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Item 8. Financial Statements and Supplementary Data

2023-03-16 compared with 2022-03-25 · 387 added, 281 removed, 1517 unchanged (31% of the section changed)

8 unchanged sentences

Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies

Note 2 - Merger with Pioneer B ancshares, Inc.

Note 3 - Securities

10 unchanged sentences

Note 1 4 - Earnings Per Share

Note 15 - Accumulated Other Comprehensive Income

Note 1 6 - Stockholders' Equity

7 unchanged sentences

Note 2 4 - Commitments and Contingencies

Note 25 - Leases

Note 2 6 - Revenue from Contracts with Customers

4 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of FirstSun Capital Bancorp and Subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2021, and the related notes (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of FirstSun Capital Bancorp and Subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

56 unchanged sentences

Additional paid-in capital 460,720 261,905

Treasury stock, 1,557,054 shares, respectively

( 38,148 ) ( 38,148 )

Treasury stock, zero and 1,557,054 shares, respectively

Retained earnings 357,797 298,615

Accumulated other comprehensive income, net 1,664 9,119

Accumulated other comprehensive (loss) income, net ( 43,983 ) 1,664

Total stockholders’ equity 774,536 524,038

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Net income $ 59,182 $ 43,164 $ 47,585

Other comprehensive income:

Reclassification adjustment for net gain on sales of available-for-sale securities — ( 153 ) ( 1,583 )

Change in unrealized (loss) gain on available-for-sale securities ( 9,870 ) 9,766 18,098

Income tax effect on other comprehensive income 2,415 ( 2,352 ) ( 4,022 )

Other comprehensive income (loss), net of tax:

(Loss) gain on securities available-for-sale ( 47,821 ) ( 7,455 ) 7,261

Gain on fair value hedges of securities available-for-sale 2,174 — —

Other comprehensive (loss) income, net of tax ( 45,647 ) ( 7,455 ) 7,261

Comprehensive income $ 13,535 $ 35,709 $ 54,846

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shares of common stock Common stock Additional

paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income Total stockholders’ equity

paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity

Balance as of

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December 31, 2020 19,878,713 $ 2 $ 259,363 $ ( 38,148 ) $ 255,451 $ 9,119 $ 485,787

Issuance of treasury stock ( 100 shares)

— — — 2 — — 2

Repurchase of common stock through stock repurchase program ( 63,844 shares)

— — — ( 1,564 ) — — ( 1,564 )

Stock option exercise ( 4,892 shares of treasury stock issued)

— — ( 153 ) 120 — — ( 33 )

Issuance of common stock on restricted stock grants 24,629 — 812 — — — 812

Share-based compensation, net of forfeitures — — 1,730 — — — 1,730

Net income — — — — 43,164 — 43,164

Other comprehensive income — — — — — 7,261 7,261

Other comprehensive loss — — — — — ( 7,455 ) ( 7,455 )

Balance as of

December 31, 2021 19,903,342 $ 2 $ 261,905 $ ( 38,148 ) $ 298,615 $ 1,664 $ 524,038

Merger with Pioneer Bancshares, Inc.

(issuance of treasury stock 1,557,054 shares)

4,910,412 — 197,946 38,148 — — 236,094

Issuance of common stock on restricted stock grants 11,344 — 270 — — — 270

Stock option exercises 95,886 — ( 579 ) — — — ( 579 )

Share-based compensation, net of forfeitures — — 1,178 — — — 1,178

15 unchanged sentences

Deferred tax expense 9,203 3,145 ( 3,377 )

Amortization of net discount on securities 3,399 4,180 4,663

Net accretion of discount on acquired loans ( 1,142 ) ( 3,766 ) ( 4,175 )

Net change in deferred loan origination fees and costs 617 8,811 2,682

Amortization of net premium on securities 2,076 3,399 4,180

Accretion of net discount on acquired loans ( 1,308 ) ( 1,142 ) ( 3,766 )

Amortization of deferred loan origination fees and costs 1,182 617 8,811

Amortization of core deposits and other intangible assets 4,215 1,417 1,485

Net amortization (accretion) of lease marks — 83 ( 6 )

Net amortization of lease marks — — 83

Amortization of software implementation costs 835 1,063 1,028

Accretion of fair value premium on acquired deposits ( 45 ) ( 151 ) ( 288 )

Amortization of fair value discount on subordinated debt 256 258 261

Amortization of premium on acquired deposits ( 1,052 ) ( 45 ) ( 151 )

Accretion of discount on subordinated debt 254 256 258

Amortization of issuance costs on subordinated debt 145 93 45

Amortization of fair value discount on convertible notes payable 746 752 761

Accretion of fair value premium on Federal Home Loan Bank advances — ( 165 ) ( 57 )

Accretion of discount on convertible notes payable 1,131 746 752

Accretion of discount (amortization of premium) on Federal Home Loan Bank advances 76 — ( 165 )

Increase in cash surrender value of bank-owned life insurance ( 1,682 ) ( 1,276 ) ( 1,283 )

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Share-based compensation expense 1,448 2,998 2,335

Decrease in fair value of mortgage servicing rights 5,606 22,280 11,930

(Increase) decrease in fair value of mortgage servicing rights ( 12,418 ) 5,606 22,280

Net gain on sales of available-for-sale securities — — ( 153 )

Net loss (gain) on sales of loans held-for-investment 701 1,180 ( 511 )

Net loss on sales of loans held-for-investment — 701 1,180

Net loss on disposal of premises and equipment 86 76 519

Net gain on other real estate owned and foreclosed assets activity ( 164 ) ( 824 ) ( 320 )

Net gain on bank-owned life insurance — — ( 464 )

Net gain on sales of loans held-for-sale ( 11,782 ) ( 61,403 ) ( 74,642 )

2 unchanged sentences

Changes in operating assets and liabilities:

Lease right-of-use assets 3,282 — —

Accrued interest receivable ( 9,835 ) 655 ( 2,862 )

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Consolidated Statements of Cash Flows (continued)

For the year ended December 31,

For the years ended December 31,

(In thousands) 2022 2021 2020

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Cash flows from investing activities:

Net cash paid for acquisitions — ( 7,019 ) —

Cash acquired in excess of cash paid in connection with Pioneer Merger 444,542 — —

Net cash paid for acquisition — — ( 7,019 )

Purchases of held-to-maturity securities ( 335 ) — —

Proceeds from maturities of held-to-maturity securities 3,626 13,835 24,433

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Proceeds from sales of other real estate owned and foreclosed assets 867 2,089 6,729

Proceeds from bank-owned life insurance — — 1,337

Purchases of restricted equity securities ( 39,785 ) ( 57 ) ( 8,704 )

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Repayments of Federal Home Loan Bank advances ( 317,000 ) ( 30,411 ) ( 1,180,581 )

Proceeds from other borrowings — 1,159,000 6,000

Repayments of other borrowings — — ( 6,000 )

Proceeds from Subordinated debt — 39,067 —

Proceeds from subordinated debt, net 24,466 — 39,067

Proceeds from issuance of common stock, net of issuance costs ( 579 ) ( 456 ) —

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Purchase of treasury stock — — ( 1,564 )

Repayments of convertible notes payable ( 15,217 ) — —

Net cash provided by financing activities 116,269 647,299 720,902

Net increase in cash and cash equivalents 466,484 57,447 43,957

Cash and cash equivalents, beginning of year 201,978 144,531 100,574

Cash and cash equivalents, end of year $ 668,462 $ 201,978 $ 144,531

Net (decrease) increase in cash and cash equivalents ( 324,936 ) 466,484 57,447

Cash and cash equivalents, beginning of period 668,462 201,978 144,531

Cash and cash equivalents, end of period $ 343,526 $ 668,462 $ 201,978

Supplemental disclosures of cash flow information:

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Non-cash investing and financing activities:

Net change in unrealized gain (loss) on available-for-sale securities $ ( 9,870 ) $ 9,613 $ 16,515

Assets acquired from Merger with Pioneer Bancshares, Inc.

$ 1,085,506 $ — $ —

Liabilities assumed from Merger with Pioneer Bancshares, Inc.

$ 1,354,387 $ — $ —

Right-of-use lease assets obtained in exchange for lessee operating lease liabilities $ 35,212 $ — $ —

Net change in unrealized loss on available-for-sale securities $ ( 45,647 ) $ ( 9,870 ) $ 9,613

Loan charge-offs $ 2,587 $ 4,861 $ 4,900

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These entities are collectively referred to as “our”, “us”, “we”, or “the Company”.

Nature of Operations - The Bank is headquartered in Denver, Colorado, and primarily operates throughout Kansas, Colorado, New Mexico, Texas and Arizona providing a full range of commercial and consumer banking and financial services to small and medium-sized companies.

Nature of Operations - The Bank is headquartered in Denver, Colorado, and primarily operates throughout Texas, Kansas, Colorado, New Mexico and Arizona providing a full range of commercial and consumer banking and financial services to small and medium-sized companies.

Its primary deposit products are checking, savings and term certificate accounts.

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Commercial loans are generally expected to be repaid from the borrower’s cash flow from operations.

Business Combination - 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, with FirstSun as the surviving entity (the “merger”).

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 the satisfaction of other customary closing conditions.

Pioneer currently operates from its headquarters in Austin, Texas and has banking offices located primarily in the Austin, Houston, San Antonio, and Dallas metro areas.

As of December 31, 2021 Pioneer reported assets of $ 1.6 billion, total loans of $ 0.9 billion, and deposits of $ 1.2 billion.

