National Bank 10Q 2024 Q3 Quarterly report

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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, 2024

☐ 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: (303) 892-8715

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, Par Value $0.01	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 1, 2024, the registrant had outstanding 38,013,516 shares of Class A voting common stock, each with $0.01 par value per share, excluding 293,616 shares of restricted Class A common stock issued but not yet vested.

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Part I. Financial Information

Item 1.	Financial Statements (Unaudited)	6

	Consolidated Statements of Financial Condition as of September 30, 2024 and December 31, 2023	6

	Consolidated Statements of Operations for the three and nine months ended September 30, 2024 and 2023	7

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2024 and 2023	8

	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2024 and 2023	9

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023	10

	Notes to Consolidated Financial Statements	11

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	50

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	79

Item 4.	Controls and Procedures	79

Part II. Other Information

Item 1.	Legal Proceedings	81

Item 1A.	Risk Factors	81

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	81

Item 5.	Other Information	81

Item 6.	Exhibits	82

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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, the reader is 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:

● the impact of potential regulatory changes to capital requirements, treatment of investment securities and FDIC deposit insurance levels and costs;

● 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, including increased competition for deposits due to prevailing market interest 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;

● changes in the fair value of our investment securities due to market conditions outside of our control;

● financial or reputational impacts associated with the increased prevalence of fraud or other financial crimes;

● 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;

● our ability to integrate acquisitions or consolidations and to achieve synergies, operating efficiencies and/or other expected benefits within expected timeframes, 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;

● regulatory and financial impacts associated with the Company growing to over $10 billion in consolidated assets;

● increases in claims and litigation related to our fiduciary responsibilities in connection with our trust and wealth

management business;

● 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 changes 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, including with respect to the advancement of artificial intelligence;

● the timely development and acceptance of new products and services, including in the digital technology space and our digital solution 2UniFi^SM, 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 subsidiaries;

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

● financial, reputational, or strategic risks associated with our investments in financial technology companies and initiatives;

● 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 cybersecurity incident, data breach or a failure of a key information technology system;

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● 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

● 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, 2024		December 31, 2023
ASSETS
Cash and cash equivalents	$	180,796	$	190,826
Investment securities available-for-sale (at fair value)		708,987		628,829
Investment securities held-to-maturity (fair value of $470,774 and $504,328 at September 30, 2024 and December 31, 2023, respectively)		538,157		585,052
Non-marketable securities		72,353		90,477
Loans		7,714,495		7,698,758
Allowance for credit losses		(95,047)		(97,947)
Loans, net		7,619,448		7,600,811
Loans held for sale		16,765		18,854
Other real estate owned		1,432		4,088
Premises and equipment, net		191,889		162,733
Goodwill		306,043		306,043
Intangible assets, net		60,390		66,025
Other assets		297,023		297,326
Total assets	$	9,993,283	$	9,951,064
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Non-interest bearing demand deposits	$	2,268,801	$	2,361,367
Interest bearing demand deposits		1,407,667		1,480,042
Savings and money market		3,768,211		3,367,012
Time deposits		1,052,449		981,970
Total deposits		8,497,128		8,190,391
Securities sold under agreements to repurchase		19,517		19,627
Long-term debt, net		54,433		54,200
Federal Home Loan bank advances		—		340,000
Other liabilities		130,208		134,039
Total liabilities		8,701,286		8,738,257
Shareholders' equity:
Common stock, par value $0.01 per share: 400,000,000 shares authorized; 51,487,888 and 51,487,907 shares issued; 37,988,364 and 37,784,851 shares outstanding at September 30, 2024 and December 31, 2023, respectively		515		515
Additional paid-in capital		1,164,395		1,162,269
Retained earnings		491,849		433,126
Treasury stock of 13,182,402 and 13,462,472 shares at September 30, 2024 and December 31, 2023, respectively, at cost		(302,277)		(306,702)
Accumulated other comprehensive loss, net of tax		(62,485)		(76,401)
Total shareholders' equity		1,291,997		1,212,807
Total liabilities and shareholders' equity	$	9,993,283	$	9,951,064

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
	September 30,				September 30,
	2024		2023		2024		2023
Interest and dividend income:
Interest and fees on loans	$	129,566	$	117,736	$	377,167	$	334,811
Interest and dividends on investment securities		7,476		6,468		21,613		20,019
Dividends on non-marketable securities		405		701		1,398		2,513
Interest on interest bearing bank deposits		556		1,205		2,004		3,369
Total interest and dividend income		138,003		126,110		402,182		360,712
Interest expense:
Interest on deposits		49,366		33,423		141,580		69,615
Interest on borrowings		984		4,910		5,345		18,647
Total interest expense		50,350		38,333		146,925		88,262
Net interest income before provision for credit losses		87,653		87,777		255,257		272,450
Provision for credit loss expense		2,000		1,125		4,776		3,725
Net interest income after provision for credit losses		85,653		86,652		250,481		268,725
Non-interest income:
Service charges		4,912		4,849		13,598		13,394
Bank card fees		4,832		4,993		14,292		14,721
Mortgage banking income		2,981		4,688		8,932		11,614
Bank-owned life insurance income		759		882		2,228		2,559
Other non-interest income		4,905		3,953		11,062		5,565
Total non-interest income		18,389		19,365		50,112		47,853
Non-interest expense:
Salaries and benefits		37,331		35,027		110,784		103,231
Occupancy and equipment		9,697		9,167		29,758		27,366
Data processing		4,398		3,546		12,581		10,257
Marketing and business development		1,091		1,037		2,836		2,997
FDIC deposit insurance		1,297		1,686		4,073		5,433
Bank card expenses		1,176		1,667		3,916		4,260
Professional fees		2,111		2,215		5,463		7,951
Other non-interest expense		5,084		4,250		14,698		13,003
Other intangible assets amortization		1,977		2,008		5,962		5,378
Total non-interest expense		64,162		60,603		190,071		179,876
Income before income taxes		39,880		45,414		110,522		136,702
Income tax expense		6,775		9,327		19,891		27,775
Net income	$	33,105	$	36,087	$	90,631	$	108,927
Earnings per share—basic	$	0.86	$	0.95	$	2.37	$	2.87
Earnings per share—diluted		0.86		0.94		2.36		2.85
Weighted average number of common shares outstanding:
Basic		38,277,042		37,990,659		38,173,469		37,911,896
Diluted		38,495,091		38,134,338		38,368,011		38,093,910

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


	For the three months ended				For the nine months ended
	September 30,				September 30,
	2024		2023		2024		2023
Net income	$	33,105	$	36,087	$	90,631	$	108,927
Other comprehensive income (loss), net of tax:
Securities available-for-sale:
Net unrealized gains (losses) arising during the period, net of tax (expense) benefit of ($5,847) and $3,418 for the three months ended September 30, 2024 and 2023, respectively; and net of tax (expense) benefit of ($4,632) and $3,283 for the nine months ended September 30, 2024 and 2023, respectively		16,779		(11,718)		13,411		(11,276)
Less: amortization of net unrealized holding gains to income, net of tax benefit of $5 and $11 for the three months ended September 30, 2024 and 2023, respectively; and net of tax benefit of $20 and $40 for the nine months ended September 30, 2024 and 2023, respectively		(16)		(39)		(61)		(135)
Cash flow hedges:
Net unrealized gains (losses) arising during the period, net of tax (expense) benefit of ($376) and $169 for the three months ended September 30, 2024 and 2023, respectively; and net of tax (expense) benefit of ($209) and $618 for the nine months ended September 30, 2024 and 2023, respectively		1,150		(550)		645		(2,032)
Less: reclassification adjustment for losses (gains) included in net income, net of tax benefit of $8 and $22 for the three months ended September 30, 2024 and 2023, respectively; and net of tax (expense) benefit of ($24) and $241 for the nine months ended September 30, 2024 and 2023, respectively		27		68		(79)		794
Other comprehensive income (loss)		17,940		(12,239)		13,916		(12,649)
Comprehensive income	$	51,045	$	23,848	$	104,547	$	96,278

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)

(In thousands, except share and per share data)


	For the three months ended September 30,
									Accumulated
			Additional						other
	Common		paid-in		Retained		Treasury		comprehensive
	stock		capital		earnings		stock		(loss) income, net		Total
Balance, June 30, 2023	$	515	$	1,158,727	$	384,094	$	(307,388)	$	(88,614)	$	1,147,334
Net income		—		—		36,087		—		—		36,087
Stock-based compensation		—		1,720		—		—		—		1,720
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $256, net		—		259		—		362		—		621
Cash dividends declared ($0.26 per share)		—		—		(9,938)				—		(9,938)
Other comprehensive loss		—		—		—				(12,239)		(12,239)
Balance, September 30, 2023	$	515	$	1,160,706	$	410,243	$	(307,026)	$	(100,853)	$	1,163,585
Balance, June 30, 2024	$	515	$	1,161,804	$	469,630	$	(303,880)	$	(80,425)	$	1,247,644
Net income		—		—		33,105		—		—		33,105
Stock-based compensation		—		2,002		—		—		—		2,002
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $2,173, net		—		589		—		1,603		—		2,192
Cash dividends declared ($0.28 per share)		—		—		(10,886)		—		—		(10,886)
Other comprehensive income		—		—		—		—		17,940		17,940
Balance, September 30, 2024	$	515	$	1,164,395	$	491,849	$	(302,277)	$	(62,485)	$	1,291,997


	For the nine months ended September 30,
									Accumulated
			Additional						other
	Common		paid-in		Retained		Treasury		comprehensive
	stock		capital		earnings		stock		(loss) income, net		Total
Balance, December 31, 2022	$	515	$	1,159,508	$	330,721	$	(310,338)	$	(88,204)	$	1,092,202
Net income		—		—		108,927		—		—		108,927
Stock-based compensation		—		5,366		—		—		—		5,366
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $3,287, net		—		(4,168)		—		3,312		—		(856)
Cash dividends declared ($0.77 per share)		—		—		(29,405)		—		—		(29,405)
Other comprehensive loss		—		—		—		—		(12,649)		(12,649)
Balance, September 30, 2023	$	515	$	1,160,706	$	410,243	$	(307,026)	$	(100,853)	$	1,163,585
Balance, December 31, 2023	$	515		1,162,269	$	433,126	$	(306,702)		(76,401)	$	1,212,807
Net income		—		—		90,631	-	—		—		90,631
Stock-based compensation		—		5,666		—		—		—		5,666
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $6,163, net		—		(3,540)		—		4,425		—		885
Cash dividends declared ($0.83 per share)		—		—		(31,908)		—		—		(31,908)
Other comprehensive income		—		—		—		—		13,916		13,916
Balance, September 30, 2024	$	515	$	1,164,395	$	491,849	$	(302,277)	$	(62,485)	$	1,291,997

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	For the nine months ended September 30,
	2024		2023
Cash flows from operating activities:
Net income	$	90,631	$	108,927
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit loss expense		4,776		3,725
Depreciation and amortization		17,881		17,512
Change in current income tax receivable		634		4,860
Change in deferred income taxes		7,641		(4,108)
Discount accretion, net of premium amortization on securities		(1,200)		(619)
Gain on sale of mortgages, net		(7,711)		(8,309)
Origination of loans held for sale, net of repayments		(253,078)		(326,477)
Proceeds from sales of loans held for sale		261,881		333,329
Originations of mortgage servicing rights		(258)		(993)
Proceeds from sales of mortgage servicing rights		—		5,502
Gain on sale of mortgage servicing rights		—		(1,052)
Impairment on fixed assets related to banking center consolidations		—		113
Gain on sale of fixed assets		(637)		(148)
Stock-based compensation		5,666		5,366
Operating lease payments		(4,909)		(4,674)
Change in other assets		(13,761)		(23,559)
Change in other liabilities		1,285		12,917
Net cash provided by operating activities		108,841		122,312
Cash flows from investing activities:
Proceeds from non-marketable securities		42,559		90,293
Proceeds from maturities and paydowns of investment securities available-for-sale		137,632		71,339
Proceeds from maturities and paydowns of investment securities held-to-maturity		47,385		53,947
Proceeds from sales of other real estate owned		2,462		249
Purchases of non-marketable securities		(26,238)		(93,852)
Purchases of investment securities available-for-sale		(199,079)		—
Purchases of investment securities held-to-maturity		—		(2,452)
Purchases of premises and equipment, net		(26,375)		(24,687)
Net increase in loans		(34,044)		(254,910)
Net cash activity for acquisitions		—		(45,300)
Net cash used in investing activities		(55,698)		(205,373)
Cash flows from financing activities:
Net increase in deposits		306,464		275,834
Net (decrease) increase in repurchase agreements and other short-term borrowings		(110)		59
Net payments to the Federal Home Loan Bank		(340,000)		(68,230)
Issuance of stock under purchase and equity compensation plans		(1,205)		(1,054)
Proceeds from exercise of stock options		2,008		106
Payment of dividends		(31,830)		(29,382)
Net cash (used in) provided by financing activities		(64,673)		177,333
(Decrease) increase in cash, cash equivalents and restricted cash⁽¹⁾		(11,530)		94,272
Cash, cash equivalents and restricted cash at beginning of the year⁽¹⁾		192,326		198,519
Cash, cash equivalents and restricted cash at end of period⁽¹⁾	$	180,796	$	292,791
Supplemental disclosure of cash flow information during the period:
Cash paid for interest	$	141,120	$	76,642
Net tax payments		16,413		24,824
Supplemental schedule of non-cash activities:
Loans transferred from loans held for sale to loans		997		5,176


(1)		Included in restricted cash at September 30, 2023 was $1.5 million placed in escrow for certain potential liabilities, for which the Company was indemnified, resulting from a previous acquisition. The restricted cash was included in other assets in the Company’s consolidated statements of financial condition. At September 30, 2024, there was no restricted cash.

See accompanying notes to the consolidated interim financial statements.

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NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2024

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 subsidiaries NBH 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 over 90 banking centers, as of September 30, 2024, located primarily in Colorado, the greater Kansas City region, Utah, Wyoming, Texas, 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, 2023 and include the accounts of the Company and its wholly owned subsidiaries, NBH Bank, Bank of Jackson Hole Trust and 2UniFi, LLC. 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, 2023 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, 2023.

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, 2023.

Note 3 Investment Securities

The Company’s investment securities portfolio is comprised of available-for-sale and held-to-maturity investment securities. These investment securities totaled $1.2 billion at September 30, 2024 and included $0.7 billion of available-for-sale securities and $0.5 billion of held-to-maturity securities. At December 31, 2023, investment securities totaled $1.2 billion and included $0.6 billion of available-for-sale securities and $0.6 billion of held-to-maturity securities.

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Available-for-sale

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


	September 30, 2024
	Amortized		Gross		Gross
	cost		unrealized gains		unrealized losses		Fair value
U.S. Treasury securities	$	49,757	$	—	$	(567)	$	49,190
Mortgage-backed securities:								—
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		222,443		445		(26,358)		196,530
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		514,924		1,280		(55,708)		460,496
Municipal securities		80		—		—		80
Corporate debt		2,000		—		(38)		1,962
Other securities		729		—		—		729
Total investment securities available-for-sale	$	789,933	$	1,725	$	(82,671)	$	708,987


	December 31, 2023
	Amortized		Gross		Gross
	cost		unrealized gains		unrealized losses		Fair value
U.S. Treasury securities	$	74,508	$	—	$	(1,464)	$	73,044
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		233,264		57		(31,512)		201,809
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		417,155		—		(65,913)		351,242
Municipal securities		80		—		(1)		79
Corporate debt		2,000		—		(157)		1,843
Other securities		812		—		—		812
Total investment securities available-for-sale	$	727,819	$	57	$	(99,047)	$	628,829

During the nine months ended September 30, 2024, purchases of available-for-sale securities totaled $199.1 million. During the nine months ended September 30, 2023, there were no purchases of available-for-sale securities. Maturities and paydowns of available-for-sale securities during the nine months ended September 30, 2024 and 2023 totaled $137.6 million and $71.3 million, respectively. There were no sales of available-for-sale securities during the nine months ended September 30, 2024 or 2023.

At September 30, 2024 and December 31, 2023, the Company’s available-for-sale investment portfolio was primarily comprised of U.S. Treasury securities and mortgage-backed securities (“MBS”). All mortgage-backed securities were backed by government sponsored enterprises (“GSE”) collateral such as Federal Home Loan Mortgage Corporation (“FHLMC”) and Federal National Mortgage Association (“FNMA”) and the government owned agency Government National Mortgage Association (“GNMA”).

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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, 2024
	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	$	—	$	—	$	49,190	$	(567)	$	49,190	$	(567)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		—		—		181,541		(26,358)		181,541		(26,358)
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		16,334		(21)		321,668		(55,687)		338,002		(55,708)
Municipal securities		—		—		80		—		80		—
Corporate debt		—		—		1,963		(38)		1,963		(38)
Total	$	16,334	$	(21)	$	554,442	$	(82,650)	$	570,776	$	(82,671)


	December 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	$	—	$	—	$	73,044	$	(1,464)	$	73,044	$	(1,464)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		9		—		199,000		(31,512)		199,009		(31,512)
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		138		(1)		351,104		(65,912)		351,242		(65,913)
Municipal securities		—		—		79		(1)		79		(1)
Corporate debt		—		—		1,843		(157)		1,843		(157)
Total	$	147	$	(1)	$	625,070	$	(99,046)	$	625,217	$	(99,047)

Management regularly monitors the investment securities portfolio in its entirety and further evaluates all of the available-for-sale securities in an unrealized loss position. The portfolio included 216 securities, which were in an unrealized loss position at September 30, 2024, compared to 230 securities at December 31, 2023. The unrealized losses in the Company's investment portfolio at September 30, 2024 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.

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


	September 30, 2024
	AA+		Not rated		Total
U.S. Treasury securities	$	49,190	$	—	$	49,190
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		196,530		—		196,530
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		460,496		—		460,496
Municipal securities		—		80		80
Corporate debt		—		1,962		1,962
Other securities		—		729		729
Total investment securities available-for-sale	$	706,216	$	2,771	$	708,987


	December 31, 2023
	AAA		Not rated		Total
U.S. Treasury securities	$	73,044	$	—	$	73,044
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		201,809		—		201,809
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		351,242		—		351,242
Municipal securities		—		79		79
Corporate debt		—		1,843		1,843
Other securities		—		812		812
Total investment securities available-for-sale	$	626,095	$	2,734	$	628,829

Based upon the downgrade of U.S. government securities by certain rating agencies, the Company updated the rating from AAA to AA+. 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 $236.7 million and $312.4 million at September 30, 2024 and at December 31, 2023, respectively. The Company 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, 2024 or December 31, 2023.

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A summary of the available-for-sale securities by maturity is shown in the following table as of September 30, 2024. Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial 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 $0.7 million as of September 30, 2024 that have no stated contractual maturity date.


