FIRSTSUN CAPITAL BANCORP 10-K

Item 8. Financial Statements Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 173 ) 78 Consolidated Balance Sheets 79 Consolidated Statements of Income and Comprehensive Income 80 Consolidated Statements of Stockholders' Equity 81 Consolidated Statements of Cash Flows 82 Notes to Consolidated Financial Statements 84 Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies 84 Note 2 - Merger with Pioneer B ancshares, Inc. 96 Note 3 - Securities 98 Note 4 - Loans 101 Note 5 - Mortgage Servicing Rights 106 Note 6 - Premises and Equipment 107 Note 7 - Core Deposits and Other Intangible Assets 107 Note 8 - Derivative Financial Instruments 108 Note 9 - Prepaid Expenses and Other Assets 110 Note 10 - Deposits 111 Note 1 1 - Securities Sold Under Agreements to Repurchase 112 Note 1 2 - Debt 112 Note 1 3 - Accrued Expenses and Other Liabilities 114 Note 1 4 - Earnings Per Share 115 Note 15 - Accumulated Other Comprehensive Income 115 Note 1 6 - Stockholders' Equity 116 Note 1 7 - Income Taxes 118 Note 1 8 - Other Noninterest Expenses 120 Note 1 9 - Regulatory Capital Matters 120 Note 20 - Transactions with Related Parties 122 Note 2 1 - Fair Value Measurements 122 Note 2 2 - Parent Company Only Condensed Financial Information 126 Note 2 3 - Segment Information 128 Note 2 4 - Commitments and Contingencies 132 Note 25 - Leases 134 Note 2 6 - Revenue from Contracts with Customers 135 Note 2 7 - Subsequent Events 136 77 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and the Board of Directors of FirstSun Capital Bancorp and Subsidiaries Denver, Colorado 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, 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. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Crowe LLP Crowe LLP We have served as the Company's auditor since 2014. Dallas, Texas March 16, 2023 78 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Balance Sheets As of December 31, (In thousands, except par and share amounts) 2022 2021 Assets Cash and cash equivalents $ 343,526 $ 668,462 Securities available-for-sale 536,973 572,501 Securities held-to-maturity, fair value of $ 33,218 and $ 18,599 , respectively 38,901 18,007 Loans held-for-sale, at fair value 57,323 103,939 Loans, net of allowance for loan losses of $ 65,917 and $ 47,547 , respectively 5,845,915 3,989,576 Mortgage servicing rights, at fair value 74,097 47,392 Premises and equipment, net 87,079 53,147 Other real estate owned and foreclosed assets, net 6,358 5,487 Bank-owned life insurance 77,923 54,858 Restricted equity securities 50,215 16,239 Goodwill 93,483 33,050 Core deposits and other intangible assets, net 15,806 8,250 Accrued interest receivable 28,543 14,761 Deferred tax assets, net 48,355 23,030 Prepaid expenses and other assets 125,825 58,115 Total assets $ 7,430,322 $ 5,666,814 Liabilities and Stockholders’ Equity Liabilities: Deposits: Noninterest-bearing accounts $ 1,820,490 $ 1,566,113 Interest-bearing accounts 3,944,572 3,288,835 Total deposits 5,765,062 4,854,948 Securities sold under agreements to repurchase 36,721 92,093 Federal Home Loan Bank advances 643,885 40,000 Convertible notes payable, net 5,355 19,442 Subordinated debt, net 74,880 50,016 Accrued interest payable 5,798 2,369 Accrued expenses and other liabilities 124,085 83,908 Total liabilities 6,655,786 5,142,776 Commitments and contingencies ( Note 2 4 ) Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, none issued or outstanding, respectively — — Common stock, $ 0.0001 par value; 50,000,000 shares authorized; 24,920,984 and 19,903,342 shares issued; 24,920,984 and 18,346,288 shares outstanding, respectively 2 2 Additional paid-in capital 460,720 261,905 Treasury stock, zero and 1,557,054 shares, respectively — ( 38,148 ) Retained earnings 357,797 298,615 Accumulated other comprehensive (loss) income, net ( 43,983 ) 1,664 Total stockholders’ equity 774,536 524,038 Total liabilities and stockholders’ equity $ 7,430,322 $ 5,666,814 The accompanying notes are an integral part of these consolidated financial statements. 79 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Income and Comprehensive Income For the years ended December 31, (In thousands, except per share amounts) 2022 2021 2020 Interest income: Interest and fee income on loans: Taxable $ 228,967 $ 137,669 $ 120,853 Tax exempt 19,021 21,634 24,402 Interest and dividend income on securities: Taxable 13,176 7,964 10,089 Tax exempt 9 15 11 Other interest income 5,644 2,072 1,482 Total interest income 266,817 169,354 156,837 Interest expense: Interest expense on deposits 13,154 8,544 15,642 Interest expense on securities sold under agreements to repurchase 119 59 157 Interest expense on other borrowed funds 11,912 5,518 5,085 Total interest expense 25,185 14,121 20,884 Net interest income 241,632 155,233 135,953 Provision for loan losses 18,050 3,000 23,100 Net interest income after provision for loan losses 223,582 152,233 112,853 Noninterest income: Service charges on deposit accounts 18,211 12,504 9,630 Credit and debit card fees 11,511 9,596 7,994 Trust and investment advisory fees 6,806 7,795 5,201 Income from mortgage banking services, net 46,285 86,410 122,174 Gain on sales of available-for-sale securities, net — — 153 Gain on other real estate owned and foreclosed assets activity, net 164 766 148 Other noninterest income 6,589 7,173 3,085 Total noninterest income 89,566 124,244 148,385 Noninterest expense: Salary and employee benefits 134,359 151,926 139,980 Occupancy and equipment 30,509 26,565 26,716 Amortization of intangible assets 4,215 1,417 1,485 Merger related expenses 18,751 3,085 — Other noninterest expenses 51,292 41,642 35,892 Total noninterest expense 239,126 224,635 204,073 Income before income taxes 74,022 51,842 57,165 Provision for income taxes 14,840 8,678 9,580 Net income $ 59,182 $ 43,164 $ 47,585 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 Earnings per share: Net income available to common stockholders $ 59,182 $ 43,164 $ 47,585 Basic $ 2.55 $ 2.36 $ 2.60 Diluted $ 2.48 $ 2.30 $ 2.58 The accompanying notes are an integral part of these consolidated financial statements. 80 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Stockholders’ Equity For the years ended December 31, (in thousands, except share amounts) Issued shares of common stock Common stock Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity Balance as of January 1, 2020 19,878,713 $ 2 $ 257,181 $ ( 36,706 ) $ 207,866 $ 1,858 $ 430,201 Issuance of treasury stock ( 100 shares) — — — 2 — — 2 Stock option exercise ( 63,844 shares of treasury stock issued) — — — ( 1,564 ) — — ( 1,564 ) Repurchase of common stock through stock repurchase program ( 4,892 shares) — — ( 153 ) 120 — — ( 33 ) Share-based compensation, net of forfeitures — — 2,335 — — — 2,335 Net income — — — — 47,585 — 47,585 Other comprehensive income — — — — — 7,261 7,261 Balance as of December 31, 2020 19,878,713 $ 2 $ 259,363 $ ( 38,148 ) $ 255,451 $ 9,119 $ 485,787 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 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 Net income — — — — 59,182 — 59,182 Other comprehensive loss — — — — — ( 45,647 ) ( 45,647 ) Balance as of December 31, 2022 24,920,984 $ 2 $ 460,720 $ — $ 357,797 $ ( 43,983 ) $ 774,536 The accompanying notes are an integral part of these consolidated financial statements. 81 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Cash Flows For the years ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities: Net income $ 59,182 $ 43,164 $ 47,585 Adjustments to reconcile income to net cash provided by operating activities: Provision for loan losses 18,050 3,000 23,100 Depreciation 7,118 6,118 6,004 Deferred tax expense 9,203 3,145 ( 3,377 ) 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 of lease marks — — 83 Amortization of software implementation costs 835 1,063 1,028 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 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 ) Impairment of premises and equipment 720 — 678 Impairment of other real estate owned and foreclosed assets 94 217 418 Federal Home Loan Bank stock dividends ( 712 ) ( 407 ) ( 468 ) Share-based compensation expense 1,448 2,998 2,335 (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 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 sales of loans held-for-sale ( 11,782 ) ( 61,403 ) ( 74,642 ) Origination of loans held-for-sale ( 1,090,759 ) ( 2,165,255 ) ( 2,471,066 ) Proceeds from sales of loans held-for-sale 1,137,793 2,292,828 2,422,778 Changes in operating assets and liabilities: Lease right-of-use assets 3,282 — — Accrued interest receivable ( 9,835 ) 655 ( 2,862 ) Prepaid expenses and other assets ( 22,992 ) ( 6,769 ) ( 17,116 ) Accrued interest payable 3,022 ( 223 ) 398 Accrued expenses and other liabilities ( 293 ) ( 15,646 ) 30,905 Net cash provided by (used in) operating activities $ 96,915 $ 113,109 $ ( 547 ) The accompanying notes are an integral part of these consolidated financial statements. 82 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Cash Flows (continued) For the years ended December 31, (In thousands) 2022 2021 2020 Cash flows from operating activities: (previous page) $ 96,915 $ 113,109 $ ( 547 ) Cash flows from investing activities: 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 Purchases of available-for-sale securities ( 66,606 ) ( 248,736 ) ( 101,812 ) Proceeds from sale or maturities of available-for-sale securities 170,410 131,899 185,704 Loan originations, net of repayments ( 1,064,293 ) ( 215,281 ) ( 863,138 ) Proceeds from the sale of loans held-for-sale previously classified as held-for-investment — 18,544 97,832 Purchases of premises and equipment ( 2,196 ) ( 3,455 ) ( 6,155 ) Proceeds from the sale of premises and equipment 2 5 2,945 Proceeds from sales of other real estate owned and foreclosed assets 867 2,089 6,729 Purchases of restricted equity securities ( 39,785 ) ( 57 ) ( 8,704 ) Proceeds from the sale or redemption of restricted equity securities 15,842 7,400 6,431 Purchase of other investments ( 939 ) ( 686 ) ( 155 ) Proceeds from the sale or redemption of other investments 745 519 1 Net cash used in investing activities ( 538,120 ) ( 293,924 ) ( 662,908 ) Cash flows from financing activities: Net change in deposits ( 280,914 ) 701,444 663,750 Net change in securities sold under agreements to repurchase ( 55,372 ) ( 23,278 ) 47,261 Proceeds from Federal Home Loan Bank advances 760,885 — 1,159,000 Repayments of Federal Home Loan Bank advances ( 317,000 ) ( 30,411 ) ( 1,180,581 ) Repayments of other borrowings — — ( 6,000 ) Proceeds from subordinated debt, net 24,466 — 39,067 Proceeds from issuance of common stock, net of issuance costs ( 579 ) ( 456 ) — Issuance of treasury stock — — ( 31 ) 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 (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: Interest paid on deposits $ 12,040 $ 8,753 $ 16,481 Interest paid on borrowed funds $ 14,118 $ 5,667 $ 5,529 Cash paid for income taxes, net $ 6,183 $ 6,601 $ 8,003 Non-cash investing and financing activities: 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 Premises and equipment transferred to other real estate owned and foreclosed assets $ 338 $ 1,038 $ — Loans transferred to other real estate owned and foreclosed assets $ 1,331 $ 2,577 $ 3,110 Other assets transferred to Premises and equipment $ 64 $ 170 $ — Mortgage servicing rights resulting from sale or securitization of mortgage loans $ 14,287 $ 23,854 $ 22,421 The accompanying notes are an integral part of these consolidated financial statements. 83 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Notes to Consolidated Financial Statements ($ in thousands, except share and per share amounts) NOTE 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies a. Principles of Consolidation - The consolidated financial statements include the accounts of FirstSun Capital Bancorp (“FirstSun” or “Parent Company”) and its wholly-owned subsidiaries, Sunflower Bank, N.A. (the “Bank”) and Logia Portfolio Management, LLC, and have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) and prevailing practices in the banking industry. All significant intercompany balances and transactions have been eliminated. These entities are collectively referred to as “our”, “us”, “we”, or “the Company”. b. 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. Its primary wealth management and trust products are personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. Its primary lending products are residential mortgage, commercial and consumer loans. Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial and residential real estate. Commercial loans are generally expected to be repaid from the borrower’s cash flow from operations. c. Business Combination - On April 1, 2022, FirstSun completed its merger with Pioneer Bancshares, Inc. (“Pioneer”). 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 . d. 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. If conditions of a subsequent event existed as of the balance sheet date, depending on materiality, the effects may be required to be recognized and disclosed in the financial statements. If conditions of a subsequent event arose after the balance sheet date, the effects are not required to be recognized in the financial statements, but depending on materiality, may need to be disclosed in the financial statements. e. Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on historical experience and on various assumptions about the future that are believed to be reasonable based on all available information. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information. 84 Table of Contents f. 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. 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. Additionally, if loans are not repaid according to their terms, the collateral securing the loans, in those cases where real estate serves as the primary collateral, may not have value equal to the amounts owed under the loan. We did not exceed regulatory concentration monitoring levels as of December 31, 2022 or 2021. g. Reclassifications - Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior years net income or stockholders’ equity. h. Fair Value Measurement - Fair value is determined in accordance with Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement . ASC Topic 820 establishes a fair value hierarchy which requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 describes three levels of inputs that may be used to measure fair value: Level 1 : Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 : Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 : Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own beliefs about the assumptions that market participants would use in pricing the assets or liabilities. i. Cash and Cash Equivalents - Cash and cash equivalents include cash, cash items in process of collection, deposits with other financial institutions and federal funds sold. For purposes of the consolidated statements of cash flows, we consider all federal funds sold and interest-bearing deposits at other financial institutions to be cash and cash equivalents, all with original maturities of less than 90 days. Cash held at depository institutions at times may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. 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. Cash and cash equivalents were as follows as of December 31,: 2022 2021 Federal Reserve Bank $ 247,015 $ 546,256 Federal Home Loan Bank 1,335 5,582 Other 8,799 65,183 Total cash due from depository institutions 257,149 617,021 Cash on hand and noninterest-bearing accounts 86,377 51,441 Total cash and cash equivalents $ 343,526 $ 668,462 85 Table of Contents j. Securities - The Bank classifies debt securities as either available-for-sale or held-to-maturity. Held-to-maturity securities are those which the Bank has the positive intent and ability to hold to maturity. All other debt securities are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity (accumulated other comprehensive income/loss) until realized. Realized gains and losses on securities classified as available-for-sale are included in earnings and recorded on trade date. The specific identification method is used to determine the cost of the securities sold. Purchased premiums and discounts on debt securities are amortized/accreted into interest income using the yield-to-maturity method based upon the remaining contractual maturity of the asset, adjusted for any expected prepayments. Management evaluates debt securities for other-than-temporary impairment (OTTI) on at least a quarterly basis, and more frequently when warranted by economic or market conditions. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the difference between amortized cost and fair value is recognized as an impairment through earnings. A decline in the market value of any security below cost that is deemed other than temporary due to the losses being credit and not due to other factors is charged to income, resulting in the establishment of a new cost basis for the security. Amortization and accretion of purchase premium and discount is then discontinued. Continuance of accrual of interest is determined on an individual basis. For debt securities that do not meet the aforementioned OTTI criteria, the amount of impairment is split into two components as follows: 1) OTTI related to credit loss, which must be recognized in the income statement, and 2) OTTI related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of cash flows expected to be collected and the amortized cost basis. For equity securities, the entire amount of impairment is recognized through earnings. Equity securities are carried at fair value, with changes in fair values reported in net income. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Equity securities are included as a component of "prepaid expenses and other assets" in our consolidated balance sheets. k. Loans Held-for-sale - Mortgage loans originated and intended for sale in the secondary market are classified as loans held-for-sale and recorded at fair value. Most of these loans are sold with servicing rights retained. The changes in fair value of loans held-for-sale are measured and recorded in income from mortgage banking services. Loan origination fees are recorded in the period of origination. l. Loans Receivable - Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff, are reported at the principal balance outstanding, net of purchase premiums and discounts, deferred loan fees and costs, and an allowance for loan losses. Interest on loans receivable is accrued and credited to income based upon the principal amount outstanding using primarily a simple interest calculation. Loan origination fees and related direct loan origination costs for a given loan are offset and only the net amount is deferred and amortized and recognized in interest income over the life of the loan using the level yield method without anticipating prepayments. The accrual of interest income on loans is discontinued when, in management’s judgment, the interest is uncollectible in the normal course of business, and a loan is moved to nonaccrual status in accordance with the Bank’s policy, typically after 90 or 120 days of non-payment, as follows: interest income on consumer, commercial real estate and commercial loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in process of collection; interest income on residential real estate loans is typically discontinued at the time the loan is 120 days delinquent unless the loan is well-secured and in process of collection. Consumer and credit card loans are typically charged off no later than 120 days past due. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest in full is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller balance homogeneous loans that are collectively evaluated for impairment and individually classified impaired loans. 86 Table of Contents When discontinued, all unpaid interest is reversed. Interest is included in income after the date the loan is placed on nonaccrual status only after all principal has been paid or when the loan is returned to accrual status. The loan is returned to accrual status only when the borrower has brought all past-due principal and interest payments current and, in the opinion of management, has demonstrated the ability to make future payments of principal and interest as scheduled. Acquired Loans - Acquired loans are recorded at fair value as of the acquisition date and classified as either purchased performing or purchased credit impaired (PCI) loans. For purchased performing loans, we follow the provisions of ASC Topic 310-20, Receivables - Nonrefundable Fees and Other Costs. The difference between the fair value and unpaid principal balance on a purchased performing loan as of the acquisition date is accreted or amortized to interest income over the estimated life of the loan. We may aggregate purchased performing loans into different pools based on common risk characteristics such as risk rating, underlying collateral, type of interest rate (fixed or adjustable), types of amortization, and other similar factors. A purchased performing loan pool is accounted for as a single asset with a single interest rate, cumulative loss rate, and cash flow expectation. A loan will be removed from a pool of loans only if the loan is sold, foreclosed, or assets are received in full satisfaction of the loan. If an individual loan is removed from a pool of loans, the difference between its relative carrying amount and its cash, fair value of the collateral, or other assets received will be recognized in income immediately as interest income on loans and would not affect the effective yield used to recognize the accretable yield on the remaining loan pool. For PCI loans, we follow the provisions of ASC Topic 310-30, Receivables - Loans and Debt Securities Acquired with Deteriorated Credit Quality . PCI loans reflect credit deterioration since origination such that it is probable at acquisition that we will be unable to collect all contractually required payments. PCI loans are initially recorded at estimated fair value measured as the present value of all cash flows expected to be received, discounted at an appropriately risk-weighted discount rate. Initial cash flow expectations incorporate significant assumptions regarding prepayment rates, frequency of default, and loss severity. The excess of cash flows expected to be collected over a loan’s carrying value is considered to be the accretable yield and is recognized as interest income over the estimated life of the loan using the effective yield method. The accretable yield may change due to changes in the timing and amounts of expected cash flows. Expected cash flows for PCI loans are reviewed quarterly. If, at acquisition, the PCI loans are collateral dependent and acquired primarily for the rewards of ownership of the underlying collateral, or if cash flows to be collected cannot be reasonably estimated, accrual of income is not recorded. The excess of the undiscounted contractual balances due over the cash flows expected to be collected on a PCI loan is considered to be the nonaccretable difference. The nonaccretable difference represents our estimate of the credit losses expected to occur and is considered in determining the fair value of the loans as of the acquisition date. Subsequent to the acquisition date, any increases in expected cash flows over those expected as of the acquisition date are adjusted through an increase to the accretable yield on a prospective basis. Any subsequent decreases in expected cash flows attributable to credit deterioration are recognized by recording a provision for loan losses which is charged against earnings. PCI loans acquired are subject to our internal and external credit review and monitoring controls. Loan balances outstanding at the time of acquisition are accounted for under ASC Topic 310-30. Any additional advances on these commitments subsequent to the acquisition date are accounted for under ASC Topic 310-20. m. Allowance for Loan Losses - The allowance for loan losses is a valuation allowance for probable incurred credit losses and is based upon management’s estimate of the amount required to maintain an adequate allowance which reflects the risks in the loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required and necessary provision for loan losses expense using past loan loss experience, the nature and volume of the portfolio, information about specific borrower situations and estimated collateral values, current economic conditions, and other factors which, in the opinion of management, deserve current recognition. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Loans for which the terms have been modified resulting in a concession, and for which the borrower is experiencing financial difficulties, are considered troubled debt restructurings (“TDR”s) and classified as impaired. 87 Table of Contents Management also considers loan impairment in its analysis of the allowance. We consider a loan to be impaired when management believes it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at: the present value of estimated future cash flows discounted using the loan’s effective interest rate; the loan’s observable market price; or at the fair value of collateral if repayment is expected primarily from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. TDRs occur when a borrower is experiencing financial difficulty and a concession is granted; such as below market interest rate for the remaining original life of the loan, extension of maturity date, release of collateral, reduction of principal amount or reduction of accrued interest. 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 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. The general component covers non-impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio type and is based on the actual loss history experienced by us. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio type. These economic factors include, but are not limited to, consideration of the following: levels of, and trends in delinquencies, impaired loans, nonaccrual, and adversely classified loans; levels of and trends in charge-offs and recoveries; trends in volume and terms of loans; effects of any changes in risk selection and underwriting standards; changes in the quality of the loan review system; other changes in lending policies, procedures, and practices; experience, ability, and depth of lending management and other relevant staff; national and local economic trends and conditions; industry conditions; effects of changes in credit concentrations; and the effects of other external factors such as competition and legal and/or regulatory requirements on the level of estimated credits losses in the Bank’s portfolio. Loan credit quality and the adequacy of the allowance are also subject to periodic examination by regulatory agencies. Such agencies may require adjustments to the allowance based upon their judgments about information available at the time of their examination. The Bank’s loan portfolio types are Commercial, Commercial Real Estate, Residential Real Estate, and Consumer loans. The Bank has a diversified portfolio across a variety of industries, and the portfolio is generally centered in the states in which the Bank has offices. Commercial loans include commercial and industrial loans to commercial and agricultural customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. These loans are made primarily in the Bank’s market areas, are underwritten on the basis of the borrower’s ability to service the debt from revenue, and extended under the Bank’s normal credit standards, controls, and monitoring systems. Collateral is often represented by liens on accounts receivable, inventory, equipment, and other forms of general non-real estate business assets. The Bank often obtains some form of credit enhancement through a personal guaranty of the borrower, principals and/or others. The global cash flow capability of commercial loan customers is generally evaluated both at underwriting and during the life of the loan. 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, 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. Commercial loans require increased underwriting and monitoring to offset these risks, for which the Bank’s systems have been designed to provide. 88 Table of Contents Commercial Real Estate loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial and agricultural businesses, and include both loans for long term financing of land and buildings and loans made for the initial development or construction of a commercial real estate project. Commercial Real Estate 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 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. Residential Real Estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit. 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, 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. Consumer loans include direct consumer installment loans, credit card accounts, overdrafts and other revolving loans. 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, and rising interest rates 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. The credit quality of Consumer loans is monitored primarily on the basis of payment delinquency. 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 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. n. Mortgage Servicing Rights (MSRs) - MSRs arise from contractual agreements between us and investors in mortgage loans. Pursuant to ASC Topic 860-50, Servicing Assets and Liabilities , we record MSR assets when we sell loans on a servicing-retained basis, at the time of a securitization that qualifies and meets requirements for sale accounting or through the acquisition or assumption of the right to service a financial asset. Under these contracts, we perform loan servicing functions in exchange for fees and other remuneration. Our MSRs are initially recorded and subsequently measured at fair value. The fair value of the MSRs is based upon the present value of the expected future net cash flows related to servicing these loans. We receive a base servicing fee, generally ranging from 0.25 % to 0.50 % annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from investors. We determine the fair value of the MSRs by the use of a discounted cash flow model that incorporates prepayment speeds, delinquencies, discount rate, ancillary revenues and other assumptions (including costs to service) that management believes are consistent with the assumptions other market participants use in valuing MSRs. The nature of the loans underlying the MSRs affects the assumptions used in the cash flow models. We obtain third party valuations quarterly to assess the reasonableness of the fair value calculated by the cash flow model. Changes in the fair value of MSRs are charged or credited to income from mortgage banking services, net . As a part of our mortgage servicing responsibilities, we advance funds when the borrower fails to meet contractual payments (e.g. principal, interest, property taxes, and insurance). We also advance funds to maintain, report, and market foreclosed real estate properties on behalf of investors. These advances are collectively known as servicer related advances. Such advances are recovered from borrowers for reinstated and performing loans and from investors for foreclosed loans. We record a valuation allowance on outstanding servicer advances when we determine that based on all available information, it is probable that a loss has been incurred, and that all contractual amounts due will not be recovered. 89 Table of Contents o. Premises and Equipment - Land is carried at cost. Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line or declining balance method depending upon the type of asset with useful lives ranging from three to 39 years. Maintenance and repair costs are charged to expense as incurred. Major betterments are considered individually and are capitalized or expensed depending on facts and circumstances. p. Other Real Estate Owned and Foreclosed Assets - Assets acquired through, or in lieu of, foreclosure or repossession or otherwise are being held for disposal or to be sold are adjusted upon transfer to fair value less estimated costs to sell, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Subsequent to foreclosure/repossession, management periodically performs valuations, and an allowance for losses is established by a charge against earnings if the carrying value of a property exceeds the fair value less estimated costs to sell. Revenue and expenses from operation and changes in the valuation allowance are included in other noninterest expense on the consolidated statements of income and comprehensive income. q. Bank-owned Life Insurance (BOLI) - We have purchased life insurance policies on certain key current and former executives as a method to offset the cost of employee benefit plans. We record BOLI at the estimated contractual amount that would be realized if the life insurance policy is surrendered prior to maturity or death of the insured, which is the cash surrender value adjusted for other charges and amounts due that are probable at settlement. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income taxes. r. Restricted Equity Securities - Restricted equity securities consist of capital stock of the Federal Home Loan Bank of Topeka (FHLB) and the Federal Reserve Bank of Kansas City (FRB). Such stock is not readily marketable, and accordingly, is carried at cost. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors. As a national banking association, the Bank is required to own stock of its regional FRB. FRB and FHLB stock are periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Restricted equity securities consisted of the following: 2022 2021 Federal Home Loan Bank stock $ 33,137 $ 6,379 Federal Reserve Bank stock 17,078 9,860 Total restricted equity securities $ 50,215 $ 16,239 s. Goodwill - The excess purchase price of acquired businesses over the fair value of identifiable assets acquired and liabilities assumed is recognized as goodwill. Goodwill is evaluated for impairment on an annual basis, or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Our evaluation may consist of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. Factors considered in the qualitative assessment include general economic conditions, conditions of the industry and markets in which we operate, regulatory developments, cost factors, and our overall financial performance. We performed our most recent annual goodwill impairment test as of December 31, 2022 and concluded that no impairment existed. No impairment losses have been recognized during the years ended December 31, 2022, 2021 and 2020. t. 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 10 year lives from the date of acquisition. Other intangible assets include the trade names of First National 1870 and Guardian Mortgage . These trade names provide a source of market recognition to attract potential clients/relationships and retain existing customers. Management has indicated that portions of the business will utilize these trade names into perpetuity; therefore, these trade names have been classified as indefinite-lived assets. Further, we have acquired certain customer relationships relating to wealth management. 90 Table of Contents 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. u. 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. When events or changes in circumstances indicate an asset may not be recoverable, we estimate the future cash flows expected to result from the use of the asset. 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. During the years ended December 31, 2022, 2021 and 2020, we recorded impairment of $ 720 , $ 0 and $ 678 , respectively, of long-lived assets. v. Transfers of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. w. Loan Commitments and Related Financial Instruments - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit, and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. x. Derivative Instruments and Hedging Activities - ASC Topic 815, Derivatives and Hedging (ASC Topic 815), provides the disclosure requirements for derivatives and hedging activities with the intent to provide users of financial statements with an enhanced understanding of: (a) how and why an entity uses derivative instruments, (b) how the entity accounts for derivative instruments and related hedged items, and (c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance, and cash flows. Further, qualitative disclosures are required that explain our objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. As required by ASC Topic 815, we record all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. 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 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. 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 91 Table of Contents 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. Risk Management Objective of Using Derivatives Banking Activities - We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our loan portfolio. The initial and subsequent changes in value, as well as the offsetting gain or loss of banking derivative financial instruments that qualify as fair value hedges, and any fees income generated are recorded as a component of interest and fee income on loans in our consolidated statements of income and comprehensive income. Mortgage Banking Activities - Our mortgage bankers enter into interest rate lock commitments (IRLC) with prospective borrowers. An IRLC represents an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant, whereby the interest rate is set prior to funding. The loan commitment binds us (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. 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. Our interest rate exposure on these derivative loan commitments is hedged with forward sales of mortgage-based securities as described below. Our IRLCs are carried at fair value in accordance with ASC Topic 815, and recorded at fair value in prepaid expenses and other assets on our consolidated balance sheets. ASC Topic 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are based on the fair value of the related mortgage loans which is based upon observable market data. The initial and subsequent changes in value of IRLCs are recorded as a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We actively manage the risk profiles of our IRLCs and mortgage loans held-for-sale on a daily basis. To manage the price risk associated with IRLCs, we enter into forward sales of mortgage-backed securities (MBS) in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held-for-sale, we enter into forward sales of MBS to deliver mortgage loans to third party investors. The estimated fair values of forward sales of MBS and forward sales commitments are based on exchange prices or the dealer market price. The initial and subsequent changes in value on forward sales of MBS and forward sales commitments are a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We also occasionally enter into contracts with other mortgage bankers to purchase residential mortgage loans at a future date, which we refer to as Loan Purchase Commitments (LPCs). LPCs are accounted for as derivatives under ASC Topic 815 and recorded at fair value in prepaid expenses and other assets on our consolidated balance sheets. Subsequent changes in LPCs are recorded as a charge or credit to income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We utilize derivative instruments to help manage the fair value changes in our MSRs. These derivative instruments are intended to economically hedge certain risks related to our MSRs. As such, these derivative 92 Table of Contents 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. These derivative products are accounted for and recorded at fair value in prepaid expenses and other assets or accrued expenses and other liabilities on our consolidated balance sheets. Subsequent changes are recorded to income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. y. 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 . z. 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 6 - Revenue from Contracts with Customers . aa. Advertising - Advertising costs are expensed as incurred and recorded within other noninterest expense. ab. 