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, 2023

OR

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

For the transition period from                      to

Commission File Number: 001-35654

NATIONAL BANK HOLDINGS CORPORATION

(Exact name of registrant as specified in its charter)

Delaware	27-0563799
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

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

(Address of principal executive offices) (Zip Code)

Registrant’s telephone, including area code: (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	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 3, 2023, the registrant had outstanding 37,761,138 shares of Class A voting common stock, each with $0.01 par value per share, excluding 255,268 shares of restricted Class A common stock issued but not yet vested.

6
		Page
Part I. Financial Information
Item 1.	Financial Statements (Unaudited)	6
	Consolidated Statements of Financial Condition as of September 30, 2023 and December 31, 2022	6
	Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	7
	Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2023 and 2022	8
	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2023 and 2022	9
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	10
	Notes to Consolidated Financial Statements	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	52
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	84
Item 4.	Controls and Procedures	84
Part II. Other Information
Item 1.	Legal Proceedings	85
Item 1A.	Risk Factors	85
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	85
Item 5.	Other Information	85
Item 6.	Exhibits	86

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

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

●       the impact of recent high profile large bank closures, including potential regulatory changes to capital requirements, treatment of investment securities and FDIC deposit insurance levels and costs, along with potential changes in short-term and long-term consumer behavior in response to these closures and volatility in the banking sector;

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

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

●       effects of any potential government shutdowns;

●       economic, market, operational, liquidity, credit and interest rate risks associated with our business, 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;

●       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 time-frames, or at all, or within expected cost projections, and to preserve the goodwill of acquired financial institutions;

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

3

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

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

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

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

●       continued consolidation in the financial services industry;

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

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

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

●       the effects of tax legislation, including the potential of future 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;

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

●       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.

4

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.

5

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, 2023		December 31, 2022
ASSETS
Cash and cash equivalents	$	291,291	$	195,505
Investment securities available-for-sale (at fair value)		620,445		706,289
Investment securities held-to-maturity (fair value of $494,242 and $559,924 at September 30, 2023 and December 31, 2022, respectively)		600,501		651,527
Non-marketable securities		87,817		89,049
Loans		7,478,438		7,220,469
Allowance for credit losses		(93,446)		(89,553)
Loans, net		7,384,992		7,130,916
Loans held for sale		19,048		22,767
Other real estate owned		3,416		3,731
Premises and equipment, net		153,553		136,111
Goodwill		306,043		279,132
Intangible assets, net		68,283		59,887
Other assets		330,894		298,329
Total assets	$	9,866,283	$	9,573,243
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing demand deposits	$	2,483,174	$	3,134,716
Interest bearing demand deposits		1,358,445		913,852
Savings and money market		3,314,895		2,950,658
Time deposits		992,494		873,400
Total deposits		8,149,008		7,872,626
Securities sold under agreements to repurchase		20,273		20,214
Long-term debt, net		54,123		53,890
Federal Home Loan Bank advances		316,770		385,000
Other liabilities		162,524		149,311
Total liabilities		8,702,698		8,481,041
Shareholders’ equity:
Common stock, par value $0.01 per share: 400,000,000 shares authorized; 51,487,907 and 51,487,907 shares issued; 37,739,776 and 37,608,519 shares outstanding at September 30, 2023 and December 31, 2022, respectively		515		515
Additional paid-in capital		1,160,706		1,159,508
Retained earnings		410,243		330,721
Treasury stock of 13,485,056 and 13,714,251 shares at September 30, 2023 and December 31, 2022, respectively, at cost		(307,026)		(310,338)
Accumulated other comprehensive loss, net of tax		(100,853)		(88,204)
Total shareholders’ equity		1,163,585		1,092,202
Total liabilities and shareholders’ equity	$	9,866,283	$	9,573,243

See accompanying notes to the consolidated interim financial statements.

6

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,
	2023		2022		2023		2022
Interest and dividend income:
Interest and fees on loans	$	117,736	$	63,875	$	334,811	$	159,707
Interest and dividends on investment securities		6,468		6,460		20,019		17,195
Dividends on non-marketable securities		701		212		2,513		632
Interest on interest-bearing bank deposits		1,205		1,822		3,369		3,196
Total interest and dividend income		126,110		72,369		360,712		180,730
Interest expense:
Interest on deposits		33,423		2,945		69,615		7,961
Interest on borrowings		4,910		333		18,647		1,000
Total interest expense		38,333		3,278		88,262		8,961
Net interest income before provision for credit losses		87,777		69,091		272,450		171,769
Provision for credit loss expense		1,125		12,678		3,725		14,860
Net interest income after provision for credit losses		86,652		56,413		268,725		156,909
Non-interest income:
Service charges		4,849		4,326		13,394		11,992
Bank card fees		4,993		4,681		14,721		13,345
Mortgage banking income		4,688		4,474		11,614		21,088
Bank-owned life insurance income		882		573		2,559		1,645
Other non-interest income		3,953		3,304		5,565		5,104
Total non-interest income		19,365		17,358		47,853		53,174
Non-interest expense:
Salaries and benefits		35,027		30,540		103,231		88,652
Occupancy and equipment		9,167		8,026		27,366		21,087
Data processing		3,546		2,899		10,257		7,733
Marketing and business development		1,037		979		2,997		2,326
FDIC deposit insurance		1,686		508		5,433		1,476
Bank card expenses		1,667		1,409		4,260		4,075
Professional fees		2,215		5,810		7,951		8,110
Other non-interest expense		4,250		3,384		13,003		9,138
Other intangible assets amortization		2,008		383		5,378		975
Total non-interest expense		60,603		53,938		179,876		143,572
Income before income taxes		45,414		19,833		136,702		66,511
Income tax expense		9,327		3,994		27,775		11,958
Net income	$	36,087	$	15,839	$	108,927	$	54,553
Earnings per share—basic	$	0.95	$	0.51	$	2.87	$	1.78
Earnings per share—diluted		0.94		0.50		2.85		1.77
Weighted average number of common shares outstanding:
Basic		37,990,659		31,259,188		37,911,896		30,539,266
Diluted		38,134,338		31,531,075		38,093,910		30,834,630

See accompanying notes to the consolidated interim financial statements.

7

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Loss) (Unaudited)

(In thousands)

	For the three months ended				For the nine months ended
	September 30,				September 30,
	2023		2022		2023		2022
Net income	$	36,087	$	15,839	$	108,927	$	54,553
Other comprehensive loss, net of tax:
Securities available-for-sale:
Net unrealized losses arising during the period, net of tax benefit of $3,418 and $9,184 for the three months ended September 30, 2023 and 2022, respectively; and net of tax benefit of $3,283 and $25,030 for the nine months ended September 30, 2023 and 2022, respectively		(11,718)		(29,482)		(11,276)		(80,349)
Less: amortization of net unrealized holding gains to income, net of tax benefit of $11 and $22 for the three months ended September 30, 2023 and 2022, respectively; and net of tax benefit of $40 and $75 for the nine months ended September 30, 2023 and 2022, respectively		(39)		(71)		(135)		(242)
Cash flow hedges:
Net unrealized losses arising during the period, net of tax benefit of $169 and $559 for the three months ended September 30, 2023 and 2022, respectively; and net of tax benefit of $618 and $559 for the nine months ended September 30, 2023 and 2022, respectively		(550)		(1,795)		(2,032)		(1,795)
Less: reclassification adjustment for losses included in net income, net of tax benefit of $22 and $3 for the three months ended September 30, 2023 and 2022, respectively; and net of tax benefit of $241 and $3 for the nine months ended September 30, 2023 and 2022, respectively		68		10		794		10
Other comprehensive loss		(12,239)		(31,338)		(12,649)		(82,376)
Comprehensive income (loss)	$	23,848	$	(15,499)	$	96,278	$	(27,823)

See accompanying notes to the consolidated interim financial statements.

8

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, net		Total
Balance, June 30, 2022	$	515	$	1,014,330	$	314,616	$	(455,909)	$	(58,001)	$	815,551
Net income		—		—		15,839		—		—		15,839
Stock-based compensation		—		1,494		—		—		—		1,494
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $64,175, net		—		106		—		509		—		615
Reissuance of treasury stock of 3,096,745 for acquisition of Community Bancorporation		—		63,630		—		60,642		—		124,272
Cash dividends declared ($0.23 per share)		—		—		(7,007)		—		—		(7,007)
Other comprehensive loss		—		—		—		—		(31,338)		(31,338)
Balance, September 30, 2022	$	515	$	1,079,560	$	323,448	$	(394,758)	$	(89,339)	$	919,426
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

	For the nine months ended September 30,
									Accumulated
			Additional						other
	Common		paid-in		Retained		Treasury		comprehensive
	stock		capital		earnings		stock		loss, net		Total
Balance, December 31, 2021	$	515	$	1,014,294	$	289,876	$	(457,616)	$	(6,963)	$	840,106
Net income		—		—		54,553		—		—		54,553
Stock-based compensation		—		4,342		—		—		—		4,342
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $67,024, net		—		(2,706)		—		2,216		—		(490)
Reissuance of treasury stock of 3,096,745 for acquisition of Community Bancorporation		—		63,630		—		60,642		—		124,272
Cash dividends declared ($0.69 per share)		—		—		(20,981)		—		—		(20,981)
Other comprehensive loss		—		—		—		—		(82,376)		(82,376)
Balance, September 30, 2022	$	515	$	1,079,560	$	323,448	$	(394,758)	$	(89,339)	$	919,426
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

See accompanying notes to the consolidated interim financial statements.

9

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

	For the nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net income	$	108,927	$	54,553
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit loss expense		3,725		12,386
Depreciation and amortization		17,512		10,712
Change in current income tax receivable		4,860		5,677
Change in deferred income taxes		(4,108)		(21,295)
Discount accretion, net of premium amortization on securities		(619)		1,192
Gain on sale of mortgages, net		(8,309)		(20,733)
Origination of loans held for sale, net of repayments		(326,477)		(710,743)
Proceeds from sales of loans held for sale		333,329		845,406
Originations of mortgage servicing rights		(993)		(3,895)
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		118
Gain on sale of fixed assets		(148)		(1,674)
Stock-based compensation		5,366		4,342
Operating lease payments		(4,674)		(3,515)
Change in other assets		(23,559)		(35,099)
Change in other liabilities		12,917		43,665
Net cash provided by operating activities		122,312		181,097
Cash flows from investing activities:
Proceeds from non-marketable securities		90,293		64
Proceeds from maturities of investment securities available-for-sale		71,339		116,002
Proceeds from maturities of investment securities held-to-maturity		53,947		93,201
Proceeds from sales of other real estate owned		249		3,563
Purchase of non-marketable securities		(93,852)		(11,494)
Purchase of investment securities available-for-sale		—		(260,249)
Purchase of investment securities held-to-maturity		(2,452)		(91,607)
Purchases of premises and equipment, net		(24,687)		(9,912)
Net increase in loans		(254,910)		(673,939)
Proceeds from the sale of loans		—		933
Net cash activity from acquisition		(45,300)		244,742
Net cash used in investing activities		(205,373)		(588,696)
Cash flows from financing activities:
Net increase (decrease) in deposits		275,834		(159,101)
Net increase (decrease) in repurchase agreements and other short-term borrowings		59		(2,724)
Advances from the Federal Home Loan Bank		3,795,000		—
Federal Home Loan Bank repayments		(3,863,230)		—
Issuance of stock under purchase and equity compensation plans		(1,054)		(1,210)
Proceeds from exercise of stock options		106		639
Payment of dividends		(29,382)		(21,004)
Net cash provided by (used in) financing activities		177,333		(183,400)
Increase (decrease) in cash, cash equivalents and restricted cash(1)		94,272		(590,999)
Cash, cash equivalents and restricted cash at beginning of the year(1)		198,519		850,220
Cash, cash equivalents and restricted cash at end of period(1)	$	292,791	$	259,221
Supplemental disclosure of cash flow information during the period:
Cash paid for interest	$	76,642	$	9,587
Net tax payments		24,824		5,567
Supplemental schedule of non-cash activities:
Loans transferred from loans held for sale to loans		5,176		4,762
Treasury stock reissued for acquisition		—		60,642

(1) Included in restricted cash at September 30, 2023 and 2022 is $1.5 million and $3.0 million, respectively, placed in escrow for certain potential liabilities, for which the Company is indemnified, resulting from a previous acquisition. The restricted cash is included in other assets in the Company’s consolidated statements of financial condition.

See accompanying notes to the consolidated interim financial statements.

10

NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2023

Note 1 Basis of Presentation

National Bank Holdings Corporation ("NBHC" or the "Company") is a bank holding company that was incorporated in the State of Delaware in 2009. The Company is headquartered in Greenwood Village, Colorado, and its primary operations are conducted through its wholly owned 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 95 banking centers, as of September 30, 2023, 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, 2022 and include the accounts of the Company and its wholly owned subsidiaries, NBH Bank and Bank of Jackson Hole Trust. The accompanying unaudited consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and, where applicable, with general practices in the banking industry or guidelines prescribed by bank regulatory agencies. However, they may not include all information and notes necessary to constitute a complete set of financial statements under GAAP applicable to annual periods and accordingly should be read in conjunction with the financial information contained in the Company's most recent Form 10-K. The unaudited consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the results presented. All such adjustments are of a normal recurring nature. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of prior years' amounts are made whenever necessary to conform to current period presentation. The results of operations for the interim period are not necessarily indicative of the results that may be expected for the full year or any other interim period. All amounts are in thousands, except share data, or as otherwise noted.

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

The Company's significant accounting policies followed in the preparation of the unaudited consolidated financial statements are disclosed in note 2 of the audited financial statements and notes for the year ended December 31, 2022 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, 2022.

Note 2 Recent Accounting Pronouncements

The Company has not adopted any recent accounting pronouncements in addition to those disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, except for the following:

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

In March 2022, the FASB issued ASU 2022-01, Derivatives and Hedging (Topic 815): Fair Value Hedging – Portfolio Layer Method. The purpose of this updated guidance is to further align risk management objectives with hedge accounting results on the application of the last-of-layer method, which was first introduced in ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted

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Improvements to Accounting for Hedging Activities. The Company adopted ASU 2022-01 on January 1, 2023, and the update has not had a material impact on its financial statements.

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, 2023 and included $0.6 billion of available-for-sale securities and $0.6 billion of held-to-maturity securities. At December 31, 2022, investment securities totaled $1.4 billion and included $0.7 billion of available-for-sale securities and $0.7 billion of held-to-maturity securities.

Available-for-sale

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

	September 30, 2023
	Amortized		Gross		Gross
	cost		unrealized gains		unrealized losses		Fair value
U.S. Treasury securities	$	74,386	$	—	$	(2,524)	$	71,862
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		240,292		14		(43,458)		196,848
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		430,853		—		(81,911)		348,942
Municipal securities		155		—		(3)		152
Corporate debt		2,000		—		(151)		1,849
Other securities		792		—		—		792
Total investment securities available-for-sale	$	748,478	$	14	$	(128,047)	$	620,445

	December 31, 2022
	Amortized		Gross		Gross
	cost		unrealized gains		unrealized losses		Fair value
U.S. Treasury securities	$	74,031	$	—	$	(2,643)	$	71,388
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		263,939		1		(37,809)		226,131
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		478,866		—		(72,940)		405,926
Municipal securities		155		—		(2)		153
Corporate debt		2,000		—		(80)		1,920
Other securities		771		—		—		771
Total investment securities available-for-sale	$	819,762	$	1	$	(113,474)	$	706,289

During the nine months ended September 30, 2023, there were no purchases of available-for-sale securities. During the nine months ended September 30, 2022, purchases of available-for-sale securities totaled $260.2 million. Maturities and paydowns of available-for-sale securities during the nine months ended September 30, 2023 and 2022 totaled $71.3 million and $116.0 million, respectively. There were no sales of available-for-sale securities during the nine months ended September 30, 2023 or 2022.

At September 30, 2023 and December 31, 2022, the Company’s available-for-sale investment portfolio was primarily comprised of U.S. Treasury securities and mortgage-backed securities. 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, 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	$	—	$	—	$	71,862	$	(2,524)	$	71,862	$	(2,524)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		16		(1)		193,918		(43,457)		193,934		(43,458)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		136		(4)		348,806		(81,907)		348,942		(81,911)
Municipal securities		—		—		152		(3)		152		(3)
Corporate debt		—		—		1,849		(151)		1,849		(151)
Total	$	152	$	(5)	$	616,587	$	(128,042)	$	616,739	$	(128,047)

	December 31, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
U.S. Treasury securities	$	71,388	$	(2,643)	$	—	$	—	$	71,388	$	(2,643)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		83,748		(6,686)		141,272		(31,123)		225,020		(37,809)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		196,449		(22,809)		209,477		(50,131)		405,926		(72,940)
Municipal securities		153		(2)		—		—		153		(2)
Corporate debt		1,920		(80)		—		—		1,920		(80)
Total	$	353,658	$	(32,220)	$	350,749	$	(81,254)	$	704,407	$	(113,474)

Management evaluated all of the available-for-sale securities in an unrealized loss position at September 30, 2023 and December 31, 2022. The portfolio included 237 securities, which were in an unrealized loss position at September 30, 2023, compared to 244 securities at December 31, 2022. The unrealized losses in the Company's investment portfolio at September 30, 2023 were caused by changes in interest rates. The Company has no intention to sell these securities and believes it will not be required to sell the securities before the recovery of their amortized cost. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

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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, 2023
	AAA		Not rated		Total
U.S. Treasury securities	$	71,862	$	—	$	71,862
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		196,848		—		196,848
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		348,942		—		348,942
Municipal securities		—		152		152
Corporate debt		—		1,849		1,849
Other securities		—		792		792
Total investment securities available-for-sale	$	617,652	$	2,793	$	620,445

	December 31, 2022
	AAA		Not rated		Total
U.S. Treasury securities	$	71,388	$	—	$	71,388
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		226,131		—		226,131
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		405,926		—		405,926
Municipal securities		—		153		153
Corporate debt		—		1,920		1,920
Other securities		—		771		771
Total investment securities available-for-sale	$	703,445	$	2,844	$	706,289

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the Federal Reserve Bank (“FRB”), if needed. The fair value of available-for-sale investment securities pledged as collateral totaled $205.3 million and $484.9 million at September 30, 2023 and at December 31, 2022, respectively. The Bank may also pledge available-for-sale investment securities as collateral for Federal Home Loan Bank (“FHLB”) advances. No securities were pledged for this purpose at September 30, 2023 or December 31, 2022.

