FirstSun Capital Bancorp (FSUN) Q3 2026 Earnings Call Transcript

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DATE

Tuesday, Oct. 27, 2026

CALL PARTICIPANTS

• Director of Investor Relations and Business Development - Ed Jacques
• Chief Executive Officer and President - Neal E. Arnold
• Chief Financial Officer - Robert A. Cafera Jr.
• Chief Credit Officer - Jennifer L. Norris

TAKEAWAYS

• Adjusted Net Income -- $48.2 million, excluding $9.8 million in merger-related expenses following the First Foundation acquisition.
• Adjusted EPS -- $1.03, increasing from $0.45 in the second quarter.
• Net Interest Margin -- 3.82%, expanding 24 basis points compared to the prior quarter due to higher loan yields and the disposition of high-cost certificates of deposit.
• Service Fee Revenue -- $39.4 million, representing 21.9% of total revenue despite a decline in mortgage banking income.
• Common Share Repurchases -- $49.7 million, encompassing the buyback of 1,245,224 shares at a tangible book value reflecting strong capital flexibility.
• Substandard Loans -- Decreased by $39.9 million, reflecting the active management of the credit portfolio.
• Special Mention Loans -- Decreased by $23.8 million compared to the second quarter.
• C&I Loan Growth -- $84 million, growing at a 9% annualized rate as management shifts the portfolio toward variable-rate lending.
• Total Loan Portfolio -- $11.5 billion, representing a 3.8% annualized decline due to elevated paydowns in multifamily and public finance sectors.
• Total Deposits -- $13.0 billion, a 13.2% annualized decrease driven by the intentional runoff of higher-rate nonrelationship balances and seasonal attrition.
• Adjusted Efficiency Ratio -- 63.06%, compared to 61.99% in the prior quarter as the company continues integrating new business operations.
• Operating Synergy Realization -- 70% run rate of the $68.8 million total cost-savings target achieved by the end of the third quarter.
• New Loan Pricing -- 6.91% average coupon on new originations, which exceeded the 6.2% effective coupon on acquired loans.
• Provision for Credit Losses -- $4.4 million, primarily due to specific reserves established for two commercial real estate loans.
• Tangible Book Value per Share -- $35.60, representing an increase of $0.44 from the end of the second quarter.
• Loan-to-Deposit Ratio -- 88.3%, increasing from 86.2% at the end of the prior quarter.
• Wholesale Funding Ratio -- 6.7%, remaining below the internal management threshold of 10%.
• Uninsured Deposits -- 33.2% of total deposits, with uninsured and uncollateralized deposits estimated at 25.8%.
• Q4 Loan and Deposit Growth Guidance -- Mid-single-digit growth expected for loans and deposits, excluding brokered balances.
• Q4 NIM Guidance -- Mid 3.80s, reflecting anticipated incremental improvements from continued balance sheet repositioning.
• Q4 Efficiency Ratio Guidance -- Low 60s, driven by the capture of the remaining 30% of projected operating synergies.
• Adjusted PPNR -- $66.4 million, or $1.42 per share, representing a sequential decline from $1.50 per share in the second quarter.

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RISKS

• Robert A. Cafera Jr. stated, "We do see the competition for deposits of late intensifying, and certainly pricing pressure has resulted," noting that management intends to remain disciplined in balancing interest rates and growth.

SUMMARY

FirstSun Capital Bancorp (NASDAQ:FSUN) reported third quarter results that included the successful core system conversion of First Foundation and significant progress on balance sheet repositioning. Management stated that the company reduced exposure to lower-yielding multifamily and public finance loans while growing its commercial and industrial portfolio. The company reported expansion in its net interest margin driven by these remixing efforts and the disposition of higher-cost acquired certificates of deposit. Capital levels remained strong as the firm executed a substantial share repurchase program while maintaining capacity for organic growth across its core markets in Texas and the Southwest.

