UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
| | | | | |
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2021March 31, 2024
OR
| | | | | |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For transition period from to
Commission File NumberNumber 333-258176
FIRSTSUN CAPITAL BANCORP
(Exact name of registrant as specified in its charter)
| | | | | | | | |
| Delaware | | 81-4552413 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
1400 16th Street, Suite 250
Denver, Colorado 80202
(303) 831-6704
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
Securities registered pursuant to Section 12(b) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐☒ No ☒☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| | | | | | | | | | | |
| Large accelerated filer | ☐ | Accelerated filer | ☐☒ |
| Non-accelerated filer | ☒☐ | Smaller reporting company | ☐ |
| | Emerging growth company | ☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the Securities Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes ☐ No ☒
As of September 9, 2021,May 10, 2024, there were approximately 18,321,65927,442,943 shares of the registrant’s common stock outstanding.
Table of Contents
CAUTIONARY STATEMENTNOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, Section 21E1995. Forward-looking statements reflect our current views with respect to, among other things, statements relating to the Company’s assets, business, cash flows, condition (financial or otherwise), credit quality, financial performance, liquidity, short and long-term performance goals, prospects, results of operations, strategic initiatives, the Securities Exchange Actbenefits, cost and synergies of 1934, as amended (the “Exchange Act”completed acquisitions or dispositions, and the timing, benefits, costs and synergies of future acquisitions, disposition and other growth opportunities, including statements regarding our pending merger with HomeStreet, Inc. (“HomeStreet”). Forward-looking statementsThey are not statements of historical or current fact nor are they assurances of future performance, and they generally can be identified by the use of forward-looking terminology, such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “plan,” “predict,” “project,” “forecast,” “guidance,” “goal,” “objective,” “prospects,” “possible” or “potential,” by future conditional verbs such as “assume,” “will,” “would,” “should,” “could” or “may,” or by variations of such words or by similar expressions. These forward-looking statements include, but are not limited to, statements related to our proposed merger with Pioneer Bancshares, Inc. (“Pioneer”), including the expected timing to close the merger, statements about the impact of COVID-19 on our operations, our belief that sources of available liquidity are adequate to meet our current and expected liquidity needs, our plans to meet future cash needs through the generation of deposits, our expectations that many of our unfunded commitments will expire without being drawn, and statements regarding our business plan and strategies. These forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time, are difficult to predict and are generally beyond our control.
There are or will be important factors that could cause our actual results to differ materially from those indicated in these forward-looking statements, including, but not limited to, the following:
•the failure to obtain necessary regulatory approvals for the merger (the “merger”) of Pioneer with and into FirstSun Capital Bancorp (“FirstSun”) when expectedpotential fluctuations or at all (and the risk that such approvals may resultunanticipated changes in the impositioninterest rate environment, including interest rate changes made by the Board of Governors of the Federal Reserve, and their related impacts on macroeconomic conditions, that could adversely affect the combined company customer and client behavior, our funding costs, and our loan and securities portfolios, as well as cash flow reassessments may reduce net interest margin and/or the expected benefitsvolumes and values of loans made or held as well as the transaction);
•the failure of Pioneer to obtain the requisite shareholder approval, or the failure of either party to satisfy any of the other closing conditions to the transaction on a timely basis or at all;
•the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the merger agreement with respect to the merger;
•the possibility that the anticipated benefits of the merger, including anticipated cost savings and strategic gains, are not realized when expected or at all, including as a result of the impact of, or problems arising from, the integration of the two companies or as a result of the strength of the economy, competitive factors in the areas where FirstSun and Pioneer do business or as a resultvalue of other unexpected factors or events;
•the impact of purchase accounting with respect to the merger, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
•diversion of management’s attention from ongoing business operations and opportunities;
•potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger;
•the integration of the business and operations of Pioneer, which may take longer than anticipated or be more costly than anticipated or have unanticipated adverse results relating to Pioneer’s existing business;
•challenges retaining or hiring key personnel;
•business disruptions resulting from or following the merger;
•delay in closing the merger and the bank merger;
•the outcome of pending or threatened litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;
•increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
•the inability to sustain revenue and earnings growth;
•the inability to efficiently manage operating expenses;financial assets;
•changes in interest ratesthe monetary and capital markets;fiscal policies of the U.S. Government, including policies of the U.S. Department of the Treasury and the Federal Reserve;
•changes in asset qualityother actions of the Federal Reserve and credit risk;
•adverse changes in economic conditions;
•capital management activities;
•customer borrowing, repayment, investmentlegislative and deposit practices;regulatory actions and reforms;
•the impact, extentpotential effects of events beyond our control that may have a destabilizing effect on financial markets, economic growth, customer and timing of technological changes;client behavior and the economy in general, such as inflation and recessions, epidemics and pandemics, terrorist activities, wars and other foreign conflicts, essential utility outages, climate change, deterioration in the global economy, instability in the credit markets, disruptions in our customers’ supply chains or disruption in transportation;
•the continuing impactpotential effects of COVID-19pandemics or public health conditions on the economic and its variants on our business or Pioneer’s business,environments in which we operate, including the impact of the actions taken by governmental authorities to try and contain the virus or address the impact of the virus on the United States economy,these situations, and the resulting effect of these items on each party’sour operations, liquidity and capital position, and on the financial condition of each party’sour borrowers and other customers;
•changes in legislation, regulation, policies or administrative practices, whether by judicial, governmental or legislative action and other changes pertaining to banking, securities, taxation, rent regulation and housing, financial accounting and reporting, environmental protection and insurance and the ability to comply with such changes in a timely manner;
•the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the monetaryfinancial services market;
•competition from financial institutions and fiscal policiesother financial service providers including non-bank financial technology providers and our ability to attract customers from other financial institutions;
•any unanticipated or greater than anticipated adverse conditions in the national or local economies in which we operate;
•our loan concentration in industries or sectors that may experience unanticipated or greater than anticipated adverse conditions than other industries or sectors in the national or local economies in which we operate;
•increased capital requirements, other regulatory requirements or enhanced regulatory supervision;
•cyber-security risks and the vulnerability of our network and online banking portals, and the systems or parties with whom we contract, to unauthorized access, cyber attacks, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches that could adversely affect our business and financial performance or reputation;
•risks with respect to our ability to identify and complete future mergers or acquisitions, including our proposed merger with HomeStreet, as well as our ability to successfully expand and integrate those businesses and operations that we acquire;
•the failure to close our previously announced merger with HomeStreet when expected or at all because required regulatory approvals and other conditions to closing are not received or satisfied on a timely basis or at all, and the
risk that any regulatory approvals may result in the imposition of conditions that could adversely affect the combined company or the expected benefits of the U.S. Government, including policiesproposed merger;
•the dilutive effect of shares of FirstSun’s common stock to be issued at the completion of the U.S. Departmentproposed merger with HomeStreet and the related effects on our stock price;
•the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the Treasuryparties to terminate the merger agreement with HomeStreet;
•any change in the purchase accounting assumptions used regarding the HomeStreet assets acquired and liabilities assumed to determine the Federal Reserve;fair value and credit marks, particularly in light of the current interest rate environment;
•the possibility that the anticipated benefits of the proposed merger with HomeStreet, including anticipated cost savings and strategic gains, are not realized when expected or at all;
•the proposed merger with HomeStreet being more expensive or taking longer to complete than anticipated, including as a result of unexpected factors or events;
•the diversion of management’s attention from ongoing business operations and opportunities due to the proposed merger with HomeStreet;
•potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the proposed merger with HomeStreet;
•additional regulatory burdens that may be imposed upon the completion of the HomeStreet merger due to having assets in excess of $10 billion;
•changes in FirstSun’s or HomeStreet’s share price before closing;
•the risks of expansion into new geographic or product markets;
•the inability to manage strategic initiatives and/or organizational changes;
•our ability to attract and retain key employees;
•volatility in the allowance for credit losses resulting from the CECL methodology, either alone or as that may be affected by conditions affecting our business;
•changes in accounting principles, policies, practices or guidelines;
•the potential increase in reservesour reliance on third parties to provide key components of our business infrastructure and allowance for loan loss as a result of the transition in 2023services required to the current expected credit loss standard, or “CECL,” established by the Financial Accounting Standards Board to account for future expected credit losses;operate our business;
•the potential impactavailability of announcement or consummationand access to capital; failures of the merger on relationships with third parties, including customers, vendors, employeesinternal controls and competitors;
•failure to attract new customers and retain existing customers in the manner anticipated;
•any interruption or breach of security resulting in failures or disruptions in customer accountother risk management general ledger, deposit, loan or other systems;
•the adverse effectsoutcome (including judgments, costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) of events beyond each party’s control that may have a destabilizing effect on financial markets and the economy, such as epidemics and pandemics (including COVID-19), warpending or terrorist activities, essential utility outages, deteriorationthreatened litigation or of matters before or involving regulatory agencies, whether currently existing or commencing in the global economy, instability in the credit markets, disruptions in each party’s customers’ supply chains or disruption in transportation;future;
•other actionslosses due to fraudulent or negligent conduct of the Federal Reserveour customers, third-party service providers or employees; and legislative and regulatory actions and reforms;
•limitations on our ability to declare and pay dividends and other risks and uncertainties disclosed in documents filed or furnished by us with ordistributions from our bank to the SEC, any ofour holding company, which could cause actual resultsaffect our holding company’s liquidity, including its ability to differ materially from future results expressed, impliedpay dividends to shareholders or otherwise anticipated by such forward-looking statements.take other capital actions.
We caution readers that the foregoing list of factors is not exclusive, is not necessarily in order of importance and readers should not place undue reliance on any forward-looking statements. You should also consider the risks, assumptions and uncertainties set forth
inunder “Item 1.A. Risk Factors,” of our Annual Report on Form 10-K for the
“Risk Factors” section of this Form 10-Q and in our proxy statement/prospectus dated August 10, 2021 that weyear ended December 31, 2023 filed with the
SEC pursuant to Securities
Act Rule 424(b)(3)and Exchange Commission (“SEC”) on March 7, 2024 (our “2023 Annual Report”) as well as any additional factors that might be reported in connectionfuture filings that we make with the mergerSEC. If one or more events related to these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may differ materially from our forward-looking statements. Accordingly, you should not place undue reliance on August 12, 2021.any such forward-looking statements. Further, any forward-looking statement speaks only as of the date on which it is made and we do not intend to and disclaim any obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events, unless required to do so under the federal securities laws.
Part I - Financial Information
Item 1. Financial Statements (Unaudited)
Index to Consolidated Financial Statements
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)As of
| | | | | | | | | | | | | | |
| (In thousands, except par and share amounts) | | June 30, 2021 | | December 31, 2020 |
| Assets | | | | |
| Cash and cash equivalents | | $ | 840,600 | | | $ | 201,978 | |
| Securities available-for-sale | | 508,975 | | | 468,586 | |
| Securities held-to-maturity, fair value of $22,781 and $33,328, respectively | | 21,894 | | | 32,188 | |
| Loans held-for-sale, at fair value | | 136,999 | | | 193,963 | |
| Loans, net of allowance for loan losses of $42,978 and $47,766, respectively | | 3,751,377 | | | 3,798,591 | |
| Mortgage servicing rights, at fair value | | 40,844 | | | 29,144 | |
| Premises and equipment, net | | 54,304 | | | 56,758 | |
| Other real estate owned and foreclosed assets, net | | 4,013 | | | 3,354 | |
| Bank-owned life insurance | | 54,215 | | | 53,582 | |
| Restricted equity securities | | 17,815 | | | 23,175 | |
| Goodwill | | 33,050 | | | 33,050 | |
| Core deposits and other intangible assets, net | | 8,959 | | | 9,667 | |
| Accrued interest receivable | | 14,599 | | | 15,416 | |
| Deferred tax assets, net | | 21,542 | | | 23,763 | |
| Prepaid expenses and other assets | | 53,890 | | | 52,242 | |
| Total assets | | $ | 5,563,076 | | | $ | 4,995,457 | |
| | | | |
| Liabilities and Stockholders’ Equity | | | | |
| Liabilities: | | | | |
| Deposits: | | | | |
| Noninterest-bearing accounts | | $ | 1,359,112 | | | $ | 1,054,458 | |
| Interest-bearing accounts | | 3,389,586 | | | 3,099,091 | |
| Total deposits | | 4,748,698 | | | 4,153,549 | |
| | | | |
| Securities sold under agreements to repurchase | | 113,786 | | | 115,372 | |
| Federal Home Loan Bank advances | | 40,000 | | | 70,411 | |
| | | | |
| Convertible notes payable, net | | 19,069 | | | 18,696 | |
| Subordinated debt, net | | 49,841 | | | 49,666 | |
| Accrued interest payable | | 1,246 | | | 2,592 | |
| Accrued expenses and other liabilities | | 79,854 | | | 99,384 | |
| Total liabilities | | 5,052,494 | | | 4,509,670 | |
| | | | |
| | 0 | | 0 |
| | | | |
| Stockholders’ equity: | | | | |
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, NaN issued or outstanding, respectively | | — | | | — | |
| Common stock, $0.0001 par value; 50,000,000 shares authorized; 19,878,713 shares issued; 18,321,659 shares outstanding, respectively | | 2 | | | 2 | |
| Additional paid-in capital | | 260,516 | | | 259,363 | |
| Treasury stock, 1,557,054 shares, respectively | | (38,148) | | | (38,148) | |
| Retained earnings | | 281,070 | | | 255,451 | |
| Accumulated other comprehensive income, net | | 7,142 | | | 9,119 | |
| Total stockholders’ equity | | 510,582 | | | 485,787 | |
| Total liabilities and stockholders’ equity | | $ | 5,563,076 | | | $ | 4,995,457 | |
| | | | | | | | | | | |
| (Unaudited) | | |
| (In thousands, except par and share amounts) | March 31,
2024 | | December 31,
2023 |
| Assets | | | |
| Cash and cash equivalents | $ | 383,605 | | | $ | 479,362 | |
| Securities available-for-sale, at fair value | 499,078 | | | 516,757 | |
| Securities held-to-maturity, fair value of $31,035 and $32,181, respectively | 36,640 | | | 36,983 | |
| Loans held-for-sale, at fair value | 56,813 | | | 54,212 | |
| Loans, net of allowance for credit losses of $79,829 and $80,398, respectively | 6,205,039 | | | 6,186,698 | |
| Mortgage servicing rights, at fair value | 78,416 | | | 76,701 | |
| Premises and equipment, net | 84,063 | | | 84,842 | |
| Other real estate owned and foreclosed assets, net | 4,414 | | | 4,100 | |
| Bank-owned life insurance | 79,541 | | | 79,851 | |
| Restricted equity securities | 27,080 | | | 38,072 | |
| Goodwill | 93,483 | | | 93,483 | |
| Core deposits and other intangible assets, net | 10,168 | | | 10,984 | |
| Accrued interest receivable | 35,868 | | | 37,099 | |
| Deferred tax assets, net | 47,792 | | | 46,259 | |
| Prepaid expenses and other assets | 139,601 | | | 134,321 | |
| Total assets | $ | 7,781,601 | | | $ | 7,879,724 | |
| | | |
| Liabilities and Stockholders’ Equity | | | |
| Liabilities: | | | |
| Deposits: | | | |
| Noninterest-bearing accounts | $ | 1,517,315 | | | $ | 1,530,506 | |
| Interest-bearing accounts | 4,928,073 | | | 4,843,597 | |
| Total deposits | 6,445,388 | | | 6,374,103 | |
| Securities sold under agreements to repurchase | 20,423 | | | 24,693 | |
| Federal Home Loan Bank advances | 144,810 | | | 389,468 | |
| | | |
| | | |
| Subordinated debt, net | 75,445 | | | 75,313 | |
| Accrued interest payable | 12,031 | | | 13,580 | |
| Accrued expenses and other liabilities | 118,842 | | | 125,370 | |
| Total liabilities | 6,816,939 | | | 7,002,527 | |
| | | |
Commitments and contingencies (Note 16) | | | |
| | | |
| Stockholders’ equity: | | | |
| Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued or outstanding, respectively | — | | | — | |
| Common stock, $0.0001 par value; 50,000,000 shares authorized; 27,442,943 and 24,960,639 shares issued and outstanding, respectively | 3 | | | 2 | |
| Additional paid-in capital | 542,582 | | | 462,680 | |
| | | |
| Retained earnings | 469,818 | | | 457,522 | |
| Accumulated other comprehensive loss, net | (47,741) | | | (43,007) | |
| Total stockholders’ equity | 964,662 | | | 877,197 | |
| Total liabilities and stockholders’ equity | $ | 7,781,601 | | | $ | 7,879,724 | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Statements of Income and Comprehensive Income
For the three months ended March 31,
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands, except per share amounts) | | 2021 | | 2020 | | 2021 | | 2020 |
| Interest income: | | | | | | | | |
| Interest and fee income on loans: | | | | | | | | |
| Taxable | | $ | 31,320 | | | $ | 28,880 | | | $ | 64,843 | | | $ | 58,285 | |
| Tax exempt | | 6,405 | | | 6,043 | | | 13,141 | | | 11,441 | |
| Interest and dividend income on securities: | | | | | | | | |
| Taxable | | 1,873 | | | 2,818 | | | 3,685 | | | 6,132 | |
| Tax exempt | | 4 | | | 3 | | | 7 | | | 6 | |
| Other interest income | | 467 | | | 268 | | | 839 | | | 786 | |
| Total interest income | | 40,069 | | | 38,012 | | | 82,515 | | | 76,650 | |
| Interest expense: | | | | | | | | |
| Interest expense on deposits | | 2,349 | | | 4,125 | | | 4,753 | | | 9,533 | |
| Interest expense on securities sold under agreements to repurchase | | 18 | | | 36 | | | 36 | | | 116 | |
| Interest expense on other borrowed funds | | 1,302 | | | 972 | | | 2,909 | | | 2,183 | |
| Total interest expense | | 3,669 | | | 5,133 | | | 7,698 | | | 11,832 | |
| Net interest income | | 36,400 | | | 32,879 | | | 74,817 | | | 64,818 | |
| (Benefit) provision for loan losses | | (1,400) | | | 7,500 | | | (1,750) | | | 10,300 | |
| Net interest income after provision for loan losses | | 37,800 | | | 25,379 | | | 76,567 | | | 54,518 | |
| Noninterest income: | | | | | | | | |
| Service charges on deposit accounts | | 2,645 | | | 1,966 | | | 5,188 | | | 4,614 | |
| Credit and debit card fees | | 2,544 | | | 1,909 | | | 4,668 | | | 3,758 | |
| Trust and investment advisory fees | | 1,992 | | | 967 | | | 3,897 | | | 1,940 | |
| Income from mortgage banking services, net | | 22,936 | | | 38,215 | | | 47,993 | | | 54,451 | |
| Gain on sales of available-for-sale securities, net | | — | | | — | | | — | | | 153 | |
| Gain (loss) on other real estate owned and foreclosed assets activity, net | | 498 | | | (201) | | | 498 | | | (201) | |
| | | | | | | | |
| Other noninterest income | | 1,668 | | | 1,289 | | | 3,920 | | | 1,680 | |
| Total noninterest income | | 32,283 | | | 44,145 | | | 66,164 | | | 66,395 | |
| Noninterest expense: | | | | | | | | |
| Salary and employee benefits | | 38,449 | | | 36,231 | | | 77,068 | | | 64,049 | |
| Occupancy | | 6,527 | | | 6,356 | | | 13,224 | | | 12,886 | |
| | | | | | | | |
| Amortization of intangible assets | | 354 | | | 361 | | | 708 | | | 722 | |
| Other noninterest expenses | | 11,294 | | | 8,732 | | | 20,804 | | | 17,108 | |
| Total noninterest expense | | 56,624 | | | 51,680 | | | 111,804 | | | 94,765 | |
| Income before income taxes | | 13,459 | | | 17,844 | | | 30,927 | | | 26,148 | |
| Provision for income taxes | | 2,178 | | | 3,446 | | | 5,308 | | | 4,577 | |
| Net income | | $ | 11,281 | | | $ | 14,398 | | | $ | 25,619 | | | $ | 21,571 | |
| Other comprehensive income: | | | | | | | | |
| Reclassification adjustment for net gain on sales of available-for-sale securities | | — | | | — | | | — | | | (153) | |
| Change in unrealized gain (loss) on available-for-sale securities | | 1,143 | | | 3,829 | | | (2,619) | | | 10,571 | |
| Income tax effect on other comprehensive income | | (279) | | | (936) | | | 642 | | | (2,548) | |
| Comprehensive income | | $ | 12,145 | | | $ | 17,291 | | | $ | 23,642 | | | $ | 29,441 | |
| | | | | | | | |
| Earnings per share: | | | | | | | | |
| Net income available to common stockholders | | $ | 11,281 | | | $ | 14,398 | | | $ | 25,619 | | | $ | 21,571 | |
| Basic | | $ | 0.62 | | | $ | 0.79 | | | $ | 1.40 | | | $ | 1.18 | |
| Diluted | | $ | 0.60 | | | $ | 0.79 | | | $ | 1.37 | | | $ | 1.18 | |
| | | | | | | | | | | | | | | | | | | |
| Three months ended March 31, | | | | | | |
| (In thousands, except per share amounts) | 2024 | | 2023 | | | | | | |
| Interest income: | | | | | | | | | | | |
| Interest and fee income on loans: | | | | | | | | | | | |
| Taxable | $ | 97,313 | | | $ | 83,937 | | | | | | | | | |
| Tax exempt | 4,955 | | | 4,664 | | | | | | | | | |
| Interest and dividend income on securities: | | | | | | | | | | | |
| Taxable | 4,483 | | | 4,157 | | | | | | | | | |
| Tax exempt | 4 | | | 7 | | | | | | | | | |
| Other interest income | 3,285 | | | 2,138 | | | | | | | | | |
| Total interest income | 110,040 | | | 94,903 | | | | | | | | | |
| Interest expense: | | | | | | | | | | | |
| Interest expense on deposits | 36,390 | | | 14,179 | | | | | | | | | |
| Interest expense on securities sold under agreements to repurchase | 57 | | | 30 | | | | | | | | | |
| Interest expense on other borrowed funds | 2,787 | | | 6,577 | | | | | | | | | |
| Total interest expense | 39,234 | | | 20,786 | | | | | | | | | |
| Net interest income | 70,806 | | | 74,117 | | | | | | | | | |
| Provision for credit losses | 16,500 | | | 3,360 | | | | | | | | | |
| Net interest income after credit loss expense | 54,306 | | | 70,757 | | | | | | | | | |
| Noninterest income: | | | | | | | | | | | |
| Service charges on deposit accounts | 5,768 | | | 5,015 | | | | | | | | | |
| Credit and debit card fees | 2,803 | | | 2,981 | | | | | | | | | |
| Trust and investment advisory fees | 1,463 | | | 1,461 | | | | | | | | | |
| Income from mortgage banking services, net | 9,502 | | | 7,429 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Other noninterest income | 3,272 | | | 2,045 | | | | | | | | | |
| Total noninterest income | 22,808 | | | 18,931 | | | | | | | | | |
| Noninterest expense: | | | | | | | | | | | |
| Salary and employee benefits | 37,353 | | | 35,049 | | | | | | | | | |
| Occupancy and equipment | 8,595 | | | 8,355 | | | | | | | | | |
| | | | | | | | | | | |
| Amortization of intangible assets | 815 | | | 1,044 | | | | | | | | | |
| Merger related expenses | 2,489 | | | — | | | | | | | | | |
| Other noninterest expenses | 12,576 | | | 11,818 | | | | | | | | | |
| Total noninterest expense | 61,828 | | | 56,266 | | | | | | | | | |
| Income before income taxes | 15,286 | | | 33,422 | | | | | | | | | |
| Provision for income taxes | 2,990 | | | 7,141 | | | | | | | | | |
| Net income | $ | 12,296 | | | $ | 26,281 | | | | | | | | | |
| Other comprehensive income, net of tax: | | | | | | | | | | | |
| (Loss) gain on securities available-for-sale | (5,695) | | | 2,271 | | | | | | | | | |
| Gain (loss) on fair value hedges of securities available-for-sale | 961 | | | (684) | | | | | | | | | |
| Other comprehensive (loss) gain, net of tax | (4,734) | | | 1,587 | | | | | | | | | |
| Comprehensive income | $ | 7,562 | | | $ | 27,868 | | | | | | | | | |
| | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | |
| Net income available to common stockholders | $ | 12,296 | | | $ | 26,281 | | | | | | | | | |
| Basic | $ | 0.46 | | | $ | 1.05 | | | | | | | | | |
| Diluted | $ | 0.45 | | | $ | 1.03 | | | | | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Statements of Stockholders’ Equity
For the three months ended June 30,March 31,
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except share amounts) | | Issued
shares of common stock | | Common stock | | Additional
paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income | | Total stockholders’ equity |
| 2021 | | | | | | | | | | | | | | |
| Balance, beginning of period | | 19,878,713 | | | $ | 2 | | | $ | 259,940 | | | $ | (38,148) | | | $ | 269,789 | | | $ | 6,278 | | | $ | 497,861 | |
| Share-based compensation, net of forfeitures | | — | | | — | | | 576 | | | — | | | — | | | — | | | 576 | |
| Net income | | — | | | — | | | — | | | — | | | 11,281 | | | — | | | 11,281 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 864 | | | 864 | |
| Balance, end of period | | 19,878,713 | | | $ | 2 | | | $ | 260,516 | | | $ | (38,148) | | | $ | 281,070 | | | $ | 7,142 | | | $ | 510,582 | |
| | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | |
| Balance, beginning of period | | 19,878,713 | | | $ | 2 | | | $ | 257,800 | | | $ | (38,268) | | | $ | 215,039 | | | $ | 6,835 | | | $ | 441,408 | |
| Stock option exercise (864 shares of treasury stock issued) | | — | | | — | | | 118 | | | 79 | | | — | | | — | | | 197 | |
| Share-based compensation, net of forfeitures | | — | | | — | | | 397 | | | — | | | — | | | — | | | 397 | |
| Net income | | — | | | — | | | — | | | — | | | 14,398 | | | — | | | 14,398 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 2,893 | | | 2,893 | |
| Balance, end of period | | 19,878,713 | | | $ | 2 | | | $ | 258,315 | | | $ | (38,189) | | | $ | 229,437 | | | $ | 9,728 | | | $ | 459,293 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except share amounts) | Issued
shares of common stock | | Common stock | | Additional
paid-in capital | | | | Retained earnings | | Accumulated other comprehensive loss | | Total stockholders’ equity |
| 2024 | | | | | | | | | | | | | |
| Balance, beginning of period | 24,960,639 | | | $ | 2 | | | $ | 462,680 | | | | | $ | 457,522 | | | $ | (43,007) | | | $ | 877,197 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Issuance of common stock, net of issuance costs | 2,461,538 | | | 1 | | | 79,515 | | | | | — | | | — | | | 79,516 | |
| 11,739 | | | — | | | 135 | | | | | — | | | — | | | 135 | |
| Stock option exercises | 9,027 | | | — | | | (105) | | | | | — | | | — | | | (105) | |
| Share-based compensation, net of forfeitures | — | | | — | | | 357 | | | | | — | | | — | | | 357 | |
| Net income | — | | | — | | | — | | | | | 12,296 | | | — | | | 12,296 | |
| Other comprehensive loss | — | | | — | | | — | | | | | — | | | (4,734) | | | (4,734) | |
| | | | | | | | | | | | | |
| Balance, end of period | 27,442,943 | | | $ | 3 | | | $ | 542,582 | | | | | $ | 469,818 | | | $ | (47,741) | | | $ | 964,662 | |
| | | | | | | | | | | | | |
| 2023 | | | | | | | | | | | | | |
| Balance, beginning of period | 24,920,984 | | | $ | 2 | | | $ | 460,720 | | | | | $ | 357,797 | | | $ | (43,983) | | | $ | 774,536 | |
| Cumulative effect of accounting change | — | | | — | | | — | | | | | (3,808) | | | — | | | (3,808) | |
| Adjusted beginning balance | 24,920,984 | | | 2 | | | 460,720 | | | | | 353,989 | | | (43,983) | | | 770,728 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| — | | | — | | | 101 | | | | | — | | | — | | | 101 | |
| Stock option exercises | 3,039 | | | — | | | 27 | | | | | — | | | — | | | 27 | |
| Share-based compensation, net of forfeitures | — | | | — | | | 326 | | | | | — | | | — | | | 326 | |
| Net income | — | | | — | | | — | | | | | 26,281 | | | — | | | 26,281 | |
| Other comprehensive income | — | | | — | | | — | | | | | — | | | 1,587 | | | 1,587 | |
| | | | | | | | | | | | | |
| Balance, end of period | 24,924,023 | | | $ | 2 | | | $ | 461,174 | | | | | $ | 380,270 | | | $ | (42,396) | | | $ | 799,050 | |
| | | | | | | | | | | | | |
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The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Statements of Stockholders’ Equity (continued)Cash Flows
For the sixthree months ended June 30,March 31,
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in thousands, except share amounts) | | Issued
shares of common stock | | Common stock | | Additional
paid-in capital | | Treasury stock | | Retained earnings | | Accumulated other comprehensive income | | Total stockholders’ equity |
| 2021 | | | | | | | | | | | | | | |
| Balance, beginning of period | | 19,878,713 | | | $ | 2 | | | $ | 259,363 | | | $ | (38,148) | | | $ | 255,451 | | | $ | 9,119 | | | $ | 485,787 | |
| Share-based compensation, net of forfeitures | | — | | | — | | | 1,153 | | | — | | | — | | | — | | | 1,153 | |
| Net income | | — | | | — | | | — | | | — | | | 25,619 | | | — | | | 25,619 | |
| Other comprehensive loss | | — | | | — | | | — | | | — | | | — | | | (1,977) | | | (1,977) | |
| Balance, end of period | | 19,878,713 | | | $ | 2 | | | $ | 260,516 | | | $ | (38,148) | | | $ | 281,070 | | | $ | 7,142 | | | $ | 510,582 | |
| | | | | | | | | | | | | | |
| 2020 | | | | | | | | | | | | | | |
| Balance, beginning of period | | 19,878,713 | | | $ | 2 | | | $ | 257,181 | | | $ | (36,706) | | | $ | 207,866 | | | $ | 1,858 | | | $ | 430,201 | |
| Issuance of treasury stock (100 shares) | | — | | | — | | | — | | | 2 | | | — | | | — | | | 2 | |
| Repurchase of treasury stock (63,844 shares) | | — | | | — | | | — | | | (1,564) | | | — | | | — | | | (1,564) | |
| Stock option exercise (3,222 shares of treasury stock issued) | | — | | | — | | | (35) | | | 79 | | | — | | | — | | | 44 | |
| Share-based compensation, net of forfeitures | | — | | | — | | | 1,169 | | | — | | | — | | | — | | | 1,169 | |
| Net income | | — | | | — | | | — | | | — | | | 21,571 | | | — | | | 21,571 | |
| Other comprehensive income | | — | | | — | | | — | | | — | | | — | | | 7,870 | | | 7,870 | |
| Balance, end of period | | 19,878,713 | | | $ | 2 | | | $ | 258,315 | | | $ | (38,189) | | | $ | 229,437 | | | $ | 9,728 | | | $ | 459,293 | |
| | | | | | | | | | | | | | | |
| (In thousands) | 2024 | | 2023 | | | | |
| Cash flows from operating activities: | | | | | | | |
| Net income | $ | 12,296 | | | $ | 26,281 | | | | | |
| Adjustments to reconcile income to net cash provided by operating activities: | | | | | | | |
| Provision for credit losses | 16,500 | | | 3,360 | | | | | |
| Depreciation and amortization on premises and equipment | 1,787 | | | 1,891 | | | | | |
| Deferred tax expense | — | | | 2,341 | | | | | |
| Amortization of net premium on securities | 183 | | | 264 | | | | | |
| Accretion of net discount on acquired loans | (737) | | | (953) | | | | | |
| Net change in deferred loan origination fees and costs | (168) | | | (70) | | | | | |
| Amortization of core deposits and other intangible assets | 815 | | | 1,044 | | | | | |
| | | | | | | |
| | | | | | | |
| Amortization of premium on acquired deposits | (150) | | | (281) | | | | | |
| Accretion of discount on subordinated debt | 96 | | | 63 | | | | | |
| Amortization of issuance costs on subordinated debt | 37 | | | 37 | | | | | |
| Accretion of discount on convertible notes payable | — | | | 38 | | | | | |
| | | | | | | |
| Increase in cash surrender value of bank-owned life insurance | (415) | | | (453) | | | | | |
| | | | | | | |
| Impairment of other real estate owned and foreclosed assets | 24 | | | — | | | | | |
| Federal Home Loan Bank stock dividends | (247) | | | (554) | | | | | |
| Share-based compensation expense | 492 | | | 427 | | | | | |
| Decrease in fair value of mortgage servicing rights | 316 | | | 2,720 | | | | | |
| | | | | | | |
| | | | | | | |
| Net loss on disposal of premises and equipment | 5 | | | — | | | | | |
| | | | | | | |
| | | | | | | |
| Net gain on sales of loans held-for-sale | (1,941) | | | (899) | | | | | |
| Origination of loans held-for-sale | (194,890) | | | (193,845) | | | | | |
| Proceeds from sales of loans held-for-sale | 200,199 | | | 183,765 | | | | | |
| | | | | | | |
| Changes in operating assets and liabilities: | | | | | | | |
| Lease right-of-use assets | 1 | | | (116) | | | | | |
| Accrued interest receivable | 1,231 | | | (182) | | | | | |
| | | | | | | |
| | | | | | | |
| Prepaid expenses and other assets | (220) | | | 898 | | | | | |
| Accrued interest payable | (1,549) | | | 3,812 | | | | | |
| Accrued expenses and other liabilities | (6,574) | | | (4,794) | | | | | |
| | | | | | | |
| Net cash provided by operating activities | $ | 27,091 | | | $ | 24,794 | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Statements of Cash Flows
For the six months ended June 30,
(Unaudited)
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
| Cash flows from operating activities: | | | | |
| Net income | | $ | 25,619 | | | $ | 21,571 | |
| Adjustments to reconcile income to net cash provided by operating activities: | | | | |
| (Benefit) provision for loan losses | | (1,750) | | | 10,300 | |
| Depreciation | | 3,179 | | | 2,897 | |
| Deferred tax (benefit) expense | | (272) | | | 1 | |
| Accretion of net discount on securities | | 1,818 | | | 2,065 | |
| Net accretion of discount on acquired loans | | (849) | | | (1,882) | |
| Net change in deferred loan origination fees and costs | | 956 | | | 8,908 | |
| Amortization of core deposits and other intangible assets | | 708 | | | 722 | |
| Net amortization of lease marks | | — | | | 38 | |
| Amortization of software implementation costs | | 601 | | | 495 | |
| Accretion of fair value premium on acquired deposits | | (34) | | | (91) | |
| Amortization of fair value discount on subordinated debt | | 129 | | | 129 | |
| Amortization of issuance costs on subordinated debt | | 47 | | | — | |
| Amortization of fair value discount on convertible notes payable | | 373 | | | 376 | |
| Accretion of fair value premium on Federal Home Loan Bank advances | | — | | | (165) | |
| Increase in cash surrender value of bank-owned life insurance | | (633) | | | (636) | |
| Impairment of premises and equipment | | 23 | | | — | |
| Impairment of other real estate owned and foreclosed assets | | 93 | | | 246 | |
| Federal Home Loan Bank stock dividends | | (219) | | | (164) | |
| Share-based compensation expense | | 1,153 | | | 1,226 | |
| (Increase) decrease in fair value of mortgage servicing rights | | 1,530 | | | 14,468 | |
| Net gain on sales of available-for-sale securities | | — | | | (153) | |
| Net gain on sales of loans held-for-investment | | — | | | (40) | |
| Net loss (gain) on disposal of premises and equipment | | 44 | | | (16) | |
| Net (gain) loss on other real estate owned and foreclosed assets activity | | (498) | | | 201 | |
| Net gain on sales of loans held-for-sale | | (37,291) | | | (23,801) | |
| Origination of loans held-for-sale | | (1,223,657) | | | (1,054,696) | |
| Proceeds from sales of loans held-for-sale | | 1,304,682 | | | 1,026,062 | |
| | | | |
| Changes in operating assets and liabilities: | | | | |
| Accrued interest receivable | | 817 | | | (2,382) | |
| Prepaid expenses and other assets | | (2,716) | | | (16,967) | |
| Accrued interest payable | | (1,346) | | | (593) | |
| Accrued expenses and other liabilities | | (19,983) | | | 34,664 | |
| | | | |
| Net cash provided by operating activities | | $ | 52,524 | | | $ | 22,783 | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP
and Subsidiaries
Consolidated Statements of Cash Flows (continued)
For the sixthree months ended June 30,March 31,
(Unaudited)
| | | | | | | | | | | | | | |
| (In thousands) | | 2021 | | 2020 |
Cash flows from operating activities: (previous page) | | $ | 52,524 | | | $ | 22,783 | |
| | | | |
| Cash flows from investing activities: | | | | |
| | | | |
| | | | |
| Proceeds from maturities of held-to-maturity securities | | 10,080 | | | 9,338 | |
| Purchases of available-for-sale securities | | (113,599) | | | (72,700) | |
| Proceeds from sale or maturities of available-for-sale securities | | 72,122 | | | 111,444 | |
| Loan originations, net of repayments | | 47,695 | | | (620,433) | |
| | | | |
| Proceeds from the sale of loans held-for-investment | | — | | | 97,832 | |
| Purchases of premises and equipment | | (1,709) | | | (2,562) | |
| Proceeds from the sale of premises and equipment | | 1,370 | | | 2,412 | |
| | | | |
| Proceeds from sales of other real estate owned and foreclosed assets | | 910 | | | 4,613 | |
| | | | |
| | | | |
| Purchases of restricted equity securities | | (33) | | | (34) | |
| Proceeds from the sale or redemption of restricted equity securities | | 5,612 | | | 298 | |
| Purchase of other investments | | (36) | | | (122) | |
| Proceeds from the sale or redemption of other investments | | 500 | | | — | |
| Net cash provided by (used in) investing activities | | 22,912 | | | (469,914) | |
| | | | |
| Cash flows from financing activities: | | | | |
| Net change in deposits | | 595,183 | | | 506,643 | |
| Net change in securities sold under agreements to repurchase | | (1,586) | | | 72,059 | |
| Proceeds from Federal Home Loan Bank advances | | — | | | 508,000 | |
| Repayments of Federal Home Loan Bank advances | | (30,411) | | | (536,964) | |
| | | | |
| Repayments of other borrowings | | — | | | (6,000) | |
| Proceeds from Subordinated debt | | — | | | 32,295 | |
| | | | |
| | | | |
| Issuance of treasury stock | | — | | | (12) | |
| Purchase of treasury stock | | — | | | (1,564) | |
| | | | |
| Net cash provided by financing activities | | 563,186 | | | 574,457 | |
| Net increase in cash and cash equivalents | | 638,622 | | | 127,326 | |
| Cash and cash equivalents, beginning of period | | 201,978 | | | 144,531 | |
| Cash and cash equivalents, end of period | | $ | 840,600 | | | $ | 271,857 | |
| | | | |
| Supplemental disclosures of cash flow information: | | | | |
| Interest paid on deposits | | $ | 4,869 | | | $ | 10,164 | |
| Interest paid on borrowed funds | | $ | 3,057 | | | $ | 2,648 | |
| Cash paid for income taxes, net | | $ | 4,930 | | | $ | 8,003 | |
| Non-cash investing and financing activities: | | | | |
| Net change in unrealized gain on available-for-sale securities | | $ | (2,619) | | | $ | 10,571 | |
| Loan charge-offs | | $ | 3,176 | | | $ | 1,549 | |
| Loans transferred to other real estate owned and foreclosed assets | | $ | 1,164 | | | $ | 3,110 | |
| Mortgage servicing rights resulting from sale or securitization of mortgage loans | | $ | 13,230 | | | $ | 9,265 | |
| | | | | | | | | | | | | | | |
| (In thousands) | 2024 | | 2023 | | | | |
Cash flows from operating activities: (previous page) | $ | 27,091 | | | $ | 24,794 | | | | | |
| | | | | | | |
| Cash flows from investing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Proceeds from maturities of held-to-maturity securities | 371 | | | 453 | | | | | |
| Purchases of available-for-sale securities | — | | | (1,757) | | | | | |
| Proceeds from sale or maturities of available-for-sale securities | 9,929 | | | 8,800 | | | | | |
| Loan originations, net of repayments | (42,634) | | | (148,175) | | | | | |
| | | | | | | |
| | | | | | | |
| Purchases of premises and equipment | (1,012) | | | (1,060) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Proceeds from bank-owned life insurance | 725 | | | — | | | | | |
| Purchases of restricted equity securities | (6,197) | | | (16,740) | | | | | |
| Proceeds from the sale or redemption of restricted equity securities | 17,437 | | | 20,762 | | | | | |
| Purchase of other investments | (3,675) | | | (247) | | | | | |
| Proceeds from the sale or redemption of other investments | 290 | | | 158 | | | | | |
| Net cash used in investing activities | (24,766) | | | (137,806) | | | | | |
| | | | | | | |
| Cash flows from financing activities: | | | | | | | |
| Net change in deposits | 71,435 | | | 229,485 | | | | | |
| Net change in securities sold under agreements to repurchase | (4,270) | | | (5,077) | | | | | |
| Proceeds from Federal Home Loan Bank advances | 373,410 | | | 467,000 | | | | | |
| Repayments of Federal Home Loan Bank advances | (618,068) | | | (533,600) | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Proceeds from issuance of common stock, net of issuance costs | 79,411 | | | 27 | | | | | |
| | | | | | | |
| | | | | | | |
| Net cash (used in) provided by financing activities | (98,082) | | | 157,835 | | | | | |
| Net (decrease) increase in cash and cash equivalents | (95,757) | | | 44,823 | | | | | |
| Cash and cash equivalents, beginning of period | 479,362 | | | 343,526 | | | | | |
| Cash and cash equivalents, end of period | $ | 383,605 | | | $ | 388,349 | | | | | |
| | | | | | | |
| Supplemental disclosures of cash flow information: | | | | | | | |
| Interest paid on deposits | $ | 37,994 | | | $ | 10,010 | | | | | |
| Interest paid on borrowed funds | $ | 2,732 | | | $ | 10,428 | | | | | |
| Cash paid for income taxes, net | $ | 5 | | | $ | 247 | | | | | |
| Non-cash investing and financing activities: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Net change in unrealized loss on available-for-sale securities and unrealized gain on fair value hedges of securities available-for-sale | $ | (7,538) | | | $ | 2,100 | | | | | |
| Loan charge-offs | $ | 17,506 | | | $ | 123 | | | | | |
| | | | | | | |
| Loans transferred to other real estate owned and foreclosed assets | $ | 338 | | | $ | — | | | | | |
| | | | | | | |
| Mortgage servicing rights resulting from sale or securitization of mortgage loans | $ | 2,032 | | | $ | 2,047 | | | | | |
The accompanying notes are an integral part of these consolidated financial statements.
FIRSTSUN CAPITAL BANCORP and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(dollars$ in thousands, except share and per share amounts)
NOTE 1.1 - Organization and Basis of Presentation
Nature of Operations - The consolidated financial statements include the accounts of FirstSun Capital Bancorp (“FirstSun” or “Parent Company”) and its wholly-owned subsidiaries, Sunflower Bank, N.A. (the “Bank” or “Sunflower Bank”) and, Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC, and have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements.and prevailing practices in the banking industry. All significant intercompany balances and transactions have been eliminated in consolidation.eliminated. These entities are collectively referred to as “our”, “us”, “we”, or “the Company”.
