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Item 7. Management’s Discussion and Analysis

2023-03-16 compared with 2022-03-25 · 196 added, 172 removed, 538 unchanged (41% of the section changed)

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This discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying footnotes filed with this report in “ Part II, Item 8.

Financial Statements .” We have omitted discussion of 2019 results where it would be redundant to the discussion previously included in “ Management ’ s Discussion and Analysis of Financial Condition and R e sults of Operations of FirstSun ” section of our Prospectus dated August 10, 2021, filed pursuant to Securities Act Rule 424(b)(3) under the Securities Act on August 12, 2021, relating to FirstSun’s Registration Statement on Form S-4 (File No.

333-258176), in connection with our proposed merger with Pioneer, which discussion is incorporated herein by reference.

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.

Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

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General Overview

FirstSun, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, which operates as Sunflower Bank, First National 1870 and Guardian Mortgage.

We conduct a full service community banking and trust business through Sunflower Bank and Logia.

We offer a full range of relationship-focused services to meet our clients’ personal, business and wealth management financial objectives, with a branch network in Kansas, Colorado, New Mexico, Texas and Arizona and mortgage capabilities in 43 states.

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.

We offer a full range of relationship-focused services to meet our clients’ personal, business and wealth management financial objectives, with a branch network in Texas, Kansas, Colorado, New Mexico, and Arizona and mortgage capabilities in 43 states.

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.

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.

We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.

We operate FirstSun through two operating segments:

Banking and Mortgage Operations.

We also allocate certain expenses to Corporate, which is not an operating segment.

The expenses included in Corporate are not deemed to be allocable to our operating segments.

The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is evaluated by management.

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 consolidated financial statements included elsewhere in this report.

Merger with Pioneer Bancshares, Inc.

On April 1, 2022, we completed our merger (the “Merger” or the “Pioneer Merger”) with Pioneer Bancshares, Inc.

(“Pioneer”), pursuant to which Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity, and Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into Sunflower Bank, with Sunflower Bank continuing as the surviving bank.

With the acquisition, we acquired 19 branches in Texas.

The results for Pioneer are reflected in our results of operations and financial condition beginning April 1, 2022.

Further information is presented in Note 2 - Merger with Pioneer Bancshares, Inc.

included in our consolidated financial statements included elsewhere in this report.

Recent Banking Events

There were two significant bank failures in the first part of March 2023, primarily due to the failed banks’ lack of liquidity as depositors sought to withdraw their deposits.

Due to rising interest rates, the failed banks were unable to sell investment securities held to meet liquidity needs without realizing substantial losses.

As a result of the March 2023 bank closures and in an effort to strengthen public confidence in the banking system and protect depositors, regulators have announced that any losses to the Deposit Insurance Fund to support uninsured depositors will be recovered by a special assessment on banks, as required by law, which could increase the cost of our FDIC insurance assessments.

Additionally, 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.

The future impact of these failures on the economy, financial institutions and their depositors, as well as any governmental regulatory responses or actions resulting from the same, is difficult to predict at this time.

Pandemic Update

Although the impacts of the COVID-19 pandemic to our business are diminishing, there remains many uncertainties related to COVID-19 including, among other things, the ongoing impact to our customers, employees and vendors;

the impact to the financial services and banking industry;

and the impact to the economy as a whole including rising interest rates and inflation.

Financial Highlights For 2022

We delivered strong financial results in 2022, which included:

• Net income of $43.2 million, $2.30 per diluted share

• Return on average assets of 0.79%

• Return on average equity of 8.37%

• Loan growth of 5.0% (excluding PPP loan balances (non-GAAP), 10.4%)

• Average deposit balance growth of 20.0%

Net income totaled $43.2 million, or $2.30 per diluted share, during 2021, compared to $47.6 million, or $2.58 per diluted share, in 2020.

The return on average assets was 0.79% during 2021, compared to 1.02% in 2020, and the return on average equity was 8.37% during 2021, compared to 10.20% in 2020.

Pending Merger with Pioneer Bancshares, Inc.

On May 11, 2021, FirstSun and Pioneer Bancshares, Inc.

(“Pioneer”) entered into an Agreement and Plan of Merger that provides for the merger of Pioneer with and into FirstSun.

If the merger is completed, each share of Pioneer common stock will be converted into the right to receive 1.0443 shares of FirstSun common stock plus cash in lieu of any fractional shares.

In September 2021, the Pioneer stockholders approved the merger.

