# FIRSTSUN CAPITAL BANCORP (FSUN) FY 2023 MD&A

Verbatim Item 7 Management's Discussion and Analysis from FIRSTSUN CAPITAL BANCORP's 10-K for fiscal year 2023.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1709442/000170944224000013/fcb-20231231.htm
Accession: 0001709442-24-000013
Filing date: 2024-03-07
Report date: 2023-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/FSUN/
All MD&A years: /company/FSUN/mda/
Previous year: /company/FSUN/mda/fy2022/ (FY 2022)
Next year: /company/FSUN/mda/fy2024/ (FY 2024)

Item 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF FIRSTSUN

In this section, unless the context suggests otherwise, references to “we,” “us,” and “our” mean the combined business of FirstSun and its wholly-owned subsidiaries, Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.

The following discussion is an analysis of our consolidated results of operations for the years ended December 31, 2023, 2022 and 2021, and financial condition for the years ended December 31, 2023 and 2022. This discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying footnotes filed with this report in “Part II, Item 8. Financial Statements.” We have omitted discussion of 2021 results where it would be redundant to the discussion previously included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations of FirstSun” section of our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 16, 2023. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.

Comments regarding our business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, See the “Cautionary Note Regarding Forward-Looking Statements” beginning on page 3 of this report.

General Overview

FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which is headquartered in Dallas, Texas and operates as Sunflower Bank, First National 1870 and Guardian Mortgage. We conduct a full-service community banking and trust business through our wholly-owned subsidiaries—Sunflower Bank, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.

We offer a full range of relationship-focused services to meet our clients’ personal, business and wealth management financial objectives, with a branch network in Texas, Kansas, Colorado, New Mexico, and Arizona and mortgage capabilities in 43 states. Our product line includes commercial and industrial loans, commercial real estate loans, residential mortgage, public finance and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.

We operate FirstSun through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The expenses included in Corporate are not deemed to be allocable to our operating segments. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is evaluated by management. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. For additional information on our segments, see Note 23 - Segment Information included in our consolidated financial statements included elsewhere in this report.

Merger with Pioneer Bancshares, Inc.

On April 1, 2022, we completed our merger with Pioneer Bancshares, Inc. (“Pioneer”), pursuant to which Pioneer was merged with and into FirstSun, with FirstSun continuing as the surviving entity, and Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, was merged with and into Sunflower Bank, with Sunflower Bank continuing as the surviving bank. With the acquisition, we acquired 19 branches in Texas. The results for Pioneer are reflected in our results of operations and financial condition since April 1, 2022. Further information is presented in Note 2 - Merger with Pioneer Bancshares, Inc. included in our consolidated financial statements included elsewhere in this report.

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Pending Merger with HomeStreet, Inc. and Common Equity Raise

On January 16, 2024, FirstSun and Seattle-based HomeStreet, Inc. (“HomeStreet”), the holding company of HomeStreet Bank (“HomeStreet Bank”) entered into a definitive merger agreement (the “merger agreement”). Under the merger agreement, HomeStreet will merge with and into FirstSun, with FirstSun continuing as the surviving entity. Immediately following the merger, HomeStreet Bank will merge with and into Sunflower Bank, with Sunflower Bank continuing as the surviving bank.

Subject to the terms and conditions of the merger agreement, at the effective time of the merger, each outstanding share of HomeStreet common stock will be converted into the right to receive 0.4345 of a share of FirstSun common stock. The combined entity is expected to have total assets of approximately $17 billion and 129 branch locations. The combined entity’s expanded footprint includes, FirstSun’s current presence in the Southwest and Midwest together with HomeStreet’s presence in Southern California, Hawaii and the Pacific Northwest.

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

Concurrently with entry into the HomeStreet merger agreement, FirstSun entered into investment agreements with investors to raise capital to support the merger. In aggregate, $175 million of common stock will be issued to those investors: (a) $80 million of which was issued immediately following the merger announcement, and (b) the remaining $95 million of which will be issued substantially concurrently with, and subject to, the closing of the merger. The proceeds of this equity raise are expected to support the combined entity and result in capital ratios that exceed regulatory requirements.

For additional information on the proposed merger and equity raise, see Note 27 - Subsequent Events included in our consolidated financial statements included elsewhere in this report.

Financial Highlights For 2023

We delivered strong financial results in 2023, which included:

•Net income of $103.5 million, $4.08 per diluted share

•Net interest margin of 4.23%

•Return on average total assets of 1.38%

•Return on average stockholders’ equity of 12.50%

•Loan growth of 6.0%

•Average deposit growth of 9.7%

•21.2% fee revenue to total revenue1

Net income totaled $103.5 million, or $4.08 per diluted share, in 2023, compared to $59.2 million, or $2.48 per diluted share, in 2022. Net income in 2022 included merger costs, net of tax, of $17.0 million, or $0.72 per diluted share. There were no merger costs recorded in 2023. The return on average total assets was 1.38% in 2023, compared to 0.88% in 2022, and the return on average stockholders’ equity was 12.50% in 2023, compared to 8.55% in 2022. The unfavorable impact in 2022 of merger costs, net of tax, to return on average total assets was 0.25% and to return on average stockholders’ equity was 2.46%.

1 Total revenue is net interest income plus noninterest income.

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Financial Highlights

The following table sets forth certain financial highlights of FirstSun as of and for the year ended December 31,:

[[GREPCENT_TABLE]]
[["($ in thousands, except share and per share amounts)","","","","","","","2023","","2022","","2021"],["Income Statement:"],["Net interest income","","","","","","","$","293,431","","","$","241,632","","","$","155,233"],["Taxable equivalent adjustment","","","","","","","5,086","","","5,059","","","5,755"],["Net interest income - fully tax equivalent (\"FTE\") basis (non-GAAP) (3)","","","","","","","$","298,517","","","$","246,691","","","$","160,988"],["Provision for credit losses","","","","","","","$","18,247","","","$","18,050","","","$","3,000"],["Noninterest income","","","","","","","$","79,092","","","$","89,566","","","$","124,244"],["Noninterest expense","","","","","","","$","222,793","","","$","239,126","","","$","224,635"],["Net income","","","","","","","$","103,533","","","$","59,182","","","$","43,164"],["Per Common Share Data:"],["Weighted average diluted common shares","","","","","","","25,387,196","","","23,838,471","","","18,770,785"],["Net income (basic)","","","","","","","$","4.15","","","$","2.55","","","$","2.36"],["Net income (diluted)","","","","","","","$","4.08","","","$","2.48","","","$","2.30"],["Cash dividends","","","","","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Dividend payout ratio","","","","","","","\u2014","%","","\u2014","%","","\u2014","%"],["Book value","","","","","","","$","35.14","","","$","31.08","","","$","28.56"],["Tangible book value (non-GAAP) (3)","","","","","","","$","30.96","","","$","26.69","","","$","26.31"],["Performance Ratios:"],["Return on average total assets","","","","","","","1.38","%","","0.88","%","","0.79","%"],["Return on average stockholders' equity","","","","","","","12.50","%","","8.55","%","","8.37","%"],["Return on average tangible common stockholders' equity (non-GAAP) (3)","","","","","","","14.88","%","","10.45","%","","9.35","%"],["Net interest margin","","","","","","","4.23","%","","3.87","%","","3.00","%"],["Net interest margin (on FTE basis) (3)","","","","","","","4.29","%","","3.95","%","","3.11","%"],["Efficiency ratio (1)","","","","","","","59.81","%","","72.20","%","","80.38","%"],["Net charge-offs (recoveries) to average loans outstanding","","","","","","","0.13","%","","(0.01)","%","","0.09","%"],["Allowance for credit losses to loans","","","","","","","1.28","%","","1.12","%","","1.18","%"],["Nonperforming loans to total loans (2)","","","","","","","1.01","%","","0.49","%","","0.70","%"],["Balance Sheet:"],["Total loans, excluding loans held-for-sale","","","","","","","$","6,267,096","","","$","5,911,832","","","$","4,037,123"],["Total assets","","","","","","","$","7,879,724","","","$","7,430,322","","","$","5,666,814"],["Total deposits","","","","","","","$","6,374,103","","","$","5,765,062","","","$","4,854,948"],["Total borrowed funds","","","","","","","$","464,781","","","$","724,120","","","$","109,458"],["Total stockholders' equity","","","","","","","$","877,197","","","$","774,536","","","$","524,038"],["Capital Ratios:"],["Total risk-based capital to risk-weighted assets","","","","","","","13.25","%","","11.99","%","","11.76","%"],["Tier 1 risk-based capital to risk-weighted assets","","","","","","","11.10","%","","9.94","%","","9.70","%"],["Common Equity Tier 1 (CET 1) to risk-weighted assets","","","","","","","11.10","%","","9.94","%","","9.70","%"],["Tier 1 leverage capital to average assets","","","","","","","10.52","%","","9.71","%","","8.24","%"],["Average stockholders' equity to average total assets","","","","","","","11.05","%","","10.28","%","","9.43","%"],["Tangible common stockholders' equity to tangible assets (non-GAAP) (3)","","","","","","","9.94","%","","9.09","%","","8.58","%"],["Tangible common stockholders\u2019 equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) (3)","","","","","","","9.90","%","","9.03","%","","8.59","%"],["Nonfinancial Data:"],["Full-time equivalent employees","","","","","","","1,110","","","1,149","","","1,042"],["Banking branches","","","","","","","69","","","72","","","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 and accrual loans greater than 90 days past due. On January 1, 2023, we adopted ASU 2022-02, whereby we no longer recognize or account for TDRs. The loans previously classified as accrual TDRs are no longer considered nonperforming. We have adjusted prior periods to reflect this change in accounting."],["(3) See section entitled \u201cNon-GAAP Financial Measures and Reconciliations\u201d for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent."]]
[[/GREPCENT_TABLE]]

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Non-GAAP Financial Measures and Reconciliations

The non-GAAP financial measures presented below are used by our management and our board of directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2023, included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.

