What changed in this filing

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Item 1. Business

2024-03-07 compared with 2023-03-16 · 118 added, 98 removed, 547 unchanged (28% of the section changed)

FirstSun Capital Bancorp (“FirstSun”), a financial holding company headquartered in Denver, Colorado, provides a full spectrum of deposit, lending, treasury management, wealth management and online banking products and services through its two wholly-owned subsidiaries—Sunflower Bank, National Association (“Sunflower Bank” or the “Bank”), a national banking association, that operates as Sunflower Bank, N.A., First National 1870 and Guardian Mortgage and Logia Portfolio Management, LLC, a registered investment advisor organized under the laws of the State of Kansas that provides discretionary investment management to retail and institutional accounts.

In this report, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, including Sunflower Bank and Logia Portfolio Management, LLC.

FirstSun Capital Bancorp (“FirstSun”), a financial holding company headquartered in Denver, Colorado, provides a full spectrum of deposit, lending, treasury management, wealth management and online banking products and services through its two primary operating wholly-owned subsidiaries—Sunflower Bank, National Association (“Sunflower Bank” or the “Bank”), a national banking association headquartered in Dallas, Texas, that operates as Sunflower Bank, N.A., First National 1870 and Guardian Mortgage and Logia Portfolio Management, LLC, a registered investment advisor organized under the laws of the State of Kansas that provides discretionary investment management to retail and institutional accounts.

FirstSun has a third wholly-owned subsidiary—FEIF Capital Partners, LLC, a Delaware limited liability company, which is planned to serve as the investment manager of a prospective income fund.

Sunflower Bank was founded in 1892 and offers a full range of specialized financial services to business customers as well as relationship-focused services to meet personal, business and wealth management financial objectives for its customers, with a branch network in Texas, Kansas, Colorado, New Mexico, Arizona and Washington and mortgage banking capabilities in 43 states.

Our product line includes commercial loans and commercial real estate loans, residential mortgage and other consumer loans, a variety of commercial, consumer and private banking deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit and treasury management products and services.

We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts.

As of December 31, 2022, we had total assets of $7.4 billion, total net loans of $5.8 billion, total deposits of $5.8 billion and total stockholders’ equity of $774.5 million.

Our product line includes commercial and industrial loans and commercial real estate loans, residential mortgage and other consumer loans, a variety of commercial, consumer and private banking deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit and treasury management products and services.

Additionally, Sunflower Bank provides treasury management products and services and offers wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts.

As of December 31, 2023, we had consolidated total assets of $7.9 billion, total net loans of $6.2 billion, total deposits of $6.4 billion and total stockholders’ equity of $877.2 million.

Proposed Merger with HomeStreet, Inc.

and Common Equity Raise

On January 16, 2024, FirstSun and Seattle based HomeStreet, Inc.

(“HomeStreet”), the holding company of HomeStreet Bank (“HomeStreet Bank”) entered into a definitive merger agreement (the “merger agreement”).

Under the merger agreement, HomeStreet will merge with and into FirstSun, with FirstSun continuing as the surviving entity (the “merger”).

Immediately following the merger, HomeStreet Bank will merge with and into Sunflower Bank, with Sunflower bank continuing as the surviving bank.

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of HomeStreet common stock will be converted into the right to receive 0.4345 of a share of FirstSun common stock.

The combined entity is expected to have total assets of approximately $17 billion and 129 branch locations.

The combined entity’s expanded footprint includes FirstSun’s current presence in the Southwest and Midwest together with HomeStreet’s presence in Southern California, Hawaii and the Pacific Northwest.

The parties to the merger expect to complete the merger in the middle of 2024, subject to satisfaction of closing conditions, including receipt of customary required regulatory approvals and the approval of the merger agreement by the HomeStreet shareholders.

Concurrently with entry into the HomeStreet merger agreement, FirstSun entered into investment agreements with investors to raise capital to support the merger.

In aggregate, $175 million of common stock will be issued to those investors:

(a) $80 million of which was issued immediately following the merger announcement, and (b) the remaining $95 million of which will be issued substantially concurrently with, and subject to, the closing of the merger.

The proceeds of this equity raise are expected to support the combined entity and result in capital ratios that exceed regulatory requirements.

For additional information on the proposed merger and equity raise, see Note 27 - Subsequent Events included in our consolidated financial statements included elsewhere in this report.

History and Growth

We were originally incorporated in the State of Kansas on November 9, 1981, as Handi-Bancshares, Inc., to serve as the holding company of Sunflower Bank (formerly The First National Bank and Trust Company of Salina), before we changed our name to Sunflower Financial, Inc.

