UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2022March 31, 2023

OR

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

For the transition period from                     to

Commission File Number: 001-35654

NATIONAL BANK HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware

    

27-0563799

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

7800 East Orchard Road, Suite 300, Greenwood Village, Colorado 80111

(Address of principal executive offices) (Zip Code)

Registrant’s telephone, including area code: (303892-8715

Securities registered pursuant to Section 12(b) of the Act:

Title of each class:

    

Trading Symbol

    

Name of each exchange on which registered:

Class A Common Stock

NBHC

NYSE

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 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of November 4, 2022,May 5, 2023, the registrant had outstanding 37,594,26037,710,702 shares of Class A voting common stock, each with $0.01 par value per share, excluding 153,630195,287 shares of restricted Class A common stock issued but not yet vested.

6

    

Page

Part I. Financial Information

Item 1.

Financial Statements (Unaudited)

6

Consolidated Statements of Financial Condition as of September 30, 2022March 31, 2023 and December 31, 20212022

6

Consolidated Statements of Operations for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021

7

Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021

8

Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30,March 31, 2023 and 2022 and 2021

9

Consolidated Statements of Cash Flows for the ninethree months ended September 30,March 31, 2023 and 2022 and 2021

10

Notes to Consolidated Financial Statements

11

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

4548

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

7674

Item 4.

Controls and Procedures

7674

Part II. Other Information

Item 1.

Legal Proceedings

7776

Item 1A.

Risk Factors

7776

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

77

Item 5.

Other Information

77

Item 6.

Exhibits

78

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, notwithstanding that such statements are not specifically identified. Any statements about our expectations, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,” “believe,” “can,” “would,” “should,” “could,” “may,” “predict,” “seek,” “potential,” “will,” “estimate,” “target,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “intend” and similar words or phrases. These statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties. We have based these statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, liquidity, results of operations, business strategy and growth prospects.

Forward-looking statements involve certain important risks, uncertainties and other factors, any of which could cause actual results to differ materially from those in such statements and, therefore, you are cautioned not to place undue reliance on such statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to:

       difficultiesthe impact of recent high profile large bank closures, including potential regulatory changes to capital requirements, treatment of investment securities and delaysFDIC deposit insurance levels and costs, along with potential changes in integratingshort-term and long-term consumer behavior in response to these closures and volatility in the mergers of NBHC, Community Bancorporation, and Bancshares of Jackson Hole Incorporated (the “mergers”) businesses or fully realizing cost savings and other benefits;

       business disruption following the mergers;banking sector;

       our ability to execute our business strategy, including our digital strategy, as well as changes in our business strategy or development plans;

       business and economic conditions generally and in the financial services industry;

       effects of any potential government shutdowns;

       economic, market, operational, liquidity, credit and interest rate risks associated with our business;business, including increased competition for deposits due to prevailing market interest rates and banking sector volatility;

       economic, market, operational, liquidity, credit and interest rate risks associated with our business, including increased competition for deposits due to prevailing market rates and banking sector volatility;

       effects of any changes in trade, monetary and fiscal policies and laws, including the interest rate policies of the Federal Reserve Board;

       changes imposed by regulatory agencies to increase our capital to a level greater than the current level required for well-capitalized financial institutions;

       effects of inflation, including its associated impact on labor costs, as well as, interest rate, securities market and monetary supply fluctuations;

       changes in the economy or supply-demand imbalances affecting local real estate values;

       changes in consumer spending, borrowings and savings habits;

       with respect to our mortgage business, our inability to negotiate our fees with Fannie Mae, Freddie Mac, Ginnie Mae or other investors for the purchase of our loans, our obligation to indemnify purchasers or to repurchase the related loans if the loans fail to meet certain criteria, or higher rate of delinquencies and defaults as a result of the geographic concentration of our servicing portfolio;

       our ability to identify potential candidates for, obtain regulatory approval for, and consummate, acquisitions, consolidations or other expansion opportunities on attractive terms, or at all;

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our ability to integrate acquisitions, such as Community Bancorporation, Bancshares of Jackson Hole Incorporated or Cambr Solutions, LLC, or consolidations and to achieve synergies, operating efficiencies and/or other expected benefits within expected time-frames, or at all, or within expected cost projections, and to preserve the goodwill of any acquired institutions;

       our ability to integrate acquisitions, such as Community Bancorporation and Bancshares of Jackson Hole Incorporated (the “2022 Mergers”), or consolidations and to achieve synergies, operating efficiencies and/or other expected benefits within expected time-frames, or at all, or within expected cost projections, and to preserve the goodwill of acquired financial institutions;

       our ability to realize the anticipated benefits from enhancements or updates to our core operating systems from time to time without significant change in our client service or risk to our control environment;

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       our dependence on information technology and telecommunications systems of third-party service providers and the risk of system failures, interruptions or breaches of security, including those that could result in disclosure or misuse of confidential or proprietary client or other information;

       our ability to achieve organic loan and deposit growth and the competition for, and composition of, such growth;

       changes in sources and uses of funds, including loans, deposits and borrowings;

       increased competition in the financial services industry, nationally, regionally or locally, resulting in, among other things, lower returns;

       continued consolidation in the financial services industry;

       our ability to maintain or increase market share and control expenses;

       the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board (“FASB”) and other accounting standard setters;

       the trading price of shares of the Company's stock;

       the effects of tax legislation, including the potential of future increaseschanges to prevailing tax rates, or challenges to our

positions;

       our ability to realize deferred tax assets or the need for a valuation allowance, or the effects of changes in tax laws on our deferred tax assets;

       costs and effects of changes in laws and regulations and of other legal and regulatory developments, including, but not limited to, changes in regulation that affect the fees that we charge, the resolution of legal proceedings or regulatory or other governmental inquiries, and the results of regulatory examinations, reviews or other inquiries; and changes in regulations that apply to us as a Colorado state-chartered bank and a Wyoming state-chartered bank;

       technological changes;

       the timely development and acceptance of new products and services, including in the digital technology space and our digital solution 2UniFiSM, and perceived overall value of these products and services by our clients;

       changes in our management personnel and our continued ability to attract, hire and retain qualified personnel;

       ability to implement and/or improve operational management and other internal risk controls and processes and our reporting system and procedures;

       regulatory limitations on dividends from our bank subsidiary;subsidiaries;

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       changes in estimates of future credit reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements;

       widespread natural and other disasters, dislocations, political instability, pandemics, acts of war or terrorist activities, cyberattacks or international hostilities through impacts on the economy and financial markets generally or on us or our counterparties specifically;

       a cyber-security incident, data breach or a failure of a key information technology system;

       adverse effects due to the novel Coronavirus Disease 2019 (“COVID-19”) on the Company and its clients, counterparties, employees and third-party service providers, and the adverse impacts on our business, financial position, results of operations and prospects;

impact of reputational risk on such matters as business generation and retention;

       other risks and uncertainties listed from time to time in the Company’s reports and documents filed with the Securities and Exchange Commission; and

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       our success at managing the risks involved in the foregoing items.

Any forward-looking statement speaks only as of the date on which it is made, and we undertake no obligation to update 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 or circumstances, except as required by applicable law.

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PART I: FINANCIAL INFORMATION

Item 1: FINANCIAL STATEMENTS

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Condition (Unaudited)

(In thousands, except share and per share data)

    

September 30, 2022

    

December 31, 2021

ASSETS

Cash and due from banks

$

255,458

$

845,195

Interest bearing bank deposits

 

749

 

500

Cash and cash equivalents

256,207

845,695

Investment securities available-for-sale (at fair value)

 

730,791

 

691,847

Investment securities held-to-maturity (fair value of $508,961 and $599,260 at September 30, 2022 and December 31, 2021, respectively)

 

606,245

 

609,012

Non-marketable securities

 

64,004

 

50,740

Loans

 

5,721,985

 

4,513,383

Allowance for credit losses

 

(65,623)

 

(49,694)

Loans, net

 

5,656,362

 

4,463,689

Loans held for sale

 

33,043

 

139,142

Other real estate owned

 

3,695

 

7,005

Premises and equipment, net

 

105,801

 

96,747

Goodwill

 

167,882

 

115,027

Intangible assets, net

 

30,843

 

12,322

Other assets

 

268,048

 

182,785

Total assets

$

7,922,921

$

7,214,011

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Non-interest bearing demand deposits

$

2,735,832

$

2,506,265

Interest bearing demand deposits

 

597,035

 

555,401

Savings and money market

 

2,631,855

 

2,332,591

Time deposits

 

838,830

 

833,916

Total deposits

 

6,803,552

 

6,228,173

Securities sold under agreements to repurchase

 

20,044

 

22,768

Long-term debt, net

39,559

39,478

Other liabilities

 

140,340

 

83,486

Total liabilities

 

7,003,495

 

6,373,905

Shareholders’ equity:

Common stock, par value $0.01 per share: 400,000,000 shares authorized; 51,487,907 and 51,487,907 shares issued; 33,189,253 and 29,958,764 shares outstanding at September 30, 2022 and December 31, 2021, respectively

 

515

 

515

Additional paid-in capital

 

1,079,560

 

1,014,294

Retained earnings

 

323,448

 

289,876

Treasury stock of 18,129,309 and 21,384,676 shares at September 30, 2022 and December 31, 2021, respectively, at cost

 

(394,758)

 

(457,616)

Accumulated other comprehensive loss, net of tax

 

(89,339)

 

(6,963)

Total shareholders’ equity

 

919,426

 

840,106

Total liabilities and shareholders’ equity

$

7,922,921

$

7,214,011

    

March 31, 2023

    

December 31, 2022

ASSETS

Cash and due from banks

$

368,956

$

194,756

Interest bearing bank deposits

 

749

 

749

Cash and cash equivalents

369,705

195,505

Investment securities available-for-sale (at fair value)

 

695,485

 

706,289

Investment securities held-to-maturity (fair value of $555,256 and $559,924 at March 31, 2023 and December 31, 2022, respectively)

 

637,921

 

651,527

Non-marketable securities

 

120,733

 

89,049

Loans

 

7,345,298

 

7,220,469

Allowance for credit losses

 

(90,343)

 

(89,553)

Loans, net

 

7,254,955

 

7,130,916

Loans held for sale

 

24,594

 

22,767

Other real estate owned

 

3,458

 

3,731

Premises and equipment, net

 

140,417

 

136,111

Goodwill

 

279,132

 

279,132

Intangible assets, net

 

58,619

 

59,887

Other assets

 

332,204

 

298,329

Total assets

$

9,917,223

$

9,573,243

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Deposits:

Non-interest bearing demand deposits

$

2,920,891

$

3,134,716

Interest bearing demand deposits

 

1,098,172

 

913,852

Savings and money market

 

2,584,128

 

2,950,658

Time deposits

 

978,489

 

873,400

Total deposits

 

7,581,680

 

7,872,626

Securities sold under agreements to repurchase

 

21,492

 

20,214

Long-term debt, net

53,968

53,890

Federal Home Loan Bank advances

 

1,000,000

 

385,000

Other liabilities

 

126,356

 

149,311

Total liabilities

 

8,783,496

 

8,481,041

Shareholders’ equity:

Common stock, par value $0.01 per share: 400,000,000 shares authorized; 51,487,907 and 51,487,907 shares issued; 37,641,381 and 37,608,519 shares outstanding at March 31, 2023 and December 31, 2022, respectively

 

515

 

515

Additional paid-in capital

 

1,160,436

 

1,159,508

Retained earnings

 

361,440

 

330,721

Treasury stock of 13,680,348 and 13,714,251 shares at March 31, 2023 and December 31, 2022, respectively, at cost

 

(310,037)

 

(310,338)

Accumulated other comprehensive loss, net of tax

 

(78,627)

 

(88,204)

Total shareholders’ equity

 

1,133,727

 

1,092,202

Total liabilities and shareholders’ equity

$

9,917,223

$

9,573,243

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share data)

For the three months ended

For the nine months ended

For the three months ended

September 30, 

September 30, 

March 31, 

2022

    

2021

    

2022

    

2021

2023

    

2022

Interest and dividend income:

Interest and fees on loans

$

63,875

$

45,512

$

159,707

$

134,342

$

105,121

$

44,095

Interest and dividends on investment securities

 

6,460

 

4,750

 

17,195

 

12,771

 

6,861

 

4,862

Dividends on non-marketable securities

 

212

 

210

 

632

 

629

 

898

 

209

Interest on interest-bearing bank deposits

 

1,822

 

329

 

3,196

 

722

 

653

 

359

Total interest and dividend income

 

72,369

 

50,801

 

180,730

 

148,464

 

113,533

 

49,525

Interest expense:

Interest on deposits

 

2,945

 

3,227

 

7,961

 

10,790

 

11,049

 

2,531

Interest on borrowings

 

333

 

5

 

1,000

 

16

 

7,595

 

333

Total interest expense

 

3,278

 

3,232

 

8,961

 

10,806

 

18,644

 

2,864

Net interest income before provision for credit losses

 

69,091

 

47,569

 

171,769

 

137,658

 

94,889

 

46,661

Provision expense (release) for credit losses

 

12,678

 

 

14,860

 

(9,425)

Provision for credit loss expense (release)

 

900

 

(322)

Net interest income after provision for credit losses

 

56,413

 

47,569

 

156,909

 

147,083

 

93,989

 

46,983

Non-interest income:

Service charges

 

4,326

 

3,947

 

11,992

 

10,989

 

4,101

 

3,710

Bank card fees

 

4,681

 

4,530

 

13,345

 

13,217

 

4,637

 

4,123

Mortgage banking income

 

4,474

 

16,615

 

21,088

 

52,973

 

3,216

 

9,666

Bank-owned life insurance income

 

573

 

558

 

1,645

 

1,659

 

645

 

532

Other non-interest income

 

3,303

 

2,872

 

5,098

 

8,276

 

2,066

 

1,023

OREO-related income

 

1

 

 

6

 

35

Total non-interest income

 

17,358

 

28,522

 

53,174

 

87,149

 

14,665

 

19,054

Non-interest expense:

Salaries and benefits

 

30,540

 

32,556

 

88,652

 

97,518

 

32,989

 

29,336

Occupancy and equipment

 

8,026

 

6,469

 

21,087

 

19,150

 

9,073

 

6,396

Telecommunications and data processing

 

2,899

 

2,282

 

7,733

 

6,934

Data processing

 

3,752

 

2,381

Marketing and business development

 

979

 

582

 

2,326

 

1,604

 

870

 

673

FDIC deposit insurance

 

508

 

475

 

1,476

 

1,375

 

2,178

 

482

Bank card expenses

 

1,409

 

1,457

 

4,075

 

3,931

 

1,328

 

1,268

Professional fees

 

5,810

 

3,251

 

8,110

 

4,642

 

2,590

 

814

Other non-interest expense

 

3,547

 

2,828

 

9,264

 

7,652

 

4,149

 

2,436

Problem asset workout

215

1,119

522

1,851

(Gain) loss on OREO sales, net

(378)

(648)

192

Core deposit intangible asset amortization

 

383

 

295

 

975

 

887

Banking center consolidation-related expense

 

 

 

 

1,589

Other intangible assets amortization

 

1,363

 

296

Total non-interest expense

 

53,938

 

51,314

 

143,572

 

147,325

 

58,292

 

44,082

Income before income taxes

 

19,833

 

24,777

 

66,511

 

86,907

 

50,362

 

21,955

Income tax expense

 

3,994

 

4,952

 

11,958

 

16,070

 

10,079

 

3,603

Net income

$

15,839

$

19,825

$

54,553

$

70,837

$

40,283

$

18,352

Earnings per share—basic

$

0.51

$

0.64

$

1.78

$

2.29

$

1.06

$

0.61

Earnings per share—diluted

0.50

0.64

1.77

2.27

1.06

0.60

Weighted average number of common shares outstanding:

Basic

 

31,259,188

 

30,800,590

 

30,539,266

 

30,858,759

 

37,785,488

 

30,120,195

Diluted

 

31,531,075

 

31,064,815

 

30,834,630

 

31,162,132

 

38,074,973

 

30,479,261

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) Income (Unaudited)

(In thousands)

For the three months ended

For the nine months ended

For the three months ended

September 30, 

September 30, 

March 31, 

2022

2021

2022

2021

2023

2022

Net income

$

15,839

    

$

19,825

    

$

54,553

    

$

70,837

$

40,283

    

$

18,352

Other comprehensive loss, net of tax:

Other comprehensive income (loss), net of tax:

Securities available-for-sale:

Net unrealized losses arising during the period, net of tax benefit of $9,184 and $922 for the three months ended September 30, 2022 and 2021, respectively; and net of tax benefit of $25,030 and $3,331 for the nine months ended September 30, 2022 and 2021, respectively

 

(29,482)

 

(2,970)

 

(80,349)

 

(10,727)

Less: amortization of net unrealized holding losses, net of tax benefit of $22 and $38 for the three months ended September 30, 2022 and 2021, respectively; and net of tax benefit of $75 and $135 for the nine months ended September 30, 2022 and 2021, respectively

 

(71)

 

(122)

 

(242)

 

(436)

Net unrealized gains (losses) arising during the period, net of tax (expense) benefit of ($2,731) and $9,837 for the three months ended March 31, 2023 and 2022, respectively

 

8,955

 

(31,579)

Less: amortization of net unrealized holding gains to income, net of tax benefit of $16 and $28 for the three months ended March 31, 2023 and 2022, respectively

 

(51)

 

(91)

Cash flow hedges:

Net unrealized losses arising during the period, net of tax benefit of $559 and $0 for the three months ended September 30, 2022 and 2021, respectively; and net of tax benefit of $559 and $0 for the nine months ended September 30, 2022 and 2021, respectively

 

(1,795)

 

 

(1,795)

 

Less: reclassification adjustment for gains included in net income, net of tax expense of $3 and $0 for the three months ended September 30, 2022 and September 30, 2021, respectively; and net of tax expense of $3 and $0 for the nine months ended September 30, 2022 and September 30, 2021, respectively

10

 

 

10

 

Other comprehensive loss

 

(31,338)

 

(3,092)

 

(82,376)

 

(11,163)

Comprehensive (loss) income

$

(15,499)

$

16,733

$

(27,823)

$

59,674

Net unrealized gains arising during the period, net of tax expense of $173 for the three months ended March 31, 2023

 

566

 

Less: reclassification adjustment for gains included in net income, net of tax expense of $32 for the three months ended March 31, 2023

107

 

Other comprehensive income (loss)

 

9,577

 

(31,670)

Comprehensive income (loss)

$

49,860

$

(13,318)

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Shareholders’ Equity (Unaudited)

Three months ended March 31, 2023 and 2022

(In thousands, except share and per share data)

    

    

    

    

Accumulated

    

Additional

other

Common

paid-in

Retained

Treasury

comprehensive

stock

capital

earnings

stock

loss, net

Total

Balance, December 31, 2021

$

515

$

1,014,294

$

289,876

$

(457,616)

$

(6,963)

$

840,106

Net income

 

18,352

 

18,352

Stock-based compensation

 

1,151

 

1,151

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $1,104, net

 

(1,113)

397

 

(716)

Cash dividends declared ($0.23 per share)

 

(7,008)

(7,008)

Other comprehensive loss

 

(31,670)

(31,670)

Balance, March 31, 2022

$

515

$

1,014,332

$

301,220

$

(457,219)

$

(38,633)

$

820,215

Balance, December 31, 2022

$

515

$

1,159,508

$

330,721

$

(310,338)

$

(88,204)

$

1,092,202

Net income

 

40,283

 

40,283

Stock-based compensation

 

1,427

 

1,427

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $753, net

 

(499)

301

 

(198)

Cash dividends declared ($0.25 per share)

 

(9,564)

(9,564)

Other comprehensive income

 

9,577

 

9,577

Balance, March 31, 2023

$

515

$

1,160,436

$

361,440

$

(310,037)

$

(78,627)

$

1,133,727

See accompanying notes to the consolidated interim financial statements.

9

Table of Contents

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

For the three months ended September 30, 

    

    

    

    

Accumulated

    

Additional

other

Common

paid-in

Retained

Treasury

comprehensive

stock

capital

earnings

stock

loss, net

Total

Balance, June 30, 2021

$

515

$

1,011,200

$

260,821

$

(422,365)

$

1,695

$

851,866

Net income

 

19,825

 

19,825

Stock-based compensation

 

1,734

 

1,734

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $313, net

 

130

369

 

499

Repurchase of 527,214 shares

 

(19,370)

(19,370)

Cash dividends declared ($0.22 per share)

 

(6,746)

(6,746)

Other comprehensive loss

 

(3,092)

(3,092)

Balance, September 30, 2021

$

515

$

1,013,064

$

273,900

$

(441,366)

$

(1,397)

$

844,716

Balance, June 30, 2022

$

515

$

1,014,330

$

314,616

$

(455,909)

$

(58,001)

$

815,551

Net income

 

15,839

 

15,839

Stock-based compensation

 

1,494

 

1,494

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $64,175, net

 

106

509

 

615

Reissuance of treasury stock of 3,096,745 for acquisition of Community Bancorporation

63,630

60,642

 

124,272

Cash dividends declared ($0.23 per share)

 

(7,007)

(7,007)

Other comprehensive loss

 

(31,338)

 

(31,338)

Balance, September 30, 2022

$

515

$

1,079,560

$

323,448

$

(394,758)

$

(89,339)

$

919,426

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

    

For the three months ended March 31, 

2023

    

2022

Cash flows from operating activities:

Net income

$

40,283

$

18,352

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

Provision for credit loss expense (release)

 

900

 

(322)

Depreciation and amortization

 

5,117

 

3,422

Change in current income tax receivable

 

9,551

 

1,398

Change in deferred income taxes

 

3,392

 

(7,750)

Discount accretion, net of premium amortization on securities

 

(116)

 

724

Gain on sale of mortgages, net

 

(2,370)

 

(8,409)

Origination of loans held for sale, net of repayments

 

(99,105)

 

(282,614)

Proceeds from sales of loans held for sale

 

97,311

 

342,071

Originations of mortgage serving rights

(275)

(1,679)

Gain on sale of fixed assets

(696)

Stock-based compensation

 

1,427

 

1,151

Operating lease payments

(1,411)

(1,201)

Change in other assets

 

(49,455)

 

(3,017)

Change in other liabilities

 

(24,044)

 

(12,669)

Net cash (used in) provided by operating activities

 

(18,795)

 

48,761

Cash flows from investing activities:

Proceeds from non-marketable securities

4,662

60

Proceeds from maturities of investment securities available-for-sale

 

22,502

 

39,108

Proceeds from maturities of investment securities held-to-maturity

 

16,201

 

41,422

Proceeds from sales of other real estate owned

 

249

 

2,068

Purchase of non-marketable securities

(35,901)

(4,027)

Purchase of investment securities available-for-sale

(179,369)

Purchase of investment securities held-to-maturity

(2,451)

(Purchases) sales of premises and equipment, net

 

(6,701)

 

420

Net increase in loans

(122,451)

 

(140,033)

Net cash used in investing activities

 

(123,890)

 

(240,351)

Cash flows from financing activities:

Net (decrease) increase in deposits

 

(291,138)

 

136,637

Net increase in repurchase agreements and other short-term borrowings

 

1,278

 

1,976

Advances from the Federal Home Loan Bank

990,000

Federal Home Loan Bank repayments

(375,000)

Issuance of stock under purchase and equity compensation plans

(237)

(760)

Proceeds from exercise of stock options

8

Payment of dividends

 

(9,532)

 

(7,092)

Net cash provided by financing activities

 

315,371

 

130,769

Increase (decrease) in cash, cash equivalents and restricted cash(1)

 

172,686

 

(60,821)

Cash, cash equivalents and restricted cash at beginning of the year(1)

 

198,519

 

850,220

Cash, cash equivalents and restricted cash at end of period(1)

$

371,205

$

789,399

Supplemental disclosure of cash flow information during the period:

Cash paid for interest

$

15,348

$

2,269

Net tax payments

37

89

Supplemental schedule of non-cash activities:

Increase in loans purchased but not settled

$

$

22,739

Loans transferred from loans held for sale to loans

2,337

2,058

For the nine months ended September 30, 

    

    

    

    

Accumulated

    

Additional

other

Common

paid-in

Retained

Treasury

comprehensive

stock

capital

earnings

stock

loss, net

Total

Balance, December 31, 2020

$

515

$

1,011,362

$

223,175

$

(424,127)

$

9,766

$

820,691

Net income

70,837

70,837

Stock-based compensation

 

4,216

 

4,216

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $3,500, net

 

(2,514)

2,131

 

(383)

Repurchase of 527,214 shares

(19,370)

(19,370)

Cash dividends declared ($0.65 per share)

 

(20,112)

(20,112)

Other comprehensive loss

 

(11,163)

 

(11,163)

Balance, September 30, 2021

$

515

$

1,013,064

$

273,900

$

(441,366)

$

(1,397)

$

844,716

Balance, December 31, 2021

$

515

$

1,014,294

$

289,876

$

(457,616)

$

(6,963)

$

840,106

Net income

54,553

54,553

Stock-based compensation

 

4,342

 

4,342

Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $67,024, net

 

(2,706)

2,216

 

(490)

Reissuance of treasury stock of 3,096,745 for acquisition of Community Bancorporation

63,630

60,642

 

124,272

Cash dividends declared ($0.69 per share)

 

(20,981)

(20,981)

Other comprehensive loss

 

(82,376)

 

(82,376)

Balance, September 30, 2022

$

515

$

1,079,560

$

323,448

$

(394,758)

$

(89,339)

$

919,426

See accompanying notes to the consolidated interim financial statements.

9

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

    

For the nine months ended September 30, 

2022

    

2021

Cash flows from operating activities:

Net income

$

54,553

$

70,837

Adjustments to reconcile net income to net cash provided by operating activities:

Provision expense (release) for credit losses

 

12,386

 

(9,425)

Depreciation and amortization

 

10,712

 

11,536

Change in current income tax receivable

 

5,677

 

3,476

Change in deferred income taxes

 

(21,295)

 

(207)

Net excess tax benefit from stock-based compensation

(216)

(396)

Discount accretion, net of premium amortization on securities

 

1,192

 

3,398

Gain on sale of mortgages, net

 

(20,733)

 

(47,322)

Origination of loans held for sale, net of repayments

 

(710,743)

 

(1,506,880)

Proceeds from sales of loans held for sale

 

845,406

 

1,649,747

Originations of mortgage serving rights

(3,895)

(6,649)

Proceeds from sales of mortgage servicing rights

11,375

Gain on sale of mortgage servicing rights

(1,290)

Impairment on other real estate owned

 

227

799

Impairment on fixed assets related to banking center consolidations

 

118

 

1,552

Gain on sale of fixed assets

(1,674)

(2,708)

Gain from banking center divestiture

(778)

Stock-based compensation

 

4,342

 

4,216

Operating lease payments

(3,515)

(3,910)

Change in other assets

 

(35,110)

 

3,440

Change in other liabilities

 

43,665

 

(35,945)

Net cash provided by operating activities

 

181,097

 

144,866

Cash flows from investing activities:

Proceeds from non-marketable securities

64

1,912

Proceeds from maturities of investment securities available-for-sale

 

116,002

 

185,025

Proceeds from maturities of investment securities held-to-maturity

 

93,201

 

108,993

Proceeds from sales of other real estate owned

 

3,563

 

936

Purchase of non-marketable securities

(11,494)

(25,772)

Purchase of investment securities available-for-sale

(260,249)

(196,257)

Purchase of investment securities held-to-maturity

(91,607)

(377,687)

(Purchases) sales of premises and equipment, net

 

(9,912)

 

8,572

Net increase in loans

(673,939)

 

(71,913)

Proceeds from the sale of loans

 

933

Net cash activity from acquisition

 

244,742

Net cash used in investing activities

 

(588,696)

 

(366,191)

Cash flows from financing activities:

Net (decrease) increase in deposits

 

(159,101)

 

459,166

Net decrease in repurchase agreements and other short-term borrowings

 

(2,724)

 

(1,470)

Issuance of stock under purchase and equity compensation plans

(1,210)

(2,020)

Proceeds from exercise of stock options

639

1,557

Payment of dividends

 

(21,004)

 

(20,208)

Repurchase of common stock

 

 

(19,370)

Net cash (used in) provided by financing activities

 

(183,400)

 

417,655

(Decrease) increase in cash, cash equivalents and restricted cash(1)

 

(590,999)

 

196,330

Cash, cash equivalents and restricted cash at beginning of the year(1)

 

850,220

 

615,565

Cash, cash equivalents and restricted cash at end of period(1)

$

259,221

$

811,895

Supplemental disclosure of cash flow information during the period:

Cash paid for interest

$

9,587

$

12,719

Net tax payments

5,567

9,334

Supplemental schedule of non-cash activities:

Loans transferred from loans held for sale to loans

$

4,762

5,798

Treasury stock reissued for acquisition

60,642

$

(1)

Included in restricted cash at September 30,March 31, 2023 and 2022 and 2021 is $3.0$1.5 million and $4.5$3.0 million, respectively, placed in escrow for certain potential liabilities, for which the Company is indemnified, pursuant to the Peoples merger agreement.resulting from a previous acquisition. The restricted cash is included in other assets in the Company’s consolidated statements of financial condition.

See accompanying notes to the consolidated interim financial statements.

10

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2022March 31, 2023

Note 1 Basis of Presentation

National Bank Holdings Corporation ("NBHC" or the "Company") is a bank holding company that was incorporated in the State of Delaware in 2009. The Company is headquartered in Greenwood Village, Colorado, and its primary operations are conducted through its wholly owned subsidiary,subsidiaries NBH Bank (the "Bank"),and Bank of Jackson Hole Trust. NBH Bank is a Colorado state-chartered bank and a member of the Federal Reserve System, and Bank of Jackson Hole Trust is a Wyoming state-chartered bank and a member of the Federal Reserve System. The Company provides a variety of banking products to both commercial and consumer clients through a network of 86over 95 banking centers, as of September 30, 2022,March 31, 2023, located primarily in Colorado, the greater Kansas City region, Utah, Wyoming, Texas, and New Mexico and Idaho, as well as through online and mobile banking products and services.

The accompanying interim unaudited consolidated financial statements serve to update the National Bank Holdings Corporation Annual Report on Form 10-K for the year ended December 31, 20212022 and include the accounts of the Company and its wholly owned subsidiary,subsidiaries, NBH Bank.Bank and Bank of Jackson Hole Trust. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and where applicable, with general practices in the banking industry or guidelines prescribed by bank regulatory agencies. However, they may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Company's most recent Form 10-K. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results presented. All such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of prior years' amounts are made whenever necessary to conform to current period presentation. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the full year or any other interim period. All amounts are in thousands, except share data, or as otherwise noted.

GAAP requires management to make estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. By their nature, estimates are based on judgment and available information. Management has made significant estimates in certain areas, such as the fair values of financial instruments, contingent liabilities and the allowance for credit losses (“ACL”). Because of the inherent uncertainties associated with any estimation process and future changes in market and economic conditions, it is possible that actual results could differ significantly from those estimates.

The Company's significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in note 2 of the audited financial statements and notes for the year ended December 31, 20212022 and are contained in the Company's Annual Report on Form 10-K. There have been no significant changes to the application of significant accounting policies since December 31, 2021, with the exception of the following:

Acquired loans —ASC Topic 805, Business Combinations, requires all acquired loans be recorded at fair value at the date of acquisition. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are purchased credit deteriorated (“PCD”) loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a level yield method. The net premium or discount on loans that are not classified as PCD (“non-PCD”), that includes credit quality and interest rate considerations, is accreted or amortized into interest income over the remaining life of the loan using the level yield method. The Company then records the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense.2022.

Note 2 Recent Accounting Pronouncements

The Company has not adopted any recent accounting pronouncements in addition to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2021.2022, except for the following:

11In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on troubled debt restructurings (“TDR”) and requires disclosure of current-period gross write-offs by year of origination. The guidance also updates the requirements related to accounting for credit losses under ASC Topic 326 and adds enhanced disclosures for creditors with respect to loan refinancing and modifications of loans for borrowers experiencing financial difficulty. The Company adopted ASU 2022-02 on January 1, 2023 using a modified retrospective approach. A cumulative effect adjustment was not booked to retained earnings as it was immaterial. The update has not had a material impact to our financial statements apart from changes in disclosures.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The Company adopted ASU 2022-01 on January 1, 2023, and the update has not had a material impact on its financial statements.

11

Note 3 Acquisition Activities

Rock Canyon Bank

On September 1, 2022, the Company completed its acquisition of Community Bancorporation, the bank holding company of Utah-based Rock Canyon Bank (“RCB”). Immediately following the completion of the acquisition, RCB merged into NBH Bank. Pursuant to the merger agreement executed in April 2022, the Company paid $16.1 million of cash consideration and issued 3,096,745 shares of the Company’s Class A common stock in exchange for all of the outstanding common stock of Community Bancorporation. The transaction was valued at $140.4 million in the aggregate, based on the Company’s closing price of $40.13 on August 31, 2022. The acquisition added seven banking centers to the Company’s footprint within the Provo and Greater Salt Lake City regions.

RCB acquisition-related costs totaled $9.1 million and $9.8 million for the three and nine months ended September 30, 2022, respectively, including a Day 1 CECL provision expense of $5.4 million. The results of RCB are included in the results of the Company subsequent to the acquisition date. The Company closed on its acquisition of Bancshares of Jackson Hole, the holding company for Bank of Jackson Hole (“BOJH”) on October 1, 2022. Refer to note 20 Subsequent Events in our unaudited consolidated financial statements for more information. Total acquisition-related costs for RCB and BOJH were $12.4 million and $13.6 million, which were included in the Company’s consolidated statements of operations for the three and nine months ended September 30, 2022, respectively.

The Company determined that the acquisition of RCB constitutes a business combination as defined in ASC Topic 805, Business Combinations. Accordingly, as of the date of the acquisition, the Company recorded the assets acquired and liabilities assumed at fair value. The Company determined fair values in accordance with the guidance provided in ASC Topic 820, Fair Value Measurements and Disclosures. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Actual results could differ materially. The Company has made the determination of fair values using the best information available at the time; however, purchase accounting is not complete and the assumptions used are subject to change and, if changed, could have a material effect on the Company's financial position and results of operations.

12

The table below summarizes preliminary net assets acquired (at fair value) and consideration transferred in connection with the RCB acquisition:

September 1, 2022

Assets:

Cash and due from banks

$

260,883

Investment securities available-for-sale

402

Non-marketable securities

977

Loans, net

535,197

Loans held for sale

3,069

Premises and equipment

3,413

Core deposit and other intangibles

16,463

Other assets

11,749

Total assets acquired

832,153

Liabilities:

Total deposits

734,480

Other liabilities

10,115

Total liabilities assumed

744,595

Identifiable net assets acquired

$

87,558

Consideration:

NBHC common stock paid, closing price of $40.13 on August 31, 2022

$

124,272

Cash

16,141

Total

140,413

Goodwill

$

52,855

In connection with the RCB acquisition, the Company recorded $52.9 million of goodwill. The amount of goodwill recorded reflects the expanded market presence, synergies and operational efficiencies that are expected to result from the acquisition. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks—The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.

Loans, netThe fair value of loans were based on a discounted cash flow methodology that considered the loans’ underlying characteristics including account type, remaining terms of loan, annual interest rates or coupon, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposure and remaining balance. The discount rates applied were based upon a build-up approach considering the alternative cost of funds, capital charges, servicing costs, and a liquidity premium. Loans were aggregated according to similar characteristics when applying the valuation method.

Core deposit and other intangibles—The Company recorded a core deposit intangible asset of $13.3 million and a Small Business Administration (“SBA”) servicing rights asset of $3.1 million. The core deposit intangible was valued utilizing a discounted cash flow methodology based upon assumptions regarding retained balances, such as account retention rate and growth rates, interest expense including maintenance costs, and alternative costs of funding. The discount rate applied is consistent to that applied to loans above. The SBA servicing asset was valued using a discounted cash flow methodology that included assumptions for pre-payment speeds and defaults discounted at a market-based discount rate. The valuation methodology was applied to each loan individually based upon its specific characteristics.

The core deposit intangible will be amortized straight-line over ten years, and the SBA servicing rights asset will be amortized over the life of the underlying portfolio.

13

DepositsBy definition, the fair value of demand and saving deposits equals the amount payable. For time deposits acquired, the Company utilized an income approach, discounting the contractual cash flows on the instruments over their remaining contractual lives at prevailing market rates.

The fair value of the acquired assets and liabilities noted in the table may change during the provisional period, which may last up to twelve months subsequent to the acquisition date. The Company may obtain additional information to refine the valuation of the acquired assets and liabilities and adjust the recorded fair value.

Accounting for acquired loans

A Day 1 CECL allowance for credit losses on the non-PCD loans was recorded through provision for credit loss expense within the consolidated statements of income. At the date of acquisition, of the $537.7 million of loans acquired from RCB, $11.1 million, or 2.1% of RCB’s loan portfolio, were accounted for as PCD loans. The gross contractual amounts receivable of PCD loans, inclusive of all principal and interest, was $13.1 million. The Company’s best estimate of the contractual cash flows for PCD loans not expected to be collected was $2.5 million.

The following table provides a summary of PCD loans purchased as part of the RCB acquisition as of the acquisition date:

Commercial

Commercial real estate non-owner occupied

Residential real estate

Consumer

Total

Unpaid principal balance

$

12,079

$

220

$

843

$

3

$

13,145

PCD allowance for credit loss at acquisition

(2,257)

(2)

(215)

(2,474)

(Discount) premium on acquired loans

(787)

19

(5)

(773)

Loans previously charged-off by RCB

(2,051)

(3)

(2,054)

Purchase price of PCD loans

$

6,984

$

237

$

623

$

$

7,844

Pro forma information

The following pro forma information combines the historical results of RCB and the Company. The pro forma financial information does not include the potential impacts of possible business model changes, current market conditions, revenue enhancements, expense efficiencies, or other factors. If the RCB acquisition had been completed on January 1, 2021, pro forma total revenue for the Company would have been approximately $100.7 million and $89.1 million for the three months ended September 30, 2022 and 2021, respectively. Pro forma net income for the Company would have been approximately $29.0 million and $22.8 million for the three months ended September 30, 2022 and 2021, respectively. Pro forma basic and diluted earnings per share for the Company would have been $0.87 and $0.86 for the three months ended September 30, 2022, respectively, and $0.67 and $0.67 for the three months ended September 30, 2021, respectively. For the three months ended September 30, 2022, the pro forma information reflects adjustments made to exclude acquisition-related expenses of the Company totaling $12.4 million and estimated acquisition-related expenses incurred by RCB prior to the acquisition date totaling $0.7 million. Adjustments also included estimated amortization of acquired identifiable intangibles of $0.2 million and $0.3 million for the three months ended September 30, 2022 and 2021, respectively.

For the nine months ended September 30, 2022 and 2021, pro forma total revenue for the Company would have been approximately $263.3 million and $263.1 million. For the nine months ended September 30, 2022 and 2021, pro forma net income for the Company would have been approximately $74.3 million and $80.6 million, respectively. Pro forma basic and diluted earnings per share for the Company would have been $2.23 and $2.21 for the nine months ended September 30, 2022, respectively, and $2.37 and $2.35 for the nine months ended September 30, 2021, respectively. For the nine months ended September 30, 2022, the pro forma information reflects adjustments made to exclude acquisition-related expenses of the Company totaling $13.6 million and estimated acquisition-related expenses incurred by RCB prior to the acquisition date totaling $0.7 million. Adjustments also included estimated amortization and accretion of purchase premiums and discounts of $0.2 million for the nine months ended September 30, 2022 and 2021, estimated accretion of fair value marks on time deposits of $0.1 million for the nine months ended September 30, 2022 and 2021 and estimated amortization of acquired identifiable intangibles of $0.9 million and $1.0 million for the nine months ended September 30, 2022 and 2021, respectively.

14

The pro forma information is theoretical in nature and not necessarily indicative of future consolidated results of operations of the Company or the consolidated results of operations which would have resulted had the Company acquired RCB during the periods presented.

The Company has determined that it is impractical to report the amounts of revenue and earnings of legacy RCB since the acquisition date due to the integration of certain processes occurring shortly after the acquisition date. Such amounts would require significant estimates that cannot be objectively made.