	September 30, 2024
					Weighted
	Amortized cost		Fair value		average yield
U.S. Treasury securities
Within one year	$	24,909	$	24,712	2.56%
After one but within five years		24,848		24,478	2.77%
Total U.S. Treasury securities		49,757		49,190	2.67%
Municipal securities
Within one year		80		80	3.14%
Corporate debt
After five but within ten years		2,000		1,962	5.86%
Total	$	51,837	$	51,232

As of September 30, 2024 and December 31, 2023, accrued interest receivable (“AIR”) from available-for-sale investment securities totaled $1.8 million and $1.3 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, 2024
			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses		Fair value
U.S. Treasury securities	$	49,563	$	—	$	(406)	$	49,157
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		270,518		705		(28,386)		242,837
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		218,076		26		(39,322)		178,780
Total investment securities held-to-maturity	$	538,157	$	731	$	(68,114)	$	470,774


	December 31, 2023
			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses		Fair value
U.S. Treasury securities	$	49,338	$	—	$	(1,004)	$	48,334
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		299,337		226		(34,552)		265,011
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		236,377		2		(45,396)		190,983
Total investment securities held-to-maturity	$	585,052	$	228	$	(80,952)	$	504,328

During the nine months ended September 30, 2024, there were no purchases of held-to-maturity securities. During the nine months ended September 30, 2023, purchases of held-to-maturity securities totaled $2.5 million. Maturities and paydowns of held-to-maturity securities totaled $47.4 million and $53.9 million during the nine months ended September 30, 2024 and 2023, respectively.

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The held-to-maturity portfolio included 109 securities which were in an unrealized loss position as of September 30, 2024, compared to 123 securities at December 31, 2023. 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:


	September 30, 2024
	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	$	—	$	—	$	49,157	$	(406)	$	49,157	$	(406)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		—		—		201,590		(28,386)		201,590		(28,386)
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		—		—		175,839		(39,322)		175,839		(39,322)
Total	$	—	$	—	$	426,586	$	(68,114)	$	426,586	$	(68,114)


	December 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	$	—	$	—	$	48,334	$	(1,004)	$	48,334	$	(1,004)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		14,689		(72)		217,467		(34,480)		232,156		(34,552)
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		2,289		(37)		187,021		(45,359)		189,310		(45,396)
Total	$	16,978	$	(109)	$	452,822	$	(80,843)	$	469,800	$	(80,952)

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:


	September 30, 2024		December 31, 2023
	AA+		AAA
U.S. Treasury securities	$	49,563	$	49,338
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		270,518		299,337
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		218,076		236,377
Total investment securities held-to-maturity	$	538,157	$	585,052

Based upon the downgrade of U.S. government securities by certain rating agencies, the Company updated the rating from AAA to AA+. 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 $535.5 million and $559.3 million at September 30, 2024 and December 31, 2023, respectively. The Company 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, 2024 or December 31, 2023.

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A summary of the held-to-maturity securities by maturity is shown in the following table as of September 30, 2024. Actual maturities of mortgage-backed securities may differ from scheduled maturities depending on the repayment characteristics and experience of the underlying financial instruments and are therefore not included in the table below.


	September 30, 2024
					Weighted
	Amortized cost		Fair value		average yield
U.S. Treasury securities
Within one year	$	24,956	$	24,794	3.18%
After one but within five years		24,607		24,363	3.10%
Total	$	49,563	$	49,157	3.14%

As of September 30, 2024 and December 31, 2023, AIR from held-to-maturity investment securities totaled $1.2 million and $1.0 million, respectively, and was included within other assets in the consolidated statements of financial condition.

Note 4 Non-marketable Securities

The carrying balance of non-marketable securities are summarized as follows as of the dates indicated:


	September 30, 2024		December 31, 2023
Federal Reserve Bank stock	$	24,062	$	24,062
Federal Home Loan Bank stock		567		16,828
Convertible preferred stock		20,508		25,000
Equity method investments		27,216		24,587
Total	$	72,353	$	90,477

Non-marketable securities included FRB stock, FHLB stock, convertible preferred stock and equity method investments. During the nine months ended September 30, 2024, purchases of non-marketable securities totaled $26.2 million, and proceeds from redemptions and sales of non-marketable securities totaled $42.6 million. Purchases consisted primarily of FHLB stock, and proceeds consisted primarily of redemptions of FHLB stock. Changes in the Company’s FHLB stock holdings were directly correlated to FHLB line of credit advances and paydowns. During the nine months ended September 30, 2023, purchases of non-marketable securities totaled $93.9 million, and proceeds from non-marketable securities totaled $90.3 million.

FRB and FHLB stock

At September 30, 2024 and December 31, 2023, the Company held FRB stock and FHLB stock for regulatory or debt facility purposes. 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 FRB and FHLB stock carried at cost.

Convertible preferred stock

Non-marketable securities include convertible preferred stock without a readily determinable fair value. During the nine months ended September 30, 2024, the Company recorded $3.9 million of impairment on convertible preferred stock related to venture capital investments, included in other non-interest income in the Company’s consolidated statements of operations. During the nine months ended September 30, 2023, the Company recorded $4.0 million of impairment on convertible preferred stock related to venture capital investments. During the nine months ended September 30, 2024, the Company sold convertible preferred stock totaling $1.0 million, which generated realized gains of $0.1 million recorded in other non-interest income in the Company’s consolidated statements of operations. The Company purchased zero and $0.4 million of convertible preferred stock during the three and nine months ended September 30, 2024, respectively.

Equity method investments

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zero at September 30, 2024 and December 31, 2023, respectively. During the three and nine months ended September 30, 2024, the Company recorded net unrealized gains on equity method investments totaling $0.4 million and $0.7 million, respectively. During the three and nine months ended September 30, 2023, the Company recorded net unrealized losses on equity method investments totaling zero and $0.4 million, respectively. These gains and losses were recorded in other non-interest income in the Company’s consolidated statements of operations. Carrying values of equity method investments without a readily determinable fair value are updated periodically and impairments may be taken to reflect a new basis. The Company recorded no impairment related to equity method investments without a readily determinable fair value for the nine months ended September 30, 2024 or the year ended December 31, 2023.

Note 5 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 $31.0 million and $33.6 million as of September 30, 2024 and December 31, 2023, respectively.


	September 30, 2024
	Total loans		% of total
Commercial	$	4,581,372	59.4%
Commercial real estate non-owner occupied		1,834,180	23.8%
Residential real estate		1,283,560	16.6%
Consumer		15,383	0.2%
Total	$	7,714,495	100.0%


	December 31, 2023
	Total loans		% of total
Commercial	$	4,499,035	58.4%
Commercial real estate non-owner occupied		1,856,750	24.1%
Residential real estate		1,323,787	17.2%
Consumer		19,186	0.3%
Total	$	7,698,758	100.0%

Information about delinquent and non-accrual loans is shown in the following tables at September 30, 2024 and December 31, 2023:


	September 30, 2024
			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	$	15,678	$	9,508	$	9,556	$	34,742	$	1,976,771	$	2,011,513
Municipal and non-profit		187		—		—		187		1,096,937		1,097,124
Owner occupied commercial real estate		8,691		—		532		9,223		1,162,036		1,171,259
Food and agribusiness		—		—		587		587		300,889		301,476
Total commercial		24,556		9,508		10,675		44,739		4,536,633		4,581,372
Commercial real estate non-owner occupied:
Construction		—		—		—		—		307,214		307,214
Acquisition/development		112		—		—		112		91,059		91,171
Multifamily		—		—		—		—		334,576		334,576
Non-owner occupied		5,799		—		5,859		11,658		1,089,561		1,101,219
Total commercial real estate non-owner occupied		5,911		—		5,859		11,770		1,822,410		1,834,180
Residential real estate:
Senior lien		168		—		6,231		6,399		1,188,148		1,194,547
Junior lien		489		—		672		1,161		87,852		89,013
Total residential real estate		657		—		6,903		7,560		1,276,000		1,283,560
Consumer		129		1		108		238		15,145		15,383
Total loans	$	31,253	$	9,509	$	23,545	$	64,307	$	7,650,188	$	7,714,495

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	September 30, 2024
	Non-accrual loans		Non-accrual loans
	with a related		with no related
	allowance for		allowance for		Non-accrual
	credit loss		credit loss		loans
Commercial:
Commercial and industrial	$	9,162	$	394	$	9,556
Owner occupied commercial real estate		425		107		532
Food and agribusiness		1		586		587
Total commercial		9,588		1,087		10,675
Commercial real estate non-owner occupied:
Non-owner occupied		—		5,859		5,859
Total commercial real estate non-owner occupied		—		5,859		5,859
Residential real estate:
Senior lien		2,759		3,472		6,231
Junior lien		450		222		672
Total residential real estate		3,209		3,694		6,903
Consumer		108		—		108
Total loans	$	12,905	$	10,640	$	23,545


	December 31, 2023
			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	$	9,179	$	—	$	2,250	$	11,429	$	1,955,480	$	1,966,909
Municipal and non-profit		—		—		—		—		1,083,756		1,083,756
Owner occupied commercial real estate		—		—		755		755		1,123,018		1,123,773
Food and agribusiness		—		12		5,762		5,774		318,823		324,597
Total commercial		9,179		12		8,767		17,958		4,481,077		4,499,035
Commercial real estate non-owner occupied:
Construction		—		—		—		—		405,250		405,250
Acquisition/development		1,077		—		—		1,077		99,019		100,096
Multifamily		—		—		—		—		311,770		311,770
Non-owner occupied		60		—		13,472		13,532		1,026,102		1,039,634
Total commercial real estate non-owner occupied		1,137		—		13,472		14,609		1,842,141		1,856,750
Residential real estate:
Senior lien		1,410		50		5,488		6,948		1,226,651		1,233,599
Junior lien		375		528		448		1,351		88,837		90,188
Total residential real estate		1,785		578		5,936		8,299		1,315,488		1,323,787
Consumer		131		1		53		185		19,001		19,186
Total loans	$	12,232	$	591	$	28,228	$	41,051	$	7,657,707	$	7,698,758


	December 31, 2023
	Non-accrual loans		Non-accrual loans
	with a related		with no related
	allowance for		allowance for		Non-accrual
	credit loss		credit loss		loans
Commercial:
Commercial and industrial	$	2,250	$	—	$	2,250
Owner occupied commercial real estate		755		—		755
Food and agribusiness		5,176		586		5,762
Total commercial		8,181		586		8,767
Commercial real estate non-owner occupied:
Non-owner occupied		13,472		—		13,472
Total commercial real estate non-owner occupied		13,472		—		13,472
Residential real estate:
Senior lien		3,277		2,211		5,488
Junior lien		448		—		448
Total residential real estate		3,725		2,211		5,936
Consumer		53		—		53
Total loans	$	25,431	$	2,797	$	28,228

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 to borrowers experiencing financial difficulties may be modified. Modified loans 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, 2024 or 2023.

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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 2023 Annual Report on Form 10-K.

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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 tables as of and for the nine months ended September 30, 2024 and the year ended December 31, 2023:


	September 30, 2024
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2024		2023		2022		2021		2020		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	369,871	$	250,499	$	351,692	$	250,042	$	70,007	$	111,649	$	438,616	$	12,942	$	1,855,318
Special mention		5,024		14,944		11,652		31,476		10,577		7,293		24,569		2,461		107,996
Substandard		6,311		17,821		10,495		2,761		2,741		847		2,902		371		44,249
Doubtful		—		2,433		98		15		975		56		—		373		3,950
Total commercial and industrial		381,206		285,697		373,937		284,294		84,300		119,845		466,087		16,147		2,011,513
Gross charge-offs: Commercial and industrial		—		—		—		26		155		56		—		—		237
Municipal and non-profit:
Pass		77,016		147,281		139,976		220,318		75,506		408,372		26,696		—		1,095,165
Special mention		—		—		—		—		1,959		—		—		—		1,959
Total municipal and non-profit		77,016		147,281		139,976		220,318		77,465		408,372		26,696		—		1,097,124
Owner occupied commercial real estate:
Pass		167,970		207,547		234,000		134,284		86,481		227,224		20,594		—		1,078,100
Special mention		430		8,844		21,459		22,907		1,198		26,474		100		—		81,412
Substandard		—		—		3,366		3,406		—		3,645		846		—		11,263
Doubtful		—		—		—		—		—		484		—		—		484
Total owner occupied commercial real estate		168,400		216,391		258,825		160,597		87,679		257,827		21,540		—		1,171,259
Gross charge-offs: Owner occupied commercial real estate		—		—		13		—		—		—		—		—		13
Food and agribusiness:
Pass		14,943		10,873		73,967		11,003		6,041		35,238		145,464		—		297,529
Special mention		—		—		—		3,148		—		212		—		—		3,360
Substandard		—		—		—		586		—		1		—		—		587
Total food and agribusiness		14,943		10,873		73,967		14,737		6,041		35,451		145,464		—		301,476
Gross charge-offs: Food and agribusiness		—		—		—		—		—		2,704		—		—		2,704
Total commercial		641,565		660,242		846,705		679,946		255,485		821,495		659,787		16,147		4,581,372
Gross charge-offs: Commercial		—		—		13		26		155		2,760		—		—		2,954
Commercial real estate non-owner occupied:
Construction:
Pass		29,621		68,663		94,585		36,638		29,251		—		45,967		453		305,178
Special mention		—		—		2,036		—		—		—		—		—		2,036
Total construction		29,621		68,663		96,621		36,638		29,251		—		45,967		453		307,214
Acquisition/development:
Pass		15,649		4,916		36,663		21,646		1,229		8,279		699		—		89,081
Special mention		—		—		1,075		717		—		—		—		—		1,792
Substandard		—		—		—		—		—		298		—		—		298
Total acquisition/development		15,649		4,916		37,738		22,363		1,229		8,577		699		—		91,171
Multifamily:
Pass		6,822		16,465		153,335		96,174		16,687		31,199		1,956		—		322,638
Special mention		—		—		8,114		3,824		—		—		—		—		11,938
Total multifamily		6,822		16,465		161,449		99,998		16,687		31,199		1,956		—		334,576
Non-owner occupied
Pass		21,896		134,006		291,344		144,191		122,132		326,912		5,345		—		1,045,826
Special mention		5,002		14,034		—		13,091		3,808		3,992		—		—		39,927
Substandard		—		—		—		5,859		—		9,374		—		—		15,233
Doubtful		—		—		—		—		—		233		—		—		233
Total non-owner occupied		26,898		148,040		291,344		163,141		125,940		340,511		5,345		—		1,101,219
Gross charge-offs: Non-owner occupied		—		—		293		—		—		4,422		—		—		4,715
Total commercial real estate non-owner occupied		78,990		238,084		587,152		322,140		173,107		380,287		53,967		453		1,834,180
Gross charge-offs: Commercial real estate non-owner occupied		—		—		293		—		—		4,422		—		—		4,715
Residential real estate:
Senior lien
Pass		51,116		89,536		418,044		294,554		102,832		184,204		46,431		257		1,186,974
Special mention		—		—		—		—		—		17		—		—		17
Substandard		22		665		3,460		947		401		2,036		—		—		7,531
Doubtful		—		—		—		—		—		25		—		—		25
Total senior lien		51,138		90,201		421,504		295,501		103,233		186,282		46,431		257		1,194,547
Junior lien
Pass		5,587		3,597		4,626		1,584		1,905		5,833		62,204		885		86,221
Special mention		—		—		—		431		—		27		1,488		—		1,946

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Substandard		45		—		146		222		89		172		172		—		846
Total junior lien		5,632		3,597		4,772		2,237		1,994		6,032		63,864		885		89,013
Total residential real estate		56,770		93,798		426,276		297,738		105,227		192,314		110,295		1,142		1,283,560
Consumer
Pass		4,260		2,379		1,738		1,128		638		200		4,884		48		15,275
Substandard		—		—		67		—		—		41		—		—		108
Total consumer		4,260		2,379		1,805		1,128		638		241		4,884		48		15,383
Gross charge-offs: Consumer		640		23		12		3		—		40		—		—		718
Total loans	$	781,585	$	994,503	$	1,861,938	$	1,300,952	$	534,457	$	1,394,337	$	828,933	$	17,790	$	7,714,495
Gross charge-offs: Total loans		640		23		318		29		155		7,222		—		—		8,387

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	December 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	$	348,103	$	396,618	$	271,201	$	87,234	$	41,261	$	106,711	$	563,924	$	31,620	$	1,846,672
Special mention		4,775		12,259		31,895		20,340		2,202		683		18,344		3,470		93,968
Substandard		13,729		4,555		4,248		1,314		179		347		910		—		25,282
Doubtful		600		—		—		387		—		—		—		—		987
Total commercial and industrial		367,207		413,432		307,344		109,275		43,642		107,741		583,178		35,090		1,966,909
Gross charge-offs: Commercial and industrial		—		12		215		—		47		3		—		—		277
Municipal and non-profit:
Pass		139,591		140,626		246,088		82,590		53,460		389,867		31,534		—		1,083,756
Total municipal and non-profit		139,591		140,626		246,088		82,590		53,460		389,867		31,534		—		1,083,756
Owner occupied commercial real estate:
Pass		236,897		275,644		181,472		97,523		86,761		163,997		18,281		—		1,060,575
Special mention		2,074		19,191		7,808		—		2,650		27,653		—		—		59,376
Substandard		—		515		1,732		—		687		234		—		—		3,168
Doubtful		—		6		—		—		—		648		—		—		654
Total owner occupied commercial real estate		238,971		295,356		191,012		97,523		90,098		192,532		18,281		—		1,123,773
Food and agribusiness:
Pass		16,917		69,212		14,159		15,379		10,417		34,592		149,125		51		309,852
Special mention		—		—		4,646		—		—		3,724		450		—		8,820
Substandard		—		—		586		—		—		180		1,786		—		2,552
Doubtful		—		—		—		—		—		—		3,373		—		3,373
Total food and agribusiness		16,917		69,212		19,391		15,379		10,417		38,496		154,734		51		324,597
Total commercial		762,686		918,626		763,835		304,767		197,617		728,636		787,727		35,141		4,499,035
Gross charge-offs: Commercial		—		12		215		—		47		3		—		—		277
Commercial real estate non-owner occupied:
Construction:
Pass		43,385		190,826		59,477		63,486		1,006		—		47,070		—		405,250
Total construction		43,385		190,826		59,477		63,486		1,006		—		47,070		—		405,250
Acquisition/development:
Pass		13,228		39,000		21,011		5,992		597		8,814		7,416		2,961		99,019
Special mention		—		1,077		—		—		—		—		—		—		1,077
Total acquisition/development		13,228		40,077		21,011		5,992		597		8,814		7,416		2,961		100,096
Multifamily:
Pass		16,450		113,936		92,574		16,938		39,371		31,671		830		—		311,770
Total multifamily		16,450		113,936		92,574		16,938		39,371		31,671		830		—		311,770
Non-owner occupied
Pass		116,168		241,563		172,042		91,188		124,291		236,694		6,694		—		988,640
Special mention		—		—		—		21,268		3,876		2,489		—		—		27,633
Substandard		—		—		—		—		—		19,848		—		—		19,848
Doubtful		—		—		—		280		—		3,233		—		—		3,513
Total non-owner occupied		116,168		241,563		172,042		112,736		128,167		262,264		6,694		—		1,039,634
Total commercial real estate non-owner occupied		189,231		586,402		345,104		199,152		169,141		302,749		62,010		2,961		1,856,750
Residential real estate:
Senior lien
Pass		87,608		434,963		316,080		112,582		42,752		183,890		48,462		94		1,226,431
Special mention		—		—		—		—		—		515		—		—		515
Substandard		1,555		1,119		740		415		620		2,167		—		—		6,616
Doubtful		—		—		—		—		—		37		—		—		37
Total senior lien		89,163		436,082		316,820		112,997		43,372		186,609		48,462		94		1,233,599
Gross charge-offs: Senior lien		—		—		—		—		—		48		—		—		48
Junior lien
Pass		4,920		4,464		1,712		2,947		2,270		4,729		66,441		684		88,167
Special mention		—		—		—		—		—		27		249		—		276
Substandard		263		149		236		758		—		339		—		—		1,745
Total junior lien		5,183		4,613		1,948		3,705		2,270		5,095		66,690		684		90,188
Total residential real estate		94,346		440,695		318,768		116,702		45,642		191,704		115,152		778		1,323,787
Gross charge-offs: Residential real estate		—		—		—		—		—		48		—		—		48
Consumer
Pass		5,945		3,330		2,233		997		244		410		5,947		27		19,133
Substandard		—		—		—		—		—		50		3		—		53
Total consumer		5,945		3,330		2,233		997		244		460		5,950		27		19,186
Gross charge-offs: Consumer		1,225		13		1		2		1		8		—		—		1,250
Total loans	$	1,052,208	$	1,949,053	$	1,429,940	$	621,618	$	412,644	$	1,223,549	$	970,839	$	38,907	$	7,698,758
Gross charge-offs: Total loans		1,225		25		216		2		48		59		—		—		1,575

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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 modified 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, 2024 and December 31, 2023:


	September 30, 2024
					Total amortized
	Real property		Business assets		cost basis
Commercial:
Commercial and industrial	$	2,800	$	6,863	$	9,663
Owner occupied commercial real estate		1,450		—		1,450
Food and agribusiness		586		—		586
Total commercial		4,836		6,863		11,699
Commercial real estate non-owner occupied:
Non-owner occupied		11,127		—		11,127
Total commercial real estate non-owner occupied		11,127		—		11,127
Residential real estate:
Senior lien		4,770		—		4,770
Junior lien		183		39		222
Total residential real estate		4,953		39		4,992
Total loans	$	20,916	$	6,902	$	27,818


	December 31, 2023
					Total amortized
	Real property		Business assets		cost basis
Commercial:
Commercial and industrial	$	1,946	$	220	$	2,166
Owner occupied commercial real estate		1,883		—		1,883
Food and agribusiness		586		5,159		5,745
Total commercial		4,415		5,379		9,794
Commercial real estate non-owner occupied:
Non-owner occupied		19,993		—		19,993
Total commercial real estate non-owner occupied		19,993		—		19,993
Residential real estate:
Senior lien		2,661		—		2,661
Total residential real estate		2,661		—		2,661
Total loans	$	27,069	$	5,379	$	32,448

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Loan modifications

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 modifying 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. The Company considers loans to borrowers experiencing financial difficulties, where such a concession is utilized, to be troubled debt modifications (“TDM”). TDMs may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof.

