FIRSTSUN CAPITAL BANCORP

FIRSTSUN CAPITAL BANCORP and Subsidiaries

Notes to Consolidated Financial Statements

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

NOTE 1 -Organization and Basis of Presentation

Nature of Operations -The consolidated financial statements include the accounts of FirstSun Capital Bancorp (“FirstSun” or “Parent Company”) and its wholly-owned subsidiaries, Sunflower Bank, N.A. (the “Bank” or “Sunflower Bank”), Logia Portfolio Management, LLC, and FEIF Capital Partners, LLC, and have been prepared using U.S. generally accepted accounting principles (“U.S. GAAP”) and prevailing practices in the banking industry. All significant intercompany balances and transactions have been eliminated. These entities are collectively referred to as “our”, “us”, “we”, or “the Company”.

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

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

On the terms and subject to the conditions set forth in the Merger Agreement, Merger Sub will merge with and into HomeStreet, with HomeStreet continuing as the surviving entity (the “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”). Promptly following the Second-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 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 common stock of HomeStreet held by them,0.3867 shares of common stock of FirstSun. Shareholders of HomeStreet, subject to other exceptions, will also be entitled to receive cash in lieu of fractional shares of common stock of FirstSun. On June 18, 2024, HomeStreet’s shareholders approved the Merger Agreement.

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 Merger Agreement, FirstSun entered into an upfront securities purchase agreement (the “Upfront Securities Purchase Agreement”) with certain funds managed by Wellington Management Company, LLP (collectively, the “Wellington Funds”), pursuant to which we issued 2.46 million shares of our common stock in a private placement for $80.0 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 at an initial exercise price of $32.50 per share. The Warrants will carry a term ofthree years. In the event the proposed HomeStreet merger is not consummated, no Warrants will be issued.

Acquisition Finance Securities Purchase Agreement -Concurrently with its entry into the HomeStreet merger agreement, FirstSun entered into an acquisition finance securities purchase agreement (the “Acquisition Finance Securities Purchase Agreement,” and together with the Upfront Securities Purchase Agreement, as the “Investment Agreements”), dated January 16, 2024, with the Wellington Funds. Pursuant to the Acquisition Finance Securities Purchase Agreement, on the terms and subject to the conditions set forth therein, substantially concurrently with the closing of the merger, the institutional investors will invest an aggregate of $95 million in exchange for the sale and issuance, at a purchase price of $32.50 per share, of approximately 2.92 million shares of FirstSun common stock.

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

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

Registration Rights Agreements - In connection with the Upfront Securities Purchase Agreement, FirstSun and the Wellington Funds also entered into a registration rights agreement (the “Upfront Registration Rights Agreement”), dated January 16, 2024, pursuant to which FirstSun agreed to, among other things, provide customary resale registration rights with respect to the shares of our common stock obtained by the Wellington Funds pursuant to the Investment Agreements, including those issued upon exercise of the Warrants. As required under the Upfront Securities Purchase Agreement, on July 11, 2024, FirstSun registered its common stock securities under Section 12(b) of the securities Exchange Act of 1934 and listed its common stock on The Nasdaq Stock Market LLC(Nasdaq). Pursuant to Amendment No. 3 to our Stockholders’ Agreement, upon listing on Nasdaq, the provisions of the Stockholders’ Agreement restricting the transfer of shares and providing specific stockholders with pre-emptive rights, tag-along rights and rights of first refusal, automatically terminated. As a result, among other terminated provisions, the parties to the Stockholders’ Agreement are no longer restricted under the Stockholders’ Agreement from transferring their shares. Certain parties to the Stockholders’ Agreement retain corporate governance rights as described in the Stockholders’ Agreement, as amended.

In addition, the Acquisition Finance Securities Purchase Agreement contemplates that, in connection with the closing of the investments under the Acquisition Finance Securities Purchase Agreement, FirstSun will enter into a resale registration rights agreement with each additional institutional investor (the “Acquisition Finance

Registration Rights Agreement”), the material terms and conditions of which are consistent with the terms and conditions of the Upfront Registration Rights Agreement.