A summary of the available-for-sale securities by maturity is shown in the following table as of September 30, 2023. Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments 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 $0.8 million that have no stated contractual maturity date.

	September 30, 2023
					Weighted
	Amortized Cost		Fair Value		Average Yield
U.S. Treasury securities
Within one year	$	24,917	$	24,598	2.30%
After one but within five years		49,469		47,264	2.67%
Municipal securities
After one but within five years		155		152	3.17%
Corporate debt
After five but within ten years		2,000		1,849	5.87%

As of September 30, 2023 and December 31, 2022, accrued interest receivable (“AIR”) from available-for-sale investment securities totaled $1.3 million and $1.5 million, respectively, and was included within other assets in the consolidated statements of financial condition.

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Held-to-maturity

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

	September 30, 2023
			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses		Fair value
U.S. Treasury securities	$	49,263	$	—	$	(1,848)	$	47,415
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		309,216		—		(49,023)		260,193
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		242,022		—		(55,388)		186,634
Total investment securities held-to-maturity	$	600,501	$	—	$	(106,259)	$	494,242

	December 31, 2022
			Gross		Gross
	Amortized		unrealized		unrealized
	cost		gains		losses		Fair value
U.S. Treasury securities	$	49,045	$	—	$	(1,416)	$	47,629
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		339,815		163		(41,162)		298,816
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		262,667		—		(49,188)		213,479
Total investment securities held-to-maturity	$	651,527	$	163	$	(91,766)	$	559,924

During the nine months ended September 30, 2023 and 2022, purchases of held-to-maturity securities totaled $2.5 million and $91.6 million, respectively. Maturities and paydowns of held-to-maturity securities totaled $53.9 million and $93.2 million during the nine months ended September 30, 2023 and 2022, respectively.

The held-to-maturity portfolio included 160 securities in an unrealized loss position as of September 30, 2023, compared to 129 securities at December 31, 2022. The tables below summarize the held-to-maturity securities with unrealized losses as of the dates shown, along with the length of the impairment period:

	September 30, 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	$	—	$	—	$	47,415	$	(1,848)	$	47,415	$	(1,848)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		53,423		(2,086)		206,771		(46,937)		260,194		(49,023)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		3,882		(170)		182,752		(55,218)		186,634		(55,388)
Total	$	57,305	$	(2,256)	$	436,938	$	(104,003)	$	494,243	$	(106,259)

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	December 31, 2022
	Less than 12 months				12 months or more				Total
	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
	value		losses		value		losses		value		losses
U.S. Treasury securities	$	47,629	$	(1,416)	$	—	$	—	$	47,629	$	(1,416)
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		83,323		(3,804)		182,159		(37,358)		265,482		(41,162)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		34,704		(1,145)		178,776		(48,043)		213,480		(49,188)
Total	$	165,656	$	(6,365)	$	360,935	$	(85,401)	$	526,591	$	(91,766)

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

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

	September 30, 2023
	AAA
U.S. Treasury securities	$	49,263
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		309,216
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		242,022
Total investment securities held-to-maturity	$	600,501

	December 31, 2022
	AAA
U.S. Treasury securities	$	49,045
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		339,815
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		262,667
Total investment securities held-to-maturity	$	651,527

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the FRB, if needed. The carrying value of held-to-maturity investment securities pledged as collateral totaled $600.5 million and $355.3 million at September 30, 2023 and December 31, 2022, 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, 2023 or December 31, 2022.

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A summary of the held-to-maturity securities by maturity is shown in the following table as of September 30, 2023. 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, 2023
					Weighted
	Amortized Cost		Fair Value		Average Yield
U.S. Treasury securities
After one but within five years	$	49,263	$	47,415	3.14%

As of September 30, 2023 and December 31, 2022, AIR from held-to-maturity investment securities totaled $1.3 million and $1.1 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, 2023		December 31, 2022
Federal Reserve Bank stock	$	24,062	$	18,096
Federal Home Loan Bank stock		14,787		20,294
Equity method investments		23,968		21,659
Convertible preferred stock		25,000		29,000
Total	$	87,817	$	89,049

Non-marketable securities included FRB stock, FHLB stock and other non-marketable securities. During the nine months ended September 30, 2023 and 2022, purchases of non-marketable securities, consisting primarily of FHLB stock, totaled $93.9 million and proceeds of non-marketable securities, consisting of redemptions of FHLB stock, totaled $90.3 million. The changes in the Company’s FHLB stock holdings are directly correlated to FHLB line of credit advances and paydowns. During the nine months ended September 30, 2022, purchases totaling $11.5 million were comprised of other non-marketable securities, and proceeds from other non-marketable securities totaled $0.1 million.

FRB and FHLB stock

At September 30, 2023 and December 31, 2022, 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.

Other non-marketable securities

Other non-marketable securities consist of equity method investments and convertible preferred stock without a readily determinable fair value. During the nine months ended September 30, 2023, the Company recorded $4.0 million in impairments on convertible preferred stock related to venture capital investments, included in other non-interest income in the Company’s consolidated statements of operations. No impairments were recorded during 2022. 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. During the three and nine months ended September 30, 2022, the Company recorded net unrealized gains on equity method investments totaling $1.3 million and $1.4 million, respectively. These gains and losses were recorded in other non-interest income in the Company’s consolidated statements of operations.

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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 $36.3 million and $38.8 million as of September 30, 2023 and December 31, 2022, respectively.

	September 30, 2023
	Total loans		% of total
Commercial	$	4,349,012	58.1%
Commercial real estate non-owner occupied		1,814,059	24.3%
Residential real estate		1,295,991	17.3%
Consumer		19,376	0.3%
Total	$	7,478,438	100.0%

	December 31, 2022
	Total loans		% of total
Commercial	$	4,251,780	58.9%
Commercial real estate non-owner occupied		1,696,050	23.5%
Residential real estate		1,251,281	17.3%
Consumer		21,358	0.3%
Total	$	7,220,469	100.0%

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

	September 30, 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	$	4,851	$	—	$	2,284	$	7,135	$	1,933,065	$	1,940,200
Municipal and non-profit		—		—		—		—		1,013,272		1,013,272
Owner occupied commercial real estate		211		—		1,661		1,872		1,073,508		1,075,380
Food and agribusiness		40		140		7,244		7,424		312,736		320,160
Total commercial		5,102		140		11,189		16,431		4,332,581		4,349,012
Commercial real estate non-owner occupied:
Construction		—		—		—		—		327,756		327,756
Acquisition/development		—		—		—		—		98,412		98,412
Multifamily		—		—		—		—		328,534		328,534
Non-owner occupied		226		—		13,537		13,763		1,045,594		1,059,357
Total commercial real estate and non-owner occupied		226		—		13,537		13,763		1,800,296		1,814,059
Residential real estate:
Senior lien		1,934		8		7,662		9,604		1,195,898		1,205,502
Junior lien		808		—		762		1,570		88,919		90,489
Total residential real estate		2,742		8		8,424		11,174		1,284,817		1,295,991
Consumer		74		6		62		142		19,234		19,376
Total loans	$	8,144	$	154	$	33,212	$	41,510	$	7,436,928	$	7,478,438

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	September 30, 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	$	2,284	$	—	$	2,284
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		237		1,424		1,661
Food and agribusiness		6,673		571		7,244
Total commercial		9,194		1,995		11,189
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		65		13,472		13,537
Total commercial real estate non-owner occupied		65		13,472		13,537
Residential real estate:
Senior lien		2,914		4,748		7,662
Junior lien		462		300		762
Total residential real estate		3,376		5,048		8,424
Consumer		56		6		62
Total loans	$	12,691	$	20,521	$	33,212

	December 31, 2022
			Greater
	30-89 days		than 90 days				Total past
	past due and		past due and		Non-accrual		due and
	accruing		accruing		loans		non-accrual		Current		Total loans
Commercial:
Commercial and industrial	$	919	$	53	$	2,601	$	3,573	$	2,021,262	$	2,024,835
Municipal and non-profit		—		—		—		—		959,626		959,626
Owner occupied commercial real estate		—		—		6,551		6,551		906,789		913,340
Food and agribusiness		699		—		2,148		2,847		351,132		353,979
Total commercial		1,618		53		11,300		12,971		4,238,809		4,251,780
Commercial real estate non-owner occupied:
Construction		—		—		—		—		341,325		341,325
Acquisition/development		—		—		—		—		129,102		129,102
Multifamily		—		—		—		—		213,677		213,677
Non-owner occupied		629		—		685		1,314		1,010,632		1,011,946
Total commercial real estate and non-owner occupied		629		—		685		1,314		1,694,736		1,696,050
Residential real estate:
Senior lien		446		—		4,174		4,620		1,149,728		1,154,348
Junior lien		255		—		341		596		96,337		96,933
Total residential real estate		701		—		4,515		5,216		1,246,065		1,251,281
Consumer		38		42		12		92		21,266		21,358
Total loans	$	2,986	$	95	$	16,512	$	19,593	$	7,200,876	$	7,220,469

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	December 31, 2022
	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	$	1,640	$	961	$	2,601
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		693		5,858		6,551
Food and agribusiness		455		1,693		2,148
Total commercial		2,788		8,512		11,300
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		685		—		685
Total commercial real estate non-owner occupied		685		—		685
Residential real estate:
Senior lien		3,019		1,155		4,174
Junior lien		341		—		341
Total residential real estate		3,360		1,155		4,515
Consumer		12		—		12
Total loans	$	6,845	$	9,667	$	16,512

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. 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, 2023 or 2022.

The Company’s internal risk rating system uses a series of grades, which reflect our assessment of the credit quality of loans based on an analysis of the borrower's financial condition, liquidity and ability to meet contractual debt service requirements and are categorized as “Pass”, “Special mention”, “Substandard” and “Doubtful”. For a description of the general characteristics of the risk grades, refer to note 2 Summary of Significant Accounting Policies in our audited consolidated financial statements in our 2022 Annual Report on Form 10-K.

20

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 table as of September 30, 2023:

	September 30, 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	$	249,364	$	423,936	$	293,175	$	90,830	$	58,580	$	118,061	$	609,476	$	12,009	$	1,855,431
Special mention		8,741		14,588		22,428		20,749		1,221		4,209		9,448		—		81,384
Substandard		—		78		181		1,237		204		229		—		269		2,198
Doubtful		600		—		—		423		—		164		—		—		1,187
Total commercial and industrial		258,705		438,602		315,784		113,239		60,005		122,663		618,924		12,278		1,940,200
Gross charge-offs: Commercial and industrial		—		—		215		—		24		3		—		—		242
Municipal and non-profit:
Pass		67,861		140,673		248,738		84,518		57,244		387,367		26,871		—		1,013,272
Total municipal and non-profit		67,861		140,673		248,738		84,518		57,244		387,367		26,871		—		1,013,272
Owner occupied commercial real estate:
Pass		175,287		282,771		186,968		95,383		84,877		175,538		16,044		836		1,017,704
Special mention		410		15,836		8,694		—		8,031		19,865		—		—		52,836
Substandard		—		—		1,742		1,207		913		321		—		—		4,183
Doubtful		—		—		—		—		—		657		—		—		657
Total owner occupied commercial real estate		175,697		298,607		197,404		96,590		93,821		196,381		16,044		836		1,075,380
Food and agribusiness:
Pass		20,862		49,396		19,672		16,352		10,560		35,903		155,214		153		308,112
Special mention		—		—		203		—		—		3,746		450		—		4,399
Substandard		—		—		586		—		12		171		3,235		—		4,004
Doubtful		—		—		—		228		—		—		3,417		—		3,645
Total food and agribusiness		20,862		49,396		20,461		16,580		10,572		39,820		162,316		153		320,160
Total commercial		523,125		927,278		782,387		310,927		221,642		746,231		824,155		13,267		4,349,012
Gross charge-offs: Commercial		—		—		215		—		24		3		—		—		242
Commercial real estate non-owner occupied:
Construction:
Pass		18,771		150,694		54,337		58,723		1,015		—		37,310		6,906		327,756
Total construction		18,771		150,694		54,337		58,723		1,015		—		37,310		6,906		327,756
Acquisition/development:
Pass		7,025		45,635		21,087		6,036		641		9,084		8,740		—		98,248
Substandard		—		—		—		—		—		164		—		—		164
Total acquisition/development		7,025		45,635		21,087		6,036		641		9,248		8,740		—		98,412
Multifamily:
Pass		15,170		113,146		90,973		17,015		39,430		32,111		20,689		—		328,534
Total multifamily		15,170		113,146		90,973		17,015		39,430		32,111		20,689		—		328,534
Non-owner occupied
Pass		87,691		257,343		173,674		106,359		133,372		244,826		10,320		—		1,013,585
Special mention		—		—		—		7,194		3,920		11,294		—		—		22,408
Substandard		—		—		—		—		—		22,823		—		—		22,823
Doubtful		—		—		—		280		—		261		—		—		541
Total non-owner occupied		87,691		257,343		173,674		113,833		137,292		279,204		10,320		—		1,059,357
Total commercial real estate non-owner occupied		128,657		566,818		340,071		195,607		178,378		320,563		77,059		6,906		1,814,059
Residential real estate:
Senior lien
Pass		60,807		418,159		318,325		114,668		44,619		192,174		46,803		633		1,196,188
Special mention		—		—		—		—		—		475		—		—		475
Substandard		1,573		1,796		358		447		817		3,808		—		—		8,799
Doubtful		—		—		—		—		—		40		—		—		40
Total senior lien		62,380		419,955		318,683		115,115		45,436		196,497		46,803		633		1,205,502
Gross charge-offs: Senior lien		—		—		—		—		—		46		—		—		46
Junior lien
Pass		4,351		4,837		1,997		3,301		2,527		5,282		64,208		2,691		89,194
Special mention		—		—		—		—		—		27		—		—		27
Substandard		—		152		300		460		—		356		—		—		1,268
Total junior lien		4,351		4,989		2,297		3,761		2,527		5,665		64,208		2,691		90,489
Total residential real estate		66,731		424,944		320,980		118,876		47,963		202,162		111,011		3,324		1,295,991

21

Gross charge-offs: Residential real estate		—		—		—		—		—		46		—		—		46
Consumer
Pass		5,624		3,873		2,557		1,175		329		445		5,287		24		19,314
Substandard		—		—		2		4		—		53		3		—		62
Total consumer		5,624		3,873		2,559		1,179		329		498		5,290		24		19,376
Gross charge-offs: Consumer		914		6		1		2		0		7		—		—		930
Total loans	$	724,137	$	1,922,913	$	1,445,997	$	626,589	$	448,312	$	1,269,454	$	1,017,515	$	23,521	$	7,478,438
Gross charge-offs: Total loans		914		6		216		2		24		56		—		—		1,218

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

	December 31, 2022
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2022		2021		2020		2019		2018		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	528,180	$	351,003	$	129,453	$	95,003	$	101,951	$	88,038	$	688,398	$	17,883	$	1,999,909
Special mention		66		137		388		2,887		588		4,440		3,512		—		12,018
Substandard		34		7		1,882		200		189		10,270		50		30		12,662
Doubtful		—		—		246		—		—		—		—		—		246
Total commercial and industrial		528,280		351,147		131,969		98,090		102,728		102,748		691,960		17,913		2,024,835
Municipal and non-profit:
Pass		105,630		246,696		89,562		59,066		73,013		383,158		2,501		—		959,626
Total municipal and non-profit		105,630		246,696		89,562		59,066		73,013		383,158		2,501		—		959,626
Owner occupied commercial real estate:
Pass		263,635		203,628		100,522		92,653		70,447		121,448		24,930		894		878,157
Special mention		—		515		—		6,956		2,616		17,360		—		—		27,447
Substandard		—		—		1,185		4,612		—		931		—		234		6,962
Doubtful		—		—		—		85		108		581		—		—		774
Total owner occupied commercial real estate		263,635		204,143		101,707		104,306		73,171		140,320		24,930		1,128		913,340
Food and agribusiness:
Pass		36,505		23,907		25,285		11,035		19,689		31,210		191,785		1,663		341,079
Special mention		—		204		4,573		—		3,486		195		1,750		—		10,208
Substandard		—		1,747		—		12		—		324		—		173		2,256
Doubtful		—		186		250		—		—		—		—		—		436
Total food and agribusiness		36,505		26,044		30,108		11,047		23,175		31,729		193,535		1,836		353,979
Total commercial		934,050		828,030		353,346		272,509		272,087		657,955		912,926		20,877		4,251,780
Commercial real estate non-owner occupied:
Construction:
Pass		106,197		139,012		56,489		14,387		—		213		25,027		—		341,325
Total construction		106,197		139,012		56,489		14,387		—		213		25,027		—		341,325
Acquisition/development:
Pass		57,773		33,663		7,810		1,921		3,939		16,648		7,348		—		129,102
Total acquisition/development		57,773		33,663		7,810		1,921		3,939		16,648		7,348		—		129,102
Multifamily:
Pass		99,988		22,022		17,658		39,547		17,358		16,009		1,095		—		213,677
Total multifamily		99,988		22,022		17,658		39,547		17,358		16,009		1,095		—		213,677
Non-owner occupied
Pass		235,958		172,648		120,871		138,711		42,489		249,461		11,707		—		971,845
Special mention		—		—		7,313		4,048		3,947		12,658		—		—		27,966
Substandard		—		—		—		—		629		7,912		—		—		8,541
Doubtful		—		—		280		—		—		3,314		—		—		3,594
Total non-owner occupied		235,958		172,648		128,464		142,759		47,065		273,345		11,707		—		1,011,946
Total commercial real estate non-owner occupied		499,916		367,345		210,421		198,614		68,362		306,215		45,177		—		1,696,050
Residential real estate:
Senior lien
Pass		361,405		323,984		133,847		47,557		30,283		184,998		66,792		496		1,149,362
Special mention		—		—		—		—		—		362		—		—		362
Substandard		191		186		468		854		105		2,769		—		—		4,573
Doubtful		—		—		—		—		51		—		—		—		51
Total senior lien		361,596		324,170		134,315		48,411		30,439		188,129		66,792		496		1,154,348
Junior lien
Pass		6,429		5,977		3,010		4,163		1,726		3,773		69,059		1,286		95,423
Special mention		—		—		—		—		—		351		—		—		351