On March 7, 2022, we received the necessary regulatory approvals to complete the mergers, subject to applicable waiting periods.

We expect to close the mergers on April 1, 2022, subject to customary closing conditions.

In 2021, we incurred $3.1 million of expenses relating to the proposed transaction and anticipate additional expenses to be incurred in 2022.

Pandemic Update

The COVID-19 pandemic has created economic and financial disruptions that adversely affected our operations during 2020 and to a lesser extent in 2021.

Our historically diligent management of credit risk, diverse loan portfolios, and Southwest-based footprint has helped minimize any adverse impact to us.

In addition, the combination of the vaccine rollout, government stimulus payments, and reduced spending during the pandemic are likely contributing factors mitigating the impact of the pandemic on our business, financial condition, results of operations, and our clients as of December 31, 2021.

However, there are continuing concerns that indicate a slower return to pre-pandemic routines.

Examples of these concerns relate to increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions;

refusals to receive the vaccine along with new strain concerns;

supply chain issues remaining unresolved longer than anticipated;

unemployment increases while consumer confidence and spending falls;

and rising geopolitical tensions.

Given the ongoing and dynamic nature of the circumstances surrounding the pandemic, it is difficult to predict the future adverse financial impact to us, although we expect to continue to be impacted by the pandemic in 2022.

• Net income of $59.2 million, $2.48 per diluted share (excluding merger costs, $76.2 million, $3.20 per diluted share, see the section entitled “ Non-GAAP Financial Measures and Reconciliations ” )

• Return on average assets of 0.88% (excluding merger costs, 1.13%, see the section entitled “ Non-GAAP Financial Measures and Reconciliations ” )

• Return on average equity of 8.55% (excluding merger costs, 11.01%, see the section entitled “ Non-GAAP Financial Measures and Reconciliations ” )

• Completed merger with Pioneer Bancshares, Inc., acquiring loans of $0.8 billion, total assets of $1.5 billion, and total deposits of $1.2 billion, net of purchase accounting adjustments

• Loan growth, excluding acquired Pioneer loans and PPP loans, 28.4%, see the section entitled “ Non-GAAP Financial Measures and Reconciliations ” )

• 27.0% fee revenue to total revenue

• Increase in net interest margin of 87 basis points to 3.87%

Net income totaled $59.2 million, or $2.48 per diluted share, in 2022, compared to $43.2 million, or $2.30 per diluted share, in 2021.

The return on average assets was 0.88% in 2022, compared to 0.79% in 2021, and the return on average equity was 8.55% in 2022, compared to 8.37% in 2021.

Net income, return on average assets and return on average equity were reduced by merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium upon the closing of the Merger.

The reduction to net income, return on average assets and return on average equity in 2022, resulting from the aggregate of merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium, were $17.0 million, 0.25%, and 2.46% respectively.

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.

Financial Highlights

The following table sets forth certain financial highlights of FirstSun as of and for the years ended December 31,:

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:

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Efficiency ratio (1) 72.20 % 80.38 % 71.77 %

Net charge-offs to average loans outstanding 0.09 % 0.11 %

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 %

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Average equity to average assets 10.28 % 9.43 % 10.01 %

Tangible equity to tangible assets (non-GAAP) 8.58 % 8.95 %

Tangible common equity to tangible assets (non-GAAP) (3) 9.09 % 8.58 % 8.95 %

Nonfinancial Data:

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(2) Nonperforming loans include nonaccrual loans, accrual troubled debt restructurings (“TDR”), and accrual loans greater than 90 days past due.

(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.

Non-GAAP Financial Measures and Reconciliations

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These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

The following table presents GAAP to non-GAAP reconciliations as of and for the years ended December 31,:

The 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)

Loan growth excluding PPP loan balances:

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

Acquired loans at date of merger, net of purchase accounting adjustments (811,300) — —

PPP loans (4,352) (66,749) (251,101)

Total loans excluding PPP loans (non-GAAP) $ 3,970,374 $ 3,595,256

Loan growth excluding PPP loan balances in $ $ 375,118 N/A

Loan growth excluding PPP loan balances 10.4 % N/A

Tangible common book value:

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

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Other intangible assets (15,806) (8,250) (9,667)

Total tangible stockholders' equity (non-GAAP) $ 482,738 $ 443,070

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 common book value (non-GAAP) $ 26.31 $ 24.18

Return on tangible common equity:

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

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Tangible stockholders’ equity (non-GAAP) (see above) $ 665,247 $ 482,738 $ 443,070