• Chief Executive Officer Neal E. Arnold stated, "Third quarter represented another important milestone for First Sun as we continue to progress on our strategic priorities and on the integration of the First Foundation businesses acquired."
• The core system conversion completed in late September will enable the company to capture the majority of the remaining 30% of projected operating synergies during the fourth quarter.
• Arnold indicated record business pipelines, noting, "the pipeline we are seeing in percentage terms is 30% to 40% higher than we have seen it earlier in the year."
• Robert A. Cafera Jr. noted the bank maintains an asset-sensitive posture, stating, "our overall IRR profile is, you know, I would call it slightly asset sensitive."
• The company expects to complete the remaining $100 million of its $150 million share repurchase program over the next three quarters.

INDUSTRY GLOSSARY

• NIM (Net Interest Margin): A measure of the difference between the interest income generated by a bank and the amount of interest paid out to its lenders relative to its assets.
• C&I (Commercial and Industrial): Loans made to businesses for working capital or capital expenditures, typically secured by business assets rather than real estate.
• CRE (Commercial Real Estate): Loans secured by income-generating properties, such as offices, retail spaces, or multifamily housing.
• Efficiency Ratio: A measure of a bank's overhead as a percentage of its revenue; a lower ratio indicates greater operational efficiency.
• PPNR (Pretax Pre-Provision Net Revenue): Revenue remaining after operating expenses but before taxes and credit loss provisions are deducted.
• Tangible Book Value per Share: The value of a company's common equity after subtracting intangible assets like goodwill, divided by outstanding shares.
• Criticized Loans: Loans that management has identified as having potential or defined weaknesses, categorized as special mention or substandard.
• Core System Conversion: The process of migrating a bank's primary data and transaction processing platform to a new software environment.
• FTE (Fully Tax Equivalent): An adjustment made to tax-exempt interest income to make it comparable to taxable income.

Full Conference Call Transcript

Operator: Good morning and welcome to the First Sun Capital Bancorp Third Quarter 26 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 1 on your phone keypad. If you would like to withdraw your question, press star 1. Also, as a reminder, this call may be recorded. I would now like to turn the call over to Ed Jacques, First Sun's director of investor relations and business development. You may begin.

Ed Jacques: Thank you, and good morning. I am joined today by Neal E. Arnold, our chief executive officer and president; Robert A. Cafera Jr., our chief financial officer and Jennifer L. Norris, our chief credit officer. We will start the call with some brief remarks about our third quarter results before moving into questions. Our comments will reference the earnings release and earnings presentation 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 our earnings release and in the appendix to our earnings presentation. During this call, we will 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 2000. 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 as well as our annual report on Form 10 ks and our other SEC filings for a further discussion of the company's risk factors and other important information regarding our forward looking statements. Undertake no obligation to publicly revise or update any forward-looking statements except as required by law. I will now turn the call over to Neal E. Arnold.

Neal E. Arnold: Thanks, Ed. Good morning and thank you for joining us. The third quarter represented another important milestone for First Sun as we continue to progress on our strategic priorities and on the integration of the First Foundation businesses acquired. For the quarter, adjusted net income which excluded merger related expenses, totaled $48.2 million or $1.03 per diluted share with an adjusted return on average assets of 1.23%. In addition to the strong bottom line performance and continued integration of the acquired business, highlights in the third quarter included our net interest margin expansion to 3.82% over the last quarter and continued strong service fee income revenues which again accounted for 21.9% of total revenue.

We are very pleased with the progress we have made on our balance sheet profile. We significantly repositioned the acquired balance sheet in the second quarter, and the remix efforts continued into the third quarter as we move away from more rate sensitive nonrelationship deposits and as our loan origination activity continues to be more heavily centered on floating rate C&I loans, versus the fixed rate CRE loans. Our focus continues on expanding and deepening relationships across our entire customer base. A diversified and strong balance sheet enables us to focus on the growth opportunities across all of our great markets.

All our work to reposition the acquired balance sheet helped to address the challenges inherent in the rate profile of that acquired balance sheet was a key driver in the improved net interest margin that we saw in the third quarter. While the deposit competition has been very strong, our focus has been on continued improvement in our net interest margin. We expect the balance sheet repositioning work to drive further incremental improvement in our net interest margin in Q4 and into the first quarter of 2027. Growing our service fee revenue businesses will also continue to be 1 of our strategic priorities.