22

Substandard		9		—		89		—		54		242		305		251		950
Doubtful		—		—		—		—		—		—		—		209		209
Total junior lien		6,438		5,977		3,099		4,163		1,780		4,366		69,364		1,746		96,933
Total residential real estate		368,034		330,147		137,414		52,574		32,219		192,495		136,156		2,242		1,251,281
Consumer
Pass		8,576		4,816		2,209		607		282		531		4,292		33		21,346
Substandard		3		—		—		—		—		5		4		—		12
Total consumer		8,579		4,816		2,209		607		282		536		4,296		33		21,358
Total loans	$	1,810,579	$	1,530,338	$	703,390	$	524,304	$	372,950	$	1,157,201	$	1,098,555	$	23,152	$	7,220,469

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, 2023 and December 31, 2022:

	September 30, 2023
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,136	$	464	$	2,600
Owner-occupied commercial real estate		2,578		—		2,578
Food and agribusiness		1,672		6,638		8,310
Total Commercial		6,386		7,102		13,488
Commercial real estate non owner-occupied
Non-owner occupied		19,986		—		19,986
Total commercial real estate non owner-occupied		19,986		—		19,986
Residential real estate
Senior lien		5,037		163		5,200
Junior lien		300		—		300
Total residential real estate		5,337		163		5,500
Consumer		—		6		6
Total loans	$	31,709	$	7,271	$	38,980

	December 31, 2022
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	2,869	$	791	$	3,660
Owner-occupied commercial real estate		6,711		1,346		8,057
Food and agribusiness		3,020		173		3,193
Total Commercial		12,600		2,310		14,910
Commercial real estate non owner-occupied
Non-owner occupied		8,561		—		8,561
Total commercial real estate non owner-occupied		8,561		—		8,561
Residential real estate
Senior lien		2,806		—		2,806
Junior lien		460		—		460
Total residential real estate		3,266		—		3,266
Total loans	$	24,427	$	2,310	$	26,737

23

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 to be troubled loans. In March 2022, the FASB issued ASU 2022-02, Financial Instruments—Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures, which became effective for the Company on January 1, 2023. The guidance eliminates the accounting for troubled debt restructures and requires that an entity evaluate whether loan modifications represent a new loan or a continuation of an existing loan. Such troubled debt modifications (“TDM”) 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 costs basis as of the dates shown for modified loans to borrowers experiencing financial difficulty:

	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 schedule presents the payment status, by loan class, the amortized cost basis of loans that have been modified in the last twelve months as of September 30, 2023:

	September 30, 2023
	Current		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. 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, and had defaulted on their modified terms during the nine months ended September 30, 2023. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit

24

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.

The following schedule presents the financial effect of the modifications made to borrowers experiencing financial difficulty as of September 30, 2023:

	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 year
Commercial real estate non-owner occupied:
Non-owner occupied		Extended 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 renewed with a weighted average life of 30 years, which reduced monthly payment amounts

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

	December 31, 2022
	Amortized		Average year-to-date		Unpaid		Unfunded commitments
	cost basis		amortized cost basis		principal balance		to fund TDRs
Commercial	$	2,160	$	2,348	$	2,150	$	150
Commercial real estate non-owner occupied		685		734		699		—
Residential real estate		1,809		1,867		1,964		—
Consumer		—		—		—		—
Total	$	4,654	$	4,949	$	4,813	$	150

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

	December 31, 2022
Commercial	$	356
Commercial real estate non-owner occupied		81
Residential real estate		2,041
Consumer		—
Total non-accruing TDRs	$	2,478

During the nine months ended September 30, 2022, the Company had two TDRs totaling $2.3 million that were modified within the past 12 months and had defaulted on their modified terms. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDRs on non-accrual status was determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status, which were not classified as TDRs.

25

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, 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

	Three months ended September 30, 2022
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	32,011	$	8,426	$	10,072	$	351	$	50,860
Day 1 CECL provision expense		2,261		2,327		596		17		5,201
Purchase credit deteriorated ("PCD") allowance for credit loss at acquisition		2,257		2		215		—		2,474
Charge-offs		—		—		—		(253)		(253)
Recoveries		40		—		3		23		66
Provision expense for credit losses		1,651		3,419		1,988		217		7,275
Ending balance	$	38,220	$	14,174	$	12,874	$	355	$	65,623

	Nine months ended September 30, 2022
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	31,256	$	10,033	$	8,056	$	349	$	49,694
Day 1 CECL provision expense		2,261		2,327		596		17		5,201
PCD allowance for credit loss at acquisition		2,257		2		215		—		2,474
Charge-offs		(754)		—		(2)		(582)		(1,338)
Recoveries		115		21		49		71		256
Provision expense for credit losses		3,085		1,791		3,960		500		9,336
Ending balance	$	38,220	$	14,174	$	12,874	$	355	$	65,623

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

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upon qualitative risk factors including asset quality, loss trends, lending management, portfolio growth and loan review/internal audit results.

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

Net charge-offs on loans during the three and nine months ended September 30, 2022 were $0.2 million and $1.1 million, respectively. The Company recorded an increase in the allowance for credit losses of $15.0 million during the three months ended September 30, 2022. During the nine months ended September 30, 2022, the Company recorded an increase in the allowance for credit losses of $17.0 million, driven by record loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast and Day 1 reserve requirements for the acquired Rock Canyon Bank (“RCB”) portfolio.

The Company has elected to exclude AIR from the allowance for credit losses calculation. As of September 30, 2023 and December 31, 2022, AIR from loans totaled $41.7 million and $31.8 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, 2023 and 2022 is as follows:

	For the nine months ended September 30,
	2023		2022
Beginning balance	$	3,731	$	7,005
Transfers from loan portfolio, at fair value		—		58
Impairments		(55)		(452)
Sales		(260)		(2,916)
Ending balance	$	3,416	$	3,695

During the three months ended September 30, 2023, the Company sold no OREO properties. During the three months ended September 30, 2022, the Company sold OREO properties with net book balances of $1.1 million. During the nine months ended September 30, 2023 and 2022, the Company sold OREO properties with net book balances of $0.3 million and $2.9 million, respectively.

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, 2023. 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, 2023 or the year ended December 31, 2022.

In April 2023, the Company completed the acquisition of Cambr Solutions, LLC (“Cambr”). Cambr is a deposit acquisition and processing platform that generates core deposits from accounts offered through embedded finance companies. The Company recorded goodwill of $26.9 million and intangibles of $18.0 million related to the acquisition. More information regarding the Cambr acquisition is included in note 19 below.

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The gross carrying amount of other intangible assets and the associated accumulated amortization at September 30, 2023 and December 31, 2022, are presented as follows:

	September 30, 2023						December 31, 2022
	Gross				Net		Gross				Net
	carrying		Accumulated		carrying		carrying		Accumulated		carrying
	amount		amortization		amount		amount		amortization		amount
Core deposit intangible	$	91,566	$	(48,765)	$	42,801	$	91,566	$	(44,775)	$	46,791
Customer relationship intangible		17,000		(1,266)		15,734		1,300		(32)		1,268
Internally developed technology		2,300		(153)		2,147		—		—		—
Total	$	110,866	$	(50,184)	$	60,682	$	92,866	$	(44,807)	$	48,059

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 $5.4 million during the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2022, the Company recognized other intangible assets amortization expense of $0.4 million and $1.0 million, respectively.

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

Years ending December 31,		Amount
For the three months ending December 31, 2023	$	1,969
For the year ending December 31, 2024		7,908
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

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 $1.0 billion at September 30, 2023 and 2022, respectively.

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

	For the nine months ended September 30,
	2023		2022
Beginning balance	$	9,162	$	5,957
Originations		993		3,895
Sales		(4,664)		—
Recovery (impairment)		66		(6)
Amortization		(675)		(713)
Ending balance		4,882		9,133
Fair value of mortgage servicing rights	$	7,514	$	13,782

During the nine months ended September 30, 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 right 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. The discount rate ranged from 10.0% to 10.5% and the constant prepayment speed ranged from

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6.0% to 10.6% for the September 30, 2023 valuation. The discount rate was 9.5%, and the constant prepayment speed ranged from 7.6% to 7.8% for the September 30, 2022 valuation. Included in mortgage banking income in the consolidated statements of operations was servicing income of $0.6 million and $1.9 million for the three and nine months ended September 30, 2023, respectively, and $0.7 million and $1.8 million for the three and nine months ended September 30, 2022, respectively.

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

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

Years ending December 31,		Amount
For the three months ending December 31, 2023	$	133
For the year ending December 31, 2024		517
For the year ending December 31, 2025		461
For the year ending December 31, 2026		411
For the year ending December 31, 2027		366

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 $108.2 million of SBA loans, as of September 30, 2023. For 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 period presented:

	For the nine months ended September 30,
	2023
Beginning balance	$	2,666
Originations		325
Disposals		(321)
Recovery		153
Amortization		(104)
Ending balance		2,719
Fair value of SBA servicing asset	$	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. The key assumptions used to determine the fair value of the Company’s SBA loan servicing rights included a weighted average lifetime constant prepayment rate equal to 14.08%, and a weighted average discount rate equal to 13.74%.

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, 2023 and December 31, 2022, the Company sold securities under agreements to repurchase totaling $20.3 million and $20.2 million, respectively. The

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Company pledged mortgage-backed securities with a fair value of approximately $29.9 million and $32.0 million as of September 30, 2023 and December 31, 2022, respectively, for these agreements. The Company monitors collateral levels on a continuous basis and may be required to provide additional collateral based on the fair value of the underlying securities. As of September 30, 2023 and December 31, 2022, the Company had $9.6 million and $11.8 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 $1.7 billion at September 30, 2023. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2023 and December 31, 2022, the Banks had $316.8 million and $385.0 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, 2023 or December 31, 2022. Loans pledged were $2.5 billion and $2.0 billion at September 30, 2023 and December 31, 2022, respectively. The Company incurred $4.4 million and $17.1 million of interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2023, respectively. There was no interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2022.

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, 2023, net of long-term debt issuance costs totaling $0.3 million, totaled $39.7 million. During the three and nine months ended September 30, 2023, interest expense totaling $0.3 million and $0.9 million, respectively, was recorded in the consolidated statements of operations, consistent with the same periods in 2022.

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 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, 2023, 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, 2023, 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.

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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, 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.

Under the Basel III requirements, at September 30, 2023 and December 31, 2022, the Company and the Banks met all capital requirements, including the capital conservation buffer of 2.5%. The Company and the Banks had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as detailed in the tables below:

	September 30, 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	9.6%	$	913,466	N/A		N/A	4.0%	$	382,103
NBH Bank	8.9%		843,039	5.0%	$	475,757	4.0%		380,606
Bank of Jackson Hole Trust	29.9%		11,453	5.0%		1,918	4.0%		1,534
Common equity tier 1 risk based capital:
Consolidated	11.6%	$	913,466	N/A		N/A	7.0%	$	550,588
NBH Bank	10.8%		843,039	6.5%	$	508,881	7.0%		548,026
Bank of Jackson Hole Trust	72.0%		11,453	6.5%		1,034	7.0%		1,113
Tier 1 risk based capital ratio:
Consolidated	11.6%	$	913,466	N/A		N/A	8.5%	$	668,571
NBH Bank	10.8%		843,039	8.0%	$	626,315	8.5%		665,460
Bank of Jackson Hole Trust	72.0%		11,453	8.0%		1,273	8.5%		1,352
Total risk based capital ratio:
Consolidated	13.5%	$	1,060,695	N/A		N/A	10.5%	$	825,882
NBH Bank	12.0%		935,269	10.0%	$	782,894	10.5%		822,039
Bank of Jackson Hole Trust	72.0%		11,453	10.0%		1,591	10.5%		1,670

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	December 31, 2022
				Required to be			Required to be
				well capitalized under			considered
				prompt corrective			adequately
	Actual			action provisions			capitalized(1)
	Ratio	Amount		Ratio	Amount		Ratio	Amount
Tier 1 leverage ratio:
Consolidated	9.3%	$	857,403	N/A		N/A	4.0%	$	369,335
NBH Bank	8.6%		788,462	5.0%	$	458,593	4.0%		366,874
Bank of Jackson Hole Trust	31.0%		11,238	5.0%		1,373	4.0%		1,099
Common equity tier 1 risk based capital:
Consolidated	10.5%	$	857,403	N/A		N/A	7.0%	$	574,339
NBH Bank	9.7%		788,462	6.5%	$	528,334	7.0%		568,975
Bank of Jackson Hole Trust	71.6%		11,238	6.5%		1,020	7.0%		1,098
Tier 1 risk based capital ratio:
Consolidated	10.5%	$	857,403	N/A		N/A	8.5%	$	697,412
NBH Bank	9.7%		788,462	8.0%	$	650,257	8.5%		690,898
Bank of Jackson Hole Trust	71.6%		11,238	8.0%		1,255	8.5%		1,333
Total risk based capital ratio:
Consolidated	12.2%	$	1,000,398	N/A		N/A	10.5%	$	861,509
NBH Bank	10.8%		876,458	10.0%	$	812,821	10.5%		853,462
Bank of Jackson Hole Trust	71.6%		11,238	10.0%		1,569	10.5%		1,647

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

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 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 returns or annual flat fees for certain trusts. The performance obligations related to this revenue include items such as performing

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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 embedded finance companies. Cambr’s platform facilitates the movement of embedded finance companies’ client deposits into FDIC-insured accounts at network banks. 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 Topic 606, and non-interest expense in-scope of Topic 606 for the three and nine months ended September 30, 2023 and 2022:

	For the three months ended September 30,				For the nine months ended September 30,
	2023		2022		2023		2022
Non-interest income
In-scope of Topic 606:
Service charges and other account-related fees	$	6,819	$	4,867	$	18,356	$	13,444
Bank card fees		4,993		4,681		14,721		13,345
Other non-interest income		1,167		—		3,386		—
Non-interest income (in-scope of Topic 606)		12,979		9,548		36,463		26,789
Non-interest income (out-of-scope of Topic 606)		6,386		7,810		11,390		26,385
Total non-interest income	$	19,365	$	17,358	$	47,853	$	53,174
Non-interest expense
In-scope of Topic 606:
Other non-interest expense	$	—	$	378	$	(11)	$	648
Total revenue in-scope of Topic 606	$	12,979	$	9,926	$	36,452	$	27,437

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.

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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 1-4 years of continuous service and have 10-year contractual terms.

The following table summarizes stock option activity for the nine months ended September 30, 2023:

				Weighted
				average
		Weighted		remaining
		average		contractual	Aggregate
		exercise		term in	intrinsic
	Options	price		years	value
Outstanding at December 31, 2022	717,088	$	29.79	5.98	$	8,850
Granted	107,530		33.46
Exercised	(8,683)		20.36
Forfeited	(4,690)		35.57
Outstanding at September 30, 2023	811,245		30.34	5.73		2,571
Options exercisable at September 30, 2023	623,666		28.41	4.76		2,569
Options vested and expected to vest	791,825		30.20	5.65		2,571

Stock option expense is a component of salaries and benefits in the consolidated statements of operations and totaled $0.1 million and $0.8 million for the three and nine months ended September 30, 2023, respectively, and $0.1 million and $0.6 million for the three and nine months ended September 30, 2022, respectively. At September 30, 2023, there was $0.6 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 2.2 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 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. Sixty percent of the award is based on the Company’s cumulative earnings per share (EPS target) during the performance period, and forty percent of the award is based on the Company’s cumulative total shareholder return (TSR target), or TSR, during the performance period. On the vesting date, the Company’s TSR will be compared to the respective TSRs of the companies comprising the KBW Regional Index at the grant date to determine the shares awarded. The fair value of the EPS target portion of the award was determined based on the closing stock price of the Company’s common stock on the grant date. The fair value of the TSR target portion of the award was determined using a Monte Carlo Simulation at the grant date.

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

The weighted-average grant date fair value per unit for the awards granted during the nine months ended September 30, 2023 of the EPS target portion and the TSR target portion was $33.46 and $27.06, respectively. The initial weighted-average performance price

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for the TSR target portion granted during 2023 was $42.37. During the nine months ended September 30, 2023, the Company awarded an additional 18,664 units due to final performance results related to performance stock units granted in 2020.

The following table summarizes restricted stock and performance stock unit activity during the nine months ended September 30, 2023:

		Weighted				Weighted
	Restricted	average grant-		Performance		average grant-
	stock shares	date fair value		stock units		date fair value
Unvested at December 31, 2022	165,137	$	38.28	155,857	$	33.81
Granted	184,227		31.15	79,215		30.57
Adjustment due to performance	—		—	18,664		25.94
Vested	(79,014)		35.08	(74,142)		26.55
Forfeited	(7,275)		35.63	(6,995)		35.05
Unvested at September 30, 2023	263,075	$	34.32	172,599	$	34.54

As of September 30, 2023, the total unrecognized compensation cost related to the non-vested restricted stock awards and performance stock units totaled $5.6 million and $3.4 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.2 years and 1.9 years, respectively. Expense related to non-vested restricted stock awards totaled $1.2 million and $3.2 million during the three and nine months ended September 30, 2023, respectively, and $0.9 million and $2.5 million during the three and nine months ended September 30, 2022, respectively. Expense related to non-vested performance stock units totaled $0.4 million and $1.3 million during the three and nine months ended September 30, 2023, respectively, and $0.4 million and $1.2 million during the three and nine months ended September 30, 2022, respectively. Expense related to non-vested restricted stock awards and units is a component of salaries and benefits in the Company’s consolidated statements of operations.

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 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 235,919 was available for issuance at September 30, 2023.

Under the ESPP, employees purchased 26,563 shares and 19,414 shares during the nine months ended September 30, 2023 and 2022, respectively.

Note 13 Common Stock

The Company had 37,739,776 and 37,608,519 shares of Class A common stock outstanding at September 30, 2023 and December 31, 2022, respectively. Additionally, the Company had 263,075 and 165,137 shares outstanding at September 30, 2023 and December 31, 2022, 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 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 current program as of September 30, 2023 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.

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The Company had 37,739,776 and 33,189,253 shares of Class A common stock outstanding as of September 30, 2023 and 2022, 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, 2023 and 2022.