The following schedule presents, by loan class, the amortized cost basis for loans to borrowers experiencing financial difficulty that remain outstanding and were modified within the three months ended September 30, 2024:


	As of and for the three months ended September 30, 2024
				Combination - interest rate
	Payment delay			reduction and term extension
	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	2,849	0.1%	$	—	0.0%
Total commercial		2,849	0.1%		—	0.0%
Residential real estate:
Junior lien		—	0.0%		45	0.1%
Total residential real estate		—	0.0%		45	0.0%
Total loans	$	2,849	0.0%	$	45	0.0%

The following schedules present, by loan class, the amortized cost basis for loans to borrowers experiencing financial difficulty that remain outstanding and were modified within the nine months ended September 30, 2024 and 2023:


	As of and for the nine months ended September 30, 2024
							Combination - interest rate			Combination - term extension
	Term extension			Payment delay			reduction and term extension			and payment delay
	Amortized		% of loan	Amortized		% of loan	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	7,621	0.4%	$	2,849	0.1%	$	—	0.0%	$	—	0.0%
Owner occupied commercial real estate		—	0.0%		1,664	0.1%		—	0.0%		—	0.0%
Total commercial		7,621	0.2%		4,513	0.1%		—	0.0%		—	0.0%
Commercial real estate non-owner occupied:
Non-owner occupied		5,435	0.5%		—	0.0%		—	0.0%		—	0.0%
Total commercial real estate non-owner occupied		5,435	0.3%		—	0.0%		—	0.0%		—	0.0%
Residential real estate:
Senior lien		—	0.0%		854	0.1%		22	0.0%		382	0.0%
Junior lien		—	0.0%		—	0.0%		45	0.1%		—	0.0%
Total residential real estate		—	0.0%		854	0.1%		67	0.0%		382	0.0%
Total loans	$	13,056	0.2%	$	5,367	0.1%	$	67	0.0%	$	382	0.0%

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	September 30, 2023
	Term extension			Payment delay
	Amortized		% of loan	Amortized		% of loan
	cost basis		class	cost basis		class
Commercial:
Commercial and industrial	$	—	0.0%	$	114	0.0%
Total commercial		—	0.0%		114	0.0%
Commercial real estate non-owner occupied:
Non-owner occupied		18,764	1.8%		—	0.0%
Total commercial real estate non-owner occupied		18,764	1.0%		—	0.0%
Residential real estate:
Senior lien		653	0.1%			0.0%
Total residential real estate		653	0.1%		—	0.0%
Total loans	$	19,417	0.3%	$	114	0.0%

The following schedules present, by loan class, the payment status of loans that have been modified in the last twelve months as of the dates presented on an amortized cost basis:


	September 30, 2024
	Current		30-89 days past due		Non-accrual
Commercial:
Commercial and industrial	$	2,849	$	7,621	$	5,354
Owner occupied commercial real estate		1,664		—		—
Total commercial		4,513		7,621		5,354
Commercial real estate non-owner occupied:
Non-owner occupied		167		5,268		—
Total commercial real estate non-owner occupied		167		5,268		—
Residential real estate:
Senior lien		854		—		404
Junior lien		—		—		45
Total residential real estate		854		—		449
Total loans	$	5,534	$	12,889	$	5,803


	September 30, 2023
	Current		30-89 days past due		Non-accrual
Commercial:
Commercial and industrial	$	114	$	—	$	—
Total commercial		114		—		—
Commercial real estate non-owner occupied:
Non-owner occupied		5,292		—		13,472
Total commercial real estate non-owner occupied		5,292		—		13,472
Residential real estate:
Senior lien		653		—		—
Total residential real estate		653		—		—
Total loans	$	6,059	$	—	$	13,472

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. During the three months ended September 30, 2024, the Company had no TDMs that were modified within the past 12 months that defaulted on their modified terms. During the nine months ended September 30, 2024, the Company had two TDMs with amortized costs totaling $5.7 million that were modified within the past 12 months, utilizing a combination of a term extension and payment delays, that defaulted on their modified terms. During the nine months ended September 30, 2023, the Company had one TDM with an amortized cost totaling $13.5 million that was modified within the past twelve months, utilizing a term extension, that defaulted on its 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 TDMs 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 TDMs.

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The following schedules present the financial effect of the modifications made to borrowers experiencing financial difficulty as of and for the periods indicated:

As of and for the three months ended September 30, 2024

As of and for the nine months ended September 30, 2024

Financial effect

Payment delay

Combination - Interest rate reduction and Term extension

Term extension

Payment delay

Combination - Interest rate reduction and Term extension

Combination - Term extension and Payment delay

Commercial:

Commercial and industrial

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

Extended a weighted average of 0.6 years to the life of loans, which reduced monthly payment amounts

Delayed payments for a weighted average of 0.5 years

Owner occupied commercial real estate

Delayed payments for a weighted average of 0.5 years

Commercial real estate non-owner occupied:

Non-owner occupied

Extended a weighted average of 0.9 years to the life of loans, which reduced monthly payment amounts

Residential real estate:

Senior lien

Delayed payments for a weighted average of 0.3 years

Reduced weighted average contractual interest rate by 1.5% and extended a weighted average of 11 years to the life of loans, which reduced monthly payment amounts

Extended a weighted average of 0.7 years to the life of loans, which reduced monthly payment amounts and delayed payments for a weighted average of 0.7 years

Junior lien

Reduced weighted average contractual interest rate by 1.1% and extended a weighted average of 10 years to the life of loans, which reduced monthly payment amounts


	September 30, 2023
	Financial effect
	Term extension	Payment delay	Combination - Interest rate reduction and Term extension
Commercial:
Commercial and industrial		Delayed payments for a weighted average of 0.2 years
Commercial real estate non-owner occupied:
Non-owner occupied	Extended a weighted average of 0.3 years to the life of loans, which reduced monthly payment amounts
Residential real estate:
Senior lien			Reduced weighted average contractual interest rate by 2.5% and extended a weighted average life of 30 years, which reduced monthly payment amounts

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Note 6 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, 2024
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	48,910	$	27,412	$	19,759	$	376	$	96,457
Charge-offs		(2,930)		(293)		—		(282)		(3,505)
Recoveries		60		—		5		30		95
Provision expense for credit losses		210		937		636		217		2,000
Ending balance	$	46,250	$	28,056	$	20,400	$	341	$	95,047


	Nine months ended September 30, 2024
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	45,304	$	32,665	$	19,550	$	428	$	97,947
Charge-offs		(2,954)		(4,715)		—		(718)		(8,387)
Recoveries		352		7		95		327		781
Provision expense for credit losses		3,548		99		755		304		4,706
Ending balance	$	46,250	$	28,056	$	20,400	$	341	$	95,047


	Three months ended September 30, 2023
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	42,058	$	30,768	$	19,331	$	424	$	92,581
Charge-offs		(239)		—		—		(301)		(540)
Recoveries		241		1		7		31		280
Provision expense (release) for credit losses		3,231		(2,301)		(47)		242		1,125
Ending balance	$	45,291	$	28,468	$	19,291	$	396	$	93,446


	Nine months ended September 30, 2023
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	37,608	$	32,050	$	19,306	$	589	$	89,553
Charge-offs		(242)		—		(46)		(930)		(1,218)
Recoveries		286		3		19		78		386
Provision expense (release) for credit losses		7,639		(3,585)		12		659		4,725
Ending balance	$	45,291	$	28,468	$	19,291	$	396	$	93,446

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 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.

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The Company recorded a decrease in the allowance for credit losses of $1.4 million and $2.9 million during the three and nine months ended September 30, 2024, respectively, due to a decrease in specific reserves related to the resolution of non-performing loans. Net charge-offs on loans during the three and nine months ended September 30, 2024 were $3.4 million and $7.6 million, respectively.

The Company recorded an increase in the allowance for credit losses of $1.1 million and $4.7 million during the three and nine months ended September 30, 2023, respectively, driven by loan growth and higher reserve requirements. Net charge-offs on loans during the three and nine months ended September 30, 2023 were $0.3 million and $0.8 million, respectively.

The Company has elected to exclude AIR from the allowance for credit losses calculation. As of September 30, 2024 and December 31, 2023, AIR from loans totaled $45.7 million and $42.4 million, respectively.

Note 7 Other Real Estate Owned

A summary of the activity in other real estate owned (“OREO”) during the nine months ended September 30, 2024 and 2023 is as follows:


	For the nine months ended September 30,
	2024		2023
Beginning balance	$	4,088	$	3,731
Impairments		—		(55)
Sales		(2,656)		(260)
Ending balance	$	1,432	$	3,416

During the three and nine months ended September 30, 2024, the Company sold OREO properties with net book balances of $0.1 million and $2.7 million, respectively. During the three months ended September 30, 2023, the Company sold no OREO properties. During the nine months ended September 30, 2023, the Company sold OREO properties with net book balances of $0.3 million. Sales of OREO properties resulted in net OREO gains of zero and net OREO losses of $0.1 million, which were included within other non-interest expense in the consolidated statements of operations for the three and nine months ended September 30, 2024, respectively. During the nine months ended September 30, 2023, sales of OREO properties resulted in net OREO losses of $11 thousand.

Note 8 Goodwill and Intangible Assets

Goodwill and other intangible assets

In connection with our acquisitions, the Company’s goodwill was $306.0 million as of September 30, 2024. 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, 2024 or the year ended December 31, 2023.

The gross carrying amount of other intangible assets and the associated accumulated amortization at September 30, 2024 and December 31, 2023, are presented as follows:


	September 30, 2024						December 31, 2023
	Gross				Net		Gross				Net
	carrying		Accumulated		carrying		carrying		Accumulated		carrying
	amount		amortization		amount		amount		amortization		amount
Core deposit intangible	$	91,566	$	(54,087)	$	37,479	$	91,566	$	(50,095)	$	41,471
Customer relationship intangible		17,000		(3,492)		13,508		17,000		(1,867)		15,133
Internally developed technology		2,300		(575)		1,725		2,300		(230)		2,070
Total	$	110,866	$	(58,154)	$	52,712	$	110,866	$	(52,192)	$	58,674

The Company is amortizing intangibles from acquisitions over a weighted average period of 9.8 years from the date of the respective acquisitions. The core deposit and customer relationship intangibles are being amortized over a weighted average period of 10 years, and the internally developed technology intangible is being amortized over a weighted average period of five years. The Company recognized other intangible assets amortization expense of $2.0 million and $6.0 million during the three and nine months ended

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September 30, 2024, respectively. During the three and nine months ended September 30, 2023, the Company recognized other intangible assets amortization expense of $2.0 million and $5.4 million, respectively.

The following table shows the estimated future amortization expense during the next five years for other intangible assets as of September 30, 2024:


Years ending December 31,		Amount
For the three months ending December 31, 2024	$	1,947
For the year ending December 31, 2025		7,786
For the year ending December 31, 2026		7,664
For the year ending December 31, 2027		7,542
For the year ending December 31, 2028		6,142

Servicing Rights

Mortgage servicing 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 $0.5 billion and $0.5 billion at September 30, 2024 and 2023, respectively.

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


	For the nine months ended September 30,
	2024		2023
Beginning balance	$	4,911	$	9,162
Originations		258		993
Sales		—		(4,664)
(Impairment) recovery		(13)		66
Amortization		(356)		(675)
Ending balance		4,800		4,882
Fair value of mortgage servicing rights	$	6,925	$	7,514

During the third quarter of 2023, the Company sold rights to service loans totaling $486.7 million in unpaid principal balances from our mortgage servicing rights portfolio. As a result of the sale, the book value of our mortgage servicing rights intangible decreased $4.7 million and generated a gain of $1.1 million included in mortgage banking income in the consolidated statements of operations.

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. Discount rates ranged from 10.0% to 10.5% and the constant prepayment speed ranged from 6.9% to 17.6% for the September 30, 2024 valuation. The discount rate ranged from 10.0% to 10.5%, and the constant prepayment speed ranged from 6.0% to 10.6% for the September 30, 2023 valuation. Included in mortgage banking income in the consolidated statements of operations was servicing income of $0.3 million and $1.1 million for the three and nine months ended September 30, 2024, respectively, and $0.6 million and $1.9 million for the three and nine months ended September 30, 2023, 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.

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The following table shows the estimated future amortization expense during the next five years for the MSRs as of September 30, 2024:


Years ending December 31,		Amount
For the three months ending December 31, 2024	$	141
For the year ending December 31, 2025		549
For the year ending December 31, 2026		484
For the year ending December 31, 2027		427
For the year ending December 31, 2028		377

SBA servicing asset

The SBA 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 asset in proportion to and over the period of the estimated net servicing income of the underlying loans. The Company serviced $129.7 million and $108.8 million of SBA loans that have been sold into the secondary market, as of September 30, 2024 and December 31, 2023, respectively. For the three and nine months ended September 30, 2024, the Company recognized SBA servicing asset fee income totaling $0.1 million and $0.2 million. During the three and nine months ended September 30, 2023, the Company recognized SBA servicing asset fee income totaling $0.1 million and $0.7 million, respectively.

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


	For the nine months ended September 30,
	2024		2023
Beginning balance	$	2,440	$	2,666
Originations		952		325
Disposals		(440)		(321)
Recovery		103		153
Amortization		(177)		(104)
Ending balance		2,878		2,719
Fair value of mortgage servicing rights	$	2,878	$	2,719

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. For the nine months ended September 30, 2024 and 2023, the key assumptions used to determine the fair value of the Company’s SBA loan servicing rights included weighted average lifetime constant prepayment rates equal to 15.6% and 14.1%, respectively, and weighted average discount rates equal to 9.7% and 13.7%, respectively.

The following table shows the estimated future amortization expense during the next five years for the SBA servicing asset as of September 30, 2024:


Years ending December 31,		Amount
For the three months ending December 31, 2024	$	259
For the year ending December 31, 2025		315
For the year ending December 31, 2026		277
For the year ending December 31, 2027		244
For the year ending December 31, 2028		214

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Note 9 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, 2024 and December 31, 2023, the Company sold securities under agreements to repurchase totaling $19.5 million and $19.6 million, respectively. The Company pledged mortgage-backed securities with a fair value of approximately $27.2 million and $30.4 million as of September 30, 2024 and December 31, 2023, 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, 2024 and December 31, 2023, the Company had $7.7 million and $10.8 million, respectively, of excess collateral pledged for repurchase agreements.

Federal Home Loan Bank advances

As a member of the FHLB, the Banks have access to a line of credit and term financing from the FHLB with total available credit of $1.8 billion at September 30, 2024. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2024 and December 31, 2023, the Banks had zero and $340.0 million, respectively, of outstanding borrowings from the FHLB. The Banks may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged for FHLB advances at September 30, 2024 or December 31, 2023. Loans pledged were $2.6 billion at September 30, 2024 and December 31, 2023. The Company incurred $0.5 million and $3.8 million of interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, the Company incurred $4.4 million and $17.1 million, respectively, of interest expense related to FHLB advances and other short-term borrowings.

Long-term debt

The Company holds 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, 2024 and December 31, 2023, net of long-term debt issuance costs totaling $0.2 million, totaled $39.8 million. During the three and nine months ended September 30, 2024 and 2023, interest expense totaling $0.3 million and $0.9 million, respectively, was recorded in the consolidated statements of operations.

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 secured overnight financing rate (“SOFR”) plus 203 basis points. The Company deployed 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 Bank of Jackson Hole (“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 September 30, 2024, net of the fair value adjustment from the acquisition of $0.3 million, totaled $14.7 million. At December 31, 2023, the balance on the notes, net of the fair value adjustment from the acquisition of $0.5 million, totaled $14.5 million. Interest expense related to the notes totaling $0.1 million and $0.4 million was recorded in the consolidated statements of operations during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, interest expense related to the notes totaling $0.1 million and $0.4 million, respectively, was recorded in the consolidated statements of operations.

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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.

Note 10 Regulatory Capital

As a bank holding company that has elected to be treated as a financial holding company, the Company, NBH Bank and Bank of Jackson Hole Trust are subject to regulatory capital adequacy requirements implemented by the Federal Reserve and, for NBH Bank and Bank of Jackson Hole Trust, the FDIC, including maintaining capital positions at the “well-capitalized” level. The federal banking agencies have risk 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. Regulatory authorities can initiate certain mandatory actions if the Company, NBH Bank or Bank of Jackson Hole Trust fail to meet the minimum capital requirements, which could have a material effect on our financial statements.

