Where common sense lives.®
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CONNECTING WITH OUR
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A N N UA L R E P O R T A N D F O R M 1 0 - K
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ABOUT NATIONAL BANK HOLDINGS CORPORATION
National Bank Holdings Corporation is a bank holding company created to build a leading community bank franchise
delivering high-quality client service and committed to stakeholder results. Through its bank subsidiary, NBH Bank,
National Bank Holdings Corporation operates a network of 81 banking centers1. Our core markets are Colorado, the
greater Kansas City region, Texas, Utah and New Mexico. More information about National Bank Holdings Corporation
can be found at www.nationalbankholdings.com.
A LETTER FROM OUR CHAIRMAN, PRESIDENT AND CEO
TIM LANEY
FELLOW SHAREHOLDERS,
2021 was a year of strengthening existing connections,
forging new ones, and creating innovative ways to
connect with our clients, associates and communities.
As a result, we achieved record earnings for the fourth
consecutive year, all while maintaining exceptional credit
quality. This is a testament to our commitment to deliver
common sense banking by building lasting relationships
based on the principles of fairness and simplicity. During
2021, we also announced our strategic intent to build
2UniFiSM, a comprehensive and fully digital ecosystem to
support the financial and information needs of small and
medium-sized businesses.
Financial highlights for the twelve months ended
December 31, 2021 include:
• Record net income of $93.6 million and earnings
per share of $3.01
• Full year net charge-offs of only three basis points
• Record loan originations of $1.5 billion
We were pleased to be recognized again as one
of Fortune’s 100 Fastest Growing Companies and
among the top public companies for shareholder value
creation. Newsweek named us the #1 Best Small Bank
in Colorado for 2021, and Bank Director ranked us #9
in the Best Small Regional Banks for 2022. Further, our
shareholder return continues to outperform the KBW
Regional Banking Index. In 2021, we also completed
$36.4 million of share repurchases, which amounts to
over 900,000 shares. Simply put, I am proud that our
financial performance is providing meaningful returns
for our shareholders.
In 2021, our banking teams were active
in our
communities, meeting in person with our clients and
prospective clients, working together to navigate the
ever-changing environment. We generated new loan
originations of $1.5 billion, helping our clients and
communities move beyond the pandemic. Additionally,
we worked with our clients who participated in the SBA’s
Paycheck Protection Program to achieve forgiveness
of these loans. These funds helped hundreds of small
and medium-sized businesses secure their payrolls and
support their employees through challenging times.
On another important front, we helped our clients
secure their dream homes with mortgage production
of $2.2 billion.
NBHC Total Shareholder Returns1, 2
December 31, 2016 through December 31, 2021
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
51.5%
29.8%
OUR FAMILY OF BRANDS 2
NBH Bank operates under one charter with the following brand names:
Community Banks of Colorado and Community Banks Mortgage, a division
of NBH Bank in Colorado, Bank Midwest and Bank Midwest Mortgage in
Kansas and Missouri, and Hillcrest Bank and Hillcrest Bank Mortgage in
Texas, Utah and New Mexico.
2017
2018
2019
2020
2021
NBHC
KBW Regional Banking Index (KRX) 1
We believe that it is important to provide our clients
with options for how they address their financial needs.
To that end, we are building a comprehensive, easy-to-
use, digital financial marketplace for small and medium-
sized businesses. 2UniFiSM will emerge as a national
ecosystem providing access to a broad array of financial
services, real-time information and blockchain payment
SM
Enriched/timely information
Access to working capital/term debt
Reduction in cost
Fun and easy to use
Financial inclusion
tools within a secure, safe and regulated platform.
Our goal is to reduce stress and save business owners
both time and money by addressing their borrowing,
Headquartered in
Denver, Colorado
LOCATIONS AND
MARKET SHARE
1
COMMUNITY BANKS
OF COLORADO
Largest publicly traded bank
headquartered in Colorado
Ranks 3rd in market share of
Colorado headquartered banks
40 banking centers
1% deposit market share across
Colorado
BANK MIDWEST
Ranks 8th in banking centers in
Kansas City MSA
34 banking centers
3% deposit market share in
Kansas City MSA
HILLCREST BANK
7 locations, including 2
commercial offices located
in Austin, TX, Dallas TX; and
5 banking centers located in
Albuquerque, NM, Taos, NM
and Salt Lake City, UT
1Total Shareholder Return measured based on security and index market close prices and dividends re-invested into the same security or index.
2Past results are not a guarantee of future performance.
National Bank Holdings Corporation.
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1Financial information and rank as of June 30, 2021 per S&P Global. NBH banking centers as of December 31, 2021. NBH Bank banking centers as of December 31, 2021.
2NBH Bank, Community Banks of Colorado, Bank Midwest, Hillcrest Bank, and the corresponding logo marks, are registered trademarks and service marks, as applicable, of
depository and cash management needs through a first-
of-its-kind digital financial marketplace.
Partnering with fintech innovators is critical to realizing
our vision for 2UniFiSM. In 2021, we made direct
investments in Finstro Global Holdings, Inc. and Figure
Technologies. These partnerships are the first of many
innovators we will be working with to accelerate our
delivery for 2UniFiSM. Finstro provides a unique and fully
digital solution to working capital and trade finance
needs of small and medium-sized businesses. With
respect to Figure, we are pleased to be a founding
member of the USDFTM Consortium, an association of
regulated financial institutions, which will help facilitate
the transfer of value on the blockchain. We believe these
digital innovations, in partnership with a consortium of
other banks, will begin to usher in a new era of payment
and information management solutions for small and
medium-sized businesses.
We continued to make safety a priority during the
pandemic
for our associates and clients. When
circumstances warranted, we requested our clients
access our banking center lobbies by appointment while
maintaining drive-thru services. Furthermore, we actively
worked with clients to assist them in using mobile and
online banking capabilities as an alternative to conducting
business in our banking centers. For our associates,
we waived medical plan cost-sharing and co-pays for
COVID-19 testing and treatment throughout the year.
We believe that equity, diversity and inclusion help
us connect and build strong relationships within our
Company and in the communities where we live and do
business. While we view our work as a journey, results to
date include:
• 68% of the Company’s workforce is female
and 56% of the Company’s managerial
roles are female.1
• Minorities represent 22% of the Company’s
workforce and 19% of the Company’s
managerial roles.1
• We welcomed two new directors to our Board in
2021. Patrick Sobers and Alka Gupta bring
additional diversity, insight and
perspective to our Company.
volunteerism and giving in our communities. We had
great participation in our annual Do More Charity
Challenge® held this year in Kansas City, taking our six
year total to nearly $1.5 million in charitable contributions
raised, benefiting a wide variety of non-profits in our
communities. Our NBH Charitable Foundation provided
much needed funding to non-profits including Habitat
for Humanity in Utah, Impact Ventures in Texas, People
of All Colors Succeed in Kansas City and a special
contribution to the Boulder County Wildfire Fund to
help those impacted by the devastating Marshall fire
that hit our Colorado community in December 2021. In
addition, we purchased loans from Habitat for Humanity
in Fort Collins, Colorado to enable them to continue
building much needed affordable housing.
Historical Dividend Per Share
CAGR: 26%
$0.54
$0.34
$0.75
$0.80
$0.87
2017
2018
2019
2020
2021
Our relationship-based banking model and focus on
growing market share, all while maintaining a low
to moderate risk profile, led to our strong financial
performance and establishes a strong foundation for
further organic and acquisition-related growth. We grew
our tangible book value to $24.33 at December 31, 2021.
Our full year dividend totaled $0.87, increasing 9% in
2021. We also raised $40 million in subordinated debt at
a 3.0% coupon, one of the lowest cost capital raises in the
industry. Our excess liquidity of $2.7 billion coupled with
fortress levels of capital, gives us meaningful optionality.
I could not be more proud of my teammates for their
continued focus on our clients, communities and each
other. We believe that our commitment to building win-
win relationships, with a focus on fairness and simplicity,
will continue to produce best-in-class results.
SINCERELY,
I am proud of the meaningful contributions our
organization and associates continue to provide through
TIM LANEY
CHAIRMAN, PRESIDENT AND CEO
1As of December 31, 2021.
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2021
HIGHLIGHTS
DRIVING STRONG AND CONSISTENT FINANCIAL PERFORMANCE
Record full year earnings per share of $3.01 and $93.6 million in net income
Record full year loan originations of $1.5 billion
Low full year net charge-offs to average loans of just 3 basis points
Record tangible book value per share, growing to $24.33 at December 31, 2021
Raised $40 million in subordinated debt at a 3.0% coupon, one of the lowest cost capital raises in the industry
DELIVERING AN INNOVATIVE MARKETPLACE FOR
SMALL AND MEDIUM-SIZED BUSINESSES
Announced 2UniFiSM, a national platform that provides access to a robust array of financial services, real-time
information and blockchain payment tools within a secure platform and regulated environment to small and
medium-sized businesses
Completed strategic investments in Finstro Global Holdings, Inc. and Figure Technologies
Founding member of USDFTM Consortium – a network of banks working to facilitate the compliant transfer of
value on the blockchain
CREATING A CULTURE THAT DRIVES RECOGNITION
Named #1 Colorado Small Bank in 2021 by Newsweek
Named #9 Best Small Regional Bank in 2022 by BankDirector
2nd consecutive year in Fortune’s 100 Fastest Growing Companies
RECENT RECOGNITION
#93
In total value
creation for
the last 3
years1
Fortune
#92 of 100
#1 & #5
Market
Presence in
Top 5 Best
Places to Live
U.S. News
Best Small Regional Banks
#9
1Represents a three-year annualized total shareholder return based on data for publicly-traded companies using Fortune’s criteria (10/28/2021). From FORTUNE. ©2021 FORTUNE
Media IP Limited All rights reserved. Used under license.
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☒
For the fiscal year ended December 31, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 001-35654
NATIONAL BANK HOLDINGS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
27-0563799
(I.R.S. Employer
Identification No.)
7800 East Orchard Road, Suite 300, Greenwood Village, Colorado 80111
(Address of principal executive offices) (Zip Code)
Registrant’s telephone, including area code:
(303) 892-8715
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Class A Common Stock, Par Value $0.01
Trading Symbol
NBHC
Name of each exchange on which registered
New York Stock Exchange
Securities registered pursuant to section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
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 definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
(Check one)
Large accelerated filer
Non-accelerated filer
☒
☐
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 has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to
the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of June 30, 2021, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $1,139,000,000 based on the closing
sale price as reported on the New York Stock Exchange.
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of February 21, 2022, NBHC had outstanding 29,959,010 shares of Class A voting common stock with $0.01 par value per share, excluding 143,710 shares of restricted Class
A common stock issued but not yet vested.
Portions of the Registrant’s definitive proxy statement for its 2022 Annual Meeting of Shareholders to be filed within 120 days of December 31, 2021 will be incorporated by
reference into Part III of this Form 10-K.
DOCUMENTS INCORPORATED BY REFERENCE
INDEX
Cautionary Notes Regarding Forward Looking Statements
PART I
Item 1.
Business
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Properties
Item 3.
Legal Proceedings
Item 4. Mine Safety Disclosures
PART II
Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity
Securities
Item 6.
Selected Financial Data
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Item 8.
Financial Statements and Supplementary Data
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A. Controls and Procedures
Item 9B. Other Information
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters
Item 13. Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accountant Fees and Services
PART IV
Item 15.
Exhibits and Financial Statement Schedules
Signatures
Page
3
5
20
34
34
35
35
35
37
45
70
71
124
124
127
127
127
127
127
127
128
131
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995,
notwithstanding that such statements are not specifically identified. Any statements about our expectations, beliefs, plans,
predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-
looking. These statements are often, but not always, made through the use of words or phrases such as “anticipate,”
“believe,” “can,” “would,” “should,” “could,” “may,” “predict,” “seek,” “potential,” “will,” “estimate,” “target,” “plan,”
“project,” “continuing,” “ongoing,” “expect,” “intend” and similar words or phrases. These statements are only predictions
and involve estimates, known and unknown risks, assumptions and uncertainties. We have based these statements largely on
our current expectations and projections about future events and financial trends that we believe may affect our financial
condition, liquidity, results of operations, business strategy and growth prospects.
Forward-looking statements involve certain important risks, uncertainties and other factors, any of which could cause actual
results to differ materially from those in such statements and, therefore, you are cautioned not to place undue reliance on such
statements. Factors that could cause actual results to differ from those discussed in the forward-looking statements include,
but are not limited to:
• 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;
3
• our dependence on information technology and telecommunications systems of third-party service providers and
the risk of system failures, interruptions or breaches of security, including those that could result in disclosure or
misuse of confidential or proprietary client or other information;
• our ability to achieve organic loan and deposit growth and the composition of such growth;
• changes in sources and uses of funds, including loans, deposits and borrowings;
• increased competition in the financial services industry, nationally, regionally or locally, resulting in, among other
things, lower returns;
• continued consolidation in the financial services industry;
• our ability to maintain or increase market share and control expenses;
• the effect of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as
the Public Company Accounting Oversight Board, the Financial Accounting Standards Board 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 our digital solution 2UniFi, 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;
4
• 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.
