stake: The bank M&A market has been frothy in recent months, as institutions feel pressure to scale, especially in high-growth regions.
• Forward look: If FirstSun wins approval to fold in First Foundation, the company will double its asset size and quickly boost its deposit hold in the Southwest.

UPDATE: This story includes additional financial information and comments from executives.

Almost one year after calling off its last planned acquisition, FirstSun Capital Bancorp has agreed to buy the beleaguered First Foundation in a transaction valued at $785 million.

Denver-based FirstSun, which operates through its Sunflower Bank subsidiary, hopes to roughly double its size and rapidly scale its presence in Arizona and Southern California with the proposed acquisition, bank executives said on a Tuesday call. 

"It's not often that you can double the size of your company, while simultaneously reducing the credit risk profile, improving the rate sensitivity of the combined organization and significantly reducing the liquidity risk," FirstSun CEO Neal Arnold said during a call with analysts. "And I'd take that as an operator anytime in a potential acquisition. So I believe that this transaction does a lot for both parties."

Investors didn't seem to agree, as FirstSun's stock price plunged more than 16% in Tuesday trading.

The First Foundation deal would accelerate FirstSun's retail buildout in Southern California, following a de novo strategy it started in mid-2024. First Foundation, which has a banking subsidiary based in Irvine, will add 16 branches to FirstSun's network in the region, along with over a dozen more across the Southwest, executives said.

FirstSun's current footprint runs across parts of the Southwest, touching Texas, Kansas, New Mexico and Colorado, but the overlap with First Foundation is minimal.

Other banks have also lasered in on the Southern California retail market. In the spring, Columbia Banking System said it would acquire Irvine-based Pacific Premier Bancorp, highlighting a similar objective.

First Foundation's finances

The all-stock deal, which the companies expect to close early in the second quarter of 2026, will mean FirstSun can reposition First Foundation's balance sheet. The banks project the combined entity will have $17 billion of assets and $7 billion of assets under management. The deal is also expected to be 30% accretive by 2027.

First Foundation has been in a tricky situation since the rapid rise of interest rates in 2022 and 2023, which crunched the company's balance sheet, as it had allotted nearly half of its loan portfolio to multifamily loans made when rates were near zero. As rates rose, the fixed-rate loans dragged on earnings, while the deposits to fund those loans grew more expensive.

Arnold said that First Foundation has "an attractive underlying franchise that's been hidden by some poor balance sheet management decisions."

Last year, First Foundation landed a $228 million capital infusion to whip its balance sheet into shape and overhaul its strategy. The investment came with new leaders, including CEO Tom Shafer, who have previously fixed up banks in preparation to sell.

"Most of you all know we like to tackle unloved companies in this industry," Arnold said Tuesday. "Why? Because we believe there's less investment risk when you do the full due diligence. They tend to be priced at lower prices and have lower projections, which means for all of us, there's a higher probability to have upside."

Shafer said on the Tuesday call that First Foundation has been "proactively reducing risk" since the recapitalization in 2024, and has downsized the balance sheet by some $2 billion of assets in a year.

"The business plan that we have, we'd continue doing that," Shafer said. "What this merger does is allow us to dramatically accelerate the business plan that we put in place, and allow us to focus on the opportunity within Southern California."

The companies plan to pare down First Foundation's assets by another $3.4 billion to mitigate risks from liquidity concerns, interest rates and credit.

FirstSun also estimates cost savings of $68.8 million, or more than one-third of First Foundation's expense base. FirstSun Chief Financial Officer Rob Cafera said Tuesday that about 70% of the savings would come "on the people side," specifically by cutting workers in non-customer-facing, back-office roles. 

Second try

FirstSun has dealt with its own problems in the last couple of years. Last November, the company's planned acquisition of Seattle-based HomeStreet fell through when the two companies' efforts to secure regulatory approval failed. Arnold said at the time that FirstSun was "disappointed with the outcome" but focused on growing in its local markets.

HomeStreet had agreed to sell at the beginning of last year after facing similar issues as First Foundation — grappling with a large multifamily loan book that was dragging on its earnings as deposit costs shot up. Its outsized commercial real estate book also put regulators on edge. The Office of the Comptroller of the Currency signaled in the spring of 2024 that HomeStreet's CRE exposure would keep regulators from green-lighting the deal.

Arnold said Tuesday that FirstSun learned from the HomeStreet ordeal to move "quickly and significantly by and around closing" when acquiring a bank in need of transformation. FirstSun also learned that it has to be clear with investors, partners, regulators and employees about what it plans to accomplish, and how, he added.

On top of noticing a friendlier merger environment under Trump regulators, FirstSun has been in close conversations with the Federal Reserve Board and the OCC regarding the First Foundation transaction, Arnold said.

The company's last bank purchase was in 2022, when it acquired Pioneer Bancshares in Austin, Texas, expanding its footprint across the Lone Star State.

Arnold said his bank had attempted to ink a deal with First Foundation more than three years ago, but "could not work it out." Conversations picked back up again in April of this year.

FirstSun's proposed acquisition of First Foundation comes amid a frothy bank merger and acquisition landscape. Financial institutions have been outspoken about the pressure to add scale, whether that's density within their footprint, geographic expansion or technology advancement. Buying another bank — or putting the company up for sale — seems to be the preferred path for hundreds of banks in 2025.