Return on tangible common equity 9.17 % 11.00 %

Return on average tangible common equity:

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

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Total average tangible stockholders' equity (non-GAAP) $ 598,131 $ 473,759 $ 423,972

Return on average tangible common equity 9.35 % 11.50 %

Net interest margin:

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

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($ in thousands, except share and per share amounts)

Tangible common equity to tangible assets:

2022 2021 2020

Tangible stockholders’ equity to tangible assets:

Total assets (GAAP) $ 7,430,322 $ 5,666,814 $ 4,995,457

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Total tangible assets (non-GAAP) $ 7,321,033 $ 5,625,514 $ 4,952,740

Tangible common equity (non-GAAP) (see above) $ 482,738 $ 443,070

Tangible equity to tangible assets (non-GAAP) 8.58 % 8.95 %

Comparison of fiscal years 2021 and 2020

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

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 %

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 %

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 %

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

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

Our operations are conducted through two operating segments:

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For additional information on our segments, see Note 21 - Se gment Information included in our audited consolidated financial statements included elsewhere in this report.

Identifiable assets for our Banking segment grew by $0.6 billion to $5.1 billion at December 31, 2021 from $4.5 billion for the same period in 2020.

The growth in identifiable assets was primarily driven by growth in cash and cash equivalents and our loan portfolio.

Income (loss) before taxes increased $36.8 million to $34.8 million for the year ended December 31, 2021, from a loss of $2.0 million for the year ended December 31, 2020.

The period over period increase was driven by a $20.1 million decrease in our provision for loan losses, decreasing from a $23.3 million provision in the year ended December 31, 2020 to a $3.2 million provision in the year ended December 31, 2021.

This reduction in the provision was due to favorable changes to certain environmental factors as a result of improved economic conditions and the performance of our loan portfolio.

Noninterest income increased $11.3 million to $35.4 million in the year ended December 31, 2021, compared to $24.1 million in the same period in 2020, primarily resulting from increases in trust and investment advisory fee income, treasury management service fees, customer accommodation interest rate swap fees and changes in fair value.

Noninterest expense increased $15.0 million to $149.9 million for the year ended December 31, 2021 compared to $134.9 million for the year ended December 31, 2020.

The increase in noninterest expense was primarily due to our continued growth, including increased salary and employee benefits associated with headcount increases from an expanding sales force, as well as our expanded operations in certain markets, including Arizona and Texas.

For additional information on our segments, see Note 2 3 - Segment Information included in our audited consolidated financial statements included elsewhere in this report.

Comparison of fiscal years 2022 and 2021

Income before income taxes increased $53.7 million to $88.5 million in 2022, from $34.8 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, 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 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 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

$14.8 million in 2022 compared to $3.2 million in 2021.

The increase in the provision for loan losses was attributed to both organic loan growth and provision recorded on Pioneer loans acquired at a premium.

Due to the premium on certain of the loans, a provision for loan losses was required;

however, it was not due to credit deterioration since closing of the Pioneer Merger.

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.

Mortgage Operations

Income before income taxes from our Mortgage Operations segment decreased to $25.4 million for the year ended December 31, 2021, compared to $63.8 million for the year ended December 31, 2020, due to a combination of factors including an $8.0 million decline in revenue related to mortgage servicing rights (“MSR”) capitalization and changes in fair value, net of hedging activity, and a $2.9 million increase in noninterest expense.

The revenue decline related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions.

Additionally, while total loan originations remained steady at $2.3 billion for both the years ended December 31, 2021 and 2020, overall gain on sale margins declined by $30.5 million to $63.5 million for the year ended December 31, 2021 from $94.0 million in the prior year.

Noninterest expense for the year ended December 31, 2021 was $71.0 million, compared to $68.0 million for the year ended December 31, 2020.

The $2.9 million increase was primarily due to the increased salary and employee benefits expense associated with higher headcount as we continue to invest in our workforce.

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.

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 increase in income related to our MSRs was primarily the result of changes in market interest rates leading to lower prepayment rates and our corresponding hedging positions.

Total loan originations for sale were $1.1 billion in 2022, a decline of $0.7 billion from $1.7 billion in 2021.

Critical Accounting Estimates

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While management utilizes its best judgment and information available, the adequacy of the allowance for loan losses is determined by certain factors outside of our control, such as the performance of our portfolios, changes in the economic environment including economic uncertainty, changes in interest rates, and the view of the regulatory authorities toward classification of assets and the level of allowance for loan losses.

