What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-07 compared with 2023-03-16 · 571 added, 471 removed, 1433 unchanged (42% of the section changed)

8 unchanged sentences

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

Note 2 - Merger with Pioneer B ancshares, Inc.

Note 2 - Merger with Pioneer Bancshares, Inc.

Note 3 - Securities

29 unchanged sentences

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph - Change in Accounting Principle

As discussed in Note 1 to the financial statements, the Company has changed its method of accounting for credit losses effective January 1, 2023 due to the adoption of ASU 2016-13 Financial Instruments – Credit Losses (ASC Topic 326).

The Company adopted the new credit loss standard using the modified retrospective method such that prior period amounts are not adjusted and continue to be reported in accordance with previously applicable generally accepted accounting principles.

Basis for Opinion

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Cash and cash equivalents $ 479,362 $ 343,526

Securities available-for-sale 536,973 572,501

Securities available-for-sale, at fair value 516,757 536,973

Securities held-to-maturity, fair value of $ 32,181 and $ 33,218 , respectively

1 unchanged sentence

Loans held-for-sale, at fair value 54,212 57,323

Loans, net of allowance for loan losses of $ 65,917 and $ 47,547 , respectively

Loans, net of allowance for credit losses of $ 80,398 and $ 65,917 , respectively

6,186,698 5,845,915

29 unchanged sentences

Additional paid-in capital 462,680 460,720

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

Retained earnings 457,522 357,797

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

Accumulated other comprehensive loss, net ( 43,007 ) ( 43,983 )

Total stockholders’ equity 877,197 774,536

21 unchanged sentences

Net interest income 293,431 241,632 155,233

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

Net interest income after provision for loan losses 223,582 152,233 112,853

Provision for credit losses 18,247 18,050 3,000

Net interest income after credit loss expense 275,184 223,582 152,233

Noninterest income:

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Income from mortgage banking services, net 31,384 46,285 86,410

Gain on sales of available-for-sale securities, net — — 153

Gain on other real estate owned and foreclosed assets activity, net 164 766 148

(Loss) gain on other real estate owned and foreclosed assets activity, net ( 106 ) 164 766

Other noninterest income 8,776 6,589 7,173

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Net income $ 103,533 $ 59,182 $ 43,164

Other comprehensive income (loss), net of tax:

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

Other comprehensive income, net of tax:

Gain (loss) on securities available-for-sale 758 ( 47,821 ) ( 7,455 )

Gain on fair value hedges of securities available-for-sale 218 2,174 —

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

Other comprehensive income (loss), net of tax 976 ( 45,647 ) ( 7,455 )

Comprehensive income $ 104,509 $ 13,535 $ 35,709

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January 1, 2021 19,878,713 $ 2 $ 259,363 $ ( 38,148 ) $ 255,451 $ 9,119 $ 485,787

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 )

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

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

3 unchanged sentences

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

3 unchanged sentences

December 31, 2022 24,920,984 $ 2 $ 460,720 $ — $ 357,797 $ ( 43,983 ) $ 774,536

Merger with Pioneer Bancshares, Inc.

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

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

Cumulative effect of accounting change — — — — ( 3,808 ) — ( 3,808 )

Adjusted beginning balance 24,920,984 2 460,720 — 353,989 ( 43,983 ) 770,728

Issuance of common stock on restricted stock grants 15,007 — 371 — — — 371

2 unchanged sentences

Net income — — — — 103,533 — 103,533

Other comprehensive loss — — — — — ( 45,647 ) ( 45,647 )

Other comprehensive income — — — — — 976 976

Balance as of

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Consolidated Statements of Cash Flows

For the years ended December 31,

For the year ended December 31,

(In thousands) 2023 2022 2021

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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

Provision for credit losses 18,247 18,050 3,000

Depreciation and amortization on premises and equipment 7,420 7,953 7,181

Deferred tax expense 3,012 9,203 3,145

1 unchanged sentence

Accretion of net discount on acquired loans ( 3,204 ) ( 1,308 ) ( 1,142 )

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

Net change in deferred loan origination fees and costs ( 1,178 ) 1,182 617

Amortization of core deposits and other intangible assets 4,822 4,215 1,417

Net amortization of lease marks — — 83

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

Amortization of premium on acquired deposits ( 966 ) ( 1,052 ) ( 45 )

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Accretion of discount on convertible notes payable 101 1,131 746

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

Accretion of discount on Federal Home Loan Bank advances — 76 —

Increase in cash surrender value of bank-owned life insurance ( 1,928 ) ( 1,682 ) ( 1,276 )

3 unchanged sentences

Share-based compensation expense 2,127 1,448 2,998

(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 )

Decrease (increase) in fair value of mortgage servicing rights 6,649 ( 12,418 ) 5,606

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

Net loss on disposal of premises and equipment 120 86 76

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

Net loss (gain) on other real estate owned and foreclosed assets activity 106 ( 164 ) ( 824 )

Net gain on sales of loans held-for-sale ( 3,491 ) ( 11,782 ) ( 61,403 )

7 unchanged sentences

Accrued expenses and other liabilities 5,124 ( 293 ) ( 15,646 )

Net cash provided by (used in) operating activities $ 96,915 $ 113,109 $ ( 547 )

Net cash provided by operating activities $ 125,176 $ 96,915 $ 113,109

The accompanying notes are an integral part of these consolidated financial statements.

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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 ) —

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Repayments of Federal Home Loan Bank advances ( 2,295,885 ) ( 317,000 ) ( 30,411 )

Repayments of other borrowings — — ( 6,000 )

Proceeds from subordinated debt, net — 24,466 —

Proceeds from issuance of common stock, net of issuance costs ( 167 ) ( 579 ) ( 456 )

Issuance of treasury stock — — ( 31 )

Purchase of treasury stock — — ( 1,564 )

Repayments of convertible notes payable ( 5,456 ) ( 15,217 ) —

Net cash provided by financing activities 337,939 116,269 647,299

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

Net increase (decrease) in cash and cash equivalents 135,836 ( 324,936 ) 466,484

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

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Right-of-use lease assets obtained in exchange for lessee operating lease liabilities $ 2,696 $ 35,212 $ —

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

Net change in unrealized loss on available-for-sale securities and unrealized gain on fair value hedges of securities available-for-sale $ 1,291 $ ( 45,647 ) $ ( 9,870 )

Loan charge-offs $ 9,672 $ 2,587 $ 4,861

1 unchanged sentence

Loans transferred to other real estate owned and foreclosed assets $ 4,086 $ 1,331 $ 2,577

Other assets transferred to Premises and equipment $ 64 $ 170 $ —

Mortgage servicing rights resulting from sale or securitization of mortgage loans $ 9,253 $ 14,287 $ 23,854

5 unchanged sentences

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.

(the “Bank”), Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC, and have been prepared using U.S.

generally accepted accounting principles (“U.S.

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

Nature of Operations - The Bank is headquartered in Denver, Colorado, and primarily operates throughout 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.

Nature of Operations - The Bank’s headquarters were relocated to Dallas, Texas from Denver, Colorado in 2023.

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

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

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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.

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

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

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

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

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

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

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.

1 unchanged sentence

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

On January 16, 2024, we announced a proposed merger with HomeStreet, Inc.

For additional information regarding our proposed merger with HomeStreet, Inc.

see Note 2 7 - Subsequent Events .

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

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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.

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

Concentration of Credit Risk - We have a significant concentration in residential real estate and commercial and industrial 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.

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Reclassifications had no effect on prior years net income or stockholders’ equity.

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.

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses:

Measurement of Credit Losses on Financial Instruments , which significantly changes the way that entities are required to measure credit losses.

The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach previously required.

The new approach requires entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability.

The expected credit loss model requires earlier recognition of credit losses than the incurred loss approach.

We expect ongoing changes in the allowance for credit losses will be driven primarily by the growth of our loan portfolio, credit quality, and the economic environment and related projections at that time.

In addition, the ASU developed a new accounting treatment for purchased financial assets with credit deterioration.

The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities and held-to-maturity debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.

Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-13.

We adopted the amendments of these ASUs as of 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.

The adoption of this ASU, as it relates to available-for-sale debt securities and held-to-maturity debt securities, did not have a material impact on the consolidated financial statements as of January 1, 2023.

