425: FirstSun to Acquire First Foundation, Accelerating Growth

FirstSun Capital Bancorp announced a strategic merger with First Foundation Inc., aiming to accelerate growth, reduce risk, and enhance profitability through a significant balance sheet repositioning.

Summary

• FirstSun Capital Bancorp announced a merger with First Foundation Inc. on October 28, 2025, following a joint press release.
• The deal aims to accelerate First Foundation's business plan and focus on growth in Southern California and Florida.
• A $3.4 billion balance sheet repositioning is planned to lower non-relationship rate-sensitive elements, significantly reducing liquidity, interest rate, and credit risk.
• The pro forma company is expected to have approximately 10% wholesale funding, a dramatic improvement from First Foundation's historical levels.
• The regulatory CRE concentration ratio pro forma after closing is projected at approximately 238%, considered a very comfortable operating level.
• CET1 capital level pro forma after closing is projected at a strong 10.5%, with no new capital required as part of the deal.
• The repositioning is expected to drive the combined Net Interest Margin (NIM) from First Foundation's recent run rate in the 160s area to nearly 4% by 2027.
• Projected Return on Assets (ROA) for the combined entity is approximately 145 basis points by 2027, the first full year of operations.
• The transaction is expected to be approximately 30% accretive to EPS in 2027, with a roughly 14% Tangible Book Value (TBV) dilution and an earn back slightly in excess of three years.
• First Foundation's wealth management platform has over $5.3 billion in Assets Under Management (AUM).
• FirstSun's Q3 2025 provision expense was $10 million, including a specific reserve for a C&I loan, driven by 11% loan growth.
• Q3 2025 charge-offs were $9 million, translating to about 55 basis points, with expected charge-offs for 2025 in the low 40s basis points.
• Non-performing balances tracked up in Q3 2025 to about 104 basis points.

Sentiment

Score: 8

Explanation: The filing presents a highly optimistic outlook on the strategic acquisition, emphasizing significant financial improvements, risk reduction, and strong organic growth potential. Management expresses high confidence in the execution and regulatory approval, despite acknowledging past issues at First Foundation and a previous terminated transaction. The projected financial metrics (EPS accretion, NIM, ROA, TBV earn back) are very positive.

Positives

• Acquisition of an 'unloved company' at a lower price with higher upside potential, a strategy FirstSun has successfully employed.
• Significant opportunity in Southern California branch franchise network, which will become FirstSun's largest metropolitan region team and branch network.
• Diversifies fee income with First Foundation's sizable wealth management platform, which has over $5.3 billion in AUM.
• Includes an attractive multifamily portfolio, with a focus on workforce housing and rent security.
• The merger dramatically accelerates First Foundation's existing business plan to reduce risk and focus on growth.
• The fix to First Foundation's balance sheet issues is straightforward and can happen rapidly.
• Southern California and the West Coast offer a better, lower-cost mix of deposits, aligning with FirstSun's core deposit strategy.
• Opportunity to migrate First Foundation's balance sheet to FirstSun's business model, enhancing the profitability profile of the entire organization.
• The transaction doubles the company's size while simultaneously reducing the credit risk profile, improving rate sensitivity, and significantly reducing liquidity risk.
• The combined entity will operate in eight of the top 10 largest MSAs in the central and western U.S., and five of the top 10 fastest-growing markets.
• Gains 30 total branches, with 16 in Southern California, providing more avenues for deposit growth.
• No new capital is required as part of the deal, with a projected strong CET1 capital level of 10.5% post-closing, building to 12.7% by 2027.
• Expected NIM to increase from First Foundation's 160s area to nearly 4% and ROA to 145 basis points by 2027.
• Projected approximately 30% EPS accretion in 2027 and a TBV earn back slightly in excess of three years.
• Extensive conversations with both the OCC and the Fed have been held, indicating confidence in regulatory approval.
• FirstSun's team is already on the ground in Southern California, accelerating integration and growth efforts.
• The Southern California economy is noted for its depth, breadth, diversification, and resiliency.
• Market disruption in Southern California creates opportunities for FirstSun's middle market focus, as clients seek alternatives to large banks.