We believe a diversified revenue on the wealth management side, but also in treasury management, syndication, and swaps provide a meaningful opportunity to deepen our client relationships and further enhance our overall revenue mix. Our capital position remains very strong and continues to provide us with meaningful flexibility as we execute on our overall strategy. During the third quarter, we repurchased approximately $50 million of common shares under our previously announced $150 million share repurchase program. And we currently expect to complete the remaining $100 million over the next 3 quarters.

We believe the continued strength of our capital position provides us with the capacity to return capital to stockholders while also supporting our organic growth and maintaining overall balance sheet flexibility. On the asset quality side, we are encouraged by the improvement this quarter across several key measures. Including a meaningful reduction in special mention loans of about $23.8 million as well as a reduction in substandard loans of nearly $40 million. We continue to take a disciplined approach to underwriting, portfolio management, early risk identification, and we believe the improvement this quarter reflects the continued work of our teams to actively manage our loan portfolio.

On the integration side in late September, our team successfully completed the core system conversion of First Foundation. This was another important milestone in our integration plans and certainly resulted from a tremendous amount of hard work across the organization. We are pleased to have completed this phase of the business integration and look forward to expected additional operating synergies that will result. As we look forward to the next several quarters, we are seeing very strong pipelines in all of our major markets for both loan and deposit relationships. I believe the strong pipelines are the result of our investment that we have made in further building our sales force over the last several years.

Particularly in Texas and Southern California. I expect this to be a driver of our organic growth going forward into 2027. Our priorities remain very focused on driving disciplined organic growth deepening our client relationships, growing core deposits, improving service fee revenue, and realizing the benefits from the integration of First Foundation businesses and delivering strong financial results that result in sustained long term value for our stockholders. Before turning the call over to Robert, I want to recognize and thank all of our teammates for the extraordinary effort that went into completing the recent core systems conversion. An undertaking of this scale requires significant planning, collaboration, and execution across virtually every area of the company.

And our teams delivered while continuing to serve clients throughout the process. I am incredibly proud of the commitment and the teamwork, and professionalism demonstrated by our team. It is a true reflection of the strength of our organization and our culture. With that, I will turn the call over to Robert for a review of our financial results.

Robert A. Cafera Jr.: Thank you, Neal. I would also like to add my thanks to all our teammates for the very hard work that went into completing the recent core system conversion. Very inspiring teamwork shown by everybody involved, and definitely a real testament to our culture here. Turning to our third quarter financial results, I will start with the P&L and highlight several key drivers. As Neil noted, we are pleased with our earnings performance in the third quarter. With adjusted earnings per diluted share of $1.03 This excludes merger related expenses incurred in the third quarter totaling $9.8 million on an after tax basis or the equivalent of $0.21 in EPS.

Further, our adjusted pre tax pre provision net income or PPNR again excludes merger related expenses, was $66.4 million or $1.42 per share in Q3. Compared to 1.50 per share in Q2 and 1.32 per share in Q1 of this year. We are pleased with the expansion of our net interest margin in Q3, which increased 24 basis points to 3.82% compared to the 3.58% we saw in the second quarter. The improvement was largely attributable to both loan We saw loan yields increase by 17 basis points over Q2 due primarily to the sales completed late in the second quarter of lower yielding acquired multifamily and acquired public finance loan.

In addition, given the heavier variable rate nature of our loan portfolio, we have also benefited the recent rising interest rate environment. On the funding side, despite the rising interest rate environment our funding costs also improved, reflective of the disposition of acquired higher cost certificates of deposit late in the second quarter and during the third quarter as well as a favorable mix shift between our noninterest bearing and interest bearing deposits. We do see the competition for deposits of late intensifying, and certainly pricing pressure has resulted. Our objective is to continue to remain disciplined and to seek to balance rates and growth. Particularly as we move into the fourth quarter and beyond.

Service fee revenue totaled approximately $39.4 million in the third quarter, a decrease of approximately 4% compared to the prior quarter and representing 21.9% of total revenue. The decrease was driven primarily by a decrease in mortgage banking revenues, which was attributable to the slowing impact to origination activity as a result of the rising interest rates we saw during the quarter, although I will note that mortgage revenues were up in the third quarter this year, which was up significantly year-over-year. Offsetting some of the mortgage income revenue trend we saw in Q3. We did see some nice improvement in service fee revenues across most of our other service fee revenue business lines.