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

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

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

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

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

Charter Amendment - In connection with the proposed merger, the holders of a majority of the voting power of FirstSun common stock executed a written consent approving and adopting an amendment to our certificate of incorporation (the “Charter Amendment”) which will increase the number of FirstSun’s authorized shares of capital stock from 60,000,000 to 110,000,000, consisting of 100,000,000 shares of FirstSun common stock, and 10,000,000 shares of preferred stock and will become effective upon FirstSun’s filing the Charter Amendment with the Secretary of State of the State of Delaware. We plan to file the Charter Amendment prior to the closing of the proposed merger.

Bank Charter Conversion - Sunflower Bank is currently regulated by the Office of the Comptroller of the Currency. We have filed applications to convert Sunflower Bank to a state chartered bank regulated by the Texas Department of Banking and to seek membership with the Federal Reserve 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 critical accounting policies. In the event that estimates or assumptions prove to differ from actual results, adjustments are made in subsequent periods to reflect more current information.

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

We generally sell loans to investors without recourse; therefore, the investors have assumed the risk of loss or default by the borrower. However, we are usually required by these investors to make certain standard representations and warranties relating to credit information, loan documentation, and collateral. To the extent that we do not comply with such representations, or there are early payment defaults, we may be required to repurchase the loans or indemnify these investors for any losses from borrower defaults. In addition, if loans pay off within a specified time frame, we may be required to refund a portion of the sales proceeds to the investors. We established reserves for potential losses related to these representations and warranties which are recorded within accrued expenses and other liabilities. In assessing the adequacy of the reserves, we evaluate various factors including actual write-offs during the period, historical loss experience, known delinquent and other problem loans, and economic trends and conditions in the industry. Further information is presented in Note 15 - Commitments and Contingencies.

Reclassifications -Some items in the prior year financial statements were reclassified to conform to the current presentation. Reclassifications had no effect on prior years net income or stockholders’ equity.

Accounting Pronouncements Recently Adopted -As an “emerging growth company” under Section 107 of the JOBS Act, we can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. Therefore, we can delay the adoption of certain accounting standards until those standards would otherwise apply to non-public business entities. We intend to take advantage of the benefits of this extended transition period for an “emerging growth company” for as long as it is available to us. For standards that we have delayed adoption, we may lack comparability to other companies who have adopted such standards.

In June of 2016, the FASB issued ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments, which significantly changes the way that entities are required to measure credit losses. The new standard requires that the estimated credit loss be based upon an “expected credit loss” approach rather than the “incurred loss” approach previously required. The new approach requires entities to measure all expected credit losses for financial assets over their expected lives based on historical experience, current conditions, and reasonable and supportable forecasts of collectability. The expected credit loss model requires earlier recognition of credit losses than the incurred loss approach. We expect ongoing changes in the allowance for credit losses will be driven primarily by the growth of our loan portfolio, credit quality, and the economic environment and related projections at that time. In addition, the ASU developed a new accounting treatment for purchased financial assets with credit deterioration.

The ASU also modifies the other-than-temporary impairment model for available-for-sale debt securities and held-to-maturity debt securities by requiring companies to record an allowance for credit impairment rather than write-downs of such assets.

Management has reviewed this update and other ASUs that were subsequently issued to further clarify the implementation guidance outlined in ASU 2016-13. We adopted the amendments of these ASUs as of January 1, 2023.

Upon adoption, we recorded an increase to the allowance for credit losses on loans held-for-investment of $5.3 million, a reduction in the allowance for credit losses on unfunded commitments of $0.2 million, an increase to deferred tax assets of $1.2 million, and a corresponding one-time cumulative reduction to retained earnings, net of tax, of $3.8 million in the consolidated balance sheet as of January 1, 2023.