Negatives

• First Foundation had a history of 'poor balance sheet management decisions' that obscured its attractive underlying franchise.
• First Foundation's recent run rate NIM was low, in the 160s area, indicating historical profitability challenges.
• First Foundation's Q3 2025 earnings were roughly flat, reflecting a breakeven level prior to the merger.
• FirstSun's Q3 2025 experienced $9 million in charge-offs (55 basis points), including a specific reserve for a C&I loan and a loan with cross-border exposure.
• Non-performing balances for FirstSun tracked up in Q3 2025 to 104 basis points.
• General deterioration in the market from a valuation and pricing standpoint has resulted in additional losses on some credits FirstSun has been exiting.
• The implied purchase price of approximately 125% of First Foundation's adjusted tangible equity ($606 million) was noted as a potential pushback on the price paid.

Risks

• Execution risk associated with the $3.4 billion balance sheet repositioning plan, which involves bulk sales and potential securitization.
• Market risk on the execution of the repositioning, although hedges are being put in place.
• Regulatory process risk, despite extensive conversations with the OCC and Fed, as they still need to complete their process.
• C&I credit is inherently lumpy and unpredictable, as evidenced by FirstSun's Q3 2025 charge-offs.
• Higher debt financing costs and general market disruption continue to impact client balance sheets.
• Some wholesale funding has term maturities, meaning it cannot be immediately reduced concurrent with closing, extending the remixing timeline for certain liabilities.

Future Outlook

The combined company is projected to achieve a Net Interest Margin (NIM) of nearly 4% and a Return on Assets (ROA) of approximately 145 basis points by 2027, with approximately 30% EPS accretion in 2027. CET1 capital is expected to build quickly, reaching around 12.7% by 2027, leading to future capital management strategies. The significant balance sheet repositioning is expected to accelerate balance sheet remixing, making First Foundation's balance sheet look more like FirstSun's, with an emphasis on core funding, fee income, and C&I lending. The company plans to be on offense immediately post-closing, driving organic growth.

Management Comments

• "We like to tackle unloved companies in this industry. Why? Because we believe there's less investment risk when you do the full due diligence. They tend to be priced at lower prices and have lower projections, which means for all of us there's a higher probability to have upside." Neal Arnold, FirstSun Capital Bancorp CEO
• "First Foundation is one of the companies in this industry who have an attractive underlying franchise that's been hidden by some poor balance sheet management decisions. What is unique here is that the fix to these issues is rather straightforward and the ability to solve them can happen quite rapidly." Neal Arnold, FirstSun Capital Bancorp CEO
• "Since the recap in 2024, we've been proactively reducing the risk in all aspects of our organization. We've downsized the balance sheet in the last year significantly and the business plan that we have would continue doing that. What this merger does is allow us to dramatically accelerate the business plan that we put in place." Thomas Shafer, First Foundation Inc. CEO
• "It's not often that you can double the size of your company while simultaneously reducing the credit risk profile, improving the rate sensitivity of the combined organization, and significantly reducing the liquidity risk. I'd take that as an operator any time in a potential acquisition, so I believe that this transaction does a lot for both parties." Neal Arnold, FirstSun Capital Bancorp CEO
• "This is a unique opportunity to take a company with a recent run rate NIM in the 160s area and bring it up to a nearly 4% level. In line with our NIM and driving a combined projected ROA of approximately 145 basis points as we look out to 2027, the first full year of operations." Robert Cafera, FirstSun Capital Bancorp CFO
• "Our restructuring of this balance sheet is bigger, faster, clearer. That's been our biggest lesson. And we walked through that with the regulators. We're well inside the CRE. We're well above the capital ratios. So, I think all the touch points, in addition to the magnitude of the risk reduction on asset quality, liquidity, and interest rate sensitivity, have all positioned this to go well. And we're highly confident that it will." Neal Arnold, FirstSun Capital Bancorp CEO
• "The scale of the market [Southern California] is shocking... the depth and breadth and diversification of the Southern California economy is staggering... and the resiliency of this economy is far greater than I ever expected." Thomas Shafer, First Foundation Inc. CEO
• "People don't love large banks in middle market. They feel like they're ignored. They don't tend to get the personal touch. And so to us, we believe the best franchise in banking is still in middle market clients who need good bankers. And we're in that business." Neal Arnold, FirstSun Capital Bancorp CEO

Industry Context

The merger reflects a strategic approach of acquiring undervalued or 'unloved' banks with strong underlying franchise value, a recurring theme in banking M&A. It underscores the industry's focus on core deposit gathering, fee income diversification, and efficient balance sheet management in a dynamic interest rate environment. The expansion into Southern California leverages a robust, diversified, and resilient economy, while capitalizing on market disruption and dissatisfaction with larger banks among middle market clients.