These consolidated financial statements in this Quarterly Report on Form 10-Q do not include all of the information and footnotes required by U.S. GAAP for a full year presentation and certain disclosures have been condensed or omitted in accordance with rules and regulations of the SEC. These interim financial statements are unaudited, and include, in our opinion, all adjustments necessary for a fair statement of the results for the periods indicated, which are not necessarily indicative of results which may be expected for the full year. Certain prior period amounts have been reclassified to conform to the current presentation. These unaudited consolidated financial statements and notes should be read in conjunction with FirstSun’s audited consolidated financial statements and footnotes thereto for the year ended December 31, 20202023, included in our proxy statement/prospectus dated August 10, 2021 (the “Prospectus”) filed with the SEC pursuant to Securities Act Rule 424(b)(3) in connection with our proposed merger with Pioneer Bancshares, Inc. (“Pioneer”) on August 12, 2021. Certain prior period amounts have been reclassified to conform to the current period presentation. Reclassifications had no effect on our net income or stockholders’ equity.
Business CombinationProposed Merger with HomeStreet - On May 11, 2021,April 30, 2024, FirstSun and Pioneer entered into anAmendment No. 1 (the “Amendment”) to the Agreement and Plan of Merger, that provides fordated January 16, 2024 (the “Merger Agreement”), by and among HomeStreet, Inc., a Washington corporation (“HomeStreet”), FirstSun, and Dynamis Subsidiary, Inc., a Washington corporation and wholly owned subsidiary of FirstSun (“Merger Sub”).
On the merger of Pioneerterms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into FirstSun,HomeStreet, with FirstSunHomeStreet continuing as the surviving entity (the “merger”“Merger”), and immediately following the Merger, HomeStreet will merge with and into FirstSun (the “Second-Step Merger”), with FirstSun continuing as the surviving corporation (the “Surviving Entity”). IfPromptly following the mergerSecond-Step Merger, HomeStreet Bank, a Washington-chartered non-member bank (“HomeStreet Bank”), and, as of immediately prior to the Second-Step Merger, a wholly owned subsidiary of HomeStreet, will merge with and into Sunflower Bank (the “Bank Merger” and together with the Merger and the Second-Step Merger, the “Mergers”), with Sunflower Bank continuing as the surviving bank. The Amendment changed the structure of the Bank Merger, so that Sunflower Bank will convert from a national banking association into a Texas state-chartered bank that is completed,a member of the Federal Reserve System (“New Parent Bank”), and HomeStreet Bank will merge with and into New Parent Bank, with New Parent Bank as the surviving entity in the Bank Merger. Following the Bank Merger, the New Parent Bank will continue to operate the assumed branches of HomeStreet Bank under the “HomeStreet Bank” name and brand.
Under the terms of the Merger Agreement, as amended by the Amendment, shareholders of HomeStreet will receive, in respect of each share of Pioneer common stock of HomeStreet held by them, 0.3867 shares of common stock of FirstSun. Shareholders of HomeStreet, subject to other exceptions, will also be convertedentitled to receive cash in lieu of fractional shares of common stock of FirstSun.
The combined entity’s expanded footprint includes, FirstSun’s current presence in the Southwest and Midwest together with HomeStreet’s presence in Southern California, Hawaii and the Pacific Northwest.
Investment Agreements
Upfront Securities Purchase Agreement - Concurrently with entry into the rightMerger Agreement, FirstSun entered into an upfront securities purchase agreement (the “Upfront Securities Purchase Agreement”) with certain funds managed by Wellington Management Company, LLP (collectively, the “Wellington Funds”), pursuant to receive 1.0443which we issued 2.46 million shares of our common stock in a private placement for $80.0 million.
Under the terms of the Upfront Securities Purchase Agreement, FirstSun is also obligated, concurrently with the closing of the proposed HomeStreet merger, to issue to the Wellington Funds, warrants (the “Warrants”) to purchase approximately 1.15 million shares of FirstSun common stock plus cash in lieuwith such Warrants having an initial exercise price of any fractional shares. Completion$32.50 per share. The Warrants will carry a term of three years. In the event the proposed HomeStreet merger is not consummated, no Warrants will be issued.
Acquisition Finance Securities Purchase Agreement - Concurrently with its entry into the HomeStreet merger agreement, FirstSun entered into an acquisition finance securities purchase agreement (the “Acquisition Finance Securities Purchase Agreement,” and together with the Upfront Securities Purchase Agreement, as the “Investment Agreements”), dated January 16, 2024, with the Wellington Funds. Pursuant to the Acquisition Finance Securities Purchase Agreement, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the merger, the institutional investors will invest an aggregate of $95 million in exchange for the sale and issuance, at a purchase price of $32.50 per share, of approximately 2.92 million shares of FirstSun common stock.
Concurrently with its entry into the Amendment, on April 30, 2024, FirstSun entered into a First Amendment to the Acquisition Finance Securities Purchase Agreement (the “AFSPA Amendment”), with certain funds managed by Wellington Management (“Wellington”) and certain other institutional accredited investors (each, an “Additional Investor” and, collectively with Wellington, the “Investors”). Pursuant to the AFSPA Amendment, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the Merger, the Additional Investors will invest an additional $45 million, in exchange for the sale and issuance, at a purchase price of $32.50 per share, approximately 1.38 million shares of FirstSun common stock. Under the terms of the AFSPA Amendment, FirstSun has the ability to offer an additional approximately 462 thousand shares, at a purchase price of $32.50 per share, for an additional investment of $15 million and Castle Creek Capital Partners VIII. L.P., one of the Additional Investors, has a 30 day window to purchase those shares.
Registration Rights Agreements - In connection with the Upfront Securities Purchase Agreement, FirstSun and the Wellington Funds also entered into a registration rights agreement (the “Upfront Registration Rights Agreement”), dated January 16, 2024, pursuant to which FirstSun agreed to, among other things, is subjectprovide customary resale registration rights with respect to the requisite approvalshares of our common stock obtained by the Wellington Funds pursuant to the Investment Agreements, including those issued upon exercise of the appropriate regulatory bodiesWarrants.
In addition, the Acquisition Finance Securities Purchase Agreement contemplates that, in connection with the closing of the investments under the Acquisition Finance Securities Purchase Agreement, FirstSun will enter into a resale registration rights agreement with each additional institutional investor (the “Acquisition Finance Registration Rights Agreement”), the material terms and conditions of which are consistent with the Pioneer stockholders,terms and if approvedconditions of the Upfront Registration Rights Agreement.
Charter Amendment - In connection with the proposed merger, the holders of a majority of the voting power of FirstSun common stock executed a written consent approving and adopting an amendment to our certificate of incorporation (the “Charter Amendment”) which will increase the number of FirstSun’s authorized shares of capital stock from 60,000,000 to 110,000,000, consisting of 100,000,000 shares of FirstSun common stock, and 10,000,000 shares of preferred stock and will become effective upon FirstSun’s filing the Charter Amendment with the Secretary of State of the State of Delaware. We plan to file the Charter Amendment prior to the closing of the proposed merger.
Bank Charter Conversion - Sunflower Bank is expectedcurrently regulated by the Office of the Comptroller of the Currency. We have announced our intention to close inconvert Sunflower Bank to a state chartered bank regulated by the fourth quarterTexas Department of 2021. Pioneer currently operates from its headquarters in Austin, TexasBanking and has banking offices located primarily into seek membership with the Austin, Houston, San Antonio, and Dallas metro areas. As of June 30, 2021 Pioneer had assets of $1.6 billion, total loans of $1.1 billion, and deposits of $1.3 billion.Federal Reserve later this year.
Use of Estimates - The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions based on available information. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
These estimates are based on historical experience and on various assumptions about the future that are believed to be reasonable based on all available information. Our reported financial position or results of operations may be materially different under changed conditions or when using different estimates and assumptions, particularly with respect to significantcritical accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.
Risks and Uncertainties - In the normal course of business, companies in the banking and mortgage industries encounter certain economic and regulatory risks. Economic risks include prepayment risk, marketcredit risk, interest rate risk, liquidity risk, prepayment risk, and creditmarket risk. Credit risk is the risk of default that may result from the borrowers’ inability or unwillingness to make contractually required payments. We are subject to interest rate risk to the extent that in a rising interest rate environment we may experience a decrease in loan production, as well as decreases in the value of mortgage loans held-for-sale and in commitments to originate loans, which may adversely impact our earnings. Credit risk isRising interest rates may also increase the riskcost of default that may result fromour borrowings to fund our operations. Risks related to liquidity are heightened in the borrowers’ inability or unwillingnesscurrent environment due to make contractually required payments.competition for deposits and customers withdrawing deposits in order to maintain maximum levels of deposit insurance.
We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral. To the extent that we do not comply with such representations, or there are early payment defaults, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. In addition, if loans pay off within a specified time frame, we may be required to refund a portion of the sales proceeds to the investors. We established reserves for potential losses related to these representations and warranties which isare recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserve,reserves, we evaluate various
factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. Further information is presented in Note 15.16 - Commitments and Contingencies.
Adoption of New Accounting StandardsPronouncements Recently Adopted - As an “emerging growth company” under Section 107 of the JOBS Act, we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, we can delay the adoption of certain accounting standards until those standards would otherwise apply to non-public business entities. We intend to take advantage of the benefits of this extended transition period for an “emerging growth company” for as long as it is available to us. For standards that we have delayed adoption, we may lack comparability to other companies who have adopted such standards. There have been no material developments with respect to newly
In June of 2016, the FASB issued standards from those disclosed in our Prospectus. We have deferred adoption of ASU 2016-02, Leases (Topic 842) and ASU 2016-13, Financial Instruments -Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities are required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach previously required. The new approach requires entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. The expected credit loss model requires earlier recognition of credit losses than the incurred loss approach. We expect ongoing changes in the allowance for credit losses will be driven primarily by the growth of our loan portfolio, credit quality, and the economic environment and related projections at that time. In addition, the ASU developed a new accounting treatment for purchased financial assets with credit deterioration.
The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities and held-to-maturity debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.
Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-13. We adopted the amendments of these ASUs as of January 1, 2023.
Upon adoption, we recorded an increase to the allowance for credit losses on loans held-for-investment of $5.3 million, a reduction in the allowance for credit losses on unfunded commitments of $0.2 million, an increase to deferred tax assets of $1.2 million, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $3.8 million in the consolidated balance sheet as of January 1, 2023.
The adoption of this ASU, as it relates to available-for-sale debt securities and held-to-maturity debt securities, did not have a material impact on the consolidated financial statements as of January 1, 2023.
Recent Accounting Pronouncements Not Yet Adopted - ASU No. 2023-07, “Segment Reporting (Topic 326)280): Improvements to Reportable Segment Disclosures.” .ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is not expected to have a significant impact on our financial statements.
ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.” ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for us on January 1, 2026, although early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements.
NOTE 2.2 - Securities
The amortized cost, gross unrealized gains and losses, and fair values of available-for-sale and held-to-maturity debt securities by type follows:follows as of:
| | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value |
| As of June 30, 2021 | | | | | | | | |
| Amortized
Cost | | | Amortized
Cost | | Gross
Unrealized
Gains | | Gross
Unrealized
Losses | | Estimated
Fair
Value |
| March 31, 2024 | |
| Available-for-sale: | Available-for-sale: | |
| Available-for-sale: | |
| Available-for-sale: | |
| U.S. treasury | |
| U.S. treasury | |
| U.S. treasury | U.S. treasury | | $ | 20,470 | | | $ | 106 | | | $ | — | | | $ | 20,576 | |
| U.S. agency | U.S. agency | | 7,361 | | | — | | | (124) | | | 7,237 | |
| Obligations of states and political subdivisions | Obligations of states and political subdivisions | | 3,984 | | | 2 | | | (69) | | | 3,917 | |
| Mortgage backed - residential | Mortgage backed - residential | | 135,853 | | | 2,893 | | | (932) | | | 137,814 | |
| Collateralized mortgage obligations | Collateralized mortgage obligations | | 210,072 | | | 2,651 | | | (50) | | | 212,673 | |
| Mortgage backed - commercial | Mortgage backed - commercial | | 121,782 | | | 4,995 | | | (19) | | | 126,758 | |
| Other debt | |
| Total available-for-sale | |
| Held-to-maturity: | |
| | Total available-for-sale | | $ | 499,522 | | | $ | 10,647 | | | $ | (1,194) | | | $ | 508,975 | |
| | Held-to-maturity: | |
| Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | Obligations of states and political subdivisions | | $ | 723 | | | $ | 29 | | | $ | — | | | $ | 752 | |
| Mortgage backed - residential | Mortgage backed - residential | | 12,950 | | | 491 | | | — | | | 13,441 | |
| Collateralized mortgage obligations | Collateralized mortgage obligations | | 8,221 | | | 367 | | | — | | | 8,588 | |
| | Total held-to-maturity | Total held-to-maturity | | $ | 21,894 | | | $ | 887 | | | $ | — | | | $ | 22,781 | |
| | As of December 31, 2020 | |
| Total held-to-maturity | |
| | Total held-to-maturity | |
| December 31, 2023 | |
| Available-for-sale: | Available-for-sale: | |
| | Available-for-sale: | |
| Available-for-sale: | |
| U.S. treasury | |
| U.S. treasury | |
| U.S. treasury | |
| U.S. agency | U.S. agency | | $ | 9,204 | | | $ | — | | | $ | (208) | | | $ | 8,996 | |
| Obligations of states and political subdivisions | Obligations of states and political subdivisions | | 3,427 | | | 8 | | | — | | | 3,435 | |
| Mortgage backed - residential | Mortgage backed - residential | | 116,365 | | | 3,399 | | | (202) | | | 119,562 | |
| Collateralized mortgage obligations | Collateralized mortgage obligations | | 200,496 | | | 2,743 | | | (43) | | | 203,196 | |
| Mortgage backed - commercial | Mortgage backed - commercial | | 127,022 | | | 6,426 | | | (51) | | | 133,397 | |
| | Other debt | |
| Total available-for-sale | Total available-for-sale | | $ | 456,514 | | | $ | 12,576 | | | $ | (504) | | | $ | 468,586 | |
| | Held-to-maturity: | Held-to-maturity: | |
| | U.S. agency | | $ | 5,099 | | | $ | 26 | | | $ | — | | | $ | 5,125 | |
| | Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | Obligations of states and political subdivisions | | 730 | | | 41 | | | — | | | 771 | |
| Mortgage backed - residential | Mortgage backed - residential | | 16,050 | | | 618 | | | — | | | 16,668 | |
| Collateralized mortgage obligations | Collateralized mortgage obligations | | 10,309 | | | 455 | | | — | | | 10,764 | |
| | Total held-to-maturity | Total held-to-maturity | | $ | 32,188 | | | $ | 1,140 | | | $ | — | | | $ | 33,328 | |
| | Total held-to-maturity | |
| | Total held-to-maturity | |
As of June 30, 2021March 31, 2024 and December 31, 2020,2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
CertainFair value and unrealized losses on debt securities that have gross unrealized lossesby type and have beenlength of time in a continuous unrealized loss position without an allowance for more than one yearcredit losses were as follows:
| | Less than 12 months | | 12 months or longer | | Total |
| Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Number
of
Securities |
| As of June 30, 2021 | | | | | | | | | | | | | | |
| Less than 12 months | | | Less than 12 months | | 12 months or longer | | Total |
| Estimated
Fair
Value | | | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Number
of
Securities |
| March 31, 2024 | |
| Available-for-sale: | Available-for-sale: | |
| | Available-for-sale: | |
| Available-for-sale: | |
| U.S. treasury | |
| U.S. treasury | |
| U.S. treasury | |
| U.S. agency | U.S. agency | | $ | — | | | $ | — | | | $ | 7,237 | | | $ | (124) | | | $ | 7,237 | | | $ | (124) | | | 7 |
| Obligations of states and political subdivisions | Obligations of states and political subdivisions | | 3,356 | | | (69) | | | — | | | — | | | 3,356 | | | (69) | | | 2 |
| Mortgage backed - residential | Mortgage backed - residential | | 37,036 | | | (922) | | | 3,106 | | | (10) | | | 40,142 | | | (932) | | | 9 |
| Collateralized mortgage obligations | Collateralized mortgage obligations | | 16,041 | | | (23) | | | 14,828 | | | (27) | | | 30,869 | | | (50) | | | 10 |
| Mortgage backed - commercial | Mortgage backed - commercial | | — | | | — | | | 24,170 | | | (19) | | | 24,170 | | | (19) | | | 2 |
| | Other debt | |
| Total available-for-sale | Total available-for-sale | | $ | 56,433 | | | $ | (1,014) | | | $ | 49,341 | | | $ | (180) | | | $ | 105,774 | | | $ | (1,194) | | | 30 |
| Held-to-maturity: | |
| | Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | |
| | Obligations of states and political subdivisions | | $ | — | | | $ | — | | | $ | 20,638 | | | $ | (4,615) | | | $ | 20,638 | | | $ | (4,615) | | | 8 |
| Mortgage backed - residential | | Mortgage backed - residential | 39 | | | — | | | 6,485 | | | (713) | | | 6,524 | | | (713) | | | 11 |
| Collateralized mortgage obligations | | Collateralized mortgage obligations | — | | | — | | | 3,452 | | | (277) | | | 3,452 | | | (277) | | | 5 |
| | Total held-to-maturity | |
| | Total held-to-maturity | |
| | Total held-to-maturity | | $ | 39 | | | $ | — | | | $ | 30,575 | | | $ | (5,605) | | | $ | 30,614 | | | $ | (5,605) | | | 24 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Less than 12 months | | 12 months or longer | | Total |
| Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Number
of
Securities |
| December 31, 2023 | | | | | | | | | | | | | |
| Available-for-sale: | | | | | | | | | | | | | |
| U.S. treasury | $ | — | | | $ | — | | | $ | 54,234 | | | $ | (4,234) | | | $ | 54,234 | | | $ | (4,234) | | | 9 | |
| U.S. agency | — | | | — | | | 1,839 | | | (33) | | | 1,839 | | | (33) | | | 7 | |
| Obligations of states and political subdivisions | — | | | — | | | 25,970 | | | (4,009) | | | 25,970 | | | (4,009) | | | 19 | |
| Mortgage backed - residential | — | | | — | | | 100,571 | | | (14,974) | | | 100,571 | | | (14,974) | | | 83 | |
| Collateralized mortgage obligations | — | | | — | | | 181,533 | | | (21,861) | | | 181,533 | | | (21,861) | | | 65 | |
| Mortgage backed - commercial | 4,721 | | | (27) | | | 114,625 | | | (14,340) | | | 119,346 | | | (14,367) | | | 24 | |
| Other debt | — | | | — | | | 15,556 | | | (1,236) | | | 15,556 | | | (1,236) | | | 9 | |
| Total available-for-sale | $ | 4,721 | | | $ | (27) | | | $ | 494,328 | | | $ | (60,687) | | | $ | 499,049 | | | $ | (60,714) | | | 216 | |
| Held-to-maturity: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Obligations of states and political subdivisions | $ | — | | | $ | — | | | $ | 21,223 | | | $ | (3,987) | | | $ | 21,223 | | | $ | (3,987) | | | 8 |
| Mortgage backed - residential | — | | | — | | | 6,845 | | | (560) | | | 6,845 | | | (560) | | | 10 |
| Collateralized mortgage obligations | — | | | — | | | 3,633 | | | (260) | | | 3,633 | | | (260) | | | 5 |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total held-to-maturity | $ | — | | | $ | — | | | $ | 31,701 | | | $ | (4,807) | | | $ | 31,701 | | | $ | (4,807) | | | 23 |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Less than 12 months | | 12 months or longer | | Total |
| | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Estimated
Fair
Value | | Unrealized
Losses | | Number
of
Securities |
| As of December 31, 2020 | | | | | | | | | | | | | | |
| Available-for-sale: | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
| U.S. agency | | $ | — | | | $ | — | | | $ | 8,996 | | | $ | (208) | | | $ | 8,996 | | | $ | (208) | | | 7 |
| | | | | | | | | | | | | | |
| Mortgage backed - residential | | 15,251 | | | (146) | | | 7,601 | | | (56) | | | 22,852 | | | (202) | | | 8 |
| Collateralized mortgage obligations | | 23,646 | | | (43) | | | — | | | — | | | 23,646 | | | (43) | | | 11 |
| Mortgage backed - commercial | | 9,167 | | | (15) | | | 14,971 | | | (36) | | | 24,138 | | | (51) | | | 2 |
| | | | | | | | | | | | | | |
| Total available-for-sale | | $ | 48,064 | | | $ | (204) | | | $ | 31,568 | | | $ | (300) | | | $ | 79,632 | | | $ | (504) | | | 28 |
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There were no held-to-maturityWe do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. We do not have plans to sell any of the available-for-sale debt securities in anwith unrealized loss positionlosses as of June 30, 2021 or DecemberMarch 31, 2020.
Estimated fair value is less than amortized cost primarily because of general economic conditions unrelated to the specific issuer. At June 30, 20212024, and December 31, 2020, management does notwe believe these securities are other than temporarily impaired for the following reasons: no significant deterioration in the earnings performance, credit rating, asset quality, or business prospects of the issuer; no significant adverse change in the regulatory, economic, or technological environment of the issuer; and no significant adverse change in the general market condition of either the geographic area or the industry in which the issuer operates. Management has the ability and intends to hold these securities and it is more likely than not that management willwe would not be required to sell such available-for-sale debt securities before recovery of their amortized cost.
We continue to monitor unrealized loss positions for potential credit impairments. During the securities priorthree months ended March 31, 2024, there were no credit impairments related to maturity or until such time as the full amount ofour investment principal will be returned.
The amortized cost and fair value of our debt securities by contractual maturity as of June 30, 2021March 31, 2024 are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or earlier redemptions that may occur.
| | | | | | | | | | | | | | |
| | Amortized
Cost | | Estimated
Fair
Value |
| Available-for-sale: | | | | |
| Due within 1 year | | $ | 32 | | | $ | 32 | |
| Due after 1 year through 5 years | | 20,590 | | | 21,197 | |
| Due after 5 years through 10 years | | 120,650 | | | 123,899 | |
| Due after 10 years | | 358,250 | | | 363,847 | |
| Total available-for-sale | | $ | 499,522 | | | $ | 508,975 | |
| | | | |
| Held-to-maturity: | | | | |
| | | | |
| | | | |
| Due after 5 years through 10 years | | $ | 1,499 | | | $ | 1,581 | |
| Due after 10 years | | 20,395 | | | 21,200 | |
| Total held-to-maturity | | $ | 21,894 | | | $ | 22,781 | |
| | | | | | | | | | | |
| Amortized
Cost | | Estimated
Fair
Value |
| Available-for-sale: | | | |
| Due within 1 year | $ | 21,211 | | | $ | 16,965 | |
| Due after 1 year through 5 years | 72,081 | | | 67,132 | |
| Due after 5 years through 10 years | 143,052 | | | 126,628 | |
| Due after 10 years | 330,370 | | | 288,353 | |
| Total available-for-sale | $ | 566,714 | | | $ | 499,078 | |
| Held-to-maturity: | | | |
| | | |
| Due after 1 year through 5 years | $ | 949 | | | $ | 920 | |
| Due after 5 years through 10 years | 720 | | | 688 | |
| Due after 10 years | 34,971 | | | 29,427 | |
| Total held-to-maturity | $ | 36,640 | | | $ | 31,035 | |
Securities with a carrying value of $491,909$441,855 and $437,223$468,679 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at June 30, 2021March 31, 2024 and December 31, 2020,2023, respectively.
There were no proceeds from sales and calls of securities for the sixthree months ended June 30, 2021. The proceeds from salesMarch 31, 2024 and calls of securities for the six months ended June 30, 2020 was $56,159. For the six months ended June 30, 2020, we recognized gross investment gains of $446 and gross investment losses of $293, resulting from the sale of securities.
NOTE 3.3 - Loans
Loans held-for-investment by portfolio type consist of the following:following as of:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | | | |
| Commercial | | $ | 2,219,631 | | | $ | 2,181,552 | |
| Commercial real estate | | 1,125,853 | | | 1,156,668 | |
| Residential real estate | | 444,575 | | | 503,828 | |
| Consumer | | 14,426 | | | 14,233 | |
| Total loans | | 3,804,485 | | | 3,856,281 | |
| | | | |
| Deferred costs, fees, premiums, and discounts | | (10,130) | | | (9,924) | |
| | | | |
| Allowance for loan losses | | (42,978) | | | (47,766) | |
| | | | |
| Total loans, net | | $ | 3,751,377 | | | $ | 3,798,591 | |
On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) was signed into law. A provision in the CARES Act created the Paycheck Protection Program (PPP), a program administered by the Small Business Administration (“SBA”) to provide loans to small business during the COVID-19 pandemic. As of June 30, 2021 and December 31, 2020, we had $207,645 and $256,336 of PPP loans outstanding and deferred processing fees outstanding of $4,890 and $5,235, respectively. PPP loans are classified as Commercial loans in the consolidated financial statements. No allowance for loan losses has been recognized for PPP loans as such loans are fully guaranteed by the SBA.
| | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| Commercial and industrial | $ | 2,480,078 | | | $ | 2,467,688 | |
| Commercial real estate: | | | |
| Non-owner occupied | 836,515 | | | 812,235 | |
| Owner occupied | 642,930 | | | 635,365 | |
| Construction and land | 326,447 | | | 345,430 | |
| Multifamily | 94,898 | | | 103,066 | |
| Total commercial real estate | 1,900,790 | | | 1,896,096 | |
| Residential real estate | 1,109,676 | | | 1,110,610 | |
| Public finance | 579,991 | | | 602,913 | |
| Consumer | 40,317 | | | 36,371 | |
| Other | 174,016 | | | 153,418 | |
| Total loans | $ | 6,284,868 | | | $ | 6,267,096 | |
| Allowance for credit losses | (79,829) | | | (80,398) | |
| Loans, net of allowance for credit losses | $ | 6,205,039 | | | $ | 6,186,698 | |
As of ContentsMarch 31, 2024 and December 31, 2023, we had net deferred fees, costs, premiums and discounts of $11,961 and $12,859, respectively, on our loan portfolio.
Accrued interest receivable on loans totaled $33,351 and $34,879 at March 31, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable in the accompanying consolidated balance sheets.The following table presents the activity in the allowance for loancredit losses by portfolio type for the three months ended June 30,March 31,:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial
Real
Estate | | Residential
Real
Estate | | Consumer | | Total |
| 2021 | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Balance, beginning of period | | $ | 31,950 | | | $ | 13,367 | | | $ | 1,573 | | | $ | 324 | | | $ | 47,214 | |
| (Benefit from) provision for loan losses | | (933) | | | (218) | | | (284) | | | 35 | | | (1,400) | |
| Loans charged off | | (2,894) | | | — | | | — | | | (19) | | | (2,913) | |
| Recoveries | | 50 | | | — | | | 16 | | | 11 | | | 77 | |
| Balance, end of period | | $ | 28,173 | | | $ | 13,149 | | | $ | 1,305 | | | $ | 351 | | | $ | 42,978 | |
| | | | | | | | | | |
| 2020 | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Balance, beginning of period | | $ | 18,772 | | | $ | 10,533 | | | $ | 1,346 | | | $ | 220 | | | $ | 30,871 | |
| Provision for loan losses | | 3,845 | | | 2,987 | | | 531 | | | 137 | | | 7,500 | |
| Loans charged off | | (201) | | | (580) | | | (24) | | | (92) | | | (897) | |
| Recoveries | | 125 | | | 272 | | | 15 | | | 10 | | | 422 | |
| Balance, end of period | | $ | 22,541 | | | $ | 13,212 | | | $ | 1,868 | | | $ | 275 | | | $ | 37,896 | |
The following table presents the activity in the allowance for loan losses by portfolio type for the six months ended June 30,:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial
Real
Estate | | Residential
Real
Estate | | Consumer | | Total |
| 2021 | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Balance, beginning of period | | $ | 32,009 | | | $ | 13,863 | | | $ | 1,606 | | | $ | 288 | | | $ | 47,766 | |
| (Benefit from) provision for loan losses | | (820) | | | (723) | | | (319) | | | 112 | | | (1,750) | |
| Loans charged off | | (3,102) | | | — | | | (2) | | | (72) | | | (3,176) | |
| Recoveries | | 86 | | | 9 | | | 20 | | | 23 | | | 138 | |
| Balance, end of period | | $ | 28,173 | | | $ | 13,149 | | | $ | 1,305 | | | $ | 351 | | | $ | 42,978 | |
| | | | | | | | | | |
| 2020 | | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Balance, beginning of period | | $ | 17,509 | | | $ | 9,645 | | | $ | 1,056 | | | $ | 336 | | | $ | 28,546 | |
| Provision for loan losses | | 5,537 | | | 3,875 | | | 834 | | | 54 | | | 10,300 | |
| Loans charged off | | (794) | | | (580) | | | (39) | | | (136) | | | (1,549) | |
| Recoveries | | 289 | | | 272 | | | 17 | | | 21 | | | 599 | |
| Balance, end of period | | $ | 22,541 | | | $ | 13,212 | | | $ | 1,868 | | | $ | 275 | | | $ | 37,896 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Commercial
and
Industrial | | Commercial
Real
Estate | | Residential
Real
Estate | | Public
Finance | | Consumer | | Other | | Total |
| 2024 | | | | | | | | | | | | | |
| Allowance for credit losses: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 29,523 | | | $ | 27,546 | | | $ | 16,345 | | | $ | 5,337 | | | $ | 717 | | | $ | 930 | | | $ | 80,398 | |
| | | | | | | | | | | | | |
| Provision (benefit) for credit losses | 16,066 | | | 1,787 | | | (1,364) | | | 441 | | | 25 | | | (95) | | | 16,860 | |
| Loans charged off | (17,366) | | | — | | | — | | | — | | | (140) | | | — | | | (17,506) | |
| Recoveries | 47 | | | — | | | 8 | | | — | | | 22 | | | — | | | 77 | |
| Balance, end of period | $ | 28,270 | | | $ | 29,333 | | | $ | 14,989 | | | $ | 5,778 | | | $ | 624 | | | $ | 835 | | | $ | 79,829 | |
| 2023 | | | | | | | | | | | | | |
| Allowance for credit losses: | | | | | | | | | | | | | |
| Balance, beginning of period | $ | 40,785 | | | $ | 19,754 | | | $ | 2,963 | | | $ | 1,664 | | | $ | 352 | | | $ | 399 | | | $ | 65,917 | |
| Impact of adopting ASC 326 | (13,583) | | | 3,867 | | | 10,256 | | | 3,890 | | | 249 | | | 577 | | | 5,256 | |
| Provision for (benefit from) credit losses | 1,346 | | | 562 | | | 946 | | | (5) | | | 129 | | | 362 | | | 3,340 | |
| Loans charged off | (59) | | | — | | | — | | | — | | | (64) | | | — | | | (123) | |
| Recoveries | 56 | | | 3 | | | — | | | — | | | 10 | | | — | | | 69 | |
| Balance, end of period | $ | 28,545 | | | $ | 24,186 | | | $ | 14,165 | | | $ | 5,549 | | | $ | 676 | | | $ | 1,338 | | | $ | 74,459 | |
We determine the allowance for loancredit losses estimate on at least a quarterly basis.
The provision for credit losses, including the benefit for unfunded commitments, totaled $16.5 million during the three months ended March 31, 2024. The provision was primarily due to a $17.4 million charge-off on a specific customer in our C&I loan portfolio.
The following table presents the balance in the allowance forour loan losses and the recorded investment by portfolio type based on impairment method:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Commercial | | Commercial
Real
Estate | | Residential
Real
Estate | | Consumer | | Total |
| As of June 30, 2021 | | | | | | | | | | |
| Loans: | | | | | | | | | | |
| Individually evaluated for impairment | | $ | 26,426 | | | $ | 7,130 | | | $ | 10,271 | | | $ | 5 | | | $ | 43,832 | |
| Collectively evaluated for impairment | | 2,193,205 | | | 1,118,723 | | | 434,304 | | | 14,421 | | | 3,760,653 | |
| Total loans | | $ | 2,219,631 | | | $ | 1,125,853 | | | $ | 444,575 | | | $ | 14,426 | | | $ | 3,804,485 | |
| | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Individually evaluated for impairment | | $ | 2,715 | | | $ | 12 | | | $ | 155 | | | $ | — | | | $ | 2,882 | |
| Collectively evaluated for impairment | | 25,458 | | | 13,137 | | | 1,150 | | | 351 | | | 40,096 | |
| Total allowance for loan losses | | $ | 28,173 | | | $ | 13,149 | | | $ | 1,305 | | | $ | 351 | | | $ | 42,978 | |
| | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | | |
| Loans: | | | | | | | | | | |
| Individually evaluated for impairment | | $ | 23,197 | | | $ | 2,933 | | | $ | 9,630 | | | $ | 38 | | | $ | 35,798 | |
| Collectively evaluated for impairment | | 2,158,355 | | | 1,153,735 | | | 494,198 | | | 14,195 | | | 3,820,483 | |
| Total loans | | $ | 2,181,552 | | | $ | 1,156,668 | | | $ | 503,828 | | | $ | 14,233 | | | $ | 3,856,281 | |
| | | | | | | | | | |
| Allowance for loan losses: | | | | | | | | | | |
| Individually evaluated for impairment | | $ | 3,972 | | | $ | 12 | | | $ | 96 | | | $ | — | | | $ | 4,080 | |
| Collectively evaluated for impairment | | 28,037 | | | 13,851 | | | 1,510 | | | 288 | | | 43,686 | |
| Total allowance for loan losses | | $ | 32,009 | | | $ | 13,863 | | | $ | 1,606 | | | $ | 288 | | | $ | 47,766 | |
The following table presents information related to impaired loans by class of loansaging analysis as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Unpaid
Principal
Balance | | Recorded
Investment | | Allowance for
Loan Losses
Allocated | | Average
Recorded
Investment |
| As of June 30, 2021 | | | | | | | | |
| With no related allowance recorded: | | | | | | | | |
| Commercial | | $ | 20,073 | | | $ | 18,931 | | | $ | — | | | $ | 10,744 | |
| Commercial real estate | | 7,083 | | | 7,042 | | | — | | | 4,722 | |
| Residential real estate | | 8,346 | | | 8,434 | | | — | | | 5,647 | |
| Consumer | | 6 | | | 5 | | | — | | | 4 | |
| Total loans with no related allowance recorded | | 35,508 | | | 34,412 | | | — | | | 21,117 | |
| | | | | | | | |
| With an allowance recorded: | | | | | | | | |
| Commercial | | 7,665 | | | 7,495 | | | 2,715 | | | 5,117 | |
| Commercial real estate | | 131 | | | 88 | | | 12 | | | 61 | |
| Residential real estate | | 1,808 | | | 1,837 | | | 155 | | | 1,229 | |
| | | | | | | | |
| Total loans an allowance recorded | | 9,604 | | | 9,420 | | | 2,882 | | | 6,407 | |
| Total impaired loans | | $ | 45,112 | | | $ | 43,832 | | | $ | 2,882 | | | $ | 27,524 | |
| | | | | | | | |
| As of December 31, 2020 | | | | | | | | |
| With no related allowance recorded: | | | | | | | | |
| Commercial | | $ | 16,370 | | | $ | 15,756 | | | $ | — | | | $ | 12,189 | |
| Commercial real estate | | 2,850 | | | 2,838 | | | — | | | 1,910 | |
| Residential real estate | | 9,021 | | | 8,933 | | | — | | | 5,855 | |
| Consumer | | 38 | | | 38 | | | — | | | 29 | |
| Total loans with no related allowance recorded | | 28,279 | | | 27,565 | | | — | | | 19,983 | |
| | | | | | | | |
| With an allowance recorded: | | | | | | | | |
| Commercial | | 7,610 | | | 7,441 | | | 3,972 | | | 5,304 | |
| Commercial real estate | | 133 | | | 95 | | | 12 | | | 67 | |
| Residential real estate | | 709 | | | 697 | | | 96 | | | 479 | |
| | | | | | | | |
| Total loans an allowance recorded | | 8,452 | | | 8,233 | | | 4,080 | | | 5,850 | |
| Total impaired loans | | $ | 36,731 | | | $ | 35,798 | | | $ | 4,080 | | | $ | 25,833 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans
Not
Past Due | | Loans
30-59 Days
Past Due | | Loans
60-89 Days
Past Due | | Loans Greater
than 90 Days
Past Due,
Still Accruing | | Nonaccrual | | Total |
| March 31, 2024 | | | | | | | | | | | |
| Commercial and industrial | $ | 2,448,619 | | | $ | 2,722 | | | $ | 1,451 | | | $ | — | | | $ | 27,286 | | | $ | 2,480,078 | |
| Commercial real estate: | | | | | | | | | | | |
| Non-owner occupied | 828,674 | | | 2,234 | | | 975 | | | — | | | 4,632 | | | 836,515 | |
| Owner occupied | 640,796 | | | 767 | | | — | | | — | | | 1,367 | | | 642,930 | |
| Construction and land | 324,684 | | | 1,581 | | | — | | | — | | | 182 | | | 326,447 | |
| Multifamily | 94,898 | | | — | | | — | | | — | | | — | | | 94,898 | |
| Total commercial real estate | 1,889,052 | | | 4,582 | | | 975 | | | — | | | 6,181 | | | 1,900,790 | |
| Residential real estate | 1,074,124 | | | 13,995 | | | 45 | | | 144 | | | 21,368 | | | 1,109,676 | |
| Public Finance | 579,991 | | | — | | | — | | | — | | | — | | | 579,991 | |
| Consumer | 40,233 | | | 77 | | | 3 | | | — | | | 4 | | | 40,317 | |
| Other | 171,400 | | | — | | | — | | | — | | | 2,616 | | | 174,016 | |
| Total loans | $ | 6,203,419 | | | $ | 21,376 | | | $ | 2,474 | | | $ | 144 | | | $ | 57,455 | | | $ | 6,284,868 | |
| December 31, 2023 | | | | | | | | | | | |
| Commercial and industrial | $ | 2,420,775 | | | $ | 10,117 | | | $ | 3,782 | | | $ | 25,010 | | | $ | 8,004 | | | $ | 2,467,688 | |
| Commercial real estate: | | | | | | | | | | | |
| Non-owner occupied | 796,477 | | | 1,063 | | | 10,851 | | | — | | | 3,844 | | | 812,235 | |
| Owner occupied | 626,424 | | | 8,269 | | | — | | | 638 | | | 34 | | | 635,365 | |
| Construction and land | 345,245 | | | — | | | — | | | — | | | 185 | | | 345,430 | |
| Multifamily | 103,066 | | | — | | | — | | | — | | | — | | | 103,066 | |
| Total commercial real estate | 1,871,212 | | | 9,332 | | | 10,851 | | | 638 | | | 4,063 | | | 1,896,096 | |
| Residential real estate | 1,065,438 | | | 19,261 | | | 3,330 | | | 168 | | | 22,413 | | | 1,110,610 | |
| Public Finance | 602,913 | | | — | | | — | | | — | | | — | | | 602,913 | |
| Consumer | 36,357 | | | 4 | | | — | | | — | | | 10 | | | 36,371 | |
| Other | 141,794 | | | 8,787 | | | — | | | — | | | 2,837 | | | 153,418 | |
| Total loans | $ | 6,138,489 | | | $ | 47,501 | | | $ | 17,963 | | | $ | 25,816 | | | $ | 37,327 | | | $ | 6,267,096 | |
Interest income recorded on impairednonperforming loans was not material for the three and six months ended June 30, 2021March 31, 2024 and 2020.
Credit risk monitoring and management is a continuous process to manage the quality of the loan portfolio. We categorizesegment loans into risk categories based on relevant borrower risk profile information, aboutincluding the ability of borrowers to service their debt includingbased on current financial information, historical payment experience, credit documentation, public information and current economic trends among other factors. The risk rating system is used as a tool to analyze and monitor movements in loan portfolio quality.
Risk ratings meeting an internally specified exposure threshold are updated annually, or more frequently upon the occurrence of a circumstance that affects the credit risk of the loan. We use the following definitions for risk ratings:
Substandard - loans are considered “classified” and – Loans classified as Pass have a well-defined primary source of repayment, an acceptable financial position profile (including capitalization), profitability and minimal operating risk.
Pass/Watch – Pass/Watch loans require close attention by bank management and enhanced monitoring due to quantitative or qualitative concerns linked to adverse trends or near-term uncertainty. A covenant default or other type of requirement shortfall may have arisen subsequent to a loan's booking or borrower now shows signs of weakness in the overall base of confirmable financial resources available to repay the loan. However, overall financial capacity & performance are considered sufficient to support an expectation of continued payment performance and / or mitigating factors exist that are expected to limit the risk of near term default and loss.
Special Mention – Special Mention loans have identified potential weaknesses such asthat are of sufficient materiality to require management’s (persistent) close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or in the bank's credit position under normal business operations. Special Mention loans contain greater than acceptable risk to warrant increases in credit exposure and are thus considered “criticized”, non-pass rated credits. They may contain weaknesses (that have arisen due to deteriorating conditions since origination) and / or underwriting exceptions that are not currently offset by mitigating factors. However, these weaknesses, while sufficient to constitute significantly elevated credit risk, are not sufficient to support a conclusion that the liquidation of the debt is in significant jeopardy.
Substandard - Accruing – Substandard - Accruing loans are inadequately protected by the current sound net worth and paying capacity of the obligor(s). Loans classified as Substandard - Accruing possess one or more well-defined weaknesses that are expected to jeopardize their liquidation but the weaknesses have not progressed to a point where recent late payments on the loan have become more than 90 days past due. These loans are characterized by the distinct possibility that the bank may sustain up to a moderate but not significant level of loss if such weaknesses are not corrected. Losses for Substandard - Accruing loans are moderated by the lower likelihood of ultimate default and the existence of relatively favorable secondary repayment protection. These loans are considered “nonperforming”.
Substandard - Nonaccrual – Substandard - Nonaccrual loans are inadequately protected by the current sound net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans classified as Substandard - Nonaccrual possess material, well-defined weaknesses that are expected to jeopardize their liquidation and have progressed to a point where consistently late payments on the loan have become more than 90 or more days past due. These loans are also characterized by the distinct possibility that the bank may sustain a material level of loss in the future if the deficienciessuch weaknesses are not corrected.
Doubtful Losses for Substandard - Nonaccrual loans are prone to being elevated based on the strong likelihood of the loan remaining in payment default and an undesirable level of secondary repayment protection. These loans are considered “classified” and have“nonperforming”.
Doubtful – Loans classified as Doubtful possess all of the weaknesses inherent in thoseloans classified as Substandard - Nonaccrual with the added characteristic that the weaknesses make collection or liquidation in full highly questionable or improbable based on the basis of currently
existing facts, conditions and values, highly questionable and improbable. There were no loans categorizedvalues. A high probability of substantial loss or possible total loss exists. Loans rated as doubtful are not rated as of June 30, 2021 and December 31, 2020.
Loans not meeting the criteria aboveloss because certain events may occur that are analyzed individually as partcould salvage at least a portion of the above described processdebt. These events include injections of capital, additions of pledged collateral or possible mezzanine debt refinancing options. However, without the occurrence of such events, total loss may be possible. No definite repayment schedule exists for these loans. The Doubtful grade is a temporary grade. If a near term recovery of a portion of the loan balance is indeterminable or unlikely to occur, the remaining balance of the loan should be written off and possible future recoveries may partially offset the full write-off of the loan. These loans are considered “nonperforming”.
Loss – Loans classified as Loss are defaulted loans with limited or immaterial recovery prospects. No loan that has not yet defaulted should be classified at this grade level. This rating level tends to be pass-rated loans.
