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What changed in FIRSTSUN CAPITAL BANCORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of FIRSTSUN CAPITAL BANCORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+529 added−470 removedSource: 10-K (2024-03-07) vs 10-K (2023-03-16)

Top changes in FIRSTSUN CAPITAL BANCORP's 2023 10-K

529 paragraphs added · 470 removed · 340 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

105 edited+27 added−20 removed167 unchanged
Biggest changeIn addition, as a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (a) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (b) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (c) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
Biggest changeFirstSun is a Delaware corporation and subject to the limitations of the Delaware General Corporation Law, which we refer to as the “DGCL.” The DGCL allows FirstSun to pay dividends only out of its surplus (as defined and computed in accordance with the provisions of the DGCL) or if FirstSun has no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. 18 Table of Contents In addition, as a general matter, the Federal Reserve has indicated that the board of directors of a bank holding company should eliminate, defer or significantly reduce dividends to stockholders if: (a) the company’s net income available to stockholders for the past four quarters, net of dividends previously paid during that period, is not sufficient to fully fund the dividends; (b) the prospective rate of earnings retention is inconsistent with the company’s capital needs and overall current and prospective financial condition; or (c) the company will not meet, or is in danger of not meeting, its minimum regulatory capital adequacy ratios.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: • the Truth-In-Lending Act, or “TILA,” and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; • the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; • ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; • the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; • the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; • the Real Estate Settlement Procedures Act, or “RESPA,” and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; • The Secure and Fair Enforcement for Mortgage Licensing Act, the “SAFE Act,” which mandates a nationwide licensing and registration system for residential mortgage loan originators.
The loan operations of the Bank are also subject to federal laws applicable to credit transactions, such as: • the Truth-In-Lending Act, or “TILA,” and Regulation Z, governing disclosures of credit and servicing terms to consumer borrowers and including substantial requirements for mortgage lending and servicing, as mandated by the Dodd-Frank Act; • the Home Mortgage Disclosure Act and Regulation C, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the communities they serve; • ECOA and Regulation B, prohibiting discrimination on the basis of race, color, religion, or other prohibited factors in any aspect of a credit transaction; • the Fair Credit Reporting Act, as amended by the Fair and Accurate Credit Transactions Act and Regulation V, as well as the rules and regulations of the FDIC governing the use of consumer reports, provision of information to credit reporting agencies, certain identity theft protections and certain credit and other disclosures; • the Fair Debt Collection Practices Act and Regulation F, governing the manner in which consumer debts may be collected by collection agencies and intending to eliminate abusive, deceptive, and unfair debt collection practices; • the Real Estate Settlement Procedures Act, or “RESPA,” and Regulation X, which governs various aspects of residential mortgage loans, including the settlement and servicing process, dictates certain disclosures to be provided to consumers, and imposes other requirements related to compensation of service providers, insurance escrow accounts, and loss mitigation procedures; 23 Table of Contents • The Secure and Fair Enforcement for Mortgage Licensing Act, the “SAFE Act,” which mandates a nationwide licensing and registration system for residential mortgage loan originators.
Notably, changes include: • expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network, or “FinCEN,” the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; • providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; • significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; • improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and • enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.
Notably, changes include: • expansion of coordination and information sharing efforts among the agencies tasked with administering anti-money laundering and countering the financing of terrorism requirements, including the Financial Crimes Enforcement Network, or “FinCEN,” the primary federal banking regulators, federal law enforcement agencies, national security agencies, the intelligence community, and financial institutions; • providing additional penalties with respect to violations of BSA and enhancing the powers of FinCEN; • significant updates to the beneficial ownership collection rules and the creation of a registry of beneficial ownership which will track the beneficial owners of reporting companies which may be shared with law enforcement and financial institutions conducting due diligence under certain circumstances; • improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks; and • enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions 25 Table of Contents resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.
The deposit operations of the Bank are also subject to federal laws, such as: • the Federal Deposit Insurance Act which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking; • the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; 23 Table of Contents • The Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and • the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
The deposit operations of the Bank are also subject to federal laws, such as: • the Federal Deposit Insurance Act which, among other things, limits the amount of deposit insurance available per insured depositor category to $250,000 and imposes other limits on deposit-taking; • the Right to Financial Privacy Act, which imposes a duty to maintain the confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records; • the Electronic Funds Transfer Act and Regulation E, which governs the rights, liabilities, and responsibilities of consumers and financial institutions using electronic fund transfer services, and which generally mandates disclosure requirements, establishes limitations on liability applicable to consumers for unauthorized electronic fund transfers, dictates certain error resolution processes, and applies other requirements relating to automatic deposits to and withdrawals from deposit accounts; • The Expedited Funds Availability Act and Regulation CC, setting forth requirements to make funds deposited into transaction accounts available according to specified time schedules, disclose funds availability policies to customers, and relating to the collection and return of checks and electronic checks, including the rules regarding the creation or receipt of substitute checks; and • the Truth in Savings Act and Regulation DD, which requires depository institutions to provide disclosures so that consumers can make meaningful comparisons about depository institutions and accounts.
Conversely, in times when interest rates are falling or at very low levels, servicing mortgage loans can become comparatively less profitable due to the rapid payoff of loans and the negative impact due to the change in fair value of the servicing asset. We account for our loan servicing rights at fair value.
Conversely, in times when interest rates are falling or at very low levels, servicing mortgage loans can become comparatively less profitable due to the rapid payoff of loans and the negative impact due to the change in fair value of the servicing asset. We account for our residential mortgage loan servicing rights at fair value.
We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before they create a loss. We record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.
We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before they create a loss. We record any necessary charge-offs promptly and maintain adequate allowance levels for probable credit losses incurred in the loan portfolio.
These could include fee-based businesses, whole bank or branch acquisitions that would improve or expand our market position into geographies with attractive demographics and business trends, expand our existing branch network in existing markets, enhance our earnings power or product and service offerings, or expand our wealth management activities.
These could include fee-based businesses, whole bank or branch acquisitions that would improve or expand our market position into geographies with attractive demographics and business trends, expand our existing branch network in existing or new markets, enhance our earnings power or product and service offerings, or expand our wealth management activities.
In general, Sunflower Bank is subject to a legal lending limit on loans to a single borrower of 15% of the bank’s capital and unimpaired surplus, or 25% if the loan is fully secured. The dollar amounts of the Bank’s lending limit increases or decreases as the bank’s capital increases or decreases.
In general, Sunflower Bank is subject to a legal lending limit on loans to a single borrower of 15% of its capital and unimpaired surplus, or 25% if the loan is fully secured. The dollar amounts of the Bank’s lending limit increases or decreases as its capital increases or decreases.
Our product line includes commercial loans and commercial real estate loans, residential mortgage and other consumer loans, a variety of commercial, consumer and private banking deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit and treasury management products and services.
Our product line includes commercial and industrial loans and commercial real estate loans, residential mortgage and other consumer loans, a variety of commercial, consumer and private banking deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit and treasury management products and services.
Among other things, as an emerging growth company: • FirstSun is exempt from the requirement to obtain an attestation from its auditors on management’s assessment of FirstSun’s internal control over financial reporting under the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act”; 14 Table of Contents • FirstSun will be permitted an extended transition period for complying with new or revised accounting standards affecting public companies and such new or revised accounting standards will not be applicable to FirstSun until such time as they are applicable to private companies; • FirstSun is permitted to provide reduced disclosure regarding its executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means FirstSun does not have to include a compensation discussion and analysis and certain other disclosures regarding its executive compensation arrangements; and • FirstSun is not required to hold non-binding stockholder advisory votes on executive compensation or golden parachute arrangements.
Among other things, as an emerging growth company: • FirstSun is exempt from the requirement to obtain an attestation from its auditors on management’s assessment of FirstSun’s internal control over financial reporting under the Sarbanes-Oxley Act of 2002, or the “Sarbanes-Oxley Act”; • FirstSun will be permitted an extended transition period for complying with new or revised accounting standards affecting public companies and such new or revised accounting standards will not be applicable to FirstSun until such time as they are applicable to private companies; • FirstSun is permitted to provide reduced disclosure regarding its executive compensation arrangements pursuant to the rules applicable to smaller reporting companies, which means FirstSun does not have to include a compensation discussion and analysis and certain other disclosures regarding its executive compensation arrangements; and • FirstSun is not required to hold non-binding stockholder advisory votes on executive compensation or golden parachute arrangements.
Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in higher growth metropolitan markets as well as stable, non-metropolitan markets that provides a low cost funding base for our lending opportunities. In addition, our mortgage, wealth management, private banking and treasury management businesses provide revenue diversification and best-in-class fee income generation.
Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in higher growth metropolitan markets as well as stable, non-metropolitan markets that provides a low cost funding base for our lending opportunities. In addition, our mortgage, wealth management, private banking and treasury management offerings provide revenue diversification and best-in-class fee income generation.
The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of capital ratios: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” As of December 31, 2022, we maintained capital ratios that exceeded the minimum ratios established for a “well capitalized” institution.
The law requires each federal banking agency to promulgate regulations defining the following five categories in which an insured depository institution will be placed, based on the level of capital ratios: “well capitalized,” “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” or “critically undercapitalized.” As of December 31, 2023, we maintained capital ratios that exceeded the minimum ratios established for a “well capitalized” institution.
Sarbanes-Oxley and the various regulations promulgated under Sarbanes-Oxley, established, among other things: (a) requirements for audit committees, including independence, 18 Table of Contents expertise, and responsibilities; (b) additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies; (c) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (d) increased disclosure and reporting obligations for reporting companies and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading during blackout periods; and (e) a range of civil and criminal penalties for fraud and other violations of the securities laws.
Sarbanes-Oxley and the various regulations promulgated under Sarbanes-Oxley, established, among other things: (a) requirements for audit committees, including independence, expertise, and responsibilities; (b) additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies; (c) standards for auditors and regulation of audits, including independence provisions that restrict non-audit services that accountants may provide to their audit clients; (d) increased disclosure and reporting obligations for reporting companies and their directors and executive officers, including accelerated reporting of stock transactions and a prohibition on trading during blackout periods; and (e) a range of civil and criminal penalties for fraud and other violations of the securities laws.
Our core competencies include a relationship-centered and multi-line sales approach, a focus on collaboration across a highly skilled and seasoned team of bankers and a dynamic ability to provide our clients with the highest quality services and solutions. This strategy has enabled us to attract business customers across our traditional and expanded geographic footprint.
Our core competencies include a relationship-centered and multi-line sales approach, a focus on collaboration across a highly skilled and seasoned team of bankers and a dynamic ability to provide our clients with the highest quality services and solutions. This strategy has enabled us to attract commercial and industrial business customers across our traditional and expanded geographic footprint.
We receive a fee for performing mortgage servicing activities on mortgage loans that are not owned by us and are not included on our balance sheet.
We receive a fee for performing mortgage servicing activities on mortgage loans that are not owned by us and are not included on our consolidated balance sheet.
As compensation for our loan servicing activities, we receive a base servicing fee of approximately 0.28% per year of the loan balances serviced, plus any late charges collected from the delinquent borrowers and other fees incidental to the services provided. In the event of a default by the borrower, we receive no servicing fees until the default is cured.
As compensation for our loan servicing activities, we receive a base servicing fee of approximately 0.25% per year of the loan balances serviced, plus any late charges collected from the delinquent borrowers and other fees incidental to the services provided. In the event of a default by the borrower, we receive no servicing fees until the default is cured.
Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.
Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities. Tier 2 capital generally includes the allowance for credit losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.
We subsequently changed our name again to FirstSun Capital Bancorp and simultaneously reincorporated under the laws of the State of Delaware in June 2017.
We subsequently changed our name to FirstSun Capital Bancorp and simultaneously reincorporated under the laws of the State of Delaware in June 2017.
In evaluating each potential loan relationship, we adhere to a disciplined underwriting evaluation process that includes the following: • understanding the customer’s financial condition and ability to repay the loan; • verifying that the primary and secondary sources of repayment are adequate in relation to the amount and structure of the loan; • observing appropriate loan-to-value guidelines for collateral secured loans; • maintaining our targeted levels of diversification for the loan portfolio as to type of borrower; and • ensuring that each loan is properly documented with perfected liens on collateral.
In evaluating each potential loan relationship, we adhere to a disciplined underwriting evaluation process that includes the following: • understanding the customer’s financial condition and ability to repay the loan; 13 Table of Contents • verifying that the primary and secondary sources of repayment are adequate in relation to the amount and structure of the loan; • observing appropriate loan-to-value guidelines for collateral secured loans; • maintaining our targeted levels of diversification for the loan portfolio as to type of borrower; and • ensuring that each loan is properly documented with perfected liens on collateral.
An important component of the FirstSun story is our expertise and experience in mergers and acquisitions. Our executive team has extensive experience with successful acquisitions and integrations. We plan to continue to evaluate acquisitions that we believe could produce attractive returns for our stockholders.
An important component of the FirstSun story is our expertise and experience in mergers and acquisitions. Our executive team has extensive experience with successful acquisitions and integrations. We plan to continue to evaluate acquisitions that we believe are strategic and could produce attractive returns for our stockholders.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the 26 Table of Contents proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.
The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.
Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” 25 Table of Contents after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
We intend to continue to take advantage of opportunities to profitably grow our mortgage business as they present themselves, including by continuing to expand our mortgage business outside of our community banking geographic footprint, improving the client experience through an enhanced fulfillment process, attracting experienced loan officers and improving profitability through centralized efficiencies.
We intend to continue to take advantage of opportunities to profitably grow our mortgage business as they present themselves, including by continuing to strategically expand our retail-based mortgage business outside of our community banking geographic footprint, improving the client experience through an enhanced fulfillment process, attracting experienced loan officers and improving profitability through centralized efficiencies.
In addition, risk from concentration is actively managed by management and reviewed by our board of directors, and exposures relating to borrower, industry and commercial real estate categories are tracked and measured against established policy limits and guidelines. 13 Table of Contents Lending Limits. Our lending activities are subject to a variety of lending limits imposed by federal law.
In addition, risk from concentration is actively managed by management and reviewed by our board of directors, and exposures relating to borrower, industry and commercial real estate categories are tracked and measured against established policy limits and guidelines. Lending Limits. Our lending activities are subject to a variety of lending limits imposed by federal law.
Business Overview FirstSun Capital Bancorp (“FirstSun”), a financial holding company headquartered in Denver, Colorado, provides a full spectrum of deposit, lending, treasury management, wealth management and online banking products and services through its two wholly-owned subsidiaries—Sunflower Bank, National Association (“Sunflower Bank” or the “Bank”), a national banking association, that operates as Sunflower Bank, N.A., First National 1870 and Guardian Mortgage and Logia Portfolio Management, LLC, a registered investment advisor organized under the laws of the State of Kansas that provides discretionary investment management to retail and institutional accounts.
Overview FirstSun Capital Bancorp (“FirstSun”), a financial holding company headquartered in Denver, Colorado, provides a full spectrum of deposit, lending, treasury management, wealth management and online banking products and services through its two primary operating wholly-owned subsidiaries—Sunflower Bank, National Association (“Sunflower Bank” or the “Bank”), a national banking association headquartered in Dallas, Texas, that operates as Sunflower Bank, N.A., First National 1870 and Guardian Mortgage and Logia Portfolio Management, LLC, a registered investment advisor organized under the laws of the State of Kansas that provides discretionary investment management to retail and institutional accounts.
As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the BHC Act and its regulations promulgated thereunder. 15 Table of Contents Permitted Activities We are a bank holding company, and have elected to be a financial holding company, which permits us to engage in expanded financial activities as a bank holding company.
As a result, we are primarily subject to the supervision, examination and reporting requirements of the Federal Reserve under the BHC Act and its regulations promulgated thereunder. Permitted Activities We are a bank holding company, and have elected to be a financial holding company, which permits us to engage in expanded financial activities as a bank holding company.
A well-capitalized institution: • has total risk-based capital ratio of 10% or greater; and • has a Tier 1 risk-based capital ratio of 8% or greater; and • has a common equity Tier 1 risk-based capital ratio of 6.5% or greater; and • has a leverage capital ratio of 5% or greater; and 20 Table of Contents • is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.
A well-capitalized institution: • has total risk-based capital ratio of 10% or greater; and • has a Tier 1 risk-based capital ratio of 8% or greater; and • has a common equity Tier 1 risk-based capital ratio of 6.5% or greater; and • has a leverage capital ratio of 5% or greater; and • is not subject to any order or written directive to meet and maintain a specific capital level for any capital measure.
Under the Change in Bank Control Act, a person or company is required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the acquisition.
Under the Change in Bank Control Act, a person or company is generally required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the ac quisition.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2022. Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023. Notwithstanding the availability of funds for dividends, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.
Estimates of fair value reflect the following variables: • anticipated prepayment speeds; • product type (i.e., conventional, government, balloon); • fixed or adjustable rate of interest; • interest rate; • servicing costs per loan; • discounted yield rate; • estimate of ancillary income; and • geographic location of the loan.
Estimates of fair value reflect, among other things, the following variables: • anticipated prepayment speeds; • product type (i.e., conventional, government, balloon); • fixed or adjustable rate of interest; • interest rate; • servicing costs per loan; • discounted yield rate; • estimate of ancillary income; and • geographic location of the loan.
Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) 24 Table of Contents filing suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and (e) requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.
Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000; (d) filing suspicious activities reports if a bank believes a customer may be violating U.S. laws and regulations; and (e) requires enhanced due diligence requirements for financial institutions that administer, maintain, or manage private bank accounts or correspondent accounts for non-U.S. persons.