Comparison to Industry Standards

• The pro forma regulatory CRE concentration ratio of approximately 238% is a significant improvement from First Foundation's current level and is described as a 'very comfortable operating level,' suggesting it is well within or below typical regulatory comfort zones for banks.
• The projected combined NIM of nearly 4% and ROA of 145 basis points by 2027 are described as making the combined entity a 'top tier organization, top quartile organization from the day we start,' indicating these metrics are expected to be competitive or superior to many industry peers.
• FirstSun's year-to-date deposit growth of 9% is noted as 'probably on the higher side than most,' highlighting strong performance relative to the broader banking industry in deposit gathering.
• The 7.7 times pro forma 2027 run rate earnings multiple is presented as having 'significant upside,' implying it is currently below the valuation multiples of top-performing, high-quality banks in the industry.

Stakeholder Impact

• Shareholders: Expected to benefit from significant EPS accretion, improved profitability, a reduced risk profile, and potential for future capital management strategies.
• Employees: FirstSun's existing team in Southern California will be leveraged, and while some cost saves are expected on the 'people side' (approximately 70% of total cost saves), the wealth management and branch teams are expected to be largely unimpacted and leveraged for growth.
• Customers: First Foundation customers are expected to benefit from FirstSun's business model, expanded wealth platforms, treasury management services, and residential mortgage expertise. Middle market clients in Southern California are anticipated to receive more personalized attention.
• Regulators: Extensive conversations have been held with the OCC and the Fed, and the deal is structured to address regulatory concerns regarding CRE concentration, capital ratios, and overall risk reduction, aiming for a smooth approval process.

Next Steps

• First Foundation expects to file its full earnings release and presentation on October 30, 2025.
• Continue the $3.4 billion balance sheet repositioning, with some progress expected in Q4 2025 and Q1 2026.
• Pursue bulk sales and potentially securitization for asset runoff as part of the repositioning.
• Complete the full repositioning concurrent with or shortly after the projected early Q2 2026 closing date.
• Layer in hedging post-closing to position interest rate sensitivity closer to a neutral to slightly asset-sensitive level.
• Remix the loan and deposit books to align more closely with FirstSun's business model and risk profile.
• Bring in additional C&I-focused teams, particularly in the Southern California market.
• Roll out FirstSun's retail branch playbook and residential mortgage expertise across the expanded branch footprint in Southern California.
• Expand the wealth management business, integrating it within both the existing First Foundation and FirstSun customer bases.
• Employ future capital management strategies as CET1 capital builds beyond 2027.

Key Dates

Recommendation

The acquisition of First Foundation by FirstSun Capital Bancorp presents a compelling opportunity for significant value creation. The strategic rationale of acquiring an 'unloved' company at a lower valuation, coupled with a clear and aggressive plan to reposition the balance sheet, is highly attractive. Management's confidence in achieving substantial EPS accretion (30% by 2027), a dramatic improvement in NIM (from 160s to nearly 4%), and a strong ROA (145 bps by 2027) suggests a powerful financial transformation. The projected TBV earn back of just over three years is favorable for a deal of this complexity. Furthermore, the deal is expected to simultaneously reduce credit, liquidity, and interest rate risk, while requiring no new capital and maintaining a strong CET1 ratio. The expansion into the robust Southern California market, leveraging FirstSun's existing team and expertise, provides a strong organic growth runway. Despite some execution risks and past issues at First Foundation, the detailed plan and proactive regulatory engagement mitigate these concerns. This transaction positions FirstSun for accelerated growth and enhanced profitability, making it a strong buy for investors seeking long-term value.

Keywords

FirstSun Capital Bancorp, First Foundation Inc., Merger, Acquisition, Banking, Financial Services, Wealth Management, Southern California, Balance Sheet Repositioning, Risk Management, EPS Accretion, TBV Earn Back, Commercial Real Estate, Multifamily Housing, Deposit Growth, C&I Lending, Regulatory Approval