The following table presents GAAP to non-GAAP reconciliations as of and for the year ended December 31,:

[[GREPCENT_TABLE]]
[["($ in thousands, except share and per share amounts)","","","","","","","2023","","2022","","2021"],["Tangible common stockholders\u2019 equity and tangible book value per common share:"],["Total common stockholders' equity (GAAP)","","","","","","","$","877,197","","","$","774,536","","","$","524,038"],["Less: Goodwill and other intangible assets"],["Goodwill","","","","","","","(93,483)","","","(93,483)","","","(33,050)"],["Other intangible assets","","","","","","","(10,984)","","","(15,806)","","","(8,250)"],["Tangible common stockholders' equity (non-GAAP)","","","","","","","$","772,730","","","$","665,247","","","$","482,738"],["Total common shares outstanding","","","","","","","24,960,639","","","24,920,984","","","18,346,288"],["Tangible book value per common share (non-GAAP)","","","","","","","$","30.96","","","$","26.69","","","$","26.31"],["Tangible net income:"],["Net Income (GAAP)","","","","","","","$","103,533","","","$","59,182","","","$","43,164"],["Add: Intangible amortization, net of tax","","","","","","","3,809","","","3,330","","","1,119"],["Tangible net income (non-GAAP)","","","","","","","$","107,342","","","$","62,512","","","$","44,283"],["Return on average tangible common stockholders\u2019 equity:"],["Tangible net income (non-GAAP) (see above)","","","","","","","$","107,342","","","$","62,512","","","$","44,283"],["Total average common stockholders' equity (GAAP)","","","","","","","$","828,102","","","$","692,524","","","$","515,773"],["Less: Average goodwill and other intangible assets"],["Average goodwill","","","","","","","(93,483)","","","(78,582)","","","(33,050)"],["Average other intangible assets","","","","","","","(13,178)","","","(15,811)","","","(8,964)"],["Total average tangible common stockholders' equity (non-GAAP)","","","","","","","$","721,441","","","$","598,131","","","$","473,759"],["Return on average tangible common stockholders\u2019 equity (non-GAAP)","","","","","","","14.88","%","","10.45","%","","9.35","%"],["Net interest margin - FTE basis:"],["Net interest income (GAAP)","","","","","","","$","293,431","","","$","241,632","","","$","155,233"],["Taxable equivalent adjustment","","","","","","","5,086","","","5,059","","","5,755"],["Net interest income - FTE basis (non-GAAP)","","","","","","","$","298,517","","","$","246,691","","","$","160,988"],["Average earning assets","","","","","","","$","6,935,567","","","$","6,244,221","","","$","5,180,650"],["Net interest margin - FTE basis (non-GAAP)","","","","","","","4.29","%","","3.95","%","","3.11","%"],["Tangible common stockholders\u2019 equity to tangible assets:"],["Total assets (GAAP)","","","","","","","$","7,879,724","","","$","7,430,322","","","$","5,666,814"],["Less: Goodwill and other intangible assets"],["Goodwill","","","","","","","(93,483)","","","(93,483)","","","(33,050)"],["Other intangible assets","","","","","","","(10,984)","","","(15,806)","","","(8,250)"],["Total tangible assets (non-GAAP)","","","","","","","$","7,775,257","","","$","7,321,033","","","$","5,625,514"],["Tangible common stockholders\u2019 equity (non-GAAP) (see above)","","","","","","","$","772,730","","","$","665,247","","","$","482,738"],["Tangible common stockholders\u2019 equity to tangible assets (non-GAAP)","","","","","","","9.94","%","","9.09","%","","8.58","%"]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["($ in thousands, except share and per share amounts)","","","","","","","2023","","2022","","2021"],["Tangible common stockholders\u2019 equity to tangible assets, reflecting net unrealized losses on HTM securities, net of tax:"],["Total tangible common stockholders' equity (non-GAAP) (see above)","","","","","","","$","772,730","","","$","665,247","","","$","482,738"],["Less: Net unrealized losses on HTM securities, net of tax","","","","","","","(3,629)","","","(4,295)","","","447"],["Total tangible common stockholders\u2019 equity less net unrealized losses on HTM securities, net of tax (non-GAAP)","","","","","","","$","769,101","","","$","660,952","","","$","483,185"],["Total tangible assets (non-GAAP) (see above)","","","","","","","$","7,775,257","","","$","7,321,033","","","$","5,625,514"],["Less: Net unrealized losses on HTM securities, net of tax","","","","","","","(3,629)","","","(4,295)","","","447"],["Total tangible assets less net unrealized losses on HTM securities, net of tax (non-GAAP)","","","","","","","$","7,771,628","","","$","7,316,738","","","$","5,625,961"],["Tangible common stockholders\u2019 equity to tangible assets (non-GAAP)","","","","","","","9.94","%","","9.09","%","","8.58","%"],["Tangible common stockholders\u2019 equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP)","","","","","","","9.90","%","","9.03","%","","8.59","%"],["Net income excluding merger costs:"],["Net income (GAAP)","","","","","","","$","103,533","","","$","59,182","","","$","43,164"],["Add: Merger costs"],["Merger related expenses","","","","","","","\u2014","","","18,751","","","3,085"],["Income tax effect on merger related expenses","","","","","","","\u2014","","","(4,083)","","","(509)"],["Provision for loan loss on Pioneer loans marked at a premium","","","","","","","\u2014","","","2,884","","","\u2014"],["Income tax effect on provision for loan loss on Pioneer loans marked at a premium","","","","","","","\u2014","","","(521)","","","\u2014"],["Total merger costs","","","","","","","\u2014","","","17,031","","","2,576"],["Net income excluding merger costs (non-GAAP)","","","","","","","$","103,533","","","$","76,213","","","$","45,740"],["Return on average total assets excluding merger costs:"],["Return on average total assets (ROAA) (GAAP)","","","","","","","1.38","%","","0.88","%","","0.79","%"],["Add: Impact of merger costs, net of tax","","","","","","","\u2014","%","","0.25","%","","0.05","%"],["ROAA excluding merger costs (non-GAAP)","","","","","","","1.38","%","","1.13","%","","0.84","%"],["Return on average stockholders\u2019 equity excluding merger costs:"],["Return on average stockholders' equity (ROAE) (GAAP)","","","","","","","12.50","%","","8.55","%","","8.37","%"],["Add: Impact of merger costs, net of tax","","","","","","","\u2014","%","","2.46","%","","0.50","%"],["ROAE excluding merger costs (non-GAAP)","","","","","","","12.50","%","","11.01","%","","8.87","%"],["Efficiency ratio excluding merger related expenses:"],["Efficiency ratio (GAAP)","","","","","","","59.81","%","","72.20","%","","80.38","%"],["Less: Impact of merger related expenses","","","","","","","\u2014","%","","(5.66)","%","","(1.11)","%"],["Efficiency ratio excluding merger related expenses (non-GAAP)","","","","","","","59.81","%","","66.54","%","","79.27","%"],["Diluted earnings per share excluding merger costs:"],["Diluted earnings per share (GAAP)","","","","","","","$","4.08","","","$","2.48","","","$","2.30"],["Add: Impact of merger costs, net of tax","","","","","","","\u2014","","","0.72","","","0.14"],["Diluted earnings per share excluding merger costs (non-GAAP)","","","","","","","$","4.08","","","$","3.20","","","$","2.44"]]
[[/GREPCENT_TABLE]]

Segments

Our operations are conducted through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is currently evaluated by management. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities. For additional information on our segments, see Note 23 - Segment Information included in our audited consolidated financial statements included elsewhere in this report.

