FIRSTSUN CAPITAL BANCORP 10-K

Item 8. Financial Statements Index to Consolidated Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 173 ) 85 Consolidated Balance Sheets 86 Consolidated Statements of Income and Comprehensive Income 87 Consolidated Statements of Stockholders' Equity 88 Consolidated Statements of Cash Flows 89 Notes to Consolidated Financial Statements 91 Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies 91 Note 2 - Merger with Pioneer Bancshares, Inc. 103 Note 3 - Securities 105 Note 4 - Loans 108 Note 5 - Mortgage Servicing Rights 117 Note 6 - Premises and Equipment 118 Note 7 - Core Deposits and Other Intangible Assets 118 Note 8 - Derivative Financial Instruments 119 Note 9 - Prepaid Expenses and Other Assets 121 Note 10 - Deposits 122 Note 11 - Securities Sold Under Agreements to Repurchase 123 Note 12 - Debt 123 Note 13 - Accrued Expenses and Other Liabilities 125 Note 14 - Earnings Per Share 126 Note 15 - Accumulated Other Comprehensive Income 126 Note 16 - Stockholders' Equity 127 Note 17 - Income Taxes 130 Note 18 - Other Noninterest Expenses 132 Note 19 - Regulatory Capital Matters 132 Note 20 - Transactions with Related Parties 134 Note 21 - Fair Value Measurements 134 Note 22 - Parent Company Only Condensed Financial Information 138 Note 23 - Segment Information 140 Note 24 - Commitments and Contingencies 144 Note 25 - Leases 146 Note 26 - Revenue from Contracts with Customers 147 Note 27 - Subsequent Events 148 84 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Stockholders and the Board of Directors of FirstSun Capital Bancorp and Subsidiaries Denver, Colorado Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of FirstSun Capital Bancorp and Subsidiaries (the "Company") as of December 31, 2023 and 2022, the related consolidated statements of income and comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period ended December 31, 2023, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 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 These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Crowe LLP Crowe LLP We have served as the Company's auditor since 2014. Dallas, Texas March 7, 2024 85 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Balance Sheets As of December 31, (In thousands, except par and share amounts) 2023 2022 Assets Cash and cash equivalents $ 479,362 $ 343,526 Securities available-for-sale, at fair value 516,757 536,973 Securities held-to-maturity, fair value of $ 32,181 and $ 33,218 , respectively 36,983 38,901 Loans held-for-sale, at fair value 54,212 57,323 Loans, net of allowance for credit losses of $ 80,398 and $ 65,917 , respectively 6,186,698 5,845,915 Mortgage servicing rights, at fair value 76,701 74,097 Premises and equipment, net 84,842 88,114 Other real estate owned and foreclosed assets, net 4,100 6,358 Bank-owned life insurance 79,851 77,923 Restricted equity securities 38,072 50,215 Goodwill 93,483 93,483 Core deposits and other intangible assets, net 10,984 15,806 Accrued interest receivable 37,099 28,543 Deferred tax assets, net 46,259 48,355 Prepaid expenses and other assets 134,321 124,790 Total assets $ 7,879,724 $ 7,430,322 Liabilities and Stockholders’ Equity Liabilities: Deposits: Noninterest-bearing accounts $ 1,530,506 $ 1,820,490 Interest-bearing accounts 4,843,597 3,944,572 Total deposits 6,374,103 5,765,062 Securities sold under agreements to repurchase 24,693 36,721 Federal Home Loan Bank advances 389,468 643,885 Convertible notes payable, net — 5,355 Subordinated debt, net 75,313 74,880 Accrued interest payable 13,580 5,798 Accrued expenses and other liabilities 125,370 124,085 Total liabilities 7,002,527 6,655,786 Commitments and contingencies ( Note 24 ) Stockholders’ equity: Preferred stock, $ 0.0001 par value, 10,000,000 shares authorized, none issued or outstanding, respectively — — Common stock, $ 0.0001 par value; 50,000,000 shares authorized; 24,960,639 and 24,920,984 shares issued; 24,960,639 and 24,920,984 shares outstanding, respectively 2 2 Additional paid-in capital 462,680 460,720 Retained earnings 457,522 357,797 Accumulated other comprehensive loss, net ( 43,007 ) ( 43,983 ) Total stockholders’ equity 877,197 774,536 Total liabilities and stockholders’ equity $ 7,879,724 $ 7,430,322 The accompanying notes are an integral part of these consolidated financial statements. 86 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Income and Comprehensive Income For the years ended December 31, (In thousands, except per share amounts) 2023 2022 2021 Interest income: Interest and fee income on loans: Taxable $ 366,523 $ 228,967 $ 137,669 Tax exempt 19,114 19,021 21,634 Interest and dividend income on securities: Taxable 17,014 13,176 7,964 Tax exempt 18 9 15 Other interest income 11,015 5,644 2,072 Total interest income 413,684 266,817 169,354 Interest expense: Interest expense on deposits 101,355 13,154 8,544 Interest expense on securities sold under agreements to repurchase 225 119 59 Interest expense on other borrowed funds 18,673 11,912 5,518 Total interest expense 120,253 25,185 14,121 Net interest income 293,431 241,632 155,233 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: Service charges on deposit accounts 21,345 18,211 12,504 Credit and debit card fees 12,000 11,511 9,596 Trust and investment advisory fees 5,693 6,806 7,795 Income from mortgage banking services, net 31,384 46,285 86,410 (Loss) gain on other real estate owned and foreclosed assets activity, net ( 106 ) 164 766 Other noninterest income 8,776 6,589 7,173 Total noninterest income 79,092 89,566 124,244 Noninterest expense: Salary and employee benefits 133,231 134,359 151,926 Occupancy and equipment 33,426 31,344 27,628 Amortization of intangible assets 4,822 4,215 1,417 Merger related expenses — 18,751 3,085 Other noninterest expenses 51,314 50,457 40,579 Total noninterest expense 222,793 239,126 224,635 Income before income taxes 131,483 74,022 51,842 Provision for income taxes 27,950 14,840 8,678 Net income $ 103,533 $ 59,182 $ 43,164 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 income (loss), net of tax 976 ( 45,647 ) ( 7,455 ) Comprehensive income $ 104,509 $ 13,535 $ 35,709 Earnings per share: Net income available to common stockholders $ 103,533 $ 59,182 $ 43,164 Basic $ 4.15 $ 2.55 $ 2.36 Diluted $ 4.08 $ 2.48 $ 2.30 The accompanying notes are an integral part of these consolidated financial statements. 87 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Stockholders’ Equity For the years ended December 31, (in thousands, except share amounts) Issued shares of common stock Common stock Additional paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income (loss) Total stockholders’ equity Balance as of January 1, 2021 19,878,713 $ 2 $ 259,363 $ ( 38,148 ) $ 255,451 $ 9,119 $ 485,787 Issuance of common stock on restricted stock grants 24,629 — 812 — — — 812 Share-based compensation, net of forfeitures — — 1,730 — — — 1,730 Net income — — — — 43,164 — 43,164 Other comprehensive income — — — — — ( 7,455 ) ( 7,455 ) Balance as of December 31, 2021 19,903,342 $ 2 $ 261,905 $ ( 38,148 ) $ 298,615 $ 1,664 $ 524,038 Merger with Pioneer Bancshares, Inc. (Issuance of treasury stock ( 1,557,054 shares) 4,910,412 — 197,946 38,148 — — 236,094 Issuance of common stock on restricted stock grants 11,344 — 270 — — — 270 Stock option exercises 95,886 — ( 579 ) — — — ( 579 ) Share-based compensation, net of forfeitures — — 1,178 — — — 1,178 Net income — — — — 59,182 — 59,182 Other comprehensive loss — — — — — ( 45,647 ) ( 45,647 ) Balance as of December 31, 2022 24,920,984 $ 2 $ 460,720 $ — $ 357,797 $ ( 43,983 ) $ 774,536 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 Stock option exercises 24,648 — ( 167 ) — — — ( 167 ) Share-based compensation, net of forfeitures — — 1,756 — — — 1,756 Net income — — — — 103,533 — 103,533 Other comprehensive income — — — — — 976 976 Balance as of December 31, 2023 24,960,639 $ 2 $ 462,680 $ — $ 457,522 $ ( 43,007 ) $ 877,197 The accompanying notes are an integral part of these consolidated financial statements. 88 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Cash Flows For the year ended December 31, (In thousands) 2023 2022 2021 Cash flows from operating activities: Net income $ 103,533 $ 59,182 $ 43,164 Adjustments to reconcile income to net cash provided by operating activities: 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 Amortization of net premium on securities 1,004 2,076 3,399 Accretion of net discount on acquired loans ( 3,204 ) ( 1,308 ) ( 1,142 ) 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 Amortization of premium on acquired deposits ( 966 ) ( 1,052 ) ( 45 ) Accretion of discount on subordinated debt 286 254 256 Amortization of issuance costs on subordinated debt 147 145 93 Accretion of discount on convertible notes payable 101 1,131 746 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 ) Impairment of premises and equipment — 720 — Impairment of other real estate owned and foreclosed assets 286 94 217 Federal Home Loan Bank stock dividends ( 1,560 ) ( 712 ) ( 407 ) Share-based compensation expense 2,127 1,448 2,998 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 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 ) Origination of loans held-for-sale ( 791,017 ) ( 1,090,759 ) ( 2,165,255 ) Proceeds from sales of loans held-for-sale 788,367 1,137,793 2,292,828 Changes in operating assets and liabilities: Lease right-of-use assets ( 660 ) 3,282 — Accrued interest receivable ( 8,556 ) ( 9,835 ) 655 Prepaid expenses and other assets ( 11,397 ) ( 22,992 ) ( 6,769 ) Accrued interest payable 7,782 3,022 ( 223 ) Accrued expenses and other liabilities 5,124 ( 293 ) ( 15,646 ) Net cash provided by operating activities $ 125,176 $ 96,915 $ 113,109 The accompanying notes are an integral part of these consolidated financial statements. 89 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Consolidated Statements of Cash Flows (continued) For the years ended December 31, (In thousands) 2023 2022 2021 Cash flows from operating activities: (previous page) $ 125,176 $ 96,915 $ 113,109 Cash flows from investing activities: Cash acquired in excess of cash paid in connection with Pioneer Merger — 444,542 — Purchases of held-to-maturity securities — ( 335 ) — Proceeds from maturities of held-to-maturity securities 2,007 3,626 13,835 Purchases of available-for-sale securities ( 21,555 ) ( 66,606 ) ( 248,736 ) Proceeds from sale or maturities of available-for-sale securities 41,669 170,410 131,899 Loan originations, net of repayments ( 362,778 ) ( 1,064,293 ) ( 215,281 ) Proceeds from the sale of loans held-for-sale previously classified as held-for-investment — — 18,544 Purchases of premises and equipment ( 4,268 ) ( 2,196 ) ( 3,455 ) Proceeds from the sale of premises and equipment — 2 5 Proceeds from sales of other real estate owned and foreclosed assets 5,952 867 2,089 Purchases of restricted equity securities ( 51,076 ) ( 39,785 ) ( 57 ) Proceeds from the sale or redemption of restricted equity securities 64,779 15,842 7,400 Purchase of other investments ( 2,677 ) ( 939 ) ( 686 ) Proceeds from the sale or redemption of other investments 668 745 519 Net cash used in investing activities ( 327,279 ) ( 538,120 ) ( 293,924 ) Cash flows from financing activities: Net change in deposits 610,007 ( 280,914 ) 701,444 Net change in securities sold under agreements to repurchase ( 12,028 ) ( 55,372 ) ( 23,278 ) Proceeds from Federal Home Loan Bank advances 2,041,468 760,885 — Repayments of Federal Home Loan Bank advances ( 2,295,885 ) ( 317,000 ) ( 30,411 ) Proceeds from subordinated debt, net — 24,466 — Proceeds from issuance of common stock, net of issuance costs ( 167 ) ( 579 ) ( 456 ) Repayments of convertible notes payable ( 5,456 ) ( 15,217 ) — Net cash provided by financing activities 337,939 116,269 647,299 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 Cash and cash equivalents, end of period $ 479,362 $ 343,526 $ 668,462 Supplemental disclosures of cash flow information: Interest paid on deposits $ 92,085 $ 12,040 $ 8,753 Interest paid on borrowed funds $ 20,459 $ 14,118 $ 5,667 Cash paid for income taxes, net $ 28,459 $ 6,183 $ 6,601 Non-cash investing and financing activities: Assets acquired from merger with Pioneer Bancshares, Inc. $ — $ 1,085,506 $ — Liabilities assumed from merger with Pioneer Bancshares, Inc. $ — $ 1,354,387 $ — Right-of-use lease assets obtained in exchange for lessee operating lease liabilities $ 2,696 $ 35,212 $ — 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 Premises and equipment transferred to other real estate owned and foreclosed assets $ — $ 338 $ 1,038 Loans transferred to other real estate owned and foreclosed assets $ 4,086 $ 1,331 $ 2,577 Mortgage servicing rights resulting from sale or securitization of mortgage loans $ 9,253 $ 14,287 $ 23,854 The accompanying notes are an integral part of these consolidated financial statements. 