Including wealth management, treasury management, consumer banking, and swap and syndication activities for our commercial business customers. Overall, we continue to be very excited about the opportunities we are seeing to further grow and diversify our business mix and our service fee revenue. Turning to expenses. Third quarter adjusted non interest expenses, which exclude merger related expenses, declined approximately $800 thousand from the second quarter. With salaries and employee benefits expenses down approximately $5.4 million partially offset by a $4.5 million increase in other non interest expenses. Which was primarily driven by higher loan collection expenses.

Terms of realization of operating synergies from the First Foundation acquisition, During the third quarter, we were at an annualized run rate equivalent of approximately 70% of our original total cost save target of $68.8 million With the core system conversion now complete, we expect to capture the vast majority of the remaining incremental 30% run rate savings in the fourth quarter. We are very pleased with our progress and continue to expect total cost savings to slightly exceed our original dollar target. With additional savings above that original target expected to come in the first quarter of next year. Shifting to the balance sheet. On the loan side, balances declined approximately $110 million from the second quarter.

Or 3.8% annualized, From a portfolio mix perspective, we saw encouraging growth in our C&I business, with the balances increasing approximately $84 million from the second quarter or approximately 9% annualized. This growth was more than offset by paydowns across our commercial real estate, residential real estate, and public finance portfolios, which collectively declined from the second quarter by approximately $173 million, including a decline of approximately $69 million in the multifamily portfolio.

While we did experience a higher overall level of total loan portfolio pay downs this quarter, which was very similar to the elevated level in the second quarter, the proportional shift to more variable rate C and I loans in the portfolio further improved our overall balance sheet sensitivity profile. $409 million for the quarter, which was up 14% from $357 million in the second quarter. We also saw improvement in new loan pricing with the average coupon on new loans increasing to 6.91% compared to 6.76% in the second quarter. Which exceeded again this quarter the effective coupon being accreted on the acquired First Foundation loans which was slightly below 6.2%.

On the deposit side, we saw total balances decline approximately $447 million at quarter end. While our deposit remixing strategy improved, our overall portfolio mix, and managed higher rate acquired deposits, we did not generate net balance growth for the quarter, due to the combination of intentional runoff and some attrition. In terms of the components of the Q3 balance decline, we saw approximately 80% of the decline related to either targeted runoff or seasonal contraction, with a break down of an approximate $40 million decline in brokered balances, an approximate $255 million decline in higher rate non relationship balances and an approximate $65 million decline due to typical seasonal contraction in the third quarter.

The remaining approximate $85 million decline included some attrition and general balance decline across the customer base. Including approximately $50 million in balance outflow involving the deployment by 1 customer of proceeds from the sale of the business. Our loan to deposit ratio was at 88.3% at the end of the quarter, and our wholesale funding ratio was at 6.7%. On the asset quality side, provision expense for the quarter was $4.4 million, primarily due to specific reserves on 2 CRE loans. And partially offset by a decrease in the loan portfolio. Our allowance for credit losses as a percentage of loans was 1.52%, an increase of 2 basis points from the second quarter.

Net charge offs totaled $3.3 million or 11 basis points on an annualized basis and were concentrated primarily in 2 acquired credits. As Neil noted, we saw a meaningful improvement in both special mention and substandard loans which declined approximately $23.8 million and $39.9 million, respectively compared to the second quarter. Overall, we are encouraged by the improvements in criticized credit rates this quarter and remain focused on our disciplined approach to portfolio management and early risk identification. On the capital side, we continue to strengthen our position as TBD per share improved to $35.60 up from 46 at the end of the second quarter.

I will further note, and as Neal referenced earlier, we repurchased approximately $50 million of common shares under our share repurchase program in the third quarter and we still saw an increase in TBD per share over the second quarter. In terms of our expected financial outlook for the fourth quarter, I will refer everybody to page 19 in the earnings presentation we filed last night. And I will underscore a few points on our Q4 outlook and key assumptions. Mid single digit growth for loans and deposits, excluding broker balances, we are seeing a very strong pipeline for the fourth quarter. Net interest margin in the mid 3.80s, up slightly from our Q3 performance level.

