- Forward look: FirstSun is predicting a sharp decline in net charge-offs during the second half of 2026 after experiencing a second-quarter surge.
- Expert quote: "The reality is we have no loans anywhere close to our legal lending limit, and we take concentration seriously." — FirstSun CEO Neal Arnold
- Supporting data: The company shrank its balance sheet 5% in the second quarter as part of a plan to divest high-cost deposits and risky loans acquired from First Foundation Inc.
Though Denver-based FirstSun Capital Bancorp reported a $22.9 million second-quarter loss driven by
After adjusting for one-time merger-related expenses and an elevated provision for credit losses, FirstSun reported core net income of $21 million, or $0.45 per share.
Piper Sandler analyst Matthew Clark wrote in a research note that he had been expecting a core profit of $0.12 per share. Clark attributed the upside surprise to lower-than-expected operating expenses along with stronger spread and fee income.
Shares in FirstSun shot up by 13% on Tuesday to $39.34.
FirstSun completed its $785 million, all-stock
Commenting Tuesday on a conference call with analysts, FirstSun Chief Financial Officer Rob Cafera said the downsizing program was on track to hit all its goals. So far, FirstSun has shed $3.9 billion of loans, $2.5 billion of deposits and $1.4 billion of Federal Home Loan Bank borrowings.
"All the balance-sheet repositioning that we targeted for the second quarter was completed," Cafera told analysts. "This was certainly one of our highest strategic priorities immediately following the closing of the transaction. We can now shift our focus to leveraging our business model across our expanded geography."
As a result of the downsizing program, FirstSun shrank its balance sheet by 5% during the three months ended June 30.
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Progress on the balance-sheet remix along with a lower-than-projected merger-related expenses prompted FirstSun to scale back its estimate of tangible-book-value dilution resulting from the First Foundation deal to 10%, down from the 14% figure published when the transaction was announced in October.
The previously disclosed charge-offs, including a $22 million loss on a loan to a materials distributor that FirstSun believes provided fraudulent accounts-receivable reports, resulted in an annualized net charge-off ratio of 1.45% of average loans, up materially from the 0.63% level reported for the three months ended March 31.
CEO Neal Arnold called the losses "disappointing," but insisted on the conference call that they were driven by borrower-specific factors "rather than, in our belief, an indication of broad-based significant loss content across our portfolio."
For his part, Cafera predicted credit would improve, forecasting the net charge-off ratio will drop into the "mid-teens" of basis points in the second half of 2026. "We believe we will return to a more normalized level of charge-offs to average loans looking forward into 2027," the CFO said.
Criticized loans also increased to $895 million at June 30, up from $296 million three months earlier, but Cafera attributed the lion's share of the increase — about 76% — to acquired First Foundation credits.
Some analysts questioned FirstSun's credit outlook, with Raymond James' Michael Rose noting the company's loan losses have been higher than those of many peer institutions "the past couple years."
"I guess the real question is how should investors feel comfort that you have the underwriting process under control," Rose said.
Arnold defended FirstSun's credit culture, saying that its emphasis on commercial-and-industrial lending can lead to uneven, "lumpy" loan-loss results. "It's hard to forecast when an operator tips over," he said.
"We don't like losing money any better than anyone else," Arnold said. "The reality is we have no loans anywhere close to our legal lending limit, and we take concentration seriously."