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. ac. 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. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. We recognize forfeitures as they occur. ad. Retirement Plan - We have an employee savings plan and trust (the Plan) which qualifies under Section 401(k) of the Internal Revenue Service Code. The Bank’s Trust and Wealth Management department is the Trustee. Substantially all of our full-time employees are eligible to participate in the Plan. Eligible employees may contribute up to 100 % of their compensation subject to certain limits based on federal tax laws. Additional contributions are allowed per the Internal Revenue Service Code for participants who have attained age 50 before the end of the Plan year. We make a matching contribution for each eligible participant equal to 100 % of the participant’s elective deferrals which does not exceed 6 % of the participant’s compensation. Participants are immediately vested in the matching contribution. 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. 93 Table of Contents ae. Income Taxes - The Company files a consolidated federal income tax return. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards; deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities for subsequent changes in tax rates are recognized in income in the period that includes the tax rate changes. We recognize the financial effects of a tax position only when we believe it can “more likely than not” support the position upon a tax examination by the relevant taxing authority, with a tax examination being presumed to occur. We are no longer subject to examination by taxing authorities for years before 2018. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. af. 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 and designated fair value hedges, net of tax, which are recognized as a separate component of equity. ag. 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. Management does not believe there are such matters that will have a material effect on these consolidated financial statements. ah. Risks and Uncertainties - In the normal course of business, companies in the banking and mortgage industries encounter certain economic and regulatory risks. Economic risks include prepayment risk, market risk, interest rate risk, and credit risk. We are subject to interest rate risk to the extent that in a rising interest rate environment, we may experience a decrease in loan production, as well as decreases in the value of mortgage loans held-for-sale and in commitments to originate loans, which may adversely impact our earnings. Credit risk is the risk of default that may result from the borrowers’ inability or unwillingness to make contractually required payments. We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. 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. 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 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. Further information is presented in Note 2 4 - Commitments and Contingencies . ai. Equity - Treasury stock is carried at cost. 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. aj. 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. We intend to take advantage of the benefits of this extended transition period for an “emerging growth company” for as long as it is available to us. For standards that we have delayed adoption, we may lack comparability to other companies who have adopted such standards. 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 94 Table of Contents 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): Facilitation of the Effects of Reference Rate Reform on Financial Reporting . This guidance eases the potential burden in accounting for reference rate reform. The amendments are elective and apply to all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued due to reference rate reform. The new guidance provides the following optional expedients that reduce costs and complexity of accounting for reference rate reform: Simplify accounting analysis for contract modifications; Allow hedging relationships to continue without de-designation if there are qualifying changes in critical terms of an existing hedging relationship due to reference rate reform; Allow change in the systematic and rational method used to recognize in earnings the components excluded from the assessment of hedge effectiveness; Allow a change in the designated benchmark interest rate to a different eligible benchmark interest rate in a fair value hedging relationship; Allow the shortcut method for a fair value hedging relationship to continue for the remainder of the hedging relationship; Simplify the assessment of hedge effectiveness and provide temporary optional expedients for cash flow hedging relationships affected by reference rate reform; and allow a one-time election to sell or transfer debt securities classified as held-to-maturity that reference a rate affected by reference rate reform and are classified as held-to-maturity before January 1, 2020. The amendments are effective for all entities from the beginning of an interim period that includes the issuance date of the ASU. 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. ak. 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. 95 Table of Contents 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 . Fair Value 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: April 1, 2022 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 96 Table of Contents 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. (Unaudited) Pro forma for the years ended December 31, 2022 2021 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. 97 Table of Contents NOTE 3 - Securities The amortized cost, gross unrealized gains and losses, and fair values of available-for-sale and held-to-maturity debt securities by type follows as of December 31,: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value 2022 Available-for-sale: U.S. treasury $ 62,010 $ — $ ( 5,361 ) $ 56,649 U.S. agency 2,881 — ( 47 ) 2,834 Obligations of states and political subdivisions 29,897 — ( 4,998 ) 24,899 Mortgage backed - residential 129,955 6 ( 13,826 ) 116,135 Collateralized mortgage obligations 225,559 — ( 21,294 ) 204,265 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 Held-to-maturity: Obligations of states and political subdivisions $ 25,378 $ 5 $ ( 4,891 ) $ 20,492 Mortgage backed - residential 8,705 4 ( 511 ) 8,198 Collateralized mortgage obligations 4,818 — ( 290 ) 4,528 Total held-to-maturity $ 38,901 $ 9 $ ( 5,692 ) $ 33,218 2021 Available-for-sale: U.S. treasury 35,400 — ( 215 ) 35,185 U.S. agency $ 6,019 $ — $ ( 100 ) $ 5,919 Obligations of states and political subdivisions 3,979 — ( 190 ) 3,789 Mortgage backed - residential 138,297 2,018 ( 1,638 ) 138,677 Collateralized mortgage obligations 236,282 1,441 ( 1,939 ) 235,784 Mortgage backed - commercial 150,322 3,424 ( 599 ) 153,147 Total available-for-sale $ 570,299 $ 6,883 $ ( 4,681 ) $ 572,501 Held-to-maturity: Obligations of states and political subdivisions 716 25 — 741 Mortgage backed - residential 10,750 390 — 11,140 Collateralized mortgage obligations 6,541 177 — 6,718 Total held-to-maturity $ 18,007 $ 592 $ — $ 18,599 As of December 31, 2022 and 2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity. 98 Table of Contents Certain debt securities that have gross unrealized losses and have been in a continuous unrealized loss position for more than one year follows as of December 31,: Less than 12 months 12 months or longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Number of Securities 2022 Available-for-sale: U.S. treasury $ 25,702 $ ( 967 ) $ 30,947 $ ( 4,394 ) $ 56,649 $ ( 5,361 ) 10 U.S. agency — — 2,834 ( 47 ) 2,834 ( 47 ) 7 Obligations of states and political subdivisions 21,676 ( 3,784 ) 2,753 ( 1,214 ) 24,429 ( 4,998 ) 18 Mortgage backed - residential 51,921 ( 2,939 ) 63,691 ( 10,887 ) 115,612 ( 13,826 ) 87 Collateralized mortgage obligations 111,360 ( 4,631 ) 92,905 ( 16,663 ) 204,265 ( 21,294 ) 66 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 Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Number of Securities 2021 Available-for-sale: U.S. treasury $ 35,185 $ ( 215 ) $ — $ — $ 35,185 $ ( 215 ) 4 U.S. 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 Collateralized mortgage obligations 115,877 ( 1,938 ) 193 ( 1 ) 116,070 ( 1,939 ) 16 Mortgage backed - commercial 32,872 ( 581 ) 24,170 ( 18 ) 57,042 ( 599 ) 5 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. Estimated fair value is less than amortized cost primarily because of general economic conditions unrelated to the specific issuer. At December 31, 2022 and 2021, management does not believe these securities are other than temporarily impaired for the following reasons: 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 99 Table of Contents issuer; and no significant adverse change in the general market condition of either the geographic area or the industry in which the issuer operates. Management has the ability and intends to hold these securities and it is likely that management will not be required to sell the securities prior to maturity or until such time as the full amount of investment principal will be returned. The amortized cost and fair value of our debt securities by contractual maturity as of December 31, 2022 are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or earlier redemptions that may occur. Amortized Cost Estimated Fair Value Available-for-sale: Due within 1 year $ 3,528 $ 3,452 Due after 1 year through 5 years 44,335 42,615 Due after 5 years through 10 years 172,918 154,260 Due after 10 years 377,292 336,646 Total available-for-sale $ 598,073 $ 536,973 Held-to-maturity: Due after 1 year through 5 years $ 1,154 $ 1,117 Due after 5 years through 10 years 822 800 Due after 10 years 36,925 31,301 Total held-to-maturity $ 38,901 $ 33,218 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. The proceeds from sales and calls of securities for the year ended December 31, 2022 was $ 81,016 . 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. 100 Table of Contents NOTE 4 - Loans Loans held-for-investment consist of the following as of December 31,: 2022 2021 Commercial $ 3,025,074 $ 2,414,787 Commercial real estate 1,753,360 1,176,973 Residential real estate 1,106,793 437,116 Consumer 43,706 17,766 Total loans 5,928,933 4,046,642 Deferred costs, fees, premiums, and discounts, net ( 17,101 ) ( 9,519 ) Allowance for loan losses ( 65,917 ) ( 47,547 ) Total loans, net $ 5,845,915 $ 3,989,576 On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. A provision in the CARES Act created the Paycheck Protection Program (PPP), a program administered by the Small Business Administration (“SBA”) to provide loans to small business during the COVID-19 pandemic. As of December 31, 2022 and 2021, we had $ 4,391 and $ 68,401 of PPP loans outstanding and deferred processing fees outstanding of $ 39 and $ 1,652 , respectively. PPP loans are classified as Commercial loans in the consolidated financial statements. No allowance for loan losses has been recognized for PPP loans as such loans are guaranteed by the SBA. The following table presents the activity in the allowance for loan losses by portfolio type for the years ended December 31,: Commercial Commercial Real Estate Residential Real Estate Consumer Total 2022 Allowance for loan losses: 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 period $ 42,847 $ 19,369 $ 3,349 $ 352 $ 65,917 2021 Allowance for loan losses: 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 period $ 33,277 $ 12,899 $ 1,136 $ 235 $ 47,547 2020 Allowance for loan losses: 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 Loans charged off ( 4,064 ) ( 581 ) ( 39 ) ( 216 ) ( 4,900 ) Recoveries 585 272 115 48 1,020 Balance, end of period $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766 101 Table of Contents 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,: Commercial Commercial Real Estate Residential Real Estate Consumer Total 2022 Loans: Individually evaluated for impairment $ 14,537 $ 10,443 $ 15,739 $ 91 $ 40,810 Collectively evaluated for impairment 3,010,537 1,742,917 1,091,054 43,615 5,888,123 Total loans $ 3,025,074 $ 1,753,360 $ 1,106,793 $ 43,706 $ 5,928,933 Allowance for loan losses: Individually evaluated for impairment $ 1,101 $ 189 $ 34 $ 88 $ 1,412 Collectively evaluated for impairment 41,746 19,180 3,315 264 64,505 Total allowance for loan losses $ 42,847 $ 19,369 $ 3,349 $ 352 $ 65,917 2021 Loans: Individually evaluated for impairment $ 17,460 $ 4,781 $ 11,479 $ 2 $ 33,722 Collectively evaluated for impairment 2,397,327 1,172,192 425,637 17,764 4,012,920 Total loans $ 2,414,787 $ 1,176,973 $ 437,116 $ 17,766 $ 4,046,642 Allowance for loan losses: Individually evaluated for impairment $ 2,517 $ 12 $ 39 $ — $ 2,568 Collectively evaluated for impairment 30,760 12,887 1,097 235 44,979 Total allowance for loan losses $ 33,277 $ 12,899 $ 1,136 $ 235 $ 47,547 102 Table of Contents The following table presents information related to impaired loans by class of loans as of December 31,: Unpaid Principal Balance Recorded Investment Allowance for Loan Losses Allocated Average Recorded Investment 2022 With no related allowance recorded: Commercial $ 8,401 $ 8,207 $ — $ 5,951 Commercial real estate 9,909 9,647 — 4,674 Residential real estate 14,572 14,903 — 9,135 Consumer — — — — Total loans with no related allowance recorded 32,882 32,757 — 19,760 With an allowance recorded: Commercial 6,456 6,330 1,101 4,580 Commercial real estate 796 796 189 265 Residential real estate 1,210 836 34 279 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 2021 With no related allowance recorded: Commercial $ 14,619 $ 13,982 $ — $ 10,637 Commercial real estate 4,795 4,706 — 3,943 Residential real estate 10,754 10,808 — 7,223 Consumer 3 2 — 3 Total loans with no related allowance recorded 30,171 29,498 — 21,806 With an allowance recorded: Commercial 3,666 3,478 2,517 2,375 Commercial real estate 124 75 12 57 Residential real estate 665 671 39 462 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 Interest income recorded on impaired loans was not material for the years ended December 31, 2022, 2021 and 2020. Credit risk monitoring and management is a continuous process to manage the quality of the loan portfolio. We categorize loans into risk categories based on relevant information about the ability of borrowers to service their debt including current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. The risk rating system is used as a tool to analyze and monitor loan portfolio quality. Risk ratings meeting an internally specified exposure threshold are updated annually, or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. We use the following definitions for risk ratings: Substandard - loans are considered “classified” and have a well-defined weakness, or weaknesses, such as loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans are also characterized by the distinct possibility of loss in the future if the deficiencies are not corrected. 