Under the Basel III requirements, at September 30, 2024 and December 31, 2023, 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:


	September 30, 2024
				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%	$	1,013,938	N/A		N/A	4.0%	$	388,587
NBH Bank	9.4%		912,857	5.0%	$	483,925	4.0%		387,140
Bank of Jackson Hole Trust	30.4%		12,289	5.0%		2,022	4.0%		1,618
Common equity tier 1 risk based capital:
Consolidated	12.9%	$	1,013,938	N/A		N/A	7.0%	$	551,153
NBH Bank	11.7%		912,857	6.5%	$	509,436	7.0%		548,623
Bank of Jackson Hole Trust	75.4%		12,289	6.5%		1,060	7.0%		1,141
Tier 1 risk based capital ratio:
Consolidated	12.9%	$	1,013,938	N/A		N/A	8.5%	$	669,257
NBH Bank	11.7%		912,857	8.0%	$	626,998	8.5%		666,185
Bank of Jackson Hole Trust	75.4%		12,289	8.0%		1,304	8.5%		1,386
Total risk based capital ratio:
Consolidated	14.8%	$	1,164,207	N/A		N/A	10.5%	$	826,729
NBH Bank	12.9%		1,008,124	10.0%	$	783,747	10.5%		822,934
Bank of Jackson Hole Trust	75.4%		12,291	10.0%		1,630	10.5%		1,712

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	December 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	9.7%	$	941,369	N/A		N/A	4.0%	$	386,775
NBH Bank	8.9%		856,243	5.0%	$	481,685	4.0%		385,348
Bank of Jackson Hole Trust	30.0%		11,609	5.0%		1,936	4.0%		1,549
Common equity tier 1 risk based capital:
Consolidated	11.9%	$	941,369	N/A		N/A	7.0%	$	554,325
NBH Bank	10.9%		856,243	6.5%	$	512,408	7.0%		551,824
Bank of Jackson Hole Trust	71.2%		11,609	6.5%		1,059	7.0%		1,141
Tier 1 risk based capital ratio:
Consolidated	11.9%	$	941,369	N/A		N/A	8.5%	$	673,109
NBH Bank	10.9%		856,243	8.0%	$	630,656	8.5%		670,072
Bank of Jackson Hole Trust	71.2%		11,609	8.0%		1,304	8.5%		1,385
Total risk based capital ratio:
Consolidated	13.8%	$	1,092,800	N/A		N/A	10.5%	$	831,487
NBH Bank	12.1%		952,674	10.0%	$	788,319	10.5%		827,735
Bank of Jackson Hole Trust	71.2%		11,609	10.0%		1,629	10.5%		1,711


(1)		Includes the capital conservation buffer of 2.5%.

Note 11 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, including service charges and other deposit account related fees, bank card fees and other non-interest income. Other non-interest income includes trust and wealth management fees and Cambr Solutions, LLC (“Cambr”) fee income.

Service charges and other account-related 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.

Other non-interest income

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

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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.

Cambr fee income

Cambr operates a deposit acquisition and processing platform that generates core deposits from accounts offered through third-party embedded finance companies. Cambr’s platform facilitates the movement of embedded finance companies’ client deposits into FDIC-insured accounts at banks within Cambr’s network. Cambr generates fee income by charging a percentage-based fee of the client’s deposit balance placed into the Cambr network. The performance obligation is satisfied upon completion of service, and Cambr fee income is recorded within other non-interest income in the consolidated statements of operations.

Other non-interest expense

Included within other non-interest expense are gains and losses from OREO sales, which are 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.

The following table presents non-interest income, segregated by revenue streams in-scope and out-of-scope of FASB ASC Topic 606 (“Topic 606”), and non-interest expense in-scope of Topic 606 for the three and nine months ended September 30, 2024 and 2023:


	For the three months ended September 30,				For the nine months ended September 30,
	2024		2023		2024		2023
Non-interest income
In-scope of Topic 606:
Service charges and other account-related fees	$	5,790	$	6,819	$	16,251	$	18,356
Bank card fees		4,832		4,993		14,292		14,721
Other non-interest income		1,442		1,167		4,216		3,386
Non-interest income (in-scope of Topic 606)		12,064		12,979		34,759		36,463
Non-interest income (out-of-scope of Topic 606)		6,325		6,386		15,353		11,390
Total non-interest income	$	18,389	$	19,365	$	50,112	$	47,853
Non-interest expense
In-scope of Topic 606:
Other non-interest expense	$	48	$	—	$	(144)	$	(11)
Total revenue in-scope of Topic 606	$	12,112	$	12,979	$	34,615	$	36,452

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 12 Stock-based Compensation and Benefits

The Company provides stock-based compensation in accordance with shareholder-approved plans. On May 9, 2023, shareholders approved the 2023 Omnibus Incentive Plan (the "2023 Plan"). The 2023 Plan replaces the 2014 Omnibus Incentive Plan (the "Prior Plan"), pursuant to which the Company granted equity awards prior to the approval of the 2023 Plan. Pursuant to the 2023 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.

As of September 30, 2024, the aggregate number of Class A common stock available for issuance under the 2023 Plan is 978,738 shares. Any shares subject to awards under the 2023 Plan will be counted against the amount available for issuance as one share for every one share granted. The 2023 Plan provides for recycling of shares from both the Prior Plan and the 2023 Plan, the terms of which are further described in the Company's Proxy Statement for its 2024 Annual Meeting of Shareholders. Upon an option exercise, it is the Company’s policy to issue shares from treasury stock.

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To date, the Company has issued stock options, restricted stock and performance stock units under the Prior Plan and 2023 Plan. The Compensation Committee sets the option exercise price at the time of grant, but in no case is the exercise price less than the fair market value of a share of stock at the date of grant.

During 2023, the Compensation Committee approved the adoption of the 2023 Equity Unit Incentive Plan (the “2UniFi Plan”), an equity incentive plan with respect to class B units of 2Unifi, LLC, a wholly owned subsidiary of the Company. The 2UniFi Plan provides for the grant of up to 200,000 Class B Units (intended to be in the form of profit interests) to the employees and other service providers of 2UniFi and its affiliates, including the named executive officers of the Company. The 2UniFi Plan is administered by the Managing Member Board of 2UniFi and any grant of Class B units to an executive officer of the Company is subject to the approval of NBHC’s Compensation Committee. As of September 30, 2024 and December 31, 2023, the Managing Member Board had granted 122,000 and 112,000 units, respectively. The awards vest over a 5 year period with 50% of the awards vesting on the third anniversary of the grant date, and 25% vesting on the fourth and fifth anniversary of the grant date, respectively. At September 30, 2024, there was $0.1 million of total unrecognized compensation cost related to non-vested units under the plan.

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 on a graded basis over 1-3 years of continuous service and have 10-year contractual terms.

The following table summarizes stock option activity for the nine months ended September 30, 2024:


				Weighted
				average
		Weighted		remaining
		average		contractual	Aggregate
		exercise		term in	intrinsic
	Options	price		years	value
Outstanding at December 31, 2023	755,546	$	30.95	5.79	$	5,270
Granted	—		—
Exercised	(123,954)		22.26
Forfeited	(6,477)		37.33
Outstanding at September 30, 2024	625,115		32.60	5.55		5,972
Options exercisable at September 30, 2024	529,552		32.00	5.07		5,360
Options vested and expected to vest	617,974		32.57	5.52		5,921

Stock option expense is a component of salaries and benefits expense in the consolidated statements of operations and totaled $0.1 million and $0.3 million for the three and nine months ended September 30, 2024, respectively, and $0.1 million and $0.8 million for the three and nine months ended September 30, 2023, respectively. At September 30, 2024, there was $0.2 million of total unrecognized 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 1.4 years.

Restricted stock awards

The Company issues primarily time-based restricted stock awards that vest over a range of a 1-3 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 (“PSU”) 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 PSU components granted in 2024, one-third of the award is based on the Company’s cumulative earnings per share (EPS target), one-third is based on the Company’s relative return on tangible assets (“ROTA”), and one-third is based on the

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Company’s cumulative total shareholder return (“TSR”) during the performance period. On the vesting date, the Company’s annual ROTA will be compared to the respective ROTAs of companies comprising the S&P 600 Regional Banks group. The Company’s ranking will be averaged over the measurement period 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. On the vesting date, the Company’s TSR will be compared to the respective TSRs of the companies comprising the S&P 600 Regional Banks group at the grant date to determine the shares awarded. The fair value of the TSR target portion of the award was determined using a Monte Carlo Simulation at the grant date. 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 weighted-average grant date fair value per unit for the awards granted during the nine months ended September 30, 2024 of the EPS target portion, ROTA target portion and TSR target portion were $35.41, $35.41, and $34.91, respectively. The initial weighted-average performance price for the TSR target portion granted during 2024 was $36.72. During the nine months ended September 30, 2024, the Company canceled 530 units due to final performance results related to performance stock units granted in 2021.

For PSU components granted in 2023 and 2022, sixty percent of the award was based on the Company’s cumulative EPS and forty percent of the award was based on the Company’s cumulative TSR during the performance period. On the vesting date, the Company’s TSR will be compared to the respective TSRs of the companies comprising the KBW Regional Index at the grant date to determine the shares awarded.

The following table summarizes restricted stock and performance stock unit activity during the nine months ended September 30, 2024:


		Weighted			Weighted
	Restricted	average grant-		Performance	average grant-
	stock shares	date fair value		stock units	date fair value
Unvested at December 31, 2023	240,584	$	34.47	171,782	$	34.56
Granted	183,723		35.31	79,254		35.24
Adjustment due to performance	—		—	(530)		35.75
Vested	(88,311)		35.83	(46,490)		37.82
Forfeited	(18,874)		36.28	(3,616)		32.62
Unvested at September 30, 2024	317,122	$	34.47	200,400	$	34.30

As of September 30, 2024, the total unrecognized compensation cost related to the non-vested restricted stock awards and performance stock units totaled $6.5 million and $3.9 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.1 years and 2.0 years, respectively. Expense related to non-vested restricted stock awards totaled $1.4 million and $3.8 million during the three and nine months ended September 30, 2024, respectively, and $1.2 million and $3.2 million during the three and nine months ended September 30, 2023, respectively. Expense related to non-vested performance stock units totaled $0.6 million and $1.6 million during the three and nine months ended September 30, 2024, respectively, and $0.4 million and $1.3 million during the three and nine months ended September 30, 2023, respectively. Expense related to non-vested restricted stock awards and units is a component of salaries and benefits expense in the Company’s consolidated statements of operations.

Employee stock 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 214,530 was available for issuance at September 30, 2024.

Under the ESPP, employees purchased 21,389 shares and 26,563 shares during the nine months ended September 30, 2024 and 2023, respectively.

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Note 13 Common Stock

The Company had 37,988,364 and 37,784,851 shares of Class A common stock outstanding at September 30, 2024 and December 31, 2023, respectively. Additionally, the Company had 317,122 and 240,584 shares outstanding at September 30, 2024 and December 31, 2023, respectively, of restricted Class A common stock issued but not yet vested under the 2023 Omnibus Incentive Plan that are not 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 May 9, 2023, the Company’s Board of Directors authorized a program to repurchase up to $50.0 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, 2024 was $50.0 million.

Note 14 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 37,988,364 and 37,739,776 shares of Class A common stock outstanding as of September 30, 2024 and 2023, 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, 2024 and 2023.

The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2024 and 2023:


	For the three months ended				For the nine months ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Net income	$	33,105	$	36,087	$	90,631	$	108,927
Less: income allocated to participating securities		(89)		(68)		(242)		(179)
Income allocated to common shareholders	$	33,016	$	36,019	$	90,389	$	108,748
Weighted average shares outstanding for basic earnings per common share		38,277,042		37,990,659		38,173,469		37,911,896
Dilutive effect of equity awards		218,049		143,679		194,542		182,014
Weighted average shares outstanding for diluted earnings per common share		38,495,091		38,134,338		38,368,011		38,093,910
Basic earnings per share	$	0.86	$	0.95	$	2.37	$	2.87
Diluted earnings per share		0.86		0.94		2.36		2.85

The Company had 625,115 and 811,245 outstanding stock options to purchase common stock at weighted average exercise prices of $32.60 and $30.34 per share at September 30, 2024 and 2023, respectively, which have time-vesting criteria, and as such, any dilution is derived only for the timeframe in which the vesting criteria had been met and where the inclusion of those stock options is dilutive. The Company had 517,522 and 435,674 unvested restricted shares and performance stock units issued as of September 30, 2024 and 2023, respectively, which have performance, market and/or time-vesting criteria, and as such, any dilution is derived only for the timeframe in which the vesting criteria had been met and where the inclusion of those restricted shares and units is dilutive.

Note 15 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

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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.

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, 2024 and December 31, 2023. Information about the valuation methods used to measure fair value is provided in note 17.


		Asset derivatives fair value					Liability derivatives fair value
	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,
	location	2024		2023		location	2024		2023
Derivatives designated as hedging instruments:
Interest rate products	Other assets	$	21,781	$	28,928	Other liabilities	$	4,688	$	3,400
Total derivatives designated as hedging instruments		$	21,781	$	28,928		$	4,688	$	3,400

Derivatives not designated as hedging instruments:
Interest rate products	Other assets	$	8,678	$	8,480	Other liabilities	$	8,689	$	8,484
Interest rate lock commitments	Other assets		603		287	Other liabilities		3		5
Forward contracts	Other assets		37		—	Other liabilities		71		110
Total derivatives not designated as hedging instruments		$	9,318	$	8,767		$	8,763	$	8,599

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.

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 periods 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, 2024, the Company had cash flow hedges with a notional amount of $200.0 million. The Company expects to reclassify $1.0 million from accumulated other comprehensive income (loss) (“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, 2024, the Company had interest rate swaps with a notional amount of $355.6 million, which were designated as fair value hedges of interest rate risk. As of December 31, 2023, the Company had interest rate swaps with a notional amount of $351.0 million that were designated as fair value hedges. These interest rate swaps were associated with $470.0 million and $469.4 million of the Company’s fixed-rate loans as of September 30, 2024 and December 31, 2023, respectively, including a loss of $16.1 million and a gain of $22.6 million from the fair value hedge adjustment in the carrying amount. The loss is included in loans receivable in the statements of financial condition as of September 30, 2024 and December 31, 2023, respectively. Fair value hedge adjustments included basis adjustments on terminated positions to be amortized through the contractual maturity date of each respective hedged item. Excluding those terminated positions, the fair value hedge adjustments consisted of losses totaling $18.8 million and gains totaling $25.7 million as of September 30, 2024 and December 31, 2023, respectively.

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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.

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, 2024 and December 31, 2023, the Company had matched interest rate swap transactions with an aggregate notional amount of $544.7 million and $464.9 million, respectively, related to this program. Derivative fee income from non-designated hedges totaled $0.3 million and $1.2 million for the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, derivative fee income from non-designated hedges totaled $0.4 million and $0.7 million, 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 $39.0 million and forward contracts with a notional value of $39.7 million at September 30, 2024. At December 31, 2023, the Company had interest rate lock commitments with a notional value of $13.8 million and forward contracts with a notional value of $17.7 million.

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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, 2024 and 2023:

Location of gain (loss)

Amount of (loss) gain recognized in income on derivatives

recognized in income on

For the three months ended September 30,

For the nine months ended September 30,

Derivatives in hedging relationships

derivatives

2024

2023

2024

2023

Interest rate products

Interest and fees on loans

(12,000)

13,005

(479)

16,855

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,

Hedged items

hedged items

2024

2023

2024

2023

Interest rate products

Interest and fees on loans

13,945

(10,255)

6,451

(9,940)


	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	2024		2023		2024		2023
Interest rate products	Other non-interest expense	$	(6)	$	(33)	$	(6)	$	(32)
Interest rate lock commitments	Mortgage banking income		188		30		459		73
Forward contracts	Mortgage banking income		(48)		49		77		74
Total		$	134	$	46	$	530	$	115

The tables below present the effect of cash flow hedge accounting on AOCI as of the dates presented.


	For the three months ended September 30, 2024
	Gain recognized in OCI on derivatives		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	$	1,011	$	890	$	121	Interest income	$	(548)	$	(429)	$	(119)


	For the nine months ended September 30, 2024
	Loss recognized in OCI on derivatives		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
Derivatives in cash flow hedging relationships:
Interest rate products	$	(824)	$	(368)	$	(456)	Interest income	$	(1,575)	$	(1,220)	$	(355)


	For the three months ended September 30, 2023
	Loss recognized in OCI on derivatives		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
Derivatives in cash flow hedging relationships:
Interest rate products	$	(1,122)	$	(818)	$	(304)	Interest income	$	(493)	$	(374)	$	(119)


	For the nine months ended September 30, 2023
	Loss recognized in OCI on derivatives		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
Derivatives in cash flow hedging relationships:
Interest rate products	$	(2,773)	$	(2,254)	$	(519)	Interest income	$	(1,158)	$	(821)	$	(337)

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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, 2024, the termination value of derivatives in a net liability position related to these agreements was zero. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and, as of September 30, 2024, the Company had met these thresholds. If the Company had breached any of these provisions at September 30, 2024, it could have been required to settle its obligations under the agreements at the termination value.

Note 16 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, 2024 and December 31, 2023 were as follows:


	September 30, 2024		December 31, 2023
Commitments to fund loans	$	687,659	$	724,928
Credit card lines of credit		3,389		6,278
Unfunded commitments under lines of credit		778,093		890,530
Commercial and standby letters of credit		14,249		13,029
Total unfunded commitments	$	1,483,390	$	1,634,765

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.

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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, 2024 totaling $20 thousand and $56 thousand, respectively, were primarily driven by early payoffs and repurchases. Charges against the reserve during the three and nine months ended September 30, 2023 totaling $47 thousand and $134 thousand, respectively, were primarily driven by early payoffs and repurchases. The repurchase reserve is included in other liabilities in the consolidated statements of financial condition.

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,
	2024		2023		2024		2023
Beginning balance	$	1,089	$	1,315	$	1,198	$	1,725
Provision released from operating expense, net		—		—		(73)		(323)
Charge-offs		(20)		(47)		(56)		(134)
Ending balance	$	1,069	$	1,268	$	1,069	$	1,268

In the ordinary course of business, the Company and NBH 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 17 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-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

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on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfer occurs. During the nine months ended September 30, 2024 and 2023, 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.

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 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 84.0% 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.