PART I: FINANCIAL INFORMATION
Item 1. BUSINESS.
Summary
National Bank Holdings Corporation ("NBHC" or the "Company") is a financial holding company that was incorporated in
the State of Delaware in 2009. The Company is headquartered in Greenwood Village, Colorado, and its primary operations
are conducted through its wholly owned subsidiary, NBH Bank (the "Bank"). The Company provides a variety of banking
products and services to both commercial and consumer clients through a network of 81 banking centers, as of December 31,
2021, located primarily in Colorado and the greater Kansas City region, and through online and mobile banking products and
services. As of December 31, 2021, we had $7.2 billion in assets, $4.5 billion in loans, $6.2 billion in deposits and $0.8
billion in shareholders’ equity.
During 2021, we announced the initial development of our digital solution 2UniFi, a national platform for providing
information management and access to blockchain payment tools to small and medium-sized businesses. We believe these
services will address borrowings, depository and cash management needs for our clients by providing digital access to
financial services, real-time information and blockchain solutions. We continue to focus on growing our core business while
also innovating and building partnerships that will help us deliver a comprehensive digital financial ecosystem.
NBH Bank is a Colorado state-chartered bank and a member of the Federal Reserve Bank of Kansas City. We operate under a
single state charter through the following brand names as divisions of NBH Bank: in Colorado, Community Banks of
Colorado and Community Banks Mortgage; in Kansas and Missouri, Bank Midwest and Bank Midwest Mortgage; and in
Texas, Utah and New Mexico, Hillcrest Bank and Hillcrest Bank Mortgage. We believe that conducting our banking
operations under a single state charter streamlines our operations and enables us to more effectively and efficiently execute
our growth strategy.
We began banking operations in October 2010 and, as of December 31, 2021, we have completed six bank acquisitions. We
have transformed these banks into one collective banking operation with a strong capital position, organic growth, prudent
underwriting, a granular and well-diversified loan portfolio and meaningful market share with continued opportunity for
expansion.
Our Market Area
Our core markets are broadly defined as Colorado, the greater Kansas City region, Texas, Utah and New Mexico. We are the
third largest banking center network among Colorado-based banks and the ninth largest banking center network in the greater
Kansas City metropolitan statistical area (“MSA”) among Missouri- and Kansas-based banks ranked by deposits as of June
30, 2021 (the last date as of which data are available), according to S&P Global. Other major MSAs in which we operate
include Dallas-Fort Worth-Arlington, Texas; Austin-Round Rock, Texas; and Salt Lake City, Utah.
We believe that our established presence in our markets positions us well for growth opportunities. An integral component of
our foundation and growth strategy has been to capitalize on market opportunities and acquire financial services franchises.
Our primary focus has been on markets that we believe are characterized by some or all of the following: (i) attractive
demographics with household income and population growth above the national average; (ii) concentration of business
5
activity; (iii) high quality deposit bases; (iv) an advantageous competitive landscape that provides opportunity to achieve
meaningful market presence; (v) consolidation opportunities as well as potential for add-on transactions; and (vi) markets
sizeable enough to support our long-term organic growth objectives.
The table below describes certain key demographic statistics regarding our markets:
Denver, CO
Front Range, CO(3)
Kansas City, MO-KS MSA
Austin, TX
Dallas, TX
Salt Lake City, UT
U.S.(4)
# of
Median
Deposits businesses Population Unemployment Population household
(billions)
$ 122.0
growth(2)
income
rate(1)
(thousands)
197.5
164.1 > 250.0
112.6
81.9
116.3
61.7
> 250.0
426.6
64.7
73.6
(millions)
3.0
4.8
2.2
2.3
7.7
1.3
4.9%
4.8%
3.4%
3.4%
4.3%
1.8%
3.9%
17.3% $ 86,603
83,721
18.5%
72,051
5.1%
85,670
29.6%
75,727
15.7%
82,244
13.9%
67,761
6.5%
Top 3
competitor
combined
deposit
market share
54%
52%
45%
51%
62%
76%
56%
(1) Unemployment data is as of December 31, 2021.
(2) For the period 2011 through 2021.
(3) Colorado Front Range is a population weighted average of the following Colorado MSAs: Denver, Boulder, Colorado
Springs, Fort Collins and Greeley.
(4) Top 3 competitor combined deposit market share based on U.S. Top 20 MSAs (determined by population).
Source: S&P Global as of December 31, 2021, except Deposits and Top 3 Competitor Combined Deposit Market Shares,
which reflects data as of June 30, 2021.
Our Business Strategy
As part of our goal of becoming a leading regional community financial services company, we seek to continue to generate
strong organic growth, as well as pursue selective acquisitions of financial institutions and other complementary businesses.
Our focus is on building organic growth through strong banking relationships with small- and medium-sized businesses and
consumers in our primary markets, while maintaining a low-risk profile designed to generate reliable income streams and
attractive returns.
While we remain focused on executing on our business strategies, in 2021 we continued to support our associates, clients,
and communities as we navigated the on-going COVID-19 pandemic. We continue to leverage our digital banking platform
with our clients and have been working diligently to support our clients who were experiencing financial hardship through
participation in the Small Business Administration’s (“SBA”) Paycheck Protection Program (“PPP”) including assistance
with PPP loan forgiveness applications for the first draw loans, PPP loan applications for the second draw and loan
modifications, as needed.
The key components of our strategic plan are:
• Focus on client-centered, relationship-driven banking strategy. Our business and commercial bankers focus on
small- and medium-sized businesses with an advisory approach that emphasizes understanding the client’s business
and offering a complete array of loan, deposit and treasury management products and services. Our business and
commercial bankers are supported by treasury management teams in each of their markets, which allows us to more
effectively deliver a comprehensive suite of products and services to our business clients and further deepen our
banking relationships. Our consumer bankers focus on knowing their clients in order to best meet their financial
needs, offering a full complement of loan, deposit, online and mobile banking solutions.
• Expansion of commercial banking, business banking and specialty businesses. We have made significant
investments in our commercial relationship managers, as well as developed significant capabilities across our
6
business banking and several specialty commercial banking offerings. Our strategy is to originate a high-quality loan
portfolio that is diversified across industries and granular in loan size. We have preferred lender status with the SBA
providing a leveraged platform for growth in the business lending segment. We believe we are well-positioned to
leverage our operating and risk management infrastructure through organic growth, and we intend to continue to add
or repurpose our commercial relationship managers to higher growth opportunities and markets in order to drive
increased profitability.
• Expansion through organic growth, competitive product and digital offerings. We believe that our focus on serving
consumers and small- to medium-sized businesses, coupled with our competitive product offerings, including our
digital solution 2UniFi, will provide an expanded revenue base and new sources of fee income. We conduct regular
market and competitive analysis to determine which products and services are best suited for our clients. Our teams
also continue to pursue opportunities to deepen client relationships, which we believe will further increase our
organic loan origination volumes and attract new transaction accounts that offer lower cost of funds and higher fee
generating activity.
• Expansion through our digital solution 2UniFi. We are designing a platform for small and medium-sized businesses
that we believe will increase access to financial services while reducing the costs of banking services. We are
focused on providing small and medium-sized businesses with alternative digital access to address borrowing,
depository and cash management needs, while also providing information management and access to blockchain
payment tools, under the safety of a regulated bank. We will continue to invest with fintech solution providers to
support our ecosystem buildout, support our core bank products and offerings, and to leverage efficiencies and
technological solutions in our shared services areas. We believe the expansion into the digital financial ecosystem
through our platform will provide an expanded revenue base, new sources of fee income and drive growth in our
low cost deposit base on a national scale.
• Continue to strengthen profitability through organic growth and operating efficiencies. We continue to utilize our
comprehensive underwriting and risk management processes under one operating platform while maintaining local
branding and leadership, which allows us to support growth and realize operating efficiencies throughout our
enterprise. We believe that we have the infrastructure in place to support our future revenue growth without causing
non-interest expenses to increase by a corresponding amount. Our growth strategy is focused on organic initiatives
in order to accelerate our growth in profitability. Key priorities to strengthen profitability include the continued
ramp-up of loan production, growing low-cost core deposits, implementing additional fee-based business initiatives
and further enhancing operational efficiencies, including banking center consolidations.
• Maintain conservative risk profile and sound risk management practices. Strong risk management is an important
element of our operating philosophy. We maintain a conservative risk culture with adherence to comprehensive and
seasoned policies across all areas of the organization. We implement self-imposed concentration limits on our loan
portfolio to ensure a granular and diverse loan portfolio and protect against downside risk to any particular industry
or real estate sector. In light of the strain placed on certain industries by the COVID-19 pandemic, the Company has
prudently evaluated and continues to closely monitor our entire loan portfolio. To manage credit risk and yield, we
are taking a very careful approach to extending new credit. Our risk management approach seeks to identify, assess
and mitigate risk and minimize any resulting losses. We have implemented processes to identify, measure, monitor,
report and analyze the types of risk to which we are subject. We believe our risk management policies establish
appropriate limitations that allow for the prudent oversight of such risks that include, but are not limited to the
following: credit, liquidity, market, operational, legal and compliance, reputational, and strategic and business risk.
• Pursue disciplined acquisitions or other expansionary opportunities. We expect that acquisitions or other
expansionary opportunities will continue to be a component of our growth strategy. We intend to carefully select
opportunities that we believe have stable core franchises, have significant growth potential or will add asset
generation capabilities or fee income streams while structuring the opportunities to limit risk. Further, we seek
transactions that offer opportunities for clear financial benefits with valuations that have acceptable levels of
earnings accretion, tangible book value dilution/earn-back, and internal rates of return. We seek to acquire or expand
into financial services franchises in markets that exhibit attractive demographic attributes and business growth
trends, and we believe that our focus on attractive markets will provide long-term opportunities for organic growth.
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Our main focus is on our primary markets of Colorado, the greater Kansas City region, Texas, Utah and New
Mexico, including teams, asset portfolios, specialty commercial finance businesses, and whole banks. From time to
time, we also consider other types of opportunities that would be expected to improve our profitability, leverage
greater scale and/or leverage technology to grow our digital offerings.
We believe our strategy of strong organic growth through the retention, expansion and development of client-centered
relationships and growth through selective acquisitions or other expansionary opportunities in attractive markets provides
flexibility regardless of economic conditions. Our established platform for assessing, executing and integrating acquisitions
creates opportunities in an economic downturn, and our attractive market factors, franchise scale in our targeted markets and
our relationship-centered banking focus create opportunities in an improving economic environment. While the pandemic has
created operating stress for many businesses, our teams continually monitor the financial health of our clients in order to
manage the increased risk presented by the pandemic and its impact to the global economy. Our strong capital and liquidity
have allowed us to prudently navigate a challenging economy, and we believe we are well positioned to continue to support
our clients and communities.
Products and Services
Through the Bank, our primary business is to offer a full range of banking products and financial services to our commercial,
business and consumer clients, who are predominantly located in Colorado, the greater Kansas City region, Texas, Utah and
New Mexico. We conduct our banking business through 81 banking centers, with 40 of those located in Colorado, 34 in
Kansas and Missouri, two in Texas, one in Utah and four in New Mexico as of December 31, 2021. Our distribution network
also includes 121 ATMs as well as fully integrated online banking and mobile banking services. We offer a high level of
personalized service to our clients through our relationship managers and banking center associates. We believe that a
personalized banking relationship that includes multiple services, such as loan and deposit services, online and mobile
banking solutions and treasury management products and services, is the key to profitable and long-lasting client
relationships and that our local focus and decision making provide us with a competitive advantage over banks that do not
have these attributes.
Our primary strategic objective is to serve small- to medium-sized businesses in our markets with a variety of unique and
useful services, including a full array of banking products, while maintaining a strong and disciplined credit culture and
delivering excellent client service. We offer a variety of products and services that are focused on the following areas:
Commercial and Specialty Banking
Our commercial bankers focus on small- and medium-sized businesses and commercial real estate investors/developers with
an advisory approach that emphasizes understanding the client’s business and offering a complete suite of loan, deposit and
treasury management products and services. We have invested significantly in our commercial banking capabilities, attracting
experienced commercial bankers from competing institutions in our markets, which positions us well for continued growth in
our originated loan portfolio. Throughout the COVID-19 pandemic, our teams have also 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. Our commercial
relationship managers offer a wide range of commercial loan products, including:
Commercial and Industrial Loans—We originate commercial and industrial loans and leases, including working capital
loans, equipment loans, lender finance loans, food and agribusiness loans, government and non-profit loans, owner occupied
commercial real estate loans and other commercial loans and leases. The terms of these loans vary by purpose and by type of
underlying collateral, if any.
