FSUN 10-Q Quarterly Report Sept. 30, 2024

FIRSTSUN CAPITAL BANCORP

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fcb-20240930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

__________________________________

FORM 10-Q

__________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2024


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File N umber 333-258176

__________________________________

FIRSTSUN CAPITAL BANCORP

(Exact name of registrant as specified in its charter)

__________________________________


Delaware						81-4552413
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification Number)

1400 16th Street , Suite 250

Denver , Colorado 80202

( 303 ) 831-6704

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

__________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange
on which registered

Common Stock, $0.0001 Par Value

FSUN

Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒

As of November 7, 2024, there were approximately 27,666,854 shares of the registrant’s common stock outstanding.

Table of Contents


			Page
Cautionary Note Regarding Forward-Looking Statements			3
Part I - Financial Information (Unaudited)			5
Item 1. Financial Statements			5
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations			52
Item 3. Quantitative and Qualitative Disclosures About Market Risk			80
Item 4. Controls and Procedures			81
Part II - Other Information			82
Item 1. Legal Proceedings			82
Item 1A. Risk Factors			82




Item 6. Exhibits			83
Signatures			84

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect our current views with respect to, among other things, statements relating to the Company’s assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, short and long-term performance goals, prospects, results of operations, strategic initiatives, the benefits, cost and synergies of completed acquisitions or dispositions, and the timing, benefits, costs and synergies of future acquisitions, disposition and other growth opportunities, including statements regarding our pending merger with HomeStreet, Inc. (“HomeStreet”). They are not statements of historical or current fact nor are they assurances of future performance, and they generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, are difficult to predict and are generally beyond our control and should be viewed with caution.

There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:

• potential fluctuations or unanticipated changes in the interest rate environment, including interest rate changes made by the Board of Governors of the Federal Reserve, and their related impacts on macroeconomic conditions, customer and client behavior, our funding costs, and our loan and securities portfolios, as well as cash flow reassessments may reduce net interest margin and/or the volumes and values of loans made or held as well as the value of other financial assets;

• changes in the monetary and fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve;

• other actions of the Federal Reserve and legislative and regulatory actions and reforms;

• the potential effects of events beyond our control that may have a destabilizing effect on financial markets, economic growth, customer and client behavior and the economy in general, such as inflation and recessions, epidemics and pandemics, terrorist activities, wars and other foreign conflicts, essential utility outages, climate change, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation;

• the potential effects of pandemics or public health conditions on the economic and business environments in which we operate, including the impact of actions taken by governmental authorities to address these situations, and the resulting effect of these items on our operations, liquidity and capital position, and on the financial condition of our borrowers and other customers;

• changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental or legislative action and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection and insurance and the ability to comply with such changes in a timely manner;

• the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the financial services market;

• competition from financial institutions and other financial service providers including non-bank financial technology providers and our ability to attract customers from other financial institutions;

• any unanticipated or greater than anticipated adverse conditions in the national or local economies in which we operate;

• our loan concentration in industries or sectors that may experience unanticipated or greater than anticipated adverse conditions than other industries or sectors in the national or local economies in which we operate;

• increased capital requirements, other regulatory requirements or enhanced regulatory supervision;

• cyber-security risks and the vulnerability of our network and online banking portals, and the systems or parties with whom we contract, to unauthorized access, cyber attacks, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches that could adversely affect our business and financial performance or reputation;

• risks with respect to our ability to identify and complete future mergers or acquisitions, including our proposed merger with HomeStreet, as well as our ability to successfully expand and integrate those businesses and operations that we acquire;

• the failure to close our previously announced merger with HomeStreet when expected or at all because required regulatory approvals, our planned conversion to a Texas state-chartered bank and member of the Federal Reserve System, and other conditions to closing are not received or satisfied on a timely basis or at all, and the risk that

any regulatory approvals may result in the imposition of conditions (including additional regulatory burdens that might result from the combined companies having assets in excess of $10 billion) that could adversely affect the combined company or the expected benefits of the proposed merger;

• the dilutive effect of shares of FirstSun’s common stock to be issued and the related potential effects on our stock price if the proposed merger with HomeStreet is completed;

• the failure of FirstSun and HomeStreet to agree on an alternative regulatory structure for a combination now that it appears that regulatory approvals will not be received from the Federal Reserve and the Texas Department of Banking;

• the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement with HomeStreet, including a mutual termination of the merger agreement if it is determined that an alternative structure is not feasible;

• the possibility that the anticipated benefits of the proposed merger with HomeStreet, should it occur, including anticipated cost savings and strategic gains, are not realized when expected or at all;

• the proposed merger with HomeStreet, if it occurs, being more expensive or having taken longer to complete than anticipated, including as a result of unexpected factors or events;

• the diversion of management’s attention from ongoing business operations and opportunities due to the proposed merger with HomeStreet;

• potential adverse reactions or changes to business or employee relationships, including those resulting from the completion of or the uncertainties resulting from the failure to complete the proposed merger with HomeStreet;

• changes in FirstSun’s or HomeStreet’s share price before closing;

• the risks of expansion into new geographic or product markets;

• the inability to manage strategic initiatives and/or organizational changes;

• our ability to attract and retain key employees;

• volatility in the allowance for credit losses resulting from the CECL methodology, either alone or that may be affected by conditions affecting our business;

• changes in accounting principles, policies, practices or guidelines;

• our reliance on third parties to provide key components of our business infrastructure and services required to operate our business;

• the availability of and access to capital; failures of internal controls and other risk management systems;

• the outcome (including judgments, costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) of pending or threatened litigation or of matters before or involving regulatory agencies, whether currently existing or commencing in the future;

• losses due to fraudulent or negligent conduct of our customers, third-party service providers or employees; and

• limitations on our ability to declare and pay dividends and other distributions from our bank to our holding company, which could affect our holding company’s liquidity, including its ability to pay dividends to shareholders or take other capital actions.

We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on any forward-looking statements. You should also consider the risks, assumptions and uncertainties set forth under “Item 1.A. Risk Factors,” of our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (“SEC”) on March 7, 2024 (our “ 2023 Annual Report ”) as well as any additional factors that might be reported in future filings that we make with the SEC. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. Accordingly, you should not place undue reliance on any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we do not intend to and disclaim any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so under the federal securities laws.

Part I - Financial Information

Item 1. Financial Statements (Unaudited)

Index to Consolidated Financial Statements


			Page
Consolidated Balance Sheets			6
Consolidated Statements of Income and Comprehensive Income			7
Consolidated Statements of Stockholders' Equity			8
Consolidated Statements of Cash Flows			10
Notes to Consolidated Financial Statements			12
Note 1 - Organization and Basis of Presentation			12

Note 2 - Securities			16
Note 3 - Loans			20
Note 4 - Mortgage Servicing Rights			30
Note 5 - Derivative Financial Instruments			31
Note 6 - Deposits			34
Note 7 - Securities Sold Under Agreements to Repurchase			35
Note 8 - Debt			35
Note 9 - Earnings Per Share			37

Note 10 - Stockholders' Equity			37
Note 11 - Income Taxes			39
Note 12 - Regulatory Capital Matters			39
Note 13 - Fair Value Measurements			41
Note 14 - Segment Information			44
Note 15 - Commitments and Contingencies			49
Note 16 - Lease Commitments			51

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Balance Sheets

As of


	(Unaudited)
(In thousands, except par and share amounts)	September 30, 2024		December 31, 2023
Assets
Cash and cash equivalents	$	573,674	$	479,362
Securities available-for-sale, at fair value	496,811		516,757
Securities held-to-maturity, fair value of $ 32,111 and $ 32,181 , respectively	35,885		36,983
Loans held-for-sale, at fair value	72,247		54,212
Loans, net of allowance for credit losses of $ 83,159 and $ 80,398 , respectively	6,360,597		6,186,698
Mortgage servicing rights, at fair value	78,799		76,701
Premises and equipment, net	82,532		84,842
Other real estate owned and foreclosed assets, net	4,478		4,100
Bank-owned life insurance	80,583		79,851
Restricted equity securities	32,394		38,072
Goodwill	93,483		93,483
Core deposits and other intangible assets, net	8,866		10,984
Accrued interest receivable	35,711		37,099
Deferred tax assets, net	39,514		46,259
Prepaid expenses and other assets	142,913		134,321
Total assets	$	8,138,487	$	7,879,724

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing accounts	$	1,554,762	$	1,530,506
Interest-bearing accounts	5,095,118		4,843,597
Total deposits	6,649,880		6,374,103
Securities sold under agreements to repurchase	10,913		24,693
Federal Home Loan Bank advances	215,000		389,468


Subordinated debt, net	75,709		75,313
Accrued interest payable	9,018		13,580
Accrued expenses and other liabilities	143,882		125,370
Total liabilities	7,104,402		7,002,527

Commitments and contingencies ( Note 15 )

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; 27,665,918 and 24,960,639 shares issued and outstanding, respectively	3		2
Additional paid-in capital	547,271		462,680

Retained earnings	516,800		457,522
Accumulated other comprehensive loss, net	( 29,989 )		( 43,007 )
Total stockholders’ equity	1,034,085		877,197
Total liabilities and stockholders’ equity	$	8,138,487	$	7,879,724

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

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Income and Comprehensive Income

For the three and nine months ended September 30,

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
(In thousands, except per share amounts)	2024		2023		2024		2023
Interest income:
Interest and fee income on loans:
Taxable	$	104,186	$	94,734	$	302,338	$	269,151
Tax exempt	4,255		4,831		13,555		14,335
Interest and dividend income on securities:
Taxable	4,767		4,219		14,017		12,597
Tax exempt	2		7		11		20
Other interest income	5,722		2,984		13,580		7,607
Total interest income	118,932		106,775		343,501		303,710
Interest expense:
Interest expense on deposits	39,585		30,896		114,459		65,804
Interest expense on securities sold under agreements to repurchase	44		65		148		163
Interest expense on other borrowed funds	3,145		2,404		9,031		16,381
Total interest expense	42,774		33,365		123,638		82,348
Net interest income	76,158		73,410		219,863		221,362
Provision for credit losses	5,000		3,890		22,700		11,672
Net interest income after credit loss expense	71,158		69,520		197,163		209,690
Noninterest income:
Service charges on deposit accounts	6,240		5,475		17,954		15,848
Credit and debit card fees	2,806		2,996		8,616		9,034
Trust and investment advisory fees	1,395		1,398		4,351		4,337
Income from mortgage banking services, net	8,838		7,413		29,383		26,501

Loss on other real estate owned and foreclosed assets activity, net	( 19 )		( 643 )		( 8 )		( 643 )

Other noninterest income	2,815		2,011		7,861		6,794
Total noninterest income	22,075		18,650		68,157		61,871
Noninterest expense:
Salary and employee benefits	39,306		33,968		116,487		103,073
Occupancy and equipment	9,121		8,487		26,417		24,977

Amortization of intangible assets	651		899		2,118		3,993
Merger related expenses	1,633		—		5,168		—
Other noninterest expenses	13,953		12,822		40,177		38,442
Total noninterest expense	64,664		56,176		190,367		170,485
Income before income taxes	28,569		31,994		74,953		101,076
Provision for income taxes	6,147		6,762		15,675		21,557
Net income	$	22,422	$	25,232	$	59,278	$	79,519
Other comprehensive income (loss):
Net unrealized gain (loss) on securities available-for-sale	11,132		( 5,799 )		13,018		( 8,315 )

Other comprehensive income (loss)	11,132		( 5,799 )		13,018		( 8,315 )
Comprehensive income	$	33,554	$	19,433	$	72,296	$	71,204

Earnings per share:
Net income available to common stockholders	$	22,422	$	25,232	$	59,278	$	79,519
Basic	$	0.81	$	1.01	$	2.17	$	3.19
Diluted	$	0.79	$	1.00	$	2.12	$	3.13

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

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the three months ended September 30,

(Unaudited)


(in thousands, except share amounts)	Issued shares of common stock	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total stockholders’ equity
2024
Balance, beginning of period	27,443,246	$	3	$	543,339	$	494,378	$	( 41,121 )	$	996,599




Issuance of common stock and contingent obligation to issue warrants, net of issuance costs	—	—		( 128 )		—		—		( 128 )
Issuance of common stock on restricted stock grants, net of forfeitures (see Note 10 - Stockholders’ Equity )	—	—		65		—		—		65
Stock option exercises	222,672	—		3,511		—		—		3,511
Share-based compensation, net of forfeitures	—	—		484		—		—		484
Net income	—	—		—		22,422		—		22,422
Other comprehensive income	—	—		—		—		11,132		11,132

Balance, end of period	27,665,918	$	3	$	547,271	$	516,800	$	( 29,989 )	$	1,034,085

2023
Balance, beginning of period	24,941,468	$	2	$	461,856	$	408,276	$	( 46,499 )	$	823,635





Issuance of common stock on restricted stock grants, net of forfeitures (see Note 10 - Stockholders’ Equity )	—	—		102		—		—		102
Stock option exercises	1,177	—		( 9 )		—		—		( 9 )
Share-based compensation, net of forfeitures	—	—		558		—		—		558
Net income	—	—		—		25,232		—		25,232
Other comprehensive loss	—	—		—		—		( 5,799 )		( 5,799 )

Balance, end of period	24,942,645	$	2	$	462,507	$	433,508	$	( 52,298 )	$	843,719

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

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Stockholders’ Equity

For the nine months ended September 30,

(Unaudited)


(in thousands, except share amounts)	Issued shares of common stock	Common stock		Additional paid-in capital		Retained earnings		Accumulated other comprehensive income (loss)		Total stockholders’ equity
2024
Balance, beginning of period	24,960,639	$	2	$	462,680	$	457,522	$	( 43,007 )	$	877,197




Issuance of common stock and contingent obligation to issue warrants, net of issuance costs	2,461,538	1		79,355		—		—		79,356
Issuance of common stock on restricted stock grants, net of forfeitures (See Note 10 - Stockholders’ Equit y)	10,998	—		359		—		—		359
Stock option exercises	232,743	—		3,423		—		—		3,423
Share-based compensation, net of forfeitures	—	—		1,454		—		—		1,454
Net income	—	—		—		59,278		—		59,278
Other comprehensive income	—	—		—		—		13,018		13,018

Balance, end of period	27,665,918	$	3	$	547,271	$	516,800	$	( 29,989 )	$	1,034,085

2023
Balance, beginning of period	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, net of forfeitures (See Note 10 - Stockholders’ Equit y)	15,007	—		304		—		—		304
Stock option exercises	6,654	—		44		—		—		44
Share-based compensation, net of forfeitures	—	—		1,439		—		—		1,439
Net income	—	—		—		79,519		—		79,519
Other comprehensive loss	—	—		—		—		( 8,315 )		( 8,315 )

Balance, end of period	24,942,645	$	2	$	462,507	$	433,508	$	( 52,298 )	$	843,719

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

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Cash Flows

For the nine months ended September 30,

(Unaudited)


(In thousands)	2024		2023
Cash flows from operating activities:
Net income	$	59,278	$	79,519
Adjustments to reconcile income to net cash provided by operating activities:
Provision for credit losses	22,700		11,672
Depreciation and amortization on premises and equipment	5,441		5,657
Deferred tax expense	2,531		65
Amortization of net premium on securities	552		791
Accretion of net discount on acquired loans	( 2,036 )		( 2,451 )
Net change in deferred loan origination fees and costs	8		( 282 )
Amortization of core deposits and other intangible assets	2,118		3,993


Amortization of premium on acquired deposits	( 300 )		( 770 )
Accretion of discount on subordinated debt	287		190
Amortization of issuance costs on subordinated debt	110		110
Accretion of discount on convertible notes payable	—		101

Increase in cash surrender value of bank-owned life insurance	( 1,457 )		( 1,418 )

Impairment of other real estate owned and foreclosed assets	53		285
Federal Home Loan Bank stock dividends	( 560 )		( 1,372 )
Share-based compensation expense	1,813		1,743
Decrease in fair value of mortgage servicing rights	6,687		695


Net loss on disposal of premises and equipment	21		34
Net gain on other real estate owned and foreclosed assets activity	8		643

Net gain on sales of loans held-for-sale	( 5,300 )		( 2,997 )
Origination of loans held-for-sale	( 502,485 )		( 669,412 )
Proceeds from sales of loans held-for-sale	482,741		670,634

Changes in operating assets and liabilities:
Lease right-of-use assets	( 234 )		( 478 )
Accrued interest receivable	1,388		( 8,675 )


Prepaid expenses and other assets	6,889		( 20,428 )
Accrued interest payable	( 4,562 )		4,064
Accrued expenses and other liabilities	20,467		10,329
Deferred tax assets	—		1,944
Net cash provided by operating activities	$	96,158	$	84,186

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

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Cash Flows (continued)

For the nine months ended September 30,

(Unaudited)


(In thousands)	2024		2023
Cash flows from operating activities: (previous page)	$	96,158	$	84,186

Cash flows from investing activities:


Proceeds from maturities of held-to-maturity securities	1,182		1,555
Purchases of available-for-sale securities	( 5,584 )		( 5,201 )
Proceeds from sale or maturities of available-for-sale securities	42,642		32,203
Loan originations, net of repayments	( 198,011 )		( 272,090 )


Purchases of premises and equipment	( 3,151 )		( 1,367 )


Proceeds from sales of other real estate owned and foreclosed assets	324		1,101

Proceeds from bank-owned life insurance	725		—
Purchases of restricted equity securities	( 44,037 )		( 33,061 )
Proceeds from the sale or redemption of restricted equity securities	50,275		49,251
Purchase of other investments	( 17,490 )		( 1,777 )
Proceeds from the sale or redemption of other investments	671		158
Net cash used in investing activities	( 172,454 )		( 229,228 )

Cash flows from financing activities:
Net change in deposits	276,077		575,554
Net change in securities sold under agreements to repurchase	( 13,780 )		( 10,854 )
Proceeds from Federal Home Loan Bank advances	4,015,410		1,547,000
Repayments of Federal Home Loan Bank advances	( 4,189,878 )		( 1,860,885 )


Repayments of other borrowings	—		( 5,456 )


Proceeds from issuance of common stock, net of issuance costs	82,779		44


Net cash provided by financing activities	170,608		245,403
Net increase in cash and cash equivalents	94,312		100,361
Cash and cash equivalents, beginning of period	479,362		343,526
Cash and cash equivalents, end of period	$	573,674	$	443,887

Supplemental disclosures of cash flow information:
Interest paid on deposits	$	118,615	$	59,999
Interest paid on borrowed funds	$	9,322	$	18,675
Cash paid for income taxes, net	$	5,611	$	23,152
Non-cash investing and financing activities:


Net change in unrealized gain (loss) on available-for-sale securities	$	17,232	$	( 13,117 )
Loan charge-offs	$	21,608	$	4,019

Loans transferred to other real estate owned and foreclosed assets	$	764	$	4,065
Premises and equipment transferred from other assets	$	—	$	387
Mortgage servicing rights resulting from sale or securitization of mortgage loans	$	8,785	$	7,634

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

FIRSTSUN CAPITAL BANCORP and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

($ in thousands, except share and per share amounts)

NOTE 1 - Organization and Basis of Presentation

Nature of Operations - 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” or “Sunflower 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”.