Note 43 Investment Securities

The Company’s investment securities portfolio is comprised of available-for-sale and held-to-maturity investment securities. These investment securities totaled $1.3 billion at September 30, 2022March 31, 2023 and included $0.7 billion of available-for-sale securities and $0.6 billion of held-to-maturity securities. At December 31, 2021,2022, investment securities totaled $1.3$1.4 billion and included $0.7 billion of available-for-sale securities and $0.6$0.7 billion of held-to-maturity securities.

Available-for-sale

Available-for-sale securities are summarized as follows as of the dates indicated:

September 30, 2022

March 31, 2023

    

Amortized

    

Gross

    

Gross

    

    

Amortized

    

Gross

    

Gross

    

cost

unrealized gains

unrealized losses

Fair value

cost

unrealized gains

unrealized losses

Fair value

U.S. Treasury securities

$

73,912

$

$

(2,816)

$

71,096

$

74,148

$

$

(1,994)

$

72,154

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

272,133

12

(42,494)

229,651

256,267

18

(34,076)

222,209

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

496,878

 

 

(69,896)

 

426,982

 

463,907

 

 

(65,625)

 

398,282

Municipal securities

230

(6)

224

155

(1)

154

Corporate debt

2,000

(42)

1,958

2,000

(108)

1,892

Other securities

 

880

 

 

 

880

 

794

 

 

 

794

Total investment securities available-for-sale

$

846,033

$

12

$

(115,254)

$

730,791

$

797,271

$

18

$

(101,804)

$

695,485

December 31, 2021

December 31, 2022

    

Amortized

    

Gross

    

Gross

    

    

Amortized

    

Gross

    

Gross

    

cost

unrealized gains

unrealized losses

Fair value

cost

unrealized gains

unrealized losses

Fair value

U.S. Treasury securities

$

74,031

$

$

(2,643)

$

71,388

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

$

231,523

$

1,436

$

(5,263)

$

227,696

263,939

1

(37,809)

226,131

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

467,490

 

1,889

 

(8,045)

 

461,334

 

478,866

 

 

(72,940)

 

405,926

Municipal securities

230

7

237

155

(2)

153

Corporate debt

2,000

111

2,111

2,000

(80)

1,920

Other securities

 

469

 

 

 

469

 

771

 

 

 

771

Total investment securities available-for-sale

$

701,712

$

3,443

$

(13,308)

$

691,847

$

819,762

$

1

$

(113,474)

$

706,289

During the ninethree months ended September 30,March 31, 2023, there were no purchases of available-for-sale securities. During the three months ended March 31, 2022, and 2021, purchases of available-for-sale securities totaled $260.2 million and $196.3 million, respectively.$179.4 million. Maturities and paydowns of available-for-sale securities during the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 totaled $116.0$22.5 million and $185.0$39.1 million, respectively. There were no sales of available-for-sale securities during the ninethree months ended September 30, 2022March 31, 2023 or 2021.2022.

At September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company’s available-for-sale investment portfolio was primarily comprised of mortgage-backedU.S. Treasury securities and allmortgage-backed securities. All mortgage-backed securities were backed by government sponsored enterprises (“GSE”) collateral

15 such as Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”), and the government owned agency Government National Mortgage Association (“GNMA”).

12

such as Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) and the government owned agency Government National Mortgage Association (“GNMA”).

The tables below summarize the available-for-sale securities with unrealized losses as of the dates shown, along with the length of the impairment period:

September 30, 2022

March 31, 2023

Less than 12 months

12 months or more

Total

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

value

losses

value

losses

value

losses

U.S. Treasury securities

$

71,096

$

(2,816)

$

$

$

71,096

$

(2,816)

$

72,153

$

(1,994)

$

$

$

72,153

$

(1,994)

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

89,723

(8,558)

136,713

(33,936)

226,436

(42,494)

43,304

(2,112)

175,914

(31,964)

219,218

(34,076)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

297,858

(36,381)

129,124

(33,515)

426,982

(69,896)

25,905

(1,745)

372,230

(63,880)

398,135

(65,625)

Municipal securities

224

(6)

224

(6)

154

(1)

154

(1)

Corporate debt

1,958

(42)

1,958

(42)

1,892

(108)

1,892

(108)

Total

$

460,859

$

(47,803)

$

265,837

$

(67,451)

$

726,696

$

(115,254)

$

143,408

$

(5,960)

$

548,144

$

(95,844)

$

691,552

$

(101,804)

December 31, 2021

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

$

163,579

$

(4,404)

$

22,852

$

(859)

$

186,431

$

(5,263)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

237,759

(5,593)

48,750

(2,452)

286,509

(8,045)

Total

$

401,338

$

(9,997)

$

71,602

$

(3,311)

$

472,940

$

(13,308)

December 31, 2022

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

U.S. Treasury securities

$

71,388

$

(2,643)

$

$

$

71,388

$

(2,643)

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

83,748

(6,686)

141,272

(31,123)

225,020

(37,809)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

196,449

(22,809)

209,477

(50,131)

405,926

(72,940)

Municipal securities

153

(2)

153

(2)

Corporate debt

1,920

(80)

1,920

(80)

Total

$

353,658

$

(32,220)

$

350,749

$

(81,254)

$

704,407

$

(113,474)

Management evaluated all of the available-for-sale securities in an unrealized loss position at September 30, 2022March 31, 2023 and December 31, 2021.2022. The portfolio included 245238 securities, which were in an unrealized loss position at September 30, 2022,March 31, 2023, compared to 49244 securities at December 31, 2021.2022. The unrealized losses in the Company's investment portfolio at September 30, 2022March 31, 2023 were caused by changes in interest rates. The Company has no intention to sell these securities and believes it will not be required to sell the securities before the recovery of their amortized cost. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank (“FRB”), if needed. The fair value of available-for-sale investment securities pledged as collateral totaled $407.9 million and $363.4 million at September 30, 2022 and at December 31, 2021, respectively. The Bank may also pledge available-for-sale investment securities as collateral for Federal Home Loan Bank (“FHLB”) advances. No securities were pledged for this purpose at September 30, 2022 or December 31, 2021.

16

13

The tables below summarize the credit quality indicators, by fair value, of available-for-sale securities as of the dates shown:

March 31, 2023

AAA

Not rated

Total

U.S. Treasury securities

$

72,154

$

$

72,154

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

222,209

222,209

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

398,282

398,282

Municipal securities

154

154

Corporate debt

1,892

1,892

Other securities

 

 

794

 

794

Total investment securities available-for-sale

$

692,645

$

2,840

$

695,485

December 31, 2022

AAA

Not rated

Total

U.S. Treasury securities

$

71,388

$

$

71,388

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

226,131

226,131

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

405,926

405,926

Municipal securities

153

153

Corporate debt

1,920

1,920

Other securities

 

 

771

 

771

Total investment securities available-for-sale

$

703,445

$

2,844

$

706,289

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank (“FRB”), if needed. The fair value of available-for-sale investment securities pledged as collateral totaled $267.6 million and $484.9 million at March 31, 2023 and December 31, 2022, respectively. The Bank may also pledge available-for-sale investment securities as collateral for Federal Home Loan Bank (“FHLB”) advances. No securities were pledged for this purpose at March 31, 2023 or December 31, 2022.

A summary of the available-for-sale securities by maturity is shown in the following table as of September 30, 2022.March 31, 2023. Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments.instruments and are therefore not included in the table below. Additionally, the Company holds other available-for-sale securities with an amortized cost and fair value of $0.9$0.8 million that have no stated contractual maturity date.

September 30, 2022

March 31, 2023

Weighted

Weighted

Amortized Cost

Fair Value

Average Yield

Amortized Cost

Fair Value

Average Yield

U.S. Treasury securities

After one but within five years

$

73,912

$

71,096

2.54%

$

74,148

$

72,154

2.54%

Municipal securities

After one but within five years

230

224

3.17%

155

154

3.17%

Corporate debt

After five but within ten years

2,000

1,958

5.87%

2,000

1,892

5.87%

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, accrued interest receivable (“AIR”) from available-for-sale investment securities totaled $1.5$1.4 million and $1.0$1.5 million, respectively, and was included within other assets in the consolidated statements of financial condition.

Held-to-maturity

Held-to-maturity investment securities are summarized as follows as of the dates indicated:

September 30, 2022

    

    

Gross

    

Gross

    

Amortized

unrealized

unrealized

cost

gains

losses

Fair value

U.S. Treasury securities

$

48,973

$

$

(1,561)

$

47,412

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

291,306

(46,440)

244,866

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

265,966

 

 

(49,283)

 

216,683

Total investment securities held-to-maturity

$

606,245

$

$

(97,284)

$

508,961

December 31, 2021

    

    

Gross

    

Gross

    

Amortized

unrealized

unrealized

cost

gains

losses

Fair value

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

$

312,916

$

2,061

$

(5,363)

$

309,614

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

296,096

 

122

 

(6,572)

 

289,646

Total investment securities held-to-maturity

$

609,012

$

2,183

$

(11,935)

$

599,260

During the nine months ended September 30, 2022 and 2021, purchases of held-to-maturity securities totaled $91.6 million and $377.7 million, respectively. Maturities and paydowns of held-to-maturity securities totaled $93.2 million and $109.0 million during the nine months ended September 30, 2022 and 2021, respectively.

The held-to-maturity portfolio included 104 securities, which were in an unrealized loss position as of September 30, 2022, compared to 48 securities at December 31, 2021. The tables below summarize the held-to-maturity securities with unrealized losses as of the dates shown, along with the length of the impairment period:

17

14

Held-to-maturity

September 30, 2022

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

U.S. Treasury securities

$

47,412

$

(1,561)

$

$

$

47,412

$

(1,561)

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

90,673

(10,880)

154,193

(35,560)

244,866

(46,440)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

92,466

(14,168)

124,217

(35,115)

216,683

(49,283)

Total

$

230,551

$

(26,609)

$

278,410

$

(70,675)

$

508,961

$

(97,284)

Held-to-maturity investment securities are summarized as follows as of the dates indicated:

March 31, 2023

    

    

Gross

    

Gross

    

Amortized

unrealized

unrealized

cost

gains

losses

Fair value

U.S. Treasury securities

$

49,117

$

$

(976)

$

48,141

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

331,996

529

(37,279)

295,246

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

256,808

 

28

 

(44,967)

 

211,869

Total investment securities held-to-maturity

$

637,921

$

557

$

(83,222)

$

555,256

December 31, 2021

December 31, 2022

Less than 12 months

12 months or more

Total

    

    

Gross

    

Gross

    

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

Amortized

unrealized

unrealized

value

losses

value

losses

value

losses

cost

gains

losses

Fair value

U.S. Treasury securities

$

49,045

$

$

(1,416)

$

47,629

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

$

197,095

$

(3,499)

$

45,353

$

(1,864)

$

242,448

$

(5,363)

339,815

163

(41,162)

298,816

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

276,098

(6,572)

276,098

(6,572)

 

262,667

 

 

(49,188)

 

213,479

Total

$

473,193

$

(10,071)

$

45,353

$

(1,864)

$

518,546

$

(11,935)

Total investment securities held-to-maturity

$

651,527

$

163

$

(91,766)

$

559,924

During the three months ended March 31, 2023, purchases of held-to-maturity securities totaled $2.5 million. There were no purchases of held-to-maturity securities during the three months ended March 31, 2022. Maturities and paydowns of held-to-maturity securities totaled $16.2 million and $41.4 million during the first quarter of 2023 and 2022, respectively.

The held-to-maturity portfolio included 111 securities which were in an unrealized loss position as of March 31, 2023 compared to 129 securities at December 31, 2022. The tables below summarize the held-to-maturity securities with unrealized losses as of the dates shown, along with the length of the impairment period:

March 31, 2023

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

U.S. Treasury securities

$

48,141

$

(976)

$

$

$

48,141

$

(976)

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

48,855

(1,481)

195,980

(35,798)

244,835

(37,279)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

23,337

(684)

185,348

(44,283)

208,685

(44,967)

Total

$

120,333

$

(3,141)

$

381,328

$

(80,081)

$

501,661

$

(83,222)

15

December 31, 2022

Less than 12 months

12 months or more

Total

    

Fair

    

Unrealized

    

Fair

    

Unrealized

    

Fair

    

Unrealized

value

losses

value

losses

value

losses

U.S. Treasury securities

$

47,629

$

(1,416)

$

$

$

47,629

$

(1,416)

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

83,323

(3,804)

182,159

(37,358)

265,482

(41,162)

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

34,704

(1,145)

178,776

(48,043)

213,480

(49,188)

Total

$

165,656

$

(6,365)

$

360,935

$

(85,401)

$

526,591

$

(91,766)

The Company does not measure expected credit losses on a financial asset, or group of financial assets, in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero. Management evaluated held-to-maturity securities noting they are backed by loans guaranteed by either U.S. government agencies or U.S. government sponsored entities, and management believes that default is highly unlikely given this governmental backing and long history without credit losses. Additionally, management notes that yields on which the portfolio generally trades are based upon market views of prepayment and liquidity risk and not credit risk. The Company has no intention to sell any held-to-maturity securities and believes it will not be required to sell any held-to-maturity securities before the recovery of their amortized cost.

The tables below summarize the credit quality indicators, by amortized cost, of held-to-maturity securities as of the dates shown:

March 31, 2023

AAA

U.S. Treasury securities

$

49,117

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

331,996

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

256,808

Total investment securities held-to-maturity

$

637,921

December 31, 2022

AAA

U.S. Treasury securities

$

49,045

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

339,815

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

262,667

Total investment securities held-to-maturity

$

651,527

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the FRB, if needed. The carrying value of held-to-maturity investment securities pledged as collateral totaled $280.7$590.6 million and $147.3$355.3 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The BankCompany may also pledge held-to-maturity investment securities as collateral for FHLB advances. No held-to-maturity investment securities were pledged for this purpose at September 30, 2022March 31, 2023 or December 31, 2021.2022.

16

A summary of the held-to-maturity securities by maturity is shown in the following table as of September 30, 2022.March 31, 2023. Actual maturities of mortgage-backed securities may differ from scheduled maturities depending on the repayment characteristics and experience of the underlying financial instruments.instruments and are therefore not included in the table below.

September 30, 2022

Weighted

Amortized Cost

Fair Value

Average Yield

U.S. Treasury securities

After one but within five years

$

48,973

$

47,412

3.14%

Total

$

48,973

$

47,412

March 31, 2023

Weighted

Amortized Cost

Fair Value

Average Yield

U.S. Treasury securities

After one but within five years

$

49,117

$

48,141

3.14%

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, AIR from held-to-maturity investment securities totaled $1.3$1.4 million and $0.9$1.1 million, respectively, and was included within other assets in the consolidated statements of financial condition.

18

Note 54 Non-marketable Securities

Non-marketable securities totaled $64.0$120.7 million and $50.7$89.0 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and included FRB stock, FHLB stock and other non-marketable securities. At September 30, 2022, other non-marketable securities totaled $48.5 million and consisted of equity method investments totaling $21.5 million and convertible preferred stock without a readily determinable fair value totaling $27.0 million. At December 31, 2021, other non-marketable securities totaled $36.2 million and consisted of equity method investments totaling $14.2 million and convertible preferred stock without a readily determinable fair value totaling $22.0 million. During the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, purchases of non-marketable securities totaled $11.5$35.9 million and $25.8$4.0 million, respectively. Proceeds from non-marketable securities totaled $0.1$4.7 million and $1.9 million$60 thousand during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

At September 30, 2022,March 31, 2023, the Company held $13.9$45.6 million of FRBFHLB stock and $1.6$23.7 million of FHLBFRB stock for regulatory or debt facility purposes. At December 31, 2021,2022, the Company held $13.9$20.3 million of FHLB stock and $18.1 million of FRB stock and $0.7 millionstock. Purchases of FHLB stock.and FRB stock totaled $35.9 million and zero during the three months ended March 31, 2023 and 2022, respectively. These are restricted securities which, lacking a market, are carried at cost. There have been no identified events or changes in circumstances that may have an adverse effect on the investments carried at cost.

At March 31, 2023, other non-marketable securities totaled $51.4 million and consisted of equity method investments totaling $22.4 million and convertible preferred stock without a readily determinable fair value totaling $29.0 million. At December 31, 2022, other non-marketable securities totaled $50.7 million and consisted of equity method investments totaling $21.7 million and convertible preferred stock without a readily determinable fair value totaling $29.0 million. During the three months ended March 31, 2023 and 2022, purchases of other non-marketable securities totaled zero and $4.0 million, respectively.

Note 65 Loans

The loan portfolio is comprised of loans originated by the Company and loans that were acquired in connection with the Company’s acquisitions.

The tables below show the loan portfolio composition including carrying value by segment as of the dates shown. The carrying value of loans is net of discounts, fees, costs and fair value marks of $5.9$37.5 million and $9.4$38.8 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

September 30, 2022

March 31, 2023

Total loans

    

% of total

Total loans

    

% of total

Commercial

$

3,923,483

68.6%

$

4,228,950

57.6%

Commercial real estate non-owner occupied

 

950,402

16.6%

 

1,824,524

24.8%

Residential real estate

 

830,146

14.5%

 

1,271,798

17.3%

Consumer

 

17,954

0.3%

 

20,026

0.3%

Total

$

5,721,985

100.0%

$

7,345,298

100.0%

December 31, 2021

Total loans

    

% of total

Commercial

$

3,162,417

70.1%

Commercial real estate non-owner occupied

 

664,729

14.7%

Residential real estate

 

668,656

14.8%

Consumer

 

17,581

0.4%

Total

$

4,513,383

100.0%

December 31, 2022

Total loans

    

% of total

Commercial

$

4,251,780

58.9%

Commercial real estate non-owner occupied

 

1,696,050

23.5%

Residential real estate

 

1,251,281

17.3%

Consumer

 

21,358

0.3%

Total

$

7,220,469

100.0%

19

17

Information about delinquent and non-accrual loans is shown in the following tables at September 30, 2022March 31, 2023 and December 31, 2021:2022:

September 30, 2022

March 31, 2023

Greater

Greater

30-89 days

than 90 days

Total past

30-89 days

than 90 days

Total past

past due and

past due and

Non-accrual

due and

past due and

past due and

Non-accrual

due and

accruing

accruing

loans

non-accrual

Current

Total loans

accruing

accruing

loans

non-accrual

Current

Total loans

Commercial:

Commercial and industrial

$

945

$

55

$

1,887

$

2,887

$

1,803,906

$

1,806,793

$

1,224

$

$

1,631

$

2,855

$

1,987,928

$

1,990,783

Municipal and non-profit

968,865

968,865

980,117

980,117

Owner occupied commercial real estate

93

2,681

2,774

805,394

808,168

2,200

2,200

920,914

923,114

Food and agribusiness

116

4,503

4,619

335,038

339,657

75

141

620

836

334,100

334,936

Total commercial

1,154

55

9,071

10,280

3,913,203

3,923,483

1,299

141

4,451

5,891

4,223,059

4,228,950

Commercial real estate non-owner occupied:

Construction

 

 

 

 

 

212,961

 

212,961

 

 

 

 

 

341,197

 

341,197

Acquisition/development

 

 

 

 

 

63,104

 

63,104

 

 

 

 

 

123,696

 

123,696

Multifamily

 

 

 

 

 

68,802

 

68,802

 

 

 

 

 

270,532

 

270,532

Non-owner occupied

 

 

177

 

708

 

885

 

604,650

 

605,535

 

 

 

149

 

149

 

1,088,950

 

1,089,099

Total commercial real estate

 

 

177

 

708

 

885

 

949,517

 

950,402

 

 

 

149

 

149

 

1,824,375

 

1,824,524

Residential real estate:

 

 

 

 

 

 

 

 

 

 

 

 

Senior lien

173

4,454

4,627

756,548

761,175

633

30

4,268

4,931

1,176,742

1,181,673

Junior lien

 

103

100

416

619

68,352

68,971

 

342

10

605

957

89,168

90,125

Total residential real estate

 

276

100

4,870

5,246

824,900

830,146

 

975

40

4,873

5,888

1,265,910

1,271,798

Consumer

 

118

8

126

17,828

 

17,954

 

34

4

73

111

19,915

 

20,026

Total loans

$

1,548

$

332

$

14,657

$

16,537

$

5,705,448

$

5,721,985

$

2,308

$

185

$

9,546

$

12,039

$

7,333,259

$

7,345,298

September 30, 2022

March 31, 2023

Non-accrual loans

Non-accrual loans

Non-accrual loans

Non-accrual loans

with a related

with no related

with a related

with no related

allowance for

allowance for

Non-accrual

allowance for

allowance for

Non-accrual

credit loss

credit loss

loans

credit loss

credit loss

loans

Commercial:

Commercial and industrial

$

1,090

$

797

$

1,887

$

1,631

$

$

1,631

Municipal and non-profit

Owner occupied commercial real estate

2,511

170

2,681

781

1,419

2,200

Food and agribusiness

2,159

2,344

4,503

34

586

620

Total commercial

5,760

3,311

9,071

2,446

2,005

4,451

Commercial real estate non-owner occupied:

Construction

 

 

 

 

 

 

Acquisition/development

 

 

 

 

 

 

Multifamily

 

 

 

 

 

 

Non-owner occupied

 

708

 

 

708

 

149

 

 

149

Total commercial real estate

 

708

 

 

708

 

149

 

 

149

Residential real estate:

 

 

 

 

 

 

Senior lien

3,282

1,172

4,454

3,138

1,130

4,268

Junior lien

416

 

416

302

303

 

605

Total residential real estate

3,698

1,172

 

4,870

3,440

1,433

 

4,873

Consumer

 

8

 

 

8

 

66

 

7

 

73

Total loans

$

10,174

$

4,483

$

14,657

$

6,101

$

3,445

$

9,546

20

18

December 31, 2021

Greater

30-89 days

than 90 days

Total past

past due and

past due and

Non-accrual

due and

accruing

accruing

loans

non-accrual

Current

Total loans

Commercial:

Commercial and industrial

$

481

$

$

1,490

$

1,971

$

1,494,176

$

1,496,147

Municipal and non-profit

202

202

928,843

929,045

Owner occupied commercial real estate

 

207

 

4,525

 

4,732

 

528,904

 

533,636

Food and agribusiness

 

89

 

64

 

153

 

203,436

 

203,589

Total commercial

979

6,079

7,058

3,155,359

3,162,417

Commercial real estate non-owner occupied:

Construction

 

 

 

 

 

86,126

 

86,126

Acquisition/development

 

 

 

 

 

9,609

 

9,609

Multifamily

 

 

 

 

 

92,174

 

92,174

Non-owner occupied

 

94

 

217

 

121

 

432

 

476,388

 

476,820

Total commercial real estate

 

94

 

217

 

121

 

432

 

664,297

 

664,729

Residential real estate:

 

Senior lien

 

399

 

198

4,251

 

4,848

 

609,780

614,628

Junior lien

 

179

 

374

553

53,475

54,028

Total residential real estate

 

578

 

198

4,625

5,401

663,255

668,656

Consumer

 

36

 

5

 

7

48

17,533

17,581

Total loans

$

1,687

$

420

$

10,832

$

12,939

$

4,500,444

$

4,513,383

December 31, 2022

Greater

30-89 days

than 90 days

Total past

past due and

past due and

Non-accrual

due and

accruing

accruing

loans

non-accrual

Current

Total loans

Commercial:

Commercial and industrial

$

919

$

53

$

2,601

$

3,573

$

2,021,262

$

2,024,835

Municipal and non-profit

959,626

959,626

Owner occupied commercial real estate

 

6,551

6,551

906,789

 

913,340

Food and agribusiness

 

699

2,148

2,847

351,132

 

353,979

Total commercial

1,618

53

11,300

12,971

4,238,809

4,251,780

Commercial real estate non-owner occupied:

Construction

 

 

 

 

 

341,325

 

341,325

Acquisition/development

 

 

 

 

 

129,102

 

129,102

Multifamily

 

 

 

 

 

213,677

 

213,677

Non-owner occupied

 

629

 

 

685

 

1,314

 

1,010,632

 

1,011,946

Total commercial real estate

 

629

 

 

685

 

1,314

 

1,694,736

 

1,696,050

Residential real estate:

 

 

 

 

Senior lien

 

446

4,174

4,620

1,149,728

1,154,348

Junior lien

 

255

341

596

96,337

96,933

Total residential real estate

 

701

4,515

5,216

1,246,065

1,251,281

Consumer

 

38

42

12

92

21,266

21,358

Total loans

$

2,986

$

95

$

16,512

$

19,593

$

7,200,876

$

7,220,469

December 31, 2021

December 31, 2022

Non-accrual loans

Non-accrual loans

Non-accrual loans

Non-accrual loans

with a related

with no related

with a related

with no related

allowance for

allowance for

Non-accrual

allowance for

allowance for

Non-accrual

credit loss

credit loss

loans

credit loss

credit loss

loans

Commercial:

Commercial and industrial

$

1,490

$

$

1,490

$

1,640

$

961

$

2,601

Municipal and non-profit

Owner occupied commercial real estate

4,525

4,525

693

5,858

6,551

Food and agribusiness

64

64

455

1,693

2,148

Total commercial

6,079

6,079

2,788

8,512

11,300

Commercial real estate non-owner occupied:

Construction

 

 

 

 

 

 

Acquisition/development

 

 

 

 

 

 

Multifamily

 

 

 

 

 

 

Non-owner occupied

 

121

 

 

121

 

685

 

 

685

Total commercial real estate

 

121

 

 

121

 

685

 

 

685

Residential real estate:

 

 

 

 

 

 

Senior lien

3,274

977

4,251

3,019

1,155

4,174

Junior lien

374

 

374

341

 

341

Total residential real estate

3,648

977

 

4,625

3,360

1,155

 

4,515

Consumer

 

7

 

 

7

 

12

 

 

12

Total loans

$

9,855

$

977

$

10,832

$

6,845

$

9,667

$

16,512

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Non-accrualModified loans include non-accrual loans and troubled debt restructurings (“TDRs”) on non-accrual status.are discussed in more detail below. There was no interest income recognized from non-accrual loans during the three or nine months ended September 30, 2022March 31, 2023 or 2021.2022.

The Company’s internal risk rating system uses a series of grades, which reflect our assessment of the credit quality of loans based on an analysis of the borrower's financial condition, liquidity and ability to meet contractual debt service requirements and are categorized as “Pass”, “Special mention”, “Substandard” and “Doubtful”. For a description of the general characteristics of the risk grades, refer to note 2 Summary of Significant Accounting Policies in our audited consolidated financial statements in our 20212022 Annual Report on Form 10-K.

21

19

The amortized cost basis and current period gross charge offs for all loans as determined by the Company’s internal risk rating system and year of origination is shown in the following tablestable as of September 30, 2022 and DecemberMarch 31, 2021:2023:

September 30, 2022

Revolving

Revolving

loans

loans

Origination year

amortized

converted

2022

2021

2020

2019

2018

Prior

cost basis

to term

Total

Commercial:

Commercial and industrial:

Pass

$

398,113

$

337,365

$

124,435

$

98,318

$

112,867

$

76,695

$

633,732

$

1,264

$

1,782,789

Special mention

2,455

501

613

6,480

1,052

11,101

Substandard

36

91

35

159

209

10,872

11,402

Doubtful

230

688

583

1,501

Total commercial and industrial

398,149

337,456

127,155

99,666

113,689

94,630

634,784

1,264

1,806,793

Municipal and non-profit:

Pass

80,096

240,715

89,704

62,972

76,668

418,708

2

968,865

Total municipal and non-profit

80,096

240,715

89,704

62,972

76,668

418,708

2

968,865

Owner occupied commercial real estate:

Pass

210,412

170,909

88,920

89,869

72,920

120,814

24,542

25

778,411

Special mention

8,184

4,322

13,239

25,745

Substandard

1,192

263

1,947

3,402

Doubtful

373

3

234

610

Total owner occupied commercial real estate

210,412

170,909

90,485

98,319

77,242

136,000

24,776

25

808,168

Food and agribusiness:

Pass

32,042

23,781

28,872

11,450

21,736

31,383

173,644

322,908

Special mention

4,572

198

6,309

11,079

Substandard

1,811

1,247

920

1,206

5,184

Doubtful

232

250

4

486

Total food and agribusiness

32,042

25,824

33,694

12,701

21,736

32,501

181,159

339,657

Total commercial

720,699

774,904

341,038

273,658

289,335

681,839

840,721

1,289

3,923,483

Commercial real estate non-owner occupied:

Construction:

Pass

46,923

107,357

17,043

34,887

215

6,536

212,961

Total construction

46,923

107,357

17,043

34,887

215

6,536

212,961

Acquisition/development:

Pass

20,784

21,890

9,229

1,245

2,482

5,435

2,039

63,104

Total acquisition/development

20,784

21,890

9,229

1,245

2,482

5,435

2,039

63,104

Multifamily:

Pass

25,738

7,338

11,677

5,518

15,742

2,186

603

68,802

Total multifamily

25,738

7,338

11,677

5,518

15,742

2,186

603

68,802

Non-owner occupied

Pass

144,452

81,831

74,950

81,694

25,804

158,510

5,121

572,362

Special mention

9,779

5,560

12,738

28,077

Substandard

637

4,391

5,028

Doubtful

68

68

Total non-owner occupied

144,452

81,831

74,950

91,473

32,001

175,707

5,121

605,535

Total commercial real estate non-owner occupied

237,897

218,416

112,899

133,123

50,225

183,543

14,299

950,402

Residential real estate:

Senior lien

���

Pass

197,370

234,459

87,454

29,021

18,121

167,800

21,568

125

755,918

Special mention

340

340

Substandard

193

191

480

868

106

3,079

4,917

Total senior lien

197,563

234,650

87,934

29,889

18,227

171,219

21,568

125

761,175

Junior lien

Pass

2,789

1,808

2,815

2,474

1,427

3,187

52,703

489

67,692

Special mention

349

349

Substandard

9

91

57

313

251

721

Doubtful

209

209

Total junior lien

2,798

1,808

2,906

2,474

1,484

3,849

53,163

489

68,971

Total residential real estate

200,361

236,458

90,840

32,363

19,711

175,068

74,731

614

830,146

Consumer

Pass

6,471

5,035

2,073

703

315

560

2,766

23

17,946

Substandard

5

3

8

Total consumer

6,471

5,035

2,073

703

315

565

2,769

23

17,954

Total loans

$

1,165,428

$

1,234,813

$

546,850

$

439,847

$

359,586

$

1,041,015

$

932,520

$

1,926

$

5,721,985

March 31, 2023

Revolving

Revolving

loans

loans

Origination year

amortized

converted

2023

2022

2021

2020

2019

Prior

cost basis

to term

Total

Commercial:

Commercial and industrial:

Pass

$

69,538

$

467,029

$

341,901

$

113,152

$

91,494

$

149,917

$

711,784

$

4,261

$

1,949,076

Special mention

7,325

1,877

9,093

1,115

4,353

5,266

29,029

Substandard

32

36

1,264

210

10,843

2

50

12,437

Doubtful

241

241

Total commercial and industrial

69,538

474,386

343,814

123,750

92,819

165,113

717,052

4,311

1,990,783

Municipal and non-profit:

Pass

14,917

137,012

249,393

89,199

57,423

430,505

1,668

980,117

Total municipal and non-profit

14,917

137,012

249,393

89,199

57,423

430,505

1,668

980,117

Owner occupied commercial real estate:

Pass

19,585

276,224

201,657

94,484

88,505

185,546

17,457

2,575

886,033

Special mention

2,053

6,894

22,164

31,111

Substandard

1,761

1,952

885

629

5,227

Doubtful

69

674

743

Total owner occupied commercial real estate

19,585

276,224

205,471

96,436

96,353

209,013

17,457

2,575

923,114

Food and agribusiness:

Pass

11,556

38,482

22,437

24,318

10,923

46,699

143,594

40

298,049

Special mention

204

6,612

28,917

35,733

Substandard

586

12

306

904

Doubtful

250

250

Total food and agribusiness

11,556

38,482

23,227

24,568

10,935

53,617

172,511

40

334,936

Total commercial

115,596

926,104

821,905

333,953

257,530

858,248

908,688

6,926

4,228,950

Commercial real estate non-owner occupied:

Construction:

Pass

8,817

109,043

116,125

59,177

14,710

212

33,113

341,197

Total construction

8,817

109,043

116,125

59,177

14,710

212

33,113

341,197

Acquisition/development:

Pass

2,203

62,121

34,395

7,779

1,445

10,525

5,228

123,696

Total acquisition/development

2,203

62,121

34,395

7,779

1,445

10,525

5,228

123,696

Multifamily:

Pass

27,067

107,963

26,661

17,568

39,457

33,155

18,661

270,532

Total multifamily

27,067

107,963

26,661

17,568

39,457

33,155

18,661

270,532

Non-owner occupied

Pass

90,371

252,860

171,318

120,123

121,691

268,884

8,319

4,866

1,038,432

Special mention

7,275

3,999

29,351

40,625

Substandard

7,112

7,112

Doubtful

280

2,650

2,930

Total non-owner occupied

90,371

252,860

171,318

127,678

125,690

307,997

8,319

4,866

1,089,099

Total commercial real estate non-owner occupied

128,458

531,987

348,499

212,202

181,302

351,889

65,321

4,866

1,824,524

Residential real estate:

Senior lien

Pass

25,405

376,497

327,259

127,907

46,389

216,942

51,953

229

1,172,581

Special mention

387

387

Substandard

188

185

4,462

833

2,989

8,657

Doubtful

48

48

Total senior lien

25,405

376,685

327,444

132,369

47,222

220,366

51,953

229

1,181,673

Junior lien

Pass

1,261

4,981

2,055

3,085

2,572

5,790

68,406

832

88,982

Special mention

27

27

Substandard

95

251

258

303

907

Doubtful

209

209

Total junior lien

1,261

5,076

2,055

3,545

2,572

6,075

68,406

1,135

90,125

Total residential real estate

26,666

381,761

329,499

135,914

49,794

226,441

120,359

1,364

1,271,798

Consumer

Pass

3,492

5,858

3,403

1,851

479

649

4,175

47

19,954

Substandard

3

2

5

54

3

5

72

Total consumer

3,492

5,861

3,405

1,856

479

703

4,178

52

20,026

Gross charge-offs: Consumer

322

3

325

Total loans

$

274,212

$

1,845,713

$

1,503,308

$

683,925

$

489,105

$

1,437,281

$

1,098,546

$

13,208

$

7,345,298

Gross charge-offs: Total loans

322

3

325

22

20

December 31, 2021

Revolving

Revolving

loans

loans

Origination year

amortized

converted

2021

2020

2019

2018

2017

Prior

cost basis

to term

Total

Commercial:

Commercial and industrial:

Pass

$

424,813

$

155,268

$

146,420

$

128,002

$

49,408

$

18,529

$

519,678

$

5,975

$

1,448,093

Special mention

1,122

2,000

3,446

22,654

4,440

1,824

250

35,736

Substandard

99

89

744

10,399

303

105

11,739

Doubtful

375

54

49

101

579

Total commercial and industrial

424,813

156,864

148,509

132,246

82,510

23,373

521,607

6,225

1,496,147

Municipal and non-profit:

Pass

234,827

93,310

69,509

81,175

147,115

302,574

535

929,045

Total municipal and non-profit

234,827

93,310

69,509

81,175

147,115

302,574

535

929,045

Owner occupied commercial real estate:

Pass

122,641

81,072

84,359

71,183

48,086

77,100

13,666

1,688

499,795

Special mention

9,155

3,864

1,429

13,443

27,891

Substandard

1,192

1,527

220

2,028

4,967

Doubtful

389

550

44

983

Total owner occupied commercial real estate

122,641

82,653

95,591

75,047

49,735

92,615

13,666

1,688

533,636

Food and agribusiness:

Pass

11,245

20,606

6,966

21,427

2,443

24,047

107,978

24

194,736

Special mention

4,670

1,234

215

1,897

8,016

Substandard

259

578

837

Total food and agribusiness

11,245

25,276

8,200

21,427

2,702

24,840

109,875

24

203,589

Total commercial

793,526

358,103

321,809

309,895

282,062

443,402

645,683

7,937

3,162,417

Commercial real estate non-owner occupied:

Construction:

Pass

39,584

10,047

29,496

222

6,777

86,126

Total construction

39,584

10,047

29,496

222

6,777

86,126

Acquisition/development:

Pass

1,691

385

766

1,830

30

4,907

9,609

Total acquisition/development

1,691

385

766

1,830

30

4,907

9,609

Multifamily:

Pass

3,101

32,619

2,184

15,977

193

37,713

91,787

Special mention

387

387

Total multifamily

3,101

32,619

2,184

15,977

193

38,100

92,174

Non-owner occupied

Pass

59,060

58,964

122,452

18,425

92,349

95,265

557

447,072

Special mention

5,747

5,584

9,745

3,898

24,974

Substandard

729

4,045

4,774

Total non-owner occupied

59,060

58,964

128,199

24,738

102,094

103,208

557

476,820

Total commercial real estate non-owner occupied

103,436

102,015

160,645

42,545

102,539

146,215

7,334

664,729

Residential real estate:

Senior lien

Pass

223,120

100,476

38,696

21,889

29,554

177,051

18,278

188

609,252

Special mention

290

290

Substandard

44

325

684

318

299

3,416

5,086

Total senior lien

223,164

100,801

39,380

22,207

29,853

180,757

18,278

188

614,628

Junior lien

Pass

1,320

2,150

2,731

1,639

951

3,209

40,921

328

53,249

Special mention

24

322

346

Substandard

19

62

131

221

433

Total junior lien

1,320

2,169

2,731

1,701

1,082

3,430

40,945

650

54,028

Total residential real estate

224,484

102,970

42,111

23,908

30,935

184,187

59,223

838

668,656

Consumer:

Pass

8,815

3,528

1,241

631

131

557

2,653

19

17,575

Substandard

6

6

Total consumer

8,815

3,528

1,241

631

131

563

2,653

19

17,581

Total loans

$

1,130,261

$

566,616

$

525,806

$

376,979

$

415,667

$

774,367

$

714,893

$

8,794

$

4,513,383

23The amortized cost basis for all loans as determined by the Company’s internal risk rating system and year of origination is shown in the following table as of December 31, 2022:

December 31, 2022

Revolving

Revolving

loans

loans

Origination year

amortized

converted

2022

2021

2020

2019

2018

Prior

cost basis

to term

Total

Commercial:

Commercial and industrial:

Pass

$

528,180

$

351,003

$

129,453

$

95,003

$

101,951

$

88,038

$

688,398

$

17,883

$

1,999,909

Special mention

66

137

388

2,887

588

4,440

3,512

12,018

Substandard

34

7

1,882

200

189

10,270

50

30

12,662

Doubtful

246

246

Total commercial and industrial

528,280

351,147

131,969

98,090

102,728

102,748

691,960

17,913

2,024,835

Municipal and non-profit:

Pass

105,630

246,696

89,562

59,066

73,013

383,158

2,501

959,626

Total municipal and non-profit

105,630

246,696

89,562

59,066

73,013

383,158

2,501

959,626

Owner occupied commercial real estate:

Pass

263,635

203,628

100,522

92,653

70,447

121,448

24,930

894

878,157

Special mention

515

6,956

2,616

17,360

27,447

Substandard

1,185

4,612

931

234

6,962

Doubtful

85

108

581

774

Total owner occupied commercial real estate

263,635

204,143

101,707

104,306

73,171

140,320

24,930

1,128

913,340

Food and agribusiness:

Pass

36,505

23,907

25,285

11,035

19,689

31,210

191,785

1,663

341,079

Special mention

204

4,573

3,486

195

1,750

10,208

Substandard

1,747

12

324

173

2,256

Doubtful

186

250

436

Total food and agribusiness

36,505

26,044

30,108

11,047

23,175

31,729

193,535

1,836

353,979

Total commercial

934,050

828,030

353,346

272,509

272,087

657,955

912,926

20,877

4,251,780

Commercial real estate non-owner occupied:

Construction:

Pass

106,197

139,012

56,489

14,387

213

25,027

341,325

Total construction

106,197

139,012

56,489

14,387

213

25,027

341,325

Acquisition/development:

Pass

57,773

33,663

7,810

1,921

3,939

16,648

7,348

129,102

Total acquisition/development

57,773

33,663

7,810

1,921

3,939

16,648

7,348

129,102

Multifamily:

Pass

99,988

22,022

17,658

39,547

17,358

16,009

1,095

213,677

Total multifamily

99,988

22,022

17,658

39,547

17,358

16,009

1,095

213,677

Non-owner occupied

Pass

235,958

172,648

120,871

138,711

42,489

249,461

11,707

971,845

Special mention

7,313

4,048

3,947

12,658

27,966

Substandard

629

7,912

8,541

Doubtful

280

3,314

3,594

Total non-owner occupied

235,958

172,648

128,464

142,759

47,065

273,345

11,707

1,011,946

Total commercial real estate non-owner occupied

499,916

367,345

210,421

198,614

68,362

306,215

45,177

1,696,050

Residential real estate:

Senior lien

Pass

361,405

323,984

133,847

47,557

30,283

184,998

66,792

496

1,149,362

Special mention

362

362

Substandard

191

186

468

854

105

2,769

4,573

Doubtful

51

51

Total senior lien

361,596

324,170

134,315

48,411

30,439

188,129

66,792

496

1,154,348

Junior lien

Pass

6,429

5,977

3,010

4,163

1,726

3,773

69,059

1,286

95,423

Special mention

351

351

Substandard

9

89

54

242

305

251

950

Doubtful

209

209

Total junior lien

6,438

5,977

3,099

4,163

1,780

4,366

69,364

1,746

96,933

Total residential real estate

368,034

330,147

137,414

52,574

32,219

192,495

136,156

2,242

1,251,281

Consumer:

Pass

8,576

4,816

2,209

607

282

531

4,292

33

21,346

Substandard

3

5

4

12

Total consumer

8,579

4,816

2,209

607

282

536

4,296

33

21,358

Total loans

$

1,810,579

$

1,530,338

$

703,390

$

524,304

$

372,950

$

1,157,201

$

1,098,555

$

23,152

$

7,220,469

21

Loans evaluated individually

We evaluate loans individually when they no longer share risk characteristics with pooled loans. These loans include loans on non-accrual status, loans in bankruptcy, and TDRsmodified loans as described below. If a specific allowance is warranted based on the borrower’s overall financial condition, the specific allowance is calculated based on discounted expected cash flows using the loan’s initial contractual effective interest rate or the fair value of the collateral less selling costs for collateral-dependent loans.