The following table presentsvery short lived as the credit risk profile of our loan portfolio based on our rating categories:
| | | | | | | | | | | | | | | | | | | | |
| | Non-Classified | | Classified | | Total |
| As of June 30, 2021 | | | | | | |
| Commercial | | $ | 2,177,743 | | | $ | 41,888 | | | $ | 2,219,631 | |
| Commercial real estate | | 1,094,729 | | | 31,124 | | | 1,125,853 | |
| Residential real estate | | 434,168 | | | 10,407 | | | 444,575 | |
| Consumer | | 14,420 | | | 6 | | | 14,426 | |
| Total loans | | $ | 3,721,060 | | | $ | 83,425 | | | $ | 3,804,485 | |
| | | | | | |
| As of December 31, 2020 | | | | | | |
| Commercial | | $ | 2,145,831 | | | $ | 35,721 | | | $ | 2,181,552 | |
| Commercial real estate | | 1,126,080 | | | 30,588 | | | 1,156,668 | |
| Residential real estate | | 494,155 | | | 9,673 | | | 503,828 | |
| Consumer | | 14,195 | | | 38 | | | 14,233 | |
| Total loans | | $ | 3,780,261 | | | $ | 76,020 | | | $ | 3,856,281 | |
The following table presents our loan portfolio aging analysis:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Loans
Not
Past Due | | Loans
30-59 Days
Past Due | | Loans
60-89 Days
Past Due | | Loans Greater
than 90 Days
Past Due,
Still Accruing | | Non-Accrual | | Total |
| As of June 30, 2021 | | | | | | | | | | | | |
| Commercial | | $ | 2,192,972 | | | $ | 589 | | | $ | — | | | $ | — | | | $ | 26,070 | | | $ | 2,219,631 | |
Commercial
real estate | | 1,113,827 | | | 4,891 | | | — | | | — | | | 7,135 | | | 1,125,853 | |
Residential
real estate | | 433,517 | | | 42 | | | 803 | | | — | | | 10,213 | | | 444,575 | |
| Consumer | | 14,420 | | | 1 | | | — | | | — | | | 5 | | | 14,426 | |
| Total loans | | $ | 3,754,736 | | | $ | 5,523 | | | $ | 803 | | | $ | — | | | $ | 43,423 | | | $ | 3,804,485 | |
| | | | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | | | | |
| Commercial | | $ | 2,147,310 | | | $ | 11,415 | | | $ | 48 | | | $ | — | | | $ | 22,779 | | | $ | 2,181,552 | |
Commercial
real estate | | 1,144,801 | | | 8,933 | | | — | | | — | | | 2,934 | | | 1,156,668 | |
Residential
real estate | | 489,482 | | | 2,948 | | | 1,123 | | | 777 | | | 9,498 | | | 503,828 | |
| Consumer | | 14,187 | | | 8 | | | — | | | — | | | 38 | | | 14,233 | |
| Total loans | | $ | 3,795,780 | | | $ | 23,304 | | | $ | 1,171 | | | $ | 777 | | | $ | 35,249 | | | $ | 3,856,281 | |
As of June 30, 2021 and December 31, 2020, we have a recorded investment in troubled debt restructurings (TDRs) of $17,525 and $13,975, respectively. We have no commitments to lend additional amounts at June 30, 2021.
The modificationfull balance of the terms of theloan tends to be fully written off nearly immediately after a change to this rating level. These loans performed for the six months ended June 30, 2021 and for the year ended December 31, 2020 respectively, included rate modifications, extensions of the maturity dates or a permanent reduction of the recorded investment in the loans.are considered “nonperforming”.
The following table presents the amortized cost by segment of loans by class modifiedrisk category and origination date as TDRs that occurred duringof March 31, 2024 and gross charge-offs by origination date for the sixthree months ended June 30, 2021 and year ended DecemberMarch 31, 2020:2024:
| | | | | | | | | | | | | | | | | | | | |
| | Number
of
Loans | | Pre-Modification
Outstanding
Recorded
Investment | | Post-Modification
Outstanding
Recorded
Investment |
| June 30, 2021 | | | | | | |
| Commercial | | 4 | | | $ | 5,330 | | | $ | 5,129 | |
| | | | | | |
| | | | | | |
| | | | | | |
| Total | | 4 | | | $ | 5,330 | | | $ | 5,129 | |
| | | | | | |
| December 31, 2020 | | | | | | |
| Commercial | | 11 | | | $ | 2,950 | | | $ | 2,831 | |
| | | | | | |
| Residential real estate | | 5 | | | 917 | | | 907 | |
| | | | | | |
| Total | | 16 | | | $ | 3,867 | | | $ | 3,738 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Commercial and industrial: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 86,829 | | | $ | 369,007 | | | $ | 400,128 | | | $ | 319,733 | | | $ | 126,585 | | | $ | 77,534 | | | | | $ | 33,097 | | | $ | 824,025 | | | $ | 2,236,938 | |
| Pass/Watch | | — | | | 2,265 | | | 2,271 | | | 13,989 | | | 2,935 | | | 2,066 | | | | | 17,583 | | | 57,970 | | | 99,079 | |
| Special Mention | | 5,532 | | | 3,776 | | | 46,451 | | | 7,846 | | | 2,195 | | | 1,607 | | | | | 2,512 | | | 6,234 | | | 76,153 | |
| Substandard - Accruing | | — | | | 3,152 | | | 10,929 | | | 7,178 | | | 4,437 | | | 4,310 | | | | | 1,443 | | | 9,173 | | | 40,622 | |
| Substandard - Nonaccrual | | — | | | 627 | | | — | | | 5,755 | | | 5,635 | | | 2,017 | | | | | 3,431 | | | 852 | | | 18,317 | |
| Doubtful | | — | | | — | | | — | | | 7,672 | | | 469 | | | 556 | | | | | 272 | | | — | | | 8,969 | |
| | | | | | | | | | | | | | | | | | | | |
| Total commercial and industrial | | $ | 92,361 | | | $ | 378,827 | | | $ | 459,779 | | | $ | 362,173 | | | $ | 142,256 | | | $ | 88,090 | | | | | $ | 58,338 | | | $ | 898,254 | | | $ | 2,480,078 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | 17,365 | | | $ | 1 | | | $ | — | | | | | $ | — | | | $ | — | | | $ | 17,366 | |
| | | | | | | | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
| Non-owner occupied: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 6,068 | | | $ | 71,424 | | | $ | 132,144 | | | $ | 139,067 | | | $ | 116,584 | | | $ | 238,343 | | | | | $ | 21,981 | | | $ | 39,542 | | | $ | 765,153 | |
| Pass/Watch | | — | | | — | | | — | | | 31,994 | | | 2,800 | | | 9,427 | | | | | 1,253 | | | — | | | 45,474 | |
| Special Mention | | — | | | 2,715 | | | — | | | — | | | — | | | — | | | | | 1,555 | | | — | | | 4,270 | |
| Substandard - Accruing | | — | | | — | | | 3,562 | | | — | | | 3,941 | | | 9,483 | | | | | — | | | — | | | 16,986 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | — | | | 4,632 | | | | | — | | | — | | | 4,632 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total non-owner occupied | | $ | 6,068 | | | $ | 74,139 | | | $ | 135,706 | | | $ | 171,061 | | | $ | 123,325 | | | $ | 261,885 | | | | | $ | 24,789 | | | $ | 39,542 | | | $ | 836,515 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Owner occupied: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 10,526 | | | $ | 86,443 | | | $ | 82,765 | | | $ | 93,618 | | | $ | 111,630 | | | $ | 184,210 | | | | | $ | 2,846 | | | $ | 8,052 | | | $ | 580,090 | |
| Pass/Watch | | — | | | 594 | | | 896 | | | — | | | 15,355 | | | 6,400 | | | | | — | | | — | | | 23,245 | |
| Special Mention | | — | | | — | | | 491 | | | 9,309 | | | 303 | | | 3,137 | | | | | — | | | — | | | 13,240 | |
| Substandard - Accruing | | — | | | 2,282 | | | 455 | | | 3,841 | | | 2,998 | | | 15,412 | | | | | — | | | — | | | 24,988 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | 330 | | | 1,037 | | | | | — | | | — | | | 1,367 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total owner occupied | | $ | 10,526 | | | $ | 89,319 | | | $ | 84,607 | | | $ | 106,768 | | | $ | 130,616 | | | $ | 210,196 | | | | | $ | 2,846 | | | $ | 8,052 | | | $ | 642,930 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Construction & land: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 608 | | | $ | 35,122 | | | $ | 165,702 | | | $ | 30,905 | | | $ | 16,369 | | | $ | 19,501 | | | | | $ | 21,498 | | | $ | 5,440 | | | $ | 295,145 | |
| Pass/Watch | | — | | | — | | | — | | | — | | | — | | | 20 | | | | | — | | | — | | | 20 | |
| Special Mention | | — | | | — | | | 23,015 | | | — | | | 1,575 | | | — | | | | | — | | | — | | | 24,590 | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | 6,510 | | | — | | | | | — | | | — | | | 6,510 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | 182 | | | — | | | | | — | | | — | | | 182 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total construction & land | | $ | 608 | | | $ | 35,122 | | | $ | 188,717 | | | $ | 30,905 | | | $ | 24,636 | | | $ | 19,521 | | | | | $ | 21,498 | | | $ | 5,440 | | | $ | 326,447 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Multifamily: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 4,448 | | | $ | 1,355 | | | $ | 36,823 | | | $ | 33,424 | | | $ | 5,087 | | | $ | 8,186 | | | | | $ | — | | | $ | 5,575 | | | $ | 94,898 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total multifamily | | $ | 4,448 | | | $ | 1,355 | | | $ | 36,823 | | | $ | 33,424 | | | $ | 5,087 | | | $ | 8,186 | | | | | $ | — | | | $ | 5,575 | | | $ | 94,898 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Total commercial real estate: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 21,650 | | | $ | 194,344 | | | $ | 417,434 | | | $ | 297,014 | | | $ | 249,670 | | | $ | 450,240 | | | | | $ | 46,325 | | | $ | 58,609 | | | $ | 1,735,286 | |
| Pass/Watch | | — | | | 594 | | | 896 | | | 31,994 | | | 18,155 | | | 15,847 | | | | | 1,253 | | | — | | | 68,739 | |
| Special Mention | | — | | | 2,715 | | | 23,506 | | | 9,309 | | | 1,878 | | | 3,137 | | | | | 1,555 | | | — | | | 42,100 | |
| Substandard - Accruing | | — | | | 2,282 | | | 4,017 | | | 3,841 | | | 13,449 | | | 24,895 | | | | | — | | | — | | | 48,484 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | 512 | | | 5,669 | | | | | — | | | — | | | 6,181 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total commercial real estate: | | $ | 21,650 | | | $ | 199,935 | | | $ | 445,853 | | | $ | 342,158 | | | $ | 283,664 | | | $ | 499,788 | | | | | $ | 49,133 | | | $ | 58,609 | | | $ | 1,900,790 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Residential real estate: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 19,787 | | | $ | 153,812 | | | $ | 576,551 | | | $ | 114,236 | | | $ | 36,558 | | | $ | 172,167 | | | | | $ | 2,236 | | | $ | 7,842 | | | $ | 1,083,189 | |
| Pass/Watch | | — | | | 123 | | | 179 | | | — | | | — | | | 2,430 | | | | | 41 | | | — | | | 2,773 | |
| Special Mention | | — | | | — | | | 356 | | | — | | | — | | | 1,883 | | | | | — | | | — | | | 2,239 | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | — | | | 107 | | | | | — | | | — | | | 107 | |
| Substandard - Nonaccrual | | — | | | — | | | 7,143 | | | 3,741 | | | 2,213 | | | 8,213 | | | | | — | | | 33 | | | 21,343 | |
| Doubtful | | — | | | — | | | — | | | — | | | — | | | — | | | | | 25 | | | — | | | 25 | |
| | | | | | | | | | | | | | | | | | | | |
| Total residential real estate | | $ | 19,787 | | | $ | 153,935 | | | $ | 584,229 | | | $ | 117,977 | | | $ | 38,771 | | | $ | 184,800 | | | | | $ | 2,302 | | | $ | 7,875 | | | $ | 1,109,676 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Public Finance: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | — | | | $ | 36,983 | | | $ | — | | | $ | 43,522 | | | $ | 155,633 | | | $ | 334,213 | | | | | $ | — | | | $ | 2,172 | | | $ | 572,523 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | — | | | 7,468 | | | | | — | | | — | | | 7,468 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total public finance | | $ | — | | | $ | 36,983 | | | $ | — | | | $ | 43,522 | | | $ | 155,633 | | | $ | 341,681 | | | | | $ | — | | | $ | 2,172 | | | $ | 579,991 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Consumer: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,385 | | | $ | 2,873 | | | $ | 1,950 | | | $ | 4,827 | | | $ | 8,803 | | | $ | 5,582 | | | | | $ | 1 | | | $ | 13,995 | | | $ | 39,416 | |
| Pass/Watch | | — | | | 9 | | | 50 | | | 108 | | | 191 | | | 367 | | | | | 13 | | | 64 | | | 802 | |
| Special Mention | | — | | | — | | | — | | | 14 | | | 58 | | | — | | | | | — | | | — | | | 72 | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | — | | | — | | | | | 23 | | | — | | | 23 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | 4 | | | — | | | — | | | | | — | | | — | | | 4 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total consumer | | $ | 1,385 | | | $ | 2,882 | | | $ | 2,000 | | | $ | 4,953 | | | $ | 9,052 | | | $ | 5,949 | | | | | $ | 37 | | | $ | 14,059 | | | $ | 40,317 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | 4 | | | $ | 1 | | | $ | 85 | | | $ | 1 | | | | | $ | 1 | | | $ | 48 | | | $ | 140 | |
| | | | | | | | | | | | | | | | | | | | |
| Other: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 10 | | | $ | 12,272 | | | $ | 7,779 | | | $ | 12,807 | | | $ | 645 | | | $ | 8,570 | | | | | $ | 4,902 | | | $ | 119,411 | | | $ | 166,396 | |
| Pass/Watch | | — | | | — | | | — | | | 5,004 | | | — | | | — | | | | | — | | | — | | | 5,004 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | — | | | 2,391 | | | | | 225 | | | — | | | 2,616 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total other | | $ | 10 | | | $ | 12,272 | | | $ | 7,779 | | | $ | 17,811 | | | $ | 645 | | | $ | 10,961 | | | | | $ | 5,127 | | | $ | 119,411 | | | $ | 174,016 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
For | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2024 | | 2023 | | 2022 | | 2021 | | 2020 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Total loans: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 129,661 | | | $ | 769,291 | | | $ | 1,403,842 | | | $ | 792,139 | | | $ | 577,894 | | | $ | 1,048,306 | | | | | $ | 86,561 | | | $ | 1,026,054 | | | $ | 5,833,748 | |
| Pass/Watch | | — | | | 2,991 | | | 3,396 | | | 51,095 | | | 21,281 | | | 20,710 | | | | | 18,890 | | | 58,034 | | | 176,397 | |
| Special Mention | | 5,532 | | | 6,491 | | | 70,313 | | | 17,169 | | | 4,131 | | | 6,627 | | | | | 4,067 | | | 6,234 | | | 120,564 | |
| Substandard - Accruing | | — | | | 5,434 | | | 14,946 | | | 11,019 | | | 17,886 | | | 36,780 | | | | | 1,466 | | | 9,173 | | | 96,704 | |
| Substandard - Nonaccrual | | — | | | 627 | | | 7,143 | | | 9,500 | | | 8,360 | | | 18,290 | | | | | 3,656 | | | 885 | | | 48,461 | |
| Doubtful | | — | | | — | | | — | | | 7,672 | | | 469 | | | 556 | | | | | 297 | | | — | | | 8,994 | |
| | | | | | | | | | | | | | | | | | | | |
| Total loans | | $ | 135,193 | | | $ | 784,834 | | | $ | 1,499,640 | | | $ | 888,594 | | | $ | 630,021 | | | $ | 1,131,269 | | | | | $ | 114,937 | | | $ | 1,100,380 | | | $ | 6,284,868 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | 4 | | | $ | 17,366 | | | $ | 86 | | | $ | 1 | | | | | $ | 1 | | | $ | 48 | | | $ | 17,506 | |
The following table presents the six months ended June 30, 2021amortized cost by segment of loans by risk category and year endedorigination date as of December 31, 2020 the TDRs described above increased the allowance2023 and gross charge-offs by origination date for loan losses by $1,178 and $1,464, respectively. There were no amounts charged-off during the six months ended June 30, 2021 and year ended December 31, 2020. For the year ended December 31, 2020, there were loans modified as TDRs totaling $1,759 for which there was a payment default following the modification.2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Commercial and industrial: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 384,720 | | | $ | 432,903 | | | $ | 342,394 | | | $ | 143,636 | | | $ | 41,667 | | | $ | 39,972 | | | | | $ | 39,098 | | | $ | 786,059 | | | $ | 2,210,449 | |
| Pass/Watch | | 4,052 | | | 2,543 | | | 18,832 | | | 4,595 | | | 1,603 | | | 2,441 | | | | | 1,273 | | | 93,951 | | | 129,290 | |
| Special Mention | | 3,759 | | | 47,071 | | | 2,253 | | | 2,281 | | | 659 | | | 731 | | | | | 3,334 | | | 6,729 | | | 66,817 | |
| Substandard - Accruing | | 2,992 | | | 362 | | | 33,625 | | | 4,316 | | | 1,338 | | | 3,542 | | | | | 3,044 | | | 3,909 | | | 53,128 | |
| Substandard - Nonaccrual | | — | | | — | | | 690 | | | 4,122 | | | 1,110 | | | 364 | | | | | 96 | | | 248 | | | 6,630 | |
| Doubtful | | — | | | — | | | — | | | 490 | | | 547 | | | 33 | | | | | 304 | | | — | | | 1,374 | |
| | | | | | | | | | | | | | | | | | | | |
| Total commercial and industrial | | $ | 395,523 | | | $ | 482,879 | | | $ | 397,794 | | | $ | 159,440 | | | $ | 46,924 | | | $ | 47,083 | | | | | $ | 47,149 | | | $ | 890,896 | | | $ | 2,467,688 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | 2,786 | | | $ | 3,096 | | | $ | — | | | $ | 368 | | | | | $ | 2,992 | | | $ | — | | | $ | 9,242 | |
| | | | | | | | | | | | | | | | | | | | |
| Commercial real estate: | | | | | | | | | | | | | | | | | | | | |
| Non-owner occupied: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 55,581 | | | $ | 117,162 | | | $ | 136,361 | | | $ | 116,402 | | | $ | 60,535 | | | $ | 176,308 | | | | | $ | 19,256 | | | $ | 71,322 | | | $ | 752,927 | |
| Pass/Watch | | — | | | — | | | — | | | 3,791 | | | 6,342 | | | 24,620 | | | | | 1,277 | | | — | | | 36,030 | |
| Special Mention | | 2,717 | | | — | | | — | | | — | | | — | | | — | | | | | 1,582 | | | — | | | 4,299 | |
| Substandard - Accruing | | — | | | 3,561 | | | — | | | 1,880 | | | — | | | 9,694 | | | | | — | | | — | | | 15,135 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | — | | | 3,844 | | | | | — | | | — | | | 3,844 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total non-owner occupied | | $ | 58,298 | | | $ | 120,723 | | | $ | 136,361 | | | $ | 122,073 | | | $ | 66,877 | | | $ | 214,466 | | | | | $ | 22,115 | | | $ | 71,322 | | | $ | 812,235 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Owner occupied: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 87,167 | | | $ | 83,308 | | | $ | 105,935 | | | $ | 102,885 | | | $ | 64,134 | | | $ | 123,199 | | | | | $ | 2,961 | | | $ | 6,103 | | | $ | 575,692 | |
| Pass/Watch | | 600 | | | 902 | | | — | | | 15,541 | | | 2,896 | | | 2,520 | | | | | — | | | 1,615 | | | 24,074 | |
| Special Mention | | — | | | 493 | | | 5,745 | | | 306 | | | 1,092 | | | 2,834 | | | | | — | | | — | | | 10,470 | |
| Substandard - Accruing | | 2,295 | | | 460 | | | 1,204 | | | 3,027 | | | 2,259 | | | 15,850 | | | | | — | | | — | | | 25,095 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | — | | | 34 | | | | | — | | | — | | | 34 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total owner occupied | | $ | 90,062 | | | $ | 85,163 | | | $ | 112,884 | | | $ | 121,759 | | | $ | 70,381 | | | $ | 144,437 | | | | | $ | 2,961 | | | $ | 7,718 | | | $ | 635,365 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 83 | | | | | $ | — | | | $ | — | | | $ | 83 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Construction & land: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 44,496 | | | $ | 171,411 | | | $ | 32,176 | | | $ | 28,221 | | | $ | 13,459 | | | $ | 8,718 | | | | | $ | 21,600 | | | $ | 1,913 | | | $ | 321,994 | |
| Pass/Watch | | — | | | — | | | 13,036 | | | 6,541 | | | — | | | 15 | | | | | — | | | — | | | 19,592 | |
| Special Mention | | — | | | — | | | 1,381 | | | 2,278 | | | — | | | — | | | | | — | | | — | | | 3,659 | |
| | | | | | | | | | | | | | | | | | | | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | 185 | | | — | | | — | | | | | — | | | — | | | 185 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total construction & land | | $ | 44,496 | | | $ | 171,411 | | | $ | 46,593 | | | $ | 37,225 | | | $ | 13,459 | | | $ | 8,733 | | | | | $ | 21,600 | | | $ | 1,913 | | | $ | 345,430 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Multifamily: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 1,359 | | | $ | 36,852 | | | $ | 36,537 | | | $ | 12,838 | | | $ | 2,716 | | | $ | 5,885 | | | | | $ | — | | | $ | 5,574 | | | $ | 101,761 | |
| | | | | | | | | | | | | | | | | | | | |
| Special Mention | | — | | | — | | | — | | | — | | | 1,305 | | | — | | | | | — | | | — | | | 1,305 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total multifamily | | $ | 1,359 | | | $ | 36,852 | | | $ | 36,537 | | | $ | 12,838 | | | $ | 4,021 | | | $ | 5,885 | | | | | $ | — | | | $ | 5,574 | | | $ | 103,066 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Total commercial real estate: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 188,603 | | | $ | 408,733 | | | $ | 311,009 | | | $ | 260,346 | | | $ | 140,844 | | | $ | 314,110 | | | | | $ | 43,817 | | | $ | 84,912 | | | $ | 1,752,374 | |
| Pass/Watch | | 600 | | | 902 | | | 13,036 | | | 25,873 | | | 9,238 | | | 27,155 | | | | | 1,277 | | | 1,615 | | | 79,696 | |
| Special Mention | | 2,717 | | | 493 | | | 7,126 | | | 2,584 | | | 2,397 | | | 2,834 | | | | | 1,582 | | | — | | | 19,733 | |
| Substandard - Accruing | | 2,295 | | | 4,021 | | | 1,204 | | | 4,907 | | | 2,259 | | | 25,544 | | | | | — | | | — | | | 40,230 | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | 185 | | | — | | | 3,878 | | | | | — | | | — | | | 4,063 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total commercial real estate: | | $ | 194,215 | | | $ | 414,149 | | | $ | 332,375 | | | $ | 293,895 | | | $ | 154,738 | | | $ | 373,521 | | | | | $ | 46,676 | | | $ | 86,527 | | | $ | 1,896,096 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 83 | | | | | $ | — | | | $ | — | | | $ | 83 | |
| | | | | | | | | | | | | | | | | | | | |
| Residential real estate: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 153,327 | | | $ | 573,624 | | | $ | 116,695 | | | $ | 38,309 | | | $ | 38,121 | | | $ | 141,216 | | | | | $ | 1,857 | | | $ | 13,540 | | | $ | 1,076,689 | |
| Pass/Watch | | 155 | | | 1,181 | | | 28 | | | — | | | 269 | | | 4,667 | | | | | 176 | | | — | | | 6,476 | |
| Special Mention | | — | | | — | | | — | | | — | | | 254 | | | 1,465 | | | | | — | | | — | | | 1,719 | |
| Substandard - Accruing | | — | | | 3,199 | | | — | | | — | | | — | | | 114 | | | | | — | | | — | | | 3,313 | |
| Substandard - Nonaccrual | | — | | | 6,704 | | | 3,169 | | | 2,214 | | | 4,009 | | | 6,267 | | | | | 16 | | | 34 | | | 22,413 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total residential real estate | | $ | 153,482 | | | $ | 584,708 | | | $ | 119,892 | | | $ | 40,523 | | | $ | 42,653 | | | $ | 153,729 | | | | | $ | 2,049 | | | $ | 13,574 | | | $ | 1,110,610 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | 13 | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | 13 | |
| | | | | | | | | | | | | | | | | | | | |
| Public Finance: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 37,074 | | | $ | — | | | $ | 43,512 | | | $ | 174,907 | | | $ | 201,575 | | | $ | 135,326 | | | | | $ | — | | | $ | 3,051 | | | $ | 595,445 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | 7,468 | | | — | | | | | — | | | — | | | 7,468 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total public finance | | $ | 37,074 | | | $ | — | | | $ | 43,512 | | | $ | 174,907 | | | $ | 209,043 | | | $ | 135,326 | | | | | $ | — | | | $ | 3,051 | | | $ | 602,913 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Consumer: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 3,232 | | | $ | 2,183 | | | $ | 5,347 | | | $ | 9,414 | | | $ | 3,482 | | | $ | 2,555 | | | | | $ | 2 | | | $ | 9,491 | | | $ | 35,706 | |
| Pass/Watch | | — | | | 53 | | | 108 | | | 99 | | | 145 | | | 153 | | | | | 1 | | | 46 | | | 605 | |
| Special Mention | | — | | | — | | | 13 | | | 7 | | | — | | | — | | | | | — | | | — | | | 20 | |
| Substandard - Accruing | | — | | | — | | | — | | | — | | | — | | | — | | | | | 30 | | | — | | | 30 | |
| Substandard - Nonaccrual | | — | | | 4 | | | 6 | | | — | | | — | | | — | | | | | — | | | — | | | 10 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total consumer | | $ | 3,232 | | | $ | 2,240 | | | $ | 5,474 | | | $ | 9,520 | | | $ | 3,627 | | | $ | 2,708 | | | | | $ | 33 | | | $ | 9,537 | | | $ | 36,371 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | 11 | | | $ | 8 | | | $ | 111 | | | $ | 32 | | | | | $ | 3 | | | $ | 169 | | | $ | 334 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2023 | | 2022 | | 2021 | | 2020 | | 2019 | | Prior | | | | Revolving Loans Converted to Term | | Revolving | | Total |
| Other: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 5,890 | | | $ | 7,802 | | | $ | 13,198 | | | $ | 806 | | | $ | 282 | | | $ | 10,227 | | | | | $ | 4,859 | | | $ | 100,183 | | | $ | 143,247 | |
| Pass/Watch | | — | | | — | | | 7,334 | | | — | | | — | | | — | | | | | — | | | — | | | 7,334 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Substandard - Nonaccrual | | — | | | — | | | — | | | — | | | 2,391 | | | — | | | | | 446 | | | — | | | 2,837 | |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
| Total other | | $ | 5,890 | | | $ | 7,802 | | | $ | 20,532 | | | $ | 806 | | | $ | 2,673 | | | $ | 10,227 | | | | | $ | 5,305 | | | $ | 100,183 | | | $ | 153,418 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | | | $ | — | | | $ | — | | | $ | — | |
| | | | | | | | | | | | | | | | | | | | |
| Total loans: | | | | | | | | | | | | | | | | | | | | |
| Pass | | $ | 772,846 | | | $ | 1,425,245 | | | $ | 832,155 | | | $ | 627,418 | | | $ | 425,971 | | | $ | 643,406 | | | | | $ | 89,633 | | | $ | 997,236 | | | $ | 5,813,910 | |
| Pass/Watch | | 4,807 | | | 4,679 | | | 39,338 | | | 30,567 | | | 11,255 | | | 34,416 | | | | | 2,727 | | | 95,612 | | | 223,401 | |
| Special Mention | | 6,476 | | | 47,564 | | | 9,392 | | | 4,872 | | | 3,310 | | | 5,030 | | | | | 4,916 | | | 6,729 | | | 88,289 | |
| Substandard - Accruing | | 5,287 | | | 7,582 | | | 34,829 | | | 9,223 | | | 11,065 | | | 29,200 | | | | | 3,074 | | | 3,909 | | | 104,169 | |
| Substandard - Nonaccrual | | — | | | 6,708 | | | 3,865 | | | 6,521 | | | 7,510 | | | 10,509 | | | | | 558 | | | 282 | | | 35,953 | |
| Doubtful | | — | | | — | | | — | | | 490 | | | 547 | | | 33 | | | | | 304 | | | — | | | 1,374 | |
| | | | | | | | | | | | | | | | | | | | |
| Total loans | | $ | 789,416 | | | $ | 1,491,778 | | | $ | 919,579 | | | $ | 679,091 | | | $ | 459,658 | | | $ | 722,594 | | | | | $ | 101,212 | | | $ | 1,103,768 | | | $ | 6,267,096 | |
| Gross charge-offs | | $ | — | | | $ | — | | | $ | 2,797 | | | $ | 3,117 | | | $ | 111 | | | $ | 483 | | | | | $ | 2,995 | | | $ | 169 | | | $ | 9,672 | |
The following table presents information about collateral dependent loans that were individually evaluated for purposes of determining the ACL as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Collateral Dependent Loans
With Allowance | | Collateral Dependent Loans
With No Related Allowance | | Total Collateral Dependent Loans |
| Amortized Cost | | Related Allowance | | Amortized Cost | | Amortized Cost | | Related Allowance |
| March 31, 2024 | | | | | | | | | |
| Commercial & industrial | $ | 13,452 | | | $ | 6,326 | | | $ | 13,834 | | | $ | 27,286 | | | $ | 6,326 | |
| Commercial real estate: | | | | | | | | | |
| Non-owner occupied | — | | | — | | | 4,632 | | | 4,632 | | | — | |
| Owner occupied | — | | | — | | | 1,367 | | | 1,367 | | | — | |
| Construction and land | — | | | — | | | 182 | | | 182 | | | — | |
| | | | | | | | | |
| Total commercial real estate | — | | | — | | | 6,181 | | | 6,181 | | | — | |
| Residential real estate | 1,154 | | | 56 | | | 20,214 | | | 21,368 | | | 56 | |
| | | | | | | | | |
| Consumer | 4 | | | 4 | | | — | | | 4 | | | 4 | |
| Other | 2,391 | | | 102 | | | 225 | | | 2,616 | | | 102 | |
| Total loans | $ | 17,001 | | | $ | 6,488 | | | $ | 40,454 | | | $ | 57,455 | | | $ | 6,488 | |
| December 31, 2023 | | | | | | | | | |
| Commercial & industrial | $ | 5,084 | | | $ | 2,328 | | | $ | 2,920 | | | $ | 8,004 | | | $ | 2,328 | |
| Commercial real estate: | | | | | | | | | |
| Non-owner occupied | — | | | — | | | 3,844 | | | 3,844 | | | — | |
| Owner occupied | — | | | — | | | 34 | | | 34 | | | — | |
| Construction and land | — | | | — | | | 185 | | | 185 | | | — | |
| | | | | | | | | |
| Total commercial real estate | — | | | — | | | 4,063 | | | 4,063 | | | — | |
| Residential real estate | 1,551 | | | 103 | | | 20,862 | | | 22,413 | | | 103 | |
| | | | | | | | | |
| Consumer | 10 | | | 10 | | | — | | | 10 | | | 10 | |
| Other | 2,391 | | | 102 | | | 446 | | | 2,837 | | | 102 | |
| Total loans | $ | 9,036 | | | $ | 2,543 | | | $ | 28,291 | | | $ | 37,327 | | | $ | 2,543 | |
The allowance related to assesscollateral dependent loans reported in the tables above includes qualitative adjustments applied to the loan portfolio that consider possible changes in circumstances that could ultimately impact credit losses and might not be reflected in historical data or forecasted data incorporated in the quantitative models.
Loan Modifications Made to Borrowers Experiencing Financial Difficulty:
The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. We use a PD/LGD model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty an evaluation is performed to determinemade at the probability that the borrower will be in payment default on anytime of its debta modification. The loan modifications in the foreseeable future withouttable below did not significantly impact our determination of the allowance for credit losses on loans during the three months ended March 31, 2024.
Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. This evaluationOccasionally, we modify loans by providing principal forgiveness that is performed under our internal underwriting policy.
Adeemed to be uncollectible; therefore, that portion of the loan is generally consideredwritten-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to bethe allowance for credit losses. Additionally, we may allow a loan to go interest only for a specified period of time.
The following table presents loan modifications for borrowers experiencing financial difficulty during the 12 months ended March 31, 2024, segregated by modification type, regardless of whether such modifications resulted in payment default once it is 30 days contractually past due undera new loan.
| | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Payment
Delay | | | | Interest Rate Reduction | | | | | | % of
Total Class
of Loans |
| Commercial and industrial | | | $ | 283 | | | | | $ | — | | | | | | | — | % |
| Commercial real estate: | | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Owner occupied | | | — | | | | | 1,777 | | | | | | | 0.3 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Total loans | | | $ | 283 | | | | | $ | 1,777 | | | | | | | 0.3 | % |
There were no commitments to lend additional funds to these borrowers at March 31, 2024.
The financial effects of our loan modifications made to borrowers experiencing financial difficulty during the 12 months ended March 31, 2024 were not significant.
We closely monitor the performance of loan modifications made to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts. The following table depicts the performance of loan modifications made to borrowers experiencing financial difficulty that have been modified terms.in the last 12 months:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Loans
Not
Past Due | | Loans
30-59 Days
Past Due | | Loans
60-89 Days
Past Due | | Loans Greater
than 90 Days
Past Due,
Still Accruing | | Nonaccrual | | Total |
| | | | | | | | | | | |
| Commercial and industrial | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 283 | | | $ | 283 | |
| Commercial real estate: | | | | | | | | | | | |
| | | | | | | | | | | |
| Owner occupied | 1,139 | | | — | | | — | | | — | | | 638 | | | 1,777 | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total loans | $ | 1,139 | | | $ | — | | | $ | — | | | $ | — | | | $ | 921 | | | $ | 2,060 | |
We are working with borrowers impacted by COVID-19 and providing modifications to include interest only deferral or principal and interest deferral. These modifications are excluded from TDR classification under Section 4013 of the CARES Act or under applicable interagency guidance of the federal banking regulators. As of June 30, 2021, we had modified loans under the CARES Act as follows:
| | | | | | | | | | | | | | |
| | Number
of Loans | | Recorded
Investment |
| June 30, 2021 | | | | |
| | | | |
| | | | |
| Residential real estate | | 18 | | | $ | 7,971 | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
| | | | |
Acquired Loans and Loan Discounts:
Included in the net loan portfolio as of June 30, 2021 and December 31, 2020 is a net accretable discount related to loans acquired within a business combination in the approximate amounts of $961 and $2,043, respectively. The discount is being accreted into income on a level-yield basis over the life of the loans.
Loans acquired with evidence of credit quality deterioration at acquisition, for which it was probable that we would not be able to collect all contractual amounts due, were accounted for as purchased credit impaired (“PCI”) loans. The outstanding balance represents the total amount owed, including accrued but unpaid interest, and any amounts previously charged off. The carrying amount of purchased credit impaired loans is not significant as of June 30, 2021 and December 31, 2020.
NOTE 4.4 - Mortgage Servicing Rights
We have investments in mortgage servicing rights (“MSRs”) that result from the sale of loans to the secondary market for which we retain the servicing. We account for these MSRs at their fair value. A primary risk associated with MSRs is the potential reduction in fair value as a result of higher than anticipated prepayments due to loan refinancing prompted, in part, by declining interest rates or government intervention. Conversely, these assets generally increase in value in a rising interest rate environment to the extent that prepayments are slower than anticipated. We utilize derivatives as economic hedges to offset changes in the fair value of the MSRs resulting from the actual or anticipated changes in prepayments stemming from changing interest rate environments.
The unpaid principal loan balance of our servicing portfolio is presented in the following table as of:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | | | |
| Federal National Mortgage Association | | $ | 2,298,635 | | | $ | 2,117,703 | |
| Federal Home Loan Mortgage Corporation | | 1,268,647 | | | 948,934 | |
| Government National Mortgage Association | | 736,733 | | | 722,138 | |
| Federal Home Loan Bank | | 172,501 | | | 245,246 | |
| Other | | 1,997 | | | 2,144 | |
| Total | | $ | 4,478,513 | | | $ | 4,036,165 | |
| | | | | | | | | | | |
| March 31,
2024 | | December 31, 2023 |
| Federal National Mortgage Association | $ | 2,479,222 | | | $ | 2,478,732 | |
| Federal Home Loan Mortgage Corporation | 1,776,419 | | | 1,736,329 | |
| Government National Mortgage Association | 1,123,475 | | | 1,094,438 | |
| Federal Home Loan Bank | 105,310 | | | 105,702 | |
| Other | 1,239 | | | 1,258 | |
| Total | $ | 5,485,665 | | | $ | 5,416,459 | |
The activity of MSRs carried at fair value is as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Balance, beginning of period | | $ | 39,342 | | | $ | 19,793 | | | $ | 29,144 | | | $ | 29,003 | |
| Additions: | | | | | | | | |
| | | | | | | | |
| Servicing resulting from transfers of financial assets | | 6,125 | | | 6,469 | | | 13,230 | | | 9,265 | |
| | | | | | | | |
| | | | | | | | |
| Changes in fair value: | | | | | | | | |
| Due to changes in valuation inputs or assumptions used in the valuation model | | (1,660) | | | (572) | | | 4,261 | | | (11,101) | |
| Changes in fair value due to pay-offs, pay-downs, and runoff | | (2,963) | | | (1,890) | | | (5,791) | | | (3,367) | |
| Balance, end of period | | $ | 40,844 | | | $ | 23,800 | | | $ | 40,844 | | | $ | 23,800 | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Balance, beginning of period | $ | 76,701 | | | $ | 74,097 | | | | | | | | | |
| Additions: | | | | | | | | | | | |
| | | | | | | | | | | |
| Servicing resulting from transfers of financial assets | 2,031 | | | 2,047 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Changes in fair value: | | | | | | | | | | | |
| Due to changes in valuation inputs or assumptions used in the valuation model | 1,273 | | | (1,168) | | | | | | | | | |
| Changes in fair value due to pay-offs, pay-downs, and runoff | (1,589) | | | (1,552) | | | | | | | | | |
| Balance, end of period | $ | 78,416 | | | $ | 73,424 | | | | | | | | | |
The following represents the weighted-average key assumptions used to estimate the fair value of MSRs as of:
| | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 | | June 30, 2020 |
| | | | | | |
| Discount rate | | 9.21 | % | | 9.12 | % | | 9.45 | % |
| Total prepayment speeds | | 13.01 | % | | 16.99 | % | | 18.88 | % |
| Cost of servicing each loan | | $86/per loan | | $85/per loan | | $86/per loan |
| | | | | | | | | | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 | | March 31,
2023 | | |
| Discount rate | 10.12 | % | | 10.06 | % | | 9.87 | % | | |
| Total prepayment speeds | 8.02 | % | | 7.79 | % | | 7.66 | % | | |
| Cost of servicing each loan | $90/per loan | | $90/per loan | | $88/per loan | | |
Total servicing and ancillary fees earned from the mortgage servicing portfolio is presented in the following table:
| | For the three months ended June 30, | | For the six months ended June 30, |
| 2021 | | 2020 | | 2021 | | 2020 |
| | For the three months ended March 31, | |
| For the three months ended March 31, | |
| For the three months ended March 31, | |
| 2024 | |
| 2024 | |
| 2024 | |
| Servicing fees | |
| Servicing fees | |
| Servicing fees | Servicing fees | | $ | 2,946 | | | $ | 2,168 | | | $ | 5,752 | | | $ | 4,373 | |
| Late and ancillary fees | Late and ancillary fees | | 99 | | | 83 | | | 199 | | | 185 | |
| Late and ancillary fees | |
| Late and ancillary fees | |
| Total | Total | | $ | 3,045 | | | $ | 2,251 | | | $ | 5,951 | | | $ | 4,558 | |
| Total | |
| Total | |
NOTE 5.5 - Derivative Financial Instruments
Banking Derivative Financial Instruments:
We are exposeduse fair value hedges to seek to manage our exposure to changes in the fair value of certain of our fixed-raterecognized assets due to changes in benchmark interest rates. We use interest rate swaps to manage our exposure to changes in fair value on these instruments attributable to changes in the designateda benchmark interest rate, LIBOR. Interest rate swaps designatedsuch as SOFR. The fair value hedges involve the receipt of fixed-rate amounts from a counterparty in exchange for us making variable-rate payments over the life of the agreements without the exchange of the underlying notional amount. The carrying amount of hedged loans receivable as of June 30, 2021 and December 31, 2020 was $228,300 and $239,591, respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of June 30, 2021 and December 31, 2020 was $8,075 and $14,906, respectively. The hedges were determined to be effective during all periods presented and we expect the hedges to remain effective during their remaining terms.
Derivatives not designated as hedges are not speculative and result from a service we provide to certain customers. We execute interest rate swaps with banking customers to facilitate their respective risk management strategies. Those interest rate swaps are simultaneously hedgedoffset by offsetting derivatives that we execute with a third party,third-party, such that we minimize our net risk exposure resulting from such transactions. As the interest rate derivatives associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the customer derivatives and the offsetting derivatives are recognized directly in earnings. These
Derivative instruments are measured at fair value and recorded as a component of prepaid expenses and other assets and accrued expenses and other liabilities.
The components of our banking derivative financial instruments consisted of the following:following as of:
| | Number of
Transactions | |
| Number of
Transactions | |
| Number of
Transactions | |
| March 31, 2024 | |
| March 31, 2024 | |
| March 31, 2024 | |
| Derivative financial instruments designated as hedging instruments: | |
| Derivative financial instruments designated as hedging instruments: | |
| Derivative financial instruments designated as hedging instruments: | |
| Assets: | |
| Assets: | |
| Assets: | |
| Interest Rate Products | |
| Interest Rate Products | |
| Interest Rate Products | |
| | | Number of
Transactions | | Expiration
Dates | | Outstanding
Notional | | Estimated
Fair
Value | |
| June 30, 2021 | | | | | | | |
| Derivative financial instruments designated as hedging instruments: | | |
| Assets: | | |
| Interest Rate Products | | 2 | | 2029-2030 | | $ | 38,888 | | | $ | 2,076 | | |
| Liabilities: | | |
| Interest Rate Products | | 12 | | 2022-2029 | | $ | 182,643 | | | $ | 10,195 | | |
| Derivative financial instruments not designated as hedging instruments: | |
| | Derivative financial instruments not designated as hedging instruments: | |
| | | Derivative financial instruments not designated as hedging instruments: | Derivative financial instruments not designated as hedging instruments: | | |
| Assets: | Assets: | | |
| Assets: | |
| Assets: | |
| Interest Rate Products | Interest Rate Products | | 36 | | 2024-2036 | | $ | 194,678 | | | $ | 8,974 | | |
| Interest Rate Products | |
| Interest Rate Products | |
| Other | |
| Other | |
| Other | |
| Liabilities: | |
| Liabilities: | |
| Liabilities: | Liabilities: | | |
| Interest Rate Products | Interest Rate Products | | 36 | | 2024-2036 | | $ | 194,678 | | | $ | 9,398 | | |
| | December 31, 2020 | | |
| Interest Rate Products | |
| Interest Rate Products | |
| Other | |
| Other | |
| Other | |
| December 31, 2023 | |
| December 31, 2023 | |
| December 31, 2023 | |
| Derivative financial instruments designated as hedging instruments: | |
| Derivative financial instruments designated as hedging instruments: | |
| Derivative financial instruments designated as hedging instruments: | Derivative financial instruments designated as hedging instruments: | | |
| Assets: | Assets: | | |
| Assets: | |
| Assets: | |
| Interest Rate Products | Interest Rate Products | | 2 | | 2026-2029 | | $ | 38,978 | | | $ | 830 | | |
| Liabilities: | | |
| Interest Rate Products | Interest Rate Products | | 12 | | 2022-2028 | | $ | 185,637 | | | $ | 15,792 | | |
| Interest Rate Products | |
| | Derivative financial instruments not designated as hedging instruments: | |
| | Derivative financial instruments not designated as hedging instruments: | |
| | | Derivative financial instruments not designated as hedging instruments: | Derivative financial instruments not designated as hedging instruments: | | |
| Assets: | Assets: | | |
| Assets: | |
| Assets: | |
| Interest Rate Products | Interest Rate Products | | 28 | | 2024-2031 | | $ | 171,609 | | | $ | 11,348 | | |
| Interest Rate Products | |
| Interest Rate Products | |
| Other | |
| Other | |
| Other | |
| Liabilities: | |
| Liabilities: | |
| Liabilities: | Liabilities: | | |
| Interest Rate Products | Interest Rate Products | | 28 | | 2024-2031 | | $ | 171,609 | | | $ | 12,117 | | |
| Interest Rate Products | |
| Interest Rate Products | |
| Other | |
| Other | |
| Other | |
We recorded gains and losses on banking derivativesderivative assets and liabilities as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
Recorded gain (loss) on banking derivative
assets | | $ | 517 | | | $ | 1,167 | | | $ | (234) | | | $ | 8,829 | |
| | | | | | | | |
| Recorded (loss) gain on banking derivative liabilities | | $ | (886) | | | $ | (1,198) | | | $ | 589 | | | $ | (9,555) | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Recorded gain (loss) on banking derivative assets | $ | 6,385 | | | $ | (2,560) | | | | | | | | | |
| Recorded (loss) gain on banking derivative liabilities | $ | (6,232) | | | $ | 2,256 | | | | | | | | | |
For the three months ended June 30, 2021March 31, 2024 and 2020,2023, our banking derivative financial instruments not designated as hedging instruments generated fee income of $390$31 and $304, respectively. For the six months ended June 30, 2021 and 2020, our banking derivative financial instruments not designated as hedging instruments generated fee income of $834 and $1,561,$466, respectively.
