Item 7. Management’s Discussion and Analysis
Item 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRSTSUN
In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
The following discussion is an analysis of our consolidated results of operations for the years ended December 31, 2024, 2023 and 2022, and financial condition for the years ended December 31, 2024 and 2023. This discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying footnotes filed with this report in “ Part II, Item 8. Financial Statements .” We have omitted discussion of 2022 results where it would be redundant to the discussion previously included in “ Management’s Discussion and Analysis of Financial Condition and Results of Operations of FirstSun ” section of our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 7, 2024. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.
Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” beginning on page 3 of this report.
General Overview
FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which is headquartered in Dallas, Texas and operates as Sunflower Bank, First National 1870 and Guardian Mortgage, which we are in the process of rebranding as Sunflower Bank Mortgage Lending. We conduct a full-service community banking and trust business through our wholly-owned subsidiaries—Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
We offer a full range of relationship-focused services to meet our clients’ personal, business and wealth management financial objectives throughout Texas, Kansas, Colorado, New Mexico, Arizona, California and Washington and a mortgage lending platform with capabilities in 43 states. Our product line includes commercial and industrial loans, commercial real estate loans, residential mortgage, public finance and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.
We operate FirstSun through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The expenses included in Corporate are not deemed to be allocable to our operating segments. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is evaluated by management. 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. For additional information on our segments, see Note 21 - Segment Information included in our consolidated financial statements included elsewhere in this report.
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Financial Highlights For 2024
We delivered strong financial results in 2024, which included:
• Net income of $75.6 million, $2.69 per diluted share (adjusted, $87.7 million, $3.13 per diluted share, see the “Non-GAAP Financial Measures and Reconciliations” below)
• Net interest margin of 4.06%
• Return on average total assets of 0.96% (adjusted, 1.12%, see the “Non-GAAP Financial Measures and Reconciliations” below)
• Return on average stockholders’ equity of 7.56% (adjusted, 8.77%, see the “Non-GAAP Financial Measures and Reconciliations” below)
• Average deposit growth of 5.8%
• Loan growth of 1.7%
• 23.2% fee revenue to total revenue 1
Net income totaled $75.6 million, or $2.69 per diluted share, in 2024, compared to $103.5 million, or $4.08 per diluted share, in 2023. Adjusted net income, a non-GAAP financial measure, was $87.7 million, or $3.13 per diluted share, in 2024. The return on average total assets was 0.96% in 2024, compared to 1.38% in 2023, and the return on average stockholders’ equity was 7.56% in 2024, compared to 12.50% in 2023. Adjusted return on average total assets and adjusted return on average stockholders’ equity, each a non-GAAP financial measure, were 1.12% and 8.77% respectively in 2024.
The following table sets forth certain financial highlights of FirstSun as of and for the years ended December 31,:
($ in thousands, except per share amounts) 2024 2023 2022
Income Statement:
Net interest income $ 296,910 $ 293,431 $ 241,632
Provision for credit losses 27,550 18,247 18,050
Noninterest income 89,792 79,092 89,566
Noninterest expense 264,040 222,793 239,126
Income before income taxes 95,112 131,483 74,022
Provision for income taxes 19,484 27,950 14,840
Net income 75,628 103,533 59,182
Adjusted net income 2
87,744 103,533 76,213
Balance Sheet:
Total assets $ 8,097,387 $ 7,879,724 $ 7,430,322
Total loans held-for-sale 61,825 54,212 57,323
Total loans held-for-investment 6,376,357 6,267,096 5,911,832
Total deposits 6,672,260 6,374,103 5,765,062
Total borrowed funds 210,841 464,781 724,120
Total stockholders' equity 1,041,366 877,197 774,536
Per Common Share Data:
Period end common shares outstanding 27,709,679 24,960,639 24,920,984
Weighted average common shares outstanding, basic 27,433,865 24,938,359 23,245,598
Basic earnings per share $ 2.76 $ 4.15 $ 2.55
Weighted average common shares outstanding, diluted 28,067,273 25,387,196 23,838,471
Diluted earnings per share $ 2.69 $ 4.08 $ 2.48
Adjusted diluted earnings per share 2
3.13 4.08 3.20
Cash dividends $ — $ — $ —
Dividend payout ratio — % — % — %
Book value per share $ 37.58 $ 35.14 $ 31.08
Tangible book value per share 2
33.94 30.96 26.69
1 Total revenue is net interest income plus noninterest income.
2 See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
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($ in thousands, except per share amounts) 2024 2023 2022
Performance Ratios:
Return on average total assets 0.96 % 1.38 % 0.88 %
Adjusted return on average total assets 2
1.12 % 1.38 % 1.13 %
Return on average stockholders' equity 7.56 % 12.50 % 8.55 %
Adjusted return on average stockholders’ equity 2
8.77 % 12.50 % 11.01 %
Return on average tangible stockholders' equity 2
8.74 % 14.88 % 10.45 %
Adjusted return on average tangible stockholders' equity 2
10.09 % 14.88 % 13.30 %
Net interest margin 4.06 % 4.23 % 3.87 %
Net interest margin (FTE basis) 2
4.12 % 4.29 % 3.95 %
Efficiency ratio 68.28 % 59.81 % 72.20 %
Adjusted efficiency ratio 2
64.13 % 59.81 % 66.54 %
Noninterest income to total revenue 1
23.2 % 21.2 % 27.0 %
Balance Sheet Ratios:
Loan to deposit ratio 95.6 % 98.3 % 102.5 %
Net charge-offs (recoveries) to average loans outstanding 0.32 % 0.13 % (0.01) %
Allowance for credit losses to loans 1.38 % 1.28 % 1.12 %
Nonperforming loans to total loans 3
1.08 % 1.01 % 0.49 %
Capital Ratios:
Total risk-based capital to risk-weighted assets 15.42 % 13.25 % 11.99 %
Tier 1 risk-based capital to risk-weighted assets 13.18 % 11.10 % 9.94 %
Common Equity Tier 1 (CET 1) to risk-weighted assets 13.18 % 11.10 % 9.94 %
Tier 1 leverage capital to average assets 12.11 % 10.52 % 9.71 %
Average stockholders' equity to average total assets 12.72 % 11.05 % 10.28 %
Tangible stockholders' equity to tangible assets 2
11.76 % 9.94 % 9.09 %
Tangible stockholders' equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax 2
11.71 % 9.90 % 9.03 %
Nonfinancial Data:
Full-time equivalent employees 1,127 1,110 1,149
Banking branches 69 69 72
1 Total revenue is net interest income plus noninterest income.
2 See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
3 Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due. On January 1, 2023, we adopted ASU 2022-02, whereby we no longer recognize or account for TDRs. The loans previously classified as accrual TDRs are no longer considered nonperforming. We have adjusted December 31, 2022 to reflect this change in accounting.
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Non-GAAP Financial Measures and Reconciliations
The non-GAAP financial measures presented below are used by our management and our board of directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2024, included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.