Additionally, the level of the allowance for loan losses may fluctuate based on the balance and mix of the loan portfolio.

Additionally, the level of the allowance for loan losses

may fluctuate based on the balance and mix of the loan portfolio.

If actual results differ significantly from our assumptions, our allowance for loan losses may not be sufficient to cover incurred losses in our loan portfolio, resulting in additions to our allowance for loan losses and an increase in the provision for loan losses.

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We maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

Our AFS securities are measured at fair value on a recurring basis.

Our available-for-sale (“AFS”) securities are measured at fair value on a recurring basis.

Changes in the fair value of AFS securities, not related to credit loss, are recorded, net of tax, as accumulated other comprehensive income (AOCI) in stockholders' equity.

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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 MSR.

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 MSR as Level 3 in the valuation hierarchy.

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.

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Comparison of fiscal years 2022 and 2021

The follow table sets forth our results of operations as of and for the years ended December 31,:

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

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Return on average assets 0.88 % 0.79 % 1.02 %

Return on average equity 8.37 % 10.20 % 4.62 %

Return on average stockholders' equity 8.55 % 8.37 % 10.20 %

Net interest margin 3.87 % 3.00 % 3.10 %

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Efficiency ratio 72.20 % 80.38 % 71.77 %

Noninterest income to total revenue 44.46 % 52.19 % 35.81 %

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.

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.

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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 income for the year ended December 31, 2021 was $43.2 million, compared to $47.6 million for the year ended December 31, 2020.

The $4.4 million decrease in net income for the year ended December 31, 2021, compared to 2020, was primarily due to a decrease in noninterest income of $24.1 million, due primarily to a decrease in income from mortgage banking services and an increase in noninterest expenses of $20.6 million, partially offset by a $39.4 million increase in net interest income after provision for loan losses.

Net Interest Income

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Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities.

Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets.

Net interest margin is calculated as net interest income divided by average interest-earning assets.

Interest earned on our loan portfolio is the largest component of our interest income.

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Loans acquired through acquisition are initially recorded at fair value.

Discounts or premiums created when the loans were recorded at their estimated fair values at acquisition are accreted over the remaining term of the loan as an adjustment to the related loan’s yield.

Discounts or premiums created when the loans were recorded at their estimated fair values at acquisition are accreted or amortized over the remaining term of the loan as an adjustment to the related loan’s yield.

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.

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.

This increase was primarily attributable to growth of $254.8 million in average total loans held-for-investment during 2021, driving an increase in interest income on loans of $13.8 million despite the negative impact of declining market interest rates on loan yields.

Interest and fee income on PPP loans contributed $3.2 million of the overall increase in interest income on loans for the period.

Interest income on investment securities decreased by $2.1 million for the year ended December 31, 2021, compared to 2020.

Interest expense from interest-bearing deposits declined by $7.1 million driven by a 28 basis point reduction in the average rate on our interest-bearing deposits.

Average earning assets for the year ended December 31, 2021 were $5.2 billion, an increase of $0.8 billion, or 18.2%, compared to 2020.

Total average loans, including loans held-for-sale, grew to $3.9 billion for the year ended December 31, 2021, an increase of $0.3 billion, compared to 2020.

The growth in interest income on loans held-for-investment is due to growth in loan balances and a ten basis point increase in the yield on loans in the year ended December 31, 2021, compared to 2020.

Interest income from investment securities declined period over period, due to a combination of a 32 basis point decrease in yield due to decreasing market interest rates, as well as a $23.2 million decrease in average balances, year over year.

Average interest-bearing liabilities increased $0.4 billion, or 11.7%, for the year ended December 31, 2021, compared to 2020.

Average interest-bearing deposits increased $0.4 billion, or 13.4%, in the year ended December 31, 2021, compared to 2020 and was the primary driver of the growth in average interest-bearing liabilities.

We also saw growth in noninterest-bearing deposits of $0.4 billion, or 40.8% for the year ended December 31, 2021, compared to 2020.

In addition to growth in our overall commercial and consumer customer base, we saw deposit growth in the year ended December 31, 2021 as a result of funds our customers received from federal stimulus programs related to the COVID-19 pandemic.

Our net interest margin was 3.00% for the year ended December 31, 2021, compared to 3.10% for 2020, a decrease of ten basis points.

While our total cost of funds declined by 27 basis points period over period, we also experienced a 31 basis point decline in yield from earning assets over the same period during 2021.