Business Combination - On April 1, 2022, FirstSun completed its merger with Pioneer Bancshares, Inc.

Under the merger agreement, a wholly-owned subsidiary of FirstSun, FSCB Merger Subsidiary, Inc., merged with and into Pioneer, with Pioneer continuing as the surviving entity and becoming a wholly-owned subsidiary of FirstSun (the “first step Merger”).

Immediately after the effective time of the Merger (the “Effective Time”), Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity (the “second step Merger”) (the first step Merger and second step Merger may be collectively referred to as the “Merger”).

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.

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.

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

Subsequent Events - We evaluate events occurring subsequent to the balance sheet date to determine whether the events required recognition or disclosure in the financial statements.

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In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

Concentration of Credit Risk - We have a significant concentration in residential real estate and commercial loans within Kansas, Colorado, New Mexico, Texas, and Arizona.

Concentration of Credit Risk - We have a significant concentration in residential real estate and commercial loans within Texas, Kansas, Colorado, New Mexico and Arizona.

When necessary, we perform credit evaluations on our customers' financial condition and often request additional guarantees and forms of collateral from our customers.

Declines in the local or statewide economies could have an adverse impact on our financial condition.

These financial evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, historical payment patterns, cash flow needs and deposit balances (particularly in light of recent developments in the banking industry) and bad debt write-off experience.

Declines in the local or statewide economies could have an adverse impact on our borrowers’ financial condition.

Specifically, inflation and higher interest rates, along with monetary events, can cause some of our business customers who have greater operating cash needs to draw on their deposits with us to meet expenses.

Adverse developments affecting real estate values in one or more of our markets could increase our credit risk associated with our loan portfolio.

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Cash held at depository institutions at times may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit.

Cash deposits are with reputable financial institutions and we do not anticipate realizing any losses from these cash deposits.

Cash deposits are with financial institutions that we believe to be reputable and we do not anticipate realizing any losses from these cash deposits.

As of December 31, 2022 and 2021, we have complied with all regulatory cash reserve and clearing requirements.

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PCI loans acquired are subject to our internal and external credit review and monitoring controls.

Our PCI loan portfolio may also include revolving lines of credit with funded and unfunded commitments.

Loan balances outstanding at the time of acquisition are accounted for under ASC Topic 310-30.

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TDRs are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception.

If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral.

If a TDR is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral less cost to sell.

For TDRs that subsequently default, we determine the amount of reserve in accordance with the accounting policy for the allowance for loan losses on loans individually identified as impaired.

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Commercial loans may involve increased risk due to the expectation that repayments for such loans generally come from the operation of the business activity and those operations may be unsuccessful.

A disruption in the operating cash flows from a business, sometimes influenced by events not under the control of the borrower such as changing business environment, changes in regulations and political climate, unexpected natural events, or competition could also impact the borrower’s capacity to repay the loan.

A disruption in the operating cash flows from a business, sometimes influenced by events not under the control of the borrower such as changing business environment, changes in regulations and political climate, rising interest rates, unexpected natural events, or competition could also impact the borrower’s capacity to repay the loan.

Assets collateralizing commercial loans may also decline in value more quickly than anticipated.

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Commercial Real Estate loans are repaid by cash flow generated by business operations, revenues generated from other business of the borrower, or from other long term financing sources upon completion of development or construction.

Commercial Real Estate loans are collateralized by well-managed property with adequate margins and may also include credit enhancements through guarantees from responsible parties and collateralization by other assets.

The performance of Commercial Real Estate loans may be impacted by negative changes in the real estate market and the underlying collateral value, weakened economic conditions, changing regulations and political climate, unexpected natural events, and other external factors.

Commercial Real Estate loans are collateralized by property and may also include credit enhancements through guarantees and collateralization by other assets.

The performance of Commercial Real Estate loans may be impacted by negative changes in the real estate market and the underlying collateral value, weakened economic conditions, changing regulations and political climate, rising interest rates, unexpected natural events, and other external factors.

Commercial Real Estate loans require specialized underwriting and monitoring to offset these risks, which the Bank’s systems have been designed to provide.

1 unchanged sentence

Residential Real Estate loans also include purchased mortgage loan pools serviced by others .

General overall economic conditions, and individual economic conditions such as job loss, divorce, illness or personal bankruptcy, may impact the performance of Residential Real Estate borrowers.

General overall economic conditions, and individual economic conditions such as job loss, divorce, illness or personal bankruptcy, and rising interest rates may impact the performance of Residential Real Estate borrowers.

The credit quality of Residential Real Estate loans is monitored primarily on the basis of payment delinquency.

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Consumer loans are underwritten using factors such as the borrower’s income and debt levels, credit history, and the value of available collateral.

General overall economic conditions, and individual economic conditions such as job loss, divorce, illness or personal bankruptcy, may impact the performance of Consumer loan borrowers.

In case of default, collateral on a Consumer loan may be difficult or expensive to locate and acquire, and collection efforts may not warrant substantial actions other than obtaining a deficiency judgment.

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The Bank utilizes an internal loan risk rating system as a means of underwriting, monitoring credit quality, and identifying both problem and potential problem loans.

The Bank’s credit risk management policies, procedures and practices promote sound lending standards and prudent management of credit risks, providing for sound underwriting, appropriate ongoing monitoring and review, and adherence to policy and regulatory requirements.

The Bank’s credit risk management policies, procedures and practices are intended to promote sound lending standards and prudent management of credit risks, providing for sound underwriting, appropriate ongoing monitoring and review, and adherence to policy and regulatory requirements.

Mortgage Servicing Rights (MSRs) - MSRs arise from contractual agreements between us and investors in mortgage loans.

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No impairment losses have been recognized during the years ended December 31, 2022, 2021 and 2020.

Core Deposits and Other Intangible Assets - Core deposits related to the depositor relationship of customers acquired from an acquisition are recognized in the value of core deposits.

Core Deposits and Other Intangible Assets - Core deposits related to the depositor relationship of customers acquired from our business combinations are recognized in the value of core deposits.

Our core deposits were valued based on the expected future benefit or earnings capacity attributable to the acquired deposits.

These assets have been assigned a 10 year life from the date of acquisition.

These assets have been assigned 10 year lives from the date of acquisition.

Other intangible assets include the trade names of First National 1870 and Guardian Mortgage .

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therefore, these trade names have been classified as indefinite-lived assets.

Further, we acquired certain customer relationships relating to wealth management.

These customer relationships were assigned an amortization period of 16 years.

During 2020, the Company acquired

additional customer relationships relating to wealth advisory services from a financial institution.

These customer relationships were assigned an amortization period of 10 years.

Further information on the asset purchase is presented in Note 6 - Core Deposits and Other Intangible Assets .

Two non-competition agreements were put in place for certain employees.

These agreements were fully amortized in 2019.

Further, we have acquired certain customer relationships relating to wealth management.

These customer relationships have been assigned amortization periods of 10 to 16 years.

We have a non-competition agreement for a former employee.

This agreement will be fully amortized in 2023.

Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

1 unchanged sentence

If impairment is indicated, an adjustment is made to reduce the carrying amount based on the difference between the future cash flows expected and the carrying amount of the asset.

There were no impairments of long-lived assets recognized in 2021 and 2019.

During 2020, we approved the closure of six bank branches resulting in the impairment of $ 678 of long-lived assets.

During the years ended December 31, 2022, 2021 and 2020, we recorded impairment of $ 720 , $ 0 and $ 678 , respectively, of long-lived assets.

Transfers of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished.

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Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge.

We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we do not elect not to apply hedge accounting.

We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we do not elect to apply hedge accounting.

We do not have any cash flow or foreign currency hedges.

In accordance with the fair value measurement guidance in ASU Topic 2011-04, Fair Value Measurement (Topic 820), we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio.

In October 2018, the FASB issued ASU 2018-16, Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes .

The Alternative Reference Rates Committee ("ARRC") has proposed that the SOFR replace USD-LIBOR.

We have material contracts that are indexed to USD-LIBOR.

Industry organizations are currently working on the transition plan.

We are currently monitoring this activity and our portfolio as well as evaluating the risks involved.

Under this guidance, SOFR will be an eligible benchmark interest rate for our hedging strategies.

ASU 2018-16, ASU 2020-04, ASU 2021-01, and ASU 2022-06 – In October 2018, the Financial Standards Board, or FASB, issued ASU No.

2018-16 “ Derivatives and Hedging (Topic 815):

Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting.

” ASU 2018-16 adds the SOFR overnight index swap rate to the list of United States (U.S.) benchmark rates eligible for hedge accounting purposes, which is the fourth rate permissible to be used as a U.S.

benchmark rate.

This guidance is effective for annual and interim periods beginning after December 15, 2018, and we do not expect this guidance to have a material impact on the financial condition or liquidity of the Company.

ASU 2020-04 and ASU 2021-01 Reference Rate Reform (Topic 848) were issued on March 12, 2020 and January 7, 2021, respectively, and each provide further guidance on optional expedients and exceptions for applying GAAP

to contract modifications and hedging relationships due to the discontinuation of LIBOR.

In addition, on March 5, 2021, the International Swaps and Derivatives Association (“ISDA”) issued a statement with an “Index Cessation Event Announcement,” which confirmed the extension of the cessation of LIBOR-referenced rates from December 31, 2021, to June 30, 2023, for certain rate tenors.

ASU 2022-06 further defers the sunset date of Topic 848 from December 31, 2022, to December 31, 2024, after which entities will no longer be permitted to apply the relief in Topic 848.