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The tables below present the financial instruments measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023 in the consolidated statements of financial condition utilizing the hierarchy structure described above:


	September 30, 2024
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasuries	$	49,190	$	—	$	—	$	49,190
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		—		196,530		—		196,530
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		—		460,496		—		460,496
Municipal securities		—		80		—		80
Corporate debt		—		1,962		—		1,962
Loans held for sale		—		16,765		—		16,765
Interest rate swap derivatives		—		30,459		—		30,459
Mortgage banking derivatives		—		—		640		640
Total assets at fair value	$	49,190	$	706,292	$	640	$	756,122
Liabilities:
Interest rate swap derivatives	$	—	$	13,377	$	—	$	13,377
Mortgage banking derivatives		—		—		74		74
Total liabilities at fair value	$	—	$	13,377	$	74	$	13,451


	December 31, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale
U.S. Treasuries	$	73,044	$	—	$	—	$	73,044
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		—		201,809		—		201,809
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		—		351,242		—		351,242
Municipal securities		—		79		—		79
Corporate debt		—		1,843		—		1,843
Loans held for sale		—		18,854		—		18,854
Interest rate swap derivatives		—		37,408		—		37,408
Mortgage banking derivatives		—		—		287		287
Total assets at fair value	$	73,044	$	611,235	$	287	$	684,566
Liabilities:
Interest rate swap derivatives	$	—	$	15,284	$	—	$	15,284
Mortgage banking derivatives		—		—		115		115
Total liabilities at fair value	$	—	$	15,284	$	115	$	15,399

The table below details the changes in level 3 financial instruments during the nine months ended September 30, 2024:


	Mortgage banking
	derivatives, net
Balance at December 31, 2023	$	172
Gain included in earnings, net		536
Fees and costs included in earnings, net		(142)
Balance at September 30, 2024	$	566

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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 6% - 32% with a weighted average discount rate of 11.9%, 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, 2024, the Company recorded a specific reserve of $4.7 million related to 11 loans with a carrying balance of $19.5 million. At September 30, 2023, the Company recorded a specific reserve of $6.1 million related to nine loans with a carrying balance of $22.1 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 6.0%. The estimated fair values of OREO are updated periodically and further write-downs may be taken to reflect a new basis. During the nine months ended September 30, 2024, there was no OREO impairment. The Company recognized $55 thousand of OREO impairment during the nine months ended September 30, 2023. The fair values of OREO are derived from third-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 rights—MSRs 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 a discount rate and weighted average rate ranging from 10.0% to 10.5% at September 30, 2024 and prepayment speed assumption ranges of 6.9% to 17.6% with a weighted average rate of 7.1% at September 30, 2024. 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. During the nine months ended September 30, 2024 and 2023, the Company recorded impairments totaling $13 thousand and recoveries totaling $66 thousand, respectively. The inputs used to determine the fair values of MSRs are considered level 3 inputs in the fair value hierarchy.

SBA servicing asset— The SBA servicing asset 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 asset is determined through a discounted cash flow analysis and utilizes a weighted average discount rate of 9.7% and a weighted average lifetime constant prepayment rate of 15.6%. The SBA servicing asset is amortized over the period of the estimated future net servicing life of the underlying assets, and 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 servicing asset. The Company recorded no impairment for the nine months ended September 30, 2024 or 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 nine months ended September 30, 2024 and 2023:


	September 30, 2024
	Total		Losses from fair value changes
Individually evaluated loans	$	43,684	$	8,387
Mortgage servicing rights		4,800		13
Total	$	48,484	$	8,400

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	September 30, 2023
	Total		Losses from fair value changes
Individually evaluated loans	$	42,642	$	1,218
Other real estate owned		3,416		55
Premises and equipment		13,169		244
Total	$	59,227	$	1,517

The Company did not record any liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2024 or 2023.

Note 18 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 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.

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The fair value of financial instruments at September 30, 2024 and December 31, 2023 are set forth below:


	Level in fair value	September 30, 2024				December 31, 2023
	measurement	Carrying		Estimated		Carrying		Estimated
	hierarchy	amount		fair value		amount		fair value
ASSETS
Cash and cash equivalents	Level 1	$	180,796	$	180,796	$	190,826	$	190,826
U.S. Treasury securities - AFS	Level 1		49,190		49,190		73,044		73,044
U.S. Treasury securities - HTM	Level 1		49,563		49,157		49,338		48,334
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises available-for-sale	Level 2		196,530		196,530		201,809		201,809
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises available-for-sale	Level 2		460,496		460,496		351,242		351,242
Municipal securities available-for-sale	Level 2		80		80		79		79
Corporate debt available-for-sale	Level 2		1,962		1,962		1,843		1,843
Other available-for-sale securities	Level 3		729		729		812		812
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises held-to-maturity	Level 2		270,518		242,837		299,337		265,011
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. government agencies or sponsored enterprises held-to-maturity	Level 2		218,076		178,780		236,377		190,983
FHLB and FRB stock	Level 2		24,629		24,629		40,890		40,890
Loans receivable	Level 3		7,714,495		7,678,735		7,698,758		7,411,687
Loans held for sale	Level 2		16,765		16,765		18,854		18,854
Accrued interest receivable	Level 2		49,025		49,025		44,944		44,944
Interest rate swap derivatives	Level 2		30,459		30,459		37,408		37,408
Mortgage banking derivatives	Level 3		640		640		287		287
LIABILITIES
Deposit transaction accounts	Level 2		7,444,679		7,444,679		7,208,421		7,208,421
Time deposits	Level 2		1,052,449		1,048,454		981,970		972,793
Securities sold under agreements to repurchase	Level 2		19,517		19,517		19,627		19,627
Long-term debt	Level 2		55,000		52,592		55,000		43,760
Federal Home Loan Bank advances	Level 2		—		—		340,000		340,000
Accrued interest payable	Level 2		18,044		18,044		12,239		12,239
Interest rate swap derivatives	Level 2		13,377		13,377		15,284		15,284
Mortgage banking derivatives	Level 3		74		74		115		115

Note 19 Acquisition Activities

Cambr Solutions, LLC

On April 3, 2023, NBH Bank completed the acquisition of Cambr Solutions, LLC. Upon closing, Cambr became a stand-alone subsidiary of NBH Bank. The transaction was valued at $46.5 million in the aggregate. NBH Bank determined that the acquisition constituted 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.

Cambr is a deposit acquisition and processing platform that generates core deposits from accounts offered through third-party embedded finance companies. At the time of acquisition, Cambr administered approximately $1.7 billion of deposits comprising more than 500,000 FDIC-insured deposit accounts.

Cambr acquisition-related costs totaled $1.0 million for the year ended December 31, 2023. The results of Cambr are included in the results of the Company subsequent to the acquisition date.

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


	April 3, 2023
Assets:
Cash and due from banks	$	1,224
Other intangibles		18,000
Other assets		6,729
Total assets acquired		25,953

Liabilities:
Other liabilities	$	6,340
Total liabilities assumed		6,340

Identifiable net assets acquired	$	19,613

Consideration:
Cash	$	46,524
Total		46,524

Goodwill	$	26,911

In connection with the Cambr acquisition, the Company recorded $26.9 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 total amount of goodwill expected to be deductible for tax purposes is $27.8 million. The Company recorded other intangible assets of $18.0 million, including intangibles related to customer relationships and internally developed technology. The other intangible assets were valued by discounting future cash flows to present value. The discount rates applied were derived using market participant assumptions. The other intangible assets are being amortized over a weighted average period of 9.4 years.

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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, 2024, 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, 2023, 2022 and 2021. 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“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 have executed 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 digital 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 solutions and strategic acquisitions position us well for growth opportunities. As of September 30, 2024, we had $9.9 billion in assets, $7.7 billion in loans, $8.5 billion in deposits, $1.3 billion in equity and $967.7 million in assets under management in our trust and wealth management business.

Operating Highlights

Profitability and returns


●		Net income totaled $90.6 million, or $2.36 per diluted share, for the nine months ended September 30, 2024, compared to net income of $108.9 million, or $2.85 per diluted share, for the nine months ended September 30, 2023. The decrease during the nine months ended September 30, 2024 compared to the same period during the prior year was largely driven by lower net interest income due to an increase in cost of funds outpacing the increase in interest income. Partially offsetting this decrease was a 4.7% increase in non-interest income driven by our diversified sources of fee revenue.
●		The return on average tangible assets was 1.33% for the nine months ended September 30, 2024, compared to 1.61% for the nine months ended September 30, 2023.
●		The return on average tangible common equity was 14.14% for the nine months ended September 30, 2024, compared to 18.81% for the nine months ended September 30, 2023.

Strategic execution



●		Continued to invest in digital solutions for our clients through our financial eco-system, 2UniFi, for small and medium-sized businesses that we believe will increase access to financial services while reducing the costs of banking services.
●		The Company’s balance sheet funding mix improved during the nine months ended September 30, 2024, and the Company utilized funding provided by deposit growth to pay down Federal Home Loan Bank advances from $340.0 million at December 31, 2023 to zero at September 30, 2024.

Loan portfolio


●		Loans totaled $7.7 billion at September 30, 2024 and December 31, 2023.

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●		Generated loan fundings totaling $1.1 billion, during the nine months ended September 30, 2024, with a weighted average new loan origination rate of 8.5%. Commercial and industrial loan fundings totaled $0.4 billion with a weighted average new loan origination rate of 8.4%.
●		Maintained a conservatively structured loan portfolio represented by diverse industries and concentrations with industry sector concentrations at 15% or less of total loans and all concentration levels remain well below our self-imposed limits.
●		Non-owner occupied CRE loans were 157.5% of the Company’s risk based capital, or 23.8% of total loans, and no specific property type comprised more than 10.0% of total loans at September 30, 2024.
●		The Company maintains very little exposure to non-owner occupied CRE retail properties and office properties, comprising 2.0% and 1.3% of total loans, respectively, at September 30, 2024.
●		Multifamily loans totaled $335.7 million, or 4.4% of total loans at September 30, 2024.
●		We do not originate high-dollar non-amortizing or balloon payment mortgage loans to our clients.

Credit quality


●		Allowance for credit losses totaled 1.23% of total loans at September 30, 2024, compared to 1.27% at December 31, 2023.
●		The Company recorded provision expense for credit losses totaling $4.8 million and $3.7 million during the nine months ended September 30, 2024 and 2023, respectively.
●		Credit quality remained strong, as non-performing loans (comprised of non-accrual loans and non-accrual modified loans) totaled 0.31% of total loans at September 30, 2024, compared to 0.37% at December 31, 2023. Non-performing assets to total loans and OREO improved 10 basis points to 0.32% at September 30, 2024, compared to 0.42% at December 31, 2023.
●		Net charge-offs of $7.6 million and $0.8 million were recorded during the nine months ended September 30, 2024 and 2023, respectively. Annualized net charge-offs to average total loans totaled 0.13% and 0.02% for the nine months ended September 30, 2024 and 2023, respectively.

Client deposit funded balance sheet

		.9
●		Average total deposits for the nine months ended September 30, 2024 increased 5.3% to $8.3 billion, compared to $7.9 billion for the nine months ended September 30, 2023.
●		Average transaction deposits for the nine months ended September 30, 2024 increased 5.3% to $7.3 billion, compared to $6.9 billion for the nine months ended September 30, 2023.
●		The mix of transaction deposits to total deposits was 87.8% at September 30, 2024 and 2023.
●		Cost of deposits totaled 2.27% for the nine months ended September 30, 2024, compared to 1.18% for the nine months ended September 30, 2023.
●		Approximately 78% of our deposits were FDIC insured as of September 30, 2024.

Liquidity

		.9
●		On-balance sheet liquidity totaled $654.6 million as of September 30, 2024 and was comprised of $180.8 million of cash and $473.8 million of unencumbered investments.
●		Liquidity is monitored and managed to ensure that sufficient funds are available on-demand to meet our business needs. At September 30, 2024, the Company’s available secured and committed borrowing capacity at the FHLB and Federal Reserve totaled $2.7 billion. The Company also accesses a variety of other short-term and long-term unsecured funding sources, which includes access to Cambr platform deposits, multiple brokered deposit platform options and lines of credit.
●		Our investment securities portfolio has a short average duration and is largely backed by U.S government or government sponsored entities giving us confidence that we will not realize material losses. Regarding the fair value of investment securities, our accumulated other comprehensive loss does not have a material impact on our capital position. Our tangible common equity capital ratio, which includes accumulated other comprehensive loss, totaled 9.8% as of September 30, 2024, compared to 9.0% as of December 31, 2023.

Revenues


●		Fully taxable equivalent (“FTE”) net interest income totaled $260.5 million during the nine months ended September 30, 2024, compared to $276.9 million during the nine months ended September 30, 2023.
●		The FTE net interest margin narrowed 32 basis points to 3.80% for the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The yield on earning assets increased 51 basis points, led by a 57 basis point

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		increase in the loan portfolio yield. The cost of funds totaled 2.31% for the nine months ended September 30, 2024, compared to 1.40% during the nine months ended September 30, 2023.
●		Non-interest income increased 4.7% to $50.1 million during the nine months ended September 30, 2024, compared to $47.9 million for the nine months ended September 30, 2023, driven by increases from our diversified sources of fee revenue including gains on SBA loan sales, trust income, Cambr income and treasury management fees. Mortgage banking income decreased $2.7 million during the nine months ended September 30, 2024, compared to the same period in the prior year as the sustained higher-interest rate environment has lowered mortgage volume.

Expenses


●		Non-interest expense totaled $190.1 million during the nine months ended September 30, 2024, representing an increase of $10.2 million, or 5.7%, compared to the nine months ended September 30, 2023, largely due to ongoing investments in technology. Salaries and benefits increased $7.6 million, occupancy and equipment increased $2.4 million and data processing increased $2.3 million. Other intangible assets amortization increased $0.6 million due to our Cambr acquisition in April of 2023. These increases were partially offset by a decrease of $2.5 million in professional fees.
●		The FTE efficiency ratio, excluding other intangible assets amortization, during the nine months ended September 30, 2024 totaled 59.28%, compared to 53.74% during the nine months ended September 30, 2023.
●		Income tax expense totaled $19.9 million during the nine months ended September 30, 2024, compared to $27.8 million during the nine months ended September 30, 2023 driven by lower pre-tax income. The effective tax rate for the nine months ended September 30, 2024 was 18.0%, compared to 19.1% for the full year 2023.

Strong capital position


●		Capital ratios continue to be strong and in excess of federal bank regulatory agency “well capitalized” thresholds. As of September 30, 2024, our consolidated tier 1 leverage ratio was 10.44%, and our consolidated common equity tier 1 and tier 1 risk based capital ratios were 12.88%.
●		At September 30, 2024, common book value per share was $34.01. The tangible common book value per share increased $2.14 to $24.91 during the nine months ended September 30, 2024 as earnings and a $0.36 decrease in accumulated other comprehensive loss, driven by changes in the interest rate environment, outpaced the quarterly dividends.

Key Challenges

Macroeconomic pressures have resulted in volatility and uncertainty in the banking industry. The sustained higher-interest rate environment, declines in the fair value of securities, lack of available funding, uninsured deposits and risk from concentrations in loan and deposit segments along with declines in commercial real estate property values are drawing increased scrutiny on financial institutions. Liquidity within the financial services sector has tightened, and we expect the intense competition for deposits throughout our markets to continue. While these are widespread challenges for the banking industry, the Company has not experienced a material impact to our financial condition, operations, customer base, liquidity, capital position or risk profile.

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. In connection with our digital growth strategy and our digital solution 2UniFi, we have made and will continue to make investments in and also partner with third party fintech companies. The innovations these companies develop for utilization by 2UniFi may prove difficult to successfully integrate into our existing operations and may require additional operational and control systems to manage fraud, cybersecurity, operational, legal and compliance risks.

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. During the years ended December 31, 2023 and 2022, the Federal Reserve increased prevailing interest rates by a total of 100 and 425 basis points, respectively. In September 2024, the Federal Reserve decreased the prevailing interest rate by 50 basis points. Our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions. Management employs risk management policies to monitor and limit exposure to changes in market rates, which is discussed in more detail in the Asset/Liability Management and Interest Rate Risk section of Management’s Discussion and Analysis.

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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
	September 30,		December 31,		September 30,		September 30,		September 30,
	2024		2023		2023		2024		2023
Return on average assets		1.32%		1.33%		1.46%		1.22%		1.50%
Return on average tangible assets⁽²⁾		1.43%		1.44%		1.58%		1.33%		1.61%
Return on average equity		10.33%		11.10%		12.26%		9.70%		12.71%
Return on average tangible common equity⁽²⁾		14.84%		16.56%		18.38%		14.14%		18.81%
Loan to deposit ratio (end of period)⁽³⁾		90.79%		94.00%		91.77%		90.79%		91.77%
Non-interest bearing deposits to total deposits (end of period)		26.70%		28.83%		30.47%		26.70%		30.47%
Net interest margin⁽⁴⁾		3.79%		3.88%		3.85%		3.73%		4.06%
Net interest margin FTE^(2)(4)(5)		3.87%		3.95%		3.92%		3.80%		4.12%
Interest rate spread FTE⁽⁵⁾⁽⁶⁾		2.86%		3.00%		3.03%		2.81%		3.36%
Yield on earning assets⁽⁷⁾		5.97%		5.84%		5.53%		5.87%		5.37%
Yield on earning assets FTE^(2)(5)(7)		6.05%		5.91%		5.60%		5.95%		5.44%
Cost of interest bearing liabilities		3.19%		2.91%		2.57%		3.14%		2.08%
Cost of deposits		2.34%		1.94%		1.64%		2.27%		1.18%
Non-interest income to total revenue FTE⁽⁵⁾⁽⁸⁾		17.05%		14.98%		17.81%		16.13%		14.74%
Non-interest expense to average assets		2.56%		2.49%		2.46%		2.56%		2.47%
Efficiency ratio		60.51%		58.82%		56.56%		62.24%		56.16%
Efficiency ratio excluding other intangible assets amortization FTE⁽²⁾⁽⁵⁾		57.65%		56.03%		53.90%		59.28%		53.74%
Pre-provision net revenue	$	41,880	$	43,470	$	46,539	$	115,298	$	140,427
Pre-provision net revenue FTE⁽²⁾⁽⁵⁾		43,696		45,137		48,114		120,518		144,859

Total Loans Asset Quality Data^(3)(9)(10)
Non-performing loans to total loans		0.31%		0.37%		0.44%		0.31%		0.44%
Non-performing assets to total loans and OREO		0.32%		0.42%		0.49%		0.32%		0.49%
Allowance for credit losses to total loans		1.23%		1.27%		1.25%		1.23%		1.25%
Allowance for credit losses to non-performing loans		403.68%		346.99%		281.36%		403.68%		281.36%
Net charge-offs to average loans		0.18%		0.02%		0.01%		0.13%		0.02%


(1)		Ratios are annualized.
(2)		Ratio represents non-GAAP financial measure. See non-GAAP reconciliations below.
(3)		Total loans are net of unearned discounts and fees.
(4)		Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.
(5)		Presented on an FTE basis using the statutory rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,816, $1,667 and $1,575 for the three months ended September 30, 2024, December 31, 2023 and September 30, 2023, respectively. The taxable equivalent adjustments included above are $5,220 and $4,432 for the nine months ended September 30, 2024 and September 30, 2023, respectively.
(6)		Interest rate spread represents the difference between the weighted average yield on interest earning assets, including FTE income, and the weighted average cost of interest bearing liabilities. Ratio represents non-GAAP financial measure.
(7)		Interest earning assets include assets that earn interest/accretion or dividends. Any market value adjustments on investment securities are excluded from interest earning assets.
(8)		Non-interest income to total revenue represents non-interest income divided by the sum of net interest income FTE and non-interest income. Ratio represents a non-GAAP financial measure.
(9)		Non-performing loans consist of non-accruing loans and restructured loans on non-accrual.
(10)		Non-performing assets include non-performing loans and OREO.

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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,” “net income excluding other intangible assets amortization expense, after tax,” “non-interest expense excluding other intangible assets amortization,” “efficiency ratio excluding other intangible assets amortization FTE,” “pre-provision net revenue,” “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,” “net income excluding the impact of other intangible assets amortization expense, 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 expenditures 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.

