10-Q - NBHC - Equibles

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, 2021 ****

☐ 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 CORP ORATION

(Exact name of registrant as specified in its charter)


Delaware		27-0563799
(State or other jurisdiction of<br><br>incorporation or organization)		(I.R.S. Employer<br><br>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 5, 2021, the registrant had outstanding 30,297,871 shares of Class A voting common stock, each with $0.01 par value per share, excluding 143,078 shares of restricted Class A common stock issued but not yet vested.


		****	Page
Part I. Financial Information

Item 1.	Financial Statements (Unaudited)		5

	Consolidated Statements of Financial Condition as of September 30, 2021 and December 31, 2020		5

	Consolidated Statements of Operations for the three and nine months ended September 30, 2021 and 2020		6

	Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020		7

	Consolidated Statements of Changes in Shareholders’ Equity for the three and nine months ended September 30, 2021 and 2020		8

	Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020		9

	Notes to Consolidated Financial Statements		10

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		39

Item 3.	Quantitative and Qualitative Disclosures About Market Risk		68

Item 4.	Controls and Procedures		68

Part II. Other Information

Item 1.	Legal Proceedings		69

Item 1A.	Risk Factors		69

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		69

Item 5.	Other Information		69

Item 6.	Exhibits		70

Table of Contents CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENT S

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:

● 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;

● 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, 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;

● 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 composition of such growth;

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

Table of Contents ● 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 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 increases to prevailing tax rates, or challenges to our

position;

● 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;

● technological changes;

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

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

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

● regulatory limitations on dividends from our bank subsidiary;

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

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

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

● 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.

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.

Table of Contents PART I: FINANCIAL INFORMATIO N

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, 2021		****	December 31, 2020
ASSETS
Cash and due from banks		$	806,870		$	605,065
Interest bearing bank deposits			500			500
Cash and cash equivalents			807,370			605,565
Investment securities available-for-sale (at fair value)			657,833			661,955
Investment securities held-to-maturity (fair value of $640,341 and $381,691 at September 30, 2021 and December 31, 2020, respectively)			642,636			376,615
Non-marketable securities			46,964			22,073
Loans			4,421,760			4,353,726
Allowance for credit losses			(49,155)			(59,777)
Loans, net			4,372,605			4,293,949
Loans held for sale			158,066			247,813
Other real estate owned			4,325			4,730
Premises and equipment, net			94,114			106,982
Goodwill			115,027			115,027
Intangible assets, net			11,621			17,928
Other assets			190,430			207,313
Total assets		$	7,100,991		$	6,659,950
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing demand deposits		$	2,447,099		$	2,111,045
Interest bearing demand deposits			546,597			514,286
Savings and money market			2,264,083			2,064,769
Time deposits			876,841			986,132
Total deposits			6,134,620			5,676,232
Securities sold under agreements to repurchase			21,427			22,897
Other liabilities			100,228			140,130
Total liabilities			6,256,275			5,839,259
Shareholders’ equity:
Common stock, par value $0.01 per share: 400,000,000 shares authorized; 51,487,907 and 51,487,907 shares issued; 30,288,131 and 30,634,291 shares outstanding at September 30, 2021 and December 31, 2020, respectively			515			515
Additional paid-in capital			1,013,064			1,011,362
Retained earnings			273,900			223,175
Treasury stock of 21,044,309 and 20,686,986 shares at September 30, 2021 and December 31, 2020, respectively, at cost			(441,366)			(424,127)
Accumulated other comprehensive (loss) income, net of tax			(1,397)			9,766
Total shareholders’ equity			844,716			820,691
Total liabilities and shareholders’ equity		$	7,100,991		$	6,659,950

See accompanying notes to the consolidated interim financial statements.

Table of Contents

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,
	2021		****	2020		****	2021		****	2020
Interest and dividend income:
Interest and fees on loans	$	45,512		$	47,974		$	134,342		$	150,672
Interest and dividends on investment securities		4,750			4,037			12,771			12,918
Dividends on non-marketable securities		210			221			629			945
Interest on interest-bearing bank deposits		329			70			722			179
Total interest and dividend income		50,801			52,302			148,464			164,714
Interest expense:
Interest on deposits		3,227			5,491			10,790			18,904
Interest on borrowings		5			96			16			1,420
Total interest expense		3,232			5,587			10,806			20,324
Net interest income before provision for loan losses		47,569			46,715			137,658			144,390
Provision expense (release) for loan losses		—			1,200			(9,425)			17,630
Net interest income after provision for loan losses		47,569			45,515			147,083			126,760
Non-interest income:
Service charges		3,947			3,742			10,989			10,962
Bank card fees		4,530			4,039			13,217			11,206
Mortgage banking income		16,615			34,943			52,973			79,246
Bank-owned life insurance income		558			597			1,659			1,776
Other non-interest income		2,872			1,136			8,276			3,608
OREO-related income		—			75			35			103
Total non-interest income		28,522			44,532			87,149			106,901
Non-interest expense:
Salaries and benefits		32,556			38,614			97,518			108,251
Occupancy and equipment		6,469			6,878			19,150			20,854
Telecommunications and data processing		2,282			2,270			6,934			6,790
Marketing and business development		582			696			1,604			1,992
FDIC deposit insurance		475			409			1,375			744
Bank card expenses		1,457			1,275			3,931			3,334
Professional fees		3,251			714			4,642			2,082
Other non-interest expense		2,828			2,793			7,652			8,362
Problem asset workout		1,119			1,064			1,851			2,341
(Gain) loss on OREO sales, net		—			(119)			192			(25)
Core deposit intangible asset amortization		295			295			887			887
Banking center consolidation-related expense		—			432			1,589			2,140
Total non-interest expense		51,314			55,321			147,325			157,752
Income before income taxes		24,777			34,726			86,907			75,909
Income tax expense		4,952			6,833			16,070			14,487
Net income	$	19,825		$	27,893		$	70,837		$	61,422
Earnings per share—basic	$	0.64		$	0.91		$	2.29		$	1.99
Earnings per share—diluted		0.64			0.90			2.27			1.97
Weighted average number of common shares outstanding:
Basic		30,800,590			30,756,116			30,858,759			30,881,325
Diluted		31,064,815			30,924,223			31,162,132			31,070,997

See accompanying notes to the consolidated interim financial statements.

Table of Contents NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income (Unaudited)

(In thousands)


						For the nine months ended
						September 30,
			2020			2021			2020
Net income	19,825	****	$	27,893	****	$	70,837	****	$	61,422
Other comprehensive (loss) income, net of tax:
Securities available-for-sale:
Net unrealized (losses) gains arising during the period, net of tax benefit of 922 and 290 for the three months ended September 30, 2021 and 2020, respectively; and net of tax benefit (expense) of 3,331 and (3,021) for the nine months ended September 30, 2021 and 2020, respectively	(2,970)			(925)			(10,727)			9,627
Less: amortization of net unrealized holding gains to income, net of tax benefit of 38 and 60 for the three months ended September 30, 2021 and 2020, respectively; and net of tax benefit of 135 and 191 for the nine months ended September 30, 2021 and 2020, respectively	(122)			(190)			(436)			(609)
Other comprehensive (loss) income	(3,092)			(1,115)			(11,163)			9,018
Comprehensive income	16,733		$	26,778		$	59,674		$	70,440

All values are in US Dollars.

See accompanying notes to the consolidated interim financial statements.

Table of Contents 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, 2020	$	515		$	1,008,773		$	180,537		$	(425,053)		$	12,195		$	776,967
Net income		—			—			27,893			—			—			27,893
Stock-based compensation		—			1,189			—			—			—			1,189
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $157, net		—			183			—			432			—			615
Cash dividends declared ($0.20 per share)		—			—			(6,192)			—			—			(6,192)
Other comprehensive loss		—			—			—			—			(1,115)			(1,115)
Balance, September 30, 2020	$	515		$	1,010,145		$	202,238		$	(424,621)		$	11,080		$	799,357
Balance, June 30, 2021	$	515		$	1,011,200		$	260,821		$	(422,365)		$	1,695		$	851,866
Net income		—			—			19,825			—			—			19,825
Stock-based compensation		—			1,734			—			—			—			1,734
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $313, net		—			130			—			369			—			499
Repurchase of 527,214 shares		—			—			—			(19,370)			—			(19,370)
Cash dividends declared ($0.22 per share)		—			—			(6,746)			—			—			(6,746)
Other comprehensive loss		—			—			—			—			(3,092)			(3,092)
Balance, September 30, 2021	$	515		$	1,013,064		$	273,900		$	(441,366)		$	(1,397)		$	844,716


		For the nine months ended September 30,
				****			****			****			****	Accumulated		****
					Additional									other
		Common			paid-in			Retained			Treasury			comprehensive
		stock			capital			earnings			stock			income (loss), net			Total
Balance, December 31, 2019		$	515		$	1,009,223		$	164,082		$	(408,962)		$	2,062		$	766,920
Cumulative effect adjustment^(1)^			—			—			(4,623)			—			—			(4,623)
Net income			—			—			61,422			—			—			61,422
Stock-based compensation			—			4,028			—			—			—			4,028
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $1,192, net			—			(3,106)			—			3,817			—			711
Repurchase of 734,117 shares			—			—			—			(19,476)			—			(19,476)
Cash dividends declared ($0.60 per share)			—			—			(18,643)			—			—			(18,643)
Other comprehensive income			—			—			—			—			9,018			9,018
Balance, September 30, 2020		$	515		$	1,010,145		$	202,238		$	(424,621)		$	11,080		$	799,357
Balance, December 31, 2020		$	515		$	1,011,362		$	223,175		$	(424,127)		$	9,766		$	820,691
Net income			—			—			70,837			—			—			70,837
Stock-based compensation			—			4,216			—			—			—			4,216
Issuance of stock under purchase and equity compensation plans, including gain on reissuance of treasury stock of $3,492, net			—			(2,514)			—			2,131			—			(383)
Repurchase of 527,214 shares			—			—			—			(19,370)			—			(19,370)
Cash dividends declared ($0.65 per share)			—			—			(20,112)			—			—			(20,112)
Other comprehensive loss			—			—			—			—			(11,163)			(11,163)
Balance, September 30, 2021		$	515		$	1,013,064		$	273,900		$	(441,366)		$	(1,397)		$	844,716

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(1)		Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.

See accompanying notes to the consolidated interim financial statements.

Table of Contents NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)


	****	For the nine months ended
		September 30,
		2021		****	2020
Cash flows from operating activities:
Net income		$	70,837		$	61,422
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Provision (release) expense for loan losses			(9,425)			17,630
Provision (release) expense for mortgage loan repurchases			(62)			604
Depreciation and amortization			11,536			11,804
Change in current income tax receivable			3,476			2,394
Change in deferred income taxes			(207)			1,251
Net excess tax (benefit) expense from stock-based compensation			(396)			120
Discount accretion, net of premium amortization on securities			3,398			1,983
Loan accretion			(4,509)			(9,687)
Gain on sale of mortgages, net			(47,322)			(76,397)
Origination of loans held for sale, net of repayments			(1,506,880)			(1,703,208)
Proceeds from sales of loans held for sale			1,649,747			1,626,392
Bank-owned life insurance income			(1,659)			(1,776)
Loss (gain) on the sale of other real estate owned, net			192			(25)
(Income) loss from non-marketable securities			(1,031)			271
Originations of mortgage serving rights			(6,649)			(6,627)
Proceeds from sales of mortgage servicing rights			11,375			—
Gain on sale of mortgage servicing rights			(1,290)			—
(Recovery) impairment of mortgage servicing rights			(717)			847
Impairment on other real estate owned			799			423
Impairment on fixed assets related to banking center consolidations			1,552			1,631
Gain on sale of fixed assets			(2,708)			—
Gain from banking center divestiture			(778)			—
Stock-based compensation			4,216			4,028
Operating lease payments			(3,910)			(4,092)
Change in other assets			11,226			(32,190)
Change in other liabilities			(35,945)			43,447
Net cash provided by (used in) operating activities			144,866			(59,755)
Cash flows from investing activities:
Proceeds from non-marketable securities			1,912			600
Proceeds from maturities of investment securities available-for-sale			185,025			191,846
Proceeds from maturities of investment securities held-to-maturity			108,993			58,099
Proceeds from sales of other real estate owned			936			3,498
Purchase of non-marketable securities			(25,772)			(2,405)
Purchase of investment securities available-for-sale			(196,257)			(114,735)
Purchase of investment securities held-to-maturity			(377,687)			(196,736)
Sales (purchases) of premises and equipment, net			8,572			(4,498)
Net increase in loans			(71,913)			(142,133)
Net cash used in investing activities			(366,191)			(206,464)
Cash flows from financing activities:
Net increase in deposits			459,166			879,328
Net decrease in repurchase agreements and other short-term borrowings			(1,470)			(33,031)
Advances from FHLB			—			947,431
FHLB repayments			—			(1,155,106)
Issuance of stock under purchase and equity compensation plans			(2,020)			(570)
Proceeds from exercise of stock options			1,557			1,213
Payment of dividends			(20,208)			(18,657)
Repurchase of common stock			(19,370)			(19,476)
Net cash provided by financing activities			417,655			601,132
Increase in cash, cash equivalents and restricted cash^(1)^			196,330			334,913
Cash, cash equivalents and restricted cash at beginning of the year^(1)^			615,565			120,190
Cash, cash equivalents and restricted cash at end of period^(1)^		$	811,895		$	455,103
Supplemental disclosure of cash flow information during the period:
Cash paid for interest		$	12,719		$	21,433
Net tax payment			9,334			13,673
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned at fair value		$	1,522		$	1,186
Decrease in loans purchased but not settled			—			(6,119)
Loans transferred from loans held for sale to loans			5,798			2,346

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(1)		Included in restricted cash at September 30, 2021 and 2020 is $4.5 million and $10.0 million, respectively, held in escrow for certain potential liabilities the Company is indemnified for pursuant to the Peoples merger agreement. 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.

Table of Contents NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

September 30, 2021

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 Denver, Colorado, and its primary operations are conducted through its wholly owned subsidiary, NBH Bank (the "Bank"), a Colorado 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 81 banking centers, as of September 30, 2021, located primarily in Colorado and the greater Kansas City region, and 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, 2020 and include the accounts of the Company and its wholly owned subsidiary, NBH Bank. 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. During the third quarter of 2021, the Company updated its asset classifications to include certain financial instruments within non-marketable securities that were previously reported in other assets in the statements of financial condition. The prior year presentation has been reclassified to conform to the current year 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.

While general economic conditions have been improving, the COVID-19 pandemic caused disruption to the communities we serve and has changed the way we live and work. While access to vaccines in the United States has increased, the efficacy of those vaccines, the impact of emerging targeted vaccine mandates and new variants of the virus, and the length of time that the government-mandated measures must remain in place or potentially be reinstituted to address COVID-19 are unknown. The pandemic has had a negative impact to the U.S. labor market, consumer spending and business operations, and it is not clear whether new outbreaks of COVID-19 cases will have further impact.

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, 2020 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, 2020, except for the following:

Non-marketable securities— Non-marketable securities include Federal Reserve Bank (“FRB”) stock, Federal Home Loan Bank (“FHLB”) stock and other non-marketable securities. FRB and FHLB securities have been acquired for debt facility or regulatory purposes and are carried at cost. Other non-marketable securities consist of equity method investments in which the Company’s proportionate share of income or loss is recognized one quarter in arrears in other non-interest income in the consolidated statements of operations. Other non-marketable securities also include an investment in convertible preferred stock. As the convertible preferred stock does not have a readily determinable fair value, it is carried at cost and evaluated periodically for impairment.

Table of Contents 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, 2020.

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 $1.3 billion at September 30, 2021 and included $0.7 billion of available-for-sale securities and $0.6 billion of held-to-maturity securities. At December 31, 2020, investment securities totaled $1.0 billion and included

$0.6

billion of available-for-sale securities and $0.4 billion of held-to-maturity securities.

Available-for-sale

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


		September 30, 2021
	****	Amortized		Gross		Gross
		cost		unrealized gains		unrealized losses		Fair value
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	244,912	$	1,898	$	(4,508)	$	242,302
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			412,793		4,398		(4,636)		412,555
Municipal securities			362		8		—		370
Corporate debt			2,000		137		—		2,137
Other securities			469		—		—		469
Total investment securities available-for-sale		$	660,536	$	6,441	$	(9,144)	$	657,833


		December 31, 2020
	****	Amortized		Gross		Gross
		cost		unrealized gains		unrealized losses		Fair value
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	193,424	$	2,952	$	(42)	$	196,334
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			454,345		8,778		(344)		462,779
Municipal securities			362		13		—		375
Corporate debt			2,000		—		(2)		1,998
Other securities			469		—		—		469
Total investment securities available-for-sale		$	650,600	$	11,743	$	(388)	$	661,955

During the nine months ended September 30, 2021 and 2020, purchases of available-for-sale securities totaled $196.3 million and $114.7 million, respectively. Maturities and paydowns of available-for-sale securities during the nine months ended September 30, 2021 and 2020 totaled $185.0 million and $191.8 million, respectively. There were no sales of available-for-sale securities during the nine months ended September 30, 2021 or 2020.

At September 30, 2021 and December 31, 2020, the Company’s available-for-sale investment portfolio was primarily comprised of mortgage-backed securities backed by government sponsored enterprises 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”).

Table of Contents 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, 2021
		Less than 12 months				12 months or more				Total
	****	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		value		losses		value		losses		value		losses
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	189,230	$	(4,508)	$	—	$	—	$	189,230	$	(4,508)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			182,842		(4,627)		1,496		(9)		184,338		(4,636)
Total		$	372,072	$	(9,135)	$	1,496	$	(9)	$	373,568	$	(9,144)


		December 31, 2020
		Less than 12 months				12 months or more				Total
	****	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		value		losses		value		losses		value		losses
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	26,878	$	(42)	$	1	$	—	$	26,879	$	(42)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			95,888		(328)		2,138		(16)		98,026		(344)
Corporate debt			1,998		(2)		—		—		1,998		(2)
Total		$	124,764	$	(372)	$	2,139	$	(16)	$	126,903	$	(388)

Management evaluated all of the available-for-sale securities in an unrealized loss position at September 30, 2021 and December 31, 2020. The portfolio included 33 securities, which were in an unrealized loss position at September 30, 2021, compared to 22 securities at December 31, 2020. The unrealized losses in the Company's investment portfolio at September 30, 2021 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 have a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.

