FirstSun Capital Bancorp — 2023 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2023. The audited financial statements received an unqualified opinion from Crowe LLP. FirstSun is a regional bank holding company operating Sunflower Bank and related mortgage and wealth-management businesses, principally in Texas, Kansas, Colorado, New Mexico and Arizona.
Financial performance and condition
| Metric | 2023 | 2022 |
|---|---|---|
| Net interest income | $293.4 million | $241.6 million |
| Noninterest income | $79.1 million | $89.6 million |
| Net income | $103.5 million | $59.2 million |
| Diluted earnings per share | $4.08 | $2.48 |
| Net interest margin | 4.23% | 3.87% |
| Efficiency ratio | 59.81% | 72.20% |
| Operating cash flow | $125.2 million | $96.9 million |
- Balance sheet at year-end: Assets were $7.88 billion; loans, net of allowance, were $6.19 billion; deposits were $6.37 billion; and stockholders’ equity was $877.2 million.
- Growth: Total loans increased 6.0% to $6.27 billion; deposits increased 10.6% to $6.37 billion. Average deposits grew 9.7%.
- Credit costs and asset quality: Provision for credit losses was $18.2 million, compared with $18.1 million. Net charge-offs were $7.8 million, or 0.13% of average loans, versus net recoveries in 2022. Nonperforming assets rose to $67.2 million (0.85% of assets) from $35.4 million; nonperforming loans were 1.01% of loans versus 0.49%.
- Funding and debt: Total borrowed funds were $464.8 million, down from $724.1 million, including $389.5 million of FHLB advances and $75.3 million of subordinated debt. The $5.5 million convertible notes were repaid at maturity in August 2023.
- Liquidity and capital: Cash and cash equivalents were $479.4 million. The Bank reported $3.04 billion of immediate available funding sources, including FHLB and Federal Reserve capacity. The Bank’s CET1 ratio was 11.68% and total risk-based capital ratio was 12.79%; it was categorized as well-capitalized.
- Other notable metrics: Mortgage banking revenue fell to $31.4 million from $46.3 million. AFS securities had $60.7 million of gross unrealized losses at year-end, which management attributed primarily to interest rates and market spreads, not credit losses. AOCI was a $43.0 million loss.
Changes versus 2022
- Net income increased 75%, supported by 21.4% growth in net interest income and lower noninterest expense. The 2022 comparison included $18.8 million of merger-related expense; none was recorded in 2023.
- Higher loan yields lifted net interest income, while funding costs rose sharply: total deposit cost increased to 2.27% from 0.35%, and average FHLB borrowing cost increased to 5.05% from 2.89%.
- Noninterest income declined 11.7%, mainly as mortgage banking revenue decreased amid higher rates and lower origination activity. Mortgage originations for sale fell to $0.8 billion from $1.1 billion.
- Noninterest expense declined 6.8%, largely reflecting the absence of Pioneer merger costs; salary and benefits were broadly flat.
- Deposits increased, but noninterest-bearing balances declined to $1.53 billion from $1.82 billion. Estimated uninsured deposits decreased to 31.2% of deposits from 41.6%.
Outlook, risks and unusual items
- Management outlook: The filing does not provide formal earnings guidance. Management said it did not expect funding costs to rise in 2024 at the pace experienced in 2023. It expected mortgage origination volumes to remain subdued at least in the first half of 2024, with rates, housing inventory and margins continuing to weigh on the business.
- Proposed HomeStreet merger: Announced January 16, 2024, after year-end. The companies expected to close in mid-2024, subject to shareholder and regulatory approvals. The proposed combined company was expected to have approximately $17 billion of assets and 129 branches. FirstSun issued $80 million of common stock in January 2024 and agreed to issue a further $95 million at merger closing, if completed. These are subsequent events, not 2023 balance-sheet transactions.
- Key risks: Interest-rate and yield-curve changes, deposit competition and funding costs, credit deterioration, real-estate concentration, liquidity, and merger approval, integration, dilution and execution. Commercial and industrial and commercial real estate loans represented 69.6% of loans. Non-owner-occupied CRE was 13.0% of loans; office-related exposures included $109.3 million non-owner-occupied and $149.4 million owner-occupied.
- Cybersecurity and legal matters: A 2023 MOVEit vendor vulnerability likely exposed certain customer data; the SEC requested documents in February 2024, and FirstSun said it intended to cooperate and did not expect a material financial impact. In a separate check-fraud case, a jury awarded approximately $2.1 million in January 2024; the company believed insurance would cover the judgment, but final judgment had not been entered. An overdraft-fee class action remained pending, with outcome not reasonably estimable.
- Accounting change: FirstSun adopted CECL on January 1, 2023, recording a $3.8 million after-tax reduction to opening retained earnings. This affects comparability of credit-loss measures with prior periods.
- Shareholder returns and trading: FirstSun reported no common dividends in 2023 or 2022 and said it did not expect to pay dividends in the foreseeable future. Its shares traded on OTCQX at the time of the filing; the company committed to pursue a national exchange listing.
Important facts for investors to verify
- Whether the HomeStreet merger and the remaining $95 million equity raise close on expected terms and schedule, and the resulting dilution, capital levels and integration costs.
- Whether deposit balances and mix remain stable, including uninsured and uncollateralized deposits, and whether funding costs moderate as management anticipates.
- Whether nonperforming loans and assets, charge-offs and the allowance for credit losses continue to rise; pay particular attention to the large past-due accruing borrower relationship disclosed at year-end.
- How interest-rate changes affect net interest income, securities values and mortgage servicing rights; the filing’s model showed a 13.2% decline in economic value of equity under a 300-basis-point rate increase.
- Whether mortgage revenue stabilizes and whether the MOVEit investigation, overdraft litigation and check-fraud judgment produce costs beyond those currently estimated.