A loan is considered collateral-dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. Management individually evaluates collateral-dependent loans with an amortized cost basis of $250 thousand or more and includes collateral-dependent loans less than $250 thousand within the general allowance population. The amortized cost basis of collateral-dependent loans over $250 thousand was as follows at September 30, 2022March 31, 2023 and December 31, 2021:2022:

September 30, 2022

March 31, 2023

Total amortized

Total amortized

Real property

Business assets

cost basis

Real property

Business assets

cost basis

Commercial

Commercial and industrial

$

230

$

1,471

$

1,701

$

2,181

$

32

$

2,213

Owner-occupied commercial real estate

3,804

3,804

2,658

150

2,808

Food and agribusiness

3,115

309

3,424

1,680

1,680

Total Commercial

7,149

1,780

8,929

6,519

182

6,701

Commercial real estate non owner-occupied

Non-owner occupied

 

538

 

 

538

 

6,519

 

 

6,519

Total commercial real estate

 

538

 

 

538

 

6,519

 

 

6,519

Residential real estate

 

 

 

 

 

 

Senior lien

 

3,095

 

1,626

 

4,721

 

5,585

 

 

5,585

Junior lien

 

460

 

 

460

 

763

 

 

763

Total residential real estate

 

3,555

 

1,626

 

5,181

 

6,348

 

 

6,348

Consumer

 

 

7

 

7

Total loans

$

11,242

$

3,406

$

14,648

$

19,386

$

189

$

19,575

December 31, 2021

December 31, 2022

Total amortized

Total amortized

Real property

Business assets

cost basis

Real property

Business assets

cost basis

Commercial

Commercial and industrial

$

3,270

$

1,261

$

4,531

$

2,869

$

791

$

3,660

Owner-occupied commercial real estate

4,012

255

4,267

6,711

1,346

8,057

Food and agribusiness

3,020

173

3,193

Total Commercial

7,282

1,516

8,798

12,600

2,310

14,910

Commercial real estate non owner-occupied

Non-owner occupied

 

8,561

 

 

8,561

Total commercial real estate

 

8,561

 

 

8,561

Residential real estate

 

 

 

 

 

 

Senior lien

 

2,212

 

 

2,212

 

2,806

 

 

2,806

Junior lien

 

460

 

 

460

Total residential real estate

 

2,212

 

 

2,212

 

3,266

 

 

3,266

Total loans

$

9,494

$

1,516

$

11,010

$

24,427

$

2,310

$

26,737

Loan modifications and troubled debt restructurings

The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include restructuringmodifying a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Additionally, if a borrower’s repayment obligation has been discharged by a court, and that debt has not been reaffirmed by the borrower, regardless of past due status, the loan is consideredThe Company considers loans to borrowers experiencing financial difficulties to be troubled loans. In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which became effective for the Company on January 1, 2023. The guidance eliminates the accounting for troubled debt restructures and requires that an entity evaluate whether loan modifications represent a TDR.new loan or a continuation of an existing loan. Such troubled debt

24

22

modifications (“TDM”) may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof.

During the three months ended September 30, 2022,March 31, 2023, the Company restructured fourmodified three loans with an amortized cost basis of $0.6$4.3 million to facilitate repayment that are considered TDRs. DuringTDMs. The following schedule presents, by loan class, the nine months ended September 30, 2022, the Company restructured 10 loans with an amortized costcosts basis of $3.2 million to facilitate repayment that are considered TDRs. Loan modifications were a reductionas of the principal payment, a reduction in interest rate, or an extension of term. The tables below provide additional information relateddates shown for modified loans to accruing TDRs at September 30, 2022 and December 31, 2021:borrowers experiencing financial difficulty:

September 30, 2022

Amortized

Average year-to-date

Unpaid

Unfunded commitments

cost basis

amortized cost basis

principal balance

to fund TDRs

Commercial

$

2,057

$

2,286

$

2,062

$

150

Commercial real estate non-owner occupied

 

713

 

748

 

730

 

Residential real estate

 

1,840

 

1,883

 

1,998

 

Consumer

 

 

 

 

Total

$

4,610

$

4,917

$

4,790

$

150

December 31, 2021

Amortized

Average year-to-date

Unpaid

Unfunded commitments

cost basis

amortized cost basis

principal balance

to fund TDRs

Commercial

$

4,066

$

4,472

$

4,417

$

Commercial real estate non-owner occupied

 

725

 

767

 

892

 

Residential real estate

 

2,395

 

2,468

 

2,781

 

Consumer

 

 

 

 

Total

$

7,186

$

7,707

$

8,090

$

March 31, 2023

Term extension

Payment delay

Amortized

% of loan

Amortized

% of loan

cost basis

class

cost basis

class

Commercial:

Commercial and industrial

$

0.0%

$

154

0.0%

Owner occupied commercial real estate

 

0.0%

 

116

0.0%

Total commercial

0.0%

270

0.0%

Residential real estate:

 

 

Senior lien

 

4,000

0.3%

 

0.0%

Total residential real estate

4,000

0.3%

0.0%

Total loans

$

4,000

0.1%

$

270

0.0%

The following table summarizesschedule presents the Company’s carrying valuepayment status, by loan class, the amortized cost basis of non-accrual TDRsloans that have been modified in the last three months as of September 30, 2022 and DecemberMarch 31, 2021:2023:

September 30, 2022

December 31, 2021

Commercial

    

$

2,717

    

$

644

Commercial real estate non-owner occupied

 

88

 

117

Residential real estate

 

1,620

 

1,605

Consumer

 

 

Total non-accruing TDRs

$

4,425

$

2,366

March 31, 2023

Current

Non-accrual

Commercial:

Commercial and industrial

$

154

$

Owner occupied commercial real estate

 

 

116

Total commercial

154

116

Residential real estate:

 

 

Senior lien

 

4,000

 

Total residential real estate

4,000

Total loans

$

4,154

$

116

Accrual of interest is resumed on loans that were previously on non-accrual only after the loan has performed sufficiently for a period of time. The Company had two TDRs totaling $2.3 millionno TDMs that were modified within the past 12twelve months and had defaulted on their restructuredmodified terms during the ninethree months ended September 30, 2022. During the nine months ended September 30, 2021, the Company had one TDR totaling $36 thousand that was modified within the past 12 months and had defaulted on their restructured terms.March 31, 2023. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDRsTDMs on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDRs.TDMs.

25The following schedule presents the financial effect of the modifications made to borrowers experiencing financial difficulty as of March 31, 2023:

March 31, 2023

Financial effect

Term extension

Payment delay

Commercial:

Commercial and industrial

Delayed payments for a weighted average of 0.2 years

Owner occupied commercial real estate

Delayed payments for a weighted average of 0.5 years

Residential real estate:

Senior lien

Added weighted average 0.5 years to the life of loans, which reduced monthly payment amounts

23

Prior to the adoption of ASU 2022-02, the Company disclosed troubled debt restructurings (“TDR”) in accordance with ASC 310-40. During 2022, the Company restructured 10 loans with an amortized cost basis of $1.1 million to facilitate repayment that were considered TDRs. Troubled debt restructurings were a reduction of the principal payment, a reduction in interest rate, or an extension of term. The table below provides additional information related to accruing TDRs at December 31, 2022:

December 31, 2022

Amortized

Average year-to-date

Unpaid

Unfunded commitments

cost basis

amortized cost basis

principal balance

to fund TDRs

Commercial

$

2,160

$

2,348

$

2,150

$

150

Commercial real estate non-owner occupied

 

685

 

734

 

699

 

Residential real estate

 

1,809

 

1,867

 

1,964

 

Consumer

 

 

 

 

Total

$

4,654

$

4,949

$

4,813

$

150

The following table summarizes the Company’s carrying value of non-accrual TDRs as of December 31, 2022:

December 31, 2022

Commercial

356

Commercial real estate non-owner occupied

81

Residential real estate

2,041

Consumer

Total non-accruing TDRs

2,478

During the three months ended March 31, 2022, the Company had no TDRs that were modified within the past twelve months and had defaulted on their modified terms. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDRs on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status which are not classified as TDRs.

Note 76 Allowance for Credit Losses

The tables below detail the Company’s allowance for credit losses as of the dates shown:

Three months ended September 30, 2022

Non-owner

occupied

commercial

Residential

    

Commercial

    

real estate

    

real estate

    

Consumer

    

Total

Beginning balance

$

32,011

$

8,426

$

10,072

$

351

$

50,860

Charge-offs

 

 

 

(253)

 

(253)

Recoveries

 

40

 

 

3

 

23

 

66

Provision expense for credit losses

 

1,651

 

3,419

 

1,988

 

217

 

7,275

Day 1 CECL provision expense

2,261

2,327

596

17

5,201

PCD allowance for credit loss at acquisition

2,257

2

215

2,474

Ending balance

$

38,220

$

14,174

$

12,874

$

355

$

65,623

Nine months ended September 30, 2022

Three months ended March 31, 2023

    

    

Non-owner

    

    

    

Non-owner

occupied

occupied

commercial

Residential

commercial

Residential

Commercial

real estate

real estate

Consumer

Total

    

Commercial

    

real estate

    

real estate

    

Consumer

    

Total

Beginning balance

$

31,256

$

10,033

$

8,056

$

349

$

49,694

$

37,608

$

32,050

$

19,306

$

589

$

89,553

Charge-offs

 

(754)

 

 

(2)

 

(582)

 

(1,338)

 

 

 

(325)

 

(325)

Recoveries

 

115

 

21

 

49

 

71

 

256

 

41

 

1

 

7

 

16

 

65

Provision expense for credit losses

 

3,085

 

1,791

 

3,960

 

500

 

9,336

Day 1 CECL provision expense

2,261

2,327

596

17

5,201

PCD allowance for credit loss at acquisition

2,257

2

215

2,474

Provision (release) expense for credit losses

 

(254)

839

261

204

 

1,050

Ending balance

$

38,220

$

14,174

$

12,874

$

355

$

65,623

$

37,395

$

32,890

$

19,574

$

484

$

90,343

Three months ended March 31, 2022

Non-owner

occupied

commercial

Residential

    

Commercial

    

real estate

    

real estate

    

Consumer

    

Total

Beginning balance

$

31,256

$

10,033

$

8,056

$

349

$

49,694

Charge-offs

 

(463)

 

 

(2)

 

(169)

 

(634)

Recoveries

 

47

 

 

2

 

26

 

75

Provision expense (release) for credit losses

 

1,005

 

(1,538)

 

80

 

128

 

(325)

Ending balance

$

31,845

$

8,495

$

8,136

$

334

$

48,810

Three months ended September 30, 2021

Non-owner

occupied

commercial

Residential

    

Commercial

    

real estate

    

real estate

    

Consumer

    

Total

Beginning balance

$

28,640

$

11,187

$

8,851

$

352

$

49,030

Charge-offs

 

(172)

 

 

(4)

 

(146)

 

(322)

Recoveries

 

61

 

 

2

 

38

 

101

Provision expense (release) for credit losses

 

1,124

 

(388)

 

(475)

 

85

 

346

Ending balance

$

29,653

$

10,799

$

8,374

$

329

$

49,155

Nine months ended September 30, 2021

    

    

Non-owner

    

    

    

occupied

commercial

Residential

Commercial

real estate

real estate

Consumer

Total

Beginning balance

$

30,376

$

17,448

$

11,492

$

461

$

59,777

Charge-offs

 

(1,112)

 

 

(26)

 

(410)

 

(1,548)

Recoveries

 

316

 

7

 

47

 

110

 

480

Provision expense (release) for credit losses

 

73

 

(6,656)

 

(3,139)

 

168

 

(9,554)

Ending balance

$

29,653

$

10,799

$

8,374

$

329

$

49,155

At the acquisition date, RCB had $2.1 million of previously charged off loans for which the Company continued to have contractual rights to the cash flows. In accordance with ASC Topic 326, PCD loan accounting is to be applied by the acquirer whereby an allowance for credit losses should be recorded for this subset of loans at the acquisition date, and if deemed non-collectible, the loans

26

are to be fully charged off on the acquirer’s books. Such amounts were fully reserved for, charged off on the acquisition date and excluded from the tables above.

In evaluating the loan portfolio for an appropriate ACL level, excluding loans evaluated individually, loans were grouped into segments based on broad characteristics such as primary use and underlying collateral. Within the segments, the portfolio was further

24

disaggregated into classes of loans with similar attributes and risk characteristics for purposes of developing the underlying data used within the discounted cash flow model including, but not limited to, prepayment and recovery rates as well as loss rates tied to macro-economic conditions within management’s reasonable and supportable forecast. The ACL also includes subjective adjustments based upon qualitative risk factors including asset quality, loss trends, lending management, portfolio growth and loan review/internal audit results.

Net charge-offs on loans during the three and nine months ended September 30, 2022March 31, 2023 were $0.2 million and $1.1 million, respectively. $0.3 million. The Company recorded an increase in the allowance for credit losses of $15.0$1.1 million during the three months ended September 30, 2022, which included a provision expense of $5.2 million of Day 1 allowance reserve funding for the RCB portfolio and a $2.5 million credit allowance for Day 1 PCD loans. The remainder of the provision expenseMarch 31, 2023, driven by loan growth.

Net charge-offs on loans during the quarter was driven by strong loan growth and higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast. During the ninethree months ended September 30,March 31, 2022 thewere $0.6 million. The Company recorded an increasea decrease in the allowance for credit losses of $17.0 million. The provision expense was driven by record loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast and Day 1 reserve requirements for the acquired RCB portfolio.

Net charge-offs on loans$0.3 million during the three and nine months ended September 30, 2021 were $0.2 million and $1.1 million, respectively. The Company recorded a net zero provision for credit losses for the three months ended September 30, 2021, which included a provision expense of $0.3 million for funded loans and a provision release of $0.3 million for unfunded loan commitments. During the nine months ended September 30, 2021, the Company recorded an allowance for credit loss release of $9.4 million, which included a provision release of $9.6 million for funded loans, partially offset by a provision expense of $0.2 million for unfunded loan commitments. Provision release wasMarch 31, 2022, driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast.quality.

The Company has elected to exclude AIR from the allowance for credit losses calculation. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, AIR from loans totaled $26.9$36.1 million and $15.7$31.8 million, respectively.

Note 87 Other Real Estate Owned

A summary of the activity in other real estate owned (“OREO”) during the ninethree months ended September 30,March 31, 2023 and 2022 and 2021 is as follows:

For the nine months ended September 30, 

For the three months ended March 31, 

2022

2021

2023

2022

Beginning balance

$

7,005

    

$

4,730

$

3,731

    

$

7,005

Transfers from loan portfolio, at fair value

 

58

 

1,522

 

 

39

Impairments

 

(452)

 

(799)

 

(13)

 

(188)

Sales

 

(2,916)

 

(1,128)

 

(260)

 

(1,793)

Ending balance

$

3,695

$

4,325

$

3,458

$

5,063

During the three months ended September 30,March 31, 2023 and 2022, the Company sold OREO properties with net book balances of $1.1 million. During the nine months ended September 30, 2022 and 2021, the Company sold OREO properties with net book balances of $2.9$0.3 million and $1.1$1.8 million, respectively. Sales of OREO properties resulted in net OREO losses of $11 thousand and net OREO gains of $0.4 million and $0.6 million,$275 thousand, which were included within gain on OREO sales, netother non-interest expense in the consolidated statements of operations for the three and nine months ended September 30,March 31, 2023 and 2022, respectively. During the nine months ended September 30, 2022, impairments included $227 thousand recorded within problem asset workout in the consolidated statements of operations and $225 thousand included within other liabilities in the statements of financial condition to reduce the payable for an SBA redemption agreement. During the nine months ended September 30, 2021, impairments included $799 thousand recorded within problem asset workout in the consolidated statements of operations. Net OREO losses of $0.0 million and $0.2 million were included in the consolidated statements of operations for the three and nine months ended September 30, 2021, respectively.

27

Note 98 Goodwill and Intangible Assets

Goodwill and core depositother intangible assets

In connection with our acquisitions, the Company recorded goodwill of $167.9$279.1 million. The Company recorded goodwill of $52.9 million, core deposit intangibles of $13.3 million and SBA servicing rights of $3.1 million related to the acquisition of RCB. Goodwill is measured as the excess of the fair value of consideration paid over the fair value of net assets acquired. No goodwill impairment was recorded during the three or nine months ended September 30, 2022March 31, 2023 or the year ended December 31, 2021.2022.

The gross carrying amount of the core deposit intangibles (“CDI”)other intangible assets and the associated accumulated amortization at September 30, 2022March 31, 2023 and December 31, 2021,2022, are presented as follows:

September 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

Gross

Net

Gross

Net

Gross

Net

Gross

Net

carrying

Accumulated

carrying

carrying

Accumulated

carrying

carrying

Accumulated

carrying

carrying

Accumulated

carrying

amount

amortization

amount

amount

amortization

amount

amount

amortization

amount

amount

amortization

amount

Core deposit intangible

$

62,171

    

$

(43,444)

$

18,727

$

48,834

    

$

(42,469)

$

6,365

    

$

91,566

    

$

(46,105)

$

45,461

$

91,566

    

$

(44,775)

$

46,791

Wealth management intangible

 

1,300

 

(64)

 

1,236

 

1,300

 

(32)

 

1,268

Total

$

92,866

$

(46,169)

$

46,697

$

92,866

$

(44,807)

$

48,059

In connection with the RCB acquisition, the Company added a core deposit intangible of $13.3 million on September 1, 2022. The Company is amortizing the CDIcore deposit and wealth management intangibles from acquisitions on a straight-linestraight line basis over 10 years from the date of the respective acquisition,acquisitions, which represents the expected useful life of the assets. The Company recognized CDIcore deposit and wealth management intangible amortization expense of $0.4$1.4 million and $1.0$0.3 million during the three and nine months ended September 30,March 31, 2023 and 2022, respectively. During the three and nine months ended September 30, 2021, the Company recognized CDI amortization expense of $0.3 million and $0.9 million, respectively.

25

The following table shows the estimated future amortization expense during the next five years for the CDIother intangible assets as of September 30, 2022:March 31, 2023:

Years ending December 31,

Amount

Amount

For the three months ending December 31, 2022

$

595

For the year ending December 31, 2023

2,381

For the nine months ending December 31, 2023

$

4,088

For the year ending December 31, 2024

2,381

5,451

For the year ending December 31, 2025

2,381

5,451

For the year ending December 31, 2026

2,381

5,451

For the year ending December 31, 2027

5,451

Servicing Rights

Mortgage servicingservicing rights

Mortgage servicing rights (“MSRs”) represent rights to service loans originated by the Company and sold to government-sponsored enterprises including FHLMC, FNMA, GNMA and FHLB and are included in other assets in the consolidated statements of financial condition. Mortgage loans serviced for others were $1.0$0.8 billion and $0.6$0.8 billion at September 30,March 31, 2023 and 2022, and 2021, respectively.

Below are the changes in the MSRs for the periods presented:

For the nine months ended September 30, 

For the three months ended March 31, 

2022

2021

2023

2022

Beginning balance

$

5,957

    

$

10,380

$

9,162

    

$

5,957

Originations

3,895

6,648

274

1,679

Sales

 

 

(10,499)

(Impairment) recovery

(6)

717

Recovery

6

Amortization

 

(713)

 

(2,286)

 

(119)

 

(206)

Ending balance

9,133

4,960

9,317

7,436

Fair value of mortgage servicing rights

$

13,782

$

6,179

$

13,321

$

10,834

The fair value of MSRs was determined based upon a discounted cash flow analysis. The cash flow analysis included assumptions for discount rates and prepayment speeds. The discount rate was 9.5%Discount rates ranged from 10.0% to 10.5%, and the constant prepayment speed ranged from 7.6%7.9% to 7.8%18.2% for the September 30, 2022March 31, 2023 valuation. Discount rates ranged from 9.5% to 10.0%, and the constant prepayment speed ranged from 11.1%7.7% to 14.9%13.0% for the September 30, 2021March 31, 2022 valuation. Included in mortgage banking income in the consolidated statements of operations

28

was servicing income of $0.7$0.5 million and $1.8$0.5 million for the three and nine months ended September 30,March 31, 2023 and 2022, respectively, and $1.0 million and $3.0 million for the three and nine months ended September 30, 2021, respectively.

MSRs are evaluated and impairment is recognized to the extent fair value is less than the carrying amount. The Company evaluates impairment by stratifying MSRs based on the predominant risk characteristics of the underlying loans, including loan type and loan term. The Company is amortizing the MSRs in proportion to and over the period of the estimated net servicing income of the underlying loans.

The following table shows the estimated future amortization expense during the next five years for the MSRs as of September 30, 2022:March 31, 2023:

Years ending December 31,

Amount

Amount

For the three months ending December 31, 2022

$

272

For the year ending December 31, 2023

1,055

For the nine months ending December 31, 2023

$

893

For the year ending December 31, 2024

930

1,077

For the year ending December 31, 2025

819

941

For the year ending December 31, 2026

722

821

For the year ending December 31, 2027

717

SBA servicing assetsasset

In connection with the RCB acquisition, the Company added anThe SBA servicing right asset of $3.1 million. The servicing asset represents the value associated with servicing small business real estate loans that have been sold to outside investors with servicing retained. The SBA servicing asset is evaluated and impairment is recognized to the extent fair value is less than the carrying amount. The Company evaluates impairment by stratifying the SBA servicing asset based on the predominant risk characteristics of the underlying loans, including loan type and loan term. The Company is amortizing the SBA servicing assets are amortizedasset in proportion to and over the period of the estimated future net servicing lifeincome of the underlying assets. SBA loan servicing assets are evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset.loans. The Company serviced $133.5$110.9 million

26

of SBA loans, as of September 30, 2022. SinceMarch 31, 2023. For the acquisition date,three months ended March 31, 2023, the Company recognized SBA servicing asset amortization, net of fee income of $68 thousand.$0.4 million.

Below are the changes in the SBA servicing asset for the period presented:

For the three months ended March 31, 

2023

Beginning balance

$

2,666

Originations

129

Recovery

54

Disposals

 

(210)

Amortization

(35)

Ending balance

2,604

Fair value of SBA servicing asset

$

2,604

The Company uses assumptions and estimates in determining the fair value of SBA loan servicing rights. These assumptions include prepayment speeds, discount rates, and other assumptions. The assumptions used in the valuation were based on input from buyers, brokers and other qualified personnel, as well as market knowledge. The key assumptions used to determine the fair value of the Company’s SBA loan servicing rights included a weighted average lifetime constant prepayment rate equal to 12.11%12.40%, and a weighted average discount rate equal to 11.74%13.34%.

Note 109 Borrowings

Borrowings consist of securities sold under agreements to repurchase, long-term debt and FHLB advances.

Securities sold under agreements to repurchase

The Company enters into repurchase agreements to facilitate the needs of its clients. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company sold securities under agreements to repurchase totaling $20.0$21.5 million and $22.8$20.2 million, respectively. The Company pledged mortgage-backed securities with a fair value of approximately $31.8$31.9 million and $28.8$32.0 million as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, for these agreements. The Company monitors collateral levels on a continuous basis and may be required to provide additional collateral based on the fair value of the underlying securities. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the Company had $11.8$10.4 million and $6.1$11.8 million, respectively, of excess collateral pledged for repurchase agreements.

Long-term debt

On November 5, 2021, theThe Company entered intoholds a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The balance on the note at September 30, 2022,March 31, 2023, net of long-term debt issuance costs totaling $0.4 million, totaled $39.6 million. Interest expense totaling $0.3 million and $0.9 million was recorded in the consolidated statements of operations during the three and nine months ended September 30, 2022, respectively.March 31, 2023.

The note is subordinated, unsecured and matures on November 15, 2031. Payments consist of interest only. Interest expense on the note is payable semi-annually in arrears and will bear interest at 3.00% per annum until November 15, 2026 (or any earlier redemption

29

date). From November 15, 2026 until November 15, 2031 (or any earlier redemption date) payments will be made quarterly in arrears, and the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month term secured overnight financing rate (“SOFR”) plus 203 basis points. The Company intends to usedeployed the net proceeds from the sale of the note for general corporate purposes. Prior to November 5, 2026, the Company may redeem the note only under certain limited circumstances. Beginning on November 5, 2026 through maturity, the note may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the note being redeemed, together with any accrued and unpaid interest on the note being redeemed up to but excluding the date of redemption. The note is not subject to redemption at the option of the holder.

As part of the acquisition of BOJH on October 1, 2022, the Company assumed three subordinated note purchase agreements to issue and sell fixed-to-floating rate notes totaling $15.0 million. The balance on the notes at March 31, 2023, net of the fair value adjustment

27

from the acquisition totaling $0.6 million, totaled $14.4 million. Interest expense related to the notes totaling $0.1 million was recorded in the consolidated statements of operations during the three months ended March 31, 2023.

The three notes, containing similar terms, are subordinated, unsecured and mature on June 15, 2031. Payments consist of interest only. Interest expense on the notes is payable semi-annually in arrears and will bear interest at 3.75% per annum until June 15, 2026 (or any earlier redemption date). From June 15, 2026 until June 15, 2031 (or any earlier redemption date) payments will be made quarterly in arrears, and the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month term SOFR plus 306 basis points. Prior to June 15, 2026, the Company may redeem the notes only under certain limited circumstances. Beginning on June 15, 2026 through maturity, the notes may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the notes being redeemed, together with any accrued and unpaid interest on the notes being redeemed up to but excluding the date of redemption. The notes are not subject to redemption at the option of the holder.

FHLBFederal Home Loan Bank advances

As a member of the FHLB, the Bank hasBanks have access to a line of credit and term financing from the FHLB with total available credit of $1.0$1.6 billion at September 30, 2022.March 31, 2023. The BankCompany may utilize itsthe FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2022March 31, 2023 and December 31, 2021,2022, the BankBanks had no$1.0 billion and $385.0 million, respectively, of outstanding borrowings from the FHLB. The BankBanks may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2022March 31, 2023 or December 31, 2021.2022. Loans pledged were $1.7$2.5 billion and $1.3$2.0 billion at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The Company incurred $7.1 million of interest expense related to FHLB advances and other short-term borrowings for the three months ended March 31, 2023. There was no interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2022 or 2021.March 31, 2022.

Note 1110 Regulatory Capital

As a bank holding company that has elected to be treated as a financial holding company, the Company, and NBH Bank isand Bank of Jackson Hole Trust are subject to regulatory capital adequacy requirements implemented by the Federal Reserve, including maintaining capital positions at the “well-capitalized” level. The federal banking agencies have risk basedrisk-based capital adequacy regulations intended to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization’s operations. Under these regulations, assets are assigned to one of several risk categories, and nominal dollar amounts of assets and credit equivalent amounts of off-balance-sheet items are multiplied by a risk adjustment percentage for the category.

Under the Basel III requirements, at September 30, 2022 and December 31, 2021, the Company and the Bank met all capital requirements, including the capital conservation buffer of 2.5%. The Company and Bank had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as detailed in the tables below:

September 30, 2022

Required to be

Required to be

well capitalized under

considered

prompt corrective

adequately

Actual

action provisions

 capitalized(1)

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

Tier 1 leverage ratio:

Consolidated

 

10.5%

$

826,285

 

N/A

N/A

 

4.0%

$

316,209

NBH Bank

 

9.2%

 

722,231

 

5.0%

$

393,330

 

4.0%

 

314,664

Common equity tier 1 risk based capital:

Consolidated

12.8%

$

826,285

N/A

N/A

7.0%

$

453,669

NBH Bank

11.2%

722,231

6.5%

$

418,972

7.0%

451,200

Tier 1 risk based capital ratio:

Consolidated

 

12.8%

$

826,285

 

N/A

N/A

 

8.5%

$

550,884

NBH Bank

 

11.2%

 

722,231

 

8.0%

$

515,657

 

8.5%

 

547,886

Total risk based capital ratio:

Consolidated

 

14.3%

$

929,103

 

N/A

N/A

 

10.5%

$

680,503

NBH Bank

 

12.2%

 

785,048

 

10.0%

$

644,572

 

10.5%

 

676,800

30

28

December 31, 2021

Required to be

Required to be

well capitalized under

considered

prompt corrective

 adequately

Actual

action provisions

 capitalized(1)

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

Tier 1 leverage ratio:

Consolidated

 

10.4%

$

731,087

 

N/A

N/A

 

4.0%

$

281,463

NBH Bank

 

9.1%

 

637,115

 

5.0%

$

350,584

 

4.0%

 

280,467

Common equity tier 1 risk based capital:

Consolidated

14.3%

$

731,087

N/A

N/A

7.0%

$

358,813

NBH Bank

12.5%

637,115

6.5%

$

331,427

7.0%

356,921

Tier 1 risk based capital ratio:

Consolidated

 

14.3%

$

731,087

 

N/A

N/A

 

8.5%

$

435,701

NBH Bank

 

12.5%

 

637,115

 

8.0%

$

407,910

 

8.5%

 

433,404

Total risk based capital ratio:

Consolidated

 

15.9%

$

816,117

 

N/A

N/A

 

10.5%

$

538,219

NBH Bank

 

13.4%

 

682,145

 

10.0%

$

509,888

 

10.5%

 

535,382

Under the Basel III requirements, at March 31, 2023 and December 31, 2022, the Company and the Banks met all capital requirements, including the capital conservation buffer of 2.5%. The Company and the Banks had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as detailed in the tables below.

March 31, 2023

Required to be

Required to be

well capitalized under

considered

prompt corrective

adequately

Actual

action provisions

 capitalized(1)

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

Tier 1 leverage ratio:

Consolidated

 

9.5%

$

889,292

 

N/A

N/A

 

4.0%

$

376,214

NBH Bank

 

8.9%

 

831,101

 

5.0%

$

468,138

 

4.0%

 

374,510

Bank of Jackson Hole Trust

 

38.2%

11,301

5.0%

1,477

4.0%

1,182

Common equity tier 1 risk based capital:

Consolidated

11.3%

$

889,292

N/A

N/A

7.0%

$

550,058

NBH Bank

10.6%

831,101

6.5%

$

508,212

7.0%

547,306

Bank of Jackson Hole Trust

 

70.6%

11,301

6.5%

1,040

7.0%

1,120

Tier 1 risk based capital ratio:

Consolidated

 

11.3%

$

889,292

 

N/A

N/A

 

8.5%

$

667,927

NBH Bank

 

10.6%

 

831,101

 

8.0%

$

625,492

 

8.5%

 

664,585

Bank of Jackson Hole Trust

 

70.6%

11,301

8.0%

1,280

8.5%

1,360

Total risk based capital ratio:

Consolidated

 

13.2%

$

1,034,645

 

N/A

N/A

 

10.5%

$

825,087

NBH Bank

 

11.8%

 

921,454

 

10.0%

$

781,865

 

10.5%

 

820,958

Bank of Jackson Hole Trust

 

70.6%

11,301

10.0%

1,600

10.5%

1,680

December 31, 2022

Required to be

Required to be

well capitalized under

considered

prompt corrective

 adequately

Actual

action provisions

 capitalized(1)

    

Ratio

    

Amount

    

Ratio

    

Amount

    

Ratio

    

Amount

Tier 1 leverage ratio:

Consolidated

 

9.3%

$

857,403

 

N/A

N/A

 

4.0%

$

369,335

NBH Bank

 

8.6%

 

788,462

 

5.0%

$

458,593

 

4.0%

 

366,874

Bank of Jackson Hole Trust

 

31.0%

11,238

5.0%

1,373

4.0%

1,099

Common equity tier 1 risk based capital:

Consolidated

10.5%

$

857,403

N/A

N/A

7.0%

$

574,339

NBH Bank

9.7%

788,462

6.5%

$

528,334

7.0%

568,975

Bank of Jackson Hole Trust

 

71.6%

11,238

6.5%

1,020

7.0%

1,098

Tier 1 risk based capital ratio:

Consolidated

 

10.5%

$

857,403

 

N/A

N/A

 

8.5%

$

697,412

NBH Bank

 

9.7%

 

788,462

 

8.0%

$

650,257

 

8.5%

 

690,898

Bank of Jackson Hole Trust

 

71.6%

11,238

8.0%

1,255

8.5%

1,333

Total risk based capital ratio:

Consolidated

 

12.2%

$

1,000,398

 

N/A

N/A

 

10.5%

$

861,509

NBH Bank

 

10.8%

 

876,458

 

10.0%

$

812,821

 

10.5%

 

853,462

Bank of Jackson Hole Trust

 

71.6%

11,238

10.0%

1,569

10.5%

1,647

(1)

    

Includes the capital conservation buffer of 2.5%.

T

Note 1211 Revenue from Contracts with Clients

Revenue is recognized when obligations under the terms of a contract with clients are satisfied. Below is the detail of the Company’s revenue from contracts with clients.

29

Service charges and other fees

Service charge fees are primarily comprised of monthly service fees, check orders, and other deposit account related fees. Other fees include revenue from processing wire transfers, bill pay service, cashier’s checks, and other services. The Company’s performance obligation for account analysis fees and monthly service fees is generally satisfied, and the related revenue recognized, over the period in which the service is provided. Check orders and other deposit account-related fees are largely transactional based, and therefore, the Company’s performance obligation is satisfied, and related revenue recognized, at a point in time. Payment for service charges on deposit accounts is primarily received immediately or in the following month through a direct charge to clients’ accounts.

Bank card fees

Bank card fees are primarily comprised of debit card income, ATM fees, merchant services income, and other fees. Debit card income is primarily comprised of interchange fees earned whenever the Company’s debit cards are processed through card payment networks such as Visa. ATM fees are primarily generated when a Bank cardholder uses a non-Bank ATM or a non-Bank cardholder uses a Bank ATM. Merchant services income mainly represents fees charged to merchants to process their debit card transactions. The Company’s performance obligation for bank card fees are largely satisfied, and related revenue recognized, when the services are rendered or upon completion. Payment is typically received immediately or in the following month.

Trust and wealth management fees

The trust and wealth management business offers separately managed investment account solutions and trustee services to clients. Services may include custody of securities, trust investments and wealth management services, directed trusts or fixed income portfolio management and irrevocable life insurance trusts. The Company charges an asset-based fee earned for personal and corporate accounts. Additional fees may include minimum annual fees, fees for additional tax reporting and preparation for irrevocable trust returns or annual flat fees for certain trusts. The performance obligations related to this revenue include items such as performing investment advisory services, custody and record-keeping services, and fund administrative and accounting services. The performance obligations are satisfied upon completion of service and fees are generally a fixed flat rate or based on a percentage of the account’s market value per the contract with the client. These fees are recorded within other non-interest income in the consolidated statements of operations.

Gain on OREO sales, net

Gain on OREO sales, net is recognized when the Company meets its performance obligation to transfer title to the buyer. The gain or loss is measured as the excess of the proceeds received compared to the OREO carrying value. Sales proceeds are received in cash at the time of transfer.

31

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of Topic 606, and non-interest expense in-scope of Topic 606 for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022.

For the three months ended September 30, 

For the nine months ended September 30,

For the three months ended March 31, 

    

2022

    

2021

2022

    

2021

    

2023

    

2022

Non-interest income

In-scope of Topic 606:

Service charges and other fees

$

4,867

$

5,286

$

13,444

$

13,653

$

4,927

$

4,177

Bank card fees

4,681

4,530

13,345

13,217

4,637

4,123

Trust and wealth management fees

508

Non-interest income (in-scope of Topic 606)

9,548

9,816

26,789

26,870

10,072

8,300

Non-interest income (out-of-scope of Topic 606)

7,810

18,706

26,385

60,279

4,593

10,754

Total non-interest income

$

17,358

$

28,522

$

53,174

$

87,149

$

14,665

$

19,054

Non-interest expense

In-scope of Topic 606:

Gain (loss) on OREO sales, net

$

378

$

$

648

$

(192)

(Loss) gain on OREO sales, net

$

(11)

$

275

Total revenue in-scope of Topic 606

$

9,926

$

9,816

$

27,437

$

26,678

$

10,061

$

8,575

30

Contract acquisition costs

The Company utilizes the practical expedient which allows entities to expense immediately contract acquisition costs when the asset that would have resulted from capitalizing these costs would have been amortized in one year or less. The Company has not capitalized any contract acquisition costs.

Note 1312 Stock-based Compensation and Benefits

The Company provides stock-based compensation in accordance with shareholder-approved plans and is authorizedplans. In 2014, shareholders approved the 2014 Omnibus Incentive Plan (the "2014 Plan"). The 2014 Plan replaces the NBH Holdings Corp. 2009 Equity Incentive Plan (the "Prior Plan"), pursuant to issuewhich the Company granted equity awards prior to the approval of the 2014 Plan. Pursuant to the 2014 Plan, the Compensation Committee of the Board of Directors has the authority to grant, from time to time, awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, other stock-based awards, or any combination thereof to eligible persons.

Stock options

The Company issues stock options, which are primarily time-vesting with 1/3 vesting on each of the first, second and third anniversary of the date of grant or date of hire.

The expense associated with the awarded stock options was measured at fair value using a Black-Scholes option-pricing model. The outstanding option awards vest or have vested on a graded basis over 1-41-4 years of continuous service and have 10-year contractual terms.