Certain securities are pledged as collateral for public deposits, securities sold under agreements to repurchase and to secure borrowing capacity at the FRB, if needed. The fair value of available-for-sale investment securities pledged as collateral totaled $383.6 million and $385.8 million at September 30, 2021 and at December 31, 2020, respectively. The Bank may also pledge available-for-sale investment securities as collateral for FHLB advances. No securities were pledged for this purpose at September 30, 2021 or December 31, 2020.

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. As of September 30, 2021, municipal securities with an amortized cost and fair value of $0.1 million were due in one year or less and municipal securities with an amortized cost and fair value of $0.3 million were due between one to five years. Corporate debt securities with an amortized cost and fair value of $2.0 million were due after five years through ten years. Other securities with an amortized cost and fair value of $0.5 million as of September 30, 2021, have no stated contractual maturity date.

As of September 30, 2021 and December 31, 2020, accrued interest receivable (“AIR”) from available-for-sale investment securities totaled $1.0 million and $1.1 million, respectively, and was included within other assets in the 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, 2021
	****			Gross		Gross
		Amortized		unrealized		unrealized
		cost		gains		losses		Fair value
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	315,257	$	3,099	$	(4,730)	$	313,626
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			327,379		580		(1,244)		326,715
Total investment securities held-to-maturity		$	642,636	$	3,679	$	(5,974)	$	640,341


		December 31, 2020
	****			Gross		Gross
		Amortized		unrealized		unrealized
		cost		gains		losses		Fair value
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	306,187	$	4,940	$	(197)	$	310,930
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			70,428		396		(63)		70,761
Total investment securities held-to-maturity		$	376,615	$	5,336	$	(260)	$	381,691

During the nine months ended September 30, 2021 and 2020, purchases of held-to-maturity securities totaled $377.7 million and $196.7 million, respectively. Maturities and paydowns of held-to-maturity securities totaled $109.0 million and $58.1 million during the nine months ended September 30, 2021 and 2020, respectively.

The held-to-maturity portfolio included 37 securities which were in an unrealized loss position as of September 30, 2021, compared to nine securities at December 31, 2020. 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, 2021
		Less than 12 months				12 months or more				Total
	****	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		value		losses		value		losses		value		losses
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	202,742	$	(4,176)	$	15,334	$	(554)	$	218,076	$	(4,730)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			209,417		(1,244)		—		—		209,417		(1,244)
Total		$	412,159	$	(5,420)	$	15,334	$	(554)	$	427,493	$	(5,974)

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		December 31, 2020
		Less than 12 months				12 months or more				Total
	****	Fair		Unrealized		Fair		Unrealized		Fair		Unrealized
		value		losses		value		losses		value		losses
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	53,453	$	(197)	$	—	$	—	$	53,453	$	(197)
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			19,554		(63)		—		—		19,554		(63)
Total		$	73,007	$	(260)	$	—	$	—	$	73,007	$	(260)

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.

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 $156.2 million and $140.6 million at September 30, 2021 and December 31, 2020, respectively. The Bank 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, 2021 or December 31, 2020.

Actual maturities of mortgage-backed securities may differ from scheduled maturities depending on the repayment characteristics and experience of the underlying financial instruments.

As of September 30, 2021 and December 31, 2020, AIR from held-to-maturity investment securities totaled $0.9 million and $0.7 million, respectively, and was included within other assets in the statements of financial condition.

Note 4 Non-marketable Securities

During the third quarter of 2021, the Company updated its asset classifications to include other investments within non-marketable securities that were either purchased during the quarter or previously classified in other assets in the statements of financial condition.

Non-marketable securities totaled $47.0 million and $22.1 million at September 30, 2021 and December 31, 2020, respectively, and included FRB stock, FHLB stock and other non-marketable securities. At September 30, 2021, other non-marketable securities totaled $32.4 million and consisted of equity method investments and convertible preferred stock without readily determinable fair values. During the nine months ended September 30, 2021 and 2020, purchases of non-marketable securities totaled $25.8 million and $2.4 million, respectively. Included in these purchases were investments in two fintech firms, Finstro Global Holdings Inc. of $20.0 million and Figure Technologies of $2.0 million. At December 31, 2020, the Company held $5.6 million of other non-marketable securities.

At September 30, 2021, the Company held $13.9 million of FRB stock and $0.7 million of FHLB stock for regulatory or debt facility purposes. At December 31, 2020, the Company held $13.9 million of FRB stock and $2.6 million of FHLB stock. These are restricted securities which, lacking a market, are carried at cost. There have been no identified events or changes in circumstances that may have an adverse effect on the investments carried at cost.

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 $12.9 million and $16.2 million as of September 30, 2021 and December 31, 2020, respectively. Included in commercial loans are fully-guaranteed loans originated as part of the Small

Table of Contents Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) of which $76.8 million and $176.1 million, net of fees and costs, were outstanding at September 30, 2021 and December 31, 2020, respectively.


	September 30, 2021
	Total loans		% of total
Commercial	$	3,067,300	69.3%
Commercial real estate non-owner occupied		670,927	15.2%
Residential real estate		665,502	15.1%
Consumer		18,031	0.4%
Total	$	4,421,760	100.0%


	December 31, 2020
	Total loans		% of total
Commercial	$	3,044,065	70.0%
Commercial real estate non-owner occupied		631,996	14.5%
Residential real estate		658,659	15.1%
Consumer		19,006	0.4%
Total	$	4,353,726	100.0%

Information about delinquent and non-accrual loans is shown in the following tables at September 30, 2021 and December 31, 2020:


	September 30, 2021
			Greater
	30-89 days		than 90 days				Total past
	past due and		past due and		Non-accrual		due and
	accruing		accruing		loans		non-accrual		Current		Total loans
Commercial:
Commercial and industrial	$	249	$	99	$	1,405	$	1,753	$	1,445,043	$	1,446,796
Municipal and non-profit		—		—		—		—		879,335		879,335
Owner occupied commercial real estate		419		—		6,451		6,870		534,880		541,750
Food and agribusiness		92		—		72		164		199,255		199,419
Total commercial		760		99		7,928		8,787		3,058,513		3,067,300
Commercial real estate non-owner occupied:
Construction		—		—		—		—		61,976		61,976
Acquisition/development		—		—		—		—		20,339		20,339
Multifamily		—		—		—		—		90,427		90,427
Non-owner occupied		—		235		128		363		497,822		498,185
Total commercial real estate		—		235		128		363		670,564		670,927
Residential real estate:
Senior lien		478		161		4,394		5,033		603,426		608,459
Junior lien		28		—		391		419		56,624		57,043
Total residential real estate		506		161		4,785		5,452		660,050		665,502
Consumer		36		—		7		43		17,988		18,031
Total loans	$	1,302	$	495	$	12,848	$	14,645	$	4,407,115	$	4,421,760

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	December 31, 2020
			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	$	170	$	—	$	6,312	$	6,482	$	1,440,256	$	1,446,738
Municipal and non-profit		—		—		—		—		870,791		870,791
Owner occupied commercial real estate		—		—		5,450		5,450		510,789		516,239
Food and agribusiness		146		—		422		568		209,729		210,297
Total commercial		316		—		12,184		12,500		3,031,565		3,044,065
Commercial real estate non-owner occupied:
Construction		—		—		—		—		91,125		91,125
Acquisition/development		—		—		6		6		24,665		24,671
Multifamily		—		—		1,523		1,523		67,233		68,756
Non-owner occupied		—		—		135		135		447,309		447,444
Total commercial real estate		—		—		1,664		1,664		630,332		631,996
Residential real estate:
Senior lien		527		160		5,820		6,507		577,764		584,271
Junior lien		95		—		709		804		73,584		74,388
Total residential real estate		622		160		6,529		7,311		651,348		658,659
Consumer		30		2		10		42		18,964		19,006
Total loans	$	968	$	162	$	20,387	$	21,517	$	4,332,209	$	4,353,726


	September 30, 2021
	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	$	1,405	$	—	$	1,405
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		4,604		1,847		6,451
Food and agribusiness		72		—		72
Total commercial		6,081		1,847		7,928
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		—		—		—
Multifamily		—		—		—
Non-owner occupied		128		—		128
Total commercial real estate		128		—		128
Residential real estate:
Senior lien		3,393		1,001		4,394
Junior lien		391		—		391
Total residential real estate		3,784		1,001		4,785
Consumer		7		—		7
Total loans	$	10,000	$	2,848	$	12,848

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	December 31, 2020
	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	$	6,080	$	232	$	6,312
Municipal and non-profit		—		—		—
Owner occupied commercial real estate		2,698		2,752		5,450
Food and agribusiness		88		334		422
Total commercial		8,866		3,318		12,184
Commercial real estate non-owner occupied:
Construction		—		—		—
Acquisition/development		6		—		6
Multifamily		—		1,523		1,523
Non-owner occupied		135		—		135
Total commercial real estate		141		1,523		1,664
Residential real estate:
Senior lien		4,158		1,662		5,820
Junior lien		709		—		709
Total residential real estate		4,867		1,662		6,529
Consumer		10		—		10
Total loans	$	13,884	$	6,503	$	20,387

Loans are considered past due or delinquent when the contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of the scheduled payment. Non-accrual loans include non-accrual loans and troubled debt restructurings (“TDRs”) on non-accrual status. There was no interest income recognized from non-accrual loans during the three or nine months ended September 30, 2021 or 2020.

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 2020 Annual Report on Form 10-K.

Table of Contents 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 tables as of September 30, 2021 and December 31, 2020:


	September 30, 2021
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2021		2020		2019		2018		2017		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	391,229	$	172,714	$	162,299	$	151,647	$	52,024	$	23,606	$	436,119	$	5,967	$	1,395,605
Special mention		—		1,066		2,102		4,250		12,823		5,693		2,045		100		28,079
Substandard		—		20		328		744		21,040		286		440		41		22,899
Doubtful		—		—		—		43		39		131		—		—		213
Total commercial and industrial		391,229		173,800		164,729		156,684		85,926		29,716		438,604		6,108		1,446,796
Municipal and non-profit:
Pass		96,149		92,184		85,619		119,619		150,074		334,757		933		—		879,335
Total municipal and non-profit		96,149		92,184		85,619		119,619		150,074		334,757		933		—		879,335
Owner occupied commercial real estate:
Pass		100,608		84,772		87,893		71,987		44,003		97,376		12,654		—		499,293
Special mention		—		—		7,415		8,248		1,449		16,205		—		—		33,317
Substandard		—		1,192		1,567		1,847		228		3,320		—		—		8,154
Doubtful		—		389		562		—		—		35		—		—		986
Total owner occupied commercial real estate		100,608		86,353		97,437		82,082		45,680		116,936		12,654		—		541,750
Food and agribusiness:
Pass		9,515		23,190		7,106		16,375		2,558		26,808		99,645		—		185,197
Special mention		—		4,669		1,083		—		—		216		7,388		—		13,356
Substandard		—		—		—		—		267		599		—		—		866
Total food and agribusiness		9,515		27,859		8,189		16,375		2,825		27,623		107,033		—		199,419
Total commercial		597,501		380,196		355,974		374,760		284,505		509,032		559,224		6,108		3,067,300
Commercial real estate non-owner occupied:
Construction:
Pass		17,307		11,782		28,181		—		224		—		4,482		—		61,976
Total construction		17,307		11,782		28,181		—		224		—		4,482		—		61,976
Acquisition/development:
Pass		2,557		385		1,892		1,830		6,045		7,567		63		—		20,339
Total acquisition/development		2,557		385		1,892		1,830		6,045		7,567		63		—		20,339
Multifamily:
Pass		3,115		29,612		2,964		16,189		201		37,946		—		—		90,027
Special mention		—		—		—		—		—		400		—		—		400
Total multifamily		3,115		29,612		2,964		16,189		201		38,346		—		—		90,427
Non-owner occupied
Pass		49,707		59,726		122,389		18,324		97,332		117,331		3,400		1		468,210
Special mention		—		—		5,746		5,667		9,805		3,933		—		—		25,151
Substandard		—		—		—		744		—		4,080		—		—		4,824
Total non-owner occupied		49,707		59,726		128,135		24,735		107,137		125,344		3,400		1		498,185
Total commercial real estate non-owner occupied		72,686		101,505		161,172		42,754		113,607		171,257		7,945		1		670,927
Residential real estate:
Senior lien
Pass		175,920		110,891		46,818		23,384		32,345		193,777		19,728		52		602,915
Special mention		—		—		—		—		—		278		—		—		278
Substandard		—		402		686		322		302		3,554		—		—		5,266
Total senior lien		175,920		111,293		47,504		23,706		32,647		197,609		19,728		52		608,459
Junior lien
Pass		748		2,494		2,967		1,847		1,076		3,849		43,108		137		56,226
Special mention		—		—		—		—		—		21		345		—		366
Substandard		—		19		—		64		99		233		—		36		451
Total junior lien		748		2,513		2,967		1,911		1,175		4,103		43,453		173		57,043
Total residential real estate		176,668		113,806		50,471		25,617		33,822		201,712		63,181		225		665,502
Consumer
Pass		6,628		5,292		1,762		803		188		630		2,696		25		18,024
Substandard		—		—		—		—		—		7		—		—		7
Total consumer		6,628		5,292		1,762		803		188		637		2,696		25		18,031
Total loans	$	853,483	$	600,799	$	569,379	$	443,934	$	432,122	$	882,638	$	633,046	$	6,359	$	4,421,760

Table of Contents


	December 31, 2020
													Revolving		Revolving
													loans		loans
	Origination year												amortized		converted
	2020		2019		2018		2017		2016		Prior		cost basis		to term		Total
Commercial:
Commercial and industrial:
Pass	$	372,041	$	212,388	$	189,753	$	93,822	$	15,145	$	17,662	$	499,283	$	991	$	1,401,085
Special mention		—		1,445		7,381		4,845		5,810		729		2,329		1,478		24,017
Substandard		23		1,238		925		11,885		56		4,840		1,341		—		20,308
Doubtful		—		—		34		456		—		809		29		—		1,328
Total commercial and industrial		372,064		215,071		198,093		111,008		21,011		24,040		502,982		2,469		1,446,738
Municipal and non-profit:
Pass		131,961		91,911		125,247		156,275		124,269		238,453		2,675		—		870,791
Total municipal and non-profit		131,961		91,911		125,247		156,275		124,269		238,453		2,675		—		870,791
Owner occupied commercial real estate:
Pass		100,791		107,558		90,398		53,131		32,648		87,758		1,401		—		473,685
Special mention		1,581		2,236		2,714		544		3,254		19,341		—		—		29,670
Substandard		—		1,988		6,211		251		93		3,802		—		—		12,345
Doubtful		—		511		—		—		—		28		—		—		539
Total owner occupied commercial real estate		102,372		112,293		99,323		53,926		35,995		110,929		1,401		—		516,239
Food and agribusiness:
Pass		28,139		9,198		20,242		7,198		9,556		28,330		106,007		126		208,796
Special mention		—		—		—		—		—		222		—		—		222
Substandard		—		—		—		302		—		977		—		—		1,279
Total food and agribusiness		28,139		9,198		20,242		7,500		9,556		29,529		106,007		126		210,297
Total commercial		634,536		428,473		442,905		328,709		190,831		402,951		613,065		2,595		3,044,065
Commercial real estate non-owner occupied:
Construction:
Pass		15,841		49,658		17,349		4,072		—		—		2,006		1,807		90,733
Special mention		392		—		—		—		—		—		—		—		392
Total construction		16,233		49,658		17,349		4,072		—		—		2,006		1,807		91,125
Acquisition/development:
Pass		3,762		1,997		1,947		8,373		4,559		3,694		11		—		24,343
Special mention		—		—		—		34		—		253		—		—		287
Substandard		—		—		—		—		—		41		—		—		41
Total acquisition/development		3,762		1,997		1,947		8,407		4,559		3,988		11		—		24,671
Multifamily:
Pass		29,738		13,670		137		212		18,050		4,990		—		—		66,797
Special mention		—		—		—		—		—		436		—		—		436
Substandard		—		—		—		—		—		1,523		—		—		1,523
Total multifamily		29,738		13,670		137		212		18,050		6,949		—		—		68,756
Non-owner occupied
Pass		51,445		92,225		25,362		86,975		26,613		118,144		3,083		643		404,490
Special mention		70		5,458		5,841		22,737		—		3,662		100		—		37,868
Substandard		—		—		779		—		3,937		370		—		—		5,086
Total non-owner occupied		51,515		97,683		31,982		109,712		30,550		122,176		3,183		643		447,444
Total commercial real estate non-owner occupied		101,248		163,008		51,415		122,403		53,159		133,113		5,200		2,450		631,996
Residential real estate:
Senior lien
Pass		129,551		76,504		36,493		47,887		88,358		173,091		24,884		218		576,986
Special mention		—		—		—		—		—		463		—		—		463
Substandard		95		818		20		1,232		550		4,107		—		—		6,822
Total senior lien		129,646		77,322		36,513		49,119		88,908		177,661		24,884		218		584,271
Junior lien
Pass		3,479		4,217		2,553		1,775		1,226		3,760		55,860		365		73,235
Special mention		—		—		—		—		—		21		341		—		362
Substandard		—		112		101		177		55		287		—		59		791
Total junior lien		3,479		4,329		2,654		1,952		1,281		4,068		56,201		424		74,388
Total residential real estate		133,125		81,651		39,167		51,071		90,189		181,729		81,085		642		658,659
Consumer
Pass		9,777		3,348		1,674		489		329		623		2,700		19		18,959
Substandard		—		—		37		—		2		8		—		—		47
Total consumer		9,777		3,348		1,711		489		331		631		2,700		19		19,006
Total loans	$	878,686	$	676,480	$	535,198	$	502,672	$	334,510	$	718,424	$	702,050	$	5,706	$	4,353,726

Table of Contents 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 TDRs 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, 2021 and December 31, 2020:


	September 30, 2021
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	3,604	$	1,858	$	5,462
Owner-occupied commercial real estate		4,493		261		4,754
Total Commercial		8,097		2,119		10,216
Commercial real estate non owner-occupied
Acquisition/development		1,297		—		1,297
Total commercial real estate		1,297		—		1,297
Residential real estate
Senior lien		2,247		—		2,247
Total residential real estate		2,247		—		2,247
Total loans	$	11,641	$	2,119	$	13,760


	December 31, 2020
					Total amortized
	Real property		Business assets		cost basis
Commercial
Commercial and industrial	$	7,579	$	3,005	$	10,584
Owner-occupied commercial real estate		3,701		284		3,985
Food and agribusiness		334		—		334
Total Commercial		11,614		3,289		14,903
Commercial real estate non owner-occupied
Acquisition/development		1,573		—		1,573
Multifamily		1,523		—		1,523
Total commercial real estate		3,096		—		3,096
Residential real estate
Senior lien		2,021		—		2,021
Total residential real estate		2,021		—		2,021
Total loans	$	16,731	$	3,289	$	20,020

Loan modifications and troubled debt restructurings

The Company’s policy is to review each prospective credit to determine the appropriateness and the adequacy of security or collateral prior to making a loan. In the event of borrower default, the Company seeks recovery in compliance with lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include restructuring a loan to provide a concession by the Company to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Additionally, if a borrower’s repayment obligation has been discharged by a court, and that debt has not been reaffirmed by the borrower, regardless of past due status, the loan is considered to be a TDR.