Due to 11 Table of Contents the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.
Due to the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.
The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant 21 Table of Contents to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.
Our consumer loans typically are part of an overall client relationship designed to support the individual consumer borrowing needs of our commercial loan and deposit clients, and are well diversified across our markets. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than residential real estate mortgage loans.
Our consumer loans typically are part of an overall client 11 Table of Contents relationship designed to support the individual consumer borrowing needs of our commercial and industrial loan and deposit clients, and are well diversified across our markets. Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than residential real estate mortgage loans.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities.
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. On December 18, 2023, the U.S.
The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.
The Federal Deposit Insurance Act also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.
In times when interest rates are rising or at high levels, servicing mortgage loans can represent a steady source of noninterest income and can, at times, offset decreases in mortgage banking gains.
In times when interest rates are rising or at high levels, servicing mortgage loans can represent a steady source of noninterest 12 Table of Contents income and can, at times, offset decreases in mortgage banking gains.
Additionally, we believe our growing treasury management business will continue to benefit our attractive funding base. 8 Table of Contents Continue our Greater Texas Market Expansion Strategy. The greater Texas market has been a top strategic priority for our organization from an organic and acquisition perspective.
Additionally, we believe our growing treasury management business will continue to benefit our attractive funding base. Continue our Greater Texas Market Expansion Strategy. The greater Texas market has been a top strategic priority for our organization from an organic and acquisition perspective.
Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result. Available Information We file reports with the SEC including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, as well as any amendments to those reports and statements.
Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result. Available Information We file reports with the Securities and Exchange Commission (the “SEC”) including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, as well as any amendments to those reports and statements.
Deposit Products We obtain most of our deposits from individuals, small and medium-sized businesses and municipalities in our market. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing. We emphasize obtaining deposit relationships at loan origination. We provide a high level of customer service 12 Table of Contents to our depositors.
Deposit Products We obtain most of our deposits from individuals, small and medium-sized businesses and municipalities in our markets. We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing. We emphasize obtaining deposit relationships at loan origination. We provide a high level of customer service to our depositors.
No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K.
No information contained on our website is intended to be included as part of, or incorporated by reference into, this Annual Report on Form 10-K. 27 Table of Contents
As of December 31, 2022, we had 1,171 total employees and 1,149 full-time equivalent employees, primarily located in Texas, Kansas, Colorado, New Mexico and Arizona. Our employees are not covered by a collective bargaining agreement. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements. Compensation and Benefits.
As of December 31, 2023, we had 1,128 total employees and 1,110 full-time equivalent employees, primarily located in Texas, Kansas, Colorado, New Mexico and Arizona. Our employees are not covered by a collective bargaining agreement. We consider our relationship with our employees to be good and have not experienced interruptions of operations due to labor disagreements. Compensation and Benefits.
This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based 19 Table of Contents measurements (CET1, Tier 1 capital and total capital).
This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital).
As an approved participant in the SBA Preferred Lender’s Program, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.
As an approved participant in the SBA Preferred Lender’s Program, we enable our clients to obtain 10 Table of Contents SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.
Under the final rules, which went into effect on January 1, 2020, banks and holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.
Banks and holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and 20 Table of Contents trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.
In addition, with prior regulatory approval, Sunflower Bank may acquire branches of existing banks located in Colorado or other states. Capital and Related Requirements We are subject to comprehensive capital adequacy requirements intended to protect against losses that we may incur.
In addition, with prior regulatory approval, Sunflower Bank may acquire branches of existing banks located in Texas or other states. 19 Table of Contents Capital and Related Requirements We are subject to comprehensive capital adequacy requirements intended to protect against losses that we may incur.
Mortgage loans are subject to the same uniform lending policies referenced below and consist primarily of loans with relatively stronger borrower credit scores, with an average FICO score of 739 in 2022.
Mortgage loans are subject to the same uniform lending policies referenced below and consist primarily of loans with relatively stronger borrower credit scores, with an average FICO score of 736 in 2023.
Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and retaining individual and business customers.
Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and 9 Table of Contents retaining individual and business customers.
Pursuant to the terms of the merger agreement, at the Effective Time, each Pioneer shareholder had the right to receive 1.0443 shares of FirstSun common stock, for each share of Pioneer common stock owned by the shareholder, with cash paid in lieu of fractional shares.
Pursuant to the terms of the merger agreement, at the Effective Time, each Pioneer shareholder had the right to receive 1.0443 shares of FirstSun common stock, for each share of Pioneer common stock owned by the shareholder, with cash paid in lieu of fractional shares. Each outstanding share of FirstSun common stock remained outstanding and was unaffected by the merger.
In this report, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, including Sunflower Bank and Logia Portfolio Management, LLC.
Item 1. Business In this report, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, including Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
That vision continues to drive us today, as our 1,149 full-time equivalent employee base, as of December 31, 2022, serves our business and consumer customers, including through our network of 72 branches principally located in Texas, Kansas, Colorado, New Mexico and Arizona.
That vision continues to drive us today, as our 1,110 full-time equivalent employee base, as of December 31, 2023, serves our business and consumer customers, including through our network of 69 branches principally located in Texas, Kansas, Colorado, New Mexico and Arizona.
Depending upon the capital category to which an institution is assigned, the primary federal regulators’ corrective powers include: (a) requiring the institution to submit a capital restoration plan; (b) limiting the institution’s asset growth and restricting its activities; (c) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (d) restricting transactions between the institution and its affiliates; (e) restricting the interest rate that the institution may pay on deposits; (f) ordering a new election of directors of the institution; (g) requiring that senior executive officers or directors be dismissed; (h) prohibiting the institution from accepting deposits from correspondent banks; (i) requiring the institution to divest certain subsidiaries; (j) prohibiting the payment of principal or interest on subordinated debt; and (k) ultimately, appointing a receiver for the institution.
A critically undercapitalized institution has a ratio of tangible equity to total assets that is equal to or less than 2%. 21 Table of Contents Depending upon the capital category to which an institution is assigned, the primary federal regulators’ corrective powers include: (a) requiring the institution to submit a capital restoration plan; (b) limiting the institution’s asset growth and restricting its activities; (c) requiring the institution to issue additional capital stock (including additional voting stock) or to sell itself; (d) restricting transactions between the institution and its affiliates; (e) restricting the interest rate that the institution may pay on deposits; (f) ordering a new election of directors of the institution; (g) requiring that senior executive officers or directors be dismissed; (h) prohibiting the institution from accepting deposits from correspondent banks; (i) requiring the institution to divest certain subsidiaries; (j) prohibiting the payment of principal or interest on subordinated debt; and (k) ultimately, appointing a receiver for the institution.
In addition to our organic expansion in Dallas, we closed our merger with Pioneer on April 1, 2022, which further increased our Texas loans and deposit market position. We anticipate continuing to grow our Texas deposit base in the years to come. Engage in Opportunistic M&A.
In addition to our organic expansion in Dallas, we closed our merger with Pioneer on April 1, 2022, which further increased our Texas loans and deposit market position. The Bank’s headquarters was relocated to Dallas, Texas in November 2023. We anticipate continuing to grow our Texas loan and deposit customer base in the years to come. Engage in Opportunistic M&A.
For further information, see “Loans” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 4 - Loans in the notes to consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” elsewhere in this report.
Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 4 - Loans in the notes to consolidated financial statements included in “Item 8. Financial Statements and Supplementary Data” elsewhere in this report.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act (discussed below). 16 Table of Contents On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy.
In determining whether to approve a proposed bank acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on competition, the public benefits expected to be received from the acquisition, the projected capital ratios and levels on a post-acquisition basis, and the acquiring institution’s record of addressing the credit needs of the communities it serves, including the needs of low and moderate income neighborhoods, consistent with the safe and sound operation of the bank, under the Community Reinvestment Act (discussed below).
Adverse developments affecting commercial real estate values in our market areas could increase the credit risk associated with these loans, impair the value of property pledged as collateral for these loans, and affect our ability to sell the collateral upon foreclosure without a loss.
Commercial real estate loans are often larger and involve greater risks than other types of lending. Adverse developments affecting commercial real estate values in our market areas could increase the credit risk associated with these loans, impair the value of property pledged as collateral for these loans, and affect our ability to sell the collateral upon foreclosure without a loss.
Under Colorado law and the Dodd-Frank Act, and with the prior approval of the OCC, Sunflower Bank may open branch offices within or outside of Colorado, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.
Under Texas law, the Riegle-Neal Act and the Dodd-Frank Act, and with the prior approval of the OCC, Sunflower Bank may open branch offices within or outside of Texas, where our Bank headquarters was relocated to in 2023, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch in Texas.
Bank regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law.
Consumer Protection Regulations The activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers. Bank regulatory agencies have increasingly used a general consumer protection statute to address “unethical” or otherwise “bad” business practices that may not necessarily fall directly under the purview of a specific banking or consumer finance law.
For established smaller institutions, such as us, the total base assessment rate is calculated by using supervisory ratings as well as (a) an initial base assessment rate, (b) an unsecured debt adjustment (which can be positive or negative), and (c) a brokered deposit adjustment.
Total base assessment after possible adjustments now ranges between 2.5 and 32 basis points. For established smaller institutions, such as us, the total base assessment rate is calculated by using supervisory ratings as well as (a) an initial base assessment rate, (b) an unsecured debt adjustment (which can be positive or negative), and (c) a brokered deposit adjustment.
In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals. 22 Table of Contents Consumer Protection Regulations The activities of the Bank are subject to a variety of statutes and regulations designed to protect consumers.
In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with fair lending requirements into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: • factoring accounts receivable; • making, acquiring, brokering or servicing loans and usual related activities; • leasing personal or real property; • operating a non-bank depository institution, such as a savings association; • trust company functions; • financial and investment advisory activities; • conducting discount securities brokerage activities; • underwriting and dealing in government obligations and money market instruments; • providing specified management consulting and counseling activities; • performing selected data processing services and support services; • acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and • performing selected insurance underwriting activities.
Activities that the Federal Reserve has found to be so closely related to banking as to be a proper incident to the business of banking include: • factoring accounts receivable; • making, acquiring, brokering or servicing loans and usual related activities; • leasing personal or real property; • operating a non-bank depository institution, such as a savings association; • trust company functions; • financial and investment advisory activities; • conducting discount securities brokerage activities; • underwriting and dealing in government obligations and money market instruments; • providing specified management consulting and counseling activities; • performing selected data processing services and support services; • acting as agent or broker in selling credit life insurance and other types of insurance in connection with credit transactions; and • performing selected insurance underwriting activities. 16 Table of Contents The Federal Reserve has the authority to order a bank holding company or its subsidiaries to terminate any of these activities or to terminate its ownership or control of any subsidiary when it has reasonable cause to believe that the bank holding company’s continued ownership, activity or control constitutes a serious risk to the financial safety, soundness or stability of it or any of its bank subsidiaries.
Commercial and industrial loans generally include lines of credit and loans with maturities of five years or less. Because we are a bank with long standing ties to the businesses and professionals operating in our geographic footprint, we are able to tailor our commercial and industrial loan programs to meet the needs of our clients.
Because we are a bank with long standing ties to the businesses and professionals operating in our geographic footprint, we are able to tailor our commercial and industrial loan programs to meet the needs of our clients.
Immediately following the completion of the second step merger, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.
Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.
Our real estate loans generally fall into one of two categories: commercial real estate loans or residential real estate loans. • Commercial Real Estate Loans . Our commercial real estate loans consist of both owner-occupied and non-owner occupied commercial real estate loans.
Our real estate loans generally fall into one of two broad categories: commercial real estate loans or residential real estate loans. • Commercial Real Estate Loans . Our commercial real estate (“CRE”) loans consist of both owner-occupied and non-owner occupied commercial real estate loans, construction and land loans, as well as multifamily loans.
The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol.
The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less 17 Table of Contents than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.
Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank’s board of directors deems prudent.
Dividend Payments The primary source of funds for FirstSun is dividends from Sunflower Bank. Under the National Bank Act, a national bank may pay dividends out of its undivided profits in such amounts and at such times as the bank’s board of directors deems prudent.
Financial Statements and Supplementary Data” elsewhere in this report. 9 Table of Contents Lending Activities We offer a range of lending services, including commercial and industrial loans, commercial and residential real estate loans, real estate construction loans, and consumer loans. Our customers are generally commercial businesses, professional services and retail consumers within our market areas.
Financial Statements and Supplementary Data” elsewhere in this report. Lending Activities We offer a range of lending services, including commercial and industrial, commercial real estate, residential real estate, public finance, consumer and other loans. Our customers are generally commercial businesses, professional services and retail consumers within our market areas. For further information, see “Loans” in “Item 7.
Consumer Loans We offer a variety of consumer loans, such as installment loans to individuals for personal, family and household purposes, including car, boat and other recreational vehicle loans.
Public Finance Loans We offer public finance loans consisting primarily of loans to our charter school and municipal based customers. Consumer Loans We offer a variety of consumer loans, such as installment loans to individuals for personal, family and household purposes, including car, boat and other recreational vehicle loans.
In 2022, we experienced a slowdown in our mortgage origination volume due to the rising interest rates. We expect to see declining origination volume in 2023 within the industry as a whole as interest rates are expected to remain elevated over the course of 2023. Sale of residential mortgages .
In 2023, we experienced a continuing slowdown in our mortgage origination volume due to rising interest rates. We expect to see lower origination volumes in at least the first half of 2024 within the industry as a whole as interest rates are expected to remain relatively elevated. Sale of residential mortgages .
Sunflower Bank’s legal lending limit as of December 31, 2022, on loans to a single borrower was $122.3 million (15%) and $203.8 million (25%, for fully secured loans).
Sunflower Bank’s legal lending limit as of December 31, 2023, on loans to a single borrower was $137.7 million (15%) and $229.5 million (25%, for fully secured loans).
Commercial and Industrial Loans Our commercial and industrial loans are typically made to small- and medium-sized manufacturing, service, wholesale and retail businesses for working capital and operation needs and business expansions, including the purchase of capital equipment.
Commercial and Industrial Loans Our commercial and industrial loans are typically made to small- and medium-sized manufacturing, service, wholesale and retail businesses for working capital and operation needs and business expansions, including the purchase of capital equipment. Commercial and industrial loans include our specialty lending verticals such as structured finance products, asset based lending and family office.
Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHC Act and the Bank Merger Act and adopt a plan for revitalization of such practices.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the BHC Act and the Bank Merger Act and adopt a plan for revitalization of such practices.
Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals. Anti-Money Laundering and the USA Patriot Act Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function.
Anti-Money Laundering and the USA Patriot Act Financial institutions must maintain anti-money laundering programs that include established internal policies, procedures, and controls; a designated compliance officer; an ongoing employee training program; and testing of the program by an independent audit function.
Financial Privacy and Cybersecurity Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999, the “GBL,” and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties.
Financial Privacy and Cybersecurity Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999, and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third-party.
We offer competitive benefits to our employees and their families. These programs include a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, flexible spending accounts, paid time off, tuition reimbursement, volunteer and parenting leave and an employee assistance program.
These programs include a 401(k) plan with an employer matching contribution, healthcare and insurance benefits, flexible spending accounts, paid time off, tuition reimbursement, volunteer and parenting leave and an employee assistance program. 14 Table of Contents We annually review benefit programs and compensation programs to seek to ensure that we remain competitive in our markets to meet the needs of our employees and their families.
Presently, pursuant to the Consolidated Appropriations Act, 2021, the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program (excluding PPP loans) through October 1, 2021.
Presently, pursuant to the Consolidated Appropriations Act, 2021, the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program. After this date, the SBA will guarantee 75% to 85% of the principal amount of qualifying loans originated under the 7(a) loan program.
Additionally, our Mortgage Operations segment includes the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. For further information, see “ Segments ” in “Item 7.
Additionally, our Mortgage Operations segment includes the servicing of residential mortgage loans and the packaging and securitization of loans to governmental agencies. For further information, see “ Segments ” in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 23 - Segment Information in the notes to consolidated financial statements included in “Item 8.
History and Growth We were originally incorporated in the State of Kansas on November 9, 1981, as Handi-Bancshares, Inc., to serve as the holding company of Sunflower Bank (formerly The First National Bank and Trust Company of Salina), before we changed our name to Sunflower Financial, Inc. in 2008.
For additional information on the proposed merger and equity raise, see Note 27 - Subsequent Events included in our consolidated financial statements included elsewhere in this report. 7 Table of Contents History and Growth We were originally incorporated in the State of Kansas on November 9, 1981, as Handi-Bancshares, Inc., to serve as the holding company of Sunflower Bank (formerly The First National Bank and Trust Company of Salina), before we changed our name to Sunflower Financial, Inc. in 2008.
We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts.
Additionally, Sunflower Bank provides treasury management products and services and offers wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts.
The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels, 10 Table of Contents mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities.