90 Table of Contents FIRSTSUN CAPITAL BANCORP and Subsidiaries Notes to Consolidated Financial Statements ($ in thousands, except share and per share amounts) NOTE 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies a. Principles of Consolidation - The consolidated financial statements include the accounts of FirstSun Capital Bancorp (“FirstSun” or “Parent Company”) and its wholly-owned subsidiaries, Sunflower Bank, N.A. (the “Bank”), Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC, and have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) and prevailing practices in the banking industry. All significant intercompany balances and transactions have been eliminated. These entities are collectively referred to as “our”, “us”, “we”, or “the Company”. b. Nature of Operations - The Bank’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. Its primary wealth management and trust products are personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. Its primary lending products are residential mortgage, commercial and consumer loans. Substantially all loans are secured by specific items of collateral, including business assets, consumer assets, and commercial and residential real estate. Commercial and industrial loans are generally expected to be repaid from the borrower’s cash flow from operations. c. Business Combinations - On April 1, 2022, FirstSun completed its merger with Pioneer Bancshares, Inc. (“Pioneer”). Pursuant to the terms of the merger agreement, at the Effective Time, each Pioneer shareholder had the right to receive 1.0443 shares of FirstSun common stock, for each share of Pioneer common stock owned by the shareholder, with cash paid in lieu of fractional shares. Each outstanding share of FirstSun common stock remained outstanding and was unaffected by the merger. Further information is presented in Note 2 - Merger with Pioneer Bancshares, Inc . 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 . d. Subsequent Events - We evaluate events occurring subsequent to the balance sheet date to determine whether the events required recognition or disclosure in the financial statements. If conditions of a subsequent event existed as of the balance sheet date, depending on materiality, the effects may be required to be recognized and disclosed in the financial statements. If conditions of a subsequent event arose after the balance sheet date, the effects are not required to be recognized in the financial statements, but depending on materiality, may need to be disclosed in the financial statements. e. Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. These estimates are based on historical experience and on various assumptions about the future that are believed to be reasonable based on all available information. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to critical 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. 91 Table of Contents f. 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. These financial evaluations require significant judgment and are based on a variety of factors including, but not limited to, current economic trends, historical payment patterns, cash flow needs and deposit balances (particularly in light of recent developments in the banking industry) and bad debt write-off experience. Declines in the local or statewide economies could have an adverse impact on our borrowers’ financial condition. Specifically, inflation and higher interest rates, along with monetary events, can cause some of our business customers who have greater operating cash needs to draw on their deposits with us to meet expenses. Adverse developments affecting real estate values in one or more of our markets could increase our credit risk associated with our loan portfolio. Additionally, if loans are not repaid according to their terms, the collateral securing the loans, in those cases where real estate serves as the primary collateral, may not have value equal to the amounts owed under the loan. We did not exceed regulatory concentration monitoring levels as of December 31, 2023 or 2022. g. Reclassifications - Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior years net income or stockholders’ equity. h. 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. 92 Table of Contents 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. i. Fair Value Measurement - Fair value is determined in accordance with Accounting Standards Codification (ASC) Topic 820, Fair Value Measurement . ASC Topic 820 establishes a fair value hierarchy which requires the use of observable inputs and minimizes the use of unobservable inputs when measuring fair value. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 describes three levels of inputs that may be used to measure fair value: Level 1 : Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 : Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. Level 3 : Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own beliefs about the assumptions that market participants would use in pricing the assets or liabilities. j. Cash and Cash Equivalents - Cash and cash equivalents include cash, cash items in process of collection, deposits with other financial institutions and federal funds sold. For purposes of the consolidated statements of cash flows, we consider all federal funds sold and interest-bearing deposits at other financial institutions to be cash and cash equivalents, all with original maturities of less than 90 days. Cash held at depository institutions at times may be in excess of the Federal Deposit Insurance Corporation (FDIC) insurance limit. Cash deposits are with financial institutions that we believe to be reputable and we do not anticipate realizing any losses from these cash deposits. As of December 31, 2023 and 2022, we have complied with all regulatory cash reserve and clearing requirements. Cash and cash equivalents were as follows as of December 31,: 2023 2022 Federal Reserve Bank $ 437,855 $ 247,015 Federal Home Loan Bank 1,173 1,335 Other 10,870 8,799 Total cash due from depository institutions 449,898 257,149 Cash on hand and noninterest-bearing accounts 29,464 86,377 Total cash and cash equivalents $ 479,362 $ 343,526 k. Securities - The Bank classifies debt securities as either available-for-sale or held-to-maturity. Held-to-maturity securities are those which the Bank has the positive intent and ability to hold to maturity. All other debt securities are classified as available-for-sale. Held-to-maturity securities are recorded at amortized cost. Available-for-sale securities are recorded at fair value. Unrealized holding gains and losses on available-for-sale securities are excluded from earnings and are reported as a separate component of stockholders’ equity (accumulated other comprehensive income/loss) until realized. Realized gains and losses on securities classified as available-for-sale are included in earnings and recorded on trade date. The specific identification method is used to determine the cost of the securities sold. Purchased premiums and discounts on debt securities are amortized 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 93 Table of Contents 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. Equity securities without readily determinable fair values are carried at cost, minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment. Equity securities are included as a component of “prepaid expenses and other assets” in our consolidated balance sheets. l. Loans Held-for-sale - Mortgage loans originated and intended for sale in the secondary market are classified as loans held-for-sale and recorded at fair value. Most of these loans are sold with servicing rights retained. The changes in fair value of loans held-for-sale are measured and recorded in income from mortgage banking services. Loan origination fees are recorded in the period of origination. m. 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 credit 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 interest 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 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 94 Table of Contents 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. Past due status is based on the contractual terms of the loan. In all cases, loans are placed on nonaccrual or charged-off at an earlier date if collection of principal or interest in full is considered doubtful. Nonaccrual loans and loans past due 90 days still on accrual include both smaller homogenous loans that are collectively evaluated for impairment and individually classified impaired loans. When discontinued, all unpaid interest is reversed. Interest is included in income after the date the loan is placed on nonaccrual status only after all principal has been paid or when the loan is returned to accrual status. The loan is returned to accrual status only when the borrower has brought all past-due principal and interest payments current and, in the opinion of management, has demonstrated the ability to make future payments of principal and interest as scheduled. Acquired Loans – 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. n. 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, 95 Table of Contents 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. Collateral is often represented by liens on accounts receivable, inventory, equipment, and other forms of general non-real estate business assets. The Bank often obtains some form of credit enhancement through a personal guaranty of the borrower, principals and/or others. The global cash flow capability of commercial 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 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. 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. 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. 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 96 Table of Contents 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. o. Mortgage Servicing Rights (MSRs) - MSRs arise from contractual agreements between us and investors in mortgage loans. Pursuant to ASC Topic 860-50, Servicing Assets and Liabilities , we record MSR assets when we sell loans on a servicing-retained basis, at the time of a securitization that qualifies and meets requirements for sale accounting or through the acquisition or assumption of the right to service a financial asset. Under these contracts, we perform loan servicing functions in exchange for fees and other remuneration. Our MSRs are initially recorded and subsequently measured at fair value. The fair value of the MSRs is based upon the present value of the expected future net cash flows related to servicing these loans. We receive a base servicing fee, generally ranging from 0.25 % to 0.50 % annually on the remaining outstanding principal balances of the loans. The servicing fees are collected from investors. We determine the fair value of the MSRs by the use of a discounted cash flow model that incorporates prepayment speeds, delinquencies, discount rate, ancillary revenues and other assumptions (including costs to service) that management believes are consistent with the assumptions other market participants use in valuing MSRs. The nature of the loans underlying the MSRs affects the assumptions used in the cash flow models. We obtain third-party valuations quarterly to assess the reasonableness of the fair value calculated by the cash flow model. Changes in the fair value of MSRs are charged or credited to income from mortgage banking services, net . As a part of our mortgage servicing responsibilities, we advance funds when the borrower fails to meet contractual payments (e.g. principal, interest, property taxes, and insurance). We also advance funds to maintain, report, and market foreclosed real estate properties on behalf of investors. These advances are collectively known as servicer related advances. Such advances are recovered from borrowers for reinstated and performing loans and from investors for foreclosed loans. We record 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. p. Premises and Equipment - Land is carried at cost. 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. Major betterments are considered individually and are capitalized or expensed depending on facts and circumstances. q. Other Real Estate Owned and Foreclosed Assets - Assets acquired through, or in lieu of, foreclosure or repossession or otherwise are being held for disposal or to be sold are adjusted upon transfer to fair value less estimated costs to sell, establishing a new cost basis. Physical possession of residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Subsequent to foreclosure/repossession, management periodically performs valuations, and an allowance for losses is established by a charge against earnings if the carrying value of a property exceeds the fair value less estimated costs to sell. Revenue and expenses from 97 Table of Contents operation and changes in the valuation allowance are included in other noninterest expense on the consolidated statements of income and comprehensive income. r. Bank-owned Life Insurance (BOLI) - We have purchased life insurance policies on certain key current and former executives as a method to offset the cost of employee benefit plans. We record BOLI at the estimated contractual amount that would be realized if the life insurance policy is surrendered prior to maturity or death of the insured, which is the cash surrender value adjusted for other charges and amounts due that are probable at settlement. Changes in the net cash surrender value of the policies, as well as insurance proceeds received, are recorded in noninterest income and are not subject to income taxes. s. Restricted Equity Securities - Restricted equity securities consist of capital stock of the Federal Home Loan Bank of Topeka (FHLB) and the Federal Reserve Bank of Kansas City (FRB). Such stock is not readily marketable, and accordingly, is carried at cost. Members of the FHLB are required to own a certain amount of stock based on the level of borrowings and other factors. As a national banking association, the Bank is required to own stock of its regional FRB. FRB and FHLB stock are periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. Restricted equity securities consisted of the following: 2023 2022 Federal Home Loan Bank stock $ 20,945 $ 33,137 Federal Reserve Bank stock 17,127 17,078 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. t. Goodwill - The excess purchase price of acquired businesses over the fair value of identifiable assets acquired