The CARES Act afforded financial institutions the option to modify loans within certain parameters in response to the COVID-19 pandemic without requiring the modifications to be classified as TDRs under ASC Topic 310 if the borrower has been adversely impacted by COVID-19 and was current on their loan payments. The Company modified 14 loans totaling $4.8 million during the nine months ended September 30, 2021 and 483 loans totaling $499.5 million during the nine months ended September 30, 2020, due

Table of Contents to the effects of the COVID-19 pandemic, that were not classified as TDRs. Modified loans that remained on a payment deferral plan at September 30, 2021 totaled $0.9 million. Of those loans, principal payment deferrals totaled $0.3 million and full payment deferrals totaled $0.6 million. At September 30, 2021, $45 thousand of loan modifications related to COVID-19 were a subsequent modification. All COVID-19 modified loans were classified as performing as of September 30, 2021. At December 31, 2020, modified loans that remained on a payment deferral plan totaled $173.6 million, or 4.0% of the total loan portfolio, of which 26.2% were a subsequent modification.

During the three months ended September 30, 2021, the Company added no new TDRs. During the nine months ended September 30, 2021, the Company restructured three loans with an amortized cost basis of $1.4 million to facilitate repayment that are considered TDRs. Loan modifications were a reduction of the principal payment, a reduction in interest rate, or an extension of term. The tables below provide additional information related to accruing TDRs at September 30, 2021 and December 31, 2020:


	September 30, 2021
	Amortized		Average year-to-date		Unpaid		Unfunded commitments
	cost basis		amortized cost basis		principal balance		to fund TDRs
Commercial	$	6,380	$	7,054	$	6,734	$	315
Commercial real estate non-owner occupied		2,049		2,074		2,880		—
Residential real estate		2,706		2,760		3,181		35
Consumer		—		—		—		—
Total	$	11,135	$	11,888	$	12,795	$	350


	December 31, 2020
	Amortized		Average year-to-date		Unpaid		Unfunded commitments
	cost basis		amortized cost basis		principal balance		to fund TDRs
Commercial	$	9,387	$	9,544	$	9,978	$	150
Commercial real estate non-owner occupied		2,400		2,351		4,105		—
Residential real estate		2,121		2,185		2,922		12
Consumer		37		37		37		—
Total	$	13,945	$	14,117	$	17,042	$	162

The following table summarizes the Company’s carrying value of non-accrual TDRs as of September 30, 2021 and December 31, 2020:


	September 30, 2021		December 31, 2020
Commercial	$	2,505	$	3,397
Commercial real estate non-owner occupied		121		1,644
Residential real estate		1,733		3,156
Consumer		—		—
Total non-accruing TDRs	$	4,359	$	8,197

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 TDR totaling $36 thousand that was modified within the past 12 months and had defaulted on its restructured terms during the nine months ended September 30, 2021. During the nine months ended September 30, 2020, the Company had no TDRs that were modified within the past 12 months and had defaulted on their restructured terms. For purposes of this disclosure, the Company considers “default” to mean 90 days or more past due on principal or interest. The allowance for credit losses related to TDRs on non-accrual status is determined by individual evaluation, including collateral adequacy, using the same process as loans on non-accrual status, which are not classified as TDRs.

Table of Contents 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, 2021
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	28,640	$	11,187	$	8,851	$	352	$	49,030
Charge-offs		(172)		—		(4)		(146)		(322)
Recoveries		61		—		2		38		101
Provision expense (release) for loan losses		1,124		(388)		(475)		85		346
Ending balance	$	29,653	$	10,799	$	8,374	$	329	$	49,155


		Nine months ended September 30, 2021
	****			****	Non-owner		****			****			****
					occupied
					commercial			Residential
		Commercial			real estate			real estate			Consumer			Total
Beginning balance		$	30,376		$	17,448		$	11,492		$	461		$	59,777
Charge-offs			(1,112)			—			(26)			(410)			(1,548)
Recoveries			316			7			47			110			480
Provision expense (release) for loan losses			73			(6,656)			(3,139)			168			(9,554)
Ending balance		$	29,653		$	10,799		$	8,374		$	329		$	49,155


	Three months ended September 30, 2020
			Non-owner
			occupied
			commercial		Residential
	Commercial		real estate		real estate		Consumer		Total
Beginning balance	$	33,142	$	12,314	$	14,525	$	484	$	60,465
Charge-offs		(499)		—		(16)		(104)		(619)
Recoveries		104		—		4		25		133
Provision (release) expense for loan losses		(1,576)		1,467		1,000		109		1,000
Ending balance	$	31,171	$	13,781	$	15,513	$	514	$	60,979


		Nine months ended September 30, 2020
	****			****	Non-owner		****			****			****
					occupied
					commercial			Residential
		Commercial			real estate			real estate			Consumer			Total
Beginning balance		$	30,442		$	4,850		$	3,468		$	304		$	39,064
Cumulative effect adjustment^(1)^			(1,299)			1,666			5,314			155			5,836
Charge-offs			(1,411)			—			(56)			(502)			(1,969)
Recoveries			370			—			24			121			515
Provision expense for loan losses			3,069			7,265			6,763			436			17,533
Ending balance		$	31,171		$	13,781		$	15,513		$	514		$	60,979

---	---	---
(1)		Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.

In evaluating the loan portfolio for an appropriate ACL level, excluding loans evaluated individually, loans were grouped into segments based on broad characteristics such as primary use and underlying collateral. Within the segments, the portfolio was further disaggregated into classes of loans with similar attributes and risk characteristics for purposes of developing the underlying data used within the discounted cash flow model including, but not limited to, prepayment and recovery rates as well as loss rates tied to macro-economic conditions within management’s reasonable and supportable forecast. The ACL also includes subjective adjustments based upon qualitative risk factors including asset quality, loss trends, lending management, portfolio growth and loan review/internal audit results.

Table of Contents

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

Net charge-offs on loans during the three and nine months ended September 30, 2020 were $0.5 million and $1.5 million, respectively. The Company recorded total provision expense of $1.2 million for the three months ended September 30, 2020, which included a provision expense of $1.0 million for funded loans and a provision expense of $0.2 million for unfunded loan commitments. During the nine months ended September 30, 2020, the Company recorded total provision expense of $17.6 million, which included a provision expense of $17.5 million for funded loans and a provision expense of $0.1 million for unfunded loan commitments. Provision expense was recorded to provide coverage for the impact of deteriorating economic conditions as a result of COVID-19 and to support non-PPP originated loan growth.

The Company has elected to exclude AIR from the allowance for credit losses calculation. As of September 30, 2021 and December 31, 2020, AIR from loans totaled $17.6 million and $16.7 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, 2021 and 2020 is as follows:


	For the nine months ended September 30,
	2021		2020
Beginning balance	$	4,730	$	7,300
Transfers from loan portfolio, at fair value		1,522		1,186
Impairments		(799)		(423)
Sales		(1,128)		(3,473)
Ending balance	$	4,325	$	4,590

During the nine months ended September 30, 2021 and 2020, the Company sold OREO properties with net book balances of $1.1 million and $3.5 million, respectively. Sales of OREO properties resulted in net OREO losses of $0.2 million, which were included in the consolidated statements of operations for the nine months ended September 30, 2021. Net OREO gains of $0.1 million and $25 thousand were included in the consolidated statements of operations for the three and nine months ended September 30, 2020, respectively.

Note 8 Goodwill and Intangible Assets

Goodwill and core deposit intangible

In connection with our acquisitions, the Company recorded goodwill of $115.0 million. 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, 2021 or the year ended December 31, 2020.

The gross carrying amount of the core deposit intangibles and the associated accumulated amortization at September 30, 2021 and December 31, 2020, are presented as follows:


	September 30, 2021						December 31, 2020
	Gross				Net		Gross				Net
	carrying		Accumulated		carrying		carrying		Accumulated		carrying
	amount		amortization		amount		amount		amortization		amount
Core deposit intangible	$	48,834	$	(42,173)	$	6,661	$	48,834	$	(41,286)	$	7,548

Table of Contents The Company is amortizing the core deposit intangibles from acquisitions on a straight-line basis over 7-10 years from the date of the respective acquisition, which represents the expected useful life of the assets. The Company recognized core deposit intangible amortization expense of $0.3 million and $0.9 million during the three and nine months ended September 30, 2021, respectively. During the three and nine months ended September 30, 2020, the Company recognized core deposit intangible amortization expense of $0.3 million and $0.9 million, respectively.

The following table shows the estimated future amortization expense for the core deposit intangibles as of September 30, 2021:


Years ending December 31,		Amount
For the three months ending December 31, 2021	$	296
For the year ending December 31, 2022		1,127
For the year ending December 31, 2023		1,048
For the year ending December 31, 2024		1,048
For the year ending December 31, 2025		1,048

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 intangible assets in the consolidated statements of financial condition. Mortgage loans serviced for others were $0.6 billion and $1.0 billion at September 30, 2021 and 2020, respectively.

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


	For the nine months ended September 30,
	2021		2020
Beginning balance	$	10,380	$	2,630
Originations		6,648		6,627
Sales		(10,499)		—
Recovery (impairment)		717		(847)
Amortization		(2,286)		(1,237)
Ending balance		4,960		7,173
Fair value of mortgage servicing rights	$	6,179	$	7,653

During the three months ended September 30, 2021, the Company sold rights to service loans totaling $1.3 billion in unpaid principal balances from our mortgage servicing rights portfolio as a strategic move to reduce the risk associated with mortgage servicing. As a result of the sale, the book value of our mortgage servicing right intangible decreased $10.5 million and generated a gain of $1.3 million included in mortgage banking income in the consolidated statements of operations.

The fair value of MSRs was determined based upon a discounted cash flow analysis. The cash flow analysis included assumptions for discount rates and prepayment speeds. Discount rates ranged from 9.5% to 10.0%, and the constant prepayment speed ranged from 11.1% to 14.9% for the September 30, 2021 valuation. Discount rates ranged from 9.5% to 10.5%, and the constant prepayment speed ranged from 18.0% to 21.8% for the September 30, 2020 valuation. Included in mortgage banking income in the consolidated statements of operations was servicing income of $1.0 million and $3.0 million for the three and nine months ended September 30, 2021, respectively, and $0.5 million and $1.0 million for the three and nine months ended September 30, 2020, 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.

Table of Contents The following table shows the estimated future amortization expense for the MSRs as of September 30, 2021:


Years ending December 31,		Amount
For the three months ending December 31, 2021	$	184
For the year ending December 31, 2022		708
For the year ending December 31, 2023		604
For the year ending December 31, 2024		515
For the year ending December 31, 2025		439

Note 9 Borrowings

The Company enters into repurchase agreements to facilitate the needs of its clients. As of September 30, 2021 and December 31, 2020, the Company sold securities under agreements to repurchase totaling $21.4 million and $22.9 million, respectively. The Company pledged mortgage-backed securities with a fair value of approximately $26.3 million and $27.7 million as of September 30, 2021 and December 31, 2020, 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, 2021 and December 31, 2020, the Company had $4.9 million and $2.1 million, respectively, of excess collateral pledged for repurchase agreements.

As a member of the FHLB, the Bank has access to a line of credit and term financing from the FHLB with total available credit of $0.9 billion at September 30, 2021. The Bank may utilize its FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2021 and December 31, 2020, the Bank had no outstanding borrowings from the FHLB. The Bank may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2021 or December 31, 2020. Loans pledged were $1.3 billion and $1.2 billion at September 30, 2021 and December 31, 2020, respectively. There was no interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2021, compared to $0.1 million and $1.3 million during the three and nine months ended September 30, 2020, respectively.

Note 10 Regulatory Capital

As a bank holding company, the Company is subject to regulatory capital adequacy requirements implemented by the Federal Reserve. 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, 2021 and December 31, 2020, the Company and the Bank met all capital requirements. The Bank had regulatory capital ratios in excess of the levels established for well-capitalized institutions, as detailed in the tables below:


		September 30, 2021
							Required to be					Required to be
							well capitalized under					considered
							prompt corrective					adequately
		Actual					action provisions					capitalized
	****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount
Tier 1 leverage ratio:
Consolidated		10.4%		$	729,828		N/A			N/A		4.0%		$	279,899
NBH Bank		8.9%			623,094		5.0%		$	349,554		4.0%			279,643
Common equity tier 1 risk based capital:
Consolidated		14.6%		$	729,828		N/A			N/A		7.0%		$	350,589
NBH Bank		12.5%			623,094		6.5%		$	323,842		7.0%			348,753
Tier 1 risk based capital ratio:
Consolidated		14.6%		$	729,828		N/A			N/A		8.5%		$	425,716
NBH Bank		12.5%			623,094		8.0%		$	398,575		8.5%			423,486
Total risk based capital ratio:
Consolidated		15.5%		$	775,091		N/A			N/A		10.5%		$	525,884
NBH Bank		13.4%			668,358		10.0%		$	498,219		10.5%			523,130

Table of Contents


		December 31, 2020
							Required to be					Required to be
							well capitalized under					considered
							prompt corrective					adequately
		Actual					action provisions					capitalized
	****	Ratio	****	Amount		****	Ratio	****	Amount		****	Ratio	****	Amount
Tier 1 leverage ratio:
Consolidated		10.7%		$	696,311		N/A			N/A		4.0%		$	260,370
NBH Bank		9.2%			600,622		5.0%		$	325,447		4.0%			260,358
Common equity tier 1 risk based capital:
Consolidated		14.7%		$	696,311		N/A			N/A		7.0%		$	331,632
NBH Bank		12.7%			600,622		6.5%		$	307,631		7.0%			331,295
Tier 1 risk based capital ratio:
Consolidated		14.7%		$	696,311		N/A			N/A		8.5%		$	402,696
NBH Bank		12.7%			600,622		8.0%		$	378,623		8.5%			402,287
Total risk based capital ratio:
Consolidated		15.8%		$	749,899		N/A			N/A		10.5%		$	497,448
NBH Bank		13.8%			654,209		10.0%		$	473,279		10.5%			496,943

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.

Service charges and other fees

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

Bank card fees

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

Gain on OREO sales, net

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

Table of Contents 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, 2021 and 2020:


		For the three months ended September 30,					For the nine months ended September 30,
	****	2021		****	2020		2021		****	2020
Non-interest income
In-scope of Topic 606:
Service charges and other fees		$	5,286		$	4,246	$	13,653		$	12,453
Bank card fees			4,530			4,039		13,217			11,206
Non-interest income (in-scope of Topic 606)			9,816			8,285		26,870			23,659
Non-interest income (out-of-scope of Topic 606)			18,706			36,247		60,279			83,242
Total non-interest income		$	28,522		$	44,532	$	87,149		$	106,901
Non-interest expense
In-scope of Topic 606:
Gain (loss) on OREO sales, net		$	—		$	119	$	(192)		$	25
Total revenue in-scope of Topic 606		$	9,816		$	8,404	$	26,678		$	23,684

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 and is authorized to issue awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, other stock-based awards, or any combination thereof to eligible persons.

Stock options

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

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

The following table summarizes stock option activity for the nine months ended September 30, 2021:


	****		****			****	Weighted	****
							average
				Weighted			remaining
				average			contractual		Aggregate
				exercise			term in		intrinsic
		Options		price			years		value
Outstanding at December 31, 2020		768,129		$	26.35		6.91		$	5,224
Granted		81,438			40.10
Exercised		(75,986)			27.51
Forfeited		(25,915)			27.73
Outstanding at September 30, 2021		747,666		$	27.68		6.62		$	9,566
Options exercisable at September 30, 2021		490,448			26.32		5.60			6,980
Options vested and expected to vest		724,844			27.55		6.55			9,373

Stock option expense is a component of salaries and benefits in the consolidated statements of operations and totaled $0.1 million and $0.7 million for the three and nine months ended September 30, 2021, respectively, and $0.1 million and $0.8 million for the three and nine months ended September 30, 2020, respectively. At September 30, 2021, there was $0.5 million of total unrecognized

Table of Contents 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. For awards granted prior to 2020, 60% of the award is based on the Company’s cumulative earnings per share (EPS target) during the performance period, and 40% 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 the PSU components during 2021 and 2020, the Compensation Committee determined the EPS target portion of the award would not be an effective metric in light of economic uncertainty surrounding COVID-19. Consequently, the Compensation Committee granted an award based upon a relative return on tangible assets (“ROTA”). Annually, the Company’s ROTA will be 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 relative 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 relative ROTA target portion and the TSR target portion granted during 2021 was $40.16 and $33.11, respectively. The initial weighted-average performance price for the TSR target portion granted during 2021 was $33.04. During the nine months ended September 30, 2021, the Company awarded an additional 30,024 units due to final performance results related to performance stock units granted in 2018.