The following table summarizes stock option activity for the ninethree months ended September 30, 2022:March 31, 2023:

    

    

    

Weighted

    

    

    

    

Weighted

    

average

average

Weighted

remaining

Weighted

remaining

average

contractual

Aggregate

average

contractual

Aggregate

exercise 

 term in 

intrinsic 

exercise 

 term in 

intrinsic 

Options

price

years

value

Options

price

years

value

Outstanding at December 31, 2021

 

695,960

$

28.19

 

6.57

$

10,964

Outstanding at December 31, 2022

 

717,088

$

29.79

 

5.98

$

8,850

Granted

 

74,715

 

40.79

 

 

Exercised

(27,741)

24.47

(1,900)

18.09

Forfeited

 

(12,432)

 

31.38

 

 

Outstanding at September 30, 2022

 

730,502

29.56

 

6.17

5,958

Options exercisable at September 30, 2022

 

538,156

27.75

 

5.32

5,060

Outstanding at March 31, 2023

 

715,188

29.82

 

5.70

3,863

Options exercisable at March 31, 2023

 

520,292

27.82

 

4.80

3,214

Options vested and expected to vest

 

714,222

29.38

 

6.11

5,922

 

704,495

29.65

 

5.66

3,859

Stock option expense is a component of salaries and benefits in the consolidated statements of operations and totaled $0.1 million and $0.6$0.1 million for the three and nine months ended September 30,March 31, 2023 and 2022, respectively, and $0.1 million and $0.7 million for the three and nine months ended September 30, 2021, respectively. At September 30, 2022,March 31, 2023, there was $0.5$0.4 million of total unrecognized

32

compensation cost related to non-vested stock options granted under the plans. The cost is expected to be recognized over a weighted average period of 2.22.0 years.

Restricted stock awards

The Company issues primarily time-based restricted stock awards that vest over a range of a 1-31-3 year period. Restricted stock with time-based vesting was valued at the fair value of the shares on the date of grant as they are assumed to be held beyond the vesting period.

Performance stock units

The Company grants performance stock units which represent initial target awards and do not reflect potential increases or decreases resulting from the final performance results, which are to be determined at the end of the three-year performance period (vesting date). The actual number of shares to be awarded at the end of the performance period will range from 0% - 150% of the initial target awards. For awards granted in years other than 2020 and 2021, 60%Sixty percent of the award is based on the Company’s cumulative earnings per share (EPS target) during the performance period, and 40%forty percent of the award is based on the Company’s cumulative total shareholder return (TSR target), or TSR, during the performance period. On the vesting date, the Company’s TSR will be compared to the respective TSRs of the companies comprising

31

the KBW Regional Index at the grant date to determine the shares awarded. The fair value of the EPS target portion of the award was determined based on the closing stock price of the Company’s common stock on the grant date. The fair value of the TSR target portion of the award was determined using a Monte Carlo Simulation at the grant date.

In establishing the PSU components during 2021 and 2020, the Compensation Committee determined the EPS target portion of the award would not be an effective metric in light of economic uncertainty surrounding COVID-19. Consequently, the Compensation Committee granted an award based upon a relative return on tangible assets (“ROTA”). Annually, the Company’s ROTA is compared to the respective ROTA of companies comprising the KBW Regional Index. At the end of the measurement period, the Company’s ranking will be averaged to determine the shares awarded. The fair value of the ROTA award was determined based on the closing stock price of the Company’s common stock on the grant date.

The weighted-average grant date fair value per unit for the awards granted during the nine months ended September 30, 2022 of the EPS target portion and the TSR target portion was $40.83 and $35.25, respectively. The initial weighted-average performance price for the TSR target portion granted during 2022 was $43.51. During the ninethree months ended September 30, 2022,March 31, 2023, the Company awarded an additional 17,74112,084 units due to final performance results related to performance stock units granted in 2019.on June 1, 2020.

The following table summarizes restricted stock and performance stock unit activity during the ninethree months ended September 30, 2022:March 31, 2023:

    

    

Weighted

Weighted

    

    

Weighted

Weighted

 Restricted

average grant-

Performance

average grant-

 Restricted

average grant-

Performance

average grant-

stock shares

date fair value

stock units

date fair value

stock shares

date fair value

stock units

date fair value

Unvested at December 31, 2021

144,467

$

33.40

160,394

$

31.36

Unvested at December 31, 2022

165,137

$

38.28

155,857

$

33.81

Granted

106,439

40.06

51,931

38.40

2,836

40.49

Adjustment due to performance

17,741

32.44

12,084

24.58

Vested

(69,183)

32.99

(67,875)

31.27

(633)

36.22

(36,236)

24.58

Forfeited

(12,378)

36.92

(6,334)

32.70

(1,162)

38.69

(1,030)

37.67

Unvested at September 30, 2022

169,345

$

37.50

155,857

$

33.81

Unvested at March 31, 2023

166,178

$

38.33

130,675

$

35.49

As of September 30, 2022,March 31, 2023, the total unrecognized compensation cost related to the non-vested restricted stock awards and performance stock units totaled $3.7$2.5 million and $3.0$2.1 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.12.0 years and 1.91.6 years, respectively. Expense related to non-vested restricted stock awards totaled $0.9 million and $2.5$0.6 million during the three and nine months ended September 30,March 31, 2023 and 2022, respectively, and $0.8 million and $2.0 million during the three and nine months ended September 30, 2021, respectively. Expense related to non-vested performance stock units totaled $0.4 million and $1.2$0.4 million during the three and nine months ended September 30,March 31, 2023 and 2022, respectively, and $0.8 million and $1.5 million during the three and nine months ended September 30, 2021, respectively. Expense related to non-vested restricted stock awards and units is a component of salaries and benefits in the Company’s consolidated statements of operations.

33

Employee stock purchase planStock Purchase Plan

The 2014 Employee Stock Purchase Plan (“ESPP”) is intended to be a qualified plan within the meaning of Section 423 of the Internal Revenue Code of 1986 and allows eligible employees to purchase shares of common stock through payroll deductions up to a limit of $25,000 per calendar year and 2,000 shares per offering period. The price an employee pays for shares is 90.0% of the fair market value of Company common stock on the last day of the offering period. The offering periods are the six-month periods commencing on March 1 and September 1 of each year and ending on August 31 and February 28 (or February 29 in the case of a leap year) of each year. There are no vesting or other restrictions on the stock purchased by employees under the ESPP. Under the ESPP, the total number of shares of common stock reserved for issuance totaled 400,000 shares, of which 262,482252,741 was available for issuance at September 30, 2022.March 31, 2023.

Under the ESPP, employees purchased 19,4149,741 shares and 20,9808,028 shares during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Note 1413 Common Stock

The Company had 33,189,25337,641,381 and 29,958,76437,608,519 shares of Class A common stock outstanding at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Additionally, the Company had 169,345166,178 and 144,467165,137 shares outstanding at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, of restricted Class A common stock issued but not yet vested under the 2014 Omnibus Incentive Plan that are not

32

included in shares outstanding until such time that they are vested; however, these shares do have voting and certain dividend rights during the vesting period.

On February 24, 2021, the Company’s Board of Directors authorized a program to repurchase up to $75.0 million of the Company’s stock from time to time in either the open market or through privately negotiated transactions. The remaining authorization under the current program as of September 30, 2022March 31, 2023 was $38.6 million.

Note 1514 Earnings Per Share

The Company calculates earnings per share under the two-class method, as certain non-vested share awards contain non-forfeitable rights to dividends. As such, these awards are considered securities that participate in the earnings of the Company. Non-vested shares are discussed further in note 12.

The Company had 33,189,25337,641,381 and 30,288,13130,008,781 shares of Class A common stock outstanding as of September 30,March 31, 2023 and 2022, and 2021, respectively, exclusive of issued non-vested restricted shares. Certain stock options and non-vested restricted shares are potentially dilutive securities, but are not included in the calculation of diluted earnings per share because to do so would have been anti-dilutive for the three and nine months ended September 30, 2022March 31, 2023 and 2021.2022.

The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:

For the three months ended

For the nine months ended

For the three months ended

    

September 30, 2022

    

September 30, 2021

    

September 30, 2022

    

September 30, 2021

    

March 31, 2023

    

March 31, 2022

Net income

$

15,839

$

19,825

$

54,553

$

70,837

$

40,283

$

18,352

Less: income allocated to participating securities

 

(39)

 

(34)

 

(111)

 

(101)

 

(42)

 

(33)

Income allocated to common shareholders

$

15,800

$

19,791

$

54,442

$

70,736

$

40,241

$

18,319

Weighted average shares outstanding for basic earnings per common share

 

31,259,188

 

30,800,590

 

30,539,266

 

30,858,759

 

37,785,488

 

30,120,195

Dilutive effect of equity awards

 

271,887

 

264,225

 

295,364

 

303,373

 

289,485

 

359,066

Weighted average shares outstanding for diluted earnings per common share

 

31,531,075

 

31,064,815

 

30,834,630

 

31,162,132

 

38,074,973

 

30,479,261

Basic earnings per share

$

0.51

$

0.64

$

1.78

$

2.29

$

1.06

$

0.61

Diluted earnings per share

0.50

0.64

1.77

2.27

1.06

0.60

The Company had 730,502715,188 and 747,666691,083 outstanding stock options to purchase common stock at weighted average exercise prices of $29.56$29.82 and $27.68$28.18 per share at September 30,March 31, 2023 and 2022, and 2021, respectively, which have time-vesting criteria, and as such, any dilution

34

is derived only for the time frame in which the vesting criteria had been met and where the inclusion of those stock options is dilutive. The Company had 325,202296,853 and 315,861250,449 unvested restricted shares and performance stock units issued as of September 30,March 31, 2023 and 2022, and 2021, respectively, which have performance, market and/or time-vesting criteria, and as such, any dilution is derived only for the time frame in which the vesting criteria had been met and where the inclusion of those restricted shares and units is dilutive.

Note 1615 Derivatives

Risk management objective of using derivatives

The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company has established policies stipulating that neither carrying value nor fair value at risk should exceed established guidelines. The Company has designed strategies to confine these risks within the established limits and identify appropriate trade-offs in the financial structure of its balance sheet. These strategies include the use of derivative financial instruments to help achieve the desired balance sheet repricing structure while meeting the desired objectives of its clients. Currently, the Company employs certain interest rate swaps that are designated as fair value hedges, cash flow hedges and economic hedges. The Company manages a matched book with respect to its derivative instruments in order to minimize its net risk exposure resulting from such transactions.

33

Fair values of derivative instruments on the balance sheet

The table below presents the fair value of the Company’s derivative financial instruments as well as their classification in the consolidated statements of financial condition as of September 30, 2022March 31, 2023 and December 31, 2021.2022. Information about the valuation methods used to measure fair value is provided in note 18.17.

Asset derivatives fair value

Liability derivatives fair value

Asset derivatives fair value

Liability derivatives fair value

Balance Sheet

September 30, 

December 31, 

Balance Sheet

September 30, 

December 31, 

Balance Sheet

March 31, 

December 31, 

Balance Sheet

March 31, 

December 31, 

    

location

    

2022

    

2021

    

Location

    

2022

    

2021

    

location

    

2023

    

2022

    

Location

    

2023

    

2022

Derivatives designated as hedging instruments:

Interest rate products

 

Other assets

$

33,779

$

477

 

Other liabilities

$

1,827

$

12,221

 

Other assets

$

27,711

$

34,164

 

Other liabilities

$

2,142

$

1,929

Total derivatives designated as hedging instruments

$

33,779

$

477

$

1,827

$

12,221

$

27,711

$

34,164

$

2,142

$

1,929

Derivatives not designated as hedging instruments:

Interest rate products

 

Other assets

$

10,132

$

8,321

 

Other liabilities

$

10,136

$

8,329

 

Other assets

$

7,892

$

10,657

 

Other liabilities

$

7,900

$

10,660

Interest rate lock commitments

Other assets

210

1,792

Other liabilities

783

197

Other assets

674

197

Other liabilities

48

174

Forward contracts

Other assets

1,923

91

Other liabilities

3

266

Other assets

33

210

Other liabilities

270

104

Total derivatives not designated as hedging instruments

$

12,265

$

10,204

$

10,922

$

8,792

$

8,599

$

11,064

$

8,218

$

10,938

Cash flow hedges

The Company’s objectives in using interest rate derivatives are to add stability to interest income and to manage its exposure to interest rate movements. To accomplish this objective, the Company primarily uses floors and collars as part of its interest rate risk management strategy. Interest rate floors designated as cash flow hedges involve the receipt of variable-rate amounts from a counterparty if interest rates fall below the strike rate on the contract in exchange for an up-front premium. Interest rate collars designated as cash flow hedges involve the payments of variable-rate amounts if interest rates rise above the cap strike rate on the contract and receipt of variable-rate amounts if interest rates fall below the floor strike rate on the contract. Beginning with the third quarter of 2022, such derivatives were used to hedge the variable cash flows associated with existing variable-rate loan assets.

For derivatives that qualify and are designated as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is included in interest income. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. As of September 30, 2022,

35

March 31, 2023, the Company had cash flow hedges with a notional amount of $150.0$200.0 million. The Company expects to reclassify $0.9$1.3 million from accumulated other comprehensive income (“AOCI”) as a reduction to interest income during the next 12 months.

Fair value hedges

Interest rate swaps designated as fair value hedges involve the receipt of variable-rate amounts from a counterparty in exchange for the Company making fixed-rate payments over the life of the agreements without the exchange of the underlying notional amount. As of September 30, 2022,March 31, 2023, the Company had interest rate swaps with a notional amount of $331.7$341.2 million, which were designated as fair value hedges of interest rate risk. As of December 31, 2021,2022, the Company had interest rate swaps with a notional amount of $343.1$340.1 million that were designated as fair value hedges. These interest rate swaps were associated with $436.5$468.2 million and $345.2$482.7 million of the Company’s fixed-rate loans as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, before a loss of $31.5$8.5 million and a gain of $16.1$29.7 million from the fair value hedge adjustment in the carrying amount, and are included in loans receivable inon the statements of financial condition as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

For derivatives designated and that qualify as fair value hedges, the gain or loss on the derivative as well as the offsetting loss or gain on the hedged item attributable to the hedged risk are recognized in earnings. The Company includes the gain or loss on the hedged items in the same line item as the offsetting loss or gain on the related derivatives.

34

Non-designated hedges

Derivatives not designated as hedges are not speculative and consist of interest rate swaps with commercial banking clients that facilitate their respective risk management strategies. Interest rate swaps are simultaneously hedged by offsetting interest rate swaps that the Company executes with a third party, such that the Company minimizes its net risk exposure resulting from such transactions. As the interest rate swaps associated with this program do not meet the strict hedge accounting requirements, changes in the fair value of both the client swaps and the offsetting swaps are recognized directly in earnings. As of September 30,March 31, 2022, the Company had matched interest rate swap transactions with an aggregate notional amount of $397.0$383.3 million related to this program. As of December 31, 2021,2022, the Company had matched interest rate swap transactions with an aggregate notional amount of $394.4$383.0 million. Derivative fee income from non-designated hedges totaled $0.2 million and $0.0 million for the three months ended March 31, 2023 and 2022, respectively.

As part of its mortgage banking activities, the Company enters into interest rate lock commitments, which are commitments to originate loans where the interest rate on the loan is determined prior to funding and the clients have locked into that interest rate. The Company then locks in the loan and interest rate with an investor and commits to deliver the loan if settlement occurs ("best efforts") or commits to deliver the locked loan in a binding ("mandatory") delivery program with an investor. Fair value changes of certain loans under interest rate lock commitments are hedged with forward sales contracts of MBS. Forward sales contracts of MBS are recorded at fair value with changes in fair value recorded in non-interest income. Interest rate lock commitments and commitments to deliver loans to investors are considered derivatives. The market value of interest rate lock commitments and best efforts contracts are not readily ascertainable with precision because they are not actively traded in stand-alone markets. The Company determines the fair value of interest rate lock commitments and delivery contracts by measuring the fair value of the underlying assets. The fair value of the underlying assets is impacted by current interest rates, remaining origination fees, costs of production to be incurred and the probability that the interest rate lock commitments will close or will be funded.

Certain additional risks arise from these forward delivery contracts in that the counterparties to the contracts may not be able to meet the terms of the contracts. The Company does not expect any counterparty to any MBS contract to fail to meet its obligation. Additional risks inherent in mandatory delivery programs include the risk that, if the Company fails to deliver the loans subject to interest rate risk lock commitments, it will still be obligated to “pair off” MBS to the counterparty. Should this be required, the Company could incur significant costs in acquiring replacement loans and such costs could have an adverse effect on the consolidated financial statements.

The fair value of the mortgage banking derivative is recorded as a freestanding asset or liability with the change in value being recognized in current earnings during the period of change.

The Company had interest rate lock commitments with a notional value of $46.9$40.5 million and forward contracts with a notional value of $54.5$43.3 million at September 30, 2022.March 31, 2023. At December 31, 2021,2022, the Company had interest rate lock commitments with a notional value of $110.0$35.5 million and forward contracts with a notional value of $198.3 million.$45.0 million.

36

35

Effect of derivative instruments on the consolidated statements of operations and accumulated other comprehensive income

The tables below present the effect of the Company’s derivative financial instruments in the consolidated statements of operations for the three and nine months ended September 30, 2022March 31, 2023 and 2021:2022:

Location of gain (loss)

Amount of gain recognized in income on derivatives

Location of gain (loss)

Amount of (loss) gain recognized in income on derivatives

Derivatives in fair value

recognized in income on

For the three months ended September 30, 

For the nine months ended September 30, 

recognized in income on

For the three months ended March 31, 

hedging relationships

    

derivatives

    

2022

    

2021

    

2022

    

2021

    

derivatives

    

2023

    

2022

Interest rate products

 

Interest and fees on loans

$

20,795

$

9,057

$

13,893

$

1,829

 

Interest and fees on loans

$

(5,491)

$

18,596

Location of gain (loss)

Amount of loss recognized in income on hedged items

Location of gain (loss)

Amount of gain (loss) recognized in income on hedged items

recognized in income on

For the three months ended September 30, 

For the nine months ended September 30, 

recognized in income on

For the three months ended March 31, 

Hedged items

    

hedged items

    

2022

    

2021

    

2022

    

2021

    

hedged items

    

2023

    

2022

Interest rate products

 

Interest and fees on loans

$

(22,016)

 

$

(8,321)

$

(14,589)

 

$

(3,164)

 

Interest and fees on loans

$

7,310

 

$

(20,220)

Location of gain (loss)

Amount of gain recognized in income on derivatives

Derivatives not designated

recognized in income on

For the three months ended September 30, 

For the nine months ended September 30, 

as hedging instruments

    

derivatives

    

2022

    

2021

    

2022

    

2021

Interest rate products

 

Other non-interest expense

 

$

49

 

$

8

$

5

 

$

18

Interest rate lock commitments

Mortgage banking income

(1,936)

(861)

(2,780)

(5,962)

Forward contracts

Mortgage banking income

2,179

1,229

2,095

3,613

Total

 

$

292

 

$

376

$

(680)

 

$

(2,331)

Location of gain (loss)

Amount of (loss) gain recognized in income on derivatives

Derivatives not designated

recognized in income on

For the three months ended March 31, 

as hedging instruments

    

derivatives

    

2023

    

2022

Interest rate products

 

Other non-interest expense

 

$

(6)

 

$

5

Interest rate lock commitments

Mortgage banking income

640

(1,086)

Forward contracts

Mortgage banking income

(344)

2,711

Total

 

$

290

 

$

1,630

The table below presents the effect of fair value cash flow hedge accounting on AOCI as of the dates presented. The Company did not utilize cash flow hedges until the third quarter of 2022.

For the three and nine months ended September 30, 2022

For the three months ended March 31, 2023

Loss recognized in OCI on derivative

Loss recognized in OCI included component

Loss recognized in OCI excluded component

Location of Loss recognized from AOCI into income

Loss reclassified from AOCI into income

Loss reclassified from AOCI into income included component

Loss reclassified from AOCI into income excluded component

Gain recognized in OCI on derivative

Gain recognized in OCI included component

Gain recognized in OCI excluded component

Location of Loss recognized from AOCI into income

Loss reclassified from AOCI into income

Loss reclassified from AOCI into income included component

Loss reclassified from AOCI into income excluded component

Derivatives in cash flow hedging relationships:

Interest rate products

 

$

(2,355)

$

(1,827)

$

(528)

 

Interest income

$

(14)

$

$

(14)

 

$

616

$

399

$

217

 

Interest income

$

(262)

$

(162)

$

(100)

Credit-risk-related contingent features

The Company has agreements with its derivative counterparties that contain a provision where if the Company defaults on any of its indebtedness for reasons other than an error or omission of an administrative or operational nature, including default where repayment of the indebtedness has not been accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

The Company also has agreements with certain of its derivative counterparties that contain a provision where if the Company fails to maintain its status as a well/adequately capitalized institution, then the counterparty has the right to terminate the derivative positions and the Company would be required to settle its obligations under the agreements.

As of September 30, 2022,March 31, 2023, the termination value of derivatives in a net liability position related to these agreements was $42.7 million, which includes accrued interest but excludes any adjustment for nonperformance risk.zero. The Company has minimum collateral posting thresholds with certain of its derivative counterparties, and as of September 30, 2022,March 31, 2023, the Company had met these thresholds. If the Company had breached any of these provisions at September 30, 2022,March 31, 2023, it could have been required to settle its obligations under the agreements at the termination value.

37

36

Note 1716 Commitments and Contingencies

In the normal course of business, the Company enters into various off-balance sheet commitments to help meet the financing needs of clients. These financial instruments include commitments to extend credit, commercial and consumer lines of credit and standby letters of credit. The same credit policies are applied to these commitments as the loans in the consolidated statements of financial condition; however, these commitments involve varying degrees of credit risk in excess of the amount recognized in the consolidated statements of financial condition. The total amounts of unused commitments do not necessarily represent future credit exposure or cash requirements, as commitments often expire without being drawn upon. However, the contractual amount of these commitments, offset by any additional collateral pledged, represents the Company’s potential credit loss exposure.

Total unfunded commitments at September 30, 2022March 31, 2023 and December 31, 20212022 were as follows:

    

September 30, 2022

    

December 31, 2021

    

March 31, 2023

    

December 31, 2022

Commitments to fund loans

$

684,800

$

462,151

$

1,122,858

$

1,124,942

Credit card lines of credit

 

6,770

 

7,167

Unfunded commitments under lines of credit

 

682,240

 

530,397

 

902,871

 

862,369

Commercial and standby letters of credit

 

6,245

 

7,321

 

11,883

 

13,859

Total unfunded commitments

$

1,373,285

$

999,869

$

2,044,382

$

2,008,337

Commitments to fund loans—Commitments to fund loans are legally binding agreements to lend to clients in accordance with predetermined contractual provisions providing there have been no violations of any conditions specified in the contract. These commitments are generally at variable interest rates and are for specific periods or contain termination clauses and may require the payment of a fee. The total amounts of unused commitments are not necessarily representative of future credit exposure or cash requirements, as commitments often expire without being drawn upon.

Credit card lines of credit—The Company extends lines of credit to clients through the use of credit cards issued by NBH Bank. These lines of credit represent the maximum amounts allowed to be funded, many of which will not exhaust the established limits, and as such, these amounts are not necessarily representations of future cash requirements or credit exposure.

Unfunded commitments under lines of credit—In the ordinary course of business, the Company extends revolving credit to its clients. These arrangements may require the payment of a fee.

Commercial and standby letters of credit—As a provider of financial services, the Company routinely issues commercial and standby letters of credit, which may be financial standby letters of credit or performance standby letters of credit. These are various forms of “back-up” commitments to guarantee the performance of a client to a third party. While these arrangements represent a potential cash outlay for the Company, the majority of these letters of credit will expire without being drawn upon. Letters of credit are subject to the same underwriting and credit approval process as traditional loans, and as such, many of them have various forms of collateral securing the commitment, which may include real estate, personal property, receivables or marketable securities.

Contingencies

Mortgage loans sold to investors may be subject to repurchase or indemnification in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met. The Company established a reserve liability for expected losses related to these representations and warranties based upon management’s evaluation of actual and historic loss history, delinquency trends or other documentation or deficiency findings in the portfolio and economic conditions. Charges against the reserve during the three and nine months ended September 30,March 31, 2023 and 2022 totaling $74$46 thousand and $218$45 thousand, respectively, were primarily driven by early payoffs and repurchases. Charges against the reserve during the three and nine months ended September 30, 2021 totaling $150 thousand and $392 thousand, respectively, were primarily driven by early payoffs and repurchases.payoffs. The Company recorded a repurchase reserve is included in other liabilities in the consolidated statements of financial condition.condition totaling $1.6 million and $1.7 million at March 31, 2023 and December 31, 2022, respectively.

37

The following table summarizes mortgage repurchase reserve activity for the periods presented:

For the three months ended September 30, 

For the nine months ended September 30, 

For the three months ended March 31, 

2022

2021

2022

2021

2023

2022

Beginning balance

$

1,878

$

2,398

$

2,102

$

2,741

$

1,725

$

2,102

Provision charged to (released from) operating expense, net

35

39

(45)

(62)

Provision released from operating expense, net

(34)

(88)

Charge-offs

(74)

(150)

(218)

(392)

(46)

(45)

Ending balance

$

1,839

$

2,287

$

1,839

$

2,287

$

1,645

$

1,969

38

In the ordinary course of business, the Company and theNBH Bank may be subject to litigation. Based upon the available information and advice from the Company’s legal counsel, management does not believe that any potential, threatened or pending litigation to which it is a party will have a material adverse effect on the Company’s liquidity, financial condition or results of operations.

Note 1817 Fair Value Measurements

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose the fair value of its financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. For disclosure purposes, the Company groups its financial and non-financial assets and liabilities into three different levels based on the nature of the instrument and the availability and reliability of the information that is used to determine fair value. The three levels are defined as follows:

Level 1—Includes assets or liabilities in which the valuation methodologies are based on unadjusted quoted prices in active markets for identical assets or liabilities.
Level 2—Includes assets or liabilities in which the inputs to the valuation methodologies are based on similar assets or liabilities in inactive markets, quoted prices for identical or similar assets or liabilities in inactive markets, and inputs other than quoted prices that are observable, such as interest rates, yield curves, volatilities, prepayment speeds, and other inputs obtained from observable market input.
Level 3—Includes assets or liabilities in which the inputs to the valuation methodology are based on at least one significant assumption that is not observable in the marketplace. These valuations may rely on management’s judgment and may include internally-developed model-based valuation techniques.

Level 1 inputs are considered to be the most transparent and reliable and level 3 inputs are considered to be the least transparent and reliable. The Company assumes the use of the principal market to conduct a transaction of each particular asset or liability being measured and then considers the assumptions that market participants would use when pricing the asset or liability. Whenever possible, the Company first looks for quoted prices for identical assets or liabilities in active markets (level 1 inputs) to value each asset or liability. However, when inputs from identical assets or liabilities on active markets are not available, the Company utilizes market observable data for similar assets and liabilities. The Company maximizes the use of observable inputs and limits the use of unobservable inputs to occasions when observable inputs are not available. The need to use unobservable inputs generally results from the lack of market liquidity of the actual financial instrument or of the underlying collateral. While third-partythird party price indications may be available in those cases, limited trading activity can challenge the observability of those inputs.

Changes in the valuation inputs used for measuring the fair value of financial instruments may occur due to changes in current market conditions or other factors. Such changes may necessitate a transfer of the financial instruments to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfer occurs. During the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, there were no transfers of financial instruments between the hierarchy levels.

The following is a description of the valuation methodologies used for assets and liabilities measured at fair value, as well as the general classification of each instrument under the valuation hierarchy:

Fair Value of Financial Instruments Measured on a Recurring Basis

Investment securities available-for-sale—Investment securities available-for-sale are carried at fair value on a recurring basis. To the extent possible, observable quoted prices in an active market are used to determine fair value and, as such, these securities are classified as level 1. When quoted market prices in active markets for identical assets or liabilities are not available, quoted prices of securities with similar characteristics, discounted cash flows or other pricing characteristics are used to estimate fair values and the securities are then classified as level 2.

38

Loans held for sale—The Company has elected to record loans originated and intended for sale in the secondary market at estimated fair value. The portfolio consists primarily of fixed rate residential mortgage loans that are sold within 45 days. The Company estimates fair value based on quoted market prices for similar loans in the secondary market and are classified as level 2.

Interest rate swap derivatives—The Company's derivative instruments are limited to interest rate swaps that may be accounted for as fair value hedges or non-designated hedges. The fair values of the swaps incorporate credit valuation adjustments in order to appropriately reflect nonperformance risk in the fair value measurements. The credit valuation adjustment is the dollar amount of the

39

fair value adjustment related to credit risk and utilizes a probability weighted calculation to quantify the potential loss over the life of the trade. The credit valuation adjustments are calculated by determining the total expected exposure of the derivatives (which incorporates both the current and potential future exposure) and then applying the respective counterparties’ credit spreads to the exposure offset by marketable collateral posted, if any. Certain derivative transactions are executed with counterparties who are large financial institutions ("dealers"). International Swaps and Derivative Association Master Agreements ("ISDA") and Credit Support Annexes ("CSA") are employed for all contracts with dealers. These contracts contain bilateral collateral arrangements. The fair value inputs of these financial instruments are determined using discounted cash flow analysis through the use of third-party models whose significant inputs are readily observable market parameters, primarily yield curves, with appropriate adjustments for liquidity and credit risk, and are classified as level 2.

Mortgage banking derivatives—The Company relies on a third-party pricing service to value its mortgage banking derivative financial assets and liabilities, which the Company classifies as a level 3 valuation. The external valuation model to estimate the fair value of its interest rate lock commitments to originate residential mortgage loans held for sale includes grouping the interest rate lock commitments by interest rate and terms, applying an average 79.6%79.3% estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms, and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

The tables below present the financial instruments measured at fair value on a recurring basis as of September 30, 2022March 31, 2023 and December 31, 20212022 in the consolidated statements of financial condition utilizing the hierarchy structure described above:

September 30, 2022

March 31, 2023

Level 1

Level 2

Level 3

Total

Level 1

Level 2

Level 3

Total

Assets:

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

    

Investment securities available-for-sale:

U.S. Treasuries

$

71,096

$

$

$

71,096

$

72,154

$

$

$

72,154

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

229,651

229,651

222,209

222,209

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

 

426,982

 

 

426,982

 

 

398,282

 

 

398,282

Municipal securities

224

224

154

154

Corporate debt

 

1,958

 

 

1,958

 

1,892

 

 

1,892

Loans held for sale

 

 

33,043

 

 

33,043

 

 

24,594

 

 

24,594

Interest rate swap derivatives

 

 

44,852

 

 

44,852

 

 

35,603

 

 

35,603

Mortgage banking derivatives

2,133

2,133

707

707

Total assets at fair value

$

71,096

$

736,710

$

2,133

$

809,939

$

72,154

$

682,734

$

707

$

755,595

Liabilities:

Interest rate swap derivatives

$

$

11,925

$

$

11,925

$

$

10,042

$

$

10,042

Mortgage banking derivatives

786

786

318

318

Total liabilities at fair value

$

$

11,925

$

786

$

12,711

$

$

10,042

$

318

$

10,360

40

39

December 31, 2021

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Investment securities available-for-sale:

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

$

$

227,696

$

$

227,696

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

 

461,334

 

 

461,334

Municipal securities

237

237

Corporate debt

2,111

2,111

Loans held for sale

 

 

139,142

 

 

139,142

Interest rate swap derivatives

 

 

8,798

 

 

8,798

Mortgage banking derivatives

1,883

1,883

Total assets at fair value

$

$

839,318

$

1,883

$

841,201

Liabilities:

Interest rate swap derivatives

$

$

20,550

$

$

20,550

Mortgage banking derivatives

463

463

Total liabilities at fair value

$

$

20,550

$

463

$

21,013

December 31, 2022

    

Level 1

    

Level 2

    

Level 3

    

Total

Assets:

Investment securities available-for-sale:

U.S. Treasuries

$

71,388

$

$

$

71,388

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

226,131

226,131

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

 

405,926

 

 

405,926

Municipal securities

153

153

Corporate debt

 

1,920

 

1,920

Loans held for sale

 

 

22,767

 

 

22,767

Interest rate swap derivatives

 

 

44,821

 

 

44,821

Mortgage banking derivatives

407

407

Total assets at fair value

$

71,388

$

701,718

$

407

$

773,513

Liabilities:

Interest rate swap derivatives

$

$

12,589

$

$

12,589

Mortgage banking derivatives

278

278

Total liabilities at fair value

$

$

12,589

$

278

$

12,867

The table below details the changes in level 3 financial instruments during the ninethree months ended September 30, 2022:March 31, 2023:

    

Mortgage banking

    

Mortgage banking

derivatives, net

derivatives, net

Balance at December 31, 2021

$

1,420

Balance at December 31, 2022

$

129

Loss included in earnings, net

(787)

296

Fees and costs included in earnings, net

 

714

 

(36)

Balance at September 30, 2022

$

1,347

Balance at March 31, 2023

$

389

Fair Value of Financial Instruments Measured on a Non-recurring Basis

Certain assets may be recorded at fair value on a non-recurring basis as conditions warrant. These non-recurring fair value measurements typically result from the application of lower of cost or fair value accounting or a write-down occurring during the period.

Individually evaluated loans—The Company records individually evaluated loans based on the fair value of the collateral when it is probable that the Company will be unable to collect all contractual amounts due in accordance with the terms of the loan agreement. The Company relies on third-party appraisals and internal assessments, utilizing a discount rate in the range of 5%2% - 17%15% with a weighted average discount rate of 9.9%9.2%, in determining the estimated fair values of these loans. The inputs used to determine the fair values of loans are considered level 3 inputs in the fair value hierarchy. At September 30,March 31, 2023, the Company recorded a specific reserve of $4.4 million related to nine loans with a carrying balance of $12.1 million. At March 31, 2022, the Company recorded a specific reserve of $2.9$1.5 million related to nine loans with a carrying value of $7.2 million. At September 30, 2021, the Company recorded a specific reserve of $1.2 million related to fiveseven loans with a carrying balance of $4.7$5.4 million.

OREO—OREO is recorded at the fair value of the collateral less estimated selling costs using a range of 6% to 10% with a weighted average discount rate of 6.3%. The estimated fair values of OREO are updated periodically and further write-downs may be taken to reflect a new basis. The Company recognized $452$13 thousand and $799$188 thousand of OREO impairment during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. During the nine months ended September 30, 2022, impairments included $227 thousand recorded within problem asset workout in the consolidated statements of operations and $225 thousand included within other liabilities in the statements of financial condition to reduce the payable for an SBA redemption agreement. The fair values of OREO are derived from third-partythird party price opinions or appraisals that generally use an income approach or a market value approach. If reasonable comparable appraisals are not available, the Company may use internally developed models to determine fair values. The inputs used to determine the fair value of OREO properties are considered level 3 inputs in the fair value hierarchy.

Mortgage servicing rightsMSRs represent the value associated with servicing residential real estate loans that have been sold to outside investors with servicing retained. The fair value for servicing assets is determined through discounted cash flow analysis and utilizes discount rates ranging from 10.0% to 10.5% with a weighted average rate of 10.0% at March 31, 2023 and prepayment speed assumption ranges of 7.9% to 18.2% with a weighted average rate of 8.2% at March 31, 2023 as inputs. The weighted average MSRs

41

40

utilizes a discount rate and weighted average rate of 9.5% at September 30, 2022 and prepayment speed assumption ranges of 7.6% to 7.8% with a weighted average rate of 7.6% at September 30, 2022. The weighted average MSRs are subject to impairment testing. The carrying values of these MSRs are reviewed quarterly for impairment based upon the calculation of fair value. For purposes of measuring impairment, the MSRs are stratified into certain risk characteristics including note type and note term. If the valuation model reflects a value less than the carrying value, MSRs are adjusted to fair value through a valuation allowance, and the adjustment is included in mortgage banking income in the consolidated statements of operations. DuringThere was no MSR impairment during the ninethree months ended September 30, 2022, the Company recorded impairment totaling $6 thousand. There was $0.7 million of recovery during the nine months ended September 30, 2021.March 31, 2023 or 2022. The inputs used to determine the fair values of MSRs are considered level 3 inputs in the fair value hierarchy.

SBA servicing rightsassetThe SBA loan servicing assets representasset represents the value associated with servicing small business real estate loans that have been sold to outside investors with servicing retained. The fair value for the SBA servicing assetsasset is determined through a discounted cash flow analysis and utilizes a weighted average discount rate of 11.7%13.3% and a weighted average lifetime constant prepayment rate of 12.1%12.4%. The SBA loan servicing assets areasset is amortized over the period of the estimated future net servicing life of the underlying assets. SBA loan servicing assets, areand it is evaluated quarterly for impairment based upon the fair value of the rights as compared to their amortized cost. Impairment is recognized on the income statement to the extent the fair value is less than the capitalized amount of the SBA loan servicing asset. The Company recorded no impairment for the ninethree months ended September 30, 2022.

Premises and equipment—During the first quarter of 2021, the Company approved plans to consolidate seven banking centers. Premises and equipment held-for-sale are written down to estimated fair value less costs to sell in the period in which the held-for-sale criteria are met. Fair value is estimated in a process that considers current local commercial real estate market conditions, the judgment of the sales agent and often involves obtaining third-party appraisals from certified real estate appraisers. These fair value measurements are classified as level 3. Unobservable inputs to these measurements, which include estimates and judgments often used in conjunction with appraisals, are not readily quantifiable. For the nine months ended September 30, 2021, the Company recognized $1.6 million of impairment in its consolidated statements of operations related to premises and equipment classified as held-for-sale totaling $6.0 million as of September 30, 2021.March 31, 2023.

The Company may be required to record fair value adjustments on other available-for-sale and municipal securities valued at par on a non-recurring basis.

The tables below provide information regarding losses from assets recorded at fair value on a non-recurring basis during the ninethree months ended September 30, 2022March 31, 2023 and 2021:2022:

September 30, 2022

March 31, 2023

Total

Losses from fair value changes

Total

Losses from fair value changes

Individually evaluated loans

$

20,504

$

1,338

$

19,577

$

325

Other real estate owned

    

3,695

    

452

    

3,458

    

13

Mortgage servicing rights

 

9,133

 

6

Total

$

33,332

$

1,796

$

23,035

$

338

September 30, 2021

March 31, 2022

Total

Losses from fair value changes

Total

Losses from fair value changes

Individually evaluated loans

$

19,406

$

1,548

$

14,104

$

634

Other real estate owned

    

4,325

799

    

5,063

188

Premises and equipment

    

6,032

1,552

Total

$

29,763

$

3,899

$

19,167

$

822

The Company did not record any liabilities measured at fair value on a non-recurring basis during the ninethree months ended September 30,March 31, 2023 and 2022.

Note 1918 Fair Value of Financial Instruments

The fair value of a financial instrument is the amount that would be exchanged between willing parties, other than in a forced liquidation. Fair value is determined based upon quoted market prices to the extent possible; however, in many instances, there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques that may be significantly impacted by the assumptions

42

used, including the discount rate and estimates of future cash flows. Changes in any of these assumptions could significantly affect the fair value estimates. The fair value of the financial instruments listed below does not reflect a premium or discount that could result from offering all of the Company’s holdings of financial instruments at one time, nor does it reflect the underlying value of the Company, as ASC Topic 825 excludes certain financial instruments and all non-financial instruments from its disclosure requirements. The estimated fair value amounts have been determined by the Company using available market information and appropriate valuation methodologies and are based on the exit price concept within ASC Topic 825 and applied to this disclosure on a prospective basis. Considerable judgment is required to interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange.