and liabilities assumed is recognized as goodwill. Goodwill is evaluated for impairment on an annual basis, or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. Our evaluation may consist of performing a qualitative assessment of impairment to determine whether any further quantitative testing for impairment is necessary. Factors considered in the qualitative assessment include general economic conditions, conditions of the industry and markets in which we operate, regulatory developments, cost factors, and our overall financial performance. We performed our most recent annual goodwill impairment test as of December 31, 2023 and concluded that no impairment existed. No impairment losses have been recognized during the years ended December 31, 2023, 2022 and 2021. u. Core Deposits and Other Intangible Assets - Core deposits related to the depositor relationship of customers acquired from our business combinations are recognized in the value of core deposits. Our core deposits were valued based on the expected future benefit or earnings capacity attributable to the acquired deposits. These assets have been assigned 10 year lives from the date of acquisition. Other intangible assets include the trade names of First National 1870 and Guardian Mortgage . These trade names provide a source of market recognition to attract potential clients/relationships and retain existing customers. Management has indicated that portions of the business will utilize these trade names into perpetuity; therefore, these trade names have been classified as indefinite-lived assets. Further, we have acquired certain customer relationships relating to wealth management. These customer relationships have been assigned amortization periods of 10 to 16 years. We had a non-competition agreement for a former employee. This agreement was fully amortized in 2023. v. Impairment of Long-lived Assets - Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. When events or changes in circumstances indicate an asset may not be recoverable, we estimate the future cash flows expected to result from the use of the asset. If impairment is indicated, an adjustment is made to reduce the carrying amount based on the difference between the future cash flows expected and the carrying amount of the asset. During the years ended December 31, 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. 98 Table of Contents w. Transfers of Financial Assets - Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity. x. Loan Commitments and Related Financial Instruments - Financial instruments include off-balance sheet credit instruments, such as commitments to make loans, commercial letters of credit, and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded. y. 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. Further, qualitative disclosures are required that explain our objectives and strategies for using derivatives, as well as quantitative disclosures about the fair value of and gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative instruments. As required by ASC Topic 815, we record all derivatives on the consolidated balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether we have elected to designate a derivative in a hedging relationship and apply hedge accounting and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. Derivatives may also be designated as hedges of the foreign currency exposure of a net investment in a foreign operation. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument with the recognition of the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk in a fair value hedge or the earnings effect of the hedged forecasted transactions in a cash flow hedge. We may enter into derivative contracts that are intended to economically hedge certain of our risks, even though hedge accounting does not apply or we do not elect to apply hedge accounting. We do not have any cash flow or foreign currency hedges. In accordance with the fair value measurement guidance in ASU Topic 2011-04, Fair Value Measurement (Topic 820), we made an accounting policy election to measure the credit risk of our derivative financial instruments that are subject to master netting agreements on a net basis by counterparty portfolio. 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. 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 Banking Activities - We are exposed to certain risks arising from both our business operations and economic conditions. We principally manage our exposures to a wide variety of business and operational risks through management of our core business activities. We manage economic risks, including interest rate, liquidity, and credit risk primarily by managing the amount, sources, and duration of our assets and liabilities and the use of derivative financial instruments. Specifically, we enter into derivative financial instruments to manage exposures that arise from business activities that result in the receipt or payment of future known and uncertain cash amounts, the value of which are determined by interest rates. Our derivative financial instruments are used to manage differences in the amount, timing, and duration of our known or expected cash receipts and our known or expected cash payments principally related to our loan portfolio. The initial and subsequent changes in value, as well as the offsetting gain or loss of banking derivative financial instruments that qualify as fair value hedges, and 99 Table of Contents any fees income generated are recorded as a component of interest and fee income on loans in our consolidated statements of income and comprehensive income. Mortgage Banking Activities - Our mortgage bankers enter into interest rate lock commitments (IRLC) with prospective borrowers. An IRLC represents an agreement to purchase loans from a third-party originator or an agreement to extend credit to a mortgage applicant, whereby the interest rate is set prior to funding. The loan commitment binds us (subject to the loan approval process) to fund the loan at the specified rate, regardless of whether interest rates have changed between the commitment date and the loan funding date. Outstanding interest rate lock commitments are subject to interest rate risk and related price risk during the period from the date of the commitment through the loan funding date or expiration date. The borrower is not obligated to obtain the loan; thus, we are subject to fallout risk related to IRLCs, which is realized if approved borrowers choose not to close on the loans within the terms of the IRLC. Our interest rate exposure on these derivative loan commitments is hedged with forward sales of mortgage-based securities as described below. Our IRLCs are carried at fair value in accordance with ASC Topic 815, and recorded at fair value in prepaid expenses and other assets on our consolidated balance sheets. ASC Topic 815 clarifies that the expected net future cash flows related to the associated servicing of a loan should be included in the measurement of all written loan commitments that are accounted for at fair value through earnings. The estimated fair values of IRLCs are based on the fair value of the related mortgage loans which is based upon observable market data. The initial and subsequent changes in value of IRLCs are recorded as a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We actively manage the risk profiles of our IRLCs and mortgage loans held-for-sale on a daily basis. To manage the price risk associated with IRLCs, we enter into forward sales of mortgage-backed securities (MBS) in an amount equal to the portion of the IRLC expected to close, assuming no change in mortgage interest rates. In addition, to manage the interest rate risk associated with mortgage loans held-for-sale, we enter into forward sales of MBS to deliver mortgage loans to third-party investors. The estimated fair values of forward sales of MBS and forward sales commitments are based on exchange prices or the dealer market price. The initial and subsequent changes in value on forward sales of MBS and forward sales commitments are a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We also occasionally enter into contracts with other mortgage bankers to purchase residential mortgage loans at a future date, which we refer to as Loan Purchase Commitments (LPCs). LPCs are accounted for as derivatives under ASC Topic 815 and recorded at fair value in prepaid expenses and other assets on our consolidated balance sheets. Subsequent changes in LPCs are recorded as a charge or credit to income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. We utilize derivative instruments to help manage the fair value changes in our MSRs. These derivative instruments are intended to economically hedge certain risks related to our MSRs. As such, these derivative instruments are not designated as accounting hedges. These derivatives may include To Be Announced (TBA) MBS, interest rate swaps, and options contracts and are valued based on quoted prices for similar assets in an active market with inputs that are observable. These derivative products are accounted for and recorded at fair value in prepaid expenses and other assets or accrued expenses and other liabilities on our consolidated balance sheets. Subsequent changes are recorded to income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. z. 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. Lease liabilities represent the obligation to make lease payments arising from the lease, measured on a discounted basis, and are included in accrued expenses and other liabilities in our consolidated balance sheets. We determine lease classification as operating or finance at the lease commencement date. We combine lease and non-lease components, such as common area and other maintenance costs, in calculating the ROU assets and lease liabilities for our office buildings. At lease inception, the lease liability is measured at the present value of the lease payments over the lease term. The ROU asset equals the lease liability adjusted for any initial direct costs, prepaid or deferred rent, and lease incentives. We use the implicit rate when readily determinable, however, as most of the leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the commencement date, which is based on our collateralized borrowing capabilities over a similar term as the related lease payments. 100 Table of Contents The lease term may include options to extend or to terminate the lease that we are reasonably certain to exercise. Lease expense is generally recognized on a straight-line basis over the lease term. We have elected not to record leases with an initial term of 12 months or less on our consolidated balance sheets. Lease expense on such leases is recognized on a straight-line basis over the lease term. Further information is presented in Note 25 - Lease Commitments . aa. Revenue Recognition - Noninterest income within the scope of ASC Topic 606, Revenue From Contracts With Customers is recognized by us when performance obligations, under the terms of the contract, are satisfied. This income is measured as the amount of consideration expected to be received in exchange for the providing of services. The majority of our applicable noninterest income continues to be recognized at the time when services are provided to our customers. Further information is presented in Note 26 - Revenue from Contracts with Customers . ab. Advertising - Advertising costs are expensed as incurred and recorded within other noninterest expense. ac. Earnings Per Share - Basic and diluted earnings per share are computed by dividing net income available to common stockholders by the weighted-average number of common shares outstanding during each period. ad. Share-Based Compensation - Compensation cost is recognized for stock options, non-vested restricted stock awards/stock units, and performance share units issued to employees and directors, based on the fair value of these awards at the date of the grant. A Black-Scholes model is utilized to estimate the fair value of stock options. The fair value of non-vested stock awards/stock units and performance share units is generally the market price of our stock on the date of grant. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award. We recognize forfeitures as they occur. ae. Retirement Plan - We have an employee savings plan and trust (the Plan) which qualifies under Section 401(k) of the Internal Revenue Service Code. The Bank’s Trust and Wealth Management department is the Trustee. Substantially all of our full-time employees are eligible to participate in the Plan. Eligible employees may contribute up to 100 % of their compensation subject to certain limits based on federal tax laws. Additional contributions are allowed per the Internal Revenue Service Code for participants who have attained age 50 before the end of the Plan year. We make a matching contribution for each eligible participant equal to 100 % of the participant’s elective deferrals which does not exceed 6 % of the participant’s compensation. Participants are immediately vested in the matching contribution. Matching contributions to the Plan charged to salary and employee benefits amounted to $ 5.3 million, $ 5.2 million and $ 4.9 million in 2023, 2022 and 2021, respectively. af. Income Taxes - The Company files a consolidated federal income tax return. Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards; deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred tax assets and liabilities for subsequent changes in tax rates are recognized in income in the period that includes the tax rate changes. We recognize the financial effects of a tax position only when we believe it can “more likely than not” support the position upon a tax examination by the relevant taxing authority, with a tax examination being presumed to occur. We are no longer subject to examination by taxing authorities for years before 2020. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. ag. Comprehensive income - Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available-for-sale and designated fair value hedges, net of tax, which are recognized as a separate component of equity. ah. 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 101 Table of Contents reasonably estimated. Management does not believe there are such matters that will have a material effect on these consolidated financial statements. In addition, we generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral. To the extent that we do not comply with such representations, or there are early payment defaults, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. In addition, if loans pay off within a specified time frame, we may be required to refund a portion of the sales proceeds to the investors. We have established reserves for potential losses related to these representations and warranties which is recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserve, we evaluate various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. Further information is presented in Note 24 - Commitments and Contingencies . ai. 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. aj. 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. ASU No. 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. ASU No. 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. 102 Table of Contents NOTE 2 - Merger with Pioneer Bancshares, Inc. As described under the title “Business Combination” in Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies , we completed our merger with Pioneer on April 1, 2022. We accounted for the Pioneer merger under the acquisition method in accordance with ASC Topic 805, Business Combinations . Accordingly, the purchase price was allocated to the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed as of the closing date of the merger. Goodwill resulting from the difference between the fair value of the assets acquired and the fair value of the liabilities assumed is not amortizable for book or tax purposes. This goodwill resulted from the combination of expected operational synergies, the increase in our market share in Texas and other factors. Although the merger was nontaxable, the merger gave rise to certain temporary differences for which deferred taxes have been recognized. The results of operations for the Pioneer merger have been included in our consolidated financial results beginning on the April 1, 2022 closing date. Consideration Under the terms of the merger agreement, each outstanding share of Pioneer common stock was converted into 1.0443 shares of FirstSun common stock (except for shareholders who properly exercised their dissenters’ rights) with cash paid in lieu of fractional shares. Accordingly, we issued 6,467,466 shares of our common stock to Pioneer shareholders in the merger valued at $ 230,760 based on a third-party valuation of our common stock in accordance with ASC Topic 820, Fair Value Measurements as of the closing date. We also converted Pioneer stock options into 431,645 options to purchase shares of FirstSun common stock. This conversion was valued at $ 5,334 . We also paid cash to certain Pioneer shareholders of $ 4,736 . Total aggregate consideration paid in the Pioneer merger was $ 240,830 . Fair Value We recorded the 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: April 1, 2022 Cash and cash equivalents $ 449,278 Investment securities 157,859 Loans held-for-sale 2,923 Loans 811,300 Premises and equipment 39,935 Bank-owned life insurance 21,382 Restricted equity securities 9,320 Core deposits and other intangible assets 11,771 Accrued interest receivable 3,947 Deferred tax assets 19,752 Prepaid expenses and other assets 7,317 Total assets acquired 1,534,784 Deposits 1,192,081 Federal Home Loan Bank advances 159,924 Accrued interest payable 407 Accrued expenses and other liabilities 1,975 Total liabilities assumed 1,354,387 Fair value of net assets acquired 180,397 Purchase price 240,830 Goodwill $ 60,433 103 Table of Contents Acquired loans and purchased credit impaired loans Acquired loans were recorded at fair value based on a discounted cash flow valuation methodology that considered, among other things, projected default rates, loss given default rates and recovery rates. No allowance for credit losses was carried over from Pioneer. We identified certain acquired loans as purchased credit impaired (PCI). PCI loan identification considered payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may be an indication of a deterioration of credit quality since origination. Although we identified certain acquired loans as PCI, the amount was determined to be insignificant. The following table discloses the fair value and contractual value of loans acquired from Pioneer on April 1, 2022. Acquired Loans Contractual Principal Balance Commercial $ 98,351 $ 98,752 Commercial real estate 509,173 516,341 Residential real estate 173,094 174,763 Consumer 30,682 31,982 Total fair value $ 811,300 $ 821,838 Supplemental pro forma information The following unaudited pro forma summary presents consolidated information of FirstSun as if the business combination had occurred on January 1, 2021. (Unaudited) Pro forma for the years ended December 31, 2022 2021 Net interest income $ 251,783 $ 201,501 Provision for credit losses 17,200 350 Net interest income after provision for credit losses 234,583 201,151 Noninterest income 90,993 129,373 Noninterest expenses 229,307 258,544 Income before income taxes 96,269 71,980 Provision for income taxes 19,508 13,413 Net income $ 76,761 $ 58,567 Earnings per share: Net income available to common stockholders $ 76,761 $ 58,567 Basic $ 3.09 $ 2.36 Diluted $ 3.01 $ 2.30 The unaudited pro forma amounts for these periods includes adjustments for interest income on loans and investment securities acquired, amortization of intangibles arising from the transaction, adjustments for interest expense on deposits and Federal Home Loan bank advances acquired, adjustments for merger related expenses incurred, and the related income tax effects of all these items and the income tax costs or benefits derived from the income or loss before taxes of Pioneer. The unaudited pro forma amounts are not necessarily indicative of the results of operations that would have occurred had the transaction been effected on the assumed date. 104 Table of Contents NOTE 3 - Securities 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,: Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value 2023 Available-for-sale: U.S. treasury $ 58,468 $ — $ ( 4,234 ) $ 54,234 U.S. agency 1,872 — ( 33 ) 1,839 Obligations of states and political subdivisions 29,979 — ( 4,009 ) 25,970 Mortgage backed - residential 121,288 119 ( 14,974 ) 106,433 Collateralized mortgage obligations 203,394 — ( 21,861 ) 181,533 Mortgage backed - commercial 145,062 497 ( 14,367 ) 131,192 Other debt 16,792 — ( 1,236 ) 15,556 Total available-for-sale $ 576,855 $ 616 $ ( 60,714 ) $ 516,757 Held-to-maturity: Obligations of states and political subdivisions $ 25,542 $ 3 $ ( 3,987 ) $ 21,558 Mortgage backed - residential 7,548 2 ( 560 ) 6,990 Collateralized mortgage obligations 3,893 — ( 260 ) 3,633 Total held-to-maturity $ 36,983 $ 5 $ ( 4,807 ) $ 32,181 2022 Available-for-sale: U.S. treasury 62,010 — ( 5,361 ) 56,649 U.S. agency $ 2,881 $ — $ ( 47 ) $ 2,834 Obligations of states and political subdivisions 29,897 — ( 4,998 ) 24,899 Mortgage backed - residential 129,955 6 ( 13,826 ) 116,135 Collateralized mortgage obligations 225,559 — ( 21,294 ) 204,265 Mortgage backed - commercial 130,997 — ( 13,661 ) 117,336 Other debt 16,774 — ( 1,919 ) 14,855 Total available-for-sale $ 598,073 $ 6 $ ( 61,106 ) $ 536,973 Held-to-maturity: Obligations of states and political subdivisions 25,378 5 ( 4,891 ) 20,492 Mortgage backed - residential 8,705 4 ( 511 ) 8,198 Collateralized mortgage obligations 4,818 — ( 290 ) 4,528 Total held-to-maturity $ 38,901 $ 9 $ ( 5,692 ) $ 33,218 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. 105 Table of Contents 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 Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Number of Securities 2023 Available-for-sale: U.S. treasury $ — $ — $ 54,234 $ ( 4,234 ) $ 54,234 $ ( 4,234 ) 9 U.S. agency — — 1,839 ( 33 ) 1,839 ( 33 ) 7 Obligations of states and political subdivisions — — 25,970 ( 4,009 ) 25,970 ( 4,009 ) 19 Mortgage backed - residential — — 100,571 ( 14,974 ) 100,571 ( 14,974 ) 83 Collateralized mortgage obligations — — 181,533 ( 21,861 ) 181,533 ( 21,861 ) 65 Mortgage backed - commercial 4,721 ( 27 ) 114,625 ( 14,340 ) 119,346 ( 14,367 ) 24 Other debt — — 15,556 ( 1,236 ) 15,556 ( 1,236 ) 9 Total available-for-sale $ 4,721 $ ( 27 ) $ 494,328 $ ( 60,687 ) $ 499,049 $ ( 60,714 ) 216 Held-to-maturity: Obligations of states and political subdivisions $ — $ — $ 21,223 $ ( 3,987 ) $ 21,223 $ ( 3,987 ) 8 Mortgage backed - residential — — 6,845 ( 560 ) 6,845 ( 560 ) 10 Collateralized mortgage obligations — — 3,633 ( 260 ) 3,633 ( 260 ) 5 Total held-to-maturity $ — $ — $ 31,701 $ ( 4,807 ) $ 31,701 $ ( 4,807 ) 23 106 Table of Contents Less than 12 months 12 months or longer Total Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Estimated Fair Value Unrealized Losses Number of Securities 2022 Available-for-sale: U.S. treasury $ 25,702 $ ( 967 ) $ 30,947 $ ( 4,394 ) $ 56,649 $ ( 5,361 ) 10 U.S. agency — — 2,834 ( 47 ) 2,834 ( 47 ) 7 Obligations of states and political subdivisions 21,676 ( 3,784 ) 2,753 ( 1,214 ) 24,429 ( 4,998 ) 18 Mortgage backed - residential 51,921 ( 2,939 ) 63,691 ( 10,887 ) 115,612 ( 13,826 ) 87 Collateralized mortgage obligations 111,360 ( 4,631 ) 92,905 ( 16,663 ) 204,265 ( 21,294 ) 66 Mortgage backed - commercial 70,710 ( 6,475 ) 46,626 ( 7,186 ) 117,336 ( 13,661 ) 22 Other debt 14,855 ( 1,919 ) — — 14,855 ( 1,919 ) 9 Total available-for-sale $ 296,224 $ ( 20,715 ) $ 239,756 $ ( 40,391 ) $ 535,980 $ ( 61,106 ) 219 Held-to-maturity: Obligations of states and political subdivisions $ 20,153 $ ( 4,891 ) $ — $ — $ 20,153 $ ( 4,891 ) 8 Mortgage backed - residential 7,993 ( 511 ) — — 7,993 ( 511 ) 10 Collateralized mortgage obligations 4,127 ( 275 ) 401 ( 15 ) 4,528 ( 290 ) 5 Total held-to-maturity $ 32,273 $ ( 5,677 ) $ 401 $ ( 15 ) $ 32,674 $ ( 5,692 ) 23 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. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or earlier redemptions that may occur. Amortized Cost Estimated Fair Value Available-for-sale: Due within 1 year $ 23,215 $ 22,802 Due after 1 year through 5 years 55,359 50,882 Due after 5 years through 10 years 152,454 138,464 Due after 10 years 345,827 304,609 Total available-for-sale $ 576,855 $ 516,757 Held-to-maturity: Due after 1 year through 5 years $ 988 $ 963 Due after 5 years through 10 years 737 713 Due after 10 years 35,258 30,505 Total held-to-maturity $ 36,983 $ 32,181 107 Table of Contents 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. There were no proceeds from sales and calls of securities for the year ended December 31, 2023. 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 by portfolio type consist of the following as of December 31,: 2023 2022 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 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. 108 Table of Contents The following table presents the activity in the allowance for credit losses by portfolio type for the years ended December 31,: Commercial and Industrial Commercial Real Estate Residential Real Estate Public Finance Consumer Other Total 2023 Allowance for credit losses: Balance, beginning of period $ 40,785 $ 19,754 $ 2,963 $ 1,664 $ 352 $ 399 $ 65,917 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 ) Recoveries 1,118 12 682 — 50 — 1,862 Balance, end of period $ 29,523 $ 27,546 $ 16,345 $ 5,337 $ 717 $ 930 $ 80,398 2022 Allowance for credit losses: Balance, beginning of period $ 31,622 $ 13,198 $ 836 $ 1,544 $ 235 $ 112 $ 47,547 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 ) Recoveries 2,236 388 221 — 62 — 2,907 Balance, end of period $ 40,785 $ 19,754 $ 2,963 $ 1,664 $ 352 $ 399 $ 65,917 2021 Allowance for credit losses: Balance, beginning of period $ 29,235 $ 14,033 $ 1,435 $ 2,604 $ 288 $ 171 $ 47,766 Provision for credit losses 5,136 ( 488 ) ( 581 ) ( 1,060 ) 52 ( 59 ) 3,000 Loans charged-off ( 4,296 ) ( 375 ) ( 42 ) — ( 148 ) — ( 4,861 ) Recoveries 1,547 28 24 — 43 — 1,642 Balance, end of period $ 31,622 $ 13,198 $ 836 $ 1,544 $ 235 $ 112 $ 47,547 109 Table of Contents 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,: Loans Not Past Due Loans 30-59 Days Past Due Loans 60-89 Days Past Due Loans Greater than 90 Days Past Due, Still Accruing Nonaccrual Total 2023 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 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 2022 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 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 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. 110 Table of Contents 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”. 