FSUN Q4 2025: Net Interest Margin Climbs to 4.18% as Fee Revenue Diversifies
FSUN delivered a robust Q4, marked by a rising net interest margin and double-digit fee revenue growth, while maintaining disciplined expense management and a healthy credit profile. The bank’s relationship-driven strategy and focus on high-growth Southwest markets are yielding results, even as competition for deposits and evolving credit conditions remain in focus. Integration planning for the pending First Foundation merger is progressing, positioning FSUN for expanded scale and product reach in 2026.
Summary
- Margin Expansion Outpaces Deposit Pressure: Net interest margin rose as funding costs declined, showing resilience in a competitive deposit environment.
- Fee Revenue Growth Broadens Business Mix: Non-interest income climbed, led by loan syndication and treasury management, reducing reliance on spread income.
- Integration and Market Expansion Set 2026 Tone: Merger execution and Southwest franchise buildout underpin FSUN’s growth narrative heading into next year.
Performance Analysis
FSUN’s Q4 performance demonstrated strong momentum in core banking fundamentals, with adjusted net income and earnings per share reaching their highest levels of the year. Net interest margin (NIM) expanded to 4.18 percent, up 11 basis points sequentially, supported by lower interest-bearing deposit costs and a strategic payoff of subordinated debt. The bank’s NIM has now held above four percent for 13 consecutive quarters, underscoring effective balance sheet management in a volatile rate environment.
Loan growth was healthy, with average balances up 8.5 percent annualized, driven predominantly by the commercial and industrial (C&I) portfolio. New loan fundings increased 30 percent year-over-year for Q4, despite late-quarter paydowns moderating period-end balances. Non-interest income provided diversification, rising 24 percent year-over-year in Q4, led by growth in loan syndication, swaps, treasury management, and interchange fees. Expense discipline was evident, with the adjusted efficiency ratio improving to 63.36 percent and positive operating leverage for the year.
- Deposit Mix Management: Flat deposit balances masked a shift away from consumer CDs toward money market and operating accounts, supporting margin stability.
- Asset Quality Monitored: Charge-offs were concentrated in two C&I credits, while classified and non-performing loans declined sequentially, reflecting proactive credit oversight.
- Capital Strengthening: Tangible book value per share rose 11.5 percent year-over-year, and CET1 ratio ended at 14.12 percent, providing ample buffer for growth and integration.
FSUN is executing on its relationship-banking model, balancing growth, risk, and profitability as it prepares for the operational and strategic lift from the First Foundation merger.
Executive Commentary
"This quarter was highlighted by strong revenue growth, which was up 10.8 percent 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 percent annualized, while maintaining a strong revenue mix with non-interest income to total revenue of 24.3 percent."
Neil Arnold, Chief Executive Officer & President
"Our net interest margin in the fourth quarter was quite strong at 4.18 percent, up 11 basis points from the third quarter, and has now been above 4 percent for the last 13 consecutive quarters. 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 basis points, and wholesale borrowing costs favorably impacted by a sub-debt payoff."
Rob Kuffera, Chief Financial Officer
Strategic Positioning
1. Relationship Banking Anchors Growth
FSUN’s business model centers on relationship-based banking, emphasizing multi-product engagement with clients across C&I, treasury management, and mortgage. This approach has driven both loan and non-interest income growth, while supporting deposit mix optimization and client retention in competitive markets.
2. Southwest Franchise and Market Expansion
The bank’s footprint in seven of the 10 fastest-growing MSAs in the Southwest positions it to capture outsized share of regional economic expansion. Leadership highlighted ongoing investments in C&I teams, particularly in Texas and Southern California, leveraging both organic buildout and the pending First Foundation merger to deepen market penetration.
3. Fee Income Diversification
Non-interest income now accounts for nearly a quarter of total revenue, reflecting strategic progress in diversifying away from pure spread income. Growth in loan syndication, swaps, mortgage, and treasury management is reducing earnings volatility and enhancing returns on capital.
