FirstSun Capital Bancorp — Q3 2023 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2023; unaudited. FirstSun is a bank holding company operating Sunflower Bank and mortgage, banking, and trust businesses across several U.S. states. The prior-year comparison includes Pioneer Bancshares only from its April 1, 2022 acquisition date, limiting comparability in some periods.
Financial and operating performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Net interest income | $73.4m | $68.5m | $221.4m | $168.4m |
| Provision for credit losses | $3.9m | $3.8m | $11.7m | $12.5m |
| Noninterest income | $18.7m | $25.0m | $61.9m | $70.9m |
| Noninterest expense | $56.2m | $55.5m | $170.5m | $183.7m |
| Net income | $25.2m | $26.5m | $79.5m | $34.6m |
| Diluted earnings per share | $1.00 | $1.04 | $3.13 | $1.49 |
| Net interest margin | 4.23% | 4.26% | 4.28% | 3.66% |
- Q3 return on average assets was 1.34% and return on average equity was 12.03%; both declined from Q3 2022. The efficiency ratio rose to 61.02% from 59.45%.
- At September 30, total assets were $7.76bn, loans held for investment were $6.18bn, deposits were $6.34bn, and stockholders’ equity was $843.7m. Loans grew about $268m and deposits about $575m from year-end 2022.
- Q3 average deposit cost rose to 1.95% overall from 0.22% a year earlier; interest-bearing deposit cost was 2.64%. Management attributed margin pressure to deposit repricing and a shift toward certificates of deposit.
- For the first nine months, operating cash flow was $84.2m, investing cash outflow was $229.2m, and financing cash inflow was $245.4m. Cash and cash equivalents increased $100.4m to $443.9m.
- Borrowings included $330m of FHLB advances and $75.2m of subordinated debt, net; repurchase agreements were $25.9m. The $5.5m convertible notes matured and were repaid in August.
- The Bank’s regulatory capital ratios remained above well-capitalized thresholds: CET1 11.36%, Tier 1 risk-based 11.36%, total risk-based 12.46%, and leverage 10.89%.
Material changes and credit
- Q3 net income fell 4.8% year over year as higher net interest income was outweighed by lower noninterest income, especially mortgage banking revenue, and higher expenses. Nine-month net income increased substantially, in part because 2022 included $18.8m of merger expenses and a $2.9m provision on acquired loans marked at a premium.
- Nine-month mortgage banking income declined to $26.5m from $40.0m; mortgage originations for sale fell to $634m from $897m. Q3 mortgage banking income was $7.4m versus $13.8m.
- The allowance for credit losses was $78.7m, or 1.27% of loans, versus $65.9m, or 1.12%, at year-end. Nonperforming loans rose to $40.7m from $29.1m, and nonperforming assets to $49.1m from $35.4m. Q3 included a $2.9m charge-off related to an exited customer relationship.
- FirstSun adopted CECL on January 1, 2023, recording a $3.8m after-tax reduction to retained earnings. The allowance and related estimates depend on economic forecasts and management judgment.
Liquidity, outlook, risks, and contingencies
- Management said liquidity was adequate. The Bank reported $435.6m of liquid assets and $3.31bn of immediate funding availability, including FHLB capacity, Federal Reserve lines, and other credit lines. Loans were 97.5% of customer deposits.
- Uninsured deposits were estimated at $2.0bn, or 32.0% of deposits; $1.6bn, or 25.4%, were uninsured and uncollateralized. The filing notes heightened deposit competition and uncertainty following 2023 bank failures.
- Management expects funding costs to continue rising in Q4 2023, but at a slower pace than in Q3. It does not expect mortgage banking revenue to return to prior-year levels in the immediate future, citing higher rates, low housing inventory, lower refinance volumes, and compressed sale margins. No quantified earnings or full-year guidance is provided.
- Available-for-sale securities had $74.2m of gross unrealized losses at quarter-end, which management attributed primarily to rates and market spreads rather than credit concerns. The company stated it did not expect to have to sell those securities before recovery. Held-to-maturity securities’ fair value was $30.8m versus $37.4m carrying value.
- Commercial real estate was 29.8% of loans; office-related exposure was reported as $101.8m non-owner-occupied and $139.7m owner-occupied. Other stated risks include interest-rate sensitivity, credit deterioration, cyber and third-party risks, and regulatory changes.
- The MOVEit vendor security incident was not expected to have a material financial impact. The overdraft-fee class action and check-fraud case remained unresolved; management could not reasonably estimate their outcomes. The wire-transfer litigation was dismissed after settlement with no material financial impact.
Investor verification priorities
- Track deposit pricing, deposit mix and uninsured balances, and test the assumptions behind management’s liquidity assessment and available borrowing capacity.
- Monitor net interest margin and funding costs against management’s Q4 commentary, alongside loan growth and mortgage banking results.
- Review nonperforming loans, criticized loan ratings, charge-offs, and allowance adequacy, especially commercial and residential real estate exposures.
- Assess the potential impact of securities losses under liquidity stress, including pledged and unencumbered securities and the distinction between available-for-sale and held-to-maturity holdings.
- Follow developments in the check-fraud and overdraft-fee litigation, and verify whether any subsequent filings update the stated risks or outlook.