111 Table of Contents 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 $ — $ — $ — $ — $ — $ — $ — $ — $ — Multifamily: 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 $ — $ — $ — $ — $ — $ — $ — $ — $ — 112 Table of Contents 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 $ — $ — $ — $ — $ — $ — $ — $ — $ — Consumer: 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 Other: 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 $ — $ — $ — $ — $ — $ — $ — $ — $ — Total loans: 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 $ 9,672 113 Table of Contents 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. Substandard loans are also characterized by the distinct possibility of loss in the future if the deficiencies are not corrected. Doubtful - loans are considered “classified” and have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions and values, highly questionable and improbable. There were loans totaling $ 45 categorized as doubtful as of December 31, 2022. Non-Classified Classified Total Commercial and industrial $ 2,969,786 $ 55,288 $ 3,025,074 Commercial real estate 1,715,415 37,945 1,753,360 Residential real estate 1,096,108 10,685 1,106,793 Consumer 43,592 114 43,706 Total loans $ 5,824,901 $ 104,032 $ 5,928,933 114 Table of Contents 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 2023 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 Other 2,391 102 446 2,837 102 Total loans $ 9,036 $ 2,543 $ 28,291 $ 37,327 $ 2,543 2022 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 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. 115 Table of Contents 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. Payment Delay Interest Rate Reduction % of Total Class of Loans 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 — — — % 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. 116 Table of Contents NOTE 5 - Mortgage Servicing Rights The unpaid principal loan balance of our servicing portfolio is presented in the following table as of December 31,: 2023 2022 Federal National Mortgage Association $ 2,478,732 $ 2,517,434 Federal Home Loan Mortgage Corporation 1,736,329 1,630,403 Government National Mortgage Association 1,094,438 916,455 Federal Home Loan Bank 105,702 111,699 Other 1,258 1,413 Total $ 5,416,459 $ 5,177,404 The activity of MSRs carried at fair value is as follows for the years ended December 31,: 2023 2022 2021 Balance, beginning of period $ 74,097 $ 47,392 $ 29,144 Additions: Servicing resulting from transfers of financial assets 9,253 14,287 23,854 Changes in fair value: Due to changes in valuation inputs or assumptions used in the valuation model 30 20,350 6,093 Changes in fair value due to pay-offs, pay-downs, and runoff ( 6,679 ) ( 7,932 ) ( 11,699 ) Balance, end of period $ 76,701 $ 74,097 $ 47,392 The following represents the weighted-average key assumptions used to estimate the fair value of MSRs as of December 31,: 2023 2022 2021 Discount rate 10.06 % 9.85 % 9.22 % Total prepayment speeds 7.79 % 7.40 % 11.52 % Cost of servicing each loan $ 90 /per loan $ 88 /per loan $ 85 /per loan Total servicing and ancillary fees earned from the mortgage servicing portfolio is presented in the following table for the years ended December 31,: 2023 2022 2021 Servicing fees $ 14,913 $ 14,675 $ 12,092 Late and ancillary fees 761 413 433 Total $ 15,674 $ 15,088 $ 12,525 117 Table of Contents NOTE 6 - Premises and Equipment A summary of premises and equipment is as follows: Estimated Useful Lives 2023 2022 Land N/A $ 18,903 $ 18,903 Buildings and improvements 5 - 39 years 80,948 80,565 Equipment 3 - 10 years 27,080 25,987 Automobiles 5 years 223 166 Software 1 - 7 years 9,092 7,200 Construction in progress N/A 1,207 1,360 Premises and equipment 137,453 134,181 Less: Accumulated depreciation and amortization ( 52,611 ) ( 46,067 ) Premises and equipment, net $ 84,842 $ 88,114 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 Activity in our core deposits and other intangible assets was as follows as of and for the years ended December 31,: Indefinite-Lived Assets Finite Lived Assets Tradenames Core Deposits Intangibles Customer Relationships Non-compete Agreements Total 2023 Balance, beginning of year $ 1,800 $ 13,159 $ 748 $ 99 $ 15,806 Amortization — ( 4,538 ) ( 185 ) ( 99 ) ( 4,822 ) Balance, end of year $ 1,800 $ 8,621 $ 563 $ — $ 10,984 2022 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 ) Balance, end of year $ 1,800 $ 13,159 $ 748 $ 99 $ 15,806 2021 Balance, beginning of year $ 1,800 $ 6,211 $ 1,656 $ — $ 9,667 Amortization — ( 1,212 ) ( 205 ) — ( 1,417 ) Balance, end of year $ 1,800 $ 4,999 $ 1,451 $ — $ 8,250 During the years ended December 31, 2023, 2022 and 2021, there was no indication of impairment of our core deposits and other intangible assets. 118 Table of Contents Future amortization expense of our core deposits and other intangible assets is as follows: 2024 $ 2,605 2025 2,312 2026 2,006 2027 1,142 2028 920 Thereafter 199 Total future amortization $ 9,184 NOTE 8 - Derivative Financial Instruments Banking Derivative Financial Instruments : We are exposed to changes in the fair value of certain of our fixed-rate assets due to changes in benchmark interest rates. We use interest rate swaps to manage our exposure to changes in fair value on these instruments attributable to changes a designated benchmark interest rate, such as SOFR. Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for us making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. The carrying amount of hedged loans receivable and available-for-sale securities as of December 31, 2023 and 2022 was $ 184,829 and $ 181,377 , respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of December 31, 2023 and 2022 was $( 9,567 ) and $( 12,752 ), respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged available-for-sale securities as of December 31, 2023 and 2022 was $ 3,168 and $ 2,879 , respectively. The hedges were determined to be effective during all periods presented and we expect the hedges to remain effective during their remaining terms. Derivatives not designated as hedges are not speculative and result from a service we provide to certain customers. We execute interest rate swaps with banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedged by offsetting derivatives that we execute with a third-party, such that we minimize our net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. These instruments are a component of prepaid expenses and other assets and accrued expenses and other liabilities. 119 Table of Contents The components of our banking derivative financial instruments consisted of the following as of December 31,: Number of Transactions Expiration Dates Outstanding Notional Estimated Fair Value 2023 Derivative financial instruments designated as hedging instruments: Assets: Interest Rate Products 32 2028 - 2036 $ 195,935 $ 12,737 Derivative financial instruments not designated as hedging instruments: Assets: Interest Rate Products 49 2024 - 2037 $ 396,111 $ 19,931 Other 1 2025 $ 14,638 $ 7 Liabilities: Interest Rate Products 49 2024 - 2037 $ 396,111 $ 19,869 Other 2 2028 $ 6,168 $ 30 2022 Derivative financial instruments designated as hedging instruments: Assets: Interest Rate Products 32 2028-2036 $ 201,906 $ 15,636 Derivative financial instruments not designated as hedging instruments: Assets: Interest Rate Products 41 2024-2037 $ 338,770 $ 24,615 Other 1 2025 $ 14,638 $ — Liabilities: Interest Rate Products 41 2024-2037 $ 338,770 $ 24,242 We recorded gains and losses on banking derivatives assets as follows for the years ended December 31,: 2023 2022 2021 Recorded gain (loss) on banking derivative assets $ 4,482 $ 28,783 $ ( 777 ) Recorded (loss) gain on banking derivative liabilities $ ( 4,820 ) $ ( 27,973 ) $ 1,172 For the years ended December 31, 2023, 2022 and 2021 our banking derivative financial instruments not designated as hedging instruments generated fee income of $ 1,451 , $ 2,152 and $ 2,309 , respectively. Credit-risk-related Contingent Features : We have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations. We also have agreements with our derivative counterparties that contain a provision where if we fail to maintain our status as a well-capitalized institution, then our derivative counterparties have the right, but not the obligation to terminate existing swaps. As of December 31, 2023 and 2022, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $ 20,508 and $ 24,677 , respectively. As of December 31, 2023 and 2022, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of $ 9,040 and $ 8,790 , respectively. If we had breached any of these provisions at December 31, 2023, we could have been required to settle our obligations under the agreements at their termination value of $ 20,508 . 120 Table of Contents Mortgage Banking Derivative Financial Instruments : The components of our mortgage banking derivative financial instruments consisted of the following as of December 31,: Expiration Dates Outstanding Notional Estimated Fair Value 2023 Derivative financial instruments Assets: Futures 2024 $ 28,700 $ 2,153 Interest rate lock commitments (IRLC) 2024 $ 41,404 $ 252 Liabilities: Forward MBS trades 2024 $ 77,000 $ 606 2022 Derivative financial instruments Assets: Futures 2023 $ 85,000 $ 36 Liabilities: Forward MBS trades 2023 $ 21,800 $ 225 Interest rate lock commitments (IRLC) 2023 $ 52,533 $ 60 We recorded gains and losses on mortgage banking derivatives assets as follows for the years ended December 31,: 2023 2022 2021 Recorded (loss) gain on mortgage banking derivative assets $ ( 857 ) $ 233 $ ( 9,655 ) Recorded (loss) gain on mortgage banking derivative liabilities $ ( 642 ) $ ( 15,863 ) $ 246 NOTE 9 - Prepaid Expenses and Other Assets The components of prepaid expenses and other assets consisted of the following as of December 31,: 2023 2022 Derivative financial instruments $ 35,080 $ 40,287 Right-of-use asset on leased property 24,227 28,404 Loans subject to unilateral repurchase rights - Ginnie Mae 23,430 12,224 Fiserv ATM compensating balance 11,308 9,865 Prepaid expenses 7,617 7,691 CRA investments 4,370 2,357 Federal and state tax receivables, net 3,640 1,101 Artwork 944 944 SBA servicing rights 163 236 Other 23,542 21,681 Total prepaid expenses and other assets $ 134,321 $ 124,790 For additional information regarding our right-of-use asset on leased property , see Note 25 - Lease Commitments . 121 Table of Contents NOTE 10 - Deposits The composition of our deposits is as follows as of December 31,: 2023 2022 Noninterest-bearing demand deposit accounts $ 1,530,506 $ 1,820,490 Interest-bearing deposit accounts: Interest-bearing demand accounts 534,540 212,357 Savings accounts and money market accounts 2,446,632 2,759,969 NOW accounts 56,819 50,224 Certificate of deposit accounts: Less than $100 714,171 241,322 $100 through $250 569,696 270,790 Greater than $250 521,739 409,910 Total interest-bearing deposit accounts 4,843,597 3,944,572 Total deposits $ 6,374,103 $ 5,765,062 The following table summarizes the interest expense incurred on our deposits for the years ended December 31,: 2023 2022 2021 Interest-bearing deposit accounts: Interest-bearing demand accounts $ 11,235 $ 1,637 $ 379 Savings accounts and money market accounts 30,977 7,569 4,752 NOW accounts 339 138 377 Certificate of deposit accounts 58,804 3,810 3,036 Total interest-bearing deposit accounts $ 101,355 $ 13,154 $ 8,544 The remaining maturity on certificate of deposit accounts is as follows as of December 31, 2023: 2024 $ 1,667,847 2025 118,408 2026 9,440 2027 3,926 2028 3,153 Thereafter 2,832 Total certificate of deposit accounts $ 1,805,606 122 Table of Contents NOTE 11 - Securities Sold Under Agreements to Repurchase Information concerning securities sold under agreements to repurchase is as follows as of and for years ended December 31,: 2023 2022 Amount outstanding at period-end $ 24,693 $ 36,721 Average daily balance during the period $ 28,316 $ 54,335 Average interest rate during the period 0.84 % 0.27 % Maximum month-end balance during the period $ 40,432 $ 70,838 Weighted average interest rate at period-end 0.91 % 0.42 % At December 31, 2023 and 2022, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of $ 30,810 and $ 48,931 , respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and are considered to be in an overnight and continuous position. NOTE 12 - Debt FHLB advances : The following is a breakdown of our FHLB advances and other borrowings outstanding as of December 31,: 2023 2022 Amount Rate Weighted Average Rate Amount Rate Weighted Average Rate Variable rate line-of-credit advance $ 389,468 5.55 % N/A $ 643,885 4.48 % N/A 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, 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 . These borrowings can be in the form of additional term advances or a line-of-credit. FRB advances : We also had a $ 2,028,410 line-of-credit with the FRB. The agreement bears interest at the Fed Funds target rate and is secured by municipal, agency, mortgage-related and corporate securities. The entire line was available at December 31, 2023. Other borrowings : We have lines-of-credit with certain other financial institutions totaling $ 110,000 as of December 31, 2023. No amounts were drawn on these lines-of-credit in 2023. Convertible Notes Payable : 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. 