The adoption of this ASU, as it relates to available-for-sale debt securities and held-to-maturity debt securities, did not have a material impact on the consolidated financial statements as of January 1, 2023.

Recent Accounting Pronouncements Not Yet Adopted -ASU No. 2023-07,“Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures.”ASU 2023-07 expands segment disclosure requirements for public entities to require disclosure of significant segment expenses and other segment items on an annual and interim basis and to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. ASU 2023-07 is not expected to have a significant impact on our financial statements.

ASU No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures.”ASU 2023-09 requires public business entities to disclose in their rate reconciliation table additional categories of information about federal, state and foreign income taxes and to provide more details about the reconciling items in some categories if items meet a quantitative threshold. ASU 2023-09 also requires all entities to disclose income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes for annual periods and to disaggregate the information by jurisdiction based on a quantitative threshold, among other things. ASU 2023-09 is effective for us on January 1, 2026, although early adoption is permitted. ASU 2023-09 is not expected to have a significant impact on our financial statements.

NOTE 2 -Securities

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

There wasno allowance for credit losses related to our investment securities as of June 30, 2024.

As of June 30, 2024 and December 31, 2023, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.

Fair value and unrealized losses on debt securities by type and length of time in a continuous unrealized loss position without an allowance for credit losses were as follows:

We do not consider the unrealized losses to be credit-related, as these unrealized losses primarily relate to changes in interest rates and market spreads subsequent to purchase. We do not have plans to sell any of the available-for-sale debt securities with unrealized losses as of June 30, 2024, and we believe it is more likely than not that we would not be required to sell such available-for-sale debt securities before recovery of their amortized cost.

We continue to monitor unrealized loss positions for potential credit impairments. During the three and six months ended June 30, 2024 and 2023, there were no credit impairments related to our investment securities.

The amortized cost and fair value of our debt securities by contractual maturity as of June 30, 2024 are summarized in the following table. Maturities are based on the final contractual payment dates and do not reflect the impact of prepayments or earlier redemptions that may occur.

Securities with a carrying value of $448,292 and $468,679 were pledged to secure public deposits, securities sold under agreements to repurchase and borrowed funds at June 30, 2024 and December 31, 2023, respectively.

Available-for-sale debt securities with a carrying value of $37,699 and $37,701 were designated in fair value hedges at June 30, 2024 and December 31, 2023, respectively. See Note 5 - Derivative Financial Instruments for further information.

There wereno proceeds from sales and calls of securities for the three and six months ended June 30, 2024 and 2023.

NOTE 3 -Loans

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

As of June 30, 2024 and December 31, 2023, we had net deferred fees, (costs), (premiums) and discounts of $11,112 and $12,859, respectively, on our loan portfolio.

Accrued interest receivable on loans totaled $35,615 and $34,879 at June 30, 2024 and December 31, 2023, respectively, and is included in accrued interest receivable in the accompanying consolidated balance sheets.

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

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

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

As of June 30, 2024 and December 31, 2023, we had an allowance for credit losses on unfunded commitments of $2,009 and $2,309, respectively. For the three months ended June 30, 2024 and 2023 we recorded a provision for credit losses on unfunded commitments of $60 and $802, respectively. For the six months ended June 30, 2024 and 2023 we recorded a (benefit) provision for credit losses on unfunded commitments of $(300) and $822, respectively.

The provision for credit losses, including the benefit for unfunded commitments, totaled $17,700 during the six months ended June 30, 2024. The provision was primarily due to a $17,400 charge-off on a specific customer in our C&I loan portfolio during the first quarter of 2024.

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

Interest income recorded on nonperforming loans was not material for the three or six months ended June 30, 2024 and 2023.