The following table presents GAAP to non-GAAP reconciliations as of and for the years ended December 31,:
($ in thousands, except share and per share amounts) 2024 2023 2022
Tangible stockholders’ equity to tangible assets:
Total stockholders' equity (GAAP) $ 1,041,366 $ 877,197 $ 774,536
Less: Goodwill and other intangible assets
Goodwill (93,483) (93,483) (93,483)
Other intangible assets (7,434) (10,984) (15,806)
Tangible stockholders' equity (non-GAAP) $ 940,449 $ 772,730 $ 665,247
Total assets (GAAP) $ 8,097,387 $ 7,879,724 $ 7,430,322
Less: Goodwill and other intangible assets
Goodwill (93,483) (93,483) (93,483)
Other intangible assets (7,434) (10,984) (15,806)
Tangible assets (non-GAAP) $ 7,996,470 $ 7,775,257 $ 7,321,033
Total stockholders' equity to total assets (GAAP) 12.86 % 11.13 % 10.42 %
Less: Impact of goodwill and other intangible assets (1.10) % (1.19) % (1.33) %
Tangible stockholders' equity to tangible assets (non-GAAP) 11.76 % 9.94 % 9.09 %
Tangible stockholders’ equity to tangible assets, reflecting net unrealized losses on HTM securities, net of tax:
Tangible stockholders' equity (non-GAAP) $ 940,449 $ 772,730 $ 665,247
Less: Net unrealized losses on HTM securities, net of tax (4,292) (3,629) (4,295)
Tangible stockholders’ equity less net unrealized losses on HTM securities, net of tax (non-GAAP) $ 936,157 $ 769,101 $ 660,952
Tangible assets (non-GAAP) $ 7,996,470 $ 7,775,257 $ 7,321,033
Less: Net unrealized losses on HTM securities, net of tax (4,292) (3,629) (4,295)
Tangible assets less net unrealized losses on HTM securities, net of tax (non-GAAP) $ 7,992,178 $ 7,771,628 $ 7,316,738
Tangible stockholders’ equity to tangible assets (non-GAAP) 11.76 % 9.94 % 9.09 %
Less: Net unrealized losses on HTM securities, net of tax (0.05) % (0.04) % (0.06) %
Tangible stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) 11.71 % 9.90 % 9.03 %
Tangible book value per share:
Total stockholders' equity (GAAP) $ 1,041,366 $ 877,197 $ 774,536
Tangible stockholders' equity (non-GAAP) $ 940,449 $ 772,730 $ 665,247
Total shares outstanding 27,709,679 24,960,639 24,920,984
Book value per share (GAAP) $ 37.58 $ 35.14 $ 31.08
Tangible book value per share (non-GAAP) $ 33.94 $ 30.96 $ 26.69
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($ in thousands, except share and per share amounts) 2024 2023 2022
Adjusted net income:
Net income (GAAP) $ 75,628 $ 103,533 $ 59,182
Add: Non-recurring adjustments
Terminated merger / Merger related expenses, net of tax 9,949 — 14,668
Provision for loan loss on acquired loans marked at a premium, net of tax — — 2,363
Write-off of Guardian Mortgage trade name, net of tax 625 — —
Disposal of ATMs, net of tax 1,542 — —
Total adjustments, net of tax 12,116 — 17,031
Adjusted net income (non-GAAP) $ 87,744 $ 103,533 $ 76,213
Adjusted diluted earnings per share:
Diluted earnings per share (GAAP) $ 2.69 $ 4.08 $ 2.48
Add: Impact of non-recurring adjustments
Terminated merger / Merger related expenses, net of tax 0.36 — 0.62
Provision for loan loss on acquired loans marked at a premium, net of tax — — 0.10
Write-off of Guardian Mortgage trade name, net of tax 0.02 — —
Disposal of ATMs, net of tax 0.06 — —
Adjusted diluted earnings per share (non-GAAP) $ 3.13 $ 4.08 $ 3.20
Adjusted return on average total assets:
Return on average total assets (ROAA) (GAAP) 0.96 % 1.38 % 0.88 %
Add: Impact of non-recurring adjustments
Terminated merger / Merger related expenses, net of tax 0.13 % — % 0.21 %
Provision for loan loss on acquired loans marked at a premium, net of tax — % — % 0.04 %
Write-off of Guardian Mortgage trade name 0.01 % — % — %
Disposal of ATMs 0.02 % — % — %
Adjusted ROAA (non-GAAP) 1.12 % 1.38 % 1.13 %
Adjusted return on average stockholders’ equity:
Return on average stockholders' equity (ROACE) (GAAP) 7.56 % 12.50 % 8.55 %
Add: Impact of non-recurring adjustments
Terminated merger / Merger related expenses, net of tax 1.00 % — % 2.12 %
Provision for loan loss on acquired loans marked at a premium, net of tax — % — % 0.34 %
Write-off of Guardian Mortgage trade name 0.06 % — % — %
Disposal of ATMs 0.15 % — % — %
Adjusted ROACE (non-GAAP) 8.77 % 12.50 % 11.01 %
Return on average tangible stockholders’ equity
Return on average stockholders’ equity (ROACE) 7.56 % 12.50 % 8.55 %
Add: Impact from goodwill and other intangible assets
Goodwill 0.87 % 1.85 % 1.34 %
Other intangible assets 0.31 % 0.53 % 0.56 %
Return on average tangible stockholders’ equity (ROATCE) 8.74 % 14.88 % 10.45 %
Adjusted return on average tangible stockholders’ equity:
Return on average tangible stockholders' equity (ROATCE) 8.74 % 14.88 % 10.45 %
Add: Impact of non-recurring adjustments
Terminated merger / Merger related expenses, net of tax 1.11 % — % 2.45 %
Provision for loan loss on acquired loans marked at a premium, net of tax — % — % 0.40 %
Write-off of Guardian Mortgage trade name 0.07 % — % — %
Disposal of ATMs 0.17 % — % — %
Adjusted ROATCE (non-GAAP) 10.09 % 14.88 % 13.30 %
Adjusted total noninterest expense:
Total noninterest expense (GAAP) $ 264,040 $ 222,793 $ 239,126
Less: Non-recurring adjustments
Terminated merger / Merger related expenses (13,178) — (18,751)
Write-off of Guardian Mortgage trade name (828) — —
Disposal of ATMs (2,042) — —
Total adjustments, net of tax (16,048) — (18,751)
Adjusted total noninterest expense (non-GAAP) $ 247,992 $ 222,793 $ 220,375
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($ in thousands, except share and per share amounts) 2024 2023 2022
Adjusted efficiency ratio:
Efficiency ratio (GAAP) 68.28 % 59.81 % 72.20 %
Less: Impact of non-recurring adjustments
Terminated merger related expenses / Merger related expenses (3.41) % — % (5.66) %
Write-off of Guardian Mortgage trade name (0.21) % — % — %
Disposal of ATMs (0.53) % — % — %
Adjusted efficiency ratio (non-GAAP) 64.13 % 59.81 % 66.54 %
Fully tax equivalent (“FTE”) net interest income and net interest margin:
Net interest income (GAAP) $ 296,910 $ 293,431 $ 241,632
Gross income effect of tax exempt income 4,767 5,086 5,059
FTE net interest income (non-GAAP) $ 301,677 $ 298,517 $ 246,691
Average earning assets $ 7,320,696 $ 6,935,567 $ 6,244,221
Net interest margin 4.06 % 4.23 % 3.87 %
Net interest margin on FTE basis (non-GAAP) 4.12 % 4.29 % 3.95 %
Segments
Our operations are conducted through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is currently evaluated by management. 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. For additional information on our segments, see Note 21 - Segment Information included in our audited consolidated financial statements included elsewhere in this report.