Our earning asset yield was also negatively impacted by the $0.6 billion increase in interest bearing cash balances, compared to the prior year period, from the heightened level of overall liquidity in the marketplace.

Interest income on loans held-for-investment increased by $89.4 million for the year ended December 31, 2022, from 2021.

Interest income on investment securities increased by $5.2 million for the year ended December 31, 2022, from 2021.

Interest expense from total interest-bearing liabilities increased by $11.1 million for the year ended December 31, 2022, from 2021.

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.

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.

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.

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 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.

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.

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We derived average balances from the daily balances throughout the periods indicated.

As of and for the years ended December 31,:

As of and for the year ended December 31,:

2022 2021 2020

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Net interest margin 3.87 % 3.00 % 3.10 %

Net interest margin (on an FTE basis) 3.11 % 3.25 % 3.56 %

Net interest margin (on a FTE basis) (2) 3.95 % 3.11 % 3.25 %

(1) Includes nonaccrual loans.

(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.

Rate-Volume Analysis

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Changes in volume are changes in the average balance multiplied by the previous period’s average rate.

Changes in rate are changes in the average rate multiplied by the average balance from the previous period.

Changes in rate are changes in the average rate multiplied by the average balance from the current period.

The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.

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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 increase in our provision for loan losses during 2020 was primarily due to changes in certain environmental factors that resulted from uncertainty surrounding the COVID-19 pandemic, as well as an increase in loan balances.

The decrease in provision recorded during 2021 was primarily due to favorable changes to certain environmental factors as a result of improved economic conditions, partially offset by a $375.1 million increase in loan balances, excluding PPP loan balances during the year ended December 31, 2021.

The increase in the provision for loan losses was due to several factors, including greater organic growth in the loan portfolio, loans acquired in the Pioneer Merger, and a provision required on certain non-impaired loans acquired at a premium upon the closing of the Pioneer Merger.

The provision on the loans acquired at a premium was $2.9 million ($0.10 diluted earnings per share) during the year ended December 31, 2022.

The 2021 provision was impacted by favorable changes in certain environmental factors as a result of improved economic conditions as the impact of the COVID-19 pandemic continued to subside.

For a further discussion of the allowance for loan losses, refer to the “Allowance for Loan Losses” section of this financial review.

Noninterest Income

The following table presents noninterest income for the years ended December 31,:

The following table presents noninterest income for the year ended December 31,:

(In thousands) 2022 2021 2020

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Total noninterest income $ 89,566 $ 124,244 $ 148,385

Our noninterest income decreased $24.1 million to $124.2 million for the year ended December 31, 2021 from $148.4 million for 2020, primarily due to a decrease in income from mortgage banking services.

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.

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, 2021, service charges on deposit accounts increased $2.9 million, compared to 2020, primarily due to increased treasury management service fee income which increased by $2.0 million, compared to the prior year.

Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions at our business customers.

Credit and debit card fees increased $1.6 million for the year ended December 31, 2021 compared to 2020, due primarily to increased card transaction volumes.

For the year ended December 31, 2022, service charges on deposit accounts increased $5.7 million, from 2021, primarily due to higher average deposits, changes made in the second half of 2021 to our deposit product offerings as well as increased treasury management service revenue compared to 2021.

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.

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 increased by $2.6 million for the year ended December 31, 2021 compared to 2020.

The increase is primarily due to our September 2020 acquisition of certain customer relationships of a trust and wealth advisory business based in Arizona which added revenues from late 2020 throughout 2021.

For the year ended December 31, 2021, income from mortgage banking services decreased $35.8 million compared to 2020 primarily due to a decline in revenue related to net gain on sales and fees from loan originations, including fair value changes in the held-for-sale portfolio and hedging activity, which decreased $30.5 million for the year ended December 31, 2021 compared to 2020.

Loan originations remained relatively flat at $2.3 billion for the years ended December 31, 2021 and 2020, however, gain on sale margins declined in 2021 as compared to 2020.

We retain servicing rights on the majority of mortgage loans that we sell, driving the increase in servicing income of $2.7 million from $9.8 million in 2020 to $12.5 million in 2021.

MSR capitalization and changes in fair value, net of derivative activity, declined $8.0 million in the year ended December 31, 2021, compared to 2020.

The revenue decline related to our MSRs was primarily the result of changes in market interest rates, mortgage spreads and our corresponding hedge positions.

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.

Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included as a component of income from mortgage banking services.