We have elected to apply the contract modification guidance included within Topic 848.

We have identified all LIBOR exposure and are working to communicate and revise any contracts as necessary.

Also, effective December 31, 2021, we are no longer issuing debt indexed to USD-LIBOR.

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Outstanding interest rate lock commitments are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date.

The borrower is not obligated to obtain the loan, thus we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLC.

The borrower is not obligated to obtain the loan;

thus, we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLC.

Our interest rate exposure on these derivative loan commitments is hedged with forward sales of mortgage-based securities as described below.

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These derivative instruments are intended to economically hedge certain risks related to our MSRs.

As such, these derivative instruments are not designated as accounting hedges.

As such, these derivative

instruments are not designated as accounting hedges.

These derivatives may include To Be Announced (TBA) MBS, interest rate swaps, and options contracts and are valued based on quoted prices for similar assets in an active market with inputs that are observable.

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Subsequent changes are recorded to income from mortgage banking services, net, in our consolidated statements of income and comprehensive income.

Revenue Recognition - Noninterest income within the scope of ASC Topic 606 is recognized by us when performance obligations, under the terms of the contract, are satisfied.

This income is measured as the amount of

consideration expected to be received in exchange for the providing of services.

Lease Commitments - We determines if an arrangement is a lease or contains a lease at inception.

Leases result in the recognition of right of use (“ROU”) assets and lease liabilities on the Consolidated Balance Sheets.

ROU assets represent the right to use an underlying asset for the lease term and are included in prepaid expenses and other assets in our Consolidated Balance Sheets.

Lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis, and are included in accrued expenses and other liabilities in our Consolidated Balance Sheets.

We determine lease classification as operating or finance at the lease commencement date.

We combine lease and non-lease components, such as common area and other maintenance costs, in calculating the ROU assets and lease liabilities for our office buildings.

At lease inception, the lease liability is measured at the present value of the lease payments over the lease term.

The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives.

We use the implicit rate when readily determinable, however, as most of the leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, which is based on our collateralized borrowing capabilities over a similar term as the related lease payments.

The lease term may include options to extend or to terminate the lease that we are reasonably certain to exercise.

Lease expense is generally recognized on a straight-line basis over the lease term.

We have elected not to record leases with an initial term of 12 months or less on the Consolidated Balance Sheets.

Lease expense on such leases is recognized on a straight-line basis over the lease term.

Further information is presented in Note 25 - Lease Commitments .

Revenue Recognition - Noninterest income within the scope of ASC Topic 606, Revenue From Contracts With Customers is recognized by us when performance obligations, under the terms of the contract, are satisfied.

This income is measured as the amount of consideration expected to be received in exchange for the providing of services.

The majority of our applicable noninterest income continues to be recognized at the time when services are provided to our customers.

Further information is presented in Note 2 3 - Revenue from Contracts with Cust omers .

Further information is presented in Note 2 6 - Revenue from Contracts with Customers .

Advertising - Advertising costs are expensed as incurred and recorded within other noninterest expense.

Earnings Per Share - Basic and diluted earnings per share are computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period.

Share-Based Compensation - Compensation cost is recognized for stock options issued to employees, based on the fair value of these awards at the date of the grant.

Share-Based Compensation - Compensation cost is recognized for stock options, non-vested restricted stock awards/stock units, and performance share units issued to employees and directors, based on the fair value of these awards at the date of the grant.

A Black-Scholes model is utilized to estimate the fair value of stock options.

The fair value of non-vested stock awards/stock units and performance share units is generally the market price of our stock on the date of grant.

Compensation cost is recognized over the required service period, generally defined as the vesting period.

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Participants are immediately vested in the matching contribution.

Matching contributions to the Plan charged to salary and employee benefits amounted to $ 4,912 , $ 4,351 and $ 3,390 in 2021, 2020 and 2019, respectively.

Matching contributions to the Plan charged to salary and employee benefits amounted to $ 5.2 million, $ 4.9 million and $ 4.4 million in 2022, 2021 and 2020, respectively.

Income Taxes - The Company files a consolidated federal income tax return.

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Comprehensive income - Comprehensive income consists of net income and other comprehensive income.

Other comprehensive income includes unrealized gains and losses on securities available-for-sale, which is also recognized as a separate component of equity.

Other comprehensive income includes unrealized gains and losses on securities available-for-sale and designated fair value hedges, net of tax, which are recognized as a separate component of equity.

Loss Contingencies - Loss contingencies, including claims and legal actions arising in the ordinary course of business, are recorded as liabilities when the likelihood of loss is probable and an amount or range of loss can be reasonably estimated.

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However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral.

To the extent that

we do not comply with such representations, or there are early payment defaults, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults.

To the extent that we do not comply with such representations, or there are early payment defaults, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults.

In addition, if loans pay off within a specified time frame, we may be required to refund a portion of the sales proceeds to the investors.

We established reserves for potential losses related to these representations and warranties which is recorded within accrued expenses and other liabilities.

We have established reserves for potential losses related to these representations and warranties which is recorded within accrued expenses and other liabilities.

In assessing the adequacy of the reserve, we evaluate various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry.

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Dividend Restriction - Banking regulations require maintaining certain capital levels and may limit the dividends paid by the Bank to the Parent Company or by the Parent Company to stockholders.

Adoption of New Accounting Standards - As an “emerging growth company” under Section 107 of the JOBS Act, we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Adoption of New Accounting Standards and Change in Accounting Principle - As an “emerging growth company” under Section 107 of the JOBS Act, we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards.

Therefore, we can delay the adoption of certain accounting standards until those standards would otherwise apply to non-public business entities.

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For standards that we have delayed adoption, we may lack comparability to other companies who have adopted such standards.

Guidance on Non-TDR Loan Modifications due to COVID-19 – The Consolidated Appropriations Act, 2021 (“CAA”), which was signed into law on December 27, 2020, extends certain provisions of the CARES Act.

Section 4013 of the CARES Act provided temporary relief from TDR accounting and is amended by Division N, Section 540 of the CAA, by extending the end date from December 31, 2020, to the earlier of January 1, 2022, or 60 days after the date on which the COVID-19 national emergency terminates.

In response, the OCC updated its two-page reference guide, “TDR Designation and COVID-19 Loan Modifications,” to conform to the extended TDR provisions.

In accordance with such guidance, we are offering short-term modifications made in response to COVID-19 to borrowers who are current and otherwise not past due.

These include short-term (180 days or less) modifications in the form of payment deferrals, fee waivers, extensions of repayment terms, or other delays in payment that are insignificant.

Our non-TDR loan modifications are immaterial to the consolidated financial statements at December 31, 2021.

Recent Accounting Pronouncements - In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842) , amending existing guidance.

The guidance is intended to increase transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements.

The principal change required by the guidance relates to lessee accounting.

Under the new guidance for operating leases (with the exception of short-term leases), a lessee is required to (1) recognize a right-of-use asset and a lease liability, initially measured at the present value of the lease payments, in the statement of financial position, (2) recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis, and (3) classify all cash payments within operating activities in the statement of cash flows.

The guidance also changes disclosure requirements related to leasing activities, and requires certain qualitative disclosures along with specific quantitative disclosures.

Under the new guidance, lessor accounting is largely unchanged.

Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASC 606, Revenue from Contracts with Customers.

The guidance and related subsequent pronouncements are effective for us for fiscal years beginning after December 15, 2021.

Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements.

The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented.

Lessees and Lessors may not apply a full retrospective transition approach.

We have evaluated contracts, performed present value calculations and we anticipate recording a right of use asset of approximately $ 30.0 million and a lease liability of approximately $ 35.0 million in our December 31, 2022 consolidated balance sheet when adopted under the modified retrospective approach.

The Company does not expect the adoption of this guidance will be material to our Consolidated Statement of Income and Comprehensive Income.

In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) .

This guidance replaces the existing incurred loss model for estimating allowances with a current expected credit losses (CECL) model with respect to most financial assets measured at amortized cost and certain other instruments, including loan receivables, held to maturity debt securities and off-balance sheet credit exposures such as loan commitments, standby letters of credit, financial guarantees, and other similar instruments.

In addition, the guidance requires credit losses relating to available for sale debt securities to be recorded through an allowance for credit losses rather than a reduction of the carrying amount, and also changes the accounting for purchased credit-impaired debt securities and loans.

The guidance retains many of the disclosure requirements in current U.S.

GAAP and expands certain disclosure requirements.

The guidance provides transition rules for:

debt securities with OTTI;

existing purchased credit impaired assets;

and all other assets within the scope of CECL.

For us, the guidance is effective for fiscal years beginning after December 15, 2022.

While early adoption is currently permitted, we plan to adopt this standard on January 1, 2023.

The guidance allows for a modified retrospective approach and we expect to recognize a one-time cumulative effect adjustment through retained earnings as of the beginning of the first reporting period in which the new standard is effective for us.

We continue to work with a software provider on the application and implementation of the new accounting guidance.

The integration of our data with the software provider is substantially complete.

Management anticipates model development, with the assistance of the software provider, will begin in early calendar year 2022 and will take several months to complete.

We continue to believe that the adoption of the standard will result in an overall increase in the allowance for loan losses to cover credit losses over the estimated life of the financial assets.

However, the magnitude of the increase of our allowance for loan losses at the adoption date will depend upon the nature and characteristics of the portfolio, as well as macroeconomic conditions and forecasts at that time.