41

The fair value of financial instruments at September 30, 2022March 31, 2023 and December 31, 20212022 are set forth below:

    

Level in fair value

    

September 30, 2022

    

December 31, 2021

    

Level in fair value

    

March 31, 2023

    

December 31, 2022

measurement 

Carrying

Estimated

Carrying

Estimated

measurement 

Carrying

Estimated

Carrying

Estimated

hierarchy

amount

    

fair value

    

amount

    

fair value

hierarchy

amount

    

fair value

    

amount

    

fair value

ASSETS

Cash and cash equivalents

 

Level 1

$

256,207

$

256,207

$

845,695

$

845,695

 

Level 1

$

369,705

$

369,705

$

195,505

$

195,505

U.S. Treasury securities - AFS

Level 1

71,096

71,096

Level 1

72,154

72,154

71,388

71,388

U.S. Treasury securities - HTM

Level 1

48,973

47,412

Level 1

49,117

48,141

49,045

47,629

Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale

 

Level 2

 

229,651

 

229,651

 

227,696

 

227,696

 

Level 2

 

222,209

 

222,209

 

226,131

 

226,131

Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale

 

Level 2

 

426,982

 

426,982

 

461,334

 

461,334

 

Level 2

 

398,282

 

398,282

 

405,926

 

405,926

Municipal securities available-for-sale

Level 2

224

224

237

237

Level 2

154

154

153

153

Municipal securities available-for-sale

Level 3

Corporate debt

Level 2

1,958

1,958

2,111

2,111

Level 2

1,892

1,892

1,920

1,920

Other available-for-sale securities

 

Level 3

 

880

 

880

 

469

 

469

 

Level 3

 

794

 

794

 

771

 

771

Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity

 

Level 2

 

291,306

 

244,866

 

312,916

 

309,614

 

Level 2

 

331,996

 

295,246

 

339,815

 

298,816

Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity

 

Level 2

 

265,966

 

216,683

 

296,096

 

289,646

 

Level 2

 

256,808

 

211,869

 

262,667

 

213,479

Non-marketable securities

Level 2

15,513

15,513

14,533

14,533

FHLB and FRB stock

Level 2

69,319

69,319

38,390

38,390

Loans receivable

 

Level 3

 

5,721,985

 

5,434,105

 

4,513,383

 

4,540,847

 

Level 3

 

7,345,298

 

7,090,982

 

7,220,469

 

6,964,107

Loans held for sale

 

Level 2

 

33,043

 

33,043

 

139,142

 

139,142

 

Level 2

 

24,594

 

24,594

 

22,767

 

22,767

Accrued interest receivable

 

Level 2

 

30,125

 

30,125

 

17,848

 

17,848

 

Level 2

 

39,608

 

39,608

 

34,587

 

34,587

Interest rate swap derivatives

 

Level 2

 

44,852

 

44,852

 

8,798

 

8,798

 

Level 2

 

34,088

 

34,088

 

45,046

 

45,046

Mortgage banking derivatives

Level 3

2,133

2,133

1,883

1,883

Level 3

707

707

407

407

LIABILITIES

Deposit transaction accounts

 

Level 2

 

5,964,722

 

5,964,722

 

5,394,257

 

5,394,257

 

Level 2

 

6,603,191

 

6,603,191

 

6,999,226

 

6,999,226

Time deposits

 

Level 2

 

838,830

 

814,466

 

833,916

 

833,163

 

Level 2

 

978,489

 

953,790

 

873,400

 

845,688

Securities sold under agreements to repurchase

 

Level 2

 

20,044

 

20,044

 

22,768

 

22,768

 

Level 2

 

21,492

 

21,492

 

20,214

 

20,214

Long-term debt

Level 2

40,000

37,728

40,000

40,000

Level 2

55,000

49,421

55,000

52,430

Federal Home Loan Bank advances

 

Level 2

 

1,000,000

 

1,000,000

 

385,000

 

385,000

Accrued interest payable

 

Level 2

 

3,318

 

3,318

 

3,944

 

3,944

 

Level 2

 

6,498

 

6,498

 

3,201

 

3,201

Interest rate swap derivatives

Level 2

11,925

11,925

 

20,550

 

20,550

Level 2

10,042

10,042

 

12,589

 

12,589

Mortgage banking derivatives

 

Level 3

 

786

 

786

463

463

 

Level 3

 

318

 

318

278

278

Note 20 Subsequent Events19 Acquisition Activities

During 2022, the Company completed the acquisitions of Community Bancorporation, the bank holding company for Rock Canyon Bank, and Bancshares of Jackson Hole, the bank holding company for Bank of Jackson Hole. The Company determined that the acquisitions constitute business combinations as defined in ASC Topic 805, Business Combinations. Accordingly, as of the date of the acquisitions, the Company recorded the assets acquired and liabilities assumed at fair value. The Company determined fair values in accordance with the guidance provided in ASC Topic 820, Fair Value Measurements and Disclosures. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature and subject to change. Actual results could differ materially. The Company has made the determination of fair values using the best information available at the time; however, purchase accounting is not complete and the assumptions used are subject to change and, if changed, could have a material effect on the Company's financial position and results of operations.

Rock Canyon Bank

On September 1, 2022, the Company completed its acquisition of Community Bancorporation, the bank holding company of Utah-based Rock Canyon Bank. Immediately following the completion of the acquisition, RCB merged into NBH Bank. Pursuant to the merger agreement executed in April 2022, the Company paid $16.1 million of cash consideration and issued 3,096,745 shares of the Company’s Class A common stock in exchange for all of the outstanding common stock of Community Bancorporation. The

42

transaction was valued at $140.4 million in the aggregate, based on the Company’s closing price of $40.13 on August 31, 2022. The acquisition added seven banking centers to the Company’s footprint within the Provo and Greater Salt Lake City regions.

RCB acquisition-related costs totaled $12.3 million for the year ended December 31, 2022, including a Day 1 CECL provision expense of $5.4 million. The results of RCB are included in the results of the Company subsequent to the acquisition date.

The table below summarizes preliminary net assets acquired (at fair value) and consideration transferred in connection with the RCB acquisition:

September 1, 2022

Assets:

Cash and due from banks

$

260,883

Investment securities available-for-sale

402

Non-marketable securities

977

Loans, net

535,197

Loans held for sale

3,069

Premises and equipment

3,413

Core deposit and other intangibles

16,463

Other assets

11,749

Total assets acquired

832,153

Liabilities:

Total deposits

734,480

Other liabilities

10,115

Total liabilities assumed

744,595

Identifiable net assets acquired

$

87,558

Consideration:

NBHC common stock paid, closing price of $40.13 on August 31, 2022

$

124,272

Cash

16,141

Total

140,413

Goodwill

$

52,855

In connection with the RCB acquisition, the Company recorded $52.9 million of goodwill. The amount of goodwill recorded reflects the expanded market presence, synergies and operational efficiencies that are expected to result from the acquisition. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks—The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.

Loans, netThe fair value of loans were based on a discounted cash flow methodology that considered the loans’ underlying characteristics including account type, remaining terms of loan, annual interest rates or coupon, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposure and remaining balance. The discount rates applied were based upon a build-up approach considering the alternative cost of funds, capital charges, servicing costs, and a liquidity premium. Loans were aggregated according to similar characteristics when applying the valuation method.

Core deposit and other intangibles—The Company recorded a core deposit intangible asset of $13.3 million and an SBA servicing asset of $3.1 million. The core deposit intangible was valued utilizing a discounted cash flow methodology based upon assumptions regarding retained balances, such as account retention rate and growth rates, interest expense including maintenance costs, and alternative costs of funding. The discount rate applied is consistent to that applied to loans above. The SBA servicing asset was valued using a discounted cash flow methodology that included assumptions for pre-payment speeds and defaults discounted at a market-based discount rate. The valuation methodology was applied to each loan individually based upon its specific characteristics.

43

The core deposit intangible will be amortized straight-line over ten years, and the SBA servicing asset will be amortized over the life of the underlying portfolio.

Deposits—By definition, the fair value of demand and saving deposits equals the amount payable. For time deposits acquired, the Company utilized an income approach, discounting the contractual cash flows on the instruments over their remaining contractual lives at prevailing market rates.

The fair value of the acquired assets and liabilities noted in the table may change during the provisional period, which may last up to twelve months subsequent to the acquisition date. The Company may obtain additional information to refine the valuation of the acquired assets and liabilities and adjust the recorded fair value.

Accounting for acquired loans

A Day 1 CECL allowance for credit losses on the non-PCD loans was recorded through provision for credit loss expense within the consolidated statements of operations. At the date of acquisition, of the $537.7 million of loans acquired from RCB, $11.1 million, or 2.1% of RCB’s loan portfolio, were accounted for as PCD loans. The gross contractual amounts receivable of PCD loans, inclusive of all principal and interest, was $13.8 million, including $2.1 million of loans previously charged off by RCB. The Company’s best estimate of the contractual principal and interest cash flows for PCD loans not expected to be collected was $4.5 million, including $2.1 million of loans previously charged off by RCB.

The following table provides a summary of PCD loans purchased as part of the RCB acquisition as of the acquisition date:

Commercial

Commercial real estate non-owner occupied

Residential real estate

Consumer

Total

Unpaid principal balance

$

12,079

$

220

$

843

$

3

$

13,145

PCD allowance for credit loss at acquisition

(2,257)

(2)

(215)

(2,474)

(Discount) premium on acquired loans

(787)

19

(5)

(773)

Loans previously charged-off by RCB

(2,051)

(3)

(2,054)

Purchase price of PCD loans

$

6,984

$

237

$

623

$

$

7,844

The Company has determined that it is impractical to report the amounts of revenue and earnings of legacy RCB since the acquisition date due to the integration of certain processes occurring shortly after the acquisition date. Such amounts would require significant estimates that cannot be objectively made.

Bank of Jackson Hole

On October 1, 2022, the Company completed its acquisition of Bancshares of Jackson Hole, Incorporated, the bank holding company forof Wyoming-based Bank of Jackson Hole with operations in Wyoming and Idaho. The acquisition added 12 banking centers and expanded the Company’s footprint into Wyoming and Idaho. The combined holding company will operate under the National Bank Holdings Corporation name.Hole. Pursuant to the merger agreement executed in March 2022, the Company paid $51.0 million of cash consideration and issued 4,391,964 shares of the Company’s Class A common stock in exchange for all of the outstanding common stock of BOJH. The cash paid is included in cash and due from banks in the Company’s consolidated statementsBancshares of financial condition at September 30, 2022.Jackson Hole. The transaction had a value ofwas valued at $213.4 million in the aggregate, based on the Company’s closing price of $36.99 on September 30,

43 2022. The acquisition added 12 banking centers with operations in Wyoming and Idaho. Immediately following the closing of the acquisition, BOJH sold substantially of all its assets and liabilities to NBH Bank, with the exception of assets and liabilities related to its trust business. Effective October 1, 2022, BOJH was renamed as Bank of Jackson Hole Trust.

BOJH acquisition-related costs totaled $24.5 million for the year ended December 31, 2022, including a Day 1 CECL provision expense of $16.3 million. The results of BOJH are included in the results of the Company subsequent to the acquisition date.

44

The table below summarizes preliminary net assets acquired (at fair value) and consideration transferred in connection with the BOJH acquisition:

October 1, 2022

Assets:

Cash and due from banks

$

40,509

Investment securities

203,728

Non-marketable securities

3,104

Loans, net

1,185,699

Loans held for sale

504

Premises and equipment

30,318

Core deposit and other intangibles

30,696

Other assets

31,970

Total assets acquired

1,526,528

Liabilities:

Total deposits

1,375,593

Long-term debt

39,229

Fed funds purchased

25

Other liabilities

9,483

Total liabilities assumed

1,424,330

Identifiable net assets acquired

$

102,198

Consideration:

NBHC common stock paid, closing price of $36.99 on September 30, 2022

$

162,459

Cash

50,989

Total

213,448

Goodwill

$

111,250

In connection with the BOJH acquisition, the Company recorded $111.3 million of goodwill. The amount of goodwill recorded reflects the expanded market presence, synergies and operational efficiencies that are expected to result from the acquisition. The Company transferred $75.3 million of available-for-sale securities to held-to-maturity as of Day 1. The following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Cash and due from banks—The carrying amount of these assets was deemed a reasonable estimate of fair value based on the short-term nature of these assets.

Investment securities— The investment securities portfolio was fair valued on Day 1 utilizing third-party pricing services. A portion of the investment securities portfolio was sold upon acquisition, and the remaining securities were transferred to held-to-maturity.

Loans, netThe fair value of loans were based on a discounted cash flow methodology that considered the loans’ underlying characteristics including account type, remaining terms of loan, annual interest rates or coupon, interest types, past delinquencies, timing of principal and interest payments, current market rates, loan to value ratios, loss exposure and remaining balance. The discount rates applied were based upon a build-up approach considering the alternative cost of funds, capital charges, servicing costs, and a liquidity premium. Loans were aggregated according to similar characteristics when applying the valuation method.

Core deposit and other intangibles—The Company recorded a core deposit intangible asset of $29.4 million and a wealth management intangible of $1.3 million. The core deposit intangible was valued utilizing a discounted cash flow methodology based upon assumptions regarding retained balances, such as account retention rate and growth rates, interest expense including maintenance costs, and alternative costs of funding. The discount rate applied is consistent to that applied to loans above. The fair value for the wealth management client relationships intangible was based on a multi-period excess earnings method (“MPEEM”), which utilized a contributory asset analysis to ascertain a fair return on investment of all the assets used in the production of income associated with the specific intangible asset. The sum of the resulting net, or excess, earnings attributable to the client relationships was then discounted to present value utilizing an appropriate discount rate.

45

The core deposit intangible and wealth management intangible will be amortized straight-line over ten years.

Deposits—By definition, the fair value of demand and saving deposits equals the amount payable. For time deposits acquired, the Company utilized an income approach, discounting the contractual cash flows on the instruments over their remaining contractual lives at prevailing market rates.

Long-term debt—The Company fair valued the subordinated debt using a market interest rate based on similar securities at acquisition date. The Company modeled out the future cash flows over the term of the debt using the forward interest rate curve at acquisition date, and then discounted the cash flows using rates from similar transactions at or near acquisition date.

The fair value of the acquired assets and liabilities noted in the table may change during the provisional period, which may last up to twelve months subsequent to the acquisition date. The Company may obtain additional information to refine the valuation of the acquired assets and liabilities and adjust the recorded fair value.

Accounting for acquired loans

A Day 1 CECL allowance for credit losses on the non-PCD loans was recorded through provision for credit loss expense within the consolidated statements of operations. At the date of acquisition, of the $1.2 billion of loans acquired from BOJH, $13.9 million, or 1.1% of BOJH’s loan portfolio, were accounted for as PCD loans. The gross contractual amounts receivable of PCD loans, inclusive of all principal and interest, was $14.0 million, including $0.5 million of loans previously charged off by BOJH. The Company’s best estimate of the contractual cash flows for PCD loans not expected to be collected was $3.8 million.

The following table provides a summary of PCD loans purchased as part of the BOJH acquisition as of the acquisition date:

Commercial

Commercial real estate non-owner occupied

Residential real estate

Consumer

Total

Unpaid principal balance

$

5,061

$

8,353

$

476

$

12

$

13,902

PCD allowance for credit loss at acquisition

(151)

(3,557)

(55)

(1)

(3,764)

(Discount) premium on acquired loans

(336)

(226)

(16)

(578)

Purchase price of PCD loans

$

4,574

$

4,570

$

405

$

11

$

9,560

The Company has determined that it is impractical to report the amounts of revenue and earnings of legacy BOJH since the acquisition date due to the integration of certain processes occurring shortly after the acquisition date. Such amounts would require significant estimates that cannot be objectively made.

Unaudited Pro forma information

The following unaudited pro forma information combines the historical results of RCB, BOJH and the Company. The pro forma financial information does not include the potential impacts of possible business model changes, current market conditions, revenue enhancements, expense efficiencies, or other factors. If the RCB and BOJH acquisitions had been completed on January 1, 2021, pro forma total revenue for the Company would have been approximately $419.1 million for the year ended December 31, 2022. Pro forma net income for the Company would have been approximately $120.5 million for the year ended December 31, 2022. For the year ended December 31, 2022, pro forma basic and diluted earnings per share for the Company would have been $3.19 and $3.17, respectively. For the year ended December 31, 2022, the pro forma information reflects adjustments made to exclude acquisition-related expenses of the Company totaling $36.8 million and estimated acquisition-related expenses incurred by RCB and BOJH acquisition-related costsprior to the acquisition date totaling $4.9 million. Day 1 provision expense was included in 2022 to reflect the assumption of the acquisition timing noted above. Adjustments also included estimated net accretion of loan and investment marks of $8.8 million for the year ended December 31, 2022, estimated net amortization of fair value marks on long term debt of $0.2 million for the year ended December 31, 2022, estimated accretion of fair value marks on time deposits of $0.2 million for the year ended December 31, 2022, and estimated amortization of acquired identifiable intangibles of $3.3 million for the year ended December 31, 2022.

46

The pro forma information is theoretical in nature and $3.9 million were included in the Company’snot necessarily indicative of future consolidated statementsresults of operations forof the threeCompany or the consolidated results of operations which would have resulted had the Company acquired RCB and nine months ended September 30, 2022, respectively.BOJH during the periods presented.

WithNote 20 Subsequent Events

In April 2023, NBH Bank acquired StoneCastle Digital Solutions, LLC, a subsidiary of StoneCastle Partners, LLC. Upon closing, the completionlegal name of the BOJHacquired entity was changed to Camber Solutions, LLC (“Cambr”). Cambr is a unique deposit acquisition and RCB acquisitions,processing platform that generates core deposits from accounts offered through embedded finance companies. The acquisition allows the Company to grow core deposits thereby providing a unique source of liquidity and a diversification of our funding capabilities while lowering funding costs. As of April 30, 2023, NBH Bank has added $0.5 billion of Cambr deposits to its balance sheet and utilized the funds to pay down $0.5 billion of FHLB advances.

Additionally, on May 9, 2023, the Company’s Board of Directors authorized a new program to repurchase up to $50.0 million of the Company’s common stock from time to time either in the open market or in privately negotiated transactions in accordance with applicable regulations of the Securities and Exchange Commission. To date, the Company has approximately $9.4 billionrepurchased $36.4 million of its previously authorized $75.0 million stock repurchase program announced in pro-forma assets, including $6.9 billionFebruary 2021. The new program of $50.0 million replaces this previously authorized program in total loans, $8.2 billion in total deposits and $0.8 billion in assets under management as of September 30, 2022.its entirety.

44

47

Item 2: MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following management's discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes as of and for the three and nine months ended September 30, 2022,March 31, 2023, and with our annual report on Form 10-K (file number 001-35654), which includes our audited consolidated financial statements and related notes as of and for the years ended December 31, 2022, 2021 2020 and 2019.2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that may cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” located elsewhere in this quarterly report and in Item 1A“Risk1A “Risk Factors” in the annual report on Form 10-K, referenced above, and should be read herewith.

All amounts are in thousands, except share and per share data, or as otherwise noted.

Overview

Our focus is on building relationships by creating a win-win scenario for our clients and our Company. We believe in providing solutions and services to our clients that are based on fairness and simplicity. We have established a solid financial services franchise with a sizable presence for deposit gathering and building client relationships necessary for growth. We are executing on strategic acquisition opportunities to expand our presence in attractive markets and to diversify our revenue streams. Additionally, we are innovating and building strategic fintech partnerships with the goal of delivering a comprehensive digital financial ecosystem for our clients. We are focused on providing small and medium-sized businesses with alternative digital access to address borrowing, depository and cash management needs, while also providing information management and access to blockchaindigital payment tools, under the safety of a regulated bank. We believe that our established presence in our core markets of Colorado, the greater Kansas City region, Utah, Wyoming, Texas, New Mexico and Idaho, as well as our ongoing investment in digital and blockchain solutions and strategic acquisitions position us well for growth opportunities. As of September 30, 2022,March 31, 2023, we had $7.9$9.9 billion in assets, $5.7$7.3 billion in loans, $6.8$7.6 billion in deposits, and $0.9$1.1 billion in equity.equity and $0.8 billion in assets under management in our trust and wealth management business.

Operating Highlights and Key Challenges

On September 1, 2022, the Company completed its acquisition of Community Bancorporation, the holding company for Rock Canyon Bank, headquartered in Provo, Utah. At the close of the acquisition, the Company acquired seven banking centers in the greater Salt Lake City region. The acquisition added approximately $832.2 million in total assets, $537.7 million in loans and $734.5 million in deposits. The merger consideration totaled $140.4 million and consisted of $124.3 million in Company stock and $16.1 million in cash. All core operating systems were converted in October.   Recent industry concerns

On October 1, 2022, the Company completed its acquisition of Bancshares of Jackson Hole Incorporated, the holding company for Bank of Jackson Hole, with operations in Jackson Hole, Wyoming and Idaho. At the close of the acquisition, the Company acquired 12 banking centers. The acquisition added approximately $1.5 billion in total assets, $1.2 billion in loans and $1.4 billion in deposits and an attractive Wyoming-based trust and wealth management business with $0.8 billion in assets under management. The merger consideration totaled $213.4 million and consisted of $162.5 million in Company stock and $51.0 million in cash. All core operating systems will be converted during the fourth quarter of 2022.

We have built a granular and relationship-focused deposit base and our investment securities portfolio has a short average duration and is primarily comprised of government guaranteed mortgage-backed securities.

Our deposit base has no exposure to venture capital or crypto deposits.

Approximately 70% of our deposits are FDIC insured.

Our growth in the last few years has primarily been the result of strategic acquisitions consistent with our long-term business plan.

We do not originate high-dollar non-amortizing or balloon payment mortgage loans to our clients.

Profitability and returns

    

Net income totaled $54.6was a record $40.3 million, or $1.77$1.06 per diluted share, for the nine months ended September 30, 2022,first quarter of 2023, increasing $21.9 million compared to net incomethe first quarter of $70.8 million, or $2.27 per diluted share,2022.

Return on average tangible assets increased 73 basis points to a record 1.80% for the same period in the prior year. Adjusting for $13.6 millionfirst quarter of non-recurring expenses related2023, compared to the previously announced acquisitionsfirst quarter of Bank of Jackson Hole and Rock Canyon Bank, including $5.4 million for2022. Return on average tangible common equity totaled a CECL Day 1 provision expense, net income totaled $65.0 million, or $2.11 per diluted share,record 20.86% for the nine months ended September 30,first quarter of 2023, compared to 10.31% for the first quarter of 2022.

    

The return on average tangible assets was 1.03%1.80% for the nine months ended September 30, 2022,first quarter of 2023, compared to 1.39%1.07% for the same period in the prior year. Adjusting for non-recurring acquisition-related expenses, the return on average tangible assets for the nine months ended September 30, 2022 was 1.23%.first quarter of 2022.

45

    

The return on average tangible common equity was 10.17%20.9% for the nine months ended September 30, 2022,first quarter of 2023, compared to 13.04%10.3% for the same period in the prior year. Adjusting for non-recurring acquisition-related expenses, the return on average tangible common equity for the nine months ended September 30, 2022 was 12.10%.first quarter of 2022.

48

Strategic execution

Completed the acquisition of Community Bancorporation, the holding company for RCB, on September 1, 2022, further expanding our presenceCambr Solutions, LLC in the Salt Lake City region. Additionally, the Company became the #1 SBA lender by loan volumeApril 2023, a business-to-business-to-consumer modeled subsidiary that provides granular and diversified cash deposits in the statea cost-efficient manner. Cambr administers approximately $1.7 billion of Utah.

On October 1, 2022, the acquisition of BOJH, located in the fast-growing Wyoming and Boise markets, was closed. BOJH had $1.5 billion in assets, $1.2 billion in loans, $1.4 billion in deposits and a favorable Wyoming-domiciled trust business with $0.8 billion in assets under management at the acquisition date.

With the completion of these exclusively negotiated transactions, NBHC has approximately $9.4 billion in pro forma assets, $6.9 billion in total loans, $8.2 billion in total deposits and $0.8 billion in assets under management measured as of September 30, 2022.comprising more than 500,000 FDIC-insured cash accounts.

Continued to invest in digital solutions for our clients through our financial eco-system, 2UniFiSM, for small and medium-sized businesses that we believe will increase access to financial services while reducing the costs of banking services.

Maintained a conservatively structured loan portfolio represented by diverse industries and concentrations with most industry sector concentrations at 5%15% or less of total loans, and all concentration levels remain well below our self-imposed limits.

Loan portfolio

Generated record organic loan growth of 30.2%Total loans ended the quarter at $7.3 billion increasing $124.8 million, or 7.0% annualized, fueled by record year-to-date loan fundings.

New loan fundings over the trailing 12 months totaled a record $2.0 billion, led by commercial loan fundings of $1.3 billion. The RCB acquisition added loans totaling $537.7 million on September 1,since December 31, 2022.

Total loans ended theGenerated first quarter at $5.7 billion increasing $1.2 billion, or 35.8% annualized, since December 31, 2021.loan fundings totaling $393.9 million with a weighted average new loan origination rate of 7.9%.

Credit quality

Allowance for credit losses totaled 1.15%1.23% of total loans at September 30, 2022,March 31, 2023, compared to 1.10%1.24% at December 31, 2021.2022.

TheDuring the three months ended March 31, 2023, the Company recorded an increase in the allowancea provision expense for credit losses of $17.0$0.9 million, forcompared to a provision release of $0.3 million during the ninethree months ended September 30, 2022, which included a Day 1 CECL allowance reserve of $5.2 million for the acquired RCB loan portfolio and a $2.5 million credit allowance for Day 1 PCD loans. The remainder of the provision expense was driven by record loan growth and higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast. For the nine months ended September 30, 2021, the Company recorded an allowance for credit loss release of $9.4 million.March 31, 2022.

Net charge-offs to average total loans for the ninethree months ended September 30, 2022March 31, 2023 totaled 0.03%,0.01% annualized, compared to 0.03% for the full year ended December 31, 2021.2022.

Credit quality remained strong, as non-performing loans (comprised of non-accrual loans and non-accrual TDRs)modified loans) at March 31, 2023 totaled 0.26%a record low 0.13% of total loans, compared to 0.24%0.23% at December 31, 2021.2022. Non-performing assets to total loans and OREO improved to 0.32%0.18% at September 30,March 31, 2022, compared to 0.39%0.28% at December 31, 2021.2022.

Client deposit funded balance sheet

Average transaction deposits for the nine months ended September 30, 2022first quarter of 2023 increased 8.2%26.1% to $5.5$6.8 billion, compared to $5.1$5.4 billion for the same period in the prior year. Compared to the fourth quarter of 2022, average transaction deposits decreased $318.0 million, or 4.5% during the first quarter of 2023.

    

Average total deposits totaled $6.3for the first quarter of 2023 increased 24.2% to $7.7 billion, compared to the first quarter of 2022. Compared to the fourth quarter of 2022, average total deposits decreased $287.6 million, or 3.6% during the nine months ended September 30, 2022, increasing 4.7%, compared to $6.0 billion for the same period in the prior year.first quarter of 2023.

The mix of transaction deposits to total deposits improved 120decreased 180 basis points to 87.7%87.1% at September 30, 2022, compared to 86.5% at DecemberMarch 31, 2021. The Rock Canyon Bank acquisition added $734.5 million of total deposits, including $653.0 million of transaction deposits and $81.5 million of time deposits on September 1, 2022.2023 from last quarter.

Cost of deposits totaled 0.17%0.58%, increasing 41 basis points, compared to March 31, 2022 due to an increase in the Fed Funds rate between periods. Compared to the fourth quarter of 2022, cost of deposits increased 0.25% during the nine months ended September 30, 2022, compared to 0.24% for the same period in the prior year.first quarter of 2023.

46

Revenues

Fully taxable equivalent (“FTE”) net interest income totaled $175.8$96.3 million duringfor the ninefirst quarter of 2023 and increased $48.3 million, or 100.7%, compared to the first quarter of 2022.

The FTE net interest margin widened 149 basis points to 4.39% for the three months ended September 30, 2022, increasing $34.3 million, or 24.2%,March 31, 2023, compared to the same period in the prior year.

The FTE net interest margin widened 52year benefitting from a 216 basis pointspoint increase in earning asset yields to 3.44% for the nine months ended September 30, 2022, as compared to the same period5.24% partially offset by an increase in the prior year. The yield on earning assets increased 48 basis points, led by the remixcost of assets into higher-yielding loan balances and multiple increases in the federal funds rate since March 2022.funds. The cost of funds decreased fiveincreased 71 basis points to 0.19%0.90% for the ninethree months ended September 30, 2022,March 31, 2023, compared to the same period in the prior year.

Non-interest income totaled $53.2$14.7 million during the ninethree months ended September 30, 2022,March 31, 2023, compared to $87.1$19.1 million for the same period in 2021, primarily due tothree months ended March 31, 2022, driven by lower mortgage banking income from reduceddue to lower refinance activity and competition driving tighter gain on sale margins for mortgage loans sold inmargins.

Service charges and bank card fees increased a combined $0.9 million during the secondary market.three months ended March 31, 2023, compared to the first quarter of 2022.

49

Expenses

    

Non-interest expense totaled $143.6$58.3 million during the ninethree months ended September 30, 2022,March 31, 2023, representing a decreasean increase of $3.8$14.2 million, or 2.5%32.2%, compared to the ninethree months ended September 30, 2021, primarilyMarch 31, 2022 largely driven by an increase in core operating expenses due to lower salaries and benefits from lower mortgage banking-related compensation.

our 2022 acquisitions. Included in non-interest expense was $1.7 million higher FDIC deposit insurance expense in the first nine monthsquarter of 2022 were $13.6 million2023 as a result of non-recurring acquisition-related expenses, including $5.4 million of CECL Day 1 provision expense for credit losses, $5.6 million of professional fees, $0.8 million of salariesour recent acquisitions and benefits, $0.6 million of telecommunications and data processing expense, $0.5 million of occupancy and equipment expense and $0.7 million in other non-interest expensean increase in the consolidated statements of operations.FDIC assessment rate effective January 2023.

The FTE efficiency ratio, excluding core deposit and wealth management intangible amortization, during the ninethree months ended September 30, 2022March 31, 2023 totaled 62.69%53.2%, compared to 64.43%57.1% during the nine monthsyear ended September 30, 2021. Adjusting for CDI asset amortization and non-recurring acquisition-related expenses, the FTE efficiency ratio improved 538 basis points to 58.66% during the nine months ended September 30, 2022, compared to the same period in the prior year.December 31, 2022.

Income tax expense totaled $12.0$10.1 million during the ninethree months ended September 30, 2022,March 31, 2023, compared to $16.1$3.6 million during the ninethree months ended September 30, 2021.March 31, 2022 driven by higher pre-tax income. The effective tax rate for the nine months ended September 30, 2022first quarter 2023 was 18.0%20.0%, compared to 18.5%17.3% for the nine months ended September 30, 2021.full year 2022.

Strong capital position

    

Capital ratios continue to be strong and in excess of federal bank regulatory agency “well capitalized” thresholds. As of September 30, 2022,March 31, 2023, our consolidated tier 1 leverage ratio was 10.45%,9.46% and our consolidated common equity tier 1 and consolidated tier 1 risk based capital ratio was 12.75%ratios were 11.32%.

    

At September 30, 2022,March 31, 2023, common book value per share was $27.70.$30.12. The tangible common book value per share decreased $1.93increased $1.13 during the first quarter to $22.40$21.76 at September 30, 2022 compared to DecemberMarch 31, 20212023, as the quarter’s earnings net of dividends paid, were outpaced bythe quarterly dividend and benefitted from a $2.48 increase$0.25 per share decrease in accumulated other comprehensive loss and the issuance of shares for the RCB acquisition. Excluding accumulated other comprehensive loss, the tangible book value per share increased $0.54 to $25.10 at September 30, 2022.loss.

Key Challenges

There are a number of significant challenges confronting us and our industry. WeLiquidity within the financial services sector has tightened within recent months, and we expect intense competition for deposits throughout our markets. Additionally, we face continual challenges implementing our business strategy. These include growing our assets, particularly loans, and deposits amidst intense competition, changing interest rates, adhering to changes in the regulatory environment and identifying and consummating disciplined acquisition and other expansionary opportunities in a very competitive and inflationary environment.

The COVID-19 pandemic has caused disruption to the U.S. labor market, supply chain, consumer spending and business operations. The prolonged economic impacts from the pandemic, including inflationary pressures and demand for labor, are likely to continue to present challenges to our business and to our clients.

We are focused on growing our loan portfolio while adhering to our established underwriting standards and self-imposed concentration limits. A significant portion of our loan portfolio is secured by real estate and any deterioration in real estate values or credit quality or elevated levels of non-performing assets would ultimately have a negative impact on the quality of our loan portfolio.

47

The agriculture industry continues to be impacted by elevatedrepurchase or indemnification demands or indemnification as a result of self-reporting of identified errors in our mortgage loan portfolio. For instance, as part of our normal review process, we have discovered irregularities in mortgage loan applications in one of our offices that has prompted an investigation. Our investigation is not yet complete, and volatile commodity priceswe can give no assurances whether or not its outcome will materially and intermittent disruptions in supply chains. Our food and agribusiness portfolio is only 5.9% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.8% of total loans. We have maintained relationships with food and agribusiness clients that generally possess low leverage and, correspondingly, low bank debt to assets, minimizing any potential credit losses in the future.adversely affect our business or financial condition or results.

Future growth in our interest income will ultimately be dependent on our ability to originate high-quality loans and other high-quality earning assets such as investment securities as well as our ability to access liquidity and manage our cost of funds. Liquidity is monitored and managed to ensure that sufficient funds are available to meet our business needs. Management believes that the Company's excess cash, borrowing capacity and access to sufficient sources of capital are adequate to meet our short-term and long-term liquidity needs in the foreseeable future. We anticipate having access to other third party funding sources, including the ability to raise funds through FHLB advances, issuance of debt, federal funds purchased and the issuance of shares of our common stock or other equity or equity-related securities.

Cash balances total $0.3 billion$369.7 million as of September 30, 2022March 31, 2023 and have decreased $589.5increased $174.2 million from December 31, 20212022 and $551.2decreased $416.7 million from September 30, 2021.March 31, 2022. Investment securities totaled $1.3 billion as of September 30, 2022March 31, 2023 and increased $36.2decreased $24.4 million, or 2.8%1.8%, compared to December 31, 2021.2022. As of September 30, 2022,March 31, 2023, our loans outstanding totaled $5.7$7.3 billion, increasing $1.2 billion,$124.8 million, or 26.8%1.7%, compared to December 31, 2021.2022. During 2022,2023, our weighted average rate on new loans funded at the time of origination was 4.80%7.5%, which was higher compared to the weighted average yield offrom our originated loan portfolioloans of 4.30% (FTE).5.8% during the same period. During the ninethree months ended September 30, 2022,March 31, 2023, the Federal Reserve increased prevailing interest rates by a total of 30050 basis points. Our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions.

We maintain a granular and well diversified deposit base with no exposure to venture capital or crypto deposits. Approximately 70% of our deposits were FDIC insured as of March 31, 2023. Average total deposits were $7.7 billion during the first quarter of 2023,

50

compared to $8.0 billion during the fourth quarter of 2022. The mix of transaction deposits to total deposits was 87.1% at March 31, 2023. Cost of deposits totaled 0.58% at March 31, 2023, and our total cost of funds was 0.90%.

Continued regulation, impending new liquidity and capital constraints, increased FDIC insurance costs, and a continual need to bolster cybersecurity are adding costs and uncertainty to all U.S. banks and could affect profitability. Also, nontraditional participants in the market may offer increased competition as non-bank payment businesses, including fintechs, are expanding into traditional banking products. While certain external factors are out of our control and may provide obstacles to our business strategy, we are prepared to deal with these challenges and expand our offerings in digital technology, including by partnering with and investing in fintechs where appropriate. We seek to remain flexible, yet methodical and proactive, in our strategic decision making so that we can quickly respond to market changes and the inherent challenges and opportunities that accompany such changes.

48

51

Performance Overview

In evaluating our consolidated statements of financial condition and results of operations financial statement line items, we evaluate and manage our performance based on key earnings indicators, balance sheet ratios, asset quality metrics and regulatory capital ratios, among others. The table below presents some of the primary performance indicators that we use to analyze our business on a regular basis for the periods indicated:

Key Metrics(1)

As of and for the three months ended

As of and for the nine months ended

As of and for the three months ended

September 30, 

December 31, 

September 30, 

September 30, 

September 30, 

March 31, 

December 31, 

March 31, 

2022

2021

2021

  

2022

  

2021

2023

2022

2022

Return on average assets

 

 

0.84%

 

1.26%

 

1.11%

1.00%

1.36%

 

 

1.70%

 

0.70%

 

1.04%

Return on average tangible assets(2)

 

 

0.87%

 

1.30%

 

1.14%

1.03%

1.39%

 

 

1.80%

 

0.77%

 

1.07%

Return on average tangible assets, adjusted(2)(10)

1.39%

1.30%

1.14%

1.23%

1.39%

Return on average tangible assets, adjusted(2)(3)

1.80%

1.55%

1.07%

Return on average equity

 

 

7.22%

 

10.64%

 

9.15%

8.64%

11.20%

 

 

14.60%

 

6.13%

 

8.84%

Return on average tangible common equity(2)

 

 

8.66%

 

12.37%

 

10.65%

10.17%

13.04%

 

 

20.86%

 

9.17%

 

10.31%

Return on average tangible common equity, adjusted(2)(10)

13.76%

12.37%

10.65%

12.10%

13.04%

Loan to deposit ratio (end of period)

84.10%

72.47%

72.08%

84.10%

72.08%

Return on average tangible common equity, adjusted(2)(3)

20.86%

18.37%

10.31%

Loan to deposit ratio (end of period)(10)

96.88%

91.72%

73.44%

Non-interest bearing deposits to total deposits (end of period)

 

 

40.21%

 

40.24%

 

39.89%

40.21%

39.89%

 

 

38.53%

 

39.82%

 

40.14%

Net interest margin(3)(4)

 

 

3.93%

 

2.95%

 

2.85%

3.36%

2.84%

 

 

4.32%

 

4.32%

 

2.82%

Net interest margin FTE(4)(5)

 

 

4.01%

 

3.03%

 

2.93%

3.44%

2.92%

 

 

4.39%

 

4.39%

 

2.90%

Interest rate spread FTE(5)(6)

 

 

3.86%

 

2.89%

 

2.78%

3.31%

2.75%

 

 

3.83%

 

4.09%

 

2.78%

Yield on earning assets(6)(7)

 

 

4.11%

 

3.13%

 

3.04%

3.54%

3.07%

 

 

5.17%

 

4.72%

 

3.00%

Yield on earning assets FTE(6)(7)

 

 

4.19%

 

3.21%

 

3.12%

3.62%

3.14%

 

 

5.24%

 

4.79%

 

3.08%

Cost of interest bearing liabilities

 

 

0.33%

 

0.32%

 

0.34%

0.31%

0.39%

 

 

1.41%

 

0.70%

 

0.30%

Cost of deposits

 

 

0.18%

 

0.18%

 

0.21%

0.17%

0.24%

 

 

0.58%

 

0.33%

 

0.17%

Non-interest income to total revenue FTE(4)(5)

19.76%

31.37%

36.85%

23.22%

38.11%

13.22%

12.78%

28.43%

Non-interest expense to average assets

 

 

2.87%

 

2.47%

 

2.86%

2.63%

2.82%

 

 

2.46%

 

2.84%

 

2.49%

Efficiency ratio

62.39%

61.22%

67.44%

63.83%

65.53%

53.21%

61.96%

67.08%

Efficiency ratio FTE(2)(4)

 

 

61.39%

 

60.14%

 

66.29%

62.69%

64.43%

Efficiency ratio FTE, adjusted(2)(4)(10)

52.99%

59.74%

65.91%

58.66%

64.04%

Efficiency ratio excluding other intangible assets amortization FTE(2)(3)(5)

51.30%

53.76%

65.32%

Pre-provision net revenue

$

32,511

$

28,196

$

24,777

$

81,371

$

77,482

$

51,262

$

41,542

$

21,633

Pre-provision net revenue FTE(2)

 

 

33,920

 

29,495

 

26,092

85,429

81,344

Pre-provision net revenue FTE adjusted for acquisition-related expense(2)(10)

40,916

29,495

26,092

93,685

81,344

Pre-provision net revenue FTE(2)(5)

 

 

52,676

 

42,996

 

22,946

Pre-provision net revenue FTE adjusted for acquisition-related expense(2)(3)(5)

52,676

49,807

22,946

Total Loans Asset Quality Data(7)(8)(9)

Total Loans Asset Quality Data(8)(9)(10)

Non-performing loans to total loans

 

 

0.26%

 

0.24%

 

0.29%

0.26%

0.29%

 

 

0.13%

 

0.23%

 

0.24%

Non-performing assets to total loans and OREO

 

 

0.32%

 

0.39%

 

0.39%

0.32%

0.39%

 

 

0.18%

 

0.28%

 

0.35%

Allowance for credit losses to total loans

 

 

1.15%

 

1.10%

 

1.11%

1.15%

1.11%

 

 

1.23%

 

1.24%

 

1.04%

Allowance for credit losses to non-performing loans

 

 

447.72%

 

458.77%

 

382.59%

447.72%

382.59%

 

 

946.40%

 

542.35%

 

440.01%

Net charge-offs to average loans

 

 

0.01%

 

0.02%

 

0.02%

0.03%

0.03%

 

 

0.01%

 

0.04%

 

0.05%

(1)

    

Ratios are annualized.

