FIRSTSUN CAPITAL BANCORP In this section, unless the context suggests otherwise, references to "we,"
"us," and "our" mean the combined business of FirstSun and its wholly-owned
subsidiaries,
The following discussion and analysis of FirstSun's consolidated financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as our audited consolidated financial statements and footnotes for the year endedDecember 31, 2021 included in the 2021 Form 10-K that we filed with theSEC onMarch 25, 2022 . Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods. Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the " Cautionary Note Regarding Forward-Looking Statements " beginning on page 3 of this report. General OverviewFirstSun Capital Bancorp , headquartered inDenver, Colorado , is the financial holding company forSunflower Bank, National Association , which operates asSunflower Bank , First National 1870 and Guardian Mortgage. We conduct a full service community banking and trust business through our wholly-owned subsidiaries-Sunflower Bank andLogia Portfolio Management, LLC . We offer a full range of relationship-focused services to meet our clients' personal, business and wealth management financial objectives, with a branch network inTexas ,Colorado ,Arizona ,New Mexico , andKansas and mortgage capabilities in 43 states. Our product line includes commercial loans, commercial real estate loans, residential mortgage and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers. We operate FirstSun through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The expenses included in Corporate are not deemed to be allocable to our operating segments. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is evaluated by management. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. For additional information on our segments, see Note 16 - Segment Information included in our consolidated financial statements included elsewhere in this report. 43
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Completion of Merger with
OnApril 1, 2022 , we completed our previously announced merger withPioneer Bancshares, Inc. ("Pioneer"), pursuant to which Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity, and Pioneer's wholly-owned subsidiary,Pioneer Bank, SSB , aTexas state savings bank, was merged with and intoSunflower Bank , withSunflower Bank continuing as the surviving bank. With the acquisition, we acquired 19 branches inTexas . The results for Pioneer are reflected in our results of operations and financial condition beginningApril 1, 2022 . Further information is presented in Note 2 - Merger withPioneer Bancshares, Inc. included in our consolidated financial statements included elsewhere in this report. For the second quarter of 2022, we incurred$18.4 million ($0.57 diluted earnings per share) of expenses relating to the merger. For the six months endedJune 30, 2022 , we incurred$18.8 million ($0.66 diluted earnings per share) of expenses relating to the merger. For the three and six months endedJune 30, 2021 , we incurred$1.3 million ($0.06 diluted earnings per share) of expenses relating to the merger. Additionally, for the three and six months endedJune 30, 2022 , we incurred$2.9 million ($0.09 and$0.11 diluted earnings per share, respectively) of provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium upon the closing of the merger. The premium on certain of the acquired loans was due to the higher contractual interest rates of such loans, compared to market interest rates on the closing date of the merger. While we recorded a net discount on the entire Pioneer loan portfolio acquired, due to the premium recorded on certain of the acquired loans, we were required to record a provision for loan losses subsequent to closing. This provision, however, was not due to credit deterioration on these loans since the closing of the merger.
Pandemic Update
Our business has been, and continues to be, impacted by the effects of the COVID-19 pandemic. There remains many uncertainties related to COVID-19 including, among other things, the ongoing impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of actions taken, or that may yet be taken, or inaction by governmental authorities to mitigate both the economic and health-related effects of COVID-19.
Financial Summary
Net income totaled$0.4 million , or$0.02 per diluted share, for the second quarter of 2022, compared to$11.3 million , or$0.60 per diluted share, for the second quarter of 2021. The return on average assets was 0.02% for the second quarter of 2022, compared to 0.82% for the second quarter of 2021, and the return on average equity was 0.23% for the second quarter of 2022, compared to 8.82% for the second quarter of 2021. Net income, return on average assets and return on average equity were reduced by merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium upon the closing of the merger. The reduction to net income, return on average assets and return on average equity for the second quarter of 2022, resulting from the aggregate of merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium, were$16.8 million , 0.94%, and 8.96% respectively. The reduction to net income, return on average assets