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

	For the three months ended				For the nine months ended
	September 30, 2023		September 30, 2022		September 30, 2023		September 30, 2022
Net income	$	36,087	$	15,839	$	108,927	$	54,553
Less: income allocated to participating securities		(68)		(39)		(179)		(111)
Income allocated to common shareholders	$	36,019	$	15,800	$	108,748	$	54,442
Weighted average shares outstanding for basic earnings per common share		37,990,659		31,259,188		37,911,896		30,539,266
Dilutive effect of equity awards		143,679		271,887		182,014		295,364
Weighted average shares outstanding for diluted earnings per common share		38,134,338		31,531,075		38,093,910		30,834,630
Basic earnings per share	$	0.95	$	0.51	$	2.87	$	1.78
Diluted earnings per share		0.94		0.50		2.85		1.77

The Company had 811,245 and 730,502 outstanding stock options to purchase common stock at weighted average exercise prices of $30.34 and $29.56 per share at September 30, 2023 and 2022, respectively, which have time-vesting criteria, and as such, any dilution is derived only for the time frame in which the vesting criteria had been met and where the inclusion of those stock options is dilutive. The Company had 435,674 and 325,202 unvested restricted shares and performance stock units issued as of September 30, 2023 and 2022, respectively, which have performance, market and/or time-vesting criteria, and as such, any dilution is derived only for the time frame in which the vesting criteria had been met and where the inclusion of those restricted shares and units is dilutive.

Note 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 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.

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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, 2023 and December 31, 2022. Information about the valuation methods used to measure fair value is provided in note 18.

		Asset derivatives fair value					Liability derivatives fair value
	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,
	location	2023		2022		Location	2023		2022
Derivatives designated as hedging instruments:
Interest rate products	Other assets	$	41,612	$	34,164	Other liabilities	$	2,464	$	1,929
Total derivatives designated as hedging instruments		$	41,612	$	34,164		$	2,464	$	1,929
Derivatives not designated as hedging instruments:
Interest rate products	Other assets	$	10,972	$	10,657	Other liabilities	$	13,471	$	10,660
Interest rate lock commitments	Other assets		252		197	Other liabilities		55		174
Forward contracts	Other assets		183		210	Other liabilities		2		104
Total derivatives not designated as hedging instruments		$	11,407	$	11,064		$	13,528	$	10,938

Cash flow hedges

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

For derivatives that qualify and are designated as cash flow hedges of interest rate risk, the gain or loss on the derivative is recorded in accumulated other comprehensive income and subsequently reclassified into interest income in the same period(s) during which the hedged transaction affects earnings. Gains and losses on the derivative representing hedge components excluded from the assessment of effectiveness are recognized over the life of the hedge on a systematic and rational basis. The earnings recognition of excluded components is included in interest income. Amounts reported in accumulated other comprehensive income related to derivatives will be reclassified to interest income as interest payments are received on the Company’s variable-rate assets. As of September 30, 2023, the Company had cash flow hedges with a notional amount of $200.0 million. The Company expects to reclassify $2.0 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, 2023, the Company had interest rate swaps with a notional amount of $337.4 million, which were designated as fair value hedges of interest rate risk. As of December 31, 2022, the Company had interest rate swaps with a notional amount of $340.1 million that were designated as fair value hedges. These interest rate swaps were associated with $462.5 million and $482.7 million of the Company’s fixed-rate loans as of September 30, 2023 and December 31, 2022, respectively, before a gain of $8.4 million and $29.7 million from the fair value hedge adjustment in the carrying amount, included in loans receivable in the statements of financial condition as of September 30, 2023 and December 31, 2022, 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 gains totaling $42.5 million and $33.4 million as of September 30, 2023 and December 31, 2022, 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, 2023, the Company had matched interest rate swap transactions with an aggregate notional amount of $436.0 million related to this program. As of December 31, 2022, the Company had matched interest rate swap transactions with an aggregate notional amount of $383.0 million. Derivative fee income from non-designated hedges totaled $0.4 million and $0.7 million for the three and nine months ended September 30, 2023, respectively. During the three and nine months ended September 30, 2022, derivative fee income from non-designated hedges totaled $0.3 million and $0.5 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 $27.9 million and forward contracts with a notional value of $34.9 million at September 30, 2023. At December 31, 2022, the Company had interest rate lock commitments with a notional value of $35.5 million and forward contracts with a notional value of $45.0 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, 2023 and 2022:

	Location of gain (loss)	Amount of gain recognized in income on derivatives
Derivatives in fair value	recognized in income on	For the three months ended September 30,				For the nine months ended September 30,
hedging relationships	derivatives	2023		2022		2023		2022
Interest rate products	Interest and fees on loans	$	13,005	$	13,893	$	16,855	$	44,183

	Location of gain (loss)	Amount of 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	2023		2022		2023		2022
Interest rate products	Interest and fees on loans	$	(10,255)	$	(14,589)	$	(9,940)	$	(47,601)

	Location of gain (loss)	Amount of (loss) gain recognized in income on derivatives
Derivatives not designated	recognized in income on	For the three months ended September 30,				For the nine months ended September 30,
as hedging instruments	derivatives	2023		2022		2023		2022
Interest rate products	Other non-interest expense	$	(33)	$	49	$	(32)	$	5
Interest rate lock commitments	Mortgage banking income		30		(1,936)		73		(2,780)
Forward contracts	Mortgage banking income		49		2,179		74		2,095
Total		$	46	$	292	$	115	$	(680)

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

	For the three 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)

	For the three and nine months ended September 30, 2022
		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		Gain reclassified from AOCI into income		Loss reclassified from AOCI into income included component		Gain reclassified from AOCI into income excluded component
Derivatives in cash flow hedging relationships:
Interest rate products	$	(2,355)	$	(1,827)	$	(528)	Interest income	$	(14)	$	—	$	(14)

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.

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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, 2023, 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, 2023, the Company had met these thresholds. If the Company had breached any of these provisions at September 30, 2023, 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, 2023 and December 31, 2022 were as follows:

	September 30, 2023		December 31, 2022
Commitments to fund loans	$	885,416	$	1,124,942
Credit card lines of credit		6,888		7,167
Unfunded commitments under lines of credit		907,916		862,369
Commercial and standby letters of credit		9,880		13,859
Total unfunded commitments	$	1,810,100	$	2,008,337

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

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

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

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

Contingencies

Mortgage loans sold to investors may be subject to repurchase or indemnification in the event of specific default by the borrower or subsequent discovery that underwriting standards were not met. The Company established a reserve liability for expected losses related to these representations and warranties based upon management’s evaluation of actual and historic loss history, delinquency trends or other documentation or deficiency findings in the portfolio and economic conditions. Charges against the reserve during the three and nine months ended September 30, 2023 totaling $47 thousand and $134 thousand, respectively, were primarily driven by

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early payoffs and repurchases. Charges against the reserve during the three and nine months ended September 30, 2022 totaling $74 thousand and $218 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,
	2023		2022		2023		2022
Beginning balance	$	1,315	$	1,878	$	1,725	$	2,102
Provision charged to (released from) operating expense, net		—		35		(323)		(45)
Charge-offs		(47)		(74)		(134)		(218)
Ending balance	$	1,268	$	1,839	$	1,268	$	1,839

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 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, 2023 and 2022, 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:

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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 83.9% 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, 2023 and December 31, 2022 in the consolidated statements of financial condition utilizing the hierarchy structure described above:

	September 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale:
U.S. Treasuries	$	71,862	$	—	$	—	$	71,862
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		196,848		—		196,848
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		348,942		—		348,942
Municipal securities		—		152		—		152
Corporate debt		—		1,849		—		1,849
Loans held for sale		—		19,048		—		19,048
Interest rate swap derivatives		—		52,584		—		52,584
Mortgage banking derivatives		—		—		435		435
Total assets at fair value	$	71,862	$	619,423	$	435	$	691,720
Liabilities:
Interest rate swap derivatives	$	—	$	15,935	$	—	$	15,935
Mortgage banking derivatives		—		—		57		57
Total liabilities at fair value	$	—	$	15,935	$	57	$	15,992

	December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale:
U.S. Treasuries	$	71,388	$	—	$	—	$	71,388
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		226,131		—		226,131
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		405,926		—		405,926
Municipal securities		—		153		—		153
Corporate debt		—		1,920		—		1,920
Loans held for sale		—		22,767		—		22,767
Interest rate swap derivatives		—		44,821		—		44,821
Mortgage banking derivatives		—		—		407		407
Total assets at fair value	$	71,388	$	701,718	$	407	$	773,513
Liabilities:
Interest rate swap derivatives	$	—	$	12,589	$	—	$	12,589
Mortgage banking derivatives		—		—		278		278
Total liabilities at fair value	$	—	$	12,589	$	278	$	12,867

The table below details the changes in level 3 financial instruments during the nine months ended September 30, 2023:

		Mortgage banking
		derivatives, net
Balance at December 31, 2022	$	129
Loss included in earnings, net		147
Fees and costs included in earnings, net		102
Balance at September 30, 2023	$	378

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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% - 27% with a weighted average discount rate of 11.7%, 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, 2023, the Company recorded a specific reserve of $6.1 million related to nine loans with a carrying value of $22.1 million. At September 30, 2022, the Company recorded a specific reserve of $2.9 million related to nine loans with a carrying balance of $7.2 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 6.2%. The estimated fair values of OREO are updated periodically and further write-downs may be taken to reflect a new basis. The Company recognized $55 thousand and $452 thousand of OREO impairment during the nine months ended September 30, 2023 and 2022, respectively. 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, 2023 and prepayment speed assumption ranges of 6.0% to 10.6% with a weighted average rate of 6.1% at September 30, 2023. 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, 2023, the Company recorded a recovery totaling $66 thousand. There was $6 thousand of impairment during the nine months ended September 30, 2022. 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 13.7% and a weighted average lifetime constant prepayment rate of 14.1%. 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, 2023 or 2022.

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, 2023 and 2022:

	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

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	September 30, 2022
	Total		Losses from fair value changes
Individually evaluated loans	$	20,504	$	1,338
Other real estate owned		3,695		452
Mortgage servicing rights		9,133		6
Total	$	33,332	$	1,796

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

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, 2023 and December 31, 2022 are set forth below:

	Level in fair value	September 30, 2023				December 31, 2022
	measurement	Carrying		Estimated		Carrying		Estimated
	hierarchy	amount		fair value		amount		fair value
ASSETS
Cash and cash equivalents	Level 1	$	291,291	$	291,291	$	195,505	$	195,505
U.S. Treasury securities - AFS	Level 1		71,862		71,862		71,388		71,388
U.S. Treasury securities - HTM	Level 1		49,263		47,415		49,045		47,629
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		196,848		196,848		226,131		226,131
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		348,942		348,942		405,926		405,926
Municipal securities available-for-sale	Level 2		152		152		153		153
Corporate debt available-for-sale	Level 2		1,849		1,849		1,920		1,920
Other available-for-sale securities	Level 3		792		792		771		771
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		309,216		260,193		339,815		298,816
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		242,022		186,634		262,667		213,479
FHLB and FRB stock	Level 2		38,849		38,849		38,390		38,390
Loans receivable	Level 3		7,478,438		7,171,937		7,220,469		6,964,107
Loans held for sale	Level 2		19,048		19,048		22,767		22,767
Accrued interest receivable	Level 2		45,213		45,213		34,587		34,587
Interest rate swap derivatives	Level 2		52,584		52,584		45,046		45,046
Mortgage banking derivatives	Level 3		435		435		407		407
LIABILITIES
Deposit transaction accounts	Level 2		7,156,514		7,156,514		6,999,226		6,999,226
Time deposits	Level 2		992,494		980,150		873,400		845,688
Securities sold under agreements to repurchase	Level 2		20,273		20,273		20,214		20,214
Long-term debt	Level 2		55,000		46,389		55,000		52,430
Federal Home Loan Bank advances	Level 2		316,770		316,770		385,000		385,000
Accrued interest payable	Level 2		14,820		14,820		3,201		3,201
Interest rate swap derivatives	Level 2		15,935		15,935		12,589		12,589
Mortgage banking derivatives	Level 3		57		57		278		278

Note 19 Acquisition Activities

Cambr Solutions, LLC

On April 3, 2023, NBH Bank completed the acquisition of Cambr Solutions, LLC (“Cambr”). 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. The Company has made the determination of fair values using the best information available at the time; however, purchase accounting is not complete and the assumptions used are subject to change and, if changed, could have a material effect on the Company's financial position and results of operations.

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

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Cambr acquisition-related costs totaled $0.1 million and $1.0 million for the three and nine months ended September 30, 2023, respectively. The results of Cambr are included in the results of the Company subsequent to the acquisition date.

The table below summarizes preliminary net assets acquired (at fair value) and consideration transferred in connection with the 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 following is a description of the methods used to determine the fair values of significant assets and liabilities presented above:

Other intangibles—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 will be amortized over a weighted average period of 9.4 years.

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

Prior year acquisitions

During 2022, the Company completed the acquisitions of Community Bancorporation, the bank holding company for Rock Canyon Bank, and Bancshares of Jackson Hole, the bank holding company for Bank of Jackson Hole. The Company determined that the acquisitions constitute business combinations as defined in ASC Topic 805, Business Combinations. Accordingly, as of the date of the acquisitions, the Company recorded the assets acquired and liabilities assumed at fair value. The Company determined fair values in accordance with the guidance provided in ASC Topic 820, Fair Value Measurements and Disclosures. In many cases, the determination of these fair values required management to make estimates about discount rates, future expected cash flows, market conditions and other future events that are highly subjective in nature.

Rock Canyon Bank

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

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

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

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

	September 1, 2022
Assets:
Cash and due from banks	$	260,883
Investment securities available-for-sale		402
Non-marketable securities		977
Loans, net		535,197
Loans held for sale		3,069
Premises and equipment		3,413
Core deposit and other intangibles		16,463
Other assets		11,749
Total assets acquired		832,153
Liabilities:
Total deposits		734,480
Other liabilities		10,115
Total liabilities assumed		744,595
Identifiable net assets acquired	$	87,558
Consideration:
NBHC common stock paid, closing price of $40.13 on August 31, 2022	$	124,272
Cash		16,141
Total		140,413
Goodwill	$	52,855

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

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

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

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

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

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

Accounting for acquired loans

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

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

	Commercial		Commercial real estate non-owner occupied		Residential real estate		Consumer		Total
Unpaid principal balance	$	12,079	$	220	$	843	$	3	$	13,145
PCD allowance for credit loss at acquisition		(2,257)		(2)		(215)		—		(2,474)
(Discount) premium on acquired loans		(787)		19		(5)		—		(773)
Loans previously charged-off by RCB		(2,051)		—		—		(3)		(2,054)
Purchase price of PCD loans	$	6,984	$	237	$	623	$	—	$	7,844

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

Bank of Jackson Hole

On October 1, 2022, the Company completed its acquisition of Bancshares of Jackson Hole, the bank holding company of Wyoming-based Bank of Jackson Hole. Pursuant to the merger agreement executed in March 2022, the Company paid $51.0 million of cash consideration and issued 4,391,964 shares of the Company’s Class A common stock in exchange for all of the outstanding common stock of Bancshares of Jackson Hole. The transaction was valued at $213.4 million in the aggregate, based on the Company’s closing price of $36.99 on September 30, 2022. The acquisition added 12 banking centers with operations in Wyoming and Idaho. Immediately following the closing of the acquisition, BOJH sold substantially of all its assets and liabilities to NBH Bank, with the exception of assets and liabilities related to its trust business. Effective October 1, 2022, BOJH was renamed as Bank of Jackson Hole Trust.

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

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

	October 1, 2022
Assets:
Cash and due from banks	$	40,509
Investment securities		203,728
Non-marketable securities		3,104
Loans, net		1,185,699
Loans held for sale		504
Premises and equipment		30,318
Core deposit and other intangibles		30,696
Other assets		31,970
Total assets acquired		1,526,528
Liabilities:
Total deposits		1,375,593
Long-term debt		39,229
Fed funds purchased		25
Other liabilities		9,483
Total liabilities assumed		1,424,330
Identifiable net assets acquired	$	102,198
Consideration:
NBHC common stock paid, closing price of $36.99 on September 30, 2022	$	162,459
Cash		50,989
Total		213,448
Goodwill	$	111,250

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

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

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

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

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

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

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

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

Accounting for acquired loans

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

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

	Commercial		Commercial real estate non-owner occupied		Residential real estate		Consumer		Total
Unpaid principal balance	$	5,061	$	8,353	$	476	$	12	$	13,902
PCD allowance for credit loss at acquisition		(151)		(3,557)		(55)		(1)		(3,764)
(Discount) premium on acquired loans		(336)		(226)		(16)		—		(578)
Purchase price of PCD loans	$	4,574	$	4,570	$	405	$	11	$	9,560

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

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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, 2023, and with our annual report on Form 10-K (file number 001-35654), which includes our audited consolidated financial statements and related notes as of and for the years ended December 31, 2022, 2021 and 2020. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions that may cause actual results to differ materially from management's expectations. Factors that could cause such differences are discussed in the section entitled “Cautionary Note Regarding Forward-Looking Statements” located elsewhere in this quarterly report and in Item 1A“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 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, 2023, we had $9.9 billion in assets, $7.5 billion in loans, $8.1 billion in deposits, $1.2 billion in equity and $0.9 billion in assets under management in our trust and wealth management business.

Operating Highlights and Key Challenges

Recent industry concerns

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

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

● Approximately 70% of our deposits are FDIC insured.

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

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

Profitability and returns

● Net income increased 99.7% to $108.9 million, or $2.85 per diluted share, for the nine months ended September 30, 2023, compared to net income of $54.6 million, or $1.77 per diluted share, for the same period in the prior year. Adjusting for $13.6 million of pre-tax non-recurring acquisition–related expenses included in the nine months September 30, 2022, net income increased $43.9 million, or 67.5%, compared to the same period in the prior year.

● The return on average tangible assets was 1.61% for the nine months ended September 30, 2023, compared to 1.03% for the same period in the prior year. Adjusting for non-recurring acquisition-related expenses, the return on average tangible assets for the nine months ended September 30, 2022 was 1.23%.