(2)

    

Ratio represents non-GAAP financial measure. See non-GAAP reconciliations below.

(3)

Ratios are adjusted for acquisition-related expenses. See non-GAAP reconciliation below.

(4)

Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.

(4)(5)

Presented on an FTE basis using the statutory rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,409, $1,299$1,414, $1,454 and $1,315$1,313 for the three months ended September 30, 2022,March 31, 2023, December 31, 2021 and September 30, 2021, respectively. The taxable equivalent adjustments included above are $4,058 and $3,862 for the nine months ended September 30, 2022 and September 30, 2021,March 31, 2022, respectively.

(5)(6)

Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.

(6)(7)

Interest earning assets include assets that earn interest/accretion or dividends. Any market value adjustments on investment securities are excluded from interest earninginterest-earning assets.

(7)(8)

Non-performing loans consist of non-accruing loans and restructured loans on non-accrual.

(8)(9)

Non-performing assets include non-performing loans and OREO.

(9)(10)

Total loans are net of unearned discounts and fees.

(10)

Ratios are adjusted for acquisition-related expenses. See non-GAAP reconciliation below.

49

52

About Non-GAAP Financial Measures

Certain of the financial measures and ratios we present, including “tangible assets,” “average tangible assets,” “return on average tangible assets,” “tangible common equity,” “tangible common equity to tangible assets,” “return on average tangible common equity,” “tangible common book value,” “tangible common book value per share,” “tangible common equity to tangible assets,” “tangible common book value, excluding accumulated other comprehensive loss, net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “adjusted non-interest expense,” “non-interest expense to average assets, adjusted,” “adjusted net income,” “adjusted net income excluding core deposit intangible amortization expense, after tax,” “adjusted earnings per share - diluted,” “adjusted return on average tangible assets,” “adjusted return on average tangible common equity,” “non-interest expense adjusted for CDIintangible asset amortization and acquisition-related expenses,” “non-interest expense adjusted for acquisition-related expenses,” “efficiency ratio adjusted for CDIother intangible assets amortization and acquisition-related expenses,” “pre-provision net revenue,” “pre-provision net revenue adjusted for acquisition-related expenses,” “tangible common book value, excluding accumulated other comprehensive loss (income), net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss (income), net of tax,” “adjusted net income excluding CDIother intangible assets amortization expense, after tax”tax,” “net income adjusted for the impact of other intangible assets amortization expense and acquisition-related expenses, after tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” and “fully taxable equivalent” metrics, are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expensesexpenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on an FTE basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

50

A reconciliation of our GAAP financial measures to the comparable non-GAAP financial measures is as follows:

53

Tangible Common Book Value Ratios

September 30, 

December 31, 

September 30, 

March 31, 

December 31, 

March 31, 

    

2022

    

2021

    

2021

    

2023

    

2022

    

2022

Total shareholders’ equity

$

919,426

$

840,106

$

844,716

Less: goodwill and CDI assets, net

 

(186,608)

 

(121,392)

 

(121,688)

Total shareholders' equity

$

1,133,727

$

1,092,202

$

820,215

Less: goodwill and other intangible assets, net

 

(325,828)

 

(327,191)

 

(121,096)

Add: deferred tax liability related to goodwill

 

10,755

 

10,070

 

9,841

 

11,212

 

10,984

 

10,298

Tangible common equity (non-GAAP)

$

743,573

$

728,784

$

732,869

$

819,111

$

775,995

$

709,417

Total assets

$

7,922,921

$

7,214,011

$

7,100,991

$

9,917,223

$

9,573,243

$

7,341,512

Less: goodwill and CDI assets, net

 

(186,608)

 

(121,392)

 

(121,688)

Less: goodwill and other intangible assets, net

 

(325,828)

 

(327,191)

 

(121,096)

Add: deferred tax liability related to goodwill

 

10,755

 

10,070

 

9,841

 

11,212

 

10,984

 

10,298

Tangible assets (non-GAAP)

$

7,747,068

$

7,102,689

$

6,989,144

$

9,602,607

$

9,257,036

$

7,230,714

Tangible common equity to tangible assets calculations:

Total shareholders' equity to total assets

 

11.60%

 

11.65%

 

11.90%

 

11.43%

 

11.41%

 

11.17%

Less: impact of goodwill and CDI assets, net

 

(2.00)%

 

(1.39)%

 

(1.41)%

Less: impact of goodwill and other intangible assets, net

 

(2.90)%

 

(3.03)%

 

(1.36)%

Tangible common equity to tangible assets (non-GAAP)

 

9.60%

 

10.26%

 

10.49%

 

8.53%

 

8.38%

 

9.81%

Tangible common book value per share calculations:

Tangible common equity (non-GAAP)

$

743,573

$

728,784

$

732,869

$

819,111

$

775,995

$

709,417

Divided by: ending shares outstanding

 

33,189,253

 

29,958,764

 

30,288,131

 

37,641,381

 

37,608,519

 

30,008,781

Tangible common book value per share (non-GAAP)

$

22.40

$

24.33

$

24.20

$

21.76

$

20.63

$

23.64

Tangible common book value per share, excluding accumulated other comprehensive loss calculations:

Tangible common equity (non-GAAP)

$

743,573

$

728,784

$

732,869

$

819,111

$

775,995

$

709,417

Accumulated other comprehensive loss, net of tax

 

89,339

 

6,963

 

1,397

 

78,627

 

88,204

 

38,633

Tangible common book value, excluding accumulated other comprehensive loss, net of tax (non-GAAP)

 

832,912

 

735,747

 

734,266

 

897,738

 

864,199

 

748,050

Divided by: ending shares outstanding

 

33,189,253

 

29,958,764

 

30,288,131

 

37,641,381

 

37,608,519

 

30,008,781

Tangible common book value per share, excluding accumulated other comprehensive loss, net of tax (non-GAAP)

$

25.10

$

24.56

$

24.24

$

23.85

$

22.98

$

24.93

51

54

Return on Average Tangible Assets and Return on Average Tangible Equity

As of and for the three months ended

As of and for the nine months ended

September 30, 

December 31, 

September 30, 

September 30, 

September 30, 

2022

2021

2021

2022

2021

Net income

$

15,839

$

22,769

$

19,825

$

54,553

$

70,837

Add: impact of CDI amortization expense, after tax

 

295

 

227

 

227

 

751

 

682

Net income excluding the impact of CDI amortization expense, after tax

$

16,134

$

22,996

$

20,052

$

55,304

$

71,519

Net income excluding impact of CDI amortization expense, after tax

$

16,134

$

22,996

$

20,052

$

55,304

$

71,519

Add: acquisition-related adjustments, after tax (non-GAAP)(1)

9,510

10,480

Net income excluding impact of CDI amortization expense adjusted, after tax (non-GAAP)(1)

$

25,644

$

22,996

$

20,052

$

65,784

$

71,519

Average assets

$

7,449,066

$

7,146,571

$

7,116,141

$

7,285,934

$

6,977,494

Less: average goodwill and CDI asset, net of deferred tax liability related to goodwill

 

(131,490)

 

(111,508)

 

(112,026)

 

(117,485)

 

(112,320)

Average tangible assets (non-GAAP)

$

7,317,576

$

7,035,063

$

7,004,115

$

7,168,449

$

6,865,174

Average shareholders' equity

$

870,849

$

848,803

$

859,245

$

844,241

$

845,776

Less: average goodwill and CDI asset, net of deferred tax liability related to goodwill

 

(131,490)

 

(111,508)

 

(112,026)

 

(117,485)

 

(112,320)

Average tangible common equity (non-GAAP)

$

739,359

$

737,295

$

747,219

$

726,756

$

733,456

Return on average assets (non-GAAP)

 

0.84%

 

1.26%

 

1.11%

 

1.00%

 

1.36%

Return on average tangible assets (non-GAAP)

 

0.87%

 

1.30%

 

1.14%

 

1.03%

 

1.39%

Adjusted return on average tangible assets (non-GAAP)

 

1.39%

 

1.30%

 

1.14%

 

1.23%

 

1.39%

Return on average equity (non-GAAP)

 

7.22%

 

10.64%

 

9.15%

 

8.64%

 

11.20%

Return on average tangible common equity (non-GAAP)

 

8.66%

 

12.37%

 

10.65%

 

10.17%

 

13.04%

Adjusted return on average tangible common equity (non-GAAP)

 

13.76%

 

12.37%

 

10.65%

 

12.10%

 

13.04%

(1) Acquisition-related adjustments:

Provision expense adjustments:

CECL day 1 provision expense (non-GAAP)

$

5,358

$

$

$

5,358

$

Non-interest expense adjustments:

Acquisition-related expenses (non-GAAP)

6,996

8,256

Acquisition-related adjustments before tax (non-GAAP)

12,354

13,614

Tax expense impact

 

(2,844)

(3,134)

Acquisition-related adjustments, after tax (non-GAAP)

$

9,510

$

$

$

10,480

$

52

    

As of and for the three months ended

March 31, 

December 31, 

March 31, 

2023

2022

2022

Net income

$

40,283

$

16,721

$

18,352

Add: impact of other intangible assets amortization expense, after tax

 

1,049

 

1,049

 

227

Net income excluding the impact of other intangible assets amortization expense, after tax (non-GAAP)

$

41,332

$

17,770

$

18,579

Net income excluding the impact of other intangible assets amortization expense, after tax

$

41,332

$

17,770

$

18,579

Add: acquisition-related adjustments, after tax (non-GAAP)(1)

17,825

Net income adjusted for the impact of other intangible assets amortization expense and acquisition-related expenses, after tax (non-GAAP)(1)

$

41,332

$

35,595

$

18,579

Average assets

$

9,619,456

$

9,443,630

$

7,174,398

Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill

 

(315,493)

 

(314,017)

 

(110,973)

Average tangible assets (non-GAAP)

$

9,303,963

$

9,129,613

$

7,063,425

Average shareholders' equity

$

1,119,118

$

1,082,840

$

841,942

Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill

 

(315,493)

 

(314,017)

 

(110,973)

Average tangible common equity (non-GAAP)

$

803,625

$

768,823

$

730,969

Return on average assets

 

1.70%

 

0.70%

 

1.04%

Return on average tangible assets (non-GAAP)

 

1.80%

 

0.77%

 

1.07%

Adjusted return on average tangible assets (non-GAAP)

 

1.80%

 

1.55%

 

1.07%

Return on average equity

 

14.60%

 

6.13%

 

8.84%

Return on average tangible common equity (non-GAAP)

 

20.86%

 

9.17%

 

10.31%

Adjusted return on average tangible common equity (non-GAAP)

 

20.86%

 

18.37%

 

10.31%

(1) Acquisition-related adjustments:

Provision expense adjustments:

CECL day 1 provision expense (non-GAAP)

$

$

16,348

$

Non-interest expense adjustments:

Acquisition-related expenses (non-GAAP)

6,811

Acquisition-related adjustments before tax (non-GAAP)

23,159

Tax expense impact

 

(5,334)

Acquisition-related adjustments, after tax (non-GAAP)

$

$

17,825

$

Fully Taxable Equivalent Yield on Earning Assets and Net Interest Margin

As of and for the three months ended

As of and for the nine months ended

    

September 30, 

December 31, 

September 30, 

September 30, 

September 30, 

2022

    

2021

    

2021

    

2022

    

2021

Interest income

$

72,369

$

52,501

$

50,801

$

180,730

$

148,464

Add: impact of taxable equivalent adjustment

 

1,409

 

1,299

 

1,315

 

4,058

 

3,862

Interest income FTE (non-GAAP)

$

73,778

$

53,800

$

52,116

$

184,788

$

152,326

Net interest income

$

69,091

$

49,486

$

47,569

$

171,769

$

137,658

Add: impact of taxable equivalent adjustment

 

1,409

 

1,299

 

1,315

 

4,058

 

3,862

Net interest income FTE (non-GAAP)

$

70,500

$

50,785

$

48,884

$

175,827

$

141,520

Average earning assets

$

6,982,048

$

6,655,918

$

6,624,047

$

6,829,975

$

6,475,934

Yield on earning assets

 

4.11%

 

3.13%

 

3.04%

 

3.54%

 

3.07%

Yield on earning assets FTE (non-GAAP)

 

4.19%

 

3.21%

 

3.12%

 

3.62%

 

3.14%

Net interest margin

 

3.93%

 

2.95%

 

2.85%

 

3.36%

 

2.84%

Net interest margin FTE (non-GAAP)

 

4.01%

 

3.03%

 

2.93%

 

3.44%

 

2.92%

Efficiency Ratio and Pre-Provision Net Revenue

As of and for the three months ended

As of and for the six months ended

September 30, 

December 31, 

September 30, 

September 30, 

September 30, 

2022

    

2021

    

2021

    

2022

    

2021

Net interest income

$

69,091

$

49,486

$

47,569

$

171,769

$

137,658

Add: impact of taxable equivalent adjustment

 

1,409

 

1,299

 

1,315

 

4,058

 

3,862

Net interest income, FTE (non-GAAP)

$

70,500

$

50,785

$

48,884

$

175,827

$

141,520

Non-interest income

$

17,358

$

23,215

$

28,522

$

53,174

$

87,149

Non-interest expense

$

53,938

$

44,505

$

51,314

$

143,572

$

147,325

Less: CDI asset amortization

(383)

 

(296)

 

(295)

 

(975)

 

(887)

Less: Acquisition-related expenses

(6,996)

(8,256)

Non-interest expense adjusted for CDI asset amortization and acquisition-related expenses (non-GAAP)

$

46,559

$

44,209

$

51,019

$

134,341

$

146,438

Non-interest expense

$

53,938

$

44,505

$

51,314

$

143,572

$

147,325

Less: Acquisition-related expenses

(6,996)

 

 

 

(8,256)

 

Non-interest expense adjusted for acquisition-related expenses (non-GAAP)

$

46,942

$

44,505

$

51,314

$

135,316

$

147,325

Efficiency ratio

62.39%

61.22%

67.44%

63.83%

65.53%

Efficiency ratio FTE (non-GAAP)

61.39%

60.14%

66.29%

62.69%

64.43%

Efficiency ratio FTE adjusted for CDI asset amortization and acquisition-related expenses (non-GAAP)

52.99%

59.74%

65.91%

58.66%

64.04%

Pre-provision net revenue (non-GAAP)

$

32,511

$

28,196

$

24,777

$

81,371

$

77,482

Pre-provision net revenue, FTE (non-GAAP)

33,920

29,495

26,092

85,429

81,344

Pre-provision net revenue, FTE adjusted for acquisition-related expenses (non-GAAP)

40,916

29,495

26,092

93,685

81,344

As of and for the three months ended

    

March 31, 

December 31, 

March 31, 

2023

    

2022

    

2022

Interest income

$

113,533

$

103,958

$

49,525

Add: impact of taxable equivalent adjustment

 

1,414

 

1,454

 

1,313

Interest income FTE (non-GAAP)

$

114,947

$

105,412

$

50,838

Net interest income

$

94,889

$

95,066

$

46,661

Add: impact of taxable equivalent adjustment

 

1,414

 

1,454

 

1,313

Net interest income FTE (non-GAAP)

$

96,303

$

96,520

$

47,974

Average earning assets

$

8,902,740

$

8,729,482

$

6,702,501

Yield on earning assets

 

5.17%

 

4.72%

 

3.00%

Yield on earning assets FTE (non-GAAP)

 

5.24%

 

4.79%

 

3.08%

Net interest margin

 

4.32%

 

4.32%

 

2.82%

Net interest margin FTE (non-GAAP)

 

4.39%

 

4.39%

 

2.90%

53

55

Efficiency Ratio and Pre-Provision Net Revenue

As of and for the three months ended

March 31, 

December 31, 

March 31, 

2023

    

2022

    

2022

Net interest income

$

94,889

$

95,066

$

46,661

Add: impact of taxable equivalent adjustment

 

1,414

 

1,454

 

1,313

Net interest income FTE (non-GAAP)

$

96,303

$

96,520

$

47,974

Non-interest income

$

14,665

$

14,138

$

19,054

Non-interest expense

$

58,292

$

67,662

$

44,082

Less: other intangible assets amortization

(1,363)

 

(1,363)

 

(296)

Less: acquisition-related expenses (non-GAAP)

(6,811)

Non-interest expense adjusted for other intangible assets amortization and acquisition-related expenses (non-GAAP)

$

56,929

$

59,488

$

43,786

Non-interest expense

$

58,292

$

67,662

$

44,082

Less: acquisition-related expenses (non-GAAP)

 

(6,811)

 

Non-interest expense, adjusted for impact of other intangible assets amortization expense and acquisition-related expenses (non-GAAP)

$

58,292

$

60,851

$

44,082

Efficiency ratio

53.21%

61.96%

67.08%

Efficiency ratio excluding other intangible assets amortization FTE (non-GAAP)

51.30%

53.76%

65.32%

Pre-provision net revenue (non-GAAP)

$

51,262

$

41,542

$

21,633

Pre-provision net revenue, FTE (non-GAAP)

52,676

42,996

22,946

Pre-provision net revenue FTE, adjusted for acquisition-related expenses (non-GAAP)

52,676

49,807

22,946

Adjusted Net Income and Earnings Per Share

As of and for the three months ended

As of and for the nine months ended

September 30, 

December 31, 

September 30, 

September 30, 

September 30, 

2022

2021

2021

2022

2021

Adjustments to net income:

Net income

$

15,839

$

22,769

$

19,825

$

54,553

$

70,837

Add: Acquisition-related adjustments, after tax (non-GAAP)

 

9,510

 

10,480

Adjusted net income (non-GAAP)

$

25,349

$

22,769

$

19,825

$

65,033

$

70,837

Adjustments to earnings per share:

Earnings per share - diluted

$

0.50

$

0.75

$

0.64

$

1.77

$

2.27

Add: Acquisition-related adjustments, after tax (non-GAAP)

 

0.30

 

0.34

Adjusted earnings per share - diluted (non-GAAP)

$

0.80

$

0.75

$

0.64

$

2.11

$

2.27

As of and for the three months ended

March 31, 

December 31, 

March 31, 

2023

2022

2022

Adjustments to net income:

Net income

$

40,283

$

16,721

$

18,352

Add: Acquisition-related adjustments, after tax (non-GAAP)

 

 

17,825

Adjusted net income (non-GAAP)

$

40,283

$

34,546

$

18,352

Adjustments to earnings per share:

Earnings per share - diluted

$

1.06

$

0.44

$

0.60

Add: Acquisition-related adjustments, after tax (non-GAAP)

 

 

0.47

Adjusted earnings per share - diluted (non-GAAP)

$

1.06

$

0.91

$

0.60

Application of Critical Accounting Policies and Significant Estimates

We use accounting principles and methods that conform to GAAP and general banking practices. We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. The most significant of these estimates relate to the determination of the ACL. See additional discussion of our ACL policy in note 2 – Summary of Significant Accounting Policies in our audited consolidated financial statements in our 2021 Annual Report on Form 10-K.

AccountingAllowance for Acquired Loanscredit losses

ASC Topic 805, Business Combinations, all acquired loans are recorded at fair valueThe determination of the ACL, which represents management’s estimate of lifetime credit losses inherent in our loan portfolio at the balance sheet date, involves a high degree of acquisition.judgment and complexity. The fair value for acquiredCompany estimates the collective ACL by first disaggregating the loan portfolio into segments based upon broad characteristics such as primary use and underlying collateral. Within these segments, the portfolio is further disaggregated into classes of loans with similar attributes and risk characteristics. The collective ACL is determined at the time of acquisition isclass level, analyzing loss history based on a variety ofupon specific loss drivers and risk factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance ofaffecting each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are PCD loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using the level yield method. The net premium or discount on non-PCD loans, that includes credit quality and interest rate considerations, is accreted or amortized into interest income over the remaining life of the loan using the level yield method.class. The Company then records the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense.

Future Accounting Pronouncements

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitationutilizes a discounted cash flow (“DCF”) model that incorporates forecasts of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 was effective upon issuance and can be adopted during any interim period through December 31, 2022. It provides optional expedients and guidance for applying generally accepted accounting principles to contract modifications and hedging relationships, if certain criteria are met, that reference LIBOR or any other reference rate that is expected to be discontinued. To address reference rate reform, the Company established a LIBOR transition subcommittee in January of 2020 to identify exposure to reference rates within loan and derivative contracts. The Company had no exposure to LIBOR tenors that were discontinued as of January 1, 2022. For tenors expiring on future dates the Company is working to ensure all documentation includes contingency terms, if necessary, that may be utilized at such time when the LIBOR is discontinued. Beginning January 1, 2022, the Company no longer originates loans using LIBOR as a reference rate. The Company has assessed, and will continue to evaluate, the impact from ASU 2020-04 and does not expect the adoption of ASU 2020-04, or any updates issued to date, to have a material impact on its financial statements.

In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which eliminates the accounting guidance on TDRs and requires disclosure of current-period gross write-offs by year of origination. The guidance also updates the requirements related to accounting for credit losses under ASC Topic 326 and addsnational

54

56

enhanced disclosuresmacroeconomic factors (reasonable and supportable forecasts) which drive the losses predicted in establishing the Company’s collective ACL. Management accounts for creditors with respectthe inherent uncertainty of the underlying economic forecast by reviewing and weighting alternate forecast scenarios. For periods beyond the reasonable and supportable forecast period, the Company reverts to loan refinancing and restructuringhistorical long-term average loss rates on a straight-line basis. Additionally, the collective ACL calculation includes subjective adjustments for borrowers experiencing financial difficulty. The guidance will be effective for fiscal years, and interim periods, beginning after December 15, 2022 for entitiesqualitative risk factors that have adopted ASU 2016-13. The Company is reviewing ASU 2022-02 and does not expectare likely to cause estimated credit losses to differ from historical experience. Changes in these assumptions, estimates or the adoption of that pronouncement toconditions surrounding them may have a material impact on itsour financial statements.

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2022-01 is effective for public business entities for fiscal years beginning after December 15, 2022. The Company is reviewing ASU 2022-01 and does not expect the adoption of that pronouncement to have a material impact on its financial statements.condition.

Financial Condition

Total assets increased $708.9 millionwere $9.9 billion at March 31, 2023, compared to $7.9$9.6 billion fromat December 31, 2021 to September 30, 2022, primarily due to the acquisitionan increase of RCB.$344.0 million, or 3.6%. Cash and cash equivalents decreased $589.5increased $174.2 million, or 69.7%89.1%, from December 31, 2021 as excess cash liquidity was deployed into higher earning2022, and investment securities and loans. Investment securities decreased $36.2$24.4 million, or 2.8%, and1.8%. Total loans increased $1.2 billion,$124.8 million, or 26.8%, compared to December 31, 2021. The7.0% annualized, and the allowance for credit losses increased $15.9$0.8 million to $65.6$90.3 million at September 30, 2022, compared to DecemberMarch 31, 2021.

2023. During the nine months ended September 30, 2022,first quarter of 2023, lower cost demand, savings, and money market deposits ("transaction deposits") increased $570.5 million, or 14.1% annualized,totaled $6.6 billion, compared to $7.0 billion at December 31, 2021, largely due2022. Total deposits were $7.6 billion at March 31, 2023, compared to the acquisition of RCB, in addition$7.9 billion at December 31, 2022. FHLB advances increased to continued development of full banking relationships with our clients. In addition$1.0 billion at March 31, 2023, compared to providing excess cash liquidity, the increase in transaction deposits provided low-cost funding utilized$385.0 million at December 31, 2022, to fund loan growth.originations and increase cash.

Investment securities

Available-for-sale

Total investment securities available-for-sale increased 5.6%decreased 1.5% during the ninethree months ended September 30, 2022March 31, 2023 to $0.7 billion. There were no purchases of available-for-sale securities during the three months ended March 31, 2023. Purchases of available-for-sale securities during the ninethree months ended September 30,March 31, 2022 and 2021 totaled $260.2 million and $196.3 million, respectively.$179.4 million. Paydowns and maturities totaled $116.0$22.5 million and $185.0$39.1 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Our available-for-sale investment securities portfolio is summarized in the following table as of the dates indicated. The weighted average yield was calculated based on amortized cost. Yields on tax exempt securities have not been adjusted for tax exempt status.

September 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

    

    

    

    

Weighted

    

    

    

    

Weighted

    

    

    

    

Weighted

    

    

    

    

Weighted

Amortized

Fair

Percent of

average

Amortized

Fair

Percent of

average

Amortized

Fair

Percent of

average

Amortized

Fair

Percent of

average

cost

value

portfolio

yield

cost

value

portfolio

yield

cost

value

portfolio

yield

cost

value

portfolio

yield

Treasury securities

$

73,912

$

71,096

9.7%

2.54%

$

$

$

74,148

$

72,154

10.4%

2.54%

$

74,031

$

71,388

10.1%

2.54%

Mortgage-backed securities:

��

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

272,133

229,651

31.4%

1.73%

231,523

227,696

32.9%

1.38%

256,267

222,209

32.0%

1.71%

263,939

226,131

32.0%

1.72%

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

496,878

 

426,982

58.5%

1.68%

 

467,490

 

461,334

66.7%

1.47%

 

463,907

 

398,282

57.2%

1.69%

 

478,866

 

405,926

57.5%

1.69%

Municipal securities

230

224

0.0%

3.17%

230

237

0.0%

3.17%

155

154

0.0%

3.17%

155

153

0.0%

3.17%

Corporate debt

2,000

1,958

0.3%

5.87%

2,000

2,111

0.3%

5.80%

2,000

1,892

0.3%

5.87%

2,000

1,920

0.3%

5.87%

Other securities

 

880

 

880

0.1%

0.00%

 

469

 

469

0.1%

0.00%

 

794

 

794

0.1%

0.00%

 

771

 

771

0.1%

0.00%

Total investment securities available-for-sale

$

846,033

$

730,791

100.0%

1.78%

$

701,712

$

691,847

100.0%

1.46%

$

797,271

$

695,485

100.0%

1.79%

$

819,762

$

706,289

100.0%

1.79%

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, nearly all the available-for-sale investment portfolio was backed by mortgages. The residential mortgage pass-through securities portfolio is comprised of both fixed rate and adjustable rate FHLMC, FNMA and GNMA securities. The other mortgage-backed securities are comprised of securities backed by FHLMC, FNMA and GNMA securities.

55

57

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-for-sale mortgage-backed securities portfolio was 5.6 years and 4.25.4 years at September 30, 2022both March 31, 2023 and December 31, 2021, respectively.2022. This estimate is based on assumptions and actual results may differ. At September 30, 2022March 31, 2023 and December 31, 2021,2022, the duration of the total available-for-sale investment portfolio was 4.64.5 years and 3.84.4 years, respectively.

At September 30, 2022March 31, 2023 and December 31, 2021,2022, adjustable rate securities comprised 11.1%11.8% and 1.7%11.5%, respectively, of the available-for-sale MBS portfolio. The remainder of the portfolio was comprised of fixed rate amortizing securities with 10 to 30 year contractual maturities, with a weighted average coupon of 1.74% per annum and 1.75% per annum and 1.70% per annum at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

The available-for-sale investment portfolio included $115.3$101.8 million of unrealized losses and $12 thousand of unrealized gains at September 30,March 31, 2023. At December 31, 2022, and $13.3the available-for-sale investment portfolio included $113.5 million of unrealized losses and $3.4 million of unrealized gains at December 31, 2021.losses. We believe any unrealized losses are a result of prevailing interest rates, and as such, we do not believe that any of the securities with unrealized losses were impaired. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

 Held-to-maturity

Held-to-maturity investment securities decreased 0.5%2.1% during the ninethree months ended September 30, 2022March 31, 2023 to $0.6 billion. Purchases during the ninethree months ended September 30, 2022 and 2021March 31, 20231 totaled $91.6 million and $377.7 million, respectively.$2.5 million. There were no purchases of held-to-maturity investment securities during the three months ended March 31, 2022. Paydowns and maturities totaled $93.2$16.2 million and $109.0$41.4 million during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Held-to-maturity investment securities are summarized as follows as of the dates indicated:

September 30, 2022

December 31, 2021

March 31, 2023

December 31, 2022

Weighted

Weighted

Weighted

Weighted

    

Amortized

    

Fair

    

Percent of

    

average

    

Amortized

    

Fair

    

Percent of

    

average

    

Amortized

    

Fair

    

Percent of

    

average

    

Amortized

    

Fair

    

Percent of

    

average

cost

value

portfolio

yield

cost

value

portfolio

yield

cost

value

portfolio

yield

cost

value

portfolio

yield

Treasury securities

$

48,973

$

47,412

8.1%

3.14%

$

$

$

49,117

$

48,141

7.7%

3.14%

$

49,045

$

47,629

7.5%

3.14%

Mortgage-backed securities:

Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises

291,306

244,866

48.0%

1.75%

312,916

309,614

51.4%

1.56%

331,996

295,246

52.0%

2.30%

339,815

298,816

52.2%

2.29%

Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises

 

265,966

 

216,683

43.9%

1.54%

 

296,096

 

289,646

48.6%

1.25%

 

256,808

 

211,869

40.3%

1.60%

 

262,667

 

213,479

40.3%

1.60%

Total investment securities held-to-maturity

$

606,245

$

508,961

100.0%

1.77%

$

609,012

$

599,260

100.0%

1.41%

$

637,921

$

555,256

100.0%

2.08%

$

651,527

$

559,924

100.0%

2.07%

The residential mortgage pass-through and other residential MBS held-to-maturity investment portfolios are comprised of fixed rate FHLMC, FNMA and GNMA securities.

The fair value of the held-to-maturity investment portfolio included $97.3$0.6 million of unrealized gains and $83.2 million of unrealized losses at September 30, 2022.March 31, 2023. At December 31, 2021,2022, the held-to-maturity investment portfolio included $11.9$0.2 million of unrealized lossesgains and $2.2$91.8 million of unrealized gains.losses.

The Company does not measure expected credit losses on a financial asset, or groupsgroup of financial assets, in which historical credit loss information adjusted for current conditions and reasonable and supportable forecasts results in an expectation that nonpayment of the amortized cost basis is zero. Management evaluated held-to-maturity securities noting they are backed by loans guaranteed by either U.S. government agencies or U.S. government sponsored entities, and management believes that default is highly unlikely given this governmental backing and long history without credit losses. Additionally, management notes that yields on which the portfolio generally trades are based upon market views of prepayment and liquidity risk and not credit risk. The Company has no intention to sell the securities and believes it will not be required to sell the securities before the recovery of their amortized cost.

58

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average expected life of the held-to-

56

maturityheld-to-maturity mortgage-backed securities portfolio as of September 30, 2022March 31, 2023 and December 31, 20212022 was 6.36.0 years and 4.1 years, respectively.for both periods. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 5.04.9 years and 3.84.8 years as of September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

Non-marketable securities

Non-marketable securities totaled $64.0$120.7 million and $50.7$89.0 million at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively, and included FRB stock, FHLB stock and other non-marketable securities. At September 30,During the three months ended March 31, 2023 and 2022, other non-marketable securities totaled $48.5 million and consisted of equity method investments totaling $21.5 million and convertible preferred stock without readily determinable fair values totaling $27.0 million. At December 31, 2021, other non-marketable securities totaled $36.2 million and consisted of equity method investments totaling $14.2 million and convertible preferred stock without readily determinable fair values totaling $22.0 million. The Company continues to invest with fintech solution providers to support our digital ecosystem buildout, support our core bank products and offerings, and to leverage efficiencies and technological solutions in our shared services areas. Purchasespurchases of non-marketable securities totaled $11.5$35.9 million and $25.8$4.0 million, respectively. Proceeds from non-marketable securities totaled $4.7 million during the ninethree months ended September 30, 2022 and 2021, respectively.March 31, 2023.

At September 30, 2022,March 31, 2023, the Company held $13.9$45.6 million of FHLB stock and $23.7 million of FRB stock and $1.6 million of FHLB stock for regulatory andor debt facility purposes. At December 31, 2021,2022, the Company held $13.9$20.3 million of FHLB stock and $18.1 million of FRB stock and $0.7 millionstock. Purchases of FHLB stock.and FRB stock totaled $35.9 million and zero during the three months ended March 31, 2023 and 2022, respectively. These are restricted securities which, lacking a market, are carried at cost. The Company is not aware of any events or changes in circumstances that may have an adverse effect on the investments carried at cost.

At March 31, 2023, other non-marketable securities totaled $51.4 million and consisted of equity method investments totaling $22.4 million and convertible preferred stock without a readily determinable fair value totaling $29.0 million. At December 31, 2022, other non-marketable securities totaled $50.7 million and consisted of equity method investments totaling $21.7 million and convertible preferred stock without a readily determinable fair value totaling $29.0 million. During the three months ended March 31, 2023 and 2022, purchases of other non-marketable securities totaled zero and $4.0 million, respectively. The Company continues to invest with fintech solution providers to support our digital ecosystem buildout, support our core bank products and offerings, and to leverage efficiencies and technological solutions in our shared services areas.

Loans overview

At September 30, 2022,March 31, 2023, our loan portfolio was comprised of new loans that we have originated and loans that were acquired in connection with our seveneight acquisitions to date. The Company added $537.7 million of loans to the acquired loan portfolio on September 1, 2022 from the acquisition of RCB.

As discussed in note 3 to our consolidated financial statements, under ASC Topic 805, Business Combinations, all acquired loans are recorded at fair value at the date of acquisition. The fair value for acquired loans at the time of acquisition is based on a variety of factors including discounted expected cash flows, adjusted for estimated prepayments and credit losses. In accordance with ASC 326, the fair value adjustment is recorded as premium or discount to the unpaid principal balance of each acquired loan. Loans that have been identified as having experienced a more-than-insignificant deterioration in credit quality since origination are PCD loans. The net premium or discount on PCD loans is adjusted by our allowance for credit losses recorded at the time of acquisition. The remaining net premium or discount is accreted or amortized into interest income over the remaining life of the loan using a level yield method. The net premium or discount on non-PCD loans, that includes credit quality and interest rate considerations, is accreted or amortized into interest income over the remaining life of the loan using a level yield method. The Company then records the necessary allowance for credit losses on the non-PCD loans through provision for credit losses expense.

57

59

The table below shows the loan portfolio composition at the respective dates:

September 30, 2022 vs.

December 31, 2021

September 30, 2022

December 31, 2021

% Change

Originated:

Commercial:

Commercial and industrial

$

1,724,469

$

1,479,895

16.5%

Municipal and non-profit

968,539

928,705

4.3%

Owner-occupied commercial real estate

631,783

503,663

25.4%

Food and agribusiness

265,835

200,412

32.6%

Total commercial

3,590,626

3,112,675

15.4%

Commercial real estate non-owner occupied

731,293

611,765

19.5%

Residential real estate

750,669

616,135

21.8%

Consumer

17,027

17,336

(1.8)%

Total originated

5,089,615

4,357,911

16.8%

Acquired:

Commercial:

Commercial and industrial

82,324

16,252

>100%

Municipal and non-profit

326

340

(4.1)%

Owner-occupied commercial real estate

176,385

29,973

>100%

Food and agribusiness

73,822

3,177

>100%

Total commercial

332,857

49,742

>100%

Commercial real estate non-owner occupied

219,109

52,964

>100%

Residential real estate

79,477

52,521

51.3%

Consumer

927

245

>100%

Total acquired

632,370

155,472

>100%

Total loans

$

5,721,985

$

4,513,383

26.8%

March 31, 2023 vs.

December 31, 2022

March 31, 2023

December 31, 2022

% Change

Originated:

Commercial:

Commercial and industrial

$

1,818,415

$

1,841,313

(1.2)%

Municipal and non-profit

979,801

959,305

2.1%

Owner-occupied commercial real estate

674,231

656,361

2.7%

Food and agribusiness

270,197

284,714

(5.1)%

Total commercial

3,742,644

3,741,693

0.0%

Commercial real estate non-owner occupied

979,150

841,657

16.3%

Residential real estate

864,544

827,030

4.5%

Consumer

16,766

16,986

(1.3)%

Total originated

5,603,104

5,427,366

3.2%

Acquired:

Commercial:

Commercial and industrial

172,368

183,522

(6.1)%

Municipal and non-profit

316

321

(1.6)%

Owner-occupied commercial real estate

248,883

256,979

(3.2)%

Food and agribusiness

64,739

69,265

(6.5)%

Total commercial

486,306

510,087

(4.7)%

Commercial real estate non-owner occupied

845,374

854,393

(1.1)%

Residential real estate

407,254

424,251

(4.0)%

Consumer

3,260

4,372

(25.4)%

Total acquired

1,742,194

1,793,103

(2.8)%

Total loans

$

7,345,298

$

7,220,469

1.7%

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $1.2 billion,$124.8 million, or 35.8%7.0% annualized, from December 31, 20212022 to September 30, 2022. The increase was led by commercial loan growth of $761.1 million, or 32.2% annualized. Excluding loans totaling $537.7 million from the acquisition of RCB, loans increased $670.9 million led by originated commercial loan growth of $478.0 million, or 15.4%. Loan fundings during the nine months ended September 30, 2022 totaled a record $1.5 billion, led by commercialMarch 31, 2023. First quarter loan fundings totaled $393.9 million with a weighted average new loan origination rate of $977.4 million.7.5%.

Our commercial and industrial loan portfolio is comprisedhighly diversified across industry sectors and geography. At March 31, 2023, there were no industry sectors representing more than 10.0% of diverse industry segments. At September 30, 2022, theseour total loan portfolio. Key segments included finance and financial services, primarily lender financegovernment/non-profit loans of $201.8$566.2 million, hospital/medicalor 7.7% of total loans, and health care/hospital loans of $397.4$411.1 million, manufacturing-related loans of $206.9 million, and a variety of smaller subcategories of commercial and industrial loans. Food and agribusiness loans, which are well-diversified across food production, crop and livestock types, totaled $339.7 million and were 36.6% of the Company’s risk based capital. Crop and livestock loans represent 1.8%or 5.6% of total loans.

Non-owner occupied CRE loans were 102.3%176.3% of the Company’s risk based capital, or 16.6%24.8% of total loans, and no specific property type comprised more than 5.0%10.0% of total loans. The Company maintains very little exposure to non-owner occupied CRE retail properties, comprising 1.4%2.0% of total loans. Multi-family loans totaled $69.8$282.1 million, or 1.2%3.8% of total loans, and office loans totaled $104.0 million, or 1.4% of total loans as of September 30, 2022.March 31, 2023.

The agriculture industry continues to be impacted by elevated and volatile commodity prices and intermittent disruptions in supply chains. Our food and agribusiness portfolio is only 4.6% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.2% of total loans. We have maintained relationships with food and agribusiness clients that generally possess low leverage and, correspondingly, low bank debt to assets, minimizing any potential credit losses in the future.

New loan origination is a direct result of our ability to recruit and retain top banking talent, connect with clients in our markets and provide needed services at competitive rates. Loan fundings totaled a record $2.0 billion over the past 12 months, led by commercial loan fundings of $1.3$1.1 billion. Fundings are defined as closed-end funded loans and revolving lines of credit advances, net of any current period paydowns. Management utilizes this more conservative definition of fundings to better approximate the impact of fundings on loans outstanding and ultimately net interest income.