In March of 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses:

Troubled Debt Restructurings and Vintage Disclosures , which eliminates the accounting for troubled debt restructurings by creditors while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty.

The amendment also requires disclosure of gross charge-offs by year of origination for finance receivables.

We adopted the amendments in this ASU as of January 1, 2023 prospectively.

As a result of the adoption of ASU 2016-13 and ASU 2022-02, several of our significant accounting policies have changed as of January 1, 2023 to reflect the requirements of the new standard.

Fair Value Measurement - Fair value is determined in accordance with Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement .

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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.

Purchased premiums and discounts on debt securities are amortized or accreted into interest income using the yield-to-maturity method based upon the remaining contractual maturity of the asset, adjusted for any expected prepayments or call features for securities purchased at a premium.

For available-for-sale debt securities in an unrealized loss position, management first assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis.

If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost basis is

written down to fair value.

Any previously recognized allowance for credit losses (“ACL”) should be written off and the write-down in excess of such ACL would be recorded through a charge to the provision for credit losses.

For available-for-sale debt securities that do not meet the aforementioned criteria, management evaluates whether the decline in fair value has resulted from credit losses or other factors.

In making this assessment, management considers the cash position of the issuer and its cash and capital generation capacity, which could increase or diminish the issuer’s ability to repay its bond obligations, the extent to which the fair value is less than the amortized cost basis, any adverse change to the credit conditions and liquidity of the issuer, taking into consideration the latest information about the financial condition of the issuer, credit ratings, the failure of the issuer to make scheduled principal or interest payments, recent legislation and government actions affecting the issuer’s industry, and actions taken by the issuer to deal with the economic climate.

Management also takes into consideration changes in the near-term prospects of the underlying collateral of a security, if any, such as changes in default rates, loss severity given default, and significant changes in prepayment assumptions and the level of cash flow generated from the underlying collateral, if any, supporting the principal and interest payments on the debt securities.

If this assessment indicates that a credit loss exists, the present value of cash flows expected to be collected from the security is compared to the amortized cost basis of the security.

If the present value of the cash flows expected to be collected is less than the amortized cost basis, a credit loss exists and management records an ACL for the credit loss, limited to the amount by which the fair value is less than the amortized cost basis.

Management recognizes in accumulated other comprehensive income/loss (“AOCI”) any impairment that has not been recorded through an ACL, net of tax.

Non-credit-related impairments result from other factors, including changes in interest rates.

Management records changes in the ACL as a provision for (or reversal of) credit loss expense.

Losses are charged against the allowance when management believes the uncollectibility of an available-for-sale debt security is confirmed or when either of the criteria regarding intent or requirement to sell is met.

Management has elected not to measure an ACL on accrued interest related to available-for-sale debt securities, as uncollectible accrued interest receivables are written off on a timely manner.

The ACL on held-to-maturity debt securities is based on an expected loss methodology referred to as current expected credit loss (“CECL”) methodology by major security type.

Any expected credit loss is provided through the ACL on held-to-maturity debt securities and is deducted from the amortized cost basis of the security so the statement of financial condition reflects the net amount management expects to collect.

For the ACL of held-to-maturity securities, management considers historical credit loss information that is adjusted for current conditions and reasonable and supportable forecasts.

Management has elected not to measure an ACL on accrued interest related to held-to-maturity debt securities, as uncollectible accrued interest receivables are written off on a timely manner.

Equity securities are carried at fair value, with changes in fair values reported in net income.

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Loan origination fees are recorded in the period of origination.

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.

interest income on consumer, commercial real estate and commercial and industrial loans is typically discontinued at the time the loan is 90 days delinquent unless the loan is well-secured and in the 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 the process of collection.

Consumer and credit card loans are typically charged off no later than 120 days past due.

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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.

Nonaccrual loans and loans past due 90 days still on accrual include both smaller homogenous loans that are collectively evaluated for impairment and individually classified impaired loans.

When discontinued, all unpaid interest is reversed.

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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.

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.

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.

Acquired Loans – Loans acquired through a purchase or a business combination are recorded at their fair value as of the acquisition date.

Management performs an assessment of acquired loans to first determine if such loans have experienced a more than insignificant deterioration in credit quality since their origination and thus should be classified and accounted for as purchased credit deteriorated (“PCD”) loans.

For loans that have not experienced a more than insignificant deterioration in credit quality since origination, referred to as non-PCD loans, management records such loans at fair value, with any resulting discount or premium accreted or amortized into interest income over the remaining life of the loan using the interest method.

Additionally, upon the purchase or acquisition of non-PCD loans, management measures and records an ACL based on the Bank’s methodology for determining the ACL.

The ACL for non-PCD loans is recorded through a charge to the provision for credit losses in the period in which the loans are purchased or acquired.

Acquired loans that are classified as PCD are recognized at fair value, which includes any premiums or discounts resulting from the difference between the initial amortized cost basis and the par value.

Premiums and non-credit loss related discounts are amortized or accreted into interest income over the remaining life of the loan using the interest method.

Unlike non-PCD loans, the initial ACL for PCD loans is established through an adjustment to the acquired loan balance and not through a charge to the provision for credit losses in the period in which the loans are acquired.

At acquisition, the ACL for PCD loans, which represents the fair value credit discount, is determined using a discounted cash flow method that considers the probability of default and loss-given default used in the Bank’s ACL methodology.

Characteristics of PCD loans include the following:

delinquency, payment history since origination, credit scores migration and/or other factors the Bank may become aware of through its initial analysis of acquired loans that may indicate there has been a more than insignificant deterioration in credit quality since a loan’s origination.

Subsequent to acquisition, the ACL for both non-PCD and PCD loans is determined pursuant to the Bank ACL methodology in the same manner as all other loans.

Allowance for Credit Losses - The ACL for loans held for investment is a valuation account that is deducted from the loans’ amortized cost basis to present the net amount expected to be collected on loans.

Loans are charged-off against the allowance when management confirms the loan balance is uncollectible.

Management estimates the allowance using relevant available information, from internal and external sources, relating to past events, current conditions, and reasonable and supportable forecasts.

Internal and industry historical credit loss experience is a significant input for the estimation of expected credit losses.

Additionally, management’s assessment involves evaluating key factors, which include credit and macroeconomic indicators, such as changes in economic growth levels, unemployment rates, property values, and other relevant factors, to account for current and forecasted market conditions that are likely to cause estimated credit losses over the life of the loans to differ from historical credit losses.

Expected credit losses are generally estimated over the contractual term of the loans, adjusted by prepayments when appropriate.

Management estimates the ACL primarily based on a probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) modeled approach, or individually for collateral dependent loans.

Management evaluates the need for changes to the ACL by portfolio segments and classes of loans within certain of those portfolio segments.

Factors such as the credit risk inherent in a portfolio and how management monitors the related quality, as well as the estimation approach to estimate credit losses, are considered in the determination of such portfolio segments and classes.

The Bank believes it has a diversified portfolio across a variety of industries,

and the portfolio is generally centered in the states in which the Bank has offices.

Management has identified the following portfolio segments:

Commercial and industrial loans include commercial and industrial loans to commercial 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.

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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.

The global cash flow capability of commercial and industrial loan customers is generally evaluated both at underwriting and during the life of the loan.

Commercial and industrial 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.

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

Commercial and industrial loans require increased underwriting and monitoring to offset these risks, for which the Bank’s systems have been designed to provide.

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.

Public finance loans include loans to our charter school and municipal based customers.

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.

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.

Other loans consist of loans to nondepository financial institutions, lease financing receivables and loans for agricultural production.

The ACL is measured using a PD/LGD with EAD model that is calculated based on the product of a cumulative PD and LGD.

PD and LGD estimates are assigned based upon the periodic completion of credit risk scorecards.

Remaining EAD is derived based on inherent loan characteristics and like-kind loan prepayment trends.

Under this approach, management calculates losses for each loan for all future periods using the PD and LGD rates derived from the term structure curves applied to the estimated remaining balance of the loans.

For the ACL determination of all portfolios, the expectations for relevant macroeconomic variables consider an initial reasonable and supportable period of four years and a reversion period of one year, utilizing a straight-line approach and reverting back to the historical loss rates.

Management periodically considers the need to make qualitative adjustments to the ACL.