These consolidated financial statements in this Quarterly Report on Form 10-Q do not include all of the information and footnotes required by U.S. GAAP for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. These interim financial statements are unaudited, and include, in our opinion, all adjustments necessary for a fair statement of the results for the periods indicated, which are not necessarily indicative of results which may be expected for the full year. Certain prior period amounts have been reclassified to conform to the current presentation. These unaudited consolidated financial statements and notes should be read in conjunction with FirstSun’s audited consolidated financial statements and footnotes thereto for the year ended December 31, 2023, included in our 2023 Annual Report .

Proposed Merger with HomeStreet - On October 29, 2024, FirstSun and HomeStreet, Inc., a Washington corporation (“HomeStreet”) announced that, based on discussions with the Federal Reserve and the Texas Department of Banking, regulatory approvals necessary for the mergers with HomeStreet and its subsidiary, HomeStreet Bank to proceed have not been obtained and FirstSun and Sunflower have been asked by regulators to withdraw their merger applications. Although FirstSun continues to have discussions with regulators, it appears that regulatory approvals will not be forthcoming and, without those approvals, the merger may not be consummated. Also, although, FirstSun and HomeStreet are discussing the pursuit of an alternative regulatory structure for the merger there also can be no assurances that an alternative regulatory structure will be feasible or agreed-upon. The parties are also discussing terms on which they would terminate the merger agreement if no alternative structure is feasible.

On April 30, 2024, FirstSun entered into Amendment No. 1 (the “Amendment”) to the Agreement and Plan of Merger, dated January 16, 2024 (the “Merger Agreement”), by and among HomeStreet, FirstSun, and Dynamis Subsidiary, Inc., a Washington corporation and wholly owned subsidiary of FirstSun (“Merger Sub”).

Assuming satisfaction of the conditions set forth in the Merger Agreement, Merger Sub will merge with and into HomeStreet, HomeStreet will then merge with and into FirstSun and HomeStreet Bank, a Washington-chartered non-member bank (“HomeStreet Bank”) will merge with and into Sunflower Bank (collectively, the “Mergers”), with FirstSun and Sunflower Bank, respectively, continuing as the surviving entities. The Amendment also changed the structure of the bank merger, such that Sunflower Bank would convert from a national banking association into a Texas state-chartered bank that is a member of the Federal Reserve System, after which HomeStreet Bank would merge with and into Sunflower Bank, with the assumed branches of HomeStreet Bank to be continued to be operated under the “HomeStreet Bank” name and brand.

Under the terms of the Merger Agreement, as amended by the Amendment, shareholders of HomeStreet will receive, in respect of each share of common stock of HomeStreet held by them, 0.3867 shares of common stock of FirstSun. Shareholders of HomeStreet, subject to other exceptions, will also be entitled to receive cash in lieu of fractional shares of common stock of FirstSun. On June 18, 2024, HomeStreet’s shareholders approved the Merger Agreement. As indicated above, however, the failure to obtain regulatory approval and the request to withdraw the merger applications has jeopardized the potential closing of the Mergers. Should FirstSun and HomeStreet fail to agree on an alternative regulatory structure, it is likely that the Merger Agreement will be terminated and the Mergers abandoned.

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 2.46 million shares of our common stock in a private placement for $ 80 million .

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 at 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. 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.

Concurrently with its entry into the Amendment, on April 30, 2024, FirstSun entered into a First Amendment to the Acquisition Finance Securities Purchase Agreement (the “AFSPA Amendment”), with certain funds managed by Wellington Management (“Wellington”) and certain other institutional accredited investors (each, an “Additional Investor” and, collectively with Wellington, the “Investors”). Pursuant to the AFSPA Amendment, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the Merger, the Additional Investors will invest an additional $ 45 million, in exchange for the sale and issuance, at a purchase price of $ 32.50 per share, approximately 1.38 million shares of FirstSun common stock.

Acquisition Finance Securities Purchase Agreement Joinder - On June 14, 2024, FirstSun entered into a Joinder (the “AFSPA Joinder”) to the Acquisition Finance Securities Purchase Agreement, as amended on April 30, 2024 by the AFSPA Amendment, with certain funds managed by Castle Creek Capital Partners VIII. L.P., Maltese Capital Management, LLC, and Philadelphia Financial Management of San Francisco, LLC (collectively, the “Joinder Investors”). Pursuant to the AFSPA Joinder, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the Merger, the Joinder Investors will invest an aggregate of $ 15 million, in exchange for the sale and issuance, at a purchase price of $ 32.50 per share, of approximately 462 thousand shares of FirstSun common stock. As a result, FirstSun’s total equity capital raised in connection with the Merger increased from an aggregate capital raise of $ 220 million to $ 235 million, inclusive of the $ 80 million raised pursuant to the Upfront Securities Purchase Agreement.

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. As required under the Upfront Securities Purchase Agreement, on July 11, 2024, FirstSun registered its common stock securities under Section 12(b) of the securities Exchange Act of 1934 and listed its common stock on The Nasdaq Stock Market LLC (Nasdaq). Pursuant to Amendment No. 3 to our Stockholders’ Agreement, upon listing on Nasdaq, the provisions of the Stockholders’ Agreement restricting the transfer of shares and providing specific stockholders with pre-emptive rights, tag-along rights and rights of first refusal, automatically terminated. As a result, among other terminated provisions, the parties to the Stockholders’ Agreement are no longer restricted under the Stockholders’ Agreement from transferring their shares. Certain parties to the Stockholders’ Agreement retain corporate governance rights as described in the Stockholders’ Agreement, as amended.

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.

Other Provisions of the Amendment - In addition to the changes to the Merger Agreement that were noted above, the Amendment provides for, among other things:

• A reduced termination fee payable by HomeStreet, in certain circumstances, if HomeStreet had received a competing acquisition proposal within 30 days after the effective date of the Amendment from $ 10 million to $ 2.6 million plus reimbursement of FirstSun’s transaction fees and expenses;

• An amended definition of requisite regulatory approvals such that the approval of the OCC is replaced with the approval of the Texas Department of Banking and additional approvals of the Federal Reserve Board;

• FirstSun’s issuance of $ 48.5 million of subordinated debt concurrently with the closing of the merger, the proceeds of which will be contributed to Sunflower Bank to further support Sunflower Bank’s capital:

• HomeStreet’s disposition of approximately $ 300 million of certain commercial real estate loans upon closing of the merger, or as soon as reasonably practicable afterward.

Charter Amendment - In connection with the proposed merger, the holders of a majority of the voting power of FirstSun common stock executed 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.

Bank Charter Conversion - Sunflower Bank is currently regulated by the Office of the Comptroller of the Currency. In connection with our proposed merger with HomeStreet, we have filed applications to convert Sunflower Bank to a state chartered bank regulated by the Texas Department of Banking and to seek membership with the Federal Reserve.

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.

Risks and Uncertainties - In the normal course of business, companies in the banking and mortgage industries encounter certain economic and regulatory risks. Economic risks include credit risk, interest rate risk, liquidity risk, prepayment risk, and market risk. Credit risk is the risk of default that may result from the borrowers’ inability or unwillingness to make contractually required payments. We are subject to interest rate risk to the extent that in a rising interest rate environment we may experience a decrease in loan production, as well as decreases in the value of mortgage loans held-for-sale and in commitments to originate loans, which may adversely impact our earnings. Rising interest rates may also increase the cost of our borrowings to fund our operations. Risks related to liquidity are heightened in the current environment due to competition for deposits and customers withdrawing deposits in order to maintain maximum levels of deposit insurance.

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 established reserves for potential losses related to these representations and warranties which are recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserves, 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 15 - Commitments and Contingencies .

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.

Accounting Pronouncements Recently Adopted - 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.

Recent Accounting Pronouncements Not Yet Adopted - 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, although early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements.

NOTE 2 - Securities

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2024
Available-for-sale:
U.S. treasury	$	43,439	$	—	$	( 2,791 )	$	40,648
U.S. agency	1,049		—		( 15 )		1,034
Obligations of states and political subdivisions	28,581		36		( 1,463 )		27,154
Mortgage backed - residential	110,774		200		( 11,241 )		99,733
Collateralized mortgage obligations	188,981		—		( 16,300 )		172,681
Mortgage backed - commercial	147,935		1,211		( 9,727 )		139,419
Other debt	15,751		391		—		16,142
Total available-for-sale	$	536,510	$	1,838	$	( 41,537 )	$	496,811
Held-to-maturity:


Obligations of states and political subdivisions	$	25,670	$	2	$	( 3,236 )	$	22,436
Mortgage backed - residential	6,874		2		( 393 )		6,483
Collateralized mortgage obligations	3,341		—		( 149 )		3,192


Total held-to-maturity	$	35,885	$	4	$	( 3,778 )	$	32,111
December 31, 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

There was no allowance for credit losses related to our investment securities as of September 30, 2024.

As of September 30, 2024 and December 31, 2023, 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.

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:


	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
September 30, 2024
Available-for-sale:
U.S. treasury	$	—	$	—	$	40,648	$	( 2,791 )	$	40,648	$	( 2,791 )	6
U.S. agency	—		—		1,034		( 15 )		1,034		( 15 )		7
Obligations of states and political subdivisions	—		—		22,707		( 1,463 )		22,707		( 1,463 )		16
Mortgage backed - residential	—		—		93,477		( 11,241 )		93,477		( 11,241 )		80
Collateralized mortgage obligations	17,706		( 30 )		154,976		( 16,270 )		172,682		( 16,300 )		63
Mortgage backed - commercial	—		—		116,497		( 9,727 )		116,497		( 9,727 )		22

Total available-for-sale	$	17,706	$	( 30 )	$	429,339	$	( 41,507 )	$	447,045	$	( 41,537 )	194
Held-to-maturity:


Obligations of states and political subdivisions	$	—	$	—	$	22,104	$	( 3,236 )	$	22,104	$	( 3,236 )	8
Mortgage backed - residential	—		—		6,376		( 393 )		6,376		( 393 )		10
Collateralized mortgage obligations	—		—		3,192		( 149 )		3,192		( 149 )		5


Total held-to-maturity	$	—	$	—	$	31,672	$	( 3,778 )	$	31,672	$	( 3,778 )	23


	Less than 12 months				12 months or longer				Total
	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Number of Securities
December 31, 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

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 September 30, 2024, 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 three and nine months ended September 30, 2024 and 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 September 30, 2024 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	$	12,759	$	12,666
Due after 1 year through 5 years	91,008		87,596
Due after 5 years through 10 years	131,600		123,596
Due after 10 years	301,143		272,953
Total available-for-sale	$	536,510	$	496,811
Held-to-maturity:

Due after 1 year through 5 years	$	879	$	866
Due after 5 years through 10 years	1,155		1,128
Due after 10 years	33,851		30,117
Total held-to-maturity	$	35,885	$	32,111

Securities with a carrying value of $ 433,408 and $ 468,679 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at September 30, 2024 and December 31, 2023, respectively.

Available-for-sale debt securities with a carrying value of $ 39,646 and $ 37,701 were designated in fair value hedges at September 30, 2024 and December 31, 2023, respectively. See Note 5 - Derivative Financial Instruments for further information.

There were no proceeds from sales and calls of securities for the three and nine months ended September 30, 2024 and 2023.

NOTE 3 - Loans

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


	September 30, 2024		December 31, 2023
Commercial and industrial	$	2,527,636	$	2,467,688
Commercial real estate:
Non-owner occupied	821,670		812,235
Owner occupied	700,325		635,365
Construction and land	333,457		345,430
Multifamily	95,125		103,066
Total commercial real estate	1,950,577		1,896,096
Residential real estate	1,172,459		1,110,610
Public finance	536,776		602,913
Consumer	45,267		36,371
Other	211,041		153,418
Total loans	$	6,443,756	$	6,267,096
Allowance for credit losses	( 83,159 )		( 80,398 )
Loans, net of allowance for credit losses	$	6,360,597	$	6,186,698

As of September 30, 2024 and December 31, 2023, we had net deferred fees, (costs), (premiums) and discounts of $ 10,851 and $ 12,859 , respectively, on our loan portfolio.

Accrued interest receivable on loans totaled $ 33,077 and $ 34,879 at September 30, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable in the accompanying consolidated balance sheets.

The following table presents the activity in the allowance for credit losses by portfolio type for the three months ended September 30,:


	Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Public Finance		Consumer		Other		Total
2024
Allowance for credit losses:
Balance, beginning of period	$	25,398	$	29,919	$	15,982	$	5,921	$	666	$	1,074	$	78,960

Provision (benefit) for credit losses	9,011		( 552 )		( 1,369 )		( 1,663 )		117		56		5,600
Loans charged off	( 1,116 )		( 474 )		—		—		( 52 )		—		( 1,642 )
Recoveries	206		4		—		—		31		—		241
Balance, end of period	$	33,499	$	28,897	$	14,613	$	4,258	$	762	$	1,130	$	83,159
2023
Allowance for credit losses:
Balance, beginning of period	$	33,197	$	21,598	$	14,959	$	5,506	$	854	$	1,248	$	77,362

Provision (benefit) for credit losses	4,252		1,495		( 2,429 )		135		( 28 )		175		3,600
Loans charged off	( 2,963 )		—		—		—		( 136 )		—		( 3,099 )
Recoveries	155		9		627		—		12		—		803
Balance, end of period	$	34,641	$	23,102	$	13,157	$	5,641	$	702	$	1,423	$	78,666

The following table presents the activity in the allowance for credit losses by portfolio type for the nine months ended September 30,:


	Commercial and Industrial		Commercial Real Estate		Residential Real Estate		Public Finance		Consumer		Other		Total
2024
Allowance for credit losses:
Balance, beginning of period	$	29,523	$	27,546	$	16,345	$	5,337	$	717	$	930	$	80,398

Provision (benefit) for credit losses	24,052		1,816		( 1,702 )		( 1,079 )		313		200		23,600
Loans charged-off	( 20,743 )		( 474 )		( 38 )		—		( 353 )		—		( 21,608 )
Recoveries	667		9		8		—		85		—		769
Balance, end of period	$	33,499	$	28,897	$	14,613	$	4,258	$	762	$	1,130	$	83,159
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 (benefit) for credit losses	10,941		( 531 )		( 710 )		87		326		447		10,560
Loans charged-off	( 3,751 )		—		—		—		( 268 )		—		( 4,019 )
Recoveries	249		12		648		—		43		—		952
Balance, end of period	$	34,641	$	23,102	$	13,157	$	5,641	$	702	$	1,423	$	78,666

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

As of September 30, 2024 and December 31, 2023, we had an allowance for credit losses on unfunded commitments of $ 1,409 and $ 2,309 , respectively. For the three months ended September 30, 2024 and 2023 we recorded a (benefit) provision for credit losses on unfunded commitments of $( 600 ) and $ 290 , respectively. For the nine months ended September 30, 2024 and 2023 we recorded a (benefit) provision for credit losses on unfunded commitments of $( 900 ) and $ 1,112 , respectively.

The provision for credit losses, including the benefit for unfunded commitments, totaled $ 22,700 during the nine months ended September 30, 2024, primarily due to a $ 14,100 provision for credit loss on a specific customer in our C&I loan portfolio in the first quarter of 2024.

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


	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
September 30, 2024
Commercial and industrial	$	2,497,030	$	4,864	$	763	$	—	$	24,979	$	2,527,636
Commercial real estate:
Non-owner occupied	815,497		—		—		—		6,173		821,670
Owner occupied	697,404		587		128		—		2,206		700,325
Construction and land	333,288		—		169		—		—		333,457
Multifamily	93,432		—		—		—		1,693		95,125
Total commercial real estate	1,939,621		587		297		—		10,072		1,950,577
Residential real estate	1,145,083		1,579		4,686		16		21,095		1,172,459
Public Finance	529,550		—		—		—		7,226		536,776
Consumer	45,144		69		9		—		45		45,267
Other	207,788		—		862		—		2,391		211,041
Total loans	$	6,364,216	$	7,099	$	6,617	$	16	$	65,808	$	6,443,756
December 31, 2023
Commercial and industrial	$	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

Interest income recorded on nonperforming loans was not material for the thre e or nine months ended September 30, 2024 and 2023.

