FirstSun Capital Bancorp Q4 2025 FirstSun Capital Bancorp Earnings Call | AllMind AI Earnings | AllMind AI
Q4 2025 FirstSun Capital Bancorp Earnings Call
Speaker #1: Good morning and welcome to the FIRSTSUN CAPITAL BANCORP Q4 and 2025 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session.
Operator: Good morning, and welcome to the FirstSun Capital Bancorp Q4 and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. Also, as a reminder, this call may be recorded. I'd now like to turn the call over to Ed Jacks, FirstSun's Director of Investor Relations and Business Development. You may begin.
Operator: Good morning, and welcome to the FirstSun Capital Bancorp Q4 and full year 2023 earnings conference call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two. Also, as a reminder, this call may be recorded. I'd now like to turn the call over to Ed Jacks, FirstSun's Director of Investor Relations and Business Development. You may begin.
Speaker #1: If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star followed by the number two.
Speaker #1: Also, as a reminder, this call may be recorded. I'd now like to turn the call over to Ed Jax, FIRSTSUN's Director of Investor Relations and Business Development.
Speaker #1: You may begin.
Speaker #2: Thank you. And good morning. I'm joined today by Neal Arnold, our Chief Executive Officer and President; Rob Cafera, our Chief Financial Officer; and Jennifer Norris, our Chief Credit Officer.
Ed Jacques: Thank you, and good morning. I'm joined today by Neal Arnold, our Chief Executive Officer and President, Rob Cafera, our Chief Financial Officer, and Jennifer Norris, our Chief Credit Officer. We will start the call with some brief remarks to highlight commentary around the fourth quarter and full-year results, and then move into questions. Our comments will reference the earnings release and earnings presentation, which you will find on our website under the Investor Relations section. During this call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release.
Ed Jacques: Thank you, and good morning. I'm joined today by Neal Arnold, our Chief Executive Officer and President, Rob Cafera, our Chief Financial Officer, and Jennifer Norris, our Chief Credit Officer. We will start the call with some brief remarks to highlight commentary around the fourth quarter and full-year results, and then move into questions. Our comments will reference the earnings release and earnings presentation, which you will find on our website under the Investor Relations section. During this call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial measures. Important information about these non-GAAP financial measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release.
Speaker #2: We will start the call with some brief remarks to highlight commentary around the fourth quarter and full year results and then move into questions.
Speaker #2: Our comments will reference the earnings release and earnings presentation, which you will find on our website under the Investor Relations section. During this call, we will comment on our financial performance using both GAAP metrics and non-GAAP financial about these non-GAAP financial measures.
Speaker #2: Important information measures, including reconciliations to comparable GAAP measures, is included in the appendix to our earnings presentation and in our earnings release. During this call, we will also make remarks about future expectations, plans, and prospects for the company that constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995.
Ed Jacques: During this call, we will also make remarks about future expectations, plans, and prospects for the company that constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. Please refer to our earnings presentation, our annual report on Form 10-K, and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. During our comments today, we will also discuss our pending merger with First Foundation. In connection with the proposed merger, we filed a definitive joint proxy statement and prospectus with the SEC on 15 January 2026, which we urge you to read.
During this call, we will also make remarks about future expectations, plans, and prospects for the company that constitute forward-looking statements for the purposes of the Safe Harbor Provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors. Please refer to our earnings presentation, our annual report on Form 10-K, and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward-looking statements. We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. During our comments today, we will also discuss our pending merger with First Foundation. In connection with the proposed merger, we filed a definitive joint proxy statement and prospectus with the SEC on 15 January 2026, which we urge you to read.
Speaker #2: Actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors. Please refer to our earnings presentation, our annual report on Form 10-K, and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward-looking statements.
Speaker #2: We undertake no obligation to publicly revise or update any forward-looking statement except as required by law. During our comments today, we will also discuss our pending merger with FIRST Foundation.
Speaker #2: In connection with the proposed merger, we filed a definitive joint proxy statement and prospectus with the SEC on January 15, 2026, which we urge you to read.
Speaker #2: Information may, under the rules of the SEC, be considered participants in the solicitation of FIRSTSUN and FIRST Foundation stockholders in connection with that proposed transaction is set forth in such definitive joint proxy statement and prospectus.
Ed Jacques: Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of FirstSun and First Foundation stockholders in connection with that proposed transaction is set forth in such definitive joint proxy statement and prospectus. I will now turn the call over to Neal Arnold.
Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of FirstSun and First Foundation stockholders in connection with that proposed transaction is set forth in such definitive joint proxy statement and prospectus. I will now turn the call over to Neal Arnold.
Speaker #2: I will now turn the call over to Neal Arnold.
Speaker #3: you, Ed. And thank you all for joining Thank us this morning. We are pleased with our strong operating results in the fourth quarter. For the quarter, we achieved adjusted net income of $26.9 million representing adjusted diluted EPS of 95 cents and a 127 adjusted was highlighted by strong revenue ROA.
Neal Arnold: Thank you, Ed, and thank you all for joining us this morning. We are pleased with our strong operating results in the fourth quarter. For the quarter, we achieved adjusted net income of $26.9 million, representing adjusted diluted EPS of $0.95 and a 1.27% adjusted ROA. This quarter was highlighted by strong revenue growth, which was up 10.8% annualized over last quarter, and the growth in our net interest margin to a very strong 4.18%. We also achieved healthy average loan growth of 8.5% annualized while maintaining a strong revenue mix with non-interest income to total revenue of 24.3%. Overall, this performance underscores our emphasis on relationship-based banking across all our businesses. In addition, we've continued our focus on reinvesting in the franchise, and it has positioned us well and resulted in $11.5 million of positive adjusted operating leverage for the full year.
Neal Arnold: Thank you, Ed, and thank you all for joining us this morning. We are pleased with our strong operating results in the fourth quarter. For the quarter, we achieved adjusted net income of $26.9 million, representing adjusted diluted EPS of $0.95 and a 1.27% adjusted ROA. This quarter was highlighted by strong revenue growth, which was up 10.8% annualized over last quarter, and the growth in our net interest margin to a very strong 4.18%. We also achieved healthy average loan growth of 8.5% annualized while maintaining a strong revenue mix with non-interest income to total revenue of 24.3%. Overall, this performance underscores our emphasis on relationship-based banking across all our businesses. In addition, we've continued our focus on reinvesting in the franchise, and it has positioned us well and resulted in $11.5 million of positive adjusted operating leverage for the full year.
Speaker #3: This quarter, growth was up 10.8% annualized over last quarter, and the growth in our net interest margin to a very strong 4.18%. We also achieved healthy average loan growth of 8.5% annualized, while maintaining a strong revenue mix with non-interest income to total revenue of 24.3%.
Speaker #3: Overall, this performance underscores our emphasis on relationship-based banking across all our businesses. In addition, we've continued our focus on reinvesting in the franchise, and it has positioned us well and resulted in $11.5 million of positive adjusted operating leverage for the full year.
Speaker #3: We plan to continue to invest in our growth markets and add to our portfolio of products and services to support our relationship-based model, with a continued focus on generating operating leverage and maintaining a healthy revenue mix.
Neal Arnold: We plan to continue to invest in our growth markets and add to our portfolio of products and services to support our relationship-based model, with a continued focus on generating operating leverage and maintaining a healthy revenue mix. On the asset quality side, we took a charge on a telecom loan, which we'd previously partially charged off in prior quarters, which resulted in the biggest driver of our total charge-offs in Q4. While we have not seen pervasive credit issues in any sector or geography within our portfolio, we do continue to monitor carefully the credit conditions of our portfolio. Given our heavy C&I nature of our loan portfolio, I've always said that at times credit will be lumpy, but all in all, we remain focused on driving healthy returns for our shareholders as we have this year. Overall, I'm very encouraged by our performance this year.
We plan to continue to invest in our growth markets and add to our portfolio of products and services to support our relationship-based model, with a continued focus on generating operating leverage and maintaining a healthy revenue mix. On the asset quality side, we took a charge on a telecom loan, which we'd previously partially charged off in prior quarters, which resulted in the biggest driver of our total charge-offs in Q4. While we have not seen pervasive credit issues in any sector or geography within our portfolio, we do continue to monitor carefully the credit conditions of our portfolio. Given our heavy C&I nature of our loan portfolio, I've always said that at times credit will be lumpy, but all in all, we remain focused on driving healthy returns for our shareholders as we have this year. Overall, I'm very encouraged by our performance this year.
Speaker #3: On the asset quality side, we took a charge on a telecom loan which we'd prior partially charged off in prior quarters. Which resulted in the biggest driver of our total charge-offs in the fourth quarter.