123 Table of Contents Subordinated Debt : Subordinated Notes - 2020 : In June and August 2020, we issued a total of $ 40,000 subordinated notes. The notes pay interest at a fixed rate of 6.00 % through June 30, 2025 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 5.89 % reset quarterly. Interest is payable on July 1 and January 1 of each year. Such notes are due on July 1, 2030. The notes are not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the notes at our discretion. We incurred and capitalized $ 933 of costs related to the issuance of the subordinated notes. As of and for the years ended December 31, 2023, 2022 and 2021, the amortization associated with the debt issuance costs totaled $ 93 , $ 94 and $ 93 , respectively. Future amortization of the debt issuance costs is expected as follows: 2024 $ 93 2025 93 2026 93 2027 93 2028 93 Thereafter 143 Total future amortization $ 608 Subordinated Note - 2022 : On January 13, 2022, we issued a subordinated note totaling $ 25,000 . The note pays interest at a fixed rate of 3.375 % through January 15, 2027 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 2.03 % reset quarterly. Interest is payable on July 15 and January 15 of each year. Such note is due on January 15, 2032. The note is not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the note at our discretion. We incurred and capitalized $ 534 of costs related to the issuance of the subordinated note. As of and for the 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: 2024 $ 53 2025 53 2026 53 2027 53 2028 53 Thereafter 164 Total future amortization $ 429 Trust preferred securities : We have issued $ 9,279 in trust preferred securities through a special-purpose trust, New Mexico Banquest Capital Trust I (“NMBCT I”). In addition, we have issued $ 4,640 in trust preferred securities through a special purpose trust, New Mexico Banquest Capital Trust II (“NMBCT II”, and together with NMBCT I, collectively referred to as “NMBCT Trusts”). Interest is payable quarterly at a rate of three-month LIBOR (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. 124 Table of Contents This subordinated debt of $ 13,919 was originally recorded at a discount of $ 4,293 . As of and for the years ended December 31, 2023, 2022 and 2021, accretion associated with the fair value discount totaled $ 286 , $ 254 and $ 256 , respectively. Future accretion of the valuation discount is expected as follows: 2024 $ 382 2025 271 2026 241 2027 246 2028 241 Thereafter 1,189 Total future accretion $ 2,570 The Parent Company fully and unconditionally guarantees the obligations of the NMBCT Trusts on a subordinated basis. The trust preferred securities issued through the NMBCT Trusts are mandatorily redeemable upon the maturity of the debentures on December 19, 2032 and November 23, 2034, respectively, and are optionally redeemable, in part or in whole, by the Parent Company at each quarterly interest payment date. The Parent Company owns all of the outstanding common securities of the NMBCT Trusts, which have an aggregate liquidation valuation amount of $ 419 and is recorded in prepaid expenses and other assets on the consolidated balance sheet. The NMBCT Trusts are considered variable interest entities. Since the Parent Company is not the primary beneficiary of the NMBCT Trusts, the financial statements of the NMBCT Trusts are not included in our consolidated financial statements. NOTE 13 - Accrued Expenses and Other Liabilities The components of accrued expenses and other liabilities consisted of the following as of December 31,: 2023 2022 Lease liability $ 26,431 $ 31,267 Salary and employee benefits 30,549 29,834 Derivative financial instruments 20,505 24,527 Loans subject to unilateral repurchase rights - Ginnie Mae 23,430 12,224 FRB courtesy inclearings 6,139 6,821 Professional fees 1,607 1,757 Property taxes payable 1,260 886 MPF servicing principal and interest payable 522 885 Other 14,927 15,884 Total accrued expenses and other liabilities $ 125,370 $ 124,085 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. Once we have the unilateral right to repurchase a delinquent loan, we have effectively regained control over the loan, and under U.S. GAAP, must re-recognize the loan on our consolidated balance sheet and establish a corresponding repurchase liability regardless of our intention to repurchase the loan. 125 Table of Contents NOTE 14 - Earnings Per Share Basic earnings per share, excluding dilution, is computed by dividing earnings available to common stockholders’ by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock or resulted in the issuance of common stock that could then share in our earnings. The following table sets forth the computation of basic and diluted earnings per share of common stock as of and for the years ended December 31,: 2023 2022 2021 Net income applicable to common stockholders $ 103,533 $ 59,182 $ 43,164 Weighted Average Shares Weighted average common shares outstanding 24,938,359 23,245,598 18,321,794 Effect of dilutive securities Stock-based awards 448,837 592,873 448,991 Weighted average diluted common shares 25,387,196 23,838,471 18,770,785 Earnings per common share Basic earnings per common share $ 4.15 $ 2.55 $ 2.36 Effect of dilutive securities Stock-based awards ( 0.07 ) ( 0.07 ) ( 0.06 ) Diluted earnings per common share $ 4.08 $ 2.48 $ 2.30 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 The following table sets forth the components in accumulated other comprehensive income for the years ended December 31,: 2023 2022 2021 Securities available-for-sale: Balance, beginning of year $ ( 46,157 ) $ 1,664 $ 9,119 Unrealized loss 1,002 ( 63,302 ) ( 9,870 ) Income tax effect ( 244 ) 15,481 2,415 Net unrealized loss 758 ( 47,821 ) ( 7,455 ) Reclassifications out of AOCI (1) — — — Other comprehensive loss, net of tax 758 ( 47,821 ) ( 7,455 ) Balance, end of year $ ( 45,399 ) $ ( 46,157 ) $ 1,664 Fair value hedges of securities available-for-sale: Balance, beginning of year $ 2,174 $ — $ — Unrealized gain 289 2,879 — Income tax effect ( 71 ) ( 705 ) — Net unrealized gain 218 2,174 — Balance, end of year $ 2,392 $ 2,174 $ — (1) Reclassifications are reported in noninterest income on the Consolidated Statements of Income and Comprehensive Income 126 Table of Contents NOTE 16 - Stockholders’ Equity As of December 31, 2023 and 2022, the Company has 10,000,000 shares of preferred stock authorized, $ 0.0001 par value, of which none were issued or outstanding, respectively. As of December 31, 2023 and 2022, the Company has 50,000,000 shares of common stock authorized, $ 0.0001 par value, of which 24,960,639 and 24,920,984 shares were issued and 24,960,639 and 24,920,984 shares were outstanding, respectively. Treasury stock: Activity in treasury stock is as follows for the years ended December 31,: 2023 2022 Shares Amount Shares Amount Balance, beginning of year — $ — 1,557,054 $ 38,148 Purchases — — — — Issuances — — ( 1,557,054 ) ( 38,148 ) Balance, end of year — $ — — $ — All purchases were in conjunction with the stock repurchase program that expired in 2022, and shares were held-in-treasury at $ 24.50 per share. Dividends : Dividends paid by the Company, if any, are substantially provided from Bank dividends. The Bank may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years , subject to maintenance of minimum capital requirements. 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 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. The fair value of each stock option award is estimated on the date of grant utilizing the Black-Scholes option pricing model. Expected volatility was determined based on the median historical volatility of 25 to 30 comparable companies that were publicly traded for a period commensurate with the expected term of the options. The expected term of the options was estimated to be the average of the contractual vesting term and time to contractual expiration. The risk-free rate for the expected term of the stock options was based on the U.S. Treasury yield curve in effect at the date of grant. 127 Table of Contents 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) 2023 Outstanding, beginning of period 1,307,915 $ 20.23 Exercised ( 62,915 ) 19.72 Outstanding, end of period 1,245,000 $ 20.25 4.29 Options vested or expected to vest 1,245,000 $ 20.25 Options exercisable, end of period 1,198,624 $ 20.13 4.21 2022 Outstanding, beginning of period 1,412,900 $ 20.19 Exercised ( 104,985 ) 19.72 Outstanding, end of period 1,307,915 $ 20.23 5.26 Options vested or expected to vest 1,307,915 $ 20.23 Options exercisable, end of period 1,191,032 $ 20.03 5.05 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. 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. 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. 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. In May 2023, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2026. 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, 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. 128 Table of Contents Acquired Equity Incentive Plans In conjunction with the Pioneer merger, we assumed certain options that had been granted under Pioneer’s option plans. All assumed options were fully vested and exercisable. No further options will be granted under the Pioneer plans. The following table presents option activity: Shares Weighted-Average Exercise Price, per Share Weighted-Average Remaining Contractual Term (years) 2023 Outstanding, 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 2022 Outstanding, beginning of period — $ — Options assumed from Pioneer Bancshares, Inc. 431,645 23.32 Exercised ( 259,890 ) 23.40 Forfeited ( 1,044 ) 24.90 Outstanding, vested, and exercisable, end of period 170,711 $ 23.19 5.62 At December 31, 2023 and 2022, the intrinsic value of the stock options was $ 1,239 and $ 2,263 , respectively. 129 Table of Contents NOTE 17 - Income Taxes The provision for income tax is summarized as follows for the years ended December 31,: 2023 2022 2021 Current $ 24,938 $ 5,637 $ 5,533 Deferred 3,012 9,203 3,145 Total income tax expense $ 27,950 $ 14,840 $ 8,678 A reconciliation of the provision for income taxes, with the amount computed by applying the statutory U.S. federal income tax rates to income before provision for income taxes is as follows for the years ended December 31,: 2023 2022 2021 Income tax provision computed at U.S. federal statutory rate $ 27,611 $ 15,545 $ 10,887 State tax expense, net of U.S. federal effect 3,718 2,359 1,836 Tax exempt interest ( 4,017 ) ( 4,011 ) ( 4,562 ) Net increase in cash surrender value of BOLI ( 405 ) ( 353 ) ( 268 ) Non-deductible professional fees — 216 648 Executive compensation 301 727 — Other 742 357 137 Income tax provision $ 27,950 $ 14,840 $ 8,678 Effective tax provision rate 21.3 % 20.0 % 16.7 % 130 Table of Contents Significant components of deferred tax assets and liabilities are as follows as of December 31,: 2023 2022 Deferred tax assets: Federal and state net operating loss $ 22,852 $ 25,118 Allowance for credit losses 18,950 15,537 Unrealized loss on securities 13,920 14,235 Deferred compensation 3,005 4,756 Fair value adjustments on loans 1,626 2,428 Share-based compensation 2,529 2,208 Accrued expenses 881 1,320 Deferred loan fees 826 1,044 Lease liability 519 1,044 Fair value adjustments on deposits 99 326 Other real estate owned and foreclosed assets — 7 Other 5,437 4,559 Total deferred tax assets 70,644 72,582 Deferred tax liabilities: Mortgage servicing rights 18,079 17,465 Fair value adjustments on intangible assets 2,889 3,596 Prepaid expenses 1,193 1,143 Premises and equipment 1,281 918 Fair value adjustments on debt 606 700 FHLB stock 144 196 Other 193 209 Total deferred tax liabilities 24,385 24,227 Total deferred tax assets, net $ 46,259 $ 48,355 As of December 31, 2023, we had net operating loss carryforwards for U.S. federal income tax purposes of approximately $ 105,392 which begin to expire in 2030. As of December 31, 2023, we had net operating loss carryforwards for state tax purposes of approximately $ 12,206 which begin to expire in 2024. 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 carryforwards before utilization. We believe that all of the net operating loss carryforwards will be used prior to expiration. We evaluate uncertain tax positions at the end of each reporting period. We may recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefit recognized in the financial statements from any such position is measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement. As of December 31, 2023 and 2022, we concluded there were no material uncertain tax positions. 131 Table of Contents NOTE 18 - Other Noninterest Expenses Significant components of other noninterest expenses are as follows for the years ended December 31,: 2023 2022 2021 Data processing expenses $ 14,933 $ 14,722 $ 12,889 Office expenses 4,698 5,203 4,396 Loan appraisal, servicing, and collection expenses 4,179 4,914 4,043 Professional fees 7,663 6,918 4,506 Advertising and marketing expenses 2,810 2,592 3,124 Insurance expenses 6,422 5,050 3,537 Travel and entertainment 3,873 3,750 2,526 Automated teller machine (ATM) and interchange expenses 1,495 1,494 1,176 Deposit expenses and other operational losses 1,894 2,057 1,024 Other 3,347 3,757 3,358 Total other noninterest expenses $ 51,314 $ 50,457 $ 40,579 NOTE 19 - Regulatory Capital Matters Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. Under the Basel III rules, the Parent Company and the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The fully phased in capital conservation buffer is 2.50% for all periods presented. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of December 31, 2023, both the Parent Company and the Bank met all capital adequacy requirements to which they were subject. Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of December 31, 2023 and 2022, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category. 