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

Tangible Common Book Value Ratios


	September 30,		December 31,		September 30,
	2024		2023		2023
Total shareholders' equity	$	1,291,997	$	1,212,807	$	1,163,585
Less: goodwill and other intangible assets, net		(358,754)		(364,716)		(366,724)
Add: deferred tax liability related to goodwill		13,203		12,208		11,876
Tangible common equity (non-GAAP)	$	946,446	$	860,299	$	808,737

Total assets	$	9,993,283	$	9,951,064	$	9,866,283
Less: goodwill and other intangible assets, net		(358,754)		(364,716)		(366,724)
Add: deferred tax liability related to goodwill		13,203		12,208		11,876
Tangible assets (non-GAAP)	$	9,647,732	$	9,598,556	$	9,511,435

Tangible common equity to tangible assets calculations:
Total shareholders' equity to total assets		12.93%		12.19%		11.79%
Less: impact of goodwill and other intangible assets, net		(3.12)%		(3.23)%		(3.29)%
Tangible common equity to tangible assets (non-GAAP)		9.81%		8.96%		8.50%

Tangible common book value per share calculations:
Tangible common equity (non-GAAP)	$	946,446	$	860,299	$	808,737
Divided by: ending shares outstanding		37,988,364		37,784,851		37,739,776
Tangible common book value per share (non-GAAP)	$	24.91	$	22.77	$	21.43

Tangible common book value per share, excluding accumulated other comprehensive loss calculations:
Tangible common equity (non-GAAP)	$	946,446	$	860,299	$	808,737
Accumulated other comprehensive loss, net of tax		62,485		76,401		100,853
Tangible common book value, excluding accumulated other comprehensive loss, net of tax (non-GAAP)		1,008,931		936,700		909,590
Divided by: ending shares outstanding		37,988,364		37,784,851		37,739,776
Tangible common book value per share, excluding accumulated other comprehensive loss, net of tax (non-GAAP)	$	26.56	$	24.79	$	24.10

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,
	2024		2023		2023		2024		2023
Net income	$	33,105	$	33,121	$	36,087	$	90,631	$	108,927
Add: impact of other intangible assets amortization expense, after tax		1,517		1,541		1,541		4,575		4,128
Net income excluding the impact of other intangible assets amortization expense, after tax (non-GAAP)	$	34,622	$	34,662	$	37,628	$	95,206	$	113,055

Average assets	$	9,960,730	$	9,889,054	$	9,788,909	$	9,913,724	$	9,725,130
Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill		(346,757)		(353,712)		(356,083)		(348,717)		(342,826)
Average tangible assets (non-GAAP)	$	9,613,973	$	9,535,342	$	9,432,826	$	9,565,007	$	9,382,304

Average shareholders' equity	$	1,274,873	$	1,184,164	$	1,168,199	$	1,248,202	$	1,146,210
Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill		(346,757)		(353,712)		(356,083)		(348,717)		(342,826)
Average tangible common equity (non-GAAP)	$	928,116	$	830,452	$	812,116	$	899,485	$	803,384

Return on average assets		1.32%		1.33%		1.46%		1.22%		1.50%
Return on average tangible assets (non-GAAP)		1.43%		1.44%		1.58%		1.33%		1.61%
Return on average equity		10.33%		11.10%		12.26%		9.70%		12.71%
Return on average tangible common equity (non-GAAP)		14.84%		16.56%		18.38%		14.14%		18.81%

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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,
	2024		2023		2023		2024		2023
Interest income	$	138,003	$	134,703	$	126,110	$	402,182	$	360,712
Add: impact of taxable equivalent adjustment		1,816		1,667		1,575		5,220		4,432
Interest income FTE (non-GAAP)	$	139,819	$	136,370	$	127,685	$	407,402	$	365,144

Net interest income	$	87,653	$	89,501	$	87,777	$	255,257	$	272,450
Add: impact of taxable equivalent adjustment		1,816		1,667		1,575		5,220		4,432
Net interest income FTE (non-GAAP)	$	89,469	$	91,168	$	89,352	$	260,477	$	276,882

Average earning assets	$	9,192,454	$	9,147,977	$	9,039,864	$	9,146,020	$	8,981,033
Yield on earning assets		5.97%		5.84%		5.53%		5.87%		5.37%
Yield on earning assets FTE (non-GAAP)		6.05%		5.91%		5.60%		5.95%		5.44%
Net interest margin		3.79%		3.88%		3.85%		3.73%		4.06%
Net interest margin FTE (non-GAAP)		3.87%		3.95%		3.92%		3.80%		4.12%

Efficiency Ratio and Pre-Provision Net Revenue


	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,
	2024		2023		2023		2024		2023
Net interest income	$	87,653	$	89,501	$	87,777	$	255,257	$	272,450
Add: impact of taxable equivalent adjustment		1,816		1,667		1,575		5,220		4,432
Net interest income FTE (non-GAAP)	$	89,469	$	91,168	$	89,352	$	260,477	$	276,882

Non-interest income	$	18,389	$	16,064	$	19,365	$	50,112	$	47,853

Non-interest expense	$	64,162	$	62,095	$	60,603	$	190,071	$	179,876
Less: other intangible assets amortization		(1,977)		(2,008)		(2,008)		(5,962)		(5,378)
Non-interest expense excluding other intangible assets amortization (non-GAAP)	$	62,185	$	60,087	$	58,595	$	184,109	$	174,498

Efficiency ratio		60.51%		58.82%		56.56%		62.24%		56.16%
Efficiency ratio excluding other intangible assets amortization FTE (non-GAAP)		57.65%		56.03%		53.90%		59.28%		53.74%
Pre-provision net revenue (non-GAAP)	$	41,880	$	43,470	$	46,539	$	115,298	$	140,427
Pre-provision net revenue, FTE (non-GAAP)		43,696		45,137		48,114		120,518		144,859

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.

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Allowance for credit losses

The 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 judgment and complexity. The Company estimates the 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 ACL is determined at the class level, analyzing loss history based upon specific loss drivers and risk factors affecting each loan class. The Company utilizes a discounted cash flow (“DCF”) model developed within a third-party software tool that incorporates forecasts of certain national macroeconomic factors (reasonable and supportable forecasts) which drive the losses predicted in establishing the Company’s ACL. Management accounts for the 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 historical long-term average loss rates on a straight-line basis. Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses to differ from historical experience. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our financial condition.

Future Accounting Pronouncements

In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The update requires disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more decision-useful financial analyses. The amendments in this update do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in this update are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is evaluating the impact from ASU 2023-07, and does not expect the adoption of this pronouncement to have a material impact on its financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The update requires public business entities to disclose specific categories related to rate reconciliation. It also requires more detailed information for reconciling items, provided certain quantitative thresholds are met. The amendments in this update are effective for fiscal years beginning after December 15, 2024 and are to be applied on a prospective basis. Early adoption is permitted. The Company is evaluating the impact from ASU 2023-09, and does not expect the adoption of this pronouncement to have a material impact on its financial statements apart from the inclusion of additional disclosures.

In March 2024, the FASB issued ASU 2024-01, Compensation – Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. This update improves GAAP by adding an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profit interest award should be accounted for in accordance with Topic 718. The amendments in this update are effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. Early adoption is permitted for both interim and annual financial statements that have not yet been issued or made available for issuance. The Company is evaluating the impact from ASU 2024-01, and does not expect the adoption of this pronouncement to have a material impact on its financial statements.

On March 6, 2024, the U.S. Securities and Exchange Commission (“SEC”) adopted a new set of rules that require a wide range of climate-related disclosures. The disclosures will include material climate-related risks, information on any climate-related targets or goals that are material to the registrant’s business, results of operations, or financial condition, Scope 1 and Scope 2 Greenhouse Gas emissions and disclosure of the financial statement effects of severe weather events and other natural conditions including costs and losses. Disclosures on Greenhouse Gas emissions will be subject to adoption on a phased-in basis by certain larger registrants when those emissions are material, and an attestation report covering the same will also need to be filed. Compliance dates under the final rule are phased in by registrant category. Multiple lawsuits have been filed challenging the SEC’s new climate rules, which have been consolidated and will be heard in the U.S. Court of Appeals for the Eighth Circuit. On April 4, 2024, the SEC issued an order staying the final rules until judicial review is complete.

Financial Condition

Total assets were $9.9 billion at September 30, 2024, increasing $42.2 million, or 0.4%, from December 31, 2023. Cash and cash equivalents decreased $10.0 million from December 31, 2023, and investment securities increased $33.3 million. Loans totaled $7.7 billion at September 30, 2024 and December 31, 2023, and the allowance for credit losses decreased $2.9 million to $95.0 million at

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September 30, 2024. During the nine months ended September 30, 2024, lower cost demand, savings, and money market deposits ("transaction deposits") increased $236.3 million, or 4.4% annualized, to $7.4 billion, compared to December 31, 2023. Total deposits increased $306.7 million, or 5.0% annualized, to $8.5 billion at September 30, 2024, compared to December 31, 2023.

Investment securities

Available-for-sale

Total investment securities available-for-sale increased 12.7% during the nine months ended September 30, 2024 to $0.7 billion. Purchases of available-for-sale securities during the nine months ended September 30, 2024 totaled $199.1 million. There were no purchases of available-for-sale securities during the nine months ended September 30, 2023. Paydowns and maturities totaled $137.6 million and $71.3 million during the nine months ended September 30, 2024 and 2023, 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, 2024						December 31, 2023
						Weighted						Weighted
	Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
	cost		value		portfolio	yield	cost		value		portfolio	yield
Treasury securities	$	49,757	$	49,190	6.9%	2.67%	$	74,508	$	73,044	11.6%	2.54%
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		222,443		196,530	27.7%	1.85%		233,264		201,809	32.1%	1.71%
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		514,924		460,496	65.0%	2.63%		417,155		351,242	55.9%	1.69%
Municipal securities		80		80	0.0%	3.14%		80		79	0.0%	3.17%
Corporate debt		2,000		1,962	0.3%	5.86%		2,000		1,843	0.3%	5.87%
Other securities		729		729	0.1%	0.00%		812		812	0.1%	0.00%
Total investment securities available-for-sale	$	789,933	$	708,987	100.0%	2.42%	$	727,819	$	628,829	100.0%	1.80%

As of September 30, 2024 and December 31, 2023, 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.

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 4.4 years and 5.2 years at September 30, 2024 and December 31, 2023, respectively. This estimate is based on assumptions and actual results may differ. At September 30, 2024 and December 31, 2023, the duration of the total available-for-sale investment portfolio was 3.6 years and 4.3 years, respectively.

At September 30, 2024 and December 31, 2023, adjustable rate securities comprised 8.1% and 13.0%, 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 2.46% per annum and 1.73% per annum at September 30, 2024 and December 31, 2023, respectively.

The available-for-sale investment portfolio included $82.7 million of unrealized losses and $1.7 million of unrealized gains at September 30, 2024. At December 31, 2023, the available-for-sale investment portfolio included $99.0 million of unrealized losses and $0.1 million of unrealized gains. 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.

Our investment security portfolio consists of high-quality securities, which are largely backed by either U.S. government agencies or U.S. government sponsored entities. We regularly model liquidity stress scenarios to assess potential liquidity issues. The results of

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our stress testing on our debt security portfolio at September 30, 2024, illustrated that we would continue to meet all capital adequacy requirements, even in a 200 basis point up or down rate shock scenario.

Held-to-maturity

Held-to-maturity investment securities totaled $538.2 million at September 30, 2024, compared to $585.1 million at December 31, 2023, a decrease of $46.9 million, or 8.0%. There were no purchases of held-to-maturity securities during the nine months ended September 30, 2024. Purchases during the nine months ended September 30, 2023 totaled $2.5 million. Paydowns and maturities totaled $47.4 million and $53.9 million during the nine months ended September 30, 2024 and 2023, respectively.

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


	September 30, 2024						December 31, 2023
						Weighted						Weighted
	Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
	cost		value		portfolio	yield	cost		value		portfolio	yield
Treasury securities	$	49,563	$	49,157	9.2%	3.14%	$	49,338	$	48,334	8.4%	3.14%
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. government agencies or sponsored enterprises		270,518		242,837	50.3%	2.22%		299,337		265,011	51.2%	2.20%
Other residential MBS issued or guaranteed by U.S. government agencies or sponsored enterprises		218,076		178,780	40.5%	1.60%		236,377		190,983	40.4%	1.60%
Total investment securities held-to-maturity	$	538,157	$	470,774	100.0%	2.05%	$	585,052	$	504,328	100.0%	2.04%

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 $68.1 million of unrealized losses and $0.7 million of unrealized gains at September 30, 2024. At December 31, 2023, the held-to-maturity investment portfolio included $81.0 million of unrealized losses and $0.2 million of unrealized gains.

The Company does not measure expected credit losses on a financial asset, or groups 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.

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-maturity mortgage-backed securities portfolio as of September 30, 2024 and December 31, 2023 was 5.3 years and 5.7 years, respectively. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 4.3 years and 4.6 years as of September 30, 2024 and December 31, 2023, respectively.

Non-marketable securities

The carrying balance of non-marketable securities are summarized as follows as of the dates indicated:


	September 30, 2024		December 31, 2023
Federal Reserve Bank stock	$	24,062	$	24,062
Federal Home Loan Bank stock		567		16,828
Convertible preferred stock		20,508		25,000
Equity method investments		27,216		24,587
Total	$	72,353	$	90,477

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Non-marketable securities included FRB stock, FHLB stock, convertible preferred stock and equity method investments. During the nine months ended September 30, 2024, purchases of non-marketable securities totaled $26.2 million of FHLB stock, and proceeds from redemptions and sales of non-marketable securities totaled $42.6 million, primarily from FHLB stock. During the nine months ended September 30, 2023, purchases of non-marketable securities totaled $93.9 million, and proceeds from redemptions and sales of non-marketable securities totaled $90.3 million. Changes in the Company’s FHLB stock holdings were directly correlated to FHLB line of credit advances and paydowns.

FRB and FHLB stock

Convertible preferred stock

Equity method investments

Non-marketable securities also include equity method investments totaling $25.4 million and $24.6 million at September 30, 2024 and December 31, 2023, respectively, and equity method investments without a readily determinable fair value totaling $1.8 million and zero at September 30, 2024 and December 31, 2023, respectively. During the three and nine months ended September 30, 2024, the Company recorded net unrealized gains on equity method investments totaling $0.4 million and $0.7 million, respectively. During the three and nine months ended September 30, 2023, the Company recorded net unrealized losses on equity method investments totaling zero and $0.4 million, respectively. These gains and losses were recorded in other non-interest income in the Company’s consolidated statements of operations. Carrying values of equity method investments without a readily determinable fair value are updated periodically and impairments may be taken to reflect a new basis. The Company recorded no impairment related to equity method investments without a readily determinable fair value for the nine months ended September 30, 2024 or the year ended December 31, 2023.

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Loans overview

At September 30, 2024, our loan portfolio was comprised of new loans that we have originated and loans that were acquired in connection with our acquisitions.

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


					September 30, 2024 vs.
					December 31, 2023
	September 30, 2024		December 31, 2023		% Change
Originated:
Commercial:
Commercial and industrial	$	1,894,830	$	1,825,425	3.8%
Municipal and non-profit		1,096,842		1,083,457	1.2%
Owner-occupied commercial real estate		949,331		879,686	7.9%
Food and agribusiness		257,743		265,902	(3.1)%
Total commercial		4,198,746		4,054,470	3.6%
Commercial real estate non-owner occupied		1,113,796		1,071,529	3.9%
Residential real estate		933,644		919,139	1.6%
Consumer		13,600		16,686	(18.5)%
Total originated		6,259,786		6,061,824	3.3%

Acquired:
Commercial:
Commercial and industrial		116,683		141,484	(17.5)%
Municipal and non-profit		282		299	(5.7)%
Owner-occupied commercial real estate		221,928		244,087	(9.1)%
Food and agribusiness		43,733		58,695	(25.5)%
Total commercial		382,626		444,565	(13.9)%
Commercial real estate non-owner occupied		720,384		785,221	(8.3)%
Residential real estate		349,916		404,648	(13.5)%
Consumer		1,783		2,500	(28.7)%
Total acquired		1,454,709		1,636,934	(11.1)%
Total loans	$	7,714,495	$	7,698,758	0.2%

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $15.7 million from December 31, 2023 to September 30, 2024. Loan fundings during the nine months ended September 30, 2024 totaled $1.1 billion, led by commercial loan fundings of $699.9 million.

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. At September 30, 2024, there were no industry sectors representing more than 15.0% of our total loan portfolio. Key sectors included government/non-profit loans of $823.1 million, or 10.7% of total loans, and health care/hospital loans of $510.1 million, or 6.6% of total loans.

Non-owner occupied CRE loans were 157.8% of the Company’s risk based capital, or 23.8% of total loans, and no specific property type comprised more than 10.0% of total loans. The Company maintains little exposure to non-owner occupied CRE retail properties and office properties, comprising 3.3% of total loans. Multifamily loans totaled $335.6 million, or 4.4% of total loans, as of September 30, 2024.

The agriculture industry continues to be impacted by volatile commodity prices and generally by higher input costs, combining to stress margins. Our food and agribusiness portfolio is 3.9% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.0% 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 $1.5 billion over the trailing 12 months, led by commercial loan fundings of $1.0 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.

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The following table represents new loan fundings for the periods presented:


	Third quarter		Second quarter		First quarter		Fourth quarter		Third quarter
	2024		2024		2024		2023		2023
Commercial:
Commercial and industrial	$	93,711	$	241,910	$	53,978	$	135,954	$	89,297
Municipal and non-profit		35,677		28,785		14,564		79,650		18,657
Owner occupied commercial real estate		70,517		102,615		35,128		75,631		67,322
Food and agribusiness		19,205		11,040		(7,204)		10,646		16,191
Total commercial		219,110		384,350		96,466		301,881		191,467
Commercial real estate non-owner occupied		91,809		83,184		73,789		107,738		88,434
Residential real estate		47,322		36,124		29,468		48,925		42,514
Consumer		1,010		1,547		234		1,849		1,689
Total	$	359,251	$	505,205	$	199,957	$	460,393	$	324,104

Included in fundings are net fundings (paydowns) under revolving lines of credit totaling $16,302, $19,281, $(59,523), $16,954 and ($12,877) for the dates noted in the table above, respectively.