Efficiency ratio in the low 60s and improved slightly from our Q3 performance level, as we expect to realize further cost synergies in the fourth quarter. And continued common share repurchases. So overall, we are encouraged by our third quarter results and the significant progress we have made on our integration efforts for the acquired First Foundation business. We believe our balance sheet, liquidity and net interest margin profile along with synergies on the expense side, position us well as we move into the fourth quarter and will ultimately keep us on track to drive further operating leverage and achieve our target performance for 2027.

With that, I will now turn the call back to the moderator to open the line for questions.

Operator: We will now begin the question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Matthew Clark with Piper Sandler. Matt, your line is now open. Please go ahead.

Matthew Clark: Hey. Good morning, everyone. Morning. Just on your reserves. You have the--yeah. If you have the credit mark on the FF--the First Foundation portfolio? So if we were to add that back, what your gross reserve level would be? And the credit mark on the acquired First Foundation portfolio is included in the 1.52%. Okay. Got it. Just double checking. And then in terms of your overall criticized loans, can you give us the percentage that is from First Foundation again, that were marked? Kelly, Matt?

Robert A. Cafera Jr.: Yeah. I am here. Sorry. Our line glitched there. We missed that.

Matthew Clark: Oh, yeah. Okay. Yeah. Part of the call is getting cut out. What percentage of your criticized loans are from First Foundation? Assuming they were marked? Roughly.

Robert A. Cafera Jr.: The percentage of criticized from First Foundation Let me circle back to you on that 1, Matt. Give me that. Okay.

Matthew Clark: I think yeah, the broader question really is, would you consider selling some of these marked criticized loans to get that percentage down to a more palatable level?

Neal E. Arnold: You know, we are not looking at any bulk sales similar to the size that we did in the second quarter. Are we looking at 1-off strategies that could involve a sale? I mean, we are constantly evaluating strategies on that side, but we are not looking at any bulk sales similar to the size that we did in the second quarter. Okay.

Matthew Clark: And then just on the cost of deposits being down, assuming you have some more brokered that you would like to run off and assume there is still some other higher cost deposits that you would like to exit? Do you have the spot rate on deposits at the end of September and how we should think about your cost of deposits, you know, with the Fed hiking? Yeah.

Robert A. Cafera Jr.: So on the deposit rate side, yeah, so our third quarter interest bearing deposit rate was at $2.75. Our equivalent interest bearing deposit cost at 9/30 was at 2.82%. And the month of September was our the rate for the month of September was 2.78%. So you can see kind of the progression total quarter, month of September, and then where we were positioned at the very end of September. Okay. Fair enough. Thank you.

Neal E. Arnold: Thanks.

Operator: Your next question comes from the line of Michael Rose with Raymond James. Michael, your line is now open. Please go ahead.

Michael Rose: Hey. Thank you. Thanks for taking my questions. Hey, I just wanted to kind of circle back to comments that you guys reiterated last quarter around a $5-plus earnings trajectory for next year. It just seems like given the balance sheet's a little bit smaller, what you gave for accretion, what you just talked about in terms of deposit costs, putting it all together with probably I would assume to be is a probably a lower run rate of mortgage just given the hire for longer, particularly if we do get another hike or 2. Is there a way to potentially level set that number or maybe reiterate it if that is what you are thinking.

It just seems from the outside looking at it, it is going to be kind of tough to hit that just given some of the dynamics that have developed over the past couple months. Thanks.

Robert A. Cafera Jr.: Yeah. Sure, Michael, and good morning. I would say on the balance sheet side, that as we look at you know, the second half of 2026 here, On the loan side, we are still expecting to be in that low single digit territory. So from a total balance sheet perspective on the asset side, not too far off. From where we were expecting to be, you know, if I rewind the clock.

3 months ago, On the deposit side, you know, I probably put that closer to flat, which you can kinda see inherent in the guide that we have for Q4, where, you know, Q4 on the deposit ex broker, we are now in that mid single digit territory as compared to, you know, that low single for the second half. So in terms of the, if you will, the annuity base on the balance sheet, maybe a little bit lower, but not appreciably lower. I think on the margin side, you know, we still feel real good about the margin side.