We subsequently changed our name again to FirstSun Capital Bancorp and simultaneously reincorporated under the laws of the State of Delaware in June 2017.

We subsequently changed our name to FirstSun Capital Bancorp and simultaneously reincorporated under the laws of the State of Delaware in June 2017.

The subsequent name change and reincorporation were completed pursuant to the merger agreement entered into on July 28, 2016, by and among FirstSun, Strategic Growth Bank Incorporated, which we refer to as “SGB,” Strategic Growth Bancorp Incorporated, which we refer to as “Strategic” and First National Bancorp Incorporated, which we refer to as “FNB,” and together with SGB and Strategic, as the “SGB parties.”

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

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

Immediately following the completion of the second step merger, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.

Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank.

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.

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Total consideration paid in the Pioneer merger was $240.8 million.

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

Further information is presented in Note 2 - Merger with Pioneer Bancshares, Inc included in our consolidated financial statements included elsewhere in this report.

In November 2023, the Bank relocated its main office from Denver, Colorado, to Dallas, Texas.

Our Market Areas

We currently operate our principal executive office and Sunflower Bank’s main office at 1400 16th Street, Suite 250, Denver, Colorado 80202, and 72 banking branches principally located in five states, Texas, Kansas, Colorado, New Mexico and Arizona, with one branch located in Washington.

We currently operate our principal executive office at 1400 16th Street, Suite 250, Denver, Colorado 80202, with Sunflower Bank’s main office at 8117 Preston Road, Suite 220, Dallas, Texas 75225.

We also have 69 banking branches principally located in five states, Texas, Kansas, Colorado, New Mexico and Arizona, with one branch located in Washington.

In addition, through our mortgage division, Guardian, we originate home mortgages in over 40 states.

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(1) Based solely on FDIC data, including total deposits, number of branches, market share and deposits in market as of June 30, 2023.

(2) Kansas deposits and branch count includes Sunflower Bank’s office located at 3025 Cortland Circle, Salina, KS 67401.

(3) Colorado deposits and branch count includes Sunflower Bank’s main office located at 1400 16th Street, Suite 250, Denver, Colorado 80202.

(2) Texas deposits and branch count includes Sunflower Bank’s office located at 3 Sugar Creek Center Blvd Suite 200, Sugar Land, TX 77478.

(3) Colorado deposits and branch count includes Sunflower Bank’s office located at 1400 16th Street, Suite 250, Denver, CO 80202.

Our Business Strategy

Our goal is to build a premier regional bank serving the Southwest’s key markets, primarily through our organic growth strategy of investing in people, technology and infrastructure to create a top-tier banking platform.

Our goal is to build a premier regional bank serving our key markets, primarily through our organic growth strategy of investing in people, technology and infrastructure to create a top-tier banking platform.

Our business is focused on providing specialized commercial and consumer banking services to our clients, with an emphasis on key Southwest growth markets.

Upon completion of our proposed merger with HomeStreet, we intend to expand our focus to the additional western markets in which HomeStreet operates, including the Pacific Northwest, Southern California and Hawaii.

Our unwavering commitment to serving local communities has led to a high-quality core deposit franchise focused in higher growth metropolitan markets as well as stable, non-metropolitan markets that provides a low cost funding base for our lending opportunities.

In addition, our mortgage, wealth management, private banking and treasury management businesses provide revenue diversification and best-in-class fee income generation.

In addition, our mortgage, wealth management, private banking and treasury management offerings provide revenue diversification and best-in-class fee income generation.

Lastly, we believe our experience as an acquirer with a successful track record of integrating and re-positioning acquired companies complements and will further fuel our organic growth strategy.

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Our core competencies include a relationship-centered and multi-line sales approach, a focus on collaboration across a highly skilled and seasoned team of bankers and a dynamic ability to provide our clients with the highest quality services and solutions.

This strategy has enabled us to attract business customers across our traditional and expanded geographic footprint.

This strategy has enabled us to attract commercial and industrial business customers across our traditional and expanded geographic footprint.

The objective is to be a trusted advisor to our clients as they build their businesses with our resources, support and advice.

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In addition to our organic expansion in Dallas, we closed our merger with Pioneer on April 1, 2022, which further increased our Texas loans and deposit market position.

We anticipate continuing to grow our Texas deposit base in the years to come.

The Bank’s headquarters was relocated to Dallas, Texas in November 2023.

We anticipate continuing to grow our Texas loan and deposit customer base in the years to come.

Engage in Opportunistic M&A.

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Our executive team has extensive experience with successful acquisitions and integrations.

We plan to continue to evaluate acquisitions that we believe could produce attractive returns for our stockholders.