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


	September 30, 2024
	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	$	288,733	$	1,343,744	$	368,145	$	10,891	$	2,011,513
Municipal and non-profit		20,816		160,604		595,165		320,539		1,097,124
Owner occupied commercial real estate		104,852		486,197		486,848		93,362		1,171,259
Food and agribusiness		150,802		40,371		92,390		17,913		301,476
Total commercial		565,203		2,030,916		1,542,548		442,705		4,581,372
Commercial real estate non-owner occupied		436,531		933,705		451,432		12,512		1,834,180
Residential real estate		28,279		200,978		311,424		742,879		1,283,560
Consumer		5,155		8,001		2,224		3		15,383
Total loans	$	1,035,168	$	3,173,600	$	2,307,628	$	1,198,099	$	7,714,495


	December 31, 2023
	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	$	282,560	$	1,377,991	$	295,659	$	10,699	$	1,966,909
Municipal and non-profit		36,505		158,561		561,112		327,578		1,083,756
Owner occupied commercial real estate		86,299		413,032		518,950		105,492		1,123,773
Food and agribusiness		121,595		93,227		94,591		15,184		324,597
Total commercial		526,959		2,042,811		1,470,312		458,953		4,499,035
Commercial real estate non-owner occupied		395,426		921,056		527,645		12,623		1,856,750
Residential real estate		58,323		188,452		350,519		726,493		1,323,787
Consumer		6,459		10,871		1,851		5		19,186
Total loans	$	987,167	$	3,163,190	$	2,350,327	$	1,198,074	$	7,698,758

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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, 2024
	Fixed			Variable			Total
			Weighted			Weighted			Weighted
	Balance		average rate	Balance		average rate	Balance		average rate
Commercial:
Commercial and industrial	$	570,772	5.62%	$	1,152,008	8.05%	$	1,722,780	7.25%
Municipal and non-profit⁽¹⁾		1,071,903	4.00%		20,549	5.85%		1,092,452	4.09%
Owner occupied commercial real estate		339,739	4.93%		726,668	7.52%		1,066,407	6.82%
Food and agribusiness		32,508	6.62%		118,166	8.70%		150,674	8.25%
Total commercial		2,014,922	4.72%		2,017,391	7.88%		4,032,313	6.33%
Commercial real estate non-owner occupied		459,507	4.48%		938,142	6.74%		1,397,649	6.00%
Residential real estate		510,738	4.29%		744,543	5.38%		1,255,281	4.93%
Consumer		7,499	6.29%		2,728	8.24%		10,227	6.81%
Total loans with > 1 year maturity	$	2,992,666	4.62%	$	3,702,804	7.09%	$	6,695,470	6.00%


	December 31, 2023
	Fixed			Variable			Total
			Weighted			Weighted			Weighted
	Balance		average rate	Balance		average rate	Balance		average rate
Commercial:
Commercial and industrial	$	644,128	5.37%	$	1,040,219	8.30%	$	1,684,347	7.18%
Municipal and non-profit⁽¹⁾		1,048,816	3.81%		21,029	5.46%		1,069,845	3.93%
Owner occupied commercial real estate		401,464	4.67%		636,010	7.12%		1,037,474	6.27%
Food and agribusiness		33,539	5.73%		169,464	8.07%		203,003	7.68%
Total commercial		2,127,947	4.52%		1,866,722	7.84%		3,994,669	6.11%
Commercial real estate non-owner occupied		533,105	4.54%		928,219	6.55%		1,461,324	5.82%
Residential real estate		550,974	4.16%		714,490	5.29%		1,265,464	4.80%
Consumer		8,931	5.88%		3,796	8.32%		12,727	6.60%
Total loans with > 1 year maturity	$	3,220,957	4.47%	$	3,513,227	6.98%	$	6,734,184	5.80%


(1)		Included in municipal and non-profit fixed rate loans are loans totaling $355,596 and $351,015 that have been swapped to variable rates at current market pricing at September 30, 2024 and December 31, 2023, respectively. Included in the municipal and non-profit segment are tax exempt loans totaling $903,935 and $868,842 with an FTE weighted average rate of 4.67% and 4.31% at September 30, 2024 and December 31, 2023, 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.

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loan agreements, and credit monitoring and remediation procedures that may include modifying 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. Such modified loans are considered TDMs. TDMs may include principal forgiveness, interest rate reductions, other-than-insignificant-payment delays, term extensions or any combination thereof. 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, 2024 was $0.4 million and $1.4 million, respectively, and $0.8 million and $1.6 million during the three and nine months ended September 30, 2023, 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, 2024		December 31, 2023
Non-accrual loans:
Non-accrual loans, excluding modified loans	$	17,743	$	14,756
Modified loans on non-accrual		5,802		13,472
Non-performing loans		23,545		28,228
OREO		1,432		4,088
Total non-performing assets	$	24,977	$	32,316

Loans 30-89 days past due and still accruing interest	$	31,253	$	12,232
Loans 90 days or more past due and still accruing interest		9,509		591
Non-accrual loans		23,545		28,228
Total past due and non-accrual loans	$	64,307	$	41,051
Accruing modified loans	$	19,126	$	15,148
Allowance for credit losses		95,047		97,947
Non-performing loans to total loans		0.31%		0.37%
Total 90 days past due and still accruing interest and non-accrual loans to total loans		0.43%		0.37%
Total non-performing assets to total loans and OREO		0.32%		0.42%
ACL to non-performing loans		403.68%		346.99%

During the nine months ended September 30, 2024, total non-performing loans decreased $4.7 million, or 16.6%, from December 31, 2023. Loans 30-89 days past due and still accruing interest were 0.41% and 0.16% of total loans at September 30, 2024 and December 31, 2023, respectively. Loans 90 days or more past due and still accruing interest were 0.12% and 0.01% of total loans at September 30, 2024 and December 31, 2023, respectively.

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. The Company utilizes a DCF model developed within a third-party software tool to establish expected 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 lifetime 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 loss rates. The determination and application of the ACL accounting policy involves judgments, estimates and uncertainties that are

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subject to change. For periods beyond the reasonable and supportable forecast period, the Company reverts to historical long-term average loss rates on a straight-line basis.

We measure expected credit losses for groups of loans included in segments with similar risk characteristics. 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 TDMs 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’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’s financial condition and liquidity or the value of the collateral.

The 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 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.

During the three and nine months ended September 30, 2024, the Company recorded a decrease in the allowance for credit losses of $1.4 million and $2.9 million, respectively, due to a decrease in specific reserves related to the resolution of non-performing loans. The allowance for credit losses increased $1.6 million as of September 30, 2024, compared to September 30, 2023, driven by higher reserve requirements from changes in the CECL model’s underlying economic forecast.

Net charge-offs on loans during the three and nine months ended September 30, 2024 totaled $3.4 million and $7.6 million, respectively, and the ratio of annualized net charge-offs to average total loans totaled 0.18% and 0.13%, respectively. Specific reserves on loans totaled $4.7 million at September 30, 2024.

Net charge-offs on loans during the three and nine months ended September 30, 2023 totaled $0.3 million and $0.8 million, respectively, and the ratio of annualized net charge-offs to average total loans totaled 0.01% and 0.02%, respectively. Specific reserves on loans totaled $6.1 million at September 30, 2023.

The Company has elected to exclude AIR from the ACL calculation. As of September 30, 2024 and December 31, 2023, AIR from loans totaled $45.7 million and $42.4 million, respectively. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income.

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Total ACL

After considering the above mentioned factors, we believe that the ACL of $95.0 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at September 30, 2024. 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.

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


	As of and for the three months ended
	September 30, 2024			September 30, 2023
	Total loans		% NCOs⁽¹⁾	Total loans		% NCOs⁽¹⁾
Beginning allowance for credit losses	$	96,457		$	92,581
Charge-offs:
Commercial		(2,930)	0.15%		(239)	0.00%
Commercial real estate non owner-occupied		(293)	0.02%		—	0.00%
Residential real estate		—	0.00%		—	0.00%
Consumer		(282)	0.01%		(301)	0.01%
Total charge-offs		(3,505)			(540)
Recoveries		95			280
Net charge-offs		(3,410)	0.18%		(260)	0.01%
Provision expense for credit losses		2,000			1,125
Ending allowance for credit losses	$	95,047		$	93,446
Average total loans outstanding during the period	$	7,714,765		$	7,443,869


	As of and for the nine months ended
	September 30, 2024			September 30, 2023
	Total loans		% NCOs⁽¹⁾	Total loans		% NCOs⁽¹⁾
Beginning allowance for credit losses	$	97,947		$	89,553
Charge-offs:
Commercial		(2,954)	0.05%		(242)	0.00%
Commercial real estate non owner-occupied		(4,715)	0.08%		—	0.00%
Residential real estate		—	0.00%		(46)	0.00%
Consumer		(718)	0.01%		(930)	0.02%
Total charge-offs		(8,387)			(1,218)
Recoveries		781			386
Net charge-offs		(7,606)	0.13%		(832)	0.02%
Provision expense for credit losses		4,706			4,725
Ending allowance for credit losses	$	95,047		$	93,446
Ratio of ACL to total loans outstanding at period end		1.23%			1.25%
Ratio of ACL to total non-performing loans at period end		403.68%			281.36%
Total loans	$	7,714,495		$	7,478,438
Average total loans outstanding during the period		7,643,563			7,347,380
Non-performing loans		23,545			33,212


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

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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, 2024
						ACL as a %
	Total loans		% of total loans	Related ACL		of total ACL
Commercial	$	4,581,372	59.4%	$	46,250	48.7%
Commercial real estate non-owner occupied		1,834,180	23.8%		28,056	29.5%
Residential real estate		1,283,560	16.6%		20,400	21.4%
Consumer		15,383	0.2%		341	0.4%
Total	$	7,714,495	100.0%	$	95,047	100.0%


	December 31, 2023
						ACL as a %
	Total loans		% of total loans	Related ACL		of total ACL
Commercial	$	4,499,035	58.4%	$	45,304	46.3%
Commercial real estate non-owner occupied		1,856,750	24.1%		32,665	33.3%
Residential real estate		1,323,787	17.2%		19,550	20.0%
Consumer		19,186	0.3%		428	0.4%
Total	$	7,698,758	100.0%	$	97,947	100.0%

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 lower-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, 2024 and December 31, 2023:


							Increase (decrease)
	September 30, 2024			December 31, 2023			Amount		% Change
Non-interest bearing demand deposits	$	2,268,801	26.7%	$	2,361,367	28.8%	$	(92,566)	(3.9)%
Interest bearing demand deposits		1,407,668	16.6%		1,480,042	18.1%		(72,374)	(4.9)%
Savings accounts		609,045	7.2%		661,244	8.1%		(52,199)	(7.9)%
Money market accounts		3,159,165	37.2%		2,705,768	33.0%		453,397	16.8%
Total transaction deposits		7,444,679	87.7%		7,208,421	88.0%		236,258	3.3%
Time deposits < $250,000		751,895	8.8%		692,696	8.5%		59,199	8.5%
Time deposits ≥ $250,000		300,554	3.5%		289,274	3.5%		11,280	3.9%
Total time deposits		1,052,449	12.3%		981,970	12.0%		70,479	7.2%
Total deposits	$	8,497,128	100.0%	$	8,190,391	100.0%	$	306,737	3.7%

The following table shows uninsured time deposits by scheduled maturity as of September 30, 2024:


	September 30, 2024
Three months or less	$	63,041
Over 3 months through 6 months		49,397
Over 6 months through 12 months		102,086
Thereafter		53,183
Total uninsured time deposits	$	267,707

At September 30, 2024 and December 31, 2023, time deposits that were scheduled to mature within 12 months totaled $842.9 million and $689.0 million, respectively. Of the time deposits scheduled to mature within 12 months at September 30, 2024, $254.2 million were in denominations of $250,000 or more, and $588.7 million were in denominations less than $250,000. Approximately 78% of our total deposits were FDIC insured at September 30, 2024. Additionally, the Company participates in the IntraFi Cash Service program,

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which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $960.9 million and $944.3 million of deposits in the program as of September 30, 2024 and December 31, 2023, respectively.

Long-term debt

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 deployed 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 September 30, 2024, net of a fair value adjustment related to the acquisition totaling $0.3 million, totaled $14.6 million. At December 31, 2023, the balance on the notes, net of the fair value adjustment from the acquisition totaling $0.5 million, totaled $14.5 million. Interest expense related to the notes totaling $0.1 million and $0.4 million was recorded in the consolidated statements of operations during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, interest expense related to the notes totaled $0.1 million and $0.4 million, respectively.

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, 2024 and December 31, 2023, the Company sold securities under agreements to repurchase totaling $19.5 million and $19.6 million, respectively. In addition, as a member of the FHLB, the Company has access to a line of credit and term financing from the FHLB with total available credit of $1.8 billion at September 30, 2024. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2024 and December 31, 2023, the Banks had zero and $340.0 million, respectively, of outstanding borrowings with the FHLB. The Company may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2024 or December 31, 2023. Loans pledged were $2.6 billion at September 30, 2024 and December 31, 2023, respectively. The Company incurred $0.5 million and $3.8 million of interest expense related to FHLB advances or other short-term borrowings for the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, interest expense related to FHLB advances or other short-term borrowings totaled $4.4 million and $17.1 million, respectively.

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Regulatory Capital

Our subsidiary banks and the holding company are subject to the regulatory capital adequacy requirements of the Federal Reserve Board and the FDIC, as applicable. Failure to meet the minimum capital requirements can initiate certain mandatory and possibly further discretionary actions by regulators that could have a material adverse effect on us. At September 30, 2024 and December 31, 2023, our subsidiary banks and the consolidated holding company exceeded all capital ratio requirements under prompt corrective action and other regulatory requirements, as further detailed in note 10 of our consolidated financial statements.

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 assets amortization. Any expenses related to the resolution of problem assets are also included in non-interest expense.

Overview of results of operations

Net income totaled $33.1 million and $90.6 million, or $0.86 and $2.36 per diluted share, during the three and nine months ended September 30, 2024, respectively. During the three and nine months ended September 30, 2023, net income totaled $36.1 million and $108.9 million, or $0.94 and $2.85 per diluted share, respectively. The decrease in net income was largely driven by lower net interest income due to an increase in cost of funds outpacing the increase in interest income. Partially offsetting this decrease were increases in non-interest income driven by our diversified sources of fee revenue. The return on average tangible assets was 1.43% and 1.33% during the three and nine months ended September 30, 2024, respectively, and the return on average tangible common equity was 14.84% and 14.14%, 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.

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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 timeframes 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 an FTE basis for the three months ended September 30, 2024 and 2023.


	For the three months ended					For the three months ended
	September 30, 2024					September 30, 2023
	Average balance		Interest		Average rate	Average balance		Interest		Average rate
Interest earning assets:
Originated loans FTE^(1)(2)(3)	$	6,251,827	$	108,403	6.90%	$	5,803,157	$	92,813	6.35%
Acquired loans		1,487,002		22,660	6.06%		1,671,595		26,115	6.20%
Loans held for sale		18,078		319	7.02%		22,154		383	6.86%
Investment securities available-for-sale		790,268		5,132	2.60%		761,892		3,783	1.99%
Investment securities held-to-maturity		548,120		2,344	1.71%		611,712		2,685	1.76%
Other securities		26,213		405	6.18%		39,115		701	7.17%
Interest earning deposits		70,946		556	3.12%		130,239		1,205	3.67%
Total interest earning assets FTE⁽²⁾	$	9,192,454	$	139,819	6.05%	$	9,039,864	$	127,685	5.60%
Cash and due from banks	$	86,887				$	104,308
Other assets		777,758					737,568
Allowance for credit losses		(96,369)					(92,831)
Total assets	$	9,960,730				$	9,788,909
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits	$	5,134,650	$	40,146	3.11%	$	4,535,183	$	27,211	2.38%
Time deposits		1,039,563		9,220	3.53%		992,755		6,212	2.48%
Securities sold under agreements to repurchase		17,146		5	0.12%		19,288		6	0.12%
Long-term debt, net		54,383		519	3.80%		54,074		519	3.81%
Federal Home Loan Bank advances		32,641		460	5.61%		316,723		4,385	5.49%
Total interest bearing liabilities	$	6,278,383	$	50,350	3.19%	$	5,918,023	$	38,333	2.57%
Demand deposits	$	2,226,807				$	2,553,619
Other liabilities		180,667					149,068
Total liabilities		8,685,857					8,620,710
Shareholders' equity		1,274,873					1,168,199
Total liabilities and shareholders' equity	$	9,960,730				$	9,788,909
Net interest income FTE⁽²⁾			$	89,469				$	89,352
Interest rate spread FTE⁽²⁾					2.86%					3.03%
Net interest earning assets	$	2,914,071				$	3,121,841
Net interest margin FTE⁽²⁾					3.87%					3.92%
Average transaction deposits	$	7,361,457				$	7,088,802
Average total deposits		8,401,020					8,081,557
Ratio of average interest earning assets to average interest bearing liabilities		146.41%					152.75%


(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 $1,816 and $1,575 for the three months ended September 30, 2024 and 2023, respectively.
(3)		Loan fees included in interest income totaled $3,647 and $2,719 for the three months ended September 30, 2024 and 2023, respectively.

Net interest income totaled $87.7 million and $87.8 million during the three months ended September 30, 2024 and 2023, respectively. Net interest income on an FTE basis totaled $89.5 million and $89.4 million during the three months ended September 30, 2024 and 2023, respectively. During the three months ended September 30, 2024, the FTE net interest margin narrowed five basis points to 3.87%, compared to the three months ended September 30, 2023. The yield on earning assets increased 45 basis points, driven by an increase in loan yields. During the three months ended September 30, 2024, the cost of funds increased 56 basis points to 2.36%, compared to the three months ended September 30, 2023.

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Average loans comprised $7.7 billion, or 84.2%, of total average interest earning assets during the three months ended September 30, 2024, compared to $7.5 billion, or 82.7%, during the three months ended September 30, 2023. The increase in average loan balances was driven by loan originations during the period.

Average investment securities comprised 14.6% and 15.2% of total interest earning assets during the three months ended September 30, 2024 and 2023, respectively. Average interest bearing cash balances totaled $70.9 million during the three months ended September 30, 2024, compared to $130.2 million for the same period in the prior year.

Average interest bearing liabilities increased $0.4 billion during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, driven by organic balance sheet growth. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $599.5 million and time deposits totaling $46.8 million. The increase was partially offset by a decrease in FHLB advances totaling $284.1 million and securities sold under agreements to repurchase of $2.1 million.

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The table below presents the components of net interest income on an FTE basis for the nine months ended September 30, 2024 and 2023:


	For the nine months ended					For the nine months ended
	September 30, 2024					September 30, 2023
	Average balance		Interest		Average rate	Average balance		Interest		Average rate
Interest earning assets:
Originated loans FTE^(1)(2)(3)	$	6,124,757	$	311,112	6.79%	$	5,656,309	$	258,528	6.11%
Acquired loans		1,546,482		70,413	6.08%		1,718,523		79,526	6.19%
Loans held for sale		15,661		862	7.35%		23,494		1,189	6.77%
Investment securities available-for-sale		781,454		14,336	2.45%		786,087		11,655	1.98%
Investment securities held-to-maturity		563,975		7,277	1.72%		629,507		8,364	1.77%
Other securities		28,771		1,398	6.48%		46,480		2,513	7.21%
Interest earning deposits		84,920		2,004	3.15%		120,633		3,369	3.73%
Total interest earning assets FTE⁽²⁾	$	9,146,020	$	407,402	5.95%	$	8,981,033	$	365,144	5.44%
Cash and due from banks	$	96,510				$	110,902
Other assets		768,521					724,305
Allowance for credit losses		(97,327)					(91,110)
Total assets	$	9,913,724				$	9,725,130
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits	$	5,064,386	$	116,240	3.07%	$	4,197,603	$	55,070	1.75%
Time deposits		1,015,081		25,340	3.33%		965,750		14,545	2.01%
Securities sold under agreements to repurchase		17,839		16	0.12%		19,863		17	0.11%
Long-term debt, net		54,307		1,555	3.82%		53,997		1,555	3.85%
Federal Home Loan Bank advances		89,918		3,774	5.61%		449,060		17,075	5.08%
Total interest bearing liabilities	$	6,241,531	$	146,925	3.14%	$	5,686,273	$	88,262	2.08%
Demand deposits	$	2,253,986				$	2,751,537
Other liabilities		170,005					141,110
Total liabilities		8,665,522					8,578,920
Shareholders' equity		1,248,202					1,146,210
Total liabilities and shareholders' equity	$	9,913,724				$	9,725,130
Net interest income FTE⁽²⁾			$	260,477				$	276,882
Interest rate spread FTE⁽²⁾					2.81%					3.36%
Net interest earning assets	$	2,904,489				$	3,294,760
Net interest margin FTE⁽²⁾					3.80%					4.12%
Average transaction deposits	$	7,318,372				$	6,949,140
Average total deposits		8,333,453					7,914,890
Ratio of average interest earning assets to average interest bearing liabilities		146.53%					157.94%


(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 $5,220 and $4,432 for the nine months ended September 30, 2024 and 2023, respectively.
(3)		Loan fees included in interest income totaled $9,859 and $8,120 for the nine months ended September 30, 2024 and 2023, respectively.