Comparison of fiscal years 2024 and 2023
Banking
Income before income taxes decreased $48.9 million to $98.3 million in 2024, from $147.2 million in 2023. The period over period decrease was primarily driven by a decrease in net interest income, increase in noninterest expenses, and increase in provision for credit losses, partially offset by an increase in noninterest income. Net interest income decreased $9.3 million to $283.2 million in 2024 compared to $292.6 million in 2023. The decrease in net interest income was a result of higher interest expense primarily due to continued intense competition for deposits amidst the elevated interest rate environment and an increase in certificates of deposit balances. Noninterest expense increased $29.3 million to $204.9 million in 2024, compared to $175.7 million in 2023. The increase in noninterest expense was primarily the result of an increase in salary and employee benefits of $15.5 million and an increase of $8.6 million in terminated merger related expenses in 2024. Provision for credit losses increased $12.6 million to $28.4 million in 2024 compared to $15.8 million in 2023. The increase in the provision for credit losses was primarily due to a $13.6 million provision for credit loss on a specific customer in our commercial and industrial (C&I) loan portfolio in 2024. Identifiable assets for our Banking segment decreased by $0.1 billion to $6.8 billion at December 31, 2024 from $6.9 billion at December 31, 2023.
Mortgage Operations
Income before income taxes increased to $9.7 million in 2024, compared to a loss of $6.5 million in 2023, primarily due to a $12.7 million increase in net interest income and a $8.4 million increase in mortgage banking services revenue, net, partially offset by a $6.3 million increase in salary and employee benefits. Net interest income increased primarily due to a higher average balance and higher average yield on residential real estate loans and the impact of internal funds transfer pricing. Mortgage banking services revenue, net increased primarily due to higher net sale gains and fees from mortgage loan originations and to a lesser extent, an increase in mortgage servicing income, and MSR capitalization and changes in fair value, net of derivative activity. Total mortgage loan originations for sale were $1.1 billion in 2024, an increase of $0.3 billion from $0.8 billion in 2023. The unpaid principal balance of mortgage loans serviced for others were $5.8 billion in 2024, an increase of $0.4 billion from $5.4 billion in 2023. Salary and employee benefits increased due to higher levels of variable compensation associated with an increase in mortgage loan originations.
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Critical Accounting Estimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Our accounting and reporting estimates are in accordance with generally accepted accounting principles, or “U.S. GAAP,” and conform to general practices within the banking industry. Estimates that are susceptible to significant changes include accounting for the allowance for credit losses and fair value measurements, both of which require significant judgments by management. Actual results could result in material changes to our consolidated financial condition or consolidated results of operations.
Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of the allowance for credit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors.
These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.
Allowance for Credit Losses - Management maintains an ACL for loans based upon management’s estimate of the lifetime expected credit losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, management maintains an ACL for held-to-maturity or available-for-sale debt securities, and other off-balance sheet credit exposures (e.g., unfunded loan commitments). For loans and unfunded loan commitments, the estimate of lifetime credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using historical experience. For purposes of the ACL for lending commitments, such allowance is determined using the same methodology as the ACL for loans, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us. The ACL for held-to-maturity and available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, length of the initial loss forecast period, the reversion of losses beyond the initial forecast period, usage of macroeconomic scenarios, probabilities of default, losses given default, amortization and prepayment rates, and qualitative factors, which may not be adequately captured in the loss model, as further discussed below.
The macroeconomic scenarios utilized by management include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, corporate bond spreads and changes in equity market prices. Management derives the economic forecasts it uses in its ACL model from Moody’s Analytics. The latter has a large team of economics, database managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.
Management has currently set an initial forecast period (“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 macroeconomic mean. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted for prepayments, is used based on changes in key historical economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore influence the amount of future cash flows for each instrument that management does not expect to collect.
Further, management periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not 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. The qualitative factors applied on
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December 31, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgement.
The ACL can also be impacted by factors outside of management’s control, which include unanticipated changes in asset quality of the portfolio, such as deterioration in borrower delinquencies, or credit scores in our residential real estate and consumer portfolio. Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent.
Our process for determining ACL is further discussed in “ Note 1- Basis of Presentation, Description of Business and Summary of Significant Accounting Policies ” included in Item 8 of this Form 10-K.
Additionally, as an “emerging growth company” under Section 107 of the JOBS Act, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (CECL) on January 1, 2023. As such, our allowance for credit losses for years prior to 2023 may not be comparable to other public financial institutions that adopted CECL in an earlier year.
Fair Value Measurement of MSRs - Our residential mortgage servicing rights are measured at fair value on a recurring basis. We estimate the fair value of our MSRs using a process that utilizes a discounted cash flow model and analysis of current market data to arrive at the estimate. The cash flow assumptions used in the model are based on numerous factors, with the key assumptions being mortgage prepayment speeds, discount rates and cost to service that management believes are consistent with the assumptions that other similar market participants use in valuing MSRs. The change of any of these key assumptions due to market conditions or other factors could materially affect the fair value of our MSRs. We also utilize a third-party consulting firm to assist us with the valuation. Because of the nature of the valuation inputs, we classify the valuation of our MSRs as Level 3 in the fair value hierarchy. See Note 4 - Mortgage Servicing Rights included in our audited consolidated financial statements included elsewhere in this report for our assumptions used in valuing the MSRs. For information concerning the hypothetical sensitivity of the key assumptions under adverse changes on our MSRs, see the table under “Noninterest Income” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.
Results of Operations
Comparison of fiscal years 2024 and 2023
The follow table sets forth our results of operations as of and for the year ended December 31,:
($ in thousands, except per share amounts) 2024 2023 2022
Net interest income $ 296,910 $ 293,431 $ 241,632
Provision for credit losses 27,550 18,247 18,050
Noninterest income 89,792 79,092 89,566
Noninterest expense 264,040 222,793 239,126
Income before income taxes 95,112 131,483 74,022
Provision for income taxes 19,484 27,950 14,840
Net income 75,628 103,533 59,182
Diluted earnings per share $ 2.69 $ 4.08 $ 2.48
Return on average total assets 0.96 % 1.38 % 0.88 %
Return on average stockholders' equity 7.56 % 12.50 % 8.55 %
Net interest margin 4.06 % 4.23 % 3.87 %
Net interest margin (FTE basis) 1
4.12 % 4.29 % 3.95 %
Efficiency ratio 68.28 % 59.81 % 72.20 %
Noninterest income to total revenue 2
23.2 % 21.2 % 27.0 %
1 See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
2 Total revenue is net interest income plus noninterest income.
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General
Our results of operations depend significantly on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and investment securities and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent on our generation of noninterest income, consisting primarily of income from mortgage banking services, service charges on deposit accounts, trust and investment advisory fees and credit and debit card fees. Other factors contributing to our results of operations include our provisions for credit losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs.