and return on average equity for the second quarter of 2021, resulting from merger-related expenses, were$1.1 million , 0.08%, and 0.83%, respectively. Net income totaled$8.1 million , or$0.36 per diluted share, for the six months endedJune 30, 2022 , compared to$25.6 million , or$1.37 per diluted share, for the same period in 2021. The return on average assets was 0.25% for the six months endedJune 30, 2022 , compared to 0.97% for the same period in 2021, and the return on average equity was 2.54% for the six months endedJune 30, 2022 , compared to 10.12% for the same period in 2021. Net income, return on average assets and return on average equity were reduced by merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium upon the closing of the merger. The reduction to net income, return on average assets and return on average equity for the six months endedJune 30, 2022 , resulting from the aggregate of merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium, were$17.0 million , 0.53%, and 5.35% respectively. The reduction to net income, return on average assets and return on average equity for the six months endedJune 30, 2021 , resulting from merger-related expenses, were$1.1 million , 0.04%, and 0.42%, respectively. 44
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The following table sets forth certain summary financial and other information
of FirstSun:
For the three months For the year ended
ended June 30, For the six months ended June 30, December 31,
($ in thousands, except share and
per share amounts) 2022 2021 2022 2021 2021
Income Statement:
Net interest income $ 58,585 $ 36,400 $ 99,870 $ 74,817 $ 155,233
Taxable equivalent adjustment 1,284 1,704 2,605 3,495 5,755
Net interest income - fully tax
equivalent ("FTE") basis (non-GAAP)
(3) $ 59,869 $ 38,104 $ 102,475 $ 78,312 $ 160,988
Provision for (reversal of) loan losses$ 5,000 $ (1,400)$ 8,700 $ (1,750)$ 3,000 Noninterest income$ 22,302 $ 32,283$ 45,995 $ 66,164$ 124,244 Noninterest expense$ 75,668 $ 56,624$ 128,135 $ 111,804$ 224,635 Net income$ 430 $ 11,281$ 8,099 $ 25,619$ 43,164 Per Common Share Data: Weighted average diluted common shares 25,458,311 18,761,034 22,195,814 18,722,828 18,770,785 Net income (basic)$ 0.02 $ 0.62$ 0.38 $ 1.40$ 2.36 Net income (diluted)$ 0.02 $ 0.60$ 0.36 $ 1.37$ 2.30 Cash dividends $ - $ - $ - $ - $ - Dividend payout ratio - % - % - % - % - % Book value$ 29.28 $ 27.87$ 29.28 $ 27.87$ 28.56 Tangible common book value (non-GAAP) (3)$ 24.76 $ 25.57$ 24.76 $ 25.57$ 26.31 Performance Ratios: Return on average assets 0.02 % 0.82 % 0.25 % 0.97 % 0.79 % Return on average stockholders' equity 0.23 % 8.82 % 2.54 % 10.12 % 8.37 % Return on tangible common equity (non-GAAP) (3) 0.76 % 9.87 % 2.96 % 11.17 % 9.17 % Return on average tangible common equity (non-GAAP) (3) 0.74 % 9.85 % 3.25 % 11.29 % 9.35 % Net interest margin 3.56 % 2.81 % 3.34 % 3.00 % 3.08 % Efficiency ratio (1) 93.55 % 82.44 % 87.84 % 79.30 % 80.38
%
Net charge-offs to average loans outstanding (0.04) % 0.30 % 0.01 % 0.16 % 0.09 % Allowance for loan losses to loans 1.04 % 1.13 % 1.04 % 1.13 % 1.18 % Nonperforming loans to total loans (2) 0.71 % 1.27 % 0.71 % 1.27 % 0.86 % Balance Sheet: Total loans, excluding loans held-for-sale$ 5,387,928 $ 3,794,355 $ 5,387,928 $ 3,794,355 $ 4,037,123 Total assets$ 7,060,692 $ 5,563,076 $ 7,060,692 $ 5,563,076 $ 5,666,814 Total deposits$ 5,933,022 $ 4,748,698 $ 5,933,022 $ 4,748,698 $ 4,854,948 Total borrowed funds$ 239,927 $ 108,910 $ 239,927 $ 108,910 $
109,458
Total stockholders' equity$ 727,542 $ 510,582 $ 727,542 $ 510,582 $
524,038
Capital Ratios: Total risk-based capital to risk-weighted assets 11.60 % 12.44 % 11.60 % 12.44 % 11.76
%
Tier 1 risk-based capital to risk-weighted assets 9.59 % 10.28 % 9.59 % 10.28 % 9.70
%
Common Equity Tier 1 (CET 1) to risk-weighted assets 9.59 % 10.28 % 9.59 % 10.28 % 9.70
%
Tier 1 leverage capital to average assets 8.89 % 8.21 % 8.89 % 8.21 % 8.24 % Average equity to average assets 10.45 % 9.34 % 9.92 % 9.59 % 9.43 % Tangible common equity to tangible assets (non-GAAP) (3) 8.86 % 8.49 % 8.86 % 8.49 % 8.58 % Nonfinancial Data: Full-time equivalent employees 1,144 1,026 1,144 1,026 1,042 Banking branches 72 52 72 52 53 (1) The efficiency ratio is one measure of profitability in the banking industry. This ratio measures the cost of generatingone dollar of revenue. That is, the ratio is designed to reflect the percentage ofone dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income. (2) Nonperforming loans include nonaccrual loans, accrual troubled debt restructurings ("TDR"), and accrual loans greater than 90 days past due. (3) See section entitled "Non-GAAP Financial Measures and Reconciliations" for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. 45
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Non-GAAP Financial Measures and Reconciliations
The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor's understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the three and six months endedJune 30, 2022 , included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.
The following table presents GAAP to non-GAAP reconciliations:
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