Speaker #3: While we have not seen pervasive credit issues in any sector or geography within our portfolio, we do continue to monitor carefully the credit conditions of our portfolio.
Speaker #3: Given our heavy C&I nature of our loan portfolio, I've always said that at times, credit will be lumpy. But all in all, we remain focused on driving healthy returns for our shareholders, as we have this year.
Speaker #3: Overall, I'm very encouraged by our performance this year. Given our franchise footprint in the seven of the 10 fastest growing MSAs in the Southwest, we believe we're well positioned to continue to grow our customer base.
Neal Arnold: Given our franchise footprint in seven of the 10 fastest-growing MSAs in the Southwest, we believe we're well-positioned to continue to grow our customer base. We see great growth potential across all markets and believe we have the right team to continue to drive our long-term growth and profitability in these markets. Touching briefly on the pending merger with First Foundation, we are encouraged by the progress our teams are making on all the integration planning, the balance sheet optimization, and we look forward to working together in the year ahead. I want to thank our entire team for their relentless focus on our businesses and our clients. Our teams remain focused on building a best-in-class bank while delivering value-added solutions to all of our clients throughout our footprint. I'll now pass the call over to Rob for a more detailed review of our financial results.
Given our franchise footprint in seven of the 10 fastest-growing MSAs in the Southwest, we believe we're well-positioned to continue to grow our customer base. We see great growth potential across all markets and believe we have the right team to continue to drive our long-term growth and profitability in these markets. Touching briefly on the pending merger with First Foundation, we are encouraged by the progress our teams are making on all the integration planning, the balance sheet optimization, and we look forward to working together in the year ahead. I want to thank our entire team for their relentless focus on our businesses and our clients. Our teams remain focused on building a best-in-class bank while delivering value-added solutions to all of our clients throughout our footprint. I'll now pass the call over to Rob for a more detailed review of our financial results.
Speaker #3: We see great growth potential across all markets, and believe we have the right team to continue to drive our long-term growth and profitability in these markets.
Speaker #3: Touching briefly on the pending merger with FIRST Foundation, we are encouraged by the progress our teams are making on all the integration planning, the balance sheet optimization, and we look forward to working together in the year ahead.
Speaker #3: I want to thank our entire team for their relentless focus on our businesses and our clients. Our teams remain focused on building a best-in-class bank while delivering clients throughout our footprint.
Speaker #3: I'll now pass the call over to Rob for a more detailed review of our financial results.
Speaker #4: Thank you, Neal. I will touch on several highlights this morning in regards to our fourth quarter and full-year results. In addition, please note that when I refer to our financial outlook for the full year '26, I'm referencing FIRSTSUN on a standalone basis and not reflective of the financial impact of our proposed merger with FIRST Foundation.
Robert Cafera: Thank you, Neal. I will touch on several highlights this morning in regards to our fourth quarter and full-year results. In addition, please note that when I refer to our financial outlook for the full year '26, I'm referencing FirstSun on a standalone basis and not reflective of the financial impact of our proposed merger with First Foundation. Starting on the balance sheet side, for the fourth quarter, on an average balance basis, we achieved healthy loan growth of 8.5% annualized. New loan fundings totaled approximately $350 million in the fourth quarter. And while this has historically been our seasonally slowest quarter for new loan fundings each year, this year's new funding level was up 30% over the fourth quarter of last year.
Robert Cafera: Thank you, Neal. I will touch on several highlights this morning in regards to our fourth quarter and full-year results. In addition, please note that when I refer to our financial outlook for the full year '26, I'm referencing FirstSun on a standalone basis and not reflective of the financial impact of our proposed merger with First Foundation. Starting on the balance sheet side, for the fourth quarter, on an average balance basis, we achieved healthy loan growth of 8.5% annualized. New loan fundings totaled approximately $350 million in the fourth quarter. And while this has historically been our seasonally slowest quarter for new loan fundings each year, this year's new funding level was up 30% over the fourth quarter of last year.
Speaker #4: Starting on the balance sheet side, for the fourth quarter, on an average balance basis, we achieved healthy loan growth of 8.5% annualized. New loan fundings totaled approximately $350 million in the fourth quarter, and while this has historically been our seasonally slowest quarter for new loan fundings each year, this year's new funding level was up 30% over the fourth quarter of last year.
Speaker #4: While we saw healthy average balance growth, period-end loan balances were flat. Given some late quarter paydowns, and as we saw overall line utilization drop 3 percentage points.
Robert Cafera: While we saw healthy average balance growth, period-end loan balances were flat, given some late quarter paydowns, and as we saw overall line utilization drop 3 percentage points. For the full year, we saw net balance growth of approximately $300 million, or almost 5%, with the bulk of that growth in our C&I portfolio. As Neal noted, we plan to continue to invest in our franchise, including adding to our C&I teams in several of our higher growth markets in 2026. On the deposit side for the fourth quarter, on both an average balance and period-end basis, balances were relatively flat. Although not exactly the outcome we were looking for on the deposit side, we continue to be focused on mix, and we remain pleased with our trending there.
While we saw healthy average balance growth, period-end loan balances were flat, given some late quarter paydowns, and as we saw overall line utilization drop 3 percentage points. For the full year, we saw net balance growth of approximately $300 million, or almost 5%, with the bulk of that growth in our C&I portfolio. As Neal noted, we plan to continue to invest in our franchise, including adding to our C&I teams in several of our higher growth markets in 2026. On the deposit side for the fourth quarter, on both an average balance and period-end basis, balances were relatively flat. Although not exactly the outcome we were looking for on the deposit side, we continue to be focused on mix, and we remain pleased with our trending there.
Speaker #4: For the full year, we saw net balance growth of approximately $300 million, or almost 5%, with a bulk of that growth in our CNI portfolio.
Speaker #4: As Neal noted, we plan to continue to invest in our franchise, including adding to our CNI teams in several of our higher-growth markets in '26.
Speaker #4: On the deposit side, for the fourth quarter, on both an average balance and period-end basis, balances were relatively flat. Although not exactly the outcome we were looking for on the deposit side, we continue to be focused on mix and we remain pleased with our trending there.
Speaker #4: We saw average balance growth in transaction products, and period-end growth in our money market accounts, with a noticeable decline in consumer CD balances. Rates in many of our markets on the CD side seem to be staying higher, and that is in our focus.
Robert Cafera: We saw average balance growth in transaction products and period-end growth in our money market accounts, with a noticeable decline in consumer CD balances. Rates in many of our markets on the CD side seem to be staying higher, and that isn't our focus. We will remain focused on operating count and money market account growth across our customer base. For the full year, we saw total deposits increase over $400 million, or approximately 6.5%, with strong overall growth in our money market, non-interest-bearing, and interest-bearing accounts, partially offset by a drop in consumer CDs. We finished the year with an approximate 93.9% loan-to-deposit ratio, a slight improvement from the third quarter.
We saw average balance growth in transaction products and period-end growth in our money market accounts, with a noticeable decline in consumer CD balances. Rates in many of our markets on the CD side seem to be staying higher, and that isn't our focus. We will remain focused on operating count and money market account growth across our customer base. For the full year, we saw total deposits increase over $400 million, or approximately 6.5%, with strong overall growth in our money market, non-interest-bearing, and interest-bearing accounts, partially offset by a drop in consumer CDs. We finished the year with an approximate 93.9% loan-to-deposit ratio, a slight improvement from the third quarter.
Speaker #4: We will remain focused on operating count and money market account growth across our customer base. For the full year, we saw total deposits increase over $400 million, or approximately 6.5%.
Speaker #4: With strong overall growth in our money market, non-interest bearing, and interest bearing accounts, partially offset by a drop in consumer CDs, we finished the year with an approximate 93.9% loan-to-deposit ratio, a slight improvement from the third quarter.
Speaker #4: Overall, for loans and deposits, we finished on a growth basis, and our growth expectations on a standalone basis on the loan-to-deposit side for ’26 are much the same.
Robert Cafera: Overall, for loans and deposits, we finished the year roughly where we expected to be on a growth basis, and our growth expectations on a standalone basis on the loan and deposit side for 2026 are much the same, growing at a rateable basis throughout the year with average balance growth in the mid-single-digit level. Flipping to the P&L side, as Neal noted, we're quite pleased with the fourth quarter EPS performance, as our adjusted diluted EPS of $0.95 was our best EPS quarter of the year. Our net interest margin in the fourth quarter was quite strong at 4.18%, up 11 basis points from the third quarter, and has now been above 4% for the last 13 consecutive quarters.