The carrying amount of hedged securities available-for-sale as of March 31, 2024 and December 31, 2023 was $37,213 and $37,701, respectively. The cumulative amount of fair value hedging adjustment, net of tax included in other comprehensive income as of March 31, 2024 and December 31, 2023 was $3,353, and $218, respectively.
Credit-risk-related Contingent Features:
We have agreements with each of our derivative counterparties that contain a provision where if we either default or are capable of being declared in default on any of our indebtedness, then we could also be declared in default on our derivative obligations.
We also have agreements with our derivative counterparties that contain a provision where if we fail to maintain our status as a well-capitalized institution, then our derivative counterparties have the right but not the obligation to terminate existing swaps. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $34,156$23,937 and $28,622,$20,508, respectively. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of $19,329$10,340 and $31,400,$9,040, respectively. If we had breached any of these provisions at June 30, 2021,March 31, 2024, we could have been required to settle our obligations under the agreements at their termination value of $34,156.
Mortgage Banking Derivative Financial Instruments:
The components of our mortgage banking derivative financial instruments consisted of the following:following as of:
| | | | | | | | | | | | | | | | | | | |
| Expiration
Dates | | Outstanding
Notional | | Estimated
Fair
Value | | |
| June 30, 2021 | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Assets: | | | | | | | |
| Forward MBS trades | 2021 | | $ | 158,600 | | | $ | 1,035 | | | |
| Interest rate lock commitments (IRLC) | 2021 | | $ | 256,366 | | | $ | 2,652 | | | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Forward MBS trades | 2021 | | $ | 216,000 | | | $ | 407 | | | |
| | | | | | | |
| | | | | | | |
| December 31, 2020 | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Assets: | | | | | | | |
| Forward MBS trades | 2021 | | $ | 189,900 | | | $ | 468 | | | |
| Interest rate lock commitments (IRLC) | 2021 | | $ | 462,394 | | | $ | 5,686 | | | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Forward MBS trades | 2021 | | $ | 433,400 | | | $ | 2,883 | | | |
| | | | | | | |
| | | | | | | | | | | | | | | | | | | |
| Expiration
Dates | | Outstanding
Notional | | Estimated
Fair
Value | | |
| March 31, 2024 | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Assets: | | | | | | | |
| Futures | 2024 | | $ | 27,600 | | | $ | 282 | | | |
| Forward MBS trades | 2024 | | $ | 101,000 | | | $ | 39 | | | |
| Interest rate lock commitments (IRLC) | 2024 | | $ | 87,504 | | | $ | 953 | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| December 31, 2023 | | | | | | | |
| Derivative financial instruments | | | | | | | |
| Assets: | | | | | | | |
| Forward MBS trades | 2024 | | $ | 28,700 | | | $ | 2,153 | | | |
| Interest rate lock commitments (IRLC) | 2024 | | $ | 41,404 | | | $ | 252 | | | |
| | | | | | | |
| Liabilities: | | | | | | | |
| Forward MBS trades | 2024 | | $ | 77,000 | | | $ | 606 | | | |
| | | | | | | |
| | | | | | | |
We recorded gains and losses on mortgage banking derivativesderivative assets and liabilities as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Recorded (loss) gain on mortgage banking derivative assets | | $ | (7) | | | $ | 4,549 | | | $ | (9,477) | | | $ | 27,625 | |
| | | | | | | | |
| Recorded gain (loss) on mortgage banking derivative liabilities | | $ | 110 | | | $ | 5,505 | | | $ | 2,527 | | | $ | (2,914) | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Recorded gain on mortgage banking derivative assets | $ | 58 | | | $ | 850 | | | | | | | | | |
| Recorded loss on mortgage banking derivative liabilities | $ | — | | | $ | (535) | | | | | | | | | |
NOTE 6.6 - Deposits
The composition of our deposits is as follows:follows as of:
| | | | | | | | | | | | | | |
| | As of |
| | June 30, 2021 | | December 31, 2020 |
| | | | |
| Noninterest-bearing demand deposit accounts | | $ | 1,359,112 | | | $ | 1,054,458 | |
| Interest-bearing deposit accounts: | | | | |
| Interest-bearing demand accounts | | 194,840 | | | 164,870 | |
| Savings accounts and money market accounts | | 2,746,373 | | | 2,472,965 | |
| NOW accounts | | 101,749 | | | 95,297 | |
| Certificate of deposit accounts: | | | | |
| Less than $100 | | 156,667 | | | 164,491 | |
| $100 through $250 | | 106,553 | | | 113,006 | |
| Greater than $250 | | 83,404 | | | 88,462 | |
| Total interest-bearing deposit accounts | | 3,389,586 | | | 3,099,091 | |
| Total deposits | | $ | 4,748,698 | | | $ | 4,153,549 | |
| | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| Noninterest-bearing demand deposit accounts | $ | 1,517,315 | | | $ | 1,530,506 | |
| Interest-bearing deposit accounts: | | | |
| Interest-bearing demand accounts | 542,184 | | | 534,540 | |
| Savings accounts and money market accounts | 2,473,255 | | | 2,446,632 | |
| NOW accounts | 39,181 | | | 56,819 | |
| Certificate of deposit accounts: | | | |
| Less than $100 | 778,719 | | | 714,171 | |
| $100 through $250 | 565,691 | | | 569,696 | |
| Greater than $250 | 529,043 | | | 521,739 | |
| Total interest-bearing deposit accounts | 4,928,073 | | | 4,843,597 | |
| Total deposits | $ | 6,445,388 | | | $ | 6,374,103 | |
The following table summarizes the interest expense incurred on our deposits:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Interest-bearing deposit accounts: | | | | | | | | |
| Interest-bearing demand accounts | | $ | 114 | | | $ | 157 | | | $ | 211 | | | $ | 234 | |
| Savings accounts and money market accounts | | 1,262 | | | 1,654 | | | 2,513 | | | 4,266 | |
| NOW accounts | | 172 | | | 161 | | | 286 | | | 288 | |
| Certificate of deposit accounts | | 801 | | | 2,153 | | | 1,743 | | | 4,745 | |
| Total interest-bearing deposit accounts | | $ | 2,349 | | | $ | 4,125 | | | $ | 4,753 | | | $ | 9,533 | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Interest-bearing deposit accounts: | | | | | | | | | | | |
| Interest-bearing demand accounts | $ | 4,719 | | | $ | 1,175 | | | | | | | | | |
| Savings accounts and money market accounts | 10,671 | | | 5,513 | | | | | | | | | |
| NOW accounts | 142 | | | 59 | | | | | | | | | |
| Certificate of deposit accounts | 20,858 | | | 7,432 | | | | | | | | | |
| Total interest-bearing deposit accounts | $ | 36,390 | | | $ | 14,179 | | | | | | | | | |
The remaining maturity on certificate of deposit accounts as of June 30, 2021 is as follows:follows as of:
| | | | | | | | |
| Remainder of 2021 | | $ | 117,381 | |
| 2022 | | 156,539 | |
| 2023 | | 38,074 | |
| 2024 | | 13,500 | |
| 2025 | | 10,741 | |
| 2026 | | 6,403 | |
| Thereafter | | 3,986 | |
| Total certificate of deposit accounts | | $ | 346,624 | |
| | | | | |
| March 31,
2024 |
| Remainder of 2024 | $ | 1,687,202 | |
| 2025 | 162,417 | |
| 2026 | 11,817 | |
| 2027 | 4,190 | |
| 2028 | 2,257 | |
| 2029 | 2,917 | |
| Thereafter | 2,653 | |
| Total certificate of deposit accounts | $ | 1,873,453 | |
NOTE 7.7 - Securities Sold Under Agreements to Repurchase
Information concerning securities sold under agreements to repurchase is as follows as of and for the periods ended:
| | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | | | |
| Amount outstanding at period-end | | $ | 113,786 | | | $ | 115,372 | |
| Average daily balance during the period | | $ | 144,496 | | | $ | 118,706 | |
| Average interest rate during the period | | 0.05 | % | | 0.15 | % |
| Maximum month-end balance during the period | | $ | 160,865 | | | $ | 149,844 | |
| Weighted average interest rate at period-end | | 0.05 | % | | 0.05 | % |
| | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| Amount outstanding at period-end | $ | 20,423 | | | $ | 24,693 | |
| Average daily balance during the period | $ | 21,254 | | | $ | 28,316 | |
| Average interest rate during the period | 1.02 | % | | 0.84 | % |
| Maximum month-end balance during the period | $ | 24,240 | | | $ | 40,432 | |
| Weighted average interest rate at period-end | 0.92 | % | | 0.91 | % |
At June 30, 2021March 31, 2024 and December 31, 2020,2023, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of $119,403$34,191 and $121,116,$30,810, respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and they are considered to be in an overnight and continuous position.
NOTE 8.8 - Debt
FHLB advances:
The following is a breakdown of our FHLB advances and other borrowings outstanding as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| | Amount | | Rate | | Weighted
Average
Rate | | Amount | | Rate | | Weighted
Average
Rate |
| Variable rate line-of-credit advance | | $ | — | | | N/A | | N/A | | $ | 20,000 | | | 0.35% | | N/A |
| Fixed rate term advances | | $ | 40,000 | | | 0.91% - 2.59% | | 1.49% | | $ | 50,411 | | | 0.91% - 4.13% | | 1.78% |
| | $ | 40,000 | | | | | | | $ | 70,411 | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | March 31, 2024 | | December 31, 2023 |
| | Amount | | Rate | | | | Amount | | Rate | | |
| Variable rate line-of-credit advance | | $ | 144,810 | | | 5.53% | | | | $ | 389,468 | | | 5.55% | | |
| | | | | | | | | | | | |
| | | | | | | | | | | | |
The advances were collateralized by $930,581$1,732,458 and $943,376$1,674,096 of loans pledged to the FHLB as collateral as of June 30, 2021March 31, 2024 and December 31, 2020,2023, respectively.
Future maturities of our FHLB borrowings is as follows:
| | | | | | | | |
| 2022 | | $ | 10,000 | |
| | |
| | |
| 2025 | | 20,000 | |
| | |
| Thereafter | | 10,000 | |
| Total | | $ | 40,000 | |
As of June 30, 2021March 31, 2024 and December 31, 2020,2023, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of $749,936$1,205,586 and $702,540,$1,192,022, respectively. Our additional borrowing availability with the FHLB at June 30, 2021March 31, 2024 was $611,842.$960,297. These borrowings can be in the form of additional term advances or a line-of-credit.
FRB advances:
We also had a $10,669$2,023,853 line-of-credit with the FRB. The agreement bears interest at the Fed Funds target rate plus 0.50% and is secured by municipal, agency, mortgage-related$2,547,025 of investment securities and corporate securities. The entire line was available at June 30, 2021.loans pledged to the FRB as collateral. No amounts were drawn on the line-of-credit as of March 31, 2024.
Other borrowings:
We have lines-of-credit with certain other financial institutions totaling $95,000$160,000 as of June 30, 2021.March 31, 2024. No amounts were drawn on these lines-of-credit in 2021.at March 31, 2024.
Subordinated Debt
ConvertibleSubordinated Notes Payable:
We have issued a total of $20,673 of convertible notes with a maturity date of August 31, 2023. The annual interest rate on these convertible notes is 3.29% with quarterly interest payments. With respect to conversion, each $1 (in thousands) principal amount of the convertible notes can be converted to 15.6717 shares of Parent Company common stock at any time until maturity.
The convertible notes were originally recorded with a discount of $4,682. As of and for the periods ended June 30, 2021 and December 31,- 2020 the debt discount on the convertible notes totaled $1,604 and $1,977, respectively. The related accretion for the three months ended June 30, 2021 and 2020 was $186 and $187, respectively. The related accretion for the six months ended June 30, 2021 and 2020 was $373 and $376, respectively.
Subordinated Debt:
Subordinated Notes:
In June and August 2020, we issued a total of $40,000 subordinated notes. The notes pay interest at a fixed rate of 6.00% through June 30, 2025 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 5.89%, reset quarterly. Interest is payable on July 1 and January 1 of each year. Such notes are due on July 1, 2030. The notes are not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the notes at our discretion.
We incurred and capitalized $933 of costs related to the issuance of the subordinated notes. As of and for the three and six months ended June 30, 2021, theThe amortization associated with the debtcapitalized issuance costs totaled $24is not significant for the periods presented.
Subordinated Note - 2022
On January 13, 2022, we issued a subordinated note totaling $25,000. The note pays interest at a fixed rate of 3.375% through January 15, 2027 and $47.subsequently, until maturity, pays interest at a floating rate of three month term SOFR plus 2.03%, reset quarterly. Interest is payable on July 15 and January 15 of each year. Such note is due on January 15, 2032. The note is not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the note at our discretion. We incurred and capitalized $534 of costs related to the issuance of the subordinated note. The amortization associated with the capitalized issuance costs is not significant for the periods presented.
Trust preferred securities:
We have issued $9,279 in trust preferred securities through a special-purpose trust, New Mexico Banquest Capital Trust I (“NMBCT I”). In addition, we have issued $4,640 in trust preferred securities through a special purpose trust, New Mexico Banquest Capital Trust II (“NMBCT II”, and together with NMBCT I, collectively referred to as “NMBCT Trusts”). Interest is payable quarterly at a rate of three-month term SOFR (three-month LIBOR as of March 31, 2023) plus 3.35% (3.55%(8.91% and 4.72%8.08% as of June 30, 2021March 31, 2024 and 2020,2023, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month term SOFR (three-month LIBOR as of March 31, 2023) plus 2.00% (2.15%(7.58% and 2.36%6.92% as of June 30, 2021March 31, 2024 and 2020,2023, respectively) for the trust preferred securities issued through NMBCT II.
This subordinated debt of $13,919 was originally recorded at a discount of $4,293. As of and for the three months ended June 30, 2021 and 2020,The accretion associated with the fair value discount totaled $64, respectively. As of andis not significant for the six months ended June 30, 2021 and 2020, accretion associated with the fair value discount totaled $129, respectively.periods presented.
The Parent Company fully and unconditionally guarantees the obligations of the NMBCT Trusts on a subordinated basis. The trust preferred securities issued through the NMBCT Trusts are mandatorily redeemable upon the maturity of the debentures on December 19, 2032 and November 23, 2034, respectively, and are optionally redeemable, in part or in whole, by the Parent Company at each quarterly interest payment date. The Parent Company owns all of the outstanding common securities of the NMBCT Trusts, which have an aggregate liquidation valuation amount of $419 and is recorded in prepaid expenses and other assets on the consolidated balance sheet. The NMBCT Trusts are considered variable interest entities. Since the Parent Company is not the primary beneficiary of the NMBCT Trusts, the financial statements of the NMBCT Trusts are not included in our consolidated financial statements.
NOTE 9.9 - Earnings Per Share
Basic earnings per share, excluding dilution, is computed by dividing earnings available to common stockholders’ by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock or resulted in the issuance of common stock that could then share in our earnings.
The following table sets forth the computation of basic and diluted earnings per share of common stock:
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| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Net income applicable to common stockholders | | $ | 11,281 | | | $ | 14,398 | | | $ | 25,619 | | | $ | 21,571 | |
| Weighted Average Shares | | | | | | | | |
| Weighted average common shares outstanding | | 18,321,659 | | | 18,319,324 | | | 18,321,659 | | | 18,330,479 | |
| Effect of dilutive securities | | | | | | | | |
| Stock-based awards | | 439,375 | | | — | | | 401,169 | | | — | |
| Weighted average diluted common shares | | 18,761,034 | | | 18,319,324 | | | 18,722,828 | | | 18,330,479 | |
| | | | | | | | |
| Earnings per common share | | | | | | | | |
| Basic earnings per common share | | $ | 0.62 | | | $ | 0.79 | | | $ | 1.40 | | | $ | 1.18 | |
| Effect of dilutive securities | | | | | | | | |
| Stock-based awards | | (0.02) | | | — | | | (0.03) | | | — | |
| Diluted earnings per common share | | $ | 0.60 | | | $ | 0.79 | | | $ | 1.37 | | | $ | 1.18 | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Net income applicable to common stockholders | $ | 12,296 | | | $ | 26,281 | | | | | | | | | |
| Weighted Average Shares | | | | | | | | | | | |
| Weighted average common shares outstanding | 27,019,625 | | | 24,923,259 | | | | | | | | | |
| Effect of dilutive securities | | | | | | | | | | | |
| Stock-based awards | 609,316 | | | 564,323 | | | | | | | | | |
| | | | | | | | | | | |
| Weighted average diluted common shares | 27,628,941 | | | 25,487,582 | | | | | | | | | |
| Earnings per common share | | | | | | | | | | | |
| Basic earnings per common share | $ | 0.46 | | | $ | 1.05 | | | | | | | | | |
| Effect of dilutive securities | | | | | | | | | | | |
| Stock-based awards | (0.01) | | | (0.02) | | | | | | | | | |
| Diluted earnings per common share | $ | 0.45 | | | $ | 1.03 | | | | | | | | | |
Convertible notes payable for 323,98485,500 shares of common stock were not considered in computing diluted earnings per share for the three and six months ended June 30, 2021 and 2020March 31, 2023, because they were antidilutive. Stock-based awards of 406,819 and 202,514 shares were antidilutive for
NOTE 10 - Accumulated Other Comprehensive Income (Loss)
The following table sets forth the three and six months ended June 30, 2020, respectively.components in accumulated other comprehensive income (loss):
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Securities available-for-sale: | | | | | | | | | | | |
| Balance, beginning of period | $ | (45,399) | | | $ | (46,157) | | | | | | | | | |
| Unrealized (loss) gain | (7,538) | | | 3,006 | | | | | | | | | |
| Income tax effect | 1,843 | | | (735) | | | | | | | | | |
| Net unrealized(loss) gain | (5,695) | | | 2,271 | | | | | | | | | |
| | | | | | | | | | | |
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| Balance, end of period | $ | (51,094) | | | $ | (43,886) | | | | | | | | | |
| | | | | | | | | | | |
| Fair value hedges of securities available-for-sale: | | | | | | | | | | | |
| Balance, beginning of period | $ | 2,392 | | | $ | 2,174 | | | | | | | | | |
| Unrealized gain (loss) | 1,272 | | | (906) | | | | | | | | | |
| Income tax effect | (311) | | | 222 | | | | | | | | | |
| Net unrealized gain (loss) | 961 | | | (684) | | | | | | | | | |
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| Balance, end of period | $ | 3,353 | | | $ | 1,490 | | | | | | | | | |
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NOTE 10.11 - Stockholders’ Equity
As of March 31, 2024 and December 31, 2023, the Company has 10,000,000 shares of preferred stock authorized, $0.0001 par value, of which none were issued or outstanding, respectively.
As of March 31, 2024 and December 31, 2023, the Company has 50,000,000 shares of common stock authorized, $0.0001 par value, of which 27,442,943 and 24,960,639 shares were issued and outstanding, respectively.
Upfront Securities Purchase Agreement
On January 16, 2024 in accordance with the Upfront Securities Purchase Agreement, we issued we 2,461,538 shares of our common stock in a private placement for $80.0 million. For additional details see Upfront Securities Purchase Agreement in Note 1 - Organization and Basis of Presentation. Equity Incentive PlanPlans:
We have established the FirstSun Capital Bancorp2017 Equity Incentive Plan
The 2017 Equity Incentive Plan (the Plan). The Plan“2017 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants for up to 1,977,292 shares of FirstSun common stock in the aggregate.
A summary ofThe following table presents stock option activity under the Planoptions outstanding as of June 30, 2021, and changes during the period then ended is presented below:
| | | | | | | | | | | | | | | | | | | | |
| | Shares | | Weighted-Average Exercise Price, per Share | | Weighted-Average Remaining Contractual Term (years) |
| For the six months ended June 30, 2021 | | | | | | |
| Outstanding, beginning of period | | 1,428,940 | | | $ | 19.97 | | | |
| Exercised | | — | | | — | | | |
| Granted | | 26,336 | | | 32.54 | | | |
| Forfeited | | (40,402) | | | 20.32 | | | |
| Outstanding, end of period | | 1,414,874 | | | $ | 20.19 | | | 6.72 |
| Options vested or expected to vest | | 1,414,874 | | | $ | 20.19 | | | |
| Options exercisable, end of period | | 1,170,836 | | | $ | 19.90 | | | 6.39 |
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Forfor the three months ended June 30, 2021 and 2020, we recorded total compensation cost of $576 and $607, respectively related toMarch 31, 2024.
| | | | | | | | | | | | | | | | | |
| Shares | | Weighted-Average Exercise Price, per Share | | Weighted-Average Remaining Contractual Term (years) |
| | | | | |
| Outstanding, beginning of period | 1,245,000 | | | $ | 20.25 | | | |
| Exercised | (26,943) | | | 19.72 | | | |
| | | | | |
| | | | | |
| Outstanding, end of period | 1,218,057 | | | $ | 20.27 | | | 4.06 |
| Options vested or expected to vest | 1,218,057 | | | $ | 20.27 | | | |
| Options exercisable, end of period | 1,211,582 | | | $ | 20.20 | | | 4.04 |
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There were no grants or forfeitures during the Plan. For the sixthree months ended June 30, 2021 and 2020, we recorded total compensation cost of $1,153 and $1,226, respectively, related to the Plan.
At June 30, 2021,March 31, 2024, there was $1,737$89 of total unrecognized compensation cost related to non-vested stock options granted under the Plan.options. The unrecognized compensation cost at June 30, 2021March 31, 2024 is expected to be recognized over the following 3.92two years. At June 30, 2021 and DecemberMarch 31, 2020,2024 the intrinsic value of the stock options was $16,368$18,154.
2021 Equity Incentive Plan
The FirstSun Capital Bancorp 2021 Equity Incentive Plan (the “2021 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock and $10,660, respectively.other stock awards to its employees, directors and consultants for up to 2,476,571 shares of FirstSun common stock in the aggregate. Additionally, we established the FirstSun Capital Bancorp Long-Term Incentive Plan (“LTIP”), which became effective April 1, 2022. The LTIP is intended to qualify as a “top-hat” plan under ERISA that is unfunded and provides benefits only to a select group of management or highly compensated employees of FirstSun or the Bank.
In March 2024, we granted special restricted stock awards of 424,098 shares to certain officers of the Company for (i) retention purposes and (ii) to incentivize them in their efforts to work towards both a timely and efficient consummation of our merger with HomeStreet and a successful post-closing integration of the two companies. These awards are subject to and conditioned upon closing of the merger with HomeStreet, provided that if the closing of the merger does not occur, the awards will be cancelled. Because the special restricted stock awards are contingent upon the closing of the merger with HomeStreet, no expense has been incurred during the three months ended March 31, 2024. These awards will vest one-third per year over a three-year period, provided that the officer continues to provide services to the Company on the applicable vesting date, with accelerated vesting upon death, disability, or termination by the Company under certain conditions.
In May 2023, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2026. At March 31, 2024, we determined it is probable that 64,455 shares will be issued based upon the probability that the performance conditions will be achieved. At March 31, 2024, there was $1,222 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.
In May 2022, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2025. At March 31, 2024, we determined it is probable that 52,795 shares will be issued based upon the probability that the performance conditions will be achieved. At March 31, 2024, there was $628 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.
For the three months ended March 31, 2024 and 2023, we recorded total compensation cost from the 2017 and 2021 Plans of $492 and $426, respectively.
Acquired Equity Incentive Plans
In conjunction with a previous acquisition, we assumed certain options that had been granted under such option plans. All assumed options were fully vested and exercisable. No further options will be granted under the plans. The following table presents stock options outstanding as of and for the three months ended March 31, 2024.
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| | | |
| Shares | | Weighted-Average Exercise Price, per Share | | Weighted-Average Remaining Contractual Term (years) | | | | | | |
| | | | | | | | | | | |
| Outstanding, beginning of period | 121,901 | | | $ | 23.26 | | | | | | | | | |
| | | | | | | | | | | |
| Exercised | (522) | | | 17.24 | | | | | | | | | |
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| Outstanding, vested, and exercisable, end of period | 121,379 | | | $ | 23.29 | | | 3.64 | | | | | | |
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At March 31, 2024 the intrinsic value of the stock options was $1,446.
NOTE 11.12 - Income Taxes
The provision for income taxes in interim periods requires us to make a bestan estimate of the effective tax rate expected to be applicable for the full year, adjusted for any discrete items for the applicable period. This estimated effective tax rate is then applied to interim consolidated pre-tax operating income to determine the interim provision for income taxes.
The following table presents our provision for income tax and effective tax provision rate:is summarized as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Provision for income taxes | | $ | 2,178 | | | $ | 3,446 | | | $ | 5,308 | | | $ | 4,577 | |
| Effective tax provision rate | | 16.2 | % | | 19.3 | % | | 17.2 | % | | 17.5 | % |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Provision for income taxes | $ | 2,990 | | | $ | 7,141 | | | | | | | | | |
| Effective tax provision rate | 19.6 | % | | 21.4 | % | | | | | | | | |
We do not believe that we have any material uncertain tax positions, and do not expect any material changes during the next twelve months.
NOTE 12.13 - Regulatory Capital Matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.
Under the Basel III rules, the Parent Company and the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The fully phased in capital conservation buffer is 2.50% for all periods presented.
The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of June 30, 2021,March 31, 2024, both the Parent Company and the Bank met all capital adequacy requirements to which they were subject.
Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.
Actual and required capital amounts at year end for the Parent Company are as follows:follows as of:
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| | Actual | | For Capital
Adequacy Purposes | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| As of June 30, 2021 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 537,350 | | | 12.44 | % | | $ | 345,438 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 444,043 | | | 10.28 | % | | $ | 259,078 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 444,043 | | | 10.28 | % | | $ | 194,309 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | | $ | 444,043 | | | 8.21 | % | | $ | 216,452 | | | 4.00 | % | | N/A | | N/A |
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| As of December 31, 2020 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 513,949 | | | 12.19 | % | | $ | 337,327 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 416,029 | | | 9.87 | % | | $ | 252,995 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 416,029 | | | 9.87 | % | | $ | 189,746 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | | $ | 416,029 | | | 8.53 | % | | $ | 195,074 | | | 4.00 | % | | N/A | | N/A |
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| Actual | | For Capital
Adequacy Purposes | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| March 31, 2024 | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | $ | 1,045,877 | | | 14.73 | % | | $ | 567,975 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | $ | 890,558 | | | 12.54 | % | | $ | 425,982 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | $ | 890,558 | | | 12.54 | % | | $ | 319,486 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | $ | 890,558 | | | 11.73 | % | | $ | 303,585 | | | 4.00 | % | | N/A | | N/A |
| December 31, 2023 | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | $ | 953,331 | | | 13.25 | % | | $ | 575,434 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | $ | 798,167 | | | 11.10 | % | | $ | 431,575 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | $ | 798,167 | | | 11.10 | % | | $ | 323,682 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | $ | 798,167 | | | 10.52 | % | | $ | 303,410 | | | 4.00 | % | | N/A | | N/A |
Actual and required capital amounts at year end for the Bank are as follows:follows as of:
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| | Actual | | For Capital
Adequacy Purposes | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions |
| | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| As of June 30, 2021 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 543,215 | | | 12.62 | % | | $ | 344,351 | | | 8.00 | % | | $ | 430,439 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 499,749 | | | 11.61 | % | | $ | 258,263 | | | 6.00 | % | | $ | 344,351 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 499,749 | | | 11.61 | % | | $ | 193,697 | | | 4.50 | % | | $ | 279,785 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | | $ | 499,749 | | | 9.24 | % | | $ | 216,396 | | | 4.00 | % | | $ | 270,495 | | | 5.00 | % |
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| As of December 31, 2020 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 517,077 | | | 12.30 | % | | $ | 336,276 | | | 8.00 | % | | $ | 420,345 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 468,823 | | | 11.15 | % | | $ | 252,207 | | | 6.00 | % | | $ | 336,276 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 468,823 | | | 11.15 | % | | $ | 189,155 | | | 4.50 | % | | $ | 273,224 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | | $ | 468,823 | | | 9.62 | % | | $ | 195,008 | | | 4.00 | % | | $ | 243,760 | | | 5.00 | % |
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| Actual | | For Capital
Adequacy Purposes | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions |
| Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| March 31, 2024 | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | $ | 933,996 | | | 13.18 | % | | $ | 566,996 | | | 8.00 | % | | $ | 708,745 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | $ | 854,122 | | | 12.05 | % | | $ | 425,247 | | | 6.00 | % | | $ | 566,996 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | $ | 854,122 | | | 12.05 | % | | $ | 318,935 | | | 4.50 | % | | $ | 460,684 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | $ | 854,122 | | | 11.27 | % | | $ | 303,044 | | | 4.00 | % | | $ | 378,805 | | | 5.00 | % |
| December 31, 2023 | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | $ | 918,050 | | | 12.79 | % | | $ | 574,280 | | | 8.00 | % | | $ | 717,850 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | $ | 838,199 | | | 11.68 | % | | $ | 430,710 | | | 6.00 | % | | $ | 574,280 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | $ | 838,199 | | | 11.68 | % | | $ | 323,033 | | | 4.50 | % | | $ | 466,603 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | $ | 838,199 | | | 11.05 | % | | $ | 303,321 | | | 4.00 | % | | $ | 379,151 | | | 5.00 | % |
NOTE 13.14 - Fair Value Measurements
We utilize fair value measurements to record or disclose the fair value on certain assets and liabilities. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation models rely on market-based parameters when available, such as interest rate yield curves or credit spreads. Unobservable inputs may be based on management’s judgement assumptions and estimates related to credit quality, our future earnings, interest rates and other relevant inputs. These valuation methods require considerable judgement and the resulting estimates of fair value can be significantly affected by the assumptions made and the methods used.
ASC Topic 820 establishes a three-level valuation hierarchy for disclosure of fair value measurements. The hierarchy is based on the transparency of the inputs used in the valuation process with the highest priority given to quoted prices available in active markets and the lowest priority to unobservable inputs where no active market exists. The three levels of inputs that may be used to measure fair value are as follows:
Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
Level 3: Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own beliefs about the assumptions that market participants would use in pricing the assets or liabilities.
A financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input within the valuation hierarchy that is significant to the overall fair value measurement. Transfers between levels of the fair value hierarchy are recognized at the end of the reporting period.
The following table sets forth our assets and liabilities measured at fair value on a recurring basis:basis as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | |
| | Quoted prices
in active
markets for
identical
assets | | Significant
other
observable
inputs | | Significant
unobservable
inputs | | Total
Estimated
Fair
Value |
| As of June 30, 2021 | | | | | | | | |
| Available-for-sale securities | | $ | 20,576 | | | $ | 488,399 | | | $ | — | | | $ | 508,975 | |
| Loans held-for-sale | | — | | | 136,999 | | | — | | | 136,999 | |
| Mortgage servicing rights | | — | | | — | | | 40,844 | | | 40,844 | |
| Derivative financial instruments - assets | | — | | | 14,737 | | | — | | | 14,737 | |
| Derivative financial instruments - liabilities | | — | | | (20,000) | | | — | | | (20,000) | |
| Total | | $ | 20,576 | | | $ | 620,135 | | | $ | 40,844 | | | $ | 681,555 | |
| | | | | | | | |
| As of December 31, 2020 | | | | | | | | |
| Available-for-sale securities | | $ | — | | | $ | 468,586 | | | $ | — | | | $ | 468,586 | |
| Loans held-for-sale | | — | | | 193,963 | | | — | | | 193,963 | |
| Mortgage servicing rights | | — | | | — | | | 29,144 | | | 29,144 | |
| Derivative financial instruments - assets | | — | | | 18,332 | | | — | | | 18,332 | |
| Derivative financial instruments - liabilities | | — | | | (30,792) | | | — | | | (30,792) | |
| Total | | $ | — | | | $ | 650,089 | | | $ | 29,144 | | | $ | 679,233 | |
No assets or liabilities were valued on a recurring basis at Level 1 as of December 31, 2020, nor were there any transfers between Level 2 and Level 3 during the six months ended June 30, 2021 and the year ended December 31, 2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | |
| Quoted prices
in active
markets for
identical
assets | | Significant
other
observable
inputs | | Significant
unobservable
inputs | | Total
Estimated
Fair
Value |
| March 31, 2024 | | | | | | | |
| Available-for-sale securities | $ | 48,078 | | | $ | 451,000 | | | $ | — | | | $ | 499,078 | |
| Loans held-for-sale | — | | | 56,813 | | | — | | | 56,813 | |
| Mortgage servicing rights | — | | | — | | | 78,416 | | | 78,416 | |
| Derivative financial instruments - assets | — | | | 40,279 | | | — | | | 40,279 | |
| Derivative financial instruments - liabilities | — | | | (23,206) | | | — | | | (23,206) | |
| Total | $ | 48,078 | | | $ | 524,886 | | | $ | 78,416 | | | $ | 651,380 | |
| | | | | | | |
| December 31, 2023 | | | | | | | |
| Available-for-sale securities | $ | 54,234 | | | $ | 462,523 | | | $ | — | | | $ | 516,757 | |
| Loans held-for-sale | — | | | 54,212 | | | — | | | 54,212 | |
| Mortgage servicing rights | — | | | — | | | 76,701 | | | 76,701 | |
| Derivative financial instruments - assets | — | | | 35,073 | | | — | | | 35,073 | |
| Derivative financial instruments - liabilities | — | | | (20,475) | | | — | | | (20,475) | |
| Total | $ | 54,234 | | | $ | 531,333 | | | $ | 76,701 | | | $ | 662,268 | |
The following table presents a reconciliation for our Level 3 assets measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, |
| | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Balance, beginning of period | | $ | 39,342 | | | $ | 19,793 | | | $ | 29,144 | | | $ | 29,003 | |
| Total losses included in earnings | | (4,623) | | | (2,462) | | | (1,530) | | | (14,468) | |
| Purchases, issuances, sales and settlements: | | | | | | | | |
| | | | | | | | |
| Issuances | | 6,125 | | | 6,469 | | | 13,230 | | | 9,265 | |
| | | | | | | | |
| | | | | | | | |
| Balance, end of period | | $ | 40,844 | | | $ | 23,800 | | | $ | 40,844 | | | $ | 23,800 | |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| 2024 | | 2023 | | | | | | | | |
| Balance, beginning of period | $ | 76,701 | | | $ | 74,097 | | | | | | | | | |
| Total losses included in earnings | (316) | | | (2,720) | | | | | | | | | |
| Purchases, issuances, sales and settlements: | | | | | | | | | | | |
| | | | | | | | | | | |
| Issuances | 2,031 | | | 2,047 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Balance, end of period | $ | 78,416 | | | $ | 73,424 | | | | | | | | | |
Certain financial assets and financial liabilities are regularly measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when therecircumstances. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is evidence of impairment).expected solely from the collateral and other real estate owned and foreclosed assets, which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses, and subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of:
| | | | | | | | | | | | | | |
| | Level 3 |
| | June 30, 2021 | | December 31, 2020 |
| Impaired loans: | | | | |
| Commercial | | $ | 4,780 | | | $ | 3,469 | |
| Commercial real estate | | 76 | | | 84 | |
| Residential real estate | | 1,682 | | | 601 | |
| | | | |
| Total impaired loans | | $ | 6,538 | | | $ | 4,154 | |
| | | | |
| Other real estate owned and foreclosed assets, net: | | | | |
| | | | |
| Commercial real estate | | $ | 4,004 | | | $ | 3,354 | |
| Residential real estate | | 9 | | | — | |
| | | | |
| Total other real estate owned and foreclosed assets, net: | | $ | 4,013 | | | $ | 3,354 | |
| | | | | | | | | | | |
| Level 3 |
| March 31,
2024 | | December 31,
2023 |
| Collateral dependent loans: | | | |
| Commercial and industrial | $ | 7,126 | | | $ | 2,756 | |
| | | |
| Residential real estate | 1,098 | | | 1,448 | |
| | | |
| | | |
| Other | 2,289 | | | 2,289 | |
| Total collateral dependent loans | $ | 10,513 | | | $ | 6,493 | |
| | | |
| Other real estate owned and foreclosed assets, net: | | | |
| | | |
| Commercial real estate | $ | 3,133 | | | $ | 3,133 | |
| Residential real estate | 1,281 | | | 967 | |
| | | |
| Total other real estate owned and foreclosed assets, net: | $ | 4,414 | | | $ | 4,100 | |
The fair value of the financial assets in the table above utilize the market approach valuation technique, with discount adjustments for differences between comparable sales.
Fair value of financial instruments not carried at fair value:
The carrying amounts and estimated fair values of financial instruments not carried at fair value are as follows:follows as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Estimated Fair Value |
| | Carrying
Value | | Total | | Level 1 | | Level 2 | | Level 3 |
| As of June 30, 2021 | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 840,600 | | | $ | 840,600 | | | $ | 840,600 | | | $ | — | | | $ | — | |
| Securities held-to-maturity | | 21,894 | | | 22,781 | | | — | | | 22,781 | | | — | |
| Loans (excluding impaired loans) | | 3,760,653 | | | 3,715,618 | | | — | | | — | | | 3,715,618 | |
| Restricted equity securities | | 17,815 | | | 17,815 | | | — | | | 17,815 | | | — | |
| Accrued interest receivable | | 14,599 | | | 14,599 | | | — | | | 1,085 | | | 13,514 | |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Deposits (excluding demand deposits) | | $ | 3,194,746 | | | $ | 3,203,052 | | | $ | — | | | $ | 3,203,052 | | | $ | — | |
| Securities sold under agreements to repurchase | | 113,786 | | | 113,786 | | | — | | | 113,786 | | | — | |
| FHLB advances | | 40,000 | | | 41,821 | | | — | | | 41,821 | | | — | |
| | | | | | | | | | |
| Convertible notes payable, net | | 19,069 | | | 21,201 | | | — | | | 21,201 | | | — | |
| Subordinated debt, net | | 49,841 | | | 52,099 | | | — | | | 52,099 | | | — | |
| Accrued interest payable | | 1,246 | | | 1,246 | | | — | | | 1,246 | | | — | |
| | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | | |
| Assets: | | | | | | | | | | |
| Cash and cash equivalents | | $ | 201,978 | | | $ | 201,978 | | | $ | 201,978 | | | $ | — | | | $ | — | |
| Securities held-to-maturity | | 32,188 | | | 33,328 | | | — | | | 33,328 | | | — | |
| Loans (excluding impaired loans) | | 3,820,483 | | | 3,780,649 | | | — | | | — | | | 3,780,649 | |
| Restricted equity securities | | 23,175 | | | 23,175 | | | — | | | 23,175 | | | — | |
| Accrued interest receivable | | 15,416 | | | 15,416 | | | — | | | 986 | | | 14,430 | |
| | | | | | | | | | |
| Liabilities: | | | | | | | | | | |
| Deposits (excluding demand deposits) | | $ | 2,934,221 | | | $ | 2,947,287 | | | $ | — | | | $ | 2,947,287 | | | $ | — | |
| Securities sold under agreements to repurchase | | 115,372 | | | 115,372 | | | — | | | 115,372 | | | — | |
| FHLB advances | | 70,411 | | | 72,770 | | | — | | | 72,770 | | | — | |
| | | | | | | | | | |
| Convertible notes payable, net | | 18,696 | | | 20,804 | | | — | | | 20,804 | | | — | |
| Subordinated debt, net | | 49,666 | | | 49,750 | | | — | | | 49,750 | | | — | |
| Accrued interest payable | | 2,592 | | | 2,592 | | | — | | | 2,592 | | | — | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | Estimated Fair Value |
| Carrying
Value | | Total | | Level 1 | | Level 2 | | Level 3 |
| March 31, 2024 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 383,605 | | | $ | 383,605 | | | $ | 383,605 | | | $ | — | | | $ | — | |
| Securities held-to-maturity | 36,640 | | | 31,035 | | | — | | | 31,035 | | | — | |
| Loans (excluding collateral dependent loans at fair value) | 6,274,355 | | | 6,150,693 | | | — | | | — | | | 6,150,693 | |
| Restricted equity securities | 27,080 | | | 27,080 | | | — | | | 27,080 | | | — | |
| Accrued interest receivable | 35,868 | | | 35,868 | | | — | | | 2,517 | | | 33,351 | |
| | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Deposits (excluding demand deposits) | $ | 4,385,889 | | | $ | 4,377,620 | | | $ | 2,512,436 | | | $ | 1,865,184 | | | $ | — | |
| Securities sold under agreements to repurchase | 20,423 | | | 20,423 | | | — | | | 20,423 | | | — | |
| FHLB advances | 144,810 | | | 144,810 | | | — | | | 144,810 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Subordinated debt, net | 75,445 | | | 71,959 | | | — | | | 71,959 | | | — | |
| Accrued interest payable | 12,031 | | | 12,031 | | | — | | | 12,031 | | | — | |
| December 31, 2023 | | | | | | | | | |
| Assets: | | | | | | | | | |
| Cash and cash equivalents | $ | 479,362 | | | $ | 479,362 | | | $ | 479,362 | | | $ | — | | | $ | — | |
| Securities held-to-maturity | 36,983 | | | 32,181 | | | — | | | 32,181 | | | — | |
| Loans (excluding collateral dependent loans at fair value) | 6,260,603 | | | 6,121,749 | | | — | | | — | | | 6,121,749 | |
| Restricted equity securities | 38,072 | | | 38,072 | | | — | | | 38,072 | | | — | |
| Accrued interest receivable | 37,099 | | | 37,099 | | | — | | | 2,220 | | | 34,879 | |
| | | | | | | | | |
| Liabilities: | | | | | | | | | |
| Deposits (excluding demand deposits) | $ | 4,309,057 | | | $ | 4,298,164 | | | $ | 2,503,451 | | | $ | 1,794,713 | | | $ | — | |
| Securities sold under agreements to repurchase | 24,693 | | | 24,693 | | | — | | | 24,693 | | | — | |
| FHLB advances | 389,468 | | | 389,468 | | | — | | | 389,468 | | | — | |
| | | | | | | | | |
| | | | | | | | | |
| Subordinated debt, net | 75,313 | | | 72,073 | | | — | | | 72,073 | | | — | |
| Accrued interest payable | 13,580 | | | 13,580 | | | — | | | 13,580 | | | — | |
NOTE 14.15 - Segment Information
Our operations are conducted through 2two operating segments: Banking and Mortgage Operations. Corporate represents costs not allocated to the operating segments. Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses are incurred for which discrete financial information is available that is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Operating segments have been determined based on the products and services offered and reflect the manner in which financial information is currently evaluated by management. Each segment operates under the same banking charter, but is reported on a segmented basis for this report. Each of the operating segments is complementary to each other and because of the
interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
The Banking segment originates loans and provides deposits and fee based services to consumer, business, and mortgage lending customers. Products offered include a full range of commercial and consumer banking and financial services. The interest income on loans held-for-investment is recognized in the Banking segment, excluding newly originated residential first mortgages within the Mortgage Operations segment.