132 Table of Contents Actual and required capital amounts for the Parent Company are as follows as of December 31,: Actual For Capital Adequacy Purposes To be Well- Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio 2023 Total risk-based capital to risk-weighted assets: $ 953,331 13.25 % $ 575,434 8.00 % N/A N/A Tier 1 risk-based capital to risk-weighted assets: $ 798,167 11.10 % $ 431,575 6.00 % N/A N/A Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 798,167 11.10 % $ 323,682 4.50 % N/A N/A Tier 1 leverage capital to average assets: $ 798,167 10.52 % $ 303,410 4.00 % N/A N/A 2022 Total risk-based capital to risk-weighted assets: $ 829,712 11.99 % $ 553,440 8.00 % N/A N/A Tier 1 risk-based capital to risk-weighted assets: $ 687,602 9.94 % $ 415,080 6.00 % N/A N/A Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 687,602 9.94 % $ 311,310 4.50 % N/A N/A Tier 1 leverage capital to average assets: $ 687,602 9.71 % $ 283,353 4.00 % N/A N/A Actual and required capital amounts for the Bank are as follows as of December 31,: Actual For Capital Adequacy Purposes To be Well- Capitalized under Prompt Corrective Action Provisions Amount Ratio Amount Ratio Amount Ratio 2023 Total risk-based capital to risk-weighted assets: $ 918,050 12.79 % $ 574,280 8.00 % $ 717,850 10.00 % Tier 1 risk-based capital to risk-weighted assets: $ 838,199 11.68 % $ 430,710 6.00 % $ 574,280 8.00 % Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 838,199 11.68 % $ 323,033 4.50 % $ 466,603 6.50 % Tier 1 leverage capital to average assets: $ 838,199 11.05 % $ 303,321 4.00 % $ 379,151 5.00 % 2022 Total risk-based capital to risk-weighted assets: $ 815,335 11.81 % $ 552,237 8.00 % $ 690,296 10.00 % Tier 1 risk-based capital to risk-weighted assets: $ 748,105 10.84 % $ 414,177 6.00 % $ 552,237 8.00 % Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 748,105 10.84 % $ 310,633 4.50 % $ 448,692 6.50 % Tier 1 leverage capital to average assets: $ 748,105 10.56 % $ 283,245 4.00 % $ 354,056 5.00 % 133 Table of Contents NOTE 20 - Transactions with Related Parties We have and may be expected to have in the future, banking transactions in the ordinary course of business with directors, significant stockholders, principal officers and their immediate families and affiliated companies in which they are principal stockholders (commonly referred to as related parties). Loans: As of December 31, 2023 and 2022, outstanding loans with related parties totaled $ 2,601 and $ 2,940 , respectively. As of December 31, 2023, there were unused lines of credit with directors or officers totaling $ 1,231 . Deposits: As of December 31, 2023 and 2022, deposits with related parties totaled $ 51,759 and $ 4,662 , respectively. Director Fees : 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 Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A description of the valuation methodologies used for the assets measured at fair value on a recurring basis, as well as the general classification of such assets pursuant to the fair value hierarchy, is set forth below. Available-for-sale securities - Where quoted market prices are available in an active market, securities are classified within Level 1 of the valuation hierarchy. Level 1 securities would include highly liquid exchange traded equities and mutual funds. If quoted market prices are not available, then fair values are estimated by using pricing models or quoted prices of securities with similar characteristics. Level 2 securities include U.S. treasury and agency securities, mortgage-related agency securities, mortgage-related private label securities, obligations of states and political subdivisions and asset backed and other securities. Loans held-for-sale - Mortgage loans originated and intended for sale in the secondary market are classified as mortgage loans held-for-sale and recorded at fair value. The changes in fair value of mortgage loans held-for-sale are measured and recorded as a component of income from mortgage banking services, net, in our consolidated statements of income and comprehensive income. Since estimated fair value is based on sale, exchange, or dealer market prices, these assets are classified within Level 2 of the valuation hierarchy. Mortgage servicing rights - We estimate the fair value of our MSRs using a process that combines the use of a discounted cash flow model and analysis of current market data to arrive at an estimate of fair value. The cash flow assumptions and prepayment assumptions used in the model are based on various factors, with the key assumptions being mortgage prepayment speeds, discount rates, and cost to service. These assumptions are generated and applied based on collateral stratifications including product type, remittance type, geography, delinquency, and coupon dispersion. These assumptions require the use of judgment by management and can have a significant impact on the fair value of the MSRs. We use a third-party consulting firm to assist us with the valuation of MSRs. Because of the nature of the valuation inputs, we classify these valuations as Level 3 in the fair value disclosures. For further details on our level 3 inputs related to MSRs, see Note 5 - Mortgage Servicing Rights . Derivative financial instruments : Banking Activities - Interest rate swaps are valued based on quoted prices for similar assets in an active market with inputs that are observable. These instruments are a component of prepaid expenses and other assets and accrued expenses and 134 Table of Contents 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 estimated fair value of IRLCs is based on the fair value of the related mortgage loans which is based on observable market data for similar loan product type. We adjust the outstanding IRLCs with prospective borrowers based on an expectation that it will be exercised and the loan will be funded. The initial and subsequent changes in the value of IRLCs are a component of gain on mortgage loans held-for-sale. Derivative financial instruments are classified within Level 2 of the valuation hierarchy. The following table sets forth our assets and liabilities measured at fair value on a recurring basis as of December 31,: Level 1 Level 2 Level 3 Quoted prices in active markets for identical assets Significant other observable inputs Significant unobservable inputs Total Estimated Fair Value 2023 Available-for-sale securities $ 54,234 $ 462,523 $ — $ 516,757 Loans held-for-sale — 54,212 — 54,212 Mortgage servicing rights — — 76,701 76,701 Derivative financial instruments - assets — 35,080 — 35,080 Derivative financial instruments - liabilities — ( 20,505 ) — ( 20,505 ) Total $ 54,234 $ 531,310 $ 76,701 $ 662,245 2022 Available-for-sale securities $ 56,649 $ 480,324 $ — $ 536,973 Loans held-for-sale — 57,323 — 57,323 Mortgage servicing rights — — 74,097 74,097 Derivative financial instruments - assets — 40,287 — 40,287 Derivative financial instruments - liabilities — ( 24,527 ) — ( 24,527 ) Total $ 56,649 $ 553,407 $ 74,097 $ 684,153 There were not any transfers between Level 2 and Level 3 during the years ended December 31, 2023 and 2022. The following table presents a reconciliation for our Level 3 assets measured at fair value on a recurring basis as of and for the years ended December 31,: 2023 2022 2020 Balance, beginning of year $ 74,097 $ 47,392 $ 29,144 Total (losses) gains included in earnings ( 6,649 ) 12,418 ( 5,606 ) Purchases, issuances, sales and settlements: Issuances 9,253 14,287 23,854 Balance, end of year $ 76,701 $ 74,097 $ 47,392 Certain financial assets and financial liabilities are regularly measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). Assets and liabilities measured at fair value on a nonrecurring basis include the following: 135 Table of Contents 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. Impaired loans are carried at the fair value of collateral if the loan is collateral dependent. A portion of the allowance for loan loss is allocated to impaired loans if the value of such loans is deemed to be less than the unpaid balance. If these allocations cause the allowance for loan loss to require an increase, such increase is reported as a component of the provision for 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. Fair value is generally based on recent third-party real estate appraisals which are updated on a periodic basis. These appraisals may take a single valuation approach using the comparable sales method or use a combination of approaches including the income approach. Adjustments are routinely made by the appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are typically significant and result in a Level 3 classification of the inputs for determining fair value. The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of December 31,: Level 3 2023 2022 Collateral dependent loans: Commercial and industrial $ 2,756 $ 5,229 Commercial real estate — 607 Residential real estate 1,448 802 Consumer — 3 Other 2,289 — Total collateral dependent loans $ 6,493 $ 6,641 Other real estate owned and foreclosed assets, net: Commercial real estate $ 3,133 $ 5,391 Residential real estate 967 967 Total other real estate owned and foreclosed assets, net: $ 4,100 $ 6,358 The fair value of the financial assets in the table above utilize the market approach valuation technique, with discount adjustments for differences between comparable sales. 136 Table of Contents Fair value of financial instruments not carried at fair value: The carrying amounts and estimated fair values of financial instruments not carried at fair value are as follows as of December 31,: Estimated Fair Value Carrying Value Total Level 1 Level 2 Level 3 2023 Assets: Cash and cash equivalents $ 479,362 $ 479,362 $ 479,362 $ — $ — Securities held-to-maturity 36,983 32,181 — 32,181 — 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 — Accrued interest receivable 37,099 37,099 — 2,220 34,879 Liabilities: Deposits (excluding demand deposits) $ 4,309,057 $ 4,298,164 $ 2,503,451 $ 1,794,713 $ — Securities sold under agreements to repurchase 24,693 24,693 — 24,693 — FHLB advances 389,468 389,468 — 389,468 — Subordinated debt, net 75,313 72,073 — 72,073 — Accrued interest payable 13,580 13,580 — 13,580 — 2022 Assets: Cash and cash equivalents $ 343,526 $ 343,526 $ 343,526 $ — $ — Securities held-to-maturity 38,901 33,218 — 33,218 — Loans (excluding impaired loans) 5,871,274 5,756,197 — — 5,756,197 Restricted equity securities 50,215 50,215 — 50,215 — Accrued interest receivable 28,543 28,543 — 2,049 26,494 Liabilities: Deposits (excluding demand deposits) $ 3,732,215 $ 3,696,438 $ 2,810,193 $ 886,245 $ — Securities sold under agreements to repurchase 36,721 36,721 — 36,721 — FHLB advances 643,885 643,885 — 643,885 — Convertible notes payable, net 5,355 5,329 — 5,329 — Subordinated debt, net 74,880 71,618 — 71,618 — Accrued interest payable 5,798 5,798 — 5,798 — 137 Table of Contents NOTE 22 - Parent Company Only Condensed Financial Information The following are the unconsolidated financial statements for the Parent Company on a stand-alone basis. These condensed financial statements should be read in conjunction with the Consolidated Financial Statements and accompanying Notes. The Parent Company's principal sources of funds are cash dividends paid by the Bank to the Parent Company. Condensed Balance Sheets As of December 31, 2023 2022 Assets Cash and cash equivalents $ 34,050 $ 17,312 Deferred tax assets 11,026 13,791 Prepaid expenses and other assets 16,179 12,996 Investment in and advances to subsidiaries 906,504 823,449 Total assets $ 967,759 $ 867,548 Liabilities Convertible notes payable, net $ — $ 5,355 Subordinated debt, net 75,313 74,880 Accrued expenses and other liabilities 15,249 12,777 Total liabilities 90,562 93,012 Total stockholders’ equity 877,197 774,536 Total liabilities and stockholders’ equity $ 967,759 $ 867,548 138 Table of Contents Condensed Statements of Income and Comprehensive Income For the years ended December 31, 2023 2022 2021 Income: Dividends received from subsidiaries $ 26,595 $ 8,700 $ — Interest income, $ 0 , $ 2 and $ 44 from subsidiaries, respectively 36 22 56 Total income 26,631 8,722 56 Expense: Interest expense 5,049 5,684 4,609 Salary and employee benefits 1,888 1,143 1,305 Occupancy and equipment 189 83 2 Merger related expenses — 1,598 1,663 Other noninterest expenses, net 2,039 1,380 778 Total expenses 9,165 9,888 8,357 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 Income before income taxes 101,303 56,881 41,428 Benefit from income taxes ( 2,230 ) ( 2,301 ) ( 1,736 ) Net income $ 103,533 $ 59,182 $ 43,164 Other comprehensive income (loss), net 976 ( 45,647 ) ( 7,455 ) Comprehensive income $ 104,509 $ 13,535 $ 35,709 139 Table of Contents Condensed Statements of Cash Flows For the years ended December 31, 2023 2022 2021 Cash flows from operating activities: Net income $ 103,533 $ 59,182 $ 43,164 Adjustments to reconcile income to net cash provided by (used in) operating activities: Amortization and accretion 533 1,529 1,095 (Equity) deficit in undistributed income of subsidiaries ( 83,837 ) ( 58,047 ) ( 49,729 ) Changes in operating assets and liabilities: Other assets ( 419 ) ( 1,442 ) ( 4,250 ) Other liabilities 2,911 293 3,479 Net cash provided by (used in) operating activities 22,721 1,515 ( 6,241 ) Cash flows from investing activities: 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 ) ( 150 ) — — Cash paid in excess of cash acquired in connection with Pioneer Merger — ( 4,140 ) — Contributions to subsidiaries ( 210 ) — — 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 ) — Proceeds from subordinated debt — 24,466 — Proceeds from issuance of common stock, net of issuance costs ( 167 ) ( 578 ) ( 66 ) 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 ) Cash and cash equivalents, beginning of year 17,312 11,141 16,948 Cash and cash equivalents, end of year $ 34,050 $ 17,312 $ 11,141 NOTE 23 - Segment Information Our operations are conducted through two operating segments: Banking and Mortgage Operations. Corporate represents costs not allocated to the operating segments. Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses are incurred for which discrete financial information is available that is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Operating segments have been determined based on the products and services offered and reflect the manner in which financial information is currently evaluated by management. Each segment operates under the same banking charter, but is reported on a segmented basis for this report. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. The Banking segment originates loans and provides deposits and fee based services to consumer, business, and mortgage lending customers. Products offered include a full range of commercial and consumer banking and financial services. The interest income on loans held-for-investment is recognized in the Banking segment, excluding newly originated residential first mortgages within the Mortgage Operations segment. 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 140 Table of Contents majority of the lending activity. The Mortgage Operations segment recognizes interest income on loans that are held-for-sale and newly originated residential mortgages held-for-investment, the gains from one to four family residential mortgage sales, and revenue for servicing loans and other ancillary fees following a sales transaction. Revenue from servicing activities is earned on a contractual fee basis. The Mortgage Operations segment services loans for the held-for-investment portfolio, for which it earns revenue via an intercompany service fee allocation which appears as a cost to Banking in mortgage fees. Forward traded loan purchases and sales settlements as well as mortgage servicing rights and related fair value adjustments are reported in this segment. Corporate represents miscellaneous other expenses of a corporate nature as well as revenue and expenses not directly assigned or allocated to the Banking or Mortgage Operations segments. The majority of executive management’s time is spent managing operating segments; related costs have been allocated between the operating segments and Corporate. Revenues are comprised of net interest income before the provision (benefit) for credit losses and noninterest income. Noninterest expenses are allocated to each operating 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. Significant segment totals are reconciled to the financial statements as follows for the year ended December 31,: Banking Mortgage Operations Corporate Total Segments 2023 Summary of Operations Net interest income (expense) $ 292,573 $ 5,871 $ ( 5,013 ) $ 293,431 Provision for credit losses 15,790 2,457 — 18,247 Noninterest income: Service charges on deposit accounts 21,345 — — 21,345 Credit and debit card fees 11,997 3 — 12,000 Trust and investment advisory fees 5,693 — — 5,693 (Loss) income from mortgage banking services, net ( 1,676 ) 33,060 — 31,384 Other noninterest income 8,670 — — 8,670 Total noninterest income 46,029 33,063 — 79,092 Noninterest expense: Salary and employee benefits 106,030 25,313 1,888 133,231 Occupancy and equipment 30,461 2,775 190 33,426 Other noninterest expenses 39,165 14,933 2,038 56,136 Total noninterest expense 175,656 43,021 4,116 222,793 Income (loss) before income taxes $ 147,156 $ ( 6,544 ) $ ( 9,129 ) $ 131,483 Other Information Depreciation expense $ 6,320 $ 233 $ — $ 6,553 Identifiable assets $ 6,907,741 $ 910,728 $ 61,255 $ 7,879,724 141 Table of Contents Banking Mortgage Operations Corporate Total Segments 2022 Summary of Operations Net interest income (expense) $ 241,840 $ 5,455 $ ( 5,663 ) $ 241,632 Provision for credit losses 14,781 3,269 — 18,050 Noninterest income: Service charges on deposit accounts 18,211 — — 18,211 Credit and debit card fees 11,511 — — 11,511 Trust and investment advisory fees 6,806 — — 6,806 (Loss) income from mortgage banking services, net ( 3,035 ) 49,320 — 46,285 Other noninterest income 6,762 ( 9 ) — 6,753 Total noninterest income 40,255 49,311 — 89,566 Noninterest expense: Salary and employee benefits 94,310 38,456 1,593 134,359 Occupancy 27,407 3,854 83 31,344 Other noninterest expenses 57,082 13,814 2,527 73,423 Total noninterest expense 178,799 56,124 4,203 239,126 Income (loss) before income taxes $ 88,515 $ ( 4,627 ) $ ( 9,866 ) $ 74,022 Other Information Depreciation expense $ 6,754 $ 364 $ — $ 7,118 Identifiable assets $ 6,633,383 $ 752,841 $ 44,098 $ 7,430,322 142 Table of Contents Banking Mortgage Operations Corporate Total Segments 2021 Summary of Operations Net interest income (expense) $ 152,515 $ 7,270 $ ( 4,552 ) $ 155,233 Provision (benefit) for credit losses 3,235 ( 235 ) — 3,000 Noninterest income: Service charges on deposit accounts 12,504 — — 12,504 Credit and debit card fees 9,596 — — 9,596 Trust and investment advisory fees 7,795 — — 7,795 (Loss) income from mortgage banking services, net ( 2,409 ) 88,819 — 86,410 Other noninterest income 7,946 ( 7 ) — 7,939 Total noninterest income 35,432 88,812 — 124,244 Noninterest expense: Salary and employee benefits 95,064 55,557 1,305 151,926 Occupancy 24,558 3,067 3 27,628 Other noninterest expenses 30,297 12,341 2,443 45,081 Total noninterest expense 149,919 70,965 3,751 224,635 Income (loss) before income taxes $ 34,793 $ 25,352 $ ( 8,303 ) $ 51,842 Other Information Depreciation expense $ 5,728 $ 390 $ — $ 6,118 Identifiable assets $ 5,058,281 $ 573,552 $ 34,981 $ 5,666,814 143 Table of Contents NOTE 24 - Commitments and Contingencies Commitments : We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include loan commitments, standby letters of credit, and documentary letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss in the event of nonperformance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet financial instruments. Undistributed portion of committed loans and unused lines of credit : Loan commitments are agreements to lend to a customer as long as there is no customer violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. As of December 31, 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, 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 : Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since many of the loan commitments and letters of credit expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner-occupied real estate, and/or income-producing commercial properties. As of December 31, 2023 and 2022, our standby letters of credit commitment totaled $ 14,490 and $ 17,426 , respectively. MPF Master Commitments : The Bank has executed MPF Master Commitments (Commitments) with the FHLB to deliver mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitments. The Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to manage the credit risk of the MPF Program mortgage loans. 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. As of December 31, 2023 and 2022 the maximum potential amount of future payments that the Bank would have been required to make under the Commitments was $ 3,810 and $ 3,860 respectively. Under the Commitments, the Bank agrees to service the loans and therefore, is responsible for any necessary foreclosure proceedings. Any future recoveries on any losses would not be paid by the FHLB under the Commitments. The Bank has not experienced any material losses under these guarantees. Contingencies : We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral. To the extent that we do not comply with such representations, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. We establish reserves for potential losses related to these representations and warranties if deemed appropriate and such reserves would be recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserve, we evaluate various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. From time to time, we are a defendant in various claims, legal actions, and complaints arising in the ordinary course of business. We periodically review all outstanding pending or threatened legal proceedings and determine if such matters will have an adverse effect on our business, financial condition, results of operations or cash flows. Overdraft Fee Litigation : On September 13, 2021, Samantha Besser filed a putative class action amended complaint against the Bank in the United States District Court for the District of Colorado. The amended complaint alleges that the Bank improperly charged multiple insufficient funds or overdraft fees. The Plaintiff seeks unspecified restitution, actual and statutory damages, costs, 144 Table of Contents 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. 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. While the ultimate resolution of any legal proceedings, including the matters described above, cannot be determined at this time, based on information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in these above legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our financial statements. It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to our results of operations for a given fiscal period. 145 Table of Contents NOTE 25 - Lease Commitments Our leases relate primarily to office space and bank branches with remaining lease terms of generally 1 to 15 years. Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term. For leases existing during transition from ASC 840 to ASC 842 at January 1, 2022, extension options were not considered in the remaining lease term. 2023 2022 ROU asset on leased property, gross $ 36,520 $ 35,212 Accumulated amortization ( 12,293 ) ( 6,808 ) 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: 2024 $ 7,146 2025 6,145 2026 4,386 2027 2,670 2028 2,488 Thereafter 5,287 Total undiscounted operating lease liability 28,122 Imputed interest 1,691 Total operating lease liability included in the accompanying balance sheet $ 26,431 Weighted Average Remaining Life - Operating Leases 5.56 Weighted Average Rate - Operating Leases 2.10 % The components of total lease expense was as follows for the years ended December 31,: 2023 2022 Operating leases $ 7,683 $ 7,145 Short-term leases 216 476 Sublease income ( 229 ) ( 310 ) 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. 146 Table of Contents NOTE 26 - Revenue from Contracts with Customers Under the guidance of the Revenue from Contracts with Customers (Topic 606), an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration received in exchange for those goods or services. Revenue is recognized when obligations, under the terms of a contract with our customer, are satisfied, which generally occurs when services are performed. Revenue is measured as the amount of consideration we expect to receive in exchange for providing services. The disaggregation of our revenue from contracts with customers included in our Banking segment is provided below for the years ended December 31,: 2023 2022 2021 Service charges on deposit accounts $ 21,345 $ 18,211 $ 12,504 Credit and debit card fees 12,000 11,511 9,596 Trust and investment advisory fees 5,693 6,806 7,795 Other income 4,930 5,464 4,932 Total $ 43,968 $ 41,992 $ 34,827 A description of our revenue streams accounted for under ASC 606 is as follows: Service charges on deposit accounts: We charge depositors various deposit account service fees including those for outgoing wires, overdrafts, stop payment orders, and ATM fees. These fees are generated from a depositor’s option to purchase services offered under the contract and are only considered a contract when the depositor exercises their option to purchase these account services. Therefore, we deem the term of our contracts with depositors to be day-to-day and do not extend beyond the services already provided. Deposit account and other banking fees are recorded at the point in time we perform the requested service. Credit and debit card fees : We collect interchange fee income when debit and credit cards that we have issued to our customers, are used in merchant transactions. Our performance obligation is satisfied and revenue is recognized at the point we initiate the payment of funds from a customer’s account to a merchant account. Trust and investment advisory fees : We earn trust and investment advisory fees from contracts with our customers to manage assets for investments, and/or transact on their accounts. These fees are primarily earned over time as we provide the contracted monthly, quarterly, or annual services and are generally assessed based on a tiered scale of the market value of assets under management at each month end. Fees that are transaction based are recognized at the point in time that the transaction is executed. Other related services provided include financial planning services and the fees we earn, which are based on a fixed fee schedule, are recognized when the services are rendered. Other income : Other income consists of fee income received in connection with administering customer accommodation interest rate swaps, loan syndication fees and miscellaneous charges for services provided to our customers. Customer accommodation interest rate swap fees and loan syndication fees are earned and recognized at the time of loan origination or syndication. Miscellaneous charges for services provided to our customers consists of fees that are generated from a customer’s option to purchase services offered under the contract and are only considered a contract when the customer exercises their option to purchase these services. Therefore, we deem the term of our contracts with these customers to be day-to-day and do not extend beyond the services already provided . 147 Table of Contents NOTE 27 - Subsequent Events The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Form 10-K. 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. 148 Table of Contents 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. In addition. 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. 149 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosures None.