On January 1, 2022, we adopted certain accounting standard updates related to accounting for leases, primarily Accounting Standards Update ASU 2016-02, Leases (Topic 842) and subsequent updates.

Among other things, these updates require lessees to recognize a lease liability, measured on a discounted basis, related to the lessee's obligation to make lease payments arising under a lease contract;

and a right-of-use asset related to the lessee’s right to use, or control the use of, a specified asset for the lease term.

The updates did not significantly change

lease accounting requirements applicable to lessors and did not significantly impact our financial statements in relation to contracts whereby we act as a lessor.

We adopted the updates using the comparatives under ASC 840 transition method, which applies Topic 842 at the beginning of the period in which it is adopted and recognized right-of-use lease assets and related lease liabilities totaling $ 35.2 million and $ 38.5 million, respectively, as of January 1, 2022.

Prior period amounts have not been adjusted in connection with the adoption of this standard.

We elected to apply certain practical adoption expedients provided under the updates whereby we did not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for any expired or existing leases and (iii) initial direct costs for any existing leases.

We did not elect to apply the recognition requirements of the updates to any short-term leases.

Further information is presented in Note 25 - Lease Commitments .

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848):

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An entity may elect to apply the amendments prospectively through December 31, 2024.

We have elected to apply the contract modification guidance included within ASC 848.

We have identified all LIBOR exposure and are working to communicate and revise any contracts as necessary.

The adoption of this standard is not expected to have a material effect on our operating results or financial condition.

Recent Accounting Pronouncements - We are finalizing our implementation of ASU 2016-13, Financial Instruments - Credit Losses (Topic 326).

As of December 31, 2022, we have performed several parallel runs and completed external model validations of our modeling framework and our probability of default and loss given default internal loan risk rating framework.

We have completed the design and implementation of our controls over the new allowance model framework and are finishing the testing of the related operating controls.

The results of our most recent parallel run have indicated the initial adoption of ASU 2016-13 to be not material to our consolidated balance sheet.

The expected increase in our allowance for loan losses is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio.

Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets;

however, we do not expect these allowances to be material.

Additionally, the adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios and we intend to utilize the three year CECL transition provision.

The impact of adoption on January 1, 2023 is influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of that date, notwithstanding any further refinements to our expected credit loss models.

NOTE 2 - Merger with Pioneer Bancshares, Inc.

As described under the title “Business Combination” in Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies , we completed our merger with Pioneer on April 1, 2022.

We accounted for the Pioneer merger under the acquisition method in accordance with ASC Topic 805, Business Combinations .

Accordingly, the purchase price was allocated to the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed as of the closing date of the merger.

Goodwill resulting from the difference between the fair value of the assets acquired and the fair value of the liabilities assumed is not amortizable for book or tax purposes.

This goodwill resulted from the combination of expected operational synergies, the increase in our market share in Texas and other factors.

Although the merger was nontaxable, the merger gave rise to certain temporary differences for which deferred taxes have been recognized.

The results of operations for the Pioneer merger have been included in our consolidated financial results beginning on the April 1, 2022 closing date.

Consideration

Under the terms of the merger agreement, each outstanding share of Pioneer common stock was converted into 1.0443 shares of FirstSun common stock (except for shareholders who properly exercised their dissenters’ rights) with cash paid in lieu of fractional shares.

Accordingly, we issued 6,467,466 shares of our common stock to Pioneer shareholders in the merger valued at $ 230,760 based on a third-party valuation of our common stock in accordance with ASC Topic 820, Fair Value Measurements as of the closing date.

We also converted Pioneer stock options into 431,645 options to purchase shares of FirstSun common stock.

This conversion was valued at $ 5,334 .

We also paid cash to certain Pioneer shareholders of $ 4,736 .

Total aggregate consideration paid in the Pioneer merger was $ 240,830 .

We recorded the estimated fair value of assets acquired and liabilities assumed based on initial valuations at April 1, 2022.

The determination of estimated fair value required management to make assumptions related to discount rates, expected future cash flows, market conditions and other future events that are subjective in nature and may require adjustments.

As of December 31, 2022, we do not expect any changes to our fair value estimates.

Estimated fair values of the assets acquired and liabilities assumed in this transaction are as follows:

Cash and cash equivalents $ 449,278

Investment securities 157,859

Loans held-for-sale 2,923

Loans 811,300

Premises and equipment 39,935

Bank-owned life insurance 21,382

Restricted equity securities 9,320

Core deposits and other intangible assets 11,771

Accrued interest receivable 3,947

Deferred tax assets 19,752

Prepaid expenses and other assets 7,317

Total assets acquired 1,534,784

Deposits 1,192,081

Federal Home Loan Bank advances 159,924

Accrued interest payable 407

Accrued expenses and other liabilities 1,975

Total liabilities assumed 1,354,387

Fair value of net assets acquired 180,397

Purchase price 240,830

Goodwill $ 60,433

Acquired loans and purchased credit impaired loans

Acquired loans were recorded at fair value based on a discounted cash flow valuation methodology that considered, among other things, projected default rates, loss given default rates and recovery rates.

No allowance for loan losses was carried over from Pioneer.

We identified certain acquired loans as purchased credit impaired (PCI).

PCI loan identification considered payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may be an indication of a deterioration of credit quality since origination.

Although we identified certain acquired loans as PCI, the amount was determined to be insignificant.

The following table discloses the fair value and contractual value of loans acquired from Pioneer on April 1, 2022.

Acquired Loans Contractual Principal Balance

Commercial $ 98,351 $ 98,752

Commercial real estate 509,173 516,341

Residential real estate 173,094 174,763

Consumer 30,682 31,982

Total fair value $ 811,300 $ 821,838

Supplemental pro forma information

The following unaudited pro forma summary presents consolidated information of FirstSun as if the business combination had occurred on January 1, 2021.

Pro forma for the

Net interest income $ 251,783 $ 201,501

Provision for loan losses 17,200 350

Net interest income after provision for loan losses 234,583 201,151

Noninterest income 90,993 129,373

Noninterest expenses 229,307 258,544

Income before income taxes 96,269 71,980

Provision for income taxes 19,508 13,413

Net income $ 76,761 $ 58,567

Earnings per share:

Net income available to common stockholders $ 76,761 $ 58,567

Basic $ 3.09 $ 2.36

Diluted $ 3.01 $ 2.30

The unaudited pro forma amounts for these periods includes adjustments for interest income on loans and investment securities acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits and Federal Home Loan bank advances acquired, adjustments for merger related expenses incurred, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of Pioneer.

The unaudited pro forma amounts are not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date.

NOTE 3 - Securities

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Mortgage backed - commercial 130,997 — ( 13,661 ) 117,336

Other debt 16,774 — ( 1,919 ) 14,855

Total available-for-sale $ 598,073 $ 6 $ ( 61,106 ) $ 536,973

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Available-for-sale:

treasury 35,400 — ( 215 ) 35,185

agency $ 6,019 $ — $ ( 100 ) $ 5,919

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Held-to-maturity:

agency $ 5,099 $ 26 $ — $ 5,125

Obligations of states and political subdivisions 716 25 — 741

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Mortgage backed - commercial 70,710 ( 6,475 ) 46,626 ( 7,186 ) 117,336 ( 13,661 ) 22

Other debt 14,855 ( 1,919 ) — — 14,855 ( 1,919 ) 9

Total available-for-sale $ 296,224 $ ( 20,715 ) $ 239,756 $ ( 40,391 ) $ 535,980 $ ( 61,106 ) 219

Held-to-maturity:

Obligations of states and political subdivisions $ 20,153 $ ( 4,891 ) $ — $ — $ 20,153 $ ( 4,891 ) 8

Mortgage backed - residential 7,993 ( 511 ) — — 7,993 ( 511 ) 10

Collateralized mortgage obligations 4,127 ( 275 ) 401 ( 15 ) 4,528 ( 290 ) 5

Total held-to-maturity $ 32,273 $ ( 5,677 ) $ 401 $ ( 15 ) $ 32,674 $ ( 5,692 ) 23

Less than 12 months 12 months or longer Total

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Available-for-sale:

treasury $ 35,185 $ ( 215 ) $ — $ — $ 35,185 $ ( 215 ) 4

agency — — 5,919 ( 100 ) 5,919 ( 100 ) 7

Obligations of states and political subdivisions 3,232 ( 190 ) — — 3,232 ( 190 ) 2

Mortgage backed - residential 51,616 ( 530 ) 25,246 ( 1,108 ) 76,862 ( 1,638 ) 17

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Total available-for-sale $ 238,782 $ ( 3,454 ) $ 55,528 $ ( 1,227 ) $ 294,310 $ ( 4,681 ) 51

There were no held-to-maturity securities in an unrealized loss position as of December 31, 2021 or 2020

There were no held-to-maturity securities in an unrealized loss position as of December 31, 2021.

Estimated fair value is less than amortized cost primarily because of general economic conditions unrelated to the specific issuer.

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no significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the issuer;

no significant adverse change in the regulatory, economic, or technological environment of the issuer;

no significant adverse change in the regulatory, economic, or technological environment of the

and no significant adverse change in the general market condition of either the geographic area or the industry in which the issuer operates.

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Securities with a carrying value of $ 428,721 and $ 465,665 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at December 31, 2022 and 2021, respectively.

There were no proceeds from sales and calls of securities for the year ended December 31, 2021.

The proceeds from sales and calls of securities for the year ended December 31, 2022 was $ 81,016 .