Qualitative adjustments may be related to and include, but not be limited to factors such as the following:

(i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions;

(ii) organization specific risks such as credit concentrations, collateral specific risks, nature and size of the portfolio and external factors that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies, among others.

Loans that do not share similar risk characteristics with the collectively evaluated pools are evaluated on an individual basis and are excluded from the collectively evaluated pools.

Such loans are evaluated for credit losses based on either discounted cash flows or the fair value of collateral.

When management determines that foreclosure is probable, expected credit losses are based on the fair value of the collateral, less selling costs.

For loans for which foreclosure is not probable, but for which repayment is expected to be provided substantially

through the operation or sale of the collateral, management has elected the practical expedient under ASC 326 to estimate expected credit losses based on the fair value of the collateral, with selling costs considered in the event sale of the collateral is expected.

Management has elected not to measure an ACL on accrued interest related to held for investment loans, as uncollectible accrued interest receivables are written off in a timely manner.

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 judgements about information available at the time of their examination.

Management estimates expected credit losses over the contractual period in which the Bank is exposed to credit risk via a contractual obligation to extend credit unless the obligation is unconditionally cancellable by the Bank.

The ACL on off-balance sheet credit exposures is adjusted as a provision for credit loss expense.

The estimate includes the consideration of the likelihood that funding will occur and an estimate of expected credit losses on commitments expected to be funded over its estimated life.

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

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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.

We record an ACL on outstanding servicer advances when we determine that based on all available information, that a credit loss is expected, and that all contractual amounts due will not be recovered.

There was no ACL on outstanding servicer advances as of December 31, 2023 and 2022, respectively.

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.

Premises and equipment are stated at cost less accumulated depreciation and amortization.

Depreciation and amortization is computed on the straight-line or declining balance method depending upon the type of asset with useful lives ranging from one to 39 years.

Depreciation and amortization expense has been included in occupancy and equipment expense in the accompanying consolidated statements of income and comprehensive income.

Maintenance and repair costs are charged to expense as incurred.

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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.

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.

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.

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Total restricted equity securities $ 38,072 $ 50,215

As a result of the relocation of our Bank headquarters to Dallas, Texas in 2023, we will be required to liquidate our capital stock in the FHLB of Topeka and the FRB of Kansas City and acquire capital stock in the FHLB of Dallas and the FRB of Dallas.

We expect to complete this activity in early 2024 with no gain or loss on the liquidation of the capital stock.

Goodwill - The excess purchase price of acquired businesses over the fair value of identifiable assets acquired and liabilities assumed is recognized as goodwill.

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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.

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

This agreement was fully amortized in 2023.

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

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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.

During the years ended December 31, 2023 and 2021, we recorded no impairment of long-lived assets, respectively.

During the year ended December 31, 2022, we recorded impairment of $ 720 of long-lived assets.

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

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Such financial instruments are recorded when they are funded.

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:

Derivative Instruments and Hedging Activities - 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.

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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

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.

The FASB has issued standards associated with the cessation of LIBOR, including ASU 2022-06 that further defers the sunset date of ASU 2020-04 and ASU 2021-01 Reference Rate Reform (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.

Since December 31, 2021, we have not issued debt indexed to USD-LIBOR and as of December 31, 2023, we have fully transitioned from the use of LIBOR on all contracts.

Risk Management Objective of Using Derivatives

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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.

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.

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

As such, these derivative

instruments are not designated as accounting hedges.

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

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

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

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.

Lease Commitments - We determine 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 our 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.

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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.

We have elected not to record leases with an initial term of 12 months or less on our consolidated balance sheets.

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

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

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

reasonably estimated.

Management does not believe there are such matters that will have a material effect on these consolidated financial statements.

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;

In addition, we generally sell loans to investors without recourse;

therefore, the investors have assumed the risk of loss or default by the borrower.

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Further information is presented in Note 24 - Commitments and Contingencies .

Equity - Treasury stock is carried at cost.

Equity - Treasury stock, if any, 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.

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

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.

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.

Recent Accounting Pronouncements Not Yet Adopted - ASU No.

2023-02, “Investments - Equity Method and Joint Ventures (Topic 323):

Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method.” ASU 2023-02 is intended to improve the accounting and disclosures for investments in tax credit structures.

ASU 2023-02 allows entities to elect to account for qualifying tax equity investments using the proportional amortization method, regardless of the program giving rise to the related income tax credits.

Previously, this method was only available for qualifying tax equity investments in low-income housing tax credit structures.

ASU 2023-02 will be effective for us on January 1, 2025 and its adoption is not expected to have a significant effect on our financial statements.

ASU 2023-06, “Disclosure Improvements - Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” ASU 2023-06 amends the ASC to incorporate certain disclosure requirements from SEC Release No.

33-10532 - Disclosure Update and Simplification that was issued in 2018.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

ASU 2023-06 is not expected to have a significant impact on our financial statements.

2023-07, “Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures.” ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

ASU 2023-07 is not expected to have a significant impact on our financial statements.

2023-09, “Income Taxes (Topic 740):

Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold.

ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things.

ASU 2023-09 is effective for us on January 1, 2026, though early adoption is permitted.

ASU 2023-09 is not expected to have a significant impact on our financial statements.

NOTE 2 - Merger with Pioneer Bancshares, Inc.

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

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

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

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

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

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

The determination of 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.

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

Cash and cash equivalents $ 449,278

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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.

No allowance for credit losses was carried over from Pioneer.

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

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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

Provision for credit losses 17,200 350

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

Noninterest income 90,993 129,373

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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,:

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity debt securities by type follows as of December 31,:

Losses Estimated

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

Other debt 16,774 — ( 1,919 ) 14,855

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

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Total held-to-maturity $ 38,901 $ 9 $ ( 5,692 ) $ 33,218

There was no allowance for credit losses related to our investment securities as of December 31, 2023.

As of December 31, 2023 and 2022, 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.

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,:

Fair value and unrealized losses on debt securities by type and length of time in a continuous unrealized loss position without an allowance for credit losses were as follows as of December 31,:

Less than 12 months 12 months or longer Total

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

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

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

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

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.

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

We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase.

We do not have plans to sell any of the available-for-sale debt securities with unrealized losses as of December 31, 2023, and we believe it is more likely than not that we would not be required to sell such available-for-sale debt securities before recovery of their amortized cost.

We continue to monitor unrealized loss positions for potential credit impairments.

During the year ended December 31, 2023, there were no credit impairments related to our investment securities.

The amortized cost and fair value of our debt securities by contractual maturity as of December 31, 2023 are summarized in the following table.

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Securities with a carrying value of $ 468,679 and $ 428,721 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at December 31, 2023 and 2022, 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, 2023.

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.

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

For the years ended December 31, 2023, 2022 and 2021 there were no gross investment gains or losses resulting from the sale of securities.

NOTE 4 - Loans

Loans held-for-investment consist of the following as of December 31,:

Commercial $ 3,025,074 $ 2,414,787

Loans held-for-investment by portfolio type consist of the following as of December 31,:

Commercial and industrial $ 2,467,688 $ 2,310,929

Commercial real estate:

Non-owner occupied 812,235 779,546

Owner occupied 635,365 636,272

Construction and land 345,430 327,817

Multifamily 103,066 102,068

Total commercial real estate 1,896,096 1,845,703

Residential real estate 1,110,610 1,003,931

Public finance 602,913 590,284

Consumer 36,371 42,588

Other 153,418 118,397

Total loans $ 6,267,096 $ 5,911,832

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

Allowance for credit losses ( 80,398 ) ( 65,917 )

Loans, net of allowance for credit losses $ 6,186,698 $ 5,845,915

As of December 31, 2023 and 2022, we had net deferred fees, costs, premiums and discounts of $ 12,859 and $ 17,101 , respectively, on our loan portfolio.

Accrued interest receivable on loans totaled $ 34,879 and $ 26,494 at December 31, 2023 and 2022, respectively, and is included in accrued interest receivable in the accompanying consolidated balance sheets.