The components of mortgage banking income were as follows for the years ended December 31,:

Trust and investment advisory fees decreased $1.0 million for the year ended December 31, 2022 compared to 2021 as assets under management declined.

The components of income from mortgage banking services were as follows for the year ended December 31,:

(In thousands) 2022 2021 2020

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Income from mortgage banking services, net $ 46,285 $ 86,410 $ 122,174

Other noninterest income increased $4.6 million for the year ended December 31, 2021 compared to 2020 primarily due to certain loan-related fee income streams such as loan syndication fee income and customer accommodation interest rate swap fees and changes in fair value as well as unused credit line fees.

An increase in gains on other real estate sales of $0.6 million also contributed to the increased other noninterest income.

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.

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.

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.

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.

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.

Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included as a component of income from mortgage banking services.

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.

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.

Noninterest Expense

The following table presents noninterest expense for the years ended December 31,:

The following table presents noninterest expense for the year ended December 31,:

(In thousands) 2022 2021 2020

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Total noninterest expenses $ 239,126 $ 224,635 $ 204,073

Our noninterest expense increased $20.6 million to $224.6 million for the year ended December 31, 2021, from $204.1 million for 2020, primarily due to increases of $11.9 million in salary and employee benefits expense and $5.8 million in other expenses in the year ended December 31, 2021.

The increase in our salary and employee benefits expense for the year ended December 31, 2021, compared to 2020, was driven by the increase in commissions paid to our mortgage loan officers related to increased mortgage origination activity earlier in the year as well as an increase in headcount associated with expanding our presence in certain markets, including in Texas and Arizona.

We incurred merger related expenses of $3.1 million for the year ended December 31, 2021, related to our proposed merger with Pioneer.

We had no merger related expenses in 2020.

Other noninterest expenses increased $5.8 million for the year ended December 31, 2021, compared to 2020.

This increase was primarily caused by a $1.3 million increase in data processing expenses related to an increase in volume and enhanced products and services for our customers and a $1.2 million increase in FDIC insurance costs as the Small Bank FDIC Assessment Credit was fully utilized in 2020 .

Our noninterest expenses increased $14.5 million to $239.1 million for the year ended December 31, 2022, from $224.6 million for 2021.

The increase is primarily due to increases of $15.7 million in merger related expenses and $9.7 million in other expenses, partially offset by a decrease of $17.6 million in salary and employee benefits.

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.

Other expenses increased $9.7 million for the year ended December 31, 2022, compared to 2021.

This increase was primarily caused by a $1.2 million increase in travel and entertainment expenses as we continue to move away from limitations related to the COVID-19 pandemic, a $1.5 million increase to FDIC insurance costs due to organic growth and growth resulting from the Pioneer Merger and the Small Bank FDIC Assessment Credit was fully utilized in 2021, a $1.6 million increase in data processing expenses primarily due to organic growth and growth resulting from the Pioneer Merger, and a $2.4 million increase in professional services expenses as a result of the Pioneer Merger.

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.

We had income tax expense for the year ended December 31, 2022 of $14.8 million, compared to $8.7 million in 2021.

The decrease in income tax expense was primarily due to our decreased income during 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.

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Our total assets were $7.4 billion at December 31, 2022, compared to $5.7 billion at December 31, 2021.

Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $4.0 billion at December 31, 2021, an increase of $190.8 million from 2020.

Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $5.9 billion at December 31, 2022, an increase of $1.9 billion from 2021, which was due to organic growth and the Pioneer Merger.

Investment Securities

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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.

Our securities available-for-sale increased by $103.9 million to $572.5 million at December 31, 2021.

During 2021, the securities held-to-maturity paid down resulting in a decrease of $14.2 million to $18.0 million.

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

offset by securities acquired in the Pioneer Merger.

Securities held-to-maturity increased $20.9 million to $38.9 million at December 31, 2022, compared to December 31, 2021, due to the securities held-to-maturity acquired in the Pioneer Merger.

The following table is a summary of our investment portfolio as of December 31,:

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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 %

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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 %

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Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Our loan portfolio represents a broad range of borrowers primarily in our markets in Kansas, Colorado, New Mexico, Texas, and Arizona, comprised of commercial, commercial real estate, residential real estate and consumer financing 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.

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, as of December 31, 2021 and 2020 were $4.0 billion and $3.8 billion, respectively.

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.

The commercial loan portfolio included PPP loans outstanding of $4.4 million and $66.7 million at December 31, 2022 and 2021, respectively.

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Consumer loans include direct consumer installment loans, credit card accounts, overdrafts and other revolving loans.