Net Interest Income
Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which are principally comprised of loans and investment securities. We incur interest expense from interest owed or paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. Net interest income and margin are shaped by the characteristics of the underlying products, including volume, term and structure of each product. We measure and monitor yields on our loans and other interest-earning assets, the costs of our deposits and other funding sources, our net interest spread and our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets.
Interest earned on our loan portfolio is the largest component of our interest income. Our loan portfolios are presented at the principal amount outstanding net of deferred origination fees and unamortized discounts and premiums. Interest income is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Non-PCD loans acquired are initially recorded at fair value and the resulting discount or premium are recognized as an adjustment of the yield on the related loans.
Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
Our net interest income was $296.9 million in 2024, an increase of $3.5 million, or 1.2%, compared to 2023. Interest income on loans increased by $36.3 million in 2024, compared to 2023. Interest income on investment securities increased by $1.4 million in 2024, compared to 2023. Interest expense from total interest-bearing liabilities increased by $42.4 million in 2024, compared to 2023.
Our net interest margin decreased 17 basis points to 4.06% in 2024, compared to 2023. Results in 2024, compared to the prior year, were driven by an increase of 66 basis points in the cost of interest-bearing liabilities, partially offset by an increase of 32 basis points in yield on earning assets.
Total average loans, including loans held-for-sale, grew to $6.4 billion in 2024, an increase of $0.2 billion, or 3.8%, compared to 2023, primarily due to organic growth in our loan portfolios. Yield on loans increased 34 basis points in 2024, compared to 2023, primarily due to higher yields on new originations as compared to amortizing and maturing balances.
Average interest-bearing liabilities grew to $5.2 billion in 2024, an increase of $0.3 billion, or 6.8%, compared to 2023, primarily to support the growth in our loan portfolio. Average interest-bearing deposits increased $0.5 billion, or 11.0%, in 2024, compared to 2023. Total cost of deposits increased by 76 basis points to 3.03% in 2024, compared to 2023, primarily due to continued intense competition for deposits amidst the elevated interest rate environment and an increase in certificates of deposit balances. Average FHLB borrowings decreased $144.8 million in 2024, compared to 2023. The cost of FHLB borrowings increased by 43 basis points to 5.48% in 2024, compared to 2023.
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The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated.
As of and for the year ended December 31,:
2024 2023 2022
(In thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest Earning Assets
Loans 1
$ 6,410,520 $ 421,959 6.58 % $ 6,178,414 $ 385,637 6.24 % $ 5,216,212 $ 247,988 4.75 %
Investment securities 529,209 18,468 3.49 % 554,433 17,032 3.07 % 605,119 13,185 2.18 %
Interest-bearing cash and other assets 380,967 19,113 5.02 % 202,720 11,015 5.43 % 422,890 5,644 1.33 %
Total earning assets 7,320,696 459,540 6.28 % 6,935,567 413,684 5.96 % 6,244,221 266,817 4.27 %
Other assets 543,650 556,083 494,065
Total assets $ 7,864,346 $ 7,491,650 $ 6,738,286
Interest-bearing liabilities
Demand and NOW deposits $ 633,123 $ 23,013 3.63 % $ 385,424 $ 11,574 3.00 % $ 214,516 $ 1,775 0.83 %
Savings deposits 412,941 2,834 0.69 % 453,654 2,676 0.59 % 496,131 799 0.16 %
Money market deposits 2,161,618 45,643 2.11 % 2,122,410 28,301 1.33 % 2,528,308 6,770 0.27 %
Certificates of deposits 1,756,755 79,161 4.51 % 1,512,638 58,804 3.89 % 536,325 3,810 0.71 %
Total deposits 4,964,437 150,651 3.03 % 4,474,126 101,355 2.27 % 3,775,280 13,154 0.35 %
Repurchase agreements 15,557 188 1.21 % 28,316 225 0.80 % 54,335 119 0.22 %
Total deposits and repurchase agreements 4,979,994 150,839 3.03 % 4,502,442 101,580 2.26 % 3,829,615 13,273 0.35 %
FHLB borrowings 124,833 6,836 5.48 % 269,613 13,621 5.05 % 215,166 6,221 2.89 %
Other long-term borrowings 75,586 4,955 6.55 % 78,654 5,052 6.42 % 82,111 5,691 6.93 %
Total interest-bearing liabilities 5,180,413 162,630 3.14 % 4,850,709 120,253 2.48 % 4,126,892 25,185 0.61 %
Noninterest-bearing deposits 1,542,808 1,678,240 1,835,578
Other liabilities 140,529 134,599 83,292
Stockholders’ equity 1,000,596 828,102 692,524
Total liabilities and stockholders’ equity $ 7,864,346 $ 7,491,650 $ 6,738,286
Net interest income $ 296,910 $ 293,431 $ 241,632
Net interest spread 3.14 % 3.48 % 3.66 %
Net interest margin 4.06 % 4.23 % 3.87 %
Net interest margin (on a FTE basis) 2
4.12 % 4.29 % 3.95 %
1 Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale.
2 See section entitled “ Non-GAAP Financial Measures and Reconciliations ” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
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Rate-Volume Analysis
The tables below present the effect of volume and rate changes on interest income and expense. Changes in volume are changes in the average balance multiplied by the previous period’s average rate. Changes in rate are changes in the average rate multiplied by the average balance from the current period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
For the year ended December 31,
For the year ended December 31,
2024 Versus 2023 Increase (Decrease) Due to:
2023 Versus 2022 Increase (Decrease) Due to:
(In thousands) Rate Volume Total Rate Volume Total
Interest Earning Assets
Loans 1
$ 21,512 $ 14,810 $ 36,322 $ 86,596 $ 51,053 $ 137,649
Investment securities 2,158 (722) 1,436 4,835 (988) 3,847
Interest-bearing cash (773) 8,871 8,098 6,788 (1,417) 5,371
Total earning assets 22,897 22,959 45,856 98,219 48,648 146,867
Interest-bearing liabilities
Demand and NOW deposits 2,822 8,617 11,439 7,520 2,279 9,799
Savings deposits 350 (192) 158 1,939 (62) 1,877
Money market deposits 16,810 532 17,342 22,436 (905) 21,531
Certificates of deposits 10,107 10,250 20,357 39,086 15,908 54,994
Total deposits 30,089 19,207 49,296 70,981 17,220 88,201
Repurchase agreements (280) 243 (37) 130 (24) 106
Total deposits and repurchase agreements 29,809 19,450 49,259 71,111 17,196 88,307
FHLB borrowings 1,257 (8,042) (6,785) 5,528 1,872 7,400
Other long-term borrowings 109 (206) (97) (406) (233) (639)
Total interest-bearing liabilities 31,175 11,202 42,377 76,233 18,835 95,068
Net interest income $ (8,278) $ 11,757 $ 3,479 $ 21,986 $ 29,813 $ 51,799
1 Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale.