Overall, for loans and deposits, we finished the year roughly where we expected to be on a growth basis, and our growth expectations on a standalone basis on the loan and deposit side for 2026 are much the same, growing at a rateable basis throughout the year with average balance growth in the mid-single-digit level. Flipping to the P&L side, as Neal noted, we're quite pleased with the fourth quarter EPS performance, as our adjusted diluted EPS of $0.95 was our best EPS quarter of the year. Our net interest margin in the fourth quarter was quite strong at 4.18%, up 11 basis points from the third quarter, and has now been above 4% for the last 13 consecutive quarters.
Speaker #4: Growing at a ratable basis throughout the year, with average balance growth in the mid-single-digit level. Flipping to the P&L side, as Neal noted, we're quite pleased with the fourth quarter EPS performance, as our adjusted diluted best EPS quarter of the year.
Speaker #4: Our net interest margin in the fourth quarter was quite strong at 4.18%, up 11 basis points from the third quarter, and has now been above 4% for the last 13 consecutive quarters.
Speaker #4: Overall, net interest margin and net interest income trending in the fourth quarter was largely driven by improved funding costs, with interest-bearing deposit costs down 21 bps and wholesale borrowing costs favorably impacted by a sub-debt payoff we completed at the very beginning of the quarter.
Robert Cafera: Overall, net interest margin and net interest income trending in the fourth quarter was largely driven by improved funding costs, with interest-bearing deposit costs down 21 bps, and wholesale borrowing costs favorably impacted by a sub-debt payoff we completed at the very beginning of the quarter. All in all, we're pretty pleased with our margin performance and 7% NII growth on the full year. It's a testament to our focus on our loan and deposit product and business mix. Looking ahead to the full year 2026, we expect mid-single-digit growth in our net interest income, with NIM remaining stable relative to full year 2025 performance. Shifting to the service fee revenue side, we had a really nice quarter with non-interest revenue totaling $26.7 million, or roughly $400,000 more than Q3, and up almost 24% over the fourth quarter of 2024.
Overall, net interest margin and net interest income trending in the fourth quarter was largely driven by improved funding costs, with interest-bearing deposit costs down 21 bps, and wholesale borrowing costs favorably impacted by a sub-debt payoff we completed at the very beginning of the quarter. All in all, we're pretty pleased with our margin performance and 7% NII growth on the full year. It's a testament to our focus on our loan and deposit product and business mix. Looking ahead to the full year 2026, we expect mid-single-digit growth in our net interest income, with NIM remaining stable relative to full year 2025 performance. Shifting to the service fee revenue side, we had a really nice quarter with non-interest revenue totaling $26.7 million, or roughly $400,000 more than Q3, and up almost 24% over the fourth quarter of 2024.
Speaker #4: All in all, we're pretty pleased with our margin performance and 7% NII growth on the full year. It's a testament to our focus on our loan-to-deposit product and business mix.
Speaker #4: Looking ahead to the full year '26, we expect mid-single-digit growth in our net interest income, with NIM remaining stable relative to full-year '25 performance.
Speaker #4: Shifting to the service fee revenue side, we had a really nice quarter with non-interest revenue totaling 26.7 million, or roughly
Speaker #1: $400,000 more than Q3 up and almost 24% fourth quarter over the The of 24 . sequential growth in the fourth quarter of 25 , sequential growth in the fourth of 25 was largely driven by our loan syndication and swap revenue streams , partially offset by a nominal decline in our mortgage revenues , which certainly showed strong given the season .
Robert Cafera: The sequential growth in Q4 2025 was largely driven by our loan syndication and swap revenue streams, partially offset by a nominal decline in our mortgage revenues, which certainly showed strong given the season. We also saw growth in our treasury management and interchange service fee revenues in the fourth quarter. For the full year, we saw growth of approximately $12.1 million over 2024, or approximately 13%, driven mostly by service fee revenues in our mortgage and treasury management lines of business, which were up 21% and 18%, respectively. Our results on the non-interest revenue side really highlight the diversity across all our fee businesses, contributing to our achieving the 13% full-year growth in 2025. For 2026, we expect non-interest revenue percentage growth in the low double-digit to low teens range.
The sequential growth in Q4 2025 was largely driven by our loan syndication and swap revenue streams, partially offset by a nominal decline in our mortgage revenues, which certainly showed strong given the season. We also saw growth in our treasury management and interchange service fee revenues in the fourth quarter. For the full year, we saw growth of approximately $12.1 million over 2024, or approximately 13%, driven mostly by service fee revenues in our mortgage and treasury management lines of business, which were up 21% and 18%, respectively. Our results on the non-interest revenue side really highlight the diversity across all our fee businesses, contributing to our achieving the 13% full-year growth in 2025. For 2026, we expect non-interest revenue percentage growth in the low double-digit to low teens range.
Speaker #1: also We saw growth in our treasury management and interchange service fee revenues in the fourth quarter . full year , we saw growth of approximately 12.1 million over 24 , or approximately 13% , driven mostly by service fee revenues .
Speaker #1: In our mortgage and treasury management lines of business , which were up 21% and respectively . 18% , the results on revenue non-interest side really highlight the diversity across all our fee businesses to , contributing our achieving the 13% full year growth in 25 We for 26 .
Speaker #1: expect non-interest percentage growth in low double digit to low teens range . Our total adjusted non-interest expense in the fourth quarter , which excludes merger expenses , related up third quarter by from the approximately $1 million , related to increases primarily in other non-interest expenses .
Robert Cafera: Our total adjusted non-interest expense in Q4, which excludes merger-related expenses, was up from Q3 by approximately $1 million, primarily related to increases in other non-interest expenses. The increase there was primarily the result of the write-off of the remaining deferred expenses associated with the sub-debt redemption at the beginning of Q4, as well as some maintenance expenses related to some real properties. That said, the adjusted efficiency ratio for the quarter was slightly down from the prior quarter at 63.36%, resulting from the net revenue growth for the quarter. As Neal noted earlier, we saw nice operating leverage this year in both Q4 and for the full year. For 2026, we expect to see our adjusted non-interest expense percentage growth in the mid to high single-digit range.
Our total adjusted non-interest expense in Q4, which excludes merger-related expenses, was up from Q3 by approximately $1 million, primarily related to increases in other non-interest expenses. The increase there was primarily the result of the write-off of the remaining deferred expenses associated with the sub-debt redemption at the beginning of Q4, as well as some maintenance expenses related to some real properties. That said, the adjusted efficiency ratio for the quarter was slightly down from the prior quarter at 63.36%, resulting from the net revenue growth for the quarter. As Neal noted earlier, we saw nice operating leverage this year in both Q4 and for the full year. For 2026, we expect to see our adjusted non-interest expense percentage growth in the mid to high single-digit range.
Speaker #1: The increase there was primarily the result of the write off of the remaining deferred expenses associated with the subject . Redemption . At the beginning of the fourth quarter , as well as some maintenance expenses related to some real properties .
Speaker #1: That said , the adjusted efficiency ratio for the quarter was slightly down from the prior quarter at 63.36% , resulting from the net revenue growth for the quarter .
Speaker #1: As Neal noted earlier, we saw nice operating leverage this year in both the fourth quarter and for the full year 2025, we...
Speaker #1: expect to adjusted For non-interest expense percentage growth in the mid to single digit range . On the asset quality , provision expense for the fourth quarter was 6.2 million , resulting in an ending allowance for credit loss as a percentage of loans of 1.27% .
Robert Cafera: On the asset quality side, provision expense for the fourth quarter was $6.2 million, resulting in an ending allowance for credit loss as a percentage of loans of 1.27%, an increase of one bp from Q3. Our provisioning this quarter was due primarily to impacts from net portfolio downgrades. Our classified loan balances were down about 5% from the prior quarter, while non-performing loan balances also decreased from the third quarter by about 13%. As Neal referenced earlier, credit on the C&I side can be lumpy at times. We finished the year with an approximate 43-basis-point charge-off ratio on the full year, with approximately 75% of the charge-off dollars related to two loans in our C&I portfolio, the telecom credit and the cross-border credit that we've referenced earlier in the year.
On the asset quality side, provision expense for the fourth quarter was $6.2 million, resulting in an ending allowance for credit loss as a percentage of loans of 1.27%, an increase of one bp from Q3. Our provisioning this quarter was due primarily to impacts from net portfolio downgrades. Our classified loan balances were down about 5% from the prior quarter, while non-performing loan balances also decreased from the third quarter by about 13%. As Neal referenced earlier, credit on the C&I side can be lumpy at times. We finished the year with an approximate 43-basis-point charge-off ratio on the full year, with approximately 75% of the charge-off dollars related to two loans in our C&I portfolio, the telecom credit and the cross-border credit that we've referenced earlier in the year.