58

60

The following table representstables represent new loan fundings for the periods presented:during 2023 and 2022:

Third quarter

    

Second quarter

    

First quarter

    

Fourth quarter

    

Third quarter

First quarter

    

Fourth quarter

    

Third quarter

    

Second quarter

    

First quarter

2022

2022

2022

2021

2021

2023

2022

2022

2022

2022

Commercial:

Commercial and industrial

$

201,106

$

152,550

$

169,168

$

229,529

$

196,289

$

107,013

$

177,693

$

201,106

$

152,550

$

169,168

Municipal and non-profit

20,845

81,428

49,906

101,450

43,516

22,526

20,393

20,845

81,428

49,906

Owner occupied commercial real estate

 

65,125

 

78,905

 

67,597

 

28,914

 

53,445

 

33,912

 

40,912

 

65,125

 

78,905

 

67,597

Food and agribusiness

 

76,293

 

(4,186)

 

18,620

 

11,016

 

8,442

 

(6,564)

 

28,518

 

76,293

 

(4,186)

 

18,620

Total commercial

363,369

308,697

305,291

370,909

301,692

156,887

267,516

363,369

308,697

305,291

Commercial real estate non-owner occupied

 

166,739

 

88,612

 

63,416

 

46,128

 

55,392

 

185,875

 

133,271

 

166,739

 

88,612

 

63,416

Residential real estate

 

99,951

 

93,220

 

49,040

 

55,873

 

54,442

 

49,406

 

95,067

 

99,951

 

93,220

 

49,040

Consumer

 

1,505

 

1,989

 

1,904

 

2,524

 

1,810

 

1,717

 

1,396

 

1,505

 

1,989

 

1,904

Total

$

631,564

$

492,518

$

419,651

$

475,434

$

413,336

$

393,885

$

497,250

$

631,564

$

492,518

$

419,651

Included in fundings are net (paydowns) fundings under revolving lines of credit totaling ($7,096), $96,903, $124,834, $21,762 and $66,430 $138,777 and $29,154 as offor the third, second and first quarters of 2022 anddates noted in the fourth and third quarters of 2021,table above, respectively.

The tables below show the contractual maturities of our total loans for the dates indicated:

September 30, 2022

March 31, 2023

    

Due within

    

Due after 1 but

    

Due after 5 but

    

Due after

    

    

Due within

    

Due after 1 but

    

Due after 5 but

    

Due after

    

1 year

within 5 years

within 15 years

15 Years

Total

1 year

within 5 years

within 15 years

15 Years

Total

Commercial:

Commercial and industrial

$

184,939

$

1,337,644

$

273,871

$

10,339

$

1,806,793

$

264,717

$

1,371,068

$

344,653

$

10,345

$

1,990,783

Municipal and non-profit

2,396

151,005

510,341

305,123

968,865

21,293

112,415

528,494

317,915

980,117

Owner occupied commercial real estate

 

65,345

 

221,255

 

418,251

 

103,317

 

808,168

 

60,714

 

265,381

 

480,640

 

116,378

 

923,113

Food and agribusiness

 

70,477

 

205,556

 

42,466

 

21,158

 

339,657

 

86,668

 

174,904

 

55,690

 

17,675

 

334,937

Total commercial

323,157

1,915,460

1,244,929

439,937

3,923,483

433,392

1,923,768

1,409,477

462,313

4,228,950

Commercial real estate non-owner occupied

 

227,394

 

484,706

 

221,477

 

16,825

 

950,402

 

272,097

 

950,521

 

586,605

 

15,300

 

1,824,523

Residential real estate

 

30,029

 

40,215

 

191,432

 

568,470

 

830,146

 

73,848

 

172,113

 

359,523

 

666,314

 

1,271,798

Consumer

 

4,250

 

11,324

 

2,379

 

1

 

17,954

 

4,751

 

12,779

 

2,493

 

4

 

20,027

Total loans

$

584,830

$

2,451,705

$

1,660,217

$

1,025,233

$

5,721,985

$

784,088

$

3,059,181

$

2,358,098

$

1,143,931

$

7,345,298

December 31, 2021

    

Due within

    

Due after 1 but

    

Due after 5 but

    

Due after

    

1 year

within 5 years

within 15 years

15 Years

Total

Commercial:

Commercial and industrial

$

143,152

$

1,119,195

$

226,793

$

7,007

$

1,496,147

Municipal and non-profit

23,827

112,022

559,493

233,703

929,045

Owner occupied commercial real estate

 

40,510

 

160,853

 

266,664

 

65,609

 

533,636

Food and agribusiness

 

79,507

 

107,799

 

11,193

 

5,090

 

203,589

Total commercial

286,996

1,499,869

1,064,143

311,409

3,162,417

Commercial real estate non-owner occupied

 

200,042

 

316,473

 

147,783

 

431

 

664,729

Residential real estate

 

12,605

 

30,233

 

201,918

 

423,900

 

668,656

Consumer

 

3,504

 

11,507

 

2,570

 

 

17,581

Total loans

$

503,147

$

1,858,082

$

1,416,414

$

735,740

$

4,513,383

December 31, 2022

    

Due within

    

Due after 1 but

    

Due after 5 but

    

Due after

    

1 year

within 5 years

within 15 years

15 Years

Total

Commercial:

Commercial and industrial

$

234,028

$

1,421,752

$

353,909

$

15,146

$

2,024,835

Municipal and non-profit

1,184

134,012

513,872

310,558

959,626

Owner occupied commercial real estate

 

61,598

 

261,305

 

478,104

 

112,333

 

913,340

Food and agribusiness

 

83,254

 

203,910

 

46,624

 

20,191

 

353,979

Total commercial

380,064

2,020,979

1,392,509

458,228

4,251,780

Commercial real estate non-owner occupied

 

234,962

 

863,842

 

579,843

 

17,403

 

1,696,050

Residential real estate

 

72,035

 

169,024

 

372,638

 

637,584

 

1,251,281

Consumer

 

6,142

 

12,494

 

2,721

 

1

 

21,358

Total loans

$

693,203

$

3,066,339

$

2,347,711

$

1,113,216

$

7,220,469

59

61

The stated interest rate (which excludes the effects of non-refundable loan origination and commitment fees, net of costs and the accretion of fair value marks) of total loans with maturities over one year is as follows at the dates indicated:

September 30, 2022

March 31, 2023

Fixed

Variable

Total

Fixed

Variable

Total

    

    

Weighted

    

    

Weighted

    

    

Weighted

    

    

Weighted

    

    

Weighted

    

    

Weighted

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Commercial

Commercial and industrial

$

646,710

 

4.40%

$

975,144

 

5.91%

$

1,621,854

 

5.31%

$

724,656

 

4.86%

$

1,001,410

 

7.50%

$

1,726,066

 

6.40%

Municipal and non-profit(1)

973,811

3.45%

23,430

3.90%

997,241

3.46%

958,862

3.50%

22,328

5.04%

981,190

3.62%

Owner occupied commercial real estate

 

381,363

 

4.55%

 

361,460

 

5.59%

 

742,823

 

5.10%

 

413,127

 

4.56%

 

449,273

 

6.12%

 

862,400

 

5.44%

Food and agribusiness

 

51,110

 

5.23%

 

218,070

 

6.15%

 

269,180

 

5.98%

 

49,349

 

5.49%

 

198,918

 

7.47%

 

248,267

 

7.07%

Total commercial

2,052,994

4.02%

1,578,104

5.84%

3,631,098

4.81%

2,145,994

4.24%

1,671,929

7.10%

3,817,923

5.52%

Commercial real estate non-owner occupied

 

264,778

 

4.63%

 

458,230

 

5.44%

 

723,008

 

5.14%

 

571,429

 

4.37%

 

980,998

 

6.31%

 

1,552,427

 

5.59%

Residential real estate

 

397,691

 

3.57%

 

402,426

 

4.76%

 

800,117

 

4.17%

 

508,054

 

3.87%

 

689,895

 

4.98%

 

1,197,949

 

4.51%

Consumer

 

11,055

 

4.78%

 

2,649

 

6.30%

 

13,704

 

5.07%

 

11,483

 

5.20%

 

3,792

 

7.67%

 

15,275

 

5.82%

Total loans with > 1 year maturity

$

2,726,518

 

4.02%

$

2,441,409

 

5.59%

$

5,167,927

 

4.76%

$

3,236,960

 

4.21%

$

3,346,614

 

6.43%

$

6,583,574

 

5.36%

December 31, 2021

December 31, 2022

Fixed

Variable

Total

Fixed

Variable

Total

    

    

Weighted

   ��

    

Weighted

    

    

Weighted

    

    

Weighted

    

    

Weighted

    

    

Weighted

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Balance

average rate

Commercial

Commercial and industrial

$

480,034

 

4.05%

$

872,961

 

3.41%

$

1,352,995

 

3.63%

$

726,568

 

4.62%

$

1,064,239

 

7.00%

$

1,790,807

 

6.04%

Municipal and non-profit(1)

881,339

3.37%

23,879

2.76%

905,218

3.35%

965,635

3.50%

22,483

4.77%

988,118

3.63%

Owner occupied commercial real estate

 

293,190

 

4.70%

 

199,936

 

3.75%

 

493,126

 

4.45%

 

417,675

 

4.51%

 

434,066

 

6.00%

 

851,741

 

5.33%

Food and agribusiness

 

49,303

 

5.21%

 

74,779

 

3.95%

 

124,082

 

4.45%

 

49,961

 

5.26%

 

220,764

 

7.19%

 

270,725

 

6.83%

Total commercial

1,703,866

3.88%

1,171,555

3.49%

2,875,421

3.72%

2,159,839

4.14%

1,741,552

6.75%

3,901,391

5.35%

Commercial real estate non-owner occupied

 

214,463

 

4.28%

 

250,224

 

3.51%

 

464,687

 

3.86%

 

569,788

 

4.28%

 

891,299

 

5.88%

 

1,461,087

 

5.25%

Residential real estate

 

360,648

 

3.45%

 

295,403

 

4.00%

 

656,051

 

3.70%

 

500,170

 

3.75%

 

679,075

 

4.88%

 

1,179,245

 

4.40%

Consumer

 

11,567

 

4.37%

 

2,510

 

3.52%

 

14,077

 

4.21%

 

11,480

 

4.98%

 

3,736

 

7.21%

 

15,216

 

5.52%

Total loans with > 1 year maturity

$

2,290,544

 

3.85%

$

1,719,692

 

3.58%

$

4,010,236

 

3.74%

$

3,241,277

 

4.11%

$

3,315,662

 

6.13%

$

6,556,939

 

5.15%

(1)

    

Included in municipal and non-profit fixed rate loans are loans totaling $331,708$341,182 and $343,089$340,081 that have been swapped to variable rates at current market pricing at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Included in the municipal and non-profit segment are tax exempt loans totaling $774,498$781,138 and $746,508$772,908 with an FTE weighted average rate of 4.03%4.19% and 3.97%4.08% at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively.

Asset quality

Asset quality is fundamental to our success and remains a strong point, driven by our disciplined adherence to our self-imposed concentration limits across industry sector and real estate property type. Accordingly, for the origination of loans, we have established a credit policy that allows for responsive, yet controlled lending with credit approval requirements that are scaled to loan size. Within the scope of the credit policy, each prospective loan is reviewed in order to determine the appropriateness and the adequacy of the loan characteristics and the security or collateral prior to making a loan. We have established underwriting standards and loan origination procedures that require appropriate documentation, including financial data and credit reports. For loans secured by real property, we require property appraisals, title insurance or a title opinion, hazard insurance and flood insurance, in each case where appropriate.

Additionally, we have implemented procedures to timely identify loans that may become problematic in order to ensure the most beneficial resolution for the Company. Asset quality is monitored by our credit risk management department and evaluated based on quantitative and subjective factors such as the timeliness of contractual payments received. Additional factors that are considered, particularly with commercial loans over $500,000, include the financial condition and liquidity of individual borrowers and guarantors, if any, and the value of our collateral. To facilitate the oversight of asset quality, loans are categorized based on the number of days past due and on an internal risk rating system, and both are discussed in more detail below.

60

62

In the event of borrower default, we may seek recovery in compliance with state lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include modifying or restructuring a loan from its original terms, for economic or legal reasons, to provide a concession to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Such restructured loans are considered TDRs in accordance with ASC 310-40.TDMs. Assets that have been foreclosed on or acquired through deed-in-lieu of foreclosure are classified as OREO until sold, and are carried at the fair value of the collateral less estimated costs to sell, with any initial valuation adjustments charged to the ACL and any subsequent declines in carrying value charged to impairments on OREO.

Non-performing assets and past due loans

Non-performing assets consist of non-accrual loans and OREO. Interest income that would have been recorded had non-accrual loans performed in accordance with their original contract terms during the three and nine months ended September 30,March 31, 2023 and 2022 was $0.2$0.1 million and $0.4$0.1 million, respectively, and $0.2 million and $0.7 million during the three and nine months ended September 30, 2021, respectively.

Past due status is monitored as an indicator of credit deterioration. Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Loans that are 90 days or more past due are put on non-accrual status unless the loan is well secured and in the process of collection.

The following table sets forth the non-performing assets and past due loans as of the dates presented:

September 30, 2022

    

December 31, 2021

March 31, 2023

    

December 31, 2022

Non-accrual loans:

Non-accrual loans, excluding restructured loans

$

10,232

$

8,466

Restructured loans on non-accrual

 

4,425

 

2,366

Non-accrual loans, excluding modified loans

$

9,430

$

14,034

Modified loans on non-accrual(1)

 

116

 

2,478

Non-performing loans

 

14,657

 

10,832

 

9,546

 

16,512

OREO

 

3,695

 

7,005

 

3,458

 

3,731

Total non-performing assets

$

18,352

$

17,837

$

13,004

$

20,243

Loans 30-89 days past due and still accruing interest

$

1,548

$

1,687

$

2,308

$

2,986

Loans 90 days or more past due and still accruing interest

 

332

 

420

 

185

 

95

Non-accrual loans

14,657

10,832

9,546

16,512

Total past due and non-accrual loans

$

16,537

$

12,939

$

12,039

$

19,593

Accruing restructured loans

$

4,610

$

7,186

Accruing modified loans(1)

$

4,154

$

4,654

Allowance for credit losses

65,623

49,694

90,343

89,553

Non-performing loans to total loans

 

0.26%

 

0.24%

 

0.13%

 

0.23%

Total 90 days past due and still accruing interest and non-accrual loans to total loans

 

0.26%

 

0.25%

 

0.13%

 

0.23%

Total non-performing assets to total loans and OREO

 

0.32%

 

0.39%

 

0.18%

 

0.28%

ACL to non-performing loans

 

447.72%

 

458.77%

 

946.40%

 

542.35%

During the nine months ended September 30, 2022, total non-performing loans increased $3.8 million from December 31, 2021 to $14.7 million. The increases in the non-performing loans was primarily driven by the inclusion of the Rock Canyon Bank portfolio. Total non-performing assets to total loans and OREO decreased seven basis points to 0.32% at September 30, 2022.

(1)

Reflects troubled debt loan modifications as defined under ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures adopted in the first quarter of 2023. The prior period includes troubled debt restructured loans consistent with historical disclosures.

During the first quarter of 2023, total non-performing loans decreased $7.0 million, or 42.2%, from December 31, 2022. Loans 30-89 days past due and still accruing interest were 0.03% and 0.04% of total loans at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. Loans 90 days or more past due and still accruing interest were 0.01% of total loans0.00% at both September 30, 2022March 31, 2023 and December 31, 2021.2022.

Allowance for credit losses

The ACL represents the amount that we believe is necessary to absorb estimated lifetime credit losses inherent in the loan portfolio at the balance sheet date and involves a high degree of judgment and complexity. On January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments which replaced the incurred loss methodology for recognizing credit losses with a CECL model. The Company utilizes a DCF model developed within a third-party software tool to establish expected

61

lifetime credit losses for the loan portfolio. The ACL is calculated as the difference between the amortized cost basis and the projections from the DCF analysis. The DCF model allows for individual life of loan cash flow modeling, excluding extensions and renewals, using loan-specific interest rates and repayment schedules including estimated prepayment rates and loss recovery timing delays. The model incorporates forecasts of certain national macro-economic factors, including unemployment rates, home price index (“HPI”), retail sales and gross domestic product (“GDP”), which drive correlated

63

loss rates. The determination and application of the ACL accounting policy involves judgments, estimates and uncertainties that are subject to change. For periods beyond the reasonable and supportable forecast period, we revert to historical long-term average loss rates on a straight-line basis.

We measure expected credit losses for loans on a pooled basis when similar risk characteristics exist. We have identified four primary loan segments within the ACL model that are further stratified into 11 loan classes to provide more granularity in analyzing loss history and to allow for more definitive qualitative adjustments based upon specific risk factors affecting each loan class. Generally, the underlying risk of loss for each of these loan segments will follow certain norms/trends in various economic environments. Loans that do not share risk characteristics are evaluated on an individual basis and are not included in the collective evaluation. Following are the loan classes within each of the four primary loan segments:

Non-owner occupied

Commercial

commercial real estate

Residential real estate

Consumer

Commercial and industrial

Construction

Senior lien

Consumer

Owner occupied commercial real estate

Acquisition and development

Junior lien

Food and agribusiness

Multifamily

Municipal and non-profit

Non-owner occupied

Loans on non-accrual, in bankruptcy and TDRsTDMs with a balance greater than $250,000 are excluded from the pooled analysis and are evaluated individually. If management determines that foreclosure is probable, expected credit losses are evaluated based on the criteria listed below, adjusted for selling costs as appropriate. Typically, these loans consist of commercial, commercial real estate and agriculture loans and exclude homogeneous loans such as residential real estate and consumer loans. Specific allowances are determined by collectively analyzing:

    

the borrower'sborrower’s resources, ability and willingness to repay in accordance with the terms of the loan agreement;

    

the likelihood of receiving financial support from any guarantors;

    

the adequacy and present value of future cash flows, less disposal costs, of any collateral; and

    

the impact current economic conditions may have on the borrower'sborrower’s financial condition and liquidity or the value of the collateral.

The collective resulting ACL for loans is calculated as the sum of the general reserves, specific reserves on individually evaluated loans, and qualitative factor adjustments. While these amounts are calculated by individual loan or on a pool basis by segment and class, the entire ACL is available for any loan that, in our judgment, should be charged-off. The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition, liquidity or results of operations.

Net charge-offs on loans during the three and nine months ended September 30, 2022 were $0.2March 31, 2023 totaled $0.3 million, and $1.1 million, respectively. The Company recorded an increase in the allowance for credit lossesratio of $15.0 million during the three months ended September 30, 2022, which included a $5.2 million provision expense as a Day 1 allowance reserve for the RCB portfolio and a $2.5 million credit allowance for Day 1 PCD loans. The remainder of the provision expense during the quarter was driven by strong loan growth and higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast.annualized net charge-offs to average total loans totaled 0.01%. During the nine months ended September 30, 2022,first quarter of 2023, the Company recorded an increase in the allowance for credit losses of $17.0 million. The provision expense was$1.0 million driven by record loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast and Day 1 reserve requirements for the acquired RCB portfolio.growth. Specific reserves on loans totaled $2.9$4.4 million at September 30, 2022.March 31, 2023.

Net charge-offs on loans during the three and nine months ended September 30, 2021 were $0.2March 31, 2022 totaled $0.6 million, and $1.1 million, respectively. Thethe ratio of annualized net charge-offs to average total loans totaled 0.05%. During the first quarter of 2022, the Company recorded a net zero provisiondecrease in the allowance for credit losses for the three months ended September 30, 2021, as the provision expense of $0.3 million for funded loans was fully offset by a provision release of $0.3 million for unfunded loan commitments. During the nine months ended September 30, 2021, the Company recorded total provision release of $9.4 million, which included a provision release of $9.6 million for funded loans and a provision expense of $0.2 million for unfunded loan commitments. The provision

62

release was driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast.quality. Specific reserves on loans totaled $1.2$1.5 million at September 30, 2021.March 31, 2023.

The Company has elected to exclude AIR from the ACL calculation. As of March 31, 2023 and December 31, 2022, AIR from loans totaled $36.1 million and $31.8 million, respectively. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income. As of September 30, 2022 and December 31, 2021, AIR from loans totaled $26.9 million and $15.7 million, respectively.

Total ACL

After considering the above mentioned factors, we believe that the ACL of $65.6$90.3 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at September 30, 2022.March 31, 2023. However, it is likely that future adjustments to the ACL will be necessary. Any changes to the underlying assumptions, circumstances or estimates, including but not limited to changes in the underlying macro-economic forecast, used in determining the ACL, could negatively or positively affect the Company's results of operations, liquidity or financial condition.

64

The following schedules present,schedule presents, by class stratification, the changes in the ACL during the periods listed:

As of and for the three months ended

September 30, 2022

September 30, 2021

Total loans

% NCOs(1)

Total loans

% NCOs(1)

Beginning allowance for credit losses

$

50,860

$

49,030

Charge-offs:

Commercial

 

0.00%

 

(172)

0.01%

Commercial real estate non owner-occupied

 

0.00%

 

0.00%

Residential real estate

 

0.00%

 

(4)

0.00%

Consumer

 

(253)

0.02%

 

(146)

0.01%

Total charge-offs

 

(253)

 

(322)

Recoveries

 

66

 

101

Net charge-offs

 

(187)

0.01%

 

(221)

0.02%

Provision expense for credit losses

 

7,275

 

346

Day 1 CECL provision expense

 

5,201

 

PCD allowance for credit loss at acquisition

2,474

Ending allowance for credit losses

$

65,623

$

49,155

Average total loans outstanding during the period

$

5,114,044

$

4,352,557

As of and for the nine months ended

As of and for the three months ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Total loans

% NCOs(1)

Total loans

% NCOs(1)

Total loans

% NCOs(1)

Total loans

% NCOs(1)

Beginning balance

$

49,694

$

59,777

$

89,553

$

49,694

Charge-offs:

Commercial

 

(754)

0.02%

(1,112)

0.02%

 

0.00%

(463)

0.04%

Commercial real estate non-owner occupied

 

0.00%

0.00%

 

0.00%

0.00%

Residential real estate

 

(2)

0.00%

(26)

0.00%

 

0.00%

(2)

0.00%

Consumer

 

(582)

0.01%

(410)

0.01%

 

(325)

0.02%

(169)

0.01%

Total charge-offs

 

(1,338)

(1,548)

 

(325)

(634)

Recoveries

 

256

480

 

65

75

Net charge-offs

 

(1,082)

0.03%

(1,068)

0.03%

 

(260)

0.01%

(559)

0.05%

Provision expense (release) for credit losses

 

9,336

(9,554)

 

1,050

(325)

Day 1 CECL provision expense

 

5,201

 

PCD allowance for credit loss at acquisition

2,474

Ending allowance for credit losses

$

65,623

$

49,155

$

90,343

$

48,810

Ratio of ACL to total loans outstanding at period end

 

1.15%

1.11%

 

1.23%

1.04%

Ratio of ACL to total non-performing loans at period end

 

447.72%

382.59%

 

946.40%

440.01%

Total loans

$

5,721,985

$

4,421,760

$

7,345,298

$

4,674,238

Average total loans outstanding during the period

4,784,064

4,314,330

7,257,639

4,520,205

Non-performing loans

14,657

12,848

9,546

11,093

(1)

Ratio of annualized net charge-offs to average total loans.

63

At the acquisition date, RCB had $2.1 million of previously charged off loans for which the Company continued to have contractual rights to the cash flows. In accordance with ASC Topic 326, PCD loan accounting is to be applied by the acquirer whereby an allowance for credit losses should be recorded for this subset of loans at the acquisition date, and if deemed non-collectible, the loans are to be fully charged off on the acquirer’s books. Such amounts were fully reserved for, charged off on the acquisition date and excluded from the table above.

The following tables present the allocation of the ACL and the percentage of the total amount of loans in each loan category listed as of the dates presented:

September 30, 2022

March 31, 2023

ACL as a %

ACL as a %

    

Total loans

    

% of total loans

    

Related ACL

    

of total ACL

    

Total loans

    

% of total loans

    

Related ACL

    

of total ACL

Commercial

$

3,923,483

 

68.6%

$

38,220

 

58.2%

$

4,228,950

 

57.6%

$

37,395

 

41.4%

Commercial real estate non-owner occupied

 

950,402

 

16.6%

 

14,174

 

21.7%

 

1,824,524

 

24.8%

 

32,890

 

36.4%

Residential real estate

 

830,146

 

14.5%

 

12,874

 

19.6%

 

1,271,798

 

17.3%

 

19,574

 

21.7%

Consumer

 

17,954

 

0.3%

 

355

 

0.5%

 

20,026

 

0.3%

 

484

 

0.5%

Total

$

5,721,985

 

100.0%

$

65,623

 

100.0%

$

7,345,298

 

100.0%

$

90,343

 

100.0%

December 31, 2021

December 31, 2022

ACL as a %

ACL as a %

    

Total loans

    

% of total loans

    

Related ACL

    

of total ACL

    

Total loans

    

% of total loans

    

Related ACL

    

of total ACL

Commercial

$

3,162,417

 

70.1%

$

31,256

 

62.9%

$

4,251,780

 

58.9%

$

37,608

 

42.0%

Commercial real estate non-owner occupied

 

664,729

 

14.7%

 

10,033

 

20.2%

 

1,696,050

 

23.5%

 

32,050

 

35.8%

Residential real estate

 

668,656

 

14.8%

 

8,056

 

16.2%

 

1,251,281

 

17.3%

 

19,306

 

21.5%

Consumer

 

17,581

 

0.4%

 

349

 

0.7%

 

21,358

 

0.3%

 

589

 

0.7%

Total

$

4,513,383

 

100.0%

$

49,694

 

100.0%

$

7,220,469

 

100.0%

$

89,553

 

100.0%

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Deposits

Deposits from banking clients serve as a primary funding source for our banking operations, and our ability to gather and manage deposit levels is critical to our success. Deposits not only provide a low-costlower-cost funding source for our loans, but also provide a foundation for the client relationships that are critical to future loan growth. We maintain a granular and well diversified deposit base with no exposure to venture capital or crypto deposits. The following table presents information regarding our deposit composition at September 30, 2022March 31, 2023 and December 31, 2021:2022:

Increase (decrease)

Increase (decrease)

September 30, 2022

December 31, 2021

Amount

% Change

March 31, 2023

December 31, 2022

Amount

% Change

Non-interest bearing demand deposits

$

2,735,832

40.2%

$

2,506,265

40.2%

$

229,567

    

9.2%

$

2,920,891

38.5%

$

3,134,716

39.9%

$

(213,825)

    

6.8%

Interest bearing demand deposits

 

597,035

8.8%

 

555,401

8.9%

 

41,634

 

7.5%

 

1,098,172

14.5%

 

913,852

11.6%

 

184,320

 

20.2%

Savings accounts

 

817,724

12.0%

 

774,559

12.4%

 

43,165

 

5.6%

 

795,150

10.5%

 

885,488

11.2%

 

(90,338)

 

10.2%

Money market accounts

 

1,814,131

26.7%

 

1,558,032

25.0%

 

256,099

 

16.4%

 

1,788,978

23.6%

 

2,065,170

26.2%

 

(276,192)

 

13.4%

Total transaction deposits

 

5,964,722

87.7%

 

5,394,257

86.5%

 

570,465

 

10.6%

 

6,603,191

87.1%

 

6,999,226

88.9%

 

(396,035)

 

5.7%

Time deposits < $250,000

 

672,267

9.9%

 

703,741

11.4%

 

(31,474)

 

(4.5)%

 

712,510

9.4%

 

670,197

8.5%

 

42,313

 

(6.3)%

Time deposits > $250,000

 

166,563

2.4%

 

130,175

2.1%

 

36,388

 

28.0%

 

265,979

3.5%

 

203,203

2.6%

 

62,776

 

30.9%

Total time deposits

 

838,830

12.3%

 

833,916

13.5%

 

4,914

 

0.6%

 

978,489

12.9%

 

873,400

11.1%

 

105,089

 

12.0%

Total deposits

$

6,803,552

100.0%

$

6,228,173

100.0%

$

575,379

 

9.2%

$

7,581,680

100.0%

$

7,872,626

100.0%

$

(290,946)

 

3.7%

64

The following table shows uninsured time deposits by scheduled maturity as of September 30, 2022:March 31, 2023:

    

September 30, 2022

    

March 31, 2023

Three months or less

$

15,299

$

19,683

Over 3 months through 6 months

 

17,109

 

6,117

Over 6 months through 12 months

 

23,120

 

70,730

Thereafter

 

86,599

 

72,045

Total uninsured time deposits

$

142,127

$

168,575

At September 30, 2022March 31, 2023 and December 31 2021,2022, time deposits that were scheduled to mature within 12 months totaled $521.7$575.5 million and $555.4$469.8 million, respectively. Of the time deposits scheduled to mature within 12 months at September 30, 2022, $72.9March 31, 2023, $161.1 million were in denominations of $250,000 or more, and $448.8$414.4 million were in denominations less than $250,000. Approximately 70% of our total deposits were FDIC insured at March 31, 2023 and December 31, 2022. Additionally, the Company participates in the IntraFi Cash Service program, which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $450.4 million and $192.2 million of deposits in the program as of March 31, 2023 and 2022, respectively.

Long-term debt

On November 5, 2021, theThe Company entered intoholds a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The balance on the note at September 30, 2022,March 31, 2023, net of long-term debt issuance costs totaling $0.4 million, totaled $39.6 million. Interest expense totaling $0.3 million and $0.9 million was recorded in the consolidated statements of operations during the three and nine monthsyear ended September 30, 2022, respectively.March 31, 2023.

The note is subordinated, unsecured and matures on November 15, 2031. Payments consist of interest only. Interest expense on the note is payable semi-annually in arrears and will bear interest at 3.00% per annum until November 15, 2026 (or any earlier redemption date). From November 15, 2026 until November 15, 2031 (or any earlier redemption date) payments will be made quarterly in arrears, and the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month term SOFR plus 203 basis points. The Company is usingdeployed the net proceeds from the sale of the note for general corporate purposes. Prior to November 5, 2026, the Company may redeem the note only under certain limited circumstances. Beginning on November 5, 2026 through maturity, the note may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the note being redeemed, together with any accrued and unpaid interest on the note being redeemed up to but excluding the date of redemption. The note is not subject to redemption at the option of the holder.

As part of the acquisition of BOJH on October 1, 2022, the Company assumed three subordinated note purchase agreements to issue and sell fixed-to-floating rates totaling $15.0 million. The balance on the notes at March 31, 2023, net of a fair value adjustment

66

related to the acquisition totaling $0.6 million, totaled $14.4 million. Interest expense related to the notes totaling $0.1 million was recorded in the consolidated statements of operations during the year ended March 31, 2023.

The three notes, containing similar terms, are subordinated, unsecured and mature on June 15, 2031. Payments consist of interest only. Interest expense on the notes is payable semi-annually in arrears and will bear interest at 3.75% per annum until June 15, 2026 (or any earlier redemption date). From June 15, 2026 until June 15, 2031 (or any earlier redemption date) payments will be made quarterly in arrears, and the interest rate shall reset quarterly to an interest rate per annum equal to the then current three-month term SOFR plus 306 basis points. Prior to June 15, 2026, the Company may redeem the notes only under certain limited circumstances. Beginning on June 15, 2026 through maturity, the notes may be redeemed, at the Company’s option, on any scheduled interest payment date. Any redemption by the Company would be at a redemption price equal to 100% of the principal amount of the notes being redeemed, together with any accrued and unpaid interest on the notes being redeemed up to but excluding the date of redemption. The notes are not subject to redemption at the option of the holder.

Other borrowings

As of September 30, 2022March 31, 2023 and December 31, 2021,2022, the BankCompany sold securities under agreements to repurchase totaling $20.0$21.5 million and $22.8$20.2 million, respectively. In addition, as a member of the FHLB, the BankCompany has access to a line of credit and term financing from the FHLB with total available credit of $1.0$1.6 billion at September 30, 2022.March 31, 2023. The BankCompany may utilize itsthe FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2022March 31, 2023 and December 31, 2021,2022, the BankCompany had no$1.0 billion and $385.0 million, respectively, of outstanding borrowings with the FHLB. The BankCompany may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2022March 31, 2023 or December 31, 2021.2022. Loans pledged were $1.7$2.5 billion and $1.3$2.0 billion at September 30, 2022March 31, 2023 and December 31, 2021,2022, respectively. The Company incurred $7.1 million of interest expense related to FHLB advances or other short-term borrowings for the three months ended March 31, 2023. The Company incurred no interest expense related to FHLB advances or other short-term borrowings for the three and nine months ended September 30, 2022 or 2021.March 31, 2022.

Results of Operations

Our net income depends largely on net interest income, which is the difference between interest income from interest earning assets and interest expense on interest bearing liabilities. Our results of operations are also affected by provisions for credit losses and non-interest income, such as service charges, bank card income, swap fee income, and gain on sale of mortgages. Our primary operating expenses, aside from interest expense, consist of salaries and benefits, occupancy costs, telecommunications data processing expense, FDIC deposit insurance and intangible asset amortization. Any expenses related to the resolution of problem assets are also included in non-interest expense.

65

Overview of results of operations

Net income totaled $15.8 million and $54.6$40.3 million, or $0.50 and $1.77 per diluted share, during the three and nine months ended September 30, 2022, respectively. Excluding $9.5 million of after-tax non-recurring acquisition-related expenses, net income totaled $25.3 million, or $0.80$1.06 per diluted share, during the three months ended September 30, 2022. Excluding $10.5March 31, 2023, increasing $21.9 million of after-tax non-recurring acquisition-related expenses, net income totaled $65.0 million, or $2.11 per diluted share, duringcompared to the ninethree months ended September 30,March 31, 2022. DuringThe increase was driven by the threegrowth in our business driven by organic loan growth, the 2022 acquisitions and nine months ended September 30, 2021, net income totaled $19.8 million and $70.8 million, or $0.64 and $2.27 per diluted share, respectively. The rise in mortgage rates in 2022 has resulted in lower mortgage banking income during the first nine months of 2022. However, themultiple increases in the Federal Reserve’s interest rates are driving higher loan yields resulting in increasing levels of net interest income.Funds Rate over the last twelve months. The return on average tangible assets was 1.80% and 1.07% during the three months ended March 31, 2023 and 2022, respectively, and the return on average tangible common equity was 20.86% and 10.31%, respectively.

Net interest income

We regularly review net interest income metrics to provide us with indicators of how the various components of net interest income are performing. We regularly review: (i) our loan mix and the yield on loans; (ii) the investment portfolio and the related yields; (iii) our deposit mix and the cost of deposits; and (iv) net interest income simulations for various forecast periods.

66

67

The table below presents the components of net interest income on a FTE basis for the three months ended March 31, 2023 and 2022. The effects of trade-date accounting of investment securities for which the cash had not settled are not considered interest earning assets and are excluded from this presentation for time frames prior to their cash settlement, as are the market value adjustments on the investment securities available-for-sale and loans.

The table below presents the components of net interest income on a FTE basis for the three months ended September 30, 2022 and 2021.

For the three months ended

For the three months ended

For the three months ended

For the three months ended

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Average
balance

Interest

Average
rate

Average
balance

Interest

Average
rate

Average
balance

Interest

Average
rate

Average
balance

Interest

Average
rate

Interest earning assets:

Originated loans FTE(1)(2)(3)

$

4,834,206

$

58,153

4.77%

$

4,137,001

$

41,865

4.01%

$

5,514,704

$

79,167

5.82%

$

4,361,919

$

42,085

3.91%

Acquired loans

 

295,893

 

6,581

8.82%

 

187,419

3,796

8.04%

 

1,771,224

 

27,023

6.19%

 

147,638

2,568

7.05%

Loans held for sale

39,532

551

5.53%

157,381

1,166

2.94%

21,753

346

6.45%

93,639

756

3.27%

Investment securities available-for-sale

 

865,875

 

4,247

1.96%

 

656,757

 

2,572

1.57%

 

810,257

 

3,989

1.97%

 

751,646

 

2,849

1.52%

Investment securities held-to-maturity

 

605,356

 

2,212

1.46%

 

671,053

 

2,178

1.30%

 

646,646

 

2,871

1.78%

 

589,830

 

2,012

1.36%

Other securities

 

14,909

 

212

5.69%

 

14,657

 

210

5.73%

 

51,366

 

898

6.99%

 

14,590

 

209

5.73%

Interest earning deposits and securities purchased under agreements to resell

 

326,277

 

1,822

2.22%

 

799,779

 

329

0.16%

Interest earning deposits

 

86,790

 

653

3.05%

 

743,239

 

359

0.20%

Total interest earning assets FTE(2)

$

6,982,048

$

73,778

4.19%

$

6,624,047

$

52,116

3.12%

$

8,902,740

$

114,947

5.24%

$

6,702,501

$

50,838

3.08%

Cash and due from banks

$

81,112

$

77,498

$

118,607

$

79,383

Other assets

 

440,516

 

463,553

 

687,940

 

442,098

Allowance for credit losses

 

(54,610)

 

(48,957)

 

(89,831)

 

(49,584)

Total assets

$

7,449,066

$

7,116,141

$

9,619,456

$

7,174,398

Interest bearing liabilities:

Interest bearing demand, savings and money market deposits

$

3,058,463

$

1,829

0.24%

$

2,803,071

$

1,516

0.21%

$

3,766,203

$

7,759

0.84%

$

2,936,158

$

1,437

0.20%

Time deposits

 

799,759

 

1,116

0.55%

 

903,935

 

1,711

0.75%

 

922,521

 

3,290

1.45%

 

821,814

 

1,094

0.54%

Securities sold under agreements to repurchase

 

22,183

 

7

0.13%

 

19,681

 

5

0.10%

 

20,045

 

6

0.12%

 

22,770

 

7

0.12%

Long-term debt, net

 

39,543

 

326

3.27%

 

 

0.00%

 

53,918

 

518

3.90%

 

39,489

 

326

3.35%

Federal Home Loan Bank advances

 

597,833

 

7,071

4.80%

 

 

0.00%

Total interest bearing liabilities

$

3,919,948

$

3,278

0.33%

$

3,726,687

$

3,232

0.34%

$

5,360,520

$

18,644

1.41%

$

3,820,231

$

2,864

0.30%

Demand deposits

$

2,557,286

$

2,422,976

$

3,004,643

$

2,434,198

Other liabilities

 

100,983

 

107,233

 

135,175

 

78,027

Total liabilities

 

6,578,217

 

6,256,896

 

8,500,338

 

6,332,456

Shareholders' equity

 

870,849

 

859,245

 

1,119,118

 

841,942

Total liabilities and shareholders' equity

$

7,449,066

$

7,116,141

$

9,619,456

$

7,174,398

Net interest income FTE(2)

$

70,500

$

48,884

$

96,303

$

47,974

Interest rate spread FTE(2)

3.86%

2.78%

3.83%

2.78%

Net interest earning assets

$

3,062,100

$

2,897,360

$

3,542,220

$

2,882,270

Net interest margin FTE(2)

4.01%

2.93%

4.39%

2.90%

Average transaction deposits

$

5,615,749

$

5,226,047

$

6,770,846

$

5,370,356

Average total deposits

6,415,508

6,129,982

7,693,367

6,192,170

Ratio of average interest earning assets to average interest bearing liabilities

178.12%

177.75%

166.08%

175.45%

(1)

    

Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.

(2)

    

Presented on an FTE basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,409$1,414 and $1,315$1,313 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

(3)

    

Loan fees included in interest income totaled $2,205$2,899 and $4,514$2,364 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively.

Net interest income totaled $69.1$94.9 million and $47.6$46.7 million during the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Net interest income on an FTE basis totaled a record $70.5 million and $48.9$96.3 million during the three months ended September 30, 2022 and 2021, respectively. During theMarch 31, 2023, an increase of $48.3 million, or 100.7%, compared to three months ended September 30, 2022, the FTE net interest margin widened 108 basis points to 4.01%, compared to the three months ended September 30, 2021.March 31, 2022. The yield on earning assets increased 107216 basis points, primarily driven by an increase in earning assets and increases in the federal funds rate since March 2022 as well as excess cash being deployed into higher-yielding

67

originated loans and investment securities. The cost of funds decreased one basis point to 0.20% duringFederal Reserve’s interest rates. During the three months ended September 30, 2022, compared toMarch 31, 2023, the three months ended September 30, 2021.

Average loans comprised $5.1 billion, or 73.5%,cost of total average interest earning assets during the three months ended September 30, 2022, compared to $4.3 billion, or 65.3%, during the three months ended September 30, 2021. The increase in average loan balances was driven by a $697.2 million increase in average originated loans. Average acquired loans increased $108.5 million primarily driven by the RCB acquisition.