Provision for Credit Losses
We established an allowance for credit losses through a provision for credit losses charged as an expense in our consolidated statements of income. The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the allowance for credit losses at an adequate level to absorb expected losses in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. Our determination of the amount of the allowance for credit losses and corresponding provision for credit losses considers ongoing evaluations of the credit quality and level of credit risk inherent in our loan portfolio, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors. The allowance for credit losses is increased by the provision for credit losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs.
The provision for credit losses totaled $27.6 million in 2024, an increase of $9.3 million compared to 2023, primarily due to a $13.6 million provision for credit loss on a specific customer in our commercial and industrial (C&I) loan portfolio in 2024.
Net charge-offs in 2024 were $20.4 million, or a ratio of net charge-offs to average loans of 0.32%, compared to net charge-offs of $7.8 million, or a ratio of net charge-offs to average loans of 0.13%, in 2023. The increase in net charge-offs in 2024 is primarily due to a $16.7 million net charge-off on a specific customer in our C&I loan portfolio.
The allowance for credit losses as a percentage of total loans was 1.38% at December 31, 2024, compared to 1.28% at December 31, 2023. The ratio of nonperforming assets to total assets was 0.92% at December 31, 2024, compared to 0.85% at December 31, 2023.
For a further discussion of the allowance for credit losses, refer to the “Allowance for Credit Losses” section of this financial review.
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Noninterest Income
The following table presents noninterest income for the year ended December 31,:
(In thousands) 2024 2023 2022
Service charges on deposit accounts $ 9,495 $ 9,940 $ 9,857
Treasury management service fees 14,829 11,724 8,827
Credit and debit card fees 11,153 11,681 11,038
Trust and investment advisory fees 5,787 5,693 6,806
Income from mortgage banking services, net 39,014 31,384 46,285
Other 9,514 8,670 6,753
Total noninterest income $ 89,792 $ 79,092 $ 89,566
Noninterest income totaled $89.8 million in 2024, an increase of $10.7 million from 2023, primarily due to increases in treasury management service fees and income from mortgage banking services, net.
Service charges on deposit accounts includes overdraft and non-sufficient funds charges, and other maintenance fees on deposit accounts. Service charges on deposit accounts decreased $0.4 million for the year ended December 31, 2024 compared to 2023, primarily due to a decrease in insufficient funds and overdraft fees.
Treasury management service fees include financial information management, accounts receivable management, accounts payable services, fraud mitigation services, and cash flow management. Treasury management service fees increased $3.1 million, primarily due to an overall increase in our business customer base as well as an increase in products and services provided to our existing customer base.
Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions by our business customers. Credit and debit card fees decreased $0.5 million for the year ended December 31, 2024 compared to 2023, primarily due to a decrease in card transaction volumes.
Trust and investment advisory fees represent fees we receive in connection with our investment advisory and custodial management services of investment accounts. Trust and investment advisory fees increased $0.1 million for the year ended December 31, 2024 compared to 2023, primarily due to higher average assets under management.
The components of income from mortgage banking services, net, were as follows for the year ended December 31,:
(In thousands) 2024 2023 2022
Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging $ 18,855 $ 14,275 $ 18,924
Mortgage servicing income 16,973 15,674 15,088
MSR capitalization and changes in fair value, net of derivative activity 3,186 1,435 12,273
Income from mortgage banking services, net $ 39,014 $ 31,384 $ 46,285
Income from mortgage banking services increased $7.6 million in 2024, compared to 2023. We experienced an increase of $4.6 million in 2024, compared to 2023, in revenue related to net sale gains and fees from mortgage loan originations, including fair value changes in the held-for-sale portfolio and hedging activity. Total loan originations for sale were $1.1 billion in 2024, an increase of $0.3 billion from $0.8 billion in 2023. We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $1.3 million to $17.0 million in 2024, from $15.7 million in 2023. MSR capitalization and changes in fair value, net of derivative activity, increased $1.8 million in 2024, compared to 2023. Revenue was higher in 2024, compared to 2023 due to an increase in MSR capitalization of $3.0 million partially offset by a decrease in MSR fair value, net of derivative activity of $1.2 million. We recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio. See the impact of changes to our key MSR valuation assumptions in the table below.
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The following table shows the hypothetical effect on the fair value of our MSRs when applying certain unfavorable variations of key assumptions to these assets as of December 31, 2024.
(In thousands) 10% 20%
Discount rate $ (3,656) $ (6,709)
Total prepayment speeds (3,091) (5,623)
Cost of servicing each loan (1,330) (2,215)
These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.
We also maintain a hedging strategy to manage a portion of the risk associated with changes in the fair value of our MSR portfolio. Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included as a component of income from mortgage banking services.
Other noninterest income increased $0.8 million for the year ended December 31, 2024 compared to 2023, primarily due to an increase in the cash surrender value of BOLI.
Noninterest Expense
The following table presents noninterest expense for the year ended December 31,:
(In thousands) 2024 2023 2022
Salary and employee benefits $ 154,985 $ 133,231 $ 134,359
Occupancy and equipment 36,282 33,426 31,344
Amortization of intangible assets 3,549 4,822 4,215
Terminated merger related expenses 13,178 — —
Merger related expenses — — 18,751
Other ( Note 16 - Other noninterest expenses )
56,046 51,314 50,457
Total noninterest expenses $ 264,040 $ 222,793 $ 239,126
Noninterest expenses totaled $264.0 million in 2024, an increase of $41.2 million from 2023, primarily due to an increase in salaries and benefits of $21.8 million as a result of increased head count of C&I bankers and higher levels of variable compensation associated with an increase in mortgage loan originations.
Noninterest expense in 2024 included terminated merger related expenses of $13.2 million. Additional non-recurring expenses include $2.0 million of costs to dispose of a majority of our ATMs and amend our associated service contract as we move to participating in a national ATM network, and a $0.8 million write-off of the Guardian Mortgage trade name as we are in the process of rebranding our residential mortgage business as Sunflower Bank Mortgage Lending. Adjusted noninterest expense, a non-GAAP financial measure, totaled $248.0 million in 2024, an increase of $25.2 million from 2023.
The efficiency ratio for 2024 was 68.28% compared to 59.81% in 2023. The adjusted efficiency ratio, a non-GAAP financial measure, in 2024 was 64.13% compared to 59.81% in 2023.
Income Taxes
We had income tax expense in 2024 of $19.5 million, compared to $28.0 million in 2023. The decrease in income tax expense was primarily due to our decreased income during 2024. Our effective tax rate was 20.5% in 2024, compared to 21.3% in 2023. For additional information on our income taxes, see Note 15 - Income Taxes included in our audited consolidated financial statements included elsewhere in this report.