Speaker #1: An increase of from one bit Q3 . Our provisioning this quarter was due primarily to impacts from net portfolio downgrades . Our classified loan balances were down about 5% from the prior quarter , while non-performing loan balances also decreased from the third quarter by about 13% .
Speaker #1: As Neil referenced earlier , credit on the side can be lumpy at times . We finished the year with an with approximate 43 basis point charge off ratio on the full year , with approximately 75% of the charge off dollars related to two loans .
Speaker #1: In our portfolio . The telecom credit and the cross-border credit referenced earlier in the year for 2026 , we expect our allowance for credit losses to loans to stay in the mid to high one 20s and basis points with a net charge off ratio in the mid to high 20s .
Robert Cafera: For 2026, we expect our allowance for credit losses to loans to stay in the mid to high 120s in basis points, with a net charge-off ratio in the mid to high 20s in basis points. On the capital side, we continue to strengthen our position as we close out the year with our TBV per share improving by $3.89, or roughly 11.5% over 2024 year-end, to $37.83, and CET1 ratio ending at 14.12%. I will now turn the call back to the moderator to open the line for questions.
For 2026, we expect our allowance for credit losses to loans to stay in the mid to high 120s in basis points, with a net charge-off ratio in the mid to high 20s in basis points. On the capital side, we continue to strengthen our position as we close out the year with our TBV per share improving by $3.89, or roughly 11.5% over 2024 year-end, to $37.83, and CET1 ratio ending at 14.12%. I will now turn the call back to the moderator to open the line for questions.
Speaker #1: In basis points the capital side . We continue to strengthen our position as we close out the year with TPV per share our , improving by $3.89 , or roughly 11.5% over 2024 year end .
Speaker #1: $237.83 and CET1 ratio ending at 14.12%. I will now turn the call back to the moderator to open the line for questions.
Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Woody Lay of KBW. Your line is now open. Please go ahead.
Operator: Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. The first question comes from Woody Lay of KBW. Your line is now open. Please go ahead.
Speaker #2: Thank you . If you would like to ask a question , please press star followed by one on your telephone keypad . Now , if you change please press your mind , star followed by two .
Speaker #2: When preparing to ask your question , please ensure your device is unmuted locally . The comes first question from of Woody Lei KBW .
Speaker #2: Your line is now open. Please go ahead.
[Analyst] (KBW): Hey, good morning, guys.
Wood Lay: Hey, good morning, guys.
Speaker #3: Hey , good morning guys . morning . Good Wanted to wanted start on deposit cost . And we saw the deposit betas kind of reset great to , which was see .
Neal Arnold: Good morning.
Neal Arnold: Good morning.
[Analyst] (KBW): Wanted to start on deposit costs, and we saw the deposit betas kind of re-accelerate, which was great to see. It was just looking for maybe some additional color on the deposit pricing strategy in the quarter. And then how do you think about betas from here?
Wood Lay: Wanted to start on deposit costs, and we saw the deposit betas kind of re-accelerate, which was great to see. It was just looking for maybe some additional color on the deposit pricing strategy in the quarter. And then how do you think about betas from here?
Speaker #3: I was just looking for maybe some additional color on the deposit pricing strategy in the quarter. And then, how do you think about betas from here?
Robert Cafera: Thank you, Woody. Yeah, we certainly saw favorable movement, as I commented on earlier, with overall interest-bearing costs going down by about 21 basis points. Certainly pleased with that. We moved rates when macro rates moved, and we'll continue to do that. We look at kind of looking forward; we do look at the environment. It's tougher out there, certainly when you're pushing for growth like we are. We acknowledge that we do have a lot of flexibility given the C&I variable nature of the asset side to our sheets. We have a lot more flexibility to engage in some of the pricing that's going on out there. We don't see that changing by and large. I've mentioned CD pricing across a lot of our markets is pretty aggressive. We're seeing it hang pretty high.
Robert Cafera: Thank you, Woody. Yeah, we certainly saw favorable movement, as I commented on earlier, with overall interest-bearing costs going down by about 21 basis points. Certainly pleased with that. We moved rates when macro rates moved, and we'll continue to do that. We look at kind of looking forward; we do look at the environment. It's tougher out there, certainly when you're pushing for growth like we are. We acknowledge that we do have a lot of flexibility given the C&I variable nature of the asset side to our sheets. We have a lot more flexibility to engage in some of the pricing that's going on out there. We don't see that changing by and large. I've mentioned CD pricing across a lot of our markets is pretty aggressive. We're seeing it hang pretty high.
Speaker #1: Thank you . Woody . Yeah , we certainly saw favorable movement as as I commented on earlier with overall interest costs bearing going down by about 21 basis points .
Speaker #1: Certainly pleased with that . You know , and and we moved rates when rates macro moved . And we'll continue to do that .
Speaker #1: You know we look at you know kind of looking forward , you know we do look at the environment . You know , it's it's tougher out there .
Speaker #1: Certainly when you're pushing for growth like we are . And so we acknowledge that , you know , we we do have a lot of flexibility given , you know , the CNI variable nature of of the asset side to our sheets .
Speaker #1: We have a lot more flexibility to engage in some of the, you know, the pricing that's going on out there. And we don't see that changing.
Speaker #1: By and large, you know, I mentioned CD pricing and, across a lot of our markets, it is pretty aggressive. It's, you know, we're seeing it hang pretty high.
Robert Cafera: Now, CDs isn't really where we play, but we'll continue to be focused on operating account growth through all of our C&I business development efforts across our sales teams. And certainly on the consumer side with money market account growth and our emphasis there. How does that translate to betas? I think our beta is going to be tracking a little lighter than it historically has tracked because of all the deposit competition out there. Having said that, I don't expect it to be terribly lighter than it has been in the past, but we do expect it to be less than the 40% plus betas that we've been able to enjoy historically.
Now, CDs isn't really where we play, but we'll continue to be focused on operating account growth through all of our C&I business development efforts across our sales teams. And certainly on the consumer side with money market account growth and our emphasis there. How does that translate to betas? I think our beta is going to be tracking a little lighter than it historically has tracked because of all the deposit competition out there. Having said that, I don't expect it to be terribly lighter than it has been in the past, but we do expect it to be less than the 40% plus betas that we've been able to enjoy historically.
Speaker #1: CDs Now isn't really where we play . But we'll continue to be focused on operating account growth through all of our CNI business development efforts across our sales teams .
Speaker #1: And , you know , certainly on the side consumer , with money market account growth and our emphasis there , you know , how does that translate ?
Speaker #1: You know , to betas ? I think our beta is going to be tracking a lighter than , you know , it historically has tracked because of all the deposit competition out there .
Speaker #1: Having said that , you know , I don't expect it to be terribly lighter than it has been in the past . But I do expect you know , we it to be less than , you know , the 40% plus betas been able that to enjoy we've historically .
[Analyst] (KBW): Got it. That's helpful color. Next, I wanted to shift over to expenses, and I appreciate the standalone guide. Was just curious sort of what level in that standalone guide is based into investments in the West Coast, knowing you've been kind of doing that independently. And then once the deal closes, how are you thinking about sort of the incremental expense investment needed?
Wood Lay: Got it. That's helpful color. Next, I wanted to shift over to expenses, and I appreciate the standalone guide. Was just curious sort of what level in that standalone guide is based into investments in the West Coast, knowing you've been kind of doing that independently. And then once the deal closes, how are you thinking about sort of the incremental expense investment needed?
Speaker #3: Got it . That's helpful . Color . Next , I wanted to shift to over expenses , and I , you know , appreciate the Stand-alone guide was just curious sort of what level in that Stand-alone guide is baked into investments in the West Coast , knowing you've been kind of doing that then once the deal you thinking about sort of closes the independently and , how are incremental expense investment needed ?
Neal Arnold: Yeah, good question.
Neal Arnold: Yeah, good question.
Robert Cafera: Yes. Thank you, Neal.
Robert Cafera: Yes. Thank you, Neal.
Speaker #1: Good question Yeah . . Yes . Thank you . Neil .
Neal Arnold: I would say the opportunity to add to our sales force is probably across the footprint, and we're seeing more activity in Texas, certainly as a result of the merger side. So I would expect us to add to our C&I team in both Texas and Southern Cal, specifically some of the newer markets that First Foundation brings. But I'd say I still think we by and large built a lot of what we're trying to do ahead of the merger. So with that, I'll turn it over to Rob.
Neal Arnold: I would say the opportunity to add to our sales force is probably across the footprint, and we're seeing more activity in Texas, certainly as a result of the merger side. So I would expect us to add to our C&I team in both Texas and Southern Cal, specifically some of the newer markets that First Foundation brings. But I'd say I still think we by and large built a lot of what we're trying to do ahead of the merger. So with that, I'll turn it over to Rob.