Net interest income totaled $255.3 million and $272.5 million during the nine months ended September 30, 2024 and 2023, respectively. Net interest income on an FTE basis totaled $260.5 million and $276.9 million during the nine months ended September 30, 2024 and 2023, respectively. During the nine months ended September 30, 2024, the FTE net interest margin narrowed 32 basis points to 3.80%, compared to the nine months ended September 30, 2023. The yield on earning assets increased 51 basis points, driven by an increase in earning assets and increases in the Federal Reserve Bank’s interest rates. The cost of funds increased 91 basis points to 2.31% during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023.

Average loans comprised $7.7 billion, or 83.9%, of total average interest earning assets during the nine months ended September 30, 2024, compared to $7.4 billion, or 82.1%, during the nine months ended September 30, 2023. The increase in average loan balances was driven by loan originations during the period.

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Average investment securities comprised 14.7% and 15.8% of total interest earning assets during the nine months ended September 30, 2024 and 2023, respectively. Average interest bearing cash balances totaled $84.9 million during the nine months ended September 30, 2024, compared to $120.6 million for the same period in the prior year.

Average balances of interest bearing liabilities increased $0.6 billion during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, driven by organic balance sheet and strategic acquisition growth. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $0.9 billion and time deposits totaling $49.3 million. The increase was partially offset by a decrease in FHLB advances totaling $359.1 million and securities sold under agreements to repurchase of $2.0 million. The cost of funds increased 91 basis points to 2.31% during the nine months ended September 30, 2024, compared to 1.40% during the nine months ended September 30, 2023.

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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, 2024, compared to the three and nine months ended September 30, 2023:


	Three months ended September 30, 2024						Nine months ended September 30, 2024
	compared to						compared to
	Three months ended September 30, 2023						Nine months ended September 30, 2024
	Increase (decrease) due to						Increase (decrease) due to
	Volume		Rate		Net		Volume		Rate		Net
Interest income:
Originated loans FTE^(1)(2)(3)	$	7,780	$	7,810	$	15,590	$	23,795	$	28,789	$	52,584
Acquired loans		(2,813)		(642)		(3,455)		(7,833)		(1,280)		(9,113)
Loans held for sale		(72)		8		(64)		(431)		104		(327)
Investment securities available-for-sale		184		1,165		1,349		(85)		2,766		2,681
Investment securities held-to-maturity		(272)		(69)		(341)		(846)		(241)		(1,087)
Other securities		(199)		(97)		(296)		(860)		(255)		(1,115)
Interest earning deposits		(465)		(184)		(649)		(843)		(522)		(1,365)
Total interest income	$	4,143	$	7,991	$	12,134	$	12,897	$	29,361	$	42,258
Interest expense:
Interest bearing demand, savings and money market deposits	$	4,687	$	8,248	$	12,935	$	19,895	$	41,275	$	61,170
Time deposits		415		2,593		3,008		1,231		9,564		10,795
Securities sold under agreements to repurchase		(1)		—		(1)		(2)		1		(1)
Long-term debt, net		3		(3)		—		9		(9)		—
Federal Home Loan Bank advances		(4,003)		78		(3,925)		(15,074)		1,773		(13,301)
Total interest expense		1,101		10,916		12,017		6,059		52,604		58,663
Net change in net interest income	$	3,042	$	(2,925)	$	117	$	6,838	$	(23,243)	$	(16,405)


(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 $1,816 and $1,575 for the three months ended September 30, 2024 and 2023, respectively. The taxable equivalent adjustments included above are $5,220 and $4,432 for the nine months ended September 30, 2024 and 2023, respectively.
(3)		Loan fees included in interest income totaled $3,647 and $2,719 for the three months ended September 30, 2024 and 2023, respectively. Loan fees included in interest income totaled $9,859 and $8,120 for the nine months ended September 30, 2024 and 2023, respectively.

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
	September 30, 2024			September 30, 2023			September 30, 2024			September 30, 2023
			Average			Average			Average			Average
	Average		rate	Average		rate	Average		rate	Average		rate
	balance		paid	balance		paid	balance		paid	balance		paid
Non-interest bearing demand	$	2,226,807	0.00%	$	2,553,619	0.00%	$	2,253,986	0.00%	$	2,751,537	0.00%
Interest bearing demand		1,340,770	2.86%		1,336,562	2.44%		1,394,962	2.96%		1,186,197	1.92%
Money market accounts		3,177,041	3.62%		2,503,368	2.85%		3,034,221	3.56%		2,246,463	2.10%
Savings accounts		616,839	1.03%		695,253	0.58%		635,203	0.95%		764,943	0.47%
Time deposits		1,039,563	3.53%		992,755	2.48%		1,015,081	3.33%		965,750	2.01%
Total average deposits	$	8,401,020	2.34%	$	8,081,557	1.64%	$	8,333,453	2.27%	$	7,914,890	1.18%

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 provision for credit loss expense totaling $2.0 million and $4.8 million for the three and nine months ended September 30, 2024, respectively, driven by higher reserve requirements from changes in the CECL model’s underlying economic forecast. During the three and nine months ended September 30, 2023, the Company recorded provision expense for credit losses of

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$1.1 million and $3.7 million, respectively. Included in the provision for credit losses was zero and $0.1 million of provision release for unfunded loan commitments during the three and nine months ended September 30, 2024, respectively. The allowance for credit losses totaled 1.23% of total loans for September 30, 2024 and 2023.

Non-interest income

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


	For the three months ended				For the nine months ended
	September 30,				September 30,				Three months			Nine months
									Increase (decrease)			Increase (decrease)
	2024		2023		2024		2023		Amount		% Change	Amount		% Change
Service charges	$	4,912	$	4,849	$	13,598	$	13,394	$	63	1.3%	$	204	1.5%
Bank card fees		4,832		4,993		14,292		14,721		(161)	(3.2)%		(429)	(2.9)%
Mortgage banking income		2,981		4,688		8,932		11,614		(1,707)	(36.4)%		(2,682)	(23.1)%
Bank-owned life insurance income		759		882		2,228		2,559		(123)	(13.9)%		(331)	(12.9)%
Other non-interest income		4,905		3,953		11,062		5,565		952	24.1%		5,497	98.8%
Total non-interest income	$	18,389	$	19,365	$	50,112	$	47,853	$	(976)	(5.0)%	$	2,259	4.7%

Non-interest income totaled $18.4 million for the three months ended September 30, 2024, compared to $19.4 million for the three months ended September 30, 2023. Other non-interest income increased $1.0 million during the three months ended September 30, 2024, compared to the three months ended September 30, 2023, driven by our diversified sources of fee revenue including gains on SBA loan sales and trust income. Mortgage banking income decreased $1.7 million during the three months ended September 30, 2024, compared to the three months ended September 30, 2023 due to the sustained higher-interest rate environment driving lower mortgage volume.

Non-interest income totaling $50.1 million increased $2.3 million for the nine months ended September 30, 2024, compared to $47.9 million for the nine months ended September 30, 2023. The increase was driven by our diversified sources of fee revenue including increases of $2.1 million from gains on sales of SBA loans, $0.5 million from swap fee income and $0.4 million from trust income, in addition to Cambr fee income, all included in other non-interest income. Mortgage banking income decreased $2.7 million, as the sustained higher-interest rate environment has lowered mortgage volume. Included in the nine months ended September 30, 2024 was $3.2 million in net impairments related to venture capital investments classified as non-marketable securities, compared to $4.4 million in net impairments in the same period during the prior year.

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
									Increase (decrease)			Increase (decrease)
	2024		2023		2024		2023		Amount		% Change	Amount		% Change
Salaries and benefits	$	37,331	$	35,027	$	110,784	$	103,231	$	2,304	6.6%	$	7,553	7.3%
Occupancy and equipment		9,697		9,167		29,758		27,366		530	5.8%		2,392	8.7%
Data processing		4,398		3,546		12,581		10,257		852	24.0%		2,324	22.7%
Marketing and business development		1,091		1,037		2,836		2,997		54	5.2%		(161)	(5.4)%
FDIC deposit insurance		1,297		1,686		4,073		5,433		(389)	(23.1)%		(1,360)	(25.0)%
Bank card expenses		1,176		1,667		3,916		4,260		(491)	(29.5)%		(344)	(8.1)%
Professional fees		2,111		2,215		5,463		7,951		(104)	(4.7)%		(2,488)	(31.3)%
Other non-interest expense		5,084		4,250		14,698		13,003		834	19.6%		1,695	13.0%
Other intangible assets amortization		1,977		2,008		5,962		5,378		(31)	(1.5)%		584	10.9%
Total non-interest expense	$	64,162	$	60,603	$	190,071	$	179,876	$	3,559	5.9%	$	10,195	5.7%

During the three months ended September 30, 2024, non-interest expense increased $3.6 million, or 5.9%, compared to the three months ended September 30, 2023, largely due to ongoing investments in technology. During the three months ended September 30, 2024, salaries and benefits increased $2.3 million, compared to the same period during the prior year. Data processing increased $0.9 million and occupancy and equipment increased $0.5 million.

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During the nine months ended September 30, 2024, non-interest expense totaled $190.1 million, an increase of 5.7%, compared to $179.9 million for the same period during the prior year, largely due to ongoing investments in technology and the Cambr acquisition in April 2023. Salaries and benefits increased $7.6 million, occupancy and equipment increased $2.4 million and data processing increased $2.3 million. Other intangible assets amortization increased $0.6 million due to our Cambr acquisition in April of 2023. These increases were partially offset by a decrease of $2.5 million in professional fees and a decrease of $1.4 million in FDIC deposit insurance.

Income taxes

Income tax expense totaled $6.8 million and $19.9 million for the three and nine months ended September 30, 2024, respectively. Income tax expense for the three and nine months ended September 30, 2023 totaled $9.3 million and $27.8 million, respectively. The decreases over the prior periods were driven by lower pre-tax income. The effective tax rate for the three and nine months ended September 30, 2024 was 17.0% and 18.0%, respectively, compared to 20.5% and 20.3% for the same periods in the prior year.

Additional information regarding income taxes can be found in note 19 of our audited consolidated financial statements in our 2023 Annual Report on Form 10-K.

Liquidity and Capital Resources

Liquidity

Liquidity risk management is an important element in our asset/liability management. The Company maintains a robust liquidity profile at its holding company and the Banks collectively as well as separately. The Company is prudently managing liquidity in the current environment and maintains a liquidity profile focused on core deposits and stable long-term funding sources. Liquidity is supplemented with a variety of secured and unsecured wholesale funding sources across the maturity spectrum, which allows for the effective management of concentration and rollover risk. The Company’s corporate treasury team measures liquidity needs through daily cash monitoring, weekly cash projections and monthly liquidity measures reviewed in conjunction with Board-approved liquidity policy limits. The Company also regularly conducts stress tests to its Board-approved contingency funding plan to assess potential liquidity outflows or funding concerns 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 the contingency funding plan, which provides the basis for the identification of our liquidity needs and are monitored monthly by our Asset and Liability Committee.

The Company’s primary sources of funds include revenue from interest income and noninterest income as well as cash flows from loan repayments, payments from securities related to maturities and amortization, the sale of loans, and funds generated by core deposits, in addition to the use of private debt offerings.

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, 2024 and December 31, 2023:


	September 30, 2024		December 31, 2023
Cash and due from banks	$	180,796	$	190,826
Unencumbered investment securities, at fair value		473,831		338,555
Total	$	654,627	$	529,381

Total on-balance sheet liquidity increased $125.2 million at September 30, 2024 compared to December 31, 2023, due to higher unencumbered investment securities of $135.3 million, partially offset by lower cash and due from banks of $10.0 million.

The Company’s investment portfolio remains positioned in liquid and readily marketable instruments and is a significant source of on-balance sheet collateral to secure borrowing capacity. Our investment securities portfolio is evaluated under established Asset and Liability Committee objectives and is structured as a liquidity portfolio, and only security fair values are used for the liquidity assessment. The fair value of total investment securities was $1.2 billion at September 30, 2024, compared to $1.1 billion at December 31, 2023. As of September 30, 2024, the fair value was inclusive of pre-tax net unrealized losses of $80.9 million on the available-for-sale securities portfolio. Additionally, our held-to-maturity securities portfolio had $67.4 million of pre-tax net unrealized losses. The gross unrealized gains and losses are detailed in note 3 of our consolidated financial statements. As of September 30, 2024, our

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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. At September 30, 2024, the duration of the investment securities portfolio was 3.9 years and the weighted average life was 4.8 years.

As part of its liquidity management activities, the Company pledges collateral at its secured funding providers to ensure immediate availability of funding, which includes maintaining borrowing capacity at both the FHLB and the Federal Reserve. The Company does not consider borrowing capacity at the Federal Reserve a primary source of funding; however, it could be used as a potential source of funds in a stressed environment or during a market disruption. The amount of available contingent secured borrowing capacity may fluctuate based on the level of borrowings outstanding and level of assets pledged. The table below details those amounts as of the dates shown:


	September 30, 2024		December 31, 2023
Available FHLB borrowing capacity	$	1,769,506	$	1,409,077
Federal Reserve Bank discount window		899,332		102,078
Total off-balance sheet funds available	$	2,668,838	$	1,511,155

The Company had pledged $2.6 billion of loans as collateral to the FHLB at September 30, 2024 and December 31, 2023. FHLB borrowing capacity totaled $1.8 billion at September 30, 2024, including outstanding borrowings and the remaining FHLB funds available shown in the table above. At September 30, 2024, the Company had no outstanding borrowings with the FHLB, compared to $340.0 million at December 31, 2023. At September 30, 2024, the Company’s available secured and committed borrowing capacity at the FHLB and Federal Reserve totaled $2.7 billion, compared to $1.5 billion at December 31, 2023.

In addition to core deposit and secured funding, the Company also accesses a variety of other short-term and long-term unsecured funding sources, which includes access to Cambr platform deposits, multiple brokered deposit platform options and lines of credit. Management does not rely on any one source of liquidity and manages availability in response to changing balance sheet needs, as well as within prudently defined concentration and policy limits. The Company executes periodic test trades to assess the level of access and operational processes associated with its secured and unsecured funding sources.

We anticipate that the sources of funds discussed above will provide adequate funding and liquidity for at least a 12-month period and the foreseeable future, and we may utilize any combination of these funding sources for long-term liquidity needs if deemed prudent.

Our primary uses of funds are loan fundings, investment security purchases, withdrawals of deposits, capital expenditures, operating expenses, and share repurchases.

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, 2024, $842.9 million of time deposits were scheduled to mature within 12 months. Based on the current interest rate environment and market conditions, our consumer banking strategy is to focus on attracting and maintaining both lower cost transaction accounts and time deposits.

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 sale of the note for general corporate purposes. 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 all subordinated notes totaled $54.4 million at September 30, 2024. At December 31, 2023, the balance on the notes, totaled $54.2 million.

Capital

Under the Basel III requirements, at September 30, 2024, the Company, NBH Bank and Bank of Jackson Hole Trust met all capital adequacy requirements, and the Banks 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 May 9, 2023, the Company’s Board of Directors authorized a new program to repurchase up to $50.0 million of the Company’s stock. The remaining authorization under the program as of September 30, 2024 was $50.0 million.

On October 22, 2024, our Board of Directors declared a quarterly dividend of $0.29 per common share, payable on December 13, 2024 to shareholders of record at the close of business on November 29, 2024.

Asset/Liability Management and Interest Rate Risk

The Board of Directors meets as often as necessary, but no less than quarterly, to review financial statements, public filings, significant accounting policy changes and any risk management issues. The Board also oversees the performance of our internal audit function as well as serves as an independent and objective body to monitor and assess our compliance with legal and regulatory requirements as well as internal control systems. 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.

Interest rate risk results from following:


●		Repricing risk — timing differences in the repricing and maturity of interest-earning assets and interest bearing liabilities;
●		Option risk — changes in the expected maturities of assets and liabilities, such as borrowers’ ability to prepay loans at any time and depositors’ ability to redeem certificates of deposit before maturity;
●		Yield curve risk — changes in the yield curve where interest rates increase or decrease in a nonparallel fashion; and
●		Basis risk — changes in spread relationships between different yield curves.

The Asset Liability Committee, a cross-functional committee comprised of executive management and senior leaders, 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 interest rates. The Asset Liability Committee also reviews the liquidity, capital, deposit mix, loan mix and investment positions of the Company. The Company's principal objective regarding asset and liability management is to evaluate interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while preserving adequate levels of liquidity and capital.

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 net 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 in a relatively neutral position in terms of interest rate sensitivity at September 30, 2024. The table below illustrates the impact of an immediate and sustained 200 and 100 basis point increase and a 100

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and 200 basis point decrease in interest rates on net interest income based on the interest rate risk model at September 30, 2024 and December 31, 2023:


Hypothetical
shift in interest	% change in projected net interest income
rates (in bps)	September 30, 2024	December 31, 2023
200	1.16%	(0.18)%
100	0.60%	(0.06)%
(100)	(0.73)%	(0.09)%
(200)	(1.49)%	(0.33)%

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.

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 executed interest rate derivatives primarily using floors and collars. For further discussion of the 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 87.6% of total deposits at September 30, 2024, compared to 88.0% at December 31, 2023.

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. Inflationary factors may have some impact on our total assets, earnings, capital levels, our ability to grow, and, particularly, our clients. 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, 2024 and December 31, 2023, we had loan commitments totaling $1.5 billion and $1.6 billion, respectively, and standby letters of credit totaling $14.2 million and $13.0 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 Act of 1934, as of September 30, 2024. 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, 2024.

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During the most recently completed 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.

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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. Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2023.

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, 2024⁽¹⁾	1,480		41.88	—		50,000,000
August 1 - August 31, 2024⁽¹⁾	1,932		41.37	—		50,000,000
Total	3,412		41.59	—


(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 May 9, 2023, the Company’s Board of Directors authorized a new program to repurchase up to $50.0 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 program as of September 30, 2024 was $50.0 million.

Item 5. OTHER INFORMATION

None.

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Item 6. EXHIBITS

3.1		Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to our Form S-1 Registration Statement (Registration No. 333-177971), filed August 22, 2012)

3.2		Second Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2014, filed November 7, 2014)

10.1		Employment Agreement, dated September 10, 2024, by and between Nicole Van Denabeele and National Bank Holdings Corporation (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on September 10, 2024)

10.2		Form of Transition Agreement (filed herewith)

31.1		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32		Certifications of CEO and CFO pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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)

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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



By	/s/ Nicole Van Denabeele
	Nicole Van Denabeele
	Chief Financial Officer
	(principal financial officer)

Date: November 5, 2024

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National Bank (NBHC) 10-Q2024 Q3 Quarterly report

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