The following table summarizes restricted stock and performance stock unit activity during the nine months ended September 30, 2021:


	****		****	Weighted				Weighted
		Restricted		average grant-		Performance		average grant-
		stock shares		date fair value		stock units		date fair value
Unvested at December 31, 2020		166,630		$	27.42	184,837	$	29.21
Granted		86,084			39.80	52,526		37.01
Adjustment due to performance		—			—	30,024		30.38
Vested		(77,679)			28.56	(90,016)		30.38
Forfeited		(19,568)			29.32	(16,977)		28.96
Unvested at September 30, 2021		155,467		$	33.47	160,394	$	31.36

As of September 30, 2021, the total unrecognized compensation cost related to the non-vested restricted stock awards and performance stock units totaled $3.0 million and $2.9 million, respectively, and is expected to be recognized over a weighted average period of approximately 2.1 years and 1.9 years, respectively. Expense related to non-vested restricted stock awards totaled $0.8 million and $2.0 million during the three and nine months ended September 30, 2021, respectively, and $0.7 million and $1.9 million during the three and nine months ended September 30, 2020, respectively. Expense related to non-vested performance stock units totaled $0.8 million and $1.5 million during the three and nine months ended September 30, 2021, respectively, and $0.4 million and $1.3 million during the three and nine months ended September 30, 2020, 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.

Table of Contents Employee stock purchase plan

The 2014 Employee Stock Purchase Plan (“ESPP”) is intended to be a qualified plan within the meaning of Section 423 of the Internal Revenue Code of 1986 and allows eligible employees to purchase shares of common stock through payroll deductions up to a limit of $25,000 per calendar year and 2,000 shares per offering period. The price an employee pays for shares is 90.0% of the fair market value of Company common stock on the last day of the offering period. The offering periods are the six-month periods commencing on March 1 and September 1 of each year and ending on August 31 and February 28 (or February 29 in the case of a leap year) of each year. There are no vesting or other restrictions on the stock purchased by employees under the ESPP. Under the ESPP, the total number of shares of common stock reserved for issuance totaled 400,000 shares, of which 281,896 was available for issuance at September 30, 2021.

Under the ESPP, employees purchased 20,980 shares and 23,212 shares during the nine months ended September 30, 2021 and 2020, respectively.

Note 13 Common Stock

The Company had 30,288,131 and 30,634,291 shares of Class A common stock outstanding at September 30, 2021 and December 31, 2020, respectively. Additionally, the Company had 155,467 and 166,630 shares outstanding at September 30, 2021 and December 31, 2020, respectively, of restricted Class A common stock issued but not yet vested under the 2014 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 February 24, 2021, the Company’s Board of Directors authorized a new program to repurchase up to $75.0 million of the Company’s stock from time to time in either the open market or through privately negotiated transactions. The new program of $75.0 million replaced the previously authorized $50.0 million stock repurchase program announced in February 2020 in its entirety. During the third quarter of 2021, the Company repurchased 527,214 shares for $19.4 million at a weighted average price per share of $36.72. The remaining authorization under the current program as of September 30, 2021 was $55.6 million.

Note 14 Earnings Per Share

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

The Company had 30,288,131 and 30,594,412 shares of Class A common stock outstanding as of September 30, 2021 and 2020, 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, 2021 and 2020.

Table of Contents The following table illustrates the computation of basic and diluted earnings per share for the three and nine months ended September 30, 2021 and 2020:


		For the three months ended						For the nine months ended
	****	September 30, 2021		****	September 30, 2020		****	September 30, 2021		****	September 30, 2020
Net income		$	19,825		$	27,893		$	70,837		$	61,422
Less: income allocated to participating securities			(34)			(36)			(101)			(96)
Income allocated to common shareholders		$	19,791		$	27,857		$	70,736		$	61,326
Weighted average shares outstanding for basic earnings per common share			30,800,590			30,756,116			30,858,759			30,881,325
Dilutive effect of equity awards			264,225			168,107			303,373			189,672
Weighted average shares outstanding for diluted earnings per common share			31,064,815			30,924,223			31,162,132			31,070,997
Basic earnings per share		$	0.64		$	0.91		$	2.29		$	1.99
Diluted earnings per share			0.64			0.90			2.27			1.97

The Company had 747,666 and 802,454 outstanding stock options to purchase common stock at weighted average exercise prices of $27.68 and $26.18 per share at September 30, 2021 and 2020, 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 315,861 and 364,485 unvested restricted shares and performance stock units issued as of September 30, 2021 and 2020, 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 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 as well as 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.

Table of Contents 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, 2021 and December 31, 2020. Information about the valuation methods used to measure fair value is provided in note 17.


		Asset derivatives fair value					Liability derivatives fair value
	Balance Sheet	September 30,		December 31,		Balance Sheet	September 30,		December 31,
	location	2021		2020		Location	2021		2020
Derivatives designated as hedging instruments:
Interest rate products	Other assets	$	533	$	—	Other liabilities	$	18,555	$	38,884
Total derivatives designated as hedging instruments		$	533	$	—		$	18,555	$	38,884

Derivatives not designated as hedging instruments:
Interest rate products	Other assets	$	10,535	$	18,149	Other liabilities	$	10,548	$	18,176
Interest rate lock commitments	Other assets		2,170		7,001	Other liabilities		448		298
Forward contracts	Other assets		1,022		—	Other liabilities		31		2,622
Total derivatives not designated as hedging instruments		$	13,727	$	25,150		$	11,027	$	21,096

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, 2021, the Company had interest rate swaps with a notional amount of $350.3 million, which were designated as fair value hedges of interest rate risk. As of December 31, 2020, the Company had interest rate swaps with a notional amount of $387.1 million that were designated as fair value hedges. These interest rate swaps were associated with $350.3 million and $389.9 million of the Company’s fixed-rate loans as of September 30, 2021 and December 31, 2020, respectively, before a gain of $22.9 million and $40.1 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, 2021 and December 31, 2020.

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, 2021, the Company had matched interest rate swap transactions with an aggregate notional amount of $408.9 million related to this program. As of December 31, 2020, the Company had matched interest rate swap transactions with an aggregate notional amount of $456.0 million.

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

Table of Contents 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 $171.4 million and forward contracts with a notional value of $267.5 million at September 30, 2021. At December 31, 2020, the Company had interest rate lock commitments with a notional value of $258.8 million and forward contracts with a notional value of $375.3 million.

Effect of derivative instruments on the consolidated statements of operations

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, 2021 and 2020:


	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	2021		2020		2021		2020
Interest rate products	Interest and fees on loans	$	9,057	$	5,043	$	1,829	$	1,310
Total		$	9,057	$	5,043	$	1,829	$	1,310


	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	2021		2020		2021		2020
Interest rate products	Interest and fees on loans	$	(8,321)	$	(4,993)	$	(3,164)	$	(2,869)
Total		$	(8,321)	$	(4,993)	$	(3,164)	$	(2,869)


	Location of gain (loss)	Amount of gain (loss) 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	2021		2020		2021		2020
Interest rate products	Other non-interest expense	$	8	$	8	$	18	$	(65)
Interest rate lock commitments	Mortgage banking income		(861)		3,243		(5,962)		14,174
Forward contracts	Mortgage banking income		1,229		1,558		3,613		(532)
Total		$	376	$	4,809	$	(2,331)	$	13,577

Credit-risk-related contingent features

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

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

As of September 30, 2021, the termination value of derivatives in a net liability position related to these agreements was $30.2 million, which includes accrued interest but excludes any adjustment for nonperformance risk. The Company has minimum collateral posting thresholds with certain of its derivative counterparties and, as of September 30, 2021, the Company had posted $32.6 million in eligible collateral. If the Company had breached any of these provisions at September 30, 2021, it could have been required to settle its obligations under the agreements at the termination value.

Table of Contents

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, 2021 and December 31, 2020 were as follows:


	September 30, 2021		December 31, 2020
Commitments to fund loans	$	476,573	$	311,237
Unfunded commitments under lines of credit		558,771		537,325
Commercial and standby letters of credit		16,193		7,320
Total unfunded commitments	$	1,051,537	$	855,882

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.

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 in the portfolio and economic conditions. Charges against the reserve during the three and nine months ended September 30, 2021 and 2020 were 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,
	2021		2020		2021		2020
Beginning balance	$	2,398	$	2,725	$	2,741	$	2,589
Provision charged to (released from) operating expense, net		39		285		(62)		604
Charge-offs		(150)		(214)		(392)		(397)
Ending balance	$	2,287	$	2,796	$	2,287	$	2,796

Table of Contents In the ordinary course of business, the Company and the 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.
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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, 2021 and 2020, there were no transfers of financial instruments between the hierarchy levels.

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

Fair Value of Financial Instruments Measured on a Recurring Basis

Investment securities available-for-sale—Investment securities available-for-sale are carried at fair value on a recurring basis. To the extent possible, observable quoted prices in an active market are used to determine fair value and, as such, these securities are classified as level 1. At September 30, 2021 and December 31, 2020, the Company did not hold any level 1 securities. 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

Table of Contents 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 82.3% estimated pull-through rate based on historical experience, and then multiplying by quoted investor prices determined to be reasonably applicable to the loan commitment groups based on interest rate, terms and rate lock expiration dates of the loan commitment groups. The Company also relies on an external valuation model to estimate the fair value of its forward commitments to sell residential mortgage loans (i.e., an estimate of what the Company would receive or pay to terminate the forward delivery contract based on market prices for similar financial instruments), which includes matching specific terms and maturities of the forward commitments against applicable investor pricing.

The tables below present the financial instruments measured at fair value on a recurring basis as of September 30, 2021 and December 31, 2020 in the consolidated statements of financial condition utilizing the hierarchy structure described above:


	September 30, 2021
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale:
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises	$	—	$	242,302	$	—	$	242,302
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		412,555		—		412,555
Municipal securities		—		313		—		313
Corporate debt		—		2,137		—		2,137
Loans held for sale		—		158,066		—		158,066
Interest rate swap derivatives		—		11,068		—		11,068
Mortgage banking derivatives		—		—		3,192		3,192
Total assets at fair value	$	—	$	826,441	$	3,192	$	829,633
Liabilities:
Interest rate swap derivatives	$	—	$	29,103	$	—	$	29,103
Mortgage banking derivatives		—		—		479		479
Total liabilities at fair value	$	—	$	29,103	$	479	$	29,582

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	December 31, 2020
	Level 1		Level 2		Level 3		Total
Assets:
Investment securities available-for-sale:
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises	$	—	$	196,334	$	—	$	196,334
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises		—		462,779		—		462,779
Municipal securities		—		318		—		318
Corporate debt		—		1,998		—		1,998
Loans held for sale		—		247,813		—		247,813
Interest rate swap derivatives		—		18,149		—		18,149
Mortgage banking derivatives		—		—		7,001		7,001
Total assets at fair value	$	—	$	927,391	$	7,001	$	934,392
Liabilities:
Interest rate swap derivatives	$	—	$	57,060	$	—	$	57,060
Mortgage banking derivatives		—		—		2,920		2,920
Total liabilities at fair value	$	—	$	57,060	$	2,920	$	59,980

The table below details the changes in level 3 financial instruments during the nine months ended September 30, 2021:


	****		Mortgage banking
			derivatives, net
Balance at December 31, 2020		$	4,081
Gain included in earnings, net			(2,349)
Fees and costs included in earnings, net			981
Balance at September 30, 2021		$	2,713

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% - 26% with a weighted average discount rate of 9.5%, 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, 2021, the Company recorded a specific reserve of $1.2 million related to five loans with a carrying balance of $4.7 million. At September 30, 2020, the Company recorded a specific reserve of $1.1 million related to six loans with a carrying balance of $4.6 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 7.0%. The estimated fair values of OREO are updated periodically and further write-downs may be taken to reflect a new basis. The Company recognized $799 thousand of OREO impairment during the nine months ended September 30, 2021 and $423 thousand of OREO impairment during the nine months ended September 30, 2020 in its consolidated statements of operations. 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 discount rates ranging from 9.5% to 10.0% with a weighted average rate of 9.5% at September 30, 2021 and prepayment speed

Table of Contents assumption ranges of 11.1% to 14.9% with a weighted average rate of 11.2% at September 30, 2021. 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. There was $0.7 million of recovery on MSRs during the nine months ended September 30, 2021, compared to $0.8 million of impairment during the nine months ended September 30, 2020. The inputs used to determine the fair values of MSRs are considered level 3 inputs in the fair value hierarchy.

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

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 the assets recorded at fair value on a non-recurring basis as of and for the nine months ended September 30, 2021 and 2020:


	September 30, 2021
	Total		Losses from fair value changes
Individually evaluated loans	$	19,406	$	1,548
Other real estate owned		4,325		799
Premises and equipment		6,032		1,552
Total	$	29,763	$	3,899


	September 30, 2020
	Total		Losses from fair value changes
Individually evaluated loans	$	33,603	$	1,969
Other real estate owned		4,590		423
Premises and equipment		8,024		1,631
Mortgage servicing rights		7,173		847
Total	$	53,390	$	4,870

The Company did not record any liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2021.

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.

Table of Contents 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.

The fair value of financial instruments at September 30, 2021 and December 31, 2020 are set forth below:


	Level in fair value	September 30, 2021				December 31, 2020
	measurement	Carrying		Estimated		Carrying		Estimated
	hierarchy	amount		fair value		amount		fair value
ASSETS
Cash and cash equivalents	Level 1	$	807,370	$	807,370	$	605,565	$	605,565
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		242,302		242,302		196,334		196,334
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises available-for-sale	Level 2		412,555		412,555		462,779		462,779
Municipal securities available-for-sale	Level 2		313		313		318		318
Municipal securities available-for-sale	Level 3		57		57		57		57
Corporate debt	Level 2		2,137		2,137		1,998		1,998
Other available-for-sale securities	Level 3		469		469		469		469
Mortgage-backed securities—residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		315,257		313,626		306,187		310,930
Mortgage-backed securities—other residential mortgage-backed securities issued or guaranteed by U.S. Government agencies or sponsored enterprises held-to-maturity	Level 2		327,379		326,715		70,428		70,761
Non-marketable securities	Level 2		14,532		14,532		16,493		16,493
Non-marketable securities	Level 3		32,432		32,432		5,580		5,580
Loans receivable	Level 3		4,421,760		4,498,601		4,353,726		4,511,357
Loans held for sale	Level 2		158,066		158,066		247,813		247,813
Accrued interest receivable	Level 2		20,032		20,032		18,795		18,795
Interest rate swap derivatives	Level 2		11,068		11,068		18,149		18,149
Mortgage banking derivatives	Level 3		3,192		3,192		7,001		7,001
LIABILITIES
Deposit transaction accounts	Level 2		5,257,779		5,257,779		4,690,100		4,690,100
Time deposits	Level 2		876,841		879,456		986,132		993,070
Securities sold under agreements to repurchase	Level 2		21,427		21,427		22,897		22,897
Accrued interest payable	Level 2		4,850		4,850		6,762		6,762
Interest rate swap derivatives	Level 2		29,103		29,103		57,060		57,060
Mortgage banking derivatives	Level 3		479		479		2,920		2,920

Note 19 Subsequent Event

On November 5, 2021, the Company entered into a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The note is subordinated, unsecured and matures on November 15, 2031. Beginning November 15, 2021, the note will initially be 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 intends to use 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.

Table of Contents 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, 2021, 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, 2020, 2019 and 2018. 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 also believe that our established presence in our core markets of Colorado, the greater Kansas City region, Texas, Utah and New Mexico, positions us well for growth opportunities. As of September 30, 2021, we had $7.1 billion in assets, $4.4 billion in loans, $6.1 billion in deposits and $0.8 billion in equity.

Operating Highlights and Key Challenges

Profitability and returns


●		Net income totaled $70.8 million, or $2.27 per diluted share, for the nine months ended September 30, 2021, compared to net income of $61.4 million, or $1.97 per diluted share, for the same period in the prior year.
●		The return on average tangible assets was 1.39% for the nine months ended September 30, 2021, compared to 1.36% for the same period in the prior year.
●		The return on average tangible common equity was 13.04% for the nine months ended September 30, 2021, compared to 12.47% for the same period in the prior year.

Strategic execution


●		Loan originations during the three months ended September 30, 2021 totaled a record $413.3 million, led by commercial loan originations totaling $301.7 million.
●		Announced investments in two fintech firms including $20.0 million in Finstro Global Holdings Inc. and $2.0 million in Figure Technologies. The Company is partnering with Finstro and Figure to build a comprehensive digital financial ecosystem serving small and medium-sized businesses to provide access to a full range of banking services and block chain payment alternatives.
●		As part of our continued focus on improving operating efficiencies and investing in digital solutions for our clients, we completed the previously announced consolidation of seven banking centers and the sale of one banking center during 2021. A deposit premium gain on sale of $0.8 million related to the banking center sale was recorded to other non-interest income during the three months ended September 30, 2021. Banking center consolidation-related expense of $1.6 million was recorded to non-interest expense during the nine months ended September 30, 2021.
●		Maintained a conservatively structured loan portfolio represented by diverse industries and concentrations with most industry sector concentrations at 5% or less of total loans, and all concentration levels remain well below our self-imposed limits.
●		During the three months ended September 30, 2021, the Company sold mortgage servicing rights generating a gain of $1.3 million.
●		Repurchased 527,214 shares for $19.4 million at a weighted average price per share of $36.72 during the three months ended September 30, 2021.
●		On November 5, 2021, the Company entered into a subordinated note purchase agreement to issue and sell a fixed-to-floating rate note totaling $40.0 million. The initial interest rate of the note is 3.00% until November 15, 2026.

Table of Contents

Loan portfolio


●		Total loans ended the quarter at $4.4 billion and increased $68.0 million, or 2.1% annualized, since December 31, 2020. Excluding PPP loans, total loans increased by $167.3 million, or 5.4% annualized.
●		Total loan originations during the three months ended September 30, 2021 were a record $413.3 million. Loan originations, excluding PPP loans, totaled $948.5 million and $528.5 million for the nine months ended September 30, 2021 and 2020, respectively.
●		COVID-related loan modifications totaled $0.9 million as of September 30, 2021, down from $173.6 million as of December 31, 2020 as a majority of the COVID-modified loans have now returned to their full principal and interest payment terms.