Speaker #4: I would say we see the opportunity to add to our sales force is probably across the footprint. And, you know, we're seeing more activity in Texas.
Speaker #4: Certainly, as a result of the merger side. So I would expect us to add to our CNI team in both Texas and Southern Cal, you know, specifically some of the newer markets that First Foundation brings.
Speaker #4: But I'd say I still think, you know, we, by and large, built a lot of what we're trying to do ahead of the merger.
Speaker #4: So, with that, I'll turn it over to Rob.
Robert Cafera: Yeah, and I would just add to Neal's comment to say, aside from the Salesforce, Woody, in your question, our cost-save synergy disclosures in our investor presentation all took into consideration that infrastructure needs for the combined company. So we don't expect that there's anything else on the infrastructure side.
Robert Cafera: Yeah, and I would just add to Neal's comment to say, aside from the Salesforce, Woody, in your question, our cost-save synergy disclosures in our investor presentation all took into consideration that infrastructure needs for the combined company. So we don't expect that there's anything else on the infrastructure side.
Speaker #1: add just And I would to to Neil's comment to say , you know , aside from the sales force , Woody and your question , you know , our cost savings synergy disclosures , you know , in our investor all took into consideration that infrastructure needs for the combined company .
Speaker #1: So , you know , we don't expect that there's , you know , any anything else , you know , on the side infrastructure .
[Analyst] (KBW): All right. I appreciate that. And then last for me, just real quick, any color on what drove the special mention increase in the quarter?
Wood Lay: All right. I appreciate that. And then last for me, just real quick, any color on what drove the special mention increase in the quarter?
Speaker #3: All right . I appreciate that . And then last for me just real quick . Any color on what drove these special mention increase in the quarter .
Robert Cafera: Yeah, fair question. I mean, ultimately, I think, and Jennifer could certainly add to this, maybe I'll just offer that we continue to see a little bit of pressure just from macro interest rates and how that's reverberating in the portfolio. And that's the general trend that we've seen throughout 2025. Of course, we do expect, given how interest rates have come down towards the latter half of 2025, we do expect to see, as we get financial statements through the end of the year, we expect to see some of that interest rate pressure on the business side abate a bit. But generally, that's a trend, that net downgrade trend that we have been seeing throughout the year, and particularly on interest costs. Jennifer, I suspect you may have something to add there.
Robert Cafera: Yeah, fair question. I mean, ultimately, I think, and Jennifer could certainly add to this, maybe I'll just offer that we continue to see a little bit of pressure just from macro interest rates and how that's reverberating in the portfolio. And that's the general trend that we've seen throughout 2025. Of course, we do expect, given how interest rates have come down towards the latter half of 2025, we do expect to see, as we get financial statements through the end of the year, we expect to see some of that interest rate pressure on the business side abate a bit. But generally, that's a trend, that net downgrade trend that we have been seeing throughout the year, and particularly on interest costs. Jennifer, I suspect you may have something to add there.
Speaker #1: Yeah . Fair , fair question . You know , I mean . Ultimately I think and Jennifer could certainly add to this . Maybe I'll just offer that , you know , we continue to see a little bit of pressure .
Speaker #1: You know , just from macro interest rates and how that's reverberating the in And the general that we've that's seen throughout 25 . Of course , we do expect , given how interest rates have have come down towards the latter half of 25 , we do expect to see as we get financial statements through the end of the year .
Speaker #1: We expect to see some of that interest rate pressure in on the business side abate a bit , but you know , generally that's a , you know , a trend that net downgrade trend that we have been seeing throughout the year and particularly on on interest costs .
Speaker #1: Jennifer , I suspect you may have something to add there .
Neal Arnold: Yeah, and I think your comment is spot on. As we've seen the interest rate deteriorate, well, the interest rates play out for a longer period of time. There were certainly, as it's been said multiple times, no pervasive themes in the increase in special mentions. It was, again, a lumpy component there primarily with one particular name.
Jennifer Norris: Yeah, and I think your comment is spot on. As we've seen the interest rate deteriorate, well, the interest rates play out for a longer period of time. There were certainly, as it's been said multiple times, no pervasive themes in the increase in special mentions. It was, again, a lumpy component there primarily with one particular name.
Speaker #5: Yeah . And I think you're your comment is spot on as we've seen , the interest rate deterioration . Well , the interest rates play out for a longer period of time .
Speaker #5: You know , there were certainly as as it's been said , multiple times , no pervasive themes in the increase in special mentions .
Speaker #5: was , It you know , again , a lumpy component . There primarily with one particular name .
[Analyst] (KBW): All right. That's it for me. Thanks for taking my question.
Wood Lay: All right. That's it for me. Thanks for taking my question.
Speaker #3: All right. That's it for me. Thanks for taking my questions.
Robert Cafera: Thank you.
Robert Cafera: Thank you.
Speaker #1: Thank you .
Operator: The next question comes from Matt Olney of Stephens. Your line is now open. Please go ahead.
Operator: The next question comes from Matt Olney of Stephens. Your line is now open. Please go ahead.
Speaker #6: The next question comes from Matt Olney of Stephens.
Speaker #2: Your line is now open . Please go ahead .
[Analyst] (Stephens): Hey, thanks. Good morning. Appreciate you taking my question. Looking for any commentary on loan price.
Matthew Olney: Hey, thanks. Good morning. Appreciate you taking my question. Looking for any commentary on loan price.
Speaker #7: Hey , thanks . Good morning . I appreciate you taking my question . Looking for any commentary on loan price ? Good morning .
Neal Arnold: Good morning.
Neal Arnold: Good morning.
[Analyst] (Stephens): Good morning. Any commentary on loan pricing? Are C&I spreads holding in, or is competition coming in more aggressively? Just trying to forecast loan betas, I guess, over the next few quarters. Thanks.
Matthew Olney: Good morning. Any commentary on loan pricing? Are C&I spreads holding in, or is competition coming in more aggressively? Just trying to forecast loan betas, I guess, over the next few quarters. Thanks.
Speaker #7: Any commentary on loan pricing or CNI spreads ? Holding in or is competition coming in more aggressively ? Just trying to forecast to loan just trying guess over the next few quarters .
Robert Cafera: Yeah, maybe I'll kick it off there. I mean, pretty consistent, really, Matt. I mean, no material changes in what we're seeing in terms of trends on credit spreads. And certainly, credit spreads have some slight differences from one market to another across our franchise footprint. But by and large, credit spreads have been holding in the spaces that we are focused on, have been holding pretty well.
Robert Cafera: Yeah, maybe I'll kick it off there. I mean, pretty consistent, really, Matt. I mean, no material changes in what we're seeing in terms of trends on credit spreads. And certainly, credit spreads have some slight differences from one market to another across our franchise footprint. But by and large, credit spreads have been holding in the spaces that we are focused on, have been holding pretty well.
Speaker #7: Thanks .
Speaker #1: Yeah , maybe I'll kick it off there . I mean , pretty consistent really , Matt . I mean , no material changes in what we're seeing in terms of trends on credit spreads , you know , and certainly credit spreads have some slight differences from one market to to another across our franchise footprint .
Speaker #1: But , you know , by and large , credit spreads have been holding in the spaces that we are focused on have been holding pretty , pretty well .
Neal Arnold: Okay. Appreciate that, Rob. And then I guess as a follow-up, I just want to ask about the pending acquisition and any kind of impact you can see on that from the recent interest rate cuts and potentially, I guess, additional rate cuts until closing. Will any of those rate changes over the last few months impact the financial metrics of the acquisition? And then maybe just strategically, as we get more rate cuts since the announcement, what does that mean for the asset and liability repositioning that we've talked about previously? Thanks.
Neal Arnold: Okay. Appreciate that, Rob. And then I guess as a follow-up, I just want to ask about the pending acquisition and any kind of impact you can see on that from the recent interest rate cuts and potentially, I guess, additional rate cuts until closing. Will any of those rate changes over the last few months impact the financial metrics of the acquisition? And then maybe just strategically, as we get more rate cuts since the announcement, what does that mean for the asset and liability repositioning that we've talked about previously? Thanks.
Speaker #7: Okay . Appreciate that . Rob . And then I guess as a as a follow up , I just want to ask about the pending acquisition and any kind of impact you can see on that from the recent cuts and guess , additional rate potentially I cuts until interest rate closing .
Speaker #7: of those Any rate changes over the last few months impact the financial metrics of the acquisition . And then maybe just strategically , as we get more rate cuts , since the announcement , what does that mean for the the asset and liability that we've repositioning talked about previously ?
Speaker #7: Thanks .