These could include fee-based businesses, whole bank or branch acquisitions that would improve or expand our market position into geographies with attractive demographics and business trends, expand our existing branch network in existing markets, enhance our earnings power or product and service offerings, or expand our wealth management activities.

We plan to continue to evaluate acquisitions that we believe are strategic and could produce attractive returns for our stockholders.

These could include fee-based businesses, whole bank or branch acquisitions that would improve or expand our market position into geographies with attractive demographics and business trends, expand our existing branch network in existing or new markets, enhance our earnings power or product and service offerings, or expand our wealth management activities.

The financial services industry is highly competitive and we compete for loans, deposits and customer relationships in our geographic footprint.

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We compete for loans principally through the quality of our client service and our responsiveness to client needs in addition to competing on interest rates and loan fees.

Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and retaining individual and business customers.

Management believes that our long-standing presence in the community and personal one-on-one service philosophy enhances our ability to compete favorably in attracting and

retaining individual and business customers.

We actively solicit deposit-related clients and compete for deposits by offering personal attention, competitive interest rates, and professional services made available through experienced bankers and multiple delivery channels that fit the needs of our markets.

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Lending Activities

We offer a range of lending services, including commercial and industrial loans, commercial and residential real estate loans, real estate construction loans, and consumer loans.

We offer a range of lending services, including commercial and industrial, commercial real estate, residential real estate, public finance, consumer and other loans.

Our customers are generally commercial businesses, professional services and retail consumers within our market areas.

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Our commercial and industrial loans are typically made to small- and medium-sized manufacturing, service, wholesale and retail businesses for working capital and operation needs and business expansions, including the purchase of capital equipment.

Commercial and industrial loans include our specialty lending verticals such as structured finance products, asset based lending and public finance offerings to our charter school and municipal based customers.

Commercial and industrial loans include our specialty lending verticals such as structured finance products, asset based lending and family office.

Commercial and industrial also includes our healthcare, SBA and other small business lending products.

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We participate in the SBA 7(a) program in order to meet the needs of our small business community as well as customers nationwide.

As an approved participant in the SBA Preferred Lender’s Program, we enable our clients to obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.

Presently, pursuant to the Consolidated Appropriations Act, 2021, the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program (excluding PPP loans) through October 1, 2021.

After this date, the SBA will guarantee 75% to 85% of the principal amount of qualifying loans originated under the 7(a) loan program (excluding PPP loans).

As an approved participant in the SBA Preferred Lender’s Program, we enable our clients to obtain

SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not SBA Preferred Lenders.

Presently, pursuant to the Consolidated Appropriations Act, 2021, the SBA guaranteed 90% of the principal amount of each qualifying SBA loan originated under the SBA’s 7(a) loan program.

After this date, the SBA will guarantee 75% to 85% of the principal amount of qualifying loans originated under the 7(a) loan program.

The guarantee is conditional and covers a portion of the risk of payment default by the borrower, but not the risk of improper closing and servicing by the lender.

As such, prudent underwriting and closing processes are essential to effective utilization of the 7(a) program.

Pursuant to the CARES Act, from the program’s inception through May 31, 2021, the date the program ended, we funded 2,057 loans to eligible small businesses and non-profit organizations nationwide who participated in the PPP administered by the SBA.

PPP loans have terms of two to five years and earn interest at 1%.

In addition, we received a fee of 1%-5% from the SBA depending on the loan amount.

PPP loans are fully guaranteed by the SBA and are expected to be forgiven by the SBA if borrowers meet the requirements of the program.

Commercial and Residential Real Estate Loans

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To control concentration risk, we monitor collateral type and industry concentrations within this portfolio.

Our real estate loans generally fall into one of two categories:

Our real estate loans generally fall into one of two broad categories:

commercial real estate loans or residential real estate loans.

• Commercial Real Estate Loans .

Our commercial real estate loans consist of both owner-occupied and non-owner occupied commercial real estate loans.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels,

mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities.

As of December 31, 2022, $636.3 million of our commercial real estate loan portfolio, or 10.7% of our loan portfolio, was owner-occupied commercial real estate loans, and $779.5 million of our commercial real estate loan portfolio, or 13.1% of our loan portfolio, was non-owner occupied commercial real estate loans.

Our commercial real estate (“CRE”) loans consist of both owner-occupied and non-owner occupied commercial real estate loans, construction and land loans, as well as multifamily loans.

The real estate securing our existing commercial real estate loans includes a wide variety of property types, such as offices, warehouses, production facilities, health care facilities, hotels, mixed-use residential/commercial, retail centers, restaurants, assisted living facilities and self-storage facilities.