For the year ended December 31, 2020, we recognized gross investment gains of $ 446 and gross investment losses of $ 293 , resulting from the sale of securities.

For the year ended December 31, 2022 there were no gross investment gains or losses resulting from the sale of securities.

There were no proceeds from sales and calls of securities for the year ended December 31, 2021.

For the year ended December 31, 2020, we recognized gross investment gains of $ 446 and gross investment losses of $ 293 , resulting from the sale of securities.

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Total loans 5,928,933 4,046,642

Deferred costs, fees, premiums, and discounts ( 9,519 ) ( 9,924 )

Deferred costs, fees, premiums, and discounts, net ( 17,101 ) ( 9,519 )

Allowance for loan losses ( 65,917 ) ( 47,547 )

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Allowance for loan losses:

Balance, beginning of year $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766

Provision for (benefit from) loan losses 4,017 ( 617 ) ( 452 ) 52 3,000

Balance, beginning of period $ 33,277 $ 12,899 $ 1,136 $ 235 $ 47,547

Provision for loan losses 9,655 6,082 2,114 199 18,050

Loans charged off ( 2,321 ) — ( 122 ) ( 144 ) ( 2,587 )

Recoveries 2,236 388 221 62 2,907

Balance, end of year $ 33,277 $ 12,899 $ 1,136 $ 235 $ 47,547

Balance, end of period $ 42,847 $ 19,369 $ 3,349 $ 352 $ 65,917

Allowance for loan losses:

Balance, beginning of year $ 17,509 $ 9,645 $ 1,056 $ 336 $ 28,546

Provision for loan losses 17,979 4,527 474 120 23,100

Balance, beginning of period $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766

Provision (benefit) for loan losses 4,017 ( 617 ) ( 452 ) 52 3,000

Loans charged off ( 4,296 ) ( 375 ) ( 42 ) ( 148 ) ( 4,861 )

Recoveries 1,547 28 24 43 1,642

Balance, end of year $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766

Balance, end of period $ 33,277 $ 12,899 $ 1,136 $ 235 $ 47,547

Allowance for loan losses:

Balance, beginning of year $ 13,158 $ 11,774 $ 1,201 $ 266 $ 26,399

Balance, beginning of period $ 17,509 $ 9,645 $ 1,056 $ 336 $ 28,546

Provision for loan losses 17,979 4,527 474 120 23,100

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Recoveries 585 272 115 48 1,020

Balance, end of year $ 17,509 $ 9,645 $ 1,056 $ 336 $ 28,546

Balance, end of period $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766

The following table presents the balance in the allowance for loan losses and the recorded investment by portfolio type based on impairment method for the years ended December 31,:

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Residential real estate 1,210 836 34 279

Total loans an allowance recorded 4,455 4,224 2,568 2,894

Consumer 93 91 88 29

Total loans with an allowance recorded 8,555 8,053 1,412 5,153

Total impaired loans $ 41,437 $ 40,810 $ 1,412 $ 24,913

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Residential real estate 665 671 39 462

Total loans an allowance recorded 8,452 8,233 4,080 5,850

Total loans with an allowance recorded 4,455 4,224 2,568 2,894

Total impaired loans $ 34,626 $ 33,722 $ 2,568 $ 24,700

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Doubtful - loans are considered “classified” and have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable.

There were no loans categorized as doubtful as of December 31, 2021 and 2020.

There were loans totaling $ 45 categorized as doubtful as of December 31, 2022.

There were no loans categorized as doubtful as of December 31, 2021.

Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

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Commercial 1 $ 248 $ 248

Commercial real estate 1 2,295 2,265

Residential real estate 1 126 126

Consumer 1 72 72

Total 3 $ 446 $ 446

Commercial 7 $ 6,969 $ 6,969

Commercial real estate 1 2,295 2,295

Residential real estate 4 1,386 1,386

Total 12 $ 10,650 $ 10,650

For the years ended December 31, 2021, 2020 and 2019 the TDRs described above increased the allowance for loan losses by $ 2,326 , $ 1,464 and $ 105 , respectively.

For the years ended December 31, 2022 and 2021 and 2020 the TDRs described above increased the allowance for loan losses by $ 777 , $ 2,326 and $ 1,464 , respectively.

There were no amounts charged-off during the years ended December 31, 2022, 2021 and 2020.

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A loan is generally considered to be in payment default once it is 30 days contractually past due under the modified terms.

We are working with borrowers impacted by COVID-19 and providing modifications to include interest only deferral or principal and interest deferral.

These modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators.

We had actively modified loans under the CARES Act as follows as of December 31,:

of Loans Recorded

Residential real estate 3 $ 771

Commercial 23 $ 17,714

Commercial real estate 7 12,413

Residential real estate 49 21,584

Consumer 6 77

Total 85 $ 51,788

Acquired Loans and Loan Discounts :

Included in the net loan portfolio as of December 31, 2021 and 2020 is a net accretable discount related to loans acquired within a business combination in the approximate amounts of $ 571 and $ 2,043 , respectively.

Included in the net loan portfolio as of December 31, 2022 and 2021 is a net accretable discount related to loans acquired within our business combinations in the approximate amounts of $ 10,292 and $ 571 , respectively.

The discount is accreted into income on a level-yield basis over the life of the loans.

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2022 2021 2020

Balance, beginning of year $ 29,144 $ 29,003 $ 26,188

Balance, beginning of period $ 47,392 $ 29,144 $ 29,003

Servicing resulting from transfers of financial assets 14,287 23,854 22,421

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Changes in fair value due to pay-offs, pay-downs, and runoff ( 7,932 ) ( 11,699 ) ( 8,482 )

Balance, end of year $ 47,392 $ 29,144 $ 29,003

Balance, end of period $ 74,097 $ 47,392 $ 29,144

The following represents the weighted-average key assumptions used to estimate the fair value of MSRs as of December 31,:

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Balance, beginning of year $ 1,800 $ 4,999 $ 1,451 $ — $ 8,250

Additions from Pioneer merger — 11,327 — 444 11,771

Amortization — ( 3,167 ) ( 703 ) ( 345 ) ( 4,215 )

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Balance, beginning of year $ 1,800 $ 6,211 $ 1,656 $ — $ 9,667

Additions — — 1,250 — 1,250

Amortization — ( 1,212 ) ( 205 ) — ( 1,417 )

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Balance, beginning of year $ 1,800 $ 7,578 $ 524 $ — $ 9,902

Additions — — 1,250 — 1,250

Amortization — ( 1,367 ) ( 118 ) — ( 1,485 )

Balance, end of year $ 1,800 $ 6,211 $ 1,656 $ — $ 9,667

During June 2020, the Bank entered into an asset purchase agreement in order to acquire certain assets, liabilities and customer contracts (the assets) from another financial institution (the seller).

The assets acquired had previously been a part of the investment management and trust administration group that the seller had recently acquired.

The transaction was completed on August 31, 2020.

The purchase price amounted to $ 7,019 which was allocated to loans $ 5,670 , other receivables $ 319 , accrued liabilities $ 220 , and customer relationships intangible $ 1,250 .

As a result of this transaction, assets under management of the Bank’s wealth management group increased by approximately $ 900 million.

During the years ended December 31, 2022, 2021 and 2020, there was no indication of impairment of our core deposits and other intangible assets.

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We are exposed to changes in the fair value of certain of our fixed-rate assets due to changes in benchmark interest rates.

We use interest rate swaps to manage our exposure to changes in fair value on these instruments attributable to changes in the designated benchmark interest rate, LIBOR.

Interest rate swaps designated as fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount.

The carrying amount of hedged loans receivable as of December 31, 2021 and 2020 was $ 205,235 and $ 239,591 , respectively.

We use interest rate swaps to manage our exposure to changes in fair value on these instruments attributable to changes a designated benchmark interest rate, such as SOFR.

Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount.

The carrying amount of hedged loans receivable and available-for-sale securities as of December 31, 2022 and 2021 was $ 181,377 and $ 205,235 , respectively.

The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of December 31, 2022 and 2021 was $( 12,752 ) and $ 5,614 , respectively.

The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged available-for-sale securities as of December 31, 2022 and 2021 was $ 2,879 and $ 0 , respectively.

The hedges were determined to be effective during all periods presented and we expect the hedges to remain effective during their remaining terms.

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Interest Rate Products 32 2028-2036 $ 201,906 $ 15,636

Interest Rate Products 12 2022-2029 $ 179,431 $ 7,107

Derivative financial instruments not designated as hedging instruments:

Interest Rate Products 41 2024-2037 $ 338,770 $ 24,615

Other 1 2025 $ 14,638 $ —

Interest Rate Products 41 2024-2037 $ 338,770 $ 24,242

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2022 2021 2020

Recorded (loss) gain on banking derivative assets $ ( 777 ) $ 6,944 $ 1,264

Recorded gain (loss) on banking derivative liabilities $ 1,172 $ ( 7,477 ) $ ( 1,431 )

Recorded gain (loss) on banking derivative assets $ 28,783 $ ( 777 ) $ 6,944

Recorded (loss) gain on banking derivative liabilities $ ( 27,973 ) $ 1,172 $ ( 7,477 )

For the years ended December 31, 2022, 2021 and 2020 our banking derivative financial instruments not designated as hedging instruments generated fee income of $ 2,152 , $ 2,309 and $ 3,066 , respectively.