The following table presents the activity in the allowance for credit losses by portfolio type for the years ended December 31,:

Industrial Commercial

Estate Residential

Estate Consumer Total

Allowance for loan losses:

Estate Public

Finance Consumer Other Total

Allowance for credit losses:

Balance, beginning of period $ 40,785 $ 19,754 $ 2,963 $ 1,664 $ 352 $ 399 $ 65,917

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

Impact of adopting ASC 326

( 13,583 ) 3,867 10,256 3,890 249 577 5,256

Provision for (benefit from) credit losses 10,445 3,996 2,457 ( 217 ) 400 ( 46 ) 17,035

Loans charged-off ( 9,242 ) ( 83 ) ( 13 ) — ( 334 ) — ( 9,672 )

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Balance, end of period $ 29,523 $ 27,546 $ 16,345 $ 5,337 $ 717 $ 930 $ 80,398

Allowance for loan losses:

Allowance for credit losses:

Balance, beginning of period $ 31,622 $ 13,198 $ 836 $ 1,544 $ 235 $ 112 $ 47,547

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

Provision for (benefit from) credit losses 9,248 6,168 2,028 120 199 287 18,050

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

1 unchanged sentence

Balance, end of period $ 40,785 $ 19,754 $ 2,963 $ 1,664 $ 352 $ 399 $ 65,917

Allowance for loan losses:

Allowance for credit losses:

Balance, beginning of period $ 29,235 $ 14,033 $ 1,435 $ 2,604 $ 288 $ 171 $ 47,766

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

Provision for credit losses 5,136 ( 488 ) ( 581 ) ( 1,060 ) 52 ( 59 ) 3,000

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

1 unchanged sentence

Balance, end of period $ 31,622 $ 13,198 $ 836 $ 1,544 $ 235 $ 112 $ 47,547

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

Estate Residential

Estate Consumer Total

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

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

The following table presents information related to impaired loans by class of loans as of December 31,:

Balance Recorded

Investment Allowance for

Allocated Average

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

We determine the allowance for credit losses estimate on at least a quarterly basis.

As of December 31, 2023 and 2022, we had an allowance for credit losses on unfunded commitments of $ 2,309 and $ 1,313 , respectively.

For the years ended December 31, 2023, 2022 and 2021, we recorded a provision for credit losses on unfunded commitments of $ 1,212 , $ 525 and $ 300 , respectively.

The following table presents our loan portfolio aging analysis as of December 31,:

Past Due Loans

Past Due Loans Greater

Still Accruing Nonaccrual Total

Commercial and industrial (1) $ 2,420,775 $ 10,117 $ 3,782 $ 25,010 $ 8,004 $ 2,467,688

Commercial real estate:

Non-owner occupied 796,477 1,063 10,851 — 3,844 812,235

Owner occupied 626,424 8,269 — 638 34 635,365

Construction and land 345,245 — — — 185 345,430

Multifamily 103,066 — — — — 103,066

Total commercial real estate 1,871,212 9,332 10,851 638 4,063 1,896,096

Residential real estate 1,065,438 19,261 3,330 168 22,413 1,110,610

Public Finance 602,913 — — — — 602,913

Consumer 36,357 4 — — 10 36,371

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

With no related allowance recorded:

Commercial $ 14,619 $ 13,982 $ — $ 10,637

Other 141,794 8,787 — — 2,837 153,418

Total loans $ 6,138,489 $ 47,501 $ 17,963 $ 25,816 $ 37,327 $ 6,267,096

Commercial and industrial $ 2,298,207 $ 2,409 $ 819 $ — $ 9,494 $ 2,310,929

Commercial real estate:

Non-owner occupied 773,042 4,356 — — 2,148 779,546

Owner occupied 630,335 — — — 5,937 636,272

Construction and land 324,888 2,632 99 — 198 327,817

Multifamily 102,068 — — — — 102,068

Total commercial real estate 1,830,333 6,988 99 — 8,283 1,845,703

Residential real estate 974,450 17,231 1,524 98 10,628 1,003,931

Public Finance 590,284 — — — — 590,284

Consumer 42,434 58 3 — 93 42,588

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.

Other 117,926 — — — 471 118,397

Total loans $ 5,853,634 $ 26,686 $ 2,445 $ 98 $ 28,969 $ 5,911,832

(1) Loans greater than 90 days past due, still accruing relates primarily to one borrower relationship where interest was paid current in February 2024.

Contractual principal payments related to this borrower relationship were deferred until March 15, 2024.

This deferral was not significant.

Interest income recorded on nonperforming loans was not material for the years ended December 31, 2023, 2022 and 2021.

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.

We segment loans into risk categories based on relevant borrower risk profile information, including the ability to service their debt based on 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 movements in 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:

Pass – Loans classified as Pass have a well-defined primary source of repayment, an acceptable financial position profile (including capitalization), profitability and minimal operating risk.

Pass/Watch – Pass/Watch loans require close attention by bank management and enhanced monitoring due to quantitative or qualitative concerns linked to adverse trends or near-term uncertainty.

A covenant default or other type of requirement shortfall may have arisen subsequent to a loan's booking or borrower now shows signs of weakness in the overall base of confirmable financial resources available to repay the loan.

However, overall financial capacity & performance are considered sufficient to support an expectation of continued payment performance and / or mitigating factors exist that are expected to limit the risk of near term default and loss.

Special Mention – Special Mention loans have identified potential weaknesses that are of sufficient materiality to require management’s (persistent) close attention.

If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the bank's credit position under normal business operations.

Special Mention loans contain greater than acceptable risk to warrant increases in credit exposure and are thus considered “criticized”, non-pass rated credits.

They may contain weaknesses (that have arisen due to deteriorating conditions since origination) and / or underwriting exceptions that are not currently offset by mitigating factors.

However, these weaknesses, while sufficient to constitute significantly elevated credit risk, are not sufficient to support a conclusion that the liquidation of the debt is in significant jeopardy.

Substandard - Accruing – Substandard - Accruing loans are inadequately protected by the current sound net worth and paying capacity of the obligor(s).

Loans classified as Substandard - Accruing possess one or more well-defined weaknesses that are expected to jeopardize their liquidation but the weaknesses have not progressed to a point where recent late payments on the loan have become more than 90 days past due.

These loans are characterized by the distinct possibility that the bank may sustain up to a moderate but not significant level of loss if such weaknesses are not corrected.

Losses for Substandard - Accruing loans are moderated by the lower likelihood of ultimate default and the existence of relatively favorable secondary repayment protection.

These loans are considered “nonperforming”.

Substandard - Nonaccrual – Substandard - Nonaccrual loans are inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any.

Loans classified as Substandard - Nonaccrual possess material, well-defined weaknesses that are expected to jeopardize their liquidation and have progressed to a point where consistently late payments on the loan have become more than 90 or more days past due.

These loans are characterized by the distinct possibility that the bank may sustain a material level of loss if such weaknesses are not corrected.

Losses for Substandard - Nonaccrual loans are prone to being elevated based on the strong likelihood of the loan remaining in payment default and an undesirable level of secondary repayment protection.

These loans are considered “nonperforming”.

Doubtful – Loans classified as Doubtful possess all of the weaknesses inherent in loans classified as Substandard - Nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full highly questionable or improbable based on currently existing facts, conditions and values.

A high probability of substantial loss or possible total loss exists.

Loans rated as doubtful are not rated as loss because certain events may occur that could salvage at least a portion of the debt.

These events include injections of capital, additions of pledged collateral or possible mezzanine debt refinancing options.

However, without the occurrence of such events, total loss may be possible.

No definite repayment schedule exists for these loans.

The Doubtful grade is a temporary grade.

If a near term recovery of a portion of the loan balance is indeterminable or unlikely to occur, the remaining balance of the loan should be written off and possible future recoveries may partially offset the full write-off of the loan.

These loans are considered “nonperforming”.

Loss – Loans classified as Loss are defaulted loans with limited or immaterial recovery prospects.

No loan that has not yet defaulted should be classified at this grade level.

This rating level tends to be very short lived as the full balance of the loan tends to be fully written off nearly immediately after a change to this rating level.

These loans are considered “nonperforming”.