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Financial Condition
Balance Sheet
Our total assets were $8.1 billion at December 31, 2024, compared to $7.9 billion at December 31, 2023. Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $6.4 billion at December 31, 2024, an increase of $0.1 billion from 2023, which was due to organic growth.
Investment Securities
Our securities portfolio is used to make various term investments, maintain a source of liquidity and serve as collateral for certain types of deposits and borrowings. We manage our investment portfolio according to written investment policies approved by our board of directors. Investment in our securities portfolio may change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and other available sources of funds, and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements.
Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no trading securities in our investment portfolio as of December 31, 2024 and 2023. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.
Our securities available-for-sale decreased by $47.7 million to $469.1 million at December 31, 2024, compared to December 31, 2023. The decrease was primarily due to amortization of the portfolio. Securities held-to-maturity decreased $1.7 million to $35.2 million at December 31, 2024, compared to December 31, 2023, due to amortization of the portfolio.
The following table is a summary of our investment portfolio as of December 31,:
2024 2023
(In thousands) Carrying Amount % of Portfolio Carrying Amount % of Portfolio
Available-for-sale:
U.S. treasury $ 31,730 6.8 % $ 54,234 10.5 %
U.S. agency 656 0.2 % 1,839 0.4 %
Obligations of states and political subdivisions 25,699 5.5 % 25,970 5.0 %
Mortgage backed - residential 96,279 20.5 % 106,433 20.6 %
Collateralized mortgage obligations 164,347 35.0 % 181,533 35.1 %
Mortgage backed - commercial 134,827 28.7 % 131,192 25.4 %
Other debt 15,538 3.3 % 15,556 3.0 %
Total available-for-sale $ 469,076 100 % $ 516,757 100 %
Held-to-maturity:
Obligations of states and political subdivisions $ 25,713 73.0 % $ 25,542 69.1 %
Mortgage backed - residential 6,373 18.0 % 7,548 20.4 %
Collateralized mortgage obligations 3,156 9.0 % 3,893 10.5 %
Total held-to-maturity $ 35,242 100 % $ 36,983 100 %
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The following tables show the weighted average yield to average life of each category of investment securities as of December 31, 2024:
(In thousands) One year or less One to five years Five to ten years After ten years
Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield
Available-for-sale:
U.S. treasury $ — — % $ 31,730 1.28 % $ — — % $ — — %
U.S. agency — — % 145 6.11 % 511 6.06 % — — %
Obligations of states and political subdivisions — — % — — % 20,414 3.19 % 5,285 2.60 %
Mortgage backed - residential 1,314 2.38 % 33,825 2.47 % 31,688 2.43 % 29,452 2.63 %
Collateralized mortgage obligations 646 2.52 % 34,829 4.03 % 108,117 3.40 % 20,755 1.83 %
Mortgage backed - commercial 5,291 2.05 % 70,280 3.55 % 59,256 2.60 % — — %
Other debt — — % 3,923 3.71 % 9,811 2.52 % 1,804 3.75 %
Total available-for-sale $ 7,251 2.15 % $ 174,732 3.03 % $ 229,797 3.01 % $ 57,296 2.38 %
Held-to-maturity:
Obligations of states and political subdivisions $ — — % $ 1,000 2.06 % $ — — % $ 24,713 3.52 %
Mortgage backed - residential 414 (0.25) % 4,404 2.59 % 19 5.92 % 1,536 3.26 %
Collateralized mortgage obligations — — % 3,156 2.81 % — — % — — %
Total held-to-maturity $ 414 (0.25) % $ 8,560 2.61 % $ 19 5.92 % $ 26,249 3.51 %
We had no securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
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Loans
Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico, Arizona and California primarily comprised of commercial and industrial, commercial real estate, residential real estate, public finance and consumer financing loans. We have a diversified portfolio across a variety of industries, and the portfolio is generally centered in the states in which we have branch offices. Our lending focus continues to be on operating companies, including commercial and industrial loans and lines-of-credit, as well as owner occupied commercial real estate loans.
Total loans, net of deferred fees, costs, premiums and discounts, as of December 31, 2024 and 2023 were $6.4 billion and $6.3 billion, respectively.
The following table sets forth the composition of our loan portfolio, as of December 31,:
2024 2023
(In thousands) Amount % of
total loans Amount % of
total loans
Commercial and industrial $ 2,497,772 39.2 % $ 2,467,688 39.4 %
Commercial real estate:
Non-owner occupied 752,861 11.8 % 812,235 13.0 %
Owner occupied 702,773 11.0 % 635,365 10.2 %
Construction and land 362,677 5.7 % 345,430 5.5 %
Multifamily 94,355 1.5 % 103,066 1.6 %
Total commercial real estate 1,912,666 30.0 % 1,896,096 30.3 %
Residential real estate 1,180,610 18.5 % 1,110,610 17.7 %
Public finance 554,784 8.7 % 602,913 9.6 %
Consumer 41,345 0.6 % 36,371 0.6 %
Other 189,180 3.0 % 153,418 2.4 %
Total loans $ 6,376,357 100.0 % $ 6,267,096 100.0 %
Commercial and industrial loans include 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 our market areas and are underwritten on the basis of the borrower’s ability to service the debt from revenue, and are generally extended under our normal credit standards, controls and monitoring systems.
Commercial real estate (“CRE”) 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. Non-owner occupied CRE loans were 66.7% of the Company’s risk-based capital, or 11.8% of total loans as of December 31, 2024. Non-owner occupied CRE loans associated with office space were $88.8 million, or 1.4% of total loans as of December 31, 2024. Owner occupied CRE loans associated with office space were $186.3 million, or 2.9% of total loans as of December 31, 2024.
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.
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Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following tables is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their contractual maturity. Renewal of these loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties. The following tables summarize the loan maturity distribution by type and related interest rate characteristics as of December 31, 2024:
(In thousands) One year
or less After one
through
five years After five
through
15 years After 15
years Total
Commercial and industrial $ 404,142 $ 1,781,854 $ 288,662 $ 23,114 $ 2,497,772
Commercial real estate 308,933 1,137,367 410,388 55,978 1,912,666
Residential real estate 111,379 35,410 59,475 974,346 1,180,610
Public finance 28,317 146,651 284,789 95,027 554,784
Consumer 15,467 10,386 15,298 194 41,345
Other 57,013 110,319 18,238 3,610 189,180
Total loans $ 925,251 $ 3,221,987 $ 1,076,850 $ 1,152,269 $ 6,376,357
(In thousands) One year
or less After one
through
five years After five
through
15 years After 15
years Total Total Loans Maturing After 1 Year
Loans maturing with:
Fixed interest rates
Commercial and industrial $ 22,157 $ 262,652 $ 188,639 $ 530 $ 473,978 $ 451,821
Commercial real estate 154,122 571,047 69,059 1,282 795,510 641,388
Residential real estate 83,156 27,672 42,972 310,085 463,885 380,729
Public finance 25,676 146,651 281,455 95,027 548,809 523,133
Consumer 6,592 8,668 15,135 — 30,395 23,803
Other 10,770 25,749 17,450 3,610 57,579 46,809
Total fixed interest rate loans $ 302,473 $ 1,042,439 $ 614,710 $ 410,534 $ 2,370,156 $ 2,067,683
Floating or adjustable interest rates
Commercial and industrial $ 381,985 $ 1,519,202 $ 100,023 $ 22,584 $ 2,023,794 $ 1,641,809
Commercial real estate 154,811 566,320 341,329 54,696 1,117,156 962,345
Residential real estate 28,223 7,738 16,503 664,261 716,725 688,502
Public finance 2,641 — 3,334 — 5,975 3,334
Consumer 8,875 1,718 163 194 10,950 2,075
Other 46,243 84,570 788 — 131,601 85,358
Total floating or adjustable interest rate loans $ 622,778 $ 2,179,548 $ 462,140 $ 741,735 $ 4,006,201 $ 3,383,423
Total loans $ 925,251 $ 3,221,987 $ 1,076,850 $ 1,152,269 $ 6,376,357 $ 5,451,106
Allowance for Credit Losses
We maintain the allowance for credit losses at a level we believe is sufficient to absorb expected losses in our loan portfolio given the conditions at the time and our estimates of future economic conditions. Events that are not within our control, such as changes in economic factors, could change subsequent to the reporting date and could cause increases or decreases to the allowance. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance.