Comparison of fiscal years 2023 and 2022

Banking

Income before income taxes increased $58.6 million to $147.2 million in 2023, from $88.5 million in 2022. The period over period increase was primarily driven by an increase in net interest income and to a lesser extent noninterest income and a reduction in noninterest expense, partially offset by an increase in provision for credit losses. Net interest income increased $50.7 million to $292.6 million in 2023 compared to $241.8 million in 2022. The increase in net interest income was primarily due to organic growth in our loan portfolios and an increase in net interest margin. Noninterest expense

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decreased $3.1 million to $175.7 million in 2023, compared to $178.8 million in 2022. The decrease in noninterest expense was primarily the result of the absence of merger costs in 2023 compared to $18.8 million ($0.62 diluted earnings per share) in merger-related expenses incurred in 2022 related to the Pioneer merger, partially offset by an increase in salary and employee benefits of $11.7 million and an increase of $3.1 million in occupancy expenses in 2023. Provision for credit losses increased $1.0 million to $15.8 million in 2023 compared to $14.8 million in 2022. The increase in the provision for credit losses was attributed to both organic loan growth and our implementation of a new allowance for credit loss methodology in 2023. For additional information on our new allowance for credit loss methodology see “Critical Accounting Estimates” below. Identifiable assets for our Banking segment grew by $0.3 billion to $6.9 billion at December 31, 2023 from $6.6 billion at December 31, 2022. The growth in identifiable assets was primarily driven by organic growth in our loan portfolios.

Mortgage Operations

Loss before income taxes increased to $6.5 million in 2023, compared to a loss of $4.6 million in 2022, primarily due to a $16.3 million decrease in mortgage banking services revenue, net, partially offset by a $13.1 million decrease in salary and employee benefits expenses from the decline in mortgage loan originations and reductions in staffing levels. MSR capitalization and changes in fair value, net of derivative activity, decreased $10.8 million for the year ended December 31, 2023, compared to 2022. The decrease in revenue related to our MSRs was primarily the result of market interest rate movement and the impact to fair values and overall origination activity, which led to a year over year decline in the net fair value for MSRs and the related derivative activity of $5.8 million, as the total fair value change for 2023 for MSRs, net of derivative activity, was a loss of $1.1 million. The year over year decline in capitalized servicing value for MSRs was $5.0 million. Overall gains on sale of mortgage loans declined by $4.6 million 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. Total loan originations for sale were $0.8 billion in 2023, a decline of $0.3 billion from $1.1 billion in 2022. The decline in gains from mortgage loan sales was partially offset by a $0.6 million increase in servicing fee income related to our mortgage servicing rights (“MSRs”), resulting from an increase of $0.2 billion in 2023 of the unpaid principal balance of loans serviced to $5.4 billion, from $5.2 billion in 2022.

Critical Accounting Estimates

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Our accounting and reporting estimates are in accordance with generally accepted accounting principles, or “U.S. GAAP,” and conform to general practices within the banking industry. Estimates that are susceptible to significant changes include accounting for the allowance for credit losses and fair value measurements, both of which require significant judgments by management. Actual results could result in material changes to our consolidated financial condition or consolidated results of operations.

Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We have identified the determination of the allowance for credit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors. During the year ended December 31, 2023, we adopted ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments which required a change to our estimate of the allowance for credit losses.

These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.

Allowance for Credit Losses - Management maintains an ACL for loans based upon management’s estimate of the lifetime expected credit losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, management maintains an ACL for held-to-maturity or available-for-sale debt securities, and other off-balance sheet credit exposures (e.g., unfunded loan commitments). For loans and unfunded loan commitments, the estimate of lifetime credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using historical experience. For purposes of the ACL for lending commitments, such allowance is determined using the same

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methodology as the ACL for loans, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us. The ACL for held-to-maturity and available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, length of the initial loss forecast period, the reversion of losses beyond the initial forecast period, usage of macroeconomic scenarios, probabilities of default, losses given default, amortization and prepayment rates, and qualitative factors, which may not be adequately captured in the loss model, as further discussed below.

The macroeconomic scenarios utilized by management include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, corporate bond spreads and changes in equity market prices. Management derives the economic forecasts it uses in its ACL model from Moody’s Analytics. The latter has a large team of economics, database managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.

Management has currently set an initial forecast period (“reasonable and supportable period”) of four years and a reversion period of one year, utilizing a straight-line approach and reverting back to the historical macroeconomic mean. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted for prepayments, is used based on changes in key historical economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore influence the amount of future cash flows for each instrument that management does not expect to collect.

Further, management periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific risks such as credit concentrations, collateral specific risks, nature, and size of the portfolio and external factors that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies, among others. The qualitative factors applied on January 1, 2023, and December 31, 2023, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgement.

The ACL can also be impacted by factors outside of management’s control, which include unanticipated changes in asset quality of the portfolio, such as deterioration in borrower delinquencies, or credit scores in our residential real estate and consumer portfolio. Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent.

Our process for determining ACL is further discussed in “Note 1- Basis of Presentation, Description of Business and Summary of Significant Accounting Policies” included in Item 8 of this Form 10-K.

Additionally, as an “emerging growth company” under Section 107 of the JOBS Act, we did not to adopt ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) (CECL) until January 1, 2023. As such, our allowance for credit losses for years prior to 2023 may not be comparable to other public financial institutions that adopted CECL in an earlier year.

Fair Value Measurement of MSRs - Our residential mortgage servicing rights are measured at fair value on a recurring basis. We estimate the fair value of our MSRs using a process that utilizes a discounted cash flow model and analysis of current market data to arrive at the estimate. The cash flow assumptions used in the model are based on numerous factors, with the key assumptions being mortgage prepayment speeds, discount rates and cost to service that management believes are consistent with the assumptions that other similar market participants use in valuing MSRs. The change of any of these key assumptions due to market conditions or other factors could materially affect the fair value of our MSRs. We also utilize a third-party consulting firm to assist us with the valuation. Because of the nature of the valuation inputs, we classify the valuation of our MSRs as Level 3 in the fair value hierarchy. See Note 5 - Mortgage Servicing Rights included in our audited consolidated financial statements included elsewhere in this report for our assumptions used in valuing the MSRs. For information concerning the hypothetical sensitivity of the key assumptions under adverse changes on our MSRs, see

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the table under “Noninterest Income” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations in this report.

Results of Operations

Comparison of fiscal years 2023 and 2022

The follow table sets forth our results of operations as of and for the year ended December 31,:

[[GREPCENT_TABLE]]
[["($ in thousands, except per share amounts)","","","","","","","2023","","2022","","2021"],["Net interest income","","","","","","","$","293,431","","","$","241,632","","","$","155,233"],["Provision for credit losses","","","","","","","18,247","","","18,050","","","3,000"],["Noninterest income","","","","","","","79,092","","","89,566","","","124,244"],["Noninterest expense","","","","","","","222,793","","","239,126","","","224,635"],["Income before income taxes","","","","","","","131,483","","","74,022","","","51,842"],["Provision for income taxes","","","","","","","27,950","","","14,840","","","8,678"],["Net income","","","","","","","103,533","","","59,182","","","43,164"],["Diluted earnings per share","","","","","","","$","4.08","","","$","2.48","","","$","2.30"],["Return on average total assets","","","","","","","1.38","%","","0.88","%","","0.79","%"],["Return on average stockholders' equity","","","","","","","12.50","%","","8.55","%","","8.37","%"],["Net interest margin","","","","","","","4.23","%","","3.87","%","","3.00","%"],["Net interest margin (FTE basis) (1)","","","","","","","4.29","%","","3.95","%","","3.11","%"],["Efficiency ratio","","","","","","","59.81","%","","72.20","%","","80.38","%"],["Noninterest income to total revenue (2)","","","","","","","21.2","%","","27.0","%","","44.5","%"],["(1) See section entitled \u201cNon-GAAP Financial Measures and Reconciliations\u201d for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent.(2) Total revenue is presented net of interest expense."]]
[[/GREPCENT_TABLE]]

General

Our results of operations depend significantly on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and investment securities and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent on our generation of noninterest income, consisting primarily of income from mortgage banking services, service charges on deposit accounts, trust and investment advisory fees and credit and debit card fees. Other factors contributing to our results of operations include our provisions for credit losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs.

Net Interest Income

Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which are principally comprised of loans and investment securities. We incur interest expense from interest owed or paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. Net interest income and margin are shaped by the characteristics of the underlying products, including volume, term and structure of each product. We measure and monitor yields on our loans and other interest-earning assets, the costs of our deposits and other funding sources, our net interest spread and our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as net interest income divided by average interest-earning assets.