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

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

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

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

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

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

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

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

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

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

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

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

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

Loan Modifications Made to Borrowers Experiencing Financial Difficulty:

The allowance for credit losses incorporates an estimate of lifetime expected credit losses and is recorded on each asset upon origination. The starting point for the estimate of the allowance for credit losses is historical loss information, which includes losses from modifications of receivables to borrowers experiencing financial difficulty. We use a PD/LGD model to determine the allowance for credit losses. An assessment of whether a borrower is experiencing financial difficulty is made at the time of a modification. The loan modifications in the table below did not significantly impact our determination of the allowance for credit losses on loans during the three and six months ended June 30, 2024.

Because the effect of most modifications made to borrowers experiencing financial difficulty is already included in the allowance for credit losses, a change to the allowance for credit losses is generally not recorded upon modification. Occasionally, we modify loans by providing principal forgiveness that is deemed to be uncollectible; therefore, that portion of the loan is written-off, resulting in a reduction of the amortized cost basis and a corresponding adjustment to the allowance for credit losses. Additionally, we may allow a loan to go interest only for a specified period of time.

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

For the three months ended June 30,:

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

For the six months ended June 30,:

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

There wereno commitments to lend additional funds to these borrowers at June 30, 2024.

The financial effects of our loan modifications made to borrowers experiencing financial difficulty during the three and six months ended June 30, 2024 and 2023 were not significant.

We closely monitor the performance of loan modifications made to borrowers experiencing financial difficulty to understand the effectiveness of the modification efforts. The following table depicts the performance of loan modifications made to borrowers experiencing financial difficulty that have been modified in the last 12 months:

NOTE 4 -Mortgage Servicing Rights

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

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

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

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

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

NOTE 5 -Derivative Financial Instruments

Banking Derivative Financial Instruments:

We use fair value hedges to seek to manage our exposure to changes in the fair value of certain recognized assets attributable to changes in a benchmark interest rate, such as SOFR. The fair value hedges were determined to be effective during all periods presented and we expect the hedges to remain effective during their remaining terms.

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

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

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

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

For the three months ended June 30, 2024 and 2023, our banking derivative financial instruments not designated as hedging instruments generated fee income of $443 and $502, respectively. For the six months ended June 30, 2024 and 2023 our banking derivative financial instruments not designated as hedging instruments generated fee income of $474, and $968, respectively.

The carrying amount of hedged loans receivable as of June 30, 2024 and December 31, 2023 was $167,451 and $184,829, respectively. The cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged loans receivable as of June 30, 2024 and December 31, 2023 was $(10,920) and $(9,567), respectively. The fair value hedging adjustment included in other noninterest income for the three months ended June 30, 2024 and 2023 was $241 and $(2,494), respectively. The fair value hedging adjustment included in other noninterest income for the six months ended June 30, 2024 and 2023 was $(1,353) and $158, respectively.

The carrying amount of hedged available-for-sale debt securities as of June 30, 2024 and December 31, 2023 was $37,699 and $37,701, respectively. The cumulative amount of fair value hedging adjustment included in the amortized cost amount of the hedged available-for-sale debt securities as of as of June 30, 2024 and December 31, 2023 was $(4,622), and $(3,168), respectively. The fair value hedging adjustment included in interest income for the three months ended June 30, 2024 and 2023 was $(182) and $(1,309), respectively. The fair value hedging adjustment included in interest income for the six months ended June 30, 2024 and 2023 was $(1,455) and $(403), 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, 2024 and December 31, 2023, the fair value of derivatives in a net liability position, which includes accrued interest but excludes any adjustment for nonperformance risk, related to these agreements was $24,673 and $20,508, respectively. As of June 30, 2024 and December 31, 2023, we have minimum collateral posting thresholds with our derivative counterparties and have posted collateral of $5,890 and $9,040, respectively. If we had breached any of these provisions at June 30, 2024, we could have been required to settle our obligations under the agreements at their termination value of $24,673.