In determining the provision for credit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.
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The following table presents, by loan type, the changes in the allowance for credit losses for the years ended December 31,:
(In thousands) 2024 2023 2022
Balance, beginning of period $ 80,398 $ 65,917 $ 47,547
Impact of adopting ASC 326 — 5,256 —
Adjusted beginning balance $ 80,398 $ 71,173 $ 47,547
Loan charge-offs:
Commercial and industrial (20,743) (9,242) (2,321)
Commercial real estate (475) (83) —
Residential real estate (38) (13) (122)
Public finance — — —
Consumer (438) (334) (144)
Other — — —
Total loan charge-offs (21,694) (9,672) (2,587)
Recoveries of loans previously charged-off:
Commercial and industrial 1,181 1,118 2,236
Commercial real estate 9 12 388
Residential real estate 8 682 221
Public finance — — —
Consumer 119 50 62
Other — — —
Total loan recoveries 1,317 1,862 2,907
Net (charge-offs) recoveries (20,377) (7,810) 320
Provision for credit losses 1
28,200 17,035 18,050
Balance, end of period $ 88,221 $ 80,398 $ 65,917
Allowance for credit losses to total loans 1.38 % 1.28 % 1.12 %
Ratio of net charge-offs to average loans outstanding 0.32 % 0.13 % (0.01) %
1 For the years ended December 31, 2024, 2023 and 2022 we recorded a provision for credit losses on unfunded commitments of $(650), $1,212 and $525, respectively. For further information, see Note 3 - Loans .
The following table presents net charge-offs (recoveries) to average loans outstanding by loan category for the years ended December 31,:
(In thousands) 2024 2023 2022
Commercial and industrial 0.69 % 0.30 % — %
Commercial real estate 0.03 % — % (0.03) %
Residential real estate — % (0.07) % (0.01) %
Public finance — % — % — %
Consumer 0.79 % 0.70 % 0.21 %
Other — % — % — %
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Allocation of Allowance for Credit Losses
The following table presents the allocation of the allowance for credit losses by category and the percentage of the allocation of the allowance for credit losses by category to total loans listed as of December 31,:
2024 2023
(In thousands) Allowance
Amount % of loans in
each category to
total loans Allowance
Amount % of loans in
each category to
total loans
Commercial and industrial $ 37,912 39.2 % $ 29,523 39.4 %
Commercial real estate 28,323 30.0 % 27,546 30.3 %
Residential real estate 15,450 18.5 % 16,345 17.7 %
Public finance 4,750 8.7 % 5,337 9.6 %
Consumer 750 0.6 % 717 0.6 %
Other 1,036 3.0 % 930 2.4 %
Total $ 88,221 100.0 % $ 80,398 100.0 %
Nonperforming Assets
We have established policies and procedures to guide us in originating, monitoring and maintaining the credit quality of our loan portfolio. These policies and procedures are expected to be followed by our bankers and underwriters and exceptions to these policies require elevated levels of approval and are reported to our board of directors.
Nonperforming assets include all loans categorized as nonaccrual, accrual loans greater than 90 days past due, and other real estate owned and other repossessed assets. The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt. We do not generally accrue interest on loans that are 90 days or more past due. When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal. Loans are returned to accrual status when, in our judgment, the borrower’s ability to satisfy principal and interest obligations under the loan agreement has improved sufficiently to reasonably assure recovery of principal and the borrower has demonstrated a sustained period of repayment performance. In general, we require a minimum of six consecutive months of timely payments in accordance with the contractual terms before returning a loan to accrual status.
The following table sets forth our nonperforming assets as of December 31,:
(In thousands) 2024 2023
Nonaccrual loans:
Commercial and industrial $ 28,314 $ 8,004
Commercial real estate 9,302 4,063
Residential real estate 20,220 22,413
Public finance 7,226 —
Consumer 64 10
Other 2,391 2,837
Total nonaccrual loans 67,517 37,327
Accrual loans greater than 90 days past due 1,533 25,816
Total nonperforming loans 69,050 63,143
Other real estate owned and foreclosed assets, net 5,138 4,100
Total nonperforming assets $ 74,188 $ 67,243
Nonaccrual loans to total loans 1.06 % 0.60 %
Nonperforming loans to total loans 1.08 % 1.01 %
Nonperforming assets to total assets 0.92 % 0.85 %
Allowance for credit losses to nonaccrual loans 130.66 % 215.39 %
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Deposits
Deposits represent our primary source of funds. Total deposits increased by $0.3 billion to $6.7 billion at December 31, 2024, compared to December 31, 2023.
We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. The following table presents our deposits by customer type as of December 31,:
($ in thousands) 2024 2023
Consumer
Noninterest bearing deposit accounts $ 410,303 $ 360,168
Interest-bearing deposit accounts:
Demand and NOW deposits 61,987 36,162
Savings deposits 326,916 343,291
Money market deposits 1,516,577 1,196,645
Certificates of deposits 1,069,704 1,437,537
Total interest-bearing deposit accounts 2,975,184 3,013,635
Total consumer deposits $ 3,385,487 $ 3,373,803
Business
Noninterest bearing deposit accounts $ 1,130,855 $ 1,170,338
Interest-bearing deposit accounts:
Demand and NOW deposits 669,417 555,197
Savings deposits 75,422 80,802
Money market deposits 915,208 825,811
Certificates of deposits 51,131 87,407
Total interest-bearing deposit accounts 1,711,178 1,549,217
Total business deposits $ 2,842,033 $ 2,719,555
Wholesale deposits 1
$ 444,740 $ 280,745
Total deposits $ 6,672,260 $ 6,374,103
1 Wholesale deposits consist of brokered deposits included in our consolidated balance sheets within interest-bearing accounts and in Note 9 - Deposits within certificates of deposits and savings and money market accounts.