Working capital loans generally have terms of one to three years, are usually secured by accounts receivable and inventory
and carry the personal guarantees of the principals of the business. Equipment loans are generally secured by the financed
equipment at advance rates that we believe are appropriate for the equipment type. In the case of owner-occupied commercial
real estate loans, we are usually the primary provider of financial services for the company and/or the principals and the
primary source of repayment is through the cash flows generated by the borrowers’ business operations. Owner-occupied
commercial real estate loans are typically secured by a first lien mortgage on real property plus assignments of all leases
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related to the properties. Underwriting guidelines generally require borrowers to contribute cash equity that results in an 80%
or less loan-to-value (“LTV”) ratio on owner-occupied properties. As of December 31, 2021, substantially all of our
commercial and industrial loans were secured.
Non-Owner Occupied Commercial Real Estate Loans—Non-owner occupied commercial real estate loans (“CRE”) consist
of loans to finance the purchase of commercial real estate and development loans. Our non-owner occupied CRE loans
include commercial properties such as office buildings, warehouse/distribution buildings, multi-family, hospitality and retail
buildings. These loans are typically secured by a first lien mortgage or deed of trust, as well as assignments of all related
leases. Underwriting guidelines generally require borrowers to contribute cash equity that results in the lessor of a 75% or
less loan to cost or loan to value ratio.
We seek to reduce the risks associated with commercial mortgage lending by focusing our lending in our primary markets.
Although non-owner occupied CRE is not a primary focus of our lending strategy, we have developed teams of dedicated
CRE bankers in each of our markets who possess the depth and breadth of both market knowledge and industry expertise,
which serves to further mitigate risk of this product type.
Small Business Administration Loans—We offer a range of U.S. Small Business Administration, or SBA loans, to support
manufacturers, distributors and service providers targeted to small businesses and entrepreneurs seeking growth capital,
working capital, or other capital investments. As a Preferred Lender Provider of the SBA, we were able to expedite SBA loan
approval, closing, and servicing functions through delegated authority to underwrite and approve loans on behalf of the SBA.
We utilize the SBA 7(a) loan, SBA 504 loan, SBA Express loan, and CAP Line loan programs. During 2021 and 2020, we
participated in the CARES Act Paycheck Protection Program by offering PPP loans to provide support and funding to our
clients affected by the COVID-19 pandemic. Our approach to PPP loans has been to provide the greatest value to our clients
both with a thorough and efficient PPP loan origination process and through efficient and expeditious PPP forgiveness.
Commercial Deposit and Treasury Management Products (including business online and mobile banking)—Our
commercial bankers are focused on providing value-added deposit products to our clients that optimize their cash
management program. We are focused on full-relationship banking, including banking core operating accounts and ancillary
accounts. We also provide our commercial clients with money market accounts and short-term repurchase reserve accounts
depending on their individual needs. In addition, we provide a wide array of treasury management solutions to our clients,
including: business online and mobile banking, commercial credit card services, wire transfers, automated clearing house
services, electronic bill payment, lock box services, remote deposit capture services, merchant processing services, cash
vault, controlled disbursements, fraud prevention services through positive pay and other auxiliary services, such as account
reconciliation, collections, repurchase accounts, zero balance accounts and sweep accounts.
Business Loans—Business loans consist of term loans, line of credit, and real estate secured loans. The terms of these loans
vary by purpose and by type of underlying collateral, if any. Business loans generally require LTV ratios of not more than 75
percent. Business loans also assist in the growth of our deposits because many business loan borrowers establish noninterest-
bearing and interest-bearing demand deposit accounts and treasury management relationships with us. Those deposit accounts
help us to reduce our overall cost of funds, and those treasury management relationships provide us with a source of non-
interest income.
Residential and Personal Banking
Our personal bankers focus on knowing their clients in order to best meet their financial needs, offering a full complement of
loan, deposit and online and mobile banking solutions. We strive to do business in the areas served by our banking centers,
which is also where our marketing is focused, and the vast majority of our new loan and deposit clients are located in existing
market areas.
All of our newly originated consumer loans are on a direct to consumer basis. We offer a variety of consumer loans,
including:
Residential Real Estate Loans—Residential real estate loans consist of loans secured by the primary or secondary residence
of the borrower as well as properties the borrower holds for investment. These loans consist of closed loans, which are
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typically amortizing over a 10 to 30-year term. Our LTV benchmark for these loans will generally be below 80% at inception
unless related to certain internal or government programs where higher LTV’s may be warranted, along with satisfactory
debt-to-income ratios. These residential real estate loans are generally originated under terms and conditions consistent with
secondary market guidelines. Some of these loans will be placed in the Bank’s loan portfolio; however, a majority are sold in
the secondary market and provide a significant source of fee income. The majority of loans sold are sold with servicing
released. We have residential banking products, servicing capabilities and residential loan origination channels. In addition to
the referral business through our existing consumer client base, we have a dedicated team of mortgage bankers who focus
origination efforts primarily on new purchase activity and secondarily on refinance activity. We also offer open- and closed-
ended home equity loans, which are loans generally secured by second lien positions on residential real estate, and residential
construction loans to consumers and builders for the construction of residential real estate. We do not originate or purchase
negatively amortizing or sub-prime residential loans.
Consumer Loans—Consumer loans are structured as small personal lines of credit and term loans, with the latter generally
bearing interest at a higher rate and having a shorter term than residential mortgage loans. Consumer loans are both secured
(for example by deposit accounts, brokerage accounts or automobiles) and unsecured and carry either a fixed rate or variable
rate. Examples of our consumer loans include home improvement loans not secured by real estate, new and used automobile
loans and personal lines of credit.
Deposit Products (including online and mobile banking)—We offer a variety of deposit products to our clients, including
checking accounts, savings accounts, money market accounts, health savings accounts and other deposit accounts, including
fixed-rate, fixed maturity time deposits ranging in terms from 30 days to five years, and individual retirement accounts. We
view deposits as an important part of the overall client relationship and believe they provide opportunities to cross-sell other
products and services. We intend to continue our efforts to attract low-cost transaction deposits from our client relationships.
Consumer deposit flows are significantly influenced by general and local economic conditions, changes in prevailing interest
rates, internal pricing decisions and competition. Our deposits are primarily obtained from areas surrounding our banking
centers. In order to attract and retain deposits, we rely on providing competitively priced high-quality service and introducing
new products and services that meet our clients' needs.
We also offer comprehensive, user-friendly mobile and online banking platforms allowing our clients to pay bills, check
statements, deposit checks and transfer funds, amongst other features, online or on-the-go.
Lending Activities
Our loan portfolio includes commercial and industrial loans, commercial real estate loans, residential real estate loans,
business loans and consumer loans. The principal risk evaluated with each category of loans we make is the creditworthiness
of the borrower. Borrower creditworthiness is affected by general economic conditions and the attributes of the borrower’s
market or industry segment. Attributes of the relevant business market or industry segment include the economic and
competitive environment, changes to supply or demand, threat of substitutes and barriers to entry and exit. In our credit
underwriting process, we carefully evaluate the borrower’s industry, operating performance, liquidity and financial condition.
We underwrite credits based on multiple repayment sources, including operating cash flow, liquidation of collateral and
guarantor support, where appropriate. We closely monitor the operating performance, liquidity and financial condition of
borrowers through analysis of periodic financial statements and meetings with the borrower’s management. As part of our
credit underwriting process, we also review the borrower’s total debt obligations on a global basis. Our credit policy requires
that key risks be identified and measured, documented and mitigated, to the extent possible, to seek to ensure the soundness
of our loan portfolio.
Our credit policy also provides detailed procedures for making loans to individual and business clients along with the
regulatory requirements to ensure that all loan applications are evaluated subject to our fair lending policy. Our credit policy
addresses the common credit standards for making loans to clients, the credit analysis and financial statement requirements,
the collateral requirements, including insurance coverage where appropriate, as well as the documentation required. Our
ability to analyze a borrower’s current financial health and credit history, as well as the value of collateral as a secondary
source of repayment, when applicable, are significant factors in determining the creditworthiness of loans to clients. We
require various levels of internal approvals based on the characteristics of such loans, including the size, nature of the
exposure and type of collateral, if any. We believe that the procedures required by our credit policies enhance internal
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responsibility and accountability for underwriting decisions and permit us to monitor the performance of credit decision-
making. An integral element of our credit risk management strategy is the establishment and adherence to concentration
limits for our portfolio. We have established concentration limits that apply to our portfolio based on product types such as
commercial real estate, consumer lending, and various categories of commercial and industrial lending. For more detail on
our credit policies, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Financial
Condition-Asset Quality.”
Competition
The banking landscape in our primary markets of Colorado, Kansas City region, Texas, Utah and New Mexico is highly
competitive and quite fragmented, with many small banks having limited market share while the large out-of-state national
and super-regional banks control the majority of deposits and profitable banking relationships. We compete actively with
national, regional and local financial services providers, including: banks, thrifts, credit unions, mortgage companies, finance
companies and financial technology (“fintech”) companies.
Competition among providers of financial products and services continues to increase, with consumers having the
opportunity to select from a variety of traditional brick and mortar banks and nontraditional alternatives, such as online banks
and fintech companies. Competition among providers is based on many factors. The primary factors driving commercial and
consumer competition for loans and deposits are interest rates, the fees charged, client service levels and the range of
products and services offered. In addition, other competitive factors include the location and hours of our banking centers, the
client service orientation of our associates and the availability of digital banking products and services. We believe the most
important of these competitive factors that determine our success are our consumer bankers’ focus on knowing their
individual clients in order to best meet their financial needs and our business and commercial bankers’ focus on small- and
medium-sized businesses with an advisory approach that emphasizes understanding the client’s business and offering a
complete array of loan, deposit and treasury management products and services through our banking centers and, especially
during the COVID-19 pandemic, our digital banking platform.
We recognize that there are banks and other financial services companies with which we compete that have greater financial
resources, access to more capital and higher lending capacity and offer a wider range of deposit and lending instruments.
However, given our existing capital base, we expect to be able to meet the majority of small- to medium-sized business and
consumer credit and depository service needs.
Human Capital
Our core values Integrity, Meritocracy, Teamwork and Citizenship, represent our belief that our Company’s long-term success
is deeply tied to having a dedicated and engaged workforce and a commitment to the communities we serve. We are
committed to building and contributing to a healthy workplace environment for our associates by investing in competitive
compensation and benefit packages, promoting inclusion of diverse viewpoints and backgrounds, providing training and
career development opportunities and promoting qualified associates within our organization.
Associate Statistics
We are committed to attracting, developing, and retaining associates who reflect the communities in which we serve.
Partnerships with professional associations, schools and universities imbedded within our local footprint, and the use of
various technology solutions assist us in connecting and building relationships with a diverse pool of candidates. As of
December 31, 2021, we employed 1,120 full-time and 34 part-time associates throughout our business footprint.
The market for top talent is highly competitive. We recognize that workforce turnover is not only financially costly, but it
does not align with our commitment to our team. We believe we are best served when we can invest through meritocracy
within our current talent pool. The average tenure of service of our associates is approximately seven years.
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Equity, Diversity and Inclusion
We strongly believe that equity, diversity and inclusion are important elements in building and sustaining a successful
organization and positive, results-driven culture. Additionally, equity, diversity and inclusion helps us to connect and build
better relationships within our Company and communities. As a result of our efforts:
•
68% of the Company’s workforce is female and 56% of the Company’s managerial roles are female, as of
December 31, 2021.
• Minorities represent 22% of the Company’s workforce and 19% of the Company’s managerial roles, as of
•
•
December 31, 2021.
In 2021, we hired 382 associates, and 70% of those new associates were female and 35% were minorities.
In 2021, 251 associates, or 22% of our workforce, were promoted, and 68% of those individuals were female and
25% were minorities.
The Company oversees its Equity, Diversity and Inclusion efforts through our broader Environmental, Social and Governance
(“ESG”) Committee that is comprised of a multi-disciplinary group of associates throughout NBH Bank with oversight by
the executive management team. To further our diversity goals for our workforce, the Company has also implemented
programs developed to foster equality and leadership opportunities for the entire associate base, including events with
keynote speakers, panels and Q&A forums to enable associate feedback. Our management team also plays an integral part in
championing women in business by hosting networking events, serving on panels and sponsoring relevant events that foster
understanding and engagement, such as the ATHENA leadership awards.
Associate Development and Training
We believe that building the best team requires investing in our associates’ professional development. Associates have access
to our learning center, NBH University, which offers a variety of courses that center around professional development.
Additionally, we have connection mentors in place to assist new associates with expanding their network, building
professional skills, helping navigate the organization and assist in onboarding.