Non-owner occupied CRE loans were 85.2% of the Company’s risk-based capital, or 13.0% of total loans as of December 31, 2023.

Non-owner occupied CRE loans associated with office space were $109.3 million, or 1.7% of total loans as of December 31, 2023.

Owner occupied CRE loans associated with office space were $149.4 million, or 2.4% of total loans as of December 31, 2023.

We are primarily focused on growing the owner-occupied portion of our commercial real estate loan portfolio.

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The repayment of these loans are also affected by a borrower’s adverse personal circumstances.

Public Finance Loans

We offer public finance loans consisting primarily of loans to our charter school and municipal based customers.

Consumer Loans

We offer a variety of consumer loans, such as installment loans to individuals for personal, family and household purposes, including car, boat and other recreational vehicle loans.

Our consumer loans typically are part of an overall client relationship designed to support the individual consumer borrowing needs of our commercial loan and deposit clients, and are well diversified across our markets.

Our consumer loans typically are part of an overall client

relationship designed to support the individual consumer borrowing needs of our commercial and industrial loan and deposit clients, and are well diversified across our markets.

Consumer loans typically have shorter terms, lower balances, higher yields and higher risks of default than residential real estate mortgage loans.

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We offer full-service residential mortgage products and services through Guardian, our mortgage division, with offices strategically located throughout our bank branches, as well as in other locations both in and outside our community banking footprint.

We intend to continue to take advantage of opportunities to profitably grow our mortgage business as they present themselves, including by continuing to expand our mortgage business outside of our community banking geographic footprint, improving the client experience through an enhanced fulfillment process, attracting experienced loan officers and improving profitability through centralized efficiencies.

We intend to continue to take advantage of opportunities to profitably grow our mortgage business as they present themselves, including by continuing to strategically expand our retail-based mortgage business outside of our community banking geographic footprint, improving the client experience through an enhanced fulfillment process, attracting experienced loan officers and improving profitability through centralized efficiencies.

We maintain a high-degree of scalability to control costs in the event of a downturn in our mortgage business.

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The residential mortgage industry is highly competitive and we compete with other community banks, regional banks, national banks, credit unions, mortgage companies, financial service companies and online mortgage companies.

the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.

Due to the highly competitive nature of the residential mortgage industry, we expect to face industry-wide competitive pressures related to changing market conditions that will reduce our pricing margins and mortgage revenues generally, especially in a rising rate environment.

Our mortgage banking business is also directly impacted by the interest rate environment, increased regulations, consumer demand, driven in large part by general economic conditions and the real estate markets, and investor demand for mortgage securities.

Mortgage production, especially refinancing activity, declines in rising interest rate environments.

In 2022, we experienced a slowdown in our mortgage origination volume due to the rising interest rates.

We expect to see declining origination volume in 2023 within the industry as a whole as interest rates are expected to remain elevated over the course of 2023.

In 2023, we experienced a continuing slowdown in our mortgage origination volume due to rising interest rates.

We expect to see lower origination volumes in at least the first half of 2024 within the industry as a whole as interest rates are expected to remain relatively elevated.

Sale of residential mortgages .

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We service residential mortgage loans for investors under contracts.

We receive a fee for performing mortgage servicing activities on mortgage loans that are not owned by us and are not included on our balance sheet.

We receive a fee for performing mortgage servicing activities on mortgage loans that are not owned by us and are not included on our consolidated balance sheet.

This process involves collecting monthly mortgage payments on behalf of investors, reporting information to those investors on a timely basis and maintaining custodial escrow accounts for the payment of principal and interest to investors, and property tax and insurance premiums on behalf of borrowers.

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In the event of a default by the borrower, we receive no servicing fees until the default is cured.

In times when interest rates are rising or at high levels, servicing mortgage loans can represent a steady source of noninterest income and can, at times, offset decreases in mortgage banking gains.

In times when interest rates are rising or at high levels, servicing mortgage loans can represent a steady source of noninterest

income and can, at times, offset decreases in mortgage banking gains.

Conversely, in times when interest rates are falling or at very low levels, servicing mortgage loans can become comparatively less profitable due to the rapid payoff of loans and the negative impact due to the change in fair value of the servicing asset.

We account for our loan servicing rights at fair value.

We account for our residential mortgage loan servicing rights at fair value.

The amount of loan servicing rights initially recorded is based on the fair value of the loan servicing rights determined on the date when the underlying loan is sold.

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Third-party valuations of the loan servicing rights portfolio are obtained on a regular basis and are used to determine the fair value of the servicing rights at the end of the reporting period.