Average investment securities comprised 21.1% and 20.0% of total interest earning assets during the three months ended September 30, 2022 and 2021, respectively. The increase in the investment portfolio was driven by strategic decisions to deploy a portion of the excess cash liquidity into higher-yielding investment securities.

Average balances of interest bearing liabilities increased $193.3 million during the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $255.4 million, long-term debt totaling $39.5 million and securities sold under agreement to repurchase totaling $2.5 million. The increase was partially offset by a decrease in time deposits of $104.1 million.

The Rock Canyon Bank acquisition added $734.5 million of total deposits, including $653.0 million of transaction deposits and $81.5 million of time deposits on September 1, 2022.

68

The table below presents the components of net interest income on an FTE basis for the nine months ended September 30, 2022 and 2021:

For the nine months ended

For the nine months ended

September 30, 2022

September 30, 2021

Average
balance

Interest

Average
rate

Average
balance

Interest

Average
rate

Interest earning assets:

Originated loans FTE(1)(2)(3)

$

4,598,705

$

148,025

4.30%

$

4,073,529

$

121,461

3.99%

Acquired loans

 

191,089

 

13,552

9.48%

 

212,151

 

12,847

8.10%

Loans held for sale

70,384

2,188

4.16%

182,385

3,896

2.86%

Investment securities available-for-sale

 

839,235

 

10,904

1.73%

 

660,399

 

7,454

1.50%

Investment securities held-to-maturity

 

585,023

 

6,291

1.43%

 

555,818

 

5,317

1.28%

Other securities

 

14,698

 

632

5.73%

 

15,180

 

629

5.52%

Interest earning deposits and securities purchased under agreements to resell

 

530,841

 

3,196

0.80%

 

776,472

 

722

0.12%

Total interest earning assets FTE(2)

$

6,829,975

$

184,788

3.62%

$

6,475,934

$

152,326

3.14%

Cash and due from banks

$

78,710

$

78,953

Other assets

 

428,374

 

476,856

Allowance for credit losses

 

(51,125)

 

(54,249)

Total assets

$

7,285,934

$

6,977,494

Interest bearing liabilities:

Interest bearing demand, savings and money market deposits

$

2,996,317

$

4,760

0.21%

$

2,746,657

$

4,740

0.23%

Time deposits

 

804,110

 

3,201

0.53%

 

936,088

 

6,050

0.86%

Securities sold under agreements to repurchase

 

22,236

 

20

0.12%

 

20,310

 

16

0.11%

Long-term debt, net

 

39,516

 

980

3.32%

 

 

0.00%

Total interest bearing liabilities

$

3,862,179

$

8,961

0.31%

$

3,703,055

$

10,806

0.39%

Demand deposits

$

2,487,522

$

2,320,160

Other liabilities

 

91,992

 

108,503

Total liabilities

 

6,441,693

 

6,131,718

Shareholders' equity

 

844,241

 

845,776

Total liabilities and shareholders' equity

$

7,285,934

$

6,977,494

Net interest income FTE(2)

$

175,827

$

141,520

Interest rate spread FTE(2)

3.31%

2.75%

Net interest earning assets

$

2,967,796

$

2,772,879

Net interest margin FTE(2)

3.44%

2.92%

Average transaction deposits

$

5,483,839

$

5,066,817

Average total deposits

6,287,949

6,002,905

Ratio of average interest earning assets to average interest bearing liabilities

176.84%

174.88%

(1)

Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.

(2)

Presented on a fully taxable equivalent basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above are $4,058 and $3,862 for the nine months ended September 30, 2022 and 2021, respectively.

(3)

Loan fees included in interest income totaled $7,155 and $13,753 for the nine months ended September 30, 2022 and 2021, respectively.

Net interest incomefunds totaled $171.8 million and $137.7 million during the nine months ended September 30, 2022 and 2021, respectively. Net interest income on an FTE basis totaled $175.8 million and $141.5 million during the nine months ended September 30, 2022 and 2021, respectively. During the nine months ended September 30, 2022, the FTE net interest margin widened 52 basis points to 3.44%0.90%, compared to 0.19%, for the nine months ended September 30, 2021. The yield on earnings assets increased 48 basis points, primarily driven by increases in the federal funds rate since March 2022, the RCB acquisition as well as excess cash being deployed into higher-yielding originated loans and investment securities. The cost of funds decreased five basis points to 0.19%same period during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.2022.

69

68

Average loans comprised $4.8$7.3 billion, or 70.1%81.8%, of total average interest earning assets during the ninethree months ended September 30, 2022,March 31, 2023, compared to $4.3$4.5 billion, or 66.2%67.3%, of total average interest earning assets during the ninethree months ended September 30, 2021.March 31, 2022. The increase in average loan balances was driven by a $525.2 million increaseorganic loan originations and loans acquired through the Rock Canyon Bank and Bank of Jackson Hole acquisitions in average originated loans. Year-to-date loan fundings through September 30, 2022 totaled a record $1.5 billion.2022.

Average investment securities comprised 20.9%16.4% and 18.8%20.0% of total interest earning assets during the ninethree months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The increaseAverage interest bearing cash balances totaled $86.8 million during the three months ended March 31, 2023, compared to $743.2 million for the same period in the investment portfolio was driven by strategic decisions to deploy a portion ofprior year as the excess cash liquidity has been deployed into higher-yielding investment securities.earning assets.

Average balances of interest bearing liabilities increased $159.1 million$1.5 billion during the ninethree months ended September 30, 2022,March 31, 2023, compared to the ninethree months ended September 30, 2021.March 31, 2022. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $249.7$830.0 million, which included deposits from our 2022 acquisitions, Federal Home Loan Bank advances totaling $597.8 million, time deposits of $100.7 million, and long-term debt totaling $39.5 million and securities sold under agreements to repurchase totaling $1.9$14.4 million. The increase was partially offset by a decrease in time deposits of $132.0 million. The cost of deposits decreased seven basis points to 0.17% during the nine months ended September 30, 2022, compared to 0.24% during the nine months ended September 30, 2021.

The Rock Canyon Bank acquisition added $734.5 million of total deposits, including $653.0 million of transaction deposits and $81.5 million of time deposits on September 1, 2022.

70

The following table summarizes the changes in net interest income on an FTE basis by major category of interest earning assets and interest bearing liabilities, identifying changes related to volume and changes related to rates for the three and nine months ended September 30, 2022,March 31, 2023, compared to the three and nine months ended September 30, 2021:March 31, 2022:

Three months ended September 30, 2022

Nine months ended September 30, 2022

Three months ended March 31, 2023

compared to

compared to

compared to

Three months ended September 30, 2021

Nine months ended September 30, 2021

Three months ended March 31, 2022

Increase (decrease) due to

Increase (decrease) due to

Increase (decrease) due to

    

Volume

    

Rate

    

Net

    

Volume

    

Rate

    

Net

    

Volume

    

Rate

    

Net

Interest income:

Originated loans FTE(1)(2)(3)

$

8,387

$

7,901

$

16,288

$

16,905

$

9,659

$

26,564

$

16,549

$

20,533

$

37,082

Acquired loans

2,413

372

2,785

(1,494)

2,199

705

24,771

(316)

24,455

Loans held for sale

 

(1,643)

 

1,028

 

(615)

 

(3,482)

 

1,774

 

(1,708)

 

(1,143)

 

733

 

(410)

Investment securities available-for-sale

 

1,026

 

649

 

1,675

 

2,324

 

1,126

 

3,450

 

289

 

851

 

1,140

Investment securities held-to-maturity

 

(240)

 

274

 

34

 

314

 

660

 

974

 

252

 

607

 

859

Other securities

 

4

 

(2)

 

2

 

(21)

 

24

 

3

 

643

 

46

 

689

Interest earning deposits and securities purchased under agreements to resell

 

(2,644)

 

4,137

 

1,493

 

(1,479)

 

3,953

 

2,474

Interest earning deposits

 

(4,939)

 

5,233

 

294

Total interest income

$

7,303

$

14,359

$

21,662

$

13,067

$

19,395

$

32,462

$

36,422

$

27,687

$

64,109

Interest expense:

Interest bearing demand, savings and money market deposits

$

153

$

160

$

313

$

397

$

(377)

$

20

$

1,710

$

4,612

$

6,322

Time deposits

 

(145)

 

(450)

 

(595)

 

(525)

 

(2,324)

 

(2,849)

 

359

 

1,837

 

2,196

Securities sold under agreements to repurchase

 

1

 

1

 

2

 

2

 

2

 

4

 

(1)

 

 

(1)

Long-term debt, net

326

326

980

 

 

980

139

53

192

Federal Home Loan Bank advances

 

7,071

7,071

Total interest expense

 

335

 

(289)

 

46

 

854

 

(2,699)

 

(1,845)

 

9,278

 

6,502

 

15,780

Net change in net interest income

$

6,968

$

14,648

$

21,616

$

12,213

$

22,094

$

34,307

$

27,144

$

21,185

$

48,329

(1)

    

Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.

(2)

    

Presented on an FTE basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,409$1,414 and $1,315$1,313 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. The taxable equivalent adjustments included above are $4,058 and $3,862 for the nine months ended September 30, 2022 and 2021, respectively.

(3)

Loan fees included in interest income totaled $2,205$2,899 and $4,514$2,364 for the three months ended September 30,March 31, 2023 and 2022, and 2021, respectively. Loan fees included in interest income totaled $7,155 and $13,753 for the nine months ended September 30, 2022 and 2021, respectively.

69

Below is a breakdown of average deposits and the average rates paid during the periods indicated:

For the three months ended

For the nine months ended

For the three months ended

September 30, 2022

September 30, 2021

September 30, 2022

September 30, 2021

March 31, 2023

March 31, 2022

Average

Average

Average

Average

Average

Average

Average

rate

Average

rate

Average

rate

Average

rate

Average

rate

Average

rate

balance

    

paid

    

balance

    

paid

    

balance

    

paid

    

balance

    

paid

balance

    

paid

    

balance

    

paid

Non-interest bearing demand

$

2,557,286

0.00%

$

2,422,976

    

0.00%

$

2,487,522

    

0.00%

$

2,320,160

0.00%

$

3,004,643

0.00%

$

2,434,198

    

0.00%

Interest bearing demand

 

592,133

0.26%

 

544,056

0.19%

 

589,918

0.21%

 

548,906

0.21%

 

926,529

0.98%

 

577,586

0.17%

Money market accounts

 

1,674,240

0.26%

 

1,535,361

0.25%

 

1,619,744

0.24%

 

1,491,591

0.27%

 

1,993,541

0.97%

 

1,575,592

0.24%

Savings accounts

 

792,090

0.18%

 

723,654

0.15%

 

786,655

0.15%

 

706,160

0.16%

 

846,133

0.37%

 

782,980

0.14%

Time deposits

 

799,759

0.55%

 

903,935

0.75%

 

804,110

0.53%

 

936,088

0.86%

 

922,521

1.45%

 

821,814

0.54%

Total average deposits

$

6,415,508

0.18%

$

6,129,982

0.21%

$

6,287,949

0.17%

$

6,002,905

0.24%

$

7,693,367

0.58%

$

6,192,170

0.17%

Provision for credit losses

The provision for credit losses represents the amount of expense that is necessary to bring the ACL to a level that we deem appropriate to absorb estimated lifetime losses inherent in the loan portfolio as of the balance sheet date. The determination of the ACL, and the resultant provision for credit losses, is subjective and involves significant estimates and assumptions.

The Company recorded a credit loss provision expense of $0.9 million for the three months ended March 31, 2023, driven by loan growth. During the three months ended March 31, 2022, the Company recorded a provision release of $0.3 million, driven by strong asset quality. The allowance for credit losses totaled 1.15%1.23% of total loans at September 30, 2022,March 31, 2023, compared to the allowance for credit losses of 1.11%1.04% at September 30, 2021.

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The Company recorded credit loss provision expense of $12.7 million during the three months ended September 30, 2022, which included a provision expense of $12.5 million for funded loans and a provision expense of $0.2 million for unfunded loan commitments. During the nine months ended September 30, 2022, the Company recorded credit loss provision expense of $14.9 million, which included a provision expense of $14.5 million for funded loans and a provision expense of $0.4 million for unfunded loan commitments. The provision expense was driven by record loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast and $5.4 million of Day 1 reserve requirements for the acquired RCB portfolio.

The Company recorded $0.3 million of provision expense for funded loans and $0.3 million of provision release for unfunded loan commitment reserves, during the three months ended September 30, 2021, as the impact of net loan growth was offset by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. The Company recorded total provision release of $9.4 million for the nine months ended September 30, 2021, which included a provision release of $9.6 million for funded loans and a provision expense of $0.2 million for unfunded loan commitments, driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast.March 31, 2022.

Non-interest income

The table below details the components of non-interest income for the periods presented:

For the three months ended September 30, 

For the nine months ended September 30, 

Three months

Nine months

For the three months ended March 31, 

2023 vs 2022

Increase (decrease)

Increase (decrease)

Increase (decrease)

    

2022

    

2021

    

2022

    

2021

Amount

% Change

Amount

% Change

    

2023

    

2022

Amount

% Change

Service charges

$

4,326

$

3,947

$

11,992

$

10,989

$

379

9.6 %

$

1,003

9.1 %

$

4,101

$

3,710

$

391

10.5%

Bank card fees

 

4,681

 

4,530

 

13,345

 

13,217

151

3.3 %

128

1.0 %

 

4,637

 

4,123

514

12.5%

Mortgage banking income

 

4,474

 

16,615

 

21,088

 

52,973

(12,141)

(73.1)%

(31,885)

(60.2)%

 

3,216

 

9,666

(6,450)

(66.7)%

Bank-owned life insurance income

573

558

1,645

1,659

15

2.7 %

(14)

(0.8)%

645

532

113

21.2%

Other non-interest income

 

2,527

 

1,708

 

3,554

 

4,705

819

48.0 %

(1,151)

(24.5)%

 

2,066

 

1,023

1,043

102.0%

OREO-related income

 

1

 

 

6

 

35

1

100.0 %

(29)

(82.9)%

Banking center consolidation-related income

 

776

 

1,164

 

1,544

 

3,571

(388)

(33.3)%

(2,027)

(56.8)%

Total non-interest income

$

17,358

$

28,522

$

53,174

$

87,149

$

(11,164)

(39.1)%

$

(33,975)

(39.0)%

$

14,665

$

19,054

$

(4,389)

(23.0)%

Non-interest income totaled $17.4decreased $4.4 million, for the three months ended September 30, 2022,or 23.0%, compared to $28.5 million for the three months ended September 30, 2021.first quarter of last year. The decrease inwas primarily driven by $6.5 million lower mortgage banking income was driven by lower mortgage activity due to higher interest rates on mortgage loans and competition driving tighter gain on sale margins. Service charges and bank card fees increased a combined $0.4 million during the three months ended September 30, 2022, compared to the three months ended September 30, 2021, due to changes in consumer behavior. Other non-interest income increased $0.8 million due to higher derivative fee income and unrealized gains on equity method investments, partially offset by market adjustments on company-owned life insurance.

Non-interest income totaled $53.2 million for the nine months ended September 30, 2022, compared to $87.1 million for the nine months ended September 30, 2021. The decrease in mortgage banking income was driven by lower mortgagerefinance activity due to higher interest rates on mortgage loans and competition driving tighter gain on sale margins. Other non-interest income, decreased $1.2included $0.5 million primarily due to market adjustments on company-owned life insurance and lower unrealized gains on equity method investments.of trust income during the first quarter 2023. Service charges and bank card fees increased a combined $1.1$0.9 million during the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021, due to changes in consumer behavior.first quarter of 2022.

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70

Non-interest expense

The table below details the components of non-interest expense for the periods presented:

For the three months ended September 30, 

For the nine months ended September 30, 

Three months

Nine months

For the three months ended March 31, 

2023 vs 2022

Increase (decrease)

Increase (decrease)

Increase (decrease)

2022

    

2021

    

2022

    

2021

Amount

% Change

Amount

% Change

2023

    

2022

Amount

% Change

Salaries and benefits

$

30,540

$

32,556

$

88,652

$

97,518

$

(2,016)

(6.2)%

$

(8,866)

(9.1)%

$

32,989

$

29,336

$

3,653

12.5%

Occupancy and equipment

 

8,026

 

6,469

 

21,087

 

19,150

 

1,557

24.1 %

1,937

10.1 %

 

9,073

 

6,396

 

2,677

41.9%

Telecommunications and data processing

 

2,899

 

2,282

 

7,733

 

6,934

 

617

27.0 %

799

11.5 %

Data processing

 

3,752

 

2,381

 

1,371

57.6%

Marketing and business development

 

979

 

582

 

2,326

 

1,604

 

397

68.2 %

722

45.0 %

 

870

 

673

 

197

29.3%

FDIC deposit insurance

 

508

 

475

 

1,476

 

1,375

 

33

6.9 %

101

7.3 %

 

2,178

 

482

 

1,696

351.9%

Bank card expenses

 

1,409

 

1,457

 

4,075

 

3,931

 

(48)

(3.3)%

144

3.7 %

 

1,328

 

1,268

 

60

4.7%

Professional fees

 

5,810

 

3,251

 

8,110

 

4,642

 

2,559

78.7 %

3,468

74.7 %

 

2,590

 

814

 

1,776

218.2%

Other non-interest expense

 

3,547

 

2,828

 

9,264

 

7,652

 

719

25.4 %

1,612

21.1 %

 

4,149

 

2,436

 

1,713

70.3%

Problem asset workout

215

1,119

522

1,851

(904)

(80.8)%

(1,329)

(71.8)%

(Gain) loss on OREO sales, net

(378)

(648)

192

(378)

(100.0)%

(840)

>(100.0)%

Core deposit intangible asset amortization

 

383

 

295

 

975

 

887

 

88

29.8 %

88

9.9 %

Banking center consolidation-related expense

 

 

 

 

1,589

 

(1,589)

(100.0)%

Core deposit and wealth management intangible assets amortization

 

1,363

 

296

 

1,067

360.5%

Total non-interest expense

$

53,938

$

51,314

$

143,572

$

147,325

$

2,624

5.1 %

$

(3,753)

(2.5)%

$

58,292

$

44,082

$

14,210

32.2%

During the three and nine months ended September 30, 2022, non-interestNon-interest expense increased $2.6$14.2 million, or 5.1%32.2%, and decreased $3.8 million, or 2.5%, respectively, compared to the three and nine months ended September 30, 2021. Salaries and benefits decreased primarilyfirst quarter of last year. The increase was largely driven by an increase in core operating expenses related to our 2022 acquisitions. FDIC deposit insurance expense increased $1.7 million due to lower mortgage banking-related compensation. The three months ended September 30,our 2022 included $7.0 million of non-recurring acquisition-related expenses with $4.6 million includedacquisitions and an increase in professional fees, $0.8 million included in salaries and benefits, $0.6 million included in telecommunications and data processing, $0.5 million included in occupancy and equipment, $0.3 million included in other non-interest expense and $0.2 million included in marketing and business development. The nine months ended September 30, 2022 included $8.3 million of non-recurring acquisition-related expenses with $5.7 million included in professional fees, $0.8 million included in salaries and benefits, $0.6 million in telecommunications and data processing, $0.5 million in occupancy and equipment, $0.5 million included in other non-interest expense and $0.2 million in marketing and business development.the FDIC assessment rate effective January 2023.

Income taxes

Income tax expense totaled $4.0 million and $12.0was $10.1 million for the three and nine months ended September 30, 2022, respectively. IncomeMarch 31, 2023, compared to an income tax expense of $3.6 million for the three and nine months ended September 30, 2021March 31, 2022. Included in income tax expense was $5.0$0.1 million and $16.1$0.1 million of tax benefit from stock compensation activity during three months ended March 31, 2023 and March 31, 2022, respectively. TheAdjusting for the stock compensation activity, the effective tax rate for the three and nine months ended September 30, 2022March 31, 2023 was 20.1% and 18.0%20.3%, respectively, compared to 20.0% and 18.5%16.8% for the same periods in the prior year. The effective tax rate is lower than the federal statutory rate primarily due to interest income from tax-exempt lending, bank-owned life insurance income, and the relationship of these items to pre-tax income.three months ended March 31, 2022.

Additional information regarding income taxes can be found in note 1920 of our audited consolidated financial statements in our 20212022 Annual Report on Form 10-K.

Liquidity and Capital Resources

Liquidity

Liquidity risk management is an important element in our asset/liability management. Liquidity is monitored and managed to ensure that sufficient funds are available to operate our business and pay our obligations to depositors and other creditors, while providing ample available funds for opportunistic and strategic investments. We regularly model liquidity stress scenarios to assess potential liquidity outflows or funding problems resulting from economic disruptions, volatility in the financial markets, unexpected credit events or other significant occurrences deemed problematic by management. These scenarios are incorporated into our contingency funding plan, which provides the basis for the identification of our liquidity needs.

Management believes that the Company's excess cash, borrowing capacity and access to sufficient sources of capital are adequate to meet its short-term and long-term liquidity needs in the foreseeable future. Our primary sources of funds include but are not limited to deposits, securities sold under agreements to repurchase,funds provided from operations, prepayments and maturities of loans and investment securities, securities sold under agreements to repurchase, the sale of investment securities, and federal funds provided from operations. We anticipate havingpurchased. Additionally, we have access to othervarious third party funding sources including the ability to raise fundsaccess immediate funding through FHLB advances, the issuanceFederal Reserve discount window, and the Federal Reserve’s new Bank Term Funding Program (“BTFP”). The BTFP is a newly established facility in response to recent liquidity concerns within the banking industry to help assure that banks have the ability to meet the needs of all their depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.

The Company’s acquisition of Cambr Solutions, LLC in April 2023 adds a new funding source by providing on-demand access to bring deposits onto our balance sheet. The Company may also utilize the brokered deposit marketplace, whereby deposits could be purchased in a wholesale market as an alternate source of funding. We anticipate having access to capital markets including the ability

71

to issue debt or issue shares of our common stock or other equity or equity-related securities, incurrence of debt, and federal funds purchased, that may also be a source of liquidity.securities. We anticipate that these sources of liquidity will provide adequate funding and

73

liquidity for at least a 12-month period, and we may utilize any combination of these funding sources for long-term liquidity needs if deemed prudent.

On-balance sheet liquidity is represented by our cash and cash equivalents, and unencumbered investment securities, and is detailed in the table below as of September 30, 2022March 31, 2023 and December 31, 2021:2022:

    

September 30, 2022

    

December 31, 2021

    

March 31, 2023

    

December 31, 2022

Cash and due from banks

$

255,458

$

845,195

$

368,956

$

194,756

Interest bearing bank deposits

 

749

 

500

 

749

 

749

Unencumbered investment securities, at fair value

 

597,535

 

781,166

 

475,058

 

476,250

Total

$

853,742

$

1,626,861

$

844,763

$

671,755

Total on-balance sheet liquidity decreased $773.1increased $173.0 million at September 30, 2022,March 31, 2023 compared to December 31, 2021. The decrease was2022, due to $183.6 million lower unencumbered available-for-sale and held-to-maturity securities balances and lowerhigher cash and due from banks of $589.5$174.2 million.

At present, financing activities primarily consist of changes in deposits and repurchase agreements, and advances from the FHLB, in addition to the payment of dividends and the repurchase of our common stock. Maturing time deposits represent a potential use of funds. As of September 30, 2022, $521.7March 31, 2023, $575.5 million of time deposits were scheduled to mature within 12 months. Based on the current interest rate environment and market conditions, and our consumer banking strategy focusingis to focus on attracting and maintaining both lower cost transaction accounts our strategy is to replace a portion of those maturingand time deposits with transaction deposits and market-rate time deposits. During 2021, the Company entered into a subordinated note purchase agreement maturing on November 15, 2031. The Company is using the net proceeds from the sale of the note for general corporate purposes. At September 30, 2022, the balance on the note, net of issuance costs totaling $0.4 million, totaled $39.6 million.

Through our relationship with the FHLB, the BankCompany may pledge qualifying loans and investment securities allowing us to obtain additional liquidity through FHLB advances and lines of credit. There were no investment securities pledged at September 30, 2022March 31, 2023 or December 31, 2021.2022. The BankCompany had loans of $2.5 billion and $2.0 billion pledged as collateral for FHLB advances of $1.7 billion at September 30, 2022March 31, 2023 and $1.3 billion at December 31, 2021.2022, respectively. FHLB advances, lines of credit and other short-term borrowing availability totaled $1.0$1.6 billion at September 30, 2022.March 31, 2023. The BankCompany can obtain additional liquidity through FHLB advances, the FHLB facility,Federal Reserve discount window and the BTFP, if required, and also has access to federal funds lines of credit with correspondent banks. Currently,At March 31, 2023, the Company does not have any advanceshad $1.0 billion of outstanding borrowings with the FHLB. The Company intends to pay off these borrowings over the next 12 months.

During 2021, the Company entered into a subordinated note purchase agreement to issue and sell a fixed-to-floating note. The Company deployed the net proceeds from the FHLB.sale of the note for general corporate purposes. The balance on the note at March 31, 2023, net of long-term debt issuance costs totaling $0.4 million, totaled $39.6 million. The note is not subject to redemption at the option of the holder. Additionally, as part of the acquisition of BOJH on October 1, 2022, the Company assumed three subordinated note purchase agreements to issue and sell fixed-to-floating rate notes. The balance on the notes at March 31, 2023, net of the fair value adjustment from the acquisition totaling $0.6 million, totaled $14.4 million.

Our primary uses of funds are loan fundings, investment security purchases, withdrawals of deposits, settlement of repurchase agreements, capital expenditures, operating expenses, and share repurchases. For additional information regarding our operating, investing and financing cash flows, see our consolidated statements of cash flows in the accompanying consolidated financial statements.

Exclusive from the investing activities related to acquisitions, our primary investing activities are loan fundings and pay-offs and paydowns of loans and purchases and sales of investment securities. At September 30, 2022,March 31, 2023, pledgeable investment securities represented a significant source of liquidity. Our available-for-sale investment securities are carried at fair value and our held-to-maturity securities are carried at amortized cost. Our collective investment securities portfolio totaled $1.3 billion at September 30, 2022,March 31, 2023, inclusive of pre-tax net unrealized losses of $115.2$101.8 million on the available-for-sale securities portfolio. Additionally, our held-to-maturity securities portfolio had $97.3$82.7 million of pre-tax net unrealized losses at September 30, 2022.March 31, 2023. The gross unrealized gains and losses are detailed in note 43 of our consolidated financial statements. As of September 30, 2022,March 31, 2023, our investment securities portfolio consisted primarily of MBS, all of which were issued or guaranteed by U.S. Government agencies or sponsored enterprises. The anticipated repayments and marketability of these securities offer substantial resources and flexibility to meet new loan demand, reinvest in the investment securities portfolio, or provide optionality for reductions in our deposit funding base.

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Capital

Under the Basel III requirements, at September 30, 2022,March 31, 2023, the Company, NBH Bank and the Bank of Jackson Hole Trust met all capital adequacy requirements, and the BankBanks had regulatory capital ratios in excess of the levels established for well-capitalized institutions. For more information on regulatory capital, see note 10 in our consolidated financial statements.

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Our shareholders' equity is impacted by earnings, changes in unrealized gains and losses on securities, net of tax, stock-based compensation activity, share repurchases, shares issued in connection with acquisitions and the payment of dividends.

The Board of Directors has from time to time authorized multiple programs to repurchase shares of the Company’s common stock either in open market or in privately negotiated transactions in accordance with applicable regulations of the SEC. On February 24, 2021,May 9, 2023, the Company’s Board of Directors authorized a new program to repurchase up to $75.0$50.0 million of the Company’s stock.stock which replaces the previously authorized program of $75.0 million announced in February 2021. The remaining authorization under the 2021 program as of September 30, 2022March 31, 2023 was $38.6 million.

On November 8, 2022,May 9, 2023, our Board of Directors declared a quarterly dividend of $0.25$0.26 per common share, payable on DecemberJune 15, 20222023 to shareholders of record at the close of business on November 25, 2022.May 26, 2023.

Asset/Liability Management and Interest Rate Risk

Management and the Board of Directors are responsible for managing interest rate risk and employing risk management policies that monitor and limit this exposure. Interest rate risk is measured using net interest income simulations and market value of portfolio equity analyses. These analyses use various assumptions, including the nature and timing of interest rate changes, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, and reinvestment/replacement of asset and liability cash flows.

The principal objective of the Company's asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing earnings and preserving adequate levels of liquidity and capital. The asset and liability management function is under the guidance of the Asset Liability Committee with direction from the Board of Directors. The Asset Liability Committee meets monthly to review, among other things, the sensitivity of the Company's assets and liabilities to interest rate changes, local and national market conditions and rates. The Asset Liability Committee also reviews the liquidity, capital, deposit mix, loan mix and investment positions of the Company.

Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest rates and utilize various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.

We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure to net interest income where the calculated value is the result of the market value of assets less the market value of liabilities. The economic value of equity is a longer term view of interest rate risk because it measures the present value of the future cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is used in conjunction with the analyses on net interest income.

Our interest rate risk model indicated that the Company was asset sensitive in terms of interest rate sensitivity at September 30, 2022.March 31, 2023. At September 30, 2022,March 31, 2023, our asset sensitivity position decreased forfrom December 31, 2022, primarily driven by a risingdecrease in transaction deposits and growth in fixed rate environment as a result of the balance sheet mix.loans. The table below illustrates the impact of an immediate and sustained 200 and 100 basis point

73

increase and a 100 and 200 basis point decrease in interest rates on net interest income based on the interest rate risk model at September 30, 2022March 31, 2023 at the respective dates:

Hypothetical

    

    

shift in interest

% change in projected net interest income

% change in projected net interest income

rates (in bps)

September 30, 2022

    

December 31, 2021

March 31, 2023

    

December 31, 2022

200

5.40%

11.12%

1.58%

2.60%

100

2.79%

5.37%

0.81%

1.31%

(100)

(5.81)%

(1.65)%

(2.93)%

(200)

(12.96)%

(4.15)%

(8.24)%

Many assumptions are used to calculate the impact of interest rate fluctuations. Actual results may be significantly different than our projections due to several factors, including the timing and frequency of rate changes, market conditions and the shape of the yield curve. The computations of interest rate risk shown above do not include actions that management may undertake to manage the risks in response to anticipated changes in interest rates and actual results may also differ due to any actions taken in response to the changing rates.

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As part of the asset/liability management strategy to manage primary market risk exposures expected to be in effect in future reporting periods, management has emphasizedexecuted interest rate derivatives primarily using floors and collars. For further discussion of the origination of longer duration loans.Company’s derivative contracts refer to note 15. The strategy with respect to liabilities has been to continue to emphasize transaction deposit growth, particularly non-interest or low interest bearing non-maturing deposit accounts while building long-term client relationships. Non-maturing deposit accounts totaled 87.7%87.1% of total deposits at September 30, 2022,March 31, 2023, compared to 86.5%88.9% at December 31, 2021.2022. We currently have no brokered time deposits.

Impact of Inflation and Changing Prices

The primary impact of inflation on our operations is reflected in increasing operating costs and non-interest expense. Unlike most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, changes in interest rates have a more significant impact on our performance than do changes in the general rate of inflation and changes in prices. Interest rate changes do not necessarily move in the same direction, nor have the same magnitude, as changes in the prices of goods and services. Although not as critical to the banking industry as many other industries, inflationary factors may have some impact on our ability to grow, total assets, earnings and capital levels. While we plan to continue our disciplined approach to expense management, an inflationary environment may cause wage pressures and general increases in our cost of doing business, which may increase our non-interest expense.

Off-Balance Sheet Activities

In the normal course of business, we are a party to various contractual obligations, commitments and other off-balance sheet activities that contain credit, market, and operational risk that are not required to be reflected in our consolidated financial statements. The most significant of these are the loan commitments that we enter into to meet the financing needs of clients, including commitments to extend credit, commercial and consumer lines of credit and standby letters of credit. As of September 30, 2022March 31, 2023 and December 31, 2021,2022, we had loan commitments totaling $1.4$2.0 billion and $992.5 million,$2.0 billion, respectively, and standby letters of credit that totaled $6.2$11.9 million and $7.3$13.9 million, respectively. Unused commitments do not necessarily represent future credit exposure or cash requirements, as commitments often expire without being drawn upon.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information called for by this item is provided under the caption Asset/Liability Management and Interest Rate Risk in Part I, Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated herein by reference.

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange

74

Act of 1934, as of September 30, 2022.March 31, 2023. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2022.March 31, 2023.

On September 1, 2022,During the Companymost recently completed the acquisition of Rock Canyon Bank. The Company is in the process of incorporating RCB’s internal controls and procedures into its internal controls over financial reporting.

Other than mentioned above,fiscal quarter, there were no changes made in the Company's internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting, during the most recently completed fiscal quarter.reporting.

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PART II: OTHER INFORMATION

Item 1. LEGAL PROCEEDINGS

From time to time, we are a party to various litigation matters incidental to the conduct of our business. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, prospects, financial condition, liquidity, results of operation, cash flows or capital levels.

Item 1A. RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A:1A. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 20212022 with the exception of the following:

The Company is expected to incur significant costs related toRecent developments in the mergers and integration of both Bancshares of Jackson Hole Inc. and Community Bancorporation.banking industry may have shaken consumer confidence in the banking system, particularly regarding regional or community banks.

The Company hasrecent bank failures and related negative media attention have generated significant market trading volatility among publicly traded bank holding companies and, in particular, regional, as well as community banks like the Company. These developments have negatively impacted customer confidence in regional and community banks, which could prompt customers to transfer their deposits to larger financial institutions. While the Department of the Treasury, the Federal Reserve, and the FDIC have made statements ensuring that depositors of recently failed banks would have access to their deposits, including uninsured deposit accounts, there is no guarantee that such actions will be successful in restoring customer confidence in regional banks and the banking system more broadly. We also anticipate increased regulatory scrutiny – in the course of routine examinations and otherwise – and any new regulations directed towards banks of similar size to the Bank, designed to address the recent negative developments in the banking industry, all of which may increase our costs of doing business and reduce our profitability. Among other things, there may be an increased focus by both regulators and investors on deposit composition, the level of uninsured deposits, losses embedded in the held-to-maturity portion of our securities portfolio (if any), contingent liquidity, CRE composition and concentration, capital position and our general oversight and internal control structures regarding the foregoing. As a result, the Bank could face increased scrutiny or be viewed as higher risk by regulators and the investor community.

We may experience increases in FDIC insurance assessments.

The significant losses incurred and is expected to continue to incur substantial costsby the Deposit Insurance Fund managed by the FDIC, in connection with the mergers, including legal, financial advisory, accounting, consulting and other advisory fees, severance/employee benefit-related costs, and other regulatory fees and related costs. Thererecent developments are a large number of processes, policies, procedures, operations, technologies, and systems that may needrequired by law to be integrated, including purchasing, accountingrecovered through one or more special assessments on depository institutions and, finance, payroll, compliance, treasury management, banking center operations, vendor management, risk management, lines of business, pricing,potentially, their holding companies (if the FDIC determines such action to be appropriate and benefits. While the Company has assumed that a certain level of costs will be incurred, there are many factors beyond our control that could affect the total amount or the timingSecretary of the integration costs. Moreover, manyTreasury concurs). The FDIC must consider a variety of factors in determining the terms and applicability of any such special assessment, including, among others, the types of entities that benefit from the action taken by the agencies, economic conditions, and anticipated industry impacts. The FDIC has announced that it intends to publish a notice of proposed rulemaking for a special assessment in May 2023. It is also possible that our regular deposit insurance assessment rates will increase should the FDIC alter the assessment rate schedule or calculation methodology for all larger financial institutions (including the Bank) as a result of the costs that willrecent bank failures. Although we cannot predict the specific timing and terms of any special assessment or any other increase in our deposit insurance assessment rates, any increase in our assessment fees could have a material adverse effect on our results of operations and financial condition.

Our investments in financial technology companies and initiatives subject us to material financial, reputational and strategic risks.

Our investments in various financial technology companies, included within non-marketable securities on our balance sheet, may have a significant impact on our results of operations. Investments where we have the ability to exercise significant influence but not control over the operating and financial policies of the investee are accounted for using the equity method of accounting. For investments accounted for under the equity method, we increase or decrease our investment by our proportionate share of the investee’s net income or loss. Non-marketable securities also include direct investments in convertible preferred stock. As the convertible preferred stock does not have a readily determinable fair value, it is carried at cost. We periodically evaluate our non-marketable securities investments for impairment. The results of testing our investments for potential impairment may be incurred are,adversely affected by their nature, difficulta variety of factors, including market conditions, general economic conditions and unfavorable changes in the businesses underlying the investments, which may lead to estimate accurately. These integration costsa partial or full impairment of our fintech investments. Impairments or write-downs of these assets may result in charges that adversely affect our results of operations.

76

The financial technology companies in which we invest often have the Company taking charges against earnings followingneed for substantial additional capital to support expansion or to achieve or maintain a competitive position. Less established companies tend to have lower capitalization and fewer resources and, therefore, are often more vulnerable to financial failure. These companies may be dependent upon the completionsuccess of one product or service, a unique distribution channel, or the effectiveness of a manager or management team. The failure of this one product, service or distribution channel, or the loss or ineffectiveness of a key executive or executives within the management team may have a materially adverse impact on such companies.

The possibility that the companies in which we invest will not be able to commercialize their technology or product concept presents a risk that our investment may become impaired. These companies tend to lack management depth, to have limited or no history of operations and to not have attained profitability. Additionally, although some of these companies may already have a commercially successful product or product line at the time of investment, technology products and services often have a more limited market or life span than products in other industries. Thus, the ultimate success of these companies may depend on their ability to continually innovate in increasingly competitive markets. Most of the mergers,companies in which we invest will require substantial additional equity financing to satisfy their continuing growth and working capital requirements. Each round of venture financing is typically intended to provide a company with enough capital to reach the amount, and timingnext stage of development. The circumstances or market conditions under which such companies will seek additional capital is unpredictable. It is possible that one or more of such companies will not be able to raise additional financing or may be able to do so only at a price or on terms which are uncertain at present.unfavorable.

Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

    

    

    

    

Maximum

Total number of

approximate dollar

shares purchased

value of shares

as part of publicly

that may yet be

Total number

Average price

announced plans

purchased under the

Period

of shares purchased

paid per share

or programs

plans or programs (2)

July 1 - July 31, 2022(1)

$

$

38,618,179

August 1 - August 31, 2022(1)

38,618,179

September 1 - September 30, 2022(1)

$

38,618,179

Total

 

 

    

    

    

    

Maximum

Total number of

approximate dollar

shares purchased

value of shares

as part of publicly

that may yet be

Total number

Average price

announced plans

purchased under the

Period

of shares purchased

paid per share

or programs

plans or programs (2)

March 1 - March 31, 2023(1)

15,648

$

40.10

$

38,618,179

(1)

Represents shares purchased other than through publicly announced plans purchased pursuant to the Company’s stock incentive plans at the then current market value in satisfaction of stock option exercise prices, settlements of restricted stock and tax withholdings.

(2)

On February 24, 2021,May 9, 2023, the Company’s Board of Directors authorized a new program to repurchase up to $75.0$50.0 million of the Company’s stock from time to time in either the open market or through privately negotiated transactions. The new program of $50.0 million replaced the previously authorized $75.0 million stock repurchase program announced in February 2021. The remaining authorization under the 2021 program as of September 30, 2022March 31, 2023 was $38.6 million.

Item 5. OTHER INFORMATION

None.

77

Item 6. EXHIBITS

3.1

    

3.2

31.1

31.2

32

101.INS

XBRL Instance - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema

101.CAL

XBRL Taxonomy Extension Calculation

101.DEF

XBRL Taxonomy Extension Definition

101.LAB

XBRL Taxonomy Extension Labels

101.PRE

XBRL Taxonomy Extension Presentation

104

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

78

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.

National Bank Holdings Corporation

National Bank Holdings Corporation

By  

/s/ Aldis Birkans

Aldis Birkans

Chief Financial Officer

(principal financial officer)

Date: November 8, 2022May 9, 2023

79