Mortgage Banking Derivative Financial Instruments:

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

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

NOTE 6 -Deposits

The composition of our deposits is as follows as of:

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

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

NOTE 7 -Securities Sold Under Agreements to Repurchase

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

At June 30, 2024 and December 31, 2023, such agreements were secured by investment and mortgage-related securities with an approximate carrying amount of $25,723 and $30,810, respectively. Pledged securities are maintained by safekeeping agents at the direction of the Bank. Our agreements to repurchase generally mature daily, and they are considered to be in an overnight and continuous position.

NOTE 8 -Debt

FHLB advances

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

Our FHLB advances are typically considered short-term borrowings with maturities less than one year and are used to manage liquidity as needed. Maturing advances are replaced by drawing on available cash, making additional borrowings or through increased customer deposits. The advances were collateralized by $1,758,544 and $1,674,096 of loans pledged to the FHLB as of June 30, 2024 and December 31, 2023, respectively.

As of June 30, 2024 and December 31, 2023, the Bank had total borrowing capacity with the FHLB that is based on qualified collateral lending values of $1,600,315 and $1,192,022, respectively. Our additional borrowing availability with the FHLB at June 30, 2024 was $1,328,722. These borrowings can be in the form of additional term advances or a line-of-credit.

FRB advances

We also had a $2,010,184 line-of-credit with the FRB. The agreement bears interest at the Fed Funds target rate plus 0.50% and is secured by $2,536,120 of investment securities and loans pledged to the FRB as collateral. No amounts were drawn on the line-of-credit as of June 30, 2024.

Other borrowings

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

Subordinated Debt

Subordinated Notes - 2020

In June and August 2020, we issued a total of $40,000 subordinated notes. The notes pay interest at a fixed rate of 6.00% through June 30, 2025 and subsequently, until maturity, pay interest at a floating rate of three month term SOFR plus 5.89%, reset quarterly. Interest is payable on July 1 and January 1 of each year. Such notes are due on July 1, 2030. The notes are not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the notes at our discretion. We incurred and capitalized $933 of costs related to the issuance of the subordinated notes. The amortization associated with the capitalized issuance costs is not significant for the periods presented.

Subordinated Note - 2022

On January 13, 2022, we issued a subordinated note totaling $25,000. The note pays interest at a fixed rate of 3.375% through January 15, 2027 and subsequently, until maturity, pays interest at a floating rate of three month term SOFR plus 2.03%, reset quarterly. Interest is payable on July 15 and January 15 of each year. Such note is due on January 15, 2032. The note is not redeemable within the first five years of issuance, except under certain very limited conditions. After five years, we may redeem the note at our discretion. We incurred and capitalized $534 of costs related to the issuance of the subordinated note. The amortization associated with the capitalized issuance costs is not significant for the periods presented.

Trust preferred securities

We have issued $9,279 in trust preferred securities through a special-purpose trust, New Mexico Banquest Capital Trust I (“NMBCT I”). In addition, we have issued $4,640 in trust preferred securities through a special purpose trust, New Mexico Banquest Capital Trust II (“NMBCT II”, and together with NMBCT I, collectively referred to as “NMBCT Trusts”). Interest is payable quarterly at a rate of three-month term SOFR plus 3.35% (8.91% and 8.51% as of June 30, 2024 and 2023, respectively) for the trust preferred securities issued through NMBCT I and at a rate of three-month term SOFR plus 2.00% (7.59% and 7.39% as of June 30, 2024 and 2023, respectively) for the trust preferred securities issued through NMBCT II.

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

The Parent Company fully and unconditionally guarantees the obligations of the NMBCT Trusts on a subordinated basis. The trust preferred securities issued through the NMBCT Trusts are mandatorily redeemable upon the maturity of the debentures on December 19, 2032 and November 23, 2034, respectively, and are optionally redeemable, in part or in whole, by the Parent Company at each quarterly interest payment date. The Parent Company owns all of the outstanding common securities of the NMBCT Trusts, which have an aggregate liquidation valuation amount of $419 and is recorded in prepaid expenses and other assets on the consolidated balance sheet. The NMBCT Trusts are considered variable interest entities. Since the Parent Company is not the primary beneficiary of the NMBCT Trusts, the financial statements of the NMBCT Trusts are not included in our consolidated financial statements.