The CARES Act created the PPP to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic.

Under the PPP, eligible small businesses could apply to an SBA-approved lender for a loan that does not require collateral or personal guarantees.

Entities were required to meet certain eligibility requirements to receive PPP loans, and they must maintain specified levels of payroll and employment to have the loans forgiven.

The conditions are subject to audit by the U.S.

government, but entities that borrowed less than $2.0 million (together with any affiliates) will be deemed to have made the required certification concerning the necessity of the loan in good faith.

However, the SBA does reserve the right to audit any PPP borrower.

While the PPP program ended on May 31, 2021, we are now focused on assisting our customers through the loan forgiveness process.

PPP loans issued prior to June 5, 2020 mature in two years unless otherwise modified and loans issued after June 5, 2020 mature in five years.

However, PPP loans are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions.

All borrowers are required to retain the supporting documents for six years.

For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S.

The average amount of each of our originated PPP loans was approximately $0.2 million at each of December 31, 2021 and 2020.

The PPP loans have a 1% fixed interest rate and produced an annualized yield for the year ended December 31, 2021 of 5.18%, due to the amortization of net deferred loan fees and the accelerated recognition of loan fees in conjunction with loan forgiveness occurring prior to a scheduled maturity.

At December 31, 2021, the remaining amount of unamortized net deferred loan fees on our PPP loans was $1.7 million.

Our PPP loans are included in the commercial loans category.

We have originated loans to qualified small businesses under the PPP administered by the SBA under the provisions of the CARES Act.

Loans covered by the PPP may be eligible for loan forgiveness for certain costs incurred related to payroll, group health care benefit costs and qualifying mortgage, rent and utility payments.

The remaining loan balance after forgiveness of any amounts is expected to be fully guaranteed by the SBA.

PPP loans, which are included in our commercial loan portfolio, were $4.4 million and $66.7 million at December 31, 2022 and December 31, 2021, respectively.

For the year ended December 31, 2022, we recognized $1.9 million in PPP loan related deferred processing fees (net of amortization of related deferred origination costs) as a yield adjustment and this amount is included in interest income on loans as compared to $6.2 million in 2021.

Maturities and Sensitivity of Loans to Changes in Interest Rates

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This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.

The following table presents, by loan type, the changes in the allowance for loan losses for the years ended December 31,:

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 year $ 47,766 $ 28,546 $ 26,399

Balance, beginning of period $ 47,547 $ 47,766 $ 28,546

Loan charge-offs:

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Total loan recoveries 2,907 1,642 1,020

Net charge-offs (3,219) (3,880) (3,903)

Net recoveries (charge-offs) 320 (3,219) (3,880)

Provision for loan losses 18,050 3,000 23,100

Balance, end of year $ 47,547 $ 47,766 $ 28,546

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 to average loans outstanding 0.09 % 0.11 % 0.13 %

The following table presents net charge-offs (recoveries) to average loans outstanding by loan category for the years ended December 31,:

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

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Loans are returned to accrual status when, in our judgment, the borrower’s ability to satisfy principal and interest obligations under the loan agreement has improved sufficiently to reasonably assure recovery of principal and the borrower has demonstrated a sustained period of repayment performance.

In general, we require a minimum of six consecutive months of timely payments in accordance with the contractual terms before returning a loan to accrual status.

A loan is identified as a TDR, when we, for economic or legal reasons related to the borrower’s financial difficulties, grant a concession to the borrower.

The concessions may be granted in various forms including interest rate reductions, principal forgiveness, extension of maturity date, waiver or deferral of payments and other actions intended to minimize potential losses.

A loan that has been restructured in a TDR may not be disclosed as a TDR in years subsequent to the restructuring if certain conditions are met.

Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of no less than six months to demonstrate that the borrower can meet the restructured terms.

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If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, permitted banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that may otherwise be characterized as a TDR and suspended any determination related thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications were related to COVID-19, and (iii) the modification occurred between March 1, 2020 and January 1, 2022.

Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19.

As of December 31, 2021 and 2020, $0.8 million and $51.8 million, respectively, of restructured loans were exempt from the accounting guidance for TDRs as a result of loans which are included in the COVID-19 related loan payment deferral total.

The following table sets forth our nonperforming assets as of December 31,:

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(1) Nonperforming loans include nonaccrual loans, accrual TDR’s, and accrual loans greater than 90 days past due.

Total nonperforming assets were $40.3 million as of December 31, 2021, compared to $44.4 million at 2020.