The Mortgage Operations segment originates, sells, services, and manages market risk from changes in interest rates on one-to-four family residential mortgage loans to sell or hold on our balance sheet. Loans originated-to-sell comprise the majority of the lending activity. The Mortgage Operations segment recognizes interest income on loans that are held-for-sale and newly originated residential mortgages held-for-investment, the gains from one to four family residential mortgage sales, and revenue for servicing loans and other ancillary fees following a sales transaction. Revenue from servicing activities is earned on a contractual fee basis. The Mortgage Operations segment services loans for the held-for-investment portfolio, for which it earns revenue via an intercompany service fee allocation which appears as a cost to Banking in mortgage fees. Forward traded loan purchases and sales settlements as well as mortgage servicing rights and related fair value adjustments are reported in this segment.
Corporate represents miscellaneous other expenses of a corporate nature as well as revenue and expenses not directly assigned or allocated to the Banking or Mortgage Operations segments. The majority of executive management’s time is spent managing operating segments; related costs have been allocated between the operating segments and Corporate.
Revenues are comprised of net interest income before the provision (benefit) for loancredit losses and non-interestnoninterest income. Noninterest expenses are allocated to each operating segment. Provision for loancredit losses is primarily allocated to the Banking segment. Allocation methodologies may be subject to periodic adjustment as management systems evolve and/or the business or product lines within the segments change.
Significant segment totals are reconciled to the financial statements as follows for the three months ended June 30,March 31,:
| | Banking | | | Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2024 | |
| Summary of Operations | |
| Summary of Operations | |
| Summary of Operations | |
| Net interest income (loss) | |
| Net interest income (loss) | |
| Net interest income (loss) | |
| | Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2021 | | | | | | | | |
| Summary of Operations | |
| Net interest income (expense) | | $ | 35,511 | | | $ | 2,024 | | | $ | (1,135) | | | $ | 36,400 | |
| | Benefit from loan losses | | (1,331) | | | (69) | | | — | | | (1,400) | |
| Provision (benefit) for credit losses | |
| Provision (benefit) for credit losses | |
| Provision (benefit) for credit losses | |
| | Noninterest income: | Noninterest income: | |
| Noninterest income: | |
| Noninterest income: | |
| Service charges on deposit accounts | |
| Service charges on deposit accounts | |
| Service charges on deposit accounts | Service charges on deposit accounts | | 2,645 | | | — | | | — | | | 2,645 | |
| Credit and debit card fees | Credit and debit card fees | | 2,544 | | | — | | | — | | | 2,544 | |
| Trust and investment advisory fees | Trust and investment advisory fees | | 1,992 | | | — | | | — | | | 1,992 | |
| (Loss) income from mortgage banking services, net | | (671) | | | 23,607 | | | — | | | 22,936 | |
| Income from mortgage banking services, net | |
| Other noninterest income | Other noninterest income | | 2,167 | | | (1) | | | — | | | 2,166 | |
| Total noninterest income | Total noninterest income | | 8,677 | | | 23,606 | | | — | | | 32,283 | |
| | Noninterest expense: | Noninterest expense: | |
| Noninterest expense: | |
| Noninterest expense: | |
| Salary and employee benefits | Salary and employee benefits | | 24,335 | | | 13,799 | | | 315 | | | 38,449 | |
| Occupancy | | 5,775 | | | 751 | | | 1 | | | 6,527 | |
| Salary and employee benefits | |
| Salary and employee benefits | |
| Occupancy and equipment | |
| Other noninterest expenses | Other noninterest expenses | | 7,188 | | | 3,145 | | | 1,315 | | | 11,648 | |
| Total noninterest expense | Total noninterest expense | | 37,298 | | | 17,695 | | | 1,631 | | | 56,624 | |
| | Income (loss) before income taxes | Income (loss) before income taxes | | $ | 8,221 | | | $ | 8,004 | | | $ | (2,766) | | | $ | 13,459 | |
| Income (loss) before income taxes | |
| Income (loss) before income taxes | |
| | Other Information | Other Information | |
| Other Information | |
| Other Information | |
| Depreciation expense | |
| Depreciation expense | |
| Depreciation expense | Depreciation expense | | $ | 1,413 | | | $ | 177 | | | $ | — | | | $ | 1,590 | |
| Identifiable assets | Identifiable assets | | $ | 4,950,341 | | | $ | 577,798 | | | $ | 34,937 | | | $ | 5,563,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2020 | | | | | | | | |
| Summary of Operations | | | | | | | | |
| Net interest income (expense) | | $ | 31,304 | | | $ | 2,208 | | | $ | (633) | | | $ | 32,879 | |
| | | | | | | | |
| Provision for (benefit from) loan losses | | 7,552 | | | (52) | | | — | | | 7,500 | |
| | | | | | | | |
| Noninterest income: | | | | | | | | |
| Service charges on deposit accounts | | 1,966 | | | — | | | — | | | 1,966 | |
| Credit and debit card fees | | 1,909 | | | — | | | — | | | 1,909 | |
| Trust and investment advisory fees | | 967 | | | — | | | — | | | 967 | |
| (Loss) income from mortgage banking services, net | | (628) | | | 38,843 | | | — | | | 38,215 | |
| Other noninterest income | | 1,088 | | | — | | | — | | | 1,088 | |
| Total noninterest income | | 5,302 | | | 38,843 | | | — | | | 44,145 | |
| | | | | | | | |
| Noninterest expense: | | | | | | | | |
| Salary and employee benefits | | 21,844 | | | 14,105 | | | 282 | | | 36,231 | |
| Occupancy | | 5,440 | | | 915 | | | 1 | | | 6,356 | |
| Other noninterest expenses | | 6,000 | | | 2,892 | | | 201 | | | 9,093 | |
| Total noninterest expense | | 33,284 | | | 17,912 | | | 484 | | | 51,680 | |
| | | | | | | | |
| (Loss) income before income taxes | | $ | (4,230) | | | $ | 23,191 | | | $ | (1,117) | | | $ | 17,844 | |
| | | | | | | | |
| Other Information | | | | | | | | |
| Depreciation expense | | $ | 1,211 | | | $ | 199 | | | $ | — | | | $ | 1,410 | |
| Identifiable assets | | $ | 4,218,549 | | | $ | 577,618 | | | $ | 28,700 | | | $ | 4,824,867 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2023 | | | | | | | |
| Summary of Operations | | | | | | | |
| Net interest income (loss) | $ | 73,486 | | | $ | 1,882 | | | $ | (1,251) | | | $ | 74,117 | |
| | | | | | | |
| Provision for credit losses | 2,414 | | | 946 | | | — | | | 3,360 | |
| | | | | | | |
| Noninterest income: | | | | | | | |
| Service charges on deposit accounts | 5,015 | | | — | | | — | | | 5,015 | |
| Credit and debit card fees | 2,981 | | | — | | | — | | | 2,981 | |
| Trust and investment advisory fees | 1,461 | | | — | | | — | | | 1,461 | |
| Income from mortgage banking services, net | (188) | | | 7,617 | | | — | | | 7,429 | |
| Other noninterest income | 2,045 | | | — | | | — | | | 2,045 | |
| Total noninterest income | 11,314 | | | 7,617 | | | — | | | 18,931 | |
| | | | | | | |
| Noninterest expense: | | | | | | | |
| Salary and employee benefits | 27,784 | | | 6,772 | | | 493 | | | 35,049 | |
| Occupancy | 7,605 | | | 710 | | | 40 | | | 8,355 | |
| Other noninterest expenses | 8,235 | | | 3,509 | | | 1,118 | | | 12,862 | |
| Total noninterest expense | 43,624 | | | 10,991 | | | 1,651 | | | 56,266 | |
| | | | | | | |
| Income (loss) before income taxes | $ | 38,762 | | | $ | (2,438) | | | $ | (2,902) | | | $ | 33,422 | |
| | | | | | | |
| Other Information | | | | | | | |
| Depreciation expense | $ | 1,649 | | | $ | 61 | | | $ | — | | | $ | 1,710 | |
| Identifiable assets | $ | 6,728,396 | | | $ | 819,317 | | | $ | 62,743 | | | $ | 7,610,456 | |
Significant segment totals are reconciled to the financial statements as follows for the six months ended June 30,:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2021 | | | | | | | | |
| Summary of Operations | | | | | | | | |
| Net interest income (expense) | | $ | 73,220 | | | $ | 3,864 | | | $ | (2,267) | | | $ | 74,817 | |
| | | | | | | | |
| Benefit from loan losses | | (1,419) | | | (331) | | | — | | | (1,750) | |
| | | | | | | | |
| Noninterest income: | | | | | | | | |
| Service charges on deposit accounts | | 5,188 | | | — | | | — | | | 5,188 | |
| Credit and debit card fees | | 4,668 | | | — | | | — | | | 4,668 | |
| Trust and investment advisory fees | | 3,897 | | | — | | | — | | | 3,897 | |
| (Loss) income from mortgage banking services, net | | (1,110) | | | 49,103 | | | — | | | 47,993 | |
| Other noninterest income | | 4,425 | | | (7) | | | — | | | 4,418 | |
| Total noninterest income | | 17,068 | | | 49,096 | | | — | | | 66,164 | |
| | | | | | | | |
| Noninterest expense: | | | | | | | | |
| Salary and employee benefits | | 47,507 | | | 29,072 | | | 489 | | | 77,068 | |
| Occupancy | | 11,681 | | | 1,542 | | | 1 | | | 13,224 | |
| Other noninterest expenses | | 13,711 | | | 6,322 | | | 1,479 | | | 21,512 | |
| Total noninterest expense | | 72,899 | | | 36,936 | | | 1,969 | | | 111,804 | |
| | | | | | | | |
| Income (loss) before income taxes | | $ | 18,808 | | | $ | 16,355 | | | $ | (4,236) | | | $ | 30,927 | |
| | | | | | | | |
| Other Information | | | | | | | | |
| Depreciation expense | | $ | 2,912 | | | $ | 267 | | | $ | — | | | $ | 3,179 | |
| Identifiable assets | | $ | 4,950,341 | | | $ | 577,798 | | | $ | 34,937 | | | $ | 5,563,076 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Banking | | Mortgage Operations | | Corporate | | Total Segments |
| 2020 | | | | | | | | |
| Summary of Operations | | | | | | | | |
| Net interest income (expense) | | $ | 62,337 | | | $ | 3,759 | | | $ | (1,278) | | | $ | 64,818 | |
| | | | | | | | |
| Provision for loan losses | | 10,276 | | | 24 | | | — | | | 10,300 | |
| | | | | | | | |
| Noninterest income: | | | | | | | | |
| Service charges on deposit accounts | | 4,614 | | | — | | | — | | | 4,614 | |
| Credit and debit card fees | | 3,758 | | | — | | | — | | | 3,758 | |
| Trust and investment advisory fees | | 1,940 | | | — | | | — | | | 1,940 | |
| (Loss) income from mortgage banking services, net | | (1,355) | | | 55,806 | | | — | | | 54,451 | |
| Other noninterest income | | 1,632 | | | — | | | — | | | 1,632 | |
| Total noninterest income | | 10,589 | | | 55,806 | | | — | | | 66,395 | |
| | | | | | | | |
| Noninterest expense: | | | | | | | | |
| Salary and employee benefits | | 40,845 | | | 22,705 | | | 499 | | | 64,049 | |
| Occupancy | | 11,178 | | | 1,707 | | | 1 | | | 12,886 | |
| Other noninterest expenses | | 12,013 | | | 5,443 | | | 374 | | | 17,830 | |
| Total noninterest expense | | 64,036 | | | 29,855 | | | 874 | | | 94,765 | |
| | | | | | | | |
| (Loss) income before income taxes | | $ | (1,386) | | | $ | 29,686 | | | $ | (2,152) | | | $ | 26,148 | |
| | | | | | | | |
| Other Information | | | | | | | | |
| Depreciation expense | | $ | 2,598 | | | $ | 299 | | | $ | — | | | $ | 2,897 | |
| Identifiable assets | | $ | 4,218,549 | | | $ | 577,618 | | | $ | 28,700 | | | $ | 4,824,867 | |
NOTE 15.16 - Commitments and Contingencies
Commitments:
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include loan commitments, standby letters of credit, and documentary letters of credit and involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. Our exposure to credit loss in the event of nonperformance by the other party of these loan commitments and standby letters of credit is represented by the contractual amount of those instruments. We use the same credit policies in making commitments and conditional obligations as we do for on-balance sheet financial instruments.
Operating leases:
We lease certain facilities and equipment under non-cancelable operating leases. Operating lease amounts exclude renewal option periods, property taxes, insurance, and maintenance expenses on leased properties. Our facility leases typically provide for rental adjustments for increases in base rent (up to specific limits), property taxes, insurance, and general property maintenance that would be recorded in rent expense. Rent expense was $1,612 and $1,849 for the three months ended June 30, 2021 and 2020, respectively, and $3,314 and $3,530 for the six months ended June 30, 2021 and 2020, respectively. Future minimum payments under all existing operating lease commitments are as follows:
| | | | | | | | |
| Remainder 2021 | | $ | 3,344 | |
| 2022 | | 6,801 | |
| 2023 | | 6,845 | |
| 2024 | | 6,440 | |
| 2025 | | 5,802 | |
| 2026 | | 3,169 | |
| Thereafter | | 6,750 | |
| Total operating leases | | $ | 39,151 | |
Undistributed portion of committed loans and unused lines of credit:
Loan commitments are agreements to lend to a customer as long as there is no customer violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require a payment of a fee. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, commitments included the funding of fixed-rate loans totaling $93,855$204,123 and $95,448$191,415 and variable-rate loans totaling $622,112$1,485,047 and $602,142,$1,656,434, respectively. The fixed-rate loan commitments have interest rates ranging from 0.90%1.00% to 18.00% at June 30, 2021March 31, 2024 and 0.90% to 18.00% at December 31, 2020,2023, and maturities ranging from 1 month to 2419 years at June 30, 2021March 31, 2024 and from 1 month to 1019 years at December 31, 2020.2023.
Standby letters of credit:
Standby letters of credit are conditional commitments to guarantee the performance of a customer to a third party.third-party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Since many of the loan commitments and letters of credit expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We evaluate each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on our credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, owner-occupiedowner occupied real estate, and/or income-producing commercial properties. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, our standby letters of credit commitment totaled $10,175$29,448 and $16,664,$14,490, respectively.
MPF Master Commitments:
The Bank has executed MPF Master Commitments (Commitments) with the FHLB to deliver mortgage loans and to guarantee the payment of any realized losses that exceed the FHLB’s first loss account for mortgages delivered under the Commitments. The Bank receives credit enhancement fees from the FHLB for providing this guarantee and continuing to manage the credit risk of the MPF Program mortgage loans. The term of these Commitments is through December 31, 2021. As of June 30, 2021March 31, 2024 and December 31, 2020,2023, the Bank considered the amount of any of its liability for the present value of the credit enhancement fees less any expected losses in the mortgages delivered under the Commitments to be immaterial, and hadhas not recorded a liability and offsetting receivable. As of June 30, 2021March 31, 2024 and December 31, 20202023, the maximum potential amount of future payments that the Bank would have been required to make under the Commitments was $13,094$3,811 and $13,029$3,810, respectively. Under the Commitments, the Bank agrees to service the loans and therefore, is responsible for any necessary foreclosure
proceedings. Any future recoveries on any losses would not be paid by the FHLB under the Commitments. The Bank has not experienced any material losses under these guarantees.
Contingencies:
We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral. To the extent that we do not comply with such representations, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. We establish reserves for potential losses related to these representations and warranties if deemed appropriate and such reserves would be recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserve, we evaluate various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry.
From time to time, we are a defendant in various claims, legal actions, and complaints arising in the ordinary course of business. We periodically review all outstanding pending or threatened legal proceedings and determinesdetermine if such matters will have an adverse effect on our business, financial condition, results of operations or cash flows.
Trust Administration Litigation:
On May 18, 2021, the 2 remainder beneficiaries of the Dorothy S. Harroun Irrevocable Trust dated October 13, 1983 (“Trust”), Dennis Harroun and Douglas Harroun (the “Remainder Beneficiaries”), filed a claim in the Santa Fe County, New Mexico District Court, against the Bank as trustee of the Trust, in the form of a counterclaim related to a petition for guidance and approval of trust distributions filed by the Bank on March 24, 2021 in the same court (the “Guidance Case”). The Remainder Beneficiaries’ claim alleges that the Bank breached its fiduciary duty and impartiality with respect to the 2020 distributions.
The Remainder Beneficiaries seek restitution and surcharge against the Bank for the full amount of the 2020 distributions, which were approximately $19.7 million, plus a reasonable rate of return thereon, as well as legal fees, costs, and expenses and the removal of the Bank as trustee of the Trust. The Bank believes that the Remainder Beneficiaries’ claims are without merit and it intends to vigorously defend against all claims asserted.
On June 14, 2021, the Bank was removed as Trustee of the Dorothy S. Harroun Revocable Trust dated October 29, 2015 (the “Revocable Trust”) by Dorothy S. Harroun. The Revocable Trust held proceeds of the 2020 distributions, and, after payment of federal and state taxes related to the 2020 distributions, the Revocable Trust still had approximately $11.8 million of the 2020 distributions intact. On June 16, 2021, the Bank filed an interpleader action in the Santa Fe County, New Mexico District Court (the “Interpleader Case”). The Interpleader Case petition requests that the $11.8 million in the Revocable Trust be paid into the registry of the Court pending final judgment in the Guidance Case. Dorothy S. Harroun and the Remainder Beneficiaries have each filed answers and counterclaims in the Interpleader Case contesting the relief sought by the Bank, and alleging that the Bank breached its fiduciary duty and impartiality as between the beneficiaries. The Bank believes that the counterclaims in the Interpleader Action are without merit and it intends to vigorously defend against all claims asserted.
Overdraft Fee Litigation:
On June 2,September 13, 2021, Karen McCollamSamantha Besser filed a putative class action amended complaint against the Bank in the United States District Court for the District of Colorado. The amended complaint alleges that the Bank improperly charged multiple insufficient funds or overdraft fees where a transaction was initially authorized on sufficient funds but later settled negative due to intervening transactions.fees. The complaint asserts a claim for breach of contract, which incorporates the implied duty of good faith and fair dealing, and a claim for violations of the Colorado Consumer Protection Act. Plaintiff seeks to represent a proposed class of all the Bank’s checking account customers who were allegedly charged overdraft fees on transactions that did not overdraw their checking account. Plaintiff seeks unspecified restitution, actual and statutory damages, costs, attorneys’ fees, pre-judgment interest, and other relief as the Court deems proper for herself and. On September 27, 2021, the putative class. The Bank believes that the lawsuit is without merit and it intends to vigorously defend against all claims asserted.
On June 10, 2021, Samantha Besser and Alan Schoenberger filed a putative classmotion to dismiss the amended complaint, which was denied on March 11, 2024. The case is now in discovery. At this time, the Bank is unable to reasonably estimate the outcome of this litigation.
Check Fraud Litigation
Rodeo Electrical Services, Inc. and its owner (“RESI”) filed a civil action complaint against the Bank on June 23, 2020 in the United StatesSanta Fe County, New Mexico District Court for the District of Colorado.Court. The complaint allegesalleged that the Bank improperly charged multiple insufficient fundsconspired with or overdraft fees whenotherwise aided a merchant resubmits a rejected payment request.former RESI employee’s embezzlement of approximately $0.4 million from RESI. The complaint asserts claims for breachsought compensatory, exemplary, statutory and punitive damages, as well as payment of contract,RESI’s legal fees and expenses. On January 18, 2024, the jury awarded RESI approximately $2.1 million which incorporatesincluded punitive damages. Final judgment, which will include post-judgment interest, has not been rendered by the implied dutyCourt. A supplemental award of good faith and fair dealing. Plaintiffs seek to representRESI’s legal fees will likely be entered by July 1, 2024. We believe the judgment will be covered by insurance; therefore, such outcome will not have a proposed class of allmaterial financial impact on the Bank’s checking account customers who were charged multiple insufficient funds or overdraft fees on resubmitted payment requests. Plaintiffs seek unspecified restitution, actual and statutory damages, costs, attorneys’ fees, pre-judgment interest, and other relief as the Court deems proper for themselves and the purported class. The Bank believes that the lawsuit is without merit and it intends to vigorously defend against all claims asserted.
We establish reserves for contingencies, including legal proceedings, when potential losses become probable and can be reasonably estimated. While the ultimate resolution of any legal proceedings, including the matters described above, cannot be determined at this time, based on information presently available, and after consultation with legal counsel, management believes that the ultimate outcome in these above legal proceedings, either individually or in the aggregate, will not have a material adverse effect on our financial statements. It is possible, however, that future developments could result in an unfavorable outcome for or resolution of any of these proceedings, which may be material to our results of operations for a given fiscal period.
NOTE 17 - Lease Commitments
Our leases relate primarily to office space and bank branches with remaininglease terms of generally 1 to 15 years. Certain lease arrangements contain extension options which typically range from 5 to 10 years at the then fair market rental rates. As these extension options are not generally considered reasonably certain of exercise, they are not included in the lease term.
| | | | | | | | | | | |
| March 31,
2024 | | December 31,
2023 |
| ROU asset on leased property, gross | $ | 37,660 | | | $ | 36,520 | |
| Accumulated amortization | (13,031) | | | (12,293) | |
| ROU asset, net (included in prepaid expenses and other assets in our consolidated balance sheets) | $ | 24,629 | | | $ | 24,227 | |
| Lease liability (included in accrued expenses and other liabilities in our consolidated balance sheets) | $ | 26,834 | | | $ | 26,431 | |
| Weighted Average Remaining Life - Operating Leases | 5.35 | | 5.56 |
| Weighted Average Rate - Operating Leases | 2.31 | % | | 2.10 | % |
The following table reconciles future undiscounted lease payments due under non-cancelable operating leases to the aggregate operating lessee lease liability as of March 31, 2024:
| | | | | |
| Remainder of 2024 | $ | 7,656 | |
| 2025 | 6,248 | |
| 2026 | 4,294 | |
| 2027 | 2,911 | |
| 2028 | 2,601 | |
| 2029 | 4,654 | |
| Thereafter | 230 | |
| Total undiscounted operating lease liability | 28,594 | |
| Imputed interest | 1,760 | |
| Total operating lease liability included in the accompanying balance sheet | $ | 26,834 | |
Total lease expense for three months ended March 31, 2024 and 2023 was $1,924 and $1,898, respectively. The components of total lease expense for the periods ended March 31, 2024 was as follows:
| | | | | | | | | | | | | | | |
| For the three months ended March 31, | | |
| 2024 | | 2023 | | | | |
| Operating leases | $ | 1,922 | | | $ | 1,869 | | | | | |
| Short-term leases | 47 | | | 46 | | | | | |
| | | | | | | |
| Sublease income | (45) | | | (17) | | | | | |
| Net lease expense | $ | 1,924 | | | $ | 1,898 | | | | | |
We do not currently have any significant finance leases in which we are the lessee, material related-party leases, leases containing residual value guarantees or restrictive covenants.
NOTE 18 - Subsequent Events
The Company has evaluated subsequent events for potential recognition and disclosure through the filing date of this Form 10-Q.
On April 30, 2024, FirstSun and HomeStreet executed an Amendment to the Merger Agreement by and among FirstSun, HomeStreet, and Merger Sub pursuant to which, upon the terms and subject to the conditions set forth therein, FirstSun will acquire HomeStreet and HomeStreet Bank, HomeStreet’s wholly-owned bank subsidiary.
The Amendment provides for, among other things:
COVID-19•:An increase in FirstSun’s total equity capital raised in connection with the merger of an additional $45 million to $60 million, resulting in an increase from an aggregate capital raise of $175 million to up to $235 million;
On March 11, 2020,•A revised exchange ratio pursuant to which HomeStreet shareholders will receive 0.3867 shares (from 0.4345 shares under the World Health Organization announcedMerger Agreement) of FirstSun common stock for each share of HomeStreet common stock;
•A reduced termination fee payable by HomeStreet, in certain circumstances, if HomeStreet receives a competing acquisition proposal within 30 days after the effective date of the Amendment from $10 million to $2.6 million plus reimbursement of FirstSun’s transaction fees and expenses;
•That the combined company’s ongoing banking operations will operate under a Texas state charter with FirstSun’s subsidiary bank, Sunflower Bank, converting from a national bank to a Texas state chartered bank and that Sunflower will also seek membership in the Federal Reserve System;
•An amended definition of requisite regulatory approvals such that the COVID-19 outbreak was deemed a pandemic, and on March 13, 2020, the President declared the ongoing COVID-19 pandemic of sufficient magnitude to warrant an emergency declaration. The operations and business resultsapproval of the Company could be materially adversely affected, includingOCC is replaced with the estimateapproval of the allowance for loan losses. The extent to which the coronavirus may continue to impact business activity or investment results will depend on future developments, which are highly uncertainTexas Department of Banking and cannot be predicted, including new information which may emerge concerning the continued severityadditional approvals of the coronavirus and variants, andFederal Reserve Board;
•FirstSun’s issuance of $48.5 million of subordinated debt concurrently with the actions requiredclosing of the merger, the proceeds of which will be contributed to containSunflower Bank to further support Sunflower Bank’s capital:
•HomeStreet’s disposition of approximately $300 million of certain commercial real estate loans upon closing of the coronavirusmerger, or treat its impact, among others.as soon as reasonably practicable afterward.
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 Sunflower Bank.FEIF Capital Partners, LLC.
The following discussion and analysis of FirstSun’s consolidated financial condition and results of operations should be read in conjunction with the unaudited consolidated financial statements and accompanying footnotes included in Item 1 of this Form 10-Q as well as our audited consolidated financial statements and footnotes for the year ended December 31,
20202023 included in our
proxy statement/prospectus dated August 10, 2021 (the “Prospectus”)2023 Annual Report that we filed with the SEC pursuant to Securities Act Rule 424(b)(3) in connection with the merger on August 12, 2021.March 7, 2024. Historical results of operations and the percentage relationships among any amounts included, and any trends that may appear, may not indicate trends in operations or results of operations for any future periods.
Comments regarding FirstSun’sour business that are not historical facts are considered forward-looking statements that involve inherent risks and uncertainties. Actual results may differ materially from those contained in these forward-looking statements. For additional information regarding our cautionary disclosures, see the “Cautionary Note Regarding Forward-Looking Statements” beginning on page 43 of this report.
General Overview
FirstSun Capital Bancorp, headquartered in Denver, Colorado, is the financial holding company for Sunflower Bank, National Association, which is headquartered in Dallas, Texas and operates as Sunflower Bank, First National 1870 and Guardian Mortgage. We conduct a full servicefull-service community banking and trust business through our wholly-owned subsidiaries—Sunflower Bank, and Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC.
We offer a full range of relationship-focused services to meet our client’sclients’ personal, business and wealth management financial objectives, with a branch network in Texas, Kansas, Colorado, New Mexico, Texas and Arizona and mortgage capabilities in 43 states. Our product line includeslines include commercial and industrial loans, commercial real estate loans, residential mortgage, public finance and other consumer loans, and a variety of commercial and consumer deposit products, including noninterest bearingnoninterest-bearing accounts, interest-bearing demand products, savings accounts, money market accounts and certificates of deposit. We also offer wealth management and trust products including personal trust and agency accounts, employee benefit and retirement related trust and agency accounts, investment management and advisory agency accounts, and foundation and endowment trust and agency accounts. We also offer online banking and bill payment services, online cash management, safe deposit box rentals, debit card and ATM card services and the availability of a network of ATMs for our customers.
We operate FirstSun through two operating segments: Banking and Mortgage Operations. We also allocate certain expenses to Corporate, which is not an operating segment. The expenses included in Corporate are not deemed to be allocable to our operating segments. The operating segments have been determined based on the products and services we offer and reflect the manner in which our financial information is
currently evaluated by management. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.
For additional information on our segments, see Note 15 - Segment Information included in our consolidated financial statements included elsewhere in this report.
ProposedPending Merger with Pioneer Bancshares,HomeStreet, Inc. and Common Equity Raise
On May 11, 2021, weJanuary 16, 2024, FirstSun and HomeStreet entered into an Agreement and Plan of Merger (the “merger agreement”) with Pioneer Bancshares, Inc. (“Pioneer”).a definitive merger agreement. Under the merger agreement, a wholly-owned subsidiary of FirstSun will merge with and into Pioneer, with Pioneer remainingcontinue as the surviving entity and becoming a wholly-owned subsidiary of FirstSun (the “merger”). This surviving entity, as soon as reasonably practicable following the merger and as part of a single integrated transaction, will merge with and into FirstSun (the “second step merger,” and together with the merger, the “mergers”). Immediately following the completion of the second step merger or at such later time as the parties may mutually agree, Pioneer’s wholly-owned subsidiary, Pioneer Bank, SSB, a Texas state savings bank, will merge with and into FirstSun’s wholly-owned subsidiary, Sunflower Bank National Association, a national banking association, with Sunflower Bankwill continue as the surviving bank. IfOn April 30, 2024, FirstSun and HomeStreet entered into an amendment to the merger is completed, each outstanding share of Pioneer common stockagreement to, among other things, increase total equity capital raised in connection with the merger, revise the exchange ratio pursuant to which the HomeStreet shareholders will be converted into the right to receive 1.0443 shares of FirstSun common stock, plus cashand reduce the termination fee payable by HomeStreet in lieucertain circumstances. The amendment was unanimously approved by the Boards of fractional shares. Directors of each of FirstSun and HomeStreet. For more complete information related to the Merger Agreement and Amendment see Proposed Merger with HomeStreet in Note 1 -
The merger is expected to close in the fourth quarter of 2024 and the combined entity is expected to have total assets that exceed $7 billion.of approximately $17 billion and 129 branch locations. The completion ofcombined 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.
Concurrently with entry into the HomeStreet merger agreement, FirstSun entered into investment agreements with investors to raise capital to support the merger. These agreements included an initial $80 million investment in FirstSun common stock. Concurrently with the amendment to the merger is subjectagreement, FirstSun entered into an amendment to among other things, receiptthe investment agreements with the investors to increase the amount of all necessary regulatory approvals and Pioneer stockholder approval. We currently expectinvestment to support the merger. For additional information related to the agreements to raise additional equity capital for the merger, to close during the fourth quartersee Investment Agreements in Note 1 - Organization and Basis of 2021.Presentation and Note 18 - Subsequent Events in our unaudited consolidated financial statements included elsewhere in this report.
Financial Summary
First Quarter 2024 Highlights:
•Net income of Contents$12.3 million, $0.45 per diluted share (excluding merger costs, $14.6 million, $0.53 per diluted share, see the “Non-GAAP Financial Measures and Reconciliations” below)
•Net interest margin of 3.99%
•Return on average total assets of 0.64% (excluding merger costs, 0.76%, see the “Non-GAAP Financial Measures and Reconciliations” below)
•Return on average stockholders’ equity of 5.15% (excluding merger costs, 6.11%, see the “Non-GAAP Financial Measures and Reconciliations” below)
•Loan growth of 1.1% annualized
•Deposit growth of 4.5% annualized
•24.4% noninterest income to total revenue1
Net income totaled $12.3 million for the first quarter of 2024 compared to net income of $26.3 million for the first quarter of 2023. Earnings per diluted share were $0.45 for the first quarter of 2024 compared to $1.03 for the first quarter of 2023. Earnings for the first quarter of 2024 were negatively impacted by $2.3 million of merger costs, net of tax, or $0.08 per diluted share and a $13.1 million loan charge-off, net of tax, or $0.47 per diluted share.
We entered into a merger agreement with HomeStreet on January 16, 2024, and we concurrently entered into an upfront securities purchase agreement with the Investors, pursuant to which we issued 2.46 million shares of our common stock in a private placement for $80.0 million.
1Total revenue is net interest income plus noninterest income.
The following table sets forth certain summary financial and other information of FirstSun:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | For the year ended December 31, |
| ($ in thousands, except share and per share amounts) | 2024 | | | | 2023 | | | | | | 2023 |
| Income Statement: | | | | | | | | | | | |
| Net interest income | $ | 70,806 | | | | | $ | 74,117 | | | | | | | $ | 293,431 | |
| Taxable equivalent adjustment | 1,318 | | | | | 1,242 | | | | | | | 5,086 | |
| Net interest income - fully tax equivalent ("FTE") basis (non-GAAP) (3) | $ | 72,124 | | | | | $ | 75,359 | | | | | | | $ | 298,517 | |
| Provision for credit losses | $ | 16,500 | | | | | $ | 3,360 | | | | | | | $ | 18,247 | |
| Noninterest income | $ | 22,808 | | | | | $ | 18,931 | | | | | | | $ | 79,092 | |
| Noninterest expense | $ | 61,828 | | | | | $ | 56,266 | | | | | | | $ | 222,793 | |
| Net income | $ | 12,296 | | | | | $ | 26,281 | | | | | | | $ | 103,533 | |
| Per Common Share Data: | | | | | | | | | | | |
| Weighted average diluted common shares | 27,628,941 | | | | | 25,487,582 | | | | | | | 25,387,196 | |
| Net income (basic) | $ | 0.46 | | | | | $ | 1.05 | | | | | | | $ | 4.15 | |
| Net income (diluted) | $ | 0.45 | | | | | $ | 1.03 | | | | | | | $ | 4.08 | |
| Cash dividends | $ | — | | | | | $ | — | | | | | | | $ | — | |
| Dividend payout ratio | — | % | | | | — | % | | | | | | — | % |
| Book value | $ | 35.15 | | | | | $ | 32.06 | | | | | | | $ | 35.14 | |
| Tangible book value (non-GAAP) (3) | $ | 31.37 | | | | | $ | 27.72 | | | | | | | $ | 30.96 | |
| Performance Ratios: | | | | | | | | | | | |
| Return on average total assets | 0.64 | % | | | | 1.44 | % | | | | | | 1.38 | % |
| Return on average stockholders' equity | 5.15 | % | | | | 13.37 | % | | | | | | 12.50 | % |
| Return on tangible common stockholders' equity (non-GAAP) (3) | 6.01 | % | | | | 15.70 | % | | | | | | 13.89 | % |
| Return on average tangible common stockholders' equity (non-GAAP) (3) | 6.08 | % | | | | 16.01 | % | | | | | | 14.88 | % |
| Net interest margin | 3.99 | % | | | | 4.39 | % | | | | | | 4.23 | % |
| Efficiency ratio (1) | 66.05 | % | | | | 60.47 | % | | | | | | 59.81 | % |
| Net charge-offs (recoveries) to average loans outstanding | 1.11 | % | | | | — | % | | | | | | 0.13 | % |
| Allowance for credit losses to loans | 1.27 | % | | | | 1.23 | % | | | | | | 1.28 | % |
| Nonperforming loans to total loans (2) | 0.92 | % | | | | 0.54 | % | | | | | | 1.01 | % |
| Balance Sheet: | | | | | | | | | | | |
| Total loans, excluding loans held-for-sale | $ | 6,284,868 | | | | | $ | 6,060,975 | | | | | | | $ | 6,267,096 | |
| Total assets | $ | 7,781,601 | | | | | $ | 7,610,456 | | | | | | | $ | 7,879,724 | |
| Total deposits | $ | 6,445,388 | | | | | $ | 5,994,266 | | | | | | | $ | 6,374,103 | |
| Total borrowed funds | $ | 220,255 | | | | | $ | 657,658 | | | | | | | $ | 464,781 | |
| Total stockholders' equity | $ | 964,662 | | | | | $ | 799,050 | | | | | | | $ | 877,197 | |
| Capital Ratios: | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets | 14.73 | % | | | | 12.19 | % | | | | | | 13.25 | % |
| Tier 1 risk-based capital to risk-weighted assets | 12.54 | % | | | | 10.11 | % | | | | | | 11.10 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets | 12.54 | % | | | | 10.11 | % | | | | | | 11.10 | % |
| Tier 1 leverage capital to average assets | 11.73 | % | | | | 9.86 | % | | | | | | 10.52 | % |
| Average stockholders' equity to average total assets | 12.49 | % | | | | 10.76 | % | | | | | | 11.05 | % |
| Tangible common stockholders' equity to tangible assets (non-GAAP) (3) | 11.21 | % | | | | 9.21 | % | | | | | | 9.94 | % |
| Tangible common stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) (3) | 11.17 | % | | | | 9.16 | % | | | | | | 9.90 | % |
| Nonfinancial Data: | | | | | | | | | | | |
| Full-time equivalent employees | 1,154 | | | | | 1,122 | | | | | | | 1,110 | |
| Banking branches | 69 | | | | | 69 | | | | | | | 69 | |
| (1) The efficiency ratio is one measure of profitability in the banking industry. This ratio measures the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income. |
| (2) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due. |
| (3) See section entitled “Non-GAAP Financial Measures and Reconciliations” for information regarding these non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. |
Non-GAAP Financial Measures and Reconciliations
The non-GAAP financial measures presented below are used by our management and our Board of Directors on a regular basis in addition to our GAAP results to facilitate the assessment of our financial performance. Management believes these non-GAAP financial measures enhance an investor’s understanding of our financial results by providing a meaningful basis for period-to-period comparisons, assisting in operating results analysis, and predicting future performance. This information supplements our GAAP reported results, and should not be viewed in isolation from, or as a substitute for, our GAAP results. Accordingly, this financial information should be read in conjunction with our consolidated financial statements and notes thereto for the three months ended March 31, 2024, included elsewhere in this report. Non-GAAP financial measures exclude certain items that are included in the financial results presented in accordance with GAAP. Non-GAAP financial measures have inherent limitations, are not required to be uniformly applied, and are not audited. Although these non-GAAP financial measures are frequently used by investors to evaluate a company, they have limitations as analytical tools, and should not be considered in isolation, or as a substitute for analyses of results as reported under GAAP. These non-GAAP measures are not necessarily comparable to similar measures that may be represented by other companies.
The following table presents GAAP to non-GAAP reconciliations:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | For the year ended December 31, |
| ($ in thousands, except share and per share amounts) | 2024 | | | | 2023 | | | | | | 2023 |
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| | | | | | | | | | | |
| Tangible common stockholders’ equity and tangible book value per common share: | | | | | | | | | | | |
| Total common stockholders' equity (GAAP) | $ | 964,662 | | | | | $ | 799,050 | | | | | | | $ | 877,197 | |
| Less: Goodwill and other intangible assets | | | | | | | | | | | |
| Goodwill | (93,483) | | | | | (93,483) | | | | | | | (93,483) | |
| Other intangible assets | (10,168) | | | | | (14,762) | | | | | | | (10,984) | |
| Total tangible common stockholders' equity (non-GAAP) | $ | 861,011 | | | | | $ | 690,805 | | | | | | | $ | 772,730 | |
| Total common shares outstanding | 27,442,943 | | | | | 24,924,023 | | | | | | | 24,960,639 | |
| Book value per common share (GAAP) | $ | 35.15 | | | | | $ | 32.06 | | | | | | | $ | 35.14 | |
| Tangible book value per common share (non-GAAP) | $ | 31.37 | | | | | $ | 27.72 | | | | | | | $ | 30.96 | |
| Tangible net income and return on tangible common stockholders’ equity: | | | | | | | | | | | |
| Net income (GAAP) | $ | 12,296 | | | | | $ | 26,281 | | | | | | | $ | 103,533 | |
| Add: Intangible amortization, net of tax | 644 | | | | | 825 | | | | | | | 3,809 | |
| Tangible net income (non-GAAP) | $ | 12,940 | | | | | $ | 27,106 | | | | | | | $ | 107,342 | |
| Total tangible common stockholders’ equity (non-GAAP) (see above) | $ | 861,011 | | | | | $ | 690,805 | | | | | | | $ | 772,730 | |
| Return on common stockholders’ equity (GAAP) | 5.10 | % | | | | 13.16 | % | | | | | | 11.80 | % |
| Return on tangible common stockholders’ equity (non-GAAP) | 6.01 | % | | | | 15.70 | % | | | | | | 13.89 | % |
| Return on average tangible common stockholders’ equity: | | | | | | | | | | | |
| Tangible net income (non-GAAP) (see above) | $ | 12,940 | | | | | $ | 27,106 | | | | | | | $ | 107,342 | |
| Total average common stockholders' equity (GAAP) | $ | 955,145 | | | | | $ | 786,272 | | | | | | | $ | 828,102 | |
| Less: Average goodwill and other intangible assets | | | | | | | | | | | |
| Average goodwill | (93,483) | | | | | (93,483) | | | | | | | (93,483) | |
| Average other intangible assets | (10,563) | | | | | (15,371) | | | | | | | (13,178) | |
| Total average tangible common stockholders' equity (non-GAAP) | $ | 851,099 | | | | | $ | 677,418 | | | | | | | $ | 721,441 | |
| Return on average common stockholders’ equity (GAAP) | 5.15 | % | | | | 13.37 | % | | | | | | 12.50 | % |
| Return on average tangible common stockholders’ equity (non-GAAP) | 6.08 | % | | | | 16.01 | % | | | | | | 14.88 | % |
| Net interest margin - FTE basis: | | | | | | | | | | | |
| Net interest income (GAAP) | $ | 70,806 | | | | | $ | 74,117 | | | | | | | $ | 293,431 | |
| Taxable equivalent adjustment | 1,318 | | | | | 1,242 | | | | | | | 5,086 | |
| Net interest income - FTE basis (non-GAAP) | $ | 72,124 | | | | | $ | 75,359 | | | | | | | $ | 298,517 | |
| Average earning assets | $ | 7,100,323 | | | | | $ | 6,755,933 | | | | | | | $ | 6,935,567 | |
| Net interest margin (GAAP) | 3.99 | % | | | | 4.39 | % | | | | | | 4.23 | % |
| Net interest margin - FTE basis (non-GAAP) | 4.06 | % | | | | 4.46 | % | | | | | | 4.29 | % |
|
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| For the three months ended March 31, | | | | For the year ended December 31, |
| ($ in thousands, except share and per share amounts) | 2024 | | | | 2023 | | | | | | 2023 |
| Tangible common stockholders’ equity to tangible assets: | | | | | | | | | | | |
| Total assets (GAAP) | $ | 7,781,601 | | | | | $ | 7,610,456 | | | | | | | $ | 7,879,724 | |
| Less: Goodwill and other intangible assets | | | | | | | | | | | |
| Goodwill | (93,483) | | | | | (93,483) | | | | | | | (93,483) | |
| Other intangible assets | (10,168) | | | | | (14,762) | | | | | | | (10,984) | |
| Total tangible assets (non-GAAP) | $ | 7,677,950 | | | | | $ | 7,502,211 | | | | | | | $ | 7,775,257 | |
| Total tangible common stockholders’ equity (non-GAAP) (see above) | $ | 861,011 | | | | | $ | 690,805 | | | | | | | $ | 772,730 | |
| Common stockholders' equity to total assets (GAAP) | 12.40 | % | | | | 10.50 | % | | | | | | 11.13 | % |
| | | | | | | | | | | |
| Tangible common stockholders’ equity to tangible assets (non-GAAP) | 11.21 | % | | | | 9.21 | % | | | | | | 9.94 | % |
| Tangible common stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax: | | | | | | | | | | | |
| Total tangible common stockholders' equity (non-GAAP) (see above) | $ | 861,011 | | | | | $ | 690,805 | | | | | | | $ | 772,730 | |
| Less: Net unrealized losses on HTM securities, net of tax | (4,236) | | | | | (3,754) | | | | | | | (3,629) | |
| Total tangible common stockholders’ equity less net unrealized losses on HTM securities, net of tax (non-GAAP) | $ | 856,775 | | | | | $ | 687,051 | | | | | | | $ | 769,101 | |
| Total tangible assets (non-GAAP) (see above) | $ | 7,677,950 | | | | | $ | 7,502,211 | | | | | | | $ | 7,775,257 | |
| Less: Net unrealized losses on HTM securities, net of tax | (4,236) | | | | | (3,754) | | | | | | | (3,629) | |
| Total tangible assets less net unrealized losses on HTM securities, net of tax (non-GAAP) | $ | 7,673,714 | | | | | $ | 7,498,457 | | | | | | | $ | 7,771,628 | |
| Tangible common stockholders’ equity to tangible assets (non-GAAP) | 11.21 | % | | | | 9.21 | % | | | | | | 9.94 | % |
| | | | | | | | | | | |
| Tangible common stockholders’ equity to tangible assets reflecting net unrealized losses on HTM securities, net of tax (non-GAAP) | 11.17 | % | | | | 9.16 | % | | | | | | 9.90 | % |
| Net income excluding merger costs: | | | | | | | | | | | |
| Net income (GAAP) | $ | 12,296 | | | | | $ | 26,281 | | | | | | | $ | 103,533 | |
| Add: Merger costs | | | | | | | | | | | |
| Merger related expenses | 2,489 | | | | | — | | | | | | | — | |
| Income tax effect on merger related expenses | (193) | | | | | — | | | | | | | — | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Total merger costs | 2,296 | | | | | — | | | | | | | — | |
| Net income excluding merger costs (non-GAAP) | $ | 14,592 | | | | | $ | 26,281 | | | | | | | $ | 103,533 | |
| Return on average total assets excluding merger costs: | | | | | | | | | | | |
| Return on average total assets (ROAA) (GAAP) | 0.64 | % | | | | 1.44 | % | | | | | | 1.38 | % |
| Add: Impact of merger costs, net of tax | 0.12 | % | | | | — | % | | | | | | — | % |
| ROAA excluding merger costs (non-GAAP) | 0.76 | % | | | | 1.44 | % | | | | | | 1.38 | % |
| Return on average common stockholders’ equity excluding merger costs: | | | | | | | | | | | |
| Return on average common stockholders' equity (ROAE) (GAAP) | 5.15 | % | | | | 13.37 | % | | | | | | 12.50 | % |
| Add: Impact of merger costs, net of tax | 0.96 | % | | | | — | % | | | | | | — | % |
| ROAE excluding merger costs (non-GAAP) | 6.11 | % | | | | 13.37 | % | | | | | | 12.50 | % |
| Efficiency ratio excluding merger related expenses: | | | | | | | | | | | |
| Efficiency ratio (GAAP) | 66.05 | % | | | | 60.47 | % | | | | | | 59.81 | % |
| Less: Impact of merger related expenses | (2.66) | % | | | | — | % | | | | | | — | % |
| Efficiency ratio excluding merger related expenses (non-GAAP) | 63.39 | % | | | | 60.47 | % | | | | | | 59.81 | % |
| Diluted earnings per share excluding merger costs: | | | | | | | | | | | |
| Diluted earnings per share (GAAP) | $ | 0.45 | | | | | $ | 1.03 | | | | | | | $ | 4.08 | |
| Add: Impact of merger costs, net of tax | 0.08 | | | | | — | | | | | | | — | |
| Diluted earnings per share excluding merger costs (non-GAAP) | $ | 0.53 | | | | | $ | 1.03 | | | | | | | $ | 4.08 | |
Segments
Banking
Three Months Ended June 30, 2021months ended March 31, 2024 and 20202023
For the second quarter of 2021,Income before income before taxes from our Banking segment increaseddecreased $22.7 million to $8.2 million, compared to a loss of $4.2$16.1 million for the secondfirst quarter of 2020. This increase2024, from $38.8 million for the same period in 2023. The period over period decrease was primarily driven by an $8.9 millionincrease in provision for credit losses and a decrease in our provisionnet interest income. Provision for loancredit losses changing from a $7.6increased $15.5 million provision into $17.9 million for the secondfirst quarter of 20202024, from $2.4 million for the same period in 2023, primarily due to a $1.3$17.4 million benefitcharge-off on a specific customer in the second quarter of 2021. The benefit realized in the second quarter of 2021 was due to favorable changes to certain environmental factors as a result of improved economic conditions.our C&I loan portfolio. Net interest income increased by $4.2decreased $5.0 million to $35.5 million during the second quarter of 2021, compared to $31.3 million during the second quarter of 2020. Noninterest income increased to $8.7 million in the second quarter of 2021, compared to $5.3 million in the second quarter of 2020 primarily resulting from increases in trust and investment advisory fees, treasury management service fee income, card interchange fee income, and loan syndication fee income. Noninterest expense increased by $4.0 million to $37.3$68.5 million for the secondfirst quarter of 20212024, compared to $73.5 million for the same period in 2023. The decrease in net interest income was primarily due to our continued growth, including increased salaryan increase in the cost of interest-bearing deposits due to the rising interest rate environment and employee benefits expenses associated with headcount increases from an expanding sales force, as well as our expanded operationsshift in certain markets, including Arizona and Texas.