NOTE 9 -Earnings Per Share

Basic earnings per share, excluding dilution, is computed by dividing earnings available to common stockholders’ by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised and converted into common stock or resulted in the issuance of common stock that could then share in our earnings.

The following table sets forth the computation of basic and diluted earnings per share of common stock:

Convertible notes payable for 85,500 shares of common stock were not considered in computing diluted earnings per share for the three and six months ended June 30, 2023, because they were antidilutive.

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

NOTE 10 -Stockholders’ Equity

As of June 30, 2024 and December 31, 2023, the Company has 10,000,000 shares of preferred stock authorized, $0.0001 par value, of which none were issued or outstanding, respectively.

As of June 30, 2024 and December 31, 2023, the Company has 50,000,000 shares of common stock authorized, $0.0001 par value, of which 27,443,246 and 24,960,639 shares were issued and outstanding, respectively.

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

Upfront Securities Purchase Agreement

On January 16, 2024 in accordance with the Upfront Securities Purchase Agreement, we issued we 2,461,538 shares of our common stock in a private placement for $80.0 million. For additional details see Upfront Securities Purchase Agreement in Note 1 - Organization and Basis of Presentation.

Equity Incentive Plans:

2017 Equity Incentive Plan

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

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

There wereno grants or forfeitures during the six months ended June 30, 2024:

At June 30, 2024, there was $63 of total unrecognized compensation cost related to non-vested stock options. The unrecognized compensation cost at June 30, 2024 is expected to be recognized over the next eleven months. At June 30, 2024 the intrinsic value of the stock options was $16,619.

2021 Equity Incentive Plan

The FirstSun Capital Bancorp 2021 Equity Incentive Plan (the “2021 Plan”) provides for the grant of stock options, stock appreciation rights, restricted stock and other stock awards to its employees, directors and consultants for up to 2,476,571 shares of FirstSun common stock in the aggregate. Additionally, we established the FirstSun Capital Bancorp Long-Term Incentive Plan (“LTIP”), which became effective April 1, 2022. The LTIP is intended to qualify as a “top-hat” plan under ERISA that is unfunded and provides benefits only to a select group of management or highly compensated employees of FirstSun or the Bank.

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

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

In April 2024, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2027. At June 30, 2024, we determined it is probable that 93,868 shares will be issued based upon the probability that the performance conditions will be achieved. At June 30, 2024, there was $3,055 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

In April 2023, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2026. At June 30, 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 June 30, 2024, there was $1,069 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

In April 2022, we issued performance-based restricted stock under the LTIP that, subject to the achievement of performance conditions, will fully vest in April 2025. At June 30, 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 June 30, 2024, there was $471 of total unrecognized compensation cost related to the non-vested restricted stock granted on these probable shares.

For the three months ended June 30, 2024 and 2023, we recorded total compensation cost from the 2017 and 2021 Plans of $772 and $657, respectively. For the six months ended June 30, 2024 and 2023, we recorded total compensation cost from the 2017 and 2021 Plans of $1,264 and $1,083, 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 six months ended June 30, 2024.

At June 30, 2024 the intrinsic value of the stock options was $1,282.

NOTE 11 -Income Taxes

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

The provision for income tax is summarized as follows:

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

NOTE 12 -Regulatory Capital Matters

Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action.

Under the Basel III rules, the Parent Company and the Bank must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The fully phased in capital conservation buffer is 2.50% for all periods presented.

The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. As of June 30, 2024, both the Parent Company and the Bank met all capital adequacy requirements to which they were subject.

Prompt corrective action regulations provide five classifications: well-capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. As of June 30, 2024 and December 31, 2023, the most recent regulatory notifications categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the Bank’s category.