Interest earned on our loan portfolio is the largest component of our interest income. Our loan portfolios are presented at the principal amount outstanding net of deferred origination fees and unamortized discounts and premiums. Interest income is recognized based on the principal balance outstanding and the stated rate of the loan. Loan origination fees and certain direct origination costs are capitalized and recognized as an adjustment of the yield on the related loan. Non-PCD loans acquired are initially recorded at fair value and the resulting discount or premium are recognized as an adjustment of the yield on the related loans.

Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and

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rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.

Our net interest income was $293.4 million for the year ended December 31, 2023, an increase of $51.8 million, or 21.4%, from 2022. Interest income on loans increased by $137.6 million for the year ended December 31, 2023, from 2022. Interest income on investment securities increased by $3.8 million for the year ended December 31, 2023, from 2022. Interest expense from total interest-bearing liabilities increased by $95.1 million for the year ended December 31, 2023, from 2022.

Total average loans, including loans held-for-sale grew to $6.2 billion at December 31, 2023, an increase of $1.0 billion, compared to December 31, 2022, primarily due to organic growth in our loan portfolios. Yield on loans held-for-investment increased 149 basis points for the year ended December 31, 2023, from 2022, primarily due to the rising interest rate environment and its impact on variable rate loans in the loan portfolio and higher yields on new originations.

Average interest-bearing liabilities increased $0.7 billion, or 17.5%, for the year ended December 31, 2023, from 2022 primarily to support the growth in our loan portfolio. Average interest-bearing deposits increased $0.7 billion, or 18.5%, for the year ended December 31, 2023, from 2022, with organic growth as the primary driver. Total cost of deposits increased by 192 basis points to 2.27% in 2023 compared to 2022, primarily due to increased pricing on our deposit products as a result of the rising interest rate environment. Average FHLB borrowings increased $54.4 million in 2023, compared to 2022. The cost of FHLB borrowings increased by 216 basis points to 5.05% in 2023, compared to 2022, also due to the rising interest rate environment.

Our net interest margin was 4.23% for the year ended December 31, 2023, compared to 3.87% for the same period in 2022, an increase of 36 basis points. We experienced a 169 basis point increase in yield from earning assets and our total cost of funds increased by 187 basis points for the year ended December 31, 2023, compared to the same period in 2022. While we have experienced a significant increase in our cost of funds in this rising interest rate environment, we do not expect our cost of funds to continue to rise in 2024 at the level of increase experienced in 2023.

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

As of and for the year ended December 31,:

[[GREPCENT_TABLE]]
[["","2023","","2022","","2021"],["(In thousands)","Average Balance","","Interest","","Average Yield/Rate","","Average Balance","","Interest","","Average Yield/Rate","","Average Balance","","Interest","","Average Yield/Rate"],["Interest Earning Assets"],["Loans (1)","$","6,178,414","","","$","385,637","","","6.24","%","","$","5,216,212","","","$","247,988","","","4.75","%","","$","3,906,458","","","$","159,303","","","4.08","%"],["Investment securities","554,433","","","17,032","","","3.07","%","","605,119","","","13,185","","","2.18","%","","531,803","","","7,979","","","1.50","%"],["Interest-bearing cash and other assets","202,720","","","11,015","","","5.43","%","","422,890","","","5,644","","","1.33","%","","742,389","","","2,072","","","0.28","%"],["Total earning assets","6,935,567","","","413,684","","","5.96","%","","6,244,221","","","266,817","","","4.27","%","","5,180,650","","","169,354","","","3.27","%"],["Other assets","556,083","","","","","","","494,065","","","","","","","288,617"],["Total assets","$","7,491,650","","","","","","","$","6,738,286","","","","","","","$","5,469,267"],["Interest-bearing liabilities"],["Demand and NOW deposits","$","385,424","","","$","11,574","","","3.00","%","","$","214,516","","","$","1,775","","","0.83","%","","$","254,679","","","$","756","","","0.30","%"],["Savings deposits","453,654","","","2,676","","","0.59","%","","496,131","","","799","","","0.16","%","","455,451","","","460","","","0.10","%"],["Money market deposits","2,122,410","","","28,301","","","1.33","%","","2,528,308","","","6,770","","","0.27","%","","2,208,498","","","4,292","","","0.19","%"],["Certificates of deposits","1,512,638","","","58,804","","","3.89","%","","536,325","","","3,810","","","0.71","%","","344,224","","","3,036","","","0.88","%"],["Total deposits","4,474,126","","","101,355","","","2.27","%","","3,775,280","","","13,154","","","0.35","%","","3,262,852","","","8,544","","","0.26","%"],["Repurchase agreements","28,316","","","225","","","0.80","%","","54,335","","","119","","","0.22","%","","125,867","","","59","","","0.05","%"],["Total deposits and repurchase agreements","4,502,442","","","101,580","","","2.26","%","","3,829,615","","","13,273","","","0.35","%","","3,388,719","","","8,603","","","0.25","%"],["FHLB borrowings","269,613","","","13,621","","","5.05","%","","215,166","","","6,221","","","2.89","%","","42,527","","","909","","","2.14","%"],["Other long-term borrowings","78,654","","","5,052","","","6.42","%","","82,111","","","5,691","","","6.93","%","","68,918","","","4,609","","","6.69","%"],["Total interest-bearing liabilities","4,850,709","","","120,253","","","2.48","%","","4,126,892","","","25,185","","","0.61","%","","3,500,164","","","14,121","","","0.40","%"],["Noninterest-bearing deposits","1,678,240","","","","","","","1,835,578","","","","","","","1,376,968"],["Other liabilities","134,599","","","","","","","83,292","","","","","","","76,362"],["Stockholders\u2019 equity","828,102","","","","","","","692,524","","","","","","","515,773"],["Total liabilities and stockholders\u2019 equity","$","7,491,650","","","","","","","$","6,738,286","","","","","","","$","5,469,267"],["Net interest income","","","$","293,431","","","","","","","$","241,632","","","","","","","$","155,233"],["Net interest spread","","","3.48","%","","","","","","3.66","%","","","","","","2.87","%"],["Net interest margin","","","4.23","%","","","","","","3.87","%","","","","","","3.00","%"],["Net interest margin (on a FTE basis) (2)","","","4.29","%","","","","","","3.95","%","","","","","","3.11","%"],["(1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale."],["(2) See section entitled \u201cNon-GAAP Financial Measures and Reconciliations\u201d for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent."]]
[[/GREPCENT_TABLE]]

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Rate-Volume Analysis

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

[[GREPCENT_TABLE]]
[["","For the year ended December 31,","","For the year ended December 31,"],["","2023 Versus 2022 Increase (Decrease) Due to:","","2022 Versus 2021 Increase (Decrease) Due to:"],["(In thousands)","Rate","","Volume","","Total","","Rate","","Volume","","Total"],["Interest Earning Assets"],["Loans (1)","$","86,596","","","$","51,053","","","$","137,649","","","$","34,316","","","$","54,369","","","$","88,685"],["Investment securities","4,835","","","(988)","","","3,847","","","4,106","","","1,100","","","5,206"],["Interest-bearing cash","6,788","","","(1,417)","","","5,371","","","4,464","","","(892)","","","3,572"],["Total earning assets","98,219","","","48,648","","","146,867","","","42,886","","","54,577","","","97,463"],["Interest-bearing liabilities"],["Demand and NOW deposits","7,520","","","2,279","","","9,799","","","1,138","","","(119)","","","1,019"],["Savings deposits","1,939","","","(62)","","","1,877","","","298","","","41","","","339"],["Money market deposits","22,436","","","(905)","","","21,531","","","1,857","","","621","","","2,478"],["Certificates of deposits","39,086","","","15,908","","","54,994","","","(920)","","","1,694","","","774"],["Total deposits","70,981","","","17,220","","","88,201","","","2,373","","","2,237","","","4,610"],["Repurchase agreements","130","","","(24)","","","106","","","93","","","(33)","","","60"],["Total deposits and repurchase agreements","71,111","","","17,196","","","88,307","","","2,466","","","2,204","","","4,670"],["FHLB borrowings","5,528","","","1,872","","","7,400","","","1,621","","","3,691","","","5,312"],["Other long-term borrowings","(406)","","","(233)","","","(639)","","","200","","","882","","","1,082"],["Total interest-bearing liabilities","76,233","","","18,835","","","95,068","","","4,287","","","6,777","","","11,064"],["Net interest income","$","21,986","","","$","29,813","","","$","51,799","","","$","38,599","","","$","47,800","","","$","86,399"]]
[[/GREPCENT_TABLE]]

Provision for Credit Losses

We established an allowance for credit losses through a provision for credit losses charged as an expense in our consolidated statements of income. The provision for credit losses is the amount of expense that, based on our judgment, is required to maintain the allowance for credit losses at an adequate level to absorb expected losses in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. Our determination of the amount of the allowance for credit losses and corresponding provision for credit losses considers ongoing evaluations of the credit quality and level of credit risk inherent in our loan portfolio, levels of nonperforming loans and charge-offs, statistical trends and economic and other relevant factors. The allowance for credit losses is increased by the provision for credit losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs

We had a provision for credit losses of $18.2 million for the year ended December 31, 2023, compared to a provision for credit losses of $18.1 million for 2022. During 2022, our provision for credit losses was negatively impacted by $2.9 million for certain non-impaired loans acquired in the Pioneer Merger at a premium valuation. Upon elimination of the $2.9 million merger related provision for 2022, the adjusted increase in the provision for credit losses is $3.1 million for 2023. This adjusted increase is primarily due to loan growth and the charge-offs of two specific customer relationships in our loan portfolio.