Compensation and Benefits
Our Company offers comprehensive benefits packages to our associates, including medical and prescription drug insurance,
dental insurance and vision insurance as well as several voluntary benefit options. Our compensation structure recognizes the
individual performance of our associates through merit-based salary increases with a focus on variable pay and paying for
performance.
We also encourage our associates to think about their long-term financial stability. Our associates have the opportunity to
participate in our 401(k) plan, which includes contribution matches from the Company. Additionally, we offer a stock
purchase plan (ASPP) to our associates which allows those who work 20 hours or more per week to purchase shares in our
Company through payroll deductions at a 10% discount.
Community Engagement
We strive to make a positive impact in the communities we serve through consistent engagement, as well as maintaining
strong partnerships with a wide range of charitable organizations and causes. All bank associates are granted up to eight paid
hours each year to donate their time to non-profit organizations that align with our Community Reinvestment Act (“CRA”)
initiatives, which include financial literacy, affordable housing and workforce development.
Safety and Respect in the Workplace
We are committed to providing a safe and secure work environment in accordance with applicable labor, safety, health, anti-
discrimination and other workplace laws. We strive for all of our associates to feel safe and empowered at work. To that end,
we maintain a whistleblower hotline that allows associates and others to anonymously voice concerns. We prohibit retaliation
against an individual who reported a concern or assisted with an inquiry or investigation.
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Our Company made workplace safety a priority during the COVID-19 pandemic. We adhered to applicable health and
governmental guidelines with respect to wearing masks and quarantines. We maintained our drive-thru services, and, when
circumstances warranted, we requested our clients access our banking center lobbies by appointment only. In addition, we
waived medical plan cost-sharing and co-pays for COVID-19 testing and treatment throughout the year.
SUPERVISION AND REGULATION
The U.S. banking industry is highly regulated under federal and state law. Banking laws, regulations, and policies affect the
operations of the Company and its subsidiary. Investors should understand that the primary objective of the U.S. bank
regulatory regime is the protection of depositors, the Depositors Insurance Fund (“DIF”), and the banking system as a whole,
not the protection of the Company’s shareholders.
As a bank holding company, we are subject to inspection, examination, supervision and regulation by the Board of Governors
of the Federal Reserve System (the “Federal Reserve”). Our bank subsidiary, NBH Bank, is a Colorado state-chartered bank
and a member of the Federal Reserve Bank of Kansas City. As such, NBH Bank is subject to examination, supervision and
regulation by both the Colorado Division of Banking and the Federal Reserve. In addition, we expect that any additional
businesses that we may invest in or acquire will be regulated by various state and/or federal banking regulators.
Banking statutes and regulations are subject to continual review and revision by Congress, state legislatures and federal and
state regulatory agencies. A change in such statutes or regulations, including changes in how they are interpreted or
implemented, could have a material effect on our business. In addition to laws and regulations, state and federal bank
regulatory agencies may issue policy statements, interpretive letters and similar written guidance pursuant to such laws and
regulations, which are binding on us and our subsidiaries.
Banking statutes, regulations and policies could restrict our ability to diversify into other areas of financial services, acquire
depository institutions and make distributions or pay dividends on our equity securities. They may also require us to provide
financial support to any bank that we control, maintain capital balances in excess of those desired by management and pay
higher deposit insurance premiums as a result of a general deterioration in the financial condition of NBH Bank or other
depository institutions we control.
The description below summarizes certain elements of the applicable bank regulatory framework. This description is not
intended to describe all laws and regulations applicable to us and our subsidiaries. The description is qualified in its entirety
by reference to the full text of the statutes, regulations, policies, interpretive letters and other written guidance that are
described.
National Bank Holdings Corporation as a Bank Holding Company
As a bank holding company, we are subject to regulation under the Bank Holding Company Act (“BHCA”) and to
supervision, examination, and enforcement by the Federal Reserve. Federal Reserve jurisdiction also extends to any company
that we may directly or indirectly control, such as non-bank subsidiaries and other companies in which we have a controlling
interest. While subjecting us to supervision and regulation, we believe that our status as a bank holding company (as opposed
to being a non-controlling investor) broadens the investment opportunities available to us among public and private financial
institutions.
The BHCA generally prohibits a bank holding company from engaging, directly or indirectly, in activities other than banking
or managing or controlling banks, except for activities determined by the Federal Reserve to be so closely related to banking
or managing or controlling banks as to be a proper incident thereto. In 2021, the Company elected to be treated as a financial
holding company pursuant to Section 4(l) of the BHCA. As a financial holding company, the Company is authorized to
engage in broader set of financial activities than a bank holding company that has not elected to be a treated as a financial
holding company, including insurance underwriting and broker-dealer services as well as activities that are jointly determined
by the Federal Reserve and the U.S. Treasury to be financial in nature or incidental to such financial activity. Financial
holding companies may also engage in activities that are determined by the Federal Reserve to be complementary to financial
activities.
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Maintaining our financial holding company status requires that the Company and our bank subsidiary, NBH Bank, remain
“well-capitalized” and “well-managed” as defined by regulation and that NBH Bank maintain at least a “satisfactory” rating
under the CRA. If we or NBH Bank fail to continue to meet these requirements, we could be subject to restrictions on new
activities and acquisitions, and/or be required to cease and possibly divest operations that conduct activities that are not
permissible for a bank holding company that does not also qualify as a financial holding company.
NBH Bank as a Colorado State-Chartered Bank
Our bank subsidiary, NBH Bank, is a Colorado state-chartered bank and also a member of the Federal Reserve Bank of
Kansas City. As such, NBH Bank is subject to examination, supervision and regulation by both the Colorado Division of
Banking and the Federal Reserve. NBH Bank’s deposits are insured by the Federal Deposit Insurance Corporation (“FDIC”)
through the DIF, in the manner and to the extent provided by law. As an insured bank, NBH Bank is subject to the provisions
of the Federal Deposit Insurance Act, as amended (the “FDI Act”), and the FDIC’s implementing regulations thereunder, and
may also be subject to supervision and examination by the FDIC under certain circumstances.
Under the FDIC Improvement Act of 1991 (“FDICIA”), NBH Bank must submit financial statements prepared in accordance
with GAAP and management reports signed by the Company’s and NBH Bank’s chief executive officer and chief accounting
or financial officer concerning management’s responsibility for the financial statements, an assessment of internal controls,
and an assessment of NBH Bank’s compliance with various banking laws and FDIC and other banking regulations. In
addition, we must submit annual audit reports to federal regulators prepared by independent auditors. As allowed by
regulations, we may use our audit report prepared for the Company to satisfy this requirement. We must provide our auditors
with examination reports, supervisory agreements and reports of enforcement actions. The auditors must also attest to and
report on the statements of management relating to the internal controls. FDICIA also requires that NBH Bank form an
independent audit committee consisting of outside directors only, or that the Company’s audit committee be entirely
independent.
Broad Supervision, Examination and Enforcement Powers
The Federal Reserve, the FDIC and state bank regulators have broad regulatory, examination and enforcement authority over
bank holding companies and banks, as applicable. Bank regulators regularly examine the operations of banks and bank
holding companies. In addition, banks and bank holding companies are subject to periodic reporting and filing requirements.
Bank regulators have various remedies available if they determine that a banking organization has violated any law or
regulation, that the financial condition, capital resources, asset quality, earnings prospects, management, liquidity or other
aspects of a banking organization’s operations are unsatisfactory, or that the banking organization is operating in an unsafe or
unsound manner. The bank regulators have the power to, among other things: enjoin “unsafe or unsound” practices, require
affirmative actions to correct any violation or practice, issue administrative orders that can be judicially enforced, direct
increases in capital, direct the sale of subsidiaries or other assets, limit dividends and distributions, restrict growth, assess
civil monetary penalties, remove officers and directors, terminate deposit insurance, and appoint a conservator or receiver.
Engaging in unsafe or unsound practices or failing to comply with applicable laws, regulations and supervisory agreements
could subject the Company, its subsidiaries and their respective officers, directors and institution-affiliated parties to the
remedies described above and other sanctions. In addition, the FDIC could terminate NBH Bank’s deposit insurance if it
determined that the Bank’s financial condition was unsafe or unsound or that the bank engaged in unsafe or unsound
practices or violated an applicable rule, regulation, order or condition enacted or imposed by the bank’s regulators.
Regulatory Capital Requirements
In General
As a bank holding company, we are subject to regulatory capital adequacy requirements implemented by the Federal Reserve.
The federal banking agencies have risk-based capital adequacy guidelines intended to provide a measure of capital adequacy
that reflects the degree of risk associated with a banking organization’s operations. NBH Bank is, and other depository
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institution subsidiaries that we may acquire or control in the future will be, subject to capital adequacy guidelines as
implemented by the relevant federal banking agency. In the case of the Company and NBH Bank, applicable capital
guidelines can be found in the Federal Reserve’s Regulations H and Q.
The capital rules require banks and bank holding companies to maintain a minimum common equity tier 1 capital ratio of
4.5%, a total tier 1 capital ratio of 6%, a total capital ratio of 8%, and a leverage ratio of 4%. Additionally, bank holding
companies are required to hold a capital conservation buffer of common equity tier 1 capital of 2.5% to avoid limitations on
capital distributions and executive compensation payments.
Further, the federal bank regulatory agencies may set higher capital requirements for an individual bank or when a bank’s
particular circumstances warrant. At this time, the bank regulatory agencies are more inclined to impose higher capital
requirements in order to be considered well-capitalized, and future regulatory change could impose higher capital standards
as a routine matter.
The Federal Reserve may also set higher capital requirements for holding companies whose circumstances warrant it. For
example, holding companies experiencing internal growth or making acquisitions are expected to maintain strong capital
positions substantially above the minimum supervisory levels, without significant reliance on intangible assets.
In May 2018, the Economic Growth, Regulatory Relief and Consumer Protection Act (“EGRRCPA”), was enacted to modify
or remove certain financial reform rules and regulations, including some of those implemented under the Dodd-Frank Act.
The EGRRCPA directed the federal banking agencies to develop a “Community Bank Leverage Ratio”, calculated by
dividing tangible equity capital by average consolidated total assets. In October 2019, the federal banking agencies adopted a
Community Bank Leverage Ratio of 9%. If a “qualified community bank”, generally a depository institution or depository
institution holding company with consolidated assets of less than $10 billion, has a leverage ratio which exceeds the
Community Bank Leverage Ratio, then the institution is considered to have met all generally applicable leverage and risk
based capital requirements, the capital ratio requirements for “well capitalized” status under the prompt corrective action
rules and any other leverage or capital requirements to which it is subject. At this time the Company and NBH Bank has not
elected to apply this regime.
Prompt Corrective Action
The FDI Act requires federal bank regulatory agencies to take “prompt corrective action” with respect to FDIC-insured
depository institutions that do not meet minimum capital requirements. A depository institution’s treatment for purposes of
the prompt corrective action provisions will depend upon how its capital levels compare to various capital measures and
certain other factors, as established by regulation. Federal banking regulators are required to take various mandatory
supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three
undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is
critically undercapitalized. Our regulatory capital ratios and those of NBH Bank are in excess of the levels established for
“well-capitalized” institutions.
Bank Holding Companies as a Source of Strength
The Federal Reserve requires that a bank holding company serve as a source of financial and managerial strength to each
bank that it controls and, under appropriate circumstances, commit resources to support each such controlled bank. This
support may be required at times when the bank holding company may not have the resources to provide the support.
Because we are a bank holding company, the Federal Reserve views the Company (and its consolidated assets) as a source of
financial and managerial strength for any controlled depository institutions.
Under the prompt corrective action provisions, if a controlled bank is undercapitalized, then the regulators could require its
bank holding company to guarantee a capital restoration plan. In addition, if the Federal Reserve believes that a bank holding
company’s activities, assets or affiliates represent a significant risk to the financial safety, soundness or stability of a
controlled bank, then the Federal Reserve could require the bank holding company to terminate the activities, liquidate the
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assets or divest the affiliates. The regulators may require these and other actions in support of controlled banks even if such
action is not in the best interests of the bank holding company or its shareholders.
The Dodd-Frank Act codified the requirement that holding companies, like the Company, serve as a source of financial
strength for their subsidiary depository institutions, by providing financial assistance to its insured depository institution
subsidiaries in the event of financial distress. Under the source of strength doctrine, the Company could be required to
provide financial assistance to NBH Bank should it experience financial distress.
In addition, capital loans by us to NBH Bank will be subordinate in right of payment to deposits and certain other
indebtedness of NBH Bank. In the event of our bankruptcy, any commitment by us to a federal bank regulatory agency to
maintain the capital of NBH Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.