Robert Cafera: Yeah, absolutely. And maybe I'll start off. I know Neal will have some items, some additions here as well. I would just start off by saying certainly we remain very excited about the prospects ahead of us post-merger closing as we look forward here in 2026. As it relates to macro rates, both balance sheets operate a little differently, as you know. But all in all, we're not seeing anything that is causing us any pause or having any change in our expectations as it relates to the balance sheet repositioning, loan downsizing there. As Neal had mentioned a little bit earlier, we're making great progress on, well, actually all integration planning efforts, including the balance sheet repositioning. So certainly, macro rates have moved around a little bit, but as it relates to the balance sheet repositioning, we think we're right on schedule for our execution plan.
Robert Cafera: Yeah, absolutely. And maybe I'll start off. I know Neal will have some items, some additions here as well. I would just start off by saying certainly we remain very excited about the prospects ahead of us post-merger closing as we look forward here in 2026. As it relates to macro rates, both balance sheets operate a little differently, as you know. But all in all, we're not seeing anything that is causing us any pause or having any change in our expectations as it relates to the balance sheet repositioning, loan downsizing there. As Neal had mentioned a little bit earlier, we're making great progress on, well, actually all integration planning efforts, including the balance sheet repositioning. So certainly, macro rates have moved around a little bit, but as it relates to the balance sheet repositioning, we think we're right on schedule for our execution plan.
Speaker #1: Yeah , absolutely . And and maybe I'll start off I know Neil will have some some items , some some additions here as well .
Speaker #1: You know , I would just start off by saying , you know , certainly we're we remain very excited about the prospects ahead of us .
Speaker #1: know , You post-merger closing as we look forward here in 26 , you know , as it relates to macro rates , you know , both balance sheets operate a little differently you , as know .
Speaker #1: But you know , all in all , you know , not seeing we're anything . You know , that is causing us pause any or , you know , having any , any change in our expectations , you know , as it relates to the downside , the balance sheet repositioning , loan , downsizing , there , you know , as Neil had had mentioned , a little bit earlier , you know , we're making great progress on , on .
Speaker #1: Well, actually, all integration planning efforts, including the balance sheet repositioning. So, certainly, macro rates have moved around a little bit.
Speaker #1: But you know , as it relates to the balance sheet repositioning , we think we're right on schedule for our execution plan .
Neal Arnold: Yeah. I'd say in general, I think people understand that First Foundation's balance sheet is a term asset, short-funded kind of structure. We're certainly taking action to reduce some of that. But I think, as Rob said, both with hedging and with the activity that we're working on together, I think we feel good about the progress we've made.
Neal Arnold: Yeah. I'd say in general, I think people understand that First Foundation's balance sheet is a term asset, short-funded kind of structure. We're certainly taking action to reduce some of that. But I think, as Rob said, both with hedging and with the activity that we're working on together, I think we feel good about the progress we've made.
Speaker #4: I'd Yeah , say in general I think people are people understand that our foundations balance sheet is a term asset , short funded kind of structure .
Speaker #4: We we're certainly taking action to to reduce some of that . But I think as Rob said , we both with hedging and with the activity that we're working on together .
Speaker #4: I think we we feel good about the progress we've made .
Operator: Thank you. The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead.
Operator: Thank you. The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead.
Speaker #2: Thank you. The next question comes from Michael Rose of Raymond James. Your line is now open. Please go ahead.
[Analyst] (KBW): Hey, good morning, guys. Thanks for taking my questions. Maybe we can just start.
Michael Rose: Hey, good morning, guys. Thanks for taking my questions. Maybe we can just start.
Speaker #7: Hey , good morning guys . Thanks for taking my questions . Maybe we could just start , you know , certainly appreciate the morning .
Neal Arnold: Good morning.
Neal Arnold: Good morning.
[Analyst] (KBW): Certainly. Appreciate the prior good morning. Certainly. Appreciate the prior questions regarding loan and asset betas. How should we think about, obviously, excluding the deal, just the trajectory of the margin from here? So obviously, not much balance sheet growth this quarter. Looks to re-accelerate into next year given kind of the guide. Obviously, a fair amount of fixed or, excuse me, floating-rate loans. Just walk us through just kind of the puts and takes on the margin, assuming the two cuts, and then if we don't get any. Thanks.
Michael Rose: Certainly. Appreciate the prior good morning. Certainly. Appreciate the prior questions regarding loan and asset betas. How should we think about, obviously, excluding the deal, just the trajectory of the margin from here? So obviously, not much balance sheet growth this quarter. Looks to re-accelerate into next year given kind of the guide. Obviously, a fair amount of fixed or, excuse me, floating-rate loans. Just walk us through just kind of the puts and takes on the margin, assuming the two cuts, and then if we don't get any. Thanks.
Speaker #7: Certainly prior . Good appreciate the prior questions regarding loan and asset betas . How should we think about obviously excluding the deal just a trajectory of the margin from here .
Speaker #7: So so obviously not much balance sheet quarter growth this looks to be into next year given you know kind of the guide obviously a fair amount of fixed excuse me or floating rate loans .
Speaker #7: Just walk us through just kind of the puts and takes on the margin. Assuming the two cuts, and then if we don't get any, thanks.
Robert Cafera: Yes, absolutely, Michael. Maybe I'll kick off on this one. I mean, all in all, we do expect net interest margin to remain relatively stable. Very pleased with the 11 basis point expansion that we saw in the fourth quarter. But on the deposit pricing side, we see the environment tightening up. And so, as I mentioned earlier, we do see, or we are expecting that some of the deposit pricing is going to get a little tougher. We have a little room to play with there given that we are a little bit stronger on the asset side. But we think we're going to be able to maintain margins with the contributions on both sides. We do have two rate cuts, as we had indicated, baked into our expectations. And I think that's largely consensus. So we're not really straying from consensus there.
Robert Cafera: Yes, absolutely, Michael. Maybe I'll kick off on this one. I mean, all in all, we do expect net interest margin to remain relatively stable. Very pleased with the 11 basis point expansion that we saw in the fourth quarter. But on the deposit pricing side, we see the environment tightening up. And so, as I mentioned earlier, we do see, or we are expecting that some of the deposit pricing is going to get a little tougher. We have a little room to play with there given that we are a little bit stronger on the asset side. But we think we're going to be able to maintain margins with the contributions on both sides. We do have two rate cuts, as we had indicated, baked into our expectations. And I think that's largely consensus. So we're not really straying from consensus there.
Speaker #1: Yes , absolutely Michael . Maybe I'll kick off on this one . I mean , all , all in we do expect net interest margin to remain relatively stable .
Speaker #1: Very pleased with with the 11 basis point expansion that we saw in the fourth quarter . But on the pricing deposit side , you know , we we we see the environment tightening up .
Speaker #1: And so, as I mentioned earlier, we do see—we are expecting that some of the deposit pricing is going to get a little tougher.
Speaker #1: You know , we have a little room to play with there . Given the , you know that that we are a little bit stronger on on the asset side .
Speaker #1: But we think we're going to be able to . Maintain margins with the contributions on , on , on both sides . We do have two rate cuts as we had indicated baked into our expectations .
Speaker #1: And I think that's largely consensus . So we're not really straying from consensus . There . But you know , we do see you know there's going to be quite a bit of price competition on the deposit side .
Robert Cafera: But we do see there's going to be quite a bit of price competition on the deposit side. We think, again, here in 2026, and that's going to directionally drive where we land on net interest margin. But we do feel pretty good about the standalone legacy Sunflower FirstSun franchise operating at a pretty stable level in comparison to what we saw in 2025.
But we do see there's going to be quite a bit of price competition on the deposit side. We think, again, here in 2026, and that's going to directionally drive where we land on net interest margin. But we do feel pretty good about the standalone legacy Sunflower FirstSun franchise operating at a pretty stable level in comparison to what we saw in 2025.
Speaker #1: You know , we think again here in 26 and and you know that's going to directionally drive , you know where we land on on interest margin .
Speaker #1: But we do feel pretty good about you know the standalone legacy sunflower for some franchise operating at a at a at a pretty stable level in comparison to what we saw in 25 .
[Analyst] (KBW): Very helpful. And then maybe one for you, Neal. I think in prior calls, you've kind of talked about the opportunity being a little bit larger or maybe much larger in the Southern California market relative to Texas. It seems like maybe there's, if I'm reading your comments earlier correctly, that there may be a little bit more in terms of opportunity in Texas than maybe you might have thought a couple of months ago. If you can just kind of square those comments. And as it relates to the expense guide, how much of that is just kind of normal kind of inflationary aspects, bonuses, raises, and things like that, versus incremental hiring efforts both in Texas and in Southern California? Thanks.