● The return on average tangible common equity was 18.81% for the nine months ended September 30, 2023, compared to 10.17% for the same period in the prior year. Adjusting for non-recurring acquisition-related expenses, the return on average tangible common equity for the nine months ended September 30, 2022 was 12.10%.

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Strategic execution

● Completed the acquisition of Cambr Solutions, LLC in April 2023, a business-to-business-to-consumer modeled subsidiary that provides granular and diversified cash deposits in a cost-efficient manner. At the acquisition date, Cambr administered approximately $1.7 billion of deposits comprising more than 500,000 FDIC-insured cash accounts.

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

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

Loan portfolio

● Total loans ended the quarter at $7.5 billion increasing $258.0 million, or 4.8% annualized, since December 31, 2022.

● Generated loan fundings totaling $1.1 billion, during the nine months ended September 30, 2023, with a weighted average new loan origination rate of 8.6%.

Credit quality

● Allowance for credit losses totaled 1.25% of total loans at September 30, 2023, compared to 1.24% at December 31, 2022.

● The Company recorded an increase in the allowance for credit losses of $3.9 million for the nine months ended September 30, 2023. For the nine months ended September 30, 2022, the Company recorded an increase in the allowance for credit losses of $15.9 million, which included a Day 1 CECL allowance reserve of $5.2 million for the acquired RCB loan portfolio, a $2.5 million credit allowance for Day 1 PCD loans and net charge-offs.

● Credit quality remained strong, as non-performing loans (comprised of non-accrual loans and non-accrual modified loans) totaled 0.44% of loans, compared to 0.23% at December 31, 2022. Non-performing assets to total loans and OREO totaled 0.49% at September 30, 2023, compared to 0.28% at December 31, 2022.

● Net charge-offs to average total loans for the nine months ended September 30, 2023 totaled 0.02%, annualized, compared to 0.03% for the full year ended December 31, 2022.

Client deposit funded balance sheet

● Average transaction deposits for the nine months ended September 30, 2023 increased 26.7% to $6.9 billion, compared to $5.5 billion for the same period in the prior year, driven by strategic growth from our recent acquisitions.

● Average total deposits increased $1.6 billion, or 25.9%, to $7.9 billion during the nine months ended September 30, 2023, compared to the same period in the prior year.

● The mix of transaction deposits to total deposits was 87.8% at September 30, 2023, compared to 88.9% at December 31, 2022.

● Cost of deposits totaled 1.18% during the nine months ended September 30, 2023, compared to 0.17% for the same period in the prior year. Our total deposit beta through this rate cycle remains low at 28%.

● We improved our balance sheet funding mix during the second and third quarters of 2023 and utilized the funding provided by deposit growth to pay down $683.2 million of FHLB advances, since March 2023.

Revenues

● Fully taxable equivalent (“FTE”) net interest income increased $101.1 million, or 57.5%, to $276.9 million during the nine months ended September 30, 2023, compared to the same period in the prior year.

● The FTE net interest margin widened 68 basis points to 4.12% for the nine months ended September 30, 2023, compared to the same period in the prior year. The yield on earning assets increased 182 basis points, primarily due to multiple increases in the federal funds rate since March 2022. The cost of funds increased 121 basis points to 1.40% for the nine months ended September 30, 2023, compared to the same period in the prior year.

● Non-interest income totaled $47.9 million during the nine months ended September 30, 2023, compared to $53.2 million for the same period in 2022, driven by lower mortgage banking income due to lower purchase and refinance activity and competition driving tighter gain on sale margins.

● Non-interest income included $1.5 million of trust income, $1.3 million from gains on SBA loan sales, as well as Cambr income, all of which are new and diversified sources of fee revenue. During the three and nine months ended September 30,

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	2023, the Company recorded zero and $4.4 million, respectively, in impairments related to venture capital investments, included in other non-interest income in the Company’s consolidated statements of operations.
●	Service charges and bank card fees increased a combined $2.8 million, or 11.0%, during the nine months ended September 30, 2023, compared to the same period in the prior year.
●	During the three months ended September 30, 2023, the Company executed a sale of mortgage servicing rights, which generated a gain of $1.1 million included in mortgage banking income in the consolidated statements of operations.

Expenses

● Non-interest expense totaled $179.9 million during the nine months ended September 30, 2023, representing an increase of $36.3 million, or 25.3%, compared to the nine months ended September 30, 2022, largely driven by an increase in core operating expenses due to our recent acquisitions. Included in other non-interest expense was an increase of $4.0 million from FDIC deposit insurance expense as a result of our recent acquisitions and an increase in the FDIC assessment rate effective January 2023.

● The FTE efficiency ratio, excluding other intangible assets amortization and acquisition-related expenses, during the nine months ended September 30, 2023 improved 492 basis points to 53.74%, compared to 58.66% during the nine months ended September 30, 2022.

● Income tax expense totaled $27.8 million during the nine months ended September 30, 2023, compared to $12.0 million during the nine months ended September 30, 2022. The effective tax rate for the nine months ended September 30, 2023 was 20.3%, compared to 18.0% for the nine months ended September 30, 2022.

Strong capital position

● Capital ratios continue to be strong and in excess of federal bank regulatory agency “well capitalized” thresholds. As of September 30, 2023, our consolidated tier 1 leverage ratio was 9.56%, and our common equity tier 1 and consolidated tier 1 risk based capital ratio was 11.61%.

● At September 30, 2023, common book value per share was $30.83. The tangible common book value per share increased $0.80 to $21.43 at September 30, 2023, compared to December 31, 2022, as 2023’s earnings outpaced the impact of the Cambr acquisition and quarterly dividends. Excluding accumulated other comprehensive loss, the tangible book value per share increased $1.12 to $24.10 at September 30, 2022, compared to December 31, 2022.

Key Challenges

There are a number of significant challenges confronting us and our industry. Liquidity within the financial services sector has tightened, and we expect the intense competition for deposits throughout our markets to continue. 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.

Macroeconomic pressures have resulted in volatility and uncertainty in the banking industry. Increases in interest rates, declines in the fair value of securities, lack of available funding, uninsured deposits and risk from concentrations in loan and deposit segments are drawing focus to financial institutions in the wake of recent bank failures. 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.

Management employs risk management policies to monitor and limit exposure to changes in market rates. 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.

Regarding the fair value of investment securities, our accumulated other comprehensive loss is manageable. Additionally, the investment security portfolio is largely backed by either U.S. government agencies or U.S. government sponsored entities, giving us confidence we will not realize material losses. With respect to liquidity, management believes that the Company's excess cash,

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borrowing capacity and access to various sources of capital and liquidity are sufficient to meet its short-term and long-term needs. We have no significant concentrations in our loan portfolio and deposit base, and we remain well within self-imposed concentration limits, limiting exposure to risk in any particular segment. Our exposure to interest rate risk, unrealized losses in investments, liquidity, loan portfolio, deposit base and uninsured deposits are discussed in more detail below.

We are focused on growing our loan portfolio while adhering to our established underwriting standards and self-imposed concentration limits. A significant portion of our loan portfolio is secured by real estate and any deterioration in real estate values or credit quality or elevated levels of non-performing assets would ultimately have a negative impact on the quality of our loan portfolio. In addition, we may see increased rates of repurchase or indemnification demands or indemnification as a result of self-reporting of identified errors in our mortgage loan portfolio. For instance, as part of our normal review process, we have discovered irregularities in mortgage loan applications in one of our offices that has prompted an investigation. The investigation is not yet complete, however, we do not expect the outcome to materially or adversely affect our business or financial condition or results.

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

Cash balances total $291.3 million as of September 30, 2023 and have increased $95.8 million from December 31, 2022. Investment securities totaled $1.2 billion as of September 30, 2023 and decreased $136.9 million, or 10.1%, compared to December 31, 2022. As of September 30, 2023, our loans outstanding totaled $7.5 billion, increasing $258.0 million, or 3.6%, compared to December 31, 2022. During 2023, our weighted average rate on new loans funded at the time of origination was 8.6%, which was higher compared to the weighted average yield from our outstanding originated loans of 4.8% during the same period last year. During the nine months ended September 30, 2023, the Federal Reserve increased prevailing interest rates by a total of 100 basis points. Our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions.

We maintain a granular and well diversified deposit base with no exposure to venture capital or crypto deposits. Approximately 70% of our deposits were FDIC insured as of September 30, 2023, and our FHLB advances were $316.8 million, decreasing $68.2 million compared to December 31, 2022. Average total deposits were $8.1 billion during the third quarter of 2023, increasing $0.1 billion compared to the fourth quarter of 2022. The mix of transaction deposits to total deposits was 87.8% at September 30, 2023. Cost of deposits totaled 1.18% at September 30, 2023, and our total cost of funds was 1.40%.

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

The Company devotes considerable resources to protect the confidentiality, integrity, and availability of its subsidiary Banks’ systems and data, including associate and client information. Through coordinated efforts across our information technology, risk management, and third parties, we continuously enhance our suite of cyber-defense and information security capabilities. Further, the Audit & Risk Committee of our Board of Directors is updated quarterly on information security and cybersecurity trends and current efforts, and receives an annual report on the Company’s information security risk assessment efforts.

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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,
	2023		2022		2022		​	2023		​	2022
Return on average assets		1.46%		0.70%		0.84%			1.50%			1.00%
Return on average tangible assets(2)		1.58%		0.77%		0.87%			1.61%			1.03%
Return on average tangible assets, adjusted(2)(3)		1.58%		1.55%		1.39%			1.61%			1.23%
Return on average equity		12.26%		6.13%		7.22%			12.71%			8.64%
Return on average tangible common equity(2)		18.38%		9.17%		8.66%			18.81%			10.17%
Return on average tangible common equity, adjusted(2)(3)		18.38%		18.37%		13.76%			18.81%			12.10%
Loan to deposit ratio (end of period)(10)		91.77%		91.72%		84.10%			91.77%			84.10%
Non-interest bearing deposits to total deposits (end of period)		30.47%		39.82%		40.21%			30.47%			40.21%
Net interest margin(4)		3.85%		4.32%		3.93%			4.06%			3.36%
Net interest margin FTE(2)(4)(5)		3.92%		4.39%		4.01%			4.12%			3.44%
Interest rate spread FTE(2)(5)(6)		3.03%		4.09%		3.86%			3.36%			3.31%
Yield on earning assets(7)		5.53%		4.72%		4.11%			5.37%			3.54%
Yield on earning assets FTE(2)(5)(7)		5.60%		4.79%		4.19%			5.44%			3.62%
Cost of interest bearing liabilities		2.57%		0.70%		0.33%			2.08%			0.31%
Cost of deposits		1.64%		0.33%		0.18%			1.18%			0.17%
Non-interest income to total revenue FTE(5)		17.81%		12.78%		19.76%			14.74%			23.22%
Non-interest expense to average assets		2.46%		2.84%		2.87%			2.47%			2.63%
Efficiency ratio		56.56%		61.96%		62.39%			56.16%			63.83%
Efficiency ratio excluding other intangible assets amortization and acquisition-related expenses FTE(2)(3)(5)		53.90%		53.76%		52.99%			53.74%			58.66%
Pre-provision net revenue	$	46,539	$	41,542	$	32,511		$	140,427		$	81,371
Pre-provision net revenue FTE(2)(5)		48,114		42,996		33,920			144,859			85,429
Pre-provision net revenue FTE adjusted for acquisition-related expense(2)(3)(5)		48,114		49,807		40,916			144,859			93,685
Total Loans Asset Quality Data(8)(9)(10)
Non-performing loans to total loans		0.44%		0.23%		0.26%			0.44%			0.26%
Non-performing assets to total loans and OREO		0.49%		0.28%		0.32%			0.49%			0.32%
Allowance for credit losses to total loans		1.25%		1.24%		1.15%			1.25%			1.15%
Allowance for credit losses to non-performing loans		281.36%		542.35%		447.72%			281.36%			447.72%
Net charge-offs to average loans		0.01%		0.04%		0.01%			0.02%			0.03%

(1)	Ratios are annualized.
(2)	Ratio represents non-GAAP financial measure. See non-GAAP reconciliations below.
(3)	Ratios are adjusted for acquisition-related expenses. See non-GAAP reconciliation below.
(4)	Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.
(5)	Presented on an FTE basis using the statutory rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,575, $1,454 and $1,409 for the three months ended September 30, 2023, December 31, 2022 and September 30, 2022, respectively. The taxable equivalent adjustments included above are $4,432 and $4,058 for the nine months ended September 30, 2023 and September 30, 2022, respectively.
(6)	Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.
(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-performing loans consist of non-accruing loans and restructured loans on non-accrual.
(9)	Non-performing assets include non-performing loans and OREO.
(10)	Total loans are net of unearned discounts and fees.

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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,” “adjusted non-interest expense,” “non-interest expense to average assets, adjusted,” “adjusted net income,” “adjusted net income excluding core deposit intangible amortization expense, after tax,” “adjusted earnings per share - diluted,” “adjusted return on average tangible assets,” “adjusted return on average tangible common equity,” “non-interest expense adjusted for intangible assets amortization and acquisition-related expenses,” “non-interest expense adjusted for acquisition-related expenses,” “efficiency ratio adjusted for other intangible assets amortization and acquisition-related expenses,” “pre-provision net revenue,” “pre-provision net revenue adjusted for acquisition-related expenses,” “tangible common book value, excluding accumulated other comprehensive loss (income), net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss (income), net of tax,” “adjusted net income excluding other intangible assets amortization expense, after tax,” “net income adjusted for the impact of other intangible assets amortization expense and acquisition-related expenses, after tax,” “net income excluding the impact of other intangible assets amortization expense, after tax,” and “fully taxable equivalent” metrics, are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain 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,
	2023		2022		2022
Total shareholders' equity	$	1,163,585	$	1,092,202	$	919,426
Less: goodwill and other intangible assets, net		(366,724)		(327,191)		(186,608)
Add: deferred tax liability related to goodwill		11,876		10,984		10,755
Tangible common equity (non-GAAP)	$	808,737	$	775,995	$	743,573
Total assets	$	9,866,283	$	9,573,243	$	7,922,921
Less: goodwill and other intangible assets, net		(366,724)		(327,191)		(186,608)
Add: deferred tax liability related to goodwill		11,876		10,984		10,755
Tangible assets (non-GAAP)	$	9,511,435	$	9,257,036	$	7,747,068
Tangible common equity to tangible assets calculations:
Total shareholders' equity to total assets		11.79%		11.41%		11.60%
Less: impact of goodwill and other intangible assets, net		(3.29)%		(3.03)%		(2.00)%
Tangible common equity to tangible assets (non-GAAP)		8.50%		8.38%		9.60%
Tangible common book value per share calculations:
Tangible common equity (non-GAAP)	$	808,737	$	775,995	$	743,573
Divided by: ending shares outstanding		37,739,776		37,608,519		33,189,253
Tangible common book value per share (non-GAAP)	$	21.43	$	20.63	$	22.40
Tangible common book value per share, excluding accumulated other comprehensive loss calculations:
Tangible common equity (non-GAAP)	$	808,737	$	775,995	$	743,573
Accumulated other comprehensive loss, net of tax		100,853		88,204		89,339
Tangible common book value, excluding accumulated other comprehensive loss, net of tax (non-GAAP)		909,590		864,199		832,912
Divided by: ending shares outstanding		37,739,776		37,608,519		33,189,253
Tangible common book value per share, excluding accumulated other comprehensive loss, net of tax (non-GAAP)	$	24.10	$	22.98	$	25.10

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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,
	2023		2022		2022		2023		2022
Net income	$	36,087	$	16,721	$	15,839	$	108,927	$	54,553
Add: impact of other intangible assets amortization expense, after tax		1,541		1,049		295		4,128		751
Net income excluding the impact of other intangible assets amortization expense, after tax (non-GAAP)	$	37,628	$	17,770	$	16,134	$	113,055	$	55,304
Net income excluding the impact of other intangible assets amortization expense, after tax	$	37,628	$	17,770	$	16,134	$	113,055	$	55,304
Add: acquisition-related adjustments, after tax (non-GAAP)(1)		—		17,825		9,510		—		10,480
Net income adjusted for the impact of other intangible assets amortization expense and acquisition-related expenses, after tax (non-GAAP)(1)	$	37,628	$	35,595	$	25,644	$	113,055	$	65,784
Average assets	$	9,788,909	$	9,443,630	$	7,449,066	$	9,725,130	$	7,285,934
Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill		(356,083)		(314,017)		(131,490)		(342,826)		(117,485)
Average tangible assets (non-GAAP)	$	9,432,826	$	9,129,613	$	7,317,576	$	9,382,304	$	7,168,449
Average shareholders' equity	$	1,168,199	$	1,082,840	$	870,849	$	1,146,210	$	844,241
Less: average goodwill and other intangible assets, net of deferred tax liability related to goodwill		(356,083)		(314,017)		(131,490)		(342,826)		(117,485)
Average tangible common equity (non-GAAP)	$	812,116	$	768,823	$	739,359	$	803,384	$	726,756
Return on average assets		1.46%		0.70%		0.84%		1.50%		1.00%
Return on average tangible assets (non-GAAP)		1.58%		0.77%		0.87%		1.61%		1.03%
Adjusted return on average tangible assets (non-GAAP)		1.58%		1.55%		1.39%		1.61%		1.23%
Return on average equity		12.26%		6.13%		7.22%		12.71%		8.64%
Return on average tangible common equity (non-GAAP)		18.38%		9.17%		8.66%		18.81%		10.17%
Adjusted return on average tangible common equity (non-GAAP)		18.38%		18.37%		13.76%		18.81%		12.10%
(1) Acquisition-related adjustments:
Provision expense adjustments:
Day 1 CECL provision expense	$	—	$	16,348	$	5,358	$	—	$	5,358
Non-interest expense adjustments:
Acquisition-related expenses		—		6,811		6,996		—		8,256
Tax expense impact		—		(5,334)		(2,844)		—		(3,134)
Acquisition-related adjustments, after tax (non-GAAP)	$	—	$	17,825	$	9,510	$	—	$	10,480