Dividend Restrictions
The Company is a legal entity separate and distinct from its subsidiaries. Because the Company’s consolidated net income
consists largely of the net income of NBH Bank, the Company’s ability to pay dividends depends upon its receipt of
dividends from its subsidiary. The ability of a bank to pay dividends and make other distributions is limited by federal and
state law. The specific limits depend on a number of factors, including the bank’s type of charter, recent earnings, recent
dividends, level of capital and regulatory status. As a member of the Federal Reserve System and a Colorado state-chartered
bank, NBH Bank is subject to Regulation H and limitations under Colorado law with respect to the payment of dividends.
Non-bank subsidiaries are also limited by certain federal and state statutory provisions and regulations covering the amount
of dividends that may be paid in any given year. State member banks, such as NBH Bank, may not declare or pay a cash
dividend if the total of all dividends declared during the calendar year, including the proposed dividend, exceeds the Bank's
net income during the current calendar year and the retained net income of the prior two calendar years, unless approved by
the Federal Reserve.
The ability of a bank holding company to pay dividends and make other distributions can also be limited. The Federal
Reserve has authority to prohibit a bank holding company from paying dividends or making other distributions. A bank
holding company should not pay cash dividends that exceed its net income or that can only be funded in ways that weaken
the bank holding company’s financial health, such as by borrowing. In addition, as a Delaware corporation, the Company is
subject to certain limitations and restrictions under Delaware corporate law with respect to the payment of dividends and
other distributions.
Depositor Preference
The FDI Act provides that, in the event of the “liquidation or other resolution” of an insured depository institution, the claims
of depositors of the institution (including the claims of the FDIC as subrogee of insured depositors) and certain claims for
administrative expenses of the FDIC as a receiver will have priority over other general unsecured claims against the
institution. If our insured depository institution fails, insured and uninsured depositors, along with the FDIC, will have
priority in payment ahead of unsecured, nondeposit creditors, including us, with respect to any extensions of credit they have
made to such insured depository institution.
Limits on Transactions with Affiliates
Federal law restricts the amount and the terms of both credit and non-credit transactions (generally referred to as “Covered
Transactions”) between a bank and its non-bank affiliates. Covered Transactions with any single affiliate may not exceed
10% of the capital stock and surplus of the bank, and Covered Transactions with all affiliates may not exceed, in the
aggregate, 20% of the bank’s capital and surplus. For a bank, capital stock and surplus refers to the bank’s tier 1 and tier 2
capital, as calculated under the risk-based capital guidelines, plus the balance of the allowance for credit losses (“ACL”)
excluded from tier 2 capital. The bank’s transactions with all of its affiliates in the aggregate are limited to 20% of the
foregoing capital. In addition, in connection with Covered Transactions that are extensions of credit, the bank may be
required to hold collateral to provide added security to the bank, and the types of permissible collateral may be limited. The
Dodd-Frank Act generally enhances the restrictions on transactions with affiliates, including an expansion of what types of
transactions are Covered Transactions to include credit exposures related to derivatives, repurchase agreements and securities
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lending arrangements and an increase in the amount of time for which collateral requirements regarding Covered
Transactions must be satisfied. As of December 31, 2021, the Company did not have any outstanding Covered Transactions.
Regulatory Notice and Approval Requirements for Acquisitions of Control
We must generally receive federal bank regulatory approval before we can acquire a financial institution. Specifically, as a
bank holding company, we must obtain prior approval of the Federal Reserve in connection with any acquisition that would
result in the Company owning or controlling 5% or more of any class of voting securities of a bank or another bank holding
company, including a financial holding company. Our ability to make investments in depository institutions will depend on
our ability to obtain approval for such investments from the Federal Reserve. The Federal Reserve could deny our application
based on the statutory factors outlined in the BHCA, including the financial and managerial resources of the parties and the
future prospects of the combined organization, the effects of the transaction on competition, the convenience and needs of the
community, including the record of performance of the parties under the Community Reinvestment Act of 1977, the
effectiveness of the Company in combating money-laundering activities and the impact of the transaction on the financial
stability of the U.S. banking or financial system, or other considerations. For example, we could be required to sell banking
centers as a condition to receiving regulatory approval, which condition may not be acceptable to us, or, if acceptable to us,
may reduce the benefit of any acquisition.
In addition, federal and state laws, including the BHCA and the Change in Bank Control Act, impose additional prior notice
or approval requirements and ongoing regulatory requirements on any investor that seeks to acquire direct or indirect
“control” of an FDIC-insured depository institution or bank holding company. Under a rebuttable presumption established by
the Federal Reserve, the acquisition of 10% or more of a class of voting stock of a bank holding company with a class of
securities registered under Section 12 of the Exchange Act, such as the Company, would, under the circumstances set forth in
the presumption, constitute acquisition of control of the Company for purposes of the Change in Bank Control Act.
The BHCA prohibits any entity from acquiring 25% (as noted above, the BHC Act has a lower limit for acquirers that are
existing bank holding companies) or more of a bank holding company’s or bank’s voting securities, or otherwise obtaining
control or a controlling influence over a bank holding company or bank without the approval of the Federal Reserve. The
Federal Reserve has rule-based standards for determining whether one company has control over another. These rules
established four categories of tiered presumptions of noncontrol that are based on the percentage of voting shares held by the
investor (less than 5%, 5-9.9%, 10-14.9% and 15-24.9%) and the presence of other indicia of control. As the percentage of
ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These
indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship
and restrictive contractual covenants. Under the final rule, investors can hold up to 24.9% of the voting securities and up to
33% of the total equity of a company without necessarily having a controlling influence.
Anti-Money Laundering Requirements
Under federal law, including the Bank Secrecy Act and the Uniting and Strengthening America by Providing Appropriate
Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), certain types of financial
institutions, including insured depository institutions, must maintain anti-money laundering programs that include established
internal policies, procedures and controls; a designated compliance officer; an ongoing associate training program; and
testing of the program by an independent audit function. Financial institutions are prohibited from entering into specified
financial transactions and account relationships and must meet enhanced standards for due diligence, client identification, and
recordkeeping, including in their dealings with non-U.S. financial institutions and non-U.S. clients. Financial institutions
must take reasonable steps to conduct enhanced scrutiny of account relationships to guard against money laundering and to
report any suspicious information maintained by financial institutions. Bank regulators routinely examine institutions for
compliance with these obligations, and they must consider an institution’s anti-money laundering compliance when
considering regulatory applications filed by the institution, including applications for banking mergers and acquisitions. The
regulatory authorities have imposed “cease and desist” orders and civil money penalty sanctions against institutions found to
be violating these obligations.
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Consumer Laws and Regulations
Banks and other financial institutions are subject to numerous laws and regulations intended to protect consumers in their
transactions with banks. These laws include, among others, laws regarding unfair and deceptive acts and practices and usury
laws, as well as the following consumer protection statutes: Truth in Lending Act, Truth in Savings Act, Electronic Funds
Transfer Act, Flood Disaster Protection Act, Expedited Funds Availability Act, Equal Credit Opportunity Act, Fair and
Accurate Credit Transactions Act, Fair Housing Act, Fair Credit Reporting Act, Fair Debt Collection Act, Gramm-Leach
Bliley Financial Modernization Act, Home Mortgage Disclosure Act, Right to Financial Privacy Act and Real Estate
Settlement Procedures Act.
Many states and local jurisdictions have consumer protection laws analogous, and in addition, to those listed above. These
state and local laws regulate the manner in which financial institutions deal with clients when taking deposits, making loans
or conducting other types of transactions.
The Consumer Financial Protection Bureau (the “CFPB”) has broad rulemaking authority for a wide range of consumer
financial laws that apply to all banks. The CFPB is authorized to issue rules for both bank and nonbank companies that offer
consumer financial products and services, subject to consultation with the prudential banking regulators. In general, however,
banks with assets of $10 billion or less, such as NBH Bank, will continue to be examined for consumer compliance by their
primary bank regulator.
Much of the CFPB’s rulemaking has focused on mortgage lending and servicing, including an important rule requiring
lenders to ensure that prospective buyers have the ability to repay their mortgages. Other areas of current CFPB focus include
consumer protections for prepaid cards, payday lending, debt collection, overdraft services and privacy notices. The CFPB
has been particularly active in issuing rules and guidelines concerning residential mortgage lending and servicing, issuing
numerous rules and guidance related to residential mortgages. Perhaps the most significant of these guidelines are the
“Ability-to-Repay and Qualified Mortgage Standards under the Truth in Lending Act” portions of Regulation Z and the
Know Before You Owe guidelines. Under the Dodd-Frank Act, creditors must make a reasonable and good faith
determination, based on verified and documented information, that the consumer has a reasonable “ability to repay” a
residential mortgage according to its terms as well as clearly and concisely disclose the terms and costs associated with these
loans.
The CFPB has actively issued enforcement actions against both large and small entities and to entities across the entire
financial services industry. The CFPB has relied upon “unfair, deceptive, or abusive acts” prohibitions as its primary
enforcement tool. However, the CFPB and DOJ continue to be focused on fair lending in taking enforcement actions against
banks with renewed emphasis on alleged redlining practices. Failure to comply with these laws and regulations could give
rise to regulatory sanctions, client rescission rights, actions by state and local attorneys general and civil or criminal liability.
The Community Reinvestment Act
The CRA is intended to encourage banks to help meet the credit needs of their entire communities, including low- and
moderate-income neighborhoods, consistent with safe and sound operations. The regulators examine banks and assign each
bank a public CRA rating. The CRA then requires bank regulators to take into account the bank’s record in meeting the needs
of its community when considering certain applications by a bank, including applications to establish a banking center or to
conduct certain mergers or acquisitions. Failure to adequately meet these criteria could impose additional requirements and
limitations on us. Additionally, we must publicly disclose the terms of various CRA-related agreements. The Federal Reserve
is required to consider the CRA records of a bank holding company’s controlled banks when considering an application by
the bank holding company to acquire a bank or to merge with another bank holding company.
When we apply for regulatory approval to make certain investments, the regulators will consider the CRA record of the target
institution and our depository institution subsidiary. An unsatisfactory CRA record could substantially delay approval or
result in denial of an application.
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Reserve Requirements
Pursuant to regulations of the Federal Reserve, all banks are required to maintain average daily reserves at mandated ratios
against their transaction accounts. In addition, reserves must be maintained on certain non-personal time deposits. These
reserves must be maintained in the form of vault cash or in an account at a Federal Reserve Bank (“FRB”).
Deposit Insurance Assessments
All of a depositor’s accounts at an insured bank, including all non-interest bearing transaction accounts, are insured by the
FDIC up to $250,000. FDIC-insured banks are required to pay deposit insurance premiums to the FDIC. The FDIC has
adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based
on their risk classification. An institution’s risk classification is assigned based on its capital levels and the level of
supervisory concern the institution poses to the regulators.
Assessments are based on an institution’s average total consolidated assets less average tangible equity (subject to risk-based
adjustments that would further reduce the assessment base for custodial banks). NBH Bank may be able to pass part or all of
this cost on to its clients, including in the form of lower interest rates on deposits, or fees to some depositors, depending on
market conditions.
The FDIC may terminate a depository institution’s deposit insurance upon a finding that the institution’s financial condition
is unsafe or unsound or that the institution has engaged in unsafe or unsound practices or has violated any applicable rule,
regulation, order or condition enacted or imposed by the institution’s regulatory agency. If deposit insurance for a banking
business we invest in or acquire were to be terminated, that would have a material adverse effect on that banking business
and potentially on the Company as a whole.
Changes in Laws, Regulations or Policies
Congress and state legislatures may introduce from time to time measures or take actions that would modify the regulation of
banks or bank holding companies. In addition, federal and state regulatory agencies also periodically propose and adopt
changes to their regulations or change the manner in which existing regulations are applied. Such changes could increase or
decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks and
other financial institutions, all of which could affect our investment opportunities and our assessment of how attractive such
opportunities may be. We cannot predict whether potential legislation will be enacted and, if enacted, the effect that it or any
implementing regulations would have on our business, results of operations, liquidity or financial condition.
COVID-19 Legislation and Regulatory Response
The COVID-19 pandemic has created extensive disruptions to the global economy, to businesses, and to the lives of
individuals throughout the world. There have been a number of statutory and regulatory actions intended to help mitigate the
adverse economic impact of the COVID-19 pandemic on borrowers, including several mandates from the bank regulatory
agencies, requiring financial institutions to work constructively with borrowers affected by the COVID-19 pandemic.
On March 27, 2020, the CARES Act was signed into law. The CARES Act was a $2.2 trillion economic stimulus bill that
intended to provide relief in the wake of the COVID-19 pandemic. Several provisions within the CARES Act led to action
from the bank regulatory agencies. There are also separate provisions within the legislation that directly impact financial
institutions, including affording borrowers with federally-backed mortgage loans experiencing a financial hardship due to the
COVID-19 pandemic the option to request forbearance, regardless of delinquency status, for up to 360 days. The CARES Act
also provided a moratorium on initiating foreclosure on properties; however, the moratorium expired on July 31, 2021.