Michael Rose: Very helpful. And then maybe one for you, Neal. I think in prior calls, you've kind of talked about the opportunity being a little bit larger or maybe much larger in the Southern California market relative to Texas. It seems like maybe there's, if I'm reading your comments earlier correctly, that there may be a little bit more in terms of opportunity in Texas than maybe you might have thought a couple of months ago. If you can just kind of square those comments. And as it relates to the expense guide, how much of that is just kind of normal kind of inflationary aspects, bonuses, raises, and things like that, versus incremental hiring efforts both in Texas and in Southern California? Thanks.
Speaker #7: Very helpful . And then maybe one for you , Neil . You know , I think in prior calls you've kind of talked about the opportunity being a little bit maybe larger in the Southern market Texas .
Speaker #7: much larger or seems relative to California It like maybe there's if I'm if I'm reading your comments earlier correctly , that there may be a little bit more in terms of opportunity in Texas than maybe you might have thought a couple months ago , if you can just kind of square those comments and as it relates to the expense guide , you know , how much of that is just kind of like normal , you know , kind of inflationary aspects , bonuses , raises , things like that versus , you know , hiring , you , incremental hiring efforts , both in Texas and in Southern California .
Neal Arnold: Sure. No, thank you, Matt. Yeah, I guess I'd say broadly, our priority the last year and a half was certainly to build out Southern California. I think we were ahead of the curve. I think we have a couple of, I'll call it, minor holes that we'd add as the First Foundation acquisition comes together. I would say, given all the M&A activity in Texas, we have seen more opportunity than we originally thought to pick up solid bankers with good relationships. I think everybody's heard me. Houston's been a priority. We continue to add in Dallas. So I think you'll see us continue to be opportunistic on the HR side. Texas has been white-hot on the M&A side. We aren't going to use our currency to play on the M&A side in Texas. So our opportunity is really to grow by building teams.
Neal Arnold: Sure. No, thank you, Matt. Yeah, I guess I'd say broadly, our priority the last year and a half was certainly to build out Southern California. I think we were ahead of the curve. I think we have a couple of, I'll call it, minor holes that we'd add as the First Foundation acquisition comes together. I would say, given all the M&A activity in Texas, we have seen more opportunity than we originally thought to pick up solid bankers with good relationships. I think everybody's heard me. Houston's been a priority. We continue to add in Dallas. So I think you'll see us continue to be opportunistic on the HR side. Texas has been white-hot on the M&A side. We aren't going to use our currency to play on the M&A side in Texas. So our opportunity is really to grow by building teams.
Speaker #7: Thanks .
Speaker #4: Sure . No thank you . Yeah . I guess I'd say broadly , our priority the last year and a half was certainly to build out Southern Cal .
Speaker #4: I think we were ahead of the curve. I think we have a couple of, call it, minor holes that, had we—as the First Foundation acquisition comes together—
Speaker #4: I would say, given all the M&A activity in Texas, we have seen more opportunity than we originally thought to pick up.
Speaker #4: You know , solid bankers with good relationships . You know , I think everybody's heard me . Houston's been a priority . We continue to add in Dallas .
Speaker #4: So I think you'll see us continue to be opportunistic on the HR side . You know , Texas has been white hot on the M&A side .
Speaker #4: You know, we aren't going to use our currency to play on the M&A side in Texas. So our opportunity is really to grow by building teams.
[Analyst] (KBW): All right. Very helpful. And then maybe if I can just squeeze one last one in. Once the deal hopefully closes here by the end of Q2, it looks like the loan-to-deposit ratio will come down into kind of the mid-80s range, which will give you a little bit more flexibility. At that point, does the deposit narrative or beta narrative change insofar that you might have a little bit of flexibility to maybe let some of those higher-cost deposits go, and that could actually be supportive of kind of NIM expansion on a combined basis? And if it's too early to answer, I certainly understand, but that was my read. Thanks.
Michael Rose: All right. Very helpful. And then maybe if I can just squeeze one last one in. Once the deal hopefully closes here by the end of Q2, it looks like the loan-to-deposit ratio will come down into kind of the mid-80s range, which will give you a little bit more flexibility. At that point, does the deposit narrative or beta narrative change insofar that you might have a little bit of flexibility to maybe let some of those higher-cost deposits go, and that could actually be supportive of kind of NIM expansion on a combined basis? And if it's too early to answer, I certainly understand, but that was my read. Thanks.
Speaker #7: All right . Very helpful . And then maybe if I can just squeeze one last one in , you know once the deal you know hopefully closes here by the end of the second quarter .
Speaker #7: It looks like the the loner deposit ratio will come down into kind of the mid , mid ish 80s range , which will give you a little bit more flexibility .
Speaker #7: You know , at that point , does the deposit narrative , beta narrative change insofar that you might have a little bit of flexibility to , to maybe let some of those higher costs deposit deposits go ?
Speaker #7: And that could actually be supportive of , of kind of Nim expansion on a , on a combined basis . And if it's too early to answer , I certainly understand .
Speaker #7: But that was my read . Thanks .
Neal Arnold: No, I'll let Rob.
Neal Arnold: No, I'll let Rob.
Robert Cafera: No, absolutely. Yeah. No, absolutely, Michael. As you know from our IR deck on the deal, we're certainly very focused on the liquidity equation. And that's certainly a big part of the overall balance sheet repositioning, not only immediately following close and up to close, but also in the several quarters following close. We'll continue to address and reposition as some of the term funding items continue to hit maturity dates. And by that, I mean in higher-cost areas. So we'll continue to look to bring down overall costs for the pro forma company as we get there from an overall beta perspective. I mean, our interest is always in relationships. That's what we're looking to drive. Relationships have more than one element, of course. So we know it's competitive out there.
Robert Cafera: No, absolutely. Yeah. No, absolutely, Michael. As you know from our IR deck on the deal, we're certainly very focused on the liquidity equation. And that's certainly a big part of the overall balance sheet repositioning, not only immediately following close and up to close, but also in the several quarters following close. We'll continue to address and reposition as some of the term funding items continue to hit maturity dates. And by that, I mean in higher-cost areas. So we'll continue to look to bring down overall costs for the pro forma company as we get there from an overall beta perspective. I mean, our interest is always in relationships. That's what we're looking to drive. Relationships have more than one element, of course. So we know it's competitive out there.
Speaker #4: let Rob . I'll
Speaker #1: Know . Absolutely . Yeah . No . Absolutely . Michael , as you know , from from you know , our IR deck on the deal .
Speaker #1: You know , we're certainly very focused on the liquidity equation and you know , that's certainly part of a big part of the overall balance sheet repositioning not only , you know , immediately following close and up to close , but but also , you know , in the several quarters following close , you know , we'll continue to address and reposition as some of the , you know , term funding items continue to hit maturity dates .
Speaker #1: And by that I mean , higher cost areas . So we'll continue to look to bring down overall costs , you know , for the pro forma company as , as , as we get there from an overall beta perspective , I mean , our interest is relationships .
Speaker #1: looking to drive . You know , relationships have more than one element . Of course . So you know , we know it's competitive out there .
Robert Cafera: So we expect competition on pricing, but we also expect the balance through the relationship and it being more than just a one product. So our focus will be on continuing to build out on the relationship side there. We think that'll have some beneficial impact in margin as we think of things not only for legacy, but looking into the future. But that's how we would be attacking it.
So we expect competition on pricing, but we also expect the balance through the relationship and it being more than just a one product. So our focus will be on continuing to build out on the relationship side there. We think that'll have some beneficial impact in margin as we think of things not only for legacy, but looking into the future. But that's how we would be attacking it.
Speaker #1: So we expect competition on pricing . But we also expect the balance through the relationship . And and it more than being just a a product .
Speaker #1: one So our focus will be on continuing to build out on the relationship side there . We think that will have some beneficial impact in margin .
Speaker #1: You know , as we think of things , you know , not only for legacy but you know , you know , looking into the future , but that's that's how we would would be attacking it .
[Analyst] (KBW): All right. Very helpful. Thanks for taking my question.
Michael Rose: All right. Very helpful. Thanks for taking my question.
Speaker #7: All right. Thanks for that.
Neal Arnold: Michael, the only thing I would add to your question, because I think it is important, we look forward to running our retail strategy play in Southern Cal in their branches. I think there's great opportunity, as I've said in the past, in Southern Cal running our play. I think it's a very robust deposit opportunity. And secondarily, as we've got into the multifamily portfolio, a lot of these clients are sitting on a lot of cash because they're investors, not necessarily just developers like we sometimes think about on the space. So I think we have, as we've spent more and more time with the First Foundation team, I think there's a robust treasury management opportunity on that multifamily portfolio, not just property counts, but actual deposit relationships. So kickstarting that will also be additive, I believe.