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 of borrowers to service their debt based on current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. The risk rating system is used as a tool to analyze and monitor movements in loan portfolio quality.

Risk ratings meeting an internally specified exposure threshold are updated annually, or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. We use the following definitions for risk ratings:

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

Pass/Watch – Pass/Watch loans require close attention by bank management and enhanced monitoring due to quantitative or qualitative concerns linked to adverse trends or near-term uncertainty. A covenant default or other type of requirement shortfall may have arisen subsequent to a loan's booking or borrower now shows signs of weakness in the overall base of confirmable financial resources available to repay the loan. However, overall financial capacity & performance are considered sufficient to support an expectation of continued payment performance and / or mitigating factors exist that are expected to limit the risk of near term default and loss.

Special Mention – Special Mention loans have identified potential weaknesses that are of sufficient materiality to require management’s (persistent) close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the bank's credit position under normal business operations. Special Mention loans contain greater than acceptable risk to warrant increases in credit exposure and are thus considered “criticized”, non-pass rated credits. They may contain weaknesses (that have arisen due to deteriorating conditions since origination) and / or underwriting exceptions that are not currently offset by mitigating factors. However, these weaknesses, while sufficient to constitute significantly elevated credit risk, are not sufficient to support a conclusion that the liquidation of the debt is in significant jeopardy.

Substandard - Accruing – Substandard - Accruing loans are inadequately protected by the current sound net worth and paying capacity of the obligor(s). Loans classified as Substandard - Accruing possess one or more well-defined weaknesses that are expected to jeopardize their liquidation but the weaknesses have not progressed to a point where recent late payments on the loan have become more than 90 days past due. These loans are characterized by the distinct possibility that the bank may sustain up to a moderate but not significant level of loss if such weaknesses are not corrected. Losses for Substandard - Accruing loans are moderated by the lower likelihood of ultimate default and the existence of relatively favorable secondary repayment protection. These loans are considered “nonperforming”.

Substandard - Nonaccrual – Substandard - Nonaccrual loans are inadequately protected by the current sound net worth and paying capacity of the obligor or the collateral pledged, if any. Loans classified as Substandard - Nonaccrual possess material, well-defined weaknesses that are expected to jeopardize their liquidation and have progressed to a point where consistently late payments on the loan have become more than 90 or more days past due. These loans are characterized by the distinct possibility that the bank may sustain a material level of loss if such weaknesses are not corrected. Losses for Substandard - Nonaccrual loans are prone to being elevated based on the strong likelihood of the loan remaining in payment default and an undesirable level of secondary repayment protection. These loans are considered “nonperforming”.

Doubtful – Loans classified as Doubtful possess all of the weaknesses inherent in loans classified as Substandard - Nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full highly questionable or improbable based on currently existing facts, conditions and values. A high probability of substantial loss or possible total loss exists. Loans rated as doubtful are not rated as loss because certain events may occur that could salvage at least a portion of the debt. These events include injections of capital, additions of pledged collateral or possible mezzanine debt refinancing options. However, without the occurrence of such events, total loss may be possible. No definite repayment schedule exists for these loans. The Doubtful grade is a temporary grade. If a near term recovery of a portion of the loan balance is indeterminable or unlikely to occur, the remaining balance of the loan should be written off and possible future recoveries may partially offset the full write-off of the loan. These loans are considered “nonperforming”.

Loss – Loans classified as Loss are defaulted loans with limited or immaterial recovery prospects. No loan that has not yet defaulted should be classified at this grade level. This rating level tends to be very short lived as the full balance of the loan tends to be fully written off nearly immediately after a change to this rating level. These loans are considered “nonperforming”.

The following table presents the amortized cost by segment of loans by risk category and origination date as of September 30, 2024 and gross charge-offs by origination date for the nine months ended September 30, 2024:


	2024		2023		2022		2021		2020		Prior		Revolving Loans Converted to Term		Revolving		Total
Commercial and industrial:
Pass	$	423,874	$	312,815	$	295,925	$	239,419	$	74,672	$	64,868	$	85,241	$	762,570	$	2,259,384
Pass/Watch	—		6,046		6,048		24,187		3,520		2,612		32,956		5,440		80,809
Special Mention	581		—		43,741		3,804		778		425		1,667		28,104		79,100
Substandard - Accruing	—		4,185		28,850		25,229		3,783		3,848		1,214		16,255		83,364
Substandard - Nonaccrual	—		2,348		—		1,824		2,594		1,970		3,654		125		12,515
Doubtful	—		—		7,502		3,824		428		470		240		—		12,464

Total commercial and industrial	$	424,455	$	325,394	$	382,066	$	298,287	$	85,775	$	74,193	$	124,972	$	812,494	$	2,527,636
Gross charge-offs	$	—	$	—	$	—	$	19,720	$	269	$	2	$	25	$	727	$	20,743

Commercial real estate:
Non-owner occupied:
Pass	$	30,997	$	67,587	$	102,338	$	144,569	$	130,057	$	233,261	$	18,474	$	20,700	$	747,983
Pass/Watch	—		—		—		29,453		2,770		5,668		—		17,443		55,334

Substandard - Accruing	—		2,713		—		—		547		7,403		1,517		—		12,180
Substandard - Nonaccrual	—		—		1,789		—		—		4,384		—		—		6,173


Total non-owner occupied	$	30,997	$	70,300	$	104,127	$	174,022	$	133,374	$	250,716	$	19,991	$	38,143	$	821,670
Gross charge-offs	$	—	$	—	$	—	$	—	$	270	$	11	$	—	$	—	$	281

Owner occupied:
Pass	$	83,665	$	90,046	$	66,796	$	91,703	$	90,579	$	182,323	$	19,474	$	5,059	$	629,645
Pass/Watch	—		2,238		882		—		14,977		4,918		—		—		23,015
Special Mention	—		—		2,282		9,540		2,194		2,683		—		—		16,699
Substandard - Accruing	—		1,464		450		513		8,994		17,339		—		—		28,760
Substandard - Nonaccrual	—		—		—		1,186		—		1,020		—		—		2,206


Total owner occupied	$	83,665	$	93,748	$	70,410	$	102,942	$	116,744	$	208,283	$	19,474	$	5,059	$	700,325
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	193	$	—	$	—	$	193

Construction & land:
Pass	$	7,700	$	53,663	$	187,998	$	11,841	$	12,804	$	4,606	$	3,936	$	14,202	$	296,750
Pass/Watch	—		—		—		—		—		17		—		—		17
Special Mention	—		—		36,690		—		—		—		—		—		36,690




Total construction & land	$	7,700	$	53,663	$	224,688	$	11,841	$	12,804	$	4,623	$	3,936	$	14,202	$	333,457
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Multifamily:
Pass	$	4,427	$	1,345	$	36,344	$	33,072	$	4,986	$	7,706	$	5,552	$	—	$	93,432



Substandard - Nonaccrual	—		—		1,693		—		—		—		—		—		1,693


Total multifamily	$	4,427	$	1,345	$	38,037	$	33,072	$	4,986	$	7,706	$	5,552	$	—	$	95,125
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	2024		2023		2022		2021		2020		Prior		Revolving Loans Converted to Term		Revolving		Total
Total commercial real estate:
Pass	$	126,789	$	212,641	$	393,476	$	281,185	$	238,426	$	427,896	$	47,436	$	39,961	$	1,767,810
Pass/Watch	—		2,238		882		29,453		17,747		10,603		—		17,443		78,366
Special Mention	—		—		38,972		9,540		2,194		2,683		—		—		53,389
Substandard - Accruing	—		4,177		450		513		9,541		24,742		1,517		—		40,940
Substandard - Nonaccrual	—		—		3,482		1,186		—		5,404		—		—		10,072


Total commercial real estate:	$	126,789	$	219,056	$	437,262	$	321,877	$	267,908	$	471,328	$	48,953	$	57,404	$	1,950,577
Gross charge-offs	$	—	$	—	$	—	$	—	$	270	$	204	$	—	$	—	$	474

Residential real estate:
Pass	$	111,598	$	146,572	$	560,219	$	110,610	$	37,012	$	157,455	$	2,352	$	9,730	$	1,135,548
Pass/Watch	—		1,429		4,877		1,192		90		6,034		64		—		13,686
Special Mention	—		—		353		—		—		1,684		—		—		2,037
Substandard - Accruing	—		—		—		—		—		93		—		—		93
Substandard - Nonaccrual	—		—		9,688		3,208		2,488		5,681		—		30		21,095


Total residential real estate	$	111,598	$	148,001	$	575,137	$	115,010	$	39,590	$	170,947	$	2,416	$	9,760	$	1,172,459
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	38	$	—	$	—	$	38

Public Finance:
Pass	$	5,397	$	19,980	$	—	$	43,171	$	132,898	$	326,269	$	—	$	1,835	$	529,550



Substandard - Nonaccrual	—		—		—		—		—		7,226		—		—		7,226


Total public finance	$	5,397	$	19,980	$	—	$	43,171	$	132,898	$	333,495	$	—	$	1,835	$	536,776
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—

Consumer:
Pass	$	5,745	$	1,832	$	1,687	$	4,105	$	7,988	$	5,100	$	80	$	17,933	$	44,470
Pass/Watch	—		7		41		108		190		342		1		49		738
Special Mention	—		—		—		2		—		—		—		—		2
Substandard - Accruing	—		—		3		—		—		—		9		—		12
Substandard - Nonaccrual	—		—		—		1		41		3		—		—		45


Total consumer	$	5,745	$	1,839	$	1,731	$	4,216	$	8,219	$	5,445	$	90	$	17,982	$	45,267
Gross charge-offs	$	—	$	10	$	7	$	3	$	140	$	2	$	11	$	180	$	353

Other:
Pass	$	28,137	$	18,957	$	7,743	$	11,025	$	303	$	8,344	$	4,780	$	125,399	$	204,688
Pass/Watch	—		—		—		3,962		—		—		—		—		3,962


Substandard - Nonaccrual	—		—		—		—		—		2,391		—		—		2,391


Total other	$	28,137	$	18,957	$	7,743	$	14,987	$	303	$	10,735	$	4,780	$	125,399	$	211,041
Gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—










Total loans:
Pass	$	701,540	$	712,797	$	1,259,050	$	689,515	$	491,299	$	989,932	$	139,889	$	957,428	$	5,941,450
Pass/Watch	—		9,720		11,848		58,902		21,547		19,591		33,021		22,932		177,561
Special Mention	581		—		83,066		13,346		2,972		4,792		1,667		28,104		134,528
Substandard - Accruing	—		8,362		29,303		25,742		13,324		28,683		2,740		16,255		124,409
Substandard - Nonaccrual	—		2,348		13,170		6,219		5,123		22,675		3,654		155		53,344
Doubtful	—		—		7,502		3,824		428		470		240		—		12,464

Total loans	$	702,121	$	733,227	$	1,403,939	$	797,548	$	534,693	$	1,066,143	$	181,211	$	1,024,874	$	6,443,756
Gross charge-offs	$	—	$	10	$	7	$	19,723	$	679	$	246	$	36	$	907	$	21,608

The following table presents the amortized cost by segment of loans by risk category and origination date as of December 31, 2023 and gross charge-offs by origination date for the year ended 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	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—


	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

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


	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
September 30, 2024
Commercial & industrial	$	15,090	$	6,209	$	9,889	$	24,979	$	6,209
Commercial real estate:
Non-owner occupied	—		—		6,173		6,173		—
Owner occupied	—		—		2,206		2,206		—

Multifamily	—		—		1,693		1,693		—
Total commercial real estate	—		—		10,072		10,072		—
Residential real estate	1,682		158		19,413		21,095		158
Public Finance	7,226		1,460		—		7,226		1,460
Consumer	45		45		—		45		45
Other	2,391		159		—		2,391		159
Total loans	$	26,434	$	8,031	$	39,374	$	65,808	$	8,031
December 31, 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

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

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. We use 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 the three and nine months ended September 30, 2024.

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, we modify 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, we may allow a loan to go interest only for a specified period of time.

The following tables present loan modifications for borrowers experiencing financial difficulty for the three and nine months ended September 30, 2024 and 2023, segregated by modification type, regardless of whether such modifications resulted in a new loan.

For the three months ended September 30,:


	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Principal Forgiveness and Interest Rate Reduction		% of Total Class of Loans
2024
Commercial and industrial	$	965	$	—	$	374	$	—	$	125	0.1	%
Commercial real estate:

Owner occupied	—		3,748		—		2,082		—		0.8	%







Total loans	$	965	$	3,748	$	374	$	2,082	$	125	0.1	%

There were no loan modifications for borrowers experiencing financial difficulty for the three months ended September 30, 2023.

For the nine months ended September 30,:


	Principal Forgiveness		Payment Delay		Term Extension		Interest Rate Reduction		Combination Principal Forgiveness and Interest Rate Reduction		% of Total Class of Loans
2024
Commercial and industrial	$	965	$	9,674	$	374	$	—	$	125	0.4	%
Commercial real estate:

Owner occupied	—		3,748		—		2,748		—		0.9	%







Total loans	$	965	$	13,422	$	374	$	2,748	$	125	0.3	%
2023
Commercial and industrial	$	—	$	270	$	—	$	—	$	—	—	%
Commercial real estate:

Owner occupied	—		—		—		1,123		—		0.2	%







Total loans	$	—	$	270	$	—	$	1,123	$	—	—	%

Modifications made to the loans presented in the tables above to borrowers experiencing financial difficulty for the three and nine months ended September 30, 2024 and 2023 consisted of short-term principal deferrals, short-term principal and interest deferrals, or reductions in the contractual interest rate.

There were no commitments to lend additional funds to these borrowers at September 30, 2024.

The financial effects of our loan modifications made to borrowers experiencing financial difficulty during the three and nine months ended September 30, 2024 and 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. The following table depicts the performance of loan modifications made to borrowers experiencing financial difficulty that have been modified in the last 12 months:


	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

Commercial and industrial	$	2,059	$	182	$	—	$	—	$	8,898	$	11,139
Commercial real estate:

Owner occupied	6,850		—		103		—		666		7,619







Total loans	$	8,909	$	182	$	103	$	—	$	9,564	$	18,758

NOTE 4 - Mortgage Servicing Rights

We have investments in mortgage servicing rights (“MSRs”) that result from the sale of loans to the secondary market for which we retain the servicing. We account for these MSRs at their fair value.

The unpaid principal loan balance of our servicing portfolio is presented in the following table as of:


	September 30, 2024		December 31, 2023
Federal National Mortgage Association	$	2,540,145	$	2,478,732
Federal Home Loan Mortgage Corporation	1,877,326		1,736,329
Government National Mortgage Association	1,212,673		1,094,438
Federal Home Loan Bank	98,517		105,702
Other	1,192		1,258
Total	$	5,729,853	$	5,416,459

The activity of MSRs carried at fair value is as follows:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Balance, beginning of period	$	80,744	$	78,390	$	76,701	$	74,097
Additions:

Servicing resulting from transfers of financial assets	3,488		2,690		8,785		7,634


Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model	( 2,584 )		1,762		( 490 )		4,440
Changes in fair value due to pay-offs, pay-downs, and runoff	( 2,849 )		( 1,806 )		( 6,197 )		( 5,135 )
Balance, end of period	$	78,799	$	81,036	$	78,799	$	81,036

The following represents the weighted-average key assumptions used to estimate the fair value of MSRs as of:


	September 30, 2024		December 31, 2023		September 30, 2023
Discount rate	10.07	%	10.06	%	10.27	%
Total prepayment speeds	8.21	%	7.79	%	7.30	%
Cost of servicing each loan	$ 91 /per loan		$ 90 /per loan		$ 90 /per loan

Total servicing and ancillary fees earned from the mortgage servicing portfolio is presented in the following table:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Servicing fees	$	4,083	$	3,758	$	11,908	$	11,064
Late and ancillary fees	238		196		672		550
Total	$	4,321	$	3,954	$	12,580	$	11,614

NOTE 5 - Derivative Financial Instruments

Banking Derivative Financial Instruments :

We use fair value hedges to seek to manage our exposure to changes in the fair value of certain recognized assets attributable to changes in a benchmark interest rate, such as SOFR. The fair value 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 offset by 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.

Derivative instruments are measured at fair value and recorded as a component of prepaid expenses and other assets and accrued expenses and other liabilities.

The components of our banking derivative financial instruments consisted of the following as of:


	Number of Transactions	Expiration Dates	Outstanding Notional		Estimated Fair Value
September 30, 2024
Derivative financial instruments designated as hedging instruments:
Assets:
Interest Rate Products	36	2029 - 2034	$	178,555	$	9,463


Derivative financial instruments not designated as hedging instruments:
Assets:
Interest Rate Products	49	2025 - 2037	$	373,944	$	17,380
Other	1	2025	$	7,759	$	2
Liabilities:
Interest Rate Products	49	2025 - 2037	$	373,944	$	17,450
Other	4	2027 - 2028	$	19,783	$	27
December 31, 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

We recorded gains and losses on banking derivative assets and liabilities as follows:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Recorded gain (loss) on banking derivative assets	$	( 8,724 )	$	10,700	$	918	$	15,745
Recorded gain (loss) on banking derivative liabilities	$	8,427	$	( 10,263 )	$	( 1,056 )	$	( 15,494 )

For the three months ended September 30, 2024 and 2023, our banking derivative financial instruments not designated as hedging instruments generated fee income of $ 121 and $ 111 , respectively. For the nine months ended September 30, 2024 and 2023 our banking derivative financial instruments not designated as hedging instruments generated fee income of $ 595 , and $ 1,079 , respectively.

The carrying amount of hedged loans receivable as of September 30, 2024 and December 31, 2023 was $ 167,581 and $ 184,829 , respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of September 30, 2024 and December 31, 2023 was $( 6,810 ) and $( 9,567 ), respectively. The fair value hedging adjustment included in other noninterest income for the three months ended September 30, 2024 and 2023 was $ 4,110 and $( 1,655 ), respectively. The fair value hedging adjustment included in other noninterest income for the nine months ended September 30, 2024 and 2023 was $ 2,757 and $( 1,497 ), respectively.

The carrying amount of hedged available-for-sale debt securities as of September 30, 2024 and December 31, 2023 was $ 39,646 and $ 37,701 , respectively. The cumulative amount of fair value hedging adjustment included in the amortized cost amount of the hedged available-for-sale debt securities as of as of September 30, 2024 and December 31, 2023 was $( 2,652 ), and $( 3,168 ), respectively. The fair value hedging adjustment included in interest income for the three months ended September 30, 2024 and 2023 was $ 1,970 and $( 1,707 ), respectively. The fair value hedging adjustment included in interest income for the nine months ended September 30, 2024 and 2023 was $ 515 and $( 2,110 ), 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 September 30, 2024 and December 31, 2023, 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 $ 17,892 and $ 20,508 , respectively. As of September 30, 2024 and December 31, 2023, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of $ 5,890 and $ 9,040 , respectively. If we had breached any of these provisions at September 30, 2024, we could have been required to settle our obligations under the agreements at their termination value of $ 17,892 .

Mortgage Banking Derivative Financial Instruments :

The components of our mortgage banking derivative financial instruments consisted of the following as of:


	Expiration Dates	Outstanding Notional		Estimated Fair Value
September 30, 2024
Derivative financial instruments
Assets:


Interest rate lock commitments (IRLC)	2024	$	90,494	$	466
Liabilities:
Forward MBS trades	2024	$	97,000	$	30
Futures	2024	$	63,200	$	24

December 31, 2023
Derivative financial instruments
Assets:
Forward MBS trades	2024	$	28,700	$	2,153
Interest rate lock commitments (IRLC)	2024	$	41,404	$	252

Liabilities:
Forward MBS trades	2024	$	77,000	$	606

We recorded gains and losses on mortgage banking derivative assets and liabilities as follows:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Recorded gain on mortgage banking derivative assets	$	1,222	$	955	$	215	$	651
Recorded gain (loss) on mortgage banking derivative liabilities	$	376	$	( 3,459 )	$	376	$	( 3,499 )

NOTE 6 - Deposits

The composition of our deposits is as follows as of:


	September 30, 2024		December 31, 2023
Noninterest-bearing demand deposit accounts	$	1,554,762	$	1,530,506
Interest-bearing deposit accounts:
Interest-bearing demand accounts	645,647		534,540
Savings accounts and money market accounts	2,608,808		2,446,632
NOW accounts	41,234		56,819
Certificate of deposit accounts:
Less than $100	875,931		714,171
$100 through $250	460,203		569,696
Greater than $250	463,295		521,739
Total interest-bearing deposit accounts	5,095,118		4,843,597
Total deposits	$	6,649,880	$	6,374,103

The following table summarizes the interest expense incurred on our deposits:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Interest-bearing deposit accounts:
Interest-bearing demand accounts	$	6,010	$	3,709	$	16,488	$	6,929
Savings accounts and money market accounts	12,792		8,677		34,676		20,555
NOW accounts	157		104		436		242
Certificate of deposit accounts	20,626		18,406		62,859		38,078
Total interest-bearing deposit accounts	$	39,585	$	30,896	$	114,459	$	65,804

The remaining maturity on certificate of deposit accounts is as follows as of:


	September 30, 2024
Remainder of 2024	$	911,831
2025	857,634
2026	16,580
2027	5,785
2028	2,326
2029	2,876
Thereafter	2,397
Total certificate of deposit accounts	$	1,799,429

NOTE 7 - Securities Sold Under Agreements to Repurchase

Information concerning securities sold under agreements to repurchase is as follows as of and for the periods ended:


	September 30, 2024			December 31, 2023
Amount outstanding at period-end	$	10,913		$	24,693
Average daily balance during the period	$	17,099		$	28,316
Average interest rate during the period	1.15		%	0.84		%
Maximum month-end balance during the period	$	24,240		$	40,432
Weighted average interest rate at period-end	1.14		%	0.91		%

At September 30, 2024 and December 31, 2023, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of $ 24,930 and $ 30,810 , respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and they are considered to be in an overnight and continuous position.

NOTE 8 - Debt

FHLB advances

The following is a breakdown of our FHLB advances and other borrowings outstanding as of:


	September 30, 2024				December 31, 2023
	Amount		Rate	Weighted Average Rate	Amount		Rate
Variable rate line-of-credit advance	$	—	N/A	N/A	$	389,468	5.55 %
Fixed rate term advances	215,000		5.04 %	5.04 %	—		N/A
	$	215,000			$	389,468

Our FHLB advances are typically considered short-term borrowings with maturities less than one year and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. The advances were collateralized by $ 1,653,562 and $ 1,674,096 of loans pledged to the FHLB as of September 30, 2024 and December 31, 2023, respectively.

As of September 30, 2024 and December 31, 2023, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of $ 1,636,252 and $ 1,192,022 , respectively. Our additional borrowing availability with the FHLB at September 30, 2024 was $ 1,358,914 . These borrowings can be in the form of additional term advances or a line-of-credit.

FRB advances

We also had a $ 2,073,832 line-of-credit with the FRB. The agreement bears interest at the Fed Funds target rate plus 0.50 % and is secured by $ 2,479,591 of investment securities and loans pledged to the FRB as collateral. No amounts were drawn on the line-of-credit as of September 30, 2024.

Other borrowings

We have lines-of-credit with certain other financial institutions totaling $ 160,000 as of September 30, 2024. No amounts were drawn on these lines-of-credit at September 30, 2024.

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. The amortization associated with the capitalized issuance costs is not significant for the periods presented.

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, pays 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. The amortization associated with the capitalized issuance costs is not significant for the periods presented.

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 term SOFR plus 3.35 % ( 8.94 % and 8.51 % as of September 30, 2024 and 2023, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month term SOFR plus 2.00 % ( 7.36 % and 7.39 % as of September 30, 2024 and 2023, respectively) for the trust preferred securities issued through NMBCT II.

This subordinated debt of $ 13,919 was originally recorded at a discount of $ 4,293 . The accretion associated with the fair value discount is not significant for the periods presented.

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 9 - 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:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Net income applicable to common stockholders	$	22,422	$	25,232	$	59,278	$	79,519
Weighted Average Shares
Weighted average common shares outstanding	27,612,538		24,942,389		27,355,098		24,933,168
Effect of dilutive securities
Stock-based awards	600,271		415,418		621,117		432,129

Weighted average diluted common shares	28,212,809		25,357,807		27,976,215		25,365,297
Earnings per common share
Basic earnings per common share	$	0.81	$	1.01	$	2.17	$	3.19
Effect of dilutive securities
Stock-based awards	( 0.02 )		( 0.01 )		( 0.05 )		( 0.06 )
Diluted earnings per common share	$	0.79	$	1.00	$	2.12	$	3.13

For information regarding the common shares and warrants to be issued upon the closing of our proposed merger with HomeStreet see Note 1 - Organization and Basis of Presentation .

NOTE 10 - Stockholders’ Equity

As of September 30, 2024 and December 31, 2023, 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 September 30, 2024 and December 31, 2023, the Company has 50,000,000 shares of common stock authorized, $ 0.0001 par value, of which 27,665,918 and 24,960,639 shares were issued and outstanding, respectively.

For potential changes to our authorized shares as a result of our proposed merger with HomeStreet, see Charter Amendment in Note 1 - Organization and Basis of Presentation .

Upfront Securities Purchase Agreement

On January 16, 2024 in accordance with the Upfront Securities Purchase Agreement, we issued we 2,461,538 shares of our common stock in a private placement for $ 80,000 . For additional details see Upfront Securities Purchase Agreement in Note 1 - Organization and Basis of Presentation .

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.

The following table presents stock options outstanding as of and for the nine months ended September 30, 2024.


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

Outstanding, beginning of period	1,245,000	$	20.25
Exercised	( 290,458 )	19.93


Outstanding, end of period	954,542	$	20.35	3.6
Options vested or expected to vest	954,542	$	20.35
Options exercisable, end of period	948,067	$	20.27	3.58

There were no grants or forfeitures during the nine months ended September 30, 2024:

At September 30, 2024, there was $ 45 of total unrecognized compensation cost related to non-vested stock options. The unrecognized compensation cost at September 30, 2024 is expected to be recognized over the next eleven months . At September 30, 2024 the intrinsic value of the stock options was $ 21,326 .

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 March 2024, we granted special restricted stock awards of 228,573 shares and, on the closing date of the Merger, will grant additional special restricted stock awards of 195,525 shares, totaling 424,098 shares to certain officers of the Company (including those formerly with HomeStreet) for (i) retention purposes and (ii) to incentivize them in their efforts to work towards both a timely and efficient consummation of the Merger and a successful post-closing integration of the two companies. If the Merger does not close, all 424,098 of special stock awards will be cancelled. Because the special restricted stock awards are contingent upon the closing of the Merger, no expense has been incurred during the three or nine months ended September 30, 2024 . These awards will vest one-third per year over a three-year period, provided that the officer continues to provide services to the Company on the applicable vesting date, with accelerated vesting upon death, disability, or termination by the Company under certain conditions.

In March 2024, we issued 11,739 shares of restricted stock that will fully vest in March 2025. In May 2023, we issued 15,007 shares of restricted stock, 741 shares were forfeited during 2024 prior to vesting, the remaining 14,266 were fully vested in May 2024. In May 2022, we issued 11,344 shares of restricted stock that were fully vested in May 2023. At September 30, 2024, there was $ 420 of total unrecognized compensation cost related to the non-vested restricted stock.

In April 2024, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2027. At September 30, 2024, we determined it is probable that 93,868 shares will be issued based upon the probability that the performance conditions will be achieved. At September 30, 2024, there was $ 2,777 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

In April 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 September 30, 2024, we determined it is probable that 97,694 shares will be issued based upon the probability that the performance conditions will be achieved. At September 30, 2024, there was $ 1,368 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

In April 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 September 30, 2024, we determined it is probable that 47,633 shares will be issued based upon the probability that the performance conditions will be achieved. At

September 30, 2024, there was $ 283 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

For the three months ended September 30, 2024 and 2023, we recorded total compensation cost from the 2017 and 2021 Plans of $ 549 and $ 660 , respectively. For the nine months ended September 30, 2024 and 2023, we recorded total compensation cost from the 2017 and 2021 Plans of $ 1,813 and $ 1,743 , respectively.

Acquired Equity Incentive Plans

In conjunction with a previous acquisition, we assumed certain options that had been granted under such option plans. All assumed options were fully vested and exercisable. No further options will be granted under the plans.

The following table presents stock options outstanding as of and for the nine months ended September 30, 2024.



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

Outstanding, beginning of period	121,901	$	23.26

Exercised	( 1,566 )	17.24


Outstanding, vested, and exercisable, end of period	120,335	$	23.34	3.16

At September 30, 2024 the intrinsic value of the stock options was $ 2,329 .

NOTE 11 - Income Taxes

The provision for income taxes in interim periods requires us to make an estimate of the effective tax rate expected to be applicable for the full year, adjusted for any discrete items for the applicable period. This estimated effective tax rate is then applied to interim consolidated pre-tax operating income to determine the interim provision for income taxes.

The provision for income tax is summarized as follows:


	For the three months ended September 30,						For the nine months ended September 30,
	2024			2023			2024			2023



Provision for income taxes	$	6,147		$	6,762		$	15,675		$	21,557
Effective tax provision rate	21.5		%	21.1		%	20.9		%	21.3		%

We do not believe that we have any material uncertain tax positions, and do not expect any material changes during the next twelve months.

NOTE 12 - 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 September 30, 2024, 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 September 30, 2024 and December 31, 2023, 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.

Actual and required capital amounts for the Parent Company are as follows as of:


	Actual				For Capital Adequacy Purposes				To be Well- Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount	Ratio
September 30, 2024
Total risk-based capital to risk-weighted assets:	$	1,102,639	15.25	%	$	578,471	8.00	%	N/A	N/A
Tier 1 risk-based capital to risk-weighted assets:	$	944,266	13.06	%	$	433,853	6.00	%	N/A	N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	944,266	13.06	%	$	325,390	4.50	%	N/A	N/A
Tier 1 leverage capital to average assets:	$	944,266	11.96	%	$	315,921	4.00	%	N/A	N/A
December 31, 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

Actual and required capital amounts for the Bank are as follows as of:


	Actual				For Capital Adequacy Purposes				To be Well- Capitalized under Prompt Corrective Action Provisions
	Amount		Ratio		Amount		Ratio		Amount		Ratio
September 30, 2024
Total risk-based capital to risk-weighted assets:	$	990,484	13.72	%	$	577,545	8.00	%	$	721,931	10.00	%
Tier 1 risk-based capital to risk-weighted assets:	$	907,820	12.57	%	$	433,159	6.00	%	$	577,545	8.00	%
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	907,820	12.57	%	$	324,869	4.50	%	$	469,255	6.50	%
Tier 1 leverage capital to average assets:	$	907,820	11.50	%	$	315,868	4.00	%	$	394,835	5.00	%
December 31, 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	%

NOTE 13 - Fair Value Measurements

We utilize fair value measurements to record or disclose the fair value on certain assets and liabilities. 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. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation models rely on market-based parameters when available, such as interest rate yield curves or credit spreads. Unobservable inputs may be based on management’s judgment assumptions and estimates related to credit quality, our future earnings, interest rates and other relevant inputs. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and the methods used.

ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The hierarchy is based on the transparency of the inputs used in the valuation process with the highest priority given to quoted prices available in active markets and the lowest priority to unobservable inputs where no active market exists. The three levels of inputs that may be used to measure fair value are as follows:

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.

A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the overall fair value measurement. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.

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


	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
September 30, 2024
Available-for-sale securities	$	40,648	$	456,163	$	—	$	496,811
Loans held-for-sale	—		72,247		—		72,247
Mortgage servicing rights	—		—		78,799		78,799
Derivative financial instruments - assets	—		27,311		—		27,311
Derivative financial instruments - liabilities	—		( 17,531 )		—		( 17,531 )
Total	$	40,648	$	538,190	$	78,799	$	657,637

December 31, 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	—		35,073		—		35,073
Derivative financial instruments - liabilities	—		( 20,475 )		—		( 20,475 )
Total	$	54,234	$	531,333	$	76,701	$	662,268

For further details on our Level 3 inputs related to MSRs, see Note 4 - Mortgage Servicing Rights .

The following table presents a reconciliation for our Level 3 assets measured at fair value on a recurring basis:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Balance, beginning of period	$	80,744	$	78,390	$	76,701	$	74,097
Total (losses) gains included in earnings	( 5,433 )		( 44 )		( 6,687 )		( 695 )
Purchases, issuances, sales and settlements:

Issuances	3,488		2,690		8,785		7,634


Balance, end of period	$	78,799	$	81,036	$	78,799	$	81,036

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. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and other real estate owned and foreclosed assets, which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses, and subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of:


	Level 3
	September 30, 2024		December 31, 2023
Collateral dependent loans:
Commercial and industrial	$	8,881	$	2,756

Residential real estate	1,524		1,448
Public finance	5,766		—

Other	2,232		2,289
Total collateral dependent loans	$	18,403	$	6,493

Other real estate owned and foreclosed assets, net:

Commercial real estate	$	3,133	$	3,133
Residential real estate	1,345		967

Total other real estate owned and foreclosed assets, net:	$	4,478	$	4,100

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.

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:


			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
September 30, 2024
Assets:
Cash and cash equivalents	$	573,674	$	573,674	$	573,674	$	—	$	—
Securities held-to-maturity	35,885		32,111		—		32,111		—
Loans (excluding collateral dependent loans at fair value)	6,425,353		6,298,517		—		—		6,298,517
Restricted equity securities	32,394		32,394		—		32,394		—
Accrued interest receivable	35,711		35,711		—		2,634		33,077

Liabilities:
Deposits (excluding demand deposits)	$	4,449,471	$	4,444,293	$	2,650,042	$	1,794,251	$	—
Securities sold under agreements to repurchase	10,913		10,913		—		10,913		—
FHLB advances	215,000		215,000		—		215,000		—


Subordinated debt, net	75,709		73,058		—		73,058		—
Accrued interest payable	9,018		9,018		—		9,018		—
December 31, 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		—

NOTE 14 - 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 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 three months ended September 30,:


	Banking		Mortgage Operations		Corporate		Total Segments
2024
Summary of Operations
Net interest income (expense)	$	72,421	$	4,972	$	( 1,235 )	$	76,158

Provision for credit losses	6,369		( 1,369 )		—		5,000

Noninterest income:
Service charges on deposit accounts	6,242		( 2 )		—		6,240
Credit and debit card fees	2,805		1		—		2,806
Trust and investment advisory fees	1,395		—		—		1,395
(Loss) income from mortgage banking services, net	( 611 )		9,449		—		8,838
Other noninterest income	2,796		—		—		2,796
Total noninterest income	12,627		9,448		—		22,075

Noninterest expense:
Salary and employee benefits	30,518		8,302		486		39,306
Occupancy and equipment	8,260		778		83		9,121
Other noninterest expenses	11,291		4,042		904		16,237
Total noninterest expense	50,069		13,122		1,473		64,664

Income (loss) before income taxes	$	28,610	$	2,667	$	( 2,708 )	$	28,569

Other Information
Depreciation expense	$	1,461	$	45	$	—	$	1,506
Identifiable assets	$	6,950,905	$	1,047,853	$	139,729	$	8,138,487


	Banking		Mortgage Operations		Corporate		Total Segments
2023
Summary of Operations
Net interest income (expense)	$	73,496	$	1,171	$	( 1,257 )	$	73,410

Provision for credit losses	6,319		( 2,429 )		—		3,890

Noninterest income:
Service charges on deposit accounts	5,475		—		—		5,475
Credit and debit card fees	2,996		—		—		2,996
Trust and investment advisory fees	1,398		—		—		1,398
(Loss) income from mortgage banking services, net	( 526 )		7,939		—		7,413
Other noninterest income	1,368		—		—		1,368
Total noninterest income	10,711		7,939		—		18,650

Noninterest expense:
Salary and employee benefits	27,701		5,844		423		33,968
Occupancy and equipment	7,720		707		60		8,487
Other noninterest expenses	9,719		3,820		182		13,721
Total noninterest expense	45,140		10,371		665		56,176

Income (loss) before income taxes	$	32,748	$	1,168	$	( 1,922 )	$	31,994

Other Information
Depreciation expense	$	1,567	$	57	$	—	$	1,624
Identifiable assets	$	6,824,853	$	871,032	$	60,990	$	7,756,875

Significant segment totals are reconciled to the financial statements as follows for the nine months ended September 30,:


	Banking		Mortgage Operations		Corporate		Total Segments
2024
Summary of Operations
Net interest income (expense)	$	210,594	$	12,974	$	( 3,705 )	$	219,863

Provision (benefit) for credit losses	24,402		( 1,702 )		—		22,700

Noninterest income:
Service charges on deposit accounts	17,957		( 3 )		—		17,954
Credit and debit card fees	8,613		3		—		8,616
Trust and investment advisory fees	4,351		—		—		4,351
(Loss) income from mortgage banking services, net	( 1,778 )		31,161		—		29,383
Other noninterest income	7,853		—		—		7,853
Total noninterest income	36,996		31,161		—		68,157

Noninterest expense:
Salary and employee benefits	91,290		23,881		1,316		116,487
Occupancy and equipment	23,864		2,382		171		26,417
Other noninterest expenses	31,298		12,114		4,051		47,463
Total noninterest expense	146,452		38,377		5,538		190,367

Income (loss) before income taxes	$	76,736	$	7,460	$	( 9,243 )	$	74,953

Other Information
Depreciation expense	$	4,380	$	143	$	—	$	4,523
Identifiable assets	$	6,950,905	$	1,047,853	$	139,729	$	8,138,487


	Banking		Mortgage Operations		Corporate		Total Segments
2023
Summary of Operations
Net interest income (expense)	$	220,608	$	4,532	$	( 3,778 )	$	221,362

Provision for credit losses	12,382		( 710 )		—		11,672

Noninterest income:
Service charges on deposit accounts	15,848		—		—		15,848
Credit and debit card fees	9,033		1		—		9,034
Trust and investment advisory fees	4,337		—		—		4,337
(Loss) income from mortgage banking services, net	( 1,126 )		27,627		—		26,501
Other noninterest income	6,151		—		—		6,151
Total noninterest income	34,243		27,628		—		61,871

Noninterest expense:
Salary and employee benefits	81,667		19,868		1,538		103,073
Occupancy and equipment	22,744		2,088		145		24,977
Other noninterest expenses	29,654		11,155		1,626		42,435
Total noninterest expense	134,065		33,111		3,309		170,485

Income (loss) before income taxes	$	108,404	$	( 241 )	$	( 7,087 )	$	101,076

Other Information
Depreciation expense	$	4,870	$	177	$	—	$	5,047
Identifiable assets	$	6,824,853	$	871,032	$	60,990	$	7,756,875

NOTE 15 - 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 September 30, 2024 and December 31, 2023, commitments included the funding of fixed-rate loans totaling $ 224,266 and $ 191,415 and variable-rate loans totaling $ 1,376,746 and $ 1,656,434 , respectively. The fixed-rate loan commitments have interest rates ranging from 1.00 % to 18.00 % at September 30, 2024 and December 31, 2023, and maturities ranging from 1 month to 18 years at September 30, 2024 and from 1 month to 19 years at December 31, 2023.

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 September 30, 2024 and December 31, 2023, our standby letters of credit commitment totaled $ 30,189 and $ 14,490 , 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 September 30, 2024 and December 31, 2023, 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 has not recorded a liability and offsetting receivable. As of September 30, 2024 and December 31, 2023, the maximum potential amount of future payments that the Bank would have been required to make under the Commitments was $ 3,829 and $ 3,810 , 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.

Litigation

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, 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, which was denied on March 11, 2024. The case is now in discovery. 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. Judgment on the aforementioned jury award was formally entered on July 25, 2024. A supplemental award of RESI’s legal fees will likely be entered by January 1, 2025. 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.

NOTE 16 - 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.


	September 30, 2024			December 31, 2023
ROU asset on leased property, gross	$	38,506		$	36,520
Accumulated amortization	( 15,099 )			( 12,293 )
ROU asset, net (included in prepaid expenses and other assets in our consolidated balance sheets)	$	23,407		$	24,227
Lease liability (included in accrued expenses and other liabilities in our consolidated balance sheets)	$	25,377		$	26,431
Weighted Average Remaining Life - Operating Leases	4.08			5.56
Weighted Average Rate - Operating Leases	3.82		%	2.10		%

The following table reconciles future undiscounted lease payments due under non-cancelable operating leases to the aggregate operating lessee lease liability as of September 30, 2024:


Remainder of 2024	$	7,445
2025	5,741
2026	3,806
2027	3,271
2028	2,646
2029	4,159
Thereafter	116
Total undiscounted operating lease liability	27,184
Imputed interest	1,807
Total operating lease liability included in the accompanying balance sheet	$	25,377

Total lease expense for three months ended September 30, 2024 and 2023 was $ 1,857 and $ 1,888 , respectively. Total lease expense for the nine months ended September 30, 2024 and 2023 was $ 5,695 and $ 5,633 , respectively. The components of total lease expense for the periods ended September 30, 2024 was as follows:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Operating leases	$	1,813	$	1,887	$	5,680	$	5,642
Short-term leases	74		60		168		160

Sublease income	( 30 )		( 59 )		( 153 )		( 169 )
Net lease expense	$	1,857	$	1,888	$	5,695	$	5,633

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.

Item 2. 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 and analysis of FirstSun’s consolidated financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as our audited consolidated financial statements and footnotes for the year ended December 31, 2023 included in our 2023 Annual Report that we 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. 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. Sunflower Bank is currently regulated by the Office of the Comptroller of the Currency. In connection with our proposed merger with HomeStreet, we have filed applications to convert Sunflower Bank to a state chartered bank regulated by the Texas Department of Banking and to seek membership with the Federal Reserve.

We offer a full range of relationship-focused services to meet our clients’ personal, business and wealth management financial objectives, with a branch network in Texas, Kansas, Colorado, New Mexico, and Arizona, multiple loan production offices in Southern California, and mortgage capabilities in 43 states. Our product lines include 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 14 - Segment Information included in our consolidated financial statements included elsewhere in this report.

Pending Merger with HomeStreet, Inc. and Common Equity Raise

On January 16, 2024, FirstSun and HomeStreet entered into a definitive merger agreement. Under the merger agreement, FirstSun will continue as the surviving entity and Sunflower Bank will continue as the surviving bank. On April 30, 2024, FirstSun and HomeStreet entered into an amendment to the merger agreement that, among other things, increased total capital raised in connection with the merger, revised the share exchange ratio pursuant to which the HomeStreet shareholders will receive FirstSun common stock, and reduced the termination fee payable by HomeStreet in certain circumstances. The amendment was unanimously approved by the Boards of Directors of each of FirstSun and HomeStreet. On June 18, 2024, HomeStreet’s shareholders approved the merger agreement.

Although we had expected the HomeStreet merger to close in the fourth quarter of 2024, on October 29, 2024, we announced that regulatory approvals necessary for the mergers with HomeStreet and its subsidiary, HomeStreet Bank to proceed have not been obtained and FirstSun and Sunflower have been asked to withdraw their merger applications. Although FirstSun continues to have discussions with regulators, it appears that regulatory approvals will not be forthcoming and, without those approvals, the merger may not be consummated. Also, although FirstSun and HomeStreet are discussing the pursuit of an alternative regulatory structure for the merger there also can be no assurances that an alternative regulatory structure will be feasible or agreed-upon. Should FirstSun and HomeStreet fail to agree on an alternative regulatory structure, it is likely that the Merger Agreement will be terminated and the Mergers abandoned. For more complete information related to the Merger Agreement and Amendment see Proposed Merger with HomeStreet in Note 1 - Organization and Basis of Presentation in our unaudited consolidated financial statements included elsewhere in this report.

Concurrently with entry into the HomeStreet merger agreement, FirstSun entered into investment agreements with investors to raise capital to support the merger. These agreements included an initial $80 million investment in FirstSun common stock. Concurrently with the amendment to the merger agreement, FirstSun entered into an amendment to the investment agreements with the investors to increase the amount of investment to support the merger. In June 2024, FirstSun and the investors entered into a Joinder to the Acquisition Finance Securities Purchase Agreement. For additional information related to the agreements to raise additional capital for the merger, including the Joinder, see Investment Agreements in Note 1 - Organization and Basis of Presentation in our unaudited consolidated financial statements included elsewhere in this report.

Financial Summary

Third Quarter 2024 Highlights:

• Net income of $22.4 million, $0.79 per diluted share (excluding merger costs, $23.7 million, $0.84 per diluted share, see the “Non-GAAP Financial Measures and Reconciliations” below)

• Net interest margin of 4.10%

• Return on average total assets of 1.13% (excluding merger costs, 1.19%, see the “Non-GAAP Financial Measures and Reconciliations” below)

• Return on average stockholders’ equity of 8.79% (excluding merger costs, 9.27%, see the “Non-GAAP Financial Measures and Reconciliations” below)

• Loan growth of 6.7% annualized

• Deposit growth of 1.8% annualized

• 22.5% noninterest income to total revenue 1

Net income totaled $22.4 million, or $0.79 per diluted share, for the third quarter of 2024, compared to $25.2 million, or $1.00 per diluted share, for the third quarter of 2023. Net income for the third quarter of 2024 was negatively impacted by $1.2 million of merger costs, net of tax, or $0.05 per diluted share. The return on average total assets was 1.13% for the third quarter of 2024, compared to 1.34% for the third quarter of 2023, and the return on average stockholders’ equity was 8.79% for the third quarter of 2024, compared to 12.03% for the third quarter of 2023. Third quarter of 2024 merger costs, net of tax, negatively affected return on average total assets by 0.06% and return on average stockholders’ equity by 0.48%.

Net income totaled $59.3 million, or $2.12 per diluted share, for the nine months ended September 30, 2024, compared to $79.5 million, or $3.13 per diluted share, for the same period in 2023. Net income for the nine months ended September 30, 2024 was negatively impacted by a $10.6 million provision for credit loss on a specific customer in our C&I loan portfolio, net of tax, or $0.38 per diluted share, and $4.2 million in merger costs, net of tax, or $0.15 per diluted share. The return on average total assets was 1.01% for the nine months ended September 30, 2024, compared to 1.42%, for the same period in 2023, and the return on average stockholders’ equity was 8.02% for the nine months ended September 30, 2024, compared to 12.97%, for the same period in 2023. For the nine months ended September 30, 2024, merger costs, net of tax, negatively affected return on average total assets by 0.07% and return on average stockholders’ equity by 0.56%.

1 Total revenue is net interest income plus noninterest income.

The following table sets forth certain summary financial and other information of FirstSun:


	For the three months ended September 30,			For the nine months ended September 30,						For the year ended December 31,
($ in thousands, except share and per share amounts)	2024			2023			2024			2023			2023
Income Statement:
Net interest income	$	76,158		$	73,410		$	219,863		$	221,362		$	293,431
Taxable equivalent adjustment	1,132			1,286			3,606			3,816			5,086
Net interest income - fully tax equivalent ("FTE") basis (non-GAAP) (3)	$	77,290		$	74,696		$	223,469		$	225,178		$	298,517
Provision for credit losses	$	5,000		$	3,890		$	22,700		$	11,672		$	18,247
Noninterest income	$	22,075		$	18,650		$	68,157		$	61,871		$	79,092
Noninterest expense	$	64,664		$	56,176		$	190,367		$	170,485		$	222,793
Net income	$	22,422		$	25,232		$	59,278		$	79,519		$	103,533
Per Common Share Data:
Weighted average diluted common shares	28,212,809			25,357,807			27,976,215			25,365,297			25,387,196
Net income (basic)	$	0.81		$	1.01		$	2.17		$	3.19		$	4.15
Net income (diluted)	$	0.79		$	1.00		$	2.12		$	3.13		$	4.08
Cash dividends	$	—		$	—		$	—		$	—		$	—
Dividend payout ratio	—		%	—		%	—		%	—		%	—		%
Book value	$	37.38		$	33.83		$	37.38		$	33.83		$	35.14
Tangible book value (non-GAAP) (3)	$	33.68		$	29.60		$	33.68		$	29.60		$	30.96
Performance Ratios:
Return on average total assets	1.13		%	1.34		%	1.01		%	1.42		%	1.38		%
Return on average stockholders' equity	8.79		%	12.03		%	8.02		%	12.97		%	12.50		%
Return on tangible stockholders' equity (non-GAAP) (3)	9.85		%	14.05		%	8.72		%	14.93		%	13.89		%
Return on average tangible stockholders' equity (non-GAAP) (3)	10.00		%	14.15		%	9.22		%	15.51		%	14.88		%
Net interest margin	4.10		%	4.23		%	4.04		%	4.28		%	4.23		%
Efficiency ratio (1)	65.83		%	61.02		%	66.10		%	60.19		%	59.81		%
Efficiency ratio excluding merger related expenses (non-GAAP) (3)	64.16		%	61.02		%	64.30		%	60.19		%	59.81		%
Net charge-offs to average loans outstanding	0.09		%	0.15		%	0.44		%	0.07		%	0.13		%
Allowance for credit losses to loans	1.29		%	1.27		%	1.29		%	1.27		%	1.28		%
Nonperforming loans to total loans (2)	1.02		%	0.66		%	1.02		%	0.66		%	1.01		%
Balance Sheet:
Total loans, excluding loans held-for-sale	$	6,443,756		$	6,179,522		$	6,443,756		$	6,179,522		$	6,267,096
Total assets	$	8,138,487		$	7,756,875		$	8,138,487		$	7,756,875		$	7,879,724
Total deposits	$	6,649,880		$	6,339,847		$	6,649,880		$	6,339,847		$	6,374,103
Total borrowed funds	$	290,709		$	405,180		$	290,709		$	405,180		$	464,781
Total stockholders' equity	$	1,034,085		$	843,719		$	1,034,085		$	843,719		$	877,197
Capital Ratios:
Total risk-based capital to risk-weighted assets	15.25		%	12.93		%	15.25		%	12.93		%	13.25		%
Tier 1 risk-based capital to risk-weighted assets	13.06		%	10.79		%	13.06		%	10.79		%	11.10		%
Common Equity Tier 1 (CET 1) to risk-weighted assets	13.06		%	10.79		%	13.06		%	10.79		%	11.10		%
Tier 1 leverage capital to average assets	11.96		%	10.37		%	11.96		%	10.37		%	10.52		%
Average stockholders' equity to average total assets	12.81		%	11.18		%	12.62		%	10.98		%	11.05		%
Tangible stockholders' equity to tangible assets (non-GAAP) (3)	11.59		%	9.65		%	11.59		%	9.65		%	9.94		%
Tangible stockholders' equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) (3)	11.56		%	9.59		%	11.56		%	9.59		%	9.90		%
Nonfinancial Data:
Full-time equivalent employees	1,148			1,106			1,148			1,106			1,110
Banking branches	69			69			69			69			69
(1) The efficiency ratio is one measure of profitability in the banking industry. This ratio measures the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income.
(2) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due.
(3) 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.