Credit quality


●		Allowance for credit losses totaled 1.11% of total loans at September 30, 2021, compared to 1.37% at December 31, 2020. Excluding PPP loans, the ACL totaled 1.13% of total loans at September 30, 2021, compared to 1.43% at December 31, 2020.
●		The Company recorded total provision release of $9.4 million for the nine months ended September 30, 2021, driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. During the nine months ended September 30, 2020, the Company recorded total provision expense of $17.6 million, driven by deteriorating economic conditions caused by the impact of COVID-19.
●		Net charge-offs to average total loans for the nine months ended September 30, 2021 totaled 0.03%, annualized, compared to 0.06% for the full year ended December 31, 2020.
●		Credit quality remained strong, as non-performing loans (comprised of non-accrual loans and non-accrual TDRs) improved to 0.29% of total loans, compared to 0.47% at December 31, 2020. Non-performing assets to total loans and OREO improved to 0.39% at September 30, 2021, compared to 0.58% at December 31, 2020.

Client deposit funded balance sheet


●		Average transaction deposits for the nine months ended September 30, 2021 totaled $5.1 billion, increasing 23.9%, compared to $4.1 billion for the same period in the prior year.
●		Average total deposits totaled $6.0 billion during the nine months ended September 30, 2021, increasing 16.9%, compared to $5.1 billion for the same period in the prior year.
●		The mix of transaction deposits to total deposits improved to 85.7% at September 30, 2021, compared to 82.6% at December 31, 2020.
●		Cost of deposits decreased 21 basis points to 0.24% during the nine months ended September 30, 2021.

Revenues


●		Fully taxable equivalent (“FTE”) net interest income during the three months ended September 30, 2021, excluding PPP loan fee income of $2.6 million, increased $2.2 million, or 19.8% annualized, compared to the three months ended June 30 2021.
●		FTE net interest income totaled $141.5 million during the nine months ended September 30, 2021 and decreased $6.7 million, or 4.5%, compared to the same period in the prior year primarily due to interest rate actions taken by the Federal Reserve during 2020 and lower non-PPP originated loan balances.
●		The FTE net interest margin widened 11 basis points to 2.93% for the three months ended September 30, 2021, as compared to the three months ended June 30, 2021, driven by excess cash liquidity being deployed into higher yielding originated loans. During the three months ended September 30, 2021, the yield on earning assets increased eight basis points, with the cost of deposits decreasing three basis points to 0.21%, compared to the prior quarter.
●		The FTE net interest margin narrowed 56 basis points to 2.92% for the nine months ended September 30, 2021, as compared to the same period in the prior year due to lower earning asset yields. The yield on earning assets decreased 82 basis points, led by the remix of assets into lower-yielding cash balances and a three basis point decrease in the originated loan portfolio yields. The cost of funds decreased 22 basis points to 0.24% for the nine months ended September 30, 2021.
●		Non-interest income totaled $87.1 million during the nine months ended September 30, 2021, compared to $106.9 million for the same period in 2020, primarily due to lower mortgage refinance demand and tighter gain on sale margins on mortgage loans sold in the secondary market.

Table of Contents

●		During the nine months ended September 30, 2021, other non-interest income increased $4.7 million, compared to the nine months ended September 30, 2020, largely due to $3.5 million of gains from banking center-related sales activities.

Expenses


●		Non-interest expense totaled $147.3 million during the nine months ended September 30, 2021, representing a decrease of $10.4 million, or 6.6%, compared to the nine months ended September 30, 2020, driven by lower mortgage-related compensation as well as the Company’s strategic efforts to improve operating efficiency.
●		Income tax expense totaled $16.1 million during the nine months ended September 30, 2021, compared to $14.5 million during the nine months ended September 30, 2020 driven by 2021’s higher pre-tax income. The effective tax rate for the nine months ended September 30, 2021 was 18.9%, adjusted for stock compensation activity, and was consistent with the full year effective tax rate for 2020.
●		During the nine months ended September 30, 2021, non-interest expense included $2.5 million of transaction-related expenses for the investments in Finstro Global Holdings Inc. and Figure Technologies to further our vision for building a comprehensive digital financial ecosystem.
●		The Company recognized $0.8 million of OREO impairment during the three months ended September 30, 2021 in non-interest expense in the consolidated statements of operations.

Strong capital position


●		Capital ratios continue to be strong as our capital position remains in excess of federal bank regulatory thresholds. As of September 30, 2021, our consolidated tier 1 leverage ratio was 10.43%, and our common equity tier 1 and consolidated tier 1 risk based capital ratios were both 14.57%.
●		The Bank maintains ample liquidity with access to $2.6 billion in readily available funds.
●		At September 30, 2021, common book value per share was $27.89. The tangible common book value per share increased $1.11 to $24.20 at September 30, 2021 compared to December 31, 2020, primarily driven by earnings.

Key Challenges

There are a number of significant challenges confronting us and our industry. We face continual challenges implementing our business strategy, including growing the assets, particularly loans, and deposits of our business amidst intense competition, changing interest rates, adhering to changes in the regulatory environment and identifying and consummating disciplined acquisition and other expansionary opportunities, including building our digital strategy, in a very competitive environment. Prevailing interest rates began decreasing in mid-2019 and are expected to remain relatively low for the foreseeable future as a result of interest rate actions taken by the Federal Reserve.

The COVID-19 pandemic has caused disruption and is likely to continue to present challenges to our business. We continue to remain committed to ensuring our associates, clients and communities are receiving the support they need through our banking centers and our digital banking platform. Our teams have been working diligently to support our clients who are experiencing financial hardship due to COVID-19 through participation in the SBA’s Paycheck Protection Program, including assistance with PPP loan forgiveness applications, and loan modifications, as needed. While access to vaccines in the United States has increased, the efficacy of those vaccines, the impact of emerging targeted vaccine mandates and new variants of the virus, and the length of time that the government-mandated measures must remain in place or potentially be reinstituted to address COVID-19 are unknown. The pandemic has had a negative impact to the U.S. labor market, consumer spending and business operations, and it is not clear whether new outbreaks of COVID-19 cases will have further impact.

Our markets have historically outperformed the national averages on many key indicators; however, the economic impact from the COVID-19 pandemic has caused economic strain nationally and across all of our markets. We are encouraged by the positive signs of economic recovery we are seeing throughout our markets. We are focused on growing our loan portfolio while taking a careful approach to extending new credit and 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.

As of September 30, 2021, the Company had low exposure to industries highly impacted by the COVID-19 pandemic. Within the commercial loan segment, restaurants were 5.5%, retailers 3.0%, hospital/medical 6.4% and oil and gas 0.4% of total loans. Within the

Table of Contents commercial real estate non-owner occupied loan segment, hotel and lodging was 4.5%, multifamily 2.1% and retail 1.5% of total loans. The Company had no direct exposure to other industries and loan types more highly impacted by the pandemic including aviation, cruise lines, energy services, auto manufacturing/dealer floor plans, hedge funds, convention centers, credit cards, malls and taxi/ride share businesses. Furthermore, the Company had no consumer credit card, indirect auto or car leasing exposure.

The agriculture industry continues to be impacted by volatility in commodity prices as well as supply chain issues driven by the COVID-19 pandemic. Our food and agribusiness portfolio is only 4.5% of total loans and is well-diversified across food production, crop and livestock types. Crop and livestock loans represent 0.9% 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.

The extraordinary government measures enacted during the COVID-19 pandemic have generated unprecedented levels of economic stimulus funding and produced high levels of cash liquidity within the banking industry. Our cash balances total $807.4 million as of September 30, 2021 and have increased $201.8 million from December 31, 2020 and $362.3 million from September 30, 2020. Future growth in our interest income will ultimately be dependent on our ability to deploy the excess cash liquidity into high-quality originated loans and other high-quality earning assets such as investment securities. Investment securities totaled $1.3 billion as of September 30, 2021 and increased $286.8 million, or 27.0%, compared to December 31, 2020. As of September 30, 2021, our loans outstanding totaled $4.4 billion, increasing $68.0 million, or 1.6%, compared to December 31, 2020. Non-PPP loans increased $167.3 million, or 4.0%, compared to December 31, 2020. During the nine months ended September 30, 2021, our weighted average rate on new loans funded at the time of origination was 3.47%, compared to the weighted average yield of our originated loan portfolio of 3.99% (FTE). Our net interest income has been impacted by interest rate actions taken by the Federal Reserve in response to the COVID-19 pandemic, and our future earnings will be impacted by the Federal Reserve’s future interest rate policy decisions.

Continued regulation, impending new liquidity and capital constraints, 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.

Table of Contents 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 Ratios^(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,
		2021	2020	2020	2021	2020
Return on average assets		1.11%	1.63%	1.71%	1.36%	1.32%
Return on average tangible assets^(2)^		1.14%	1.67%	1.76%	1.39%	1.36%
Return on average equity		9.15%	13.27%	14.00%	11.20%	10.53%
Return on average tangible common equity^(2)^		10.65%	15.55%	16.49%	13.04%	12.47%
Loan to deposit ratio (end of period)		72.08%	76.70%	81.12%	72.08%	81.12%
Non-interest bearing deposits to total deposits (end of period)		39.89%	37.19%	27.31%	39.89%	27.31%
Net interest margin^(3)^		2.85%	3.16%	3.13%	2.84%	3.39%
Net interest margin FTE^(2)(3)(4)^		2.93%	3.24%	3.21%	2.92%	3.48%
Interest rate spread FTE^(4)(5)^		2.78%	3.05%	3.04%	2.75%	3.27%
Yield on earning assets^(6)^		3.04%	3.47%	3.50%	3.07%	3.87%
Yield on earning assets FTE^(2)(4)(6)^		3.12%	3.55%	3.59%	3.14%	3.96%
Cost of interest bearing liabilities		0.34%	0.50%	0.55%	0.39%	0.69%
Cost of deposits		0.21%	0.33%	0.40%	0.24%	0.49%
Non-interest income to total revenue FTE^(4)^		36.85%	40.11%	48.13%	38.11%	41.90%
Non-interest expense to average assets		2.86%	2.90%	3.39%	2.82%	3.39%
Efficiency ratio		67.05%	58.76%	60.30%	65.14%	62.42%
Efficiency ratio FTE^(2)(4)^		65.91%	57.87%	59.47%	64.04%	61.48%

Total Loans Asset Quality Data^(7)(8)(9)^
Non-performing loans to total loans		0.29%	0.47%	0.41%	0.29%	0.41%
Non-performing loans to total loans excluding PPP loans		0.30%	0.49%	0.45%	0.30%	0.45%
Non-performing assets to total loans and OREO		0.39%	0.58%	0.51%	0.39%	0.51%
Non-performing assets to total loans and OREO excluding PPP loans		0.39%	0.60%	0.56%	0.39%	0.56%
Allowance for credit losses to total loans		1.11%	1.37%	1.34%	1.11%	1.34%
Allowance for credit losses to total loans excluding PPP loans		1.13%	1.43%	1.45%	1.13%	1.45%
Allowance for credit losses to non-performing loans		382.59%	293.21%	322.95%	382.59%	322.95%
Net charge-offs to average loans		0.02%	0.11%	0.04%	0.03%	0.04%

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(1)		Ratios are annualized.
(2)		Ratio represents non-GAAP financial measure. See non-GAAP reconciliations below.
(3)		Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.
(4)		Presented on an FTE basis using the statutory rate of 21% for all periods presented. The taxable equivalent adjustments included above are $1,315, $1,260 and $1,275 for the three months ended September 30, 2021, December 31, 2020 and September 30, 2020, respectively. The taxable equivalent adjustments included above are $3,862 and $3,843 for the nine months ended September 30, 2021 and September 30, 2020, respectively.
(5)		Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.
(6)		Interest earning assets include assets that earn interest/accretion or dividends. Any market value adjustments on investment securities are excluded from interest earning assets.
(7)		Non-performing loans consist of non-accruing loans and restructured loans on non-accrual.
(8)		Non-performing assets include non-performing loans and OREO.
(9)		Total loans are net of unearned discounts and fees.

Table of Contents About Non-GAAP Financial Measures

Certain of the financial measures and ratios we present, including “tangible assets,” “return on average tangible assets,” “return on average tangible common equity,” “tangible common book value,” “tangible common book value per share,” “tangible common equity,” “tangible common equity to tangible assets,” 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 expenses 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.

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,
	****	2021		****	2020		****	2020
Total shareholders’ equity		$	844,716		$	820,691		$	799,357
Less: goodwill and core deposit intangible assets, net			(121,688)			(122,575)			(122,871)
Add: deferred tax liability related to goodwill			9,841			9,155			8,927
Tangible common equity (non-GAAP)		$	732,869		$	707,271		$	685,413

Total assets		$	7,100,991		$	6,659,950		$	6,600,676
Less: goodwill and core deposit intangible assets, net			(121,688)			(122,575)			(122,871)
Add: deferred tax liability related to goodwill			9,841			9,155			8,927
Tangible assets (non-GAAP)		$	6,989,144		$	6,546,530		$	6,486,732

Tangible common equity to tangible assets calculations:
Total shareholders' equity to total assets			11.90%			12.32%			12.11%
Less: impact of goodwill and core deposit intangible assets, net			(1.41)%			(1.52)%			(1.54)%
Tangible common equity to tangible assets (non-GAAP)			10.49%			10.80%			10.57%

Tangible common book value per share calculations:
Tangible common equity (non-GAAP)		$	732,869		$	707,271		$	685,413
Divided by: ending shares outstanding			30,288,131			30,634,291			30,594,412
Tangible common book value per share (non-GAAP)		$	24.20		$	23.09		$	22.40

Tangible common book value per share, excluding accumulated other comprehensive income calculations:
Tangible common equity (non-GAAP)		$	732,869		$	707,271		$	685,413
Accumulated other comprehensive loss (income), net of tax			1,397			(9,766)			(11,080)
Tangible common book value, excluding accumulated other comprehensive loss (income), net of tax (non-GAAP)			734,266			697,505			674,333
Divided by: ending shares outstanding			30,288,131			30,634,291			30,594,412
Tangible common book value per share, excluding accumulated other comprehensive loss (income), net of tax (non-GAAP)		$	24.24		$	22.77		$	22.04

Table of Contents 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,
	2021		2020		2020		2021		2020
Net income	$	19,825	$	27,169	$	27,893	$	70,837	$	61,422
Add: impact of core deposit intangible amortization expense, after tax		227		228		226		682		680
Net income adjusted for impact of core deposit intangible amortization expense, after tax	$	20,052	$	27,397	$	28,119	$	71,519	$	62,102

Average assets	$	7,116,141	$	6,635,490	$	6,483,016	$	6,977,494	$	6,222,442
Less: average goodwill and core deposit intangible asset, net of deferred tax liability related to goodwill		(112,026)		(113,594)		(114,122)		(112,320)		(114,406)
Average tangible assets (non-GAAP)	$	7,004,115	$	6,521,896	$	6,368,894	$	6,865,174	$	6,108,036

Average shareholders' equity	$	859,245	$	814,483	$	792,358	$	845,776	$	779,491
Less: average goodwill and core deposit intangible asset, net of deferred tax liability related to goodwill		(112,026)		(113,594)		(114,122)		(112,320)		(114,406)
Average tangible common equity (non-GAAP)	$	747,219	$	700,889	$	678,236	$	733,456	$	665,085

Return on average assets		1.11%		1.63%		1.71%		1.36%		1.32%
Return on average tangible assets (non-GAAP)		1.14%		1.67%		1.76%		1.39%		1.36%
Return on average equity		9.15%		13.27%		14.00%		11.20%		10.53%
Return on average tangible common equity (non-GAAP)		10.65%		15.55%		16.49%		13.04%		12.47%

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,
		2021		****	2020		****	2020		****	2021		****	2020
Interest income		$	50,801		$	53,288		$	52,302		$	148,464		$	164,714
Add: impact of taxable equivalent adjustment			1,315			1,260			1,275			3,862			3,843
Interest income FTE (non-GAAP)		$	52,116		$	54,548		$	53,577		$	152,326		$	168,557

Net interest income		$	47,569		$	48,556		$	46,715		$	137,658		$	144,390
Add: impact of taxable equivalent adjustment			1,315			1,260			1,275			3,862			3,843
Net interest income FTE (non-GAAP)		$	48,884		$	49,816		$	47,990		$	141,520		$	148,233

Average earning assets		$	6,624,047		$	6,108,513		$	5,944,790		$	6,475,934		$	5,690,884
Yield on earning assets			3.04%			3.47%			3.50%			3.07%			3.87%
Yield on earning assets FTE (non-GAAP)			3.12%			3.55%			3.59%			3.14%			3.96%
Net interest margin			2.85%			3.16%			3.13%			2.84%			3.39%
Net interest margin FTE (non-GAAP)			2.93%			3.24%			3.21%			2.92%			3.48%

Table of Contents Efficiency Ratio


	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,
	2021		2020		2020		2021		2020
Net interest income	$	47,569	$	48,556	$	46,715	$	137,658	$	144,390
Add: impact of taxable equivalent adjustment		1,315		1,260		1,275		3,862		3,843
Net interest income, FTE (non-GAAP)	$	48,884	$	49,816	$	47,990	$	141,520	$	148,233

Non-interest income	$	28,522	$	33,357	$	44,532	$	87,149	$	106,901

Non-interest expense	$	51,314	$	48,425	$	55,321	$	147,325	$	157,752
Less: core deposit intangible asset amortization		(295)		(296)		(295)		(887)		(887)
Non-interest expense, adjusted for core deposit intangible asset amortization	$	51,019	$	48,129	$	55,026	$	146,438	$	156,865

Efficiency ratio		67.05%		58.76%		60.30%		65.14%		62.42%
Efficiency ratio FTE (non-GAAP)		65.91%		57.87%		59.47%		64.04%		61.48%

Application of Critical Accounting Policies

We use accounting principles and methods that conform to GAAP and general banking practices. We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. The most significant of these estimates relate to the determination of the ACL. See additional discussion of our ACL policy in note 2 – Summary of Significant Accounting Policies in our audited consolidated financial statements in our 2020 Annual Report on Form 10-K.