Neal Arnold: Michael, the only thing I would add to your question, because I think it is important, we look forward to running our retail strategy play in Southern Cal in their branches. I think there's great opportunity, as I've said in the past, in Southern Cal running our play. I think it's a very robust deposit opportunity. And secondarily, as we've got into the multifamily portfolio, a lot of these clients are sitting on a lot of cash because they're investors, not necessarily just developers like we sometimes think about on the space. So I think we have, as we've spent more and more time with the First Foundation team, I think there's a robust treasury management opportunity on that multifamily portfolio, not just property counts, but actual deposit relationships. So kickstarting that will also be additive, I believe.
Speaker #4: Taking my question, Michael. The only thing I would add to your question, because I think it is important, is that we look forward to running our strategy retail play in Southern Cal in their branches.
Speaker #4: You know , I think there's great opportunity , as I've said past , in Southern Cal , you know , running our play , I think it's a very robust deposit opportunity .
Speaker #4: And secondarily , as into the we've got multifamily portfolio , a lot of these clients are sitting on a lot of cash because their investors not necessarily just developers , you know , like we sometimes think about on the the space .
Speaker #4: So I think we have as we've spent more and more time with the first foundation team , I think there's a robust Treasury management opportunity on that multifamily portfolio , not just property counts , but actual deposit relationships .
Speaker #4: So , you know , kick starting that will also be additive . I believe .
[Analyst] (KBW): Great. Thanks for all the call, guys. I'll step back.
Michael Rose: Great. Thanks for all the call, guys. I'll step back.
Speaker #7: Great. Thanks for all the color, guys. I'll step back.
Robert Cafera: Thank you.
Robert Cafera: Thank you.
Speaker #1: you Thank .
Operator: The next question comes from Matthew Clark of Piper Sandler. Your line is now open. Please go ahead.
Operator: The next question comes from Matthew Clark of Piper Sandler. Your line is now open. Please go ahead.
Speaker #2: The next question comes from Matthew Clark of Piper Sandler. Your line is now open. Please go ahead.
[Analyst] (Stephens): Hey, good morning. Thanks for the questions.
Matthew Clark: Hey, good morning. Thanks for the questions.
Speaker #8: Hey. Good morning. Thanks for the questions.
Neal Arnold: Good morning.
Neal Arnold: Good morning.
[Analyst] (Stephens): Good morning. Do you happen to have the spot rate on deposits at the end of December to give us some visibility into Q1?
Matthew Clark: Good morning. Do you happen to have the spot rate on deposits at the end of December to give us some visibility into Q1?
Speaker #1: Good morning .
Speaker #8: to have Do you happen the . Good morning . Do you happen to have the spot rate on deposits at the end of December to give us some visibility into
Robert Cafera: Yeah. On the deposit side, as we were talking about, certainly very pleased with what we saw in the fourth quarter. I think we were total cost of deposits around 198 for the quarter. At the end of December, we were closer to 190, that neighborhood, Matthew.
Robert Cafera: Yeah. On the deposit side, as we were talking about, certainly very pleased with what we saw in the fourth quarter. I think we were total cost of deposits around 198 for the quarter. At the end of December, we were closer to 190, that neighborhood, Matthew.
Speaker #1: Yeah, your one question? The deposit side is, as we were talking about, certainly very pleased with what we saw in the fourth quarter.
Speaker #1: know , on
Speaker #1: You know, I think we were total cost of deposits around 1.98 for the quarter at the end of December, you know, we—
Speaker #1: were closer You to 190 . You know , that neighborhood , Matthew ?
[Analyst] (Stephens): Okay. That's helpful. And just on the money market side, I mean, I guess what is your current offering there? It may be customized to some degree, but I guess what's kind of the range that people are getting these days? And do you feel like there's pressure to potentially increase that rate, or do you feel like it's just not going to come down as much as you'd like?
Matthew Clark: Okay. That's helpful. And just on the money market side, I mean, I guess what is your current offering there? It may be customized to some degree, but I guess what's kind of the range that people are getting these days? And do you feel like there's pressure to potentially increase that rate, or do you feel like it's just not going to come down as much as you'd like?
Speaker #8: Okay . That's helpful . And just on the money market side , I mean , is there I guess what is your what is your current offering there ?
Speaker #8: It may be customized to some degree, but I guess what’s kind of the range that people are getting these days? And is there pressure to potentially increase that rate, or do you feel like it’s just not going to come down as much as you’d like?
Robert Cafera: Yeah, great question. Yeah. I mean, it's very competitive out there, definitely. Our promo offerings on the MMDA side, and there's always asterisks. There's balance qualifiers. But at the top tier, we're around the 345 handle on the consumer side for that MMDA product.
Robert Cafera: Yeah, great question. Yeah. I mean, it's very competitive out there, definitely. Our promo offerings on the MMDA side, and there's always asterisks. There's balance qualifiers. But at the top tier, we're around the 345 handle on the consumer side for that MMDA product.
Speaker #1: Yeah , great question . Yeah . I mean , it's it's very competitive out there . Definitely . You know , our our promo offerings on the NMDA side and , and it's you know , there's always asterisks , you know , there's balance qualifiers .
Speaker #1: At the top, but you know, tier, we're around a 3.45 handle on the consumer side for that product.
[Analyst] (Stephens): Okay. Okay. Great. And then just on the pro forma, the guidance you gave today or last night was on a standalone basis. But any update on your pro forma guidance relative to at the time when the deal was announced, whether plus or minus, whether or not you think there have been any material changes there? Obviously, put up a better-than-expected quarter, so that's helpful. But any thoughts there?
Matthew Clark: Okay. Okay. Great. And then just on the pro forma, the guidance you gave today or last night was on a standalone basis. But any update on your pro forma guidance relative to at the time when the deal was announced, whether plus or minus, whether or not you think there have been any material changes there? Obviously, put up a better-than-expected quarter, so that's helpful. But any thoughts there?
Speaker #8: Okay , okay . Great . And then just on the pro forma , the guidance you you the guidance you gave today or last night was on a standalone basis .
Speaker #8: But any update on your pro forma guidance relative to , you know , at the time when the deal was announced , whether , you know , plus or minus , whether or not you think there's been any material changes there , obviously put up a better than expected quarter .
Speaker #8: So that's helpful . But any thoughts there ?
Robert Cafera: Yeah. I mean, we don't have any updates at this time on pro forma projections. We're certainly, as we mentioned, very encouraged about the prospects looking forward. And you're right, a lot of information in our IR deck around expectations. I mean, there's always some pluses, minuses. But all in all, yeah, we continue to remain extremely excited about the prospects as we look forward on that side.
Robert Cafera: Yeah. I mean, we don't have any updates at this time on pro forma projections. We're certainly, as we mentioned, very encouraged about the prospects looking forward. And you're right, a lot of information in our IR deck around expectations. I mean, there's always some pluses, minuses. But all in all, yeah, we continue to remain extremely excited about the prospects as we look forward on that side.
Speaker #1: Yeah , I mean , we don't have any updates at this on on time pro forma projections . You know , we're certainly as we as we mentioned , very encouraged about the prospects looking forward .
Speaker #1: And you're right , a lot a lot of information in our IRR deck around expectations . I mean there's always some pluses and minuses .
Speaker #1: But all in all . Yeah we we continue to remain extremely excited about the prospects as we look forward on on that side .
[Analyst] (Stephens): Okay. Great. Thank you.
Matthew Clark: Okay. Great. Thank you.
Speaker #8: Okay. Great. Thank you.
Robert Cafera: Yeah. Thank you.
Robert Cafera: Yeah. Thank you.
Speaker #1: Thank you .
Operator: We currently have no further questions, so I'd like to hand back to Neal for closing remarks.
Operator: We currently have no further questions, so I'd like to hand back to Neal for closing remarks.
Speaker #2: We currently have no further questions. I'd like to hand back to Neal for closing remarks.
Neal Arnold: Thank you. Thank you all for joining our call this morning. As always, we appreciate your continued interest in FSUN. We hope you all have a great day, and thanks for listening.
Neal Arnold: Thank you. Thank you all for joining our call this morning. As always, we appreciate your continued interest in FSUN. We hope you all have a great day, and thanks for listening.
Speaker #4: Thank you . Thank you all for joining our call this morning . As always , we appreciate your continued in interest . We hope you all have a great day .
Speaker #4: And thanks for listening .
Operator: This concludes today's call. Thank you all for joining. You may now disconnect your line.
Operator: This concludes today's call. Thank you all for joining. You may now disconnect your line.