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 to $4.9 billion at December 31, 2021, compared to $4.2 billion at December 31, 2020.

Deposit growth over this period occurred across all of the states in our footprint including Kansas, New Mexico and Colorado, as well as in our newer markets in Arizona and Texas.

In addition, government stimulus efforts in response to the COVID-19 pandemic have contributed to a portion of our deposit growth for both commercial and consumer clients.

Noninterest-bearing demand deposits increased on average by $0.4 billion from

December 31, 2020 to December 31, 2021, primarily driven by our growth in our commercial deposit base.

Our certificates of deposit have decreased on average by $0.1 billion from 2020 to 2021 primarily due to the low interest rate environment.

The following table sets forth the average balance amounts and the average rates paid on deposits held by us for the years ended December 31,:

Total deposits increased by $0.9 billion to $5.8 billion at December 31, 2022, compared to December 31, 2021.

Deposit growth over this period occurred primarily in our Texas markets, generally due to our acquisition of Pioneer, resulting in $1.2 billion of deposits recorded as of April 1, 2022, net of purchase accounting adjustments.

The following table sets forth the average balance amounts and the average rates paid on deposits held by us for the year ended December 31,:

(Dollars in thousands) Average

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Total deposits $ 5,610,858 0.23 % $ 4,639,820 0.18 %

The following table sets forth the average balance amounts and the average rates paid on deposits by customer type held by us for the years ended December 31,:

The following table sets forth the average balance amounts and the average rates paid on deposits by customer type held by us for the year ended December 31,:

(Dollars in thousands) Average

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FirstSun (Parent Company)

FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and funds used for acquisitions.

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.

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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.

During the year ended December 31, 2022, Logia paid a dividend of $0.7 million to FirstSun.

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.

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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.

The increase in our liquid assets was primarily due to an increase in cash held at the Federal Reserve.

The decrease in our liquid assets was primarily due to a decrease in cash held at the Federal Reserve.

Our available-for-sale securities at December 31, 2022 were $537.0 million, or 7.2% of total assets, compared to $572.5 million, or 10.1% of total assets, at December 31, 2021.

Investment securities with an aggregate carrying value of $428.7 million and $465.7 million at December 31, 2022 and December 31, 2021, respectively, were pledged to secure public deposits and repurchase agreements.

The increase in our pledged securities was due to increases in public funds and repurchase agreements.

The decrease in our pledged securities was primarily due to changes in public deposits and repurchase agreements.

The liability portion of our balance sheet serves as a primary source of liquidity.

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Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds.

At December 31, 2021, customer deposits, excluding brokered deposits and certificates of deposit greater than $250,000, were 113.2% of net loans, compared with 98.8% at December 31, 2020.

At December 31, 2022, net loans as a percentage of customer deposits were 102.5%, compared with 83.2% at December 31, 2021.

For additional information related to our deposits, see Deposits section above.

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At December 31, 2022, we had $643.9 million in advances from the FHLB and a remaining credit availability of $357.0 million.

In addition, we maintain a $8.5 million line with the Federal Reserve Bank’s discount window that is secured by certain loans from our loan portfolio.

In addition, we maintain a $6.1 million line with the Federal Reserve Bank’s discount window that is secured by certain loans from our loan portfolio, and have unused lines-of-credit with certain other financial institutions totaling $330.0 million as of December 31, 2022.

Management believes the Bank has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Stockholders’ equity at December 31, 2022 was $774.5 million, compared to $524.0 million at 2021, an increase of $250.5 million, or 47.8%.

The increase was primarily driven by net income in 2021.

The increase in stockholders’ equity relates primarily to the value of the common shares issued to the Pioneer shareholders in our Merger with Pioneer on April 1, 2022, and net income for the year ended December 31, 2022, partially offset by a decline in accumulated other comprehensive income (loss), net, for unrealized losses in our available-for-sale securities portfolio resulting from the rising interest rate environment.

Capital Adequacy

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Operating leases 25 33,094 7,517 12,366 6,323 6,888

(1) On January 21, 2022 , we paid off $6,750 of the convertible notes at par.

This payoff is recognized in the less than 1 year column of our commitments table.

For further information see Note 11 - Debt .

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.

Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above.

Further discussion of derivative instruments is included in Note 7 - Deriv ative Financial Instruments to the consolidated financial statements.

Further discussion of derivative instruments is included in Note 8 - Derivative Financial Instruments to the consolidated financial statements.

In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis