UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

~~(Mark One)~~


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

For the quarterly period ended September 30, ~~2021~~2022


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

~~For transition period from to~~

Commission File ~~Number~~Number 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: None

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 ☐

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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 ~~7(a)(2)(B)~~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 ~~4, 2021,~~9, 2022, there were approximately ~~18,321,659~~24,906,032 shares of the registrant’s common stock outstanding.

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CAUTIONARY ~~STATEMENT~~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 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are not statements of historical or current fact nor are they assurances of future performance and 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 include, but are not limited to, statements related to our ~~proposed~~ merger with Pioneer Bancshares, Inc. (“Pioneer”) that was closed on April 1, 2022 (the “Merger”), ~~including the expected timing to close the merger,~~ statements about the impact of COVID-19 on our operations, our belief that sources of available liquidity are adequate to meet our current and expected liquidity needs, our plans to meet future cash needs through the generation of deposits, our expectations that many of our unfunded commitments will expire without being drawn, and statements regarding our business plan and strategies. 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.

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:

•the failure to obtain necessary regulatory approvals for the merger (the “merger”) of Pioneer with and into FirstSun Capital Bancorp (“FirstSun”) when expected or at all (and the risk that such approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction);

•~~the failure of either party to satisfy any of the other closing conditions to the transaction on a timely basis or at all;~~

•~~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 respect to the merger;~~

•~~the~~ possibility that the anticipated benefits of the ~~merger,~~Merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where ~~FirstSun and Pioneer~~we do business or as a result of other unexpected factors or events;

•the impact of purchase accounting with respect to the ~~merger,~~Merger, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;

•diversion of management’s attention from ongoing business operations and ~~opportunities;~~opportunities due to the Merger;

•potential adverse reactions or changes to business or employee relationships, including those resulting from the ~~announcement or~~ completion of the ~~merger;~~Merger;

•the integration of the business and operations of Pioneer, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to ~~Pioneer’s~~our existing business;

•the potential impact of the Merger on relationships with third parties, including customers, vendors, employees and competitors;

•challenges retaining or hiring key personnel;

•~~business disruptions resulting from or following the merger;~~

•~~delay in closing the merger and the bank merger;~~

•the outcome of pending or threatened litigation or of matters before or involving regulatory agencies, whether currently existing or commencing in the ~~future, including litigation related to the merger;~~future;

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

•the inability to sustain revenue and earnings growth;

•the inability to efficiently manage operating expenses;

•changes in interest rates and capital markets;

•changes in asset quality and credit risk;

•adverse changes in economic conditions;

•capital management activities;

•customer borrowing, repayment, investment and deposit practices;

•the impact, extent and timing of technological changes;

•the continuing impact of COVID-19 and its variants on our business, ~~or Pioneer’s business,~~ including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy, and the resulting effect of these items on ~~each party’s~~our operations, liquidity and capital position, and on the financial condition of ~~each party’s~~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;

•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;

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

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•the potential increase in reserves and allowance for loan losses as a result of the transition in 2023 to the current expected credit loss standard, or “CECL,” established by the Financial Accounting Standards Board to account for future expected credit losses;

~~Table of Contents~~

•~~the potential impact of announcement or consummation of the merger on relationships with third parties, including customers, vendors, employees and competitors;~~

•failure to attract new customers and retain existing customers in the manner anticipated;

•any interruption or breach of security resulting in failures or disruptions in customer account management, general ledger, deposit, loan or other systems;

•the adverse effects of events beyond ~~each party’s~~our control that may have a destabilizing effect on financial markets and the economy, such as inflation and recessions, epidemics and pandemics (including COVID-19), war or terrorist activities (including the war in Ukraine), essential utility outages, climate change, deterioration in the global economy, instability in the credit markets, disruptions in ~~each party’s~~our customers’ supply chains or disruption in transportation;

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

•the inability to maintain or grow deposits;

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

•cyber-security risks;

•FirstSun’s ability to secure confidential information and deliver products and services through the use of computer systems and telecommunications networks;

•the inability to implement technology system enhancements;

•failures of internal controls and other risk management systems;

•failures of third-party providers;

•losses related to fraud, theft, misappropriation or violence; and

•other risks and uncertainties disclosed in documents filed or furnished by us with or to the SEC, any of which could cause actual results to differ materially from future results expressed, implied or otherwise anticipated by such forward-looking statements.

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 ~~in the “Risk Factors” section~~under “Item 1.A. Risk Factors,” of our ~~proxy statement/prospectus dated August 10, 2021 that we~~Annual Report on Form 10-K filed with the SEC on ~~August 12, 2021, pursuant to Securities Act Rule 424(b)(3) in connection with our proposed merger with Pioneer.~~March 25, 2022. 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.

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Part I - Financial Information

Item 1. Financial Statements (Unaudited)

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Balance Sheets

As of


	(Unaudited)
(In thousands, except par and share amounts)	September 30, 2022		December 31, 2021
Assets
Cash and cash equivalents	$	325,039	$	668,462
Securities available-for-sale	551,165		572,501
Securities held-to-maturity, fair value of $34,096 and $18,599, respectively	39,148		18,007
Loans held-for-sale, at fair value	67,535		103,939
Loans, net of allowance for loan losses of $59,678 and $47,547, respectively	5,497,008		3,989,576
Mortgage servicing rights, at fair value	73,850		47,392
Premises and equipment, net	88,490		53,147
Other real estate owned and foreclosed assets, net	5,391		5,487
Bank-owned life insurance	77,462		54,858
Restricted equity securities	34,877		16,239
Goodwill	93,483		33,050
Core deposits and other intangible assets, net	17,825		8,250
Accrued interest receivable	24,964		14,761
Deferred tax assets, net	56,605		23,030
Prepaid expenses and other assets	100,075		58,115
Total assets	$	7,052,917	$	5,666,814

Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing accounts	$	1,946,215	$	1,566,113
Interest-bearing accounts	3,814,203		3,288,835
Total deposits	5,760,418		4,854,948
Securities sold under agreements to repurchase	51,256		92,093
Federal Home Loan Bank advances	310,872		40,000

Convertible notes payable, net	5,317		19,442
Subordinated debt, net	74,780		50,016
Accrued interest payable	3,073		2,369
Accrued expenses and other liabilities	96,548		83,908
Total liabilities	6,302,264		5,142,776

Commitments and contingencies (Note 17)

Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued or outstanding, respectively	—		—
Common stock, $0.0001 par value; 50,000,000 shares authorized; 24,906,032 and 19,903,342 shares issued; 24,906,032 and 18,346,288 shares outstanding, respectively	2		2
Additional paid-in capital	460,530		261,905
Treasury stock, — and 1,557,054 shares, respectively	—		(38,148)
Retained earnings	333,227		298,615
Accumulated other comprehensive (loss) income, net	(43,106)		1,664
Total stockholders’ equity	750,653		524,038
Total liabilities and stockholders’ equity	$	7,052,917	$	5,666,814

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

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~~Part I - Financial Information~~

~~Item 1. Financial Statements (Unaudited)~~

FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Income and Comprehensive Income (Loss)

~~Consolidated Balance Sheets~~For the three and nine months ended September 30,

(Unaudited)

(In thousands, except par and share amounts) September 30, 2021 December 31, 2020
Assets
Cash and cash equivalents $ 949,541 $ 201,978
Securities available-for-sale 531,395 468,586
Securities held-to-maturity, fair value of $20,693 and $33,328, respectively 19,811 32,188
Loans held-for-sale, at fair value 122,217 193,963
Loans, net of allowance for loan losses of $47,868 and $47,766, respectively 3,756,113 3,798,591
Mortgage servicing rights, at fair value 43,971 29,144
Premises and equipment, net 54,094 56,758
Other real estate owned and foreclosed assets, net 5,747 3,354
Bank-owned life insurance 54,536 53,582
Restricted equity securities 16,927 23,175
Goodwill 33,050 33,050
Core deposits and other intangible assets, net 8,605 9,667
Accrued interest receivable 16,649 15,416
Deferred tax assets, net 21,457 23,763
Prepaid expenses and other assets 48,972 52,242
Total assets $ 5,683,085 $ 4,995,457
Liabilities and Stockholders’ Equity
Liabilities:
Deposits:
Noninterest-bearing accounts $ 1,578,306 $ 1,054,458
Interest-bearing accounts 3,279,679 3,099,091
Total deposits 4,857,985 4,153,549
Securities sold under agreements to repurchase 117,001 115,372
Federal Home Loan Bank advances 40,000 70,411
Convertible notes payable, net 19,256 18,696
Subordinated debt, net 49,928 49,666
Accrued interest payable 2,768 2,592
Accrued expenses and other liabilities 76,226 99,384
Total liabilities 5,163,164 4,509,670
Commitments and contingencies (Note 15)
0 0
Stockholders’ equity:
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, NaN issued or outstanding, respectively — —
Common stock, $0.0001 par value; 50,000,000 shares authorized; 19,878,713 shares issued; 18,321,659 shares outstanding, respectively 2 2
Additional paid-in capital 260,864 259,363
Treasury stock, 1,557,054 shares, respectively (38,148) (38,148)
Retained earnings 289,798 255,451
Accumulated other comprehensive income, net 7,405 9,119
Total stockholders’ equity 519,921 485,787
Total liabilities and stockholders’ equity $ 5,683,085 $ 4,995,457


	Three months ended September 30,				Nine months ended September 30,
(In thousands, except per share amounts)	2022		2021		2022		2021
Interest income:
Interest and fee income on loans:
Taxable	$	63,626	$	37,225	$	154,266	$	102,068
Tax exempt	4,644		3,471		14,447		16,612
Interest and dividend income on securities:
Taxable	3,639		1,949		9,250		5,634
Tax exempt	5		5		2		12
Other interest income	1,849		611		3,687		1,450
Total interest income	73,763		43,261		181,652		125,776
Interest expense:
Interest expense on deposits	3,274		1,978		7,020		6,731
Interest expense on securities sold under agreements to repurchase	51		13		74		49
Interest expense on other borrowed funds	1,952		1,305		6,202		4,214
Total interest expense	5,277		3,296		13,296		10,994
Net interest income	68,486		39,965		168,356		114,782
Provision for loan losses	3,750		3,500		12,450		1,750
Net interest income after provision for loan losses	64,736		36,465		155,906		113,032
Noninterest income:
Service charges on deposit accounts	4,807		3,471		13,111		8,659
Credit and debit card fees	3,103		2,472		8,508		7,140
Trust and investment advisory fees	1,552		1,974		5,408		5,871
Income from mortgage banking services, net	13,785		20,151		40,017		68,144

Gain on other real estate owned and foreclosed assets activity, net	155		93		164		591

Other noninterest income	1,551		523		3,740		4,443
Total noninterest income	24,953		28,684		70,948		94,848
Noninterest expense:
Salary and employee benefits	32,508		36,061		101,981		113,129
Occupancy and equipment	8,216		6,643		22,802		19,867

Amortization of intangible assets	935		354		2,197		1,062
Merger related expenses	—		705		18,751		1,984
Other noninterest expenses	13,889		10,807		37,952		30,332
Total noninterest expense	55,548		54,570		183,683		166,374
Income before income taxes	34,141		10,579		43,171		41,506
Provision for income taxes	7,628		1,851		8,559		7,159
Net income	$	26,513	$	8,728	$	34,612	$	34,347
Other comprehensive income (loss), net of tax:
(Loss) gain on securities available-for-sale	(5,107)		263		(47,306)		(1,714)
Gain on fair value hedges of securities available-for-sale	1,438		—		2,536		—
Other comprehensive (loss) income, net of tax	(3,669)		263		(44,770)		(1,714)
Comprehensive income (loss)	$	22,844	$	8,991	$	(10,158)	$	32,633

Earnings per share:
Net income available to common stockholders	$	26,513	$	8,728	$	34,612	$	34,347
Basic	$	1.07	$	0.48	$	1.53	$	1.87
Diluted	$	1.04	$	0.46	$	1.49	$	1.83

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

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FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of ~~Income and Comprehensive Income~~Stockholders’ Equity

For the three months ended September 30,

(Unaudited)

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands, except per share amounts) 2021 2020 2021 2020
Interest income:
Interest and fee income on loans:
Taxable $ 37,225 $ 30,496 $ 102,068 $ 88,781
Tax exempt 3,471 6,255 16,612 17,696
Interest and dividend income on securities:
Taxable 1,949 2,097 5,634 8,229
Tax exempt 5 3 12 9
Other interest income 611 309 1,450 1,095
Total interest income 43,261 39,160 125,776 115,810
Interest expense:
Interest expense on deposits 1,978 3,348 6,731 12,881
Interest expense on securities sold under agreements to repurchase 13 23 49 139
Interest expense on other borrowed funds 1,305 1,451 4,214 3,634
Total interest expense 3,296 4,822 10,994 16,654
Net interest income 39,965 34,338 114,782 99,156
Provision for loan losses 3,500 4,800 1,750 15,100
Net interest income after provision for loan losses 36,465 29,538 113,032 84,056
Noninterest income:
Service charges on deposit accounts 3,471 2,428 8,659 7,042
Credit and debit card fees 2,472 2,107 7,140 5,865
Trust and investment advisory fees 1,974 1,282 5,871 3,222
Income from mortgage banking services, net 20,151 35,535 68,144 89,986
Gain on sales of available-for-sale securities, net — — — 153
Gain on other real estate owned and foreclosed assets activity, net 93 443 591 242
Other noninterest income 523 924 4,443 2,604
Total noninterest income 28,684 42,719 94,848 109,114
Noninterest expense:
Salary and employee benefits 36,061 37,949 113,129 101,998
Occupancy and equipment 6,643 6,365 19,867 19,251
Amortization of intangible assets 354 371 1,062 1,093
Merger related expenses 705 — 1,984 —
Other noninterest expenses 10,807 9,688 30,332 26,796
Total noninterest expense 54,570 54,373 166,374 149,138
Income before income taxes 10,579 17,884 41,506 44,032
Provision for income taxes 1,851 3,130 7,159 7,707
Net income $ 8,728 $ 14,754 $ 34,347 $ 36,325
Other comprehensive income:
Reclassification adjustment for net gain on sales of available-for-sale securities — — — (153)
Change in unrealized gain (loss) on available-for-sale securities 349 1,228 (2,270) 11,799
Income tax effect on other comprehensive income (86) (300) 556 (2,848)
Comprehensive income $ 8,991 $ 15,682 $ 32,633 $ 45,123
Earnings per share:
Net income available to common stockholders $ 8,728 $ 14,754 $ 34,347 $ 36,325
Basic $ 0.48 $ 0.81 $ 1.87 $ 1.98
Diluted $ 0.46 $ 0.81 $ 1.83 $ 1.98


(in thousands, except share amounts)	Issued shares of common stock	Common stock		Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Total stockholders’ equity
2022
Balance, beginning of period	24,850,954	$	2	$	460,263	$	—	$	306,714	$	(39,437)	$	727,542



Issuance of common stock on restricted stock grants (11,344 shares in the second quarter of 2022)	—	—		102		—		—		—		102
Stock option exercises	55,078	—		(206)		—		—		—		(206)
Share-based compensation, net of forfeitures	—	—		371		—		—		—		371
Net income	—	—		—		—		26,513		—		26,513
Other comprehensive loss	—	—		—		—		—		(3,669)		(3,669)

Balance, end of period	24,906,032	$	2	$	460,530	$	—	$	333,227	$	(43,106)	$	750,653

2021
Balance, beginning of period	19,878,713	$	2	$	260,516	$	(38,148)	$	281,070	$	7,142	$	510,582





Share-based compensation, net of forfeitures	—	—		348		—		—		—		348
Net income	—	—		—		—		8,728		—		8,728
Other comprehensive income	—	—		—		—		—		263		263

Balance, end of period	19,878,713	$	2	$	260,864	$	(38,148)	$	289,798	$	7,405	$	519,921

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

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FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of Stockholders’ Equity (continued)

For the ~~three~~nine months ended September 30,

(Unaudited)

(in thousands, except share amounts) Issued
shares of common stock Common stock Additional
paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income Total stockholders’ equity
2021
Balance, beginning of period 19,878,713 $ 2 $ 260,516 $ (38,148) $ 281,070 $ 7,142 $ 510,582
Share-based compensation, net of forfeitures — — 348 — — — 348
Net income — — — — 8,728 — 8,728
Other comprehensive income — — — — — 263 263
Balance, end of period 19,878,713 $ 2 $ 260,864 $ (38,148) $ 289,798 $ 7,405 $ 519,921
2020
Balance, beginning of period 19,878,713 $ 2 $ 258,315 $ (38,189) $ 229,437 $ 9,728 $ 459,293
Stock option exercise (1,670 shares of treasury stock issued) — — — 41 — — 41
Share-based compensation, net of forfeitures — — 465 — — — 465
Net income — — — — 14,754 — 14,754
Other comprehensive income — — — — — 928 928
Balance, end of period 19,878,713 $ 2 $ 258,780 $ (38,148) $ 244,191 $ 10,656 $ 475,481


(in thousands, except share amounts)	Issued shares of common stock	Common stock		Additional paid-in capital		Treasury stock		Retained earnings		Accumulated other comprehensive income (loss)		Total stockholders’ equity
2022
Balance, beginning of period	19,903,342	$	2	$	261,905	$	(38,148)	$	298,615	$	1,664	$	524,038


Merger with Pioneer Bancshares, Inc. (issuance of treasury stock 1,557,054 shares)	4,910,412	—		197,946		38,148		—		—		236,094
Issuance of common stock on restricted stock grants	11,344	—		169		—		—		—		169
Stock option exercises	80,934	—		(414)		—		—		—		(414)
Share-based compensation, net of forfeitures	—	—		924		—		—		—		924
Net income	—	—		—		—		34,612		—		34,612
Other comprehensive loss	—	—		—		—		—		(44,770)		(44,770)

Balance, end of period	24,906,032	$	2	$	460,530	$	—	$	333,227	$	(43,106)	$	750,653

2021
Balance, beginning of period	19,878,713	$	2	$	259,363	$	(38,148)	$	255,451	$	9,119	$	485,787





Share-based compensation, net of forfeitures	—	—		1,501		—		—		—		1,501
Net income	—	—		—		—		34,347		—		34,347
Other comprehensive loss	—	—		—		—		—		(1,714)		(1,714)

Balance, end of period	19,878,713	$	2	$	260,864	$	(38,148)	$	289,798	$	7,405	$	519,921

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

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FIRSTSUN CAPITAL BANCORP

and Subsidiaries

Consolidated Statements of ~~Stockholders’ Equity (continued)~~Cash Flows

For the nine months ended September 30,

(Unaudited)

(in thousands, except share amounts) Issued
shares of common stock Common stock Additional
paid-in capital Treasury stock Retained earnings Accumulated other comprehensive income Total stockholders’ equity
2021
Balance, beginning of period 19,878,713 $ 2 $ 259,363 $ (38,148) $ 255,451 $ 9,119 $ 485,787
Share-based compensation, net of forfeitures — — 1,501 — — — 1,501
Net income — — — — 34,347 — 34,347
Other comprehensive loss — — — — — (1,714) (1,714)
Balance, end of period 19,878,713 $ 2 $ 260,864 $ (38,148) $ 289,798 $ 7,405 $ 519,921
2020
Balance, beginning of period 19,878,713 $ 2 $ 257,181 $ (36,706) $ 207,866 $ 1,858 $ 430,201
Issuance of treasury stock (100 shares) — — — 2 — — 2
Repurchase of treasury stock (63,844 shares) — — — (1,564) — — (1,564)
Stock option exercise (4,892 shares of treasury stock issued) — — (153) 120 — — (33)
Share-based compensation, net of forfeitures — — 1,752 — — — 1,752
Net income — — — — 36,325 — 36,325
Other comprehensive income — — — — — 8,798 8,798
Balance, end of period 19,878,713 $ 2 $ 258,780 $ (38,148) $ 244,191 $ 10,656 $ 475,481


(In thousands)	2022		2021
Cash flows from operating activities:
Net income	$	34,612	$	34,347
Adjustments to reconcile income to net cash provided by operating activities:
Provision for loan losses	12,450		1,750
Depreciation	5,305		4,716
Deferred tax expense	671		2,862
Amortization of net premium on securities	1,737		2,617
Accretion of net discount on acquired loans	(1,832)		(1,001)
Amortization of deferred loan origination fees and costs	398		(407)
Amortization of core deposits and other intangible assets	2,197		1,062

Amortization of software implementation costs	639		844
Amortization of premium on acquired deposits	(743)		(45)
Accretion of discount on subordinated debt	191		192
Amortization of issuance costs on subordinated debt	108		70
Accretion of discount on convertible notes payable	1,093		559
Accretion of discount on Federal Home Loan Bank advances	64		—
Increase in cash surrender value of bank-owned life insurance	(1,222)		(954)
Impairment of premises and equipment	720		23
Impairment of other real estate owned and foreclosed assets	21		240
Federal Home Loan Bank stock dividends	(238)		(306)
Share-based compensation expense	1,093		1,501
Decrease (increase) in fair value of mortgage servicing rights	(14,777)		3,706

Net loss on sales of loans held-for-investment	—		698
Net loss on disposal of premises and equipment	86		75
Net gain on other real estate owned and foreclosed assets activity	(164)		(591)

Net gain on sales of loans held-for-sale	(10,498)		(50,224)
Origination of loans held-for-sale	(899,200)		(1,693,782)
Proceeds from sales of loans held-for-sale	937,343		1,797,219

Changes in operating assets and liabilities:
Accrued interest receivable	(6,255)		(1,233)


Prepaid expenses and other assets	(32,474)		2,231
Accrued interest payable	297		176
Accrued expenses and other liabilities	10,666		(23,610)

Net cash provided by operating activities	$	42,288	$	82,735

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

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FIRSTSUN CAPITAL BANCORP

and Subsidiaries

~~Consolidated Statements of Cash Flows~~

~~For the nine months ended September 30,~~

~~(Unaudited)~~

(In thousands) 2021 2020
Cash flows from operating activities:
Net income $ 34,347 $ 36,325
Adjustments to reconcile income to net cash provided by operating activities:
Provision for loan losses 1,750 15,100
Depreciation 4,716 4,353
Deferred tax (benefit) expense 2,862 1
Accretion of net discount on securities 2,617 3,164
Net accretion of discount on acquired loans (1,001) (2,709)
Net change in deferred loan origination fees and costs (407) 9,442
Amortization of core deposits and other intangible assets 1,062 1,093
Net amortization of lease marks — 83
Amortization of software implementation costs 844 731
Accretion of fair value premium on acquired deposits (45) (124)
Amortization of fair value discount on subordinated debt 192 192
Amortization of issuance costs on subordinated debt 70 23
Amortization of fair value discount on convertible notes payable 559 564
Accretion of fair value premium on Federal Home Loan Bank advances — (165)
Increase in cash surrender value of bank-owned life insurance (954) (959)
Impairment of premises and equipment 23 —
Impairment of other real estate owned and foreclosed assets 240 246
Federal Home Loan Bank stock dividends (306) (298)
Share-based compensation expense 1,501 1,752
(Increase) decrease in fair value of mortgage servicing rights 3,706 19,077
Net gain on sales of available-for-sale securities — (153)
Net gain on sales of loans held-for-investment 698 1,094
Net loss (gain) on disposal of premises and equipment 75 212
Net (gain) loss on other real estate owned and foreclosed assets activity (591) (242)
Net gain on sales of loans held-for-sale (50,224) (49,069)
Origination of loans held-for-sale (1,693,782) (1,767,009)
Proceeds from sales of loans held-for-sale 1,797,219 1,746,030
Changes in operating assets and liabilities:
Accrued interest receivable (1,233) (5,149)
Prepaid expenses and other assets 2,231 (19,329)
Accrued interest payable 176 948
Accrued expenses and other liabilities (23,610) 30,393
Net cash provided by operating activities $ 82,735 $ 25,617

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

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~~FIRSTSUN CAPITAL BANCORP~~

~~and Subsidiaries~~

Consolidated Statements of Cash Flows (continued)

For the nine months ended September 30,

(Unaudited)

(In thousands) 2021 2020
Cash flows from operating activities: (previous page)
$ 82,735 $ 25,617
Cash flows from investing activities:
Net cash paid for acquisitions — (7,019)
Proceeds from maturities of held-to-maturity securities 12,097 16,827
Purchases of available-for-sale securities (164,914) (72,700)
Proceeds from sale or maturities of available-for-sale securities 97,499 151,144
Loan originations, net of repayments 19,632 (815,040)
Proceeds from the sale of loans held-for-sale previously classified as held-for-investment 18,544 97,832
Purchases of premises and equipment (2,891) (4,348)
Proceeds from the sale of premises and equipment 1,192 1,161
Proceeds from sales of other real estate owned and foreclosed assets 1,221 6,296
Purchases of restricted equity securities (49) (8,689)
Proceeds from the sale or redemption of restricted equity securities 6,603 298
Purchase of other investments (324) (122)
Proceeds from the sale or redemption of other investments 519 1
Net cash provided by (used in) investing activities (10,871) (634,359)
Cash flows from financing activities:
Net change in deposits 704,481 409,103
Net change in securities sold under agreements to repurchase 1,629 63,140
Proceeds from Federal Home Loan Bank advances — 1,019,000
Repayments of Federal Home Loan Bank advances (30,411) (897,998)
Repayments of other borrowings — (6,000)
Proceeds from Subordinated debt — 39,067
Issuance of treasury stock — (31)
Purchase of treasury stock — (1,564)
Net cash provided by financing activities 675,699 624,717
Net increase in cash and cash equivalents 747,563 15,975
Cash and cash equivalents, beginning of period 201,978 144,531
Cash and cash equivalents, end of period $ 949,541 $ 160,506
Supplemental disclosures of cash flow information:
Interest paid on deposits $ 6,869 $ 13,564
Interest paid on borrowed funds $ 4,362 $ 4,119
Cash paid for income taxes, net $ 4,930 $ 8,003
Non-cash investing and financing activities:
Net change in unrealized gain on available-for-sale securities $ (2,270) $ 11,646
Loan charge-offs $ 3,242 $ 1,785
Loans transferred to other real estate owned and foreclosed assets $ 3,264 $ 3,110
Mortgage servicing rights resulting from sale or securitization of mortgage loans $ 18,533 $ 15,879


(In thousands)	2022		2021
Cash flows from operating activities: (previous page)	$	42,288	$	82,735

Cash flows from investing activities:
Cash acquired in excess of cash paid in connection with Pioneer Merger	444,541		—

Proceeds from maturities of held-to-maturity securities	3,027		12,097
Purchases of available-for-sale securities	(66,606)		(164,914)
Proceeds from sale or maturities of available-for-sale securities	157,399		97,499
Loan originations, net of repayments	(707,439)		19,632

Proceeds from the sale of loans held-for-sale previously classified as held-for-investment	—		18,544
Purchases of premises and equipment	(1,795)		(2,891)
Proceeds from the sale of premises and equipment	2		1,192

Proceeds from sales of other real estate owned and foreclosed assets	867		1,221


Purchases of restricted equity securities	(18,549)		(49)
Proceeds from the sale or redemption of restricted equity securities	9,471		6,603
Purchase of other investments	(388)		(324)
Proceeds from the sale or redemption of other investments	745		519
Net cash used in investing activities	(178,725)		(10,871)

Cash flows from financing activities:
Net change in deposits	(285,868)		704,481
Net change in securities sold under agreements to repurchase	(40,837)		1,629
Proceeds from Federal Home Loan Bank advances	170,884		—
Repayments of Federal Home Loan Bank advances	(60,000)		(30,411)

Repayment of convertible notes payable	(15,217)		—
Proceeds from subordinated debt, net	24,466		—

Proceeds from issuance of common stock, net of issuance costs	(414)		—



Net cash (used in) provided by financing activities	(206,986)		675,699
Net (decrease) increase in cash and cash equivalents	(343,423)		747,563
Cash and cash equivalents, beginning of period	668,462		201,978
Cash and cash equivalents, end of period	$	325,039	$	949,541

Supplemental disclosures of cash flow information:
Interest paid on deposits	$	6,726	$	6,869
Interest paid on borrowed funds	$	6,605	$	4,362
Cash paid for income taxes, net	$	10,276	$	4,930
Non-cash investing and financing activities:
Assets acquired from Merger with Pioneer Bancshares, Inc.	$	1,085,506	$	—
Liabilities assumed from Merger with Pioneer Bancshares, Inc.	$	1,354,387	$	—
Net change in unrealized loss on available-for-sale securities	$	(62,473)	$	(2,270)
Loan charge-offs	$	2,412	$	3,242
Premises and equipment transferred to other real estate owned and foreclosed assets	$	338	$	—
Loans transferred to other real estate owned and foreclosed assets	$	291	$	3,264
Other assets transferred to Premises and equipment	$	64	$	—
Mortgage servicing rights resulting from sale or securitization of mortgage loans	$	11,681	$	18,533

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

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FIRSTSUN CAPITAL BANCORP and Subsidiaries

Notes to Consolidated Financial Statements

(Unaudited)

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

NOTE 1.1 - 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”) and Logia Portfolio Management, LLC, and have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements. All significant intercompany balances and transactions have been eliminated in consolidation. 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.~~Securities and Exchange Commission (“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. 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, ~~2020~~2021, included in our ~~proxy statement/prospectus dated August 10, 2021 (the “Prospectus”)~~Annual Report on Form 10-K filed with the SEC on ~~August 12, 2021, pursuant to Securities Act Rule 424(b)(3) in connection with our proposed merger with Pioneer Bancshares, Inc. (“Pioneer”~~March 25, 2022 (the “2021 Form 10-K”). Certain prior period amounts have been reclassified to conform to the current period presentation. Reclassifications had no effect on our net income or stockholders’ equity.

Business Combination - On ~~May 11, 2021,~~April 1, 2022, FirstSun completed its previously announced Merger with Pioneer Bancshares, Inc. (“Pioneer”). Under the Merger Agreement, a wholly-owned subsidiary of FirstSun, FSCB Merger Subsidiary, Inc., merged with and into Pioneer, ~~entered into an Agreement~~with Pioneer continuing as the surviving entity and ~~Plan~~becoming a wholly-owned subsidiary of FirstSun (the “Merger”). Immediately after the effective time of the Merger ~~that provides for the merger of~~(the “Effective Time”), Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity (the ~~“merger”~~“second step Merger”). IfImmediately following the ~~merger is completed,~~completion of the second step Merger, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into the Bank, with the Bank continuing as the surviving bank. Pursuant to the terms of the Merger Agreement, at the Effective Time, each ~~share of~~ Pioneer ~~common stock will be converted into~~shareholder had the right to receive 1.0443 shares of FirstSun common stock, ~~plus~~for each share of Pioneer common stock owned by the shareholder, with cash paid in lieu of ~~any~~ fractional shares. ~~In September 2021,~~Each outstanding share of FirstSun common stock remained outstanding and was unaffected by the Merger. Further information is presented in Note 2 - Merger with Pioneer stockholders approved the merger. Completion of the merger, among other things, is subject to the requisite approval of the appropriate regulatory bodies, and if approved is expected to close in the fourth quarter of 2021. Pioneer currently operates from its headquarters in Austin, Texas and has banking offices located primarily in the Austin, Houston, San Antonio, and Dallas metro areas. As of September 30, 2021 Pioneer had assets of $1.6 billion, total loans of $1.0 billion, and deposits of $1.3 billion.