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 loans totaling $ 45 categorized as doubtful as of December 31, 2022. There were no loans categorized as doubtful as of December 31, 2021. 103 Table of Contents Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans. The following table presents the credit risk profile of our loan portfolio based on our rating categories as of December 31,: Non-Classified Classified Total 2022 Commercial $ 2,969,786 $ 55,288 $ 3,025,074 Commercial real estate 1,715,415 37,945 1,753,360 Residential real estate 1,096,108 10,685 1,106,793 Consumer 43,592 114 43,706 Total loans $ 5,824,901 $ 104,032 $ 5,928,933 2021 Commercial $ 2,384,275 $ 30,512 $ 2,414,787 Commercial real estate 1,146,673 30,300 1,176,973 Residential real estate 431,033 6,083 437,116 Consumer 17,762 4 17,766 Total loans $ 3,979,743 $ 66,899 $ 4,046,642 The following table presents our loan portfolio aging analysis as of December 31,: Loans Not Past Due Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans Greater than 90 Days Past Due, Still Accruing Nonaccrual Total 2022 Commercial $ 3,011,872 $ 2,422 $ 815 $ — $ 9,965 $ 3,025,074 Commercial real estate 1,738,024 6,954 99 — 8,283 1,753,360 Residential real estate 1,077,316 17,237 1,514 98 10,628 1,106,793 Consumer 43,551 60 2 — 93 43,706 Total loans $ 5,870,763 $ 26,673 $ 2,430 $ 98 $ 28,969 $ 5,928,933 2021 Commercial $ 2,392,205 $ 5,467 $ 623 $ — $ 16,492 $ 2,414,787 Commercial real estate 1,160,244 10,887 — 1,061 4,781 1,176,973 Residential real estate 424,860 5,794 410 — 6,052 437,116 Consumer 17,719 45 — — 2 17,766 Total loans $ 3,995,028 $ 22,193 $ 1,033 $ 1,061 $ 27,327 $ 4,046,642 As of December 31, 2022 and 2021, we have a recorded investment in TDRs of $ 17,086 and $ 21,699 , respectively. We have no commitments to lend additional amounts at December 31, 2022. The modification of the terms of the loans performed for the years ended December 31, 2022 and 2021 respectively, included rate modifications, extensions of the maturity dates or a permanent reduction of the recorded investment in the loans. 104 Table of Contents The following table presents loans by class modified as TDRs that occurred during the years ended December 31,: Number of Loans Pre-Modification Outstanding Recorded Investment Post-Modification Outstanding Recorded Investment 2022 Commercial 1 $ 248 $ 248 Residential real estate 1 126 126 Consumer 1 72 72 Total 3 $ 446 $ 446 2021 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, 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. For the year ended December 31, 2022, there were loans modified as TDRs totaling $ 122 for which there was a payment default following the modification. In order to assess whether a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy. A loan is generally considered to be in payment default once it is 30 days contractually past due under the modified terms. Acquired Loans and Loan Discounts : 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. Loans acquired with evidence of credit quality deterioration at acquisition, for which it was probable that we would not be able to collect all contractual amounts due, were accounted for as purchased credit impaired (“PCI”) loans. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off. The carrying amount of purchased credit impaired loans is not significant as of December 31, 2022 and 2021. 105 Table of Contents NOTE 5 - Mortgage Servicing Rights The unpaid principal loan balance of our servicing portfolio is presented in the following table as of December 31,: 2022 2021 Federal National Mortgage Association $ 2,517,434 $ 2,352,981 Federal Home Loan Mortgage Corporation 1,630,403 1,512,858 Government National Mortgage Association 916,455 759,524 Federal Home Loan Bank 111,699 134,616 Other 1,413 1,853 Total $ 5,177,404 $ 4,761,832 The activity of MSRs carried at fair value is as follows for the years ended December 31,: 2022 2021 2020 Balance, beginning of period $ 47,392 $ 29,144 $ 29,003 Additions: Servicing resulting from transfers of financial assets 14,287 23,854 22,421 Changes in fair value: Due to changes in valuation inputs or assumptions used in the valuation model 20,350 6,093 ( 13,798 ) Changes in fair value due to pay-offs, pay-downs, and runoff ( 7,932 ) ( 11,699 ) ( 8,482 ) 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,: 2022 2021 2020 Discount rate 9.85 % 9.22 % 9.12 % Total prepayment speeds 7.40 % 11.52 % 16.99 % Cost of servicing each loan $ 88 /per loan $ 85 /per loan $ 85 /per loan Total servicing and ancillary fees earned from the mortgage servicing portfolio is presented in the following table for the years ended December 31,: 2022 2021 2020 Servicing fees $ 14,675 $ 12,092 $ 9,426 Late and ancillary fees 413 433 372 Total $ 15,088 $ 12,525 $ 9,798 106 Table of Contents NOTE 6 - Premises and Equipment A summary of premises and equipment is as follows: Estimated Useful Lives 2022 2021 Land N/A $ 18,903 $ 11,164 Buildings and improvements 5 - 39 years 80,565 50,498 Equipment 3 - 10 years 25,987 30,906 Automobiles 5 years 166 138 Construction in progress N/A 1,360 827 Premises and equipment 126,981 93,533 Less: Accumulated depreciation ( 39,902 ) ( 40,386 ) Premises and equipment, net $ 87,079 $ 53,147 For the years ended December 31, 2022, 2021 and 2020, we had depreciation expense of $ 7,118 , $ 6,118 and $ 6,004 , respectively. Depreciation expense has been included in occupancy and equipment expense in the accompanying consolidated statements of income and comprehensive income. NOTE 7 - Core Deposits and Other Intangible Assets Activity in our core deposits and other intangible assets was as follows as of and for the years ended December 31,: Indefinite-Lived Assets Finite Lived Assets Tradenames Core Deposits Intangibles Customer Relationships Non-compete Agreements Total 2022 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 ) Balance, end of year $ 1,800 $ 13,159 $ 748 $ 99 $ 15,806 2021 Balance, beginning of year $ 1,800 $ 6,211 $ 1,656 $ — $ 9,667 Amortization — ( 1,212 ) ( 205 ) — ( 1,417 ) Balance, end of year $ 1,800 $ 4,999 $ 1,451 $ — $ 8,250 2020 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 the years ended December 31, 2022, 2021 and 2020, there was no indication of impairment of our core deposits and other intangible assets. 107 Table of Contents Future amortization expense of our core deposits and other intangible assets is as follows: 2023 $ 3,042 2024 2,605 2025 2,312 2026 2,006 2027 1,142 Thereafter 2,899 Total future amortization $ 14,006 NOTE 8 - Derivative Financial Instruments Banking Derivative Financial Instruments : 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 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. Derivatives not designated as hedges are not speculative and result from a service we provide to certain customers. We execute interest rate swaps with banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a third party, such that we minimize our net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. These instruments are a component of prepaid expenses and other assets and accrued expenses and other liabilities. 108 Table of Contents The components of our banking derivative financial instruments consisted of the following as of December 31,: Number of Transactions Expiration Dates Outstanding Notional Estimated Fair Value 2022 Derivative financial instruments designated as hedging instruments: Assets: Interest Rate Products 32 2028-2036 $ 201,906 $ 15,636 Derivative financial instruments not designated as hedging instruments: Assets: Interest Rate Products 41 2024-2037 $ 338,770 $ 24,615 Other 1 2025 $ 14,638 $ — Liabilities: Interest Rate Products 41 2024-2037 $ 338,770 $ 24,242 2021 Derivative financial instruments designated as hedging instruments: Assets: Interest Rate Products 1 2029 $ 20,190 $ 1,213 Liabilities: Interest Rate Products 12 2022-2029 $ 179,431 $ 7,107 Derivative financial instruments not designated as hedging instruments: Assets: Interest Rate Products 38 2024-2036 $ 232,849 $ 6,923 Liabilities: Interest Rate Products 38 2024-2036 $ 232,849 $ 7,366 We recorded gains and losses on banking derivatives assets as follows for the years ended December 31,: 2022 2021 2020 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. Credit-risk-related Contingent Features : We have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. We also have agreements with our derivative counterparties that contain a provision where if we fail to maintain our status as a well-capitalized institution, then our derivative counterparties have the right, but not the obligation to terminate existing swaps. As of December 31, 2022 and 2021, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 24,677 and $ 14,882 , respectively. As of December 31, 2022 and 2021, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of $ 8,790 and $ 14,970 , respectively. If we had breached any of these provisions at December 31, 2022, we could have been required to settle our obligations under the agreements at their termination value of $ 24,677 . 109 Table of Contents Mortgage Banking Derivative Financial Instruments : The components of our mortgage banking derivative financial instruments consisted of the following as of December 31,: Expiration Dates Outstanding Notional Estimated Fair Value 2022 Derivative financial instruments Assets: Forward MBS trades 2023 $ 85,000 $ 36 Liabilities: Forward MBS trades 2023 $ 21,800 $ 225 Interest rate lock commitments (IRLC) 2023 $ 52,533 $ 60 2021 Derivative financial instruments Assets: Forward MBS trades 2022 $ 450,600 $ 1,329 Interest rate lock commitments (IRLC) 2022 $ 142,334 $ 1,350 Liabilities: Forward MBS trades 2022 $ 16,600 $ 52 We recorded gains and losses on mortgage banking derivatives assets as follows for the years ended December 31,: 2022 2021 2020 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 The components of prepaid expenses and other assets consisted of the following as of December 31,: 2022 2021 Derivative financial instruments $ 40,287 $ 10,815 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 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 . 110 Table of Contents NOTE 10 - Deposits The composition of our deposits is as follows as of December 31,: 2022 2021 Noninterest-bearing demand deposit accounts $ 1,820,490 $ 1,566,113 Interest-bearing deposit accounts: Interest-bearing demand accounts 212,357 187,712 Savings accounts and money market accounts 2,759,969 2,757,882 NOW accounts 50,224 19,496 Certificate of deposit accounts: Less than $100 241,322 147,386 $100 through $250 270,790 103,082 Greater than $250 409,910 73,277 Total interest-bearing deposit accounts 3,944,572 3,288,835 Total deposits $ 5,765,062 $ 4,854,948 The following table summarizes the interest expense incurred on our deposits for the years ended December 31,: 2022 2021 2020 Interest-bearing deposit accounts: Interest-bearing demand accounts $ 1,637 $ 379 $ 420 Savings accounts and money market accounts 7,569 4,752 7,338 NOW accounts 138 377 599 Certificate of deposit accounts 3,810 3,036 7,285 Total interest-bearing deposit accounts $ 13,154 $ 8,544 $ 15,642 The remaining maturity on certificate of deposit accounts is as follows as of December 31, 2022: 2023 $ 640,874 2024 173,694 2025 88,795 2026 11,129 2027 4,701 Thereafter 2,829 Total certificate of deposit accounts $ 922,022 111 Table of Contents NOTE 11 - Securities Sold Under Agreements to Repurchase Information concerning securities sold under agreements to repurchase is as follows as of and for years ended December 31,: 2022 2021 Amount outstanding at period-end $ 36,721 $ 92,093 Average daily balance during the period $ 54,335 $ 125,867 Average interest rate during the period 0.27 % 0.05 % Maximum month-end balance during the period $ 70,838 $ 160,865 Weighted average interest rate at period-end 0.42 % 0.05 % At December 31, 2022 and 2021, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of $ 48,931 and $ 108,714 , respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and are considered to be in an overnight and continuous position. NOTE 12 - Debt FHLB advances : The following is a breakdown of our FHLB advances and other borrowings outstanding as of December 31,: 2022 2021 Amount Rate Weighted Average Rate Amount Rate Weighted Average Rate 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 % 1.49 % $ 643,885 $ 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. Our additional borrowing availability with the FHLB at December 31, 2022 was $ 357,042 . These borrowings can be in the form of additional term advances or a line-of-credit. FRB advances : We also had a $ 6,065 line-of-credit with the FRB. 