Loan Portfolio and Credit Risk - As of December 31, 2023, non-owner occupied commercial real estate loans accounted for 13.0% of total loans, with a value of 67.2 million, representing about 0.85% of total assets, adversely affecting net income and increasing loan administration costs [201]. Economic and Market Conditions - The company expects lower mortgage origination volumes in at least the first half of 2024 due to elevated interest rates [66]. - Economic downturns, including rising interest rates and recessions, are expected to increase realized credit losses and decrease demand for products and services [174]. - The Federal Reserve's monetary policies significantly affect bank loans, investments, and deposits, with potential future changes being unpredictable [169]. - Inflationary pressures have led to significant increases in gas and food prices, which may adversely affect customers and the company's financial position [181]. - The company operates primarily in Texas, Kansas, Colorado, New Mexico, and Arizona, making it vulnerable to regional economic conditions [175]. - The company may face increased deposit and funding costs, decreased demand for loans, and higher levels of nonperforming assets due to adverse economic conditions [179]. Regulatory Environment - The Dodd-Frank Act continues to impact financial institutions, including changes to capital standards and the establishment of the Consumer Financial Protection Bureau [96]. - Regulatory approval is required for mergers and acquisitions, with considerations for competition and public benefits [104]. - The Federal Reserve requires bank holding companies to maintain a minimum leverage ratio and a minimum ratio of qualifying capital to risk-weighted assets [113]. - The capital requirements under Basel III include a common equity Tier 1 (CET1) risk-based capital ratio of 4.5%, a Tier 1 risk-based capital ratio of 6%, and a total risk-based capital ratio of 8% [121]. - The institution is subject to comprehensive capital adequacy requirements intended to protect against losses, with specific higher risk-based capital and leverage requirements [120]. - The Sarbanes-Oxley Act of 2002 imposes additional responsibilities relating to financial statements for the Chief Executive Officer and Chief Financial Officer of reporting companies [117]. - The institution must seek regulatory approval prior to any redemption that would reduce its consolidated net worth by 10% or more [116]. - The institution is required to comply with capital requirements under the Federal Deposit Insurance Corporation Improvement Act of 1991 (FDICIA) [129]. Operational and Cybersecurity Risks - Increased operational risks, including fraud and errors, could adversely impact the company's financial condition and results of operations [231]. - The company relies heavily on digital technologies and information systems for operations, increasing exposure to cybersecurity risks due to the sophistication of external threats [241]. - In 2023, the company was notified of vulnerabilities in Progress Software's MOVEit file transfer software, potentially compromising customer data [242]. - The company has implemented a risk management framework to mitigate various risks, including cybersecurity, but acknowledges that it may not be fully effective [244]. - Cybersecurity remains a focus for the company, with ongoing efforts to enhance controls and processes to protect against evolving threats [243]. - Disruptions from technology failures or cyber-attacks could lead to significant operational interruptions and financial losses [237]. - The risk of operational disruptions from external events, such as natural disasters or cyber-attacks, remains a significant concern [240]. - The company’s business recovery plan may not adequately prevent significant operational interruptions or losses [243]. Employee and Corporate Governance - The total number of employees as of December 31, 2023, was 1,128, with 1,110 being full-time equivalent employees [84]. - The company offers a competitive benefits package, including a 401(k) plan with employer matching contributions, healthcare benefits, and tuition reimbursement [85]. - FirstSun qualifies as an "emerging growth company," allowing it to take advantage of reduced reporting requirements under the JOBS Act [91]. - The company must remain well managed and well capitalized to maintain its status as a financial holding company [103]. - The company emphasizes the importance of maintaining its reputation as a community bank, which is critical for business success [246]. Consumer Protection and Compliance - The Bank is subject to various consumer protection regulations, including the Dodd-Frank Act, which mandates compliance with fair lending and consumer protection laws [143]. - The Bank's loan operations are governed by multiple federal laws, including the Truth-In-Lending Act and the Fair Housing Act, ensuring fair lending practices [144]. - The CFPB has broad authority to regulate consumer financial products, impacting Sunflower Bank's operations and compliance requirements [147]. - Anti-money laundering programs must comply with the Bank Secrecy Act and the USA PATRIOT Act, requiring enhanced due diligence and reporting of suspicious transactions [151]. - The USA PATRIOT Act facilitates information sharing among financial institutions and regulators to combat terrorism and money laundering [153]. - The Bank must file suspicious activity reports if it identifies transactions with individuals on government watch lists [154]. Financial Performance - The company's mortgage revenue decreased to 46.3 million in 2022, indicating a decline of approximately 32% year-over-year due to rising interest rates [220]. - The company expects mortgage origination volume to decline as interest rates increase, which adversely affects profitability [219]. - Rising interest rates have led to increased competition for deposits, resulting in higher interest expenses and potential compression of net interest margins [210]. - A flat or inverted yield curve has been observed, which may reduce net interest margins and adversely affect loan and investment portfolios [211]. - The cost of funds has increased over the past 12 months, primarily due to rising deposit costs, which may continue into 2024 [208].
Firstsun Capital Bancorp(FSUN) - 2023 Q4 - Annual Report