Estimates of fair value reflect the following variables:

Estimates of fair value reflect, among other things, the following variables:

• anticipated prepayment speeds;

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Deposit Products

We obtain most of our deposits from individuals, small and medium-sized businesses and municipalities in our market.

We obtain most of our deposits from individuals, small and medium-sized businesses and municipalities in our markets.

We solicit deposits through our relationship-driven team of dedicated and accessible bankers and through community-focused marketing.

We emphasize obtaining deposit relationships at loan origination.

We provide a high level of customer service

to our depositors.

We provide a high level of customer service to our depositors.

We have invested in personnel, business and compliance processes and technology that enable us to acquire, and efficiently and effectively serve, a wide array of business deposit accounts, while continuing to provide the level of customer service for which we are known.

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We strive to identify potential problem loans early in an effort to aggressively seek resolution of these situations before they create a loss.

We record any necessary charge-offs promptly and maintain adequate allowance levels for probable loan losses incurred in the loan portfolio.

We record any necessary charge-offs promptly and maintain adequate allowance levels for probable credit losses incurred in the loan portfolio.

In general, whenever a particular loan or overall borrower relationship is downgraded from a pass grade to a watch or substandard grade based on one or more standard loan grading factors, our relationship manager (who is typically the loan officer) and credit team members engage in active evaluation of the asset to determine the appropriate resolution strategy.

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Our lending activities are subject to a variety of lending limits imposed by federal law.

In general, Sunflower Bank is subject to a legal lending limit on loans to a single borrower of 15% of the bank’s capital and unimpaired surplus, or 25% if the loan is fully secured.

The dollar amounts of the Bank’s lending limit increases or decreases as the bank’s capital increases or decreases.

In general, Sunflower Bank is subject to a legal lending limit on loans to a single borrower of 15% of its capital and unimpaired surplus, or 25% if the loan is fully secured.

The dollar amounts of the Bank’s lending limit increases or decreases as its capital increases or decreases.

We are able to sell participations in larger loans to other financial institutions, which allows us to better manage the risk and exposure involved with larger loans and to meet the lending needs of our customers requiring extensions of credit in excess of regulatory limits.

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There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities.

On December 18, 2023, the U.S.

Department of Justice (“DOJ”) released its updated merger guidelines, which modified certain criteria, including a reduction of market concentration calculations by which the DOJ would presume a substantial lessening of competition or the creation of a monopoly.

Additionally, the updated merger guidelines focus on a number of other factors related to competitiveness and the impact of the merger upon various constituencies, including customers and workers.

While bank regulators, and not the DOJ, typically have addressed anti-trust concerns in connection with bank mergers with a focus on market concentration, the DOJ guidelines and public comments from DOJ officials suggest that the DOJ could weigh in on more bank mergers in the future.

On January 29, 2024, the Office of the Comptroller of the Currency proposed amendments to its business combination rules and added a proposed policy statement regarding its evaluation of factors under the Bank Merger Act.

While the amendments and policy statement are not final, it is expected that the proposed policy statement would set forth standards by which certain mergers would raise regulatory concerns as well as procedures to extend and augment public comments on proposed mergers.

These amendments and the policy statement could delay merger and other business combination approvals in the future.

Change in Control

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On January 30, 2020, the Federal Reserve issued a final rule (which became effective September 30, 2020) that clarified and codified the Federal Reserve’s standards for determining whether one company has control over another.

The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.

The final rule established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the investor (less

than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control.

As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol.

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Under the final rule, investors can hold up to 24.9% of the voting securities and up to 33% of the total equity of a company without necessarily having a controlling influence.

Under the Change in Bank Control Act, a person or company is required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the acquisition.

For a change in control at the holding company level, both the Federal Reserve and the subsidiary bank’s primary federal regulator must approve the change in control;

at the bank level, only the bank’s primary federal regulator is involved.

Transactions subject to the BHC Act are exempt from Change in Control Act requirements.

Under the Change in Bank Control Act, a person or company is generally required to file a notice with the Federal Reserve if it will, as a result of the transaction, own or control 10% or more of any class of voting securities or direct the management or policies of a bank or bank holding company and either if the bank or bank holding company has registered securities or if the acquirer would be the largest holder of that class of voting securities after the ac quisition.

Transa ctions subject to the BHC Act are exempt from Change in Bank Control Act requirements.

Source of Strength

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Further, federal law grants federal bank regulatory authorities’ additional discretion to require a bank holding company to divest itself of any bank or nonbank subsidiary if the agency determines that divestiture may aid the depository institution’s financial condition.