4. Disciplined Cost and Capital Management
Expense control remains a priority, with infrastructure investments calibrated to support scalable growth and merger integration. Capital levels are robust, providing flexibility for both organic and inorganic expansion, as well as risk management through evolving credit cycles.
5. Merger Integration and Balance Sheet Optimization
Pace and execution of First Foundation integration planning are on track, with leadership signaling confidence in balance sheet repositioning and synergy realization. The combined entity is expected to benefit from improved loan-to-deposit ratios, increased treasury management opportunities, and a more diversified funding base.
Key Considerations
FSUN’s strategic context is shaped by a blend of margin management, fee income growth, and operational discipline, all while navigating a competitive deposit landscape and preparing for a significant merger integration.
Key Considerations:
- Deposit Competition Intensifies: Management is prioritizing operating and money market accounts, avoiding rate-driven CD growth, to support margin and relationship depth.
- Expense Growth Calibrated to Expansion: Investments in C&I teams and new markets are balanced against infrastructure synergies expected from the merger.
- Credit Vigilance Amid Macro Uncertainty: While credit remains stable, leadership is monitoring for lumpy outcomes in C&I as rate effects flow through borrower financials.
- Integration Execution Risk: Success of the First Foundation merger will depend on effective balance sheet repositioning and realization of projected cost and revenue synergies.
Risks
Competitive deposit pricing and persistent rate volatility could pressure margins, particularly as FSUN avoids high-cost CDs in favor of relationship accounts. Asset quality risk is concentrated in the C&I portfolio, where credit can be lumpy and subject to macro shocks. Integration risk remains as the First Foundation merger advances, with execution on balance sheet optimization and cost synergies critical to delivering on strategic objectives. Regulatory scrutiny and market dislocation could amplify these risks, especially amid ongoing industry consolidation.
Forward Outlook
For Q1 2026, FSUN guided to:
- Mid-single digit loan and deposit growth on a standalone basis
- Stable net interest margin relative to 2025 levels
For full-year 2026, management maintained guidance:
- Mid-single digit net interest income growth
- Non-interest revenue growth in the low double-digit to low-teens range
- Adjusted non-interest expense growth in the mid to high single-digit range
Management highlighted several factors that will shape 2026:
- Continued focus on relationship-driven deposit growth and fee income expansion
- Integration milestones and synergy capture from the First Foundation merger
Takeaways
FSUN’s Q4 results reflect a business in transition, leveraging core strengths in relationship banking and Southwest market presence while preparing for the operational and strategic lift from a major merger.
- Margin and Fee Income Resilience: Core earnings power is supported by margin discipline and a diversified fee base, mitigating some of the volatility from deposit competition and credit cycles.
- Growth and Integration Opportunity: The pending First Foundation merger offers scale, product, and funding diversification, but execution on integration and synergy realization will be key to unlocking value.
- Watch for Credit and Deposit Trends: Investors should monitor C&I credit quality, deposit mix evolution, and the pace of balance sheet optimization as leading indicators of future performance.
Conclusion
FSUN enters 2026 with solid core momentum, a disciplined approach to growth, and a clear path to expanded scale through its pending merger. Margin strength, fee income diversity, and operational discipline position the bank well, but integration execution and evolving credit and funding markets will remain focal points for investors.
Industry Read-Through
FSUN’s quarter underscores several sector-wide themes for regional banks. Margin expansion is increasingly tied to funding mix and disciplined deposit pricing, as rate-driven competition for CDs intensifies. Fee income diversification is becoming a necessity, with treasury management and loan syndication offering growth avenues beyond traditional spread banking. Pace and success of bank mergers will be closely watched, as integration execution and synergy capture separate winners from laggards. Credit vigilance in C&I portfolios remains paramount, especially as macro rate cycles play out unevenly across borrower segments. Regional banks with strong market positioning and operational discipline are best positioned to navigate this evolving landscape.