Additionally, a directive was established to provide loans to businesses impacted by COVID through the PPP.
The bank regulatory agencies have stressed the importance of financial institutions continuing to assist borrowers impacted
by the COVID-19 pandemic, and indicated that adequate flexibility will be given to financial institutions who work with such
borrowers. On April 3, 2020, the bank regulatory agencies issued a joint policy statement to facilitate mortgage servicers’
ability to place consumers in short-term payment forbearance programs, and followed with a final rule on June 23, 2020 that
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makes it clear servicers do not violate Regulation X (which places restrictions and requirements upon lenders related to
consumers who apply for and receive mortgage loans) by offering certain COVID-19-related loss mitigation options based on
an evaluation of limited information collected from the borrower. Additionally, on September 29, 2020, the bank regulatory
agencies issued a rule that deferred appraisal and evaluation requirements after the closing of certain residential and CRE
transactions through December 31, 2020.
On December 27, 2020, the Coronavirus Response and Relief Supplemental Appropriations Act of 2021 was signed into law,
which also contains provisions that could directly impact financial institutions. The act directed financial regulators to
support community development financial institutions and minority depository institutions and directed Congress to re-
appropriate $429 billion in unobligated CARES Act funds through a newly structured PPP. Additional government relief was
provided under the American Rescue Plan Act of 2021 that became effective on March 11, 2021.
More Information
Our website is www.nationalbankholdings.com. We make available free of charge, through our website, annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or
furnished pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934, as soon as reasonably
practicable after we electronically file such material with, or furnish such material to, the U.S. Securities and Exchange
Commission (“SEC”). The SEC maintains an Internet site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the SEC at www.sec.gov.
Item 1A. RISK FACTORS
Risks Relating to Our Banking Operations
The COVID-19 pandemic is adversely affecting us, our clients and third-party service providers, and the adverse impacts on
our business, financial position, operations and prospects has been and could continue to be significant.
The COVID-19 pandemic has impacted our business and financial results, and its ultimate impact on our business will
depend on highly uncertain and unpredictable future developments, including the magnitude and duration of the pandemic
and actions taken by governmental authorities in response to the pandemic, particularly within our geographic footprint. The
pandemic and resultant governmental action have severely restricted economic activity, reduced economic output, and
resulted in a deterioration in economic conditions. This has resulted in temporary closures of many businesses, some of
which include our borrowers, the institution of social distancing and sheltering in place requirements, high rates of
unemployment and underemployment, historically low interest rates, and disruptions in consumer spending, among other
things. These negative economic conditions have negatively impacted our financial results and may have a continued adverse
effect on our business, including adversely impacting the demand for our products and services, our net interest income and
our liquidity and regulatory capital requirements. The impact of interest rates or unemployment may also have a negative
impact on demand for mortgage products, including refinancing requests.
Furthermore, the pandemic could result in the recognition of credit losses in our loan portfolios and increases in our
allowance for credit losses, particularly if businesses remain closed or operate at reduced capacities, the impact on the
national economy worsens, or more clients draw on their lines of credit or seek additional loans to help finance their
businesses. Small and mid-sized businesses make up a large portion of our commercial loan portfolio and are particularly
vulnerable to the financial effects of the COVID-19 pandemic due to their increased reliance on continuing cash flow to fund
day-to-day operations. Although government programs have sought, and may further seek, to provide relief to these types of
businesses, there can be no assurance that these programs will succeed. Our participation directly or on behalf of our clients
in U.S. government programs, such as the Paycheck Protection Program, that are designed to support individuals, households
and businesses impacted by the economic disruptions caused by the COVID-19 pandemic, could be criticized and subject us
to increased governmental and regulatory scrutiny, negative publicity or increased exposure to litigation, which could
increase our operational, legal and compliance costs and damage our reputation. In addition, we may be exposed to credit risk
on a PPP loan if a determination is made by the SBA that there is a deficiency in the manner in which the loan was originated,
funded or serviced. In such a case, the SBA may deny its liability under the guaranty, reduce the amount of the guaranty, or, if
it has already paid under the guaranty, seek recovery of any related loss from us.
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Our business operations may also be disrupted if significant portions of our workforce, key personnel or third-party service
providers are unable to work effectively, including because of illness, unavailability, quarantines, government actions,
internal or external failure of information technology infrastructure, or other restrictions in connection with the pandemic.
Until the COVID-19 pandemic subsides, it will continue to impact our business, results of operations, and financial
condition, as well as our regulatory capital and liquidity ratios and may also have the effect of heightening many of the other
risk factors.
Changes in general business and economic conditions could materially and adversely affect us.
Our business and operations are sensitive to general business and economic conditions in the United States and in our core
markets of Colorado, the greater Kansas City region, New Mexico, Texas and Utah. If the economies in our core markets, or
the U.S. economy more generally, experience worsening economic conditions, including industry-specific conditions, we
could be materially and adversely affected. The COVID-19 pandemic has impacted and may continue to impact our local
economics through continued temporary closures or other restrictions on businesses, higher unemployment rates and
disruption to consumer spending. Weak economic conditions may be characterized by inflation, fluctuations in debt and
equity capital markets, including a lack of liquidity and/or depressed prices in the secondary market for mortgage loans,
increased delinquencies on loans, residential and commercial real estate price declines, lower home sales and commercial
activity, further or prolonged pressure on energy prices, high unemployment, and the economic effects of natural disasters,
severe weather conditions, health emergencies or pandemics, cyberattacks, outbreaks of hostilities, terrorism or other
geopolitical instabilities. All of these factors would be detrimental to our business. Our business is significantly affected by
monetary and related policies of the U.S. federal government, its agencies and government-sponsored entities. Changes in
any of these policies are influenced by macroeconomic conditions and other factors that are beyond our control and could
have a material adverse effect on us.
Changes in the assumptions underlying our acquisition method of accounting, or other significant accounting estimates could
affect our financial information and have a material adverse effect on us.
A material portion of our financial results is based on, and subject to, significant assumptions and subjective judgments. As a
result of our acquisitions, our financial information is influenced by the application of the acquisition method of accounting,
which requires us to make complex assumptions, and these assumptions materially affect our financial results. As such, any
financial information generated through the use of the acquisition method of accounting is subject to modification or change.
If our assumptions are incorrect and we change or modify our assumptions, it could have a material adverse effect on us or
our previously reported results. Additionally, a change in our accounting estimates, such as our ability to realize deferred tax
assets, the need for a valuation allowance or the recoverability of the goodwill recorded at the time of our acquisitions, could
have a material adverse effect on our financial results.
Our business is highly susceptible to credit risk and fluctuations in the value of real estate and other collateral securing such
credit.
As a lender, we are exposed to the risk that our clients will be unable to repay their loans according to their terms and that the
collateral securing the payment of their loans (if any) may not be sufficient to assure repayment. The risks inherent in making
any loan include risks with respect to the ability of borrowers to repay their loans and, if applicable, the period of time over
which the loan is repaid, risks relating to proper loan underwriting and guidelines, risks resulting from changes in economic
and industry conditions, risks inherent in dealing with individual borrowers and risks resulting from uncertainties as to the
future value of collateral. Similarly, we have credit risk embedded in our securities portfolio. Our credit standards, procedures
and policies may not prevent us from incurring substantial credit losses. A decline in residential real estate market prices and
reduced levels of home sales, could adversely affect the value of collateral securing mortgage loans resulting in greater
charge-offs in future periods, as well as adversely impact mortgage loan originations and gains on sale of mortgage loans. A
decline in commercial real estate values would likewise adversely affect the value of collateral securing certain commercial
loans and result in greater charge-offs in future periods. Declines in real estate values and home sales volumes, and financial
stress on borrowers as a result of job losses or other factors, could have further adverse effects on borrowers that result in
higher delinquencies and greater charge-offs in future periods, which could materially and adversely affect us. The COVID-
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19 pandemic may negatively impact commercial real estate values, particularly hospitality and leisure, office and retail
properties. Residential real estate may also be negatively impacted by higher unemployment driven in part by the pandemic.
We depend on our executive officers and key personnel to implement our strategy and could be harmed by the loss of their
services.
The execution of our strategy depends in large part on the skills of our executive management team and our ability to
motivate and retain these and other key personnel, including key personnel added through mergers and acquisitions.
Accordingly, the loss of service of one or more of our executive officers or key personnel could reduce our ability to
successfully implement our growth strategy and materially and adversely affect us. Our success also depends on the
experience of our banking center managers and relationship managers and on their relationships with the clients and
communities they serve. The loss of these key personnel could negatively impact our banking operations. Further surges in
COVID-19 cases may increase the risk of maintaining adequate staffing in our banking centers and other key areas.
Our allowance for credit losses and fair value adjustments may prove to be insufficient to absorb losses inherent in our loan
or other real estate owned (“OREO”) portfolio.
On January 1, 2020, the Company adopted ASU 2016-13, Measurement of Credit Losses on Financial Instruments, the new
accounting standard promulgated by the Financial Accounting Standards Board (“FASB”), regarding the recognition of credit
losses. This standard made significant changes to the accounting and disclosures for credit losses on financial instruments
recorded on an amortized cost basis, including our loans held for investment. The current expected credit loss (“CECL”)
impairment model requires an estimate of expected credit losses for financial assets measured over the contractual life of an
instrument based on historical experience, current conditions and reasonable and supportable forecasts. The standard provides
significant flexibility and requires a high degree of judgment in order to develop an estimate of expected lifetime losses.
Providing for lifetime losses for our loan portfolio is a change to the previous method of providing allowances for loan losses
that are probable and incurred. It may also result in even small changes to future forecasts having a significant impact on the
allowance, which could make the allowance more volatile, and regulators may impose additional capital buffers to absorb this
volatility. The unique and unprecedented impacts of the COVID-19 pandemic may also lead to greater volatility in economic
conditions, potentially increasing volatility in the required allowance amount.
The determination of the appropriate level of the allowance for credit losses inherently involves a high degree of subjectivity
and requires us to make significant estimates of current credit risks and future trends, all of which may undergo material
changes. Changes in economic conditions affecting borrowers, new information regarding our loans, identification of
additional problem loans by us and other factors, both within and outside of our control, may require an increase in the
allowance for credit losses. If the real estate markets deteriorate, we expect that we will experience increased delinquencies
and credit losses, particularly with respect to construction, land development and land loans. In addition, our regulators
periodically review our allowance for credit losses and may require an increase in the allowance for credit losses or the
recognition of further loan charge-offs, based on judgments different than those of management. In addition, if charge-offs in
future periods exceed the allowance for credit losses, we will need additional provisions to increase the allowance for credit
losses. Any increases in the allowance for credit losses will result in a decrease in net income and capital and may have a
material adverse effect on us.
We hold and acquire an amount of OREO from time to time, which may lead to volatility in operating expenses and
vulnerability to declines in real property values.
When necessary, we foreclose on and take title to the real estate serving as collateral for our loans as part of our business.
Real estate that we own but do not use in the ordinary course of our operations is referred to as OREO property. While our
OREO portfolio is smaller than it has been in recent years, future acquisitions could result in a higher OREO balance, which
could negatively affect our earning as a result of various expenses associated with OREO, including personnel costs,
insurance and taxes, completion and repair costs, valuation adjustments and other expenses associated with property
ownership, as well as by the funding costs associated with OREO assets. We evaluate OREO properties periodically and
write down the carrying value of the properties if the results of our evaluation require it. In addition, the COVID-19
pandemic may negatively impact commercial real estate values, particularly hospitality and leisure, office and retail
properties. Residential real estate may also be negatively impacted by higher unemployment driven in part by the pandemic.
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Environmental issues, including external events such as severe weather, natural disasters, and climate change, as well as
environmental liability risks associated with our lending activities, could significantly impact our business.
Severe weather, natural disasters, climate change and other adverse external events could have a significant impact on our
ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay
outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue
and/or cause us to incur additional expenses. Although management has established disaster recovery policies and
procedures, there can be no guarantee of the effectiveness of such policies and procedures, and the occurrence of any such
event could have a material adverse effect on our business, financial condition and results of operations. Additionally,
concerns over the long term impacts of climate change have led and will continue to lead to governmental efforts to mitigate
those impacts. We and our clients may face cost increases, asset value reductions, and operating process changes as a result.
A significant portion of our loan portfolio is secured by real property, and we could become subject to environmental
liabilities with respect to one or more of these properties. During the ordinary course of business, we may foreclose on and
take title to properties securing defaulted loans. There is a risk that hazardous or toxic substances could be found on these
properties, and we may be liable for remediation costs, as well as for personal injury and property damage, civil fines and
criminal penalties regardless of when the hazardous conditions or toxic substances first affected any particular property.