Future Accounting Pronouncements

In March 2020, the Financial Accounting Standards Board issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 was effective upon issuance and can be adopted during any interim period through December 31, 2022. It provides optional expedients and guidance for applying generally accepted accounting principles to contract modifications and hedging relationships, if certain criteria are met, that reference the London Inter-Bank Offered Rate (“LIBOR”) or any other reference rate that is expected to be discontinued. Beginning January 1, 2022, the Company will no longer underwrite loans using LIBOR as a reference rate. The Company continues to evaluate the impact from ASU 2020-04, and any related updates, and does not expect the adoption of ASU 2020-04 to have a material impact on its financial statements.

Financial Condition

Total assets were $7.1 billion at September 30, 2021, compared to $6.7 billion at December 31, 2020, an increase of $441.0 million, or 6.6%. Cash and cash equivalents increased $201.8 million, or 33.3%, from December 31, 2020, and investment securities increased $286.8 million, or 27.0%. Total loans as of September 30, 2021 increased $68.0 million, or 1.6%, with non-PPP loans increasing $167.3 million, or 4.0%, compared to December 31, 2020. The allowance for credit losses decreased $10.6 million to $49.2 million at September 30, 2021, compared to December 31, 2020.

During the nine months ended September 30, 2021, lower cost demand, savings, and money market deposits ("transaction deposits") increased $567.7 million, or 16.2% annualized, compared to December 31, 2020, as we received cash inflows from economic stimulus and continued developing full banking relationships with our clients. Our clients used their core operating accounts for PPP funds and economic stimulus checks, which aided the strong deposit growth. In addition to providing excess cash liquidity, the increase in transaction deposits provided low-cost funding utilized to fund PPP loans.

Table of Contents Investment securities

Available-for-sale

Total investment securities available-for-sale decreased 0.6% during the nine months ended September 30, 2021 to $0.7 billion. Purchases of available-for-sale securities during the nine months ended September 30, 2021 and 2020 totaled $196.3 million and $114.7 million, respectively. Paydowns and maturities totaled $185.0 million and $191.8 million during the nine months ended September 30, 2021 and 2020, respectively.

Our available-for-sale investment securities portfolio is summarized as follows as of the dates indicated:


		September 30, 2021						December 31, 2020
	****						Weighted						Weighted
		Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
		cost		value		portfolio	yield	cost		value		portfolio	yield
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	244,912	$	242,302	36.8%	1.33%	$	193,424	$	196,334	29.6%	1.36%
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			412,793		412,555	62.7%	1.49%		454,345		462,779	69.9%	1.45%
Municipal securities			362		370	0.1%	3.44%		362		375	0.1%	3.46%
Corporate debt			2,000		2,137	0.3%	5.80%		2,000		1,998	0.3%	5.83%
Other securities			469		469	0.1%	0.00%		469		469	0.1%	0.00%
Total investment securities available-for-sale		$	660,536	$	657,833	100.0%	1.45%	$	650,600	$	661,955	100.0%	1.44%

As of September 30, 2021 and December 31, 2020, nearly all the available-for-sale investment portfolio was backed by mortgages. The residential mortgage pass-through securities portfolio is comprised of both fixed rate and adjustable rate FHLMC, FNMA and GNMA securities. The other mortgage-backed securities are comprised of securities backed by FHLMC, FNMA and GNMA securities.

Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-for-sale mortgage-backed securities portfolio was 3.6 years and 2.7 years at September 30, 2021 and December 31, 2020, respectively. This estimate is based on assumptions and actual results may differ. At September 30, 2021 and December 31, 2020, the duration of the total available-for-sale investment portfolio was 3.4 years and 2.6 years, respectively.

At September 30, 2021 and December 31, 2020, adjustable rate securities comprised 1.9% and 2.3%, 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 1.72% per annum and 2.00% per annum at September 30, 2021 and December 31, 2020, respectively.

The available-for-sale investment portfolio included $9.1 million of unrealized losses and $6.4 million of unrealized gains and $11.7 million of unrealized gains and $0.4 million of unrealized losses at September 30, 2021 and December 31, 2020, respectively. 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 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.

Table of Contents Held-to-maturity

Held-to-maturity investment securities increased 70.6% during the nine months ended September 30, 2021 to $0.6 billion. Purchases during the nine months ended September 30, 2021 and 2020 totaled $377.7 million and $196.7 million, respectively. Paydowns and maturities totaled $109.0 million and $58.1 million during the nine months ended September 30, 2021 and 2020, respectively.

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


		September 30, 2021						December 31, 2020
							Weighted						Weighted
	****	Amortized		Fair		Percent of	average	Amortized		Fair		Percent of	average
		cost		value		portfolio	yield	cost		value		portfolio	yield
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by U.S. Government agencies or sponsored enterprises		$	315,257	$	313,626	49.1%	1.52%	$	306,187	$	310,930	81.3%	1.39%
Other residential MBS issued or guaranteed by U.S. Government agencies or sponsored enterprises			327,379		326,715	50.9%	1.21%		70,428		70,761	18.7%	0.41%
Total investment securities held-to-maturity		$	642,636	$	640,341	100.0%	1.36%	$	376,615	$	381,691	100.0%	1.21%

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 $3.7 million and $5.3 million of unrealized gains and $6.0 million and $0.3 million of unrealized losses at September 30, 2021 and December 31, 2020, respectively.

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 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, 2021 and December 31, 2020 was 3.5 years and 2.4 years, respectively. This estimate is based on assumptions and actual results may differ. The duration of the total held-to-maturity investment portfolio was 3.3 years and 2.4 years as of September 30, 2021 and December 31, 2020, respectively.

Non-marketable securities

Non-marketable securities totaled $47.0 million and $22.1 million at September 30, 2021 and December 31, 2020, respectively, and included FRB stock, FHLB stock and other non-marketable securities. At September 30, 2021, other non-marketable securities totaled $32.4 million and consisted of equity method investments and convertible preferred stock without readily determinable fair values. During the nine months ended September 30, 2021 and 2020, purchases of non-marketable securities totaled $25.8 million and $2.4 million, respectively. Included in these purchases were investments in two fintech firms, Finstro Global Holdings Inc. of $20.0 million and Figure Technologies of $2.0 million. The Company is working with Finstro Global Holdings Inc. and Figure Technologies to build a comprehensive digital financial ecosystem serving small and medium-sized businesses with a goal to provide access to a full range of banking services and block chain payment alternatives. At December 31, 2020, the Company held $5.6 million of other non-marketable securities.

Table of Contents At September 30, 2021, the Company held $13.9 million of FRB stock and $0.7 million of FHLB stock for regulatory or debt facility purposes. At December 31, 2020, the Company held $13.9 million of FRB stock and $2.6 million of FHLB stock. These are restricted securities which, lacking a market, are carried at cost. The Company is not aware of any events or changes in circumstances that may have an adverse effect on the investments carried at cost.

Loans overview

At September 30, 2021, our loan portfolio was comprised of new loans that we have originated and loans that were acquired in connection with our six acquisitions to date.

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


					September 30, 2021 vs.
					December 31, 2020
	September 30, 2021		December 31, 2020		% Change
Originated:
Commercial:
Commercial and industrial	$	1,352,481	$	1,248,530	8.3%
Municipal and non-profit		878,988		870,410	1.0%
Owner-occupied commercial real estate		504,415		464,417	8.6%
Food and agribusiness		195,766		205,189	(4.6)%
PPP loans^(1)^		76,794		176,106	(56.4)%
Total commercial		3,008,444		2,964,652	1.5%
Commercial real estate non-owner occupied		605,143		542,642	11.5%
Residential real estate		608,158		581,555	4.6%
Consumer		17,735		18,581	(4.6)%
Total originated		4,239,480		4,107,430	3.2%

Acquired:
Commercial:
Commercial and industrial		17,521		22,102	(20.7)%
Municipal and non-profit		347		381	(8.9)%
Owner-occupied commercial real estate		37,335		51,821	(28.0)%
Food and agribusiness		3,653		5,108	(28.5)%
Total commercial		58,856		79,412	(25.9)%
Commercial real estate non-owner occupied		65,784		89,354	(26.4)%
Residential real estate		57,344		77,105	(25.6)%
Consumer		296		425	(30.4)%
Total acquired		182,280		246,296	(26.0)%
Total loans	$	4,421,760	$	4,353,726	1.6%

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(1)		PPP loan balances are net of fees and costs and include principal totaling $79,242 and $179,531 as of September 30, 2021 and December 31, 2020, respectively.

The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. Our loan portfolio increased $68.0 million, or 2.1% annualized, from December 31, 2020. Excluding PPP loans, total loans increased by $167.3 million, or 5.4% annualized. During the three months ended September 30, 2021, loan originations totaled a record $413.3 million, led by commercial loan originations of $301.7 million. Loan growth was broad based with all asset classes and geographies contributing to the increased balance. Originations during the nine months ended September 30, 2021 totaled $1.1 billion, including $121.1 million of PPP loan originations. PPP loans forgiven totaled $238.7 million during the nine months ended September 30, 2021.

Our commercial and industrial loan portfolio is comprised of diverse industry segments. At September 30, 2021, these segments included finance and financial services, primarily lender finance loans, of $177.1 million, hospital/medical loans of $283.5 million, manufacturing-related loans of $110.8 million, and a variety of smaller subcategories of commercial and industrial loans. Food and agribusiness loans, which are well-diversified across food production, crop and livestock types, totaled $199.4 million and were 25.7% of the Company’s risk based capital. Crop and livestock loans represent 0.9% of total loans.

Non-owner occupied CRE loans were 86.6% of the Company’s risk based capital, or 15.2% of total loans, and no specific property type comprised more than 5.0% of total loans. The Company maintains very little exposure to retail properties. Total exposure to

Table of Contents retailers as well as non-owner occupied retail properties totaled 4.5% of total loans. Multi-family loans totaled $91.5 million, or 2.1% of total loans as of September 30, 2021.

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 originations totaled $1.3 billion over the past 12 months, led by commercial loan originations of $895.8 million, which included PPP loan originations of $121.1 million. Originations 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 originations to better approximate the impact of originations on loans outstanding and ultimately net interest income.

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


	Third quarter		Second quarter		First quarter		Fourth quarter		Third quarter
	2021		2021		2021		2020		2020
Commercial:
Commercial and industrial	$	196,289	$	147,030	$	23,390	$	96,625	$	11,354
Municipal and non-profit		43,516		25,131		7,999		25,348		6,083
Owner occupied commercial real estate		53,445		48,225		27,093		36,085		23,758
Food and agribusiness		8,442		26,956		(10,104)		19,191		13,876
PPP loans		—		—		121,141		—		122
Total commercial		301,692		247,342		169,519		177,249		55,193
Commercial real estate non-owner occupied		55,392		58,532		49,195		52,018		24,937
Residential real estate		54,442		53,962		74,145		41,355		49,786
Consumer		1,810		2,267		1,353		1,858		2,980
Total	$	413,336	$	362,103	$	294,212	$	272,480	$	132,896

Included in originations are net fundings (paydowns) under revolving lines of credit of $29,154, $59,520, ($26,395), $50,982 and ($27,899) as of the third, second and first quarters of 2021 and the fourth and third quarters of 2020, respectively.

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


		September 30, 2021
	****	Due within		Due after 1 but		Due after
		1 year		within 5 years		5 years		Total
Commercial:
Commercial and industrial		$	122,946	$	1,026,893	$	220,163	$	1,370,002
Municipal and non-profit			29,788		142,488		707,059		879,335
Owner occupied commercial real estate			59,248		139,614		342,888		541,750
Food and agribusiness			83,056		99,481		16,882		199,419
PPP loans			2,793		74,001		—		76,794
Total commercial			297,831		1,482,477		1,286,992		3,067,300
Commercial real estate non-owner occupied			165,976		360,774		144,177		670,927
Residential real estate			12,216		31,627		621,659		665,502
Consumer			4,861		10,200		2,970		18,031
Total loans		$	480,884	$	1,885,078	$	2,055,798	$	4,421,760

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		December 31, 2020
	****	Due within		Due after 1 but		Due after
		1 year		within 5 years		5 years		Total
Commercial:
Commercial and industrial		$	109,586	$	927,881	$	233,165	$	1,270,632
Municipal and non-profit			42,222		164,994		663,575		870,791
Owner occupied commercial real estate			24,510		177,311		314,418		516,239
Food and agribusiness			80,691		105,815		23,791		210,297
PPP loans			—		176,106		—		176,106
Total commercial			257,009		1,552,107		1,234,949		3,044,065
Commercial real estate non-owner occupied			72,486		426,291		133,219		631,996
Residential real estate			18,569		36,747		603,343		658,659
Consumer			5,167		10,886		2,953		19,006
Total loans		$	353,231	$	2,026,031	$	1,974,464	$	4,353,726

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, 2021
		Fixed					Variable					Total
	****			****	Weighted	****			****	Weighted	****			****	Weighted
		Balance			average rate		Balance			average rate		Balance			average rate
Commercial
Commercial and industrial		$	383,256		4.34%		$	863,801		3.38%		$	1,247,057		3.68%
Municipal and non-profit^(1)^			824,760		3.50%			24,786		2.82%			849,546		3.48%
Owner occupied commercial real estate			288,103		4.55%			194,400		3.92%			482,503		4.48%
Food and agribusiness			44,593		5.17%			71,770		4.26%			116,363		4.61%
PPP loans			74,001		1.00%			—		—			74,001		1.00%
Total commercial			1,614,713		3.87%			1,154,757		3.52%			2,769,470		3.72%
Commercial real estate non-owner occupied			239,320		4.33%			265,631		3.40%			504,951		3.84%
Residential real estate			348,487		3.46%			304,799		4.03%			653,286		3.72%
Consumer			10,630		4.62%			2,540		3.55%			13,170		4.41%
Total loans with > 1 year maturity		$	2,213,150		3.86%		$	1,727,727		3.59%		$	3,940,877		3.74%


		December 31, 2020
		Fixed					Variable					Total
	****			****	Weighted	****			****	Weighted	****			****	Weighted
		Balance			average rate		Balance			average rate		Balance			average rate
Commercial
Commercial and industrial		$	320,745		4.68%		$	840,301		3.11%		$	1,161,046		3.54%
Municipal and non-profit^(1)^			803,350		3.55%			25,219		2.83%			828,569		3.53%
Owner occupied commercial real estate			261,406		4.82%			230,323		3.88%			491,729		4.51%
Food and agribusiness			57,360		5.02%			72,246		3.67%			129,606		4.27%
PPP loans			176,106		1.00%			—		—			176,106		1.00%
Total commercial			1,618,967		3.79%			1,168,089		3.29%			2,787,056		3.58%
Commercial real estate non-owner occupied			253,879		4.65%			305,631		3.42%			559,510		3.98%
Residential real estate			298,759		3.60%			341,332		4.14%			640,091		3.89%
Consumer			11,384		4.92%			2,455		3.50%			13,839		4.66%
Total loans with > 1 year maturity		$	2,182,989		3.86%		$	1,817,507		3.47%		$	4,000,496		3.68%

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(1)		Included in municipal and non-profit fixed rate loans are loans totaling $350,277 and $387,105 that have been swapped to variable rates at current market pricing at September 30, 2021 and December 31, 2020, respectively. Included in the municipal and non-profit segment are tax exempt loans totaling $746,641 and $711,582 with an FTE weighted average rate of 4.02% and 4.03% at September 30, 2021 and December 31, 2020, respectively.

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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.

In the event of borrower default, we may seek recovery in compliance with state lending laws, the respective loan agreements, and credit monitoring and remediation procedures that may include modifying or restructuring a loan from its original terms, for economic or legal reasons, to provide a concession to the borrower from their original terms due to borrower financial difficulties in order to facilitate repayment. Such restructured loans are considered TDRs in accordance with ASC 310-40. 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, TDRs on non-accrual 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, 2021 was $0.2 million and $0.7 million, respectively, and $0.3 million and $0.9 million during the three and nine months ended September 30, 2020, 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.

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


	September 30, 2021		****	December 31, 2020
Non-accrual loans:
Non-accrual loans, excluding restructured loans	$	8,489		$	12,190
Restructured loans on non-accrual		4,359			8,197
Non-performing loans		12,848			20,387
OREO		4,325			4,730
Other repossessed assets		—			17
Total non-performing assets	$	17,173		$	25,134

Loans 30-89 days past due and still accruing interest	$	1,302		$	968
Loans 90 days or more past due and still accruing interest		495			162
Non-accrual loans		12,848			20,387
Total past due and non-accrual loans	$	14,645		$	21,517
Accruing restructured loans	$	11,135		$	13,945
Allowance for credit losses		49,155			59,777
Non-performing loans to total loans		0.29%			0.47%
Non-performing loans to total loans excluding PPP loans		0.30%			0.49%
Total 90 days past due and still accruing interest and non-accrual loans to total loans		0.30%			0.47%
Total non-performing assets to total loans and OREO		0.39%			0.58%
Total non-performing assets to total loans and OREO, excluding PPP loans		0.39%			0.60%
ACL to non-performing loans		382.59%			293.21%

During the nine months ended September 30, 2021, total non-performing loans decreased $7.5 million, or 37.0%, from December 31, 2020.

Loans 30-89 days past due and still accruing interest were 0.03% and 0.02% of total loans at September 30, 2021 and December 31, 2020, respectively. Loans 90 days or more past due and still accruing interest were 0.01% of total loans at both September 30, 2021 and December 31, 2020.

The Company continues to monitor the operating status and trends of our clients to enable us to quickly detect credit deterioration and take action where needed. The CARES Act afforded financial institutions the option to modify loans within certain parameters in response to the COVID-19 pandemic without requiring the modifications to be classified as TDRs under ASC Topic 310 if the borrower has been adversely impacted by COVID-19 and was current on their loan payments. The Company modified 14 loans totaling $4.8 million during the nine months ended September 30, 2021 and 483 loans totaling $499.5 million during the nine months ended September 30, 2020, due to the effects of the COVID-19 pandemic, that were not classified as TDRs. Modified loans that remained on a payment deferral plan at September 30, 2021 totaled $0.9 million. Of those loans, principal payment deferrals totaled $0.3 million and full payment deferrals totaled $0.6 million. At September 30, 2021, $45 thousand of loan modifications related to COVID-19 were a subsequent modification. All COVID-19 modified loans were classified as performing as of September 30, 2021. At December 31, 2020, modified loans that remained on a payment deferral plan totaled $173.6 million, or 4.0% of the total loan portfolio, of which 26.2% were a subsequent modification.