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Forward MBS trades 2023 $ 85,000 $ 36

Interest rate lock commitments (IRLC) 2022 $ 142,334 $ 1,350

Forward MBS trades 2023 $ 21,800 $ 225

Interest rate lock commitments (IRLC) 2023 $ 52,533 $ 60

Derivative financial instruments

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2022 2021 2020

Recorded (loss) gain on mortgage banking derivative assets $ ( 9,655 ) $ 27,396 $ 4,837

Recorded gain (loss) on mortgage banking derivative liabilities $ 246 $ ( 6,984 ) $ ( 4,262 )

Recorded gain (loss) on mortgage banking derivative assets $ 233 $ ( 9,655 ) $ 27,396

Recorded (loss) gain on mortgage banking derivative liabilities $ ( 15,863 ) $ 246 $ ( 6,984 )

NOTE 9 - Prepaid Expenses and Other Assets

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Derivative financial instruments $ 40,287 $ 10,815

Prepaid expenses 6,477 4,915

Right-of-use asset on leased property 28,404 —

Loans subject to unilateral repurchase rights - Ginnie Mae 12,224 4,189

Fiserv ATM compensating balance 9,865 10,865

Prepaid expenses 7,691 6,477

CRA investments 2,357 1,528

Federal and state tax receivables, net 1,101 613

Software 1,035 1,263

Artwork 944 1,008

Federal and state tax receivables, net 613 —

SBA servicing rights 236 —

Other 21,681 21,357

Total prepaid expenses and other assets $ 125,825 $ 58,115

For additional information regarding our right-of-use asset on leased property and adoption of ASU 2016-02, Leases (Topic 842), See Note 25 - Lease Commitments .

NOTE 10 - Deposits

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Rate Amount Rate Weighted

Variable rate line-of-credit advance $ — N/A N/A $ 20,000 0.35 % N/A

Fixed rate term advances $ 40,000 0.91 % - 2.59 %

1.49 % $ 50,411 0.91 % - 4.13 %

$ 40,000 $ 70,411

The advances were collateralized by $ 1,180,493 and $ 943,376 of loans pledged to the FHLB as collateral as of December 31, 2021 and December 31, 2020, respectively.

Future maturities of our FHLB borrowings is as follows:

Variable rate line-of-credit advance $ 643,885 4.48 % 3.91 % $ — N/A N/A

Fixed rate term advances $ — N/A N/A $ 40,000 0.91 % - 2.59 %

$ 643,885 $ 40,000

Thereafter 10,000

Total future repayments $ 40,000

The advances were collateralized by $ 1,630,939 and $ 1,180,493 of loans pledged to the FHLB as of December 31, 2022 and December 31, 2021, respectively.

All FHLB advances as of December 31, 2022 consisted of overnight borrowings with a maturity of January 1, 2023.

As of December 31, 2022 and December 31, 2021, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of $ 1,139,356 and $ 597,915 , respectively.

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We also had a $ 6,065 line-of-credit with the FRB.

The agreement bears interest at the Fed Funds target rate plus 0.50 % and is secured by municipal, agency, mortgage-related and corporate securities.

The agreement bears interest at the Fed Funds target rate and is secured by municipal, agency, mortgage-related and corporate securities.

The entire line was available at December 31, 2022.

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Convertible Notes Payable :

We have issued a total of $ 20,673 of convertible notes with a maturity date of August 31, 2023.

As of December 31, 2022 and December 31, 2021, we have issued a total of $ 5,456 and $ 20,673 , respectively, of convertible notes outstanding with a maturity date of August 31, 2023.

The annual interest rate on these convertible notes is 3.29 % with quarterly interest payments.

With respect to conversion, each $1 (in thousands) principal amount of the convertible notes can be converted to 15.6717 shares of Parent Company common stock at any time until maturity.

The convertible notes were originally recorded with a discount of $ 4,682 .

As of and for the periods ended December 31, 2021 and 2020, the debt discount on the convertible notes totaled $ 1,231 and $ 1,977 , respectively.

As of December 31, 2022 and 2021, the debt discount on the convertible notes totaled $ 101 and $ 1,231 , respectively.

The related accretion for the years ended December 31, 2022, 2021 and 2020 was $ 1,131 , $ 746 and $ 752 , respectively.

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

In conjunction with the pay-off of these convertible notes, we recognized the remaining debt discount associated with these convertible notes of $ 382 during the first quarter of 2022.

Future accretion of the valuation discount adjusted for the subsequent event discussed above is expected as follows:

Total future accretion $ 1,231

Subordinated Debt :

11 unchanged sentences

Total future amortization $ 701

Subordinated Note - 2022 (subsequent event) :

Subordinated Note - 2022 :

On January 13, 2022, we issued a subordinated note totaling $ 25,000 .

4 unchanged sentences

After five years, we may redeem the note at our discretion.

We incurred and capitalized $ 534 of costs related to the issuance of the subordinated note in the first quarter of 2022.

We incurred and capitalized $ 534 of costs related to the issuance of the subordinated note.

As of and for the year ended December 31, 2022 the amortization associated with the debt issuance costs totaled $ 51 .

Future amortization of the debt issuance costs is expected as follows:

17 unchanged sentences

The components of accrued expenses and other liabilities consisted of the following as of December 31,:

Derivative financial instruments $ 14,408 $ 30,891

Lease liability $ 31,267 $ —

Salary and employee benefits 29,834 31,794

FRB courtesy inclearings 11,094 5,214

MPF servicing principal and interest payable 5,568 13,668

Derivative financial instruments 24,527 14,408

Loans subject to unilateral repurchase rights - Ginnie Mae 12,224 4,189

FRB courtesy inclearings 6,821 11,094

Professional fees 1,757 2,100

Property taxes payable 886 619

MPF servicing principal and interest payable 885 5,568

Lease terminations — 458

Software incentive payment 382 1,037

Deferred rent — 3,170

1 unchanged sentence

Total accrued expenses and other liabilities $ 124,085 $ 83,908

For additional information regarding our lease liability and adoption of ASU 2016-02, Leases (Topic 842), See Note 25 - Lease Commitments .

For certain loans that we have sold to Ginnie Mae, we as the issuer have the unilateral right to repurchase without Ginnie Mae’s prior authorization any individual loan in a Ginnie Mae securitization pool if that loan meets certain criteria, including being delinquent greater than 90 days.

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Diluted earnings per common share $ 2.48 $ 2.30 $ 2.58

Convertible notes payable for 323,984 shares of common stock were not considered in computing diluted earnings per share for years ended December 31, 2021, 2020 and 2019 because they were antidilutive.

Convertible notes payable for 85,500 shares of common stock and stock-based awards for 1,699 shares of common stock were not considered in computing diluted earnings per share for the year ended December 31, 2022, because they were antidilutive.

Convertible notes payable for 323,984 shares of common stock were not considered in computing diluted earnings per share for the years ended December 31, 2021 and 2020 because they were antidilutive.

NOTE 15 - Accumulated Other Comprehensive Income

The following table sets forth the components in accumulated other comprehensive income for the years ended December 31,:

2022 2021 2020

Securities available-for-sale:

Balance, beginning of year $ 1,664 $ 9,119 $ 1,858

Unrealized (loss) gain ( 63,302 ) ( 9,870 ) 9,766

Income tax effect 15,481 2,415 ( 2,352 )

Net unrealized (loss) gain ( 47,821 ) ( 7,455 ) 7,414

Reclassifications out of AOCI (1) — — ( 153 )

Other comprehensive (loss) income, net of tax ( 47,821 ) ( 7,455 ) 7,261

Balance, end of year $ ( 46,157 ) $ 1,664 $ 9,119

Fair value hedges of securities available-for-sale:

Balance, beginning of year $ — $ — $ —

Unrealized gain 2,879 — —

Income tax effect ( 705 ) — —

Net unrealized gain 2,174 — —

Balance, end of year $ 2,174 $ — $ —

(1) Reclassifications are reported in noninterest income on the Consolidated Statements of Income and Comprehensive Income

NOTE 16 - Stockholders’ Equity

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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 did no t declare or pay any dividends during 2021 or 2020.

During 2019, the Bank received regulatory approval for a special dividend in excess of the prescribed formula, and paid dividends totaling $ 32,000 to the Parent Company.

The Bank did no t declare or pay any dividends in 2021 or 2020.

During 2022, the Bank paid a dividend of $ 8,000 to the Parent Company.

During 2022, Logia paid dividends totaling $ 700 to the Parent Company.

The Parent Company did not declare or pay any dividend in 2022, 2021 or 2020.

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The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants for up to 1,977,292 shares of FirstSun common stock in the aggregate.

In addition, on October 18, 2021 we established the FirstSun Capital Bancorp 2021 Equity Incentive Plan (the 2021 Plan).

The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants.

The 2021 Plan allows for awards for up to 2,476,571 shares of FirstSun common stock in the aggregate.

At December 31, 2021, no awards had been granted under the 2021 Plan.

Additionally, we established the FirstSun Capital Bancorp 2021 Equity Incentive Plan (the “2021 Plan”).

The 2021 Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants for up to 2,476,571 shares of FirstSun common stock in the aggregate.

Last, we established the FirstSun Capital Bancorp Long-Term Incentive Plan (“LTIP”), which became effective April 1, 2022.

The LTIP is intended to qualify as a “top-hat” plan under ERISA that is unfunded and provides benefits only to a select group of management or highly compensated employees of FirstSun or the Bank.

The equity component of awards under the LTIP are issued from the 2021 Plan.