The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels, mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities. Non-owner occupied CRE loans were 85.2% of the Company’s risk-based capital, or 13.0% of total loans as of December 31, 2023.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOur merger and acquisition activities, including our recent merger with Pioneer, could involve a number of additional risks, including the risks of: • the incurrence and possible impairment of goodwill and other intangible assets associated with an acquisition or merger and possible adverse short-term effects on our results of operations; • the possibility that the expected benefits of a transaction may not materialize in the timeframe expected or at all, or may be costlier to achieve; • incurring the time and expense associated with identifying and evaluating potential merger or acquisition targets; • our inability to obtain regulatory and other approvals necessary to consummate mergers, acquisitions or other expansion activities, or the risk that such regulatory approvals are delayed, impeded, or conditioned due to existing or new regulatory issues surrounding us, the target institution or the proposed combined entity as a result of, among other things, issues related to anti-money laundering/Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive or abusive acts or practices regulations, or the Community Reinvestment Act; • diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses; • our estimates and judgments used to evaluate credit, operations, management and market risks with respect to the acquired or merged company may not be accurate; • potential exposure to unknown or contingent liabilities of the acquired or merged company; • difficulty or unanticipated expense associated with converting the operating systems of the acquired or merged company into ours; • the possibility that we will be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired or merged company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; • delay in completing a merger or acquisition due to litigation, closing conditions or the regulatory approval process; • the possibility that a proposed acquisition or merger may not be timely completed, if at all; • creating an adverse short‑term effect on our results of operations; and • the possible loss of our key employees and customers or of the acquired or merged company. 44 Table of Contents If we do not successfully manage these risks, our merger and acquisition activities could have a material adverse effect on our business, financial condition, and results of operations, including short-term and long‑term liquidity, and our ability to successfully implement our strategic plan.
Biggest changeOur merger and acquisition activities, including our proposed merger with HomeStreet, could involve a number of additional risks, including the risks of: • the possibility that the expected benefits of a transaction, including cost savings, may not materialize in the timeframe expected or at all, or may be costlier to achieve; • the incurrence and possible impairment of goodwill and other intangible assets associated with an acquisition or merger and possible adverse short-term effects on our results of operations; • the occurrence of a change in the interest rate environment, including the magnitude and duration of interest rate changes, which could adversely affect both ours and HomeStreet’s revenue and expenses, value of assets and obligations, and the availability and cost of capital and liquidity, along with the consummation of the merger; • incurring the time and expense associated with identifying, evaluating and negotiating with potential merger or acquisition targets and with seeking to complete and preparing for integration with proposed mergers or acquisitions; • our inability to obtain regulatory and other approvals necessary to consummate mergers, acquisitions or other expansion activities, or the risk that such regulatory approvals are delayed, impeded, or conditioned due to existing or new regulatory issues surrounding us, the target institution or the proposed combined entity as a result of, among other things, issues related to anti-money laundering/Bank Secrecy Act compliance, fair lending laws, fair housing laws, consumer protection laws, unfair, deceptive or abusive acts or practices regulations, or the Community Reinvestment Act; • diversion of our management’s attention to the negotiation of a transaction, and the integration of the operations and personnel of the combining businesses; • the inability to obtain alternative capital in the event it becomes necessary to complete the proposed merger; • our estimates and judgments used to evaluate financial performance, credit, asset values, operations, management and market risks with respect to the acquired or merged company may not be accurate; 43 Table of Contents • the ability to develop and maintain a strong core deposit base or other low cost funding sources necessary to fund ours and HomeStreet’s activities, particularly in a rising or high interest rate environment; • potential exposure to unknown or contingent liabilities of the acquired or merged company; • difficulty or unanticipated expense associated with converting the operating systems of, and otherwise integrating the business of, the acquired or merged company into ours; • the possibility that we will be unable to successfully implement integration strategies, due to challenges associated with integrating complex systems, technology, banking centers, and other assets of the acquired or merged company in a manner that minimizes any adverse effect on customers, suppliers, employees, and other constituencies; • delays in completing or failure to complete a merger or acquisition due to litigation, closing conditions or the regulatory approval process; • the possibility that a proposed acquisition or merger may not be timely completed, if at all; • creating an adverse short‑term effect on our results of operations; and • the possible loss of our key employees and customers or those of the acquired or merged company.
Unfavorable market conditions can result in a deterioration of the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for loan losses, adverse asset values, a reduction in assets under management or administration, and an increase in our deposit and funding costs.
Unfavorable market conditions can result in a deterioration of the credit quality of borrowers, an increase in the number of loan delinquencies, defaults and charge-offs, foreclosures, additional provisions for credit losses, adverse asset values, a reduction in assets under management or administration, and an increase in our deposit and funding costs.
Inflation also can and does generally lead to higher interest rates, which have their own separate risks. Decreased deposit balances could result in our reliance upon higher cost funding sources. See Risks Associated with Monetary Events and Interest Rate and Yield Curve Risks and Capital and Liquidity Risks in this Item 1A of this report.
Inflation also can and does generally lead to higher interest rates, which have their own separate risks. Decreased deposit balances could result in our reliance upon higher cost funding sources. See Risks Associated with Monetary Events, Interest Rate and Yield Curve Risks and Capital and Liquidity Risks in this Item 1A of this report.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for loan losses, each of which could adversely affect our net income.
A failure to effectively measure and limit the credit risk associated with our loan portfolio may result in loan defaults, foreclosures and additional charge-offs, and may necessitate that we significantly increase our allowance for credit losses, each of which could adversely affect our net income.
Risks Related to Public Health Issues, Including COVID-19 Outbreaks of communicable diseases, including COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
Risks Related to Public Health Issues Outbreaks of communicable diseases, including COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative. The estimate that is consistently one of our most critical is the level of the allowance for loan or credit losses.
In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative. The estimate that is consistently one of our most critical is the level of the allowance for credit losses.
If funding for these lending programs or federal spending generally is reduced as part of the appropriations process or by administrative decision, demand for our services may be reduced. Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity. Data privacy is becoming a major political concern.
If funding for these lending programs or federal spending generally is reduced as part of the appropriations process or by administrative decision, demand for our services may be reduced. Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity. Data privacy is a major political concern.
Although our banking offices are geographically dispersed throughout portions of the midwestern United States and we maintain insurance coverage for such events, a significant natural disaster in or near one or more of our markets could have a material adverse effect on our financial condition, results of operations or liquidity.
Although our banking offices are geographically dispersed throughout portions of the midwestern and southwestern United States and we maintain insurance coverage for such events, a significant natural disaster in or near one or more of our markets could have a material adverse effect on our financial condition, results of operations or liquidity.
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, compliance risk, strategic risk, reputational risk and operational risk related to our employees, systems and vendors, among others.
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, compliance risk, strategic risk, cybersecurity risk, reputational risk and operational risk related to our employees, systems and vendors, among others.
The laws governing it are new, and are likely to evolve and expand. Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses.
The laws governing it are new, and they are likely to evolve and expand. Many non-regulated, non-banking companies have gathered large amounts of personal details about millions of people, and they have the ability to analyze that data and act on that analysis very quickly. This situation has prompted governmental responses.
Climate Risks Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition. We operate in markets in which natural disasters, including tornadoes, severe storms, fires, floods, hurricanes and earthquakes have occurred.
Climate Risks Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition. We operate in markets in which natural disasters, including tornadoes, severe storms, fires, floods, droughts, hurricanes and earthquakes have occurred.
These provisions include: • establishing a classified board of directors such that not all members of the board are elected at one time, with nine of our ten director seats being designated by certain Significant Stockholders under the Stockholders’ Agreement, so long as certain stock ownership thresholds are maintained; • providing for a plurality voting standard in the election of directors without cumulative voting; • providing that our stockholders may remove members of our board of directors only for cause; • enabling our board of directors to issue additional shares of authorized, but unissued capital stock; • enabling our board to issue “blank check” preferred stock without further stockholder approval; and • enabling our board of directors to amend our bylaws without stockholder approval.
These provisions include: • establishing a classified board of directors such that not all members of the board are elected at one time, with nine of our ten director seats being nominated by certain Significant Stockholders under the Stockholders’ Agreement, so long as certain stock ownership thresholds are maintained; • providing for a plurality voting standard in the election of directors without cumulative voting; • providing that our stockholders may remove members of our board of directors only for cause; • enabling our board of directors to issue additional shares of authorized, but unissued capital stock; • enabling our board to issue “blank check” preferred stock without further stockholder approval; and • enabling our board of directors to amend our bylaws without stockholder approval.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to: • not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act; 51 Table of Contents • not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; • reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and • exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies but not to “emerging growth companies,” including, but not limited to: • not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act; • not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements; • reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements; and • exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable us, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects. We are subject to environmental risks.
If the services of any of our key personnel should become unavailable for any reason, we may not be able to identify and hire qualified persons on terms acceptable us, or at all, which could have a material adverse effect on our business, financial condition, results of operation and future prospects. We are subject to environmental and climate change risks.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to increases in nonperforming assets, charge-offs and delinquencies, further increases to the allowance for loan losses, and a reduction of income recognized, among others, which could have a material adverse effect on our results of operations and cash flows.
An increase in interest rates that adversely affects the ability of borrowers to pay the principal or interest on loans may lead to increases in nonperforming assets, charge-offs and delinquencies, further increases to the allowance for credit losses, and a reduction of income recognized, among others, which could have a material adverse effect on our results of operations and cash flows.
Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us or our subsidiaries. 46 Table of Contents Furthermore, our regulators also have the ability to compel us to take certain actions, or restrict us from taking certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice.
Regulations and laws may be modified at any time, and new legislation may be enacted that will affect us or our subsidiaries. 48 Table of Contents Furthermore, our regulators also have the ability to compel us to take certain actions, or restrict us from taking certain actions entirely, such as actions that our regulators deem to constitute an unsafe or unsound banking practice.
In 2020, in response to economic disruption associated with the COVID-19 pandemic, the Federal Reserve quickly reduced short-term rates to extremely low levels and acted to influence the markets to reduce long-term rates as well. During 2021, the Federal Reserve significantly reduced its "easing" actions that held down long-term rates. During 2022, the Federal Reserve switched to a tightening policy.
In 2020, in response to economic disruption associated with the COVID-19 pandemic, the Federal Reserve quickly reduced short-term rates to extremely low levels and acted to influence the markets to reduce long-term rates as well. During 2021, the Federal Reserve significantly reduced its “easing” actions that held down long-term rates. During 2022, the Federal Reserve switched to a tightening policy.
Additionally, when necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. In March 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress.
Additionally, when necessary, the secondary sources of borrowed funds described above will be used to augment our primary funding sources. During 2023, the Federal Reserve announced the creation of a new Bank Term Funding Program in an effort to minimize the need for banks to sell securities at a loss in times of stress.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources. Such competitors primarily include national, super-regional, and internet banks within the various markets in which we operate.
We face substantial competition in all areas of our operations from a variety of different competitors, both within and beyond our principal markets, many of which are larger and may have more financial resources than us. Such competitors primarily include national, super-regional, and internet banks within the various markets in which we operate.
A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers or other third parties, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, damage our reputation, increase our costs and cause losses.
A failure in or breach of our operational or security systems or infrastructure, or those of our third-party vendors and other service providers or other third parties, including as a result of cyber-attacks, could disrupt our businesses, result in the disclosure or misuse of confidential or proprietary information, result in litigation or investigations, and damage our reputation, increase our costs and cause losses.
Maintenance of our reputation depends not only on our success in maintaining our core values and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas 38 Table of Contents such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements.
Maintenance of our reputation depends not only on our success in maintaining our core values and controlling and mitigating the various risks described herein, but also on our success in identifying and appropriately addressing issues that may arise in areas such as potential conflicts of interest, anti-money laundering, client personal information and privacy issues, record-keeping, regulatory investigations and any litigation that may arise from the failure or perceived failure of us to comply with legal and regulatory requirements.
Changes in market values of investment securities classified as available for sale are impacted by higher rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities.
Changes in market values of investment securities classified as available for sale are impacted by interest rates and can negatively impact our other comprehensive income and equity levels through accumulated other comprehensive income, which includes net unrealized gains and losses on those securities.
For example, adverse weather events could damage or destroy our properties or our counterparties’ properties and other assets and disrupt operations, making it more difficult for counterparties to repay their obligations, whether due to reduced 52 Table of Contents profitability, asset devaluations or otherwise.
For example, adverse weather events could damage or destroy our properties or our counterparties’ properties and other assets and disrupt operations, making it more difficult for counterparties to repay their obligations, whether due to reduced 55 Table of Contents profitability, asset devaluations or otherwise.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • an increase in our deposit and funding costs; • a decrease in the demand for loans, mortgage banking products and services and other products and services we offer; • a decrease in our deposit account balances as customers move funds to seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for loan losses.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • an increase in our deposit and funding costs; • a decrease in the demand for loans, mortgage banking products and services and other products and services we offer; • a decrease in our deposit account balances as customers move funds to seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates; • a decrease in the value of the collateral securing our residential or commercial real estate loans; 28 Table of Contents • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for credit losses.
Additionally, our costs of funds and our profitability and liquidity are likely to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from the Federal Reserve or other institutional lenders, such as the Federal Home Loan Bank, or upon brokers to fund liquidity needs, and changes in our deposit mix, pricing, and growth could adversely affect our profitability and the ability to expand 32 Table of Contents our loan portfolio.
Additionally, our costs of funds and our profitability and liquidity are likely to be adversely affected if, and to the extent, we have to rely upon higher cost borrowings from the Federal Reserve or other institutional lenders, such as the Federal Home Loan Bank, or upon brokers to fund liquidity needs, and changes in our deposit mix, pricing, and growth could adversely affect our profitability and the ability to expand our loan portfolio.
We service some of our own loans, and loan servicing is subject to extensive regulation by federal, state and local governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and restrictions on those activities.
We service many of our own loans, and loan servicing is subject to extensive regulation by federal, state and local governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and restrictions on those activities.
Elimination of the traditional roles of Fannie Mae and Freddie Mac, or any changes to the nature or extent of the guarantees provided by Fannie Mae and Freddie Mac or the fees, terms and guidelines that govern our selling and servicing relationships with them, could also materially and adversely affect our ability to sell and securitize loans through our loan production segment, and the performance, liquidity and market value of our investments.
Elimination of the traditional roles of Fannie Mae and Freddie Mac, or any changes to the nature or extent of the guarantees provided by Fannie Mae and Freddie Mac or the fees, terms and guidelines that govern our selling and servicing 34 Table of Contents relationships with them, could also materially and adversely affect our ability to sell and securitize loans through our loan production segment, and the performance, liquidity and market value of our investments.
For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to GAAP and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
For example, in deciding whether to extend credit to clients, we may assume that a customer’s audited financial statements conform to GAAP and present 35 Table of Contents fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our earnings are significantly affected by our ability to properly originate, underwrite and service loans.
Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the estimates that we make today.
Due to the inherent nature of these estimates, it is possible that, at some time in the future, we may significantly increase the allowance for credit losses and/or sustain credit 51 Table of Contents losses that are significantly higher than the provided allowance, or we may recognize a significant provision for impairment of assets, or we may make some other adjustment that will differ materially from the estimates that we make today.
In fact, when rates rise, we expect increasing industry-wide competitive pressures related to changing market conditions to reduce pricing margins and mortgage revenues generally. If our level of mortgage production declines, our continued profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from 34 Table of Contents our mortgage operations.
In fact, when rates rise, we expect increasing industry-wide competitive pressures related to changing market conditions to reduce pricing margins and mortgage revenues generally. If our level of mortgage production declines, our continued profitability will depend upon our ability to reduce our costs commensurate with the reduction of revenue from our mortgage operations.
In addition, under our Stockholders’ Agreement, as amended, certain of FirstSun’s Significant Stockholders, are entitled to designate nine of the ten directors, in each case, so long as certain stock ownership thresholds are maintained.
In addition, under our Stockholders’ Agreement, as amended, certain of FirstSun’s Significant Stockholders, are entitled to designate nominees for nine of the ten directors, in each case, so long as certain stock ownership thresholds are maintained.
Further, economic conditions and rising interest rates could result in a decrease of our transaction deposit account balances as customers seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates. Our cost of funds has increased in the past 12 months due largely to overall increases in the cost of our deposits.
Further, economic conditions and rising 32 Table of Contents interest rates could result in a decrease of our transaction deposit account balances as customers seek to obtain maximum federal deposit insurance coverage or to seek higher interest rates. Our cost of funds has increased in the past 12 months due largely to overall increases in the cost of our deposits.
If any of these events occur, the financial performance of our wealth management business could be materially and adversely affected. 28 Table of Contents Risks Associated with Monetary Events The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
If any of these events occur, the financial performance of our wealth management business could be materially and adversely affected. Risks Associated with Monetary Events The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
These restrictions and other consequences of public health issues have resulted in significant adverse effects 45 Table of Contents for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
These restrictions and other consequences of public health issues have resulted in significant adverse effects for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change. New lines of business or new products and services may subject us to additional risk.
Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change. 47 Table of Contents New lines of business or new products and services may subject us to additional risk.
The financial markets and businesses operating in the securities industry are highly volatile (meaning that performance results can vary greatly within short periods of time) and are directly affected by, among other factors, domestic and foreign economic conditions and general trends in business and finance, and by the threat, as well as the occurrence of global conflicts or events, such as the global COVID-19 pandemic, all of which are beyond our control.
The financial markets and businesses operating in the securities industry are highly volatile (meaning that performance results can vary greatly within short periods of time) and are directly affected by, among other factors, domestic and foreign economic conditions and general trends in business and finance, and by the threat, as well as the occurrence of global conflicts or events, all of which are beyond our control.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, 35 Table of Contents financial condition, activity levels in the primary or secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations.
Any discontinuation of, or significant reduction in, the operation of Fannie Mae or Freddie Mac or any significant adverse change in their capital structure, financial condition, activity levels in the primary or secondary mortgage markets or in underwriting criteria could materially and adversely affect our business, financial condition, liquidity and results of operations.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we further integrate our recent acquisition of Pioneer; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract or maintain sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; and • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract or maintain sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; and • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment.