The following table sets forth COVID-19 loan modifications currently on a deferral plan as of the date presented:


		September 30, 2021
		Loans outstanding					Loans modified					Modification type
	****			****	Percentage of	****			****	Percentage of	****	3-month		4 to 6-month		7 to 12-month		3 to 6-month full		6 to 12-month full
		Balance			loan portfolio		Balance			loan segment		interest only		interest only		interest only		payment deferral		payment deferral
Commercial		$	2,990,506		67.6%		$	649		0.0%		$	—	$	—	$	—	$	—	$	649
Commercial real estate non-owner occupied			670,927		15.2%			—		0.0%			—		—		—		—		—
Residential real estate			665,502		15.1%			251		0.0%			206		45		—		—		—
Consumer			18,031		0.4%			—		0.0%			—		—		—		—		—
Total excluding PPP loans		$	4,344,966		98.3%		$	900		0.0%		$	206	$	45	$	—	$	—	$	649
PPP loans			76,794		1.7%			—		0.0%			—		—		—		—		—
Total loans		$	4,421,760		100.0%		$	900		0.0%		$	206	$	45	$	—	$	—	$	649

Table of Contents


		December 31, 2020
		Loans outstanding					Loans modified					Modification type
	****			****	Percentage of	****			****	Percentage of	****	3-month		4 to 6-month		7 to 12-month		3 to 6-month full		6 to 12-month full
		Balance			loan portfolio		Balance			loan segment		interest only		interest only		interest only		payment deferral		payment deferral
Commercial		$	2,867,959		66.0%		$	44,655		1.6%		$	—	$	—	$	40,097	$	649	$	3,909
Commercial real estate non-owner occupied			631,996		14.5%			126,423		20.0%			—		—		126,423		—		—
Residential real estate			658,659		15.1%			2,495		0.4%			—		356		158		1,693		288
Consumer			19,006		0.4%			4		0.0%			4		—		—		—		—
Total excluding PPP loans		$	4,177,620		96.0%		$	173,577		4.2%		$	4	$	356	$	166,678	$	2,342	$	4,197
PPP loans			176,106		4.0%			—		0.0%			—		—		—		—		—
Total loans		$	4,353,726		100.0%		$	173,577		4.0%		$	4	$	356	$	166,678	$	2,342	$	4,197

Allowance for credit losses

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

Table of Contents 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.

The Company has elected to exclude AIR from the ACL calculation. When a loan is placed on non-accrual, any recorded AIR is reversed against interest income. As of September 30, 2021 and December 31, 2020, AIR from loans totaled $17.6 million and $16.7 million, respectively.

Total ACL

After considering the above mentioned factors, we believe that the ACL of $49.2 million is adequate to cover estimated lifetime losses inherent in the loan portfolio at September 30, 2021. 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, 2021		September 30, 2020
	Total loans		Total loans
Beginning allowance for credit losses	$	49,030	$	60,465
Charge-offs:
Commercial		(172)		(499)
Commercial real estate non owner-occupied		—		—
Residential real estate		(4)		(16)
Consumer		(146)		(104)
Total charge-offs		(322)		(619)
Recoveries		101		133
Net charge-offs		(221)		(486)
Provision expense for loan losses		346		1,000
Ending allowance for credit losses	$	49,155	$	60,979
Ratio of annualized net charge-offs to average total loans during the period		0.02%		0.04%
Average total loans outstanding during the period	$	4,352,557	$	4,677,630
Average total loans outstanding excluding, PPP loans during the period		4,245,524		4,329,458

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		As of and for the nine months ended
		September 30, 2021		September 30, 2020
		Total loans		Total loans
Beginning balance		$	59,777	$	39,064
Cumulative effect adjustment^(1)^			—		5,836
Charge-offs:
Commercial			(1,112)		(1,411)
Commercial real estate non-owner occupied			—		—
Residential real estate			(26)		(56)
Consumer			(410)		(502)
Total charge-offs			(1,548)		(1,969)
Recoveries			480		515
Net charge-offs			(1,068)		(1,454)
Provision (release) expense for loan losses			(9,554)		17,533
Ending allowance for credit losses		$	49,155	$	60,979
Ratio of annualized net charge-offs to average total loans during the period			0.03%		0.04%
Ratio of ACL to total loans outstanding at period end			1.11%		1.34%
Ratio of ACL to total loans outstanding, excluding PPP loans at period end			1.13%		1.45%
Ratio of ACL to total non-performing loans at period end			382.59%		322.95%
Total loans		$	4,421,760	$	4,556,121
Average total loans outstanding during the period			4,314,330		4,628,319
Average total loans outstanding, excluding PPP loans during the period			4,152,735		4,417,606
Non-performing loans			12,848		18,882

---	---	---
(1)		Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial Instruments.

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, 2021
										ACL as a %
	****	Total loans		****	% of total loans	****	Related ACL		****	of total ACL
Commercial		$	2,990,506		67.6%		$	29,653		60.3%
PPP loans^(1)^			76,794		1.7%			—		0.0%
Commercial real estate non-owner occupied			670,927		15.2%			10,799		22.0%
Residential real estate			665,502		15.1%			8,374		17.0%
Consumer			18,031		0.4%			329		0.7%
Total		$	4,421,760		100.0%		$	49,155		100.0%


(1)		PPP loans are fully guaranteed by the SBA.


		December 31, 2020
										ACL as a %
	****	Total loans		****	% of total loans	****	Related ACL		****	of total ACL
Commercial		$	2,867,959		66.0%		$	30,376		50.8%
PPP loans^(1)^			176,106		4.0%			—		0.0%
Commercial real estate non-owner occupied			631,996		14.5%			17,448		29.2%
Residential real estate			658,659		15.1%			11,492		19.2%
Consumer			19,006		0.4%			461		0.8%
Total		$	4,353,726		100.0%		$	59,777		100.0%

---	---	---
(1)		PPP loans are fully guaranteed by the SBA.

Table of Contents Deposits

Deposits from banking clients serve as a primary funding source for our banking operations, and our ability to gather and manage deposit levels is critical to our success. Deposits not only provide a low-cost funding source for our loans, but also provide a foundation for the client relationships that are critical to future loan growth. The following table presents information regarding our deposit composition at September 30, 2021 and December 31, 2020:


						Increase (decrease)
			December 31, 2020			Amount		% Change
Non-interest bearing demand deposits	2,447,099	39.9%	$	2,111,045	37.1%	$	336,054	15.9%
Interest bearing demand deposits	546,597	8.9%		514,286	9.1%		32,311	6.3%
Savings accounts	731,638	11.9%		646,829	11.4%		84,809	13.1%
Money market accounts	1,532,445	25.0%		1,417,940	25.0%		114,505	8.1%
Total transaction deposits	5,257,779	85.7%		4,690,100	82.6%		567,679	12.1%
Time deposits < 250,000	733,064	12.0%		820,229	14.5%		(87,165)	(10.6)%
Time deposits > 250,000	143,777	2.3%		165,903	2.9%		(22,126)	(13.3)%
Total time deposits	876,841	14.3%		986,132	17.4%		(109,291)	(11.1)%
Total deposits	6,134,620	100.0%	$	5,676,232	100.0%	$	458,388	8.1%

All values are in US Dollars.

The following table shows scheduled maturities of certificates of deposit with denominations greater than or equal to $250,000 as of September 30, 2021:


	****	September 30, 2021
Three months or less		$	32,647
Over 3 months through 6 months			25,217
Over 6 months through 12 months			30,623
Thereafter			55,290
Total time deposits > $250,000		$	143,777

At September 30, 2021 and December 31, 2020, time deposits that were scheduled to mature within 12 months totaled $592.6 million and $659.5 million, respectively. Of the time deposits scheduled to mature within 12 months at September 30, 2021, $88.5 million were in denominations of $250,000 or more, and $504.1 million were in denominations less than $250,000.

Other borrowings

As of September 30, 2021 and December 31, 2020, the Bank sold securities under agreements to repurchase totaling $21.4 million and $22.9 million, respectively. In addition, as a member of the FHLB, the Bank has access to a line of credit and term financing from the FHLB with total available credit of $0.9 billion at September 30, 2021. The Bank may utilize its FHLB line of credit as a funding mechanism for originated loans and loans held for sale. At September 30, 2021 and December 31, 2020, the Bank had no outstanding borrowings from the FHLB. The Bank may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2021 or December 31, 2020. Loans pledged were $1.3 billion and $1.2 billion at September 30, 2021 and December 31, 2020, respectively. There was no interest expense related to FHLB advances and other short-term borrowings for the three and nine months ended September 30, 2021, compared to $0.1 million and $1.3 million during the three and nine months ended September 30, 2020, respectively.

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

Table of Contents Overview of results of operations

We recorded net income of $19.8 million and $70.8 million, or $0.64 and $2.27 per diluted share, during the three and nine months ended September 30, 2021, respectively. During the nine months ended September 30, 2021, the return on average tangible assets increased three basis points to 1.39%, and the return on average tangible common equity increased 57 basis points to 13.04%, compared to the nine months ended September 30, 2020.

During the three and nine months ended September 30, 2020, we recorded net income of $27.9 million and $61.4 million, or $0.90 and $1.97 per diluted share, respectively. During the nine months ended September 30, 2020, the return on average tangible assets decreased nine basis points to 1.36%, and the return on average tangible common equity decreased 96 basis points to 12.47%, compared to the nine months ended September 30, 2019.

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.

Table of Contents The table below presents the components of net interest income on a FTE basis for the three months ended September 30, 2021 and 2020. 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, 2021					September 30, 2020
		Averagebalance		Interest		Averagerate	Averagebalance		Interest		Averagerate
Interest earning assets:
Originated loans FTE^(1)(2)(3)^		$	4,137,001	$	41,865	4.01%	$	4,343,335	$	40,973	3.75%
Acquired loans			187,419		3,796	8.04%		284,653		6,593	9.21%
Loans held for sale			157,381		1,166	2.94%		230,390		1,683	2.91%
Investment securities available-for-sale			656,757		2,572	1.57%		559,330		2,784	1.99%
Investment securities held-to-maturity			671,053		2,178	1.30%		242,511		1,253	2.07%
Other securities			14,657		210	5.73%		29,640		221	2.98%
Interest earning deposits and securities purchased under agreements to resell			799,779		329	0.16%		254,931		70	0.11%
Total interest earning assets FTE^(2)^		$	6,624,047	$	52,116	3.12%	$	5,944,790	$	53,577	3.59%
Cash and due from banks		$	77,498				$	73,274
Other assets			463,553					525,324
Allowance for credit losses			(48,957)					(60,372)
Total assets		$	7,116,141				$	6,483,016
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits		$	2,803,071	$	1,516	0.21%	$	2,957,604	$	1,990	0.27%
Time deposits			903,935		1,711	0.75%		1,038,983		3,501	1.34%
Securities sold under agreements to repurchase			19,681		5	0.10%		22,667		10	0.18%
Federal Home Loan Bank advances			—		—	0.00%		1,141		86	29.99%
Total interest bearing liabilities		$	3,726,687	$	3,232	0.34%	$	4,020,395	$	5,587	0.55%
Demand deposits		$	2,422,976				$	1,515,058
Other liabilities			107,233					155,205
Total liabilities			6,256,896					5,690,658
Shareholders' equity			859,245					792,358
Total liabilities and shareholders' equity		$	7,116,141				$	6,483,016
Net interest income FTE^(2)^				$	48,884				$	47,990
Interest rate spread FTE^(2)^						2.78%					3.04%
Net interest earning assets		$	2,897,360				$	1,924,395
Net interest margin FTE^(2)^						2.93%					3.21%
Average transaction deposits		$	5,226,047				$	4,472,662
Average total deposits			6,129,982					5,511,645
Ratio of average interest earning assets to average interest bearing liabilities			177.75%					147.87%

---	---	---
(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 $1,315 and $1,275 for the three months ended September 30, 2021 and 2020, respectively.
(3)		Loan fees included in interest income totaled $4,514 and $3,703 for the three months ended September 30, 2021 and 2020, respectively.

Net interest income totaled $47.6 million and $46.7 million during the three months ended September 30, 2021 and 2020, respectively. Net interest income on an FTE basis totaled $48.9 million and $48.0 million during the three months ended September 30, 2021 and 2020, respectively. The yield on earning assets decreased 47 basis points, driven by the remix of assets into lower-yielding cash balances and interest rate actions taken by the Federal Reserve during 2020. During the three months ended September 30, 2021, the cost of funds decreased 19 basis points, compared to the three months ended September 30, 2020.

Table of Contents

Average loans comprised $4.3 billion, or 65.3%, of total average interest earning assets during the three months ended September 30, 2021, compared to $4.6 billion, or 77.8%, during the three months ended September 30, 2020. The decrease in average loan balances was primarily driven by our careful approach to extending new credit, a focus on managing credit risk and yield and a decrease in PPP loan balances. Average PPP loans for the three months ended September 30, 2021 decreased $241.1 million, or 69.3%, to $107.0 million, compared to the three months ended September 30, 2020.

Average investment securities comprised 20.0% and 13.5% of total interest earning assets during the three months ended September 30, 2021 and 2020, respectively. The increase in the investment portfolio was driven by strategic decisions to deploy a portion of the excess liquidity into investment securities.

Average balances of interest bearing liabilities decreased $293.7 million during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. Average non-interest bearing demand deposits increased $907.9 million during the three months ended September 30, 2021, compared to the three months ended September 30, 2020. Average interest bearing demand, savings and money market deposits decreased $154.5 million. Average time deposits decreased $135.0 million between the two periods, and average securities sold under agreements to repurchase decreased $3.0 million. During the three months ended September 30, 2021, average FHLB advances decreased $1.1 million, compared to the three months ended September 30, 2020. The cost of deposits decreased 19 basis points to 0.21% during the three months ended September 30, 2021, compared to 0.40% during the three months ended September 30, 2020.

Table of Contents The table below presents the components of net interest income on an FTE basis for the nine months ended September 30, 2021 and 2020:


		For the nine months ended								For the nine months ended
		September 30, 2021								September 30, 2020
		Average		****			****	Average	****	Average		****			****	Average
	****	balance			Interest			rate		balance			Interest			rate
Interest earning assets:
Originated loans FTE^(1)(2)(3)^		$	4,073,529		$	121,461		3.99%		$	4,273,332		$	128,392		4.01%
Acquired loans			212,151			12,847		8.10%			313,555			22,194		9.45%
Loans held for sale			182,385			3,896		2.86%			163,980			3,929		3.20%
Investment securities available-for-sale			660,399			7,454		1.50%			597,654			9,229		2.06%
Investment securities held-to-maturity			555,818			5,317		1.28%			207,107			3,689		2.37%
Other securities			15,180			629		5.52%			29,826			945		4.22%
Interest earning deposits and securities purchased under agreements to resell			776,472			722		0.12%			105,430			179		0.23%
Total interest earning assets FTE^(2)^		$	6,475,934		$	152,326		3.14%		$	5,690,884		$	168,557		3.96%
Cash and due from banks		$	78,953							$	74,694
Other assets			476,856								510,941
Allowance for credit losses			(54,249)								(54,077)
Total assets		$	6,977,494							$	6,222,442
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits		$	2,746,657		$	4,740		0.23%		$	2,725,572		$	6,829		0.33%
Time deposits			936,088			6,050		0.86%			1,048,116			12,075		1.54%
Securities sold under agreements to repurchase			20,310			16		0.11%			30,322			125		0.55%
Federal Home Loan Bank advances			—			—		0.00%			127,456			1,295		1.36%
Total interest bearing liabilities		$	3,703,055		$	10,806		0.39%		$	3,931,466		$	20,324		0.69%
Demand deposits		$	2,320,160							$	1,363,556
Other liabilities			108,503								147,929
Total liabilities			6,131,718								5,442,951
Stockholders' equity			845,776								779,491
Total liabilities and shareholders’ equity		$	6,977,494							$	6,222,442
Net interest income FTE^(2)^					$	141,520							$	148,233
Interest rate spread FTE^(2)^								2.75%								3.27%
Net interest earning assets		$	2,772,879							$	1,759,418
Net interest margin FTE^(2)^								2.92%								3.48%
Average transaction deposits		$	5,066,817							$	4,089,128
Average total deposits			6,002,905								5,137,244
Ratio of average interest earning assets to average interest bearing liabilities			174.88%								144.75%

---	---	---
(1)		Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)		Presented on a fully taxable equivalent basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above are $3,862 and $3,843 for the nine months ended September 30, 2021 and 2020, respectively.
(3)		Loan fees included in interest income totaled $13,753 and $8,137 for the nine months ended September 30, 2021 and 2020, respectively.

Net interest income totaled $137.7 million and $144.4 million during the nine months ended September 30, 2021 and 2020, respectively. Net interest income on an FTE basis totaled $141.5 million and $148.2 million during the nine months ended September 30, 2021 and 2020, respectively. The yield on earnings assets decreased 82 basis points, led by the remix of assets into lower-yielding cash balances and a decrease in the originated portfolio yields due to interest rate actions taken by the Federal Reserve during 2020. During the nine months ended September 30, 2021, the cost of funds decreased 27 basis points, compared to the nine months ended September 30, 2020.

Table of Contents

Average loans comprised $4.3 billion, or 66.2%, of total average interest earning assets during the nine months ended September 30, 2021, compared to $4.6 billion, or 80.6%, of total average interest earning assets during the nine months ended September 30, 2020. The $301.2 million decrease in average loan balances was primarily driven by the Company’s careful approach to extending new credit and focus on managing credit risk and yield during 2020. Year-to-date loan originations through September 30, 2021 totaled $1.1 billion, including $121.1 million of PPP loan originations.

Average investment securities comprised 18.8% and 14.1% of total interest earning assets during the nine months ended September 30, 2021 and 2020, respectively. The increase in the investment portfolio was driven by strategic decisions to deploy a portion of excess liquidity into investment securities.

Average balances of interest bearing liabilities decreased $228.4 million during the nine months ended September 30, 2021, compared to the nine months ended September 30, 2020. The decrease was driven by strong non-interest bearing deposit inflows, which were utilized, in part, to pay off our outstanding FHLB advances in 2020. Average FHLB advances decreased $127.5 million, and average time deposits decreased $112.0 million between the two periods. Those decreases were partially offset by an increase in average interest-bearing transaction deposits of $21.1 million. The cost of deposits decreased 25 basis points to 0.24% during the nine months ended September 30, 2021, compared to 0.49% during the nine months ended September 30, 2020.