Option awards are generally granted with an exercise price of not less than the fair value of a share of the Company’s common stock at the date of grant, they vest 25 % on the first, second, third and fourth anniversaries following the date of grant and have 10 year contractual terms.

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Treasury yield curve in effect at the date of grant.

There were no option awards granted during the year ended December 31, 2022.

A summary of the assumptions is as follows at December 31,:

2021 2020 2019

Expected volatility 33.00 % 33.00 %

4 unchanged sentences

Shares Weighted-Average Exercise Price, per Share Weighted-Average Remaining Contractual Term (years)

Outstanding, beginning of year 1,428,940 $ 19.97

Granted 26,336 32.54

Outstanding, beginning of period 1,412,900 $ 20.19

Exercised ( 104,985 ) 19.72

Forfeited — —

Outstanding, end of year 1,412,900 $ 20.19 6.21

Outstanding, end of period 1,307,915 $ 20.23 5.26

Options vested or expected to vest 1,307,915 $ 20.23

Options exercisable, end of year 1,166,887 $ 19.89 5.88

Outstanding, beginning of year 1,444,757 $ 19.96

Exercised ( 54,814 ) 19.72

Options exercisable, end of period 1,191,032 $ 20.03 5.05

Outstanding, beginning of period 1,428,940 $ 19.97

Granted 26,336 32.54

Forfeited ( 42,376 ) 20.33

Outstanding, end of year 1,428,940 $ 19.97 7.17

Outstanding, end of period 1,412,900 $ 20.19 6.46

Options vested or expected to vest 1,412,900 $ 20.19

Options exercisable, end of year 856,133 $ 19.88 6.80

For the years ended December 31, 2021, 2020 and 2019 we recorded total compensation cost of $ 2,998 , $ 2,335 and $ 2,147 , respectively, related to the Plan.

Options exercisable, end of period 1,166,887 $ 19.89 6.13

At December 31, 2022, there was $ 600 of total unrecognized compensation cost related to non-vested stock options granted under the 2017 Plan.

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At December 31, 2022 and 2021, the intrinsic value of the stock options was $ 21,216 and $ 18,042 , respectively.

On December 30, 2021, we issued restricted stock awards for 24,099 shares of common stock of the Company under the 2017 Plan.

The stock issued was net of 13,822 shares of common stock withheld in connection with satisfaction of tax withholding obligations on vested restricted stock.

The grant date fair value of the awards was $ 1,250 and the shares of restricted stock were fully vested upon issuance.

Also on December 30, 2021, we issued a restricted stock award for 530 shares of common stock of the Company under the 2017 Plan.

In May 2022, we issued 11,344 shares of restricted stock from the 2021 Plan that will fully vest in May 2023.

The grant date fair value of the award was $ 405 .

The restrictions on such shares vest in conjunction with our annual stockholders’ meeting in the second quarter of 2022.

At December 31, 2022, there was $ 236 of total unrecognized compensation cost related to the non-vested restricted stock.

In May 2022, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2025.

At December 31, 2022, we determined it is probable that 69,261 shares will be issued based upon the probability that the performance conditions will be achieved.

At December 31, 2022, there was $ 1,853 of total unrecognized compensation cost related to the non-vested restricted stock granted under the 2021 Plan.

For the years ended December 31, 2022, 2021 and 2020 we recorded total compensation cost of $ 1,448 , $ 2,998 and $ 2,335 , respectively, related to the 2017 and 2021 Plans.

In conjunction with the Pioneer merger, we assumed certain options that had been granted under Pioneer’s option plans.

All assumed options were fully vested and exercisable.

No further options will be granted under the Pioneer plans.

The following table presents options assumed in the Pioneer merger and the activity from merger date through December 31, 2022:

Shares Weighted-Average Exercise Price, per Share Weighted-Average Remaining Contractual Term (years)

December 31, 2022

Outstanding, beginning of period — $ —

Options assumed from Pioneer Bancshares, Inc.

431,645 23.32

Exercised ( 259,890 ) 23.40

Forfeited ( 1,044 ) 24.90

Outstanding, vested, and exercisable, end of period 170,711 $ 23.19 5.62

At December 31, 2022, the intrinsic value of the stock options under the Pioneer option plans was $ 2,263 .

NOTE 17 - Income Taxes

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Non-deductible professional fees 216 648 —

Carryback claim refund — — ( 1,512 )

Executive compensation 727 — —

Other 357 137 689

5 unchanged sentences

Allowance for loan losses 15,537 11,207

Unrealized loss on securities 14,235 —

Deferred compensation 4,756 4,720

Fair value adjustments on loans 2,428 35

Share-based compensation 2,208 2,235

Deferred loan fees 2,059 —

Accrued expenses 1,320 1,039

State tax credits 48 388

Other real estate owned and foreclosed assets 40 44

Fair value adjustments on loans 35 528

Deferred loan fees 1,044 2,059

Lease liability 1,044 —

Fair value adjustments on deposits 326 —

Other real estate owned and foreclosed assets 7 40

State tax credits — 48

Other 4,559 2,120

4 unchanged sentences

Prepaid expenses 1,143 1,078

Fair value adjustments on debt 1,029 1,267

Premises and equipment 918 1,018

Unrealized gain on securities 541 2,956

Fair value adjustments on debt 700 1,029

FHLB stock 196 165

Loan commitments — 712

Unrealized gain on securities — 541

Total deferred tax liabilities 24,227 16,739

91 unchanged sentences

Director Fees :

Fees paid to directors of the Company and the Bank for the years ended December 31, 2021, 2020 and 2019 totaled $ 310 , $ 316 and $ 310 , respectively.

Fees paid to directors of the Company and the Bank for the year ended December 31, 2022, 2021 and 2020 totaled $ 488 , $ 310 and $ 316 , respectively.

NOTE 21 - Fair Value Measurements

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The initial and subsequent changes in fair value of the interest rate swaps and the economic hedge derivatives are a component of other noninterest income.

Mortgage Banking Activities - The estimated fair value of forward mortgage sales of mortgage-backed securities and forward sale commitments are based on exchange prices or the dealer market price and are recorded as a component of prepaid expenses and other assets, mortgage loans held-for-sale, and/or accrued expenses and other liabilities on the

consolidated balance sheet.

The initial and subsequent changes in value on forward sales of mortgage-based securities and forward sale commitments are a component of gain on mortgage loans held-for-sale.

The initial and subsequent changes in value on forward sales of mortgage-based securities and

forward sale commitments are a component of gain on mortgage loans held-for-sale.

The estimated fair value of IRLCs is based on the fair value of the related mortgage loans which is based on observable market data for similar loan product type.

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Total $ 35,185 $ 637,545 $ 47,392 $ 720,122

No assets or liabilities were valued on a recurring basis at Level 1 as of December 31, 2020, nor were there any transfers between Level 2 and Level 3 during the years ended December 31, 2021 and 2020.

There were not any transfers between Level 2 and Level 3 during the years ended December 31, 2022 and 2021.

The following table presents a reconciliation for our Level 3 assets measured at fair value on a recurring basis as of and for the years ended December 31,:

1 unchanged sentence

Balance, beginning of year $ 47,392 $ 29,144 $ 29,003

Total losses included in earnings ( 5,606 ) ( 22,280 ) ( 11,930 )

Total gains (losses) included in earnings 12,418 ( 5,606 ) ( 22,280 )

Purchases, issuances, sales and settlements:

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Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan is confirmed.

When loans are partially charged off, the resulting valuation would be considered Level 3, consisting of appraisals of underlying collateral.

loans are partially charged off, the resulting valuation would be considered Level 3, consisting of appraisals of underlying collateral.

Other Real Estate Owned and Foreclosed Assets - Other real estate owned is valued at the time the property is acquired and initially recorded at fair value less costs to sell, establishing a new cost basis.

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2022 2021 2020

Dividends received from subsidiary bank $ — $ — $ 32,000

Dividends received from subsidiaries $ 8,700 $ — $ —

Interest income, $ 2 , $ 44 and $ 65 from subsidiaries, respectively

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Net income $ 59,182 $ 43,164 $ 47,585

Adjustments to reconcile income to net cash (used in) provided by operating activities:

Adjustments to reconcile income to net cash provided by (used in) operating activities:

Amortization and accretion 1,529 1,095 1,055

3 unchanged sentences

Other liabilities 293 3,479 3,866

Net cash (used in) provided by operating activities ( 6,241 ) ( 1,251 ) 29,734

Net cash provided by (used in) operating activities 1,515 ( 6,241 ) ( 1,251 )

Cash flows from investing activities:

Payments for investments in and advances to subsidiaries 125 500 225

Cash paid in excess of cash acquired in connection with Pioneer Merger ( 4,140 ) — —

Contributions to subsidiaries — — ( 17,000 )

Net cash provided by (used in) investing activities 500 ( 16,775 ) 340

Net cash provided by (used in) provided by investing activities ( 4,015 ) 500 ( 16,775 )

Cash flows from financing activities:

Proceeds from other borrowings — — 6,000

Repayments of convertible notes payable ( 15,217 ) — —

Repayments of other borrowings — — ( 6,000 )

4 unchanged sentences

Net cash provided by (used in) financing activities 8,671 ( 66 ) 31,472

Net (decrease) increase in cash and cash equivalents ( 5,807 ) 13,446 ( 10,006 )

Net increase (decrease) in cash and cash equivalents 6,171 ( 5,807 ) 13,446

Cash and cash equivalents, beginning of year 11,141 16,948 3,502

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Allocation methodologies may be subject to periodic adjustment as management systems evolve and/or the business or product lines within the segments change.