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,
	2023		2022		2022		2023		2022
Interest income	$	126,110	$	103,958	$	72,369	$	360,712	$	180,730
Add: impact of taxable equivalent adjustment		1,575		1,454		1,409		4,432		4,058
Interest income FTE (non-GAAP)	$	127,685	$	105,412	$	73,778	$	365,144	$	184,788
Net interest income	$	87,777	$	95,066	$	69,091	$	272,450	$	171,769
Add: impact of taxable equivalent adjustment		1,575		1,454		1,409		4,432		4,058
Net interest income FTE (non-GAAP)	$	89,352	$	96,520	$	70,500	$	276,882	$	175,827
Average earning assets	$	9,039,864	$	8,729,482	$	6,982,048	$	8,981,033	$	6,829,975
Yield on earning assets		5.53%		4.72%		4.11%		5.37%		3.54%
Yield on earning assets FTE (non-GAAP)		5.60%		4.79%		4.19%		5.44%		3.62%
Net interest margin		3.85%		4.32%		3.93%		4.06%		3.36%
Net interest margin FTE (non-GAAP)		3.92%		4.39%		4.01%		4.12%		3.44%

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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,
	2023		2022		2022		2023		2022
Net interest income	$	87,777	$	95,066	$	69,091	$	272,450	$	171,769
Add: impact of taxable equivalent adjustment		1,575		1,454		1,409		4,432		4,058
Net interest income FTE (non-GAAP)	$	89,352	$	96,520	$	70,500	$	276,882	$	175,827
Non-interest income	$	19,365	$	14,138	$	17,358	$	47,853	$	53,174
Non-interest expense	$	60,603	$	67,662	$	53,938	$	179,876	$	143,572
Less: other intangible assets amortization		(2,008)		(1,363)		(383)		(5,378)		(975)
Less: acquisition-related expenses (non-GAAP)		—		(6,811)		(6,996)		—		(8,256)
Non-interest expense adjusted for other intangible assets amortization and acquisition-related expenses (non-GAAP)	$	58,595	$	59,488	$	46,559	$	174,498	$	134,341
Non-interest expense	$	60,603	$	67,662	$	53,938	$	179,876	$	143,572
Less: acquisition-related expenses (non-GAAP)		—		(6,811)		(6,996)		—		(8,256)
Non-interest expense adjusted for acquisition-related expenses (non-GAAP)	$	60,603	$	60,851	$	46,942	$	179,876	$	135,316
Efficiency ratio		56.56%		61.96%		62.39%		56.16%		63.83%
Efficiency ratio excluding other intangible assets amortization and acquisition-related expenses FTE (non-GAAP)		53.90%		53.76%		52.99%		53.74%		58.66%
Pre-provision net revenue (non-GAAP)	$	46,539	$	41,542	$	32,511	$	140,427	$	81,371
Pre-provision net revenue, FTE (non-GAAP)		48,114		42,996		33,920		144,859		85,429
Pre-provision net revenue FTE, adjusted for acquisition-related expenses (non-GAAP)		48,114		49,807		40,916		144,859		93,685

Adjusted Net Income and Earnings Per Share

	As of and for the three months ended						As of and for the nine months ended
	September 30,		December 31,		September 30,		September 30,		September 30,
	2023		2022		2022		2023		2022
Adjustments to net income:
Net income	$	36,087	$	16,721	$	15,839	$	108,927	$	54,553
Add: Acquisition-related adjustments, after tax (non-GAAP)		—		17,825		9,510		—		10,480
Adjusted net income (non-GAAP)	$	36,087	$	34,546	$	25,349	$	108,927	$	65,033
Adjustments to earnings per share:
Earnings per share - diluted	$	0.94	$	0.44	$	0.50	$	2.85	$	1.77
Add: Acquisition-related adjustments, after tax (non-GAAP)		—		0.47		0.30		—		0.34
Adjusted earnings per share - diluted (non-GAAP)	$	0.94	$	0.91	$	0.80	$	2.85	$	2.11

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 collective ACL by first disaggregating the loan portfolio into segments based upon broad characteristics such as primary use and underlying collateral. Within these segments, the portfolio is further disaggregated into classes of loans with similar attributes and risk characteristics. The collective ACL is determined at the 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 that incorporates forecasts of certain national macroeconomic factors (reasonable and supportable forecasts) which drive the losses predicted in establishing the Company’s collective 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 collective 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.

Financial Condition

Total assets were $9.9 billion at September 30, 2023, compared to $9.6 billion at December 31, 2022, an increase of $293.0 million, or 3.1%. Cash and cash equivalents increased $95.8 million, or 49.0%, from December 31, 2022, and investment securities decreased $136.9 million, or 10.1%. Total loans increased $258.0 million, or 4.8% annualized, and the allowance for credit losses increased $3.9 million to $93.4 million at September 30, 2023. At September 30, 2023, lower cost demand, savings, and money market deposits ("transaction deposits") totaled $7.2 billion, compared to $7.0 billion at December 31, 2022. Total deposits increased $0.3 billion to $8.1 billion at September 30, 2023, compared to December 31, 2022. FHLB advances totaled $316.8 million at September 30, 2023 and $385.0 million at December 31, 2022.

Investment securities

Available-for-sale

Total investment securities available-for-sale decreased 12.2% during the nine months ended September 30, 2023 to $0.6 billion. Purchases of available-for-sale securities during the nine months ended September 30, 2023 and 2022 totaled zero and $260.2 million, respectively. Paydowns and maturities totaled $71.3 million and $116.0 million during the nine months ended September 30, 2023 and 2022, 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, 2023						December 31, 2022
						Weighted						Weighted
	Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
	cost		value		portfolio	yield	cost		value		portfolio	yield
Treasury securities	$	74,386	$	71,862	11.6%	2.54%	$	74,031	$	71,388	10.1%	2.54%
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		240,292		196,848	31.7%	1.73%		263,939		226,131	32.0%	1.72%
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		430,853		348,942	56.2%	1.70%		478,866		405,926	57.5%	1.69%
Municipal securities		155		152	0.1%	3.17%		155		153	0.0%	3.17%
Corporate debt		2,000		1,849	0.3%	5.87%		2,000		1,920	0.3%	5.87%
Other securities		792		792	0.1%	0.00%		771		771	0.1%	0.00%
Total investment securities available-for-sale	$	748,478	$	620,445	100.0%	1.80%	$	819,762	$	706,289	100.0%	1.79%

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

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Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-for-sale mortgage-backed securities portfolio was 5.5 years and 5.4 years at September 30, 2023 and December 31, 2022, respectively. This estimate is based on assumptions and actual results may differ. At September 30, 2023 and December 31, 2022, the duration of the total available-for-sale investment portfolio was 4.4 years for both periods.

At September 30, 2023 and December 31, 2022, adjustable rate securities comprised 13.1% and 11.5%, respectively, of the available-for-sale MBS portfolio. The remainder of the portfolio was comprised of fixed rate amortizing securities with 10 to 30 year contractual maturities, with a weighted average coupon of 1.74% per annum and 1.75% per annum at September 30, 2023 and December 31, 2022, respectively.

The available-for-sale investment portfolio included $128.0 million of unrealized losses and $14 thousand of unrealized gains at September 30, 2023. At December 31, 2022, the available-for-sale investment portfolio included $113.5 million of unrealized losses. We believe any unrealized losses are a result of prevailing interest rates, and as such, we do not believe that any of the securities with unrealized losses were impaired. Management believes that default of the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities and U.S. Treasury securities have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

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 our stress testing on our debt security portfolio at September 30, 2023, illustrated that we would continue to meet all capital adequacy requirements, even in an up to 200 basis point rate shock scenario.

 Held-to-maturity

Held-to-maturity investment securities decreased 7.8% during the nine months ended September 30, 2023 to $0.6 billion. Purchases during the nine months ended September 30, 2023 and 2022 totaled $2.5 million and $91.6 million, respectively. Paydowns and maturities totaled $53.9 million and $93.2 million during the nine months ended September 30, 2023 and 2022, respectively.

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

	September 30, 2023						December 31, 2022
						Weighted						Weighted
	Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
	cost		value		portfolio	yield	cost		value		portfolio	yield
Treasury securities	$	49,263	$	47,415	8.2%	3.14%	$	49,045	$	47,629	7.5%	3.14%
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		309,216		260,193	51.5%	2.20%		339,815		298,816	52.2%	2.29%
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		242,022		186,634	40.3%	1.60%		262,667		213,479	40.3%	1.60%
Total investment securities held-to-maturity	$	600,501	$	494,242	100.0%	2.04%	$	651,527	$	559,924	100.0%	2.07%

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

The fair value of the held-to-maturity investment portfolio included $106.3 million of unrealized losses at September 30, 2023. At December 31, 2022, the held-to-maturity investment portfolio included $91.8 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

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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, 2023 and December 31, 2022 was 6.1 years and 6.0 years, respectively. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 4.8 years as of September 30, 2023 and December 31, 2022.

Non-marketable securities

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

	September 30, 2023		December 31, 2022
Federal Reserve Bank stock	$	24,062	$	18,096
Federal Home Loan Bank stock		14,787		20,294
Equity method investments		23,968		21,659
Convertible preferred stock		25,000		29,000
Total	$	87,817	$	89,049

Non-marketable securities included FRB stock, FHLB stock and other non-marketable securities. During the nine months ended September 30, 2023, purchases of non-marketable securities, consisting primarily of FHLB stock, totaled $93.9 million and proceeds of non-marketable securities, consisting of redemptions of FHLB stock, totaled $90.3 million. The changes in the Company’s FHLB stock holdings are directly correlated to FHLB line of credit advances and paydowns. During the nine months ended September 30, 2022, purchases totaling $11.5 million were comprised of other non-marketable securities, and proceeds from other non-marketable securities totaled $0.1 million.

FRB and FHLB stock

At September 30, 2023 and December 31, 2022, the Company held FRB stock and FHLB stock for regulatory or debt facility purpose. 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.

Other non-marketable securities

Other non-marketable securities consist of equity method investments and convertible preferred stock without a readily determinable fair value. During the three and nine months ended September 30, 2023, the Company recorded zero and $4.0 million, respectively, in impairments on convertible preferred stock related to venture capital investments, included in other non-interest income in the Company’s consolidated statements of operations. No impairments were recorded during 2022. 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. During the three and nine months ended September 30, 2022, the Company recorded net unrealized losses on equity method investments totaling $1.3 million and $1.4 million, respectively. These losses were recorded in other non-interest income in the Company’s consolidated statements of operations. The Company continues to invest with fintech solution providers to support our digital ecosystem buildout, support our core bank products and offerings, and to leverage efficiencies and technological solutions in our shared services areas.

Loans overview

At September 30, 2023, our loan portfolio was comprised of new loans that we have originated and loans that were acquired in connection with our acquisitions.

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

					September 30, 2023 vs.
					December 31, 2022
	September 30, 2023		December 31, 2022		% Change
Originated:
Commercial:
Commercial and industrial	$	1,784,188	$	1,841,313	(3.1)%
Municipal and non-profit		1,012,967		959,305	5.6%
Owner-occupied commercial real estate		827,679		656,361	26.1%
Food and agribusiness		258,609		284,714	(9.2)%
Total commercial		3,883,443		3,741,693	3.8%
Commercial real estate non-owner occupied		1,026,133		841,657	21.9%
Residential real estate		897,804		827,030	8.6%
Consumer		16,700		16,986	(1.7)%
Total originated		5,824,080		5,427,366	7.3%
Acquired:
Commercial:
Commercial and industrial		156,012		183,522	(15.0)%
Municipal and non-profit		305		321	(5.0)%
Owner-occupied commercial real estate		247,701		256,979	(3.6)%
Food and agribusiness		61,551		69,265	(11.1)%
Total commercial		465,569		510,087	(8.7)%
Commercial real estate non-owner occupied		787,926		854,393	(7.8)%
Residential real estate		398,187		424,251	(6.1)%
Consumer		2,676		4,372	(38.8)%
Total acquired		1,654,358		1,793,103	(7.7)%
Total loans	$	7,478,438	$	7,220,469	3.6%

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. The loan portfolio increased $258.0 million, or 4.8% annualized, from December 31, 2022 to September 30, 2023. Loan fundings during the nine months ended September 30, 2023 totaled $1.1 billion, led by commercial loan fundings of $568.1 million.

Our commercial and industrial loan portfolio is highly diversified across industry sectors and geography. At September 30, 2023, there were no industry sectors representing more than 10.0% of our total loan portfolio. Key segments included government/non-profit loans of $728.9 million, or 9.7% of total loans, and health care/hospital loans of $400.7 million, or 5.4% of total loans.

Non-owner occupied CRE loans were 171.0% of the Company’s risk based capital, or 24.3% 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, comprising 1.9% of total loans. Multi-family loans totaled $329.7 million, or 4.4% of total loans, and office loans totaled $98.6 million, or 1.3% of total loans as of September 30, 2023.

The agriculture industry continues to be impacted by elevated and volatile commodity prices and intermittent disruptions in supply chains. Our food and agribusiness portfolio is only 4.3% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 1.1% 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 $1.6 billion over the past 12 months, led by commercial loan fundings of $0.8 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
	2023		2023		2023		2022		2022
Commercial:
Commercial and industrial	$	89,297	$	111,717	$	107,013	$	177,693	$	201,106
Municipal and non-profit		18,657		39,331		22,526		20,393		20,845
Owner occupied commercial real estate		67,322		62,649		33,912		40,912		65,125
Food and agribusiness		16,191		6,017		(6,564)		28,518		76,293
Total commercial		191,467		219,714		156,887		267,516		363,369
Commercial real estate non-owner occupied		88,434		99,984		185,875		133,271		166,739
Residential real estate		42,514		40,814		49,406		95,067		99,951
Consumer		1,689		1,777		1,717		1,396		1,505
Total	$	324,104	$	362,289	$	393,885	$	497,250	$	631,564

Included in fundings are net fundings (paydowns) under revolving lines of credit totaling ($12,877), $13,766, ($7,096), $96,903 and $124,834 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, 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	$	227,396	$	1,383,588	$	318,570	$	10,646	$	1,940,200
Municipal and non-profit		29,737		130,718		504,931		347,886		1,013,272
Owner occupied commercial real estate		71,602		384,580		511,713		107,485		1,075,380
Food and agribusiness		113,850		111,626		77,262		17,422		320,160
Total commercial		442,585		2,010,512		1,412,476		483,439		4,349,012
Commercial real estate non-owner occupied		331,628		924,190		545,684		12,557		1,814,059
Residential real estate		59,623		184,198		345,570		706,600		1,295,991
Consumer		6,402		11,176		1,793		5		19,376
Total loans	$	840,238	$	3,130,076	$	2,305,523	$	1,202,601	$	7,478,438

	December 31, 2022
	Due within		Due after 1 but		Due after 5 but		Due after
	1 year		within 5 years		within 15 years		15 Years		Total
Commercial:
Commercial and industrial	$	234,028	$	1,421,752	$	353,909	$	15,146	$	2,024,835
Municipal and non-profit		1,184		134,012		513,872		310,558		959,626
Owner occupied commercial real estate		61,598		261,305		478,104		112,333		913,340
Food and agribusiness		83,254		203,910		46,624		20,191		353,979
Total commercial		380,064		2,020,979		1,392,509		458,228		4,251,780
Commercial real estate non-owner occupied		234,962		863,842		579,843		17,403		1,696,050
Residential real estate		72,035		169,024		372,638		637,584		1,251,281
Consumer		6,142		12,494		2,721		1		21,358
Total loans	$	693,203	$	3,066,339	$	2,347,711	$	1,113,216	$	7,220,469

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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, 2023
	Fixed			Variable			Total
			Weighted			Weighted			Weighted
	Balance		average rate	Balance		average rate	Balance		average rate
Commercial
Commercial and industrial	$	653,446	5.17%	$	1,059,358	8.19%	$	1,712,804	7.04%
Municipal and non-profit(1)		1,000,752	3.60%		22,018	5.44%		1,022,770	3.79%
Owner occupied commercial real estate		411,588	4.69%		592,189	6.94%		1,003,777	6.10%
Food and agribusiness		35,232	5.68%		171,078	8.00%		206,310	7.60%
Total commercial		2,101,018	4.38%		1,844,643	7.74%		3,945,661	6.01%
Commercial real estate non-owner occupied		509,644	4.40%		972,787	6.60%		1,482,431	5.84%
Residential real estate		540,808	4.03%		695,561	5.18%		1,236,369	4.68%
Consumer		9,905	5.75%		3,069	8.28%		12,974	6.35%
Total loans with > 1 year maturity	$	3,161,375	4.33%	$	3,516,060	6.92%	$	6,677,435	5.73%

	December 31, 2022
	Fixed			Variable			Total
			Weighted			Weighted			Weighted
	Balance		average rate	Balance		average rate	Balance		average rate
Commercial
Commercial and industrial	$	726,568	4.62%	$	1,064,239	7.00%	$	1,790,807	6.04%
Municipal and non-profit(1)		965,635	3.50%		22,483	4.77%		988,118	3.63%
Owner occupied commercial real estate		417,675	4.51%		434,066	6.00%		851,741	5.33%
Food and agribusiness		49,961	5.26%		220,764	7.19%		270,725	6.83%
Total commercial		2,159,839	4.14%		1,741,552	6.75%		3,901,391	5.35%
Commercial real estate non-owner occupied		569,788	4.28%		891,299	5.88%		1,461,087	5.25%
Residential real estate		500,170	3.75%		679,075	4.88%		1,179,245	4.40%
Consumer		11,480	4.98%		3,736	7.21%		15,216	5.52%
Total loans with > 1 year maturity	$	3,241,277	4.11%	$	3,315,662	6.13%	$	6,556,939	5.15%

(1) Included in municipal and non-profit fixed rate loans are loans totaling $337,431 and $340,081 that have been swapped to variable rates at current market pricing at September 30, 2023 and December 31, 2022, respectively. Included in the municipal and non-profit segment are tax exempt loans totaling $817,252 and $772,908 with an FTE weighted average rate of 4.28% and 4.08% at September 30, 2023 and December 31, 2022, respectively.