Environmental laws may require us to incur substantial expenses to address unknown liabilities and may materially reduce
the affected property’s value or limit our ability to use or sell the affected property. In addition, future laws or more stringent
interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability.
Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on
nonresidential real property, these reviews may not be sufficient to detect all potential environmental hazards. The
remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse
effect on us.
The expanding body of federal, state and local regulation of loan servicing, collections or other aspects of our business may
increase the cost of compliance and the risks of noncompliance.
We service the loans held on our balance sheet, and loan servicing is subject to extensive regulation by federal, state and local
governmental authorities as well as to various laws and judicial and administrative decisions imposing requirements and
restrictions on those activities. The volume of new or modified laws and regulations has increased in recent years and, in
addition, some individual municipalities have begun to enact laws that restrict loan servicing activities including delaying or
temporarily preventing foreclosures or forcing the modification of certain mortgages. If regulators impose new or more
restrictive requirements, we may incur significant additional costs to comply with such requirements which may further
adversely affect us. The CARES Act and related legislation imposed additional restrictions with respect to foreclosures and
the handling of delinquent payments. Our failure to comply with these laws and regulations could possibly lead to: civil and
criminal liability; damage to our reputation in the industry; fines and penalties and litigation, including class action lawsuits;
and administrative enforcement actions. Any of these outcomes could materially and adversely affect us. There is also
uncertainty regarding what legislative or regulatory changes may occur as a result of changes in leadership resulting from
elections, or, if changes occur, the ultimate effect they would have upon our financial condition or results of operations.
Small Business Administration lending is an important and growing part of our business. Our SBA lending program is
dependent upon the U.S. federal government, and we face specific risks associated with originating SBA loans.
As an approved participant in the SBA Preferred Lender’s Program (an “SBA Preferred Lender”), we enable our clients to
obtain SBA loans without being subject to the potentially lengthy SBA approval process necessary for lenders that are not
SBA Preferred Lenders. The SBA periodically reviews the lending operations of participating lenders to assess, among other
things, whether the lender exhibits prudent risk management. When weaknesses are identified, the SBA may request
corrective actions or impose enforcement actions, including revocation of the lender’s SBA Preferred Lender status.
If we were to lose our status as an SBA Preferred Lender, we may lose new opportunities, and a limited number of existing
SBA loans, to lenders who are SBA Preferred Lenders. In addition, any changes to the SBA program, including changes to
the level of guarantee provided by the federal government on SBA loans, changes to program-specific rules impacting
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volume eligibility under the guaranty program, as well as changes to the program amounts authorized by Congress, may have
a material adverse effect on our SBA lending program. In addition, any default by the U.S. government on its obligations or
any prolonged government shutdown could, among other things, impede our ability to originate SBA loans or collect on
guarantees in the event a borrower defaults on its obligations, and could materially adversely affect our SBA lending
business.
With respect to the PPP, we could be criticized and subject to increased governmental and regulatory scrutiny, negative
publicity or increased exposure to litigation, which could increase our operational, legal and compliance costs and damage
our reputation. In addition, we may be exposed to credit risk on a PPP loan if a determination is made by the SBA that there
is a deficiency in the manner in which the loan was originated, funded or serviced. In such a case, the SBA may deny its
liability under the guaranty, reduce the amount of the guaranty, or, if it has already paid under the guaranty, seek recovery of
any related loss from us.
If we violate U.S. Department of Housing and Urban Development (“HUD”) lending requirements or if the federal
government shuts down or otherwise fails to fully fund the federal budget, our commercial FHA origination business could be
adversely affected.
We originate, sell and service loans under FHA insurance programs, and make certifications regarding compliance with
applicable requirements and guidelines. If we were to violate these requirements and guidelines, or other applicable laws, or
if the FHA loans we originate show a high frequency of loan defaults, we could be subject to monetary penalties and
indemnification claims, and could be declared ineligible for FHA programs. Any inability to engage in our commercial FHA
origination and servicing business would lead to a decrease in our net income.
In addition, disagreement over the federal budget has caused the U.S. federal government to shut down for periods of time in
recent years. Federal governmental entities, such as HUD, that rely on funding from the federal budget, could be adversely
affected in the event of a government shutdown, which could have a material adverse effect on our commercial FHA
origination business and our results of operations.
The fair value of our investment securities can fluctuate due to market conditions outside of our control.
We have historically taken a conservative investment strategy with our securities portfolio, with concentrations of securities
that are primarily backed by government sponsored enterprises (“GSE”). A portion of our non-marketable securities portfolio
is comprised of non-liquid fund investments and direct investments in our fintech partners. We may seek to increase yields
through different strategies, which may include a greater percentage of corporate securities and structured credit products.
Factors beyond our control can significantly influence the fair value of securities in our portfolio and can cause potential
adverse changes to the fair value of these securities. These factors include, but are not limited to, rating agency actions in
respect of the securities, defaults by the issuer or with respect to the underlying securities, and changes in market interest
rates and instability in the capital markets or an inability of our partners to successfully execute on their strategies. These
factors, among others, could cause other-than-temporary impairments and realized and/or unrealized losses in future periods
and declines in other comprehensive income, which could have a material adverse effect on us. The process for determining
whether impairment of a security is other-than-temporary usually requires complex, subjective judgments about the future
financial performance and liquidity of the issuer and any collateral underlying the security in order to assess the probability
of receiving all contractual principal and interest payments on the security.
We face significant competition from other financial institutions and financial services providers, which may materially and
adversely affect us.
Consumer and commercial banking is highly competitive. Our markets contain a large number of community and regional
banks as well as a significant presence of the country’s largest commercial banks. We compete with other state and national
financial institutions, including savings and loan associations, savings banks and credit unions, for deposits and loans. In
addition, we compete with financial intermediaries, such as consumer finance companies, mortgage banking companies,
insurance companies, securities firms, mutual funds and several government agencies, as well as major retailers, in providing
various types of loans and other financial services. Some of these competitors have a long history of successful operations in
our markets, greater ties to local businesses and more expansive banking relationships, as well as better established depositor
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bases. Some of our competitors also have greater resources and access to capital and possess an advantage by being capable
of maintaining numerous banking locations in more convenient sites, operating more ATMs and conducting extensive
promotional and advertising campaigns or operating a more developed online banking platform. Competitors may also
exhibit a greater tolerance for risk and behave more aggressively with respect to pricing in order to increase their market
share. In addition, the effects of disintermediation can also impact the banking business because of the fast growing body of
fintech companies that use software to deliver mortgage lending, payment services and other financial services.
Our ability to compete successfully depends on a number of factors, including, among others:
• the ability to develop, maintain and build upon long-term client relationships based on quality service, effective and
efficient products and services, high ethical standards and safe and sound assets;
• the scope, relevance and pricing of products and services offered to meet client needs and demands;
• the rate at which we introduce new products and services, including internet-based or other digital services, relative
to our competitors;
• the ability to attract and retain highly qualified associates to operate our business;
• the ability to expand our market position;
• client satisfaction with our level of service;
•
• the ability to operate our business effectively and efficiently; and
• industry and general economic trends.
the ability to invest in new technologies, including relative to our digital banking platform;
Failure to perform in any of these areas could significantly weaken our competitive position, which could materially and
adversely affect us.
We may not be able to meet the cash flow requirements of deposit withdrawals and other business needs unless we maintain
sufficient liquidity.
We require liquidity to make loans and to repay deposit and other liabilities as they become due or are demanded by clients.
We principally depend on checking, savings and money market deposit account balances and other forms of client deposits as
our primary source of funding for our lending activities. As a result of a decline in overall depositor confidence, an increase
in interest rates paid by competitors, general interest rate levels, higher returns being available to clients on alternative
investments and general economic conditions, a substantial number of our clients could withdraw their bank deposits with us
from time to time, resulting in our deposit levels decreasing substantially, and our cash on hand may not be able to cover such
withdrawals and our other business needs, including amounts necessary to operate and grow our business. This would require
us to seek third party funding or other sources of liquidity, such as asset sales. Our access to third party funding sources,
including our ability to raise funds through the issuance of additional shares of our common stock or other equity or equity-
related securities, incurrence of debt, or federal funds purchased, may be impacted by our financial strength, performance and
prospects and may also be impaired by factors that are not specific to us, such as a disruption in the financial markets or
negative views and expectations about the prospects for the financial services industry, all of which may make potential
funding sources more difficult to access, less reliable and more expensive. We may not have access to third party funding in
sufficient amounts on favorable terms, or the ability to undertake asset sales or access other sources of liquidity, when
needed, or at all, which could materially and adversely affect us.
Like other financial services institutions, our asset and liability structures are monetary in nature. Such structures are
affected by a variety of factors, including changes in interest rates, which can impact the value of financial instruments held
by us.
Like other financial services institutions, we have asset and liability structures that are essentially monetary in nature and are
directly affected by many factors, including domestic and international economic and political conditions, broad trends in
business and finance, legislation and regulation affecting the national and international business and financial communities,
monetary and fiscal policies, inflation, currency values, market conditions, the availability and terms (including cost) of
short-term or long-term funding and capital, the credit capacity or perceived creditworthiness of clients and counterparties
and the level and volatility of trading markets. Such factors can impact clients and counterparties of a financial services
institution and may impact the value of financial instruments held by a financial services institution.
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Our earnings and cash flows largely depend upon the level of our net interest income, which is the difference between the
interest income we earn on loans, investments and other interest earning assets, and the interest we pay on interest bearing
liabilities, such as deposits and borrowings. Because different types of assets and liabilities may react differently and at
different times to market interest rate changes, changes in interest rates can increase or decrease our net interest income.
When interest-bearing liabilities increase at a pace exceeding interest earning assets, an increase in interest rates would
reduce net interest income. Also, when interest-bearing liabilities mature or reprice more quickly than interest earning assets
in a period, an increase in interest rates would reduce net interest income. Similarly, when interest earning assets mature or
reprice more quickly, and because the magnitude of repricing of interest earning assets is often greater than interest bearing
liabilities, falling interest rates would reduce net interest income.
Accordingly, changes in the level of market interest rates affect our net yield on interest earning assets and liabilities, loan
and investment securities portfolios and our overall results. Changes in interest rates may also have a significant impact on
any future loan origination revenues. Historically, there has been an inverse correlation between the demand for loans and
interest rates. Loan origination volume and revenues usually decline during periods of rising or high interest rates and
increase during periods of declining or low interest rates. Changes in interest rates also have a significant impact on the
carrying value of a significant percentage of the assets, both loans and investment securities, on our balance sheet. We may
incur debt in the future and that debt may also be sensitive to interest rates and any increase in interest rates could materially
and adversely affect us. Interest rates are highly sensitive to many factors beyond our control, including general economic
conditions and policies of various governmental and regulatory agencies, particularly the Federal Reserve.
Reforms to and uncertainty regarding LIBOR and certain other indices may adversely affect our business.
The London Interbank Offered Rate (“LIBOR”) is a short-term interest rate used as a pricing reference for certain loans,
derivatives and other financial instruments. In 2017, the United Kingdom’s Financial Conduct Authority (the “FCA”)
announced that it will no longer persuade or require banks to submit rates for LIBOR after 2021. In November 2020, the
Federal Reserve, FDIC and OCC issued a joint statement confirming that the lesser used one-week and two-month USD
LIBOR settings would cease publication at the end of 2021, but the remaining USD LIBOR settings would continue
publication until June 30, 2023 to better facilitate an orderly transition. These announcements, in conjunction with other
financial benchmark reforms and changes in the interbank lending markets, have resulted in uncertainty about the future of
LIBOR and certain other rates or indices that are used as interest rate “benchmarks.” In addition, regulators, industry groups
and certain committees (e.g., the Alternative Reference Rates Committee) have, among other things, published recommended
fallback language for LIBOR-linked financial instruments, identified recommended alternatives for certain LIBOR rates (e.g.,
the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative to U.S. Dollar LIBOR), and proposed
implementations of the recommended alternatives in floating rate instruments. At this time, it is not possible to predict
whether these specific recommendations and proposals will be broadly accepted, whether they will continue to evolve and
what the effect of their implementation may be on the market for floating-rate financial instruments. We began indexing new
retail adjustable rate mortgages to SOFR in the third quarter of 2020 and are addressing LIBOR-based commercial loans,
including adhering to the ISDA IBOR Fallbacks Protocol as needed. We stopped originating LIBOR-based products in the
fourth quarter of 2021 and are using substitute interest rates such as Prime and SOFR.
Uncertainty as to the nature and effect of such reforms and actions may adversely affect our financial condition or results of
operations, including the value of, return on and trading market for our financial assets and liabilities that are based on or are
linked to benchmarks, including any LIBOR-based securities, loans and derivatives. Furthermore, there can be no assurances
that we and other market participants will be adequately prepared for an actual discontinuation of benchmarks, including
LIBOR, that may have an unpredictable impact on contractual mechanics (including, but not limited to, interest rates to be
paid to or by us), which may also result in adversely affecting our financial condition or results of operations. Such transition
may also result in litigation with counterparties impacted by the transition as well as increased regulatory scrutiny and other
adverse consequences. In addition, any replacement benchmark ultimately adopted as a substitute for LIBOR, including
SOFR, may behave differently than LIBOR in a manner detrimental to our financial performance.