In addition, the “cross guarantee” provisions of the Federal Deposit Insurance Act (the “FDIA”) require insured depository institutions under common control to reimburse the FDIC for any loss suffered or reasonably anticipated by the FDIC as a result of the default of a commonly controlled insured depository institution or for any assistance provided by the FDIC to a commonly controlled insured depository institution in danger of default.

The FDIC’s claim for damages is superior to claims of stockholders of the insured depository institution or its holding company, but is subordinate to claims of

depositors, secured creditors and holders of subordinated debt (other than affiliates) of the commonly controlled insured depository institutions.

The FDIA also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.

The Federal Deposit Insurance Act also provides that amounts received from the liquidation or other resolution of any insured depository institution by any receiver must be distributed (after payment of secured claims) to pay the deposit liabilities of the institution prior to payment of any other general or unsecured senior liability, subordinated liability, general creditor or stockholder.

Any capital loans by a bank holding company to any of its subsidiary banks are subordinate in right of payment to deposits and to certain other indebtedness of such subsidiary bank.

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Sarbanes-Oxley and the various regulations promulgated under Sarbanes-Oxley, established, among other things:

(a) requirements for audit committees, including independence,

expertise, and responsibilities;

(a) requirements for audit committees, including independence, expertise, and responsibilities;

(b) additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies;

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Bank Regulation

Sunflower Bank is a national banking association, which is subject to regulation and supervision primarily by the OCC and secondarily by the Federal Reserve, the FDIC, and the Consumer Financial Protection Bureau, which we refer to as the “CFPB.” We are subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered.

Sunflower Bank is a national banking association with its main office in Dallas, Texas, which is subject to regulation and supervision primarily by the OCC and secondarily by the Federal Reserve, the FDIC, and the CFPB.

We are subject to requirements and restrictions under federal law, including requirements to maintain reserves against deposits, restrictions on the types and amounts of loans that may be granted and the interest that may be charged thereon and limitations on the types of investments that may be made and the types of services that may be offered.

Various consumer laws and regulations also affect the operations of Sunflower Bank.

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National banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located.

Under Colorado law and the Dodd-Frank Act, and with the prior approval of the OCC, Sunflower Bank may open branch offices within or outside of Colorado, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.

In addition, with prior regulatory approval, Sunflower Bank may acquire branches of existing banks located in Colorado or other states.

Under Texas law, the Riegle-Neal Act and the Dodd-Frank Act, and with the prior approval of the OCC, Sunflower Bank may open branch offices within or outside of Texas, where our Bank headquarters was relocated to in 2023, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch in Texas.

In addition, with prior regulatory approval, Sunflower Bank may acquire branches of existing banks located in Texas or other states.

Capital and Related Requirements

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Additional Tier 1 capital is primarily comprised of noncumulative perpetual preferred stock, Tier 1 minority interests and grandfathered trust preferred securities.

Tier 2 capital generally includes the allowance for loan losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.

Tier 2 capital generally includes the allowance for credit losses up to 1.25% of risk-weighted assets, qualifying preferred stock, subordinated debt and qualifying tier 2 minority interests, less any deductions in Tier 2 instruments of an unconsolidated financial institution.

AOCI is presumptively included in CET1 capital and often would operate to reduce this category of capital.

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In addition, in order to avoid restrictions on capital distributions or discretionary bonus payments to executives, under Basel III, a banking organization must maintain a “capital conservation buffer” on top of its minimum risk-based capital requirements.

This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based

measurements (CET1, Tier 1 capital and total capital).

The 2.5% capital conservation buffer was phased in incrementally over time, and became fully effective for us on January 1, 2019, resulting in the following effective minimum capital plus capital conservation buffer ratios:

This buffer must consist solely of Tier 1 Common Equity, but the buffer applies to all three risk-based measurements (CET1, Tier 1 capital and total capital).

The following effective minimum capital plus capital conservation buffer ratios are applicable:

(a) a CET1 capital ratio of 7.0%, (b) a Tier 1 risk-based capital ratio of 8.5%, and (c) a total risk-based capital ratio of 10.5%.

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See “Prompt Corrective Action” below.

In November 2019, the federal banking regulators published final rules implementing a simplified measure of capital adequacy for certain banking organizations that have less than $10 billion in total consolidated assets.

Under the final rules, which went into effect on January 1, 2020, banks and holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.

Banks and holding companies that have less than $10 billion in total consolidated assets and meet other qualifying criteria, including a leverage ratio of greater than 9%, off-balance-sheet exposures of 25% or less of total consolidated assets and

trading assets plus trading liabilities of 5% or less of total consolidated assets, are deemed “qualifying community banking organizations” are eligible to opt into the “community bank leverage ratio framework.” A qualifying community banking organization that elects to use the community bank leverage ratio framework and that maintains a leverage ratio of greater than 9% is considered to have satisfied the generally applicable risk-based and leverage capital requirements under the Basel III rules and, if applicable, is considered to have met the “well capitalized” ratio requirements for purposes of its primary federal regulator’s prompt corrective action rules, discussed below.