Asset quality

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

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

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

Non-performing assets and past due loans

Non-performing assets consist of non-accrual loans and OREO. Interest income that would have been recorded had non-accrual loans performed in accordance with their original contract terms during the three and nine months ended September 30, 2023 was $0.8 million and $1.6 million, respectively, and $0.2 million and $0.4 million during the three and nine months ended September 30, 2022, 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, 2023		December 31, 2022
Non-accrual loans:
Non-accrual loans, excluding modified loans	$	19,740	$	14,034
Modified loans on non-accrual(1)		13,472		2,478
Non-performing loans		33,212		16,512
OREO		3,416		3,731
Total non-performing assets	$	36,628	$	20,243
Loans 30-89 days past due and still accruing interest	$	8,144	$	2,986
Loans 90 days or more past due and still accruing interest		154		95
Non-accrual loans		33,212		16,512
Total past due and non-accrual loans	$	41,510	$	19,593
Accruing modified loans(1)	$	6,059	$	4,654
Allowance for credit losses		93,446		89,553
Non-performing loans to total loans		0.44%		0.23%
Total 90 days past due and still accruing interest and non-accrual loans to total loans		0.45%		0.23%
Total non-performing assets to total loans and OREO		0.49%		0.28%
ACL to non-performing loans		281.36%		542.35%

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

During the nine months ended September 30, 2023, total non-performing loans totaled $33.2 million, increasing $16.7 million from December 31, 2022. Total non-performing assets to total loans and OREO totaled 0.49% at September 30, 2023, compared to 0.28% at December 31, 2022.

Loans 30-89 days past due and still accruing interest were 0.11% and 0.04% of total loans at September 30, 2023 and December 31, 2022, respectively. Loans 90 days or more past due and still accruing interest were zero percent of total loans for both September 30, 2023 and December 31, 2022.

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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 life of loan cash flow modeling, excluding extensions and renewals, using loan-specific interest rates and repayment schedules including estimated prepayment rates and loss recovery timing delays. The model incorporates forecasts of certain national macro-economic factors, including unemployment rates, home price index (“HPI”), retail sales and gross domestic product (“GDP”), which drive correlated loss rates. The determination and application of the ACL accounting policy involves judgments, estimates and uncertainties that are subject to change. For periods beyond the reasonable and supportable forecast period, we revert to historical long-term average loss rates on a straight-line basis.

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

	Non-owner occupied
Commercial	commercial real estate	Residential real estate	Consumer
Commercial and industrial	Construction	Senior lien	Consumer
Owner occupied commercial real estate	Acquisition and development	Junior lien
Food and agribusiness	Multifamily
Municipal and non-profit	Non-owner occupied

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

Net charge-offs on loans during the three and nine months ended September 30, 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. During the three and nine months ended September 30, 2023, the Company recorded an increase in the allowance for credit losses of $1.1 million and $4.7 million, respectively, driven by loan growth and an increase in required reserves. Specific reserves on loans totaled $6.1 million at September 30, 2023.

Net charge-offs on loans during the three and nine months ended September 30, 2022 were $0.2 million and $1.1 million, respectively. The Company recorded an increase in the allowance for credit losses of $15.0 million during the three months ended September 30, 2022. During the nine months ended September 30, 2022, the Company recorded an increase in the allowance for credit losses of $17.0 million, driven by loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic

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forecast and Day 1 reserve requirements for the acquired RCB portfolio. Specific reserves on loans totaled $2.9 million at September 30, 2022.

The Company has elected to exclude AIR from the ACL calculation. As of September 30, 2023 and December 31, 2022, AIR from loans totaled $41.7 million and $31.8 million, respectively. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income.

Total ACL

After considering the above mentioned factors, we believe that the ACL of $93.4 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at September 30, 2023. However, it is likely that future adjustments to the ACL will be necessary. Any changes to the underlying assumptions, circumstances or estimates, including but not limited to changes in the underlying macro-economic forecast, used in determining the ACL, could negatively or positively affect the Company's results of operations, liquidity or financial condition.

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, 2023			September 30, 2022
	Total loans		% NCOs(1)	Total loans		% NCOs(1)
Beginning allowance for credit losses	$	92,581		$	50,860
Day 1 CECL provision expense		—			5,201
PCD allowance for credit loss at acquisition		—			2,474
Charge-offs:
Commercial		(239)	0.00%		—	0.00%
Commercial real estate non owner-occupied		—	0.00%		—	0.00%
Residential real estate		—	0.00%		—	0.00%
Consumer		(301)	0.01%		(253)	0.02%
Total charge-offs		(540)			(253)
Recoveries		280			66
Net charge-offs		(260)	0.01%		(187)	0.01%
Provision expense for credit losses		1,125			7,275
Ending allowance for credit losses	$	93,446		$	65,623
Average total loans outstanding during the period	$	7,443,869		$	5,114,044

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	As of and for the nine months ended
	September 30, 2023			September 30, 2022
	Total loans		% NCOs(1)	Total loans		% NCOs(1)
Beginning balance	$	89,553		$	49,694
Day 1 CECL provision expense		—			5,201
PCD allowance for credit loss at acquisition		—			2,474
Charge-offs:
Commercial		(242)	0.00%		(754)	0.02%
Commercial real estate non-owner occupied		—	0.00%		—	0.00%
Residential real estate		(46)	0.00%		(2)	0.00%
Consumer		(930)	0.02%		(582)	0.01%
Total charge-offs		(1,218)			(1,338)
Recoveries		386			256
Net charge-offs		(832)	0.02%		(1,082)	0.03%
Provision expense for credit losses		4,725			9,336
Ending allowance for credit losses	$	93,446		$	65,623
Ratio of ACL to total loans outstanding at period end		1.25%			1.15%
Ratio of ACL to total non-performing loans at period end		281.36%			447.72%
Total loans	$	7,478,438		$	5,721,985
Average total loans outstanding during the period		7,347,380			4,784,064
Non-performing loans		33,212			14,657

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

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, 2023
						ACL as a %
	Total loans		% of total loans	Related ACL		of total ACL
Commercial	$	4,349,012	58.1%	$	45,291	48.5%
Commercial real estate non-owner occupied		1,814,059	24.3%		28,468	30.5%
Residential real estate		1,295,991	17.3%		19,291	20.6%
Consumer		19,376	0.3%		396	0.4%
Total	$	7,478,438	100.0%	$	93,446	100.0%

	December 31, 2022
						ACL as a %
	Total loans		% of total loans	Related ACL		of total ACL
Commercial	$	4,251,780	58.9%	$	37,608	42.0%
Commercial real estate non-owner occupied		1,696,050	23.5%		32,050	35.8%
Residential real estate		1,251,281	17.3%		19,306	21.5%
Consumer		21,358	0.3%		589	0.7%
Total	$	7,220,469	100.0%	$	89,553	100.0%

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Deposits

Deposits from banking clients serve as a primary funding source for our banking operations, and our ability to gather and manage deposit levels is critical to our success. Deposits not only provide a 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, 2023 and December 31, 2022:

							Increase (decrease)
	September 30, 2023			December 31, 2022			Amount		% Change
Non-interest bearing demand deposits	$	2,483,174	30.5%	$	3,134,716	39.9%	$	(651,542)	(20.8)%
Interest bearing demand deposits		1,358,445	16.7%		913,852	11.6%		444,593	48.7%
Savings accounts		670,921	8.2%		885,488	11.2%		(214,567)	(24.2)%
Money market accounts		2,643,974	32.4%		2,065,170	26.2%		578,804	28.0%
Total transaction deposits		7,156,514	87.8%		6,999,226	88.9%		157,288	2.2%
Time deposits < $250,000		710,750	8.7%		670,197	8.5%		40,553	6.1%
Time deposits > $250,000		281,744	3.5%		203,203	2.6%		78,541	38.7%
Total time deposits		992,494	12.2%		873,400	11.1%		119,094	13.6%
Total deposits	$	8,149,008	100.0%	$	7,872,626	100.0%	$	276,382	3.5%

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

	September 30, 2023
Three months or less	$	59,944
Over 3 months through 6 months		32,692
Over 6 months through 12 months		56,442
Thereafter		75,348
Total uninsured time deposits	$	224,426

At September 30, 2023 and December 31, 2022, time deposits that were scheduled to mature within 12 months totaled $666.3 million and $469.8 million, respectively. Of the time deposits scheduled to mature within 12 months at September 30, 2023, $203.4 million were in denominations of $250,000 or more, and $462.9 million were in denominations less than $250,000. Approximately 70% of our total deposits were FDIC insured at September 30, 2023 and December 31, 2022. Additionally, the Company participates in the IntraFi Cash Service program, which allows depositors to receive reciprocal FDIC insurance coverage. The Company had $852.4 million and $268.8 million of deposits in the program as of September 30, 2023 and December 31, 2022, respectively.

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, 2023, net of long-term debt issuance costs totaling $0.3 million, totaled $39.7 million. Interest expense totaling $0.3 million and $0.9 million was recorded in the consolidated statements of operations during the three and nine months ended September 30, 2023, respectively, consistent with the same periods in 2022.

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.

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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, 2023, net of a fair value adjustment related to 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, 2023, 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, 2023 and December 31, 2022, the Company sold securities under agreements to repurchase totaling $20.3 million and $20.2 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 $1.7 billion at September 30, 2023. The Company may utilize the FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At both September 30, 2023 and December 31, 2022, the Company had $316.8 million and $385.0 million of outstanding borrowings with the FHLB, respectively. The Company may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2023 or December 31, 2022. Loans pledged were $2.5 billion and $2.0 billion at September 30, 2023 and December 31, 2022, respectively. The Company incurred $4.4 million and $17.1 million of interest expense related to FHLB advances or other short-term borrowings for the three and nine months ended September 30, 2023, respectively. The Company incurred no interest expense related to FHLB advances or other short-term borrowings for the three and nine months ended September 30, 2022.

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

During the three months ended September 30, 2023, net income increased $20.2 million, or 127.8%, to $36.1 million, compared to the three months ended September 30, 2022. During the nine months ended September 30, 2023, net income increased $54.4 million, or 99.7%, to $108.9 million, compared to the nine months ended September 30 2022. Earnings per diluted share for the three and nine months ended September 30, 2023 were $0.94 and $2.85, respectively. The increases over the same periods in the prior year were driven by organic balance sheet growth, strategic acquisition growth and increases in the Federal Reserve Bank’s interest rates. The return on average tangible assets was 1.58% and 1.61% during the three and nine months ended September 30, 2023, respectively, and 0.87% and 1.03% during the three and nine months ended September 30, 2022. The return on average tangible common equity was 18.38% and 18.81% during the three and nine months ended September 30, 2023, respectively, and 8.66% and 10.17% during the three and nine months ended September 30, 2022.

The three months ended September 30, 2022 included $9.5 million of non-recurring acquisition-related expenses, after tax, related to our 2022 acquisitions. Adjusting for these expenses in the prior period, net income for the third quarter of 2023 increased $10.7 million, or 42.4%, and fully taxable equivalent pre-provision net revenue increased $7.2 million, or 17.6%. The adjusted return on average tangible assets was 1.39%, and the adjusted return on average tangible common equity was 13.76% for the three months ended September 30, 2022.

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The nine months ended September 30, 2022 included $10.5 million of non-recurring acquisition-related expenses, after tax, related to our 2022 acquisitions. Adjusting for these expenses in the prior period, net income for the first nine months of 2023 increased $43.9 million or 67.5%, and fully taxable equivalent pre-provision net revenue increased $51.2 million, or 54.6%. The adjusted return on average tangible assets was 1.23%, and the adjusted return on average tangible common equity was 12.10% for the nine months ended September 30, 2022.

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 table below presents the components of net interest income on a FTE basis for the three months ended September 30, 2023 and 2022. The effects of trade-date accounting of investment securities for which the cash had not settled are not considered interest earning assets and are excluded from this presentation for time frames prior to their cash settlement, as are the market value adjustments on the investment securities available-for-sale and loans.

	For the three months ended					For the three months ended
	September 30, 2023					September 30, 2022
	Average balance		Interest		Average rate	Average balance		Interest		Average rate
Interest earning assets:
Originated loans FTE(1)(2)(3)	$	5,803,157	$	92,813	6.35%	$	4,834,206	$	58,153	4.77%
Acquired loans		1,671,595		26,115	6.20%		295,893		6,581	8.82%
Loans held for sale		22,154		383	6.86%		39,532		551	5.53%
Investment securities available-for-sale		761,892		3,783	1.99%		865,875		4,247	1.96%
Investment securities held-to-maturity		611,712		2,685	1.76%		605,356		2,212	1.46%
Other securities		39,115		701	7.17%		14,909		212	5.69%
Interest earning deposits		130,239		1,205	3.67%		326,277		1,822	2.22%
Total interest earning assets FTE(2)	$	9,039,864	$	127,685	5.60%	$	6,982,048	$	73,778	4.19%
Cash and due from banks	$	104,308				$	81,112
Other assets		737,568					440,516
Allowance for credit losses		(92,831)					(54,610)
Total assets	$	9,788,909				$	7,449,066
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits	$	4,535,183	$	27,211	2.38%	$	3,058,463	$	1,829	0.24%
Time deposits		992,755		6,212	2.48%		799,759		1,116	0.55%
Securities sold under agreements to repurchase		19,288		6	0.12%		22,183		7	0.13%
Long-term debt, net		54,074		519	3.81%		39,543		326	3.27%
Federal Home Loan Bank advances		316,723		4,385	5.49%		—		—	0.00%
Total interest bearing liabilities	$	5,918,023	$	38,333	2.57%	$	3,919,948	$	3,278	0.33%
Demand deposits	$	2,553,619				$	2,557,286
Other liabilities		149,068					100,983
Total liabilities		8,620,710					6,578,217
Shareholders' equity		1,168,199					870,849
Total liabilities and shareholders' equity	$	9,788,909				$	7,449,066
Net interest income FTE(2)			$	89,352				$	70,500
Interest rate spread FTE(2)					3.03%					3.86%
Net interest earning assets	$	3,121,841				$	3,062,100
Net interest margin FTE(2)					3.92%					4.01%
Average transaction deposits	$	7,088,802				$	5,615,749
Average total deposits		8,081,557					6,415,508
Ratio of average interest earning assets to average interest bearing liabilities		152.75%					178.12%

(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 $1,575 and $1,409 for the three months ended September 30, 2023 and 2022, respectively.
(3)	Loan fees included in interest income totaled $2,719 and $2,205 for the three months ended September 30, 2023 and 2022, respectively.

Net interest income totaled $87.8 million and $69.1 million during the three months ended September 30, 2023 and 2022, respectively. Net interest income on an FTE basis totaled $89.4 million and $70.5 million during the three months ended September 30, 2023 and 2022, respectively. During the three months ended September 30, 2023, the FTE net interest margin narrowed 9 basis points to 3.92%, compared to the three months ended September 30, 2022. The yield on earning assets increased 141 basis points, driven by an increase in earning assets and increases in the Federal Reserve Bank’s interest rates. The cost of funds increased 160 basis points to 1.80% during the three months ended September 30, 2023, compared to the three months ended September 30, 2022.

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Average loans comprised $7.5 billion, or 82.7%, of total average interest earning assets during the three months ended September 30, 2023. Average loans increased $2.3 billion, or 45.7%, compared to the three months ended September 30, 2022. During the three months ended September 30, 2022, average loans comprised $5.1 billion, or 73.5%, of total average interest earning assets. The increase in average loan balances was driven by a $1.4 billion increase in average acquired loans from the 2022 acquisitions and a $1.0 billion increase in average originated loans.

Average investment securities comprised 15.2% and 21.1% of total interest earning assets during the three months ended September 30, 2023 and 2022, respectively. Average interest bearing cash balances totaled $130.2 million during the three months ended September 30, 2023, compared to $326.3 million for the same period in the prior year as the excess cash liquidity has been deployed into higher-yielding earning assets.

Average balances of interest bearing liabilities increased $2.0 billion during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, driven by organic balance sheet and strategic acquisition growth. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $1.5 billion, FHLB advances totaling $316.7 million, time deposits totaling $193.0 million and long term debt totaling $14.5 million. The increase was partially offset by a decrease in securities sold under agreements to repurchase of $2.9 million.

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The table below presents the components of net interest income on a FTE basis for the nine months ended September 30, 2023 and 2022:

	For the nine months ended					For the nine months ended
	September 30, 2023					September 30, 2022
	Average balance		Interest		Average rate	Average balance		Interest		Average rate
Interest earning assets:
Originated loans FTE(1)(2)(3)	$	5,656,309	$	258,528	6.11%	$	4,598,705	$	148,025	4.30%
Acquired loans		1,718,523		79,526	6.19%		191,089		13,552	9.48%
Loans held for sale		23,494		1,189	6.77%		70,384		2,188	4.16%
Investment securities available-for-sale		786,087		11,655	1.98%		839,235		10,904	1.73%
Investment securities held-to-maturity		629,507		8,364	1.77%		585,023		6,291	1.43%
Other securities		46,480		2,513	7.21%		14,698		632	5.73%
Interest earning deposits		120,633		3,369	3.73%		530,841		3,196	0.80%
Total interest earning assets FTE(2)	$	8,981,033	$	365,144	5.44%	$	6,829,975	$	184,788	3.62%
Cash and due from banks	$	110,902				$	78,710
Other assets		724,305					428,374
Allowance for credit losses		(91,110)					(51,125)
Total assets	$	9,725,130				$	7,285,934
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits	$	4,197,603	$	55,070	1.75%	$	2,996,317	$	4,760	0.21%
Time deposits		965,750		14,545	2.01%		804,110		3,201	0.53%
Securities sold under agreements to repurchase		19,863		17	0.11%		22,236		20	0.12%
Long-term debt, net		53,997		1,555	3.85%		39,516		980	3.32%
Federal Home Loan Bank advances		449,060		17,075	5.08%		—		—	0.00%
Total interest bearing liabilities	$	5,686,273	$	88,262	2.08%	$	3,862,179	$	8,961	0.31%
Demand deposits	$	2,751,537				$	2,487,522
Other liabilities		141,110					91,992
Total liabilities		8,578,920					6,441,693
Shareholders' equity		1,146,210					844,241
Total liabilities and shareholders' equity	$	9,725,130				$	7,285,934
Net interest income FTE(2)			$	276,882				$	175,827
Interest rate spread FTE(2)					3.36%					3.31%
Net interest earning assets	$	3,294,760				$	2,967,796
Net interest margin FTE(2)					4.12%					3.44%
Average transaction deposits	$	6,949,140				$	5,483,839
Average total deposits		7,914,890					6,287,949
Ratio of average interest earning assets to average interest bearing liabilities		157.94%					176.84%

(1)	Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)	Presented on a fully taxable equivalent basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above are $4,432 and $4,058 for the nine months ended September 30, 2023 and 2022, respectively.
(3)	Loan fees included in interest income totaled $8,120 and $7,155 for the nine months ended September 30, 2023 and 2022, respectively.