The following table present the amortized costs by segment of loans by risk category and origination date as of December 31, 2023:

2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Revolving Total

Commercial and industrial:

Pass $ 384,720 $ 432,903 $ 342,394 $ 143,636 $ 41,667 $ 39,972 $ 39,098 $ 786,059 $ 2,210,449

Pass/Watch 4,052 2,543 18,832 4,595 1,603 2,441 1,273 93,951 129,290

Special Mention 3,759 47,071 2,253 2,281 659 731 3,334 6,729 66,817

Substandard - Accruing 2,992 362 33,625 4,316 1,338 3,542 3,044 3,909 53,128

Substandard - Nonaccrual — — 690 4,122 1,110 364 96 248 6,630

Doubtful — — — 490 547 33 304 — 1,374

Total commercial and industrial $ 395,523 $ 482,879 $ 397,794 $ 159,440 $ 46,924 $ 47,083 $ 47,149 $ 890,896 $ 2,467,688

Gross charge-offs $ — $ — $ 2,786 $ 3,096 $ — $ 368 $ 2,992 $ — $ 9,242

Commercial real estate:

Non-owner occupied:

Pass $ 55,581 $ 117,162 $ 136,361 $ 116,402 $ 60,535 $ 176,308 $ 19,256 $ 71,322 $ 752,927

Pass/Watch — — — 3,791 6,342 24,620 1,277 — 36,030

Special Mention 2,717 — — — — — 1,582 — 4,299

Substandard - Accruing — 3,561 — 1,880 — 9,694 — — 15,135

Substandard - Nonaccrual — — — — — 3,844 — — 3,844

Total non-owner occupied $ 58,298 $ 120,723 $ 136,361 $ 122,073 $ 66,877 $ 214,466 $ 22,115 $ 71,322 $ 812,235

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Owner occupied:

Pass $ 87,167 $ 83,308 $ 105,935 $ 102,885 $ 64,134 $ 123,199 $ 2,961 $ 6,103 $ 575,692

Pass/Watch 600 902 — 15,541 2,896 2,520 — 1,615 24,074

Special Mention — 493 5,745 306 1,092 2,834 — — 10,470

Substandard - Accruing 2,295 460 1,204 3,027 2,259 15,850 — — 25,095

Substandard - Nonaccrual — — — — — 34 — — 34

Total owner occupied $ 90,062 $ 85,163 $ 112,884 $ 121,759 $ 70,381 $ 144,437 $ 2,961 $ 7,718 $ 635,365

Gross charge-offs $ — $ — $ — $ — $ — $ 83 $ — $ — $ 83

Construction & land:

Pass $ 44,496 $ 171,411 $ 32,176 $ 28,221 $ 13,459 $ 8,718 $ 21,600 $ 1,913 $ 321,994

Pass/Watch — — 13,036 6,541 — 15 — — 19,592

Special Mention — — 1,381 2,278 — — — — 3,659

Substandard - Nonaccrual — — — 185 — — — — 185

Total construction & land $ 44,496 $ 171,411 $ 46,593 $ 37,225 $ 13,459 $ 8,733 $ 21,600 $ 1,913 $ 345,430

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 1,359 $ 36,852 $ 36,537 $ 12,838 $ 2,716 $ 5,885 $ — $ 5,574 $ 101,761

Special Mention — — — — 1,305 — — — 1,305

Total multifamily $ 1,359 $ 36,852 $ 36,537 $ 12,838 $ 4,021 $ 5,885 $ — $ 5,574 $ 103,066

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

2023 2022 2021 2020 2019 Prior Revolving Loans Converted to Term Revolving Total

Total commercial real estate:

Pass $ 188,603 $ 408,733 $ 311,009 $ 260,346 $ 140,844 $ 314,110 $ 43,817 $ 84,912 $ 1,752,374

Pass/Watch 600 902 13,036 25,873 9,238 27,155 1,277 1,615 79,696

Special Mention 2,717 493 7,126 2,584 2,397 2,834 1,582 — 19,733

Substandard - Accruing 2,295 4,021 1,204 4,907 2,259 25,544 — — 40,230

Substandard - Nonaccrual — — — 185 — 3,878 — — 4,063

Total commercial real estate:

$ 194,215 $ 414,149 $ 332,375 $ 293,895 $ 154,738 $ 373,521 $ 46,676 $ 86,527 $ 1,896,096

Gross charge-offs $ — $ — $ — $ — $ — $ 83 $ — $ — $ 83

Residential real estate:

Pass $ 153,327 $ 573,624 $ 116,695 $ 38,309 $ 38,121 $ 141,216 $ 1,857 $ 13,540 $ 1,076,689

Pass/Watch 155 1,181 28 — 269 4,667 176 — 6,476

Special Mention — — — — 254 1,465 — — 1,719

Substandard - Accruing — 3,199 — — — 114 — — 3,313

Substandard - Nonaccrual — 6,704 3,169 2,214 4,009 6,267 16 34 22,413

Total residential real estate $ 153,482 $ 584,708 $ 119,892 $ 40,523 $ 42,653 $ 153,729 $ 2,049 $ 13,574 $ 1,110,610

Gross charge-offs $ — $ — $ — $ 13 $ — $ — $ — $ — $ 13

Public Finance:

Pass $ 37,074 $ — $ 43,512 $ 174,907 $ 201,575 $ 135,326 $ — $ 3,051 $ 595,445

Substandard - Accruing — — — — 7,468 — — — 7,468

Total public finance $ 37,074 $ — $ 43,512 $ 174,907 $ 209,043 $ 135,326 $ — $ 3,051 $ 602,913

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 3,232 $ 2,183 $ 5,347 $ 9,414 $ 3,482 $ 2,555 $ 2 $ 9,491 $ 35,706

Pass/Watch — 53 108 99 145 153 1 46 605

Special Mention — — 13 7 — — — — 20

Substandard - Accruing — — — — — — 30 — 30

Substandard - Nonaccrual — 4 6 — — — — — 10

Total consumer $ 3,232 $ 2,240 $ 5,474 $ 9,520 $ 3,627 $ 2,708 $ 33 $ 9,537 $ 36,371

Gross charge-offs $ — $ — $ 11 $ 8 $ 111 $ 32 $ 3 $ 169 $ 334

Pass $ 5,890 $ 7,802 $ 13,198 $ 806 $ 282 $ 10,227 $ 4,859 $ 100,183 $ 143,247

Pass/Watch — — 7,334 — — — — — 7,334

Substandard - Nonaccrual — — — — 2,391 — 446 — 2,837

Total other $ 5,890 $ 7,802 $ 20,532 $ 806 $ 2,673 $ 10,227 $ 5,305 $ 100,183 $ 153,418

Gross charge-offs $ — $ — $ — $ — $ — $ — $ — $ — $ —

Pass $ 772,846 $ 1,425,245 $ 832,155 $ 627,418 $ 425,971 $ 643,406 $ 89,633 $ 997,236 $ 5,813,910

Pass/Watch 4,807 4,679 39,338 30,567 11,255 34,416 2,727 95,612 223,401

Special Mention 6,476 47,564 9,392 4,872 3,310 5,030 4,916 6,729 88,289

Substandard - Accruing 5,287 7,582 34,829 9,223 11,065 29,200 3,074 3,909 104,169

Substandard - Nonaccrual — 6,708 3,865 6,521 7,510 10,509 558 282 35,953

Doubtful — — — 490 547 33 304 — 1,374

Total loans $ 789,416 $ 1,491,778 $ 919,579 $ 679,091 $ 459,658 $ 722,594 $ 101,212 $ 1,103,768 $ 6,267,096

Gross charge-offs $ — $ — $ 2,797 $ 3,117 $ 111 $ 483 $ 2,995 $ 169 $ 9,672

The following table presents the credit risk profile of our loan portfolio, gross of deferred costs, fees, premiums and discounts, based on our rating categories as of December 31, 2022, which is prior to the adoption of ASU 2016-13 on January 1, 2023 and continue to be reported under ASC 310, Receivables .

We categorized 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.

This risk rating system was used as a tool to analyze and monitor loan portfolio quality.

Risk ratings meeting an internally specified exposure threshold were updated annually, or more frequently upon the occurrence of a circumstance that affected 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.