Bancshares, Inc.

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 significant accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

Risks and Uncertainties - In the normal course of business, companies in the banking and mortgage industries encounter certain economic and regulatory risks. Economic risks include prepayment risk, market risk, interest rate risk, and credit risk. We are subject to interest rate risk to the extent that in a rising interest rate environment we may experience a decrease in loan production, as well as decreases in the value of mortgage loans held-for-sale and in commitments to originate loans, which may adversely impact our earnings. Credit risk is the risk of default that may result from the borrowers’ inability or unwillingness to make contractually required payments.

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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 isare recorded within accrued expenses and other liabilities. In assessing the adequacy of the ~~reserve,~~reserves, we evaluate various

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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.~~17 - Commitments and Contingencies.

Adoption of New Accounting Standards - 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. ~~There~~Other than the adoption of ASU 2016-02, Leases (Topic 842), there have been no material developments with respect to newly issued standards from those disclosed in our ~~Prospectus.~~ 2021 Form 10-K.

We ~~have deferred adoption of ASU 2016-02,~~ ~~Leases (Topic 842)~~ ~~and~~are currently executing our implementation plan for ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) under the direction of our Chief Financial Officer and our Chief Credit Officer. As of September 30, 2022, we have performed a preliminary parallel run and completed an external model validation of our modeling framework. A separate model validation related to our probability of default and loss given default internal loan risk rating framework is nearing completion. We continue to design and implement our controls over the new allowance model framework. Based upon our preliminary parallel run we currently expect the adoption of ASU 2016-13 will result in an increase in our allowance for loan losses and our reserves for unfunded commitments. This increase is a result of changing from an “incurred loss” model, which encompasses allowances for current known and inherent losses within the portfolio, to an “expected loss” model, which encompasses allowances for losses expected to be incurred over the life of the portfolio. Furthermore, ASU 2016-13 will necessitate that we establish an allowance for expected credit losses for certain debt securities and other financial assets; however, we do not expect these allowances to be significant. Additionally, the adoption of ASU 2016-13 is not expected to have a significant impact on our regulatory capital ratios. The ultimate impact of adoption on January 1, 2023 will be significantly influenced by the composition, characteristics and quality of our loan and securities portfolios as well as the prevailing economic conditions and forecasts as of that date, notwithstanding any further refinements to our expected credit loss models.

NOTE 2 - Merger with Pioneer Bancshares, Inc.

As described under the title “Business Combination” in Note 1 - Organization and Basis of Presentation, we completed our Merger with Pioneer on April 1, 2022. We accounted for the Pioneer Merger under the acquisition method in accordance with ASC Topic 805, Business Combinations. Accordingly, the purchase price was allocated to the fair value of the assets acquired, including identifiable intangible assets, and the liabilities assumed as of the closing date of the Merger. Goodwill resulting from the difference between the fair value of the assets acquired and the fair value of the liabilities assumed is not amortizable for book or tax purposes. This goodwill resulted from the combination of expected operational synergies, the increase in our market share in Texas and other factors. Although the Merger was nontaxable, the Merger gave rise to certain temporary differences for which deferred taxes have been recognized. The results of operations for the Pioneer Merger have been included in our consolidated financial results beginning on the April 1, 2022 closing date.

Consideration

Under the terms of the Merger Agreement, each outstanding share of Pioneer common stock was converted into 1.0443 shares of FirstSun common stock (except for shareholders who properly exercised their dissenters’ rights) with cash paid in lieu of fractional shares. Accordingly, we issued 6,467,466 shares of our common stock to Pioneer shareholders in the Merger valued at $230,760 based on a third-party valuation of our common stock in accordance with ASC Topic 820, Fair Value Measurements as of the closing date. We also converted Pioneer stock options into 431,645 options to purchase shares of FirstSun common stock. This conversion was valued at $5,334. We also paid cash to certain Pioneer shareholders of $4,736. Total aggregate consideration paid in the Pioneer Merger was $240,830.

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Fair Value

We recorded the estimated fair value of assets acquired and liabilities assumed based on initial valuations at April 1, 2022. The determination of estimated fair value required management to make assumptions related to discount rates, expected future cash flows, market conditions and other future events that are subjective in nature and may require adjustments. Accordingly, these fair value estimates are considered preliminary as of September 30, 2022, and are subject to adjustment during the specified measurement period that ends 12 months from the closing date of the Merger.

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


	April 1, 2022
Cash and cash equivalents	$	449,278
Investment securities	157,859
Loans held-for-sale	2,923
Loans	811,300
Premises and equipment	39,935

Bank-owned life insurance	21,382
Restricted equity securities	9,320
Core deposits and other intangible assets	11,771
Accrued interest receivable	3,947
Deferred tax assets	19,752
Prepaid expenses and other assets	7,317
Total assets acquired	1,534,784

Deposits	1,192,081
Federal Home Loan Bank advances	159,924
Accrued interest payable	407
Accrued expenses and other liabilities	1,975
Total liabilities assumed	1,354,387
Fair value of net assets acquired	180,397
Purchase price	240,830
Goodwill	$	60,433

Acquired loans and purchased credit impaired loans

Acquired loans were recorded at fair value based on a discounted cash flow valuation methodology that considered, among other things, projected default rates, loss given default rates and recovery rates. No allowance for loan losses was carried over from Pioneer.

We identified certain acquired loans as purchased credit impaired (PCI). PCI loan identification considered payment history and past due status, debt service coverage, loan grading, collateral values and other factors that may be an indication of a deterioration of credit quality since origination. Although we identified certain acquired loans as PCI, the

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amount was determined to be insignificant. The following table discloses the fair value and contractual value of loans acquired from Pioneer on April 1, 2022.


	Acquired Loans		Contractual Principal Balance
Commercial	$	98,351	$	98,752
Commercial real estate	509,173		516,341
Residential real estate	173,094		174,763
Consumer	30,682		31,982
Total fair value	$	811,300	$	821,838

NOTE 2.3 - Securities

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

Amortized
Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Estimated
Fair
Value
As of September 30, 2021
Available-for-sale:
U.S. treasury $ 20,454 $ 241 $ — $ 20,695
U.S. agency 6,493 — (104) 6,389
Obligations of states and political subdivisions 3,981 16 — 3,997
Mortgage backed - residential 132,062 2,998 (779) 134,281
Collateralized mortgage obligations 219,671 2,521 (31) 222,161
Mortgage backed - commercial 138,932 4,959 (19) 143,872
Total available-for-sale $ 521,593 $ 10,735 $ (933) $ 531,395
Held-to-maturity:
Obligations of states and political subdivisions $ 720 $ 30 $ — $ 750
Mortgage backed - residential 11,686 545 — 12,231
Collateralized mortgage obligations 7,405 307 — 7,712
Total held-to-maturity $ 19,811 $ 882 $ — $ 20,693
As of December 31, 2020
Available-for-sale:
U.S. agency $ 9,204 $ — $ (208) $ 8,996
Obligations of states and political subdivisions 3,427 8 — 3,435
Mortgage backed - residential 116,365 3,399 (202) 119,562
Collateralized mortgage obligations 200,496 2,743 (43) 203,196
Mortgage backed - commercial 127,022 6,426 (51) 133,397
Total available-for-sale $ 456,514 $ 12,576 $ (504) $ 468,586
Held-to-maturity:
U.S. agency $ 5,099 $ 26 $ — $ 5,125
Obligations of states and political subdivisions 730 41 — 771
Mortgage backed - residential 16,050 618 — 16,668
Collateralized mortgage obligations 10,309 455 — 10,764
Total held-to-maturity $ 32,188 $ 1,140 $ — $ 33,328


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2022
Available-for-sale:
U.S. treasury	$	62,021	$	—	$	(5,403)	$	56,618
U.S. agency	3,242		—		(41)		3,201
Obligations of states and political subdivisions	29,860		—		(4,408)		25,452
Mortgage backed - residential	134,216		8		(15,711)		118,513
Collateralized mortgage obligations	232,970		—		(18,940)		214,030
Mortgage backed - commercial	132,358		—		(13,766)		118,592
Other debt	16,769		—		(2,010)		14,759
Total available-for-sale	$	611,436	$	8	$	(60,279)	$	551,165
Held-to-maturity:


Obligations of states and political subdivisions	$	25,002	$	—	$	(4,134)	$	20,868
Mortgage backed - residential	9,091		5		(654)		8,442
Collateralized mortgage obligations	5,055		—		(269)		4,786


Total held-to-maturity	$	39,148	$	5	$	(5,057)	$	34,096
December 31, 2021
Available-for-sale:
U.S. treasury	$	35,400	$	—	$	(215)	$	35,185
U.S. agency	6,019		—		(100)		5,919
Obligations of states and political subdivisions	3,979		—		(190)		3,789
Mortgage backed - residential	138,297		2,018		(1,638)		138,677
Collateralized mortgage obligations	236,282		1,441		(1,939)		235,784
Mortgage backed - commercial	150,322		3,424		(599)		153,147

Total available-for-sale	$	570,299	$	6,883	$	(4,681)	$	572,501
Held-to-maturity:


Obligations of states and political subdivisions	$	716	$	25	$	—	$	741
Mortgage backed - residential	10,750		390		—		11,140
Collateralized mortgage obligations	6,541		177		—		6,718


Total held-to-maturity	$	18,007	$	592	$	—	$	18,599

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As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Certain debt securities that have gross unrealized losses and have been in a continuous unrealized loss position for more than one year ~~follows:~~follows as of:


		Less than 12 months				12 months or longer				Total						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		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Number of Securities
As of September 30, 2021
September 30, 2022															September 30, 2022
Available-for-sale:	Available-for-sale:														Available-for-sale:

U.S. treasury															U.S. treasury	$	25,690	$	(975)	$	30,928	$	(4,428)	$	56,618	$	(5,403)	10
U.S. agency	U.S. agency	$	—	$	—	$	6,389	$	(104)	$	6,389	$	(104)	7	U.S. agency	—		—		3,201		(41)		3,201		(41)		7

Obligations of states and political subdivisions															Obligations of states and political subdivisions	22,626		(3,346)		2,357		(1,062)		24,983		(4,408)		18
Mortgage backed - residential	Mortgage backed - residential	36,034		(769)		2,896		(10)		38,930		(779)		9	Mortgage backed - residential	68,299		(5,512)		49,723		(10,199)		118,022		(15,711)		86
Collateralized mortgage obligations	Collateralized mortgage obligations	13,024		(27)		610		(4)		13,634		(31)		8	Collateralized mortgage obligations	148,461		(6,846)		65,569		(12,094)		214,030		(18,940)		67
Mortgage backed - commercial	Mortgage backed - commercial	—		—		24,170		(19)		24,170		(19)		2	Mortgage backed - commercial	88,997		(10,162)		29,595		(3,604)		118,592		(13,766)		22

Other debt															Other debt	14,759		(2,010)		—		—		14,759		(2,010)		9
Total available-for-sale	Total available-for-sale	$	49,058	$	(796)	$	34,065	$	(137)	$	83,123	$	(933)	26	Total available-for-sale	$	368,832	$	(28,851)	$	181,373	$	(31,428)	$	550,205	$	(60,279)	219
Held-to-maturity:															Held-to-maturity:

Obligations of states and political subdivisions															Obligations of states and political subdivisions	$	20,869	$	(4,134)	$	—	$	—	$	20,869	$	(4,134)	8
Mortgage backed - residential															Mortgage backed - residential	8,217		(654)		—		—		8,217		(654)		10
Collateralized mortgage obligations															Collateralized mortgage obligations	4,786		(269)		—		—		4,786		(269)		5

Total held-to-maturity															Total held-to-maturity	$	33,872	$	(5,057)	$	—	$	—	$	33,872	$	(5,057)	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
As of December 31, 2020
Available-for-sale:
U.S. agency $ — $ — $ 8,996 $ (208) $ 8,996 $ (208) 7
Mortgage backed - residential 15,251 (146) 7,601 (56) 22,852 (202) 8
Collateralized mortgage obligations 23,646 (43) — — 23,646 (43) 11
Mortgage backed - commercial 9,167 (15) 14,971 (36) 24,138 (51) 2
Total available-for-sale $ 48,064 $ (204) $ 31,568 $ (300) $ 79,632 $ (504) 28


	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, 2021
Available-for-sale:
U.S. treasury	$	35,185	$	(215)	$	—	$	—	$	35,185	$	(215)	4
U.S. agency	—		—		5,919		(100)		5,919		(100)		7
Obligations of states and political subdivisions	3,232		(190)		—		—		3,232		(190)		2
Mortgage backed - residential	51,616		(530)		25,246		(1,108)		76,862		(1,638)		17
Collateralized mortgage obligations	115,877		(1,938)		193		(1)		116,070		(1,939)		16
Mortgage backed - commercial	32,872		(581)		24,170		(18)		57,042		(599)		5

Total available-for-sale	$	238,782	$	(3,454)	$	55,528	$	(1,227)	$	294,310	$	(4,681)	51

There were no held-to-maturity securities in an unrealized loss position as of ~~September 30, 2021 or~~ December 31, ~~2020.~~2021.

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Estimated fair value is less than amortized cost primarily because of ~~general economic conditions~~the rising interest rate environment and is unrelated to specific conditions of the ~~specific~~ issuer. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, management does not believe these securities are other than temporarily impaired for the following reasons: there was no significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the issuer; there was no significant adverse change in the regulatory, economic, or technological environment of the issuer; and there was no significant adverse change in the general market condition of either the geographic area or the industry in which the issuer operates. Management has the ability and ~~intends~~intent to hold these securities and it is likely that management will not be required to sell the securities prior to maturity or until such time as the full amount of investment principal will be returned.

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The amortized cost and fair value of our debt securities by contractual maturity as of September 30, ~~2021~~2022 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 $ 66 $ 67
Due after 1 year through 5 years 20,442 21,008
Due after 5 years through 10 years 135,566 138,722
Due after 10 years 365,519 371,598
Total available-for-sale $ 521,593 $ 531,395
Held-to-maturity:
Due after 1 year through 5 years $ 720 $ 750
Due after 5 years through 10 years 702 749
Due after 10 years 18,389 19,194
Total held-to-maturity $ 19,811 $ 20,693


	Amortized Cost		Estimated Fair Value
Available-for-sale:
Due within 1 year	$	3,533	$	3,444
Due after 1 year through 5 years	45,272		43,573
Due after 5 years through 10 years	174,641		155,456
Due after 10 years	387,990		348,692
Total available-for-sale	$	611,436	$	551,165
Held-to-maturity:

Due after 1 year through 5 years	$	1,042	$	997
Due after 5 years through 10 years	668		629
Due after 10 years	37,438		32,470
Total held-to-maturity	$	39,148	$	34,096

Securities with a carrying value of ~~$466,982~~$435,410 and ~~$437,223~~$465,665 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

For the three and nine months ended September 30, 2022, there were proceeds from the sale of securities of $81,016. No gain or loss was recognized for the three and nine months ended September 30, 2022 as the securities sold were acquired at fair value on April 1, 2022 in the Pioneer Merger and were sold on April 5, 2022. There were no proceeds from sales and calls of securities for the three and nine months ended September 30, 2021. The proceeds from sales and calls of securities for the nine months ended September 30, 2020 was $56,159. For the nine months ended September 30, 2020, we recognized gross investment gains of $446 and gross investment losses of $293, resulting from the sale of securities.

NOTE 3.4 - Loans

Loans held-for-investment consist of the ~~following:~~following as of:


		September 30, 2021		December 31, 2020
							September 30, 2022		December 31, 2021
Commercial	Commercial	$	2,228,639	$	2,181,552	Commercial	$	2,742,625	$	2,414,787
Commercial real estate	Commercial real estate	1,140,181		1,156,668		Commercial real estate	1,781,791		1,176,973
Residential real estate	Residential real estate	426,044		503,828		Residential real estate	1,003,699		437,116
Consumer	Consumer	17,742		14,233		Consumer	44,358		17,766
Total loans	Total loans	3,812,606		3,856,281		Total loans	5,572,473		4,046,642

Deferred costs, fees, premiums, and discounts		(8,625)		(9,924)

Deferred costs, fees, premiums, and discounts, net						Deferred costs, fees, premiums, and discounts, net	(15,787)		(9,519)
Allowance for loan losses	Allowance for loan losses	(47,868)		(47,766)		Allowance for loan losses	(59,678)		(47,547)

Total loans, net	Total loans, net	$	3,756,113	$	3,798,591	Total loans, net	$	5,497,008	$	3,989,576

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On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. A provision in the CARES Act created the Paycheck Protection Program (PPP), a program administered by the Small Business Administration (“SBA”) to provide loans to small business during the COVID-19 pandemic. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we had ~~$116,519~~$6,086 and ~~$256,336~~$68,401 of PPP loans outstanding and deferred processing fees outstanding of ~~$3,153~~$54 and ~~$5,235,~~$1,652, respectively. PPP loans are classified as Commercial loans in the consolidated financial statements. No allowance for loan losses has been recognized for PPP loans as such loans are ~~fully~~ guaranteed by the SBA.

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

Commercial Commercial
Real
Estate Residential
Real
Estate Consumer Total
2021
Allowance for loan losses:
Balance, beginning of period $ 28,173 $ 13,149 $ 1,305 $ 351 $ 42,978
Provision for (benefit from) loan losses 3,030 560 (31) (59) 3,500
Loans charged off — — — (66) (66)
Recoveries 1,440 — 3 13 1,456
Balance, end of period $ 32,643 $ 13,709 $ 1,277 $ 239 $ 47,868
2020
Allowance for loan losses:
Balance, beginning of period $ 22,541 $ 13,212 $ 1,868 $ 275 $ 37,896
Provision for (benefit from) loan losses 4,030 853 (126) 43 4,800
Loans charged off (203) (1) — (32) (236)
Recoveries 225 — 3 13 241
Balance, end of period $ 26,593 $ 14,064 $ 1,745 $ 299 $ 42,701


	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Total
2022
Allowance for loan losses:
Balance, beginning of period	$	34,987	$	18,053	$	2,719	$	318	$	56,077
Provision for loan losses	2,286		1,163		269		32		3,750
Loans charged off	(223)		—		(24)		(53)		(300)
Recoveries	112		2		1		36		151
Balance, end of period	$	37,162	$	19,218	$	2,965	$	333	$	59,678
2021
Allowance for loan losses:
Balance, beginning of period	$	28,173	$	13,149	$	1,305	$	351	$	42,978
Provision for (benefit from) loan losses	3,030		560		(31)		(59)		3,500
Loans charged off	—		—		—		(66)		(66)
Recoveries	1,440		—		3		13		1,456
Balance, end of period	$	32,643	$	13,709	$	1,277	$	239	$	47,868

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

Commercial Commercial
Real
Estate Residential
Real
Estate Consumer Total
2021
Allowance for loan losses:
Balance, beginning of period $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766
Provision for (benefit from) loan losses 2,210 (163) (350) 53 1,750
Loans charged off (3,102) — (2) (138) (3,242)
Recoveries 1,526 9 23 36 1,594
Balance, end of period $ 32,643 $ 13,709 $ 1,277 $ 239 $ 47,868
2020
Allowance for loan losses:
Balance, beginning of period $ 17,509 $ 9,645 $ 1,056 $ 336 $ 28,546
Provision for loan losses 9,567 4,728 708 97 15,100
Loans charged off (997) (581) (39) (168) (1,785)
Recoveries 514 272 20 34 840
Balance, end of period $ 26,593 $ 14,064 $ 1,745 $ 299 $ 42,701


	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Total
2022
Allowance for loan losses:
Balance, beginning of period	$	33,277	$	12,899	$	1,136	$	235	$	47,547
Provision for loan losses	4,223		6,316		1,755		156		12,450
Loans charged off	(2,173)		—		(122)		(117)		(2,412)
Recoveries	1,835		3		196		59		2,093
Balance, end of period	$	37,162	$	19,218	$	2,965	$	333	$	59,678
2021
Allowance for loan losses:
Balance, beginning of period	$	32,009	$	13,863	$	1,606	$	288	$	47,766
Provision for (benefit from) loan losses	2,210		(163)		(350)		53		1,750
Loans charged off	(3,102)		—		(2)		(138)		(3,242)
Recoveries	1,526		9		23		36		1,594
Balance, end of period	$	32,643	$	13,709	$	1,277	$	239	$	47,868

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

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The following table presents the balance in the allowance for loan losses and the recorded investment by portfolio type based on impairment ~~method:~~method as of:

Commercial Commercial
Real
Estate Residential
Real
Estate Consumer Total
As of September 30, 2021
Loans:
Individually evaluated for impairment $ 19,632 $ 5,203 $ 6,555 $ 3 $ 31,393
Collectively evaluated for impairment 2,209,007 1,134,978 419,489 17,739 3,781,213
Total loans $ 2,228,639 $ 1,140,181 $ 426,044 $ 17,742 $ 3,812,606
Allowance for loan losses:
Individually evaluated for impairment $ 3,823 $ 387 $ 148 $ — $ 4,358
Collectively evaluated for impairment 28,820 13,322 1,129 239 43,510
Total allowance for loan losses $ 32,643 $ 13,709 $ 1,277 $ 239 $ 47,868
As of December 31, 2020
Loans:
Individually evaluated for impairment $ 23,197 $ 2,933 $ 9,630 $ 38 $ 35,798
Collectively evaluated for impairment 2,158,355 1,153,735 494,198 14,195 3,820,483
Total loans $ 2,181,552 $ 1,156,668 $ 503,828 $ 14,233 $ 3,856,281
Allowance for loan losses:
Individually evaluated for impairment $ 3,972 $ 12 $ 96 $ — $ 4,080
Collectively evaluated for impairment 28,037 13,851 1,510 288 43,686
Total allowance for loan losses $ 32,009 $ 13,863 $ 1,606 $ 288 $ 47,766


	Commercial		Commercial Real Estate		Residential Real Estate		Consumer		Total
September 30, 2022
Loans:
Individually evaluated for impairment	$	16,560	$	11,108	$	14,132	$	87	$	41,887
Collectively evaluated for impairment	2,726,065		1,770,683		989,567		44,271		5,530,586
Total loans	$	2,742,625	$	1,781,791	$	1,003,699	$	44,358	$	5,572,473
Allowance for loan losses:
Individually evaluated for impairment	$	1,034	$	188	$	29	$	84	$	1,335
Collectively evaluated for impairment	36,128		19,030		2,936		249		58,343
Total allowance for loan losses	$	37,162	$	19,218	$	2,965	$	333	$	59,678
December 31, 2021
Loans:
Individually evaluated for impairment	$	17,460	$	4,781	$	11,479	$	2	$	33,722
Collectively evaluated for impairment	2,397,327		1,172,192		425,637		17,764		4,012,920
Total loans	$	2,414,787	$	1,176,973	$	437,116	$	17,766	$	4,046,642
Allowance for loan losses:
Individually evaluated for impairment	$	2,517	$	12	$	39	$	—	$	2,568
Collectively evaluated for impairment	30,760		12,887		1,097		235		44,979
Total allowance for loan losses	$	33,277	$	12,899	$	1,136	$	235	$	47,547

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

Unpaid
Principal
Balance Recorded
Investment Allowance for
Loan Losses
Allocated Average
Recorded
Investment
As of September 30, 2021
With no related allowance recorded:
Commercial $ 10,013 $ 9,505 $ — $ 6,964
Commercial real estate 2,365 2,307 — 2,201
Residential real estate 4,717 4,732 — 3,153
Consumer 4 3 — 4
Total loans with no related allowance recorded 17,099 16,547 — 12,322
With an allowance recorded:
Commercial 10,386 10,127 3,823 6,962
Commercial real estate 2,949 2,896 387 1,940
Residential real estate 1,794 1,823 148 1,224
Total loans an allowance recorded 15,129 14,846 4,358 10,126
Total impaired loans $ 32,228 $ 31,393 $ 4,358 $ 22,448
As of December 31, 2020
With no related allowance recorded:
Commercial $ 16,370 $ 15,756 $ — $ 12,189
Commercial real estate 2,850 2,838 — 1,910
Residential real estate 9,021 8,933 — 5,855
Consumer 38 38 — 29
Total loans with no related allowance recorded 28,279 27,565 — 19,983
With an allowance recorded:
Commercial 7,610 7,441 3,972 5,304
Commercial real estate 133 95 12 67
Residential real estate 709 697 96 479
Total loans an allowance recorded 8,452 8,233 4,080 5,850
Total impaired loans $ 36,731 $ 35,798 $ 4,080 $ 25,833


	Unpaid Principal Balance		Recorded Investment		Allowance for Loan Losses Allocated		Average Recorded Investment
September 30, 2022
With no related allowance recorded:
Commercial	$	13,937	$	13,438	$	—	$	9,609
Commercial real estate	10,693		10,312		—		5,031
Residential real estate	13,939		14,103		—		8,818
Consumer	—		—		—		—
Total loans with no related allowance recorded	38,569		37,853		—		23,458
With an allowance recorded:
Commercial	3,256		3,122		1,034		2,426
Commercial real estate	796		796		188		265
Residential real estate	29		29		29		10
Consumer	87		87		84		29
Total loans with an allowance recorded	4,168		4,034		1,335		2,730
Total impaired loans	$	42,737	$	41,887	$	1,335	$	26,188
December 31, 2021
With no related allowance recorded:
Commercial	$	14,619	$	13,982	$	—	$	10,637
Commercial real estate	4,795		4,706		—		3,943
Residential real estate	10,754		10,808		—		7,223
Consumer	3		2		—		3
Total loans with no related allowance recorded	30,171		29,498		—		21,806
With an allowance recorded:
Commercial	3,666		3,478		2,517		2,375
Commercial real estate	124		75		12		57
Residential real estate	665		671		39		462

Total loans with an allowance recorded	4,455		4,224		2,568		2,894
Total impaired loans	$	34,626	$	33,722	$	2,568	$	24,700

Interest income recorded on impaired loans was not material for the three and nine months ended September 30, ~~2021~~2022 and ~~2020.~~

2021.

Credit risk monitoring and management is a continuous process to manage the quality of the loan portfolio. We ~~categorize~~segment loans into risk categories based on relevant information about the ability of borrowers to service their debt including current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. The risk rating system is used as a tool to analyze and monitor loan portfolio quality. 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:

Substandard - loans are considered “classified” and have a well-defined weakness, or weaknesses, such as loans that are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans are also characterized by the distinct possibility of loss in the future if the deficiencies are not corrected.

Doubtful - loans are considered “classified” and have all the weaknesses inherent in those classified as Substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently

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existing facts, conditions and values, highly questionable and improbable. There were no loans categorized as doubtful as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

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

The following table presents the credit risk profile of our loan portfolio based on our rating ~~categories:~~categories as of:

Non-Classified Classified Total
As of September 30, 2021
Commercial $ 2,202,979 $ 25,660 $ 2,228,639
Commercial real estate 1,113,753 26,428 1,140,181
Residential real estate 419,557 6,487 426,044
Consumer 17,736 6 17,742
Total loans $ 3,754,025 $ 58,581 $ 3,812,606
As of December 31, 2020
Commercial $ 2,145,831 $ 35,721 $ 2,181,552
Commercial real estate 1,126,080 30,588 1,156,668
Residential real estate 494,155 9,673 503,828
Consumer 14,195 38 14,233
Total loans $ 3,780,261 $ 76,020 $ 3,856,281


	Non-Classified		Classified		Total
September 30, 2022
Commercial	$	2,710,397	$	32,228	$	2,742,625
Commercial real estate	1,750,480		31,311		1,781,791
Residential real estate	994,835		8,864		1,003,699
Consumer	44,270		88		44,358
Total loans	$	5,499,982	$	72,491	$	5,572,473
December 31, 2021
Commercial	$	2,384,275	$	30,512	$	2,414,787
Commercial real estate	1,146,673		30,300		1,176,973
Residential real estate	431,033		6,083		437,116
Consumer	17,762		4		17,766
Total loans	$	3,979,743	$	66,899	$	4,046,642

The following table presents our loan portfolio aging ~~analysis:~~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 Non-Accrual Total
As of September 30, 2021
Commercial $ 2,208,361 $ 1,639 $ — $ — $ 18,639 $ 2,228,639
Commercial
real estate 1,123,875 9,420 1,681 — 5,205 1,140,181
Residential
real estate 418,746 — 842 — 6,456 426,044
Consumer 17,721 18 — — 3 17,742
Total loans $ 3,768,703 $ 11,077 $ 2,523 $ — $ 30,303 $ 3,812,606
As of December 31, 2020
Commercial $ 2,147,310 $ 11,415 $ 48 $ — $ 22,779 $ 2,181,552
Commercial
real estate 1,144,801 8,933 — — 2,934 1,156,668
Residential
real estate 489,482 2,948 1,123 777 9,498 503,828
Consumer 14,187 8 — — 38 14,233
Total loans $ 3,795,780 $ 23,304 $ 1,171 $ 777 $ 35,249 $ 3,856,281


	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, 2022
Commercial	$	2,720,683	$	4,431	$	1,505	$	261	$	15,745	$	2,742,625
Commercial real estate	1,771,809		681		365		—		8,936		1,781,791
Residential real estate	988,528		2,027		4,142		198		8,804		1,003,699
Consumer	44,230		41		—		—		87		44,358
Total loans	$	5,525,250	$	7,180	$	6,012	$	459	$	33,572	$	5,572,473
December 31, 2021
Commercial	$	2,392,205	$	5,467	$	623	$	—	$	16,492	$	2,414,787
Commercial real estate	1,160,244		10,887		—		1,061		4,781		1,176,973
Residential real estate	424,860		5,794		410		—		6,052		437,116
Consumer	17,719		45		—		—		2		17,766
Total loans	$	3,995,028	$	22,193	$	1,033	$	1,061	$	27,327	$	4,046,642

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we have a recorded investment in troubled debt restructurings ~~(TDRs)~~(“TDRs”) of ~~$18,750~~$18,495 and ~~$13,975,~~$21,699, respectively. We have no commitments to lend additional amounts on our TDRs at September 30, ~~2021.~~

2022.

The modification of the terms of the loans performed for the three and nine months ended September 30, ~~2021~~2022 and ~~for the year ended December 31, 2020 respectively,~~2021, included rate modifications, extensions of the maturity dates or a permanent reduction of the recorded investment in the loans.

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The following table presents loans by class modified as TDRs that occurred during the nine months ended September 30, ~~2021~~2022 and year ended December 31, ~~2020:~~2021:


		Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment			Number of Loans	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment
September 30, 2021
Commercial		5	$	6,789	$	5,229

Total		5	$	6,789	$	5,229

December 31, 2020
September 30, 2022							September 30, 2022
Commercial	Commercial	11	$	2,950	$	2,831	Commercial	1	$	248	$	198

Residential real estate	Residential real estate	5	917		907		Residential real estate	1	126		126
Consumer							Consumer	1	72		72
Total							Total	3	$	446	$	396
December 31, 2021							December 31, 2021
Commercial							Commercial	7	$	6,969	$	6,178
Commercial real estate							Commercial real estate	1	2,295		2,265
Residential real estate							Residential real estate	4	1,386		1,435

Total	Total	16	$	3,867	$	3,738	Total	12	$	10,650	$	9,878

~~For the nine months ended~~As of September 30, ~~2021~~2022 and ~~year ended~~ December 31, ~~2020~~2021, the TDRs ~~described above~~ increased the allowance for loan losses by ~~$1,441~~$797 and ~~$1,464,~~$2,326, respectively. There were no amounts charged-off during the three and nine months ended September 30, ~~2021~~2022 and year ended December 31, ~~2020.~~2021. For the year ended December 31, ~~2020,~~2021, there were loans modified as TDRs totaling ~~$1,759~~$106 for which there was a payment default following the modification.

In order to assess whether a borrower is experiencing financial difficulty, an evaluation is performed to determine the probability that the borrower will be in payment default on any of its debt in the foreseeable future without the modification. This evaluation is performed under our internal underwriting policy.

A loan is generally considered to be in payment default once it is 30 days contractually past due under the modified terms.

We are working with borrowers impacted by COVID-19 and providing modifications to include interest only deferral or principal and interest deferral. These modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. As of September 30, 2021, we had actively modified loans under the CARES Act as follows:

Number
of Loans Recorded
Investment
September 30, 2021
Residential real estate 9 $ 2,517

Acquired Loans and Loan Discounts:

Included in the net loan portfolio as of September 30, ~~2021~~2022 and December 31, ~~2020~~2021 is a net accretable discount related to loans acquired within a business combination in the approximate amounts of ~~$770~~$9,768 and ~~$2,043,~~$571, respectively. The discount is accreted into income on a level-yield basis over the life of the loans.

Loans acquired with evidence of credit quality deterioration at acquisition, for which it was probable that we would not be able to collect all contractual amounts due, were accounted for as purchased credit impaired (“PCI”) loans. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off. The carrying amount of purchased credit impaired loans iswas not significant as of September 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

2021

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NOTE 4.5 - 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. A primary risk associated with MSRs is the potential reduction in fair value as a result of higher than anticipated prepayments due to loan refinancing prompted, in part, by declining interest rates or government intervention. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. We utilize derivatives as economic hedges to offset changes in the fair value of the MSRs resulting from the actual or anticipated changes in prepayments stemming from changing interest rate environments.

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

September 30, 2021 December 31, 2020
Federal National Mortgage Association $ 2,278,202 $ 2,117,703
Federal Home Loan Mortgage Corporation 1,425,824 948,934
Government National Mortgage Association 757,859 722,138
Federal Home Loan Bank 148,214 245,246
Other 1,948 2,144
Total $ 4,612,047 $ 4,036,165


	September 30, 2022		December 31, 2021
Federal National Mortgage Association	$	2,499,105	$	2,352,981
Federal Home Loan Mortgage Corporation	1,627,381		1,512,858
Government National Mortgage Association	852,490		759,524
Federal Home Loan Bank	114,747		134,616
Other	1,443		1,853
Total	$	5,095,166	$	4,761,832

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,
2021 2020 2021 2020
Balance, beginning of period $ 40,844 $ 23,800 $ 29,144 $ 29,003
Additions:
Servicing resulting from transfers of financial assets 5,303 6,614 18,533 15,879
Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model 948 (2,114) 5,209 (13,215)
Changes in fair value due to pay-offs, pay-downs, and runoff (3,124) (2,495) (8,915) (5,862)
Balance, end of period $ 43,971 $ 25,805 $ 43,971 $ 25,805


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Balance, beginning of period	$	66,047	$	40,844	$	47,392	$	29,144
Additions:

Servicing resulting from transfers of financial assets	3,489		5,303		11,681		18,533


Changes in fair value:
Due to changes in valuation inputs or assumptions used in the valuation model	6,270		948		21,142		5,209
Changes in fair value due to pay-offs, pay-downs, and runoff	(1,956)		(3,124)		(6,365)		(8,915)
Balance, end of period	$	73,850	$	43,971	$	73,850	$	43,971

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

September 30, 2021 December 31, 2020 September 30, 2020
Discount rate 9.22 % 9.12 % 9.28 %
Total prepayment speeds 12.15 % 16.99 % 18.79 %
Cost of servicing each loan $86/per loan $85/per loan $86/per loan

~~Table of Contents~~


	September 30, 2022		December 31, 2021		September 30, 2021
Discount rate	9.34	%	9.22	%	9.22	%
Total prepayment speeds	7.43	%	11.52	%	12.15	%
Cost of servicing each loan	$87/per loan		$85/per loan		$86/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,					For the three months ended September 30,				For the nine months ended September 30,
		2021		2020		2021		2020			2022		2021		2022		2021

Servicing fees	Servicing fees	$	3,101	$	2,400	$	8,853	$	6,773	Servicing fees	$	4,111	$	3,101	$	10,807	$	8,853
Late and ancillary fees	Late and ancillary fees	118		92		317		277		Late and ancillary fees	123		118		264		317
Total	Total	$	3,219	$	2,492	$	9,170	$	7,050	Total	$	4,234	$	3,219	$	11,071	$	9,170

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NOTE 5.6 - Derivative Financial Instruments

Banking Derivative Financial Instruments:

We ~~are exposed~~use fair value hedges to seek to manage our exposure to changes in the fair value of certain ~~of our fixed-rate~~recognized assets ~~due to changes in benchmark interest rates. We use interest rate swaps to manage our exposure to changes in fair value on these instruments~~ attributable to changes in ~~the designated~~a benchmark interest rate, ~~LIBOR. Interest rate swaps designated~~such as SOFR. The fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. The carrying amount of hedged loans receivable as of September 30, 2021 and December 31, 2020 was $209,552 and $239,591, respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of September 30, 2021 and December 31, 2020 was $7,784 and $14,906, respectively. The hedges were determined to be effective during all periods presented and we expect the hedges to remain effective during their remaining terms.

Derivatives not designated as hedges are not speculative and result from a service we provide to certain customers. We execute interest rate swaps with banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously ~~hedged~~offset by ~~offsetting~~ derivatives that we execute with a third party, such that we minimize our net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. ~~These~~

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

~~Table of Contents~~

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


		Number of Transactions	Expiration Dates	Outstanding Notional		Estimated Fair Value			Number of Transactions	Expiration Dates	Outstanding Notional		Estimated Fair Value
September 30, 2021
September 30, 2022								September 30, 2022
Derivative financial instruments designated as hedging instruments:	Derivative financial instruments designated as hedging instruments:							Derivative financial instruments designated as hedging instruments:
Assets:	Assets:							Assets:
Interest Rate Products	Interest Rate Products	1	2029	$	20,378	$	1,142	Interest Rate Products	32	2028-2036	$	204,216	$	16,717
Liabilities:
Interest Rate Products		12	2022-2029	$	181,390	$	8,898

Derivative financial instruments not designated as hedging instruments:	Derivative financial instruments not designated as hedging instruments:							Derivative financial instruments not designated as hedging instruments:
Assets:	Assets:							Assets:
Interest Rate Products	Interest Rate Products	38	2024-2036	$	207,937	$	8,471	Interest Rate Products	41	2024-2037	$	275,765	$	26,642
Liabilities:	Liabilities:							Liabilities:
Interest Rate Products	Interest Rate Products	38	2024-2036	$	207,937	$	8,810	Interest Rate Products	41	2024-2037	$	275,765	$	25,987

December 31, 2020
December 31, 2021								December 31, 2021
Derivative financial instruments designated as hedging instruments:	Derivative financial instruments designated as hedging instruments:							Derivative financial instruments designated as hedging instruments:
Assets:	Assets:							Assets:
Interest Rate Products	Interest Rate Products	2	2026-2029	$	38,978	$	830	Interest Rate Products	1	2029	$	20,190	$	1,213
Liabilities:	Liabilities:							Liabilities:
Interest Rate Products	Interest Rate Products	12	2022-2028	$	185,637	$	15,792	Interest Rate Products	12	2022-2029	$	179,431	$	7,107

Derivative financial instruments not designated as hedging instruments:	Derivative financial instruments not designated as hedging instruments:							Derivative financial instruments not designated as hedging instruments:
Assets:	Assets:							Assets:
Interest Rate Products	Interest Rate Products	28	2024-2031	$	171,609	$	11,348	Interest Rate Products	38	2024-2036	$	232,849	$	6,923
Liabilities:	Liabilities:							Liabilities:
Interest Rate Products	Interest Rate Products	28	2024-2031	$	171,609	$	12,117	Interest Rate Products	38	2024-2036	$	232,849	$	7,366

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

For the three months ended September 30, For the nine months ended September 30,
2021 2020 2021 2020
Recorded (loss) gain on banking derivative
assets $ (186) $ (221) $ (420) $ 8,608
Recorded gain (loss) on banking derivative liabilities $ 337 $ 123 $ 926 $ (9,432)


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Recorded gain (loss) on banking derivative assets	$	15,123	$	(186)	$	30,192	$	(420)
Recorded (loss) gain on banking derivative liabilities	$	(14,771)	$	337	$	(29,095)	$	926

For the three months ended September 30, ~~2021~~2022 and ~~2020,~~2021, our banking derivative financial instruments not designated as hedging instruments generated fee income of ~~$246~~$492 and ~~$1,406,~~$246, respectively. For the nine months ended September 30, ~~2021~~2022 and ~~2020,~~2021, our banking derivative financial instruments not designated as hedging instruments generated fee income of ~~$1,080~~$1,294 and ~~$2,967,~~$1,080, respectively.

The carrying amount of hedged loans receivable as of September 30, 2022 and December 31, 2021 was $144,506 and $205,235, respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of September 30, 2022 and December 31, 2021 was $(13,491) and $5,614, respectively.

The carrying amount of hedged securities available-for-sale as of September 30, 2022 was $36,268. The cumulative amount of fair value hedging adjustment, net of tax included in other comprehensive income (loss) as of September 30, 2022 was $2,536. There were no hedged securities available-for-sale as of December 31, 2021.

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, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 ~~$18,435~~$26,125 and ~~$28,622,~~$14,882, respectively. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of ~~$22,342~~$9,090 and ~~$31,400,~~$14,970, respectively. If we had breached any of these provisions at September 30, ~~2021,~~2022, we could have been required to settle our obligations under the agreements at their termination value of ~~$18,435.~~$26,125.

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Mortgage Banking Derivative Financial Instruments:

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

Expiration
Dates Outstanding
Notional Estimated
Fair
Value
September 30, 2021
Derivative financial instruments
Assets:
Forward MBS trades 2021 $ 257,900 $ 987
Interest rate lock commitments (IRLC) 2021 $ 188,714 $ 1,420
Liabilities:
Forward MBS trades 2021 $ 150,900 $ 2,258
December 31, 2020
Derivative financial instruments
Assets:
Forward MBS trades 2021 $ 189,900 $ 468
Interest rate lock commitments (IRLC) 2021 $ 462,394 $ 5,686
Liabilities:
Forward MBS trades 2021 $ 433,400 $ 2,883

~~Table of Contents~~


	Expiration Dates	Outstanding Notional		Estimated Fair Value
September 30, 2022
Derivative financial instruments
Assets:
Forward MBS trades	2022	$	123,000	$	5,012


Liabilities:
Forward MBS trades	2022	$	20,300	$	845

Interest rate lock commitments (IRLC)	2022	$	99,368	$	1,439
December 31, 2021
Derivative financial instruments
Assets:
Forward MBS trades	2022	$	450,600	$	1,329
Interest rate lock commitments (IRLC)	2022	$	142,334	$	1,350

Liabilities:
Forward MBS trades	2022	$	16,600	$	52

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

For the three months ended September 30, For the nine months ended September 30,
2021 2020 2021 2020
Recorded gain (loss) on mortgage banking derivative assets $ 9,175 $ (19,987) $ (302) $ 7,638
Recorded (loss) gain on mortgage banking derivative liabilities $ (10,241) $ 1,925 $ (7,714) $ (989)


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Recorded gain (loss) on mortgage banking derivative assets	$	3,277	$	9,175	$	5,189	$	(302)
Recorded loss on mortgage banking derivative liabilities	$	(2,844)	$	(10,241)	$	(16,940)	$	(7,714)

NOTE 6.7 - Deposits

The composition of our deposits is as ~~follows:~~follows as of:


		As of
		September 30, 2021		December 31, 2020
							September 30, 2022		December 31, 2021
Noninterest-bearing demand deposit accounts	Noninterest-bearing demand deposit accounts	$	1,578,306	$	1,054,458	Noninterest-bearing demand deposit accounts	$	1,946,215	$	1,566,113
Interest-bearing deposit accounts:	Interest-bearing deposit accounts:					Interest-bearing deposit accounts:
Interest-bearing demand accounts	Interest-bearing demand accounts	201,510		164,870		Interest-bearing demand accounts	160,082		187,712
Savings accounts and money market accounts	Savings accounts and money market accounts	2,711,417		2,472,965		Savings accounts and money market accounts	3,008,433		2,757,882
NOW accounts	NOW accounts	37,888		95,297		NOW accounts	46,128		19,496
Certificate of deposit accounts:	Certificate of deposit accounts:					Certificate of deposit accounts:
Less than $100	Less than $100	151,696		164,491		Less than $100	216,331		147,386
$100 through $250	$100 through $250	104,864		113,006		$100 through $250	224,999		103,082
Greater than $250	Greater than $250	72,304		88,462		Greater than $250	158,230		73,277
Total interest-bearing deposit accounts	Total interest-bearing deposit accounts	3,279,679		3,099,091		Total interest-bearing deposit accounts	3,814,203		3,288,835
Total deposits	Total deposits	$	4,857,985	$	4,153,549	Total deposits	$	5,760,418	$	4,854,948

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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,
2021 2020 2021 2020
Interest-bearing deposit accounts:
Interest-bearing demand accounts $ 89 $ 97 $ 300 $ 331
Savings accounts and money market accounts 1,155 1,635 3,668 5,901
NOW accounts 50 183 336 471
Certificate of deposit accounts 684 1,433 2,427 6,178
Total interest-bearing deposit accounts $ 1,978 $ 3,348 $ 6,731 $ 12,881

~~Table of Contents~~


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Interest-bearing deposit accounts:
Interest-bearing demand accounts	$	449	$	89	$	733	$	300
Savings accounts and money market accounts	1,859		1,155		4,095		3,668
NOW accounts	46		50		115		336
Certificate of deposit accounts	920		684		2,077		2,427
Total interest-bearing deposit accounts	$	3,274	$	1,978	$	7,020	$	6,731

The remaining maturity on certificate of deposit accounts ~~as of September 30, 2021~~ is as ~~follows:~~follows as of:

Remainder of 2021 $ 59,117
2022 184,563
2023 47,911
2024 14,637
2025 11,001
2026 7,474
Thereafter 4,161
Total certificate of deposit accounts $ 328,864


	September 30, 2022
Remainder of 2022	$	1,085
2023	382,847
2024	119,617
2025	71,858
2026	13,429
2027	7,629
Thereafter	3,095
Total certificate of deposit accounts	$	599,560

NOTE 7.8 - 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, 2021 December 31, 2020
Amount outstanding at period-end $ 117,001 $ 115,372
Average daily balance during the period $ 131,444 $ 118,706
Average interest rate during the period 0.05 % 0.15 %
Maximum month-end balance during the period $ 160,865 $ 149,844
Weighted average interest rate at period-end 0.04 % 0.05 %


	September 30, 2022			December 31, 2021
Amount outstanding at period-end	$	51,256		$	92,093
Average daily balance during the period	$	59,573		$	125,867
Average interest rate during the period	0.22		%	0.05		%
Maximum month-end balance during the period	$	70,838		$	160,865
Weighted average interest rate at period-end	0.40		%	0.05		%

At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of ~~$134,701~~$58,642 and ~~$121,116,~~$108,714, respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and are considered to be in an overnight and continuous position.

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NOTE 8.9 - Debt

FHLB advances:

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

September 30, 2021 December 31, 2020
Amount Rate Weighted
Average
Rate Amount Rate Weighted
Average
Rate
Variable rate line-of-credit advance $ — N/A N/A $ 20,000 0.35% N/A
Fixed rate term advances $ 40,000 0.91% - 2.59% 1.49% $ 50,411 0.91% - 4.13% 1.78%
$ 40,000 $ 70,411


	September 30, 2022				December 31, 2021
	Amount		Rate	Weighted Average Rate	Amount		Rate	Weighted Average Rate
Variable rate line-of-credit advance	$	170,884	2.42% - 3.16%	3%	$	—	N/A	N/A
Fixed rate term advances	$	139,988	1.56% - 1.90%	1.77%	$	40,000	0.91% - 2.59%	1.49%
	$	310,872			$	40,000

The advances were collateralized by ~~$842,678~~$1,546,157 and ~~$943,376~~$1,180,493 of loans pledged to the FHLB as collateral as of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~Table~~A $50.0 million advance at an interest rate of ~~Contents~~

~~Future maturities~~1.56% that was scheduled to mature in 2033 was called by the FHLB and repaid in October 2022. A $65.0 million advance at an interest rate of ~~our~~1.90% that was scheduled to mature in 2033 was called by the FHLB ~~borrowings~~and repaid in November 2022. The remaining fixed rate advance is ~~as follows:~~

2022 $ 10,000
2025 20,000
Thereafter 10,000
Total $ 40,000

callable by the FHLB and is due in 2033.

As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of ~~$675,641~~$954,016 and ~~$702,540,~~$597,915, respectively. Our additional borrowing availability with the FHLB at September 30, ~~2021~~2022 was ~~$556,547.~~$659,479. These borrowings can be in the form of additional term advances or a line-of-credit.

FRB advances:

We also had a ~~$9,366~~$6,499 line-of-credit with the FRB. The agreement bears interest at the Fed Funds target rate plus 0.50% and is secured by municipal, agency, mortgage-related and corporate securities. The entire line was available at September 30, ~~2021.~~

2022.

Other borrowings:

We have lines-of-credit with certain other financial institutions totaling ~~$95,000~~$155,000 as of September 30, ~~2021.~~2022. No amounts were drawn on these lines-of-credit in ~~2021.~~

2022.

Convertible Notes Payable:

WeAs of September 30, 2022 and December 31, 2021, we have issued a total of $5,456 and $20,673, respectively, of convertible notes with a maturity date of August 31, 2023. The annual interest rate on these convertible notes is 3.29% with quarterly interest payments. With respect to conversion, each $1 (in thousands) principal amount of the convertible notes can be converted to 15.6717 shares of Parent Company common stock at any time until maturity.

The convertible notes were originally recorded with a discount of $4,682. As of and for the periods ended September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the debt discount on the convertible notes ~~totaled $1,418~~was $139 and ~~$1,977,~~$1,231, respectively. The related accretion for the three months ended September 30, 2022 and 2021 was $38 and ~~2020 was~~ $186, ~~and $188,~~ respectively. The related accretion for the nine months ended September 30, 2022 and 2021 was $1,093 and ~~2020 was~~ $559, ~~and $564,~~ respectively.

Subordinated Debt:

Subordinated Notes - 2020:

In June and August 2020, we issued a total of $40,000 subordinated notes. The notes pay interest at a fixed rate of 6.00% through June 30, 2025 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 5.89% reset quarterly. Interest is payable on July 1 and January 1 of each year. Such notes are due on July 1, 2030. The notes are not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the notes at our discretion.

We incurred and capitalized $933 of costs related to the issuance of the subordinated notes. ~~As of and for the three and nine months ended September 30, 2021, the~~The amortization associated with the ~~debt~~capitalized issuance costs ~~totaled $23~~is not significant for the periods presented.

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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 ~~$70.~~

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 in the first quarter of 2022. 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 LIBOR plus 3.35% ~~(3.50%~~(5.60% and ~~3.66%~~3.50% as of September 30, ~~2021~~2022 and ~~2020,~~2021, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month LIBOR plus 2.00% ~~(2.15%~~(4.96% and ~~2.36%~~2.15% as of September 30, ~~2021~~2022 and ~~2020,~~2021, respectively) for the trust preferred securities issued through NMBCT II.

~~Table of Contents~~

This subordinated debt of $13,919 was originally recorded at a discount of $4,293. ~~As of and for the three months ended September 30, 2021 and 2020,~~The accretion associated with the fair value discount ~~totaled $63, respectively. As of and~~is not significant for the ~~nine months ended September 30, 2021 and 2020, accretion associated with the fair value discount totaled $192, respectively.~~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 9.10 - 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,
		2021		2020		2021		2020			For the three months ended September 30,				For the nine months ended September 30,
											2022		2021		2022		2021
Net income applicable to common stockholders	Net income applicable to common stockholders	$	8,728	$	14,754	$	34,347	$	36,325	Net income applicable to common stockholders	$	26,513	$	8,728	$	34,612	$	34,347
Weighted Average Shares	Weighted Average Shares									Weighted Average Shares
Weighted average common shares outstanding	Weighted average common shares outstanding	18,321,659		18,320,606		18,321,659		18,327,164		Weighted average common shares outstanding	24,877,607		18,321,659		22,685,496		18,321,659
Effect of dilutive securities	Effect of dilutive securities									Effect of dilutive securities
Stock-based awards	Stock-based awards	449,022		—		440,838		—		Stock-based awards	531,208		449,022		596,437		440,838
Convertible notes payable										Convertible notes payable	85,500		—		—		—
Weighted average diluted common shares	Weighted average diluted common shares	18,770,681		18,320,606		18,762,497		18,327,164		Weighted average diluted common shares	25,494,315		18,770,681		23,281,933		18,762,497

Earnings per common share	Earnings per common share									Earnings per common share
Basic earnings per common share	Basic earnings per common share	$	0.48	$	0.81	$	1.87	$	1.98	Basic earnings per common share	$	1.07	$	0.48	$	1.53	$	1.87
Effect of dilutive securities	Effect of dilutive securities									Effect of dilutive securities
Stock-based awards	Stock-based awards	(0.02)		—		(0.04)		—		Stock-based awards	(0.03)		(0.02)		(0.04)		(0.04)
Diluted earnings per common share	Diluted earnings per common share	$	0.46	$	0.81	$	1.83	$	1.98	Diluted earnings per common share	$	1.04	$	0.46	$	1.49	$	1.83

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Convertible notes payable for ~~323,984~~85,500 shares of common stock were not considered in computing diluted earnings per share for ~~three and~~the nine months ended September 30, ~~2021~~2022 and ~~2020 because they were antidilutive. Stock-based awards~~for 323,984 shares of ~~98,659 and 161,806 shares were antidilutive~~common stock for the three and nine months ended September 30, ~~2020, respectively.~~2021, respectively, because they were antidilutive. Stock-based awards for 845 and 34,828 shares of common stock were not considered in computing diluted earnings per share for the three and nine months ended September 30, 2022, respectively, because they were antidilutive.

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NOTE ~~10.~~11 - Accumulated Other Comprehensive Income (Loss)

The following table sets forth the components in accumulated other comprehensive income (loss):


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Securities available-for-sale:
Balance, beginning of period	$	(40,535)	$	7,142	$	1,664	$	9,119
Unrealized (loss) gain	(6,613)		349		(62,473)		(2,270)
Income tax effect	1,506		(86)		15,167		556
Net unrealized (loss) gain	(5,107)		263		(47,306)		(1,714)


Balance, end of period	$	(45,642)	$	7,405	$	(45,642)	$	7,405

Fair value hedges of securities available-for-sale:
Balance, beginning of period	$	1,098	$	—	$	—	$	—
Unrealized gain	1,821		—		3,211		—
Income tax effect	(383)		—		(675)		—
Net unrealized gain	1,438		—		2,536		—


Balance, end of period	$	2,536	$	—	$	2,536	$	—

NOTE 12 - Stockholders’ Equity

Equity Incentive ~~Plan~~Plans:

We have established the FirstSun Capital Bancorp 2017 Equity Incentive Plan (the ~~Plan)~~“2017 Plan”). The 2017 Plan provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants for up to 1,977,292 shares of FirstSun common stock in the aggregate.

~~A summary~~On October 18, 2021 we established the FirstSun Capital Bancorp 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of stock ~~option activity~~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. The equity component of awards under the ~~Plan as of September 30,~~LTIP are issued from the 2021 ~~and changes during the period then ended is presented below:~~

Shares Weighted-Average Exercise Price, per Share Weighted-Average Remaining Contractual Term (years)
For the nine months ended September 30, 2021
Outstanding, beginning of period 1,428,940 $ 19.97
Exercised — —
Granted 26,336 32.54
Forfeited (42,376) 20.33
Outstanding, end of period 1,412,900 $ 20.19 6.46
Options vested or expected to vest 1,412,900 $ 20.19
Options exercisable, end of period 1,166,887 $ 19.89 6.13
Plan.

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~~For~~The following table presents stock options outstanding under the ~~three months ended~~2017 Plan at September 30, ~~2021 and 2020, we recorded total compensation cost of $348 and $526, respectively related to the Plan. For~~2022. There were no grants or forfeitures during the nine months ended September 30, ~~2021 and 2020, we recorded total compensation cost of $1,501 and $1,752, respectively, related to the Plan.~~2022:


	Shares	Weighted-Average Exercise Price, per Share		Weighted-Average Remaining Contractual Term (years)
September 30, 2022
Outstanding, beginning of period	1,412,900	$	20.19
Exercised	(67,976)	19.72


Outstanding, end of period	1,344,924	$	20.21	5.49
Options vested or expected to vest	1,412,900	$	20.19
Options exercisable, end of period	1,228,041	$	20.02	5.29

At September 30, ~~2021,~~2022, there was ~~$1,390~~$720 of total unrecognized compensation cost related to non-vested stock options granted under the 2017 Plan. The unrecognized compensation cost at September 30, ~~2021~~2022 is expected to be recognized over the following ~~3.67~~three years. At September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the intrinsic value of the stock options was ~~$15,343~~$14,237 and ~~$10,660,~~$18,042, respectively.

In May 2022, we issued 11,344 shares of restricted stock from the 2021 Plan that will fully vest in May 2023. At September 30, 2022, there was $2,423 of total unrecognized compensation cost related to the non-vested restricted stock.

In May 2022, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2025. At September 30, 2022, we determined it is probable that 81,484 shares will be issued based upon the probability that the performance conditions will be achieved. At September 30, 2022, there was $236 of total unrecognized compensation cost related to the non-vested restricted stock granted under the 2021 Plan.

For the three months ended September 30, 2022 and 2021, we recorded total compensation cost from the 2017 and 2021 Plans of $473 and $348, respectively. For the nine months ended September 30, 2022 and 2021, we recorded total compensation cost from the 2017 and 2021 Plans of $1,093 and $1,501, respectively.

In conjunction with the Pioneer Merger, we assumed certain options that had been granted under Pioneer’s option plans. All assumed options were fully vested and exercisable. No further options will be granted under the Pioneer plans. The following table presents options assumed in the Pioneer Merger and the activity from Merger date through September 30, 2022:


	Shares	Weighted-Average Exercise Price, per Share		Weighted-Average Remaining Contractual Term (years)
September 30, 2022
Outstanding, beginning of period	—	$	—
Options assumed from Pioneer Bancshares, Inc.	431,645	23.32
Exercised	(255,453)	23.44


Outstanding, vested, and exercisable, end of period	176,192	$	23.12	5.61

At September 30, 2022, the intrinsic value of the stock options was $1,346.

NOTE ~~11.~~13 - Income Taxes

The provision for income taxes in interim periods requires us to make a best 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 ~~following table presents our~~ provision for income tax ~~and effective tax provision rate:~~is summarized as follows:

For the three months ended September 30, For the nine months ended September 30,
2021 2020 2021 2020
Provision for income taxes $ 1,851 $ 3,130 $ 7,159 $ 7,707
Effective tax provision rate 17.5 % 17.5 % 17.2 % 17.5 %

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	For the three months ended September 30,						For the nine months ended September 30,
	2022			2021			2022			2021



Provision for income taxes	$	7,628		$	1,851		$	8,559		$	7,159
Effective tax provision rate	22.3		%	17.5		%	19.8		%	17.2		%

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

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NOTE ~~12.~~14 - 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, ~~2021,~~2022, 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, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 at year end for the Parent Company are as follows:~~

Actual For Capital
Adequacy Purposes To be Well-
Capitalized under
Prompt Corrective
Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2021
Total risk-based capital to risk-weighted assets: $ 552,124 12.55 % $ 351,871 8.00 % N/A N/A
Tier 1 risk-based capital to risk-weighted assets: $ 453,740 10.32 % $ 263,904 6.00 % N/A N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 453,740 10.32 % $ 197,928 4.50 % N/A N/A
Tier 1 leverage capital to average assets: $ 453,740 8.19 % $ 221,526 4.00 % N/A N/A
As of December 31, 2020
Total risk-based capital to risk-weighted assets: $ 513,949 12.19 % $ 337,327 8.00 % N/A N/A
Tier 1 risk-based capital to risk-weighted assets: $ 416,029 9.87 % $ 252,995 6.00 % N/A N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 416,029 9.87 % $ 189,746 4.50 % N/A N/A
Tier 1 leverage capital to average assets: $ 416,029 8.53 % $ 195,074 4.00 % N/A N/A

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Actual and required capital amounts ~~at year end~~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, 2022
Total risk-based capital to risk-weighted assets:	$	791,066	12.06	%	$	524,601	8.00	%	N/A	N/A
Tier 1 risk-based capital to risk-weighted assets:	$	655,345	9.99	%	$	393,451	6.00	%	N/A	N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	655,345	9.99	%	$	295,088	4.50	%	N/A	N/A
Tier 1 leverage capital to average assets:	$	655,345	9.55	%	$	274,564	4.00	%	N/A	N/A
December 31, 2021
Total risk-based capital to risk-weighted assets:	$	563,112	11.76	%	$	383,213	8.00	%	N/A	N/A
Tier 1 risk-based capital to risk-weighted assets:	$	464,761	9.70	%	$	287,410	6.00	%	N/A	N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	464,761	9.70	%	$	215,557	4.50	%	N/A	N/A
Tier 1 leverage capital to average assets:	$	464,761	8.24	%	$	225,736	4.00	%	N/A	N/A

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


		Actual				For Capital Adequacy Purposes				To be Well- Capitalized under Prompt Corrective Action Provisions					Actual				For Capital Adequacy Purposes				To be Well- Capitalized under Prompt Corrective Action Provisions
		Amount		Ratio		Amount		Ratio		Amount		Ratio			Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2021
September 30, 2022														September 30, 2022
Total risk-based capital to risk-weighted assets:	Total risk-based capital to risk-weighted assets:	$	559,556	12.76	%	$	350,802	8.00	%	$	438,502	10.00	%	Total risk-based capital to risk-weighted assets:	$	776,038	11.86	%	$	523,395	8.00	%	$	654,243	10.00	%
Tier 1 risk-based capital to risk-weighted assets:	Tier 1 risk-based capital to risk-weighted assets:	$	511,100	11.66	%	$	263,101	6.00	%	$	350,802	8.00	%	Tier 1 risk-based capital to risk-weighted assets:	$	715,097	10.93	%	$	392,546	6.00	%	$	523,395	8.00	%
Common Equity Tier 1 (CET 1) to risk-weighted assets:	Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	511,100	11.66	%	$	197,326	4.50	%	$	285,026	6.50	%	Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	715,097	10.93	%	$	294,409	4.50	%	$	425,258	6.50	%
Tier 1 leverage capital to average assets:	Tier 1 leverage capital to average assets:	$	511,100	9.23	%	$	221,444	4.00	%	$	276,805	5.00	%	Tier 1 leverage capital to average assets:	$	715,097	10.42	%	$	274,489	4.00	%	$	343,112	5.00	%

As of December 31, 2020
December 31, 2021														December 31, 2021
Total risk-based capital to risk-weighted assets:	Total risk-based capital to risk-weighted assets:	$	517,077	12.30	%	$	336,276	8.00	%	$	420,345	10.00	%	Total risk-based capital to risk-weighted assets:	$	571,463	11.96	%	$	382,106	8.00	%	$	477,633	10.00	%
Tier 1 risk-based capital to risk-weighted assets:	Tier 1 risk-based capital to risk-weighted assets:	$	468,823	11.15	%	$	252,207	6.00	%	$	336,276	8.00	%	Tier 1 risk-based capital to risk-weighted assets:	$	523,128	10.95	%	$	286,580	6.00	%	$	382,106	8.00	%
Common Equity Tier 1 (CET 1) to risk-weighted assets:	Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	468,823	11.15	%	$	189,155	4.50	%	$	273,224	6.50	%	Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	523,128	10.95	%	$	214,935	4.50	%	$	310,462	6.50	%
Tier 1 leverage capital to average assets:	Tier 1 leverage capital to average assets:	$	468,823	9.62	%	$	195,008	4.00	%	$	243,760	5.00	%	Tier 1 leverage capital to average assets:	$	523,128	9.27	%	$	225,650	4.00	%	$	282,062	5.00	%

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NOTE ~~13.~~15 - 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 judgement assumptions and estimates related to credit quality, our future earnings, interest rates and other relevant inputs. These valuation methods require considerable judgement 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.

~~Table of Contents~~

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.

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

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
As of September 30, 2021
Available-for-sale securities $ 20,695 $ 510,700 $ — $ 531,395
Loans held-for-sale — 122,217 — 122,217
Mortgage servicing rights — — 43,971 43,971
Derivative financial instruments - assets — 12,020 — 12,020
Derivative financial instruments - liabilities — (19,966) — (19,966)
Total $ 20,695 $ 624,971 $ 43,971 $ 689,637
As of December 31, 2020
Available-for-sale securities $ — $ 468,586 $ — $ 468,586
Loans held-for-sale — 193,963 — 193,963
Mortgage servicing rights — — 29,144 29,144
Derivative financial instruments - assets — 18,332 — 18,332
Derivative financial instruments - liabilities — (30,792) — (30,792)
Total $ — $ 650,089 $ 29,144 $ 679,233

No assets or liabilities were valued on a recurring basis at Level 1 as of December 31, 2020, nor were there any transfers between Level 2 and Level 3 during the nine months ended September 30, 2021 and the year ended December 31, 2020.


	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
As of September 30, 2022
Available-for-sale securities	$	56,618	$	494,547	$	—	$	551,165
Loans held-for-sale	—		67,535		—		67,535
Mortgage servicing rights	—		—		73,850		73,850
Derivative financial instruments - assets	—		48,371		—		48,371
Derivative financial instruments - liabilities	—		(28,271)		—		(28,271)
Total	$	56,618	$	582,182	$	73,850	$	712,650

As of December 31, 2021
Available-for-sale securities	$	35,185	$	537,316	$	—	$	572,501
Loans held-for-sale	—		103,939		—		103,939
Mortgage servicing rights	—		—		47,392		47,392
Derivative financial instruments - assets	—		10,815		—		10,815
Derivative financial instruments - liabilities	—		(14,525)		—		(14,525)
Total	$	35,185	$	637,545	$	47,392	$	720,122

For further details on our level 3 inputs related to MSRs, see Note 4.5 - 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,
2021 2020 2021 2020
Balance, beginning of period $ 40,844 $ 23,800 $ 29,144 $ 29,003
Total losses included in earnings (2,176) (4,609) (3,706) (19,077)
Purchases, issuances, sales and settlements:
Issuances 5,303 6,614 18,533 15,879
Balance, end of period $ 43,971 $ 25,805 $ 43,971 $ 25,805


	For the three months ended September 30,				For the nine months ended September 30,
	2022		2021		2022		2021
Balance, beginning of period	$	66,047	$	40,844	$	47,392	$	29,144
Total gains (losses) included in earnings	4,314		(2,176)		14,777		(3,706)
Purchases, issuances, sales and settlements:

Issuances	3,489		5,303		11,681		18,533


Balance, end of period	$	73,850	$	43,971	$	73,850	$	43,971

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Certain financial assets and financial liabilities are regularly measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment). 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, 2021 December 31, 2020
Impaired loans:
Commercial $ 6,304 $ 3,469
Commercial real estate 2,509 84
Residential real estate 1,675 601
Total impaired loans $ 10,488 $ 4,154
Other real estate owned and foreclosed assets, net:
Commercial real estate $ 5,747 $ 3,354


	Level 3
	September 30, 2022		December 31, 2021
Impaired loans:
Commercial	$	2,088	$	961
Commercial real estate	608		63
Residential real estate	—		632
Consumer	3		—
Total impaired loans	$	2,699	$	1,656

Other real estate owned and foreclosed assets, net:

Commercial real estate	$	5,391	$	5,067
Residential real estate	—		420

Total other real estate owned and foreclosed assets, net:	$	5,391	$	5,487

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.

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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:~~follows as of:

Estimated Fair Value
Carrying
Value Total Level 1 Level 2 Level 3
As of September 30, 2021
Assets:
Cash and cash equivalents $ 949,541 $ 949,541 $ 949,541 $ — $ —
Securities held-to-maturity 19,811 20,693 — 20,693 —
Loans (excluding impaired loans) 3,781,213 3,722,746 — — 3,722,746
Restricted equity securities 16,927 16,927 — 16,927 —
Accrued interest receivable 16,649 16,649 — 1,129 15,520
Liabilities:
Deposits (excluding demand deposits) $ 3,078,169 $ 3,203,052 $ — $ 3,203,052 $ —
Securities sold under agreements to repurchase 117,001 117,001 — 117,001 —
FHLB advances 40,000 41,821 — 41,821 —
Convertible notes payable, net 19,256 21,201 — 21,201 —
Subordinated debt, net 49,928 52,099 — 52,099 —
Accrued interest payable 2,768 2,768 — 2,768 —
As of December 31, 2020
Assets:
Cash and cash equivalents $ 201,978 $ 201,978 $ 201,978 $ — $ —
Securities held-to-maturity 32,188 33,328 — 33,328 —
Loans (excluding impaired loans) 3,820,483 3,780,649 — — 3,780,649
Restricted equity securities 23,175 23,175 — 23,175 —
Accrued interest receivable 15,416 15,416 — 986 14,430
Liabilities:
Deposits (excluding demand deposits) $ 2,934,221 $ 2,947,287 $ — $ 2,947,287 $ —
Securities sold under agreements to repurchase 115,372 115,372 — 115,372 —
FHLB advances 70,411 72,770 — 72,770 —
Convertible notes payable, net 18,696 20,804 — 20,804 —
Subordinated debt, net 49,666 49,750 — 49,750 —
Accrued interest payable 2,592 2,592 — 2,592 —


			Estimated Fair Value
	Carrying Value		Total		Level 1		Level 2		Level 3
September 30, 2022
Assets:
Cash and cash equivalents	$	325,039	$	325,039	$	325,039	$	—	$	—
Securities held-to-maturity	39,148		34,096		—		34,096		—
Loans (excluding impaired loans)	5,515,103		5,375,203		—		—		5,375,203
Restricted equity securities	34,877		34,877		—		34,877		—
Accrued interest receivable	24,964		24,964		—		2,415		22,549

Liabilities:
Deposits (excluding demand deposits)	$	3,654,121	$	3,614,346	$	—	$	3,614,346	$	—
Securities sold under agreements to repurchase	51,256		51,256		—		51,256		—
FHLB advances	310,872		310,872		—		310,872		—

Convertible notes payable, net	5,317		5,340		—		5,340		—
Subordinated debt, net	74,780		83,795		—		83,795		—
Accrued interest payable	3,073		3,073		—		3,073		—

December 31, 2021
Assets:
Cash and cash equivalents	$	668,462	$	668,462	$	668,462	$	—	$	—
Securities held-to-maturity	18,007		18,599		—		18,599		—
Loans (excluding impaired loans)	4,003,712		3,949,719		—		—		3,949,719
Restricted equity securities	16,239		16,239		—		16,239		—
Accrued interest receivable	14,761		14,761		—		1,131		13,630

Liabilities:
Deposits (excluding demand deposits)	$	3,101,123	$	3,106,464	$	—	$	3,106,464	$	—
Securities sold under agreements to repurchase	92,093		92,093		—		92,093		—
FHLB advances	40,000		41,514		—		41,514		—

Convertible notes payable, net	19,442		21,564		—		21,564		—
Subordinated debt, net	50,016		52,264		—		52,264		—
Accrued interest payable	2,369		2,369		—		2,369		—

NOTE ~~14.~~16 - Segment Information

Our operations are conducted through 2two 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

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interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

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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 loan losses and ~~non-interest~~noninterest income. Noninterest expenses are allocated to each operating segment. Provision for loan 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			Banking		Mortgage Operations		Corporate		Total Segments
2021
2022										2022
Summary of Operations	Summary of Operations									Summary of Operations
Net interest income (expense)		$	39,297	$	1,810	$	(1,142)	$	39,965
Net interest income										Net interest income	$	68,159	$	1,492	$	(1,165)	$	68,486

Provision for (benefit from) loan losses		3,543		(43)		—		3,500
Provision for loan losses										Provision for loan losses	3,223		527		—		3,750

Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	3,471		—		—		3,471		Service charges on deposit accounts	4,807		—		—		4,807
Credit and debit card fees	Credit and debit card fees	2,472		—		—		2,472		Credit and debit card fees	3,103		—		—		3,103
Trust and investment advisory fees	Trust and investment advisory fees	1,974		—		—		1,974		Trust and investment advisory fees	1,552		—		—		1,552
(Loss) income from mortgage banking services, net		(406)		20,557		—		20,151
Income from mortgage banking services, net										Income from mortgage banking services, net	(701)		14,486		—		13,785
Other noninterest income	Other noninterest income	616		—		—		616		Other noninterest income	1,706		—		—		1,706
Total noninterest income	Total noninterest income	8,127		20,557		—		28,684		Total noninterest income	10,467		14,486		—		24,953

Noninterest expense:	Noninterest expense:									Noninterest expense:
Salary and employee benefits	Salary and employee benefits	22,604		13,166		291		36,061		Salary and employee benefits	23,210		8,922		376		32,508
Occupancy and equipment	Occupancy and equipment	5,854		787		2		6,643		Occupancy and equipment	7,190		988		38		8,216
Other noninterest expenses	Other noninterest expenses	8,361		2,915		590		11,866		Other noninterest expenses	11,146		3,314		364		14,824
Total noninterest expense	Total noninterest expense	36,819		16,868		883		54,570		Total noninterest expense	41,546		13,224		778		55,548

Income (loss) before income taxes	Income (loss) before income taxes	$	7,062	$	5,542	$	(2,025)	$	10,579	Income (loss) before income taxes	$	33,857	$	2,227	$	(1,943)	$	34,141

Other Information	Other Information									Other Information
Depreciation expense	Depreciation expense	$	1,516	$	21	$	—	$	1,537	Depreciation expense	$	1,839	$	81	$	—	$	1,920
Identifiable assets	Identifiable assets	$	5,070,287	$	578,475	$	34,323	$	5,683,085	Identifiable assets	$	6,315,984	$	693,473	$	43,460	$	7,052,917

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Banking Mortgage Operations Corporate Total Segments
2020
Summary of Operations
Net interest income (expense) $ 33,452 $ 1,991 $ (1,105) $ 34,338
Provision for (benefit from) loan losses 4,940 (140) — 4,800
Noninterest income:
Service charges on deposit accounts 2,428 — — 2,428
Credit and debit card fees 2,107 — — 2,107
Trust and investment advisory fees 1,282 — — 1,282
(Loss) income from mortgage banking services, net (400) 35,935 — 35,535
Other noninterest income 1,388 (21) — 1,367
Total noninterest income 6,805 35,914 — 42,719
Noninterest expense:
Salary and employee benefits 22,910 14,734 305 37,949
Occupancy 5,662 700 3 6,365
Other noninterest expenses 6,481 3,410 168 10,059
Total noninterest expense 35,053 18,844 476 54,373
Income (loss) before income taxes $ 264 $ 19,201 $ (1,581) $ 17,884
Other Information
Depreciation expense $ 1,463 $ (7) $ — $ 1,456
Identifiable assets $ 4,272,570 $ 581,128 $ 35,059 $ 4,888,757


	Banking		Mortgage Operations		Corporate		Total Segments
2021
Summary of Operations
Net interest income	$	39,297	$	1,810	$	(1,142)	$	39,965

Provision for (benefit from) loan losses	3,543		(43)		—		3,500

Noninterest income:
Service charges on deposit accounts	3,471		—		—		3,471
Credit and debit card fees	2,472		—		—		2,472
Trust and investment advisory fees	1,974		—		—		1,974
Income from mortgage banking services, net	(406)		20,557		—		20,151
Other noninterest income	616		—		—		616
Total noninterest income	8,127		20,557		—		28,684

Noninterest expense:
Salary and employee benefits	22,604		13,166		291		36,061
Occupancy	5,854		787		2		6,643
Other noninterest expenses	8,361		2,915		590		11,866
Total noninterest expense	36,819		16,868		883		54,570

Income (loss) before income taxes	$	7,062	$	5,542	$	(2,025)	$	10,579

Other Information
Depreciation expense	$	1,516	$	21	$	—	$	1,537
Identifiable assets	$	5,070,287	$	578,475	$	34,323	$	5,683,085

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


		Banking		Mortgage Operations		Corporate		Total Segments			Banking		Mortgage Operations		Corporate		Total Segments
2021
2022										2022
Summary of Operations	Summary of Operations									Summary of Operations
Net interest income (expense)		$	112,517	$	5,674	$	(3,409)	$	114,782
Net interest income										Net interest income	$	167,606	$	5,193	$	(4,443)	$	168,356

Provision for (benefit from) loan losses		2,124		(374)		—		1,750
Provision for loan losses										Provision for loan losses	9,853		2,597		—		12,450

Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	8,659		—		—		8,659		Service charges on deposit accounts	13,111		—		—		13,111
Credit and debit card fees	Credit and debit card fees	7,140		—		—		7,140		Credit and debit card fees	8,508		—		—		8,508
Trust and investment advisory fees	Trust and investment advisory fees	5,871		—		—		5,871		Trust and investment advisory fees	5,408		—		—		5,408
(Loss) income from mortgage banking services, net		(1,516)		69,660		—		68,144
Income from mortgage banking services, net										Income from mortgage banking services, net	(1,972)		41,989		—		40,017
Other noninterest income	Other noninterest income	5,041		(7)		—		5,034		Other noninterest income	3,913		(9)		—		3,904
Total noninterest income	Total noninterest income	25,195		69,653		—		94,848		Total noninterest income	28,968		41,980		—		70,948

Noninterest expense:	Noninterest expense:									Noninterest expense:
Salary and employee benefits	Salary and employee benefits	70,111		42,238		780		113,129		Salary and employee benefits	69,880		30,854		1,247		101,981
Occupancy and equipment	Occupancy and equipment	17,535		2,329		3		19,867		Occupancy and equipment	19,937		2,826		39		22,802
Other noninterest expenses	Other noninterest expenses	22,072		9,237		2,069		33,378		Other noninterest expenses	46,203		10,439		2,258		58,900
Total noninterest expense	Total noninterest expense	109,718		53,804		2,852		166,374		Total noninterest expense	136,020		44,119		3,544		183,683

Income (loss) before income taxes	Income (loss) before income taxes	$	25,870	$	21,897	$	(6,261)	$	41,506	Income (loss) before income taxes	$	50,701	$	457	$	(7,987)	$	43,171

Other Information	Other Information									Other Information
Depreciation expense	Depreciation expense	$	4,428	$	288	$	—	$	4,716	Depreciation expense	$	5,011	$	294	$	—	$	5,305
Identifiable assets	Identifiable assets	$	5,070,287	$	578,475	$	34,323	$	5,683,085	Identifiable assets	$	6,315,984	$	693,473	$	43,460	$	7,052,917

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		Banking		Mortgage Operations		Corporate		Total Segments			Banking		Mortgage Operations		Corporate		Total Segments
2020
2021										2021
Summary of Operations	Summary of Operations									Summary of Operations
Net interest income (expense)		$	95,789	$	5,750	$	(2,383)	$	99,156
Net interest income										Net interest income	$	112,517	$	5,674	$	(3,409)	$	114,782

Provision for (benefit from) loan losses	Provision for (benefit from) loan losses	15,216		(116)		—		15,100		Provision for (benefit from) loan losses	2,124		(374)		—		1,750

Noninterest income:	Noninterest income:									Noninterest income:
Service charges on deposit accounts	Service charges on deposit accounts	7,042		—		—		7,042		Service charges on deposit accounts	8,659		—		—		8,659
Credit and debit card fees	Credit and debit card fees	5,865		—		—		5,865		Credit and debit card fees	7,140		—		—		7,140
Trust and investment advisory fees	Trust and investment advisory fees	3,222		—		—		3,222		Trust and investment advisory fees	5,871		—		—		5,871
(Loss) income from mortgage banking services, net		(1,755)		91,741		—		89,986
Income from mortgage banking services, net										Income from mortgage banking services, net	(1,516)		69,660		—		68,144
Other noninterest income	Other noninterest income	3,020		(21)		—		2,999		Other noninterest income	5,041		(7)		—		5,034
Total noninterest income	Total noninterest income	17,394		91,720		—		109,114		Total noninterest income	25,195		69,653		—		94,848

Noninterest expense:	Noninterest expense:									Noninterest expense:
Salary and employee benefits	Salary and employee benefits	63,755		37,439		804		101,998		Salary and employee benefits	70,111		42,238		780		113,129
Occupancy	Occupancy	16,840		2,407		4		19,251		Occupancy	17,535		2,329		3		19,867
Other noninterest expenses	Other noninterest expenses	18,494		8,853		542		27,889		Other noninterest expenses	22,072		9,237		2,069		33,378
Total noninterest expense	Total noninterest expense	99,089		48,699		1,350		149,138		Total noninterest expense	109,718		53,804		2,852		166,374

(Loss) income before income taxes		$	(1,122)	$	48,887	$	(3,733)	$	44,032
Income (loss) before income taxes										Income (loss) before income taxes	$	25,870	$	21,897	$	(6,261)	$	41,506

Other Information	Other Information									Other Information
Depreciation expense	Depreciation expense	$	4,061	$	292	$	—	$	4,353	Depreciation expense	$	4,428	$	288	$	—	$	4,716
Identifiable assets	Identifiable assets	$	4,272,570	$	581,128	$	35,059	$	4,888,757	Identifiable assets	$	5,070,287	$	578,475	$	34,323	$	5,683,085

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NOTE ~~15.~~17 - 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.

Operating leases:

We lease certain facilities and equipment under non-cancelable operating leases. Operating lease amounts exclude renewal option periods, property taxes, insurance, and maintenance expenses on leased properties. Our facility leases typically provide for rental adjustments for increases in base rent (up to specific limits), property taxes, insurance, and general property maintenance that would be recorded in rent expense. Rent expense was ~~$1,641~~$2,063 and ~~$1,396~~$1,641 for the three months ended September 30, 2022 and 2021, ~~and 2020, respectively,~~respectively. Rent expense was $5,839 and $4,955 ~~and $4,926~~ for the nine months ended September 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~Future minimum payments under all existing operating lease commitments are as follows:~~

Remainder 2021 $ 6,721
2022 6,827
2023 6,529
2024 6,073
2025 3,831
2026 2,376
Thereafter 5,003
Total operating leases $ 37,360

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, ~~2021~~2022 and December 31, ~~2020,~~2021, commitments included the funding of fixed-rate loans totaling ~~$116,455~~$215,851 and ~~$95,448~~$144,701 and variable-rate loans totaling ~~$657,403~~$1,676,927 and ~~$602,142,~~$987,584, respectively. The fixed-rate loan commitments have interest rates ranging from ~~0.90%~~1.00% to 18.00% at September 30, ~~2021~~2022 and ~~0.90%~~0.85% to 18.00% at December 31, ~~2020,~~2021, and maturities ranging from 1 month to 2415 years at September 30, ~~2021~~2022 and from 1 month to 1026 years at December 31, ~~2020.~~

2021.

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, ~~2021~~2022 and December 31, ~~2020,~~2021, our standby letters of credit commitment totaled ~~$7,807~~$17,950 and ~~$16,664,~~$11,729, respectively.

MPF Master Commitments:

The Bank has previously 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. ~~The term~~We entered into a new agreement in the third quarter of ~~these Commitments is through December 31, 2021.~~2022. As of September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, the Bank considered the amount of any of its liability for the present value of the credit enhancement fees less any expected losses in the mortgages delivered under the Commitments to be immaterial, and had not recorded a liability and offsetting receivable. As of September 30, ~~2021~~2022 and December 31, ~~2020~~2021, the maximum potential amount of future payments that the Bank would have been required to make under the Commitments was ~~$13,094~~$12,884 and ~~$13,029~~$12,870, respectively. Under the Commitments, the Bank agrees to service the loans and therefore, is responsible for any necessary

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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

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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.

~~Trust Administration Litigation~~:

On May 18, 2021, the 2 remainder beneficiaries of the Dorothy S. Harroun Irrevocable Trust (“Trust”), Dennis Harroun and Douglas Harroun (the “Remainder Beneficiaries”), filed a claim in the Santa Fe County, New Mexico District Court, against the Bank as trustee of the Trust, in the form of a counterclaim related to a petition for guidance and approval of trust distributions filed by the Bank on March 24, 2021 in the same court (the “Guidance Case”). The Remainder Beneficiaries’ claim alleges that the Bank breached its fiduciary duty and impartiality with respect to 2020 distributions made to the Trust’s current beneficiary, Dorothy Harroun (“Dorothy”). The Remainder Beneficiaries seek restitution and surcharge against the Bank for the full amount of the 2020 distributions, which were approximately $19.7 million, plus a reasonable rate of return thereon, as well as legal fees, costs, and expenses and the removal of the Bank as trustee of the Trust. The Bank believes that the Remainder Beneficiaries’ claims are without merit and it intends to vigorously defend against all claims asserted.

On June 14, 2021, the Bank was removed as Trustee of the Dorothy S. Harroun Revocable Trust (“Revocable Trust”). The Revocable Trust held proceeds of the 2020 distributions, and, after payment of federal and state taxes related to the 2020 distributions, the Revocable Trust still had approximately $11.8 million of the 2020 distributions intact (“Funds”). On June 16, 2021, the Bank filed an interpleader action in the Santa Fe County, New Mexico District Court (“Interpleader Case”). The Interpleader Case petition requested that the Funds be paid into the registry of the Court pending final judgment in the Guidance Case. On September 30, 2021, the Court in the Interpleader Case ordered that the Funds be transferred to the Revocable Trust successor trustee, First American Bank, and that no party may make demand for distributions thereof without further Order of the Court. The Funds have been transferred to First American Bank. Dorothy and the Remainder Beneficiaries have each filed answers and counterclaims in the Interpleader Case contesting the relief sought by the Bank, and alleging that the Bank breached its fiduciary duty and impartiality as between the beneficiaries. The Bank believes that the counterclaims in the Interpleader Action are without merit and it intends to vigorously defend against all claims asserted.

Overdraft Fee Litigation:

On September 10, 2021, Karen McCollam 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~~alleged that the Bank improperly charged overdraft fees where a transaction was initially authorized on sufficient funds but later settled negative due to intervening transactions. The complaint ~~asserts~~asserted a claim for breach of contract, which ~~incorporates~~incorporated the implied duty of good faith and fair dealing, and a claim for violations of the Colorado Consumer Protection Act. Plaintiff ~~seeks~~sought to represent a proposed class of all the Bank’s checking account customers who were allegedly charged overdraft fees on transactions that did not overdraw their checking account. Plaintiff ~~seeks~~sought unspecified restitution, actual and statutory damages, costs, attorneys’ fees, pre-judgment interest, and other relief as the Court ~~deems~~deemed proper for herself and the putative class. On September 24, 2021, the Bank filed a motion to dismiss the amended complaint. The Bank’s motion to dismiss ~~has been fully pled, and is before~~was granted on April 15, 2022. Plaintiff filed a notice of appeal on May 16, 2022. The parties thereafter reached agreement on a confidential settlement that will result in the ~~Court for decision. The Bank believes that the lawsuit is without merit and it intends to vigorously defend against all claims asserted.~~case being dismissed with prejudice.

On September 13, 2021, Samantha Besser filed ~~an amended~~a putative class action amended complaint against the Bank in the United States District Court for the District of Colorado. The amended complaint alleges that the Bank improperly charged multiple insufficient funds or overdraft fees when a merchant resubmits a rejected payment request. The complaint asserts claims for breach of contract, which incorporates the implied duty of good faith and fair dealing. Plaintiff seeks to represent a proposed class of all the Bank’s checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiff seeks unspecified restitution, actual and statutory damages, costs, attorneys’ fees, pre-judgment interest, and other relief as the Court deems proper for herself and the purported class. On September 27, 2021, the

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Bank filed a motion to dismiss the amended complaint. The motion to dismiss has been fully pled and is before the Court for decision. The Bank believes that the lawsuit is without merit, and it intends to vigorously defend against all claims asserted.

Wire Transfer Litigation:

On November 5, 2021, urban-gro, Inc. (“UGI”) filed a complaint against the Bank in the Boulder County, Colorado District Court. The complaint alleges that the Bank failed to follow contractual, internal, and industry-standard procedures with respect to six purportedly fraudulent and unauthorized wire transfers, totaling approximately $5.1 million, from UGI’s deposit account at the Bank to domestic third-party beneficiaries (“Transactions”). UGI seeks actual damages, statutory damages for civil theft, costs, attorneys’ fees, pre- and post-judgment interest, and other relief as the Court deems proper.

On November 18, 2021, the Bank filed responsive pleadings (“Answer”) setting forth its position that: 1) the Transactions were duly authorized by UGI; 2) the Bank upheld the contractual security procedures with UGI for wire transfers, and followed its own industry-standard internal processes and procedures in carrying out those security procedures; 3) UGI is solely liable for any fraud that might have been perpetrated due to an e-mail account compromise of one or more of its employees; 4) UGI breached its contractual obligations with the Bank by failing to timely discover and report any impropriety as to the Transactions to the Bank; and 5) the Bank, therefore, is not liable for the unrecovered balance.

The Bank believes that UGI’s claims are without merit and it intends to vigorously defend against all claims asserted. At this time, the Bank is unable to reasonably estimate the outcome of this litigation.

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.

Pandemic:

~~COVID-19~~:

On March 11, 2020, the World Health Organization announced that the COVID-19 outbreak was deemed a pandemic, and on March 13, 2020, the President declared the ongoing COVID-19 pandemic of sufficient magnitude to warrant an emergency declaration. The ~~operations and business results~~impact of the ~~Company could be materially~~coronavirus (COVID-19) pandemic is fluid and continues to evolve, adversely ~~affected, including~~affecting many of our clients. While vaccine availability and uptake has increased, the ~~estimate of the allowance for loan losses. The extent to which the coronavirus may~~longer-term macro-economic effects on global supply chains, inflation, labor shortages and wage increases continue to impact many industries. The ultimate extent of the impact of the COVID-19 pandemic on our business, ~~activity or investment~~financial condition and results ~~will depend on future developments, which are highly~~of operations is currently uncertain and cannot be predicted, including new information which may emerge concerning the continued severity of the coronavirus and variants, and the actions required to contain the coronavirus or treat its impact, among others.

will

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depend on various developments and other factors, including increases in new COVID-19 cases, hospitalizations and deaths leading to additional government imposed restrictions; refusals to receive the vaccines along with concerns related to new strains of the virus; supply chain issues remaining unresolved longer than anticipated; labor shortages; decreases in consumer confidence and spending; and rising geopolitical tensions.

Item 2.

~~MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND~~

~~RESULTS OF OPERATIONS OF FIRSTSUN~~

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, Logia Portfolio Management, LLC and Sunflower ~~Bank.~~Bank (the “Bank”).

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, ~~2020~~2021 included in ~~our proxy statement/prospectus dated August 10,~~the 2021 ~~(the “Prospectus”)~~Form 10-K that we filed with the SEC on ~~August 12, 2021, pursuant to Securities Act Rule 424(b)(3) in connection with our proposed merger with Pioneer Bancshares, Inc. and discussed below.~~March 25, 2022. 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 ~~FirstSun’s~~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 43 of this report.

General Overview

FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which 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 and Logia Portfolio Management, LLC.

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 ~~Kansas,~~Texas, Colorado, Arizona, New Mexico, ~~Texas~~ and ~~Arizona~~Kansas and mortgage capabilities in 43 states. Our product line includes commercial loans, commercial real estate loans, residential mortgage and other consumer loans, and a variety of commercial and consumer deposit products, including ~~noninterest bearing~~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 ~~currently~~ evaluated by management. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

For additional information on our segments, see
Note 16 - Segment Information included in our consolidated financial statements included elsewhere in this report.

~~Proposed~~

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Completion of Merger with Pioneer Bancshares, Inc.

On ~~May 11, 2021,~~April 1, 2022, we ~~entered into an Agreement and Plan of~~completed our previously announced Merger ~~(the “merger agreement”)~~ with Pioneer Bancshares, Inc. (“Pioneer”)~~. Under the merger agreement, a wholly-owned subsidiary of FirstSun will merge~~, pursuant to which Pioneer was merged with and into ~~Pioneer,~~FirstSun, with ~~Pioneer remaining~~FirstSun continuing as the surviving entity, and becoming a wholly-owned subsidiary of FirstSun (the “merger”). This surviving entity, as soon as reasonably practicable following the merger and as part of a single integrated transaction, will merge with and into FirstSun (the “second step merger,” and together with the merger, the “mergers”). Immediately following the completion of the second step merger or at such later time as the parties may mutually agree, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, ~~will merge~~was merged with and into ~~FirstSun’s wholly-owned subsidiary,~~ Sunflower Bank, ~~National Association, a national banking association,~~ with Sunflower Bank continuing as the surviving bank. IfWith the ~~merger~~acquisition, we acquired 19 branches in Texas. The results for Pioneer are reflected in our results of operations and financial condition beginning April 1, 2022. Further information is ~~completed, each outstanding share~~presented in Note 2 - Merger with Pioneer Bancshares, Inc. included in our consolidated financial statements included elsewhere in this report.

For the third quarter of ~~Pioneer common stock will~~2022, we incurred no expenses relating to the Merger. For the nine months ended September 30, 2022, we incurred $18.8 million ($0.63 diluted earnings per share) of expenses relating to the Merger. For the three and nine months ended September 30, 2021, we incurred $0.7 million and $2.0 million, respectively ($0.04 and $0.09 diluted earnings per share) of expenses relating to the Merger.

Pandemic Update

Our business has been, and continues to be, ~~converted into~~impacted by the right to receive 1.0443 shares of FirstSun common stock, plus cash in lieu of fractional shares. The combined entity is expected to have total assets that exceed $7 billion. Pioneer shareholders voted to approve the merger at a special meeting of shareholders held on September 16, 2021. The completioneffects of the ~~merger is subject~~COVID-19 pandemic. There remains many uncertainties related to COVID-19 including, among other things, ~~receipt~~the ongoing impact to our customers, employees and vendors; the impact to the financial services and banking industry; and the impact to the economy as a whole as well as the effect of ~~all necessary regulatory approvals. We currently expect~~actions taken, or that may yet be taken, or inaction by governmental authorities to mitigate both the ~~merger to close during~~economic and health-related effects of COVID-19.

Financial Summary

Net income totaled $26.5 million, or $1.04 per diluted share, for the ~~fourth~~third quarter of 2022, compared to $8.7 million, or $0.46 per diluted share, for the third quarter of 2021. The return on average assets was 1.52% for the third quarter of 2022, compared to 0.62% for the third quarter of 2021, and the return on average equity was 14.50% for the third quarter of 2022, compared to 6.68% for the third quarter of 2021.

Net income totaled $34.6 million, or $1.49 per diluted share, for the nine months ended September 30, 2022, compared to $34.3 million, or $1.83 per diluted share, for the same period in 2021. The return on average assets was 0.70% for the nine months ended September 30, 2022, compared to 0.85% for the same period in 2021, and the return on average equity was 6.90% for the nine months ended September 30, 2022, compared to 8.95% for the same period in 2021.

Net income, return on average assets and return on average equity were reduced by Merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium upon the closing of the Merger. The reduction to net income, return on average assets and return on average equity for the nine months ended September 30, 2022, resulting from the aggregate of Merger-related expenses and the provision for loan losses related to certain non-impaired loans acquired from Pioneer at a premium, were $17.0 million, 0.34%, and 3.39% respectively. The reduction to net income, return on average assets and return on average equity for the nine months ended September 30, 2021, resulting from Merger-related expenses, were $1.7 million, 0.04%, and 0.43%, respectively. The reduction to net income, return on average assets and return on average equity for the third quarter of 2021, resulting from Merger-related expenses, were $0.6 million, 0.04%, and 0.45%, respectively.

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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)	2022			2021			2022			2021			2021
Income Statement:
Net interest income	$	68,486		$	39,965		$	168,356		$	114,782		$	155,233
Taxable equivalent adjustment	1,236			924			3,841			4,419			5,755
Net interest income - fully tax equivalent ("FTE") basis (non-GAAP) (3)	$	69,722		$	40,889		$	172,197		$	119,201		$	160,988
Provision for loan losses	$	3,750		$	3,500		$	12,450		$	1,750		$	3,000
Noninterest income	$	24,953		$	28,684		$	70,948		$	94,848		$	124,244
Noninterest expense	$	55,548		$	54,570		$	183,683		$	166,374		$	224,635
Net income	$	26,513		$	8,728		$	34,612		$	34,347		$	43,164
Per Common Share Data:
Weighted average diluted common shares	25,494,315			18,770,681			23,281,933			18,762,497			18,770,785
Net income (basic)	$	1.07		$	0.48		$	1.53		$	1.87		$	2.36
Net income (diluted)	$	1.04		$	0.46		$	1.49		$	1.83		$	2.30
Cash dividends	$	—		$	—		$	—		$	—		$	—
Dividend payout ratio	—		%	—		%	—		%	—		%	—		%
Book value	$	30.14		$	28.38		$	30.14		$	28.38		$	28.56
Tangible common book value (non-GAAP) (3)	$	25.67		$	26.10		$	25.67		$	26.10		$	26.31
Performance Ratios:
Return on average assets	1.52		%	0.62		%	0.70		%	0.85		%	0.79		%
Return on average stockholders' equity	14.50		%	6.68		%	6.90		%	8.95		%	8.37		%
Return on tangible common equity (non-GAAP) (3)	17.05		%	7.53		%	7.58		%	9.81		%	9.17		%
Return on average tangible common equity (non-GAAP) (3)	17.59		%	7.49		%	8.35		%	9.99		%	9.35		%
Net interest margin	4.26		%	3.01		%	3.66		%	3.00		%	3.34		%
Efficiency ratio (1)	59.45		%	79.49		%	76.76		%	79.37		%	80.38		%
Net charge-offs (recoveries) to average loans outstanding	0.01		%	(0.15)		%	0.01		%	0.06		%	0.09		%
Allowance for loan losses to loans	1.07		%	1.26		%	1.07		%	1.26		%	1.18		%
Nonperforming loans to total loans (2)	0.76		%	0.97		%	0.76		%	0.97		%	0.86		%
Balance Sheet:
Total loans, excluding loans held-for-sale	$	5,556,686		$	3,803,981		$	5,556,686		$	3,803,981		$	4,037,123
Total assets	$	7,052,917		$	5,683,085		$	7,052,917		$	5,683,085		$	5,666,814
Total deposits	$	5,760,418		$	4,857,985		$	5,760,418		$	4,857,985		$	4,854,948
Total borrowed funds	$	390,969		$	109,184		$	390,969		$	109,184		$	109,458
Total stockholders' equity	$	750,653		$	519,921		$	750,653		$	519,921		$	524,038
Capital Ratios:
Total risk-based capital to risk-weighted assets	12.06		%	12.55		%	12.06		%	12.55		%	11.76		%
Tier 1 risk-based capital to risk-weighted assets	9.99		%	10.32		%	9.99		%	10.32		%	9.70		%
Common Equity Tier 1 (CET 1) to risk-weighted assets	9.99		%	10.32		%	9.99		%	10.32		%	9.70		%
Tier 1 leverage capital to average assets	9.55		%	8.19		%	9.55		%	8.19		%	8.24		%
Average equity to average assets	10.52		%	9.33		%	10.13		%	9.50		%	9.43		%
Tangible common equity to tangible assets (non-GAAP) (3)	9.21		%	8.48		%	9.21		%	8.48		%	8.58		%
Nonfinancial Data:
Full-time equivalent employees	1,155			1,026			1,155			1,026			1,042
Banking branches	72			52			72			52			53
(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, accrual troubled debt restructurings (“TDR”), 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.

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Non-GAAP Financial Measures and Reconciliations

The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the three and nine months ended September 30, 2022, 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)	2022			2021			2022			2021			2021






Tangible common book value:
Total stockholders' equity (GAAP)	$	750,653		$	519,921		$	750,653		$	519,921		$	524,038
Less: Goodwill and other intangible assets
Goodwill	(93,483)			(33,050)			(93,483)			(33,050)			(33,050)
Other intangible assets	(17,825)			(8,605)			(17,825)			(8,605)			(8,250)
Total tangible stockholders' equity (non-GAAP)	$	639,345		$	478,266		$	639,345		$	478,266		$	482,738
Total common shares outstanding	24,906,032			18,321,659			24,906,032			18,321,659			18,346,288
Book value per common share (GAAP)	$	30.14		$	28.38		$	30.14		$	28.38		$	28.56
Tangible common book value (non-GAAP)	$	25.67		$	26.10		$	25.67		$	26.10		$	26.31
Return on tangible common equity:
Net Income (GAAP)	$	26,513		$	8,728		$	34,612		$	34,347		$	43,164
Add: Intangible amortization, net of tax	739			280			1,736			839			1,119
Tangible net income (non-GAAP)	$	27,252		$	9,008		$	36,348		$	35,186		$	44,283
Tangible stockholders’ equity (non-GAAP) (see above)	$	639,345		$	478,266		$	639,345		$	478,266		$	482,738
Return on tangible common equity	17.05		%	7.53		%	7.58		%	9.81		%	9.17		%
Return on average tangible common equity:
Tangible net income (non-GAAP) (see above)	$	27,252		$	9,008		$	36,348		$	35,186		$	44,283
Total average stockholders' equity (GAAP)	$	731,549		$	522,909		$	668,991		$	511,833		$	515,773
Less: Average goodwill and other intangible assets
Average goodwill	(93,483)			(33,050)			(73,560)			(33,050)			(33,050)
Average other intangible assets	(18,255)			(8,803)			(15,317)			(9,139)			(8,964)
Total average tangible stockholders' equity (non-GAAP)	$	619,811		$	481,056		$	580,114		$	469,644		$	473,759
Return on average tangible common equity	17.59		%	7.49		%	8.35		%	9.99		%	9.35		%
Net interest margin:
Net interest income (GAAP)	$	68,486		$	39,965		$	168,356		$	114,782		$	155,233
Taxable equivalent adjustment	1,236			924			3,841			4,419			5,755
Net interest income - FTE basis (non-GAAP)	$	69,722		$	40,889		$	172,197		$	119,201		$	160,988
Average earning assets	$	6,434,653		$	5,319,682		$	6,127,755		$	5,101,821		$	5,180,650
Net interest margin - FTE basis (non-GAAP)	4.31		%	3.10		%	3.75		%	3.11		%	3.11		%

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	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)	2022			2021			2022			2021			2021
Tangible common equity to tangible assets:
Total assets (GAAP)	$	7,052,917		$	5,683,085		$	7,052,917		$	5,683,085		$	5,666,814
Less: Goodwill and other intangible assets
Goodwill	(93,483)			(33,050)			(93,483)			(33,050)			(33,050)
Other intangible assets	(17,825)			(8,605)			(17,825)			(8,605)			(8,250)
Total tangible assets (non-GAAP)	$	6,941,609		$	5,641,430		$	6,941,609		$	5,641,430		$	5,625,514
Tangible common equity (non-GAAP) (see above)	$	639,345		$	478,266		$	639,345		$	478,266		$	482,738
Tangible equity to tangible assets (non-GAAP)	9.21		%	8.48		%	9.21		%	8.48		%	8.58		%

Segments

Banking

Three ~~Months Ended~~months ended September 30, ~~2021~~2022 and ~~2020~~2021

~~For the third quarter of 2021,~~Income before income ~~before~~ taxes ~~from our Banking segment~~ increased $26.8 million to ~~$7.1 million, compared to income of $0.3~~$33.9 million for the third quarter of ~~2020. This~~2022, from $7.1 million for the same period in 2021. The period over period increase was primarily driven by ~~increases~~an increase in ~~our~~ net interest income ~~of $5.8~~and noninterest income, partially offset by an increase in noninterest expense. Net interest income increased $28.9 million to ~~$39.3~~$68.2 million ~~during~~for the third quarter of ~~2021,~~2022, compared to ~~$33.5~~$39.3 million ~~during~~for the ~~third quarter of 2020.~~same period in 2021. The increase in net interest income was primarily due to organic growth in ~~interest income on loans held-for-investment due to an improving~~our loan mix, fees from loan prepayments, and overall growth in average loan balances. Segment income also increased as a result of a $1.4 million decrease in our provision for loan losses, decreasing from a $4.9 million provision in the third quarter of 2020 to a $3.5 million provision in the third quarter of 2021. The decrease in provision expense recorded in the third quarter of 2021 was primarily due to improving economic conditions, partially offset byportfolios, an increase in ~~commercial loans during~~interest earning assets resulting from the ~~period. This~~Pioneer Merger, and an increase in commercial loans was partially offset by a reduction of PPP loans for which no allowance was required. Noninterest income increased to $8.1 million in the third quarter of 2021, compared to $6.8 million in the third quarter of 2020 primarily resulting from increases in service charges on deposit accounts and trust and investment advisory fees. Noninterest expense increased by $1.8 million to $36.8 million for the third quarter of 2021 primarily due to our continued growth.

~~Nine Months Ended September 30, 2021 and 2020~~

net interest margin. Identifiable assets for our Banking segment grew by ~~$0.8~~$1.2 billion to ~~$5.1~~$6.3 billion at September 30, ~~2021~~2022 from ~~$4.3~~$5.1 billion for the same period in ~~2020.~~2021. The growth in identifiable assets was primarily driven by organic growth in ~~cash and cash equivalents and~~ our loan ~~portfolio.~~ portfolios and the assets acquired in the Pioneer Merger.

Nine months ended September 30, 2022 and 2021

Income ~~(loss)~~ before income taxes increased ~~$27.0~~$24.8 million to ~~$25.9~~$50.7 million for the nine months ended September 30, ~~2021,~~2022, from ~~a loss of $1.1~~$25.9 million for the same period in 2021. The period over period increase was primarily driven by an increase in net interest income and noninterest income, partially offset by an increase in provision for loan losses and noninterest expense. Net interest income increased $55.1 million to $167.6 million for the nine months ended September 30, 2020. The period over period increase was driven by a $13.1 million decrease in our provision for loan losses, decreasing from a $15.2 million provision in the nine months ended September 30, 2020 to a $2.1 million provision in the nine months ended September 30, 2021. This reduction in the provision was due to favorable changes to certain environmental factors as a result of improved economic conditions and the performance of our portfolio. Noninterest income increased $7.8 million to $25.2 million in the nine months ended September 30, 2021,2022 compared to ~~$17.4~~$112.5 million infor the same period in ~~2020,~~2021. The increase in net interest income was primarily due to organic growth in our loan portfolios, an increase in interest earning assets resulting from ~~increases~~the Pioneer Merger, and an increase in ~~trust and investment advisory fee income, treasury management service fees, and customer accommodation~~net interest ~~rate swap fees and changes in fair value.~~margin. Noninterest expense increased ~~$10.6~~$26.3 million to ~~$109.7~~$136.0 million for the nine months ended September 30, ~~2021~~2022, compared to ~~$99.1~~$109.7 million for the ~~nine months ended September 30, 2020.~~same period in 2021. The increase in noninterest expense was primarily due to ~~our continued growth, including~~$18.8 million ($0.63 diluted earnings per share) in Merger-related expenses resulting from the Pioneer Merger. Provision for loan losses increased ~~salary and employee benefits associated with headcount increases from an expanding sales force, as well as our expanded operations in certain markets, including Arizona and Texas.~~

~~Mortgage Operations~~

~~Three Months Ended September 30, 2021 and 2020~~

For the third quarter of 2021, income before taxes from our Mortgage Operations segment decreased to $5.5 million, compared to $19.2 million for the third quarter of 2020. This decrease was primarily due to a $15.6 million decline in net gain on sales and fees from loan originations, including changes in the fair value of the held-for-sale portfolio, net of hedging activity, as total loan originations during the third quarter of 2021 declined by $177.8 million, or 25.0%, to $532.7 million compared to the same period in 2020. Noninterest income from mortgage banking services decreased $15.4$7.7 million to $20.6 million during the third quarter of 2021, compared to $35.9 million during the third quarter of 2020. Further discussion on the components of income from mortgage banking services is included under the subheading “Noninterest Income.” Noninterest expense for the third quarter of 2021 was $16.9 million, compared to $18.8 million for the same period in 2020. While variable compensation related to loan originations declined, overall salaries and employee benefits expenses remained relatively flat period over period as a result of an increase in headcount. We are investing in our workforce to grow the level of loan activities for home purchase transactions as the level of overall loan refinancing transactions has declined period over period.

~~Nine Months Ended September 30, 2021 and 2020~~

~~Income before income taxes from our Mortgage Operations segment decreased to $21.9~~$9.9 million for the nine months ended September 30, ~~2021,~~2022 compared to ~~$48.9~~$2.1 million for the ~~nine~~same period in 2021. The increase in the provision for loan losses was attributed to both organic loan growth and provision recorded on Pioneer loans acquired at a premium.

Mortgage Operations

Three months ended September 30, ~~2020,~~2022 and 2021

Income before income taxes decreased to $2.2 million for the third quarter of 2022, compared to $5.5 million for the same period in 2021, primarily due to a ~~combination~~decrease in net sale gains and fees from mortgage loan originations of ~~factors including~~$11.0 million, partially offset by a ~~$9.3~~$3.6 million ~~decline~~increase in ~~revenue~~income related to mortgage servicing rights (“MSR”) capitalization and changes in fair value, net of hedging activity. Overall gains on sale of mortgage loans declined as a result of the decline in origination activity, continued margin compression, and a ~~$5.1 million~~decline in the rate lock pipeline volume and valuation due to rising interest rates. The increase in ~~noninterest expense. The revenue decline~~income related to our MSRs was primarily the result of changes in market interest rates leading to lower prepayment rates, and our corresponding hedging positions. ~~Additionally, while total~~Total loan originations ~~remained steady at $1.8~~for sale were $0.3 billion for ~~both~~ the ~~nine~~third quarter of 2022, a decline of $0.2 billion from $0.5 billion for the same period in 2021. Noninterest expense for the third quarter of 2022 was $13.2 million, compared to $16.9 million for the same period in 2021. The $3.6 million decrease was primarily due to the decreased salary and employee benefits from the decline in mortgage loan originations.

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Nine months ended September 30, ~~2021~~2022 and ~~2020, overall gain on sale margins declined by $14.7 million~~2021

Income before income taxes decreased to ~~$51.7~~$0.5 million for the nine months ended September 30, 2022, compared to income of $21.9 million for the same period in 2021, primarily due to a decrease in net sale gains and fees from ~~$66.4 million.~~

~~Table~~mortgage loan originations of ~~Contents~~

$35.1 million, partially offset by a $5.1 million increase in income related to mortgage servicing rights (“MSR”) capitalization and changes in fair value, net of hedging activity. Overall gains on sale of mortgage loans declined as a result of the decline in origination activity, continued margin compression, and a decline in the rate lock pipeline volume and valuation due to rising interest rates. The increase in income related to our MSRs was primarily the result of changes in market interest rates leading to lower prepayment rates, and our corresponding hedging positions. Total loan originations were $1.4 billion for the nine months ended September 30, 2022, a decline of $0.4 billion from $1.8 billion for the same period in 2021. Noninterest expense for the nine months ended September 30, ~~2021~~2022 was ~~$53.8~~$44.1 million, compared to ~~$48.7~~$53.8 million for the ~~nine months ended September 30, 2020.~~same period in 2021. The ~~$5.1~~$9.7 million ~~increase~~decrease was primarily due to the ~~increased~~decreased salary and employee benefits ~~expense associated with higher headcount as we continue to invest in our workforce.~~

~~COVID-19 Pandemic~~

The COVID-19 pandemic and variants of the virus continue to create disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets and in the United States as a whole.

The impact of the COVID-19 pandemic and its variants is fluid and continues to evolve, adversely affecting many of our customers. The unprecedented and rapid spread of COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, and consumer spending has disrupted economic activity and employment, resulting in volatility in financial markets. Market interest rates, after falling to historically low levels due to the COVID-19 pandemic through the second quarter of 2020, have generally stabilized, while intermediate and longer-term Treasury rates have begun to rise. The low interest rate environment (except with respect to our Mortgage Operations) and the other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on our business, financial condition and results of operations. For instance, the pandemic has had negative effects on our interest income, allowance for loan losses, and certain transaction-based line items of noninterest income. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the continued rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to, and remain in their pre-pandemic routine.

~~We continue to actively monitor developments related to COVID-19 and its variants and its impact on our business, customers, employees, counterparties, vendors, and service providers.~~

Since the start of the COVID-19 pandemic, we have taken several actions to offer various forms of support to our customers, employees, and communities that have been impacted by the pandemic. We have worked with borrowers impacted by COVID-19 and provided modifications to include interest only deferral or principal and interest deferral. Under bank regulatory guidance and the CARES Act, these short-term deferrals are generally not considered to be troubled debt restructurings, or “TDRs,” unless the borrower was experiencing financial difficulty prior to the pandemic.

~~We had actively modified loans under the CARES Act as of:~~

September 30, 2021 December 31, 2020
(in thousands, except loan count) Number
of Loans Recorded
Investment Number
of Loans Recorded
Investment
Commercial — $ — 23 $ 17,714
Commercial real estate — $ — 7 $ 12,413
Residential real estate 9 $ 2,517 49 $ 21,584
Consumer — $ — 6 $ 77
Total 9 $ 2,517 85 $ 51,788

A provision in the CARES Act created the Paycheck Protection Program, or “PPP,” a program administered by the Small Business Administration, or “SBA,” to provide loans to small business during the COVID-19 pandemic. As of September 30, 2021 and December 31, 2020, we had $116.5 million and $256.3 million of PPP loans outstanding and deferred processing fees outstanding of $3.2 million and $5.2 million, respectively. PPP loans are classified as Commercial loans in our consolidated financial statements. The PPP program ended on May 31, 2021, and we do not expect to fund additional PPP loans. We expect funds to be received from the ~~SBA for the forgiven loans into 2023.~~decline in mortgage loan originations.

~~Table of Contents~~

Critical Accounting Estimates

Our consolidated financial statements are prepared based on the application of accounting policies in accordance with generally accepted accounting principles, or ~~“GAAP,~~“U.S. GAAP,” and follow general practices within the banking industry. These policies require the reliance on estimates, assumptions and judgments, which may prove inaccurate or are subject to variations. Changes in underlying factors, estimates, assumptions or judgements could have a material impact on our future financial condition and 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 loan losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors. During the three months ended September 30, ~~2021,~~2022, there have been no significant changes to our critical accounting estimates compared with those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations—~~Operations of FirstSun—Critical Accounting Estimates” and the notes to the audited consolidated financial statements appearing in the ~~Prospectus filed with the SEC pursuant to Securities Act Rule 424(b)(3) on August 12, 2021.~~2021 Form 10-K.

Our significant accounting policies are presented in “~~Note~~“Note 1 - Summary of Significant Accounting Policies” in our audited consolidated financial statements and footnotes for the year ended December 31, ~~2020~~2021 included in the ~~Prospectus filed with the SEC pursuant to Securities Act Rule 424(b)(3) on August 12, 2021.~~2021 Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in “~~Note~~“Note 1” of our audited consolidated financial statements.

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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)	2022			2021			2022			2021
Net interest income	$	68,486		$	39,965		$	168,356		$	114,782
Provision for loan losses	3,750			3,500			12,450			1,750
Noninterest income	24,953			28,684			70,948			94,848
Noninterest expense	55,548			54,570			183,683			166,374
Income before income taxes	34,141			10,579			43,171			41,506
Provision for income taxes	7,628			1,851			8,559			7,159
Net income	26,513			8,728			34,612			34,347

Diluted earnings per share	$	1.04		$	0.46		$	1.49		$	1.83
Return on average assets	1.52		%	0.62		%	0.70		%	0.85		%
Return on average stockholders' equity	14.50		%	6.68		%	6.90		%	8.95		%
Net interest margin	4.26		%	3.01		%	3.66		%	3.00		%
Net interest margin - FTE basis (non-GAAP) (1)	4.31		%	3.10		%	3.75		%	3.11		%
Efficiency ratio	59.45		%	79.49		%	76.76		%	79.37		%
Fee revenue to total revenue (2)	26.71		%	41.78		%	29.65		%	45.25		%
(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) Fee revenue to total revenue is defined as “noninterest income / (net interest income + 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 loan losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs.

Net income for the third quarter of 2021 was $8.7 million, compared to $14.8 million for the third quarter of 2020. The $6.0 million decrease in net income for the third quarter of 2021, compared to the same period in 2020, was primarily due to a $15.4 million decrease in income from mortgage banking services partially offset by a $6.9 million increase in net interest income after provision for loan losses.

Net income for the nine months ended September 30, 2021 was $34.3 million, compared to $36.3 million for the nine months ended September 30, 2020. The $2.0 million decrease in net income for the nine months ended September 30, 2021, compared to the same period in 2020, was primarily due to a $29.0 million increase in net interest income after provision for loan losses, offset by a decrease in noninterest income of $14.3 million, due primarily to a decrease in income from mortgage banking services and an increase in noninterest expenses of $17.2 million.

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 the annualized net interest income divided by average interest-earning assets.

Interest earned on our loan ~~portfolio is~~portfolios are 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. ~~Loans~~Non-PCI loans acquired ~~through acquisition~~ are initially recorded at fair ~~value. Discounts~~value and the resulting discount or ~~premiums created when the loans were recorded at their estimated fair values at acquisition~~premium are ~~accreted over the remaining term of the loan~~recognized as an adjustment toof the yield on the related ~~loan’s yield.~~

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, 2021 and 2020~~

Our net interest income was $40.0 million for the third quarter of 2021, an increase of $5.6 million, or 16.4%, from the same period in 2020. This increase was primarily attributable to a $3.9 million, or 10.9%, increase in interest and fee income on loans held-for-investment for the third quarter of 2021, compared to the third quarter of 2020, driven by an increase of $76.9 million in average loans held-for-investment in the third quarter of 2021, compared to the same period in 2020. Average yield for the third quarter of 2021 was 4.20% an increase of 31 basis points over the comparable period in 2020.

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~~Average earning assets~~Three months ended September 30, 2022 and 2021

Our net interest income was $68.5 million for the third quarter of ~~2021 were $5.3 billion,~~2022, an increase of ~~$0.8 billion,~~$28.5 million, or ~~17.3%~~71.4%, compared to the same period in 2021. Interest income on loans held-for-investment increased by $27.8 million for the third quarter of ~~2020.~~ 2022, compared to the same period in 2021. Interest income on investment securities increased by $1.7 million for the third quarter of 2022, compared to the same period in 2021. Interest expense from total interest-bearing liabilities increased by $2.0 million for the third quarter of 2022, compared to the same period in 2021.

Total average loans ~~including~~held-for-investment grew to $5.5 billion at September 30, 2022, an increase of $1.7 billion or 44.4%, compared to September 30, 2021, primarily due to organic growth in our loan portfolios and the Pioneer Merger. Yield on loans ~~held-for-sale, grew $0.1 billion to $3.9 billion~~held-for-investment increased 75 basis points in the third quarter of ~~2021, from $3.8 billion~~2022, compared to the same period in ~~the third quarter of 2020. The period over period growth in interest income on loans held-for-investment is~~2021, primarily due to increases in market rates, as well as growth in average loan balances. Interest income from investment securities declined slightly, primarily due to a decrease in average balances as we did not re-invest all of the ~~cash flows resulting from the portfolio amortization over the past year. The average balance of investment securities decreased $18.1 million~~rising interest rate environment and its impact on variable rate loans in the ~~third quarter of 2021, compared to the third quarter of 2020, while the yield~~loan portfolio and higher yields on ~~average investment securities declined seven basis points to 1.49%~~new originations.

Average interest-bearing liabilities increased $0.7 billion, or 19.4%, for the third quarter of ~~2021,~~2022, compared to ~~1.56% for third quarter~~the same period in 2021, primarily as a result of ~~2020.~~

the Pioneer Merger. Average ~~interest bearing liabilities~~interest-bearing deposits increased ~~$0.4~~$0.6 billion, or ~~11.1%~~18.9%, in the third quarter of ~~2021,~~2022, compared to the ~~third quarter of 2020. Average interest bearing deposits increased $0.4 billion, or 14.6%,~~same period in ~~the third quarter of~~ 2021, ~~compared to the third quarter of 2020,~~ and was the primary driver of the growth in average ~~interest bearing~~interest-bearing liabilities. ~~We also saw growth in noninterest bearing deposits of $0.4 billion~~Average FHLB borrowings increased $120.3 million, or 300.8%, in the third quarter of ~~2021,~~2022, compared to the same period in ~~2020. In addition~~2021, to growth in our overall commercial and consumer customer base, we saw deposit growth as a result of funds our customers received from federal stimulus programs related to the COVID-19 pandemic. The average ratesupport organic loan growth.

Our net interest margin was 4.26% for ~~all interest bearing deposits declined by 23 basis points in~~ the third quarter of 2022, compared to 3.01% for the same period in 2021, an increase of 1.25%. We experienced a 1.34% increase in yield from earning assets while our total cost of funds increased by 13 basis points, for the third quarter of 2022 as compared to the same period in ~~2020.~~

~~Our net interest margin was 3.01% for the third quarter of 2021, compared to 3.03% for the third quarter of 2020, a decrease of 0.02%. While~~2021. We have not experienced as significant an increase in our ~~total~~ cost of funds ~~declined by 24 basis points period over period,~~in this rising interest rate environment as we ~~also experienced a 22 basis point decline~~have seen in ~~yield on our earning assets over the same period during 2021. Our~~growth in earning asset yield, ~~was also negatively impacted by~~however, we do expect our cost of funds to continue to rise over the ~~$0.7 billion increase in interest bearing cash balances, compared to the prior year period, from the heightened level of overall liquidity in the marketplace.~~

next several quarters.

Nine ~~Months Ended~~months ended September 30, ~~2021~~2022 and ~~2020~~

2021

Our net interest income was ~~$114.8~~$168.4 million for the nine months ended September 30, ~~2021,~~2022, an increase of ~~$15.6~~$53.6 million, or ~~15.8%~~46.7%, ~~from~~compared to the ~~nine months ended September 30, 2020. This increase was primarily attributable to growth of $327.5 million~~same period in ~~average total loans held-for-investment balances during 2021, driving an increase in interest~~2021. Interest income on loans ~~of $11.7~~held-for-investment increased by $50.6 million despite the negative impact of declining market interest rates on loan yields. Interest and fee income on PPP loans contributed $4.4 million of the overall increase in interest income on loans for the period. Interest income on investment securities decreased by $2.6 million for the nine months ended of September 30, 2021, compared to the nine months ended September 30, 2020. Interest expense from interest bearing deposits declined by $6.2 million driven by a 32 basis point reduction in the average rate on our interest bearing deposits.

~~Average earning assets~~ for the nine months ended September 30, ~~2021 were $5.1 billion, an increase of $0.8 billion, or 19.0%,~~2022, compared to the ~~nine months ended September 30, 2020. Total average loans, including loans held-for-sale, grew to $3.9 billion~~same period in 2021. Interest income on investment securities increased by $3.6 million for the nine months ended September 30, ~~2021, an increase of $0.3 billion,~~2022, compared to the same period in 2021. Interest expense from total interest-bearing liabilities increased by $2.3 million for the nine months ended September 30, ~~2020. The~~2022, compared to the same period in 2021.

Total average loans held-for-investment grew to $5.0 billion at September 30, 2022, an increase of $1.2 billion, compared to September 30, 2021, primarily due to organic growth in ~~interest income~~our loan portfolios and the Pioneer Merger. Yield on loans held-for-investment ~~is due to growth in loan balances and a six~~increased 38 basis ~~point increase in the yield on loans in~~points for the nine months ended September 30, ~~2021,~~2022, compared to the ~~nine months ended September 30, 2020. Interest income from investment securities declined~~same period ~~over period,~~in 2021, primarily due to ~~a combination of a 45 basis point decrease~~the rising interest rate environment and its impact on variable rate loans in ~~yield due to decreasing market interest rates, as well as a $59.8 million decrease in average balances, period over period.~~

the loan portfolio and higher yields on new originations.

Average ~~interest bearing~~interest-bearing liabilities increased ~~$0.4~~$0.5 billion, or ~~13.2%~~15.6%, for the nine months ended September 30, ~~2021,~~2022, compared to the ~~nine months ended September 30, 2020.~~same period in 2021. Average ~~interest bearing~~interest-bearing deposits increased ~~$0.4~~$0.5 billion, or ~~14.4%~~15.9%, in the nine months ended September 30, ~~2021,~~2022, compared to the ~~nine months ended September 30, 2020~~same period in 2021, and was the primary driver of the growth in average interest-bearing liabilities.

Our net interest ~~bearing liabilities. We also saw growth in noninterest bearing deposits of $0.4 billion~~margin was 3.66% for the nine months ended September 30, ~~2021,~~2022, compared to the nine months ended September 30, 2020. In addition to growth in our overall commercial and consumer customer base, we saw deposit growth in the nine months ended September 30, 2021 as a result of funds our customers received from federal stimulus programs related to the COVID-19 pandemic.

~~Our net interest margin was~~ 3.00% for the ~~nine months ended September 30,~~same period in 2021, ~~compared to 3.08% for the nine months ended September 30, 2020, a decrease~~an increase of ~~eight~~66 basis points. ~~While~~We experienced a 66 basis point increase in yield from earning assets and our total cost of funds ~~declined~~increased by 30two basis points for the period ~~over period, we also experienced a 31 basis point decline in yield from earning assets over~~ended September 30, 2022, compared to the same period ~~during~~in 2021. ~~Our~~We have not experienced as significant an increase in our cost of funds in this rising interest rate environment as we have seen in growth in earning asset yield, ~~was also negatively impacted by~~however, we do expect our cost of funds to continue to rise over the ~~$0.5 billion increase in interest bearing cash balances, compared to the prior year period, from the heightened level of overall liquidity in the marketplace.~~next several quarters.

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The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated.

~~Three Months Ended~~As of and for the three months ended September 30, ~~2021 and 2020~~:

For the three months ended September 30, 2021 For the three months ended September 30, 2020
(In thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest Earning Assets
Loans held-for-sale $ 122,007 $ 986 3.23 % $ 125,858 $ 934 2.98 %
Loans held-for-investment1 3,779,517 39,710 4.20 % 3,702,653 35,817 3.89 %
Investment securities 522,870 1,954 1.49 % 540,954 2,100 1.56 %
Interest-bearing cash and other assets 895,288 611 0.27 % 163,775 309 0.76 %
Total earning assets 5,319,682 43,261 3.25 % 4,533,240 39,160 3.47 %
Other assets 287,323 274,432
Total assets $ 5,607,005 $ 4,807,672
Interest-bearing liabilities
Demand and NOW deposits $ 241,488 $ 139 0.23 % $ 227,118 $ 280 0.50 %
Savings deposits 453,687 101 0.09 % 377,444 176 0.19 %
Money market deposits 2,264,682 1,054 0.19 % 1,841,639 1,459 0.32 %
Certificates of deposits 337,906 684 0.81 % 431,012 1,433 1.34 %
Total deposits 3,297,763 1,978 0.24 % 2,877,213 3,348 0.47 %
Repurchase agreements 120,009 13 0.04 % 138,367 23 0.07 %
Total deposits and repurchase agreements 3,417,772 1,991 0.23 % 3,015,580 3,371 0.45 %
FHLB borrowings 40,000 151 1.51 % 93,571 326 1.40 %
Other long-term borrowings 69,028 1,154 6.69 % 65,195 1,125 6.94 %
Total interest-bearing liabilities 3,526,800 3,296 0.37 % 3,174,346 4,822 0.61 %
Noninterest-bearing deposits 1,483,010 1,071,282
Other liabilities 74,286 86,687
Stockholders’ equity 522,909 475,357
Total liabilities and stockholders’ equity $ 5,607,005 $ 4,807,672
Net interest income $ 39,965 $ 34,338
Net interest spread 2.88 % 2.86 %
Net interest margin 3.01 % 3.03 %
Net interest margin (on an FTE basis) 3.10 % 3.15 %

1 ~~Includes nonaccrual loans~~


	2022							2021
(In thousands)	Average Balance		Interest			Average Yield/Rate		Average Balance		Interest			Average Yield/Rate
Interest Earning Assets
Loans held-for-sale	$	56,636	$	743		5.25	%	$	122,007	$	986		3.23	%
Loans held-for-investment (1)	5,456,210		67,527			4.95	%	3,779,517		39,710			4.20	%
Investment securities	613,325		3,644			2.38	%	522,870		1,954			1.49	%
Interest-bearing cash and other assets	308,482		1,849			2.40	%	895,288		611			0.27	%
Total earning assets	6,434,653		73,763			4.59	%	5,319,682		43,261			3.25	%
Other assets	519,663							287,323
Total assets	$	6,954,316						$	5,607,005

Interest-bearing liabilities
Demand and NOW deposits	$	202,290	$	495		0.98	%	$	241,488	$	139		0.23	%
Savings deposits	506,548		227			0.18	%	453,687		101			0.09	%
Money market deposits	2,617,452		1,632			0.25	%	2,264,682		1,054			0.19	%
Certificates of deposits	593,479		920			0.62	%	337,906		684			0.81	%
Total deposits	3,919,769		3,274			0.33	%	3,297,763		1,978			0.24	%
Repurchase agreements	51,264		51			0.40	%	120,009		13			0.04	%
Total deposits and repurchase agreements	3,971,033		3,325			0.33	%	3,417,772		1,991			0.23	%
FHLB borrowings	160,310		761			1.90	%	40,000		151			1.51	%
Other long-term borrowings	80,031		1,191			5.95	%	69,028		1,154			6.69	%
Total interest-bearing liabilities	4,211,374		5,277			0.50	%	3,526,800		3,296			0.37	%
Noninterest-bearing deposits	1,924,055							1,483,010
Other liabilities	87,338							74,286
Stockholders' equity	731,549							522,909
Total liabilities and stockholders' equity	$	6,954,316						$	5,607,005

Net interest income			$	68,486						$	39,965
Net interest spread			4.09		%					2.88		%
Net interest margin			4.26		%					3.01		%
Net interest margin - FTE basis (non-GAAP) (2)			4.31		%					3.10		%
(1) Includes nonaccrual loans
(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

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~~Nine Months Ended~~As of and for the nine months ended September 30, ~~2021 and 2020~~:

For the nine months ended September 30, 2021 For the nine months ended September 30, 2020
(In thousands) Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate
Interest Earning Assets
Loans held-for-sale $ 135,202 $ 3,257 3.21 % $ 114,919 $ 2,778 3.22 %
Loans held-for-investment2 3,761,029 115,423 4.09 % 3,433,533 103,699 4.03 %
Investment securities 511,757 5,646 1.47 % 571,605 8,238 1.92 %
Interest-bearing cash and other assets 693,833 1,450 0.28 % 166,663 1,095 0.88 %
Total earning assets 5,101,821 125,776 3.29 % 4,286,720 115,810 3.60 %
Other assets 287,500 278,318
Total assets $ 5,389,321 $ 4,565,038
Interest-bearing liabilities
Demand and NOW deposits $ 271,955 $ 636 0.31 % $ 203,918 $ 802 0.52 %
Savings deposits 454,371 363 0.11 % 356,540 563 0.21 %
Money market deposits 2,183,473 3,305 0.20 % 1,763,061 5,338 0.40 %
Certificates of deposits 350,217 2,427 0.92 % 527,279 6,178 1.56 %
Total deposits 3,260,016 6,731 0.28 % 2,850,798 12,881 0.60 %
Repurchase agreements 131,444 49 0.05 % 110,411 139 0.17 %
Total deposits and repurchase agreements 3,391,460 6,780 0.27 % 2,961,209 13,020 0.59 %
FHLB borrowings 43,379 758 2.33 % 89,418 1,353 2.02 %
Other long-term borrowings 68,787 3,456 6.70 % 45,282 2,281 6.72 %
Total interest-bearing liabilities 3,503,626 10,994 0.42 % 3,095,909 16,654 0.72 %
Noninterest-bearing deposits 1,295,984 930,438
Other liabilities 77,878 79,959
Stockholders’ equity 511,833 458,732
Total liabilities and stockholders’ equity $ 5,389,321 $ 4,565,038
Net interest income $ 114,782 $ 99,156
Net interest spread 2.87 % 2.88 %
Net interest margin 3.00 % 3.08 %
Net interest margin (on an FTE basis) 3.11 % 3.21 %

2 ~~Includes nonaccrual loans~~


	2022							2021
(In thousands)	Average Balance		Interest			Average Yield/Rate		Average Balance		Interest			Average Yield/Rate
Interest Earning Assets
Loans held-for-sale	$	62,638	$	2,707		5.76	%	$	135,202	$	3,257		3.21	%
Loans held-for-investment (1)	4,953,042		166,006			4.47	%	3,761,029		115,423			4.09	%
Investment securities	615,726		9,252			2.00	%	511,757		5,646			1.47	%
Interest-bearing cash and other assets	496,349		3,687			0.99	%	693,833		1,450			0.28	%
Total earning assets	6,127,755		181,652			3.95	%	5,101,821		125,776			3.29	%
Other assets	473,909							287,500
Total assets	$	6,601,664						$	5,389,321

Interest-bearing liabilities
Demand and NOW deposits	$	214,862	$	848		0.53	%	$	271,955	$	636		0.31	%
Savings deposits	497,240		451			0.12	%	454,371		363			0.11	%
Money market deposits	2,567,406		3,644			0.19	%	2,183,473		3,305			0.20	%
Certificates of deposits	498,753		2,077			0.56	%	350,217		2,427			0.92	%
Total deposits	3,778,261		7,020			0.25	%	3,260,016		6,731			0.28	%
Repurchase agreements	59,572		74			0.17	%	131,444		49			0.05	%
Total deposits and repurchase agreements	3,837,833		7,094			0.25	%	3,391,460		6,780			0.27	%
FHLB borrowings	128,654		1,680			1.74	%	43,379		758			2.33	%
Other long-term borrowings	82,768		4,522			7.28	%	68,787		3,456			6.70	%
Total interest-bearing liabilities	4,049,255		13,296			0.44	%	3,503,626		10,994			0.42	%
Noninterest-bearing deposits	1,805,982							1,295,984
Other liabilities	77,436							77,878
Stockholders’ equity	668,991							511,833
Total liabilities and stockholders’ equity	$	6,601,664						$	5,389,321

Net interest income			$	168,356						$	114,782
Net interest spread			3.51		%					2.87		%
Net interest margin			3.66		%					3.00		%
Net interest margin - FTE basis (non-GAAP) (2)			3.75		%					3.11		%
(1) Includes nonaccrual loans
(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

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Rate-Volume Analysis

The tables below present the effect of volume and rate changes on interest income and expense. Changes indue to volume are changes in the average balance multiplied by the previous period’s average rate. Changes indue to rate are changes in the average rate multiplied by the average balance from the ~~previous~~current period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.


		For the three months ended September 30,							For the three months ended September 30,
		2021 versus 2020 increase (decrease) due to change in:							2022 Versus 2021 Increase (Decrease) Due to:
(In thousands)	(In thousands)	Rate		Volume		Total		(In thousands)	Rate		Volume		Total
Interest Earning Assets	Interest Earning Assets							Interest Earning Assets
Loans held-for-sale	Loans held-for-sale	$	81	$	(29)	$	52	Loans held-for-sale	$	286	$	(529)	$	(243)
Loans held-for-investment	Loans held-for-investment	3,145		748		3,893		Loans held-for-investment	10,202		17,615		27,817
Investment securities	Investment securities	(75)		(71)		(146)		Investment securities	1,353		337		1,690
Interest-bearing cash	Interest-bearing cash	(1,085)		1,387		302		Interest-bearing cash	1,636		(398)		1,238
Total earning assets	Total earning assets	2,066		2,035		4,101		Total earning assets	13,477		17,025		30,502

Interest-bearing liabilities	Interest-bearing liabilities							Interest-bearing liabilities
Demand and NOW deposits	Demand and NOW deposits	(159)		18		(141)		Demand and NOW deposits	378		(22)		356
Savings deposits	Savings deposits	(111)		36		(75)		Savings deposits	113		13		126
Money market deposits	Money market deposits	(741)		337		(404)		Money market deposits	415		163		578
Certificates of deposits	Certificates of deposits	(438)		(311)		(749)		Certificates of deposits	(281)		517		236
Total deposits	Total deposits	(1,449)		80		(1,369)		Total deposits	625		671		1,296
Repurchase agreements	Repurchase agreements	(7)		(3)		(10)		Repurchase agreements	46		(8)		38
Total deposits and repurchase agreements	Total deposits and repurchase agreements	(1,456)		77		(1,379)		Total deposits and repurchase agreements	671		663		1,334
FHLB borrowings	FHLB borrowings	13		(188)		(175)		FHLB borrowings	155		455		610
Other long-term borrowings	Other long-term borrowings	(38)		67		29		Other long-term borrowings	(147)		184		37
Total interest-bearing liabilities	Total interest-bearing liabilities	(1,481)		(44)		(1,525)		Total interest-bearing liabilities	679		1,302		1,981

Net interest income	Net interest income	$	3,547	$	2,079	$	5,626	Net interest income	$	12,798	$	15,723	$	28,521


	For the nine months ended September 30,
	2022 Versus 2021 Increase (Decrease) Due to:
(In thousands)	Rate		Volume		Total
Interest Earning Assets
Loans held-for-sale	$	1,199	$	(1,749)	$	(550)
Loans held-for-investment	14,002		36,581		50,583
Investment securities	2,460		1,146		3,606
Interest-bearing cash	2,649		(412)		2,237
Total earning assets	20,310		35,566		55,876

Interest-bearing liabilities
Demand and NOW deposits	345		(133)		212
Savings deposits	53		35		88
Money market deposits	(242)		581		339
Certificates of deposits	(1,380)		1,030		(350)
Total deposits	(1,224)		1,513		289
Repurchase agreements	52		(27)		25
Total deposits and repurchase agreements	(1,172)		1,486		314
FHLB borrowings	(568)		1,490		922
Other long-term borrowings	364		702		1,066
Total interest-bearing liabilities	(1,376)		3,678		2,302

Net interest income	$	21,686	$	31,888	$	53,574

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For the nine months ended September 30,
2021 Versus 2020 Increase (Decrease) Due to:
(In thousands) Rate Volume Total
Interest Earning Assets
Loans held-for-sale $ (174) $ 654 $ 480
Loans held-for-investment (1,465) 13,188 11,723
Investment securities (1,441) (1,149) (2,590)
Interest-bearing cash (4,263) 4,618 355
Total earning assets (7,343) 17,311 9,968
Interest-bearing liabilities
Demand and NOW deposits (523) 357 (166)
Savings deposits (405) 206 (199)
Money market deposits (3,731) 1,697 (2,034)
Certificates of deposits (985) (2,766) (3,751)
Total deposits (5,644) (506) (6,150)
Repurchase agreements (126) 35 (91)
Total deposits and repurchase agreements (5,770) (471) (6,241)
FHLB borrowings 334 (929) (595)
Other long-term borrowings (404) 1,578 1,174
Total interest-bearing liabilities (5,840) 178 (5,662)
Net interest income $ (1,503) $ 17,133 $ 15,630

Provision for Loan Losses

We established an allowance for loan losses through a provision for loan losses charged as an expense in our consolidated statements of income. The provision for loan losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loan losses at an adequate level to absorb probable losses incurred 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 loan losses and corresponding provision for loan 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 loan losses is increased by the provision for loan losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs.

We had a provision for loan losses of $3.8 million for the third quarter of 2022, compared to $3.5 million for the same period in 2021. The increase in the provision for loan losses was due to several factors, including the provision required for larger organic growth in the loan portfolio for the third quarter of 2022 compared to the same period in 2021.

We had a provision for loan losses of $3.5 million for the third quarter of 2021, compared to $4.8 million for the third quarter of 2020. The higher provision for loan losses in the third quarter of 2020 was primarily due to changes in certain environmental factors influencing our overall allowance for loan losses that resulted from uncertainty surrounding the COVID-19 pandemic, as well as an increase in loan balances. The lower provision recorded during the 2021 period was primarily due to improving economic conditions, partially offset by an increase in commercial loans. During the third quarter of 2021 our PPP loans, for which no provision for loan losses was required, were primarily replaced by commercial loans for which a provision for loan losses was required.

~~We had a provision for loan losses of $1.8~~$12.5 million for the nine months ended September 30, ~~2021,~~2022, compared to a$1.8 million for the same period in 2021. The increase in the provision for loan losses was due to several factors, including larger organic growth in the loan portfolio and a provision required on certain non-impaired loans acquired at a premium upon the closing of ~~$15.1 million for~~ the ~~comparable period in 2020.~~Pioneer Merger. The provision ~~for loan losses~~on the loans acquired at a premium was $2.9 million ($0.10 diluted earnings per share) during the ~~first~~ nine months ~~of 2020~~ended September 30, 2022. The 2021 provision was primarily due to changes in certain environmental factors that resulted from uncertainty surrounding the COVID-19 pandemic, as well as an increase in loan balances. The provision recorded during the 2021 period was primarily due toimpacted by favorable changes toin certain environmental factors as a result of improved economic conditions ~~and to a lesser extent due to a $95.4 million increase in loan balances, excluding PPP loan balances during~~as the ~~nine month period ended September 30, 2021.~~

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~~For a further discussion~~impact of the ~~allowance for loan losses, refer~~COVID-19 pandemic continued to ~~the “Allowance for Loan Losses” section of this financial review.~~

subside.

Noninterest Income

The following table presents noninterest ~~income for the three and nine~~income:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2022		2021		2022		2021
Service charges on deposit accounts	$	4,807	$	3,471	$	13,111	$	8,659
Credit and debit card fees	3,103		2,472		8,508		7,140
Trust and investment advisory fees	1,552		1,974		5,408		5,871
Income from mortgage banking services, net	13,785		20,151		40,017		68,144
Other	1,706		616		3,904		5,034
Total noninterest income	$	24,953	$	28,684	$	70,948	$	94,848

Three months ended September 30, ~~2021~~2022 and ~~2020.~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Service charges on deposit accounts $ 3,471 $ 2,428 $ 8,659 $ 7,042
Credit and debit card fees 2,472 2,107 7,140 5,865
Trust and investment advisory fees 1,974 1,282 5,871 3,222
Income from mortgage banking services, net 20,151 35,535 68,144 89,986
Other 616 1,367 5,034 2,999
Total noninterest income $ 28,684 $ 42,719 $ 94,848 $ 109,114

~~For the three months ended September 30,~~ 2021 ~~and 2020~~

Our noninterest income decreased ~~$14.0~~$3.7 million to ~~$28.7~~$25.0 million ~~in the third quarter of 2021, from $42.7 million in the third quarter of 2020. The decrease in noninterest income~~ for the third quarter of ~~2021, compared to~~2022 from $28.7 million for the same period ~~of 2020, was~~in 2021, primarily due to a ~~$15.6 million decline~~decrease in ~~net gain on sales and fees~~income from mortgage loan originations, including changes in fair value in the held-for-sale portfolio, net of hedging activity, as total mortgage loan originations during the third quarter of 2021 declined by $177.8 million, or 25.0% to $532.7 million compared to the same period in 2020.

banking services.

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 ~~2021, income from~~2022, service charges on deposit accounts increased ~~$1.0~~$1.3 million, compared to the same period in 2021, primarily due ~~primarily~~ to higher average deposits, and increased treasury management service fee income compared ~~with~~to the same ~~quarter~~period in 2020. Treasury management services fee income increased by $0.6 million to $1.6 million for the third quarter of 2021, compared with the third quarter of 2020, and deposit service charges increased by $0.5 million to $2.0 million for the third quarter of 2021 compared with the third quarter of 2020.

2021.

Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions atby our business customers. ~~Interchange income~~Credit and debit card fees increased ~~$0.4~~$0.6 million for the third quarter of ~~2021~~2022 compared to the same period in ~~2020,~~2021, due primarily to increased card transaction volumes.

Trust and investment advisory fees represent fees we receive in connection with our investment advisory and custodial management services of investment accounts. ~~For the third quarter of 2021, trust~~Trust and investment advisory fees ~~increased $0.7 million, from the same period in 2020, primarily due to our September 2020 acquisition of certain customer relationships of a trust and wealth advisory business based in Arizona.~~

Income from mortgage banking services is principally derived from the origination and sale of mortgage loans together with servicing mortgage loans for others. For the third quarter of 2021, income from mortgage banking services decreased $15.4 million compared with the third quarter of 2020, due primarily to a $15.6 million decline in net gain on sales and fees from loan originations, including changes in fair value in the loans held-for-sale portfolio, net of hedging activity. Our mortgage servicing portfolio grew from $3.8 billion in unpaid principal balances at September 30, 2020 to $4.6 billion at September 30, 2021. We retain servicing rights on the majority of the mortgage loans that we sell, which resulted in a $0.7 million increase in mortgage servicing incomewere down slightly for the third quarter of ~~2021,~~2022 as compared to the same ~~quarter~~period in 2020. In addition to the fees received to service mortgage loans for others, 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.

2021.

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The components of income from mortgage banking ~~income for the three months ended September 30, 2021 and 2020~~services were as follows:


		Three Months Ended September 30,					For the three months ended September 30,
(In thousands)	(In thousands)	2021		2020		(In thousands)	2022		2021
Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging	Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging	$	14,938	$	30,506	Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging	$	3,942	$	14,938

Mortgage servicing income	Mortgage servicing income	3,219		2,492		Mortgage servicing income	4,234		3,219
MSR capitalization and changes in fair value, net of derivative activity	MSR capitalization and changes in fair value, net of derivative activity	1,994		2,537		MSR capitalization and changes in fair value, net of derivative activity	5,609		1,994

Income from mortgage banking services, net	Income from mortgage banking services, net	$	20,151	$	35,535	Income from mortgage banking services, net	$	13,785	$	20,151

~~Other noninterest income decreased $0.8 million for~~For the third quarter of 2021 compared to the same period in 2020, primarily due to a $0.1 million gain on sale of other real estate in the third quarter of 2021 compared with a gain of $0.4 million on other real estate sold in the third quarter of 2020.

~~For the nine months ended September 30, 2021 and 2020~~

~~Our noninterest~~2022, income from mortgage banking services decreased ~~$14.3 million to $94.8 million for the nine months ended September 30, 2021 from $109.1 million for the nine months ended September 30, 2020.~~

~~For the nine months ended September 30, 2021, service charges on deposit accounts increased $1.6~~$6.4 million, compared to the same period in ~~2020, primarily due to increased services and fees from treasury management programs which increased by $1.5 million, compared to the prior year period.~~

~~Credit and debit card fees increased $1.3 million for the nine months ended September 30,~~ 2021, ~~compared to the same period in 2020, from increased card transaction volumes.~~

Trust and investment advisory fees increased by $2.6 million for the nine months ended September 30, 2021 compared with the same period in 2020. The increase is primarily due to our September 2020 acquisition of certain customer relationships of a trust and wealth advisory business based in Arizona.

~~For the nine months ended September 30, 2021, income from mortgage banking services decreased $21.8 million compared with the same period in 2020~~ primarily due to a decline in revenue related to net ~~gain on sales~~sale gains and fees from mortgage loan originations, including fair value changes in the held-for-sale portfolio and hedging, ~~activity,~~ which decreased ~~$14.7~~$11.0 million for the nine months ended September 30, 2021 compared with the same period in 2020. Loan originations remained relatively flat at $1.8 billion for the nine months ended September 30, 2021 and 2020, however, gain on sale margins declined for the period ended September 30, 2021 asthird quarter of 2022, compared to the same period in ~~2020.~~2021. Total loan originations for sale were $0.3 billion for the third quarter of 2022, a decline of $0.2 billion from $0.5 billion for the same period in 2021. We retain servicing rights on the majority of mortgage loans that we sell, ~~driving the~~which drove an increase in servicing income ~~by $2.1~~of $1.0 million ~~from $7.1~~to $4.2 million for the ~~nine months ended September 30, 2020~~third quarter of 2022, compared to ~~$9.2~~$3.2 million for the ~~nine months ended September 30,~~third quarter of 2021. MSR capitalization and changes in fair value, net of derivative activity, ~~declined $9.3~~increased $3.6 million in the ~~nine months ended September 30, 2021,~~third quarter of 2022, compared ~~with~~to the same period in ~~2020.~~2021. The increase in revenue ~~decline~~ related to our MSRs was primarily the result of changes in market interest rates ~~mortgage spreads~~ and our corresponding ~~hedge~~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.

~~The components~~ Due to a number of factors and until we see a change in these factors, including rising interest rates, low inventory in the housing market, lower refinance volumes and a decrease in margin on loans sales, we do not expect revenue from mortgage banking activities to continue at levels seen in the prior year which will reduce the amount of income ~~for the nine months ended September 30, 2021 and 2020 were as follows:~~

Nine Months Ended September 30,
(In thousands) 2021 2020
Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging $ 51,723 $ 66,414
Mortgage servicing income 9,170 7,050
MSR capitalization and changes in fair value, net of derivative activity 7,251 16,522
Income from mortgage banking services, net $ 68,144 $ 89,986

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from mortgage banking services, net recorded in future periods in comparison to prior year periods.

Other noninterest income increased ~~$2.0~~$1.1 million for the ~~nine months ended September 30, 2021~~third quarter of 2022 compared ~~with~~to the same period in ~~2020~~2021, primarily due to certain loan-related fee income streams such as loan syndication fee income and customer accommodation interest rate swap fees and changes in fair ~~value as well as unused credit line fees. An increase in gains on other real estate sales of $0.3~~value.

Nine months ended September 30, 2022 and 2021

Our noninterest income decreased $23.9 million ~~also contributed~~ to ~~the increased other noninterest income.~~

~~Noninterest Expense~~

~~The following table presents noninterest expense~~$70.9 million for the ~~three and~~ nine months ended September 30, ~~2021 and 2020.~~

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Salary and employee benefits $ 36,061 $ 37,949 $ 113,129 $ 101,998
Occupancy and equipment 6,643 6,365 19,867 19,251
Amortization of intangible assets 354 371 1,062 1,093
Merger related expenses 705 — 1,984 —
Other 10,807 9,688 30,332 26,796
Total noninterest expenses $ 54,570 $ 54,373 $ 166,374 $ 149,138

~~For the three months ended September 30, 2021 and 2020~~

~~Our noninterest expense increased $0.2~~2022 from $94.8 million to $54.6 million for the third quarter of 2021, from $54.4 million for the third quarter of 2020, primarily due to decreases of $1.9 million in salary and employee benefits, partially offset by $0.7 million in merger expenses related to the pending transaction with Pioneer.

Salary and employee benefits expense is the largest component of our noninterest expense and includes employee payroll expense, incentive compensation, health benefits and payroll taxes. Salary and employee benefits decreased $1.9 million for the third quarter of 2021, compared to the prior year period, due primarily to a decrease of $1.6 million in salary and benefits related to the mortgage operations segment compared with the third quarter of 2020 due to decreased origination volume.

~~We incurred merger-related expenses of $0.7 million for the third quarter of 2021, related to our proposed merger with Pioneer. We had no merger-related expenses~~ for the same period in ~~2020.~~

~~Other expenses increased $1.1 million during the third quarter of~~ 2021, ~~compared with the third quarter of 2020 with advertising and marketing expense contributing $0.5 million to the increase~~primarily due to ~~our continued growth and travel and entertainment expense contributing another $0.4 million to the increase as activity increased~~a decrease in income from ~~the reduced levels in 2020 caused by the COVID-19 pandemic.~~

mortgage banking services.

For the nine months ended September 30, 2022, service charges on deposit accounts increased $4.5 million, compared to the same period in 2021, primarily due to higher average deposits, changes made in the second half of 2021 to our deposit product offerings as well as increased treasury management service fee income compared to the same period in 2021.

Credit and ~~2020~~

~~Our noninterest expense~~debit card fees increased ~~$17.2 million to $166.4~~$1.4 million for the nine months ended September 30, 2022 compared to the same period in 2021, due primarily to increased card transaction volumes.

Trust and investment advisory fees were down slightly for the nine months ended September 30, 2022 as compared to the same period in 2021.

The components of income from ~~$149.1~~mortgage banking services were as follows:


	For the nine months ended September 30,
(In thousands)		2022		2021
Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging		$	16,639	$	51,723

Mortgage servicing income		11,071		9,170
MSR capitalization and changes in fair value, net of derivative activity		12,307		7,251


Income from mortgage banking services, net		$	40,017	$	68,144

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For the nine months ended September 30, 2022, income from mortgage banking services decreased $28.1 million, compared to the same period in 2021, primarily due to a decline 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, which decreased $35.1 million for the nine months ended September 30, ~~2020,~~2022, compared to the same period in 2021. Total loan originations for sale were $0.9 billion for the nine months ended September 30, 2022, a decline of $0.9 billion from $1.7 billion for the same period in 2021. We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $1.9 million to $11.1 million for the nine months ended September 30, 2022, from $9.2 million for the nine months ended September 30, 2021. MSR capitalization and changes in fair value, net of derivative activity, increased $5.1 million in the nine months ended September 30, 2022, compared to the same period in 2021. The increase in revenue related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions.

Other noninterest income decreased $1.1 million for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to certain loan-related fee income streams such as loan syndication fee income and customer accommodation interest rate swap fees and changes in fair value.

Noninterest Expense

The following table presents noninterest expense:


	For the three months ended September 30,				For the nine months ended September 30,
(In thousands)	2022		2021		2022		2021
Salary and employee benefits	$	32,508	$	36,061	$	101,981	$	113,129
Occupancy and equipment	8,216		6,643		22,802		19,867
Amortization of intangible assets	935		354		2,197		1,062
Merger-related expenses	—		705		18,751		1,984
Other	13,889		10,807		37,952		30,332
Total noninterest expenses	$	55,548	$	54,570	$	183,683	$	166,374

Three months ended September 30, 2022 and 2021

Our noninterest expenses increased $1.0 million to $55.5 million for the third quarter of 2022, from $54.6 million for the same period in 2021. The increase is primarily due to an increase in other expenses of $3.1 million and an increase in occupancy and equipment of $1.6 million, partially offset by a decrease of $3.6 million in salary and employee benefits.

Other expenses increased $3.1 million for the third quarter of 2022, compared to the same period in 2021. This increase was primarily caused by a $0.5 million increase in professional services expenses as well as an increase of $0.4 million in FDIC insurance costs as the Small Bank FDIC Assessment Credit was fully utilized in 2021, and other smaller increases in data processing expenses, office expenses, and deposit expenses and other operational losses.

The decrease in our salary and employee benefits expense for the third quarter of 2022, compared to the same period in 2021, was driven primarily by a decrease in commissions paid to our mortgage loan officers related to decreased mortgage origination activity during the third quarter of 2022.

Nine months ended September 30, 2022 and 2021

Our noninterest expenses increased $17.3 million to $183.7 million for the nine months ended September 30, 2022, from $166.4 million for the same period in 2021. The increase is primarily due to increases of $16.8 million in Merger related expenses and $7.6 million in other expenses, partially offset by a decrease of $11.1 million in salary and employee ~~benefits expense and $3.5~~benefits.

We incurred Merger related expenses of $18.8 million ~~in other expenses in~~($0.63 per diluted share) for the nine months ended September 30, ~~2021.~~2022, an increase of $16.8 million, from $2.0 million ($0.09 per diluted share) for the same period in 2021, related to our Merger with Pioneer that was completed on April 1, 2022.

Other expenses increased $7.6 million for the nine months ended September 30, 2022, compared to the same period in 2021. This increase was primarily caused by a $1.0 million increase in travel and entertainment expenses as we continue to move away from limitations related to the COVID-19 pandemic, a $1.3 million increase in FDIC insurance costs as the Small Bank FDIC Assessment Credit was fully utilized in 2021, and a $1.8 million increase in professional services expenses.

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The ~~increase~~decrease in our salary and employee benefits expense for the nine months ended September 30, ~~2021,~~2022, compared to the same period in ~~2020,~~2021, was driven by the ~~increase~~decrease in commissions paid to our mortgage loan officers related to ~~increased~~decreased mortgage origination activity ~~earlier in~~during the ~~year as well as an increase in headcount associated with expanding our presence in certain markets, including in Texas and Arizona.~~period ended September 30, 2022.

Income Taxes

~~We incurred merger-related expenses of $2.0 million for the nine~~Three months ended September 30, ~~2021, related to our proposed merger with Pioneer. We had no merger-related expenses for the same period in 2020.~~

Other noninterest expenses increased $3.5 million for the nine months ended September 30, 2021, compared to the same period in 2020. This increase was primarily caused by a $1.5 million increase in data processing expenses related to an increase in volume2022 and ~~enhanced products and services for our customers and a $0.9 million increase in~~ ~~FDIC insurance costs as the Small Bank FDIC Assessment Credit was fully utilized in~~ ~~2020~~.

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~~Efficiency ratio~~

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.

Three Months Ended September 30, Nine Months Ended September 30,
(In thousands) 2021 2020 2021 2020
Efficiency ratio 79.49 % 70.56�� % 79.37 % 71.61 %

~~Return on equity and assets~~

~~The following table sets forth our ROAA, ROAE, dividend payout and average stockholders’ equity to average assets ratio for the periods ended:~~

Three Months Ended September 30, Nine Months Ended September 30,
2021 2020 2021 2020
Return on average total assets (ROAA) 0.62 % 1.23 % 0.85 % 1.06 %
Return on average stockholders’ equity (ROAE) 6.68 % 12.42 % 8.95 % 10.56 %
Dividend payout ratio — % — % — % — %
Average stockholders’ equity to average assets 9.33 % 9.89 % 9.50 % 10.05 %

~~Income Taxes~~

~~For the three months ended September 30,~~ 2021 ~~and 2020~~

We had income tax expense for the third quarter of ~~2021~~2022 of $7.6 million, compared to income tax expense of $1.9 million ~~compared to $3.1 million~~ for the ~~prior year period.~~same period in 2021. The ~~decrease~~increase in income tax expense was ~~primarily~~ due to our ~~decrease in~~increased income during the third quarter ~~over quarter.~~of 2022. Our effective tax rate was ~~17.5%~~22.3% for the third quarter of ~~2021,~~2022, compared to 17.5% for the ~~prior year period.~~same period in 2021.

~~For the nine~~Nine months ended September 30, ~~2021~~2022 and ~~2020~~

2021

We had income tax expense for the nine months ended September 30, ~~2021~~2022 of ~~$7.2~~$8.6 million, compared to ~~$7.7~~$7.2 million for the ~~prior year period.~~same period in 2021. The ~~decrease~~increase in income tax expense was primarily due to our ~~decreased~~increased income during ~~2021.~~the period ended September 30, 2022. Our effective tax rate was ~~17.2%~~19.8% for the nine months ended September 30, ~~2021,~~2022, compared to ~~17.5%~~17.2% for the ~~prior year period.~~same period in 2021.

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Financial Condition

Balance Sheet

Our total assets were $7.1 billion and $5.7 billion at September 30, ~~2021, compared to $5.0 billion at~~2022 and December 31, ~~2020.~~2021, respectively. Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were ~~$3.8~~$5.6 billion at September 30, ~~2021, a decrease~~2022, an increase of ~~$42.4 million~~$1.5 billion from December 31, ~~2020.~~

2021, which was due to organic growth and the Pioneer Merger.

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, ~~2021~~2022 and December 31, ~~2020.~~2021. 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 ~~increased~~decreased by ~~$62.8~~$21.3 million to ~~$531.4~~$551.2 million at September 30, 2022, compared to December 31, 2021. The decrease was due to unrealized losses resulting from the rising interest rate environment, partially offset by securities acquired in the Pioneer Merger. During ~~2021,~~the period ended September 30, 2022, the securities held-to-maturity ~~paid down resulting in a decrease of $12.4~~increased $21.1 million to ~~$19.8 million.~~$39.1 million due to the securities held-to-maturity acquired in the Pioneer Merger.

Table of Contents

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

September 30, 2021 December 31, 2020
(In thousands) Carrying Amount % of Portfolio Carrying Amount % of Portfolio
Available-for-sale:
U.S. treasury $ 20,695 3.9 % $ — — %
U.S. agency 6,389 1.2 % 8,996 1.9 %
Obligations of states and political subdivisions 3,997 0.8 % 3,435 0.7 %
Mortgage backed - residential 134,281 25.3 % 119,562 25.5 %
Collateralized mortgage obligations 222,161 41.8 % 203,196 43.4 %
Mortgage backed - commercial 143,872 27.1 % 133,397 28.5 %
Total available-for-sale $ 531,395 100 % $ 468,586 100.0 %
Held-to-maturity:
U.S. agency — — % 5,099 15.8 %
Obligations of states and political subdivisions 720 3.6 % 730 2.3 %
Mortgage backed - residential 11,686 59.0 % 16,050 49.9 %
Collateralized mortgage obligations 7,405 37.4 % 10,309 32.0 %
Total held-to-maturity $ 19,811 100 % $ 32,188 100.0 %

~~Table of Contents~~


	September 30, 2022				December 31, 2021
(In thousands)	Carrying Amount		% of Portfolio		Carrying Amount		% of Portfolio
Available-for-sale:
U.S. treasury	$	56,618	10.3	%	$	35,185	6.1	%
U.S. agency	3,201		0.6	%	5,919		1.0	%
Obligations of states and political subdivisions	25,452		4.6	%	3,789		0.7	%
Mortgage backed - residential	118,513		21.5	%	138,677		24.2	%
Collateralized mortgage obligations	214,030		38.8	%	235,784		41.2	%
Mortgage backed - commercial	118,592		21.5	%	153,147		26.8	%
Other debt	14,759		2.7	%	—		—	%
Total available-for-sale	$	551,165	100.0	%	$	572,501	100.0	%
Held-to-maturity:


Obligations of states and political subdivisions	$	25,002	63.9	%	$	716	4.0	%
Mortgage backed - residential	9,091		23.2	%	10,750		59.7	%
Collateralized mortgage obligations	5,055		12.9	%	6,541		36.3	%


Total held-to-maturity	$	39,148	100.0	%	$	18,007	100.0	%

The following ~~tables show~~table shows the weighted average yield to average life of each category of investment securities as ~~of:~~of September 30, 2022:

(In thousands) One year or less One to five years Five to ten years After ten years
September 30, 2021 Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield
Available-for-sale:
U.S. treasury $ — — % $ — — % $ 20,695 1.28 % $ — — %
U.S. agency — — % 3,329 1.75 % 2,457 1.25 % 603 2.06 %
Obligations of states and political subdivisions — — % — — % 3,997 2.01 % — — %
Mortgage backed - residential 595 1.97 % 79,007 1.75 % 30,628 1.64 % 24,051 1.91 %
Collateralized mortgage obligations 12,498 1.32 % 131,706 1.06 % 67,893 1.60 % 10,064 1.61 %
Mortgage backed - commercial 1,769 2.35 % 50,519 1.72 % 76,552 1.97 % 15,032 2.86 %
Total available-for-sale $ 14,862 1.47 % $ 264,561 1.40 % $ 202,222 1.72 % $ 49,750 2.14 %
Held-to-maturity:
Obligations of states and political subdivisions — — % 720 1.55 % — — % — — %
Mortgage backed - residential 758 — % 8,696 2.34 % — — % 2,232 3.25 %
Collateralized mortgage obligations 933 (0.55) % 6,472 2.17 % — — % — — %
Total held-to-maturity $ 1,691 (0.30) % $ 15,888 2.24 % $ — — % $ 2,232 3.25 %

(In thousands) One year or less One to five years Five to ten years After ten years
December 31, 2020 Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield Carrying Amount Average Yield
Available-for-sale:
U.S. agency — — % 4,334 1.69 % 3,576 1.22 % 1,085 2.04 %
Obligations of states and political subdivisions — — % — — % 3,435 2.10 % — — %
Mortgage backed - residential 1,196 3.09 % 83,690 1.92 % 3,060 3.09 % 31,618 1.91 %
Collateralized mortgage obligations 24,013 (0.45) % 143,932 1.26 % — — % 35,250 0.73 %
Mortgage backed - commercial — — % 54,463 1.79 % 63,531 2.18 % 15,403 2.85 %
Total available-for-sale $ 25,209 (0.28) % $ 286,419 1.56 % $ 73,602 2.17 % $ 83,356 1.59 %
Held-to-maturity:
U.S. agency $ 5,099 2.45 % $ — — % $ — — % $ — — %
Obligations of states and political subdivisions — — % — — % 730 1.55 % — — %
Mortgage backed - residential 27 1.76 % 8,483 2.22 % 2,929 2.43 % 4,611 3.22 %
Collateralized mortgage obligations 10,309 1.57 % — — % — — % — — %
Total held-to-maturity $ 15,435 1.86 % $ 8,483 2.22 % $ 3,659 2.25 % $ 4,611 3.22 %

~~For all periods, we had no securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.~~


(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	$	3,412	—	%	$	22,278	1.89	%	$	30,928	1.29	%	$	—	—	%
U.S. agency	—		—	%	1,981		3.28	%	1,220		2.89	%	—		—	%
Obligations of states and political subdivisions	—		—	%	—		—	%	7,094		3.20	%	18,358		3.00	%
Mortgage backed - residential	164		3.99	%	39,931		2.21	%	36,820		1.88	%	41,598		2.18	%
Collateralized mortgage obligations	2,344		2.32	%	86,119		2.77	%	106,355		2.30	%	19,212		2.10	%
Mortgage backed - commercial	1,526		2.86	%	36,024		2.74	%	66,981		2.14	%	14,061		2.88	%
Other debt	—		—	%	—		—	%	12,014		2.83	%	2,745		3.78	%
Total available-for-sale	$	7,446	1.40	%	$	186,333	2.54	%	$	261,412	2.13	%	$	95,974	2.47	%
Held-to-maturity:


Obligations of states and political subdivisions	—		—	%	705		1.55	%	—		—	%	24,297		3.52	%
Mortgage backed - residential	—		—	%	5,629		2.54	%	22		5.80	%	3,440		3.24	%
Collateralized mortgage obligations	461		1.40	%	3,071		2.52	%	1,523		2.96	%	—		—	%


Total held-to-maturity	$	461	1.40	%	$	9,405	2.46	%	$	1,545	3.00	%	$	27,737	3.49	%

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Loans

Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Colorado, Kansas, ~~Colorado,~~Arizona, and New Mexico, ~~Texas, and Arizona,~~ comprised of commercial, commercial real estate, residential real estate and consumer financing ~~loans.~~

Total loans, net of deferred origination fees, as of both September 30, 2021 and December 31, 2020 were $3.8 billion. The commercial loan portfolio includes PPP loans outstanding of $113.4 million and $251.1 million at September 30, 2021 and December 31, 2020, respectively.

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

September 30, 2021 December 31, 2020
(In thousands) Amount % of total loans Amount % of total loans
Commercial $ 2,222,261 58.4 % $ 2,173,615 56.5 %
Commercial real estate 1,137,820 29.9 % 1,154,576 30.0 %
Residential real estate 425,927 11.2 % 503,697 13.1 %
Consumer 17,973 0.5 % 14,469 0.4 %
Total loans $ 3,803,981 100 % $ 3,846,357 100 %

~~Our loan portfolio types are commercial, commercial real estate, residential real estate, and consumer~~ 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.

Total loans, net of deferred origination fees, premiums, and discounts as of September 30, 2022 and December 31, 2021 were $5.6 billion and $4.0 billion, respectively. The increase in total loans was due to organic growth and our acquisition of Pioneer on April 1, 2022, which resulted in $811.3 million of loans recorded, net of purchase accounting adjustments.

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


	September 30, 2022				December 31, 2021
(In thousands)	Amount		% of total loans		Amount		% of total loans
Commercial	$	2,738,068	49.3	%	$	2,407,888	59.6	%
Commercial real estate	1,772,315		31.9	%	1,174,242		29.1	%
Residential real estate	1,003,157		18.0	%	437,017		10.8	%
Consumer	43,146		0.8	%	17,976		0.5	%
Total loans	$	5,556,686	100.0	%	$	4,037,123	100.0	%

Commercial loans include commercial and industrial loans to commercial and agricultural customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. Commercial and industrial loans also include our specialty lending verticals such as public finance offerings to our charter school and municipal based customers, asset based lending and structured finance products as well as our healthcare, SBA and other small business lending products. 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 loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial and agricultural businesses, and include both loans for long-term financing of land and buildings and loans made for the initial development or construction of a commercial real estate project.

Residential real estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit.

Consumer loans include direct consumer installment loans, credit card accounts, overdrafts and other revolving loans.

~~The CARES Act created~~We have originated loans to qualified small businesses under the PPP ~~to provide certain small businesses with liquidity to support their operations during~~administered by the ~~COVID-19 pandemic. Under~~SBA under the provisions of the CARES Act. Loans covered by the PPP may be eligible ~~small businesses could apply~~for loan forgiveness for certain costs incurred related to ~~an SBA-approved lender for a~~payroll, group health care benefit costs and qualifying mortgage, rent and utility payments. The remaining loan ~~that does not require collateral or personal guarantees. Entities were required~~balance after forgiveness of any amounts is expected to ~~meet certain eligibility requirements to receive~~be fully guaranteed by the SBA. PPP loans, which are included in our commercial loan portfolio, were $6.0 million and they must maintain specified levels of payroll and employment to have the loans forgiven. The conditions are subject to audit by the U.S. government, but entities that borrowed less than $2.0 million (together with any affiliates) will be deemed to have made the required certification concerning the necessity of the loan in good faith. However, the SBA does reserve the right to audit any PPP borrower. While the PPP program ended on May 31, 2021, we are now focused on assisting our customers through the loan forgiveness process.

PPP loans issued prior to June 5, 2020 mature in two years unless otherwise modified and loans issued after June 5, 2020 mature in five years. However, PPP loans are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions. All borrowers are required to retain the supporting documents for six years. For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S. government. The average amount of each of our originated PPP loans was approximately $0.2$66.7 million at ~~each of~~ September 30, ~~2021~~2022 and December 31, ~~2020.~~2021, respectively. Refer to the 2021 Form 10-K for additional details.

~~Table~~During the three and nine months ended September 30, 2022, we recognized $0.3 million and $1.8 million, respectively, in PPP loan related deferred processing fees (net of ~~Contents~~

~~The PPP loans have~~amortization of related deferred origination costs) as a ~~1% fixed~~yield adjustment and this amount is included in interest ~~rate and produced an annualized yield for~~income on loans. During the three and nine months ended September 30, 2021, we recognized approximately $2.1 million and $7.7 million, respectively, in PPP loan related deferred net processing fees.

Table of 5.03% and 4.83%, respectively, due to the amortization of net deferred loan fees and the accelerated recognition of loan fees in conjunction with loan forgiveness occurring prior to a scheduled maturity. At September 30, 2021, the remaining amount of unamortized net deferred loan fees on our PPP loans was $3.2 million. Our PPP loans are included in the commercial loans category.Contents

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 ~~the periods presented:~~September 30, 2022:


(In thousands)	(In thousands)	One year or less		After one through five years		After five through 15 years		After 15 years		Total		(In thousands)	One year or less		After one through five years		After five through 15 years		After 15 years		Total
As of September 30, 2021
Commercial	Commercial	$	193,889	$	1,078,670	$	728,141	$	221,561	$	2,222,261	Commercial	$	235,637	$	1,546,433	$	753,750	$	202,248	$	2,738,068
Commercial real estate	Commercial real estate	83,759		552,588		489,901		11,572		1,137,820		Commercial real estate	147,361		993,026		557,822		74,106		1,772,315
Residential real estate	Residential real estate	10,692		53,377		77,200		284,658		425,927		Residential real estate	94,447		95,406		131,834		681,470		1,003,157
Consumer	Consumer	5,811		11,677		485		—		17,973		Consumer	8,355		9,962		24,503		326		43,146
Total loans	Total loans	$	294,151	$	1,696,312	$	1,295,727	$	517,791	$	3,803,981	Total loans	$	485,800	$	2,644,827	$	1,467,909	$	958,150	$	5,556,686

				After one through five years		After five through 15 years		After 15 years		Total
Loans maturing after one year with:
Fixed interest rates				$	819,915	$	873,904	$	268,315	$	1,962,134
Floating or adjustable interest rates				$	876,397	$	421,822	$	249,477	$	1,547,696

(In thousands) One year
or less After one
through
five years After five
through
15 years After 15
years Total
As of December 31, 2020
Commercial $ 134,145 $ 1,004,033 $ 776,007 $ 259,430 $ 2,173,615
Commercial real estate 113,721 478,989 552,764 9,103 1,154,577
Residential real estate 16,336 40,386 89,400 357,574 503,696
Consumer 6,057 7,980 432 — 14,469
Total loans $ 270,259 $ 1,531,388 $ 1,418,603 $ 626,107 $ 3,846,357
After one
through
five years After five
through
15 years After 15
years Total
Loans maturing after one year with:
Fixed interest rates $ 1,095,180 $ 1,021,107 $ 314,344 $ 2,430,631
Floating or adjustable interest rates $ 436,208 $ 397,496 $ 311,763 $ 1,145,467


(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	$	45,630	$	699,528	$	657,031	$	173,745	$	1,575,934	$	1,530,304
Commercial real estate	66,151		609,858		166,160		1,300		843,469		777,318
Residential real estate	56,324		70,220		93,060		315,062		534,666		478,342
Consumer	5,896		8,817		24,375		—		39,088		33,192
Total fixed interest rate loans	$	174,001	$	1,388,423	$	940,626	$	490,107	$	2,993,157	$	2,819,156
Floating or adjustable interest rates
Commercial	$	190,007	$	846,905	$	96,719	$	28,503	$	1,162,134	$	972,127
Commercial real estate	81,210		383,168		391,662		72,806		928,846		847,636
Residential real estate	38,123		25,186		38,774		366,408		468,491		430,368
Consumer	2,459		1,145		128		326		4,058		1,599
Total floating or adjustable interest rate loans	$	311,799	$	1,256,404	$	527,283	$	468,043	$	2,563,529	$	2,251,730
Total loans	$	485,800	$	2,644,827	$	1,467,909	$	958,150	$	5,556,686	$	5,070,886

Allowance for Loan Losses

We maintain the allowance for loan losses at a level we believe is sufficient to absorb probable incurred losses in our loan portfolio given the conditions at the time. 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 loan losses charged to earnings, which increases the allowance.

In determining the provision for loan 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~~. conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.

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Table of Contents

The following table presents, by loan type, the changes in the allowance for loan ~~losses for the periods presented:~~losses:


		For the three months ended September 30,						For the nine months ended September 30,						December 31,				For the three months ended September 30,						For the nine months ended September 30,						For the year ended December 31,
(In thousands)	(In thousands)	2021			2020			2021			2020			2020			(In thousands)	2022			2021			2022			2021			2021
Balance, beginning of period	Balance, beginning of period	$	42,978		$	37,896		$	47,766		$	28,546		$	28,546		Balance, beginning of period	$	56,077		$	42,978		$	47,547		$	47,766		$	47,766

Loan charge-offs:	Loan charge-offs:																Loan charge-offs:
Commercial	Commercial	—			(203)			(3,102)			(997)			(4,064)			Commercial	(223)			—			(2,173)			(3,102)			(4,296)
Commercial real estate	Commercial real estate	—			(1)			—			(581)			(581)			Commercial real estate	—			—			—			—			(375)
Residential real estate	Residential real estate	—			—			(2)			(39)			(39)			Residential real estate	(24)			—			(122)			(2)			(42)
Consumer	Consumer	(66)			(32)			(138)			(168)			(216)			Consumer	(53)			(66)			(117)			(138)			(148)
Total loan charge-offs	Total loan charge-offs	(66)			(236)			(3,242)			(1,785)			(4,900)			Total loan charge-offs	(300)			(66)			(2,412)			(3,242)			(4,861)

Recoveries of loans previously charged-off:	Recoveries of loans previously charged-off:																Recoveries of loans previously charged-off:
Commercial	Commercial	1,440			225			1,526			514			585			Commercial	112			1,440			1,835			1,526			1,547
Commercial real estate	Commercial real estate	—			—			9			272			272			Commercial real estate	2			—			3			9			28
Residential real estate	Residential real estate	3			3			23			20			115			Residential real estate	1			3			196			23			24
Consumer	Consumer	13			13			36			34			48			Consumer	36			13			59			36			43
Total loan recoveries	Total loan recoveries	1,456			241			1,594			840			1,020			Total loan recoveries	151			1,456			2,093			1,594			1,642

Net recoveries (charge-offs)	Net recoveries (charge-offs)	1,390			5			(1,648)			(945)			(3,880)			Net recoveries (charge-offs)	(149)			1,390			(319)			(1,648)			(3,219)

Provision for loan losses	Provision for loan losses	3,500			4,800			1,750			15,100			23,100			Provision for loan losses	3,750			3,500			12,450			1,750			3,000
Balance, end of period	Balance, end of period	$	47,868		$	42,701		$	47,868		$	42,701		$	47,766		Balance, end of period	$	59,678		$	47,868		$	59,678		$	47,868		$	47,547

Allowance for loan losses to loans receivable		1.26		%	1.12		%	1.26		%	1.12		%	1.24		%
Ratio of net charge-offs to average loans outstanding		(0.15)		%	—		%	0.06		%	0.04		%	0.11		%
Allowance for loan losses to total loans																	Allowance for loan losses to total loans	1.07		%	1.26		%	1.07		%	1.26		%	1.18		%
Ratio of net charge-offs (recoveries) to average loans outstanding																	Ratio of net charge-offs (recoveries) to average loans outstanding	0.01		%	(0.15)		%	0.01		%	0.06		%	0.09		%

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)	2022		2021		2022		2021
Commercial	0.02	%	(0.25)	%	0.02	%	0.10	%
Commercial real estate	—	%	—	%	—	%	—	%
Residential real estate	0.01	%	—	%	(0.02)	%	(0.01)	%
Consumer	0.15	%	1.20	%	0.21	%	0.86	%

Allocation of Allowance for Loan Losses

The following table presents the allocation of the allowance for loan losses by category and the percentage of the allocation of the allowance for loan losses by category to total loans listed as ~~of the dates indicated:~~of:


		September 30, 2021				December 31, 2020					September 30, 2022				December 31, 2021
(In thousands)	(In thousands)	Allowance Amount		% of Portfolio		Allowance Amount		% of Portfolio		(In thousands)	Allowance Amount		% of loans in each category to total loans		Allowance Amount		% of loans in each category to total loans
Commercial	Commercial	$	32,643	0.86	%	$	32,009	0.83	%	Commercial	$	37,162	49.3	%	$	33,277	59.6	%
Commercial real estate	Commercial real estate	13,709		0.36	%	13,863		0.36	%	Commercial real estate	19,218		31.9	%	12,899		29.1	%
Residential real estate	Residential real estate	1,277		0.03	%	1,606		0.04	%	Residential real estate	2,965		18.0	%	1,136		10.8	%
Consumer	Consumer	239		0.01	%	288		0.01	%	Consumer	333		0.8	%	235		0.5	%
Total	Total	$	47,868	1.26	%	$	47,766	1.24	%	Total	$	59,678	100.0	%	$	47,547	100.0	%

Table of Contents

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 ~~required~~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, loans identified as a troubled debt restructuring (“TDR”), 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.

~~Table of Contents~~

A loan is identified as a ~~troubled debt restructuring, or~~ TDR, when we, for economic or legal reasons related to the borrower’s financial difficulties, grant a concession to the borrower. The concessions may be granted in various forms including interest rate reductions, principal forgiveness, extension of maturity date, waiver or deferral of payments and other actions intended to minimize potential losses. ~~A loan that has been restructured in a TDR may not be disclosed as a TDR in years subsequent to the restructuring if certain conditions are met.~~ Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of no less than six months to demonstrate that the borrower can meet the restructured terms. However, the borrower’s performance prior to the restructuring or other significant events at the time of restructuring may be considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.

The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that may otherwise be characterized as a TDR and suspend any determination related thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications are related to COVID-19, and (iii) the modification occurs between March 1, 2020 and the earlier of 60 days after the date of termination of the national emergency or January 1, 2022. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19.

As of September 30, 2021, we had active payment deferrals totaling $21.3 million compared to $65.8 million at December 31, 2020. As of September 30, 2021 and December 31, 2020, $2.5 million and $51.8 million, respectively, of restructured loans were exempt from the accounting guidance for TDRs as a result of loans which are included in the COVID-19 related loan payment deferral total.

The following table sets forth our nonperforming assets as ~~of each period presented:~~of:

(In thousands) September 30, 2021 December 31, 2020
Nonaccrual loans:
Commercial $ 18,639 $ 22,779
Commercial real estate 5,205 2,934
Residential real estate 6,456 9,498
Consumer 3 38
Total nonaccrual loans 30,303 35,249
Accrual loans greater than 90 days past due — 777
Total nonperforming loans 30,303 36,026
Other real estate owned and foreclosed assets, net 5,747 3,354
Total nonperforming assets $ 36,050 $ 39,380
Nonperforming assets to total assets 0.63 % 0.79 %
Nonperforming loans to total loans 0.80 % 0.94 %
Allowance for loan losses to nonaccrual loans 157.96 % 135.51 %

~~Total nonperforming assets were $36.1 million as of September 30, 2021, compared to $39.4 million at December 31, 2020.~~

Potential problem loans are impaired loans which management has serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. Management has not identified any potential problem loans not included in the nonperforming assets table above.


(In thousands)	September 30, 2022			December 31, 2021
Nonaccrual loans:
Commercial	$	15,745		$	16,492
Commercial real estate	8,936			4,781
Residential real estate	8,804			6,052
Consumer	87			2
Total nonaccrual loans	33,572			27,327
Accrual TDRs	8,429			6,450
Accrual loans greater than 90 days past due	459			1,061
Total nonperforming loans	42,460			34,838
Other real estate owned and foreclosed assets, net	5,391			5,487
Total nonperforming assets	$	47,851		$	40,325
Nonaccrual loans to total loans	0.60		%	0.68		%
Nonperforming loans to total loans (1)	0.76		%	0.86		%
Nonperforming assets to total assets (1)	0.68		%	0.71		%
Allowance for loan losses to nonaccrual loans	177.76		%	173.99		%
(1) Nonperforming loans include nonaccrual loans, accrual TDR’s, and accrual loans greater than 90 days past due.

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Deposits

Deposits represent our primary source of funds. We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. Total deposits increased by $0.9 billion to ~~$4.9~~$5.8 billion at September 30, ~~2021,~~2022, compared to ~~$4.2 billion at~~ December 31, ~~2020.~~2021. Deposit growth over this period occurred ~~across all of the states~~primarily in our ~~footprint including Kansas, New Mexico and Colorado, as well as in our newer~~Texas markets, in Arizona and Texas. In addition, government stimulus efforts in response to the COVID-19 pandemic have contributed to a portion of our deposit growth for both commercial and consumer clients. Noninterest-bearing demand deposits increased on average by $0.3 billion from December 31, 2020 to September 30, 2021, primarily driven by our growth in our commercial deposit base. Our certificates of deposit have decreased on average by $0.2 billion from December 31, 2020 to September 30, 2021 primarilygenerally due to ~~the low interest rate environment.~~

our acquisition of Pioneer, resulting in $1.2 billion of deposits recorded, net of purchase accounting adjustments.

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


		For the three months ended				For the nine months ended				For the year ended					For the three months ended								For the nine months ended September 30,
		September 30, 2021				September 30, 2021				December 31, 2020					2022				2021				2022				2021
(Dollars in thousands)	(Dollars in thousands)	Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		Average Balance		Average Rate Paid		(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	Noninterest-bearing demand deposit accounts	$	1,483,010	—	%	$	1,295,984	—	%	$	978,092	—	%	Noninterest-bearing demand deposit accounts	$	1,924,055	—	%	$	1,483,010	—	%	$	1,805,982	—	%	$	1,295,984	—	%
Interest-bearing deposit accounts:	Interest-bearing deposit accounts:													Interest-bearing deposit accounts:
Interest-bearing demand accounts	Interest-bearing demand accounts	188,897		0.19	%	193,756		0.21	%	127,408		0.33	%	Interest-bearing demand accounts	159,905		1.12	%	188,897		0.19	%	169,191		0.58	%	193,756		0.21	%
Savings accounts and money market accounts	Savings accounts and money market accounts	2,718,369		0.17	%	2,637,844		0.19	%	2,182,648		0.34	%	Savings accounts and money market accounts	3,124,000		0.24	%	2,718,369		0.17	%	3,064,646		0.18	%	2,637,844		0.19	%
NOW accounts	NOW accounts	52,591		0.38	%	78,199		0.57	%	78,149		0.77	%	NOW accounts	42,385		0.43	%	52,591		0.38	%	45,671		0.34	%	78,199		0.57	%
Certificate of deposit accounts	Certificate of deposit accounts	337,906		0.81	%	350,217		0.92	%	488,575		1.49	%	Certificate of deposit accounts	593,479		0.62	%	337,906		0.81	%	498,753		0.56	%	350,217		0.92	%
Total interest-bearing deposit accounts	Total interest-bearing deposit accounts	3,297,763		0.24	%	3,260,016		0.28	%	2,876,780		0.54	%	Total interest-bearing deposit accounts	3,919,769		0.33	%	3,297,763		0.24	%	3,778,261		0.25	%	3,260,016		0.28	%
Total deposits	Total deposits	$	4,780,773	0.17	%	$	4,556,000	0.20	%	$	3,854,872	0.41	%	Total deposits	$	5,843,824	0.22	%	$	4,780,773	0.17	%	$	5,584,243	0.17	%	$	4,556,000	0.20	%

~~The following table sets forth the average balance amounts and the average rates paid on deposits by customer type held by us for the periods presented:~~

For the three months ended For the nine months ended For the year ended
September 30, 2021 September 30, 2021 December 31, 2020
(Dollars in thousands) Average
Balance Average
Rate Paid Average
Balance Average
Rate Paid Average
Balance Average
Rate Paid
Consumer $ 2,450,670 0.23 % $ 2,367,951 0.27 % $ 2,083,701 0.52 %
Business Customers 2,330,103 0.10 % 2,188,049 0.11 % 1,771,171 0.27 %
Total deposits $ 4,780,773 0.17 % $ 4,556,000 0.20 % $ 3,854,872 0.41 %

~~Maturities~~As of ~~certificates of deposit of $100,000 or more outstanding at~~ September 30, ~~2021~~2022 and December 31, ~~2020~~2021, approximately $2.4 billion, respectively, of our deposit portfolio was uninsured. The uninsured amounts are ~~summarized as follows:~~

(In thousands) September 30, 2021 December 31, 2020
Three months or less $ 35,315 $ 31,696
Over three months through twelve months 92,077 103,717
Over twelve months through three years 41,663 55,696
Over three years 8,113 10,359
Total $ 177,168 $ 201,468

estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

~~Table of Contents~~

~~Short-Term Borrowings and Other Interest-Bearing Liabilities~~

Other than deposits, we also utilize Federal Home Loan Bank (FHLB) advances as a supplementary funding source to finance our operations. FHLB advances on our line-of-credit (LOC) are considered short-term borrowings and are presented in the table below, while our FHLB fixed rate term advances are considered long-term borrowings. At September 30, 2021 and December 31, 2020, our FHLB fixed rate term advances amounted to $40.0 million and $50.4 million, respectively. Our advances from the FHLB are collateralized by residential, multi-family, and commercial real estate loans. At September 30, 2021 and December 31, 2020, we had maximum borrowing capacity from the FHLB of $675.6 million and $702.5 million, respectively, subject to the availability of collateral.

We also enter into agreements with certain customers to sell securities under agreements to repurchase the security the following day. These agreements are made to provide customers with comprehensive treasury management programs a short-term return on their excess funds.

~~The following tables outline our various sources of short-term borrowed funds during the nine months ended~~ ~~September 30, 2021~~ and the year ended December 31, 2020, and the amounts outstanding at the end of each period, the maximum month end amount for each component during the periods, the average amounts for each period, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any month end during each of the periods shown.

Ending
Balance Period End
Rate Maximum
Month End
Balance Period Average
Balance Rate
As of and for the nine months ended September 30, 2021
Advances from FHLB LOC $ — — % $ — $ 220 0.35 %
Securities sold under agreements to repurchase 117,001 0.04 % 160,865 131,444 0.05 %
Total $ 117,001 $ 160,865 $ 131,663
As of and for the year ended December 31, 2020
Advances from FHLB LOC $ 20,000 0.35 % $ 150,000 $ 30,489 0.69 %
Securities sold under agreements to repurchase 115,372 0.05 % 149,844 118,706 0.15 %
Total $ 135,372 $ 299,844 $ 149,195

~~Other Borrowings~~

In addition to our FHLB advances and our securities sold under agreements to repurchase, we also have convertible notes payable and subordinated debt, including trust preferred securities and other borrowings amounting to $69.2 million at September 30, 2021 and $68.4 million at December 31, 2020.

~~Table of Contents~~

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. ~~Our liquidity management policy~~

FirstSun (Parent Company)

FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and ~~our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us~~funds used for acquisitions. FirstSun can obtain funding to meet ~~all reasonably foreseeable short-term, long-term~~its obligations from dividends collected from its subsidiaries, primarily the Bank, and ~~strategic~~through the issuance of varying forms of debt. At September 30, 2022, FirstSun had cash and cash equivalents of $17.7 million and debt outstanding of $84.4 million. Management believes FirstSun has the ability to generate and obtain adequate amounts of liquidity demands. Our Asset and Liability Management Committee, or ALCO, is responsible for oversight of our liquidity risk management activities in accordance with the provisions of our ALM Policy and applicable bank regulatory capital and liquidity laws and regulations. Our liquidity risk management process includes (i) ongoing analysis and monitoring of our fundingto meet its requirements under various economic and interest rate scenarios, (ii) review and monitoring of lenders, depositors, brokers and other liability holders to ensure appropriate diversification of funding sources and (iii) liquidity contingency planning to address liquidity needs in the ~~event~~short-term and the long-term.

Federal banking laws regulate the amount of ~~unforeseen market disruption, including appropriate allocation~~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 ~~funds~~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 2021 or 2022 and is not currently required. At September 30, 2022, the Bank could pay dividends to FirstSun of approximately $132.1 million without prior regulatory approval. During the three and nine months ended September 30, 2022, the Bank paid a ~~liquid portfolio~~dividend of ~~marketable securities~~$8.0 million to FirstSun. During the three and ~~investments. We~~nine months ended September 30, 2022, Logia paid a dividend of $0.4 million to FirstSun.

Bank

As more fully discussed in our 2021 Form 10-K, we continuously monitor our liquidity position ~~in order for our assets~~ and ~~liabilities~~make adjustments to ~~be managed in a manner that we believe will meet our immediate and long-term funding requirements. We seek to manage our liquidity position to meet~~ the ~~daily cash flow needs of customers, while maintaining an appropriate~~ balance between ~~assets~~sources and ~~liabilities to meet the return on investment objectives~~uses of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control whenfunds as we ~~make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.~~

Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers and capital expenditures. These liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities.~~Cash, interest-bearing deposits in third party banks, securities available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets.~~Other sources of liquidity that are available to us include the sale of loans we hold for investment, the ability to acquire additional national market non-core deposits, borrowings through the Federal Reserve’s discount window and the issuance of debt or equity securities. We believe that the sources of available liquidity are adequate to meet our current and reasonably foreseeable future liquidity needs.

deem appropriate. At September 30, ~~2021,~~2022, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to ~~$905.7~~$149.1 million, or ~~15.9%~~2.1% of total assets, compared to ~~$144.9~~$583.0 million, or ~~2.9%~~10.3% of total assets, at December 31, ~~2020.~~2021. The ~~increase~~decrease in our liquid assets was primarily due to ~~an increase~~a decrease in cash held at the Federal Reserve. Our available-for-sale securities at September 30, ~~2021~~2022 were ~~$531.4~~$551.2 million, or ~~9.4%~~7.8% of total assets, compared to ~~$468.6~~$572.5 million, or ~~9.4%~~10.1% of total assets, at December 31, ~~2020.~~2021. Investment securities with an aggregate carrying value of ~~$467.0~~$435.4 million and ~~$437.2~~ $465.7

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million at September 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively, were pledged to secure public deposits and repurchase agreements. The ~~increase~~decrease in our pledged securities was primarily due to ~~increases~~changes in public ~~funds~~deposits and repurchase agreements.

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, ~~2021,~~2022, customer deposits, excluding brokered deposits and certificates of deposit greater than $250,000, were ~~119.9%~~97.6% of net loans, compared with ~~101.0%~~113.2% at December 31, ~~2020.~~2021. For additional information related to our deposits, see the Deposits section above. We are also a member of the FHLB, from which we can borrow for leverage or liquidity purposes. The FHLB requires that securities and qualifying loans be pledged to secure any advances. At September 30, ~~2021,~~2022, we had ~~$40.0~~$310.9 million in advances from the FHLB and a remaining credit availability of ~~$556.5~~$659.5 million. In addition, we maintain a ~~$9.4~~$6.5 million line with the Federal Reserve Bank’s discount window that is secured by certain loans from our loan portfolio.

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, 2022 was $750.7 million, compared to $524.0 million at December 31, 2021, an increase of $226.6 million, or 43.2%. The increase in stockholders’ equity relates primarily to the value of the common shares issued to the Pioneer shareholders in our Merger with Pioneer on April 1, 2022, and net income for the nine months ended September 30, 2022, partially offset by a decline in accumulated other comprehensive income (loss), net, for unrealized losses in our available-for-sale securities portfolio resulting from the rising interest rate environment.

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 14 - 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, 2022. 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	7	$	5,160,858	$	5,160,858	$	—	$	—	$	—
Certificates of deposit	7	599,560		381,184		194,356		20,925		3,095
Securities sold under agreements to repurchase	8	51,256		51,256		—		—		—
Short-term debt:
FHLB LOC	9	170,884		170,884		—		—		—
Long-term debt:
FHLB term advances (1)	9	140,000		140,000		—		—		—
Convertible notes payable	9	5,456		5,456		—		—		—
Subordinated debt	9	78,919		—		—		—		78,919
Operating leases	17	34,148		2,428		14,594		10,028		7,098
(1) Due to the increasing interest rate environment, we believe all of our FHLB term advances will be called upon the next due date, resulting in their repayment within the next year. For further information see Note 9 - Debt to the consolidated financial statements.

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

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~~Capital Resources~~

obligations presented above. Further discussion of derivative instruments is included in

~~Stockholders’ equity at September 30, 2021 was $519.9 million, compared~~Note 6 - Derivative Financial Instruments to ~~$485.8 million at December 31, 2020, an increase of $34.1 million, or 7.0%. The increase was primarily driven by net income in 2021.~~

We are subject to various regulatory capital requirements administered by federal banking regulators. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on ourthe consolidated financial statements.

~~Regulatory capital rules adopted~~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 ~~July 2013~~which they are engaged. Further discussion of contingent liabilities is included in Note 17 - Commitments and ~~fully-phased in as of January 1, 2019, which we refer~~Contingencies to as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with consolidated assets of more than $3 billion. In order to avoid restrictions on capital distributions or discretionary bonus payments to executives, a covered banking organization must maintain the fully-phased in “capital conservation buffer” of 2.5% on top of its minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1 risk-based capital, but the buffer applies to all three measurements (common equity Tier 1 risk-based capital, Tier 1 capital and total capital). At ~~September 30, 2021, FirstSun and Sunflower Bank exceeded the regulatory minimums and met the regulatory definitions of well-capitalized.~~financial statements.

~~The following table shows the regulatory capital ratios for FirstSun at the dates indicated:~~

Actual For Capital
Adequacy Purposes3 To be Well-
Capitalized under
Prompt Corrective
Action Provisions4
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2021
Total risk-based capital to risk-weighted assets: $ 552,124 12.55 % $ 351,871 8.00 % N/A N/A
Tier 1 risk-based capital to risk-weighted assets: $ 453,740 10.32 % $ 263,904 6.00 % N/A N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 453,740 10.32 % $ 197,928 4.50 % N/A N/A
Tier 1 leverage capital to average assets: $ 453,740 8.19 % $ 221,526 4.00 % N/A N/A
As of December 31, 2020
Total risk-based capital to risk-weighted assets: $ 513,949 12.19 % $ 337,327 8.00 % N/A N/A
Tier 1 risk-based capital to risk-weighted assets: $ 416,029 9.87 % $ 252,995 6.00 % N/A N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 416,029 9.87 % $ 189,746 4.50 % N/A N/A
Tier 1 leverage capital to average assets: $ 416,029 8.53 % $ 195,074 4.00 % N/A N/A

3 Amounts are shown exclusive of the 2.5% capital conservation buffer applicable to total risked-based capital to risk-weighted assets, Tier 1 risked-based capital to risk weighted assets and CET1 to risk weighted assets.

4 ~~Prompt corrective action provisions are only applicable at the bank level.~~

~~Table of Contents~~

~~The following table shows the regulatory capital ratios for Sunflower Bank at the dates indicated:~~

Actual For Capital
Adequacy Purposes5 To be Well-
Capitalized under
Prompt Corrective
Action Provisions
(Dollars in thousands) Amount Ratio Amount Ratio Amount Ratio
As of September 30, 2021
Total risk-based capital to risk-weighted assets: $ 559,556 12.76 % $ 350,802 8.00 % $ 438,502 10.00 %
Tier 1 risk-based capital to risk-weighted assets: $ 511,100 11.66 % $ 263,101 6.00 % $ 350,802 8.00 %
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 511,100 11.66 % $ 197,326 4.50 % $ 285,026 6.50 %
Tier 1 leverage capital to average assets: $ 511,100 9.23 % $ 221,444 4.00 % $ 276,805 5.00 %
As of December 31, 2020
Total risk-based capital to risk-weighted assets: $ 517,077 12.30 % $ 336,276 8.00 % $ 420,345 10.00 %
Tier 1 risk-based capital to risk-weighted assets: $ 468,823 11.15 % $ 252,207 6.00 % $ 336,276 8.00 %
Common Equity Tier 1 (CET 1) to risk-weighted assets: $ 468,823 11.15 % $ 189,155 4.50 % $ 273,224 6.50 %
Tier 1 leverage capital to average assets: $ 468,823 9.62 % $ 195,008 4.00 % $ 243,760 5.00 %

~~Off-Balance Sheet items~~

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 17 - Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to 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 by us upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral is primarily obtained in the form of commercial and residential real estate (including income producing commercial properties).

Contingencies

Standby letters of credit are conditional commitments issued by us to guarantee to a third-party the performance of a customer. Those guarantees are primarily issued to support public and private borrowing arrangements, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.

~~Commitments to make loans are generally made for periods of 90 days or less.~~

~~Our exposure to credit loss in the event of non-performance by the other party~~ to the consolidated financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for funded instruments. We do not anticipate any material losses as a result of the commitments and standby letters of credit.

statements.

5 Amounts are shown exclusive of the 2.5% capital conservation buffer applicable to total risked-based capital to risk-weighted assets, Tier 1 risked-based capital to risk weighted assets and CET1 to risk weighted assets

~~Table of Contents~~

~~The following table summarizes commitments as of the dates presented:~~

September 30, 2021 December 31, 2020
(In thousands) Fixed
Rate Variable
Rate Fixed
Rate Variable
Rate
Undistributed portion of committed loans $ 100,709 $ 121,523 $ 80,445 $ 106,020
Unused lines of credit 15,746 535,880 15,003 496,122
Standby letters of credit 3,256 4,551 13,078 3,879
Total $ 119,711 $ 661,954 $ 108,526 $ 606,021

~~Contractual Obligations~~

~~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 contractual obligations as of September 30, 2021 and December 31, 2020:~~

(In thousands) Total Less than
1 Year 1 - 3
Years 3 - 5
Years More than
5 Years
September 30, 2021
Long-term debt:
FHLB term advances $ 40,000 $ 10,000 $ — $ 20,000 $ 10,000
Convertible notes payable 22,090 742 21,348 — —
Subordinated debt 57,913 347 824 736 56,006
Total long-term debt 120,003 11,089 22,172 20,736 66,006
Operating leases 39,151 6,672 13,513 10,790 8,176
Certificates of deposit 328,864 220,247 83,781 20,017 4,819
Total $ 488,018 $ 238,008 $ 119,466 $ 51,543 $ 79,001
December 31, 2020
Long-term debt:
FHLB term advances $ 50,411 $ 133 $ 20,267 $ 20,011 $ 10,000
Convertible notes payable 22,650 745 1,232 20,673 —
Subordinated debt 59,060 442 912 1,025 56,681
Total long-term debt 132,121 1,320 22,411 41,709 66,681
Operating leases 40,033 6,171 12,960 11,547 9,355
Certificates of deposit 365,959 236,583 102,382 20,832 6,162
Total $ 538,113 $ 244,074 $ 137,753 $ 74,088 $ 82,198

~~Table of Contents~~

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Refer to the discussion of market risks included in “Item 7A. Quantitative and Qualitative Disclosures About Market ~~risk is the risk of reduced earnings and/or declines~~Risk” in the ~~net~~2021 Form 10-K. There has been no material change in the types of 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.

risks we face since December 31, 2021.

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. In addition, we assume certain correlation rates, often referred to as a “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates. 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				% Change in Economic Value of Equity					% Change in Net Interest Income As of				% Change in Economic Value of Equity As of
Changes in Interest Rate (Basis Points)	Changes in Interest Rate (Basis Points)	As of September 30, 2021		As of December 31, 2020		As of September 30, 2021		As of December 31, 2020		Changes in Interest Rate (Basis Points)	September 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021

+300	+300	30.5	%	13.1	%	1.8	%	(7.4)	%	+300	14.1	%	24.9	%	(7.5)	%	(3.2)	%
+200	+200	20.3	%	8.9	%	2.0	%	(4.9)	%	+200	9.4	%	16.9	%	(4.7)	%	(1.9)	%
+100	+100	10.2	%	4.6	%	1.1	%	(2.4)	%	+100	4.6	%	8.4	%	(2.2)	%	(1.1)	%
Base	Base	—	%	—	%	—	%	—	%	Base	—	%	—	%	—	%	—	%
-100	-100	(1.0)	%	(3.1)	%	(0.8)	%	(2.2)	%	-100	(3.5)	%	(0.6)	%	1.6	%	1.2	%

Table of Contents

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

~~Management, including~~Based on our ~~Chief Executive Officer and Chief Financial Officer, has evaluated~~management’s evaluation (with the ~~effectiveness~~participation of our ~~disclosure controls~~principal executive officer and ~~procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))~~principal financial officer), as of the end of the period covered by this ~~report. Based upon that evaluation,~~report, our ~~Chief Executive Officer~~principal executive officer and ~~Chief Financial Officer~~principal financial officer have concluded that our disclosure controls and procedures ~~were~~(as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) are effective to ~~provide reasonable assurance regarding our control objective~~ensure that information required to be disclosed by us in ~~the~~ reports that we file ~~and~~or submit under the Exchange Act is ~~(i)~~ recorded, processed, summarized and reported aswithin the time periods specified in Securities and ~~when required~~Exchange Commission rules and ~~(ii)~~forms and is accumulated and communicated to our management, including our ~~Chief Executive Officer~~principal executive officer and ~~the Chief Financial Officer,~~principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

~~Table of Contents~~

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, ~~2021,~~2022, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Table of Contents

Part III - ~~Other~~Financial 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.~~17 - Commitments and Contingencies in our unaudited consolidated financial ~~statements.~~statements contained in this report. One or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.

Item 1A. Risk Factors

There have been no material changes to the risk factors set forth in the section titled “Risk Factors” included in the ~~Prospectus~~2021 Form 10-K filed with the SEC ~~in accordance with Securities Act Rule 424(b)(3)~~ on ~~August 12, 2021, in connection with our proposed merger with Pioneer.~~March 25, 2022. Our business involves significant risks. You should carefully consider the risks and uncertainties described in the ~~Prospectus,~~2021 Form 10-K, together with our audited consolidated financial statements and footnotes therein, as well as all of the other information in this Quarterly Report on Form ~~10-Q, as well as our audited consolidated financial statements and footnotes as disclosed in the Prospectus.~~10-Q. The risks and uncertainties described in ~~the Prospectus~~our 2021 Form 10-K are not the only ones we face. Additional risk and uncertainties that we are unaware of or that we deem immaterial may also become important factors that adversely affect our business. The realization of any of these risks and uncertainties could have a material adverse effect on our reputation, business, financial condition, results of operations, growth and future prospects as well as our ability to accomplish our strategic objectives.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

There were no unregistered sales of equity securities or issuer purchases of equity securities during the third quarter of ~~2021.~~

2022.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

Not ~~Applicable~~

applicable

Item 5. Other Information

None

Table of Contents

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 Capital Bancorp.~~

~~3.3~~						~~Bylaws of FirstSun Capital Bancorp as amended and restated through October 29, 2021~~.

~~4.1~~						Form of common stock certificate of FirstSun Capital Bancorp (incorporated by reference to Exhibit 4.1 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).

~~4.2~~						FirstSun Capital Bancorp is a party to long-term debt instruments with respect to subordinated notes and convertible debt under which the amount of securities authorized does not exceed 10% of the total assets of FirstSun Capital Bancorp and its subsidiaries on a consolidated basis. Pursuant to paragraph (b)(4)(iii)(A) of Item 601 of Regulation S-K, FirstSun Capital Bancorp agrees to furnish a copy of such instruments to the Securities and Exchange Commission upon request.

~~Table of Contents~~



~~4.3~~						Form of Stockholders’ Agreement dated as of June 19, 2017, by and among FirstSun Capital Bancorp and the parties signatories thereto (incorporated by reference to Exhibit 4.3 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).*

~~4.4~~						Form of Amendment No. 1 to the Stockholders’ Agreement dated March 14, 2018 by and among FirstSun and the parties signatories thereto (incorporated by reference to Exhibit 4.4 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).

~~4.5~~						Form of Amendment No. 2 to the Stockholders’ Agreement by and among FirstSun and the parties signatories thereto (incorporated by reference to Exhibit B to Annex A to the proxy statement/prospectus contained in Amendment No. 1 to the Registration Statement on Form S-4 (File No. 333-258176) filed with the SEC on August 6, 2021).*

~~4.6~~						Form of Registration Rights Agreement dated as of June 19, 2017 by and among FirstSun and the parties signatories thereto (incorporated by reference to Exhibit 4.6 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).*

~~4.7~~						Form of Amendment No. 1 to Registration Rights Agreement by and among FirstSun and the parties signatories thereto (incorporated by reference to Exhibit C to Annex A to the proxy statement/prospectus contained in Amendment No. 1 to the Registration Statement on Form S-4 (File No. 333-258176) filed with the SEC on August 6, 2021).*

~~10.1~~						~~FirstSun Capital Bancorp 2021 Equity Incentive Plan.~~

31.1						Certification of Chief Executive Officer ~~pursuant~~Pursuant to Rule 13a-14(a) or /15d-14(a) ~~of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~ .

31.2						Certification of Chief Financial Officer ~~pursuant~~Pursuant to Rule 13a-14(a) or /15d-14(a) ~~of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.~~.

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











101						The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2021~~2022, were formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of (Loss) Income, (iii) Consolidated Statements of Comprehensive Income, (iv) ~~Condensed~~ Consolidated ~~Statement~~Statements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows.

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

* Annexes, schedules, and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. FirstSun agrees to furnish supplementally a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request.

Table of Contents

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/ ~~Mollie H. Carter~~Neal E. Arnold


Date:	November ~~5, 2021~~10, 2022
		~~Mollie H. Carter~~Neal E. Arnold
		President and Chief Executive Officer ~~and President~~
		(Principal Executive Officer)
		/s/ Robert A. Cafera, Jr.


Date:	November ~~5, 2021~~10, 2022
		Robert A. Cafera, Jr.
		Executive Vice President and Chief Financial Officer
		(Principal Financial Officer and Principal Accounting Officer)
		~~/s/ Joel Murray~~


~~Date:~~	~~November 5, 2021~~
		~~Joel Murray~~
		~~Senior Vice President and Chief Accounting Officer~~
		~~(Principal Accounting Officer)~~

7169


			Page
Cautionary Note Regarding Forward-Looking Statements			43
Part I - Financial Information (Unaudited)			65
Item 1. Financial Statements ~~(Unaudited)~~			65
Item 2. ~~Management’s~~Management's Discussion and Analysis of Financial Condition and Results of Operations			4243
Item 3. Quantitative and Qualitative Disclosures About Market Risk			6865
Item 4. Controls and Procedures			6866
Part II - Other Information			6967
Item 1. Legal Proceedings			6967
Item 1A. Risk Factors			6967
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			6967
Item 3. Defaults Upon Senior Securities			6967
Item 4. Mine Safety Disclosures			6967
Item 5. Other Information			6967
Item 6. Exhibits			6968
Signatures			7169


	Number of Loans	Recorded Investment
September 30, 2021


Residential real estate	9	$	2,517


	September 30, 2021		December 31, 2020		September 30, 2020

Discount rate	9.22	%	9.12	%	9.28	%
Total prepayment speeds	12.15	%	16.99	%	18.79	%
Cost of servicing each loan	$86/per loan		$85/per loan		$86/per loan


Remainder of 2021	$	59,117
2022	184,563
2023	47,911
2024	14,637
2025	11,001
2026	7,474
Thereafter	4,161
Total certificate of deposit accounts	$	328,864


Remainder 2021	$	6,721
2022	6,827
2023	6,529
2024	6,073
2025	3,831
2026	2,376
Thereafter	5,003
Total operating leases	$	37,360


	September 30, 2021			December 31, 2020
(in thousands, except loan count)	Number of Loans	Recorded Investment		Number of Loans	Recorded Investment

Commercial	—	$	—	23	$	17,714
Commercial real estate	—	$	—	7	$	12,413
Residential real estate	9	$	2,517	49	$	21,584
Consumer	—	$	—	6	$	77
Total	9	$	2,517	85	$	51,788


	Ending Balance		Period End Rate		Maximum Month End Balance		Period Average
							Balance		Rate
As of and for the nine months ended September 30, 2021
Advances from FHLB LOC	$	—	—	%	$	—	$	220	0.35	%
Securities sold under agreements to repurchase	117,001		0.04	%	160,865		131,444		0.05	%
Total	$	117,001			$	160,865	$	131,663

As of and for the year ended December 31, 2020
Advances from FHLB LOC	$	20,000	0.35	%	$	150,000	$	30,489	0.69	%
Securities sold under agreements to repurchase	115,372		0.05	%	149,844		118,706		0.15	%
Total	$	135,372			$	299,844	$	149,195


	Actual				For Capital Adequacy Purposes3				To be Well- Capitalized under Prompt Corrective Action Provisions4
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount	Ratio
As of September 30, 2021
Total risk-based capital to risk-weighted assets:	$	552,124	12.55	%	$	351,871	8.00	%	N/A	N/A
Tier 1 risk-based capital to risk-weighted assets:	$	453,740	10.32	%	$	263,904	6.00	%	N/A	N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	453,740	10.32	%	$	197,928	4.50	%	N/A	N/A
Tier 1 leverage capital to average assets:	$	453,740	8.19	%	$	221,526	4.00	%	N/A	N/A

As of December 31, 2020
Total risk-based capital to risk-weighted assets:	$	513,949	12.19	%	$	337,327	8.00	%	N/A	N/A
Tier 1 risk-based capital to risk-weighted assets:	$	416,029	9.87	%	$	252,995	6.00	%	N/A	N/A
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	416,029	9.87	%	$	189,746	4.50	%	N/A	N/A
Tier 1 leverage capital to average assets:	$	416,029	8.53	%	$	195,074	4.00	%	N/A	N/A


	Actual				For Capital Adequacy Purposes5				To be Well- Capitalized under Prompt Corrective Action Provisions
(Dollars in thousands)	Amount		Ratio		Amount		Ratio		Amount		Ratio
As of September 30, 2021
Total risk-based capital to risk-weighted assets:	$	559,556	12.76	%	$	350,802	8.00	%	$	438,502	10.00	%
Tier 1 risk-based capital to risk-weighted assets:	$	511,100	11.66	%	$	263,101	6.00	%	$	350,802	8.00	%
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	511,100	11.66	%	$	197,326	4.50	%	$	285,026	6.50	%
Tier 1 leverage capital to average assets:	$	511,100	9.23	%	$	221,444	4.00	%	$	276,805	5.00	%

As of December 31, 2020
Total risk-based capital to risk-weighted assets:	$	517,077	12.30	%	$	336,276	8.00	%	$	420,345	10.00	%
Tier 1 risk-based capital to risk-weighted assets:	$	468,823	11.15	%	$	252,207	6.00	%	$	336,276	8.00	%
Common Equity Tier 1 (CET 1) to risk-weighted assets:	$	468,823	11.15	%	$	189,155	4.50	%	$	273,224	6.50	%
Tier 1 leverage capital to average assets:	$	468,823	9.62	%	$	195,008	4.00	%	$	243,760	5.00	%