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 three and nine months ended September 30, 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:


	For the three months ended September 30,			For the nine months ended September 30,						For the year ended December 31,
($ in thousands, except share and per share amounts)	2024			2023			2024			2023			2023






Tangible stockholders’ equity and tangible book value per share:
Total stockholders' equity (GAAP)	$	1,034,085		$	843,719		$	1,034,085		$	843,719		$	877,197
Less: Goodwill and other intangible assets
Goodwill	(93,483)			(93,483)			(93,483)			(93,483)			(93,483)
Other intangible assets	(8,866)			(11,813)			(8,866)			(11,813)			(10,984)
Tangible stockholders' equity (non-GAAP)	$	931,736		$	738,423		$	931,736		$	738,423		$	772,730
Total common shares outstanding	27,665,918			24,942,645			27,665,918			24,942,645			24,960,639
Book value per share (GAAP)	$	37.38		$	33.83		$	37.38		$	33.83		$	35.14
Tangible book value per share (non-GAAP)	$	33.68		$	29.60		$	33.68		$	29.60		$	30.96
Tangible net income and return on tangible stockholders’ equity:
Net income (GAAP)	$	22,422		$	25,232		$	59,278		$	79,519		$	103,533
Add: Intangible amortization, net of tax	514			710			1,673			3,154			3,809
Tangible net income (non-GAAP)	$	22,936		$	25,942		$	60,951		$	82,673		$	107,342
Tangible stockholders’ equity (non-GAAP) (see above)	$	931,736		$	738,423		$	931,736		$	738,423		$	772,730
Return on stockholders’ equity (GAAP)	8.67		%	11.96		%	7.64		%	12.57		%	11.80		%
Return on tangible stockholders’ equity (non-GAAP)	9.85		%	14.05		%	8.72		%	14.93		%	13.89		%









Net interest margin - FTE basis:
Net interest income (GAAP)	$	76,158		$	73,410		$	219,863		$	221,362		$	293,431
Taxable equivalent adjustment	1,132			1,286			3,606			3,816			5,086
Net interest income - FTE basis (non-GAAP)	$	77,290		$	74,696		$	223,469		$	225,178		$	298,517
Average earning assets	$	7,430,357		$	6,947,500		$	7,263,093		$	6,891,380		$	6,935,567
Net interest margin (GAAP)	4.10		%	4.23		%	4.04		%	4.28		%	4.23		%
Net interest margin - FTE basis (non-GAAP)	4.16		%	4.30		%	4.10		%	4.36		%	4.29		%
Tangible stockholders’ equity to tangible assets:
Total assets (GAAP)	$	8,138,487		$	7,756,875		$	8,138,487		$	7,756,875		$	7,879,724
Less: Goodwill and other intangible assets
Goodwill	(93,483)			(93,483)			(93,483)			(93,483)			(93,483)
Other intangible assets	(8,866)			(11,813)			(8,866)			(11,813)			(10,984)
Tangible assets (non-GAAP)	$	8,036,138		$	7,651,579		$	8,036,138		$	7,651,579		$	7,775,257
Tangible stockholders’ equity (non-GAAP) (see above)	$	931,736		$	738,423		$	931,736		$	738,423		$	772,730
Stockholders' equity to total assets (GAAP)	12.71		%	10.88		%	12.71		%	10.88		%	11.13		%

Tangible stockholders’ equity to tangible assets (non-GAAP)	11.59		%	9.65		%	11.59		%	9.65		%	9.94		%


	For the three months ended September 30,			For the nine months ended September 30,						For the year ended December 31,
($ in thousands, except share and per share amounts)	2024			2023			2024			2023			2023
Tangible stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax:
Tangible stockholders' equity (non-GAAP) (see above)	$	931,736		$	738,423		$	931,736		$	738,423		$	772,730
Less: Net unrealized losses on HTM securities, net of tax	(2,852)			(5,001)			(2,852)			(5,001)			(3,629)
Tangible stockholders’ equity less net unrealized losses on HTM securities, net of tax (non-GAAP)	$	928,884		$	733,422		$	928,884		$	733,422		$	769,101
Tangible assets (non-GAAP) (see above)	$	8,036,138		$	7,651,579		$	8,036,138		$	7,651,579		$	7,775,257
Less: Net unrealized losses on HTM securities, net of tax	(2,852)			(5,001)			(2,852)			(5,001)			(3,629)
Tangible assets less net unrealized losses on HTM securities, net of tax (non-GAAP)	$	8,033,286		$	7,646,578		$	8,033,286		$	7,646,578		$	7,771,628
Tangible stockholders’ equity to tangible assets (non-GAAP)	11.59		%	9.65		%	11.59		%	9.65		%	9.94		%

Tangible stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP)	11.56		%	9.59		%	11.56		%	9.59		%	9.90		%
Net income excluding merger costs:
Net income (GAAP)	$	22,422		$	25,232		$	59,278		$	79,519		$	103,533
Add: Merger costs
Merger related expenses	1,633			—			5,168			—			—
Income tax effect on merger related expenses	(400)			—			(1,018)			—			—


Total merger costs	1,233			—			4,150			—			—
Net income excluding merger costs (non-GAAP)	$	23,655		$	25,232		$	63,428		$	79,519		$	103,533
Return on average total assets excluding merger costs:
Return on average total assets (ROAA) (GAAP)	1.13		%	1.34		%	1.01		%	1.42		%	1.38		%
Add: Impact of merger costs, net of tax	0.06		%	—		%	0.07		%	—		%	—		%
ROAA excluding merger costs (non-GAAP)	1.19		%	1.34		%	1.08		%	1.42		%	1.38		%
Return on average stockholders’ equity excluding merger costs:
Return on average stockholders' equity (ROAE) (GAAP)	8.79		%	12.03		%	8.02		%	12.97		%	12.50		%
Add: Impact of merger costs, net of tax	0.48		%	—		%	0.56		%	—		%	—		%
ROAE excluding merger costs (non-GAAP)	9.27		%	12.03		%	8.58		%	12.97		%	12.50		%
Efficiency ratio excluding merger related expenses:
Efficiency ratio (GAAP)	65.83		%	61.02		%	66.10		%	60.19		%	59.81		%
Less: Impact of merger related expenses	(1.67)		%	—		%	(1.80)		%	—		%	—		%
Efficiency ratio excluding merger related expenses (non-GAAP)	64.16		%	61.02		%	64.30		%	60.19		%	59.81		%
Diluted earnings per share excluding merger costs:
Diluted earnings per share (GAAP)	$	0.79		$	1.00		$	2.12		$	3.13		$	4.08
Add: Impact of merger costs, net of tax	0.05			—			0.15			—			—
Diluted earnings per share excluding merger costs (non-GAAP)	$	0.84		$	1.00		$	2.27		$	3.13		$	4.08

Segments

Banking

Three months ended September 30, 2024 and 2023

Income before income taxes decreased $4.1 million to $28.6 million for the third quarter of 2024, from $32.7 million for the same period in 2023. The period over period decrease was primarily due to a decrease in net interest income, increase in noninterest expense, partially offset by an increase in noninterest income. Net interest income decreased $1.1 million to $72.4 million for the third quarter of 2024, compared to $73.5 million for the same period in 2023, primarily due to continued intense competition for deposits amidst the elevated interest rate environment. Salary and employee benefits increased $2.8 million to $30.5 million for the third quarter of 2024, from $27.7 million for the same period in 2023, primarily due to increased headcount, including the hiring of C&I bankers. Other noninterest expenses increased $1.6 million to $11.3 million for the third quarter of 2024, from $9.7 million for the same period in 2023, primarily due to merger related expenses. Other noninterest income increased $1.4 million to $2.8 million for the third quarter of 2024, from $1.4 million for the same period in 2023, primarily due to an increase in the fair value of investments related to our deferred compensation plan. Identifiable assets for our Banking segment increased $126.1 million to $7.0 billion at September 30, 2024 from $6.8 billion at September 30, 2023. The growth in identifiable assets was primarily driven by organic growth in our loan portfolios.

Nine months ended September 30, 2024 and 2023

Income before income taxes decreased $31.7 million to $76.7 million for the nine months en ded September 30, 2024, from $108.4 million for the same period in 2023. The period over period decrease was primarily due to a decrease in net interest income, an increase in provision for credit losses, and an increase in salary and employee benefits. Net interest income decreased $10.0 million to $210.6 million for the nine months ended September 30, 2024 compared to $220.6 million for the same period in 2023, primarily due to continued intense competition for deposits amidst the elevated interest rate environment and a mix shift to higher cost deposit products, including certificate of deposit and interest bearing demand accounts. Provision for credit losses increased $12.0 million to $24.4 million for the nine months ended September 30, 2024, compared to $12.4 million for the same period in 2023, primarily due to a $14.1 million provision for credit loss on a specific customer in our C&I loan portfolio. Salary and employee benefits increased $9.6 million to $91.3 million for the nine months ended September 30, 2024, compared to $81.7 million for the same period in 2023, primarily due to increased headcount, including the hiring of C&I bankers.

Mortgage Operations

Three months ended September 30, 2024 and 2023

Income before income taxes increased $1.5 million to $2.7 million for the third quarter of 2024, compared to $1.2 million for the same period in 2023. The period over period increase was primarily due to an increase in net interest income and increase in revenue from mortgage banking services, partially offset by an increase in provision for credit losses and increase in salary and employee benefits. Net interest income increased $3.8 million to $5.0 million for the third quarter of 2024, compared to $1.2 million for the same period in 2023, primarily due to higher average balance and higher average yield on residential real estate loans. Revenue from mortgage banking services increased $1.5 million to $9.4 million for the third quarter of 2024, compared to $7.9 million for the same period in 2023, primarily due to an increase 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. Provision (release) for credit losses increased $1.1 million to $(1.4) million for the third quarter of 2024, compared to $(2.4) million for the same period in 2023, primarily due to growth in our residential mortgage portfolio. Salary and employee benefits increased $2.5 million to $8.3 million for the third quarter of 2024, compared to $5.8 million for the same period in 2023, primarily due to higher levels of variable compensation associated with an increase in mortgage loan originations. Identifiable assets for our Mortgage Operations segment increased $176.8 million to $1.0 billion at September 30, 2024 from $0.9 billion at September 30, 2023. The growth in identifiable assets was primarily driven by organic growth in our residential mortgage portfolio.

Nine months ended September 30, 2024 and 2023

Income (loss) before income taxes increased $7.7 million to $7.5 million for the nine months ended September 30, 2024, compared to a loss of $0.2 million for the same period in 2023 . The period over period increase was primarily due to an increase in net interest income and an increase in revenue from mortgage banking services, partially offset by an increase in salary and employee benefits. Net interest income increased $8.4 million to $13.0 million for the nine months ended

September 30, 2024, compared to $4.5 million for the same period in 2023, primarily due to higher average balance and higher average yield on residential real estate loans. Revenue from mortgage banking services increased $3.5 million to $31.2 million for the nine months ended September 30, 2024, compared to $27.6 million for the same period in 2023, primarily due to an increase 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. Salary and employee benefits increased $4.0 million to $23.9 million for the nine months ended September 30, 2024, compared to $19.9 million for the same period in 2023, primarily due to higher levels of variable compensation associated with an increase in mortgage loan originations.

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 of MSRs, 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 of MSRs 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 we discuss them directly with the audit committee of our board of directors at least annually.

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 September 30, 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 judgment.

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 the ACL is further discussed in “Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies” in our 2023 Annual Report .

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 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

The following table sets forth components of our results of operations:


	As of and for the three months ended September 30,			As of and for the nine months ended September 30,
($ in thousands, except per share amounts)	2024			2023			2024			2023
Net interest income	$	76,158		$	73,410		$	219,863		$	221,362
Provision for credit losses	5,000			3,890			22,700			11,672
Noninterest income	22,075			18,650			68,157			61,871
Noninterest expense	64,664			56,176			190,367			170,485
Income before income taxes	28,569			31,994			74,953			101,076
Provision for income taxes	6,147			6,762			15,675			21,557
Net income	22,422			25,232			59,278			79,519

Diluted earnings per share	$	0.79		$	1.00		$	2.12		$	3.13
Return on average total assets	1.13		%	1.34		%	1.01		%	1.42		%
Return on average stockholders' equity	8.79		%	12.03		%	8.02		%	12.97		%
Net interest margin	4.10		%	4.23		%	4.04		%	4.28		%
Net interest margin - FTE basis (non-GAAP) (1)	4.16		%	4.30		%	4.10		%	4.36		%
Efficiency ratio	65.83		%	61.02		%	66.10		%	60.19		%
Noninterest income to total revenue (2)	22.47		%	20.26		%	23.66		%	21.84		%
(1) See section entitled “Non-GAAP Financial Measures and Reconciliations” for information regarding non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.
(2) Total revenue is net interest income plus noninterest income.

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.

Three months ended September 30, 2024 and 2023

Our net interest income was $76.2 million for the third quarter of 2024, an increase of $2.7 million, or 3.7%, compared to the same period in 2023. Interest income on loans increased by $8.9 million for the third quarter of 2024, compared to the same period in 2023. Interest income on investment securities increased by $0.5 million for the third quarter of 2024, compared to the same period in 2023. Interest income on interest-bearing cash and other assets increased by $2.7 million for the third quarter of 2024, compared to the same period in 2023. Interest expense from total interest-bearing liabilities increased by $9.4 million for the third quarter of 2024, compared to the same period in 2023.

Total average loans grew to $6.5 billion at September 30, 2024, an increase of $0.3 billion or 4.5%, compared to September 30, 2023, due to organic growth in our loan portfolio. Yield on loans increased 27 basis points for the third quarter of 2024, compared to the same period in 2023, primarily due to the elevated interest rate environment for the third quarter of 2024 as compared to the lower, yet rising interest rate environment for the third quarter of 2023, its impact on variable rate loans, and higher yields on new originations.

Average interest-bearing liabilities increased $0.4 billion, or 7.5%, for the third quarter of 2024, compared to the same period in 2023, primarily to support the growth in our loan portfolio. Average interest-bearing deposits increased $0.3 billion, or 7.0%, for the third quarter of 2024, compared to the same period in 2023. Average FHLB borrowings increased $0.1 billion, or 60.8%, for the third quarter of 2024, compared to the same period in 2023.

Our net interest margin was 4.10% for the third quarter of 2024, compared to 4.23% for the same period in 2023, a decrease of 13 basis points. We experienced a 25 basis point increase in yield from earning assets while our total cost of funds increased by 53 basis points, for the third quarter of 2024 as compared to the same period in 2023. In the third quarter of 2024, compared to the same period in 2023, we saw the level of increase in our total cost of funds exceed the level of increase in yield from earning assets primarily as a result of the continued intense competition for deposits amidst the elevated interest rate environment and mix shift to higher cost deposit products, including certificate of deposit and interest bearing demand accounts.

Nine months ended September 30, 2024 and 2023

Our net interest income was $219.9 million for the nine months ended September 30, 2024, a decrease of $1.5 million, or 0.7%, compared to the same period in 2023. Interest income on loans increased by $32.4 million for the nine months ended September 30, 2024, compared to the same period in 2023. Interest income on investment securities increased by $1.4 million for the nine months ended September 30, 2024, compared to the same period in 2023. Interest income on interest-bearing cash and other assets increased by $6.0 million for the nine months ended September 30, 2024, compared to the same period in 2023. Interest expense from total interest-bearing liabilities increased by $41.3 million for the nine months ended September 30, 2024, compared to the same period in 2023.

Total average loans grew to $6.4 billion at September 30, 2024, an increase of $0.2 billion, compared to September 30, 2023, primarily due to organic growth in our loan portfolios. Yield on loans increased 44 basis points for the nine months ended September 30, 2024, compared to the same period in 2023, primarily due to the elevated interest rate environment for the nine months ended September 30, 2024 as compared to the lower, yet rising interest rate environment for the same period in 2023, its impact on variable rate loans, and higher yields on new originations.

Average interest-bearing liabilities increased $0.4 billion, or 7.6%, for the nine months ended September 30, 2024, compared to the same period in 2023. Average interest-bearing deposits increased $0.6 billion, or 13.6%, for the nine months ended September 30, 2024, compared to the same period in 2023. Average FHLB borrowings decreased $0.2 billion, or 62.5%, for the nine months ended September 30, 2024, compared to the same period in 2023.

Our net interest margin was 4.04% for the nine months ended September 30, 2024, compared to 4.28% for the same period in 2023, a decrease of 24 basis points. We experienced a 43 basis point increase in yield from earning assets and our total cost of funds increased by 91 basis points for the nine months ended September 30, 2024, compared to the same period in 2023. In the nine months ended September 30, 2024, we saw the level of increase in our total cost of funds exceed the level of increase in yield from earning assets primarily as a result of the continued intense competition for deposits amidst the elevated interest rate environment and mix shift to higher cost deposit products, including certificate of deposit and interest bearing demand accounts.