We do not have any immediate plans to use the community bank leverage ratio framework but may make such an election in the future.

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and (k) ultimately, appointing a receiver for the institution.

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (a) address the upcoming implementation of a new credit impairment model, the Current Expected Credit Loss, or CECL model, an accounting standard under GAAP; (b) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (c) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing.

We are currently evaluating the impact the CECL model will have on our accounting.

We expect to recognize a one-time cumulative-effect adjustment to our allowance for loan losses as of the beginning of the first quarter of 2023, the first reporting period in which the new standard will become effective for us.

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

On December 21, 2018, the federal banking agencies issued a joint final rule to revise their regulatory capital rules to (a) address the implementation of a new credit impairment model, the Current Expected Credit Loss, or CECL model, an accounting standard under United States generally accepted accounting principles (U.S.

GAAP); (b) provide an optional three-year phase-in period for the day-one adverse regulatory capital effects that banking organizations are expected to experience upon adopting CECL; and (c) require the use of CECL in stress tests beginning with the 2020 capital planning and stress testing cycle for certain banking organizations that are subject to stress testing.

We implemented CECL effective January 1, 2023.

Upon adoption, we recorded an increase to the allowance for credit losses on loans held-for-investment of $5.3 million, a reduction in the allowance for credit losses on unfunded commitments of $0.2 million, an increase to deferred tax assets of $1.2 million, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $3.8 million in the consolidated balance sheet as of January 1, 2023.

Dividend Payments

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Without prior OCC approval, however, a national bank may not pay dividends in any calendar year that, in the aggregate, exceed the bank’s year-to-date net income plus the bank’s retained net income for the two preceding years.

The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant

to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

The payment of dividends by any FDIC-insured institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and an FDIC-insured institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized.

As described above, the Bank exceeded its capital requirements under applicable guidelines as of December 31, 2023.

Notwithstanding the availability of funds for dividends, however, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.

Notwithstanding the availability of funds for dividends, the OCC may prohibit the payment of dividends by the Bank if it determines such payment would constitute an unsafe or unsound practice.

In addition, under the Basel III Rule, institutions that seek the freedom to pay dividends will have to maintain the 2.5% capital conservation buffer.

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In addition to substantive penalties and corrective measures that may be required for a violation of certain fair lending laws, the federal banking agencies may take compliance with such laws and CRA into account when regulating and supervising other activities of the bank, including in acting on expansionary proposals.

In December 2019, the OCC and the FDIC issued a notice of proposed rulemaking intended to (a) clarify which activities qualify for CRA credit;

(b) update where activities count for CRA credit;

and (d) provide for more transparent, consistent, and timely CRA-related data collection, recordkeeping, and reporting.

However, the Federal Reserve has not joined the proposed rulemaking.

In May 2020, the OCC issued its final CRA rule, which was later rescinded in December 2021, and was replaced with a rule based on the rules adopted jointly by the federal banking agencies in 1995.

On the same day that the OCC announced its plans to rescind the CRA final rule, the OCC, FDIC, and Federal Reserve announced that they are working together to “strengthen and modernize the rules implementing the CRA.” The effects on the Bank of any potential change to the CRA rules will depend on the final form of any federal rulemaking and cannot be predicted at this time.

Management will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank.

On October 24, 2023, the federal banking agencies issued a final rule to amend the regulations implementing the CRA.

The rule significantly expands the number of areas in which a bank is evaluated, materially changes the tests used to evaluate the bank in those areas and expands the data a bank must collect and report.

The final rule takes effect April 1, 2024, but the majority of its operative provisions are effective January 1, 2026, with the data reporting requirements effective January 1, 2027.

We expect the rule will increase Sunflower Bank’s obligations and compliance costs necessary to achieve a “Satisfactory” or “Outstanding” rating under the CRA.

Fair Lending Requirements

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In addition to prohibiting discrimination in credit transactions on the basis of prohibited factors, these laws and regulations can cause a lender to be liable for policies that result in a disparate treatment of or have a disparate impact on a protected class of persons.

If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the U.S.

Department of Justice, or the “DOJ,” for investigation.

If a pattern or practice of lending discrimination is alleged by a regulator, then the matter may be referred by the agency to the DOJ, for investigation.

In December 2012, the DOJ and CFPB entered into a Memorandum of Understanding under which the agencies have agreed to share information, coordinate investigations, and have generally committed to strengthen their coordination efforts.