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

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

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

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

Commercial $ 2,969,786 $ 55,288 $ 3,025,074

Commercial and industrial $ 2,969,786 $ 55,288 $ 3,025,074

Commercial real estate 1,715,415 37,945 1,753,360

2 unchanged sentences

Total loans $ 5,824,901 $ 104,032 $ 5,928,933

Commercial $ 2,384,275 $ 30,512 $ 2,414,787

The following table presents information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of December 31,:

Collateral Dependent Loans

With Allowance Collateral Dependent Loans

With No Related Allowance Total Collateral Dependent Loans

Amortized Cost Related Allowance Amortized Cost Amortized Cost Related Allowance

Commercial & industrial $ 5,084 $ 2,328 $ 2,920 $ 8,004 $ 2,328

Commercial real estate:

Non-owner occupied — — 3,844 3,844 —

Owner occupied — — 34 34 —

Construction and land — — 185 185 —

Total commercial real estate — — 4,063 4,063 —

Residential real estate 1,551 103 20,862 22,413 103

Consumer 10 10 — 10 10

Total loans $ 3,979,743 $ 66,899 $ 4,046,642

The following table presents our loan portfolio aging analysis as of December 31,:

Past Due Loans

Past Due Loans Greater

Still Accruing Nonaccrual Total

Commercial $ 3,011,872 $ 2,422 $ 815 $ — $ 9,965 $ 3,025,074

real estate 1,738,024 6,954 99 — 8,283 1,753,360

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

Commercial $ 2,392,205 $ 5,467 $ 623 $ — $ 16,492 $ 2,414,787

real estate 1,160,244 10,887 — 1,061 4,781 1,176,973

real estate 424,860 5,794 410 — 6,052 437,116

Consumer 17,719 45 — — 2 17,766

Other 2,391 102 446 2,837 102

Total loans $ 9,036 $ 2,543 $ 28,291 $ 37,327 $ 2,543

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.

The following table presents loans by class modified as TDRs that occurred during the years ended December 31,:

Loans Pre-Modification

Investment Post-Modification

Commercial 1 $ 248 $ 248

Commercial & industrial $ 6,330 $ 1,101 $ 3,164 $ 9,494 $ 1,101

Commercial real estate:

Non-owner occupied 115 36 2,033 2,148 36

Owner occupied 681 153 5,256 5,937 153

Construction and land — — 198 198 —

Total commercial real estate 796 189 7,487 8,283 189

Residential real estate 836 34 9,779 10,615 34

Consumer 91 88 — 91 88

Total 3 $ 446 $ 446

Commercial 7 $ 6,969 $ 6,969

Other — — 475 475 —

Total loans $ 8,053 $ 1,412 $ 20,905 $ 28,958 $ 1,412

The allowance related to collateral dependent loans reported in the tables above includes qualitative adjustments applied to the loan portfolio that consider possible changes in circumstances that could ultimately impact credit losses and might not be reflected in historical data or forecasted data incorporated in the quantitative models.

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination.

The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty.

The Company uses a PD/LGD model to determine the allowance for credit losses.

An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification.

The loan modifications in the table below did not significantly impact our determination of the allowance for credit losses on loans during 2023.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification.

Occasionally, the Company modifies loans by providing principal forgiveness that is deemed to be uncollectible;

therefore, that portion of the loan is written-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses.

Additionally, the Company may allow a loan to go interest only for a specified period of time.

The following table presents loan modifications that were experiencing financial difficulty during 2023, segregated by modification type, regardless of whether such modifications resulted in a new loan.

Delay Interest Rate Reduction % of

Commercial and industrial $ 292 $ — — %

Commercial real estate:

Non-owner occupied — — — %

Owner occupied — 1,145 0.2 %

Construction and land — — — %

Multifamily — — — %

Total commercial real estate — 1,145 0.2 %

Residential real estate — — — %

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.

Public finance — — — %

Consumer — — — %

Other — — — %

Total loans $ 292 $ 1,145 0.2 %

There were no commitments to lend additional funds to these borrowers at December 31, 2023.

The financial effects of our loan modifications made to borrowers experiencing financial difficulty during 2023 were not significant.

We closely monitor the performance of loan modifications made to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts.

There were no loans past due that have been modified in the last 12 months.

There is one commercial and industrial loan totaling $ 292 on nonaccrual status that has been modified in the last 12 months.

NOTE 5 - Mortgage Servicing Rights

35 unchanged sentences

Automobiles 5 years

Software 1 - 7 years

Construction in progress N/A 1,207 1,360

Premises and equipment 137,453 134,181

Accumulated depreciation ( 39,902 ) ( 40,386 )

Accumulated depreciation and amortization ( 52,611 ) ( 46,067 )

Premises and equipment, net $ 84,842 $ 88,114

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.

We had depreciation and amortization expense as follows for the years ended December 31,:

2023 2022 2021

Depreciation expense $ 6,553 $ 7,118 $ 6,118

Software amortization expense $ 867 $ 835 $ 1,063

Total depreciation and amortization expense $ 7,420 $ 7,953 $ 7,181

NOTE 7 - Core Deposits and Other Intangible Assets

3 unchanged sentences

Balance, beginning of year $ 1,800 $ 13,159 $ 748 $ 99 $ 15,806

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

Amortization — ( 4,538 ) ( 185 ) ( 99 ) ( 4,822 )

1 unchanged sentence

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

Additions — 11,327 — 444 11,771

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

1 unchanged sentence

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

Additions — — 1,250 — 1,250

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

28 unchanged sentences

Interest Rate Products 49 2024 - 2037 $ 396,111 $ 19,869

Other 2 2028 $ 6,168 $ 30

Derivative financial instruments designated as hedging instruments:

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

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

Derivative financial instruments not designated as hedging instruments:

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

Other 1 2025 $ 14,638 $ —

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

15 unchanged sentences

Derivative financial instruments

Forward MBS trades 2023 $ 85,000 $ 36

Forward MBS trades 2023 $ 21,800 $ 225

Futures 2024 $ 28,700 $ 2,153

Interest rate lock commitments (IRLC) 2024 $ 41,404 $ 252

Forward MBS trades 2024 $ 77,000 $ 606

Derivative financial instruments

Futures 2023 $ 85,000 $ 36

Forward MBS trades 2023 $ 21,800 $ 225

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

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,:

2023 2022 2021

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

Recorded (loss) gain on mortgage banking derivative assets

$ ( 857 ) $ 233 $ ( 9,655 )

Recorded (loss) gain on mortgage banking derivative liabilities $ ( 642 ) $ ( 15,863 ) $ 246

8 unchanged sentences

Federal and state tax receivables, net 3,640 1,101

Software 1,035 1,263

Artwork 944 944

2 unchanged sentences

Total prepaid expenses and other assets $ 134,321 $ 124,790

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 .

For additional information regarding our right-of-use asset on leased property , see Note 25 - Lease Commitments .

NOTE 10 - Deposits

39 unchanged sentences

Variable rate line-of-credit advance $ 389,468 5.55 % N/A $ 643,885 4.48 % N/A

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

$ 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.

The advances were collateralized by $ 1,674,096 and $ 1,630,939 of loans pledged to the FHLB as of December 31, 2023 and 2022, respectively.

All FHLB advances as of December 31, 2023 consisted of overnight borrowings with a maturity of January 1, 2024.

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.

As of December 31, 2023 and 2022, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of $ 1,192,022 and $ 1,139,356 , respectively.

Our additional borrowing availability with the FHLB at December 31, 2023 was $ 706,367 .

8 unchanged sentences

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.

On August 31, 2023, the convertible notes of $ 5,456 matured and were repaid in full.

As of December 31, 2022, we had outstanding convertible notes of $ 5,456 .

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

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

The conversion feature was not exercised at maturity.

Accretion expense for the years ended December 31, 2023, 2022 and 2021 was $ 101 , $ 1,131 and $ 746 , respectively.

Subordinated Debt :

19 unchanged sentences

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 .

As of and for the years ended December 31, 2023 and 2022 the amortization associated with the debt issuance costs totaled $ 54 and $ 51 , respectively.

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

4 unchanged sentences

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.

Interest is payable quarterly at a rate of three-month LIBOR (which was amended to three-month term SOFR as of June 30, 2023) plus 3.35 % ( 8.94 % and 7.02 % as of December 31, 2023 and 2022, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month LIBOR(which was amended to three-month SOFR as of June 30, 2023) plus 2.00 % ( 7.64 % and 6.69 % as of December 31, 2023 and 2022, respectively) for the trust preferred securities issued through NMBCT II.