As we mentioned, we continue to be very focused on optimizing margin, and you see that in some of the trades that we are pursuing on the balance sheet, and it is inherent in the components that I highlighted on the deposit side in terms of balance changes. You know, I think as you think into the P&L, there is a little bit of a trade off on margin and fee income. Depending upon, you know, the overall rate environment and certainly focused on that mortgage line. I think as Neal mentioned, you know, very encouraged by what we are seeing in the other fee businesses.

Including wealth, including our loan syndication and swap business, on top of gonna see some impact as a result of going on in the macro rate environment. But, you know, there is some natural economic hedge that we have always pointed out between spread income for our business and, you know, given the position, the profile of our balance sheet, and mortgage revenues, then on the expense side, you know, again, I feel real good about the work we have been able to accomplish on the expense side. We do think we are going to come in ahead of our original projections on total cost saves. With that excess, you know, coming into play in the first quarter.

So we do feel we remain feeling good about our target performance there for 2027. Yeah.

Operator: I would just underscore I certainly understand your question.

Neal E. Arnold: I think given the inherited balance sheet, that we acquired, Our focus was probably more on margin get through the conversion, given the rate trajectory. I would just underscore we are seeing pipelines that are the strongest I have ever seen here. And so across all our markets, we have a lot of activity going on. So you know, I do not think we have thrown in the towel on anything. And I think you will see more robust balance sheet growth. Not just margin expansion. Okay.

Michael Rose: that is very helpful. I appreciate all the color. Maybe just 1 follow-up for Robert. If you can just maybe help us level set expenses for the fourth quarter. I know you said the majority of the 30% will come in. This quarter, but you continue to invest in grow the business, right? So I mean, how should we think about fourth quarter expenses? I mean, should they step down further slightly again? And then as we think about those investments into next year, how should we think about kind of a base level of expense growth for you guys? Thanks.

Robert A. Cafera Jr.: Yes. Absolutely. Yes, we will see we do expect to see expense declining Q4 versus Q3. You know, that efficiency ratio guide in the low 60s, you know, that is going to get you somewhere around a. Probably a mid single digit decline. You know, just in percentage terms. You know, as you cast forward to 2027, I think again, following on our guidance on efficiency into the first quarter, on the low-60s side, I think that continues to improve modestly. From there in terms of that efficiency ratio. So, you know, that will kind of get you to, you know, our run-rate expectations as you cast out from Q4 into 2027. Okay. I appreciate all the color.

Lots of moving pieces here. So thank you guys so much. I will step back. Yes. Absolutely. And just 1 other item, just following up on Matt's earlier question. On the split between criticized. It is roughly 50% legacy Sunflower and legacy First Foundation.

Operator: Your next question comes from the line of Matt Olney with Stephens. Matt, your line is now open. Please go ahead.

Matt Olney: Hey, thanks. Good morning. Just want to follow-up on that last discussion around expenses. Robert, there is the other expense. I think you. It was mentioned in the deck. The higher loan collection expense. Any more color on that line item and what that looks like for the next few quarters and then kind of what the big driver is? Thanks.

Robert A. Cafera Jr.: Yes. Certainly, Matt. So yeah, the loan collection expense that I was referring to, we just saw some elevated loan collection expenses with a few of the workouts in place. We saw that as more unique to the third quarter as opposed to we expect to see a step down there from what I call from a kind of a normal run rate, we just saw some elevation in Q3 there. So, you know, the combination with if you will, the remaining 30% on our original cost-save targets get you to our expectations for the fourth quarter again, low 60s on the efficiency, and, you know, call it a mid single digit decline from Q3 levels. Okay. Appreciate that, Robert.

Matt Olney: And then going back to the loan growth discussion, lots of discussion on the call about the stronger loan growth and the stronger loan pipeline you are seeing at this point. Are there any numbers you can put behind the pipelines now versus a few months ago?