Significant segment totals are reconciled to the financial statements as follows for the years ended December 31,:

Significant segment totals are reconciled to the financial statements as follows for the year ended December 31,:

Banking Mortgage Operations Corporate Total Segments

Summary of Operations

Net interest income (expense) $ 152,515 $ 7,270 $ ( 4,552 ) $ 155,233

Provision for (benefit from) loan losses 3,235 ( 235 ) — 3,000

Net interest income $ 241,840 $ 5,455 $ ( 5,663 ) $ 241,632

Provision for loan losses 14,781 3,269 — 18,050

Noninterest income:

2 unchanged sentences

Trust and investment advisory fees 6,806 — — 6,806

(Loss) income from mortgage banking services, net ( 2,409 ) 88,819 — 86,410

Income from mortgage banking services, net ( 3,035 ) 49,320 — 46,285

Other noninterest income 6,762 ( 9 ) — 6,753

11 unchanged sentences

Summary of Operations

Net interest income (expense) $ 132,130 $ 7,335 $ ( 3,512 ) $ 135,953

Net interest income $ 152,515 $ 7,270 $ ( 4,552 ) $ 155,233

Provision for (benefit from) loan losses 3,235 ( 235 ) — 3,000

3 unchanged sentences

Trust and investment advisory fees 7,795 — — 7,795

(Loss) income from mortgage banking services, net ( 2,123 ) 124,297 — 122,174

Income from mortgage banking services, net ( 2,409 ) 88,819 — 86,410

Other noninterest income 7,946 ( 7 ) — 7,939

5 unchanged sentences

Total noninterest expense 149,919 70,965 3,751 224,635

(Loss) income before income taxes $ ( 2,027 ) $ 63,818 $ ( 4,626 ) $ 57,165

Income (loss) before income taxes $ 34,793 $ 25,352 $ ( 8,303 ) $ 51,842

Other Information

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We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet financial instruments.

Operating leases :

We lease certain facilities and equipment under non-cancelable operating leases.

Operating lease amounts exclude renewal option periods, property taxes, insurance, and maintenance expenses on leased properties.

Our facility leases typically provide for rental adjustments for increases in base rent (up to specific limits), property taxes, insurance, and general property maintenance that would be recorded in rent expense.

Rent expense $ 6,623 , $ 7,261 and $ 6,588 for the years ended December 31, 2021, 2020 and 2019, respectively.

Future minimum payments under all existing operating lease commitments are as follows:

Thereafter 5,875

Total operating leases $ 35,671

Undistributed portion of committed loans and unused lines of credit :

14 unchanged sentences

The Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to manage the credit risk of the MPF Program mortgage loans.

The term of these Commitments is through December 31, 2021.

The term of these Commitments ended on December 29, 2023.

As of December 31, 2022 and 2021, the Bank considered the amount of any of its liability for the present value of the credit enhancement fees less any expected losses in the mortgages delivered under the Commitments to be immaterial, and had not recorded a liability and offsetting receivable.

12 unchanged sentences

We periodically review all outstanding pending or threatened legal proceedings and determine if such matters will have an adverse effect on our business, financial condition, results of operations or cash flows.

Trust Administration Litigation :

On May 18, 2021, the two remainder beneficiaries of the Dorothy S.

Harroun Irrevocable Trust (“Trust”), Dennis Harroun and Douglas Harroun (the “Remainder Beneficiaries”), filed a claim in the Santa Fe County, New Mexico District Court, against the Bank as trustee of the Trust, in the form of a counterclaim related to a petition for guidance and approval of trust distributions filed by the Bank on March 24, 2021 in the same court.

The Remainder Beneficiaries’ claim alleges that the Bank breached its fiduciary duty and impartiality with respect to 2020 distributions made to the Trust’s current beneficiary, Dorothy Harroun.

The Remainder Beneficiaries seek restitution and surcharge against the Bank for the full amount of the 2020 distributions, which were approximately $ 19.7 million, plus a reasonable rate of return thereon, as well as legal fees, costs, and expenses and the removal of the Bank as trustee of the Trust.

The Bank believes that the Remainder Beneficiaries’ claims are without merit and it intends to vigorously defend against all claims asserted.

Overdraft Fee Litigation :

On September 10, 2021, Karen McCollam filed a putative class action amended complaint against the Bank in the United States District Court for the District of Colorado.

The amended complaint alleges that the Bank improperly charged overdraft fees where a transaction was initially authorized on sufficient funds but later settled negative due to intervening transactions.

The complaint asserts a claim for breach of contract, which incorporates the implied duty of good faith and fair dealing, and a claim for violations of the Colorado Consumer Protection Act.

Plaintiff seeks to represent a proposed class of all the Bank’s checking account customers who were allegedly charged overdraft fees on transactions that did not overdraw their checking account.

Plaintiff seeks unspecified restitution, actual and statutory damages, costs, attorneys’ fees, pre-judgment interest, and other relief as the Court deems proper for herself and the putative class.

On September 24, 2021, the Bank filed a motion to dismiss the amended complaint.

The motion to dismiss has been fully pled, and is before the Court for decision.

The Bank believes that the lawsuit is without merit and it intends to vigorously defend against all claims asserted.

On September 13, 2021, Samantha Besser filed a putative class action amended complaint against the Bank in the United States District Court for the District of Colorado.

The amended complaint alleges that the Bank improperly charged multiple insufficient funds or overdraft fees when a merchant resubmits a rejected payment request.

The amended complaint alleges that the Bank improperly charged

multiple insufficient funds or overdraft fees when a merchant resubmits a rejected payment request.

The complaint asserts claims for breach of contract, which incorporates the implied duty of good faith and fair dealing.

4 unchanged sentences

The Bank believes that the lawsuit is without merit, and it intends to vigorously defend against all claims asserted.

At this time, the Bank is unable to reasonably estimate the outcome of this litigation.

Wire Transfer Litigation :

3 unchanged sentences

UGI seeks actual damages, statutory damages for civil theft, costs, attorneys’ fees, pre- and post-judgment interest, and other relief as the Court deems proper.

On November 18, 2021, the Bank filed responsive pleadings (“Answer”) setting forth its position that:

The Bank has filed responsive pleadings and counterclaims setting forth its position that:

1) the Transactions were duly authorized by UGI;

2) the Bank upheld the contractual security procedures with UGI for wire transfers, and followed its own industry-standard internal processes and procedures in carrying out those security procedures;

solely liable for any fraud that might have been perpetrated due to an e-mail account compromise of one or more of its employees;

3) UGI is solely liable for any fraud that might have been perpetrated due to an e-mail account compromise of one or more of its employees;

4) UGI breached its contractual obligations with the Bank by failing to timely discover and report any impropriety as to the Transactions to the Bank;

and 5) the Bank, therefore, is not liable for the unrecovered balance.

On December 13, 2021, the Court granted the Bank’s application for interpleader of funds that the Bank has recovered from the recipient banks.

The recovered funds were paid into the Court’s registry on December 21, 2021.

The Bank believes that UGI’s claims are without merit and it intends to vigorously defend against all claims asserted.

3 unchanged sentences

It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to our results of operations for a given fiscal period.

On March 11, 2020, the World Health Organization announced that the COVID-19 outbreak was deemed a pandemic, and on March 13, 2020, the President declared the ongoing COVID-19 pandemic of sufficient magnitude to warrant an emergency declaration.

The operations and business results of the Company could be materially adversely affected, including the estimate of the allowance for loan losses.

The extent to which the coronavirus may continue to impact business activity or investment results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the continued severity of the coronavirus and variants, and the actions required to contain the coronavirus or treat its impact, among others.

NOTE 25 - Lease Commitments

Our leases relate primarily to office space and bank branches with remaining lease terms of generally 1 to 15 years.

Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates.

As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.

For leases existing during transition from ASC 840 to ASC 842 at January 1, 2022, extension options were not considered in the remaining lease term.

ROU asset on leased property, gross $ 35,212

Accumulated amortization ( 6,808 )

ROU asset, net ( Note 9 )

Lease liability ( Note 13 )

The following table reconciles future undiscounted lease payments due under non-cancelable operating leases to the aggregate operating lessee lease liability as of December 31, 2022:

Thereafter 6,888

Total undiscounted operating lease liability 33,094

Imputed interest 1,827

Total operating lease liability included in the accompanying balance sheet $ 31,267

Weighted Average Remaining Life - Operating Leases 5.92

Weighted Average Rate - Operating Leases 1.81 %

Total lease expense for the years ended December 31, 2022, 2021 and 2020 was $ 7,311 , $ 6,623 and $ 7,261 , respectively.

The components of total lease expense was as follows for the year ended December 31, 2022:

Operating leases $ 7,145

Short-term leases 476

Sublease income ( 310 )

Net lease expense $ 7,311

We do not currently have any significant finance leases in which we are the lessee, material related-party leases, leases containing residual value guarantees or restrictive covenants.

NOTE 26 - Revenue from Contracts with Customers

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The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Form 10-K.

On March 7, 2022, we received the necessary regulatory approvals to complete our mergers with Pioneer.

For further information related to the mergers, see “ No te 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies —Business Combination.” For further information relating to the issuance of our Subordinated Note - 2022 and subsequent repayment of Convertible Notes Payable in the first quarter of 2022 see Note 11 - Debt .

On February 22, 2023, the Bank paid a dividend of $ 20,000 to FirstSun.

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.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

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 8. Financial Statements and Supplementary Data