For a further discussion of the allowance for credit losses, refer to the “Allowance for Credit Losses” section of this financial review.

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Noninterest Income

The following table presents noninterest income for the year ended December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","2023","","2022","","2021"],["Service charges on deposit accounts","","","","","$","21,345","","","$","18,211","","","$","12,504"],["Credit and debit card fees","","","","","12,000","","","11,511","","","9,596"],["Trust and investment advisory fees","","","","","5,693","","","6,806","","","7,795"],["Income from mortgage banking services, net","","","","","31,384","","","46,285","","","86,410"],["Other","","","","","8,670","","","6,753","","","7,939"],["Total noninterest income","","","","","$","79,092","","","$","89,566","","","$","124,244"]]
[[/GREPCENT_TABLE]]

Our noninterest income decreased $10.5 million to $79.1 million for the year ended December 31, 2023 from $89.6 million in 2022, primarily due to a decrease in income from mortgage banking services, net.

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 year ended December 31, 2023, service charges on deposit accounts increased $3.1 million, primarily due to growth in treasury management services provided to our business customers, as compared to 2022.

Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions by our business customers. Credit and debit card fees increased $0.5 million for the year ended December 31, 2023 compared to 2022, primarily due 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. Trust and investment advisory fees decreased $1.1 million for the year ended December 31, 2023 compared to 2022 primarily due to lower average assets under management.

The components of income from mortgage banking services, net, were as follows for the year ended December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","2023","","2022","","2021"],["Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging","$","14,275","","","$","18,924","","","$","63,468"],["Mortgage servicing income","15,674","","","15,088","","","12,525"],["MSR capitalization and changes in fair value, net of derivative activity","1,435","","","12,273","","","10,417"],["Income from mortgage banking services, net","$","31,384","","","$","46,285","","","$","86,410"]]
[[/GREPCENT_TABLE]]

For the year ended December 31, 2023, income from mortgage banking services decreased $14.9 million, compared to 2022. We experienced a decline in revenue related to net sale gains and fees from mortgage loan originations, including fair value changes in the held-for-sale portfolio and hedging activity, which decreased $4.6 million for the year ended December 31, 2023, compared to 2022. Total loan originations for sale were $0.8 billion for the year ended December 31, 2023, a decline of $0.3 billion from $1.1 billion in 2022. We retain servicing rights on the majority of mortgage loans that we sell, which drove the increase in servicing income of $0.6 million to $15.7 million for the year ended December 31, 2023, from $15.1 million for 2022. MSR capitalization and changes in fair value, net of derivative activity, decreased $10.8 million for the year ended December 31, 2023, compared to 2022. The decrease in revenue related to our MSRs was primarily the result of market interest rate movement and the impact to fair values and overall origination activity, which led to a year over year decline in the net fair value for MSRs and the related derivative activity of $5.8 million, as the total fair value change for 2023 for MSRs, net of derivative activity, was a loss of $1.1 million. The year over year decline in capitalized servicing value for MSRs was $5.0 million. We recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio. See the impact of changes to our key MSR valuation assumptions in the table below.

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The following table shows the hypothetical effect on the fair value of our MSRs when applying certain unfavorable variations of key assumptions to these assets as of December 31, 2023.

[[GREPCENT_TABLE]]
[["(In thousands)","10%","","20%"],["Discount rate","$","(3,451)","","","$","(6,265)"],["Total prepayment speeds","(2,982)","","","(5,394)"],["Cost of servicing each loan","(1,324)","","","(2,193)"]]
[[/GREPCENT_TABLE]]

These hypothetical sensitivities should be evaluated with care. The effect on fair value of an adverse change in assumptions generally cannot be determined because the relationship of the change in assumptions to the fair value may not be linear. Additionally, the impact of a variation in a particular assumption on the fair value is calculated while holding other assumptions constant. In reality, changes in one factor may lead to changes in other factors, which could impact the above hypothetical effects.

We also maintain a hedging strategy to manage a portion of the risk associated with changes in the fair value of our MSR portfolio. Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included as a component of income from mortgage banking services. Due to a number of factors, including the overall elevated level of interest rates, low inventory in the housing market, lower refinance volumes and lower margin on loans sales, we expect revenue from mortgage banking activities to remain at a lesser level as compared to levels we experienced during the lower market rate environment experienced during 2021 and 2020.

Other noninterest income increased $1.9 million for the year ended December 31, 2023 compared to 2022, primarily due to an increase in the fair value of investments related to our deferred compensation plan.

Noninterest Expense

The following table presents noninterest expense for the year ended December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","2023","","2022","","2021"],["Salary and employee benefits","","","","","$","133,231","","","$","134,359","","","$","151,926"],["Occupancy and equipment","","","","","33,426","","","31,344","","","27,628"],["Amortization of intangible assets","","","","","4,822","","","4,215","","","1,417"],["Merger related expenses","","","","","\u2014","","","18,751","","","3,085"],["Other (Note 18 - Other noninterest expenses)","","","","","51,314","","","50,457","","","40,579"],["Total noninterest expenses","","","","","$","222,793","","","$","239,126","","","$","224,635"]]
[[/GREPCENT_TABLE]]

Our noninterest expenses decreased $16.3 million to $222.8 million for the year ended December 31, 2023, from $239.1 million for 2022. The decrease is primarily due to the decrease of $18.8 million in merger related expenses. We incurred no merger related expenses for the year ended December 31, 2023. Our merger with Pioneer was completed on April 1, 2022.

The decrease of $1.1 million in our salary and employee benefits expense for the year ended December 31, 2023, compared to 2022, was driven by a decrease in commissions paid to our mortgage loan officers related to decreased mortgage origination activity during 2023, partially offset by annual compensation increases occurring in 2023.

Occupancy and equipment increased $2.1 million for the year ended December 31, 2023, compared to 2022. This increase was primarily due to having a full year of expenses related to the facilities acquired in the Pioneer merger in 2023 compared to only nine months in 2022.

Income Taxes

We had income tax expense for the year ended December 31, 2023 of $28.0 million, compared to $14.8 million in 2022. The increase in income tax expense was primarily due to our increased income during 2023. Our effective tax rate was 21.3% for the year ended December 31, 2023, compared to 20.0% in 2022. For additional information on our income taxes, see Note 17 - Income Taxes included in our audited consolidated financial statements included elsewhere in this report.

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Financial Condition

Balance Sheet

Our total assets were $7.9 billion at December 31, 2023, compared to $7.4 billion at December 31, 2022. Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $6.3 billion at December 31, 2023, an increase of $0.4 billion from 2022, which was due to organic growth.

Investment Securities

Our securities portfolio is used to make various term investments, maintain a source of liquidity and serve as collateral for certain types of deposits and borrowings. We manage our investment portfolio according to written investment policies approved by our board of directors. Investment in our securities portfolio may change over time based on our funding needs and interest rate risk management objectives. Our liquidity levels take into account anticipated future cash flows and other available sources of funds, and are maintained at levels that we believe are appropriate to provide the necessary flexibility to meet our anticipated funding requirements.

Our investment securities portfolio consists of securities classified as available-for-sale and held-to-maturity. There were no trading securities in our investment portfolio as of December 31, 2023 and 2022. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.

Our securities available-for-sale decreased by $20.2 million to $516.8 million at December 31, 2023, compared to December 31, 2022. The decrease was primarily due to amortization of the portfolio and a decrease in fair value due to the rising interest rate environment. Securities held-to-maturity decreased $1.9 million to $37.0 million at December 31, 2023, compared to December 31, 2022, due to amortization of the portfolio.