This subordinated debt of $ 13,919 was originally recorded at a discount of $ 4,293 .

18 unchanged sentences

MPF servicing principal and interest payable 522 885

Lease terminations — 458

Deferred rent — 3,170

Other 14,927 15,884

Total accrued expenses and other liabilities $ 125,370 $ 124,085

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

For additional information regarding our lease liability, 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.

17 unchanged sentences

Diluted earnings per common share $ 4.08 $ 2.48 $ 2.30

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.

There were no antidilutive securities for the year ended December 31, 2023.

Convertible notes payable for 85,500 shares of common stock and stock-based awards for 1,699 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 year ended December 31, 2021 because they were antidilutive.

NOTE 15 - Accumulated Other Comprehensive Income

3 unchanged sentences

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

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

Unrealized loss 1,002 ( 63,302 ) ( 9,870 )

Income tax effect ( 244 ) 15,481 2,415

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

Net unrealized loss 758 ( 47,821 ) ( 7,455 )

Reclassifications out of AOCI (1) — — —

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

Other comprehensive loss, net of tax 758 ( 47,821 ) ( 7,455 )

Balance, end of year $ ( 45,399 ) $ ( 46,157 ) $ 1,664

19 unchanged sentences

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.

During 2023 and 2022, the Bank paid dividends totaling $ 26,000 and $ 8,000 , respectively, to the Parent Company.

During 2023 and 2022, Logia paid dividends totaling $ 595 and $ 700 , respectively, to the Parent Company.

The Bank and Logia did not declare or pay any dividends in 2021.

The Parent Company did not declare or pay any dividend in 2023, 2022 or 2021.

Equity Incentive Plans :

2017 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.

The 2017 Equity Incentive 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.

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.

4 unchanged sentences

Treasury yield curve in effect at the date of grant.

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

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

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,:

The following table presents stock options outstanding as of and for the years ended December 31,:

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

1 unchanged sentence

Exercised ( 62,915 ) 19.72

Forfeited — —

Outstanding, end of period 1,245,000 $ 20.25 4.29

2 unchanged sentences

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

Granted 26,336 32.54

Forfeited ( 42,376 ) 20.33

Exercised ( 104,985 ) 19.72

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

1 unchanged sentence

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

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, 2023, there was $ 136 of total unrecognized compensation cost related to non-vested stock options.

The unrecognized compensation cost at December 31, 2023 is expected to be recognized over the following two years .

At December 31, 2023 and 2022, the intrinsic value of the stock options was $ 16,392 and $ 21,216 , 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 .

2021 Equity Incentive Plan

The FirstSun Capital Bancorp 2021 Equity Incentive 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.

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

In May 2022, we issued 11,344 shares of restricted stock that were fully vested in May 2023.

In May 2023, we issued 15,007 shares of restricted stock that will fully vest in May 2024.

At December 31, 2023, there was $ 135 of total unrecognized compensation cost related to the non-vested restricted stock.

1 unchanged sentence

At December 31, 2023, we determined it is probable that 97,694 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.

At December 31, 2023, there was $ 2,052 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

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, 2023, we determined it is probable that 59,099 shares will be issued based upon the probability that the performance conditions will be achieved.

At December 31, 2023, there was $ 879 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

For the years ended December 31, 2023, 2022 and 2021, we recorded total compensation cost from the 2017 and 2021 Plans of $ 2,127 , $ 1,448 and $ 2,998 , respectively.

Acquired Equity Incentive Plans

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

1 unchanged sentence

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:

The following table presents option activity:

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

December 31, 2022

Outstanding, beginning of period — $ —

beginning of period 170,711 $ 23.19

Exercised ( 40,719 ) 23.88

Forfeited ( 8,091 ) 18.76

Outstanding, vested, and exercisable, end of period 121,901 $ 23.26 3.87

beginning of period — $ —

Options assumed from Pioneer Bancshares, Inc.

3 unchanged sentences

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 .

At December 31, 2023 and 2022, the intrinsic value of the stock options was $ 1,239 and $ 2,263 , respectively.

NOTE 17 - Income Taxes

21 unchanged sentences

Federal and state net operating loss $ 22,852 $ 25,118

Allowance for loan losses 15,537 11,207

Allowance for credit losses 18,950 15,537

Unrealized loss on securities 13,920 14,235

7 unchanged sentences

Other real estate owned and foreclosed assets — 7

State tax credits — 48

Other 5,437 4,559

7 unchanged sentences

FHLB stock 144 196

Unrealized gain on securities — 541

Other 193 209

Total deferred tax liabilities 24,385 24,227

4 unchanged sentences

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.

Such an annual limitation could result in the expiration of the net operating loss carryforwards before utilization.

We believe that all of the net operating loss carryforwards will be used prior to expiration.

85 unchanged sentences

Fees paid to directors of the Company and the Bank for the year ended December 31, 2023, 2022 and 2021 totaled $ 535 , $ 488 and $ 310 , respectively.

Principal Officers :

On November 8, 2023, FirstSun acquired all membership interests of FEIF Capital Partners, LLC, a Delaware limited liability company (“FEIF”) from our chief executive officer for $ 150 and assumed liabilities of $ 11 .

FEIF currently has no operations.

FEIF owns FEIF GP, LLC, a limited liability company with no assets.

These entities will provide investment management services and are related to a future business activity of the Company.

NOTE 21 - Fair Value Measurements

18 unchanged sentences

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.

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

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

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

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

2 unchanged sentences

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:

The following table sets forth our assets and liabilities measured at fair value on a recurring basis as of December 31,:

Level 1 Level 2 Level 3

2 unchanged sentences

inputs Significant

As of December 31, 2022

Available-for-sale securities $ 54,234 $ 462,523 $ — $ 516,757

4 unchanged sentences

Total $ 54,234 $ 531,310 $ 76,701 $ 662,245

As of December 31, 2021

Available-for-sale securities $ 56,649 $ 480,324 $ — $ 536,973

8 unchanged sentences

Balance, beginning of year $ 74,097 $ 47,392 $ 29,144

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

Total (losses) gains included in earnings ( 6,649 ) 12,418 ( 5,606 )

Purchases, issuances, sales and settlements:

4 unchanged sentences

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.

Collateral dependent 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.

1 unchanged sentence

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.

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

If these allocations cause the allowance for loan loss to require an increase, such increase is reported as a component of the provision for credit losses.

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

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

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.

4 unchanged sentences

The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of December 31,:

Impaired loans:

Commercial $ 5,229 $ 961

Collateral dependent loans:

Commercial and industrial $ 2,756 $ 5,229

Commercial real estate — 607

Residential real estate 1,448 802

Total impaired loans $ 6,641 $ 1,656

Other 2,289 —

Total collateral dependent loans $ 6,493 $ 6,641

Other real estate owned and foreclosed assets, net:

10 unchanged sentences

Securities held-to-maturity 36,983 32,181 — 32,181 —

Loans (excluding impaired loans) 5,871,274 5,756,197 — — 5,756,197

Loans (excluding collateral dependent loans at fair value) 6,260,603 6,121,749 — — 6,121,749

Restricted equity securities 38,072 38,072 — 38,072 —

3 unchanged sentences

FHLB advances 389,468 389,468 — 389,468 —

Convertible notes payable, net 5,355 5,329 — 5,329 —

Subordinated debt, net 75,313 72,073 — 72,073 —

40 unchanged sentences

Total expenses 9,165 9,888 8,357

Loss before income taxes and undistributed earnings from subsidiaries ( 1,166 ) ( 8,301 ) ( 4,619 )

Income (loss) before income taxes and undistributed earnings from subsidiaries 17,466 ( 1,166 ) ( 8,301 )

Equity in undistributed earnings from subsidiaries 83,837 58,047 49,729

2 unchanged sentences

Net income $ 103,533 $ 59,182 $ 43,164

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

Other comprehensive income (loss), net 976 ( 45,647 ) ( 7,455 )

Comprehensive income $ 104,509 $ 13,535 $ 35,709

13 unchanged sentences

Payments for investments in and advances to subsidiaries — 125 500

Cash paid to acquire FEIF Capital Partners, LLC (for further information, see Note 20 - Transactions with Related Parties )

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

Contributions to subsidiaries ( 210 ) — —

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

Net cash (used in) provided by investing activities ( 360 ) ( 4,015 ) 500

Cash flows from financing activities:

Repayments of convertible notes payable ( 5,456 ) ( 15,217 ) —

Repayments of other borrowings — — ( 6,000 )

Proceeds from subordinated debt — 24,466 —

Proceeds from issuance of common stock, net of issuance costs ( 167 ) ( 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 cash (used in) provided by financing activities ( 5,623 ) 8,671 ( 66 )

Net increase (decrease) in cash and cash equivalents 16,738 6,171 ( 5,807 )

13 unchanged sentences

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.