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

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

NOTE 13 -Fair Value Measurements

We utilize fair value measurements to record or disclose the fair value on certain assets and liabilities. Fair value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The determination of fair values of financial instruments often requires the use of estimates. In cases where quoted market values in an active market are not available, we use present value techniques and other valuation methods to estimate the fair values of our financial instruments. These valuation models rely on market-based parameters when available, such as interest rate yield curves or credit spreads. Unobservable inputs may be based on management’s judgment assumptions and estimates related to credit quality, our future earnings, interest rates and other relevant inputs. These valuation methods require considerable judgment and the resulting estimates of fair value can be significantly affected by the assumptions made and the methods used.

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

Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2: Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

Level 3: Unobservable inputs for determining the fair values of assets or liabilities that reflect an entity’s own beliefs about the assumptions that market participants would use in pricing the assets or liabilities.

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

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

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

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

Certain financial assets and financial liabilities are regularly measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances. Financial assets measured at fair value on a non-recurring basis during the reported periods include certain collateral dependent loans reported at the fair value of the underlying collateral if repayment is expected solely from the collateral and other real estate owned and foreclosed assets, which, upon initial recognition, were remeasured and reported at fair value through a charge-off to the allowance for credit losses, and subsequent to their initial recognition, were remeasured at fair value through a write-down included in other non-interest expense. The following table sets forth our assets and liabilities that were measured at fair value on a non-recurring basis as of:

The fair value of the financial assets in the table above utilize the market approach valuation technique, with discount adjustments for differences between comparable sales.

Fair value of financial instruments not carried at fair value:

The carrying amounts and estimated fair values of financial instruments not carried at fair value are as follows as of:

NOTE 14 -Segment Information

Our operations are conducted throughtwo operating segments: Banking and Mortgage Operations. Corporate represents costs not allocated to the operating segments. Operating segments are defined as components of an enterprise that engage in business activity from which revenues are earned and expenses are incurred for which discrete financial information is available that is evaluated regularly by executive management in deciding how to allocate resources and in assessing performance. Operating segments have been determined based on the products and services offered and reflect the manner in which financial information is currently evaluated by management. Each segment operates under the same banking charter, but is reported on a segmented basis for this report. Each of the operating segments is complementary to each other and because of the interrelationship of the segments, the information presented is not indicative of how the segments would perform if they operated as independent entities.

The Banking segment originates loans and provides deposits and fee based services to consumer, business, and mortgage lending customers. Products offered include a full range of commercial and consumer banking and financial services. The interest income on loans held-for-investment is recognized in the Banking segment, excluding newly originated residential first mortgages within the Mortgage Operations segment.

The Mortgage Operations segment originates, sells, services, and manages market risk from changes in interest rates on one-to-four family residential mortgage loans to sell or hold on our balance sheet. Loans originated-to-sell comprise the majority of the lending activity. The Mortgage Operations segment recognizes interest income on loans that are held-for-sale and newly originated residential mortgages held-for-investment, the gains from one to four family residential mortgage sales, and revenue for servicing loans and other ancillary fees following a sales transaction. Revenue from servicing activities is earned on a contractual fee basis. The Mortgage Operations segment services loans for the held-for-investment portfolio, for which it earns revenue via an intercompany service fee allocation which appears as a cost to Banking in mortgage fees. Forward traded loan purchases and sales settlements as well as mortgage servicing rights and related fair value adjustments are reported in this segment.

Corporate represents miscellaneous other expenses of a corporate nature as well as revenue and expenses not directly assigned or allocated to the Banking or Mortgage Operations segments. The majority of executive management’s time is spent managing operating segments; related costs have been allocated between the operating segments and Corporate.

Revenues are comprised of net interest income before the provision (benefit) for credit losses and noninterest income. Noninterest expenses are allocated to each operating segment. Provision for credit losses is primarily allocated to the Banking segment. Allocation methodologies may be subject to periodic adjustment as management systems evolve and/or the business or product lines within the segments change.

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