Six Months Ended June 30, 2021 and 2020
deposit mix towards certificate of deposits. Identifiable assets for our Banking segment remained largely unchanged at $6.7 billion at March 31, 2024 and March 31, 2023.
Mortgage Operations
Three months ended March 31, 2024 and 2023
Income before income taxes increased $5.5 million to $3.1 million for the first quarter of 2024, compared to a loss of $2.4 million for the same period in 2023, primarily due to an increase in net interest income, decrease in provision for credit losses, and increase in revenue from mortgage banking services. Net interest income increased $1.6 million to $3.5 million for the first quarter of 2024, compared to $1.9 million for the same period in 2023, primarily due to higher interest rates on residential real estate loans. Revenue from mortgage banking services increased $2.5 million to $10.1 million for the first quarter of 2024, compared to $7.6 million for the same period in 2023, primarily due to an increase in revenue related to net sale gains and fees from mortgage loan originations, including fair value changes in the held-for-sale portfolio and hedging activity. Identifiable assets for our Mortgage Operations segment grew by $731.8 million$0.1 billion to $5.0$0.9 billion for the six months ended June 30, 2021at March 31, 2024 from $4.2$0.8 billion for the same period in 2020.2023. The growth in identifiable assets was primarily driven by organic growth in cash and cash equivalents and our loanresidential mortgage portfolio. Income (loss) before taxes increased $20.2 million to $18.8 million for the six months ended June 30, 2021, from a loss of $1.4 million for the six months ended June 30, 2020. The period over period increase was driven by an $11.7 million decrease in our provision for loan losses, changing from a $10.3 million provision in the six months ended June 30, 2020 to a $1.4 million benefit in the six months ended June 30, 2021. The benefit realized in the six months ended June 30, 2021 was due to favorable changes to certain environmental factors as a result of improved economic conditions. Noninterest income increased $6.5 million to $17.1 million in the six months ended June 30, 2021, compared to $10.6 million in the same period in 2020, primarily resulting from increases in trust and investment advisory fee income, treasury management service fees, card interchange fee income, loan syndication fee income and customer accommodation interest rate swap fees and changes in fair value. Noninterest expense increased $8.9 million to $72.9 million for the six months ended June 30, 2021 compared to $64.0 million for the six months ended June 30, 2020. The increase in noninterest expense was primarily due to our continued growth, including increased salary and employee benefits and occupancy expenses associated with headcount increases from an expanding sales force, as well as our expanded operations in certain markets, including Arizona and Texas.
Mortgage Operations
Three Months Ended June 30, 2021 and 2020
For the second quarter of 2021, income before taxes from our Mortgage Operations segment decreased to $8.0 million, compared to $23.2 million for the second quarter of 2020. This decrease was primarily due to a $12.8 million decline in net gain on sales and fees from loan originations, including changes in the fair value of the held-for-sale portfolio, net of hedging activity, as total loan originations during the second quarter of 2021 declined by $104.1 million, or 14.4%, to $616.6 million compared to the same period in 2020. Noninterest income from mortgage banking services decreased $15.2 million to $23.6 million during the second quarter of 2021, compared to $38.8 million during the second quarter of 2020. Further discussion on the components of income from mortgage banking services is included under the subheading “Noninterest Income.” Noninterest expense for the second quarter of 2021 was $17.7 million, compared to $17.9 million for the same period in 2020. While variable compensation related to loan originations declined, overall salaries and employee benefits expenses remained relatively flat period over period as a result of an increase in headcount. We are investing in our workforce to grow the level of loan activities for home purchase transactions as the level of overall loan refinancing transactions has declined period over period.
Six Months Ended June 30, 2021 and 2020
Income before income taxes from our Mortgage Operations segment decreased to $16.4 million for the six months ended June 30, 2021, compared to $29.7 million for the six months ended June 30, 2020, due to a combination of an $8.7 million decline in revenue related to mortgage servicing rights (“MSR”) capitalization and changes in fair value, net of hedging activity, and a $7.1 million increase in noninterest expense. The revenue decline related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions. While total loan originations increased to $1.3 billion for the six months ended June 30, 2021, from $1.1 billion in the prior year period, overall gain on sale margins declined, resulting in relatively flat net gain on sales and fees from mortgage loan originations, including changes in fair value in the
held-for-sale portfolio, net of hedging activity, on a period over period basis. Noninterest expense for the six months ended June 30, 2021 was $36.9 million, compared to $29.9 million for the six months ended June 30, 2020. The $7.1 million increase was primarily due to the increased salary and employee benefits expense associated with higher headcount and variable compensation related to overall originations, which were up $197.3 million period over period.
COVID-19 Pandemic
The COVID-19 pandemic and variants of the virus continue to create disruptions to the global economy and financial markets and to businesses and the lives of individuals throughout the world. Our business, financial condition and results of operations generally rely upon the ability of our borrowers to repay their loans, the value of collateral underlying our secured loans, and demand for loans and other products and services we offer, which are highly dependent on the business environment in our primary markets and in the United States as a whole.
The impact of the COVID-19 pandemic and its variants is fluid and continues to evolve, adversely affecting many of our customers. The unprecedented and rapid spread of COVID-19 and its associated impacts on trade (including supply chains and export levels), travel, employee productivity, unemployment, consumer spending, and other economic activities has resulted in less economic activity and significant volatility and disruption in financial markets. Market interest rates, after falling to historically low levels due to the COVID-19 pandemic through the second quarter of 2020, have generally stabilized, while intermediate and longer-term Treasury rates have begun to rise. The low interest rate environment (except with respect to our Mortgage Operations) and the other effects of the COVID-19 pandemic have had, and are expected to continue to have, possibly materially, an adverse effect on our business, financial condition and results of operations. For instance, the pandemic has had negative effects on our interest income, allowance for loan losses, and certain transaction-based line items of noninterest income. The ultimate extent of the impact of the COVID-19 pandemic on our business, financial condition and results of operations is currently uncertain and will depend on various developments and other factors, including the effect of governmental and private sector initiatives, the effect of the continued rollout of vaccinations for the virus, whether such vaccinations will be effective against any resurgence of the virus, including any new strains, and the ability for customers and businesses to return to, and remain in their pre-pandemic routine.
We continue to actively monitor developments related to COVID-19 and its variants and its impact on our business, customers, employees, counterparties, vendors, and service providers.
Since the start of the COVID-19 pandemic, we have taken several actions to offer various forms of support to our customers, employees, and communities that have been impacted by the pandemic. We have worked with borrowers impacted by COVID-19 and provided modifications to include interest only deferral or principal and interest deferral. Under bank regulatory guidance and the CARES Act, these short-term deferrals are generally not considered to be troubled debt restructurings, or “TDRs,” unless the borrower was experiencing financial difficulty prior to the pandemic.
We had modified loans under the CARES Act as of:
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| June 30, 2021 | | December 31, 2020 |
| (in thousands, except loan count) | Number
of Loans | | Recorded
Investment | | Number
of Loans | | Recorded
Investment |
| | | | | | | |
| Commercial | — | | | $ | — | | | 23 | | | $ | 17,714 | |
| Commercial real estate | — | | | $ | — | | | 7 | | | $ | 12,413 | |
| Residential real estate | 18 | | | $ | 7,971 | | | 49 | | | $ | 21,584 | |
| Consumer | — | | | $ | — | | | 6 | | | $ | 77 | |
| Total | 18 | | | $ | 7,971 | | | 85 | | | $ | 51,788 | |
A provision in the CARES Act created the Paycheck Protection Program, or “PPP,” a program administered by the Small Business Administration, or “SBA,” to provide loans to small business during the COVID-19 pandemic. As of June 30, 2021 and December 31, 2020, we had $207.6 million and $256.3 million of PPP loans outstanding and deferred processing fees outstanding of $4.9 million and $5.2 million, respectively. PPP loans are classified as Commercial loans in our consolidated financial statements. We do not expect to fund additional PPP loans. We expect funds to be received from the SBA for the forgiven loans into 2023.
Critical Accounting Estimates
OurIn preparing the consolidated financial statements, are prepared based onmanagement is required to make estimates and assumptions that affect the applicationreported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Our accounting policiesand reporting estimates are in accordance with generally accepted accounting principles, or “GAAP,“U.S. GAAP,” and followconform to general practices within the banking industry. These policiesEstimates that are susceptible to significant changes include accounting for the allowance for credit losses and fair value measurements, both of which require the reliance on estimates, assumptions andsignificant judgments which may prove inaccurate or are subjectby management. Actual results could result in material changes to variations. Changes in underlying factors, estimates, assumptions or judgements could have a material impact on our futureconsolidated financial condition andor 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 loancredit losses and fair value measurements to be the accounting areas that require the most subjective or complex judgments and, as such, could be most subject to revision as new or additional information becomes available or circumstances change, including overall changes in the economic climate and/or market interest rates. Therefore, we consider these policies to be critical accounting estimates and discuss them directly with the Audit Committee of our board of directors. During the three months ended June 30, 2021, there have been no significant changes to
These critical accounting estimates and their application are reviewed at least annually by our audit committee. The following is a description of our critical accounting estimates and an explanation of the methods and assumptions underlying their application.
Allowance for Credit Losses - Management maintains an ACL for loans based upon management’s estimate of the lifetime expected credit losses in the loan portfolio, as of the balance sheet date, excluding loans held for sale. Additionally, management maintains an ACL for held-to-maturity or available-for-sale debt securities, and other off-balance sheet credit exposures (e.g., unfunded loan commitments). For loans and unfunded loan commitments, the estimate of lifetime credit losses includes the use of quantitative models that incorporate forward-looking macroeconomic scenarios that are applied over the contractual lives of the portfolios, adjusted, as appropriate, for prepayments and permitted extension options using
historical experience. For purposes of the ACL for lending commitments, such allowance is determined using the same methodology as the ACL for loans, while also taking into consideration the probability of drawdowns or funding, and whether such commitments are cancellable by us. The ACL for held-to-maturity and available-for-sale debt securities is measured using a risk-adjusted discounted cash flow approach that also considers relevant current and forward-looking economic variables and the ACL is limited to the difference between the fair value of the security and its amortized cost. Judgment is specifically applied in the determination of economic assumptions, length of the initial loss forecast period, the reversion of losses beyond the initial forecast period, usage of macroeconomic scenarios, probabilities of default, losses given default, amortization and prepayment rates, and qualitative factors, which may not be adequately captured in the loss model, as further discussed below.
The macroeconomic scenarios utilized by management include variables that have historically been key drivers of increases and decreases in credit losses. These variables include, but are not limited to, unemployment rates, housing and commercial real estate prices, gross domestic product levels, corporate bond spreads and changes in equity market prices. Management derives the economic forecasts it uses in its ACL model from Moody’s Analytics. The latter has a large team of economics, database managers and operational engineers with a history of producing monthly economic forecasts for over 25 years.
Management has currently set an initial forecast period (“reasonable and supportable period”) of four years and a reversion period of one year, utilizing a straight-line approach and reverting back to the historical macroeconomic mean. After the reversion period, a historical loss forecast period covering the remaining contractual life, adjusted for prepayments, is used based on changes in key historical economic variables during representative historical expansionary and recessionary periods. Changes in economic forecasts impact the probability of default (“PD”), loss-given default (“LGD”), and exposure at default (“EAD”) for each instrument, and therefore influence the amount of future cash flows for each instrument that management does not expect to collect.
Further, management periodically considers the need for qualitative adjustments to the ACL. Qualitative adjustments may be related to and include, but not limited to, factors such as the following: (i) management’s assessment of economic forecasts used in the model and how those forecasts align with management’s overall evaluation of current and expected economic conditions; (ii) organization specific risks such as credit concentrations, collateral specific risks, nature, and size of the portfolio and external factors that may ultimately impact credit quality, and (iii) other limitations associated with factors such as changes in underwriting and loan resolution strategies, among others. The qualitative factors applied on March 31, 2024, and the importance and levels of the qualitative factors applied, may change in future periods depending on the level of changes to items such as the uncertainty of economic conditions and management’s assessment of the level of credit risk within the loan portfolio as a result of such changes, compared to the amount of ACL calculated by the model. The evaluation of qualitative factors is inherently imprecise and requires significant management judgment.
The ACL can also be impacted by factors outside of management’s control, which include unanticipated changes in asset quality of the portfolio, such as deterioration in borrower delinquencies, or credit scores in our residential real estate and consumer portfolio. Further, the current fair value of collateral is utilized to assess the expected credit losses when a financial asset is considered to be collateral dependent.
Our process for determining the ACL is further discussed in “Note 1 - Basis of Presentation, Description of Business and Summary of Significant Accounting Policies” in our “2023 Annual Report”. Fair Value Measurement of MSRs - Our residential mortgage servicing rights are measured at fair value on a recurring basis. We estimate the fair value of our MSRs using a process that utilizes a discounted cash flow model and analysis of current market data to arrive at the estimate. The cash flow assumptions used in the model are based on numerous factors, with those describedthe key assumptions being mortgage prepayment speeds, discount rates and cost to service that management believes are consistent with the assumptions that other similar market participants use in valuing MSRs. The change of any of these key assumptions due to market conditions or other factors could materially affect the fair value of our MSRs. We also utilize a third-party consulting firm to assist us with the valuation. Because of the nature of the valuation inputs, we classify the valuation of our MSRs as Level 3 in the fair value hierarchy. See Note 4 - Mortgage Servicing Rights for our assumptions used in valuing the MSRs. For information concerning the hypothetical sensitivity of the key assumptions under adverse changes on our MSRs, see the heading “Management’stable under “Noninterest Income” elsewhere in the Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Estimates” and the notes to the audited consolidated financial statements appearing in the Prospectus filed with the SEC pursuant to Securities Act Rule 424(b)(3) in connection with the merger on August 12, 2021.
Our significant accounting policies are presented in “Note 1 - Summary of Significant Accounting Policies” in our audited consolidated financial statements and footnotes for the year ended December 31, 2020 included in the Prospectus filed with the SEC pursuant to Securities Act Rule 424(b)(3) in connection with the merger on August 12, 2021. These policies, along with the disclosures presented in the other financial statement notes andOperations in this discussion, provide information on how significant assets and liabilities are valued in the financial statements and how those values are determined. Recent accounting pronouncements and standards that have impacted or could potentially affect us are also discussed in “Note 1” of our audited consolidated financial statements.
Results of Operations
| | | | | | | | | | | | | | | | | | | |
| As of and for the three months ended March 31, | | | | |
| ($ in thousands, except per share amounts) | 2024 | | | | 2023 | | | | | | |
| Net interest income | $ | 70,806 | | | | | $ | 74,117 | | | | | | | |
| Provision for credit losses | 16,500 | | | | | 3,360 | | | | | | | |
| Noninterest income | 22,808 | | | | | 18,931 | | | | | | | |
| Noninterest expense | 61,828 | | | | | 56,266 | | | | | | | |
| Income before income taxes | 15,286 | | | | | 33,422 | | | | | | | |
| Provision for income taxes | 2,990 | | | | | 7,141 | | | | | | | |
| Net income | 12,296 | | | | | 26,281 | | | | | | | |
| | | | | | | | | | | |
| Diluted earnings per share | $ | 0.45 | | | | | $ | 1.03 | | | | | | | |
| Return on average total assets | 0.64 | % | | | | 1.44 | % | | | | | | |
| Return on average stockholders' equity | 5.15 | % | | | | 13.37 | % | | | | | | |
| Net interest margin | 3.99 | % | | | | 4.39 | % | | | | | | |
| Net interest margin - FTE basis (non-GAAP) (1) | 4.06 | % | | | | 4.46 | % | | | | | | |
| Efficiency ratio | 66.05 | % | | | | 60.47 | % | | | | | | |
| Noninterest income to total revenue (2) | 24.36 | % | | | | 20.35 | % | | | | | | |
| (1) See section entitled “Non-GAAP Financial Measures and Reconciliations” for information regarding non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent. |
| (2) Total revenue is net interest income plus noninterest income. |
General
Our results of operations depend significantly on net interest income, which is the difference between interest income on interest-earning assets, consisting primarily of interest income on loans and investment securities and interest expense on interest-bearing liabilities, consisting primarily of deposits and borrowings. Our results of operations are also dependent on our generation of noninterest income, consisting primarily of income from mortgage banking services, service charges on deposit accounts, trust and investment advisory fees and credit and debit card fees. Other factors contributing to our results of operations include our provisions for loancredit losses, income taxes, and noninterest expenses, such as salaries and employee benefits, occupancy and equipment, amortization of intangible assets and other operating costs.
Net income for the second quarter of 2021 was $11.3 million, compared to $14.4 million for the second quarter of 2020. The $3.1 million decrease in net income for the second quarter of 2021, compared to the same period in 2020, was primarily due to a $15.3 million decrease in income from mortgage banking services partially offset by a $12.4 million increase in net interest income after provision for loan losses.
Net income for the six months ended June 30, 2021 was $25.6 million, compared to $21.6 million for the six months ended June 30, 2020. The $4.0 million increase in net income for the six months ended June 30, 2021, compared to the same period in 2020, was primarily due to a $22.0 million increase in net interest income after provision for loan losses, partially offset by an increase in noninterest expenses of $17.0 million.
Net Interest Income
Net interest income, representing interest income less interest expense, is a significant contributor to our revenues and earnings. We generate interest income from interest and dividends on interest-earning assets, which are principally comprised of loans and investment securities. We incur interest expense from interest owed or paid on interest-bearing liabilities, including interest-bearing deposits, FHLB advances and other borrowings. Net interest income and margin are shaped by the characteristics of the underlying products, including volume, term and structure of each product. We measure and monitor yields on our loans and other interest-earning assets, the costs of our deposits and other funding sources, our net interest spread and our net interest margin. Net interest spread is the difference between rates earned on interest-earning assets and rates paid on interest-bearing liabilities. Net interest margin is calculated as the annualized net interest income divided by average interest-earning assets.
Interest earned on our loan portfolio is 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. LoansNon-PCD loans acquired through acquisition are initially recorded at fair value. Discountsvalue and the resulting discount or premiums created when the loans were recorded at their estimated fair values at acquisitionpremium are accreted over the remaining term of the loanrecognized as an adjustment toof the yield on the related loan’s yield.
Our net interest income can be significantly influenced by a variety of factors, including overall loan demand, economic conditions, credit risk, the amount of non-earning assets including nonperforming loans and OREO, the amounts of and rates at which assets and liabilities reprice, variances in prepayment of loans and securities, exercise of call options on borrowings or securities, a general rise or decline in interest rates, changes in the slope of the yield-curve, and balance sheet growth or contraction.
Three Months Ended June 30, 2021months ended March 31, 2024 and 2020
Our net interest income was $36.4$70.8 million for the secondfirst quarter of 2021, an increase2024, a decrease of $3.5$3.3 million, or 10.7%4.5%, from the same period in 2020. This increase was primarily attributable to a $2.8 million, or 8.2%, increase in interest and fee income on loans held-for-investment for the second quarter of 2021, compared to the second quarter of 2020, largely driven by an increase of $264.6 million in loans held-for-investment in the second quarter of 2021, compared to the same period in 2020.
Average earning assets for the second quarter of 2021 were $5.2 billion, an increase of $0.8 billion, or 17.3%, compared to the second quarter of 2020. Total average loans, including loans held-for-sale, grew $0.3 billion to $3.9 billion in the second quarter of 2021, from $3.6 billion in the second quarter of 2020. The period over period growth in interest2023. Interest income on loans held-for-investment is primarily due to growth in average loan balances, while yields remained relatively flat. Interest income from investment securities declined due to a combination of a decrease in market interest rates which led to an increase in prepayment speeds and premium amortization compared toincreased by $13.7 million for the prior period, as well as a decrease in average balances as we did not re-invest all of the cash flows resulting from the portfolio amortization over the past year. The average balance of investment securities decreased $70.9 million in the secondfirst quarter of 2021, compared to the second quarter of 2020, while the yield on average investment securities declined 48 basis points to 1.46% for the second quarter of 2021, compared to 1.94% for second quarter of 2020.
Average interest bearing liabilities increased $0.4 billion, or 14.1%, in the second quarter of 2021, compared to the second quarter of 2020. Average interest bearing deposits increased $0.4 billion, or 14.5%, in the second quarter of 2021, compared to the second quarter of 2020, and was the primary driver of the growth in average interest bearing liabilities. We also saw growth in noninterest bearing deposits of $0.3 billion in the second quarter of 2021,2024, compared to the same period in 2020. In addition to growth in our overall commercial and consumer customer base, we saw deposit growth as a result of funds our customers received from federal stimulus programs related to2023. Interest income on investment securities increased by $0.3 million for the COVID-19 pandemic. The average rate for all interest bearing deposits declined by 29 basis points in the secondfirst quarter of 2021,2024, compared to the same period in 2020.2023. Interest expense from total interest-bearing liabilities increased by $18.4 million for the first quarter of 2024, compared to the same period in 2023.
Average interest-bearing liabilities increased $0.4 billion, or 9.2%, for the first quarter of 2024, compared to the same period in 2023, primarily to support the growth in our loan portfolio. Average interest-bearing deposits increased $0.8 billion, or 19.2%, in the first quarter of 2024, compared to the same period in 2023. Average FHLB borrowings decreased $0.3 billion, or 75.6%, in the first quarter of 2024, compared to the same period in 2023.
Our net interest margin was 2.81%3.99% for the secondfirst quarter of 2021,2024, compared to 2.98%4.39% for the second quarter of 2020,same period in 2023, a decrease of 0.17%. While40 basis points. We experienced a 58 basis points increase in yield from earning assets while our total cost of funds declinedincreased by 24130 basis points, year over year, we also experienced a 37 basis point decline in yield on our earning assets overfor the first quarter of 2024 as compared to the same period due toin 2023. In the overall decline in market interest rates during 2021. Our earning asset yield was also negatively impacted byfirst quarter of 2024, we saw the $0.6 billionlevel of increase in interest bearing cash balances, compared to the prior year period, from the heavier level of overall liquidity in the marketplace.
Six Months Ended June 30, 2021 and 2020
Our net interest income was $74.8 million for the six months ended June 30, 2021, an increase of $10.0 million, or 15.4%, from the six months ended June 30, 2020. This increase was primarily attributable to growth of $454.1 million in average total loans held-for-investment balances during 2021, driving an increase in interest income on loans of $7.8 million despite the negative impact of declining market interest rates on loan yields. Interest and fee income on PPP loans contributed $4.2 million of the overall increase in interest income on loans for the period. Interest income on investment securities and interest-bearing cash decreased by $2.4 million for the six months ended of June 30, 2021, compared to the six months ended June 30, 2020. Interest expense from interest bearing deposits declined by $4.8 million driven by a 38 basis point reduction in the average rate on our interest bearing deposits.
Average earning assets for the six months ended June 30, 2021 were $5.0 billion, an increase of $0.8 billion, or 19.9%, compared to the six months ended June 30, 2020. Total average loans, including loans held-for-sale, grew to $3.9 billion for the six months ended June 30, 2021, an increase of $0.5 billion, compared to the six months ended June 30, 2020. The growth in interest income on loans held-for-investment is due to growth in loan balances and was partially offset by a eight basis point decline in the yield on loans in the six months ended June 30, 2021, compared to the six months ended June 30, 2020, due to the overall reduction in market interest rates over the past year. Interest income from investment securities declined period over period, due to a combination of a 63 basis point decrease in yield due to decreasing market interest rates, as well as a $81.0 million decrease in average balances, period over period.
Average interest bearing liabilities increased $0.4 billion, or 14.3%, for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. Average interest bearing deposits increased $0.4 billion, or 14.2%, in the six months ended June 30, 2021, compared to the six months ended June 30, 2020 and was the primary driver of the growth in average interest bearing liabilities. We also saw growth in noninterest bearing deposits of $0.3 billion for the six months ended June 30, 2021, compared to the six months ended June 30, 2020. In addition to growth in our overall commercial and consumer customer base, we saw deposit growth as a result of funds our customers received from federal stimulus programs related to the COVID-19 pandemic.
Our net interest margin was 3.00% for the six months ended June 30, 2021, compared to 3.11% for the six months ended June 30, 2020, a decrease of 11 basis points. While the total cost of funds declined by 33 basis points period over period, we also experienced a 37 basis point declineexceed the level of increase in yield from earning assets overprimarily as a result of the same period leadingmix shift within our deposit base to certificates of deposits and the overall period over period decline in net interest margin.rising deposit costs across all deposit products.
The following tables set forth information related to our average balance sheet, average yields on assets, and average costs of liabilities for the periods presented. We derived these yields by dividing income or expense by the average balance of the corresponding assets or liabilities. We derived average balances from the daily balances throughout the periods indicated.
Three Months Ended June 30, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, 2021 | | For the three months ended June 30, 2020 |
| (In thousands) | | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate |
| Interest Earning Assets | | | | | | | | | | | | |
| Loans held-for-sale | | $ | 133,592 | | | $ | 1,168 | | | 3.50 | % | | $ | 134,311 | | | $ | 1,122 | | | 3.36 | % |
| Loans held-for-investment1 | | 3,736,120 | | | 36,557 | | | 3.91 | % | | 3,471,538 | | | 33,801 | | | 3.92 | % |
| Investment securities | | 514,248 | | | 1,877 | | | 1.46 | % | | 585,189 | | | 2,821 | | | 1.94 | % |
| Interest-bearing cash | | 800,851 | | | 467 | | | 0.23 | % | | 228,239 | | | 268 | | | 0.47 | % |
| Total earning assets | | 5,184,811 | | | 40,069 | | | 3.09 | % | | 4,419,277 | | | 38,012 | | | 3.46 | % |
| Other assets | | 294,765 | | | | | | | 277,045 | | | | | |
| Total assets | | $ | 5,479,576 | | | | | | | $ | 4,696,322 | | | | | |
| | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | |
| Demand and NOW deposits | | $ | 317,651 | | | $ | 285 | | | 0.36 | % | | $ | 270,163 | | | $ | 318 | | | 0.47 | % |
| Savings deposits | | 452,537 | | | 115 | | | 0.10 | % | | 359,623 | | | 178 | | | 0.20 | % |
| Money market deposits | | 2,233,460 | | | 1,148 | | | 0.21 | % | | 1,745,131 | | | 1,476 | | | 0.34 | % |
| Certificates of deposits | | 351,350 | | | 801 | | | 0.91 | % | | 554,584 | | | 2,153 | | | 1.56 | % |
| Total deposits | | 3,354,998 | | | 2,349 | | | 0.28 | % | | 2,929,501 | | | 4,125 | | | 0.57 | % |
| Repurchase agreements | | 144,421 | | | 18 | | | 0.05 | % | | 124,271 | | | 36 | | | 0.12 | % |
| Total deposits and repurchase agreements | | 3,499,419 | | | 2,367 | | | 0.27 | % | | 3,053,772 | | | 4,161 | | | 0.55 | % |
| FHLB borrowings | | 40,000 | | | 150 | | | 1.50 | % | | 72,891 | | | 317 | | | 1.75 | % |
| Other long-term borrowings | | 68,760 | | | 1,152 | | | 6.70 | % | | 36,083 | | | 655 | | | 7.30 | % |
| Total interest-bearing liabilities | | 3,608,179 | | | 3,669 | | | 0.41 | % | | 3,162,746 | | | 5,133 | | | 0.65 | % |
| Noninterest-bearing deposits | | 1,283,536 | | | | | | | 989,218 | | | | | |
| Other liabilities | | 76,080 | | | | | | | 81,983 | | | | | |
| Stockholders’ equity | | 511,781 | | | | | | | 462,375 | | | | | |
| Total liabilities and stockholders’ equity | | $ | 5,479,576 | | | | | | | $ | 4,696,322 | | | | | |
| | | | | | | | | | | | |
| Net interest income | | | | $ | 36,400 | | | | | | | $ | 32,879 | | | |
| Net interest spread | | | | 2.68 | % | | | | | | 2.81 | % | | |
| Net interest margin | | | | 2.81 | % | | | | | | 2.98 | % | | |
| Net interest margin (on an FTE basis) | | | | 2.93 | % | | | | | | 3.11 | % | | |
1 Includes nonaccrual loans | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2024 | | 2023 | | |
| (In thousands) | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | | | | | | |
| Interest Earning Assets | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Loans (1) | 6,313,855 | | | 102,268 | | | 6.48 | % | | 6,028,989 | | | 88,601 | | | 5.88 | % | | | | | | |
| Investment securities | 546,960 | | | 4,487 | | | 3.28 | % | | 570,682 | | | 4,164 | | | 2.92 | % | | | | | | |
| Interest-bearing cash and other assets | 239,508 | | | 3,285 | | | 5.49 | % | | 156,262 | | | 2,138 | | | 5.47 | % | | | | | | |
| Total earning assets | 7,100,323 | | | 110,040 | | | 6.20 | % | | 6,755,933 | | | 94,903 | | | 5.62 | % | | | | | | |
| Other assets | 548,642 | | | | | | | 553,961 | | | | | | | | | | | |
| Total assets | $ | 7,648,965 | | | | | | | $ | 7,309,894 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | | | | | | |
| Demand and NOW deposits | $ | 549,491 | | | $ | 4,861 | | | 3.54 | % | | $ | 227,170 | | | $ | 1,234 | | | 2.17 | % | | | | | | |
| Savings deposits | 421,882 | | | 725 | | | 0.69 | % | | 470,000 | | | 445 | | | 0.38 | % | | | | | | |
| Money market deposits | 2,063,321 | | | 9,946 | | | 1.93 | % | | 2,296,469 | | | 5,068 | | | 0.88 | % | | | | | | |
| Certificates of deposits | 1,814,629 | | | 20,858 | | | 4.60 | % | | 1,073,006 | | | 7,432 | | | 2.77 | % | | | | | | |
| Total deposits | 4,849,323 | | | 36,390 | | | 3.00 | % | | 4,066,645 | | | 14,179 | | | 1.39 | % | | | | | | |
| Repurchase agreements | 21,254 | | | 57 | | | 1.06 | % | | 29,672 | | | 30 | | | 0.41 | % | | | | | | |
| Total deposits and repurchase agreements | 4,870,577 | | | 36,447 | | | 2.99 | % | | 4,096,317 | | | 14,209 | | | 1.39 | % | | | | | | |
| FHLB borrowings | 110,777 | | | 1,541 | | | 5.56 | % | | 454,081 | | | 5,317 | | | 4.68 | % | | | | | | |
| Other long-term borrowings | 75,389 | | | 1,246 | | | 6.62 | % | | 80,300 | | | 1,260 | | | 6.28 | % | | | | | | |
| Total interest-bearing liabilities | 5,056,743 | | | 39,234 | | | 3.10 | % | | 4,630,698 | | | 20,786 | | | 1.80 | % | | | | | | |
| Noninterest-bearing deposits | 1,502,707 | | | | | | | 1,768,381 | | | | | | | | | | | |
| Other liabilities | 134,370 | | | | | | | 124,543 | | | | | | | | | | | |
| Stockholders' equity | 955,145 | | | | | | | 786,272 | | | | | | | | | | | |
| Total liabilities and stockholders' equity | $ | 7,648,965 | | | | | | | $ | 7,309,894 | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Net interest income | | | $ | 70,806 | | | | | | | $ | 74,117 | | | | | | | | | |
| Net interest spread | | | 3.10 | % | | | | | | 3.82 | % | | | | | | | | |
| Net interest margin | | | 3.99 | % | | | | | | 4.39 | % | | | | | | | | |
| Net interest margin - FTE basis (non-GAAP) (2) | | | 4.06 | % | | | | | | 4.46 | % | | | | | | | | |
| (1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale. |
| (2) See section entitled “Non-GAAP Financial Measures and Reconciliations” for information regarding non-GAAP financial measures and a reconciliation to the most comparable GAAP equivalent |
Six Months Ended June 30, 2021 and 2020
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, 2021 | | For the six months ended June 30, 2020 |
| (In thousands) | | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate |
| Interest Earning Assets | | | | | | | | | | | | |
| Loans held-for-sale | | $ | 141,909 | | | $ | 2,271 | | | 3.20 | % | | $ | 109,389 | | | $ | 1,844 | | | 3.37 | % |
| Loans held-for-investment2 | | 3,751,632 | | | 75,713 | | | 4.04 | % | | 3,297,494 | | | 67,882 | | | 4.12 | % |
| Investment securities | | 506,109 | | | 3,692 | | | 1.46 | % | | 587,099 | | | 6,138 | | | 2.09 | % |
| Interest-bearing cash | | 591,436 | | | 839 | | | 0.28 | % | | 168,123 | | | 786 | | | 0.94 | % |
| Total earning assets | | 4,991,086 | | | 82,515 | | | 3.31 | % | | 4,162,105 | | | 76,650 | | | 3.68 | % |
| Other assets | | 287,590 | | | | | | | 280,282 | | | | | |
| Total assets | | $ | 5,278,676 | | | | | | | $ | 4,442,387 | | | | | |
| | | | | | | | | | | | |
| Interest-bearing liabilities | | | | | | | | | | | | |
| Demand and NOW deposits | | $ | 287,440 | | | $ | 497 | | | 0.35 | % | | $ | 192,190 | | | $ | 522 | | | 0.54 | % |
| Savings deposits | | 454,719 | | | 262 | | | 0.12 | % | | 345,973 | | | 387 | | | 0.22 | % |
| Money market deposits | | 2,142,197 | | | 2,251 | | | 0.21 | % | | 1,723,341 | | | 3,880 | | | 0.45 | % |
| Certificates of deposits | | 356,474 | | | 1,743 | | | 0.98 | % | | 575,941 | | | 4,744 | | | 1.65 | % |
| Total deposits | | 3,240,830 | | | 4,753 | | | 0.29 | % | | 2,837,445 | | | 9,533 | | | 0.67 | % |
| Repurchase agreements | | 137,255 | | | 36 | | | 0.05 | % | | 96,280 | | | 116 | | | 0.24 | % |
| Total deposits and repurchase agreements | | 3,378,085 | | | 4,789 | | | 0.28 | % | | 2,933,725 | | | 9,649 | | | 0.66 | % |
| FHLB borrowings | | 45,096 | | | 607 | | | 2.69 | % | | 87,319 | | | 1,027 | | | 2.35 | % |
| Other long-term borrowings | | 68,665 | | | 2,302 | | | 6.71 | % | | 35,216 | | | 1,156 | | | 6.56 | % |
| Total interest-bearing liabilities | | 3,491,846 | | | 7,698 | | | 0.44 | % | | 3,056,260 | | | 11,832 | | | 0.77 | % |
| Noninterest-bearing deposits | | 1,200,921 | | | | | | | 859,243 | | | | | |
| Other liabilities | | 79,706 | | | | | | | 76,555 | | | | | |
| Stockholders’ equity | | 506,203 | | | | | | | 450,329 | | | | | |
| Total liabilities and stockholders’ equity | | $ | 5,278,676 | | | | | | | $ | 4,442,387 | | | | | |
| | | | | | | | | | | | |
| Net interest income | | | | $ | 74,817 | | | | | | | $ | 64,818 | | | |
| Net interest spread | | | | 2.87 | % | | | | | | 2.91 | % | | |
| Net interest margin | | | | 3.00 | % | | | | | | 3.11 | % | | |
| Net interest margin (on an FTE basis) | | | | 3.13 | % | | | | | | 3.25 | % | | |
2 Includes nonaccrual loans
Rate-Volume Analysis
The tables below present the effect of volume and rate changes on interest income and expense. Changes indue to volume are changes in the average balance multiplied by the previous period’s average rate. Changes indue to rate are changes in the average rate multiplied by the average balance from the previousprior period. The net changes attributable to the combined impact of both rate and volume have been allocated proportionately to the changes due to volume and the changes due to rate.
| | For the three months ended June 30, |
| 2021 versus 2020 increase (decrease) due to change in: |
| For the three months ended March 31, | |
| For the three months ended March 31, | |
| For the three months ended March 31, | |
| 2024 Versus 2023 Increase (Decrease) Due to: | |
| 2024 Versus 2023 Increase (Decrease) Due to: | |
| 2024 Versus 2023 Increase (Decrease) Due to: | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | (In thousands) | | Rate | | Volume | | Total |
| Interest Earning Assets | Interest Earning Assets | | | | | | |
| Loans held-for-sale | | $ | 52 | | | $ | (6) | | | $ | 46 | |
| Loans held-for-investment | | 165 | | | 2,591 | | | 2,756 | |
| Interest Earning Assets | |
| Interest Earning Assets | |
| | Loans (1) | |
| | Loans (1) | |
| | Loans (1) | |
| Investment securities | |
| Investment securities | |
| Investment securities | Investment securities | | (600) | | | (344) | | | (944) | |
| Interest-bearing cash | Interest-bearing cash | | (479) | | | 678 | | | 199 | |
| Interest-bearing cash | |
| Interest-bearing cash | |
| Total earning assets | Total earning assets | | (862) | | | 2,919 | | | 2,057 | |
| | Total earning assets | |
| Total earning assets | |
| Interest-bearing liabilities | |
| Interest-bearing liabilities | |
| Interest-bearing liabilities | Interest-bearing liabilities | |
| Demand and NOW deposits | Demand and NOW deposits | | (89) | | | 56 | | | (33) | |
| Demand and NOW deposits | |
| Demand and NOW deposits | |
| Savings deposits | |
| Savings deposits | |
| Savings deposits | Savings deposits | | (109) | | | 46 | | | (63) | |
| Money market deposits | Money market deposits | | (743) | | | 415 | | | (328) | |
| Money market deposits | |
| Money market deposits | |
| Certificates of deposits | |
| Certificates of deposits | |
| Certificates of deposits | Certificates of deposits | | (559) | | | (793) | | | (1,352) | |
| Total deposits | Total deposits | | (1,500) | | | (276) | | | (1,776) | |
| Total deposits | |
| Total deposits | |
| Repurchase agreements | |
| Repurchase agreements | |
| Repurchase agreements | Repurchase agreements | | (24) | | | 6 | | | (18) | |
| Total deposits and repurchase agreements | Total deposits and repurchase agreements | | (1,524) | | | (270) | | | (1,794) | |
| Total deposits and repurchase agreements | |
| Total deposits and repurchase agreements | |
| FHLB borrowings | |
| FHLB borrowings | |
| FHLB borrowings | FHLB borrowings | | (23) | | | (144) | | | (167) | |
| Other long-term borrowings | Other long-term borrowings | | (100) | | | 597 | | | 497 | |
| Other long-term borrowings | |
| Other long-term borrowings | |
| Total interest-bearing liabilities | Total interest-bearing liabilities | | (1,647) | | | 183 | | | (1,464) | |
| | Total interest-bearing liabilities | |
| Total interest-bearing liabilities | |
| Net interest income | Net interest income | | $ | 785 | | | $ | 2,736 | | | $ | 3,521 | |
| Net interest income | |
| Net interest income | |
| (1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale. | |
| (1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale. | |
| (1) Includes loans held-for-investment, including nonaccrual loans, and loans held-for-sale. | |
| | | | | | | | | | | | | | | | | | | | |
| | For the six months ended June 30, |
| | 2021 Versus 2020 Increase (Decrease) Due to: |
| (In thousands) | | Rate | | Volume | | Total |
| Interest Earning Assets | | | | | | |
| Loans held-for-sale | | $ | (669) | | | $ | 1,096 | | | $ | 427 | |
| Loans held-for-investment | | (10,867) | | | 18,698 | | | 7,831 | |
| Investment securities | | (753) | | | (1,693) | | | (2,446) | |
| Interest-bearing cash | | (3,906) | | | 3,959 | | | 53 | |
| Total earning assets | | (16,195) | | | 22,060 | | | 5,865 | |
| | | | | | |
| Interest-bearing liabilities | | | | | | |
| Demand and NOW deposits | | (542) | | | 517 | | | (25) | |
| Savings deposits | | (368) | | | 243 | | | (125) | |
| Money market deposits | | (3,515) | | | 1,886 | | | (1,629) | |
| Certificates of deposits | | 615 | | | (3,616) | | | (3,001) | |
| Total deposits | | (3,810) | | | (970) | | | (4,780) | |
| Repurchase agreements | | (179) | | | 99 | | | (80) | |
| Total deposits and repurchase agreements | | (3,989) | | | (871) | | | (4,860) | |
| FHLB borrowings | | 573 | | | (993) | | | (420) | |
| Other long-term borrowings | | (1,049) | | | 2,195 | | | 1,146 | |
| Total interest-bearing liabilities | | (4,465) | | | 331 | | | (4,134) | |
| | | | | | |
| Net interest income | | $ | (11,730) | | | $ | 21,729 | | | $ | 9,999 | |
Provision (Benefit) for LoanCredit Losses
We established an allowance for loancredit losses through a provision (benefit) for loancredit losses charged as an expense (benefit) in our consolidated statements of income. The provision for loancredit losses is the amount of expense that, based on our judgment, is required to maintain the allowance for loancredit losses at an adequate level to absorb probableexpected losses incurred in the loan portfolio at the balance sheet date and that, in management’s judgment, is appropriate under GAAP. Our determination of the amount of the allowance for loancredit losses and corresponding provision for loancredit 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 loancredit losses is increased by the provision for loancredit losses and is decreased by charge-offs, net of recoveries on prior loan charge-offs.
We had a reversal of provision expense, or benefit for loancredit losses of $1.4$16.5 million for the secondfirst quarter of 2021,2024, compared to provision expense of $7.5$3.4 million for the second quarter of 2020. The provision for loan losses in the second quarter of 2020 was primarily due to changes in certain environmental factors influencing our overall allowance for loan losses that resulted from uncertainty surrounding the COVID-19 pandemic, as well as a $429.0 million increase in loan balances. The benefit realized during the 2021 period was primarily due to favorable changes to certain environmental factors as a result of improved economic conditions partially offset by a $194.1 million increase in loan balances during the second quarter of 2021 over the same period in 2020.
We had a reversal of provision expense, or benefit for loan losses, of $1.8 million for the six months ended June 30, 2021, compared to a provision for loan losses of $10.3 million for the comparable period in 2020. The provision for loan losses during the first six months of 2020 was2023, primarily due to changesa $17.4 million charge-off on a specific customer in certain environmental factors that resulted from uncertainty surrounding the COVID-19 pandemic, as well as a $511.6 million increase inour C&I loan balances. The benefit realized during the 2021 period was primarily due to favorable changes to certain environmental factors as a result of improved economic conditions and to a lesser extent due to a $52.0 million decrease in loan balances during the six month period ended June 30, 2021.
For a further discussion of the allowance for loan losses, refer to the “Allowance for Loan Losses” section of this financial review.
Noninterest Income
The following table presents noninterest income for the three and sixincome:
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| (In thousands) | 2024 | | 2023 | | | | | | | | |
| Service charges on deposit accounts | $ | 5,768 | | | $ | 5,015 | | | | | | | | | |
| Credit and debit card fees | 2,803 | | | 2,981 | | | | | | | | | |
| Trust and investment advisory fees | 1,463 | | | 1,461 | | | | | | | | | |
| Income from mortgage banking services, net | 9,502 | | | 7,429 | | | | | | | | | |
| Other | 3,272 | | | 2,045 | | | | | | | | | |
| Total noninterest income | $ | 22,808 | | | $ | 18,931 | | | | | | | | | |
Three months ended June 30, 2021March 31, 2024 and 2020.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| Service charges on deposit accounts | | $ | 2,645 | | | $ | 1,966 | | | $ | 5,188 | | | $ | 4,614 | |
| Credit and debit card fees | | 2,544 | | | 1,909 | | | 4,668 | | | 3,758 | |
| Trust and investment advisory fees | | 1,992 | | | 967 | | | 3,897 | | | 1,940 | |
| Income from mortgage banking services, net | | 22,936 | | | 38,215 | | | 47,993 | | | 54,451 | |
| Other | | 2,166 | | | 1,088 | | | 4,418 | | | 1,632 | |
| Total noninterest income | | $ | 32,283 | | | $ | 44,145 | | | $ | 66,164 | | | $ | 66,395 | |
For the three months ended June 30, 2021 and 2020
Our noninterest income decreased $11.9increased $3.9 million to $32.3$22.8 million infor the secondfirst quarter of 2021,2024 from $44.1$18.9 million in the second quarter of 2020. The decrease in noninterest income for the second quarter of 2021, compared to the same period of 2020, was primarily due to a $12.8 million decline in net gain on sales and fees from mortgage loan originations, including changes in fair value in the held-for-sale portfolio, net of hedging activity, as total mortgage loan originations during the second quarter of 2021 declined by $104.1 million, or 14.4% to $616.6 million compared to the same period in 2020.
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 secondfirst quarter of 2021, income from2024, service charges on deposit accounts increased $0.7$0.8 million, compared to the same period in 2023, primarily due primarily to increased treasury management service fee income compared with the same quarter in 2020. Treasury management services fee income increased by $0.6 million to $1.5 million for the second quarter of 2021, compared with the second quarter of 2020, and deposit service charges increased by $0.1 million to $1.2 million for the second quarter of 2021 compared with the second quarter of 2020.
Credit and debit card fees represent interchange income from credit and debit card activity and referral fees earned from processing fees on card transactions atby our business customers. Interchange income increased $0.6Credit and debit card fees decreased $0.2 million for the secondfirst quarter of 20212024 compared to the same period in 2020, due primarily to increased2023, as card transaction volumes.
Trust and investment advisory fees represent fees we receive in connection with our investment advisory and custodial management services of investment accounts. For the second quarter of 2021, trustTrust and investment advisory fees increased $1.0 million, fromwere largely unchanged for the same period in 2020, primarily due to our September 2020 acquisition of certain customer relationships of a trust and wealth advisory business based in Arizona.
Income from mortgage banking services is principally derived from the origination and sale of mortgage loans together with servicing mortgage loans for others. For the secondfirst quarter of 2021, income from mortgage banking services decreased $15.3 million compared with the second quarter of 2020, due primarily to a $12.8 million decline in net gain on sales and fees from loan originations, including changes in fair value in the loans held-for-sale portfolio, net of hedging activity. Our mortgage servicing portfolio grew from $4.0 billion in unpaid principal balances at June 30, 2020 to $4.5 billion at June 30, 2021. We retain servicing rights on the majority of the mortgage loans that we sell, which resulted in a $0.8 million increase in mortgage servicing income for the second quarter of 2021, compared to the same quarter in 2020. In addition to the fees received to service mortgage loans for others, we recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio. We also maintain a hedging strategy to manage a portion of the risk associated with changes in the fair value of our MSR portfolio. Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included2024 as a component of income from mortgage banking services.
The components of mortgage banking income for the three months ended June 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended June 30, |
| (In thousands) | | 2021 | | 2020 |
| Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging | | $ | 15,420 | | | $ | 28,190 | |
| | | | |
| Mortgage servicing income | | 3,044 | | | 2,251 | |
| MSR capitalization and changes in fair value, net of derivative activity | | 4,472 | | | 7,774 | |
| | | | |
| | | | |
| Income from mortgage banking services, net | | $ | 22,936 | | | $ | 38,215 | |
Other noninterest income increased $1.1 million for the second quarter of 2021 compared to the same period in 2020, primarily due to a $0.5 million gain on sale2023.
The components of other real estate in the second quarter of 2021 compared with a loss of $0.2 million on other real estate sold in the second quarter of 2020.income from mortgage banking services were as follows:
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| (In thousands) | 2024 | | 2023 | | | | | | | | |
| Net sale gains and fees from mortgage loan originations, including loans held-for-sale changes in fair value and hedging | $ | 4,971 | | | $ | 3,446 | | | | | | | | | |
| | | | | | | | | | | |
| Mortgage servicing income | 4,104 | | | 3,807 | | | | | | | | | |
| MSR capitalization and changes in fair value, net of derivative activity | 427 | | | 176 | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Income from mortgage banking services, net | $ | 9,502 | | | $ | 7,429 | | | | | | | | | |
For the six months ended June 30, 2021 and 2020
Our noninterestfirst quarter of 2024, income decreased $0.2 million to $66.2 million for the six months ended June 30, 2021 from $66.4 million for the six months ended June 30, 2020.
For the six months ended June 30, 2021, service charges on deposit accountsmortgage banking services increased $0.6$2.1 million, compared to the same period in 2020, primarily due to increased services and fees from treasury management programs. Treasury management services fee income increased by $0.9 million, compared to the prior year period, offset by a $0.3 million reduction in deposit service charges as activity in the 2021 period declined as a result of federal stimulus funds received by customers related to the COVID-19 pandemic.2023.
Credit and debit card fees increasedTotal loan originations sold were $200.2 million for the six months ended June 30, 2021 compared tofirst quarter of 2024, an increase of $16.4 million from $183.8 million for the same period in 2020, from increased card transaction volumes.
Trust and investment advisory fees increased by $2.0 million for the six months ended June 30, 2021 compared with the same period in 2020.2023. The increase is primarily due to our September 2020 acquisition of certain customer relationships of a trustin loan originations sold and wealth advisory business basedhigher margins, resulted in Arizona.
For the six months ended June 30, 2021, income from mortgage banking services decreased $6.5 million compared with the same period in 2020 primarily due to a declineincrease in revenue related to net sale gains and fees from loan originations, including fair value changes in the held-for-sale portfolio and hedging activity. MSR capitalization and changes in fair value, net of hedging activity.derivative activity, increased $0.3 million in the first quarter of 2024, compared to the same period in 2023. The increase in revenue decline related to our MSRs was primarily the result of changes in market interest rates and our corresponding hedging positions. The net gain on sales and fees from loan originations, including fair value changes in the held-for-sale portfolio and hedging activity, increased $0.9 million for the six months ended June 30, 2021 compared with the same period in 2020. While total loan originations increased to $1.3 billion for the six months ended June 30, 2021 from $1.1 billion in the same period in 2020, overall gain on sale margins declined. We retain servicing rights on the majority of mortgage loans that we sell, driving the increase in servicing income by $1.4 million from $4.6 million for the six months ended June 30, 2020 to $6.0 million for the six months ended June 30, 2021. MSR capitalization and changes in fair value, net of derivative activity, fell $8.7 million in the six months ended June 30, 2021, compared with the same period in 2020. We recognize fair value adjustments to our MSR asset, which includes changes in assumptions to the valuation model and pay-offs and pay-downs of the MSR portfolio. We also maintain a hedging strategy to manage a portion of the risk associated with changes in the fair value of our MSR portfolio. Changes in fair value of the derivative instruments used to economically hedge the MSRs are also included as a component of income from mortgage banking services.
The componentsfollowing 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 March 31, 2024.
| | | | | | | | | | | |
| (In thousands) | 10% | | 20% |
| Discount rate | $ | (3,458) | | | $ | (6,303) | |
| Total prepayment speeds | (3,009) | | | (5,457) | |
| Cost of servicing each loan | (1,310) | | | (2,166) | |
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 income for the six months ended June 30, 2021 and 2020 were as follows:
| | | | | | | | | | | | | | |
| | Six Months Ended June 30, |
| (In thousands) | | 2021 | | 2020 |
| Net sale gains and fees from mortgage loan originations including loans held-for-sale changes in fair value and hedging | | $ | 36,785 | | | $ | 35,908 | |
| | | | |
| Mortgage servicing income | | 5,951 | | | 4,558 | |
| MSR capitalization and changes in fair value, net of derivative activity | | 5,257 | | | 13,985 | |
| | | | |
| | | | |
| Income from mortgage banking services, net | | $ | 47,993 | | | $ | 54,451 | |
Other noninterest income increased $2.8$1.2 million for the six months ended June 30, 2021first quarter of 2024 compared withto the same period in 20202023, primarily due to certain loan-related fee income streams such as loan syndication fee income and customer accommodation interest rate swap fees and changes in fair value as well as unused credit line fees and an increase in gains on other real estate sales of $0.7 million.
Noninterest Expense
The following table presents noninterest expense for the three and six months ended June 30, 2021 and 2020.expense:
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| For the three months ended March 31, | |
| For the three months ended March 31, | |
| For the three months ended March 31, | |
| (In thousands) | |
| (In thousands) | |
| (In thousands) | (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| Salary and employee benefits | Salary and employee benefits | | $ | 38,449 | | | $ | 36,231 | | | $ | 77,068 | | | $ | 64,049 | |
| Occupancy | | 6,527 | | | 6,356 | | | 13,224 | | | 12,886 | |
| Salary and employee benefits | |
| Salary and employee benefits | |
| Occupancy and equipment | |
| Occupancy and equipment | |
| Occupancy and equipment | |
| Amortization of intangible assets | Amortization of intangible assets | | 354 | | | 361 | | | 708 | | | 722 | |
| Amortization of intangible assets | |
| Amortization of intangible assets | |
| Merger-related expenses | |
| Merger-related expenses | |
| Merger-related expenses | |
| Other | |
| Other | |
| Other | Other | | 11,294 | | | 8,732 | | | 20,804 | | | 17,108 | |
| Total noninterest expenses | Total noninterest expenses | | $ | 56,624 | | | $ | 51,680 | | | $ | 111,804 | | | $ | 94,765 | |
| Total noninterest expenses | |
| Total noninterest expenses | |
For the threeThree months ended June 30, 2021March 31, 2024 and 2020
Our noninterest expenseexpenses increased $4.9$5.6 million to $56.6$61.8 million for the secondfirst quarter of 2021,2024, from $51.7$56.3 million for the second quarter of 2020, primarily due to increases of $2.2 millionsame period in salary and employee benefits and $1.3 million in merger expenses related to the pending transaction with Pioneer.
Salary and employee benefits expense is the largest component of our noninterest expense and includes employee payroll expense, incentive compensation, health benefits and payroll taxes. Salary and employee benefits increased $2.2$2.3 million to $37.4 million for the secondfirst quarter of 2021, compared to the prior year period, due primarily to the continued growth in headcount as we expanded our sales force, as well as a reduction of salary and benefit deferrals related to PPP loan originations in the second quarter of 2020.
Other expenses increased $2.62024, from $35.0 million during the second quarter of 2021, compared with the second quarter of 2020 with merger-related expenses contributing $1.3 million of the increase and travel and entertainment expense contributing $0.4 million of the increase as activity increased from the reduced levels in 2020 caused by the COVID-19 pandemic.
For the six months ended June 30, 2021 and 2020
Our noninterest expense increased $17.0 million to $111.8 million for the six months ended June 30, 2021, from $94.8 million for the six months ended June 30, 2020, primarily due to increases of $13.0 million in salary and employee benefits expense and $3.7 million in other expenses in the six months ended June 30, 2021.
The increase in our salary and employee benefits expense for the six months ended June 30, 2021, compared to the same period in 2020, was driven by the increase in commissions paid2023, primarily due to our mortgage loan officers related to increased mortgage origination activity as well as an increase in headcount associated with expanding our presence in certain markets, including in Texashigher wages and Arizona.incentive accrual.
Other noninterest expenses increased $3.7 millionNoninterest expense for the six months ended June 30, 2021, compared tofirst quarter of 2024 included $2.5 million in merger related expenses. There were no merger related expenses for the same period in 2020. This increase was primarily caused by a $1.3 million increase in merger-related expenses, a $1.5 million increase in data processing expenses related to an increase in volume and enhanced products and services for our customers and a $0.6 million increase in FDIC insurance costs as the Small Bank FDIC Assessment Credit was fully utilized in 2020.
Efficiency ratio
The efficiency ratio is one measure of profitability in the banking industry. This ratio measures the cost of generating one dollar of revenue. That is, the ratio is designed to reflect the percentage of one dollar which must be expended to generate that dollar of revenue. We calculate this ratio by dividing noninterest expense by the sum of net interest income and noninterest income.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, |
| (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 |
| | | | | | | | |
| Efficiency ratio | | 82.44 | % | | 67.10 | % | | 79.30 | % | | 72.22 | % |
Return on equity and assets
The following table sets forth our ROAA, ROAE, dividend payout and average stockholders’ equity to average assets ratio for the periods ended:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended June 30, | | Six Months Ended June 30, | | |
| | 2021 | | 2020 | | 2021 | | 2020 | |
| | | | | | | | | | |
| Return on average total assets (ROAA) | | 0.82 | % | | 1.23 | % | | 0.97 | % | | 0.97 | % | | |
| Return on average stockholders’ equity (ROAE) | | 8.82 | % | | 12.46 | % | | 10.12 | % | | 9.58 | % | | |
| Dividend payout ratio | | — | % | | — | % | | — | % | | — | % | | |
| Average stockholders’ equity to average assets | | 9.34 | % | | 9.85 | % | | 9.59 | % | | 10.14 | % | | |
Income Taxes
For the threeThree months ended June 30, 2021March 31, 2024 and 2020
We had income tax expense for the secondfirst quarter of 20212024 of $2.2$3.0 million, compared to $3.4income tax expense of $7.1 million for the prior year period.same period in 2023. The decrease in income tax expense was primarily due to our decrease indecreased income during the first quarter over quarter.of 2024. Our effective tax rate was 16.2%19.6% for the secondfirst quarter of 2021,2024, compared to 19.3%21.4% for the prior year period.same period in 2023.
For the six months ended June 30, 2021 and 2020
We had income tax expense for the six months ended June 30, 2021 of $5.3 million, compared to $4.6 million for the prior year period. The increase in income tax expense was primarily due to our increased income during 2021. Our effective tax rate was 17.2% for the six months ended June 30, 2021, compared to 17.5% for the prior year period.
Financial Condition
Balance Sheet
Our total assets were $5.6$7.8 billion and $7.9 billion, total liabilities were $6.8 billion and $7.0 billion, and total stockholders’ equity was $1.0 billion and $0.9 billion at June 30, 2021, compared to $5.0 billion atMarch 31, 2024 and December 31, 2020. Our total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $3.8 billion at June 30, 2021, a decrease of $52.0 million from December 31, 2020.
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 June 30, 2021March 31, 2024 and December 31, 2020.2023. All available-for sale securities are carried at fair value and may be used for liquidity purposes should management consider it to be in our best interest.
Our securities available-for-sale increaseddecreased by $40.4$17.7 million to $509.0$499.1 million at June 30, 2021.March 31, 2024, compared to December 31, 2023. The decrease was primarily due to amortization of the portfolio and a decrease in fair value due to the rising interest rate environment. During 2021,the period ended March 31, 2024, the securities held-to-maturity paid down resulting in a decrease of $10.3decreased $0.3 million to $21.9$36.6 million.
The following table is a summary of our investment portfolio as of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| (In thousands) | | Carrying Amount | | % of Portfolio | | Carrying Amount | | % of Portfolio |
| Available-for-sale: | | | | | | | | |
| U.S. treasury | | $ | 20,576 | | | 4.0 | % | | $ | — | | | — | % |
| U.S. agency | | 7,237 | | | 1.4 | % | | 8,996 | | | 1.9 | % |
| Obligations of states and political subdivisions | | 3,917 | | | 0.8 | % | | 3,435 | | | 0.7 | % |
| Mortgage backed - residential | | 137,814 | | | 27.1 | % | | 119,562 | | | 25.5 | % |
| Collateralized mortgage obligations | | 212,673 | | | 41.8 | % | | 203,196 | | | 43.4 | % |
| Mortgage backed - commercial | | 126,758 | | | 24.9 | % | | 133,397 | | | 28.5 | % |
| | | | | | | | |
| Total available-for-sale | | $ | 508,975 | | | 100 | % | | $ | 468,586 | | | 100.0 | % |
| | | | | | | | |
| Held-to-maturity: | | | | | | | | |
| | | | | | | | |
| U.S. agency | | — | | | — | % | | 5,099 | | | 15.8 | % |
| Obligations of states and political subdivisions | | 723 | | | 3.3 | % | | 730 | | | 2.3 | % |
| Mortgage backed - residential | | 12,950 | | | 59.1 | % | | 16,050 | | | 49.9 | % |
| Collateralized mortgage obligations | | 8,221 | | | 37.5 | % | | 10,309 | | | 32.0 | % |
| | | | | | | | |
| | | | | | | | |
| Total held-to-maturity | | $ | 21,894 | | | 100 | % | | $ | 32,188 | | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) | Carrying Amount | | % of Portfolio | | Carrying Amount | | % of Portfolio |
| Available-for-sale: | | | | | | | |
| U.S. treasury | $ | 48,078 | | | 9.6 | % | | $ | 54,234 | | | 10.5 | % |
| U.S. agency | 1,650 | | | 0.4 | % | | 1,839 | | | 0.4 | % |
| Obligations of states and political subdivisions | 25,563 | | | 5.1 | % | | 25,970 | | | 5.0 | % |
| Mortgage backed - residential | 101,619 | | | 20.4 | % | | 106,433 | | | 20.6 | % |
| Collateralized mortgage obligations | 177,410 | | | 35.5 | % | | 181,533 | | | 35.1 | % |
| Mortgage backed - commercial | 129,358 | | | 25.9 | % | | 131,192 | | | 25.4 | % |
| Other debt | 15,400 | | | 3.1 | % | | 15,556 | | | 3.0 | % |
| Total available-for-sale | $ | 499,078 | | | 100.0 | % | | $ | 516,757 | | | 100.0 | % |
| Held-to-maturity: | | | | | | | |
| | | | | | | |
| | | | | | | |
| Obligations of states and political subdivisions | $ | 25,584 | | | 69.8 | % | | $ | 25,542 | | | 69.1 | % |
| Mortgage backed - residential | 7,327 | | | 20.0 | % | | 7,548 | | | 20.4 | % |
| Collateralized mortgage obligations | 3,729 | | | 10.2 | % | | 3,893 | | | 10.5 | % |
| | | | | | | |
| | | | | | | |
| Total held-to-maturity | $ | 36,640 | | | 100.0 | % | | $ | 36,983 | | | 100.0 | % |
The following tables showtable shows the weighted average yield to average life of each category of investment securities as of:of March 31, 2024:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | One year or less | | One to five years | | Five to ten years | | After ten years |
| June 30, 2021 | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield |
| Available-for-sale: | | | | | | | | | | | | | | | | |
| U.S. treasury | | $ | — | | | — | % | | $ | — | | | — | % | | $ | 20,576 | | | 1.28 | % | | $ | — | | | — | % |
| U.S. agency | | — | | | — | % | | 3,813 | | | 1.74 | % | | 2,482 | | | 1.24 | % | | 942 | | | 2.05 | % |
| Obligations of states and political subdivisions | | — | | | — | % | | — | | | — | % | | 561 | | | 1.50 | % | | 3,356 | | | 2.10 | % |
| Mortgage backed - residential | | 2,148 | | | 0.78 | % | | 82,170 | | | 1.76 | % | | 25,310 | | | 1.49 | % | | 28,186 | | | 1.89 | % |
| Collateralized mortgage obligations | | 16,873 | | | 0.18 | % | | 141,599 | | | 1.05 | % | | 28,460 | | | 1.70 | % | | 25,741 | | | 1.66 | % |
| Mortgage backed - commercial | | — | | | — | % | | 53,404 | | | 1.76 | % | | 58,447 | | | 2.11 | % | | 14,907 | | | 2.86 | % |
| | | | | | | | | | | | | | | | |
| Total available-for-sale | | $ | 19,021 | | | 0.24 | % | | $ | 280,986 | | | 1.40 | % | | $ | 135,836 | | | 1.77 | % | | $ | 73,132 | | | 2.02 | % |
| | | | | | | | | | | | | | | | |
| Held-to-maturity: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Obligations of states and political subdivisions | | — | | | — | % | | — | | | — | % | | 723 | | | 1.55 | % | | — | | | — | % |
| Mortgage backed - residential | | — | | | — | % | | 10,660 | | | 2.07 | % | | 42 | | | 5.85 | % | | 2,248 | | | 3.25 | % |
| Collateralized mortgage obligations | | 1,128 | | | (1.18) | % | | 7,093 | | | 1.75 | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total held-to-maturity | | $ | 1,128 | | | (1.18) | % | | $ | 17,753 | | | 1.94 | % | | $ | 765 | | | 1.79 | % | | $ | 2,248 | | | 3.25 | % |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | One year or less | | One to five years | | Five to ten years | | After ten years |
| December 31, 2020 | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield |
| Available-for-sale: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| U.S. agency | | — | | | — | % | | 4,334 | | | 1.69 | % | | 3,576 | | | 1.22 | % | | 1,085 | | | 2.04 | % |
| Obligations of states and political subdivisions | | — | | | — | % | | — | | | — | % | | 3,435 | | | 2.10 | % | | — | | | — | % |
| Mortgage backed - residential | | 1,196 | | | 3.09 | % | | 83,690 | | | 1.92 | % | | 3,060 | | | 3.09 | % | | 31,618 | | | 1.91 | % |
| Collateralized mortgage obligations | | 24,013 | | | (0.45) | % | | 143,932 | | | 1.26 | % | | — | | | — | % | | 35,250 | | | 0.73 | % |
| Mortgage backed - commercial | | — | | | — | % | | 54,463 | | | 1.79 | % | | 63,531 | | | 2.18 | % | | 15,403 | | | 2.85 | % |
| | | | | | | | | | | | | | | | |
| Total available-for-sale | | $ | 25,209 | | | (0.28) | % | | $ | 286,419 | | | 1.56 | % | | $ | 73,602 | | | 2.17 | % | | $ | 83,356 | | | 1.59 | % |
| | | | | | | | | | | | | | | | |
| Held-to-maturity: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| U.S. agency | | $ | 5,099 | | | 2.45 | % | | $ | — | | | — | % | | $ | — | | | — | % | | $ | — | | | — | % |
| Obligations of states and political subdivisions | | — | | | — | % | | — | | | — | % | | 730 | | | 1.55 | % | | — | | | — | % |
| Mortgage backed - residential | | 27 | | | 1.76 | % | | 8,483 | | | 2.22 | % | | 2,929 | | | 2.43 | % | | 4,611 | | | 3.22 | % |
| Collateralized mortgage obligations | | 10,309 | | | 1.57 | % | | — | | | — | % | | — | | | — | % | | — | | | — | % |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Total held-to-maturity | | $ | 15,435 | | | 1.86 | % | | $ | 8,483 | | | 2.22 | % | | $ | 3,659 | | | 2.25 | % | | $ | 4,611 | | | 3.22 | % |
For all periods, we had no securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | One year or less | | One to five years | | Five to ten years | | After ten years |
| Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield | | Carrying Amount | | Average Yield |
| Available-for-sale: | | | | | | | | | | | | | | | |
| U.S. treasury | $ | 16,945 | | | 1.94 | % | | $ | 31,133 | | | 1.28 | % | | $ | — | | | — | % | | $ | — | | | — | % |
| U.S. agency | — | | | — | % | | 831 | | | 6.76 | % | | 819 | | | 6.50 | % | | — | | | — | % |
| Obligations of states and political subdivisions | — | | | — | % | | — | | | — | % | | 16,634 | | | 3.15 | % | | 8,929 | | | 2.89 | % |
| Mortgage backed - residential | 291 | | | 2.84 | % | | 25,815 | | | 2.71 | % | | 34,324 | | | 2.06 | % | | 41,189 | | | 2.64 | % |
| Collateralized mortgage obligations | 1,952 | | | 2.88 | % | | 33,501 | | | 4.60 | % | | 115,740 | | | 3.69 | % | | 26,217 | | | 2.22 | % |
| Mortgage backed - commercial | 6,366 | | | 2.75 | % | | 52,489 | | | 3.88 | % | | 70,503 | | | 2.61 | % | | — | | | — | % |
| Other debt | — | | | — | % | | 1,965 | | | 3.65 | % | | 11,606 | | | 2.74 | % | | 1,829 | | | 3.75 | % |
| Total available-for-sale | $ | 25,554 | | | 2.22 | % | | $ | 145,734 | | | 3.30 | % | | $ | 249,626 | | | 3.09 | % | | $ | 78,164 | | | 2.55 | % |
| Held-to-maturity: | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Obligations of states and political subdivisions | $ | — | | | — | % | | $ | 1,014 | | | 2.06 | % | | $ | — | | | — | % | | $ | 24,570 | | | 3.52 | % |
| Mortgage backed - residential | — | | | — | % | | 4,404 | | | 2.55 | % | | 20 | | | 5.87 | % | | 2,903 | | | 3.24 | % |
| Collateralized mortgage obligations | — | | | — | % | | 2,469 | | | 2.78 | % | | 1,260 | | | 3.09 | % | | — | | | — | % |
| | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | |
| Total held-to-maturity | $ | — | | | — | % | | $ | 7,887 | | | 2.56 | % | | $ | 1,280 | | | 3.14 | % | | $ | 27,473 | | | 3.49 | % |
Loans
Our loan portfolio represents a broad range of borrowers primarily in our markets in Texas, Kansas, Colorado, New Mexico, Texas, and Arizona, primarily comprised of commercial and industrial, commercial real estate, residential real estate, and consumer financing loans.
Total loans, net of deferred origination fees, as of both June 30, 2021 and December 31, 2020 were $3.8 billion. The commercial loan portfolio includes PPP loans outstanding of $202.8 million and $251.1 million at June 30, 2021 and December 31, 2020, respectively.
The following table sets forth the composition of our loan portfolio, as of the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2021 | | December 31, 2020 |
| (In thousands) | Amount | | % of total loans | | Amount | | % of total loans |
| Commercial | $ | 2,211,084 | | | 58.3 | % | | $ | 2,173,615 | | | 56.5 | % |
| Commercial real estate | 1,124,131 | | | 29.6 | % | | 1,154,576 | | | 30.0 | % |
| Residential real estate | 444,491 | | | 11.7 | % | | 503,697 | | | 13.1 | % |
| Consumer | 14,649 | | | 0.4 | % | | 14,469 | | | 0.4 | % |
| Total loans | $ | 3,794,355 | | | 100 | % | | $ | 3,846,357 | | | 100 | % |
Our loan portfolio types are commercial, commercial real estate, residential real estate, and consumerpublic finance loans. We have a diversified portfolio across a variety of industries, and the portfolio is generally centered in the states in which we have branch offices.
Commercial loans include Our lending focus continues to be on operating companies, including commercial and industrial loans and lines-of-credit, as well as owner occupied commercial real estate loans.
Total loans held-for-investment, net of deferred fees, costs, premiums and discounts were $6.3 billion at March 31, 2024 and December 31, 2023.
The following table sets forth the composition of our loan portfolio, as of:
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) | Amount | | % of
total loans | | Amount | | % of
total loans |
| Commercial and industrial | $ | 2,480,078 | | | 39.5 | % | | $ | 2,467,688 | | | 39.4 | % |
| Commercial real estate: | | | | | | | |
| Non-owner occupied | 836,515 | | | 13.3 | % | | 812,235 | | | 13.0 | % |
| Owner occupied | 642,930 | | | 10.3 | % | | 635,365 | | | 10.2 | % |
| Construction and land | 326,447 | | | 5.2 | % | | 345,430 | | | 5.5 | % |
| Multifamily | 94,898 | | | 1.4 | % | | 103,066 | | | 1.6 | % |
| Total commercial real estate | 1,900,790 | | | 30.2 | % | | 1,896,096 | | | 30.3 | % |
| Residential real estate | 1,109,676 | | | 17.7 | % | | 1,110,610 | | | 17.7 | % |
| Public finance | 579,991 | | | 9.2 | % | | 602,913 | | | 9.6 | % |
| Consumer | 40,317 | | | 0.6 | % | | 36,371 | | | 0.6 | % |
| Other | 174,016 | | | 2.8 | % | | 153,418 | | | 2.4 | % |
| Total loans | $ | 6,284,868 | | | 100.0 | % | | $ | 6,267,096 | | | 100.0 | % |
Commercial and industrial loans include loans to commercial and agricultural customers for use in normal business operations to finance working capital needs, equipment and inventory purchases, and other expansion projects. Commercial and industrial loans also include our specialty lending verticals such as public finance offerings to our charter school and municipal based customers, asset based lending and structured finance products as well as our healthcare, SBA and other small business lending products. These loans are made primarily in our market areas and are underwritten on the basis of the borrower’s ability to service the debt from revenue, and are generally extended under our normal credit standards, controls and monitoring systems.
Commercial real estate (“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.
Residential real estate loans represent loans to consumers collateralized by a mortgage on a residence and include purchase money, refinancing, secondary mortgages, and home equity loans and lines of credit.
Consumer loans include direct consumer installment loans, credit card accounts, overdrafts and other revolving loans.
The CARES Act created the PPPOther loans consist of loans to provide certain small businesses with liquidity to support their operations during the COVID-19 pandemic. Under the PPP, eligible small businesses could apply to an SBA-approved lendernondepository financial institutions, lease financing receivables and loans for a loan that does not require collateral or personal guarantees. Entities were required to meet certain eligibility requirements to receive PPP loans, and they must maintain specified levels of payroll and employment to have the loans forgiven. The conditions are subject to audit by the U.S. government, but entities that borrowed less than $2.0 million (together with any affiliates) will be deemed to have made the required certification concerning the necessity of the loan in good faith. However, the SBA does reserve the right to audit any PPP borrower. While the PPP program ended on May 31, 2021, we are now focused on assisting our customers through the loan forgiveness process.agricultural production.
PPP loans issued prior to June 5, 2020 mature in two years unless otherwise modified and loans issued after June 5, 2020 mature in five years. However, PPP loans are eligible for forgiveness (in full or in part, including any accrued interest) under certain conditions. All borrowers are required to retain the supporting documents for six years. For loans (or parts of loans) that are forgiven, the lender will collect the forgiven amount from the U.S. government. The average amount of each originated PPP loan outstanding was approximately $0.2 million at each of June 30, 2021 and December 31, 2020.
The PPP loans have a 1% fixed interest rate and produced an annualized yield for the three and six months ended June 30, 2021 of 3.54% and 4.75%, respectively, due to the amortization of net deferred loan fees and the accelerated recognition of loan fees in conjunction with loan forgiveness occurring prior to a scheduled maturity. At June 30, 2021, the remaining amount of unamortized net deferred loan fees on the PPP loans was $4.9 million. Our PPP loans are included in the commercial loans category.
Maturities and Sensitivity of Loans to Changes in Interest Rates
The information in the following tabletables is based on the contractual maturities of individual loans, including loans that may be subject to renewal at their contractual maturity. Renewal of these loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below because borrowers have the right to prepay obligations with or without prepayment penalties. The following table summarizestables summarize the loan maturity distribution by type and related interest rate characteristics as of the periods presented:March 31, 2024:
| | (In thousands) | (In thousands) | | One year
or less | | After one
through
five years | | After five
through
15 years | | After 15
years | | Total | (In thousands) | One year
or less | | After one
through
five years | | After five
through
15 years | | After 15
years | | Total |
| As of June 30, 2021 | | | | | | | | | | |
| Commercial | | $ | 258,487 | | | $ | 1,000,748 | | | $ | 703,639 | | | $ | 248,210 | | | $ | 2,211,084 | |
| Commercial and industrial | |
| Commercial real estate | Commercial real estate | | 100,006 | | | 513,798 | | | 502,409 | | | 7,918 | | | 1,124,131 | |
| Residential real estate | Residential real estate | | 6,657 | | | 52,226 | | | 82,102 | | | 303,506 | | | 444,491 | |
| Public finance | |
| Consumer | Consumer | | 6,380 | | | 7,884 | | | 385 | | | — | | | 14,649 | |
| Other | |
| Total loans | Total loans | | $ | 371,530 | | | $ | 1,574,656 | | | $ | 1,288,535 | | | $ | 559,634 | | | $ | 3,794,355 | |
| | After one
through
five years | | After five
through
15 years | | After 15
years | | Total |
| Loans maturing after one year with: | | | | | | | | |
| Fixed interest rates | | $ | 783,704 | | | $ | 871,819 | | | $ | 294,788 | | | $ | 1,950,311 | |
| Floating or adjustable interest rates | | $ | 790,952 | | | $ | 416,716 | | | $ | 264,846 | | | $ | 1,472,514 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | One year
or less | | After one
through
five years | | After five
through
15 years | | After 15
years | | Total |
| As of December 31, 2020 | | | | | | | | | | |
| Commercial | | $ | 134,145 | | | $ | 1,004,033 | | | $ | 776,007 | | | $ | 259,430 | | | $ | 2,173,615 | |
| Commercial real estate | | 113,721 | | | 478,989 | | | 552,764 | | | 9,103 | | | 1,154,577 | |
| Residential real estate | | 16,336 | | | 40,386 | | | 89,400 | | | 357,574 | | | 503,696 | |
| Consumer | | 6,057 | | | 7,980 | | | 432 | | | — | | | 14,469 | |
| Total loans | | $ | 270,259 | | | $ | 1,531,388 | | | $ | 1,418,603 | | | $ | 626,107 | | | $ | 3,846,357 | |
| | | | | | | | | | |
| | | | After one
through
five years | | After five
through
15 years | | After 15
years | | Total |
| Loans maturing after one year with: | | | | | | | | | | |
| Fixed interest rates | | | | $ | 1,095,180 | | | $ | 1,021,107 | | | $ | 314,344 | | | $ | 2,430,631 | |
| Floating or adjustable interest rates | | | | $ | 436,208 | | | $ | 397,496 | | | $ | 311,763 | | | $ | 1,145,467 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | One year
or less | | After one
through
five years | | After five
through
15 years | | After 15
years | | Total | | Total Loans Maturing After 1 Year |
| Loans maturing with: | | | | | | | | | | | |
| Fixed interest rates | | | | | | | | | | | |
| Commercial and industrial | $ | 19,046 | | | $ | 295,462 | | | $ | 198,642 | | | $ | 545 | | | $ | 513,695 | | | $ | 494,649 | |
| Commercial real estate | 154,233 | | | 631,261 | | | 86,043 | | | 2,598 | | | 874,135 | | | 719,902 | |
| Residential real estate | 77,360 | | | 21,096 | | | 51,004 | | | 315,662 | | | 465,122 | | | 387,762 | |
| Public finance | 22,917 | | | 93,460 | | | 339,993 | | | 117,795 | | | 574,165 | | | 551,248 | |
| Consumer | 10,551 | | | 8,086 | | | 18,192 | | | — | | | 36,829 | | | 26,278 | |
| Other | 7,012 | | | 20,879 | | | 23,638 | | | 3,620 | | | 55,149 | | | 48,137 | |
| Total fixed interest rate loans | $ | 291,119 | | | $ | 1,070,244 | | | $ | 717,512 | | | $ | 440,220 | | | $ | 2,519,095 | | | $ | 2,227,976 | |
| Floating or adjustable interest rates | | | | | | | | | | | |
| Commercial and industrial | $ | 451,934 | | | $ | 1,382,145 | | | $ | 107,504 | | | $ | 24,800 | | | $ | 1,966,383 | | | $ | 1,514,449 | |
| Commercial real estate | 152,350 | | | 466,004 | | | 350,127 | | | 58,174 | | | 1,026,655 | | | 874,305 | |
| Residential real estate | 38,466 | | | 8,071 | | | 18,967 | | | 579,050 | | | 644,554 | | | 606,088 | |
| Public finance | — | | | 2,173 | | | 3,653 | | | — | | | 5,826 | | | 5,826 | |
| Consumer | 1,530 | | | 1,549 | | | 217 | | | 192 | | | 3,488 | | | 1,958 | |
| Other | 43,775 | | | 75,085 | | | 7 | | | — | | | 118,867 | | | 75,092 | |
| Total floating or adjustable interest rate loans | $ | 688,055 | | | $ | 1,935,027 | | | $ | 480,475 | | | $ | 662,216 | | | $ | 3,765,773 | | | $ | 3,077,718 | |
| Total loans | $ | 979,174 | | | $ | 3,005,271 | | | $ | 1,197,987 | | | $ | 1,102,436 | | | $ | 6,284,868 | | | $ | 5,305,694 | |
Allowance for LoanCredit Losses
We maintain the allowance for loancredit losses at a level we believe is sufficient to absorb probable incurredexpected losses in our loan portfolio given the conditions at the time.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 loancredit losses charged to earnings, which increases the allowance.
In determining the provision for loancredit losses, management monitors fluctuations in the allowance resulting from actual charge-offs and recoveries and reviews the size and composition of the loan portfolio in light of current and anticipated economic conditions. conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available or as events change.