The following table is a summary of our investment portfolio as of December 31,:

[[GREPCENT_TABLE]]
[["","2023","","2022"],["(In thousands)","Carrying Amount","","% of Portfolio","","Carrying Amount","","% of Portfolio"],["Available-for-sale:"],["U.S. treasury","$","54,234","","","10.5","%","","$","56,649","","","10.5","%"],["U.S. agency","1,839","","","0.4","%","","2,834","","","0.5","%"],["Obligations of states and political subdivisions","25,970","","","5.0","%","","24,899","","","4.6","%"],["Mortgage backed - residential","106,433","","","20.6","%","","116,135","","","21.6","%"],["Collateralized mortgage obligations","181,533","","","35.1","%","","204,265","","","38.1","%"],["Mortgage backed - commercial","131,192","","","25.4","%","","117,336","","","21.9","%"],["Other debt","15,556","","","3.0","%","","14,855","","","2.8","%"],["Total available-for-sale","$","516,757","","","100","%","","$","536,973","","","100","%"],["Held-to-maturity:"],["Obligations of states and political subdivisions","$","25,542","","","69.1","%","","$","25,378","","","65.2","%"],["Mortgage backed - residential","7,548","","","20.4","%","","8,705","","","22.4","%"],["Collateralized mortgage obligations","3,893","","","10.5","%","","4,818","","","12.4","%"],["Total held-to-maturity","$","36,983","","","100","%","","$","38,901","","","100","%"]]
[[/GREPCENT_TABLE]]

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The following tables show the weighted average yield to average life of each category of investment securities as of December 31, 2023:

[[GREPCENT_TABLE]]
[["(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","$","19,863","","","1.97","%","","$","34,371","","","1.29","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%"],["U.S. agency","\u2014","","","\u2014","%","","1,016","","","7.00","%","","823","","","6.00","%","","\u2014","","","\u2014","%"],["Obligations of states and political subdivisions","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","11,281","","","3.00","%","","14,689","","","3.00","%"],["Mortgage backed - residential","730","","","2.00","%","","27,973","","","3.00","%","","36,127","","","2.00","%","","41,603","","","3.00","%"],["Collateralized mortgage obligations","2,633","","","3.00","%","","31,433","","","3.00","%","","133,539","","","4.00","%","","13,928","","","2.00","%"],["Mortgage backed - commercial","1,445","","","3.00","%","","40,964","","","4.00","%","","88,783","","","3.00","%","","\u2014","","","\u2014","%"],["Other debt","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","12,674","","","3.00","%","","2,882","","","4.00","%"],["Total available-for-sale","$","24,671","","","2.15","%","","$","135,757","","","2.97","%","","$","283,227","","","3.17","%","","$","73,102","","","2.53","%"],["Held-to-maturity:"],["Obligations of states and political subdivisions","$","\u2014","","","\u2014","%","","$","1,018","","","2.06","%","","$","\u2014","","","\u2014","%","","$","24,524","","","3.52","%"],["Mortgage backed - residential","\u2014","","","\u2014","%","","4,312","","","2.50","%","","872","","","2.57","%","","2,364","","","3.24","%"],["Collateralized mortgage obligations","\u2014","","","\u2014","%","","1,941","","","2.67","%","","1,952","","","3.13","%","","\u2014","","","\u2014","%"],["Total held-to-maturity","$","\u2014","","","\u2014","%","","$","7,271","","","2.49","%","","$","2,824","","","2.95","%","","$","26,888","","","3.50","%"]]
[[/GREPCENT_TABLE]]

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

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Loans

Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico and Arizona, primarily comprised of commercial and industrial, commercial real estate, residential real estate, public finance and consumer financing loans. We have a diversified portfolio across a variety of industries, and the portfolio is generally centered in the states in which we have branch offices. Our lending focus continues to be on operating companies, including commercial and industrial loans and lines-of-credit, as well as owner occupied commercial real estate loans.

Total loans, net of deferred origination fees, premiums and discounts, as of December 31, 2023 and 2022 were $6.3 billion and $5.9 billion, respectively.

The following table sets forth the composition of our loan portfolio, as of December 31,:

[[GREPCENT_TABLE]]
[["","2023","","2022"],["(In thousands)","Amount","","% of total loans","","Amount","","% of total loans"],["Commercial and industrial","$","2,467,688","","","39.4","%","","$","2,310,929","","","39.1","%"],["Commercial real estate:"],["Non-owner occupied","812,235","","","13.0","%","","779,546","","","13.2","%"],["Owner occupied","635,365","","","10.2","%","","636,272","","","10.8","%"],["Construction and land","345,430","","","5.5","%","","327,817","","","5.5","%"],["Multifamily","103,066","","","1.6","%","","102,068","","","1.7","%"],["Total commercial real estate","1,896,096","","","30.3","%","","1,845,703","","","31.2","%"],["Residential real estate","1,110,610","","","17.7","%","","1,003,931","","","17.0","%"],["Public finance","602,913","","","9.6","%","","590,284","","","10.0","%"],["Consumer","36,371","","","0.6","%","","42,588","","","0.7","%"],["Other","153,418","","","2.4","%","","118,397","","","2.0","%"],["Total loans","$","6,267,096","","","100.0","%","","$","5,911,832","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Commercial and industrial loans include loans to commercial customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. These loans are made primarily in our market areas and are underwritten on the basis of the borrower’s ability to service the debt from revenue, and are generally extended under our normal credit standards, controls and monitoring systems.

Commercial real estate (“CRE”) loans include owner occupied and non-owner occupied commercial real estate mortgage loans to operating commercial and agricultural businesses, and include both loans for long-term financing of land and buildings and loans made for the initial development or construction of a commercial real estate project. Non-owner occupied CRE loans were 85.2% of the Company’s risk-based capital, or 13.0% of total loans as of December 31, 2023. Non-owner occupied CRE loans associated with office space were $109.3 million, or 1.7% of total loans as of December 31, 2023. Owner occupied CRE loans associated with office space were $149.4 million, or 2.4% of total loans as of December 31, 2023.

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

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

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

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

Maturities and Sensitivity of Loans to Changes in Interest Rates

The information in the following tables is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their contractual maturity. Renewal of these loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because

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borrowers have the right to prepay obligations with or without prepayment penalties. The following tables summarize the loan maturity distribution by type and related interest rate characteristics as of December 31, 2023:

[[GREPCENT_TABLE]]
[["(In thousands)","One year or less","","After one through five years","","After five through 15 years","","After 15 years","","Total"],["Commercial and industrial","$","365,676","","","$","1,758,252","","","$","315,581","","","$","28,179","","","$","2,467,688"],["Commercial real estate","281,637","","","1,096,504","","","457,250","","","60,705","","","1,896,096"],["Residential real estate","130,501","","","36,257","","","73,939","","","869,913","","","1,110,610"],["Public finance","5,011","","","86,345","","","393,174","","","118,383","","","602,913"],["Consumer","7,973","","","8,962","","","19,223","","","213","","","36,371"],["Other","34,258","","","97,971","","","17,568","","","3,621","","","153,418"],["Total loans","$","825,056","","","$","3,084,291","","","$","1,276,735","","","$","1,081,014","","","$","6,267,096"]]
[[/GREPCENT_TABLE]]

[[GREPCENT_TABLE]]
[["(In thousands)","One year or less","","After one through five years","","After five through 15 years","","After 15 years","","Total","","Total Loans Maturing After 1 Year"],["Loans maturing with:"],["Fixed interest rates"],["Commercial and industrial","$","14,997","","","$","301,557","","","$","204,803","","","$","550","","","$","521,907","","","$","506,910"],["Commercial real estate","141,231","","","675,340","","","96,524","","","2,665","","","915,760","","","774,529"],["Residential real estate","82,046","","","20,782","","","54,700","","","319,835","","","477,363","","","395,317"],["Public finance","5,011","","","83,294","","","389,521","","","118,383","","","596,209","","","591,198"],["Consumer","6,453","","","7,685","","","19,223","","","\u2014","","","33,361","","","26,908"],["Other","8,992","","","23,390","","","17,560","","","3,621","","","53,563","","","44,571"],["Total fixed interest rate loans","$","258,730","","","$","1,112,048","","","$","782,331","","","$","445,054","","","$","2,598,163","","","$","2,339,433"],["Floating or adjustable interest rates"],["Commercial and industrial","$","350,679","","","$","1,456,695","","","$","110,778","","","$","27,629","","","$","1,945,781","","","$","1,595,102"],["Commercial real estate","140,406","","","421,164","","","360,726","","","58,040","","","980,336","","","839,930"],["Residential real estate","48,455","","","15,475","","","19,239","","","550,078","","","633,247","","","584,792"],["Public finance","\u2014","","","3,051","","","3,653","","","\u2014","","","6,704","","","6,704"],["Consumer","1,520","","","1,277","","","\u2014","","","213","","","3,010","","","1,490"],["Other","25,266","","","74,581","","","8","","","\u2014","","","99,855","","","74,589"],["Total floating or adjustable interest rate loans","$","566,326","","","$","1,972,243","","","$","494,404","","","$","635,960","","","$","3,668,933","","","$","3,102,607"],["Total loans","$","825,056","","","$","3,084,291","","","$","1,276,735","","","$","1,081,014","","","$","6,267,096","","","$","5,442,040"]]
[[/GREPCENT_TABLE]]

Allowance for Credit Losses

We maintain the allowance for credit losses at a level we believe is sufficient to absorb expected losses in our loan portfolio given the conditions at the time and our estimates of future economic conditions. Events that are not within our control, such as changes in economic factors, could change subsequent to the reporting date and could cause increases or decreases to the allowance. The amount of the allowance is affected by loan charge-offs, which decrease the allowance; recoveries on loans previously charged off, which increase the allowance; and the provision for credit losses charged to earnings, which increases the allowance.