Net interest income totaled $272.5 million and $171.8 million during the nine months ended September 30, 2023 and 2022, respectively. Net interest income on a FTE basis totaled $276.9 million and $175.8 million during the nine months ended September 30, 2023 and 2022, respectively. During the nine months ended September 30, 2023, the FTE net interest margin widened 68 basis points to 4.12%, compared to the nine months ended September 30, 2022. The yield on earning assets increased 182 basis points, primarily driven by increases in the earning assets and increases in the Federal Reserve Bank’s interest rates. The cost of funds increased 121 basis points to 1.40% during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022.

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Average loans comprised $7.4 billion, or 82.1%, of total average interest earning assets during the nine months ended September 30, 2023, compared to $4.8 billion, or 70.1%, of total average interest earning assets during the nine months ended September 30, 2022. The increase in average loan balances was driven by a $1.5 billion increase in average acquired loans from the 2022 acquisitions and a $1.1 billion increase in average originated loans. Year-to-date loan fundings through September 30, 2023 totaled $1.1 billion.

Average investment securities comprised 15.8% and 20.9% of total interest earning assets during the nine months ended September 30, 2023 and 2022, respectively, driven by changes in our earning assets mix.

Average balances of interest bearing liabilities increased $1.8 billion during the nine months ended September 30, 2023, compared to the nine months ended September 30, 2022, driven by organic balance sheet and strategic acquisition growth. The increase was driven by higher interest bearing demand, savings and money market deposits totaling $1.2 billion, FHLB advances totaling $449.1 million, time deposits totaling $161.6 million and long-term debt totaling $14.5 million. The increase was partially offset by a decrease in securities sold under agreements to repurchase of $2.4 million. The cost of deposits increased 101 basis points to 1.18% during the nine months ended September 30, 2023, compared to 0.17% during the nine months ended September 30, 2022.

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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, 2023, compared to the three and nine months ended September 30, 2022:

	Three months ended September 30, 2023						Nine months ended September 30, 2023
	compared to						compared to
	Three months ended September 30, 2022						Nine months ended September 30, 2022
	Increase (decrease) due to						Increase (decrease) due to
	Volume		Rate		Net		Volume		Rate		Net
Interest income:
Originated loans FTE(1)(2)(3)	$	15,497	$	19,163	$	34,660	$	48,339	$	62,164	$	110,503
Acquired loans		21,492		(1,958)		19,534		70,683		(4,709)		65,974
Loans held for sale		(300)		132		(168)		(2,373)		1,374		(999)
Investment securities available-for-sale		(516)		52		(464)		(788)		1,539		751
Investment securities held-to-maturity		28		445		473		591		1,482		2,073
Other securities		434		55		489		1,718		163		1,881
Interest earning deposits		(1,814)		1,197		(617)		(11,456)		11,629		173
Total interest income	$	34,821	$	19,086	$	53,907	$	106,714	$	73,642	$	180,356
Interest expense:
Interest bearing demand, savings and money market deposits	$	8,860	$	16,522	$	25,382	$	15,760	$	34,550	$	50,310
Time deposits		1,208		3,888		5,096		2,434		8,910		11,344
Securities sold under agreements to repurchase		(1)		—		(1)		(2)		(1)		(3)
Long-term debt, net		139		54		193		417		158		575
Federal Home Loan Bank advances		4,385		—		4,385		17,075		—		17,075
Total interest expense		14,591		20,464		35,055		35,684		43,617		79,301
Net change in net interest income	$	20,230	$	(1,378)	$	18,852	$	71,030	$	30,025	$	101,055

(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 $1,575 and $1,409 for the three months ended September 30, 2023 and 2022, respectively. The taxable equivalent adjustments included above are $4,432 and $4,058 for the nine months ended September 30, 2023 and 2022, respectively.
(3)	Loan fees included in interest income totaled $2,719 and $2,205 for the three months ended September 30, 2023 and 2022, respectively. Loan fees included in interest income totaled $8,120 and $7,155 for the nine months ended September 30, 2023 and 2022, 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, 2023			September 30, 2022			September 30, 2023			September 30, 2022
			Average			Average			Average			Average
	Average		rate	Average		rate	Average		rate	Average		rate
	balance		paid	balance		paid	balance		paid	balance		paid
Non-interest bearing demand	$	2,553,619	0.00%	$	2,557,286	0.00%	$	2,751,537	0.00%	$	2,487,522	0.00%
Interest bearing demand		1,336,562	2.44%		592,133	0.26%		1,186,197	1.92%		589,918	0.21%
Money market accounts		2,503,368	2.85%		1,674,240	0.26%		2,246,463	2.10%		1,619,744	0.24%
Savings accounts		695,253	0.58%		792,090	0.18%		764,943	0.47%		786,655	0.15%
Time deposits		992,755	2.48%		799,759	0.55%		965,750	2.01%		804,110	0.53%
Total average deposits	$	8,081,557	1.64%	$	6,415,508	0.18%	$	7,914,890	1.18%	$	6,287,949	0.17%

Provision for credit losses

The provision for credit losses represents the amount of expense that is necessary to bring the ACL to a level that we deem appropriate to absorb estimated lifetime losses inherent in the loan portfolio and estimated losses inherent in unfunded loans 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. Provision for credit losses of $1.1 million and $3.7 million was recorded during the three and nine months ended September 30, 2023, respectively. Included in the provision for credit losses was zero and $1.0 million of provision release for unfunded loan commitments during the three and nine months ended September 30, 2023, respectively. The three and nine months

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ended September 30, 2023 provision was 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, and the allowance for credit losses totaled 1.25% of total loans at September 30, 2023.

Provision for credit losses of $12.7 million and $14.9 million was recorded during the three and nine months ended September 30, 2022, respectively. Included in the provision for credit losses was $0.2 million and $0.4 million of provision expense for unfunded loan commitments during the three and nine months ended September 30, 2022, respectively. The three and nine months ended September 30, 2022 provision was driven by record loan growth, higher reserve requirements from changes in the CECL model’s underlying macro-economic forecast and $5.4 million of Day 1 reserve requirements for the acquired RCB portfolio. Net charge-offs on loans during the three and nine months ended September 30, 2022 were $0.2 million and $1.1 million, respectively, and the allowance for credit losses totaled 1.15% of total loans at September 30, 2022.

Non-interest income

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

	For the three months ended September 30,				For the nine months ended September 30,				Three months			Nine months
									Increase (decrease)			Increase (decrease)
	2023		2022		2023		2022		Amount		% Change	Amount		% Change
Service charges	$	4,849	$	4,326	$	13,394	$	11,992	$	523	12.1%	$	1,402	11.7%
Bank card fees		4,993		4,681		14,721		13,345		312	6.7%		1,376	10.3%
Mortgage banking income		4,688		4,474		11,614		21,088		214	4.8%		(9,474)	(44.9)%
Bank-owned life insurance income		882		573		2,559		1,645		309	53.9%		914	55.6%
Other non-interest income		3,953		3,304		5,565		5,104		649	19.6%		461	9.0%
Total non-interest income	$	19,365	$	17,358	$	47,853	$	53,174	$	2,007	11.6%	$	(5,321)	(10.0)%

Non-interest income increased to $19.4 million for the three months ended September 30, 2023, compared to $17.4 million for the three months ended September 30, 2022. Service charges and bank card fees increased $0.8 million, driven by growth in our depositor base. Other non-interest income increased $0.6 million during the three months ended September 30, 2023, compared to the three months ended September 30, 2022, primarily driven by $0.6 million from a gain on sale of SBA loans, $0.5 million of trust income, as well as Cambr fee income. Mortgage banking income increased $0.2 million during the three months ended September 30, 2023 and included a $1.1 million gain from the sale of mortgage servicing rights, partially offset by lower mortgage banking income due to lower refinance and purchase activity and competition driving tighter gain on sale margins. During the three months ended September 30, 2022, other non-interest income included higher gains on fixed asset sales and income from non-marketable securities, compared to the three months ended September 30, 2023.

Non-interest income totaled $47.9 million for the nine months ended September 30, 2023, compared to $53.2 million for the nine months ended September 30, 2022. Mortgage banking income decreased $9.5 million, driven by lower purchase and refinance activity and competition driving tighter gain on sale margins, and was partially offset by a $1.1 million gain from the sale of mortgage servicing rights. Service charges and bank card fees increased $2.8 million due to growth in our depositor base. Other non-interest income increased $0.5 million during the nine months ended September 30, 2023, compared to the same period in the prior year. During the nine months ended September 30, 2023, other non-interest income included $1.5 million of trust income and a $1.3 million gain from the sale of SBA loans, as well as Cambr fee income. Trust income, SBA loan sales and Cambr fee income, are new and diversified sources of fee revenue. Increases in other non-interest income during the nine months ended September 30, 2023 were partially offset by $4.4 million in impairments related to venture capital investments classified as non-marketable securities.

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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)
	2023		2022		2023		2022		Amount		% Change	Amount		% Change
Salaries and benefits	$	35,027	$	30,540	$	103,231	$	88,652	$	4,487	14.7%	$	14,579	16.4%
Occupancy and equipment		9,167		8,026		27,366		21,087		1,141	14.2%		6,279	29.8%
Data processing		3,546		2,899		10,257		7,733		647	22.3%		2,524	32.6%
Marketing and business development		1,037		979		2,997		2,326		58	5.9%		671	28.8%
FDIC deposit insurance		1,686		508		5,433		1,476		1,178	231.9%		3,957	268.1%
Bank card expenses		1,667		1,409		4,260		4,075		258	18.3%		185	4.5%
Professional fees		2,215		5,810		7,951		8,110		(3,595)	(61.9)%		(159)	(2.0)%
Other non-interest expense		4,250		3,384		13,003		9,138		866	25.6%		3,865	42.3%
Other intangible assets amortization		2,008		383		5,378		975		1,625	424.3%		4,403	451.6%
Total non-interest expense	$	60,603	$	53,938	$	179,876	$	143,572	$	6,665	12.4%	$	36,304	25.3%

During the three months ended September 30, 2023, non-interest expense increased $6.7 million, or 12.4%, compared to the three months ended September 30, 2022, primarily due to an increase in core operating expenses driven by acquisitions. During the three months ended September 30, 2023, FDIC deposit insurance expense increased $1.2 million, compared to the three months ended September 30, 2022, as a result of recent acquisitions and an increase in the FDIC assessment rate effective January 2023. Included in the third quarter of 2022 were non-recurring acquisition-related expenses of $7.0 million.

During the nine months ended September 30, 2023, non-interest expense increased $36.3 million, or 25.3%, compared to the nine months ended September 30, 2022, primarily due to an increase in core operating expenses driven by our recent acquisitions. During the nine months ended September 30, 2023, FDIC deposit insurance expense increased $4.0 million, compared to the nine months ended September 30, 2022, as a result of recent acquisitions and an increase in the FDIC assessment rate effective January 2023. Included in the first nine months of 2023 and 2022 were non-recurring acquisition-related expenses of $1.0 million and $8.3 million, respectively.

Income taxes

Income tax expense totaled $9.3 million and $27.8 million for the three and nine months ended September 30, 2023, respectively. Income tax expense for the three and nine months ended September 30, 2022 was $4.0 million and $12.0 million, respectively. The increases over the prior periods were driven by higher pre-tax income. The effective tax rate for the three and nine months ended September 30, 2023 was 20.5% and 20.3%, respectively, compared to 20.1% and 18.0% for the same periods in the prior year.

Additional information regarding income taxes can be found in note 20 of our audited consolidated financial statements in our 2022 Annual Report on Form 10-K.

Liquidity and Capital Resources

Liquidity

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

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Committee. As of September 30, 2023, the Banks had sufficient liquidity to cover all expected and unexpected uses of cash as modeled by various short-term and long-term liquidity stress scenarios.

Our primary sources of funds include but are not limited to cash on hand, the investment securities portfolio, federal funds purchased, deposits, funds provided from operations, prepayments and maturities of loans.

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, 2023 and December 31, 2022:

	September 30, 2023		December 31, 2022
Cash and due from banks	$	291,291	$	195,505
Unencumbered investment securities, at fair value		414,316		476,250
Total	$	705,607	$	671,755

Total on-balance sheet liquidity increased $33.9 million at September 30, 2023, compared to December 31, 2022. The increase was due to higher cash and due from banks of $95.8 million, partially offset by $61.9 million lower unencumbered available-for-sale and held-to-maturity securities balances. As of September 30, 2023, approximately, $805.8 million of investment securities were pledged to secure client deposits and repurchase agreements.

We have access to various off-balance sheet third party funding sources including the ability to access immediate funding through FHLB advances, the Federal Reserve discount window, Cambr deposits and the brokered deposit marketplace, whereby deposits could be purchased in a wholesale market as an alternate source of funding. We anticipate having access to capital markets including the ability to issue debt or issue shares of our common stock or other equity or equity-related securities.

The Company had pledged $2.5 billion of loans as collateral to the FHLB at September 30, 2023 and $2.0 billion at December 31, 2022, respectively. FHLB borrowing availability, lines of credit and other short-term borrowing availability totaled $1.7 billion at September 30, 2023. At September 30, 2023, the Company had $316.8 million of outstanding borrowings with the FHLB.

Additionally, we have access to the Federal Reserve’s Bank Term Funding Program (“BTFP”). The BTFP is a recently established facility in response to recent liquidity concerns within the banking industry to help assure that banks have the ability to meet the needs of depositors. Under the program, eligible depository institutions can obtain loans of up to one year in length by pledging U.S. Treasuries, agency debt and mortgage-backed securities, and other qualifying assets as collateral.

The Company’s acquisition of Cambr Solutions, LLC in April 2023 also adds a funding source by providing on-demand access to bring deposits onto our balance sheet. We anticipate that the sources of liquidity discussed above will provide adequate funding and liquidity for at least a 12-month period, and we may utilize any combination of these funding sources for long-term liquidity needs if deemed prudent.

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, 2023, $666.3 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. At September 30, 2023, the balance on the note, net of long-term debt issuance costs totaling $0.3 million, totaled $39.7 million. The note is not subject to redemption at the option of the holder. Additionally, as part of the acquisition of BOJH on October 1, 2022, the Company assumed three subordinated note purchase agreements to issue and sell fixed-to-floating rate notes. The balance on the notes at September 30, 2023, net of the fair value adjustment from the acquisition totaling $0.5 million, totaled $14.5 million.

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Exclusive from the investing activities related to acquisitions, our primary investing activities are loan fundings and pay-offs and paydowns of loans and purchases and sales of investment securities. At September 30, 2023, pledgeable investment securities represented a significant source of liquidity. Our available-for-sale investment securities are carried at fair value and our held-to-maturity securities are carried at amortized cost. Our collective investment securities portfolio totaled $1.2 billion at September 30, 2023, inclusive of pre-tax net unrealized losses of $128.0 million on the available-for-sale securities portfolio. Additionally, our held-to-maturity securities portfolio had $106.3 million of pre-tax net unrealized losses at September 30, 2023. The gross unrealized gains and losses are detailed in note 3 of our consolidated financial statements. As of September 30, 2023, our investment securities portfolio consisted primarily of MBS, all of which were issued or guaranteed by U.S. Government agencies or sponsored enterprises. The anticipated repayments and marketability of these securities offer substantial resources and flexibility to meet new loan demand, reinvest in the investment securities portfolio, or provide optionality for reductions in our deposit funding base.

For additional information regarding our operating, investing and financing cash flows, see our consolidated statements of cash flows in the accompanying consolidated financial statements.

Capital

Under the Basel III requirements, at September 30, 2023, 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.

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 2023 program as of September 30, 2023 was $50.0 million.

On November 7, 2023, our Board of Directors declared a quarterly dividend of $0.27 per common share, payable on December 15, 2023 to shareholders of record at the close of business on November 24, 2023.

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 principal objective of the Company's asset and liability management function is to evaluate the interest rate risk within the balance sheet and pursue a controlled assumption of interest rate risk while maximizing earnings and preserving adequate levels of liquidity and capital. The asset and liability management function is under the guidance of the Asset Liability Committee with direction from the Board of Directors. The Asset Liability Committee meets monthly to review, among other things, the sensitivity of the Company's

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assets and liabilities to interest rate changes, local and national market conditions and rates. The Asset Liability Committee also reviews the liquidity, capital, deposit mix, loan mix and investment positions of the Company.

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

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

Our interest rate risk model indicated that the Company was in a fairly neutral position in terms of interest rate sensitivity at September 30, 2023. At September 30, 2023, our asset sensitivity position decreased from December 31, 2022, primarily driven by balance sheet mix change, mainly due to shifting of non-interest bearing deposits into interest bearing accounts. The table below illustrates the impact of an immediate and sustained 200 and 100 basis point increase and a 100 and 200 basis point decrease in interest rates on net interest income based on the interest rate risk model at the respective dates:

Hypothetical
shift in interest	% change in projected net interest income
rates (in bps)	September 30, 2023	December 31, 2022
200	0.19%	2.60%
100	0.11%	1.31%
(100)	(0.32)%	(2.93)%
(200)	(1.19)%	(8.24)%

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

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 87.8% of total deposits at September 30, 2023, compared to 88.9% at December 31, 2022. We currently have no brokered time deposits.

Impact of Inflation and Changing Prices

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

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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, 2023 and December 31, 2022, we had loan commitments totaling $1.8 billion and $2.0 billion, respectively, and standby letters of credit that totaled $9.9 million and $13.9 million, respectively. Unused commitments do not necessarily represent future credit exposure or cash requirements, as commitments often expire without being drawn upon.

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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

Item 4. CONTROLS AND PROCEDURES

Our management, with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as of September 30, 2023. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2023.

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 in the Risk Factors described in the Corporation’s 2022 Annual Report on Form 10-K other than as set out in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, in Item 1A of Part II.

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 - September 30, 2023(1)	—		—	—		50,000,000
Total	—		—	—

(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 2023 program as of September 30, 2023 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)
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/ Aldis Birkans
	Aldis Birkans
	Chief Financial Officer
	(principal financial officer)

Date: November 7, 2023

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