The following tables present,table presents, by loan type, the changes in the allowance for credit losses:
| | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | For the year ended
December 31, | | |
| (In thousands) | 2024 | | 2023 | | | | | | 2023 | | |
| Balance, beginning of period | $ | 80,398 | | | $ | 65,917 | | | | | | | $ | 65,917 | | | |
| Impact of adopting ASC 326 | — | | | 5,256 | | | | | | | 5,256 | | | |
| Adjusted beginning balance | 80,398 | | | 71,173 | | | | | | | 71,173 | | | |
| Loan charge-offs: | | | | | | | | | | | |
| Commercial and industrial | (17,366) | | | (59) | | | | | | | (9,242) | | | |
| Commercial real estate | — | | | — | | | | | | | (83) | | | |
| Residential real estate | — | | | — | | | | | | | (13) | | | |
| Public finance | — | | | — | | | | | | | — | | | |
| Consumer | (140) | | | (64) | | | | | | | (334) | | | |
| Other | — | | | — | | | | | | | — | | | |
| Total loan charge-offs | (17,506) | | | (123) | | | | | | | (9,672) | | | |
| Recoveries of loans previously charged-off: | | | | | | | | | | | |
| Commercial and industrial | 47 | | | 56 | | | | | | | 1,118 | | | |
| Commercial real estate | — | | | 3 | | | | | | | 12 | | | |
| Residential real estate | 8 | | | — | | | | | | | 682 | | | |
| Public finance | — | | | — | | | | | | | — | | | |
| Consumer | 22 | | | 10 | | | | | | | 50 | | | |
| Other | — | | | — | | | | | | | — | | | |
| Total loan recoveries | 77 | | | 69 | | | | | | | 1,862 | | | |
| Net (charge-offs) recoveries | (17,429) | | | (54) | | | | | | | (7,810) | | | |
| Provision for credit losses (1) | 16,860 | | | 3,340 | | | | | | | 17,035 | | | |
| Balance, end of period | $ | 79,829 | | | $ | 74,459 | | | | | | | $ | 80,398 | | | |
| Allowance for credit losses to total loans | 1.27 | % | | 1.23 | % | | | | | | 1.28 | % | | |
| Ratio of net charge-offs (recoveries) to average loans outstanding | 1.11 | % | | — | % | | | | | | 0.13 | % | | |
(1) For the three months ended March 31, 2024 and 2023 we recorded a provision for credit losses on unfunded commitments of $(360) and $20, respectively. For further information, see Note 3 - Loans. | | |
The following table presents net charge-offs (recoveries) to average loans outstanding by loan losses for the periods presented:category:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended June 30, | | For the six months ended June 30, | | December 31, |
| (In thousands) | | 2021 | | 2020 | | 2021 | | 2020 | | 2020 |
| Balance, beginning of period | | $ | 47,214 | | | $ | 30,871 | | | $ | 47,766 | | | $ | 28,546 | | | $ | 28,546 | |
| | | | | | | | | | |
| Loan charge-offs: | | | | | | | | | | |
| Commercial | | (2,894) | | | (201) | | | (3,102) | | | (794) | | | (4,064) | |
| Commercial real estate | | — | | | (580) | | | — | | | (580) | | | (581) | |
| Residential real estate | | — | | | (24) | | | (2) | | | (39) | | | (39) | |
| Consumer | | (19) | | | (92) | | | (72) | | | (136) | | | (216) | |
| Total loan charge-offs | | (2,913) | | | (897) | | | (3,176) | | | (1,549) | | | (4,900) | |
| | | | | | | | | | |
| Recoveries of loans previously charged-off: | | | | | | | | | | |
| Commercial | | 50 | | | 125 | | | 86 | | | 289 | | | 585 | |
| Commercial real estate | | — | | | 272 | | | 9 | | | 272 | | | 272 | |
| Residential real estate | | 16 | | | 15 | | | 20 | | | 17 | | | 115 | |
| Consumer | | 11 | | | 10 | | | 23 | | | 21 | | | 48 | |
| Total loan recoveries | | 77 | | | 422 | | | 138 | | | 599 | | | 1,020 | |
| | | | | | | | | | |
| Net charge-offs | | (2,836) | | | (475) | | | (3,038) | | | (950) | | | (3,880) | |
| | | | | | | | | | |
| (Benefit) provision for loan losses | | (1,400) | | | 7,500 | | | (1,750) | | | 10,300 | | | 23,100 | |
| Balance, end of period | | $ | 42,978 | | | $ | 37,896 | | | $ | 42,978 | | | $ | 37,896 | | | $ | 47,766 | |
| | | | | | | | | | |
| Allowance for loan losses to loans receivable | | 1.13 | % | | 1.05 | % | | 1.13 | % | | 1.05 | % | | 1.24 | % |
| Ratio of net charge-offs to average loans outstanding | | 0.30 | % | | 0.05 | % | | 0.16 | % | | 0.06 | % | | 0.11 | % |
| | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | | | |
| (In thousands) | 2024 | | 2023 | | | | | | | | |
| Commercial and industrial | 2.51 | % | | — | % | | | | | | | | |
| Commercial real estate | — | % | | — | % | | | | | | | | |
| Residential real estate | — | % | | — | % | | | | | | | | |
| Public finance | — | % | | — | % | | | | | | | | |
| Consumer | 1.21 | % | | 0.52 | % | | | | | | | | |
| Other | — | % | | — | % | | | | | | | | |
Allocation of Allowance for LoanCredit Losses
The following tables presenttable presents the allocation of the allowance for loancredit losses by category and the percentage of the allocation of the allowance for credit losses by category to total amount of loans in each loan category listed as of the dates indicated:of:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| (In thousands) | | Allowance
Amount | | % of
Portfolio | | Allowance
Amount | | % of
Portfolio |
| Commercial | | $ | 28,173 | | | 0.74 | % | | $ | 32,009 | | | 0.83 | % |
| Commercial real estate | | 13,149 | | | 0.35 | % | | 13,863 | | | 0.36 | % |
| Residential real estate | | 1,305 | | | 0.03 | % | | 1,606 | | | 0.04 | % |
| Consumer | | 351 | | | 0.01 | % | | 288 | | | 0.01 | % |
| Total | | $ | 42,978 | | | 1.13 | % | | $ | 47,766 | | | 1.24 | % |
| | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2024 | | December 31, 2023 |
| (In thousands) | Allowance
Amount | | % of loans in
each category to
total loans | | Allowance
Amount | | % of loans in
each category to
total loans |
| Commercial and industrial | $ | 28,270 | | | 39.5 | % | | $ | 29,523 | | | 39.4 | % |
| Commercial real estate | 29,333 | | | 30.2 | % | | 27,546 | | | 30.3 | % |
| Residential real estate | 14,989 | | | 17.7 | % | | 16,345 | | | 17.7 | % |
| Public finance | 5,778 | | | 9.2 | % | | 5,337 | | | 9.6 | % |
| Consumer | 624 | | | 0.6 | % | | 717 | | | 0.6 | % |
| Other | 835 | | | 2.8 | % | | 930 | | | 2.4 | % |
| Total | $ | 79,829 | | | 100.0 | % | | $ | 80,398 | | | 100.0 | % |
Nonperforming Assets
We have established policies and procedures to guide us in originating, monitoring and maintaining the credit quality of our loan portfolio. These policies and procedures are requiredexpected 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.
A loan is identified as a troubled debt restructuring, or TDR, when we, for economic or legal reasons related to the borrower’s financial difficulties, grant a concession to the borrower. The concessions may be granted in various forms including interest rate reductions, principal forgiveness, extension of maturity date, waiver or deferral of payments and other actions intended to minimize potential losses. A loan that has been restructured in a TDR may not be disclosed as a TDR in years subsequent to the restructuring if certain conditions are met. Generally, a nonaccrual loan that is restructured remains on nonaccrual status for a period of no less than six months to demonstrate that the borrower can meet the restructured terms. However, the borrower’s performance prior to the restructuring or other significant events at the time of restructuring may be considered in assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual status after a shorter performance period. If the borrower’s performance under the new terms is not reasonably assured, the loan remains classified as a nonaccrual loan.
The CARES Act, as extended by certain provisions of the Consolidated Appropriations Act, 2021, permits banks to suspend requirements under GAAP for loan modifications to borrowers affected by COVID-19 that may otherwise be characterized as a TDR and suspend any determination related thereto if (i) the borrower was not more than 30 days past due as of December 31, 2019, (ii) the modifications are related to COVID-19, and (iii) the modification occurs between March 1, 2020 and the earlier of 60 days after the date of termination of the national emergency or January 1, 2022. Federal bank regulatory authorities also issued guidance to encourage banks to make loan modifications for borrowers affected by COVID-19.
As of June 30, 2021, we had active payment deferrals totaling $25.5 million compared to $65.8 million at December 31, 2020. As of June 30, 2021 and December 31, 2020, $8.0 million and $51.8 million, respectively, of restructured loans were exempt from the accounting guidance for TDRs as a result of loans which are included in the COVID-19 related loan payment deferral total.
The following table sets forth our nonperforming assets as of each period presented:of:
| | | | | | | | | | | | | | |
| (In thousands) | | June 30, 2021 | | December 31, 2020 |
| Nonaccrual loans: | | | | |
| Commercial | | $ | 26,070 | | | $ | 22,779 | |
| Commercial real estate | | 7,135 | | | 2,934 | |
| Residential real estate | | 10,213 | | | 9,498 | |
| Consumer | | 5 | | | 38 | |
| Total nonaccrual loans | | 43,423 | | | 35,249 | |
| Accrual loans greater than 90 days past due | | — | | | 777 | |
| Total nonperforming loans | | 43,423 | | | 36,026 | |
| Other real estate owned and foreclosed assets, net | | 4,013 | | | 3,354 | |
| Total nonperforming assets | | $ | 47,436 | | | $ | 39,380 | |
| | | | |
| Nonperforming assets to total assets | | 0.85 | % | | 0.79 | % |
| Nonperforming loans to total loans | | 1.14 | % | | 0.94 | % |
| Allowance for loan losses to nonaccrual loans | | 98.98 | % | | 135.51 | % |
Total nonperforming assets were $47.4 million as of June 30, 2021, compared to $39.4 million at December 31, 2020.
Potential problem loans are impaired loans which management has serious doubts as to the ability of the borrowers to comply with the present loan repayment terms. Management has not identified any potential problem loans not included in the nonperforming assets table above.
| | | | | | | | | | | |
| (In thousands) | March 31,
2024 | | December 31,
2023 |
| Nonaccrual loans: | | | |
| Commercial and industrial | $ | 27,286 | | | $ | 8,004 | |
| Commercial real estate | 6,181 | | | 4,063 | |
| Residential real estate | 21,368 | | | 22,413 | |
| | | |
| Consumer | 4 | | | 10 | |
| Other | 2,616 | | | 2,837 | |
| Total nonaccrual loans | 57,455 | | | 37,327 | |
| | | |
| Accrual loans greater than 90 days past due | 144 | | | 25,816 | |
| Total nonperforming loans (1) | 57,599 | | | 63,143 | |
| Other real estate owned and foreclosed assets, net | 4,414 | | | 4,100 | |
| Total nonperforming assets | $ | 62,013 | | | $ | 67,243 | |
| Nonaccrual loans to total loans | 0.91 | % | | 0.60 | % |
| Nonperforming loans to total loans (1) | 0.92 | % | | 1.01 | % |
| Nonperforming assets to total assets (1) | 0.80 | % | | 0.85 | % |
| Allowance for credit losses to nonaccrual loans | 138.94 | % | | 215.39 | % |
| (1) Nonperforming loans include nonaccrual loans and accrual loans greater than 90 days past due. |
Deposits
Deposits represent our primary source of funds. Total deposits increased by $0.1 billion to $6.4 billion at March 31, 2024, compared to December 31, 2023.
We are focused on growing our core deposits through relationship-based banking with our business and consumer clients. TotalThe following table presents our deposits increased to $4.7 billion at June 30, 2021, compared to $4.2 billion at December 31, 2020. Deposit growth over this period occurred across all of the states in our footprint including Kansas, New Mexico and Colorado,by customer type as well as in our newer markets in Arizona and Texas. In addition, government stimulus efforts in response to the COVID-19 pandemic have contributed to a portion of our deposit growth for both commercial and consumer clients. Noninterest-bearing demand deposits increased on average by $0.2 billion from December 31, 2020 to June 30, 2021, primarily driven by our growth in our commercial deposit base. Our certificates of deposit have decreased on average by $0.1 billion from December 31, 2020 to June 30, 2021 primarily due to the low interest rate environment.of:
| | | | | | | | | | | | | | | | | | | |
| ($ in thousands) | March 31,
2024 | | | | | | | | | | December 31,
2023 |
| Consumer | | | | | | | | | | | |
| Noninterest bearing deposit accounts | $ | 356,732 | | | | | | | | | | | $ | 360,168 | |
| Interest-bearing deposit accounts: | | | | | | | | | | | |
| Demand and NOW deposits | 38,625 | | | | | | | | | | | 36,162 | |
| Savings deposits | 340,086 | | | | | | | | | | | 343,291 | |
| Money market deposits | 1,229,239 | | | | | | | | | | | 1,196,645 | |
| Certificates of deposits | 1,437,590 | | | | | | | | | | | 1,437,537 | |
| Total interest-bearing deposit accounts | 3,045,540 | | | | | | | | | | | 3,013,635 | |
| Total consumer deposits | $ | 3,402,272 | | | | | | | | | | | $ | 3,373,803 | |
| Business | | | | | | | | | | | |
| Noninterest bearing deposit accounts | $ | 1,160,583 | | | | | | | | | | | $ | 1,170,338 | |
| Interest-bearing deposit accounts: | | | | | | | | | | | |
| Demand and NOW deposits | 502,726 | | | | | | | | | | | 555,197 | |
| Savings deposits | 80,226 | | | | | | | | | | | 80,802 | |
| Money market deposits | 823,704 | | | | | | | | | | | 825,811 | |
| Certificates of deposits | 97,854 | | | | | | | | | | | 87,407 | |
| Total interest-bearing deposit accounts | 1,504,510 | | | | | | | | | | | 1,549,217 | |
| Total business deposits | $ | 2,665,093 | | | | | | | | | | | $ | 2,719,555 | |
| Wholesale deposits (1) | $ | 378,023 | | | | | | | | | | | $ | 280,745 | |
| Total deposits | $ | 6,445,388 | | | | | | | | | | | $ | 6,374,103 | |
| (1) Wholesale deposits primarily consist of brokered deposits included in our consolidated balance sheets within certificate of deposits. |
The following table sets forth the average balance amounts and the average rates paid on deposits held by usus:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended March 31, | | | | |
| 2024 | | 2023 | | | | | | |
| (Dollars in thousands) | Average
Balance | | Average
Rate Paid | | Average
Balance | | Average
Rate Paid | | | | | | | | | | | | |
| Noninterest-bearing demand deposit accounts | $ | 1,502,707 | | | — | % | | $ | 1,768,381 | | | — | % | | | | | | | | | | | | |
| Interest-bearing deposit accounts: | | | | | | | | | | | | | | | | | | | |
| Interest-bearing demand accounts | 507,013 | | | 3.72 | % | | 180,963 | | | 2.60 | % | | | | | | | | | | | | |
| Savings accounts and money market accounts | 2,485,203 | | | 1.72 | % | | 2,766,469 | | | 0.80 | % | | | | | | | | | | | | |
| NOW accounts | 42,478 | | | 1.34 | % | | 46,207 | | | 0.51 | % | | | | | | | | | | | | |
| Certificate of deposit accounts | 1,814,629 | | | 4.60 | % | | 1,073,006 | | | 2.77 | % | | | | | | | | | | | | |
| Total interest-bearing deposit accounts | 4,849,323 | | | 3.00 | % | | 4,066,645 | | | 1.39 | % | | | | | | | | | | | | |
| Total deposits | $ | 6,352,030 | | | 2.29 | % | | $ | 5,835,026 | | | 0.97 | % | | | | | | | | | | | | |
As of March 31, 2024 and December 31, 2023, approximately $2.1 billion or 32.0% and $2.0 billion or 31.2%, respectively, of our deposit portfolio was uninsured. As of March 31, 2024 and December 31, 2023, approximately $1.6 billion or 25.2% and $1.6 billion or 25.1%, respectively, of our deposit portfolio was uninsured and uncollateralized. The uninsured and uninsured and uncollateralized amounts are estimates based on the methodologies and assumptions used for the periods presented:Bank's regulatory reporting requirements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | For the six months ended | | For the year ended |
| | June 30, 2021 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in thousands) | | Average
Balance | | Average
Rate Paid | | Average
Balance | | Average
Rate Paid | | Average
Balance | | Average
Rate Paid |
| | | | | | | | | | | | |
| Noninterest-bearing demand deposit accounts | | $ | 1,283,536 | | | — | % | | $ | 1,200,921 | | | — | % | | $ | 978,092 | | | — | % |
| Interest-bearing deposit accounts: | | | | | | | | | | | | |
| Interest-bearing demand accounts | | 226,750 | | | 0.20 | % | | 196,225 | | | 0.22 | % | | 127,408 | | | 0.33 | % |
| Savings accounts and money market accounts | | 2,685,997 | | | 0.19 | % | | 2,596,916 | | | 0.19 | % | | 2,182,648 | | | 0.34 | % |
| NOW accounts | | 90,901 | | | 0.76 | % | | 91,215 | | | 0.63 | % | | 78,149 | | | 0.77 | % |
| Certificate of deposit accounts | | 351,350 | | | 0.91 | % | | 356,474 | | | 0.98 | % | | 488,575 | | | 1.49 | % |
| Total interest-bearing deposit accounts | | 3,354,998 | | | 0.28 | % | | 3,240,830 | | | 0.29 | % | | 2,876,780 | | | 0.54 | % |
| Total deposits | | $ | 4,638,534 | | | 0.20 | % | | $ | 4,441,751 | | | 0.21 | % | | $ | 3,854,872 | | | 0.41 | % |
The following table sets forth the average balance amounts andportion of the average rates paid onBank's time deposits, by customer type held by us for the periods presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | For the three months ended | | For the six months ended | | For the year ended |
| | June 30, 2021 | | June 30, 2021 | | December 31, 2020 |
| (Dollars in thousands) | | Average
Balance | | Average
Rate Paid | | Average
Balance | | Average
Rate Paid | | Average
Balance | | Average
Rate Paid |
| | | | | | | | | | | | |
| Consumer | | $ | 2,380,214 | | | 0.28 | % | | $ | 2,325,906 | | | 0.30 | % | | $ | 2,083,701 | | | 0.52 | % |
| Business Customers | | 2,258,320 | | | 0.12 | % | | 2,115,845 | | | 0.12 | % | | 1,771,171 | | | 0.27 | % |
| Total deposits | | $ | 4,638,534 | | | 0.20 | % | | $ | 4,441,751 | | | 0.21 | % | | $ | 3,854,872 | | | 0.41 | % |
Maturities of certificates of deposit of $100,000 or more outstanding at June 30, 2021 and December 31, 2020account, that are summarized as follows:
| | | | | | | | | | | | | | |
| (In thousands) | | June 30, 2021 | | December 31, 2020 |
| | | | |
| Three months or less | | $ | 39,608 | | | $ | 31,696 | |
| Over three months through twelve months | | 101,186 | | | 103,717 | |
| Over twelve months through three years | | 40,398 | | | 55,696 | |
| Over three years | | 8,765 | | | 10,359 | |
| Total | | $ | 189,957 | | | $ | 201,468 | |
Short-Term Borrowings and Other Interest-Bearing Liabilities
Other than deposits, we also utilize Federal Home Loan Bank (FHLB) advances as a supplementary funding source to finance our operations. FHLB advances on our line-of-credit (LOC) are considered short-term borrowings and are presented in the table below, while our FHLB fixed rate term advances are considered long-term borrowings. At June 30, 2021 and December 31, 2020, our FHLB fixed rate term advances amounted to $40.0 million and $50.4 million, respectively. Our advances from the FHLB are collateralized by residential, multi-family, and commercial real estate loans. At June 30, 2021 and December 31, 2020, we had maximum borrowing capacity from the FHLB of $749.9 million and $702.5 million, respectively, subject to the availability of collateral.
We also enter into agreements with certain customers to sell securities under agreements to repurchase the security the following day. These agreements are made to provide customers with comprehensive treasury management programs a short-term return on their excess funds.
The following tables outline our various sources of short-term borrowed funds during the six months ended June 30, 2021 and the year ended December 31, 2020, and the amounts outstanding at the end of each period, the maximum month end amount for each component during the periods, the average amounts for each period, and the average interest rate that we paid for each borrowing source. The maximum month-end balance represents the high indebtedness for each component of borrowed funds at any month end during each of the periods shown.FDIC insurance limit, by remaining time until maturity, as of March 31,:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Ending
Balance | | Period End
Rate | | Maximum
Month End
Balance | | Period Average |
| | | | | Balance | | Rate |
| As of and for the six months ended June 30, 2021 | | | | | | | | | | |
| Advances from FHLB LOC | | $ | — | | | — | % | | $ | — | | | $ | 331 | | | 0.35 | % |
| Securities sold under agreements to repurchase | | 113,786 | | | 0.05 | % | | 151,243 | | | 137,255 | | | 0.05 | % |
| Total | | $ | 113,786 | | | | | $ | 151,243 | | | $ | 137,587 | | | |
| | | | | | | | | | |
| As of and for the year ended December 31, 2020 | | | | | | | | | | |
| Advances from FHLB LOC | | $ | 20,000 | | | 0.35 | % | | $ | 150,000 | | | $ | 30,489 | | | 0.69 | % |
| Securities sold under agreements to repurchase | | 115,372 | | | 0.05 | % | | 149,844 | | | 118,706 | | | 0.15 | % |
| Total | | $ | 135,372 | | | | | $ | 299,844 | | | $ | 149,195 | | | |
Other Borrowings
In addition to our FHLB advances and our securities sold under agreements to repurchase, we also have convertible notes payable and subordinated debt, including trust preferred securities and other borrowings amounting to $68.9 million at June 30, 2021 and $68.4 million at December 31, 2020.
| | | | | |
| (In thousands) | 2024 |
| Three months or less | $ | 31,802 | |
| Over three months through six months | 104,652 | |
| Over six through twelve months | 133,660 | |
| Over twelve months through three years | 17,974 | |
| Over three years | 824 | |
| Total | $ | 288,912 | |
Liquidity
Liquidity refers to our ability to maintain cash flow that is adequate to fund operations, support asset growth, maintain reserve requirements and meet present and future obligations of deposit withdrawals, lending obligations and other contractual obligations. Our liquidity management policy
FirstSun (Parent Company)
FirstSun has routine funding requirements consisting primarily of operating expenses, debt service, and our asset and liability management policy, or ALM policy, provides the framework that we use to seek to maintain adequate liquidity and sources of available liquidity at levels that will enable usfunds used for acquisitions. FirstSun can obtain funding to meet all reasonably foreseeableits obligations from dividends collected from its subsidiaries, primarily the Bank, and through the issuance of varying forms of debt. At March 31, 2024, FirstSun had available cash and cash equivalents of $109.0 million and debt outstanding of $78.9 million. Management believes FirstSun has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in the short-term long-term and strategic liquidity demands. Our Assetthe long-term.
Federal banking laws regulate the amount of dividends that may be paid by banking subsidiaries without prior approval. The Bank may declare dividends without prior regulatory approval that do not exceed the total of retained net income for the current year combined with its retained net income for the preceding two years, subject to maintenance of minimum capital requirements. Prior regulatory approval to pay dividends was not required in 2023 and Liability Management Committee, or ALCO, is responsible for oversightnot currently required. At March 31, 2024, the Bank could pay dividends to FirstSun of our liquidity risk management activities in accordanceapproximately $157.2 million without prior regulatory approval. During the three months ended March 31, 2024, the Bank did not pay dividends to FirstSun. Upon conversion to a Texas state chartered bank with membership with the provisionsFederal Reserve, regulations related to dividends will change, including the amount of dividends available to be paid without prior regulatory approval.
Bank
As more fully discussed in 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 continuously2023 Annual Report, we regularly monitor our liquidity position in order for our assets and liabilitiesmake adjustments to be managed in a manner that we believe will meet our immediate and long-term funding requirements. We seek to manage our liquidity position to meet the daily cash flow needs of customers, while maintaining an appropriate balance between assetssources and liabilities to meet the return on investment objectivesuses of our stockholders. We also monitor our liquidity requirements in light of interest rate trends, changes in the economy, and the scheduled maturity and interest rate sensitivity of our securities and loan portfolios and deposits. Liquidity management is made more complicated because different balance sheet components are subject to varying degrees of management control. For example, the timing of maturities of our investment portfolio is fairly predictable and subject to a high degree of control whenfunds as we make investment decisions. Net deposit inflows and outflows, however, are far less predictable and are not subject to the same degree of certainty.
Our liquidity position is supported by management of our liquid assets and liabilities and access to alternative sources of funds. Our short-term and long-term liquidity requirements are primarily to fund on-going operations, including payment of interest on deposits and debt, extensions of credit to borrowers and capital expenditures. These liquidity requirements are met primarily through our deposits, FHLB advances and the principal and interest payments we receive on loans and investment securities.Cash, interest-bearing deposits in third party banks, securities available for sale and maturing or prepaying balances in our investment and loan portfolios are our most liquid assets.Other sources of liquidity that are available to us include the sale of loans we hold for investment, the ability to acquire additional national market non-core deposits, borrowings through the Federal Reserve’s discount window and the issuance of debt or equity securities. We believe that the sources of available liquidity are adequate to meet our current and reasonably foreseeable future liquidity needs.
deem appropriate. At June 30, 2021,March 31, 2024, our liquid assets, which consist of cash and amounts due from banks and interest-bearing deposits in other financial institutions, amounted to $798.9$376.1 million, or 14.4%4.8% of total assets, compared to $144.9$473.0 million, or 2.9%6.0% of total assets, at December 31, 2020.2023. The increasedecrease in our liquid assets was primarily due to an increasea decrease in cash held at the Federal Reserve. Our available-for-saleAt March 31, 2024, approximately 82% of the investment securities at June 30, 2021 were $509.0 million, or 9.1% of total assets, compared to $468.6 million, or 9.4% of total assets, at December 31, 2020. Investment securities with an aggregate carrying value of $491.9 million and $437.2 million at June 30, 2021 and December 31, 2020, respectively, wereportfolio was pledged as collateral to secure public deposits and repurchase agreements. The increase in our pledgedOur unencumbered available-for-sale securities was dueat March 31, 2024 were $89.1 million, or 1.1% of total assets, compared to increases in public funds, and in repurchase agreements.$81.5 million, or 1.0% of total assets, at December 31, 2023.
The liability portion of our balance sheet serves as a primary source of liquidity. We plan to meet our future cash needs primarily through the generation of deposits. Customer deposits have historically provided a sizeable source of relatively stable and low-cost funds. At June 30, 2021,March 31, 2024, loans as a percentage of customer deposits excluding brokered deposits and certificates of deposit greater than $250,000, were 117.2% of net loans,97.5%, compared with 101.0%98.3% at December 31, 2020.2023. For additional information related to our deposits, see Deposits section above. We are also a member of the FHLB and FRB, from which we can borrow for leverage or liquidity purposes. The FHLB and FRB requires that securities and qualifying loans be pledged to secure any advances. At June 30, 2021, we had $40.0 millionLiquidity sources available to us for immediate funding at March 31, 2024, are as follows:
| | | | | |
| FHLB borrowings available | $ | 960,297 | |
| Fed Funds lines | 2,023,853 | |
| |
| Unused lines with other financial institutions | 160,000 | |
| Immediate funding availability | $ | 3,144,150 | |
Management believes the Bank has the ability to generate and obtain adequate amounts of liquidity to meet its requirements in advances from the FHLBshort-term and a remaining credit availability of $611.8 million. In addition, we maintain a $10.7 million line with the Federal Reserve Bank’s discount window that is secured by certain loans from our loan portfolio.
Capital Resources
Stockholders’ equity at June 30, 2021March 31, 2024 was $510.6$964.7 million, compared to $485.8$877.2 million at December 31, 2020,2023, an increase of $24.8$87.5 million, or 5.1%10.0%. The increase was primarily drivenAs previously announced, concurrent with the entry into the merger agreement with HomeStreet on January 16, 2024, we entered into an upfront securities purchase agreement with certain funds managed by net incomeWellington Management Company, LLP, pursuant to which we issued 2.46 million shares of our common stock in 2021.a private placement for $80.0 million that closed on January 17, 2024.
We did not pay a dividend to our common shareholders for the three months ended March 31, 2024 and 2023.
Capital Adequacy
We are subject to various regulatory capital requirements administered by the federal banking regulators. Failureagencies. Management routinely analyzes our capital to meet minimumseek to ensure an optimized capital requirements can initiate certain mandatory and possibly additional discretionary actions by federal banking regulators that, if undertaken, could have a direct material effect on our financial statements.
Regulatory capital rules adopted in July 2013 and fully-phased in as of January 1, 2019, which we refer to as the Basel III rules, impose minimum capital requirements for bank holding companies and banks. The Basel III rules apply to all national and state banks and savings associations regardless of size and bank holding companies and savings and loan holding companies with consolidated assets of more than $3 billion. In order to avoid restrictionsstructure. For further information on capital distributions or discretionary bonus paymentsadequacy see Note 13 - Regulatory Capital Matters to executives, a covered banking organization must maintain the fully-phased in “capital conservation buffer” of 2.5% on top of its minimum risk-based capital requirements. This buffer must consist solely of common equity Tier 1 risk-based capital, but the buffer applies to all three measurements (common equity Tier 1 risk-based capital, Tier 1 capital and total capital). At June 30, 2021, FirstSun and Sunflower Bank exceeded the regulatory minimums and met the regulatory definitions of well-capitalized.consolidated financial statements.
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 showssummarizes our material contractual obligations as of March 31, 2024. Further discussion of each obligation or commitment is included in the regulatory capital ratios for FirstSun atreferenced note to the dates indicated:consolidated financial statements.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | For Capital
Adequacy Purposes3 | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions4 |
| (Dollars in thousands) | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| As of June 30, 2021 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 537,350 | | | 12.44 | % | | $ | 345,438 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 444,043 | | | 10.28 | % | | $ | 259,078 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 444,043 | | | 10.28 | % | | $ | 194,309 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | | $ | 444,043 | | | 8.21 | % | | $ | 216,452 | | | 4.00 | % | | N/A | | N/A |
| | | | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 513,949 | | | 12.19 | % | | $ | 337,327 | | | 8.00 | % | | N/A | | N/A |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 416,029 | | | 9.87 | % | | $ | 252,995 | | | 6.00 | % | | N/A | | N/A |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 416,029 | | | 9.87 | % | | $ | 189,746 | | | 4.50 | % | | N/A | | N/A |
| Tier 1 leverage capital to average assets: | | $ | 416,029 | | | 8.53 | % | | $ | 195,074 | | | 4.00 | % | | N/A | | N/A |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | Note
Reference | | Total | | Less than
1 Year | | 1 - 3
Years | | 3 - 5
Years | | More than
5 Years |
| Deposits: | | | | | | | | | | | |
| Deposits without a stated maturity | 6 | | $ | 4,571,935 | | | $ | 4,571,935 | | | $ | — | | | $ | — | | | $ | — | |
| Certificates of deposit | 6 | | 1,873,453 | | | 1,768,008 | | | 95,114 | | | 7,613 | | | 2,718 | |
| Securities sold under agreements to repurchase | 7 | | 20,423 | | | 20,423 | | | — | | | — | | | — | |
| Short-term debt: | | | | | | | | | | | |
| FHLB LOC | 8 | | 144,810 | | | 144,810 | | | — | | | — | | | — | |
| Long-term debt: | | | | | | | | | | | |
| | | | | | | | | | | |
| | | | | | | | | | | |
| Subordinated debt | 8 | | 78,919 | | | — | | | — | | | — | | | 78,919 | |
| Operating leases | 17 | | 28,594 | | | 13,904 | | | 7,205 | | | 7,255 | | | 230 | |
|
3Note 5 - Derivative Financial Instruments Amounts are shown exclusive ofto the 2.5% capital conservation buffer applicable to total risked-based capital to risk-weighted assets, Tier 1 risked-based capital to risk weighted assets and CET1 to risk weighted assets.4 Prompt corrective action provisions are only applicable at the bank level.consolidated financial statements.
The following table showsIn the regulatory capital ratios for Sunflower Bank atnormal course of business, various legal actions and proceedings are pending against us and our affiliates which are incidental to the dates indicated:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Actual | | For Capital
Adequacy Purposes5 | | To be Well-
Capitalized under
Prompt Corrective
Action Provisions |
| (Dollars in thousands) | | Amount | | Ratio | | Amount | | Ratio | | Amount | | Ratio |
| As of June 30, 2021 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 543,215 | | | 12.62 | % | | $ | 344,351 | | | 8.00 | % | | $ | 430,439 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 499,749 | | | 11.61 | % | | $ | 258,263 | | | 6.00 | % | | $ | 344,351 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 499,749 | | | 11.61 | % | | $ | 193,697 | | | 4.50 | % | | $ | 279,785 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | | $ | 499,749 | | | 9.24 | % | | $ | 216,396 | | | 4.00 | % | | $ | 270,495 | | | 5.00 | % |
| | | | | | | | | | | | |
| As of December 31, 2020 | | | | | | | | | | | | |
| Total risk-based capital to risk-weighted assets: | | $ | 517,077 | | | 12.30 | % | | $ | 336,276 | | | 8.00 | % | | $ | 420,345 | | | 10.00 | % |
| Tier 1 risk-based capital to risk-weighted assets: | | $ | 468,823 | | | 11.15 | % | | $ | 252,207 | | | 6.00 | % | | $ | 336,276 | | | 8.00 | % |
| Common Equity Tier 1 (CET 1) to risk-weighted assets: | | $ | 468,823 | | | 11.15 | % | | $ | 189,155 | | | 4.50 | % | | $ | 273,224 | | | 6.50 | % |
| Tier 1 leverage capital to average assets: | | $ | 468,823 | | | 9.62 | % | | $ | 195,008 | | | 4.00 | % | | $ | 243,760 | | | 5.00 | % |
Off-Balance Sheet items
We are a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of our customers. These financial instruments include commitments to extend credit, commercial letters of credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated statements of financial condition. The contractual or notional amounts of those instruments reflect the extent of involvement we have in particular classes of financial instruments.
Further discussion of contingent liabilities is included in
Contingencies
Standby letters of credit are conditional commitments issued by us to guarantee to a third-party the performance of a customer. Those guarantees are primarily issued to support public and private borrowing arrangements, bond financing and similar transactions. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers.
Commitments to make loans are generally made for periods of 90 days or less.
Our exposure to credit loss in the event of non-performance by the other party to the consolidated financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. We use the same credit policies in making commitments and conditional obligations as for funded instruments. We do not anticipate any material losses as a result of the commitments and standby letters of credit.
5 Amounts are shown exclusive of the 2.5% capital conservation buffer applicable to total risked-based capital to risk-weighted assets, Tier 1 risked-based capital to risk weighted assets and CET1 to risk weighted assetsstatements.
The following table summarizes commitments as of the dates presented:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | June 30, 2021 | | December 31, 2020 |
| (In thousands) | | Fixed
Rate | | Variable
Rate | | Fixed
Rate | | Variable
Rate |
| | | | | | | | |
| Undistributed portion of committed loans | | $ | 78,626 | | | $ | 94,292 | | | $ | 80,445 | | | $ | 106,020 | |
| Unused lines of credit | | 15,228 | | | 527,821 | | | 15,003 | | | 496,122 | |
| Standby letters of credit | | 6,304 | | | 3,871 | | | 13,078 | | | 3,879 | |
| Total | | $ | 100,158 | | | $ | 625,984 | | | $ | 108,526 | | | $ | 606,021 | |
Contractual Obligations
We have entered into contractual obligations in the normal course of business that involve elements of credit risk, interest rate risk and liquidity risk.
The following table summarizes our contractual obligations as of June 30, 2021 and December 31, 2020:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (In thousands) | | Total | | Less than
1 Year | | 1 - 3
Years | | 3 - 5
Years | | More than
5 Years |
| June 30, 2021 | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | |
| FHLB term advances | | $ | 40,000 | | | $ | 10,000 | | | $ | — | | | $ | 20,000 | | | $ | 10,000 | |
| Convertible notes payable | | 22,277 | | | 743 | | | 21,534 | | | — | | | — | |
| Subordinated debt | | 57,997 | | | 348 | | | 791 | | | 769 | | | 56,089 | |
| Total long-term debt | | 120,274 | | | 11,091 | | | 22,325 | | | 20,769 | | | 66,089 | |
| | | | | | | | | | |
| Operating leases | | 39,151 | | | 6,672 | | | 13,513 | | | 10,790 | | | 8,176 | |
| Certificates of deposit | | 346,624 | | | 236,969 | | | 84,253 | | | 20,107 | | | 5,295 | |
| Total | | $ | 506,049 | | | $ | 254,732 | | | $ | 120,091 | | | $ | 51,666 | | | $ | 79,560 | |
| | | | | | | | | | |
| December 31, 2020 | | | | | | | | | | |
| Long-term debt: | | | | | | | | | | |
| FHLB term advances | | $ | 50,411 | | | $ | 133 | | | $ | 20,267 | | | $ | 20,011 | | | $ | 10,000 | |
| Convertible notes payable | | 22,650 | | | 745 | | | 1,232 | | | 20,673 | | | — | |
| Subordinated debt | | 59,060 | | | 442 | | | 912 | | | 1,025 | | | 56,681 | |
| Total long-term debt | | 132,121 | | | 1,320 | | | 22,411 | | | 41,709 | | | 66,681 | |
| | | | | | | | | | |
| Operating leases | | 40,033 | | | 6,171 | | | 12,960 | | | 11,547 | | | 9,355 | |
| Certificates of deposit | | 365,959 | | | 236,583 | | | 102,382 | | | 20,832 | | | 6,162 | |
| Total | | $ | 538,113 | | | $ | 244,074 | | | $ | 137,753 | | | $ | 74,088 | | | $ | 82,198 | |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Market risk is the risk of reduced earnings and/or declines in the net market value of the balance sheet due to changes in market rates. Our primary market risk is interest rate risk which impacts our net interest income, fee income related to interest sensitive activities such as mortgage origination and servicing income and loan and deposit demand.
We are subject to interest rate risk due to:
•the maturity or repricing of assets and liabilities at different times or for different amounts;
•differences in short-term and long-term market interest rate changes; and
•the remaining maturity of various assets or liabilities may shorten or lengthen as interest rates change.
Our Asset Liability Committee, or ALCO, which is composed of our executive officers and certain other members of management, monitors interest rate risk on an ongoing basis in accordance with policies approved by our board of directors. The ALCO reviews interest rate positions and considers the impact projected interest rate scenarios have on earnings, liquidity, business strategies and other factors. However, management has the latitude to change interest rate positions within certain limits if, in management’s judgment, the change will enhance profitability or minimize risk.
To assess and manage interest rate risk, sensitivity analysis is used to determine the impact on earnings and the net market value of the balance sheet across various interest rate scenarios, balance sheet trends, and strategies.
Management uses a simulation model to analyze the sensitivity of net interest income to changes in interest rates across various interest rate scenarios, which seeks to demonstrate the level of interest rate risk inherent in the existing balance sheet. The analysis holds the current balance sheet values constant and does not take into account management intervention. In addition,
Additionally our simulation model incorporates various key assumptions, which we believe are reasonable, but may have an impact on the results such as: (1) we assume certain correlation rates, often referred to as a “deposit beta,” for interest-bearing deposits, wherein the rates paid to customers change relative to changes in benchmark interest rates, (2) cash flows and maturities of interest sensitive assets and liabilities, (3) re-pricing characteristics for market rate sensitive instruments, (4) prepayment rates and product mix of assets and liabilities, and (5) simulations do not contemplate any actions management may undertake in response to changes in interest rates. Because of limitations in any approach used to measure interest rate risk, simulation results are not intended to forecast actual results driven by the effect of a change in market rates but to better plan and execute appropriate asset-liability management strategies and manage our interest rate risk.
The primary impact of inflation on operations is reflected in increasing operating costs and non-interest expense. Our interest-bearing assets and liabilities are monetary in nature and changes in interest rates will impact our performance on net interest margin more than changes in the general rate of inflation.
The effect on net interest income over a 12-month time horizon due to hypothetical changes in market interest rates is presented in the table below. In this interest rate shock simulation, as of the periods presented, interest rates have been adjusted by instantaneous parallel changes rather than in a ramp simulation, which applies interest rate changes over time. All rates, short-term and long-term, are changed by the same amount (e.g., plus or minus 100 basis points) resulting in the shape of the yield curve remaining unchanged.
| | % Change in Net Interest Income | | % Change in Economic Value of Equity |
| % Change in Net Interest Income As of March 31, | |
| % Change in Net Interest Income As of March 31, | |
| % Change in Net Interest Income As of March 31, | |
Changes in Interest
Rate (Basis Points) | |
Changes in Interest
Rate (Basis Points) | |
Changes in Interest
Rate (Basis Points) | Changes in Interest
Rate (Basis Points) | | As of June 30, 2021 | | As of December 31, 2020 | | As of June 30, 2021 | | As of December 31, 2020 |
| | +300 | +300 | | 25.8 | % | | 13.1 | % | | (2.3) | % | | (7.4) | % |
| | +300 | |
| | +300 | |
| +200 | |
| +200 | |
| +200 | +200 | | 17.4 | % | | 8.9 | % | | (1.3) | % | | (4.9) | % |
| +100 | +100 | | 8.8 | % | | 4.6 | % | | (0.6) | % | | (2.4) | % |
| +100 | |
| +100 | |
| Base | |
| Base | |
| Base | Base | | — | % | | — | % | | — | % | | — | % |
| -100 | -100 | | (5.8) | % | | (3.1) | % | | (3.0) | % | | (2.2) | % |
| -100 | |
| -100 | |
| -200 | |
| -200 | |
| -200 | |
| -300 | |
| -300 | |
| -300 | |
|
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Management,Under the supervision and with the participation of our management, including our Chief Executive Officerprincipal executive officer and Chief Financial Officer, has evaluated the effectivenessprincipal financial officer, we conducted an evaluation of our disclosure controls and procedures (as such term is defined in Rule 15d-15(e) promulgated under the Securities and Exchange Act Rules 13a-15(e)of 1934) as of March 31, 2024. Based on that evaluation, we concluded that our disclosure controls and 15d-15(e))procedures were effective as of the end of the period covered by this report. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance regarding our control objective that information required to be disclosed in the reports we file and submit under the Exchange Act is (i) recorded, processed, summarized and reported as and when required and (ii) accumulated and communicated to our management, including our Chief Executive Officer and the Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
The design of any system of controls and procedures is based in part upon certain assumptions about the likelihood of future events. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting during the three months ended June 30, 2021,March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Part II - Other Information
Item 1. Legal Proceedings
FirstSun and its subsidiaries are from time to time subject to claims and litigation arising in the ordinary course of business. For further information regarding legal proceedings, see Note 15.16 - Commitments and Contingencies under the subheading “Litigation” in our unaudited consolidated financial statements.statements contained in this report. One or more unfavorable outcomes in any claim or litigation against us could have a material adverse effect for the period in which they are resolved. In addition, regardless of their merits or their ultimate outcomes, such matters are costly, divert management’s attention and may materially adversely affect our reputation, even if resolved in our favor.
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
There were no unregistered sales of equity securities or issuer purchases of equity securities during the second quarter of 2021.
Item 3. Defaults Upon Senior Securities
None
Item 4. Mine Safety Disclosures
Not Applicable
Item 5. Other Information
None
Item 6. Exhibits
| | | | | | | | |
Exhibit
No. | | Description |
| | |
| 2.1 | | Agreement and Plan of Merger dated as of January 16, 2024, by and betweenamong HomeStreet, Inc., FirstSun Capital Bancorp, Pioneer Bancshares, Inc. and FSCB MergerDynamis Subsidiary, Inc. dated as of May 11, 2021, as amended* (incorporated by reference to Annex AExhibit 2.1 to the proxy statement/prospectus contained in Company’s Current Report on Form 8-K filed with the SEC on January 19, 2024) |
| | |
| 2.2 | | |
| | |
| 3.1 | | |
| | |
| 3.2 | | |
| | |
| 3.3 | | |
| | |
| 4.1 | | |
| | |
| | | | | | | | |
4.2 | | FirstSun Capital Bancorp will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries. |
| | |
4.3 | | |
| | |
4.4 | | |
| | |
4.5 | | |
| | |
4.610.1 | | |
| | |
| 10.2 | | |
| | |
| 10.3 | | |
| | |
4.710.4 | | |
| | |
| 10.5 | | |
| | |
| 10.6 | | |
| | |
| 31.1 | | |
| | |
| 31.2 | | |
| | |
| 32.1 | | |
| | |
| 101 | | The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2021March 31, 2024, were formatted in Inline XBRL: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income and Comprehensive Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Condensed Consolidated Statement of Stockholders’ Equity, (v)(iv) Consolidated Statements of Cash Flows.Flows, (v) Notes to Consolidated Financial Statements. |
| | |
| 104 | | Cover Page Interactive Data File (formatted in Inline XBRL and contained in Exhibit 101). |
| | |
* Annexes, schedules, and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. FirstSun agrees to furnish supplementally a copy of any omitted attachment to the Securities and Exchange Commission on a confidential basis upon request. |
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | | FIRSTSUN CAPITAL BANCORP |
| | | (Registrant) |
| | | /s/ Mollie H. CarterNeal E. Arnold |
| | |
| | |
| Date: | SeptemberMay 10, 20212024 | |
| | | Mollie H. CarterNeal E. Arnold |
| | | President and Chief Executive Officer and President |
| | | (Principal Executive Officer) |
| | | /s/ Robert A. Cafera, Jr. |
| | |
| | |
| Date: | SeptemberMay 10, 20212024 | |
| | | Robert A. Cafera, Jr. |
| | | Executive Vice President and Chief Financial Officer |
| | | (Principal Financial Officer) |
| | | /s/ Joel Murray |
| | |
| | |
Date: | September 10, 2021 | |
| | | Joel Murray |
| | | Senior Vice PresidentOfficer and Chief Accounting Officer |
| | | (Principal Accounting Officer) |
| | | |
| | |
| | |
| | |
| | | |
| | | |
| | | |