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 three months ended September 30,:


	2024							2023
(In thousands)	Average Balance		Interest			Average Yield/Rate		Average Balance		Interest			Average Yield/Rate
Interest Earning Assets

Loans (1)	6,460,484		108,441			6.71	%	6,180,684		99,565			6.44	%
Investment securities	527,241		4,769			3.62	%	545,257		4,226			3.10	%
Interest-bearing cash and other assets	442,632		5,722			5.17	%	221,559		2,984			5.39	%
Total earning assets	7,430,357		118,932			6.40	%	6,947,500		106,775			6.15	%
Other assets	534,740							557,988
Total assets	$	7,965,097						$	7,505,488

Interest-bearing liabilities
Demand and NOW deposits	$	657,537	$	6,167		3.75	%	$	466,837	$	3,813		3.27	%
Savings deposits	411,526		739			0.72	%	439,172		680			0.62	%
Money market deposits	2,140,552		12,053			2.25	%	2,026,028		7,997			1.58	%
Certificates of deposits	1,800,502		20,626			4.58	%	1,748,515		18,406			4.21	%
Total deposits	5,010,117		39,585			3.16	%	4,680,552		30,896			2.64	%
Repurchase agreements	13,528		44			1.29	%	26,549		65			0.98	%
Total deposits and repurchase agreements	5,023,645		39,629			3.16	%	4,707,101		30,961			2.63	%
FHLB borrowings	135,641		1,901			5.61	%	84,332		1,139			5.40	%
Other long-term borrowings	75,654		1,244			6.58	%	78,680		1,265			6.44	%
Total interest-bearing liabilities	5,234,940		42,774			3.27	%	4,870,113		33,365			2.74	%
Noninterest-bearing deposits	1,568,685							1,654,090
Other liabilities	141,206							142,027
Stockholders' equity	1,020,266							839,258
Total liabilities and stockholders' equity	$	7,965,097						$	7,505,488

Net interest income			$	76,158						$	73,410
Net interest spread			3.13		%					3.41		%
Net interest margin			4.10		%					4.23		%
Net interest margin - FTE basis (non-GAAP) (2)			4.16		%					4.30		%
(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 non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent

As of and for the nine months ended September 30,:


	2024							2023
(In thousands)	Average Balance		Interest			Average Yield/Rate		Average Balance		Interest			Average Yield/Rate
Interest Earning Assets

Loans (1)	6,386,620		315,893			6.59	%	6,144,057		283,486			6.15	%
Investment securities	532,562		14,028			3.51	%	559,855		12,617			3.00	%
Interest-bearing cash and other assets	343,911		13,580			5.26	%	187,468		7,607			5.41	%
Total earning assets	7,263,093		343,501			6.31	%	6,891,380		303,710			5.88	%
Other assets	543,916							553,628
Total assets	$	7,807,009						$	7,445,008

Interest-bearing liabilities
Demand and NOW deposits	$	609,632	$	16,924		3.70	%	$	343,112	$	7,171		2.79	%
Savings deposits	415,687		2,179			0.70	%	452,298		1,616			0.48	%
Money market deposits	2,098,927		32,497			2.06	%	2,142,301		18,939			1.18	%
Certificates of deposits	1,812,839		62,859			4.62	%	1,407,264		38,078			3.61	%
Total deposits	4,937,085		114,459			3.09	%	4,344,975		65,804			2.02	%
Repurchase agreements	17,099		148			1.15	%	29,953		163			0.73	%
Total deposits and repurchase agreements	4,954,184		114,607			3.08	%	4,374,928		65,967			2.01	%
FHLB borrowings	125,799		5,297			5.61	%	335,485		12,576			5.00	%
Other long-term borrowings	75,522		3,734			6.59	%	79,801		3,805			6.36	%
Total interest-bearing liabilities	5,155,505		123,638			3.20	%	4,790,214		82,348			2.29	%
Noninterest-bearing deposits	1,529,793							1,705,392
Other liabilities	136,491							131,628
Stockholders’ equity	985,220							817,774
Total liabilities and stockholders’ equity	$	7,807,009						$	7,445,008

Net interest income			$	219,863						$	221,362
Net interest spread			3.11		%					3.59		%
Net interest margin			4.04		%					4.28		%
Net interest margin - FTE basis (non-GAAP) (2)			4.10		%					4.36		%
(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 non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent

Rate-Volume Analysis

The tables below present the effect of volume and rate changes on interest income and expense. Changes due to volume are changes in the average balance multiplied by the previous period’s average rate. Changes due to rate are changes in the average rate multiplied by the average balance from the prior 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 three months ended September 30,
	2024 Versus 2023 Increase (Decrease) Due to:
(In thousands)	Rate		Volume		Total
Interest Earning Assets

Loans (1)	$	4,271	$	4,605	$	8,876
Investment securities	677		(134)		543
Interest-bearing cash	(115)		2,853		2,738
Total earning assets	4,833		7,324		12,157
Interest-bearing liabilities
Demand and NOW deposits	627		1,727		2,354
Savings deposits	97		(38)		59
Money market deposits	3,581		475		4,056
Certificates of deposits	1,661		559		2,220
Total deposits	5,966		2,723		8,689
Repurchase agreements	40		(61)		(21)
Total deposits and repurchase agreements	6,006		2,662		8,668
FHLB borrowings	44		718		762
Other long-term borrowings	30		(51)		(21)
Total interest-bearing liabilities	6,080		3,329		9,409
Net interest income	$	(1,247)	$	3,995	$	2,748
(1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale.


	For the nine months ended September 30,
	2024 Versus 2023 Increase (Decrease) Due to:
(In thousands)	Rate		Volume		Total
Interest Earning Assets

Loans (1)	$	20,930	$	11,477	$	32,407
Investment securities	1,984		(573)		1,411
Interest-bearing cash	(199)		6,172		5,973
Total earning assets	22,715		17,076		39,791
Interest-bearing liabilities
Demand and NOW deposits	2,897		6,856		9,753
Savings deposits	681		(118)		563
Money market deposits	13,933		(375)		13,558
Certificates of deposits	12,244		12,537		24,781
Total deposits	29,755		18,900		48,655
Repurchase agreements	(55)		40		(15)
Total deposits and repurchase agreements	29,700		18,940		48,640
FHLB borrowings	1,787		(9,066)		(7,279)
Other long-term borrowings	157		(228)		(71)
Total interest-bearing liabilities	31,644		9,646		41,290
Net interest income	$	(8,929)	$	7,430	$	(1,499)
(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.

We had a provision for credit losses of $5.0 million for the third quarter of 2024, compared to $3.9 million for the same period in 2023, primarily due to loan growth and deterioration on a specific customer relationship in our loan portfolio.

We had a provision for credit losses of $22.7 million for the nine months ended September 30, 2024, compared to $11.7 million for the same period in 2023. The increase in the provision for credit losses for the nine months ended September 30, 2024 was primarily due to a $14.1 million provision for credit loss on a specific customer in our C&I loan portfolio in the first quarter of 2024.

Noninterest Income

The following table presents noninterest income:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2024		2023		2024		2023
Service charges on deposit accounts	$	6,240	$	5,475	$	17,954	$	15,848
Credit and debit card fees	2,806		2,996		8,616		9,034
Trust and investment advisory fees	1,395		1,398		4,351		4,337
Income from mortgage banking services, net	8,838		7,413		29,383		26,501
Other	2,796		1,368		7,853		6,151
Total noninterest income	$	22,075	$	18,650	$	68,157	$	61,871

Three months ended September 30, 2024 and 2023

Our noninterest income increased $3.4 million to $22.1 million for the third quarter of 2024 from $18.7 million for the same period in 2023.

Service charges on deposit accounts includes overdraft and non-sufficient funds charges, treasury management services provided to our business customers, and other maintenance fees on deposit accounts. For the third quarter of 2024, service charges on deposit accounts increased $0.8 million, compared to the same period in 2023, primarily due to increased treasury management service fee income.

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 $0.2 million for the third quarter of 2024 compared to the same period in 2023, as card transaction volumes decreased slightly.

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 were largely unchanged for the third quarter of 2024 as compared to the same period in 2023.

The components of income from mortgage banking services were as follows:


	For the three months ended September 30,
(In thousands)	2024		2023
Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging	$	4,669	$	3,689

Mortgage servicing income	4,321		3,954
MSR capitalization and changes in fair value, net of derivative activity	(152)		(230)


Income from mortgage banking services, net	$	8,838	$	7,413

For the third quarter of 2024, income from mortgage banking services increased $1.4 million, compared to the same period in 2023. Total loan originations for sale were $305.2 million for the third quarter of 2024, an increase of $105.1 million from $200.1 million for the same period in 2023. Despite slightly declining margins, the increase in loan originations sold resulted in the increase in revenue related to net sale gains and fees from loan originations, including fair value changes in the held-for-sale portfolio and hedging activity. We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $0.4 million to $4.3 million for the third quarter of 2024, from $4.0 million for the same period in 2023. MSR capitalization and changes in fair value, net of derivative activity, increased $0.1 million in the third quarter of 2024, compared to the same period in 2023. The increase in revenue related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions. 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. 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. Due to a number of factors and until we see a change in these factors, including elevated interest rates, low inventory in the housing market and lower refinance volumes, for the immediate future, we do not expect revenue from mortgage banking activities to return to levels seen in prior years which will reduce the amount of income from mortgage banking services, net, recorded in future periods in comparison to prior year periods.

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 September 30, 2024.


(In thousands)	10%		20%
Discount rate	$	(3,017)	$	(5,900)
Total prepayment speeds	(2,564)		(5,013)
Cost of servicing each loan	(883)		(1,785)

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 $1.4 million for the third quarter of 2024 compared to the same period in 2023, primarily due to an increase in the fair value of investments related to our deferred compensation plan and a write-down of an other real estate owned property in the third quarter of 2023.

Nine months ended September 30, 2024 and 2023

Our noninterest income increased $6.3 million to $68.2 million for the nine months ended September 30, 2024 from $61.9 million for the same period in 2023.

For the nine months ended September 30, 2024, service charges on deposit accounts increased $2.1 million, compared to the same period in 2023, primarily due to increased treasury management service fee income.

Credit and debit card fees decreased $0.4 million for the nine months ended September 30, 2024 compared to the same period in 2023, as card transaction volumes decreased slightly.

Trust and investment advisory fees were largely unchanged for the nine months ended September 30, 2024 as compared to the same period in 2023.

The components of income from mortgage banking services were as follows:


	For the nine months ended September 30,
(In thousands)		2024		2023
Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging		$	14,905	$	11,446

Mortgage servicing income		12,580		11,614
MSR capitalization and changes in fair value, net of derivative activity		1,898		3,441


Income from mortgage banking services, net		$	29,383	$	26,501

For the nine months ended September 30, 2024, income from mortgage banking services increased $2.9 million, compared to the same period in 2023. Total loan originations for sale were $797.6 million for the nine months ended September 30, 2024, an increase of $163.6 million from $634.0 million for the same period in 2023. The increase in loan originations sold and higher margins, resulted in the increase in revenue related to net sale gains and fees from loan originations, including fair value changes in the held-for-sale portfolio and hedging activity. We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $1.0 million to $12.6 million for the nine months ended September 30, 2024, from $11.6 million for the nine months ended September 30, 2023. MSR capitalization and changes in fair value, net of derivative activity, decreased $1.5 million in the nine months ended September 30, 2024, compared to the same period in 2023. The decrease in revenue related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions.

Other noninterest income increased $1.7 million for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to an increase in the fair value of investments related to our deferred compensation plan and an increase in income from BOLI.

Noninterest Expense

The following table presents noninterest expense:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2024		2023		2024		2023
Salary and employee benefits	$	39,306	$	33,968	$	116,487	$	103,073
Occupancy and equipment	9,121		8,487		26,417		24,977
Amortization of intangible assets	651		899		2,118		3,993
Merger-related expenses	1,633		—		5,168		—
Other	13,953		12,822		40,177		38,442
Total noninterest expenses	$	64,664	$	56,176	$	190,367	$	170,485

Three months ended September 30, 2024 and 2023

Our noninterest expenses increased $8.5 million to $64.7 million for the third quarter of 2024, from $56.2 million for the same period in 2023.

Salary and employee benefits increased $5.3 million to $39.3 million for the third quarter of 2024, from $34.0 million for the same period in 2023, primarily due to increased headcount, including the hiring of C&I bankers, and higher variable compensation due to an increase in mortgage loan originations.

Noninterest expense for the third quarter of 2024 included $1.6 million in merger related expenses. There were no merger related expenses for the same period in 2023.

Nine months ended September 30, 2024 and 2023

Our noninterest expenses increased $19.9 million to $190.4 million for the nine months ended September 30, 2024, from $170.5 million for the same period in 2023.

Salary and employee benefits increased $13.4 million to $116.5 million for the nine months ended September 30, 2024, from $103.1 million for the same period in 2023, primarily due to increased headcount, including the hiring of C&I bankers, and higher variable compensation due to an increase in mortgage loan originations.

Amortization of intangible assets decreased $1.9 million to $2.1 million for the nine months ended September 30, 2024, from $4.0 million for the same period in 2023, primarily due to accelerated amortization in the second quarter of 2023 of our core deposit intangible asset recognized in conjunction with a prior acquisition.

Merger related expenses for the nine months ended September 30, 2024 were $5.2 million. There were no merger related expenses during the same period in 2023.

Income Taxes

Three months ended September 30, 2024 and 2023

We had income tax expense for the third quarter of 2024 of $6.1 million, compared to income tax expense of $6.8 million for the same period in 2023. The decrease in income tax expense was due to a decline in income during the third quarter of 2024, compared to the same period in 2023. Our effective tax rate was 21.5% for the third quarter of 2024, compared to 21.1% for the same period in 2023.

Nine months ended September 30, 2024 and 2023

We had income tax expense for the nine months ended September 30, 2024 of $15.7 million, compared to $21.6 million for the same period in 2023. The decrease in income tax expense was primarily due to a decline in income during the period ended September 30, 2024, compared to the same period in 2023. Our effective tax rate was 20.9% for the nine months ended September 30, 2024, compared to 21.3% for the same period in 2023.

Financial Condition

Balance Sheet

Our total assets were $8.1 billion and $7.9 billion, total liabilities were $7.1 billion and $7.0 billion, and total stockholders’ equity was $1.0 billion and $0.9 billion at September 30, 2024 and December 31, 2023, respectively.

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 September 30, 2024 and December 31, 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 $19.9 million to $496.8 million at September 30, 2024, compared to December 31, 2023. The decrease was primarily due to amortization of the portfolio. During the period ended September 30, 2024, the securities held-to-maturity decreased $1.1 million to $35.9 million.

The following table is a summary of our investment portfolio as of:


	September 30, 2024				December 31, 2023
(In thousands)	Carrying Amount		% of Portfolio		Carrying Amount		% of Portfolio
Available-for-sale:
U.S. treasury	$	40,648	8.2	%	$	54,234	10.5	%
U.S. agency	1,034		0.1	%	1,839		0.4	%
Obligations of states and political subdivisions	27,154		5.5	%	25,970		5.0	%
Mortgage backed - residential	99,733		20.1	%	106,433		20.6	%
Collateralized mortgage obligations	172,681		34.8	%	181,533		35.1	%
Mortgage backed - commercial	139,419		28.1	%	131,192		25.4	%
Other debt	16,142		3.2	%	15,556		3.0	%
Total available-for-sale	$	496,811	100.0	%	$	516,757	100.0	%
Held-to-maturity:


Obligations of states and political subdivisions	$	25,670	71.5	%	$	25,542	69.1	%
Mortgage backed - residential	6,874		19.2	%	7,548		20.4	%
Collateralized mortgage obligations	3,341		9.3	%	3,893		10.5	%


Total held-to-maturity	$	35,885	100.0	%	$	36,983	100.0	%

The following table shows the weighted average yield to average life, which considers expected prepayments, of each category of investment securities as of September 30, 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	$	8,145	1.29	%	$	32,503	1.28	%	$	—	—	%	$	—	—	%
U.S. agency	—		—	%	517		6.81	%	517		6.54	%	—		—	%
Obligations of states and political subdivisions	—		—	%	—		—	%	17,638		2.95	%	9,516		2.90	%
Mortgage backed - residential	2,000		1.52	%	29,457		2.83	%	40,602		1.98	%	27,674		2.33	%
Collateralized mortgage obligations	1,505		2.66	%	34,332		3.45	%	135,949		3.53	%	895		2.83	%
Mortgage backed - commercial	5,313		2.91	%	66,911		3.58	%	67,195		2.82	%	—		—	%
Other debt	—		—	%	4,038		3.71	%	10,194		2.52	%	1,910		3.75	%
Total available-for-sale	$	16,963	1.95	%	$	167,758	2.99	%	$	272,095	3.05	%	$	39,995	2.55	%
Held-to-maturity:


Obligations of states and political subdivisions	$	—	—	%	$	1,005	2.06	%	$	—	—	%	$	24,665	3.52	%
Mortgage backed - residential	14		5.06	%	3,988		2.52	%	19		6.01	%	2,853		3.24	%
Collateralized mortgage obligations	171		2.43	%	3,170		2.76	%	—		—	%	—		—	%


Total held-to-maturity	$	185	2.63	%	$	8,163	2.56	%	$	19	6.01	%	$	27,518	3.49	%

Loans

Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico, and Arizona, primarily comprised of commercial and industrial, commercial real estate, residential real estate, and public finance 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 held-for-investment, net of deferred fees, costs, premiums and discounts were $6.4 billion at September 30, 2024 and $6.3 billion at December 31, 2023.

The following table sets forth the composition of our loan portfolio, as of:


	September 30, 2024				December 31, 2023
(In thousands)	Amount		% of total loans		Amount		% of total loans
Commercial and industrial	$	2,527,636	39.2	%	$	2,467,688	39.4	%
Commercial real estate:
Non-owner occupied	821,670		12.8	%	812,235		13.0	%
Owner occupied	700,325		10.9	%	635,365		10.2	%
Construction and land	333,457		5.2	%	345,430		5.5	%
Multifamily	95,125		1.5	%	103,066		1.6	%
Total commercial real estate	1,950,577		30.4	%	1,896,096		30.3	%
Residential real estate	1,172,459		18.2	%	1,110,610		17.7	%
Public finance	536,776		8.3	%	602,913		9.6	%
Consumer	45,267		0.7	%	36,371		0.6	%
Other	211,041		3.2	%	153,418		2.4	%
Total loans	$	6,443,756	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 74.5% of the Company’s risk-based capital, or 12.8% of total loans as of September 30, 2024. Non-owner occupied CRE loans associated with office space were $103.4 million, or 1.6% of total loans as of September 30, 2024. Owner occupied CRE loans associated with office space were $185.4 million, or 2.9% of total loans as of September 30, 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.