2024 2023
(Dollars in thousands) Average
Balance Average
Rate Paid Average
Balance Average
Rate Paid
Noninterest-bearing demand deposit accounts $ 1,542,808 — % $ 1,678,240 — %
Interest-bearing deposit accounts:
Interest-bearing demand accounts 592,381 3.79 % 344,242 3.26 %
Savings accounts and money market accounts 2,574,559 1.88 % 2,576,064 1.20 %
NOW accounts 40,742 1.34 % 41,182 0.82 %
Certificate of deposit accounts 1,756,755 4.51 % 1,512,638 3.89 %
Total interest-bearing deposit accounts 4,964,437 3.03 % 4,474,126 2.27 %
Total deposits $ 6,507,245 2.32 % $ 6,152,366 1.65 %
As of December 31, 2024 and December 31, 2023, approximately $2.3 billion or 34.8% and $2.0 billion or 31.2%, respectively, of our deposit portfolio was uninsured. As of December 31, 2024 and December 31, 2023, approximately $1.7 billion or 25.2% and $1.6 billion or 25.1%, respectively, of our deposit portfolio was uninsured and uncollateralized. The uninsured and uninsured and uncollateralized amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.
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We actively participate in the IntraFi Cash Service (“ICS”) / Certificate of Deposit Account Registry Service (“CDARS”) program which provides FDIC insurance coverage for clients that maintain larger deposit balances. Deposits in the ICS / CDARS program totaled $0.7 billion, or 11.1% of all deposits as of December 31, 2024, and $0.6 billion, or 9.2% of all deposits as of December 31, 2023.
The following table sets forth the portion of the Bank's certificates of deposit, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31, 2024:
(In thousands)
Three months or less $ 51,948
Over three months through six months 122,659
Over six through twelve months 51,536
Over twelve months through three years 7,609
Over three years 1,307
Total $ 235,059
Liquidity
Liquidity refers to our ability to maintain cash flow that is adequate to fund operations, support asset growth, maintain reserve requirements and meet present and future obligations of deposit withdrawals, lending obligations and other contractual obligations.
FirstSun (Parent Company)
FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and funds used for acquisitions. FirstSun can obtain funding to meet its obligations from dividends collected from its subsidiaries, primarily the Bank, and through the issuance of FirstSun common stock and varying forms of debt. At December 31, 2024, FirstSun had available cash and cash equivalents of $109.0 million and debt outstanding of $78.9 million. Management believes FirstSun has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. 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. Prior regulatory approval to pay dividends was not required in 2023 or 2024 and is not currently required. At December 31, 2024, the Bank could pay dividends to FirstSun of approximately $226.6 million without prior regulatory approval. During the year ended December 31, 2024, the Bank did not pay a dividend to FirstSun. During the year ended December 31, 2024, Logia paid dividends totaling $0.7 million to FirstSun.
Bank
The Bank’s liquidity management policy and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Our Asset and Liability Management Committee, or ALCO, is responsible for oversight of our liquidity risk management activities in accordance with the provisions of our ALM Policy and applicable bank regulatory capital and liquidity laws and regulations. Our liquidity risk management process includes (i) ongoing analysis and monitoring of our funding requirements under various economic and interest rate scenarios, (ii) review and monitoring of lenders, depositors, brokers and other liability holders to ensure appropriate diversification of funding sources and (iii) liquidity contingency planning to address liquidity needs in the event of unforeseen market disruption, including appropriate allocation of funds to a liquid portfolio of marketable securities and investments. We continuously monitor our liquidity position in order for our assets and liabilities to be managed in a manner that we believe will meet our immediate and long-term funding requirements. We seek to manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control when we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.
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Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers and capital expenditures. These liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities. Cash, interest-bearing deposits in third-party banks, securities available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets. Other sources of liquidity that are available to us include the sale of loans we hold for investment, the ability to acquire additional national market non-core deposits, borrowings through the Federal Reserve’s discount window and the issuance of debt or equity securities.
At December 31, 2024, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $607.6 million, or 7.5% of total assets, compared to $473.0 million, or 6.0% of total assets, at December 31, 2023. At December 31, 2024, approximately 91% of the investment securities portfolio was pledged as collateral to secure public deposits and repurchase agreements. Our unencumbered available-for-sale securities at December 31, 2024 were $34.5 million, or 0.4% of total assets, compared to $81.5 million, or 1.0% of total assets, at December 31, 2023.
The liability portion of our balance sheet serves as a primary source of liquidity. We plan to meet our future cash needs primarily through the generation of deposits. Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At December 31, 2024, loans as a percentage of customer deposits were 95.6%, compared with 98.3% at December 31, 2023. For additional information related to our deposits, see Deposits section above. We are also a member of the FHLB and FRB, from which we can borrow for leverage or liquidity purposes. The FHLB and FRB requires that securities and qualifying loans be pledged to secure any advances. Liquidity sources available to us for immediate funding at December 31, 2024, are as follows:
FHLB borrowings available $ 1,385,345
Fed Funds lines 1,973,407
Unused lines with other financial institutions 160,000
Immediate funding availability $ 3,518,752
Management believes the Bank has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.
Capital
Stockholders’ equity at December 31, 2024 was $1,041.4 million, compared to $877.2 million at 2023, an increase of $164.2 million, or 18.7%. The increase in stockholders’ equity relates primarily to net income for the year ended December 31, 2024 and issuance of FirstSun common stock in January 2024. We did not pay a dividend to our common shareholders during the years ended December 31, 2024 or 2023.
Capital Adequacy
We are subject to various regulatory capital requirements administered by the federal banking agencies. Management routinely analyzes our capital to seek to ensure an optimized capital structure. For further information on capital adequacy see Note 17 - Regulatory Capital Matters to the consolidated financial statements.
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Material Contractual Obligations, Commitments, and Contingent Liabilities
We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk.
The following table summarizes our material contractual obligations as of December 31, 2024. Further discussion of each obligation or commitment is included in the referenced note to the consolidated financial statements.
(In thousands) Note
Reference Total Less than
1 Year 1 - 3
Years 3 - 5
Years More than
5 Years
Deposits:
Deposits without a stated maturity 9 $ 5,106,685 $ 5,106,685 $ — $ — $ —
Certificates of deposit 9 1,565,575 1,501,442 56,508 5,377 2,248
Securities sold under agreements to repurchase 10 14,699 14,699 — — —
Short-term debt:
FHLB term advances 11 135,000 135,000 — — —
Long-term debt:
Subordinated debt 11 78,919 — — — 78,919
Operating leases 23 26,112 7,339 9,035 5,899 3,839
We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients. Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 7 - Derivative Financial Instruments to the consolidated financial statements.
In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged. Further discussion of contingent liabilities is included in Note 22 - Commitments and Contingencies to the consolidated financial statements.
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 commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Further discussion of contingent liabilities is included in Note 22 - Commitments and Contingencies to the consolidated financial statements.
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