It raised short term rates significantly and rapidly over most of the year. Those actions triggered a significant decline in the values of most categories of U.S. stocks and bonds; significantly raised recessionary expectations for the U.S.; and inverted the yield curve in the U.S. for much of the last two quarters of 2022.
It raised short term rates significantly and rapidly over most of the year. Those actions triggered a significant decline in the values of most categories of U.S. stocks and bonds; significantly raised recessionary expectations for the 29 Table of Contents U.S.; and inverted the yield curve in the U.S. for much of the last two quarters of 2022.
We believe that our continued growth and future success will depend in large part on the skills of our executive officers and other key employees and our ability to motivate and retain these individuals, as well as our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees.
We believ e that our continued growth and future success will depend in large part on the skills of our executive officers and other key employees and our ability to motivate and retain these individuals, as well as our ability to attract, motivate and retain highly qualified senior and middle management and other skilled employees.
If we experience increases in nonperforming loans and 31 Table of Contents nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.
If we experience increases in nonperforming loans and nonperforming assets, our net interest income may be negatively impacted and our loan administration costs could increase, each of which could have an adverse effect on our net income and related ratios, such as return on assets and equity.
In addition, we have sold loans to third parties. In connection with these sales, we or certain of our subsidiaries make or have made various representations and warranties, breaches of which may result in a requirement that we repurchase the loans, or otherwise make whole or provide other remedies to counterparties.
In addition, we have sold loans to third parties. In connection with these sales, we make or have made various representations and warranties, breaches of which may result in a requirement that we repurchase the loans, or otherwise make whole or provide other remedies to counterparties.
Further, when we place a loan on non-accrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
Further, when we place a loan on nonaccrual status, we reverse any accrued but unpaid interest receivable, which decreases interest income. At the same time, we continue to have a cost to fund the loan, which is reflected as interest expense, without any interest income to offset the associated funding expense.
The loss of these revenue streams and the lower 40 Table of Contents cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Failure to keep pace with technological change could adversely affect our business.
The loss of these revenue streams and the lower cost of deposits as a source of funds could have a material adverse effect on our financial condition and results of operations. Failure to keep pace with technological change could adversely affect our business.
The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The number of active buyers and sellers of the shares of our common stock at any particular time may be limited.
The development of an active trading market depends on the existence of willing buyers and sellers, the presence of which is not within our control, or that of any market maker. The num ber of active buyers and sellers of the shares of our common stock at any particular time may be limited.
The concentration of ownership may also delay, defer or even 50 Table of Contents prevent a change in control of FirstSun, even if such a change in control would benefit our other stockholders, and may make some transactions more difficult or impossible without the support of FirstSun’s Significant Stockholders.
The concentration of ownership may also delay, defer or even prevent a change in control of FirstSun, even if such a change in control would benefit our other stockholders, and may make some transactions more difficult or impossible without the support of FirstSun’s Significant Stockholders.
In addition, new regulations, increased regulatory reviews, and/or changes in the structure of the secondary mortgage markets which we utilize to sell mortgage loans may increase costs and make it more difficult to operate a residential mortgage origination business. Our revenue from the mortgage banking business was $46.3 million in 2022 and $86.4 million in 2021.
In addition, new regulations, increased regulatory reviews, and/or changes in the structure of the secondary mortgage markets which we utilize to sell mortgage loans may increase costs and make it more difficult to operate a residential mortgage origination business. Our revenue from the mortgage banking business was $31.4 million in 2023 and $46.3 million in 2022.
Moreover, in some cases, especially concerning litigation and other contingency matters where critical information is inadequate, often we are unable to make estimates until fairly late in a lengthy process. 49 Table of Contents We could be subject to changes in tax laws, regulations and interpretations or challenges to our income tax provision.
Moreover, in some cases, especially concerning litigation and other contingency matters where critical information is inadequate, often we are unable to make estimates until fairly late in a lengthy process. We could be subject to changes in tax laws, regulations and interpretations or challenges to our income tax provision.
We act as servicer for approximately $5.2 billion of residential loans owned by third parties as of December 31, 2022. As a servicer for those loans we have certain contractual obligations, including foreclosing on defaulted mortgage loans or, to the extent applicable, considering alternatives to foreclosure such as loan modifications or short sales.
We act as servicer for approximately $5.4 billion of residential loans owned by third parties as of December 31, 2023. As a servicer for those loans we have certain contractual obligations, including foreclosing on defaulted mortgage loans or, to the extent applicable, considering alternatives to foreclosure such as loan modifications or short sales.
If we are unable to continue to attract and retain core deposits, to obtain third party financing on favorable terms, or to have access to interbank or other liquidity sources, we may not be able to grow our assets as quickly. We compete with banks and other financial services companies for deposits.
If we are unable to continue to attract and retain core deposits, to obtain third-party financing on favorable terms, or to have access to interbank or other liquidity sources, we 42 Table of Contents may not be able to grow our assets as quickly. We compete with banks and other financial services companies for deposits.
Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions.
Damage to our reputation could undermine the confidence of our current and potential clients in our ability to provide financial services. Such damage could also impair the 37 Table of Contents confidence of our counterparties and business partners, and ultimately affect our ability to effect transactions.
Such secondary sources include FHLB advances, brokered deposits, secured and unsecured federal funds lines of credit from 42 Table of Contents correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets.
Such secondary sources include FHLB advances, brokered deposits, secured and unsecured federal funds lines of credit from correspondent banks, Federal Reserve borrowings and/or accessing the equity or debt capital markets.
For example, there could be electrical or telecommunications outages; natural disasters such as earthquakes, tornadoes, and hurricanes; disease pandemics (such as the COVID-19 pandemic); events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks.
For example, there could be electrical or telecommunications outages; natural disasters such as 36 Table of Contents earthquakes, tornadoes, and hurricanes; disease pandemics (such as the COVID-19 pandemic); events arising from local or larger scale political or social matters, including terrorist acts; and cyber-attacks.
Generally, we believe local deposits are a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from the Federal Reserve or from other institutional lenders and reflect a mix of transaction and time deposits, whereas brokered deposits typically are higher cost time deposits.
Generally, we believe local deposits are a cheaper and more stable source of funds than other borrowings because interest rates paid for local deposits are typically lower than interest rates charged for borrowings from the Federal Reserve or from other institutional lenders and reflect a mix of transaction and time deposits.
Loans with certain terms and conditions and that otherwise meet the definition of a “qualified mortgage” may be protected from liability to a borrower for failing to make the necessary determinations.
Loans with certain terms and conditions and that otherwise meet the definition of a “qualified mortgage” 49 Table of Contents may be protected from liability to a borrower for failing to make the necessary determinations.
This revenue will likely decline in future periods as interest rates rise or if the other risks highlighted in this paragraph are realized, which will adversely affect our profitability.
This revenue will likely decline in future periods if interest rates continue to rise or if the other risks highlighted in this paragraph are realized, which will adversely affect our profitability.
Inflationary pressures present a potential threat to our results of operation and financial condition. The United States generally and the regions in which we operate specifically have recently experienced, for the first time in decades, significant inflationary pressures, evidenced by higher gas prices, higher food prices and other consumer items.
Inflationary pressures present a potential threat to our results of operation and financial condition. The United States generally and the regions in which we operate specifically have experienced significant inflationary pressures, evidenced by higher gas prices, higher food prices and other consumer items.
As client, 37 Table of Contents public, and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns.
As client, public, and regulatory expectations regarding operational and information security have increased, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, and breakdowns.
Certain of the Significant Stockholders of FirstSun (those identified under “ Item 13. Certain Relationships and Related Transactions, and Director Independence ,” under the heading “Stockholders’ Agreement”), own, in the aggregate, approximately 58.6%. As a result, our Significant Stockholders exercise significant influence over FirstSun through such ownership.
Certain of the Significant Stockholders of FirstSun (those identified under “ Item 13. Certain Relationships and Related Transactions, and Director Independence ,” under the heading “Stockholders’ Agreement”), own, in the aggregate, approximately 70.4% of our common stock. As a result, our Significant Stockholders exercise significant influence over FirstSun through such ownership.
The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio. We analyze our securities on a quarterly basis to determine if an other-than-temporary impairment has occurred.
The fair value of our investment securities may be adversely affected by market conditions, including changes in interest rates, and the occurrence of any events adversely affecting the issuer of particular securities in our investments portfolio. We analyze our securities on a quarterly basis to determine if an expected credit loss has occurred.
Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made. Our internal controls and procedures may fail or be circumvented.
The ultimate tax outcome may differ from the amounts recorded in our financial statements and could have a material adverse effect on our financial results in the period or periods for which such determination is made. Our internal controls and procedures may fail or be circumvented.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business financial condition and results of operations. In addition, we are subject to the growing risk of climate change. Among the risks associated with climate change are more frequent severe weather events.
The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our business financial condition and results of operations. In addition, we are subject to the growing risk of climate change.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, the potential resurgence of economic and political tensions with China or the Russian invasion of Ukraine, each of which may have a destabilizing effect on financial markets and economic activity.
In addition, there are continuing concerns related to, among other things, the level of U.S. government debt and fiscal actions that may be taken to address that debt, the potential impacts of artificial intelligence, potential pandemic risks, the potential resurgence of economic and political tensions with China, the Middle East or the continuing Russian invasion of Ukraine, any of which may have a destabilizing effect on financial markets and economic activity.
Because of changing economic and market conditions affecting issuers, we may be required to recognize other-than-temporary impairment in future periods, which could have a material adverse effect on our business, financial condition or results of operations. Our deposit insurance premiums could be higher in the future, which could have an adverse effect on our future earnings.
Because of changing economic and market conditions affecting issuers, we may be required to recognize expected credit losses on our securities in future periods, which could have a material adverse effect on our business, financial condition or results of operations. Our deposit insurance premiums could be higher in the future, which could have an adverse effect on our future earnings.
Risks Related to FirstSun Common Stock There is a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock. Our common stock is currently quoted on the OTCQX® Best Market operated by the OTC Markets.
Risks Related to FirstSun Common Stock There is a limited trading market in our common stock, which would hinder your ability to sell our common stock and may lower the market price of the stock. Our common stock is currently quoted on the OTC Market Group, Inc.’s OTCQX Market.
Over the course of 2013, the CFPB issued several rules on mortgage lending, notably a rule requiring all home mortgage lenders to determine a borrower’s ability to repay the loan.
The CFPB has issued several rules on mortgage lending, notably a rule requiring all home mortgage lenders to determine a borrower’s ability to repay the loan.
However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years, and in fact was common in the second half of 2022 and early 2023. A flat or inverted yield curve, which tends to decrease net interest margin, which would adversely impact our lending businesses and investment portfolio.
However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years. A flat or inverted yield curve, which tends to decrease net interest margin, would adversely impact our lending businesses and investment portfolio.
These trends could continue in the remainder of 2023.
These trends could continue in the remainder of 2024.
An investment in FirstSun common stock is not an insured deposit and is subject to risk of loss. An investment in FirstSun common stock will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency.
An investment in FirstSun common stock will not be a bank deposit and will not be insured or guaranteed by the FDIC or any other government agency. Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment.
The ongoing COVID-19 pandemic has caused and may continue to cause significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business and results of operations. This has recently been accompanied by a surge in flu and other respiratory illnesses of varying seriousness and magnitude.
The COVID-19 pandemic caused and may continue to cause significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business and results of operations. We have also seen a surge in flu and other respiratory illnesses of varying seriousness and magnitude.
As discussed elsewhere in this Item 1A, inflationary 27 Table of Contents pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
As discussed elsewhere in this Item 1A, inflationary pressures have caused the Federal Reserve to increase interest rates. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
These circumstances could result in material changes in deposit levels over relatively short time periods, and they could pressure us to raise interest we pay on our deposits, which could shrink our net interest margin if loan rates do not rise correspondingly. The extremely low interest rate environment of the past several years ended in 2022.
These circumstances could result in material changes in deposit levels over relatively short time periods, and they could pressure us to raise interest we pay on our deposits, which could shrink our net interest margin if loan rates do not rise correspondingly.
More specifically, the market conditions in the markets in which we have a presence may be different from, and could be worse than, the economic conditions in the United States as a whole.
More specifically, the market conditions in the markets in which we have (and if the proposed HomeStreet merger is completed, the additional markets in which we will have) a presence may be different from, and could be worse than, the economic conditions in the United States as a whole.
Mortgage Banking Risks Our mortgage revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market. Mortgage activity decreased significantly in 2022.
See Risks Associated with Monetary Events in this Item 1A of this report. Mortgage Banking Risks Our mortgage revenue is cyclical and is sensitive to the level of interest rates, changes in economic conditions, decreased economic activity, and slowdowns in the housing market. Mortgage activity decreased significantly in 2023 and 2022.
If we are unable to do so, our continued profitability may be materially and adversely affected. See Risks Associated With Monetary Events in this Item 1A of this report. We are subject to certain risks related to originating and selling mortgage loans that could have a material adverse effect on our financial condition and results of operations.
See Risks Associated With Monetary Events in this Item 1A of this report. 33 Table of Contents We are subject to certain risks related to originating and selling mortgage loans that could have a material adverse effect on our financial condition and results of operations.
If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral.
If estimates of value are inaccurate or if actual construction costs exceed estimates, the value of the property securing the loan may be insufficient to ensure full repayment when completed through a permanent loan or by seizure of collateral. These types of loans are more susceptible to a risk of loss during a downturn in the business cycle.
As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations. 29 Table of Contents Our estimated allowance for loan losses and fair value adjustments with respect to acquired loans may prove to be insufficient to absorb actual losses in our loan portfolio, which may adversely affect our business, financial condition and results of operations.
As a result, our inability to successfully manage credit risk could have a material adverse effect on our business, financial condition and results of operations. Our allowance for credit losses in our loan portfolio may prove to be inadequate, which may adversely affect our business, financial condition and results of operations.
The process for 41 Table of Contents determining whether impairment is other-than-temporary usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments on the security.
The process for determining whether a credit loss has occurred usually requires complex, subjective judgments about the future financial performance of the issuer in order to assess the probability of receiving all contractual principal and interest payments on the security.
Your investment will be subject to investment risk, and you must be capable of affording the loss of your entire investment. We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act.
We are an “emerging growth company,” and the reduced reporting requirements applicable to emerging growth companies may make our common stock less attractive to investors. We are an “emerging growth company,” as defined in the JOBS Act.
If we are not successful in attracting new and retaining existing clients, our business, financial condition, results of operations and prospects may be materially and adversely affected. Consumers may decide not to use banks to complete their financial transactions. Technology and other changes are allowing parties to complete financial transactions through alternative methods that historically have involved banks.
If we are not successful in attracting new and retaining existing clients, our business, financial condition, results of operations and prospects may be materially and adversely affected. 39 Table of Contents Consumers may decide not to use banks to complete their financial transactions.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeItem 2. Properties Our principal executive office and Sunflower Bank’s main office is located at 1400 16th Street, Suite 250, Denver, Colorado 80202.
Biggest changeItem 2. Properties Our principal executive office is located at 1400 16th Street, Suite 250, Denver, Colorado 80202. Sunflower Bank’s main office was relocated from Denver, Colorado to 8117 Preston Road, Suite 220, Dallas, Texas 75225 in November 2023.
We own 46 of our banking branches and lease our other 26 banking branches. In addition, we also lease our executive office. Our mortgage banking offices are typically leased for shorter-terms. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.
We own 43 of our banking branches and lease our other 26 banking branches. In addition, we also lease our executive office. Our mortgage banking offices are typically leased for shorter-terms. We believe that our facilities are in good condition and are adequate to meet our operating needs for the foreseeable future.
In addition, we currently operate we currently operate 25 branches located in Texas, 22 branches located in Kansas, 11 branches located in Colorado, nine branches located in New Mexico, four branches located in Arizona and one branch located in Washington. We also operate 11 mortgage offices located in Arizona, Idaho, Michigan, New Mexico, Oregon, Texas and Washington.
In addition, we currently operate 23 branches located in Texas, 21 branches located in Kansas, 11 branches located in Colorado, nine branches located in New Mexico, four branches located in Arizona and one branch located in Washington. We also operate 11 mortgage offices located in Arizona, Idaho, Michigan, New Mexico, Oregon, Texas and Washington.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor further information regarding legal proceedings, see Note 2 4 - Commitments and Contingenci e s in our audited consolidated financial statements contained elsewhere in this report. Item 4. Mine Safety Disclosures Not Applicable. 53 Table of Contents Part II
Biggest changeFor further information regarding legal proceedings, see Note 24 - Commitments and Contingencies in our audited consolidated financial statements contained elsewhere in this report. Item 4. Mine Safety Disclosures Not Applicable. 58 Table of Contents Part II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 53 Part II 54 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 54 Item 6. [Reserved] 54 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 55 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 76 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 58 Part II 59 Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 59 Item 6. [Reserved] 59 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 60 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 83 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeAs a Delaware corporation and a bank holding company, dividend payments are subject to numerous limitations. For additional information, see Item 1. “Business –Supervision and Regulation—Bank Holding Company Regulation—Dividend Payments”, and Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity" and Note 16 - Stockholders ’ Equity .