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.

5 unchanged sentences

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.

Revenues are comprised of net interest income before the provision (benefit) for credit losses and noninterest income.

Noninterest expenses are allocated to each operating segment.

Provision for loan losses is primarily allocated to the Banking segment.

Provision for credit 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.

2 unchanged sentences

Summary of Operations

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

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

Net interest income (expense) $ 292,573 $ 5,871 $ ( 5,013 ) $ 293,431

Provision for credit losses 15,790 2,457 — 18,247

Noninterest income:

2 unchanged sentences

Trust and investment advisory fees 5,693 — — 5,693

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

(Loss) income from mortgage banking services, net ( 1,676 ) 33,060 — 31,384

Other noninterest income 8,670 — — 8,670

11 unchanged sentences

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

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

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

Noninterest income:

2 unchanged sentences

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

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

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

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

12 unchanged sentences

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

Provision for loan losses 23,329 ( 229 ) — 23,100

Provision (benefit) for credit losses 3,235 ( 235 ) — 3,000

Noninterest income:

24 unchanged sentences

As of December 31, 2023 and 2022, commitments included the funding of fixed-rate loans totaling $ 191,415 and $ 218,309 and variable-rate loans totaling $ 1,656,434 and $ 1,727,246 , 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.

The fixed-rate loan commitments have interest rates ranging from 1.00 % to 18.00 % at December 31, 2023 and 2022, respectively, and maturities ranging from 1 month to 19 years at December 31, 2023 and from 1 month to 15 years at December 31, 2022.

Standby letters of credit :

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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, 2023 and 2022, 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.

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

The amended complaint alleges that the Bank improperly charged

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

The 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.

The amended complaint alleges that the Bank improperly charged multiple insufficient funds or overdraft fees.

The Plaintiff seeks unspecified restitution, actual and statutory damages, costs,

attorneys’ fees, pre-judgment interest, and other relief as the Court deems proper.

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.

Check Fraud Litigation

Rodeo Electrical Services, Inc.

and its owner (“RESI”) filed a civil action against the Bank on June 23, 2020 in the Santa Fe County, New Mexico District Court.

The complaint alleged that the Bank conspired with or otherwise aided a former RESI employee’s embezzlement of approximately $ 0.4 million from RESI.

The complaint sought compensatory, exemplary, statutory and punitive damages, as well as payment of RESI’s legal fees and expenses.

On January 18, 2024, the jury awarded RESI approximately $ 2.1 million which included punitive damages.

Final judgment, which could potentially include a supplemental award of RESI’s legal fees and expenses, has not been rendered by the Court.

We believe the judgment will be covered by insurance;

therefore, such outcome will not have a material financial impact on the Bank.

We establish reserves for contingencies, including legal proceedings, when potential losses become probable and can be reasonably estimated.

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ROU asset, net ( Note 9 )

$ 24,227 $ 28,404

Lease liability ( Note 13 )

$ 26,431 $ 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, 2023:

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Weighted Average Rate - Operating Leases 2.10 %

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:

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

Operating leases $ 7,683 $ 7,145

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Net lease expense $ 7,670 $ 7,311

Total lease expense for the year ended December 31, 2021 was $ 6,623 .

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.

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

On 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.

Proposed Merger with HomeStreet

On January 16, 2024, FirstSun entered into an Agreement and Plan of Merger, that provides for the combination of FirstSun and HomeStreet.

Under the merger agreement, a newly formed wholly-owned subsidiary of FirstSun, will merge with and into HomeStreet, with HomeStreet remaining as the surviving entity and becoming a wholly-owned subsidiary of FirstSun, with FirstSun as the surviving entity, in a transaction we refer to as the “first step merger.” This surviving entity, immediately following the first step merger and as part of a single integrated transaction, will merge with and into FirstSun, in a transaction we refer to as the “second step merger.” Immediately following the completion of the second step merger, HomeStreet Bank will merge with and into Sunflower Bank.

Upon the terms and subject to the conditions set forth in the merger agreement, at the effective time of the merger, each share of common stock of HomeStreet issued and outstanding immediately prior to the merger effective time, subject to certain exceptions, will be converted into the right to receive 0.4345 of a share of FirstSun common stock.

Holders of such HomeStreet common stock, subject to certain exceptions, will also be entitled to receive cash in lieu of fractional shares of FirstSun common stock.

Consummation of the proposed HomeStreet merger is subject to the satisfaction of customary closing conditions including receipt of necessary HomeStreet shareholder and regulatory approvals.

The merger agreement provides certain termination rights for both FirstSun and HomeStreet and further provides that a termination fee will be payable by either FirstSun or HomeStreet, as applicable, upon termination of the merger agreement under certain circumstances.

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

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.

Investment Agreements

Upfront Securities Purchase Agreement

Concurrently with entry into the merger agreement, FirstSun entered into an upfront securities purchase agreement (the “Upfront Securities Purchase Agreement”) with certain funds managed by Wellington Management Company, LLP (collectively, the “Wellington Funds”), pursuant to which we issued 2,461,538 shares of our common stock in a private placement for $ 80.0 million that closed on January 17, 2024.

Under the terms of the Upfront Securities Purchase Agreement, FirstSun is also obligated, concurrently with the closing of the proposed HomeStreet merger, to issue to the Wellington Funds, warrants (the “Warrants”) to purchase approximately 1.15 million shares of FirstSun common stock with such Warrants having an initial exercise price of $ 32.50 per share.

The Warrants will carry a term of three years .

In the event the proposed HomeStreet merger is not consummated, no Warrants will be issued.

Acquisition Finance Securities Purchase Agreement

Concurrently with its entry into the HomeStreet merger agreement, FirstSun entered into an acquisition finance securities purchase agreement (the “Acquisition Finance Securities Purchase Agreement,” and together with the Upfront Securities Purchase Agreement, as the “Investment Agreements”), dated January 16, 2024, with the Wellington Funds and certain other institutional investors (who we refer to as “additional institutional investors” and, collectively with the Wellington Funds, as the “institutional investors”).

Pursuant to the Acquisition Finance Securities Purchase Agreement, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the merger, the institutional investors will invest an aggregate of $ 95 million in exchange for the sale and issuance, at a purchase price of $ 32.50 per share, of approximately 2.92 million shares of FirstSun common stock.

Registration Rights Agreements

In connection with the Upfront Securities Purchase Agreement, FirstSun and the Wellington Funds also entered into a registration rights agreement (the “Upfront Registration Rights Agreement”), dated January 16, 2024, pursuant to which FirstSun agreed to, among other things, provide customary resale registration rights with respect to the shares of our common stock obtained by the Wellington Funds pursuant to the Investment Agreements, including those issued upon exercise of the Warrants.

the Acquisition Finance Securities Purchase Agreement contemplates that, in connection with the closing of the investments under the Acquisition Finance Securities Purchase Agreement, FirstSun will enter into a resale registration rights agreement with each additional institutional investor (the “Acquisition Finance Registration Rights Agreement”), the material terms and conditions of which are consistent with the terms and conditions of the Upfront Registration Rights Agreement.

Charter Amendment

In connection with the proposed merger, the holders of a majority of the voting power of FirstSun common stock e xecuted a written consent approving and adopting an amendment to our certificate of incorporation (the “Charter Amendment”) which will increase the number of FirstSun’s authorized shares of capital stock from 60,000,000 to 110,000,000 , consisting of 100,000,000 shares of FirstSun common stock, and 10,000,000 shares of preferred stock and will become effective upon FirstSun’s filing the Charter Amendment with the Secretary of State of the State of Delaware.

We plan to file the Charter Amendment prior to the closing of the proposed merger.

Changes in and Disagreements With Accountants on Accounting and Financial Disclosures

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data