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and (iv) comply with new disclosure requirements and standards for appraisals and certain financial products.

Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals.

The CFPB may issue regulations that impact products and services offered by Sunflower Bank.

The CFPB has engaged in rulemakings that affect, among other things, credit card late fees, overdraft fees, data collection and reporting requirements for small business lenders such as Sunflower Bank, and personal financial data rights, including a proposed rule announced on January 17, 2024, that would, among other requirements, limit the overdraft fees that banks with greater than $10 billion in assets could charge.

Bank regulators take into account compliance with consumer protection laws when considering approval of any proposed expansionary proposals, including merger proposals.

Anti-Money Laundering and the USA Patriot Act

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Treasury Department’s Financial Crimes Enforcement Network for transactions exceeding $10,000;

filing suspicious activities reports if a bank believes a customer may be violating U.S.

(d) filing suspicious activities reports if a bank believes a customer may be violating U.S.

laws and regulations;

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• improvements to existing information sharing provisions that permit financial institutions to share information relating to SARs with foreign branches, subsidiaries, and affiliates (except those located in China, Russia, or certain other jurisdictions) for the purpose of combating illicit finance risks;

• enhanced whistleblower protection provisions, allowing whistleblower(s) who provide original information which leads to successful enforcement of anti-money laundering laws in certain judicial or administrative actions resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.

resulting in certain monetary sanctions to receive up to 30% of the amount that is collected in monetary sanctions as well as increased protections.

Under the USA PATRIOT Act, FinCEN can send our banking regulatory agencies lists of the names of persons suspected of involvement in terrorist activities.

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Financial Privacy and Cybersecurity

Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999, the “GBL,” and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties.

Under privacy protection provisions of the Gramm-Leach-Bliley Act of 1999, and related regulations, we are limited in our ability to disclose non-public information about consumers to nonaffiliated third parties.

These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a nonaffiliated third-party.

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Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.

Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible”

after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.

Risk Factors for a further discussion of risks related to cybersecurity and Item 1C.

Cybersecurity for a further discussion of risk management strategies and governance processes related to cybersecurity.

Deposit Premiums and Assessments

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As an FDIC-insured bank, we must pay deposit insurance assessments to the FDIC based on our average total assets minus our average tangible equity.

As an institution with less than $10 billion in assets, our assessment rates are based on the level of risk we pose to the FDIC’s deposit insurance fund (DIF).

Pursuant to changes adopted by the FDIC that were effective July 1, 2016, the initial base rate for deposit insurance is between three and 30 basis points.

As an institution with less than $10 billion in assets, our assessment rates are based on the level of risk we pose to the FDIC’s DIF.

The initial base rate for deposit insurance for institutions with less than $10 billion in assets is between five and 32 basis points.

Total base assessment after possible adjustments now ranges between 2.5 and 32 basis points.

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Extraordinary growth in insured deposits during the first and second quarters of 2020 caused the DIF reserve ratio to decline below the statutory minimum of 1.35%.

In October 2022, the FDIC announced a uniform two basis point increase in the deposit insurance assessment rate beginning in the first quarterly assessment period of 2023, with the intended purpose of having the DIF reach its statutory limit of 1.35% by the statutory deadline of September 30, 2028.

In November 2023, following the closures of Silicon Valley Bank and Signature Bank and in connection with its systemic risk determination announced on March 12, 2023, the FDIC announced a special deposit insurance assessment rate of 13.4

basis points beginning in the first quarterly assessment period of 2024, adjusted to exclude the first $5 billion in deposits for an anticipated total of eight quarterly assessment periods.

The FDIC may terminate the deposit insurance of any insured depository institution if it determines after a notice and hearing that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

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Federal and state regulatory agencies also periodically propose and adopt changes to their regulations or change the manner in which existing regulations are applied or interpreted.

The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the

proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.

The substance or impact of pending or future legislation or regulation, or the application thereof, cannot be predicted, although enactment of the proposed legislation has in the past and may in the future affect the regulatory structure under which we operate and may significantly increase our costs, impede the efficiency of our internal business processes, require us to increase our regulatory capital or modify our business strategy, or limit our ability to pursue business opportunities in an efficient manner.

Our business, financial condition, results of operations or prospects may be adversely affected, perhaps materially, as a result.

Available Information

We file reports with the SEC including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, as well as any amendments to those reports and statements.

We file reports with the Securities and Exchange Commission (the “SEC”) including annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and proxy statements, as well as any amendments to those reports and statements.

The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at http://www.sec.gov.

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

What changed 10-K

Item 1. Business