In determining the provision for credit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.

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

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","2023","","2022","","","","2021"],["Balance, beginning of period","","","","","$","65,917","","","$","47,547","","","","","$","47,766"],["Impact of adopting ASC 326","","","","","5,256","","","\u2014","","","","","\u2014"],["Adjusted beginning balance","","","","","$","71,173","","","$","47,547","","","","","$","47,766"],["Loan charge-offs:"],["Commercial and industrial","","","","","(9,242)","","","(2,321)","","","","","(4,296)"],["Commercial real estate","","","","","(83)","","","\u2014","","","","","(375)"],["Residential real estate","","","","","(13)","","","(122)","","","","","(42)"],["Public finance","","","","","\u2014","","","\u2014","","","","","\u2014"],["Consumer","","","","","(334)","","","(144)","","","","","(148)"],["Other","","","","","\u2014","","","\u2014","","","","","\u2014"],["Total loan charge-offs","","","","","(9,672)","","","(2,587)","","","","","(4,861)"],["Recoveries of loans previously charged-off:"],["Commercial and industrial","","","","","1,118","","","2,236","","","","","1,547"],["Commercial real estate","","","","","12","","","388","","","","","28"],["Residential real estate","","","","","682","","","221","","","","","24"],["Public finance","","","","","\u2014","","","\u2014","","","","","\u2014"],["Consumer","","","","","50","","","62","","","","","43"],["Other","","","","","\u2014","","","\u2014","","","","","\u2014"],["Total loan recoveries","","","","","1,862","","","2,907","","","","","1,642"],["Net (charge-offs) recoveries","","","","","(7,810)","","","320","","","","","(3,219)"],["Provision for credit losses (1)","","","","","17,035","","","18,050","","","","","3,000"],["Balance, end of period","","","","","$","80,398","","","$","65,917","","","","","$","47,547"],["Allowance for credit losses to total loans","","","","","1.28","%","","1.12","%","","","","1.18","%"],["Ratio of net charge-offs (recoveries) to average loans outstanding","","","","","0.13","%","","(0.01)","%","","","","0.09","%"],["(1) For the years ended December 31, 2023, 2022 and 2021 we recorded a provision for credit losses on unfunded commitments of $1,212, $525 and $300, respectively. For further information, see Note 4 - Loans."]]
[[/GREPCENT_TABLE]]

The following table presents net charge-offs (recoveries) to average loans outstanding by loan category for the years ended December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","","","","","2023","","2022","","","","2021"],["Commercial and industrial","","","","","0.30","%","","\u2014","%","","","","0.19","%"],["Commercial real estate","","","","","\u2014","%","","(0.03)","%","","","","0.03","%"],["Residential real estate","","","","","(0.07)","%","","(0.01)","%","","","","\u2014","%"],["Public finance","","","","","\u2014","%","","\u2014","%","","","","\u2014","%"],["Consumer","","","","","0.70","%","","0.21","%","","","","0.65","%"],["Other","","","","","\u2014","%","","\u2014","%","","","","\u2014","%"]]
[[/GREPCENT_TABLE]]

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Allocation of Allowance for Credit Losses

The following table presents the allocation of the allowance for credit losses by category and the percentage of the allocation of the allowance for credit losses by category to total loans listed as of December 31,:

[[GREPCENT_TABLE]]
[["","2023","","2022"],["(In thousands)","Allowance Amount","","% of loans in each category to total loans","","Allowance Amount","","% of loans in each category to total loans"],["Commercial and industrial","$","29,523","","","39.4","%","","$","40,785","","","39.1","%"],["Commercial real estate","27,546","","","30.3","%","","19,754","","","31.2","%"],["Residential real estate","16,345","","","17.7","%","","2,963","","","17.0","%"],["Public finance","5,337","","","9.6","%","","1,664","","","10.0","%"],["Consumer","717","","","0.6","%","","352","","","0.7","%"],["Other","930","","","2.4","%","","399","","","2.0","%"],["Total","$","80,398","","","100.0","%","","$","65,917","","","100.0","%"]]
[[/GREPCENT_TABLE]]

Nonperforming Assets

We have established policies and procedures to guide us in originating, monitoring and maintaining the credit quality of our loan portfolio. These policies and procedures are expected to be followed by our bankers and underwriters and exceptions to these policies require elevated levels of approval and are reported to our board of directors.

Nonperforming assets include all loans categorized as nonaccrual, accrual loans greater than 90 days past due, and other real estate owned and other repossessed assets. The accrual of interest on loans is discontinued, or the loan is placed on nonaccrual, when the full collection of principal and interest is in doubt. We do not generally accrue interest on loans that are 90 days or more past due. When a loan is placed on nonaccrual, previously accrued but unpaid interest is reversed and charged against interest income and future accruals of interest are discontinued. Payments by borrowers for loans on nonaccrual are applied to loan principal. Loans are returned to accrual status when, in our judgment, the borrower’s ability to satisfy principal and interest obligations under the loan agreement has improved sufficiently to reasonably assure recovery of principal and the borrower has demonstrated a sustained period of repayment performance. In general, we require a minimum of six consecutive months of timely payments in accordance with the contractual terms before returning a loan to accrual status.

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The following table sets forth our nonperforming assets as of December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","2023","","2022"],["Nonaccrual loans:"],["Commercial and industrial","$","8,004","","","$","9,494"],["Commercial real estate","4,063","","","8,283"],["Residential real estate","22,413","","","10,628"],["Consumer","10","","","93"],["Other","2,837","","","471"],["Total nonaccrual loans","37,327","","","28,969"],["Accrual loans greater than 90 days past due (1)","25,816","","","98"],["Total nonperforming loans (2)","63,143","","","29,067"],["Other real estate owned and foreclosed assets, net","4,100","","","6,358"],["Total nonperforming assets","$","67,243","","","$","35,425"],["Nonaccrual loans to total loans","0.60","%","","0.49","%"],["Nonperforming loans to total loans (3)","1.01","%","","0.49","%"],["Nonperforming assets to total assets (3)","0.85","%","","0.48","%"],["Allowance for credit losses to nonaccrual loans","215.39","%","","227.54","%"],["(1) Loans greater than 90 days past due, still accruing at December 31, 2023 relates primarily to one borrower relationship where interest was paid current in February 2024. Contractual principal payments related to this borrower relationship were deferred until March 15, 2024. (2) On January 1, 2023, we adopted ASU 2022-02, whereby we no longer recognize or account for TDRs. The loans previously classified as accrual TDRs are no longer considered nonperforming. We have adjusted prior periods to reflect this change in accounting. (3) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due."]]
[[/GREPCENT_TABLE]]

Deposits

Deposits represent our primary source of funds. Total deposits increased by $0.6 billion to $6.4 billion at December 31, 2023, compared to December 31, 2022.