Robert A. Cafera Jr.: I mean, fair question. Certainly, our expectations around mid single digit growth on the loan side in the fourth quarter are fueled by a very strong pipeline, as Neal was referencing earlier. I think the pipeline we are seeing in percentage terms is 30% to 40% higher than we have seen it earlier in the year. Now some of that, you know, is a little bit of timing, you know, the second and the third quarter were a little slower for us, although third quarter, as I mentioned, certainly was up relative to the second quarter. there is a little timing in there, but we are very pleased with just overall what we are seeing in the pipeline.

Certainly, you know, we think a reflection on investments that we have made in some of the markets here over the past couple years, and that seasoning takes a little bit of time, as you know. But, yeah, we are really happy with what we are seeing, Matt, on the loan pipeline and deposit pipeline, frankly.

Neal E. Arnold: And I think, I think 1 of the slides in the deck showed the higher last 2 quarter of payoffs and I think given the rise in rates, we would expect that to be a little muted as well. Do not have a great handle yet, but could expect that not to be the headwind it has been. Yeah.

Matt Olney: Okay, guys. Thanks for your help. that is all for me.

Robert A. Cafera Jr.: Thanks, Matt.

Neal E. Arnold: Thank you, Matt.

Operator: Your next question comes from the line of Wood Lay with KBW, your line is now open. Please go ahead.

Wood Lay: Hey, guys. Wanted to start on broker deposits. And just get an idea of how much broker deposit runoff your forward guide is assuming.

Robert A. Cafera Jr.: You know, on the broker deposit side, we did take that down a little bit in Q3. I think we are between 6% and 7% still. You know, our overall objective on brokered has been to keep that below 10%. I do not see significant decline. You know, I think you are going to see brokered. We are going to keep it below 10%. that is really our focus. We did exit out of a little bit in Q3. Okay.

Wood Lay: Got it. And then maybe a follow-up on the NIM. Just any idea, could you walk us through how sensitive forward margin is to rate hikes? Either if we do not get the rate hike later in the year, what that could mean for the margin or if we get incremental rate hikes next year, what that could mean.

Robert A. Cafera Jr.: Sure. You know, our overall IRR profile is, you know, I would call it slightly asset sensitive. So we have 1 rate increase in the fourth quarter, December specifically, in our expectations. We do not have anything factored in 2027. You know, there is some varying thoughts macroly on that, but we do not have anything factored in there in terms of 2027. You know. And I think it is just really what. You know, the hard work and the time we spent on our balance sheet profile that is really continuing to drive us to that slightly asset sensitive position.

So if rates if rates were to come back down, you know, still slightly asset sensitive, and if rates go up, still slightly asset sensitive. You know, we provided a view on that in the Q2 deck. You know, we always provide a view in the 10-Q, but in the Q2 earnings deck, we provided a view. It has not materially changed from there. You know, how we are managing the betas on the deposit side with the portfolio, you know, that remains, you know, post kind of remix and the downsizing. Leads us to a much better beta and managed outcome on the deposit side.

And then, of course, our loan portfolio is roughly 70% of the portfolio is variable rates. A good chunk of that reprices in the first 30 days. So we do have, you know, some pretty good responsiveness on the asset side. Alright.

Wood Lay: that is really helpful color. I guess just last for me. You know, it is great to hear you are all a little bit more optimistic about the loan pipeline, potentially seeing a growth inflection, you know, the rate backdrop a little volatile. Macro is always varying. If growth does come below your stated guidance, would you look to use that allocated capital and shift it to the buyback, or would you operate at higher capital levels knowing, you know, the growth might just be pushed back?

Neal E. Arnold: Great question. Great question. You know, our contention all along is our biggest driver is less the macroeconomic environment and more our execution because we are a smaller institution and it is been our investment in the sales force and building that. You know, certainly, uncertainty is not your friend, but I think, at least in our region of the country, we do not see any slowdown in the businesses we are working with. Got it.

Wood Lay: Alright. Well, that is all for me. Thanks for taking my questions.

Neal E. Arnold: Absolutely. Thank you. Thanks, Wood.

Operator: We have reached the end of the q and a session. I will now turn the call back to Neal E. Arnold for closing remarks.

Neal E. Arnold: Thank you for joining our call this morning. And as always, we appreciate your continued interest in First Sun. Have a great day.

Operator: This concludes today's call. Thank you for attending. You may now disconnect.

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