Biggest changeAs a Delaware corporation and a bank holding company, dividend payments are subject to numerous limitations. For additional information, see Item 1. “Business –Supervision and Regulation—Bank Holding Company Regulation—Dividend Payments”, and Item 7.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for FirstSun Common Stock As of December 31, 2022, we had 24,920,984 shares of common stock outstanding and approximately 355 stockholders of record. In August 2022, our common stock began trading on the OTCQX® Best Market under the ticker symbol “FSUN”.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market for FirstSun Common Stock As of December 31, 2023, we had 24,960,639 shares of common stock outstanding and approximately 369 stockholders of record.
Added
On January 17, 2024 we issued an additional 2,461,538 shares of our common stock at $32.50 per share in conjunction with the proposed merger with HomeStreet and related investment agreements. In August 2022, our common stock began trading on the OTCQX® Best Market under the ticker symbol “FSUN”.
Added
Management's Discussion and Analysis of Financial Condition and Results of Operations – Liquidity" and Note 16 - Stockholders’ Equity included in our consolidated financial statements included elsewhere in this report.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe following table presents GAAP to non-GAAP reconciliations as of and for the year ended December 31,: ($ in thousands, except share and per share amounts) 2022 2021 2020 Total loan growth, excluding acquired Pioneer loans as of April 1, 2022 and PPP loans: Total loans (GAAP) $ 5,911,832 $ 4,037,123 $ 3,846,357 Less: Acquired loans at date of merger, net of purchase accounting adjustments (811,300) — — Less: PPP loans (4,352) (66,749) (251,101) Total loans, excluding acquired Pioneer loans and PPP loans (non-GAAP) $ 5,096,180 $ 3,970,374 $ 3,595,256 Total loan growth, excluding acquired Pioneer loans and PPP loans (non-GAAP) $ 1,125,806 $ 375,118 $ 506,546 Total loan growth, excluding acquired Pioneer loans and PPP loans (non-GAAP) 28.4 % 10.4 % 16.4 % Tangible stockholders’ equity and tangible book value per common share: Total stockholders' equity (GAAP) $ 774,536 $ 524,038 $ 485,787 Less: Goodwill and other intangible assets Goodwill (93,483) (33,050) (33,050) Other intangible assets (15,806) (8,250) (9,667) Tangible stockholders' equity (non-GAAP) $ 665,247 $ 482,738 $ 443,070 Total common shares outstanding 24,920,984 18,346,288 18,321,659 Tangible book value per common share (non-GAAP) $ 26.69 $ 26.31 $ 24.18 Return on tangible stockholders’ equity: Net Income (GAAP) $ 59,182 $ 43,164 $ 47,585 Add: Intangible amortization, net of tax 3,330 1,119 1,173 Tangible net income (non-GAAP) $ 62,512 $ 44,283 $ 48,758 Tangible stockholders’ equity (non-GAAP) (see above) $ 665,247 $ 482,738 $ 443,070 Return on tangible stockholders’ equity (non-GAAP) 9.40 % 9.17 % 11.00 % Return on average tangible stockholders’ equity: Tangible net income (non-GAAP) (see above) $ 62,512 $ 44,283 $ 48,758 Total average stockholders' equity (GAAP) $ 692,524 $ 515,773 $ 466,619 Less: Average goodwill and other intangible assets Average goodwill (78,582) (33,050) (33,050) Average other intangible assets (15,811) (8,964) (9,597) Total average tangible stockholders' equity (non-GAAP) $ 598,131 $ 473,759 $ 423,972 Return on average tangible stockholders’ equity (non-GAAP) 10.45 % 9.35 % 11.50 % Net interest margin - FTE basis: Net interest income (GAAP) $ 241,632 $ 155,233 $ 135,953 Taxable equivalent adjustment 5,059 5,755 6,490 Net interest income - FTE basis (non-GAAP) $ 246,691 $ 160,988 $ 142,443 Average earning assets $ 6,244,221 $ 5,180,650 $ 4,382,139 Net interest margin - FTE basis (non-GAAP) 3.95 % 3.11 % 3.25 % 58 Table of Contents ($ in thousands, except share and per share amounts) 2022 2021 2020 Tangible stockholders’ equity to tangible assets: Total assets (GAAP) $ 7,430,322 $ 5,666,814 $ 4,995,457 Less: Goodwill and other intangible assets Goodwill (93,483) (33,050) (33,050) Other intangible assets (15,806) (8,250) (9,667) Total tangible assets (non-GAAP) $ 7,321,033 $ 5,625,514 $ 4,952,740 Tangible stockholders’ equity (non-GAAP) (see above) $ 665,247 $ 482,738 $ 443,070 Tangible stockholders’ equity to tangible assets (non-GAAP) 9.09 % 8.58 % 8.95 % Net income excluding merger costs: Net income (GAAP) $ 59,182 $ 43,164 $ 47,585 Add: Merger costs Merger related expenses 18,751 3,085 — Income tax effect on merger related expenses (4,083) (509) — Provision for loan loss on Pioneer loans marked at a premium 2,884 — — Income tax effect on provision for loan loss on Pioneer loans marked at a premium (521) — — Total merger costs 17,031 2,576 — Net income excluding merger costs (non-GAAP) $ 76,213 $ 45,740 $ 47,585 Return on average total assets excluding merger costs: Return on average total assets (ROAA) (GAAP) 0.88 % 0.79 % 1.02 % Add: Impact of merger costs, net of tax 0.25 % 0.05 % — % ROAA excluding merger costs (non-GAAP) 1.13 % 0.84 % 1.02 % Return on average stockholders’ equity excluding merger costs: Return on average stockholders' equity (ROAE) (GAAP) 8.55 % 8.37 % 10.20 % Add: Impact of merger costs, net of tax 2.46 % 0.50 % — % ROAE excluding merger costs (non-GAAP) 11.01 % 8.87 % 10.20 % Efficiency ratio excluding merger related expenses: Efficiency ratio (GAAP) 72.20 % 80.38 % 71.77 % Less: Impact of merger related expenses 5.66 % 1.11 % — % Efficiency ratio excluding merger related expenses (non-GAAP) 66.54 % 79.27 % 71.77 % Diluted earnings per share excluding merger costs: Diluted earnings per share (GAAP) $ 2.48 $ 2.30 $ 2.58 Add: Impact of merger costs, net of tax 0.72 0.14 — Diluted earnings per share excluding merger costs (non-GAAP) $ 3.20 $ 2.44 $ 2.58 Segments Our operations are conducted through two operating segments: Banking and Mortgage Operations.
Biggest changeThe following table presents GAAP to non-GAAP reconciliations as of and for the year ended December 31,: ($ in thousands, except share and per share amounts) 2023 2022 2021 Tangible common stockholders’ equity and tangible book value per common share: Total common stockholders' equity (GAAP) $ 877,197 $ 774,536 $ 524,038 Less: Goodwill and other intangible assets Goodwill (93,483) (93,483) (33,050) Other intangible assets (10,984) (15,806) (8,250) Tangible common stockholders' equity (non-GAAP) $ 772,730 $ 665,247 $ 482,738 Total common shares outstanding 24,960,639 24,920,984 18,346,288 Tangible book value per common share (non-GAAP) $ 30.96 $ 26.69 $ 26.31 Tangible net income: Net Income (GAAP) $ 103,533 $ 59,182 $ 43,164 Add: Intangible amortization, net of tax 3,809 3,330 1,119 Tangible net income (non-GAAP) $ 107,342 $ 62,512 $ 44,283 Return on average tangible common stockholders’ equity: Tangible net income (non-GAAP) (see above) $ 107,342 $ 62,512 $ 44,283 Total average common stockholders' equity (GAAP) $ 828,102 $ 692,524 $ 515,773 Less: Average goodwill and other intangible assets Average goodwill (93,483) (78,582) (33,050) Average other intangible assets (13,178) (15,811) (8,964) Total average tangible common stockholders' equity (non-GAAP) $ 721,441 $ 598,131 $ 473,759 Return on average tangible common stockholders’ equity (non-GAAP) 14.88 % 10.45 % 9.35 % Net interest margin - FTE basis: Net interest income (GAAP) $ 293,431 $ 241,632 $ 155,233 Taxable equivalent adjustment 5,086 5,059 5,755 Net interest income - FTE basis (non-GAAP) $ 298,517 $ 246,691 $ 160,988 Average earning assets $ 6,935,567 $ 6,244,221 $ 5,180,650 Net interest margin - FTE basis (non-GAAP) 4.29 % 3.95 % 3.11 % Tangible common stockholders’ equity to tangible assets: Total assets (GAAP) $ 7,879,724 $ 7,430,322 $ 5,666,814 Less: Goodwill and other intangible assets Goodwill (93,483) (93,483) (33,050) Other intangible assets (10,984) (15,806) (8,250) Total tangible assets (non-GAAP) $ 7,775,257 $ 7,321,033 $ 5,625,514 Tangible common stockholders’ equity (non-GAAP) (see above) $ 772,730 $ 665,247 $ 482,738 Tangible common stockholders’ equity to tangible assets (non-GAAP) 9.94 % 9.09 % 8.58 % 63 Table of Contents ($ in thousands, except share and per share amounts) 2023 2022 2021 Tangible common stockholders’ equity to tangible assets, reflecting net unrealized losses on HTM securities, net of tax: Total tangible common stockholders' equity (non-GAAP) (see above) $ 772,730 $ 665,247 $ 482,738 Less: Net unrealized losses on HTM securities, net of tax (3,629) (4,295) 447 Total tangible common stockholders’ equity less net unrealized losses on HTM securities, net of tax (non-GAAP) $ 769,101 $ 660,952 $ 483,185 Total tangible assets (non-GAAP) (see above) $ 7,775,257 $ 7,321,033 $ 5,625,514 Less: Net unrealized losses on HTM securities, net of tax (3,629) (4,295) 447 Total tangible assets less net unrealized losses on HTM securities, net of tax (non-GAAP) $ 7,771,628 $ 7,316,738 $ 5,625,961 Tangible common stockholders’ equity to tangible assets (non-GAAP) 9.94 % 9.09 % 8.58 % Tangible common stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) 9.90 % 9.03 % 8.59 % Net income excluding merger costs: Net income (GAAP) $ 103,533 $ 59,182 $ 43,164 Add: Merger costs Merger related expenses — 18,751 3,085 Income tax effect on merger related expenses — (4,083) (509) Provision for loan loss on Pioneer loans marked at a premium — 2,884 — Income tax effect on provision for loan loss on Pioneer loans marked at a premium — (521) — Total merger costs — 17,031 2,576 Net income excluding merger costs (non-GAAP) $ 103,533 $ 76,213 $ 45,740 Return on average total assets excluding merger costs: Return on average total assets (ROAA) (GAAP) 1.38 % 0.88 % 0.79 % Add: Impact of merger costs, net of tax — % 0.25 % 0.05 % ROAA excluding merger costs (non-GAAP) 1.38 % 1.13 % 0.84 % Return on average stockholders’ equity excluding merger costs: Return on average stockholders' equity (ROAE) (GAAP) 12.50 % 8.55 % 8.37 % Add: Impact of merger costs, net of tax — % 2.46 % 0.50 % ROAE excluding merger costs (non-GAAP) 12.50 % 11.01 % 8.87 % Efficiency ratio excluding merger related expenses: Efficiency ratio (GAAP) 59.81 % 72.20 % 80.38 % Less: Impact of merger related expenses — % (5.66) % (1.11) % Efficiency ratio excluding merger related expenses (non-GAAP) 59.81 % 66.54 % 79.27 % Diluted earnings per share excluding merger costs: Diluted earnings per share (GAAP) $ 4.08 $ 2.48 $ 2.30 Add: Impact of merger costs, net of tax — 0.72 0.14 Diluted earnings per share excluding merger costs (non-GAAP) $ 4.08 $ 3.20 $ 2.44 Segments Our operations are conducted through two operating segments: Banking and Mortgage Operations.
Our determination of the amount of the allowance for loan losses and corresponding provision for loan losses considers ongoing evaluations of the credit quality and level of credit risk inherent in our loan portfolio, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors.
Our determination of the amount of the allowance for credit losses and corresponding provision for credit losses considers ongoing evaluations of the credit quality and level of credit risk inherent in our loan portfolio, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors.
Commercial real estate loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial and agricultural businesses, and include both loans for long-term financing of land and buildings and loans made for the initial development or construction of a commercial real estate project.
Commercial real estate (“CRE”) loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial and agricultural businesses, and include both loans for long-term financing of land and buildings and loans made for the initial development or construction of a commercial real estate project.
In determining the provision for loan losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions.
In determining the provision for credit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions.
The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for loan losses charged to earnings, which increases the allowance.
The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance.
(3) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. 57 Table of Contents Non-GAAP Financial Measures and Reconciliations The non-GAAP financial measures presented below are used by our management and our board of directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance.
(3) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. 62 Table of Contents Non-GAAP Financial Measures and Reconciliations The non-GAAP financial measures presented below are used by our management and our board of directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance.
Other factors contributing to our results of operations include our provisions for loan losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs. Net Interest Income Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings.
Other factors contributing to our results of operations include our provisions for credit losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs. Net Interest Income Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings.
(2) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. 64 Table of Contents Rate-Volume Analysis The tables below present the effect of volume and rate changes on interest income and expense.
(2) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. 69 Table of Contents Rate-Volume Analysis The tables below present the effect of volume and rate changes on interest income and expense.
Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2022, included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP.
Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2023, included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP.
Our mortgage servicing rights (MSRs) are measured at fair value on a recurring basis. We estimate the fair value of our MSRs using a process that utilizes a discounted cash flow model and analysis of current market data to arrive at the estimate.
Fair Value Measurement of MSRs - Our residential mortgage servicing rights are measured at fair value on a recurring basis. We estimate the fair value of our MSRs using a process that utilizes a discounted cash flow model and analysis of current market data to arrive at the estimate.
Material Contractual Obligations, Commitments, and Contingent Liabilities We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk. The following table summarizes our material contractual obligations as of December 31, 2022.
Material Contractual Obligations, Commitments, and Contingent Liabilities We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk. The following table summarizes our material contractual obligations as of December 31, 2023.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRSTSUN In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, Logia Portfolio Management, LLC and Sunflower Bank.
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRSTSUN In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
Actual repayments of loans may differ from the maturities reflected below because 69 Table of Contents borrowers have the right to prepay obligations with or without prepayment penalties.
Actual repayments of loans may differ from the maturities reflected below because 75 Table of Contents borrowers have the right to prepay obligations with or without prepayment penalties.
FirstSun (Parent Company) FirstSun has routine cash needs consisting primarily of operating expenses, debt service, and funds used for acquisitions. FirstSun can obtain funding to meet its obligations from dividends collected from its subsidiaries, primarily the Bank, and through the issuance of varying forms of debt.
FirstSun (Parent Company) FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and funds used for acquisitions. FirstSun can obtain funding to meet its obligations from dividends collected from its subsidiaries, primarily the Bank, and through the issuance of varying forms of debt.
General Overview FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which operates as Sunflower Bank, First National 1870 and Guardian Mortgage. We conduct a full service community banking and trust business through our wholly-owned subsidiaries—Sunflower Bank and Logia Portfolio Management, LLC.
General Overview FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which is headquartered in Dallas, Texas and operates as Sunflower Bank, First National 1870 and Guardian Mortgage. We conduct a full-service community banking and trust business through our wholly-owned subsidiaries—Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
Financial Statements .” We have omitted discussion of 2020 results where it would be redundant to the discussion previously included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations of FirstSun ” section of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 25, 2022.
Financial Statements .” We have omitted discussion of 2021 results where it would be redundant to the discussion previously included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations of FirstSun ” section of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023.
The following discussion is an analysis of our consolidated results of operations for the years ended December 31, 2022, 2021 and 2020, and financial condition for the years ended December 31, 2022 and 2021.
The following discussion is an analysis of our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021, and financial condition for the years ended December 31, 2023 and 2022.
Further discussion of contingent liabilities is included in Note 24 - Commitments and Contingencies to the consolidated financial statements. 75 Table of Contents
Further discussion of contingent liabilities is included in Note 24 - Commitments and Contingencies to the consolidated financial statements. 82 Table of Contents
Our product line includes commercial loans, commercial real estate loans, residential mortgage and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit.
Our product line includes commercial and industrial loans, commercial real estate loans, residential mortgage, public finance and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit.
The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable losses incurred in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP.
The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the allowance for credit losses at an adequate level to absorb expected losses in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP.
The results for Pioneer are reflected in our results of operations and financial condition beginning April 1, 2022.
The results for Pioneer are reflected in our results of operations and financial condition since April 1, 2022.
Government and its agencies, in an amount greater than 10% of stockholders’ equity. 68 Table of Contents Loans Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico and Arizona, comprised of commercial, commercial real estate, residential real estate and consumer financing loans.
Government and its agencies, in an amount greater than 10% of stockholders’ equity. 74 Table of Contents Loans Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico and Arizona, primarily comprised of commercial and industrial, commercial real estate, residential real estate, public finance and consumer financing loans.
General Our results of operations depend significantly on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and investment securities and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings.
(2) Total revenue is presented net of interest expense. General Our results of operations depend significantly on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and investment securities and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings.
We have identified the determination of the allowance for loan losses and fair value measurements to be the accounting areas that require the use of critical accounting estimates as these policies require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates.
We have identified the determination of the allowance for credit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates.
Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no trading securities in our investment portfolio as of December 31, 2022 and 2021. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.
There were no trading securities in our investment portfolio as of December 31, 2023 and 2022. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.
Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions by our business customers. Credit and debit card fees increased $1.9 million for the year ended December 31, 2022 compared to 2021, primarily due to increased card transaction volumes.
Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions by our business customers. Credit and debit card fees increased $0.5 million for the year ended December 31, 2023 compared to 2022, primarily due to increased card transaction volumes.
The allowance for loan losses is increased by the provision for loan losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs. We had a provision for loan losses of $18.1 million for the year ended December 31, 2022, compared to a provision for loan losses of $3.0 million for 2021.
The allowance for credit losses is increased by the provision for credit losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs We had a provision for credit losses of $18.2 million for the year ended December 31, 2023, compared to a provision for credit losses of $18.1 million for 2022.
At December 31, 2022, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $307.9 million, or 4.1% of total assets, compared to $583.0 million, or 10.3% of total assets, at December 31, 2021.
At December 31, 2023, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $473.0 million, or 6.0% of total assets, compared to $307.9 million, or 4.1% of total assets, at December 31, 2022.
Income Taxes We had income tax expense for the year ended December 31, 2022 of $14.8 million, compared to $8.7 million in 2021. The increase in income tax expense was primarily due to our increased income during 2022. Our effective tax rate was 20.0% for the year ended December 31, 2022, compared to 16.7% in 2021.
Income Taxes We had income tax expense for the year ended December 31, 2023 of $28.0 million, compared to $14.8 million in 2022. The increase in income tax expense was primarily due to our increased income during 2023. Our effective tax rate was 21.3% for the year ended December 31, 2023, compared to 20.0% in 2022.
We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $2.6 million to $15.1 million for the year ended December 31, 2022, from $12.5 million for 2021.
We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $0.6 million to $15.7 million for the year ended December 31, 2023, from $15.1 million for 2022.
Total loan originations for sale were $1.1 billion for the year ended December 31, 2022, a decline of $0.7 billion from $1.7 billion in 2021.
Total loan originations for sale were $0.8 billion for the year ended December 31, 2023, a decline of $0.3 billion from $1.1 billion in 2022.
Trust and investment advisory fees represent fees we receive in connection with our investment advisory and custodial management services of investment accounts. Trust and investment advisory fees decreased $1.0 million for the year ended December 31, 2022 compared to 2021 as assets under management declined.
Trust and investment advisory fees represent fees we receive in connection with our investment advisory and custodial management services of investment accounts. Trust and investment advisory fees decreased $1.1 million for the year ended December 31, 2023 compared to 2022 primarily due to lower average assets under management.
The qualitative factors applied at December 31, 2022, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management's assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of the allowance for loan losses currently calculated by management.
The qualitative factors applied on January 1, 2023, and December 31, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model.
Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction. 62 Table of Contents Our net interest income was $241.6 million for the year ended December 31, 2022, an increase of $86.4 million, or 55.7%, from 2021.
Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and 67 Table of Contents rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
For a further discussion of the allowance for loan losses, refer to the “Allowance for Loan Losses” section of this financial review. 65 Table of Contents Noninterest Income The following table presents noninterest income for the year ended December 31,: (In thousands) 2022 2021 2020 Service charges on deposit accounts $ 18,211 $ 12,504 $ 9,630 Credit and debit card fees 11,511 9,596 7,994 Trust and investment advisory fees 6,806 7,795 5,201 Income from mortgage banking services, net 46,285 86,410 122,174 Other 6,753 7,939 3,386 Total noninterest income $ 89,566 $ 124,244 $ 148,385 Our noninterest income decreased $34.7 million to $89.6 million for the year ended December 31, 2022 from $124.2 million in 2021, primarily due to a decrease in income from mortgage banking services.
For a further discussion of the allowance for credit losses, refer to the “Allowance for Credit Losses” section of this financial review. 70 Table of Contents Noninterest Income The following table presents noninterest income for the year ended December 31,: (In thousands) 2023 2022 2021 Service charges on deposit accounts $ 21,345 $ 18,211 $ 12,504 Credit and debit card fees 12,000 11,511 9,596 Trust and investment advisory fees 5,693 6,806 7,795 Income from mortgage banking services, net 31,384 46,285 86,410 Other 8,670 6,753 7,939 Total noninterest income $ 79,092 $ 89,566 $ 124,244 Our noninterest income decreased $10.5 million to $79.1 million for the year ended December 31, 2023 from $89.6 million in 2022, primarily due to a decrease in income from mortgage banking services, net.
We have not experienced as significant an increase in our cost of funds in this rising interest rate environment as we have seen in growth in earning asset yield, however, we do expect our cost of funds to continue to rise in 2023. 63 Table of Contents The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented.
While we have experienced a significant increase in our cost of funds in this rising interest rate environment, we do not expect our cost of funds to continue to rise in 2024 at the level of increase experienced in 2023. 68 Table of Contents The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented.
Mortgage Operations Income (loss) before income taxes decreased to $(4.6) million in 2022, compared to income of $25.4 million in 2021, primarily due to a decrease in mortgage banking services revenue, net of $39.5 million, partially offset by a $17.1 million decrease in salary and employee benefits expenses from the decline in mortgage loan originations.
Mortgage Operations Loss before income taxes increased to $6.5 million in 2023, compared to a loss of $4.6 million in 2022, primarily due to a $16.3 million decrease in mortgage banking services revenue, net, partially offset by a $13.1 million decrease in salary and employee benefits expenses from the decline in mortgage loan originations and reductions in staffing levels.
Additionally, as an “emerging growth company” under Section 107 of the JOBS Act, we have not been required to adopt ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (CECL) . As such, our allowance for loan losses may not be comparable to other public financial institutions that have adopted CECL.
Additionally, as an “emerging growth company” under Section 107 of the JOBS Act, we did not to adopt ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (CECL) until January 1, 2023. As such, our allowance for credit losses for years prior to 2023 may not be comparable to other public financial institutions that adopted CECL in an earlier year.
Yield on loans held-for-investment increased 64 basis points for the year ended December 31, 2022, from 2021, primarily due to the rising interest rate environment and its impact on variable rate loans in the loan portfolio and higher yields on new originations. Average interest-bearing liabilities increased $0.6 billion, or 17.9%, for the year ended December 31, 2022, from 2021.
Yield on loans held-for-investment increased 149 basis points for the year ended December 31, 2023, from 2022, primarily due to the rising interest rate environment and its impact on variable rate loans in the loan portfolio and higher yields on new originations.
The components of income from mortgage banking services were as follows for the year ended December 31,: (In thousands) 2022 2021 2020 Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging $ 18,924 $ 63,468 $ 94,001 Mortgage servicing income 15,088 12,525 9,798 MSR capitalization and changes in fair value, net of derivative activity 12,273 10,417 18,375 Income from mortgage banking services, net $ 46,285 $ 86,410 $ 122,174 For the year ended December 31, 2022, income from mortgage banking services decreased $40.1 million, compared to 2021, primarily due to a decline in revenue related to net sale gains and fees from mortgage loan originations, including fair value changes in the held-for-sale portfolio and hedging activity, which decreased $44.5 million for the year ended December 31, 2022, compared to 2021.
The components of income from mortgage banking services, net, were as follows for the year ended December 31,: (In thousands) 2023 2022 2021 Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging $ 14,275 $ 18,924 $ 63,468 Mortgage servicing income 15,674 15,088 12,525 MSR capitalization and changes in fair value, net of derivative activity 1,435 12,273 10,417 Income from mortgage banking services, net $ 31,384 $ 46,285 $ 86,410 For the year ended December 31, 2023, income from mortgage banking services decreased $14.9 million, compared to 2022.
The decrease in our salary and employee benefits expense for the year ended December 31, 2022, compared to 2021, was driven by the decrease in commissions paid to our mortgage loan officers related to decreased mortgage origination activity during 2022.
The decrease of $1.1 million in our salary and employee benefits expense for the year ended December 31, 2023, compared to 2022, was driven by a decrease in commissions paid to our mortgage loan officers related to decreased mortgage origination activity during 2023, partially offset by annual compensation increases occurring in 2023.
Merger with Pioneer Bancshares, Inc. On April 1, 2022, we completed our merger (the “Merger” or the “Pioneer Merger”) with Pioneer Bancshares, Inc.
Merger with Pioneer Bancshares, Inc. On April 1, 2022, we completed our merger with Pioneer Bancshares, Inc.
The period over period increase was primarily driven by an increase in net interest income and to a lesser extent noninterest income, partially offset by an increase in provision for loan losses and noninterest expense. Net interest income increased $89.3 million to $241.8 million in 2022 compared to $152.5 million in 2021.
The period over period increase was primarily driven by an increase in net interest income and to a lesser extent noninterest income and a reduction in noninterest expense, partially offset by an increase in provision for credit losses. Net interest income increased $50.7 million to $292.6 million in 2023 compared to $241.8 million in 2022.
During the year ended December 31, 2022, Logia paid a dividend of $0.7 million to FirstSun. 73 Table of Contents Bank The Bank’s liquidity management policy and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands.
Bank The Bank’s liquidity management policy and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands.
The reduction to net income, return on average assets and return on average equity in 2021, resulting from merger-related expenses, were $2.6 million, 0.05%, and 0.50%, respectively. 56 Table of Contents Financial Highlights The following table sets forth certain financial highlights of FirstSun as of and for the year ended December 31,: ($ in thousands, except share and per share amounts) 2022 2021 2020 Income Statement: Net interest income $ 241,632 $ 155,233 $ 135,953 Taxable equivalent adjustment 5,059 5,755 6,490 Net interest income - fully tax equivalent ("FTE") basis (non-GAAP) (3) $ 246,691 $ 160,988 $ 142,443 Provision for loan losses $ 18,050 $ 3,000 $ 23,100 Noninterest income $ 89,566 $ 124,244 $ 148,385 Noninterest expense $ 239,126 $ 224,635 $ 204,073 Net income $ 59,182 $ 43,164 $ 47,585 Per Common Share Data: Weighted average diluted common shares 23,838,471 18,770,785 18,475,538 Net income (basic) $ 2.55 $ 2.36 $ 2.60 Net income (diluted) $ 2.48 $ 2.30 $ 2.58 Cash dividends $ — $ — $ — Dividend payout ratio — % — % — % Book value $ 31.08 $ 28.56 $ 26.51 Tangible common book value (non-GAAP) (3) $ 26.69 $ 26.31 $ 24.18 Performance Ratios: Return on average assets 0.88 % 0.79 % 1.02 % Return on average stockholders' equity 8.55 % 8.37 % 10.20 % Return on tangible common equity (non-GAAP) (3) 9.40 % 9.17 % 11.00 % Return on average tangible common equity (non-GAAP) (3) 10.45 % 9.35 % 11.50 % Net interest margin 3.87 % 3.00 % 3.10 % Efficiency ratio (1) 72.20 % 80.38 % 71.77 % Net charge-offs (recoveries) to average loans outstanding (0.01) % 0.09 % 0.11 % Allowance for loan losses to loans 1.12 % 1.18 % 1.24 % Nonperforming loans to total loans (2) 0.69 % 0.86 % 1.07 % Balance Sheet: Total loans, excluding loans held-for-sale $ 5,911,832 $ 4,037,123 $ 3,846,357 Total assets $ 7,430,322 $ 5,666,814 $ 4,995,457 Total deposits $ 5,765,062 $ 4,854,948 $ 4,153,549 Total borrowed funds $ 724,120 $ 109,458 $ 138,773 Total stockholders' equity $ 774,536 $ 524,038 $ 485,787 Capital Ratios: Total risk-based capital to risk-weighted assets 11.99 % 11.76 % 12.19 % Tier 1 risk-based capital to risk-weighted assets 9.94 % 9.70 % 9.87 % Common Equity Tier 1 (CET 1) to risk-weighted assets 9.94 % 9.70 % 9.87 % Tier 1 leverage capital to average assets 9.71 % 8.24 % 8.53 % Average equity to average assets 10.28 % 9.43 % 10.01 % Tangible common equity to tangible assets (non-GAAP) (3) 9.09 % 8.58 % 8.95 % Nonfinancial Data: Full-time equivalent employees 1,149 1,042 1,059 Banking branches 72 53 56 (1) The efficiency ratio is one measure of profitability in the banking industry.
The unfavorable impact in 2022 of merger costs, net of tax, to return on average total assets was 0.25% and to return on average stockholders’ equity was 2.46%. 1 Total revenue is net interest income plus noninterest income. 61 Table of Contents Financial Highlights The following table sets forth certain financial highlights of FirstSun as of and for the year ended December 31,: ($ in thousands, except share and per share amounts) 2023 2022 2021 Income Statement: Net interest income $ 293,431 $ 241,632 $ 155,233 Taxable equivalent adjustment 5,086 5,059 5,755 Net interest income - fully tax equivalent ("FTE") basis (non-GAAP) (3) $ 298,517 $ 246,691 $ 160,988 Provision for credit losses $ 18,247 $ 18,050 $ 3,000 Noninterest income $ 79,092 $ 89,566 $ 124,244 Noninterest expense $ 222,793 $ 239,126 $ 224,635 Net income $ 103,533 $ 59,182 $ 43,164 Per Common Share Data: Weighted average diluted common shares 25,387,196 23,838,471 18,770,785 Net income (basic) $ 4.15 $ 2.55 $ 2.36 Net income (diluted) $ 4.08 $ 2.48 $ 2.30 Cash dividends $ — $ — $ — Dividend payout ratio — % — % — % Book value $ 35.14 $ 31.08 $ 28.56 Tangible book value (non-GAAP) (3) $ 30.96 $ 26.69 $ 26.31 Performance Ratios: Return on average total assets 1.38 % 0.88 % 0.79 % Return on average stockholders' equity 12.50 % 8.55 % 8.37 % Return on average tangible common stockholders' equity (non-GAAP) (3) 14.88 % 10.45 % 9.35 % Net interest margin 4.23 % 3.87 % 3.00 % Net interest margin (on FTE basis) (3) 4.29 % 3.95 % 3.11 % Efficiency ratio (1) 59.81 % 72.20 % 80.38 % Net charge-offs (recoveries) to average loans outstanding 0.13 % (0.01) % 0.09 % Allowance for credit losses to loans 1.28 % 1.12 % 1.18 % Nonperforming loans to total loans (2) 1.01 % 0.49 % 0.70 % Balance Sheet: Total loans, excluding loans held-for-sale $ 6,267,096 $ 5,911,832 $ 4,037,123 Total assets $ 7,879,724 $ 7,430,322 $ 5,666,814 Total deposits $ 6,374,103 $ 5,765,062 $ 4,854,948 Total borrowed funds $ 464,781 $ 724,120 $ 109,458 Total stockholders' equity $ 877,197 $ 774,536 $ 524,038 Capital Ratios: Total risk-based capital to risk-weighted assets 13.25 % 11.99 % 11.76 % Tier 1 risk-based capital to risk-weighted assets 11.10 % 9.94 % 9.70 % Common Equity Tier 1 (CET 1) to risk-weighted assets 11.10 % 9.94 % 9.70 % Tier 1 leverage capital to average assets 10.52 % 9.71 % 8.24 % Average stockholders' equity to average total assets 11.05 % 10.28 % 9.43 % Tangible common stockholders' equity to tangible assets (non-GAAP) (3) 9.94 % 9.09 % 8.58 % Tangible common stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) (3) 9.90 % 9.03 % 8.59 % Nonfinancial Data: Full-time equivalent employees 1,110 1,149 1,042 Banking branches 69 72 53 (1) The efficiency ratio is one measure of profitability in the banking industry.
Overall gains on sale of mortgage loans declined as a result of the decline in origination activity, continued margin compression, and a decline in the rate lock pipeline volume and valuation due to rising interest rates.
The year over year decline in capitalized servicing value for MSRs was $5.0 million. Overall gains on sale of mortgage loans declined by $4.6 million as a result of the decline in origination activity, continued margin compression, and a decline in the rate lock pipeline volume and valuation due to rising interest rates.
We did not have any other financial instruments that were measured at fair value on a recurring basis at December 31, 2022. 61 Table of Contents Results of Operations Comparison of fiscal years 2022 and 2021 The follow table sets forth our results of operations as of and for the year ended December 31,: ($ in thousands, except per share amounts) 2022 2021 2020 Net interest income $ 241,632 $ 155,233 $ 135,953 Provision for loan losses 18,050 3,000 23,100 Noninterest income 89,566 124,244 148,385 Noninterest expense 239,126 224,635 204,073 Income before income taxes 74,022 51,842 57,165 Provision for income taxes 14,840 8,678 9,580 Net income 59,182 43,164 47,585 Diluted earnings per share $ 2.48 $ 2.30 $ 2.58 Return on average assets 0.88 % 0.79 % 1.02 % Return on average stockholders' equity 8.55 % 8.37 % 10.20 % Net interest margin 3.87 % 3.00 % 3.10 % Net interest margin (FTE basis) (1) 3.95 % 3.11 % 3.25 % Efficiency ratio 72.20 % 80.38 % 71.77 % Fee revenue to total revenue 27.0 % 44.5 % 52.2 % (1) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
Results of Operations Comparison of fiscal years 2023 and 2022 The follow table sets forth our results of operations as of and for the year ended December 31,: ($ in thousands, except per share amounts) 2023 2022 2021 Net interest income $ 293,431 $ 241,632 $ 155,233 Provision for credit losses 18,247 18,050 3,000 Noninterest income 79,092 89,566 124,244 Noninterest expense 222,793 239,126 224,635 Income before income taxes 131,483 74,022 51,842 Provision for income taxes 27,950 14,840 8,678 Net income 103,533 59,182 43,164 Diluted earnings per share $ 4.08 $ 2.48 $ 2.30 Return on average total assets 1.38 % 0.88 % 0.79 % Return on average stockholders' equity 12.50 % 8.55 % 8.37 % Net interest margin 4.23 % 3.87 % 3.00 % Net interest margin (FTE basis) (1) 4.29 % 3.95 % 3.11 % Efficiency ratio 59.81 % 72.20 % 80.38 % Noninterest income to total revenue (2) 21.2 % 27.0 % 44.5 % (1) See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
We do not generally accrue interest on loans that are 90 days or more past due. When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of 71 Table of Contents interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal.