We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. The following table presents our deposits by customer type as of December 31,:

[[GREPCENT_TABLE]]
[["($ in thousands)","December 31, 2023","","","","","","December 31, 2022"],["Consumer"],["Noninterest bearing deposit accounts","$","360,168","","","","","","","$","416,709"],["Interest-bearing deposit accounts:"],["Demand and NOW deposits","36,162","","","","","","","25,940"],["Savings deposits","343,291","","","","","","","418,101"],["Money market deposits","1,196,645","","","","","","","1,375,671"],["Certificates of deposits","1,437,537","","","","","","","662,831"],["Total interest-bearing deposit accounts","3,013,635","","","","","","","2,482,543"],["Total consumer deposits","$","3,373,803","","","","","","","$","2,899,252"],["Business"],["Noninterest bearing deposit accounts","$","1,170,338","","","","","","","$","1,403,781"],["Interest-bearing deposit accounts:"],["Demand and NOW deposits","555,197","","","","","","","236,641"],["Savings deposits","80,802","","","","","","","33,753"],["Money market deposits","825,811","","","","","","","907,379"],["Certificates of deposits","87,407","","","","","","","40,874"],["Total interest-bearing deposit accounts","1,549,217","","","","","","","1,218,647"],["Total business deposits","$","2,719,555","","","","","","","$","2,622,428"],["Wholesale deposits (1)","$","280,745","","","","","","","$","243,382"],["Total deposits","$","6,374,103","","","","","","","$","5,765,062"],["(1) Wholesale deposits consist of brokered deposits included in our consolidated balance sheets within interest-bearing accounts and in Note 10 - Deposits within certificates of deposits and savings and money market accounts."]]
[[/GREPCENT_TABLE]]

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[[GREPCENT_TABLE]]
[["","","","2023","","2022"],["(Dollars in thousands)","","","","","Average Balance","","Average Rate Paid","","Average Balance","","Average Rate Paid"],["Noninterest-bearing demand deposit accounts","","","","","$","1,678,240","","","\u2014","%","","$","1,835,578","","","\u2014","%"],["Interest-bearing deposit accounts:"],["Interest-bearing demand accounts","","","","","344,242","","","3.26","%","","171,009","","","0.96","%"],["Savings accounts and money market accounts","","","","","2,576,064","","","1.20","%","","3,024,439","","","0.25","%"],["NOW accounts","","","","","41,182","","","0.82","%","","43,507","","","0.32","%"],["Certificate of deposit accounts","","","","","1,512,638","","","3.89","%","","536,325","","","0.71","%"],["Total interest-bearing deposit accounts","","","","","4,474,126","","","2.27","%","","3,775,280","","","0.35","%"],["Total deposits","","","","","$","6,152,366","","","1.65","%","","$","5,610,858","","","0.23","%"]]
[[/GREPCENT_TABLE]]

As of December 31, 2023 and December 31, 2022, approximately $2.0 billion or 31.2% and $2.4 billion or 41.6%, respectively, of our deposit portfolio was uninsured. As of December 31, 2023 and December 31, 2022, approximately $1.6 billion or 25.1% and $1.7 billion or 28.7%, respectively, of our deposit portfolio was uninsured and uncollateralized. The uninsured and uninsured and uncollateralized amounts are estimates based on the methodologies and assumptions used for the Bank's regulatory reporting requirements.

We actively participate in the IntraFi Cash Service (“ICS”) / Certificate of Deposit Account Registry Service (“CDARS”) program which provides FDIC insurance coverage for clients that maintain larger deposit balances. Deposits in the ICS / CDARS program totaled $0.6 billion, or 9.2% of all deposits as of December 31, 2023, and $0.2 billion, or 4.1% of all deposits as of December 31, 2022.

Maturities of certificates of deposit that are in excess of the FDIC insurance limit of $250,000, by remaining time to maturity are summarized as follows as of December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","2023","","2022"],["Three months or less","$","87,640","","","$","22,451"],["Over three months through twelve months","396,834","","","310,694"],["Over twelve months through three years","36,673","","","75,804"],["Over three years","592","","","961"],["Total","$","521,739","","","$","409,910"]]
[[/GREPCENT_TABLE]]

The following table sets forth the portion of the Bank's time deposits, by account, that are in excess of the FDIC insurance limit, by remaining time until maturity, as of December 31,:

[[GREPCENT_TABLE]]
[["(In thousands)","2023"],["Three months or less","$","54,875"],["Over three months through six months","30,141"],["Over six through twelve months","173,642"],["Over twelve months through three years","20,957"],["Over three years","439"],["Total","$","280,054"]]
[[/GREPCENT_TABLE]]

Liquidity

Liquidity refers to our ability to maintain cash flow that is adequate to fund operations, support asset growth, maintain reserve requirements and meet present and future obligations of deposit withdrawals, lending obligations and other contractual obligations.

FirstSun (Parent Company)

FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and funds used for acquisitions. FirstSun can obtain funding to meet its obligations from dividends collected from its subsidiaries, primarily the Bank, and through the issuance of varying forms of debt. At December 31, 2023, FirstSun had available cash and cash equivalents of $34.1 million and debt outstanding of $78.9 million. Management believes FirstSun has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

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Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The Bank may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years, subject to maintenance of minimum capital requirements. Prior regulatory approval to pay dividends was not required in 2022 or 2023 and is not currently required. At December 31, 2023, the Bank could pay dividends to FirstSun of approximately $199.0 million without prior regulatory approval. During the year ended December 31, 2023, the Bank paid dividends totaling $26.0 million to FirstSun. During the year ended December 31, 2023, Logia paid dividends totaling $0.6 million to FirstSun.

Bank

The Bank’s liquidity management policy and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable us to meet all reasonably foreseeable short-term, long-term and strategic liquidity demands. Our Asset and Liability Management Committee, or ALCO, is responsible for oversight of our liquidity risk management activities in accordance with the provisions of our ALM Policy and applicable bank regulatory capital and liquidity laws and regulations. Our liquidity risk management process includes (i) ongoing analysis and monitoring of our funding requirements under various economic and interest rate scenarios, (ii) review and monitoring of lenders, depositors, brokers and other liability holders to ensure appropriate diversification of funding sources and (iii) liquidity contingency planning to address liquidity needs in the event of unforeseen market disruption, including appropriate allocation of funds to a liquid portfolio of marketable securities and investments. We continuously monitor our liquidity position in order for our assets and liabilities to be managed in a manner that we believe will meet our immediate and long-term funding requirements. We seek to manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assets and liabilities to meet the return on investment objectives of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control when we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.

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

At December 31, 2023, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $473.0 million, or 6.0% of total assets, compared to $307.9 million, or 4.1% of total assets, at December 31, 2022. The increase in our liquid assets was primarily due to an increase in cash held at the Federal Reserve. At December 31, 2023, approximately 85% of the investment securities portfolio was pledged as collateral to secure public deposits and repurchase agreements. Our unencumbered available-for-sale securities at December 31, 2023 were $81.5 million, or 1.0% of total assets, compared to $120.4 million, or 1.6% of total assets, at December 31, 2022.

The liability portion of our balance sheet serves as a primary source of liquidity. We plan to meet our future cash needs primarily through the generation of deposits. Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At December 31, 2023, loans as a percentage of customer deposits were 98.3%, compared with 102.5% at December 31, 2022. For additional information related to our deposits, see Deposits section above. We are also a member of the FHLB and FRB, from which we can borrow for leverage or liquidity purposes. The FHLB and FRB requires that securities and qualifying loans be pledged to secure any advances. Liquidity sources available to us for immediate funding at December 31, 2023, are as follows:

[[GREPCENT_TABLE]]
[["FHLB borrowings available","$","706,367"],["Fed Funds lines","2,028,410"],["Unused lines with other financial institutions","309,917"],["Immediate funding availability","$","3,044,694"]]
[[/GREPCENT_TABLE]]

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Management believes the Bank has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term and the long-term.

Capital

Stockholders’ equity at December 31, 2023 was $877.2 million, compared to $774.5 million at 2022, an increase of $102.7 million, or 13.3%. The increase in stockholders’ equity relates primarily to net income for the year ended December 31, 2023. We did not pay a dividend to our common shareholders during the years ended December 31, 2023 or 2022.

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 19 - 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 December 31, 2023. Further discussion of each obligation or commitment is included in the referenced note to the consolidated financial statements.

[[GREPCENT_TABLE]]
[["(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","10","","$","4,597,534","","","$","4,597,534","","","$","\u2014","","","$","\u2014","","","$","\u2014"],["Certificates of deposit","10","","1,776,569","","","1,347,310","","","418,262","","","8,038","","","2,959"],["Securities sold under agreements to repurchase","11","","24,693","","","24,693","","","\u2014","","","\u2014","","","\u2014"],["Short-term debt:"],["FHLB LOC","12","","389,468","","","389,468","","","\u2014","","","\u2014","","","\u2014"],["Long-term debt:"],["Subordinated debt","12","","78,919","","","\u2014","","","\u2014","","","\u2014","","","78,919"],["Operating leases","25","","28,122","","","7,146","","","10,531","","","5,158","","","5,287"]]
[[/GREPCENT_TABLE]]

We are party to various derivative contracts as a means to manage the balance sheet and our related exposure to changes in interest rates, to manage our residential real estate loan origination and sale activity, and to provide derivative contracts to our clients. Since the derivative liabilities recorded on the balance sheet change frequently and do not represent the amounts that may ultimately be paid under these contracts, these liabilities are not included in the table of contractual obligations presented above. Further discussion of derivative instruments is included in Note 8 - Derivative Financial Instruments to the consolidated financial statements.

In the normal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the business in which they are engaged. Further discussion of contingent liabilities is included in Note 24 - Commitments and Contingencies to the consolidated financial statements.

We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments. Further discussion of contingent liabilities is included in Note 24 - Commitments and Contingencies to the consolidated financial statements.

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