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 September 30, 2024:


(In thousands)	One year or less		After one through five years		After five through 15 years		After 15 years		Total
Commercial and industrial	$	472,926	$	1,742,163	$	287,132	$	25,415	$	2,527,636
Commercial real estate	373,100		1,101,099		420,619		55,759		1,950,577
Residential real estate	115,344		34,727		63,492		958,896		1,172,459
Public finance	27,632		147,760		243,897		117,487		536,776
Consumer	15,017		13,729		16,308		213		45,267
Other	78,693		110,523		18,215		3,610		211,041
Total loans	$	1,082,712	$	3,150,001	$	1,049,663	$	1,161,380	$	6,443,756


(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	$	25,421	$	267,569	$	188,858	$	535	$	482,383	$	456,962
Commercial real estate	184,872		590,407		71,335		1,284		847,898		663,026
Residential real estate	86,675		22,426		46,120		312,333		467,554		380,879
Public finance	25,797		147,760		240,564		117,487		531,608		505,811
Consumer	11,443		9,623		16,225		—		37,291		25,848
Other	11,295		26,176		17,559		3,610		58,640		47,345
Total fixed interest rate loans	$	345,503	$	1,063,961	$	580,661	$	435,249	$	2,425,374	$	2,079,871
Floating or adjustable interest rates
Commercial and industrial	$	447,505	$	1,474,594	$	98,274	$	24,880	$	2,045,253	$	1,597,748
Commercial real estate	188,228		510,692		349,284		54,475		1,102,679		914,451
Residential real estate	28,669		12,301		17,372		646,563		704,905		676,236
Public finance	1,835		—		3,333		—		5,168		3,333
Consumer	3,574		4,106		83		213		7,976		4,402
Other	67,398		84,347		656		—		152,401		85,003
Total floating or adjustable interest rate loans	$	737,209	$	2,086,040	$	469,002	$	726,131	$	4,018,382	$	3,281,173
Total loans	$	1,082,712	$	3,150,001	$	1,049,663	$	1,161,380	$	6,443,756	$	5,361,044

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.

The following table presents, by loan type, the changes in the allowance for credit losses:


	For the three months ended September 30,						For the nine months ended September 30,						For the year ended December 31,
(In thousands)	2024			2023			2024			2023			2023
Balance, beginning of period	$	78,960		$	77,362		$	80,398		$	65,917		$	65,917
Impact of adopting ASC 326	—			—			—			5,256			5,256
Adjusted beginning balance	78,960			77,362			80,398			71,173			71,173
Loan charge-offs:
Commercial and industrial	(1,116)			(2,963)			(20,743)			(3,751)			(9,242)
Commercial real estate	(474)			—			(474)			—			(83)
Residential real estate	—			—			(38)			—			(13)
Public finance	—			—			—			—			—
Consumer	(52)			(136)			(353)			(268)			(334)
Other	—			—			—			—			—
Total loan charge-offs	(1,642)			(3,099)			(21,608)			(4,019)			(9,672)
Recoveries of loans previously charged-off:
Commercial and industrial	206			155			667			249			1,118
Commercial real estate	4			9			9			12			12
Residential real estate	—			627			8			648			682
Public finance	—			—			—			—			—
Consumer	31			12			85			43			50
Other	—			—			—			—			—
Total loan recoveries	241			803			769			952			1,862
Net (charge-offs) recoveries	(1,401)			(2,296)			(20,839)			(3,067)			(7,810)
Provision for credit losses (1)	5,600			3,600			23,600			10,560			17,035
Balance, end of period	$	83,159		$	78,666		$	83,159		$	78,666		$	80,398
Allowance for credit losses to total loans	1.29		%	1.27		%	1.29		%	1.27		%	1.28		%
Ratio of net charge-offs to average loans outstanding	0.09		%	0.15		%	0.44		%	0.07		%	0.13		%
(1) For the three months ended September 30, 2024 and 2023 we recorded a provision for credit losses on unfunded commitments of $(600) and $290, respectively. For the nine months ended September 30, 2024 and 2023 we recorded a provision for credit losses on unfunded commitments of $(900) and $1,112, 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 three months ended September 30,				For the nine months ended September 30,
(In thousands)	2024		2023		2024		2023
Commercial and industrial	0.13	%	0.42	%	0.96	%	0.17	%
Commercial real estate	0.11	%	—	%	0.04	%	—	%
Residential real estate	—	%	(0.27)	%	—	%	(0.09)	%

Consumer	0.20	%	1.23	%	0.88	%	0.73	%

Allocation of Allowance for Credit Losses

The following table presents the allocation of the allowance for credit losses by category and the percentage of loans by category to total loans as of:


	September 30, 2024				December 31, 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	$	33,499	39.2	%	$	29,523	39.4	%
Commercial real estate	28,897		30.3	%	27,546		30.3	%
Residential real estate	14,613		18.2	%	16,345		17.7	%
Public finance	4,258		8.3	%	5,337		9.6	%
Consumer	762		0.7	%	717		0.6	%
Other	1,130		3.3	%	930		2.4	%
Total	$	83,159	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:


(In thousands)	September 30, 2024			December 31, 2023
Nonaccrual loans:
Commercial and industrial	$	24,979		$	8,004
Commercial real estate	10,072			4,063
Residential real estate	21,095			22,413
Public finance	7,226			—
Consumer	45			10
Other	2,391			2,837
Total nonaccrual loans	65,808			37,327

Accrual loans greater than 90 days past due	16			25,816
Total nonperforming loans (1)	65,824			63,143
Other real estate owned and foreclosed assets, net	4,478			4,100
Total nonperforming assets	$	70,302		$	67,243
Nonaccrual loans to total loans	1.02		%	0.60		%
Nonperforming loans to total loans (1)	1.02		%	1.01		%
Nonperforming assets to total assets (1)	0.86		%	0.85		%
Allowance for credit losses to nonaccrual loans	126.37		%	215.39		%
(1) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due.

Deposits

Deposits represent our primary source of funds. Total deposits increased by $0.3 billion to $6.6 billion at September 30, 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:


($ in thousands)	September 30, 2024		December 31, 2023
Consumer
Noninterest bearing deposit accounts	$	397,880	$	360,168
Interest-bearing deposit accounts:
Demand and NOW deposits	61,929		36,162
Savings deposits	331,811		343,291
Money market deposits	1,333,486		1,196,645
Certificates of deposits	1,247,348		1,437,537
Total interest-bearing deposit accounts	2,974,574		3,013,635
Total consumer deposits	$	3,372,454	$	3,373,803
Business
Noninterest bearing deposit accounts	$	1,156,882	$	1,170,338
Interest-bearing deposit accounts:
Demand and NOW deposits	624,952		555,197
Savings deposits	77,744		80,802
Money market deposits	865,767		825,811
Certificates of deposits	62,187		87,407
Total interest-bearing deposit accounts	1,630,650		1,549,217
Total business deposits	$	2,787,532	$	2,719,555
Wholesale deposits (1)	$	489,894	$	280,745
Total deposits	$	6,649,880	$	6,374,103
(1) Wholesale deposits primarily consist of brokered deposits included in our consolidated balance sheets within certificate of deposits.

The following table sets forth the average balance amounts and the average rates paid on deposits held by us:


	For the three months ended September 30,								For the nine months ended September 30,
	2024				2023				2024				2023
(Dollars in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid
Noninterest-bearing demand deposit accounts	$	1,568,685	—	%	$	1,654,090	—	%	$	1,529,793	—	%	$	1,705,392	—	%
Interest-bearing deposit accounts:
Interest-bearing demand accounts	615,707		3.90	%	428,471		3.47	%	568,042		3.87	%	300,674		3.08	%
Savings accounts and money market accounts	2,552,078		2.00	%	2,465,200		1.41	%	2,514,614		1.84	%	2,594,599		1.06	%
NOW accounts	41,830		1.50	%	38,366		1.08	%	41,590		1.40	%	42,438		0.76	%
Certificate of deposit accounts	1,800,502		4.58	%	1,748,515		4.21	%	1,812,839		4.62	%	1,407,264		3.61	%
Total interest-bearing deposit accounts	5,010,117		3.16	%	4,680,552		2.64	%	4,937,085		3.09	%	4,344,975		2.02	%
Total deposits	$	6,578,802	2.41	%	$	6,334,642	1.95	%	$	6,466,878	2.36	%	$	6,050,367	1.45	%

As of September 30, 2024 and December 31, 2023, approximately $2.2 billion or 32.7% and $2.0 billion or 31.2%, respectively, of our deposit portfolio was uninsured. As of September 30, 2024 and December 31, 2023, approximately $1.8 billion or 26.8% 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.

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 10.5% of all deposits as of September 30, 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 time deposits, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of September 30,:


(In thousands)	2024
Three months or less	$	100,191
Over three months through six months	55,489
Over six through twelve months	101,333
Over twelve months through three years	7,038
Over three years	1,232
Total	$	265,283

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 varying forms of debt. At September 30, 2024, FirstSun had available cash and cash equivalents of $110.6 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 and is not currently required. At September 30, 2024, the Bank could pay dividends to FirstSun of approximately $207.8 million without prior regulatory approval. During the nine months ended September 30, 2024, the Bank did not pay dividends to FirstSun. If the HomeStreet merger is completed and/or Sunflower Bank converts to a Texas state chartered bank including membership with the Federal Reserve, regulations applicable to dividends, including the amount of dividends available to be paid by the Bank without prior regulatory approval, will change.

Bank

As more fully discussed in our 2023 Annual Report , we regularly monitor our liquidity position and make adjustments to the balance between sources and uses of funds as we deem appropriate. At September 30, 2024, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $564.2 million, or 6.9% of total assets, compared to $473.0 million, or 6.0% of total assets, at December 31, 2023. The increase in our liquid assets was primarily due to an increase in cash held at the Federal Reserve. At September 30, 2024, approximately 81% of the investment securities portfolio was pledged as collateral to secure public deposits and repurchase agreements. Our unencumbered available-for-sale securities at September 30, 2024 were $89.2 million, or 1.1% 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 September 30, 2024, loans as a percentage of customer deposits were 96.9%, 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 September 30, 2024, are as follows:


FHLB borrowings available	$	1,358,914
Fed Funds lines	2,073,832

Unused lines with other financial institutions	160,000
Immediate funding availability	$	3,592,746

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 September 30, 2024 was $1,034.1 million, compared to $877.2 million at December 31, 2023, an increase of $156.9 million, or 17.9%. As previously announced, concurrent with the entry into the merger agreement with HomeStreet on January 16, 2024, we entered into an upfront securities purchase agreement with certain funds managed by Wellington Management Company, LLP, pursuant to which we issued 2.46 million shares of our common stock in a private placement for $80.0 million that closed on January 17, 2024.

We did not pay a dividend to our common shareholders for the three or nine months ended September 30, 2024 and 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 12 - Regulatory Capital Matters to the consolidated financial statements.

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 September 30, 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	6	$	4,850,451	$	4,850,451	$	—	$	—	$	—
Certificates of deposit	6	1,799,429		1,714,717		76,550		5,698		2,464
Securities sold under agreements to repurchase	7	10,913		10,913		—		—		—
Short-term debt:

FHLB term advances	8	215,000		215,000		—		—		—
Long-term debt:


Subordinated debt	8	78,919		—		—		—		78,919
Operating leases	16	27,184		13,186		7,077		6,805		116

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 5 - 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 15 - 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 15 - Commitments and Contingencies to the consolidated financial statements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Market risk is the risk of reduced earnings and/or declines in the net market value of the balance sheet due to changes in market rates. Our primary market risk is interest rate risk which impacts our net interest income, fee income related to interest sensitive activities such as mortgage origination and servicing income and loan and deposit demand.

We are subject to interest rate risk due to:

• the maturity or repricing of assets and liabilities at different times or for different amounts;

• differences in short-term and long-term market interest rate changes; and

• the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change.

Our Asset Liability Committee, or ALCO, which is composed of our executive officers and certain other members of management, monitors interest rate risk on an ongoing basis in accordance with policies approved by our board of directors. The ALCO reviews interest rate positions and considers the impact projected interest rate scenarios have on earnings, liquidity, business strategies and other factors. However, management has the latitude to change interest rate positions within certain limits if, in management’s judgment, the change will enhance profitability or minimize risk.

To assess and manage interest rate risk, sensitivity analysis is used to determine the impact on earnings and the net market value of the balance sheet across various interest rate scenarios, balance sheet trends, and strategies.

Management uses a simulation model to analyze the sensitivity of net interest income to changes in interest rates across various interest rate scenarios, which seeks to demonstrate the level of interest rate risk inherent in the existing balance sheet. The analysis holds the current balance sheet values constant and does not take into account management intervention.

Additionally our simulation model incorporates various key assumptions, which we believe are reasonable, but may have an impact on the results such as: (1) we assume certain correlation rates, often referred to as “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates, (2) cash flows and maturities of interest sensitive assets and liabilities, (3) re-pricing characteristics for market rate sensitive instruments, (4) prepayment rates and product mix of assets and liabilities, and (5) simulations do not contemplate any actions management may undertake in response to changes in interest rates. Because of limitations in any approach used to measure interest rate risk, simulation results are not intended to forecast actual results driven by the effect of a change in market rates but to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.

The primary impact of inflation on operations is reflected in increasing operating costs and non-interest expense. Our interest-bearing assets and liabilities are monetary in nature and changes in interest rates will impact our performance on net interest margin more than changes in the general rate of inflation.

The effect on net interest income over a 12-month time horizon due to hypothetical changes in market interest rates is presented in the table below. In this interest rate shock simulation, as of the periods presented, interest rates have been adjusted by instantaneous parallel changes rather than in a ramp simulation, which applies interest rate changes over time. All rates, short-term and long-term, are changed by the same amount (e.g., plus or minus 100 basis points) resulting in the shape of the yield curve remaining unchanged.


	% Change in Net Interest Income As of September 30,				% Change in Economic Value of Equity As of September 30,
Changes in Interest Rate (Basis Points)	2024		2023		2024		2023

+300	4.5	%	6.8	%	(7.9)	%	(12.7)	%
+200	2.9	%	4.5	%	(4.9)	%	(8.6)	%
+100	1.2	%	2.2	%	(2.2)	%	(4.5)	%
Base	—	%	—	%	—	%	—	%
-100	1.2	%	—	%	2.0	%	3.6	%
-200	1.2	%	(0.8)	%	1.8	%	6.2	%
-300	(0.3)	%	(4.6)	%	(0.8)	%	7.3	%

Item 4. Controls and Procedures

a. Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined in Rule 15d-15(e) promulgated under the Securities and Exchange Act of 1934) as of September 30, 2024. Based on that evaluation, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

b. Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the three months ended September 30, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part II - Other Information

Item 1. Legal Proceedings

FirstSun and its subsidiaries are from time to time subject to claims and litigation arising in the ordinary course of business. For further information regarding legal proceedings, see Note 15 - Commitments and Contingencies under the subheading “Litigation” in our unaudited consolidated financial statements contained in this report.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in our 2023 Annual Report .

Item 6. Exhibits


Exhibit No.						Description

3.1						Amended and Restated Certificate of Incorporation of FirstSun Capital Bancorp, as amended (incorporated by reference to Exhibit 3.1 to the proxy statement/prospectus contained in the Registration Statement on Form S-4 (File No. 333-258176) filed with the SEC on July 26, 2021).

3.2						Certificate of Amendment dated November 3, 2021 to the Amended and Restated Certificate of Incorporation of FirstSun (incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the Quarter Ended September 30, 2021).

3.3						Bylaws of FirstSun Capital Bancorp as amended and restated through October 29, 2021 (incorporated by reference to Exhibit 3.3 of the Company’s Form 10-Q for the Quarter Ended September 30, 2021).

31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a).

31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a).

32.1						Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, were formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Stockholders’ Equity, (iv) Consolidated Statements of Cash Flows, (v) Notes to Consolidated Financial Statements.

104						Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101).

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


		FIRSTSUN CAPITAL BANCORP
		(Registrant)
		/s/ Neal E. Arnold


Date:	November 8, 2024
		Neal E. Arnold
		President and Chief Executive Officer
		(Principal Executive Officer)
		/s/ Robert A. Cafera, Jr.


Date:	November 8, 2024
		Robert A. Cafera, Jr.
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)

TABLE OF CONTENTS

Part I - Financial Information Item 1. Financial Statements (unaudited)Note 1 - Organization and Basis Of Presentation Note 2 - Securities Note 3 - Loans Note 4 - Mortgage Servicing Rights Note 5 - Derivative Financial Instruments Note 6 - Deposits Note 7 - Securities Sold Under Agreements To Repurchase Note 8 - Debt Note 9 - Earnings Per Share Note 10 - Stockholders Equity Note 11 - Income Taxes Note 12 - Regulatory Capital Matters Note 13 - Fair Value Measurements Note 14 - Segment Information Note 15 - Commitments and Contingencies Note 16 - Lease Commitments Item 2. Management's Discussion and Analysis Of Financial Condition and Results Of Operations Of Firstsun Item 3. Quantitative and Qualitative Disclosures About Market Risk Item 4. Controls and Procedures Part II - Other Information Item 1. Legal Proceedings Item 1A. Risk Factors Item 6. Exhibits

Exhibits

3.1 Amended and Restated Certificate of Incorporation of FirstSun Capital Bancorp, as amended (incorporated by reference to Exhibit 3.1 to the proxy statement/prospectus contained in the Registration Statement on Form S-4 (File No. 333-258176) filed with the SEC on July 26, 2021). 3.2 Certificate of Amendment dated November 3, 2021 to the Amended and Restated Certificate of Incorporation of FirstSun (incorporated by reference to Exhibit 3.2 of the Companys Form 10-Q for the Quarter Ended September 30, 2021). 3.3 Bylaws of FirstSun Capital Bancorp as amended and restated through October 29, 2021 (incorporated by reference to Exhibit 3.3 of the Companys Form 10-Q for the Quarter Ended September 30, 2021). 31.1 Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)/15d-14(a). 31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)/15d-14(a). 32.1 Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

FSUN 10-Q Quarter ended Sept. 30, 2024

Exhibits