When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal.
Changes in underlying factors, estimates, assumptions or judgements could have a material impact on our future financial condition and results of operations. These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.
These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.
Deposits Deposits represent our primary source of funds. We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. Total deposits increased by $0.9 billion to $5.8 billion at December 31, 2022, compared to December 31, 2021.
(3) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due. Deposits Deposits represent our primary source of funds. Total deposits increased by $0.6 billion to $6.4 billion at December 31, 2023, compared to December 31, 2022. We are focused on growing our core deposits through relationship-based banking with our business and consumer clients.
Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The Bank may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years, subject to maintenance of minimum capital requirements.
The Bank may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years, subject to maintenance of minimum capital requirements. Prior regulatory approval to pay dividends was not required in 2022 or 2023 and is not currently required.
Investment in our securities portfolio may change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and other available sources of funds, and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements.
Our liquidity levels take into account anticipated future cash flows and other available sources of funds, and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements. Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity.
Our net interest margin was 3.87% for the year ended December 31, 2022, compared to 3.00% in 2021, an increase of 87 basis points. We experienced a 100 basis points increase in yield from earning assets and our total cost of funds increased by 13 basis points from 2021.
We experienced a 169 basis point increase in yield from earning assets and our total cost of funds increased by 187 basis points for the year ended December 31, 2023, compared to the same period in 2022.
Management routinely analyzes our capital to ensure an optimized capital structure. For further information on capital adequacy see Note 1 9 - Regulatory Capital Matters to the consolidated financial statements.
Capital Adequacy We are subject to various regulatory capital requirements administered by the federal banking agencies. Management routinely analyzes our capital to seek to ensure an optimized capital structure. For further information on capital adequacy see Note 19 - Regulatory Capital Matters to the consolidated financial statements.
(In thousands) Note Reference Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Deposits: Deposits without a stated maturity 10 $ 4,843,040 $ 4,843,040 $ — $ — $ — Certificates of deposit 10 922,022 639,438 264,141 15,614 2,829 Securities sold under agreements to repurchase 11 36,721 36,721 — — — Short-term debt: FHLB LOC 12 643,885 643,885 — — — Long-term debt: FHLB term advances 12 — — — — — Convertible notes payable 12 5,456 5,456 — — — Subordinated debt 12 78,919 — — — 78,919 Operating leases 25 33,094 7,517 12,366 6,323 6,888 We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients.
(In thousands) Note Reference Total Less than 1 Year 1 - 3 Years 3 - 5 Years More than 5 Years Deposits: Deposits without a stated maturity 10 $ 4,597,534 $ 4,597,534 $ — $ — $ — Certificates of deposit 10 1,776,569 1,347,310 418,262 8,038 2,959 Securities sold under agreements to repurchase 11 24,693 24,693 — — — Short-term debt: FHLB LOC 12 389,468 389,468 — — — Long-term debt: Subordinated debt 12 78,919 — — — 78,919 Operating leases 25 28,122 7,146 10,531 5,158 5,287 We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients.
Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. For additional information on our segments, see Note 23 - Segment Information included in our audited consolidated financial statements included elsewhere in this report.
As of and for the year ended December 31,: 2022 2021 2020 (In thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest Earning Assets Loans held-for-sale $ 59,915 $ 3,313 5.53 % $ 125,808 $ 4,051 3.22 % $ 121,941 $ 3,842 3.15 % Loans held-for-investment (1) 5,156,297 244,675 4.75 % 3,780,650 155,252 4.11 % 3,525,837 141,413 4.01 % Investment securities 605,119 13,185 2.18 % 531,803 7,979 1.50 % 555,030 10,100 1.82 % Interest-bearing cash and other assets 422,890 5,644 1.33 % 742,389 2,072 0.28 % 179,331 1,482 0.83 % Total earning assets 6,244,221 266,817 4.27 % 5,180,650 169,354 3.27 % 4,382,139 156,837 3.58 % Other assets 494,065 288,617 279,806 Total assets $ 6,738,286 $ 5,469,267 $ 4,661,945 Interest-bearing liabilities Demand and NOW deposits $ 214,516 $ 1,775 0.83 % $ 254,679 $ 756 0.30 % $ 205,557 $ 1,019 0.50 % Savings deposits 496,131 799 0.16 % 455,451 460 0.10 % 380,839 703 0.19 % Money market deposits 2,528,308 6,770 0.27 % 2,208,498 4,292 0.19 % 1,801,809 6,635 0.37 % Certificates of deposits 536,325 3,810 0.71 % 344,224 3,036 0.88 % 488,575 7,285 1.49 % Total deposits 3,775,280 13,154 0.35 % 3,262,852 8,544 0.26 % 2,876,780 15,642 0.54 % Repurchase agreements 54,335 119 0.22 % 125,867 59 0.05 % 116,074 157 0.14 % Total deposits and repurchase agreements 3,829,615 13,273 0.35 % 3,388,719 8,603 0.25 % 2,992,854 15,799 0.53 % FHLB borrowings 215,166 6,221 2.89 % 42,527 909 2.14 % 89,861 1,658 1.84 % Other long-term borrowings 82,111 5,691 6.93 % 68,918 4,609 6.69 % 51,091 3,427 6.71 % Total interest-bearing liabilities 4,126,892 25,185 0.61 % 3,500,164 14,121 0.40 % 3,133,806 20,884 0.67 % Noninterest-bearing deposits 1,835,578 1,376,968 978,092 Other liabilities 83,292 76,362 83,427 Stockholders’ equity 692,524 515,773 466,620 Total liabilities and stockholders’ equity $ 6,738,286 $ 5,469,267 $ 4,661,945 Net interest income $ 241,632 $ 155,233 $ 135,953 Net interest spread 3.66 % 2.87 % 2.91 % Net interest margin 3.87 % 3.00 % 3.10 % Net interest margin (on a FTE basis) (2) 3.95 % 3.11 % 3.25 % (1) Includes nonaccrual loans.
As of and for the year ended December 31,: 2023 2022 2021 (In thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Interest Earning Assets Loans (1) $ 6,178,414 $ 385,637 6.24 % $ 5,216,212 $ 247,988 4.75 % $ 3,906,458 $ 159,303 4.08 % Investment securities 554,433 17,032 3.07 % 605,119 13,185 2.18 % 531,803 7,979 1.50 % Interest-bearing cash and other assets 202,720 11,015 5.43 % 422,890 5,644 1.33 % 742,389 2,072 0.28 % Total earning assets 6,935,567 413,684 5.96 % 6,244,221 266,817 4.27 % 5,180,650 169,354 3.27 % Other assets 556,083 494,065 288,617 Total assets $ 7,491,650 $ 6,738,286 $ 5,469,267 Interest-bearing liabilities Demand and NOW deposits $ 385,424 $ 11,574 3.00 % $ 214,516 $ 1,775 0.83 % $ 254,679 $ 756 0.30 % Savings deposits 453,654 2,676 0.59 % 496,131 799 0.16 % 455,451 460 0.10 % Money market deposits 2,122,410 28,301 1.33 % 2,528,308 6,770 0.27 % 2,208,498 4,292 0.19 % Certificates of deposits 1,512,638 58,804 3.89 % 536,325 3,810 0.71 % 344,224 3,036 0.88 % Total deposits 4,474,126 101,355 2.27 % 3,775,280 13,154 0.35 % 3,262,852 8,544 0.26 % Repurchase agreements 28,316 225 0.80 % 54,335 119 0.22 % 125,867 59 0.05 % Total deposits and repurchase agreements 4,502,442 101,580 2.26 % 3,829,615 13,273 0.35 % 3,388,719 8,603 0.25 % FHLB borrowings 269,613 13,621 5.05 % 215,166 6,221 2.89 % 42,527 909 2.14 % Other long-term borrowings 78,654 5,052 6.42 % 82,111 5,691 6.93 % 68,918 4,609 6.69 % Total interest-bearing liabilities 4,850,709 120,253 2.48 % 4,126,892 25,185 0.61 % 3,500,164 14,121 0.40 % Noninterest-bearing deposits 1,678,240 1,835,578 1,376,968 Other liabilities 134,599 83,292 76,362 Stockholders’ equity 828,102 692,524 515,773 Total liabilities and stockholders’ equity $ 7,491,650 $ 6,738,286 $ 5,469,267 Net interest income $ 293,431 $ 241,632 $ 155,233 Net interest spread 3.48 % 3.66 % 2.87 % Net interest margin 4.23 % 3.87 % 3.00 % Net interest margin (on a FTE basis) (2) 4.29 % 3.95 % 3.11 % (1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale.
The cash flow assumptions and prepayment assumptions used in the model are based on numerous factors, with the key assumptions being mortgage prepayment speeds, discount rates and cost to service. The change of any of these key assumptions due to market conditions or other factors could materially affect the fair value of our MSRs.
The cash flow assumptions used in the model are based on numerous factors, with the key assumptions being mortgage prepayment speeds, discount rates and cost to service that management believes are consistent with the assumptions that other similar market participants use in valuing MSRs.
Service charges on deposit accounts includes overdraft and non-sufficient funds charges, treasury management services provided to our business customers, and other maintenance fees on deposit accounts.
Service charges on deposit accounts includes overdraft and non-sufficient funds charges, treasury management services provided to our business customers, and other maintenance fees on deposit accounts. For the year ended December 31, 2023, service charges on deposit accounts increased $3.1 million, primarily due to growth in treasury management services provided to our business customers, as compared to 2022.
We also utilize a third party consulting firm to assist us with the valuation. Because of the nature of the valuation inputs, we classify the valuation of our MSRs as Level 3 in the valuation hierarchy. Our derivative financial instruments are measured at fair value on a recurring basis.
The change of any of these key assumptions due to market conditions or other factors could materially affect the fair value of our MSRs. We also utilize a third-party consulting firm to assist us with the valuation. Because of the nature of the valuation inputs, we classify the valuation of our MSRs as Level 3 in the fair value hierarchy.
The increase in net interest income was primarily due to organic growth in our loan portfolios, an increase in interest earning assets resulting from the Pioneer Merger, and an increase in net interest margin. Noninterest expense increased $28.9 million to $178.8 million in 2022, compared to $149.9 million in 2021.
The increase in net interest income was primarily due to organic growth in our loan portfolios and an increase in net interest margin. Noninterest expense 64 Table of Contents decreased $3.1 million to $175.7 million in 2023, compared to $178.8 million in 2022.
We incurred merger related expenses of $18.8 million ($0.62 per diluted share) for the year ended December 31, 2022, an increase of $15.7 million, from $3.1 million ($0.14 per diluted share) for 2021, related to our merger with Pioneer that was completed on April 1, 2022.
The decrease is primarily due to the decrease of $18.8 million in merger related expenses. We incurred no merger related expenses for the year ended December 31, 2023. Our merger with Pioneer was completed on April 1, 2022.
Total average loans held-for-investment grew to $5.2 billion at December 31, 2022, an increase of $1.4 billion, compared to December 31, 2021, primarily due to organic growth in our loan portfolios and the Pioneer Merger.
Interest expense from total interest-bearing liabilities increased by $95.1 million for the year ended December 31, 2023, from 2022. Total average loans, including loans held-for-sale grew to $6.2 billion at December 31, 2023, an increase of $1.0 billion, compared to December 31, 2022, primarily due to organic growth in our loan portfolios.
These policies and procedures are expected to be followed by our bankers and underwriters and exceptions to these policies require elevated levels of approval and are reported to our board of directors.
These policies and procedures are expected to be followed by our bankers and underwriters and exceptions to these policies require elevated levels of approval and are reported to our board of directors. Nonperforming assets include all loans categorized as nonaccrual, accrual loans greater than 90 days past due, and other real estate owned and other repossessed assets.
Prior regulatory approval to pay dividends was not required in 2021 or 2022 and is not currently required. At December 31, 2022, the Bank could pay dividends to FirstSun of approximately $107.0 million without prior regulatory approval. During the year ended December 31, 2022, the Bank paid a dividend of $8.0 million to FirstSun.
At December 31, 2023, the Bank could pay dividends to FirstSun of approximately $199.0 million without prior regulatory approval. During the year ended December 31, 2023, the Bank paid dividends totaling $26.0 million to FirstSun. During the year ended December 31, 2023, Logia paid dividends totaling $0.6 million to FirstSun.
Average interest-bearing deposits increased $0.5 billion, or 15.7%, for the year ended December 31, 2022, from 2021, inclusive of the deposits acquired from the Pioneer Merger, and was the primary driver of the growth in average interest-bearing liabilities.
Average interest-bearing liabilities increased $0.7 billion, or 17.5%, for the year ended December 31, 2023, from 2022 primarily to support the growth in our loan portfolio. Average interest-bearing deposits increased $0.7 billion, or 18.5%, for the year ended December 31, 2023, from 2022, with organic growth as the primary driver.
We recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio. We also maintain a hedging strategy to manage a portion of the risk associated with changes in the fair value of our MSR portfolio.
The year over year decline in capitalized servicing value for MSRs was $5.0 million. We recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change. 70 Table of Contents The following table presents, by loan type, the changes in the allowance for loan losses for the year ended December 31,: (In thousands) 2022 2021 2020 Balance, beginning of period $ 47,547 $ 47,766 $ 28,546 Loan charge-offs: Commercial (2,321) (4,296) (4,064) Commercial real estate — (375) (581) Residential real estate (122) (42) (39) Consumer (144) (148) (216) Total loan charge-offs (2,587) (4,861) (4,900) Recoveries of loans previously charged-off: Commercial 2,236 1,547 585 Commercial real estate 388 28 272 Residential real estate 221 24 115 Consumer 62 43 48 Total loan recoveries 2,907 1,642 1,020 Net recoveries (charge-offs) 320 (3,219) (3,880) Provision for loan losses 18,050 3,000 23,100 Balance, end of period $ 65,917 $ 47,547 $ 47,766 Allowance for loan losses to total loans 1.12 % 1.18 % 1.24 % Ratio of net charge-offs (recoveries) to average loans outstanding (0.01) % 0.09 % 0.11 % The following table presents net charge-offs (recoveries) to average loans outstanding by loan category for the year ended December 31,: (In thousands) 2022 2021 2020 Commercial — % 0.12 % 0.19 % Commercial real estate (0.03) % 0.03 % 0.03 % Residential real estate (0.01) % — % (0.01) % Consumer 0.21 % 0.65 % 1.00 % Allocation of Allowance for Loan Losses The following table presents the allocation of the allowance for loan losses by category and the percentage of the allocation of the allowance for loan losses by category to total loans listed as of December 31,: 2022 2021 (In thousands) Allowance Amount % of loans in each category to total loans Allowance Amount % of loans in each category to total loans Commercial $ 42,847 51.1 % $ 33,277 59.6 % Commercial real estate 19,369 29.5 % 12,899 29.1 % Residential real estate 3,349 18.7 % 1,136 10.8 % Consumer 352 0.7 % 235 0.5 % Total $ 65,917 100 % $ 47,547 100 % Nonperforming Assets We have established policies and procedures to guide us in originating, monitoring and maintaining the credit quality of our loan portfolio.
This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change. 76 Table of Contents The following table presents, by loan type, the changes in the allowance for credit losses for the years ended December 31,: (In thousands) 2023 2022 2021 Balance, beginning of period $ 65,917 $ 47,547 $ 47,766 Impact of adopting ASC 326 5,256 — — Adjusted beginning balance $ 71,173 $ 47,547 $ 47,766 Loan charge-offs: Commercial and industrial (9,242) (2,321) (4,296) Commercial real estate (83) — (375) Residential real estate (13) (122) (42) Public finance — — — Consumer (334) (144) (148) Other — — — Total loan charge-offs (9,672) (2,587) (4,861) Recoveries of loans previously charged-off: Commercial and industrial 1,118 2,236 1,547 Commercial real estate 12 388 28 Residential real estate 682 221 24 Public finance — — — Consumer 50 62 43 Other — — — Total loan recoveries 1,862 2,907 1,642 Net (charge-offs) recoveries (7,810) 320 (3,219) Provision for credit losses (1) 17,035 18,050 3,000 Balance, end of period $ 80,398 $ 65,917 $ 47,547 Allowance for credit losses to total loans 1.28 % 1.12 % 1.18 % Ratio of net charge-offs (recoveries) to average loans outstanding 0.13 % (0.01) % 0.09 % (1) For the years ended December 31, 2023, 2022 and 2021 we recorded a provision for credit losses on unfunded commitments of $1,212, $525 and $300, respectively.
Identifiable assets for our Banking segment grew by $1.6 billion to $6.6 billion at December 31, 2022 from $5.1 billion at December 31, 2021. The growth in identifiable assets was primarily driven by organic growth in our loan portfolios and the assets acquired in the Pioneer Merger.