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. Other borrowings : We have lines-of-credit with certain other financial institutions totaling $ 330,000 as of December 31, 2022. No amounts were drawn on these lines-of-credit in 2022. Convertible Notes Payable : 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. 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. 112 Table of Contents Subordinated Debt : Subordinated Notes - 2020 : In June and August 2020, we issued a total of $ 40,000 subordinated notes. The notes pay interest at a fixed rate of 6.00 % through June 30, 2025 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 5.89 % reset quarterly. Interest is payable on July 1 and January 1 of each year. Such notes are due on July 1, 2030. The notes are not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the notes at our discretion. We incurred and capitalized $ 933 of costs related to the issuance of the subordinated notes. As of and for the years ended December 31, 2022, 2021 and 2020, the amortization associated with the debt issuance costs totaled $ 94 , $ 93 and $ 45 , respectively. Future amortization of the debt issuance costs is expected as follows: 2023 $ 93 2024 93 2025 93 2026 93 2027 93 Thereafter 236 Total future amortization $ 701 Subordinated Note - 2022 : On January 13, 2022, we issued a subordinated note totaling $ 25,000 . The note pays interest at a fixed rate of 3.375 % through January 15, 2027 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 2.03 % reset quarterly. Interest is payable on July 15 and January 15 of each year. Such note is due on January 15, 2032. The note is not redeemable within the first five years of issuance, except under certain very limited conditions. 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. 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: 2023 $ 53 2024 54 2025 54 2026 54 2027 54 Thereafter 214 Total future amortization $ 483 Trust preferred securities : We have issued $ 9,279 in trust preferred securities through a special-purpose trust, New Mexico Banquest Capital Trust I (“NMBCT I”). In addition, we have issued $ 4,640 in trust preferred securities through a special purpose trust, New Mexico Banquest Capital Trust II (“NMBCT II”, and together with NMBCT I, collectively referred to as “NMBCT Trusts”). Interest is payable quarterly at a rate of three-month LIBOR plus 3.35 % ( 7.02 % and 3.48 % as of December 31, 2022 and 2021, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month LIBOR plus 2.00 % ( 6.69 % and 2.16 % as of December 31, 2022 and 2021, respectively) for the trust preferred securities issued through NMBCT II. 113 Table of Contents This subordinated debt of $ 13,919 was originally recorded at a discount of $ 4,293 . As of and for the years ended December 31, 2022, 2021 and 2020, accretion associated with the fair value discount totaled $ 254 , $ 256 and $ 258 , respectively. Future accretion of the valuation discount is expected as follows: 2023 $ 286 2024 382 2025 271 2026 241 2027 246 Thereafter 1,429 Total future accretion $ 2,855 The Parent Company fully and unconditionally guarantees the obligations of the NMBCT Trusts on a subordinated basis. The trust preferred securities issued through the NMBCT Trusts are mandatorily redeemable upon the maturity of the debentures on December 19, 2032 and November 23, 2034, respectively, and are optionally redeemable, in part or in whole, by the Parent Company at each quarterly interest payment date. The Parent Company owns all of the outstanding common securities of the NMBCT Trusts, which have an aggregate liquidation valuation amount of $ 419 and is recorded in prepaid expenses and other assets on the consolidated balance sheet. The NMBCT Trusts are considered variable interest entities. Since the Parent Company is not the primary beneficiary of the NMBCT Trusts, the financial statements of the NMBCT Trusts are not included in our consolidated financial statements. NOTE 13 - Accrued Expenses and Other Liabilities The components of accrued expenses and other liabilities consisted of the following as of December 31,: 2022 2021 Lease liability $ 31,267 $ — Salary and employee benefits 29,834 31,794 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 Deferred rent — 3,170 Other 15,884 10,508 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. Once we have the unilateral right to repurchase a delinquent loan, we have effectively regained control over the loan, and under U.S. GAAP, must re-recognize the loan on our consolidated balance sheet and establish a corresponding repurchase liability regardless of our intention to repurchase the loan. 114 Table of Contents NOTE 14 - Earnings Per Share Basic earnings per share, excluding dilution, is computed by dividing earnings available to common stockholders’ by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock or resulted in the issuance of common stock that could then share in our earnings. The following table sets forth the computation of basic and diluted earnings per share of common stock as of and for the years ended December 31,: 2022 2021 2020 Net income applicable to common stockholders $ 59,182 $ 43,164 $ 47,585 Weighted Average Shares Weighted average common shares outstanding 23,245,598 18,321,794 18,325,630 Effect of dilutive securities Stock-based awards 592,873 448,991 149,908 Weighted average diluted common shares 23,838,471 18,770,785 18,475,538 Earnings per common share Basic earnings per common share $ 2.55 $ 2.36 $ 2.60 Effect of dilutive securities Stock-based awards ( 0.07 ) ( 0.06 ) ( 0.02 ) Diluted earnings per common share $ 2.48 $ 2.30 $ 2.58 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 115 Table of Contents NOTE 16 - Stockholders’ Equity As of December 31, 2022 and 2021, the Company has 10,000,000 shares of preferred stock authorized, $ 0.0001 par value, of which none were issued or outstanding, respectively. As of December 31, 2022 and 2021, the Company has 50,000,000 shares of common stock authorized, $ 0.0001 par value, of which 24,920,984 and 19,903,342 shares were issued and 24,920,984 and 18,346,288 shares were outstanding, respectively. Treasury stock: Activity in treasury stock is as follows for the years ended December 31,: 2022 2021 Shares Amount Shares Amount Balance, beginning of year 1,557,054 $ 38,148 1,557,054 $ 38,148 Purchases — — — — Issuances ( 1,557,054 ) ( 38,148 ) — — Balance, end of year — $ — 1,557,054 $ 38,148 All purchases were in conjunction with the stock repurchase program that expired in 2021, and shares were held-in-treasury at $ 24.50 per share. Dividends : Dividends paid by the Company, if any, are substantially provided from Bank dividends. 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 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. Equity Incentive Plan : We have established the FirstSun Capital Bancorp 2017 Equity Incentive Plan (the “2017 Plan”). 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. 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. The fair value of each stock option award is estimated on the date of grant utilizing the Black-Scholes option pricing model. Expected volatility was determined based on the median historical volatility of 25 to 30 comparable companies that were publicly traded for a period commensurate with the expected term of the options. The expected term of the options was estimated to be the average of the contractual vesting term and time to contractual expiration. The risk-free rate for the expected term of the stock options was based on the U.S. Treasury yield curve in effect at the date of grant. 116 Table of Contents 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 Expected volatility 33.00 % 33.00 % Expected term (in years) 6.25 6.25 Expected dividends — % — % Risk-free rate 1.11 % 0.49 % The following table presents a summary of stock option activity under the 2017 Plan, and changes during the years ended December 31,: Shares Weighted-Average Exercise Price, per Share Weighted-Average Remaining Contractual Term (years) 2022 Outstanding, beginning of period 1,412,900 $ 20.19 Exercised ( 104,985 ) 19.72 Granted — — Forfeited — — 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 period 1,191,032 $ 20.03 5.05 2021 Outstanding, beginning of period 1,428,940 $ 19.97 Granted 26,336 32.54 Forfeited ( 42,376 ) 20.33 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 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. The unrecognized compensation cost at December 31, 2022 is expected to be recognized over the following 2.42 years. At December 31, 2022 and 2021, the intrinsic value of the stock options was $ 21,216 and $ 18,042 , respectively. 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 . 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. 117 Table of Contents 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 The provision for income tax is summarized as follows for the years ended December 31,: 2022 2021 2020 Current $ 5,637 $ 5,533 $ 12,957 Deferred 9,203 3,145 ( 3,377 ) Total income tax expense $ 14,840 $ 8,678 $ 9,580 A reconciliation of the provision for income taxes, with the amount computed by applying the statutory U.S. federal income tax rates to income before provision for income taxes is as follows for the years ended December 31,: 2022 2021 2020 Income tax provision computed at U.S. federal statutory rate $ 15,545 $ 10,887 $ 12,005 State tax expense, net of U.S. federal effect 2,359 1,836 1,536 Tax exempt interest ( 4,011 ) ( 4,562 ) ( 4,381 ) Net increase in cash surrender value of BOLI ( 353 ) ( 268 ) ( 269 ) Non-deductible professional fees 216 648 — Executive compensation 727 — — Other 357 137 689 Income tax provision $ 14,840 $ 8,678 $ 9,580 Effective tax provision rate 20.0 % 16.7 % 16.8 % 118 Table of Contents Significant components of deferred tax assets and liabilities are as follows as of December 31,: 2022 2021 Deferred tax assets: Federal and state net operating loss $ 25,118 $ 16,266 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 Accrued expenses 1,320 1,039 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 Total deferred tax assets 72,582 39,769 Deferred tax liabilities: Mortgage servicing rights 17,465 11,170 Fair value adjustments on intangible assets 3,596 1,731 Prepaid expenses 1,143 1,078 Premises and equipment 918 1,018 Fair value adjustments on debt 700 1,029 FHLB stock 196 165 Unrealized gain on securities — 541 Other 209 7 Total deferred tax liabilities 24,227 16,739 Total deferred tax assets, net $ 48,355 $ 23,030 As of December 31, 2022, we had net operating loss carryforwards for U.S. federal income tax purposes of approximately $ 118,712 which begin to expire in 2033. As of December 31, 2022, we had net operating loss carryforwards for state tax purposes of approximately $ 3,713 which begin to expire in 2026. Utilization of a portion of the net operating losses may be subject to a substantial annual limitation due to the ownership change limitations set forth in Internal Revenue Code Section 382 and similar state provisions. Such an annual limitation could result in the expiration of the net operating loss and tax credit carryforwards before utilization. We believe that all of the net operating loss carryforwards will be used prior to expiration. We evaluate uncertain tax positions at the end of each reporting period. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit recognized in the financial statements from any such position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2022 and 2021, we concluded there were no material uncertain tax positions. 119 Table of Contents NOTE 18 - Other Noninterest Expenses Significant components of other noninterest expenses are as follows for the years ended December 31,: 2022 2021 2020 Data processing expenses $ 15,557 $ 13,952 $ 12,671 Office expenses 5,203 4,396 4,610 Loan appraisal, servicing, and collection expenses 4,914 4,043 3,558 Professional fees 6,918 4,506 3,446 Advertising and marketing expenses 2,592 3,124 2,397 Insurance expenses 5,050 3,537 2,373 Travel and entertainment 3,750 2,526 1,634 Automated teller machine (ATM) and interchange expenses 1,494 1,176 1,109 Deposit expenses and other operational losses 2,057 1,024 548 Other 3,757 3,358 3,546 Total other noninterest expenses $ 51,292 $ 41,642 $ 35,892 NOTE 19 - Regulatory Capital Matters Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel III rules, the Parent Company and the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The fully phased in capital conservation buffer is 2.50% for all periods presented. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of December 31, 2022, both the Parent Company and the Bank met all capital adequacy requirements to which they were subject. Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2022 and 2021, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. 120 Table of Contents Actual and required capital amounts for the Parent Company are as follows as of December 31,: Actual For Capital Adequacy Purposes To be Well- Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio 2022 Total risk-based capital to risk-weighted assets: $ 829,712 11.99 % $ 553,440 8.00 % N/A N/A Tier 1 risk-based capital to risk-weighted assets: $ 687,602 9.94 % $ 415,080 6.00 % N/A N/A Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 687,602 9.94 % $ 311,310 4.50 % N/A N/A Tier 1 leverage capital to average assets: $ 687,602 9.71 % $ 283,353 4.00 % N/A N/A 2021 Total risk-based capital to risk-weighted assets: $ 563,112 11.76 % $ 383,213 8.00 % N/A N/A Tier 1 risk-based capital to risk-weighted assets: $ 464,761 9.70 % $ 287,410 6.00 % N/A N/A Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 464,761 9.70 % $ 215,557 4.50 % N/A N/A Tier 1 leverage capital to average assets: $ 464,761 8.24 % $ 225,736 4.00 % N/A N/A Actual and required capital amounts for the Bank are as follows as of December 31,: Actual For Capital Adequacy Purposes To be Well- Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio 2022 Total risk-based capital to risk-weighted assets: $ 815,335 11.81 % $ 552,237 8.00 % $ 690,296 10.00 % Tier 1 risk-based capital to risk-weighted assets: $ 748,105 10.84 % $ 414,177 6.00 % $ 552,237 8.00 % Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 748,105 10.84 % $ 310,633 4.50 % $ 448,692 6.50 % Tier 1 leverage capital to average assets: $ 748,105 10.56 % $ 283,245 4.00 % $ 354,056 5.00 % 2021 Total risk-based capital to risk-weighted assets: $ 571,463 11.96 % $ 382,106 8.00 % $ 477,633 10.00 % Tier 1 risk-based capital to risk-weighted assets: $ 523,128 10.95 % $ 286,580 6.00 % $ 382,106 8.00 % Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 523,128 10.95 % $ 214,935 4.50 % $ 310,462 6.50 % Tier 1 leverage capital to average assets: $ 523,128 9.27 % $ 225,650 4.00 % $ 282,062 5.00 % 121 Table of Contents NOTE 20 - Transactions with Related Parties We have and may be expected to have in the future, banking transactions in the ordinary course of business with directors, significant stockholders, principal officers and their immediate families and affiliated companies in which they are principal stockholders (commonly referred to as related parties). Loans: As of December 31, 2022 and 2021, outstanding loans with related parties totaled $ 2,940 and $ 2,642 , respectively. As of December 31, 2022, there were unused lines of credit with directors or officers totaling $ 1,285 . Deposits: As of December 31, 2022 and 2021, deposits with related parties totaled $ 4,662 and $ 7,442 , respectively. Director Fees : 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 Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A description of the valuation methodologies used for the assets measured at fair value on a recurring basis, as well as the general classification of such assets pursuant to the fair value hierarchy, is set forth below. Available-for-sale securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid exchange traded equities and mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include U.S. treasury and agency securities, mortgage-related agency securities, mortgage-related private label securities, obligations of states and political subdivisions and asset backed and other securities. Loans held-for-sale - Mortgage loans originated and intended for sale in the secondary market are classified as mortgage loans held-for-sale and recorded at fair value. The changes in fair value of mortgage loans held-for-sale are measured and recorded as a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. Since estimated fair value is based on sale, exchange, or dealer market prices, these assets are classified within Level 2 of the valuation hierarchy. Mortgage servicing rights - We estimate the fair value of our MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, and cost to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion. These assumptions require the use of judgment by management and can have a significant impact on the fair value of the MSRs. We use a third party consulting firm to assist us with the valuation of MSRs. Because of the nature of the valuation inputs, we classify these valuations as Level 3 in the fair value disclosures. For further details on our level 3 inputs related to MSRs, see Note 5 - Mortgage Servicing Rights . Derivative financial instruments : Banking Activities - Interest rate swaps are valued based on quoted prices for similar assets in an active market with inputs that are observable. These instruments are a component of prepaid expenses and other assets and accrued expenses and other liabilities. 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 122 Table of Contents 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. We adjust the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. The initial and subsequent changes in the value of IRLCs are a component of gain on mortgage loans held-for-sale. Derivative financial instruments are classified within Level 2 of the valuation hierarchy. The following table sets forth our assets and liabilities measured at fair value on a recurring basis: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs Total Estimated Fair Value As of December 31, 2022 Available-for-sale securities $ 56,649 $ 480,324 $ — $ 536,973 Loans held-for-sale — 57,323 — 57,323 Mortgage servicing rights — — 74,097 74,097 Derivative financial instruments - assets — 40,287 — 40,287 Derivative financial instruments - liabilities — ( 24,527 ) — ( 24,527 ) Total $ 56,649 $ 553,407 $ 74,097 $ 684,153 As of December 31, 2021 Available-for-sale securities $ 35,185 $ 537,316 $ — $ 572,501 Loans held-for-sale — 103,939 — 103,939 Mortgage servicing rights — — 47,392 47,392 Derivative financial instruments - assets — 10,815 — 10,815 Derivative financial instruments - liabilities — ( 14,525 ) — ( 14,525 ) Total $ 35,185 $ 637,545 $ 47,392 $ 720,122 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,: 2022 2021 2020 Balance, beginning of year $ 47,392 $ 29,144 $ 29,003 Total gains (losses) included in earnings 12,418 ( 5,606 ) ( 22,280 ) Purchases, issuances, sales and settlements: Issuances 14,287 23,854 22,421 Balance, end of year $ 74,097 $ 47,392 $ 29,144 Certain financial assets and financial liabilities are regularly measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following: Impaired loans - Loan impairment is reported when full payment under the loan terms is not expected. Fair value is generally based on recent third party appraisals which are updated on a periodic basis. Impaired loans are carried at the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan loss is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan loss to require an increase, such increase is reported as a component of the provision for loan losses. Loan losses are charged against the allowance for loan losses when management believes the uncollectibility of a loan is confirmed. When 123 Table of Contents 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. Fair value is generally based on recent third party real estate appraisals which are updated on a periodic basis. These appraisals may take a single valuation approach using the comparable sales method or use a combination of approaches including the income approach. Adjustments are routinely made by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of December 31,: Level 3 2022 2021 Impaired loans: Commercial $ 5,229 $ 961 Commercial real estate 607 63 Residential real estate 802 632 Consumer 3 — Total impaired loans $ 6,641 $ 1,656 Other real estate owned and foreclosed assets, net: Commercial real estate $ 5,391 $ 5,067 Residential real estate 967 420 Total other real estate owned and foreclosed assets, net: $ 6,358 $ 5,487 The fair value of the financial assets in the table above utilize the market approach valuation technique, with discount adjustments for differences between comparable sales. 124 Table of Contents Fair value of financial instruments not carried at fair value: The carrying amounts and estimated fair values of financial instruments not carried at fair value are as follows as of December 31,: Estimated Fair Value Carrying Value Total Level 1 Level 2 Level 3 2022 Assets: Cash and cash equivalents $ 343,526 $ 343,526 $ 343,526 $ — $ — Securities held-to-maturity 38,901 33,218 — 33,218 — Loans (excluding impaired loans) 5,871,274 5,756,197 — — 5,756,197 Restricted equity securities 50,215 50,215 — 50,215 — Accrued interest receivable 28,543 28,543 — 2,049 26,494 Liabilities: Deposits (excluding demand deposits) $ 3,732,215 $ 3,696,438 $ — $ 3,696,438 $ — Securities sold under agreements to repurchase 36,721 36,721 — 36,721 — FHLB advances 643,885 643,885 — 643,885 — Convertible notes payable, net 5,355 5,329 — 5,329 — Subordinated debt, net 74,880 71,618 — 71,618 — Accrued interest payable 5,798 5,798 — 5,798 — 2021 Assets: Cash and cash equivalents $ 668,462 $ 668,462 $ 668,462 $ — $ — Securities held-to-maturity 18,007 18,599 — 18,599 — Loans (excluding impaired loans) 4,003,712 3,949,719 — — 3,949,719 Restricted equity securities 16,239 16,239 — 16,239 — Accrued interest receivable 14,761 14,761 — 1,131 13,630 Liabilities: Deposits (excluding demand deposits) $ 3,101,123 $ 3,106,464 $ — $ 3,106,464 $ — Securities sold under agreements to repurchase 92,093 92,093 — 92,093 — FHLB advances 40,000 41,514 — 41,514 — Convertible notes payable, net 19,442 21,564 — 21,564 — Subordinated debt, net 50,016 52,264 — 52,264 — Accrued interest payable 2,369 2,369 — 2,369 — 125 Table of Contents NOTE 22 - Parent Company Only Condensed Financial Information The following are the unconsolidated financial statements for the Parent Company on a stand-alone basis. These condensed financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying Notes. The Parent Company's principal sources of funds are cash dividends paid by the Bank to the Parent Company. Condensed Balance Sheets As of December 31, 2022 2021 Assets Cash and cash equivalents $ 17,312 $ 11,141 Deferred tax assets 13,791 12,813 Prepaid expenses and other assets 12,996 10,621 Investment in and advances to subsidiaries 823,449 571,330 Total assets $ 867,548 $ 605,905 Liabilities Convertible notes payable, net $ 5,355 $ 19,442 Subordinated debt, net 74,880 50,016 Accrued expenses and other liabilities 12,777 12,409 Total liabilities 93,012 81,867 Total stockholders’ equity 774,536 524,038 Total liabilities and stockholders’ equity $ 867,548 $ 605,905 126 Table of Contents Condensed Statements of Income and Comprehensive Income For the years ended December 31, 2022 2021 2020 Income: Dividends received from subsidiaries $ 8,700 $ — $ — Interest income, $ 2 , $ 44 and $ 65 from subsidiaries, respectively 22 56 80 Total income 8,722 56 80 Expense: Interest expense 5,684 4,609 3,592 Salary and employee benefits 1,143 1,305 1,046 Occupancy and equipment 83 2 4 Merger related expenses 1,598 1,663 — Other noninterest expenses, net 1,380 778 57 Total expenses 9,888 8,357 4,699 Loss before income taxes and undistributed earnings from subsidiaries ( 1,166 ) ( 8,301 ) ( 4,619 ) Equity in undistributed earnings from subsidiaries 58,047 49,729 50,996 Income before income taxes 56,881 41,428 46,377 Benefit from income taxes ( 2,301 ) ( 1,736 ) ( 1,208 ) Net income $ 59,182 $ 43,164 $ 47,585 Other comprehensive (loss) income, net ( 45,647 ) ( 7,455 ) 7,261 Comprehensive income $ 13,535 $ 35,709 $ 54,846 127 Table of Contents Condensed Statements of Cash Flows For the years ended December 31, 2022 2021 2020 Cash flows from operating activities: Net income $ 59,182 $ 43,164 $ 47,585 Adjustments to reconcile income to net cash provided by (used in) operating activities: Amortization and accretion 1,529 1,095 1,055 (Equity) deficit in undistributed income of subsidiaries ( 58,047 ) ( 49,729 ) ( 50,996 ) Changes in operating assets and liabilities: Other assets ( 1,442 ) ( 4,250 ) ( 2,761 ) Other liabilities 293 3,479 3,866 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) provided by investing activities ( 4,015 ) 500 ( 16,775 ) Cash flows from financing activities: Repayments of convertible notes payable ( 15,217 ) — — Repayments of other borrowings — — ( 6,000 ) Proceeds from subordinated debt 24,466 — 39,067 Proceeds from issuance of common stock, net of issuance costs ( 578 ) ( 66 ) — Issuance of treasury stock — — ( 31 ) Purchase of treasury stock — — ( 1,564 ) Net cash provided by (used in) financing activities 8,671 ( 66 ) 31,472 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 Cash and cash equivalents, end of year $ 17,312 $ 11,141 $ 16,948 NOTE 23 - Segment Information Our operations are conducted through two operating segments: Banking and Mortgage Operations. Corporate represents costs not allocated to the operating segments. Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses are incurred for which discrete financial information is available that is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Operating segments have been determined based on the products and services offered and reflect the manner in which financial information is currently evaluated by management. Each segment operates under the same banking charter, but is reported on a segmented basis for this report. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The Banking segment originates loans and provides deposits and fee based services to consumer, business, and mortgage lending customers. Products offered include a full range of commercial and consumer banking and financial services. The interest income on loans held-for-investment is recognized in the Banking segment, excluding newly originated residential first mortgages within the Mortgage Operations segment. 128 Table of Contents The Mortgage Operations segment originates, sells, services, and manages market risk from changes in interest rates on one-to-four family residential mortgage loans to sell or hold on our balance sheet. Loans originated-to-sell comprise the majority of the lending activity. The Mortgage Operations segment recognizes interest income on loans that are held-for-sale and newly originated residential mortgages held-for-investment, the gains from one to four family residential mortgage sales, and revenue for servicing loans and other ancillary fees following a sales transaction. Revenue from servicing activities is earned on a contractual fee basis. The Mortgage Operations segment services loans for the held-for-investment portfolio, for which it earns revenue via an intercompany service fee allocation which appears as a cost to Banking in mortgage fees. Forward traded loan purchases and sales settlements as well as mortgage servicing rights and related fair value adjustments are reported in this segment. Corporate represents miscellaneous other expenses of a corporate nature as well as revenue and expenses not directly assigned or allocated to the Banking or Mortgage Operations segments. The majority of executive management’s time is spent managing operating segments; related costs have been allocated between the operating segments and Corporate. Revenues are comprised of net interest income before the provision (benefit) for loan losses and noninterest income. Noninterest expenses are allocated to each operating segment. Provision for loan losses is primarily allocated to the Banking segment. 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 year ended December 31,: Banking Mortgage Operations Corporate Total Segments 2022 Summary of Operations Net interest income $ 241,840 $ 5,455 $ ( 5,663 ) $ 241,632 Provision for loan losses 14,781 3,269 — 18,050 Noninterest income: Service charges on deposit accounts 18,211 — — 18,211 Credit and debit card fees 11,511 — — 11,511 Trust and investment advisory fees 6,806 — — 6,806 Income from mortgage banking services, net ( 3,035 ) 49,320 — 46,285 Other noninterest income 6,762 ( 9 ) — 6,753 Total noninterest income 40,255 49,311 — 89,566 Noninterest expense: Salary and employee benefits 94,310 38,456 1,593 134,359 Occupancy and equipment 26,572 3,854 83 30,509 Other noninterest expenses 57,917 13,814 2,527 74,258 Total noninterest expense 178,799 56,124 4,203 239,126 Income (loss) before income taxes $ 88,515 $ ( 4,627 ) $ ( 9,866 ) $ 74,022 Other Information Depreciation expense $ 6,754 $ 364 $ — $ 7,118 Identifiable assets $ 6,633,383 $ 752,841 $ 44,098 $ 7,430,322 129 Table of Contents Banking Mortgage Operations Corporate Total Segments 2021 Summary of Operations Net interest income $ 152,515 $ 7,270 $ ( 4,552 ) $ 155,233 Provision for (benefit from) loan losses 3,235 ( 235 ) — 3,000 Noninterest income: Service charges on deposit accounts 12,504 — — 12,504 Credit and debit card fees 9,596 — — 9,596 Trust and investment advisory fees 7,795 — — 7,795 Income from mortgage banking services, net ( 2,409 ) 88,819 — 86,410 Other noninterest income 7,946 ( 7 ) — 7,939 Total noninterest income 35,432 88,812 — 124,244 Noninterest expense: Salary and employee benefits 95,064 55,557 1,305 151,926 Occupancy 23,495 3,067 3 26,565 Other noninterest expenses 31,360 12,341 2,443 46,144 Total noninterest expense 149,919 70,965 3,751 224,635 Income (loss) before income taxes $ 34,793 $ 25,352 $ ( 8,303 ) $ 51,842 Other Information Depreciation expense $ 5,728 $ 390 $ — $ 6,118 Identifiable assets $ 5,058,281 $ 573,552 $ 34,981 $ 5,666,814 130 Table of Contents Banking Mortgage Operations Corporate Total Segments 2020 Summary of Operations Net interest income (expense) $ 132,130 $ 7,335 $ ( 3,512 ) $ 135,953 Provision for loan losses 23,329 ( 229 ) — 23,100 Noninterest income: Service charges on deposit accounts 9,630 — — 9,630 Credit and debit card fees 7,994 — — 7,994 Trust and investment advisory fees 5,201 — — 5,201 (Loss) income from mortgage banking services, net ( 2,123 ) 124,297 — 122,174 Other noninterest income 3,407 ( 21 ) — 3,386 Total noninterest income 24,109 124,276 — 148,385 Noninterest expense: Salary and employee benefits 86,306 52,628 1,046 139,980 Occupancy 23,428 3,284 4 26,716 Other noninterest expenses 25,203 12,110 64 37,377 Total noninterest expense 134,937 68,022 1,114 204,073 Income (loss) before income taxes $ ( 2,027 ) $ 63,818 $ ( 4,626 ) $ 57,165 Other Information Depreciation expense $ 5,623 $ 381 $ — $ 6,004 Identifiable assets $ 4,463,545 $ 495,473 $ 36,439 $ 4,995,457 131 Table of Contents NOTE 24 - Commitments and Contingencies Commitments : We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include loan commitments, standby letters of credit, and documentary letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss in the event of nonperformance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet financial instruments. Undistributed portion of committed loans and unused lines of credit : Loan commitments are agreements to lend to a customer as long as there is no customer violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. As of December 31, 2022 and 2021, commitments included the funding of fixed-rate loans totaling $ 218,309 and $ 144,701 and variable-rate loans totaling $ 1,727,246 and $ 987,584 , respectively. The fixed-rate loan commitments have interest rates ranging from 1.00 % to 18.00 % at December 31, 2022 and 0.85 % to 18.00 % at December 31, 2021, and maturities ranging from 1 month to 15 years at December 31, 2022 and from 1 month to 26 years at December 31, 2021. Standby letters of credit : Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since many of the loan commitments and letters of credit expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner-occupied real estate, and/or income-producing commercial properties. As of December 31, 2022 and 2021, our standby letters of credit commitment totaled $ 17,426 and $ 11,729 , respectively. MPF Master Commitments : The Bank has executed MPF Master Commitments (Commitments) with the FHLB to deliver mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitments. 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 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. As of December 31, 2022 and 2021 the maximum potential amount of future payments that the Bank would have been required to make under the Commitments was $ 3,860 and $ 12,870 respectively. Under the Commitments, the Bank agrees to service the loans and therefore, is responsible for any necessary foreclosure proceedings. Any future recoveries on any losses would not be paid by the FHLB under the Commitments. The Bank has not experienced any material losses under these guarantees. Contingencies : We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. 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, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. We establish reserves for potential losses related to these representations and warranties if deemed appropriate and such reserves would be 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. From time to time, we are a defendant in various claims, legal actions, and complaints arising in the ordinary course of business. 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. Overdraft Fee Litigation : 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 132 Table of Contents 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. Plaintiff seeks to represent a proposed class of all the Bank’s checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. 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 purported class. On September 27, 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. At this time, the Bank is unable to reasonably estimate the outcome of this litigation. Wire Transfer Litigation : On November 5, 2021, urban-gro, Inc. (“UGI”) filed a complaint against the Bank in the Boulder County, Colorado District Court. The complaint alleges that the Bank failed to follow contractual, internal, and industry-standard procedures with respect to six purportedly fraudulent and unauthorized wire transfers, totaling approximately $ 5.1 million, from UGI’s deposit account at the Bank to domestic third-party beneficiaries (“Transactions”). 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. 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; 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. The Bank believes that UGI’s claims are 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. We establish reserves for contingencies, including legal proceedings, when potential losses become probable and can be reasonably estimated. While the ultimate resolution of any legal proceedings, including the matters described above, cannot be determined at this time, based on information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in these above legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our financial statements. 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. 133 Table of Contents 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. 2022 ROU asset on leased property, gross $ 35,212 Accumulated amortization ( 6,808 ) ROU asset, net ( Note 9 ) $ 28,404 Lease liability ( Note 13 ) $ 31,267 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: 2023 $ 7,517 2024 6,673 2025 5,693 2026 3,929 2027 2,394 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. 134 Table of Contents NOTE 26 - Revenue from Contracts with Customers Under the guidance of the Revenue from Contracts with Customers (Topic 606), an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration received in exchange for those goods or services. Revenue is recognized when obligations, under the terms of a contract with our customer, are satisfied, which generally occurs when services are performed. Revenue is measured as the amount of consideration we expect to receive in exchange for providing services. The disaggregation of our revenue from contracts with customers included in our Banking segment is provided below for the years ended December 31,: 2022 2021 2020 Service charges on deposit accounts $ 18,211 $ 12,504 $ 9,630 Credit and debit card fees 11,511 9,596 7,994 Trust and investment advisory fees 6,806 7,795 5,201 Other income 5,464 4,932 3,671 Total $ 41,992 $ 34,827 $ 26,496 A description of our revenue streams accounted for under ASC 606 is as follows: Service charges on deposit accounts: We charge depositors various deposit account service fees including those for outgoing wires, overdrafts, stop payment orders, and ATM fees. These fees are generated from a depositor’s option to purchase services offered under the contract and are only considered a contract when the depositor exercises their option to purchase these account services. Therefore, we deem the term of our contracts with depositors to be day-to-day and do not extend beyond the services already provided. Deposit account and other banking fees are recorded at the point in time we perform the requested service. Credit and debit card fees : We collect interchange fee income when debit and credit cards that we have issued to our customers, are used in merchant transactions. Our performance obligation is satisfied and revenue is recognized at the point we initiate the payment of funds from a customer’s account to a merchant account. Trust and investment advisory fees : We earn trust and investment advisory fees from contracts with our customers to manage assets for investments, and/or transact on their accounts. These fees are primarily earned over time as we provide the contracted monthly, quarterly, or annual services and are generally assessed based on a tiered scale of the market value of assets under management at each month end. Fees that are transaction based are recognized at the point in time that the transaction is executed. Other related services provided include financial planning services and the fees we earn, which are based on a fixed fee schedule, are recognized when the services are rendered. Other income : Other income consists of fee income received in connection with administering customer accommodation interest rate swaps, loan syndication fees and miscellaneous charges for services provided to our customers. Customer accommodation interest rate swap fees and loan syndication fees are earned and recognized at the time of loan origination or syndication. Miscellaneous charges for services provided to our customers consists of fees that are generated from a customer’s option to purchase services offered under the contract and are only considered a contract when the customer exercises their option to purchase these services. Therefore, we deem the term of our contracts with these customers to be day-to-day and do not extend beyond the services already provided . 135 Table of Contents NOTE 27 - Subsequent Events The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Form 10-K. 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. 136 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.