Table of Contents 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, 2021, compared to the three and nine months ended September 30, 2020:


		Three months ended September 30, 2021									Nine months ended September 30, 2021
		compared to									compared to
		Three months ended September 30, 2020									Nine months ended September 30, 2020
		Increase (decrease) due to									Increase (decrease) due to
	****	Volume		****	Rate		****	Net		****	Volume		****	Rate		****	Net
Interest income:
Originated loans FTE^(1)(2)(3)^		$	(2,088)		$	2,980		$	892		$	(5,958)		$	(973)		$	(6,931)
Acquired loans			(1,969)			(828)			(2,797)			(6,141)			(3,206)			(9,347)
Loans held for sale			(541)			24			(517)			393			(426)			(33)
Investment securities available-for-sale			382			(594)			(212)			708			(2,483)			(1,775)
Investment securities held-to-maturity			1,391			(466)			925			3,336			(1,708)			1,628
Other securities			(215)			204			(11)			(607)			291			(316)
Interest earning deposits and securities purchased under agreements to resell			224			35			259			624			(81)			543
Total interest income		$	(2,816)		$	1,355		$	(1,461)		$	(7,645)		$	(8,586)		$	(16,231)
Interest expense:
Interest bearing demand, savings and money market deposits		$	(84)		$	(390)		$	(474)		$	36		$	(2,125)		$	(2,089)
Time deposits			(256)			(1,534)			(1,790)			(724)			(5,301)			(6,025)
Securities sold under agreements to repurchase			(1)			(4)			(5)			(8)			(101)			(109)
Federal Home Loan Bank advances			—			(86)			(86)			—			(1,295)			(1,295)
Total interest expense			(341)			(2,014)			(2,355)			(696)			(8,822)			(9,518)
Net change in net interest income		$	(2,475)		$	3,369		$	894		$	(6,949)		$	236		$	(6,713)

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(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 $1,315 and $1,275 for the three months ended September 30, 2021 and 2020, respectively. The taxable equivalent adjustments included above are $3,862 and $3,843 for the nine months ended September 30, 2021 and 2020, respectively.
(3)		Loan fees included in interest income totaled $4,514 and $3,703 for the three months ended September 30, 2021 and 2020, respectively. Loan fees included in interest income totaled $13,753 and $8,137 for the nine months ended September 30, 2021 and 2020, 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, 2021			September 30, 2020			September 30, 2021			September 30, 2020
			Average			Average			Average			Average
	Average		rate	Average		rate	Average		rate	Average		rate
	balance		paid	balance		paid	balance		paid	balance		paid
Non-interest bearing demand	$	2,422,976	0.00%	$	1,515,058	0.00%	$	2,320,160	0.00%	$	1,363,556	0.00%
Interest bearing demand		544,056	0.19%		961,468	0.21%		548,906	0.21%		875,871	0.24%
Money market accounts		1,535,361	0.25%		1,390,747	0.34%		1,491,591	0.27%		1,271,499	0.44%
Savings accounts		723,654	0.15%		605,389	0.18%		706,160	0.16%		578,202	0.24%
Time deposits		903,935	0.75%		1,038,983	1.34%		936,088	0.86%		1,048,116	1.54%
Total average deposits	$	6,129,982	0.21%	$	5,511,645	0.40%	$	6,002,905	0.24%	$	5,137,244	0.49%

Provision for loan losses

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

The Company recorded $0.3 million of provision expense for funded loans and $0.3 million of provision release for unfunded loan commitment reserves, during the three months ended September 30, 2021, as the impact of net loan growth was offset by strong asset

Table of Contents quality and an improved outlook in the CECL model’s underlying economic forecast. During the three months ended September 30, 2020, provision for loan loss expense of $1.2 million, including a $0.2 million provision expense for unfunded loan commitment reserves, was recorded under the CECL model to provide coverage for the impact of deterioration in the macro-economic environment as a result of COVID-19.

The Company recorded total provision release of $9.4 million for the nine months ended September 30, 2021, which included a provision release of $9.6 million for funded loans and a provision expense of $0.2 million for unfunded loan commitments, driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. During the nine months ended September 30, 2020, the Company recorded total provision expense of $17.6 million, which included a provision expense of $17.5 million for funded loans and a provision expense of $0.1 million for unfunded loan commitments, to provide coverage for the impact of deteriorating economic conditions as a result of COVID-19 and to support non-PPP originated loan growth.

The allowance for credit losses totaled 1.11% of total loans at September 30, 2021, compared to the allowance for credit losses of 1.34% at September 30, 2020. Excluding PPP loans, the allowance for credit losses totaled 1.13% and 1.45% of total loans at September 30, 2021 and 2020, respectively.

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)
	****	2021		****	2020		****	2021		****	2020		Amount		% Change	Amount		% Change
Service charges		$	3,947		$	3,742		$	10,989		$	10,962	$	205	5.5 %	$	27	0.2 %
Bank card fees			4,530			4,039			13,217			11,206		491	12.2 %		2,011	17.9 %
Mortgage banking income			16,615			34,943			52,973			79,246		(18,328)	(52.5)%		(26,273)	(33.2)%
Bank-owned life insurance income			558			597			1,659			1,776		(39)	(6.5)%		(117)	(6.6)%
Other non-interest income			2,872			1,136			8,276			3,608		1,736	152.8 %		4,668	129.4 %
OREO-related income			—			75			35			103		(75)	(100.0)%		(68)	(66.0)%
Total non-interest income		$	28,522		$	44,532		$	87,149		$	106,901	$	(16,010)	(36.0)%	$	(19,752)	(18.5)%

Non-interest income totaled $28.5 million and $87.1 million for the three and nine months ended September 30, 2021, respectively, compared to $44.5 million and $106.9 million for the three and nine months ended September 30, 2020, respectively. The decrease in mortgage banking income during both periods was driven by slower refinance activity in 2021 and competition driving tighter gain on sale margins. The decrease in mortgage banking income was partially offset by a $1.3 million gain from the sale of mortgage servicing rights during the third quarter of 2021. Service charges and bank card fees increased a combined $0.7 million and $2.0 million during the three and nine months ended September 30, 2021, respectively, compared to the three and nine months ended September 30, 2020, due to changes in consumer behavior. Included in other non-interest income was $0.8 million of deposit premium gain from the sale of one banking center during the third quarter of 2021. Additionally, other non-interest income included $0.4 million and $3.5 million of gains from fixed assets sales from the banking center consolidations during the three and nine months ended September 30, 2021, respectively.

Table of Contents 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)
	2021		****	2020		****	2021		****	2020		Amount		% Change	Amount		% Change
Salaries and benefits	$	32,556		$	38,614		$	97,518		$	108,251	$	(6,058)	(15.7)%	$	(10,733)	(9.9)%
Occupancy and equipment		6,469			6,878			19,150			20,854		(409)	(5.9)%		(1,704)	(8.2)%
Telecommunications and data processing		2,282			2,270			6,934			6,790		12	0.5 %		144	2.1 %
Marketing and business development		582			696			1,604			1,992		(114)	(16.4)%		(388)	(19.5)%
FDIC deposit insurance		475			409			1,375			744		66	16.1 %		631	84.8 %
Bank card expenses		1,457			1,275			3,931			3,334		182	14.3 %		597	17.9 %
Professional fees		3,251			714			4,642			2,082		2,537	355.3 %		2,560	123.0 %
Other non-interest expense		2,828			2,793			7,652			8,362		35	1.3 %		(710)	(8.5)%
Problem asset workout		1,119			1,064			1,851			2,341		55	5.2 %		(490)	(20.9)%
(Gain) loss on OREO sales, net		—			(119)			192			(25)		119	100.0 %		217	868.0 %
Core deposit intangible asset amortization		295			295			887			887		—	—		—	—
Banking center consolidation-related expense		—			432			1,589			2,140		(432)	(100.0)%		(551)	(25.7)%
Total non-interest expense	$	51,314		$	55,321		$	147,325		$	157,752	$	(4,007)	(7.2)%	$	(10,427)	(6.6)%

During the three and nine months ended September 30, 2021, non-interest expense decreased $4.0 million, or 7.2%, and $10.4 million, or 6.6%, respectively, compared to the three and nine months ended September 30, 2020. Salaries and benefits decreased during both periods primarily due to lower mortgage-related compensation. Occupancy and equipment decreased $0.4 million and $1.7 million, during the three and nine months ended September 30, 2021, compared to the three and nine months ended September 30, 2020, largely due to efficiencies gained from the completion of the previously announced banking center consolidations. Problem asset workout expense included a write-down during the third quarter of 2021 of one previously acquired OREO property totaling $0.8 million. Included in professional fees for the three and nine months ended September 30, 2020, were $2.4 million and $2.5 million, respectively, of transaction-related expenses for the investments in Finstro Global Holdings Inc. and Figure Technologies.

Income taxes

Income tax expense totaled $5.0 million and $16.1 million for the three and nine months ended September 30, 2021, respectively. Income tax expense for the three and nine months ended September 30, 2020 was $6.8 million and $14.5 million, respectively. The effective tax rate for the three and nine months ended September 30, 2021 was 20.0% and 18.5%, respectively, compared to 19.7% and 19.1% for the same periods in the prior year. Income tax expense included $0.4 million of benefit and $0.1 million of expense from stock compensation activity during the nine months ended September 30, 2021 and 2020, respectively. Adjusting for stock compensation activity, the effective tax rate for the nine months ended September 30, 2021 and 2020 was consistent at 18.9%. The effective tax rate is lower than the federal statutory rate primarily due to interest income from tax-exempt lending, bank-owned life insurance income, and the relationship of these items to pre-tax income.

Additional information regarding income taxes can be found in note 19 of our audited consolidated financial statements in our 2020 Annual Report on Form 10-K.

Liquidity and Capital Resources

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. On-balance sheet

Table of Contents liquidity is represented by our cash and cash equivalents, and unencumbered investment securities, and is detailed in the table below as of September 30, 2021 and December 31, 2020:


	****	September 30, 2021		****	December 31, 2020
Cash and due from banks		$	806,870		$	605,065
Interest bearing bank deposits			500			500
Unencumbered investment securities, at fair value			758,992			513,945
Total		$	1,566,362		$	1,119,510

Total on-balance sheet liquidity increased $446.9 million at September 30, 2021, compared to December 31, 2020. The increase was due to $245.1 million in unencumbered available-for-sale and held-to-maturity securities balances and higher cash and due from banks of $201.8 million.

Through our relationship with the FHLB, we have pledged qualifying loans and investment securities allowing us to obtain additional liquidity through FHLB advances and lines of credit. The Bank may pledge investment securities and loans as collateral for FHLB advances. There were no investment securities pledged at September 30, 2021 or December 31, 2020. The Bank had loans pledged as collateral for FHLB advances of $1.3 billion and $1.2 billion at September 30, 2021 and December 31, 2020, respectively. FHLB advances, lines of credit and other short-term borrowing availability totaled $0.9 billion at September 30, 2021. The Bank can obtain additional liquidity through the FHLB facility, if required, and also has access to the Paycheck Protection Program Liquidity Facility and federal funds lines of credit with correspondent banks.

Our primary sources of funds are deposits, securities sold under agreements to repurchase, prepayments and maturities of loans and investment securities, the sale of investment securities and funds provided from operations. We anticipate having access to other third-party funding sources, including the ability to raise funds through the issuance of shares of our common stock or other equity or equity-related securities, incurrence of debt and federal funds purchased, that may also be a source of liquidity. We anticipate that these sources of liquidity will provide adequate funding and liquidity for at least a 12-month period.

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

Exclusive from the investing activities related to acquisitions, our primary investing activities are originations and pay-offs and paydowns of loans and purchases and sales of investment securities. At September 30, 2021, pledgeable investment securities represented a significant source of liquidity. Our available-for-sale investment securities are carried at fair value and our held-to-maturity securities are carried at amortized cost. Our collective investment securities portfolio totaled $1.3 billion at September 30, 2021, inclusive of pre-tax net unrealized losses of $2.7 million on the available-for-sale securities portfolio. Additionally, our held-to-maturity securities portfolio had $2.3 million of pre-tax net unrealized losses at September 30, 2021. The gross unrealized gains and losses are detailed in note 3 of our consolidated financial statements. As of September 30, 2021, our investment securities portfolio consisted primarily of mortgage-backed securities, all of which were issued or guaranteed by U.S. Government agencies or sponsored enterprises. The anticipated repayments and marketability of these securities offer substantial resources and flexibility to meet new loan demand, reinvest in the investment securities portfolio, or provide optionality for reductions in our deposit funding base.

At 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, 2021, $592.6 million of time deposits were scheduled to mature within 12 months. Based on the current interest rate environment, market conditions and our consumer banking strategy focusing on both lower cost transaction accounts and term deposits, our strategy is to replace a portion of those maturing time deposits with transaction deposits and market-rate time deposits.

Under the Basel III requirements, at September 30, 2021, the Company and the Bank met all capital adequacy requirements and the Bank 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.

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

The Board of Directors has from time to time authorized multiple programs to repurchase shares of the Company’s common stock either in open market or in privately negotiated transactions in accordance with applicable regulations of the SEC. On February 24, 2021, the Company’s Board of Directors authorized a new program to repurchase up to $75.0 million of the Company’s stock which replaces the previously authorized $50.0 million stock repurchase program announced in February 2020 in its entirety. During the third quarter of 2021, the Company repurchased 527,214 shares for $19.4 million at a weighted average price per share of $36.72. The remaining authorization under the new program as of September 30, 2021 was $55.6 million.

On November 9, 2021, our Board of Directors declared a quarterly dividend of $0.22 per common share, payable on December 15, 2021 to shareholders of record at the close of business on November 26, 2021.

Asset/Liability Management and Interest Rate Risk

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

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

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

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

Our interest rate risk model indicated that the Company was asset sensitive in terms of interest rate sensitivity at September 30, 2021. During the nine months ended September 30, 2021, our asset sensitivity decreased for a rising rate environment as a result of the balance sheet mix. The table below illustrates the impact of an immediate and sustained 200 and 100 basis point increase at September 30, 2021 and December 31, 2020 and a 25 basis point decrease in interest rates on net interest income based on the interest rate risk model at September 30, 2021:


Hypothetical
shift in interest	% change in projected net interest income
rates (in bps)	September 30, 2021	****	December 31, 2020
200	12.11%		14.22%
100	6.04%		7.46%
(25)	(0.17)%		(0.46)%

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

Table of Contents 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 emphasized the origination of longer duration loans. The strategy with respect to liabilities has been to continue to emphasize transaction account growth, particularly non-interest or low interest bearing non-maturing deposit accounts while building long-term client relationships. Non-maturing deposit accounts totaled 85.7% of total deposits at September 30, 2021, compared to 82.6% at December 31, 2020. We currently have no brokered time deposits.

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, 2021 and December 31, 2020, we had loan commitments totaling $1.0 billion and $848.6 million, respectively, and standby letters of credit that totaled $16.2 million and $7.3 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 QUALITATIV E 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 PROCEDURE S

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, 2021. 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, 2021.

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.

Table of Contents PART II: OTHER INFORMATIO N

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 FACTOR S

There have been no material changes to the risk factors disclosed in Item 1A: Risk Factors in our Annual Report on Form 10-K for the year ended December 31 2020.

Item 2. UNREGISTERED SALES OF EQUIT Y 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)^
August 1 - August 31, 2021		229,604		36.85	229,604		66,539,829
August 1 - August 31, 2021^(1)^		1,138		34.71	—		66,539,829
September 1 - September 30, 2021		297,610		36.62	297,610		55,640,399
Total		528,352	$	36.72	527,214	$	55,640,399

---	---	---
(1)		These shares represent shares purchased other than through publicly announced plans and were purchased pursuant to the Company’s stock incentive plans. Pursuant to the plans, shares were purchased from plan participants at the then current market value in satisfaction of stock option exercise prices, settlements of restricted stock and tax withholdings.
(2)		On February 24, 2021, the Company’s Board of Directors authorized a new program to repurchase up to $75.0 million of common stock. Under this authorization, $55.6 million remained available for purchase at September 30, 2021. The new program replaces the previously authorized $50.0 million stock repurchase program announced in February 2020 in its entirety.

Item 5. OTHER INFORMATIO N

None.

Table of Contents Item 6. EXHIBIT S



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)

4.1		Form of 3.00% Fixed-to-Floating Rate Subordinated Note due 2031 (incorporated herein by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K dated and filed on November 5, 2021)

10.1		Form of Subordinated Note Purchase Agreement, dated November 5, 2021 by and among National Bank Holding Corporation and the Purchaser named therein (incorporated herein by reference to Exhibit 10.1 to our Form 8-K dated and filed on November 5, 2021)

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)

Table of Contents

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 9, 2021

Exhibit 31.1

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

I, G. Timothy Laney, Chief Executive Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of National Bank Holdings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
---	---
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
---	---
a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
---	---
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
---	---
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
---	---
a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
---	---
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
---	---

---	---	---
Date:	November 9, 2021	/s/ G. Timothy Laney
		G. Timothy Laney
		Chairman, President and Chief Executive Officer

Exhibit 31.2

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

I, Aldis Birkans, Chief Financial Officer, certify that:

1.	I have reviewed this quarterly report on Form 10-Q of National Bank Holdings Corporation;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
---	---
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
---	---
4.	The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
---	---
a.	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
---	---
b.	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
---	---
c.	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
---	---
d.	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
---	---
5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
---	---
a.	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
---	---
b.	Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
---	---

---	---	---
Date:	November 9, 2021	/s/ Aldis Birkans
		Aldis Birkans
		Chief Financial Officer

Exhibit 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

In connection with the quarterly report of National Bank Holdings Corporation (the “Company”) on Form 10-Q for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (the “Report”), each of the undersigned officers certifies pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) this Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.


Date:	November 9, 2021	/s/ G. Timothy Laney
		G. Timothy Laney
		Chairman, President and Chief Executive Officer
<br><br>Date:	November 9, 2021	/s/ Aldis Birkans
		Aldis Birkans
		Chief Financial Officer