KBRA Affirms Ratings for FirstSun Capital Bancorp

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Denver, Colorado-based FirstSun Capital Bancorp (NASDAQ: FSUN) ("the company"). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Sunflower Bank, N.A. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings reflect FSUN's experienced management team and its solid banking franchise, bolstered by the company’s expansion into high-growth Southwestern markets, which has emphasized relationship banking in the middle market space. Additionally, the ratings are supported by a strong core deposit base reflected by its lower relative costs, geographic diversification, and minimal concentrations across a multi-state branch network. FSUN's higher risk-weighted density (89% vs. the 79% peer average as of 3Q24), which helps facilitate a strong NIM, averaging 100 bps above peers, underpins the solid earnings profile (ROA of 1.0% during 9M24). Noninterest income, comprising 24% of total revenue, further supports earnings, whereas mortgage banking revenues represents 43% of noninterest income, it is complemented by stable fee income streams, including deposit account service charges, treasury management, trust and investment advisory services, and interchange fees from credit and debit transactions. Historically, FSUN has operated with higher levels of NPAs compared to peers, though overall losses have remained consistent with rated peers. KBRA attributes this to the company's stringent credit underwriting standards and the resilience of its regional markets. Recently, credit quality has been affected by net charge-offs stemming from idiosyncratic credit issues, which are expected to be resolved in the near term. KBRA considers the company’s loan loss reserves (LLR) and capital levels to be more than sufficient to address potential credit challenges moving forward, which we believe should be manageable given its focus on C&I lending, and, in turn, below average investor CRE concentration (125% of total risk-based capital as of 3Q24). KBRA positively views the rebuilding of core capital to above peer levels both organically since 2022 and through the $80 million common equity raise in 2024 related to the terminated merger with HomeStreet, Inc. We expect the company to use excess capital for organic growth and potentially opportunistic M&A while maintaining CET1 above 11% going forward.

Rating Sensitivities

A rating upgrade is not expected in the near term. However, a consistent track record of strong core profitability, without materially increasing credit risk, while maintaining a solid core deposit franchise and capital levels aligned with higher rated peers could support positive rating momentum over time. Conversely, rating pressure could occur if the company aggressively increases its risk appetite which negatively impacts core capital levels, specifically a CET1 ratio below 10%. Additionally, if asset quality problems were to increase and weigh on earnings, or if the funding base were to materially weaken, the ratings could become pressured.

To access ratings and relevant documents, click here.

Methodologies