For additional information on our new allowance for credit loss methodology see “Critical Accounting Estimates” below. Identifiable assets for our Banking segment grew by $0.3 billion to $6.9 billion at December 31, 2023 from $6.6 billion at December 31, 2022. The growth in identifiable assets was primarily driven by organic growth in our loan portfolios.
For the year ended December 31, For the year ended December 31, 2022 Versus 2021 Increase (Decrease) Due to: 2021 Versus 2020 Increase (Decrease) Due to: (In thousands) Rate Volume Total Rate Volume Total Interest Earning Assets Loans held-for-sale $ 1,384 $ (2,122) $ (738) $ 87 $ 122 $ 209 Loans held-for-investment 32,932 56,491 89,423 3,619 10,220 13,839 Investment securities 4,106 1,100 5,206 (1,699) (422) (2,121) Interest-bearing cash 4,464 (892) 3,572 (4,063) 4,653 590 Total earning assets 42,886 54,577 97,463 (2,056) 14,573 12,517 Interest-bearing liabilities Demand and NOW deposits 1,138 (119) 1,019 (506) 244 (262) Savings deposits 298 41 339 (418) 144 (274) Money market deposits 1,857 621 2,478 (3,804) 1,491 (2,313) Certificates of deposits (920) 1,694 774 (2,096) (2,153) (4,249) Total deposits 2,373 2,237 4,610 (6,824) (274) (7,098) Repurchase agreements 93 (33) 60 (111) 13 (98) Total deposits and repurchase agreements 2,466 2,204 4,670 (6,935) (261) (7,196) FHLB borrowings 1,621 3,691 5,312 124 (873) (749) Other long-term borrowings 200 882 1,082 (15) 1,197 1,182 Total interest-bearing liabilities 4,287 6,777 11,064 (6,826) 63 (6,763) Net interest income $ 38,599 $ 47,800 $ 86,399 $ 4,770 $ 14,510 $ 19,280 Provision for Loan Losses We established an allowance for loan losses through a provision for loan losses charged as an expense in our consolidated statements of income.
For the year ended December 31, For the year ended December 31, 2023 Versus 2022 Increase (Decrease) Due to: 2022 Versus 2021 Increase (Decrease) Due to: (In thousands) Rate Volume Total Rate Volume Total Interest Earning Assets Loans (1) $ 86,596 $ 51,053 $ 137,649 $ 34,316 $ 54,369 $ 88,685 Investment securities 4,835 (988) 3,847 4,106 1,100 5,206 Interest-bearing cash 6,788 (1,417) 5,371 4,464 (892) 3,572 Total earning assets 98,219 48,648 146,867 42,886 54,577 97,463 Interest-bearing liabilities Demand and NOW deposits 7,520 2,279 9,799 1,138 (119) 1,019 Savings deposits 1,939 (62) 1,877 298 41 339 Money market deposits 22,436 (905) 21,531 1,857 621 2,478 Certificates of deposits 39,086 15,908 54,994 (920) 1,694 774 Total deposits 70,981 17,220 88,201 2,373 2,237 4,610 Repurchase agreements 130 (24) 106 93 (33) 60 Total deposits and repurchase agreements 71,111 17,196 88,307 2,466 2,204 4,670 FHLB borrowings 5,528 1,872 7,400 1,621 3,691 5,312 Other long-term borrowings (406) (233) (639) 200 882 1,082 Total interest-bearing liabilities 76,233 18,835 95,068 4,287 6,777 11,064 Net interest income $ 21,986 $ 29,813 $ 51,799 $ 38,599 $ 47,800 $ 86,399 Provision for Credit Losses We established an allowance for credit losses through a provision for credit losses charged as an expense in our consolidated statements of income.
Due to a number of factors, including rising interest rates, low inventory in the housing market, lower refinance volumes and a decrease in margin on loans sales, we do not expect revenue from mortgage banking activities to continue at levels seen in the prior years, which will reduce the amount of income from mortgage banking services, net recorded in future periods in comparison to prior years.
Due to a number of factors, including the overall elevated level of interest rates, low inventory in the housing market, lower refinance volumes and lower margin on loans sales, we expect revenue from mortgage banking activities to remain at a lesser level as compared to levels we experienced during the lower market rate environment experienced during 2021 and 2020.
Other noninterest income decreased $1.2 million for the year ended December 31, 2022 compared to 2021, primarily due to a decrease in the fair value of investments related to our deferred compensation plan. 66 Table of Contents Noninterest Expense The following table presents noninterest expense for the year ended December 31,: (In thousands) 2022 2021 2020 Salary and employee benefits $ 134,359 $ 151,926 $ 139,980 Occupancy and equipment 30,509 26,565 26,716 Amortization of intangible assets 4,215 1,417 1,485 Merger related expenses 18,751 3,085 — Other 51,292 41,642 35,892 Total noninterest expenses $ 239,126 $ 224,635 $ 204,073 Our noninterest expenses increased $14.5 million to $239.1 million for the year ended December 31, 2022, from $224.6 million for 2021.
Noninterest Expense The following table presents noninterest expense for the year ended December 31,: (In thousands) 2023 2022 2021 Salary and employee benefits $ 133,231 $ 134,359 $ 151,926 Occupancy and equipment 33,426 31,344 27,628 Amortization of intangible assets 4,822 4,215 1,417 Merger related expenses — 18,751 3,085 Other ( Note 18 - Other noninterest expenses ) 51,314 50,457 40,579 Total noninterest expenses $ 222,793 $ 239,126 $ 224,635 Our noninterest expenses decreased $16.3 million to $222.8 million for the year ended December 31, 2023, from $239.1 million for 2022.
Residential real estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit. Consumer loans include direct consumer installment loans, credit card accounts, overdrafts and other revolving loans.
Owner occupied CRE loans associated with office space were $149.4 million, or 2.4% of total loans as of December 31, 2023. Residential real estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit.
MSR capitalization and changes in fair value, net of derivative activity, increased $1.9 million for the year ended December 31, 2022, compared to 2021. The increase in revenue related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions.
MSR capitalization and changes in fair value, net of derivative activity, decreased $10.8 million for the year ended December 31, 2023, compared to 2022.
The following table sets forth the composition of our loan portfolio, as of December 31,: 2022 2021 (In thousands) Amount % of total loans Amount % of total loans Commercial $ 3,019,610 51.1 % $ 2,407,888 59.6 % Commercial real estate 1,743,635 29.5 % 1,174,242 29.1 % Residential real estate 1,105,999 18.7 % 437,017 10.8 % Consumer 42,588 0.7 % 17,976 0.5 % Total loans $ 5,911,832 100 % $ 4,037,123 100 % Commercial loans include commercial and industrial loans to commercial and agricultural customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects.
The following table sets forth the composition of our loan portfolio, as of December 31,: 2023 2022 (In thousands) Amount % of total loans Amount % of total loans Commercial and industrial $ 2,467,688 39.4 % $ 2,310,929 39.1 % Commercial real estate: Non-owner occupied 812,235 13.0 % 779,546 13.2 % Owner occupied 635,365 10.2 % 636,272 10.8 % Construction and land 345,430 5.5 % 327,817 5.5 % Multifamily 103,066 1.6 % 102,068 1.7 % Total commercial real estate 1,896,096 30.3 % 1,845,703 31.2 % Residential real estate 1,110,610 17.7 % 1,003,931 17.0 % Public finance 602,913 9.6 % 590,284 10.0 % Consumer 36,371 0.6 % 42,588 0.7 % Other 153,418 2.4 % 118,397 2.0 % Total loans $ 6,267,096 100.0 % $ 5,911,832 100.0 % Commercial and industrial loans include loans to commercial customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects.
The following table is a summary of our investment portfolio as of December 31,: 2022 2021 (In thousands) Carrying Amount % of Portfolio Carrying Amount % of Portfolio Available-for-sale: U.S. treasury $ 56,649 10.5 % $ 35,185 6.1 % U.S. agency 2,834 0.5 % 5,919 1.0 % Obligations of states and political subdivisions 24,899 4.6 % 3,789 0.7 % Mortgage backed - residential 116,135 21.6 % 138,677 24.2 % Collateralized mortgage obligations 204,265 38.1 % 235,784 41.2 % Mortgage backed - commercial 117,336 21.9 % 153,147 26.8 % Other debt 14,855 2.8 % — — % Total available-for-sale $ 536,973 100 % $ 572,501 100 % Held-to-maturity: U.S. agency — — % — — % Obligations of states and political subdivisions 25,378 65.2 % 716 4.0 % Mortgage backed - residential 8,705 22.4 % 10,750 59.7 % Collateralized mortgage obligations 4,818 12.4 % 6,541 36.3 % Total held-to-maturity $ 38,901 100 % $ 18,007 100 % The following tables show the weighted average yield to average life of each category of investment securities as of December 31, 2022: (In thousands) One year or less One to five years Five to ten years After ten years Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Available-for-sale: U.S. treasury $ 3,424 1.34 % $ 22,278 1.89 % $ 30,947 1.29 % $ — — % U.S. agency — — % 1,677 4.68 % 929 4.21 % 228 5.02 % Obligations of states and political subdivisions — — % — — % 6,906 3.29 % 17,993 3.00 % Mortgage backed - residential 559 0.03 % 36,994 2.22 % 48,025 1.89 % 30,557 2.32 % Collateralized mortgage obligations 2,049 2.43 % 59,357 4.02 % 120,797 2.63 % 22,062 2.41 % Mortgage backed - commercial 1,507 2.68 % 39,466 3.49 % 74,449 2.21 % 1,914 2.95 % Other debt — — % — — % 12,104 2.83 % 2,751 3.78 % Total available-for-sale $ 7,539 1.80 % $ 159,772 3.18 % $ 294,157 2.29 % $ 75,505 2.59 % Held-to-maturity: Obligations of states and political subdivisions $ — — % $ 1,036 2.05 % $ — — % $ 24,342 3.52 % Mortgage backed - residential — — % 5,996 2.45 % 21 5.96 % 2,688 3.21 % Collateralized mortgage obligations — — % 2,547 2.43 % 2,271 3.10 % — — % Total held-to-maturity $ — — % $ 9,579 2.40 % $ 2,292 3.13 % $ 27,030 3.49 % We had no securities of any one issuer, other than the U.S.
The following table is a summary of our investment portfolio as of December 31,: 2023 2022 (In thousands) Carrying Amount % of Portfolio Carrying Amount % of Portfolio Available-for-sale: U.S. treasury $ 54,234 10.5 % $ 56,649 10.5 % U.S. agency 1,839 0.4 % 2,834 0.5 % Obligations of states and political subdivisions 25,970 5.0 % 24,899 4.6 % Mortgage backed - residential 106,433 20.6 % 116,135 21.6 % Collateralized mortgage obligations 181,533 35.1 % 204,265 38.1 % Mortgage backed - commercial 131,192 25.4 % 117,336 21.9 % Other debt 15,556 3.0 % 14,855 2.8 % Total available-for-sale $ 516,757 100 % $ 536,973 100 % Held-to-maturity: Obligations of states and political subdivisions $ 25,542 69.1 % $ 25,378 65.2 % Mortgage backed - residential 7,548 20.4 % 8,705 22.4 % Collateralized mortgage obligations 3,893 10.5 % 4,818 12.4 % Total held-to-maturity $ 36,983 100 % $ 38,901 100 % 73 Table of Contents The following tables show the weighted average yield to average life of each category of investment securities as of December 31, 2023: (In thousands) One year or less One to five years Five to ten years After ten years Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Available-for-sale: U.S. treasury $ 19,863 1.97 % $ 34,371 1.29 % $ — — % $ — — % U.S. agency — — % 1,016 7.00 % 823 6.00 % — — % Obligations of states and political subdivisions — — % — — % 11,281 3.00 % 14,689 3.00 % Mortgage backed - residential 730 2.00 % 27,973 3.00 % 36,127 2.00 % 41,603 3.00 % Collateralized mortgage obligations 2,633 3.00 % 31,433 3.00 % 133,539 4.00 % 13,928 2.00 % Mortgage backed - commercial 1,445 3.00 % 40,964 4.00 % 88,783 3.00 % — — % Other debt — — % — — % 12,674 3.00 % 2,882 4.00 % Total available-for-sale $ 24,671 2.15 % $ 135,757 2.97 % $ 283,227 3.17 % $ 73,102 2.53 % Held-to-maturity: Obligations of states and political subdivisions $ — — % $ 1,018 2.06 % $ — — % $ 24,524 3.52 % Mortgage backed - residential — — % 4,312 2.50 % 872 2.57 % 2,364 3.24 % Collateralized mortgage obligations — — % 1,941 2.67 % 1,952 3.13 % — — % Total held-to-maturity $ — — % $ 7,271 2.49 % $ 2,824 2.95 % $ 26,888 3.50 % We had no securities of any one issuer, other than the U.S.
Nonperforming assets include all loans categorized as nonaccrual, loans identified as a troubled debt restructuring (“TDR”), accrual loans greater than 90 days past due, and other real estate owned and other repossessed assets. The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt.
The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt. We do not generally accrue interest on loans that are 90 days or more past due.
Our securities available-for-sale decreased by $35.5 million to $537.0 million at December 31, 2022, compared to December 31, 2021. The decrease was due to unrealized losses resulting from the rising interest rate environment, partially 67 Table of Contents offset by securities acquired in the Pioneer Merger.
Our securities available-for-sale decreased by $20.2 million to $516.8 million at December 31, 2023, compared to December 31, 2022. The decrease was primarily due to amortization of the portfolio and a decrease in fair value due to the rising interest rate environment.
We have a diversified portfolio across a variety of industries, and the portfolio is generally centered in the states in which we have branch offices. Total loans, net of deferred origination fees, premiums and discounts, as of December 31, 2022 and 2021 were $5.9 billion and $4.0 billion, respectively.
Total loans, net of deferred origination fees, premiums and discounts, as of December 31, 2023 and 2022 were $6.3 billion and $5.9 billion, respectively.
The increase in noninterest expense was primarily due to $18.8 million ($0.62 diluted earnings per share) in merger-related expenses resulting from the Pioneer Merger. Provision for loan losses increased $11.5 million to 59 Table of Contents $14.8 million in 2022 compared to $3.2 million in 2021.
The decrease in noninterest expense was primarily the result of the absence of merger costs in 2023 compared to $18.8 million ($0.62 diluted earnings per share) in merger-related expenses incurred in 2022 related to the Pioneer merger, partially offset by an increase in salary and employee benefits of $11.7 million and an increase of $3.1 million in occupancy expenses in 2023.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

2 edited+3 added−1 removed7 unchanged
Biggest changeAll rates, short-term and long-term, are changed by the same amount (e.g. plus or minus 100 basis points) resulting in the shape of the yield curve remaining unchanged. % Change in Net Interest Income As of December 31, % Change in Economic Value of Equity As of December 31, Changes in Interest Rate (Basis Points) 2022 2021 2022 2021 +300 6.8 % 24.9 % (10.3) % (3.2) % +200 4.6 % 16.9 % (6.8) % (1.9) % +100 2.2 % 8.4 % (3.5) % (1.1) % Base — % — % — % — % -100 (0.3) % (0.6) % 2.8 % 1.2 % -200 (4.9) % N/A (1) 3.4 % N/A (1) -300 (10.5) % N/A (1) 3.6 % N/A (1) (1) Given the level of market interest rates, these scenarios were not considered to be meaningful as of December 31, 2021. 76 Table of Contents
Biggest changeAll rates, short-term and long-term, are changed by the same amount (e.g., plus or minus 100 basis points) resulting in the shape of the yield curve remaining unchanged. % Change in Net Interest Income As of December 31, % Change in Economic Value of Equity As of December 31, Changes in Interest Rate (Basis Points) 2023 2022 2023 2022 +300 4.3 % 6.8 % (13.2) % (10.3) % +200 2.9 % 4.6 % (8.9) % (6.8) % +100 1.3 % 2.2 % (4.7) % (3.5) % Base — % — % — % — % -100 0.3 % (0.3) % 3.5 % 2.8 % -200 0.7 % (4.9) % 6.4 % 3.4 % -300 (0.9) % (10.5) % 8.0 % 3.6 % 83 Table of Contents
In this interest rate shock simulation, as of the periods presented, interest rates have been adjusted by instantaneous parallel changes rather than in a ramp simulation, which applies interest rate changes over time.
The effect on net interest income over a 12-month time horizon due to hypothetical changes in market interest rates is presented in the table below. In this interest rate shock simulation, as of the periods presented, interest rates have been adjusted by instantaneous parallel changes rather than in a ramp simulation, which applies interest rate changes over time.
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In addition, we assume certain correlation rates, often referred to as a “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates. The effect on net interest income over a 12-month time horizon due to hypothetical changes in market interest rates is presented in the table below.
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Additionally our simulation model incorporates various key assumptions, which we believe are reasonable, but may have an impact on the results such as: (1) we assume certain correlation rates, often referred to as “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates, (2) cash flows and maturities of interest sensitive assets and liabilities, (3) re-pricing characteristics for market rate sensitive instruments, (4) prepayment rates and product mix of assets and liabilities, and (5) simulations do not contemplate any actions management may undertake in response to changes in interest rates.
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Because of limitations in any approach used to measure interest rate risk, simulation results are not intended to forecast actual results driven by the effect of a change in market rates but to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.
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The primary impact of inflation on operations is reflected in increasing operating costs and non-interest expense. Our interest-bearing assets and liabilities are monetary in nature and changes in interest rates will impact our performance on net interest margin more than changes in the general rate of inflation.

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