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We are highly dependent on the internet, cloud technologies and third-party providers. Systems failures or interruptions could
have a material adverse effect on us.
Our business is highly dependent on the increasing use of the internet, mobile devices and cloud technologies. Further, we
have and will continue to be subject to an increasing risk of operational disruption and information security incidents as a
result. These events can arise from a variety of sources, many of which are not under our control because of our reliance on
third party technology systems and outsourcing services for key processes including data processing, loan servicing and
deposit processing; and for key services including internet, and mobile technology. Potential causes for incidents may include
human error, electrical or telecommunication outages, hardware failures, and malicious activity. Any of these events could
cause interruption to the Company’s operations, as well as the operations of our clients. If significant, sustained or repeated,
these events could compromise our ability to operate effectively, damage our reputation, result in a loss of client business,
and/or subject us to additional regulatory scrutiny and possible financial liability, any of which could have a material adverse
effect on us.
A failure in or breach of our security systems or infrastructure, or those of our third-party providers, could result in financial
losses to us or in the disclosure or misuse of confidential or proprietary information, including client information, or could
trigger further regulatory and financial penalty if determined to be non-compliant with evolving privacy and data protection
laws. These events could have a material adverse effect on the Company.
As a financial institution, we may be the target of fraudulent activity that may result in financial losses to us or our clients,
privacy breaches against our clients or damage to our reputation and regulatory relationships. Such fraudulent activity may
take many forms, including check fraud, electronic fraud, wire fraud, phishing, unauthorized intrusion into or use of our
systems, ATM skimming or jackpotting, and other dishonest acts. We provide our clients with the ability to bank remotely,
including via online, mobile and phone. The secure transmission of confidential information over the internet and other
remote channels is a critical element of remote banking. The COVID-19 pandemic has heightened these risks as
vulnerabilities for our clients and the Company have increased given work from home and shelter at home orders as well as
consumer behaviors independent of jurisdictional orders. Furthermore, crisis conditions caused by the pandemic may lead to
more attempts by both domestic and international parties to commit cyber-attacks or other fraudulent acts.
Our systems and network are subject to ongoing cyber incidents such as unauthorized access, loss or destruction of data,
account takeovers, unavailability of service, computer viruses or other malicious code, phishing schemes, ransomware and
other similar events. Third parties with whom we do business may also be sources of cybersecurity risks. We may be required
to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to
alleviate problems caused by security breaches or viruses. Given the increasingly high volume of our transactions, certain
errors may be repeated or compounded before they can be discovered and rectified.
To the extent that our activities or the activities of our clients involve the storage and transmission of confidential
information, security breaches and viruses could cause serious negative consequences, including reputational damage,
litigation exposure and, regulatory scrutiny, and could result in a violation of applicable privacy and data protection laws.
Any inability to prevent security breaches or computer viruses could also cause existing clients to lose confidence in our
systems and could materially and adversely affect us. Our risk and exposure to these matters remains heightened because of
the evolving nature and complexity of the threats from organized cybercriminals and hackers, and our plans to continue to
provide digital banking products and services to our clients.
Information security risks for financial institutions like us have increased recently in part because of new technologies, the
use of the internet and telecommunications technologies (including mobile devices) to conduct financial and other business
transactions and the increased sophistication and activities of organized crime, perpetrators of fraud, hackers, terrorists and
others. In addition to cyber-attacks or other security breaches involving the theft of sensitive and confidential information,
hackers have engaged in attacks against large financial institutions, particularly denial of service or ransomware attacks are
designed to disrupt key business services, such as client-facing web sites. We are not able to anticipate or implement
preventive measures against all security breaches of these types, especially because the techniques used change frequently
and can originate from a wide variety of sources. We employ detection and response mechanisms designed to contain and
mitigate security incidents, but early detection may be thwarted by sophisticated attacks and malware designed to avoid
detection.
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We also face risks related to cyber-attacks and other security breaches in connection with credit or debit card, including ATM-
related, transactions that typically involve the transmission of sensitive information regarding our clients through various
third parties, including merchant acquiring banks, payment processors, payment card networks (e.g., Visa, MasterCard) and
our third-party processors. Some of these parties have in the past been the target of security breaches and cyber-attacks, and
because the transactions involve third parties and environments such as the point of sale that we do not control or secure,
future security breaches or cyber-attacks affecting any of these third parties could impact us through no fault of our own, and
in some cases we may have exposure and suffer losses for breaches or attacks relating to them. We also rely significantly on
numerous other third party service providers to conduct other aspects of our business operations and face similar risks
relating to them. While many of our agreements with third parties contain indemnification provisions, we may not be able to
recover sufficiently, or at all, under the provisions to offset any losses we may incur from third-party cyber incidents.
The value of our mortgage servicing rights can decline during periods of falling interest rates, and we may be required to
take a charge against earnings for the decreased value.
A mortgage servicing right (“MSR”) is the right to service a mortgage loan for a fee. We capitalize MSRs when we originate
mortgage loans and retain the servicing rights after we sell the loans. We carry MSRs at the lower of amortized cost or
estimated fair value. Fair value is the present value of estimated future net servicing income, calculated based on a number of
variables, including assumptions about the likelihood of prepayment by borrowers. Changes in interest rates can affect
prepayment assumptions. When interest rates fall, borrowers are more likely to prepay their mortgage loans by refinancing
them at a lower rate. As the likelihood of prepayment increases, the fair value of our MSRs can decrease. Each quarter we
evaluate our MSRs for impairment based on the difference between the carrying amount and fair value, and, if a temporary
impairment exists, we establish a valuation allowance through a charge that negatively affects our earnings.
We may be required to repurchase mortgage loans or reimburse investors and others as a result of breaches in contractual
representations and warranties.
We sell residential mortgage loans to various parties, including GSEs and other financial institutions that purchase mortgage
loans for investment or private label securitization. The agreements under which we sell mortgage loans and the insurance or
guaranty agreements with the FHA and VA contain various representations and warranties regarding the origination and
characteristics of the mortgage loans, including ownership of the loan, compliance with loan criteria set forth in the
applicable agreement, validity of the lien securing the loan, absence of delinquent taxes or liens against the property securing
the loan, and compliance with applicable origination laws. We may be required to repurchase mortgage loans, indemnify the
investor or insurer, or reimburse the investor or insurer for credit losses incurred on loans in the event of a breach of
contractual representations or warranties that is not remedied within a period (usually 90 days or less) after we receive notice
of the breach. Contracts for mortgage loan sales to the GSEs include various types of specific remedies and penalties that
could be applied to inadequate responses to repurchase requests. Similarly, the agreements under which we sell mortgage
loans require us to deliver various documents to the investor, and we may be obligated to repurchase any mortgage loan as to
which the required documents are not delivered or are defective. We establish a mortgage repurchase liability related to the
various representations and warranties that reflect management's estimate of losses for loans which we have a repurchase
obligation. Our mortgage repurchase liability represents management's best estimate of the probable loss that we may expect
to incur for the representations and warranties in the contractual provisions of our sales of mortgage loans. Because the level
of mortgage loan repurchase losses depends upon economic factors, investor demand strategies and other external conditions
that may change over the life of the underlying loans, the level of the liability for mortgage loan repurchase losses is difficult
to estimate and requires considerable management judgment. If economic conditions and the housing market deteriorate or
future investor repurchase demand and our success at appealing repurchase requests differ from past experience, we could
experience increased repurchase obligations and increased loss severity on repurchases, requiring additions to the repurchase
liability.
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The required accounting treatment of loans we acquire through acquisitions could result in higher net interest margins and
interest income in current periods and lower net interest margins and interest income in future periods.
Under U.S. GAAP, we are required to record loans acquired through acquisitions at fair value. Estimating the fair value of
such loans requires management to make estimates based on available information, facts, and circumstances on the
acquisition date. Any discount on acquired loans is accreted into interest income over the weighted average remaining
contractual life of the loans. Therefore, our net interest margins may initially increase due to the discount accretion. We
expect the yields on the total loan portfolio will decline as our acquired loan portfolios pay down or mature and the
corresponding accretion of the discount decreases. We expect downward pressure on our interest income to the extent that the
runoff of our acquired loan portfolios is not replaced with comparable high-yielding loans. This could result in higher net
interest margins and interest income in current periods and lower net interest margins and interest income in future periods.
We have recorded goodwill as a result of acquisitions that can significantly affect our earnings if it becomes impaired.
Under current accounting standards, goodwill is not amortized but, instead, is subject to impairment tests on at least an
annual basis or more frequently if an event occurs or circumstances change that reduce the fair value of a reporting unit
below its carrying value.
Risks Relating to our Growth Strategy
We may not be able to effectively manage our growth or other expansionary activity.
Our expansionary activity, whether through de novo branching, acquisitions, organic growth or the implementation of our
digital banking strategy has placed, and it may continue to place, significant demands on our operations and management.
The success of our expansionary activity is dependent upon our ability to:
• continue to implement and improve our operational, credit, financial, legal, management and other internal risk
controls and processes and our reporting systems and procedures in order to manage a growing number of client
relationships;
• implement and scale our 2UniFi platform and other new technologies;
• integrate our acquisitions and develop consistent policies throughout the various lines of businesses;
• attract and retain the client base; and
• attract and retain management talent.
We may not successfully implement improvements to, or integrate, our management information and control systems,
procedures and processes in an efficient or timely manner and may discover deficiencies in existing systems and controls. In
particular, our controls and procedures must be able to accommodate an increase in loan volume in various markets and the
infrastructure that comes with new banking centers, banks and growth of our client base through our digital banking strategy.
Thus, our growth strategy may divert management from our existing franchises and may require us to incur additional
expenditures to expand our administrative and operational infrastructure and, if we are unable to effectively manage and
grow our financial services franchise, we could be materially and adversely affected. In addition, if we are unable to manage
future expansion in our operations, we may experience compliance and operational problems, have to slow the pace of
growth, or have to incur additional expenditures beyond current projections to support such growth, any one of which could
materially and adversely affect us.
Our digital growth strategy may subject us to additional operational, strategic, reputational and regulatory risks.
The financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-
driven products and services. Our future success will depend, in part, upon our ability to continue to address the needs of our
clients by using innovative technologies to provide products and services that will satisfy client demands for convenience and
security, as well as to create additional efficiencies in our operations. The implementation of such new technologies may
expose us to additional operational, financial, operational, strategic, reputational and regulatory risks.
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New technology-driven products and services are rapidly being introduced throughout the financial services industry, often
through fintech companies. We have made and will continue to make investments in and also partner with third party fintech
companies in connection with our digital growth strategy and the digital solution, 2UnFi.Our investments may include
companies that may be unseasoned, unprofitable or have no established operating histories or earnings and may lack
technical, marketing, financial and other resources and are therefore more vulnerable to financial failure. The innovations
these companies develop for utilization by 2UniFi, may prove more difficult to successfully integrate into our existing
operations. We may be required to employ and maintain qualified personnel and as our business expands into new and
expanding markets, and we may be required to install additional operational and control systems to manage fraud,
operational, legal and compliance risks. Any failure to successfully manage this integration may adversely affect our timeline
for our digital strategy, future financial condition and results of operations. Additionally, any adverse regulatory treatment of
the companies and technologies we have invested in, may impact our digital growth and our ability to satisfy our clients’
demands for digital offerings in the 2UniFi ecosystem.
Our acquisitions generally will require regulatory approvals, and failure to obtain them would restrict our growth.
We intend to complement and expand our business by pursuing strategic acquisitions of financial services franchises.
Generally, any acquisition of target financial institutions, banking centers or other banking assets by us will require approval
by, and cooperation from, a number of governmental regulatory agencies, including the Federal Reserve and Colorado
Division of Banking. In acting on applications, our banking regulators consider, among other factors:
• the effect of the acquisition on competition;
• the financial condition, liquidity, results of operations, capital levels and future prospects of the applicant and the
bank(s) involved;
• the quantity and complexity of previously consummated acquisitions;
• the managerial resources of the applicant and the bank(s) involved;
• the convenience and needs of the community, including the record of performance under the Community
Reinvestment Act; and
• the effectiveness of the applicant in combating money laundering activities.
Such regulators could deny our application based on the above criteria or other considerations, which would restrict our
growth, or the regulatory approvals may not be granted on terms that are acceptable to us. For example, we could be required
to sell banking centers as a condition to receiving regulatory approvals, and such a condition may not be acceptable to us or
may reduce the benefit of any acquisition. In addition, prior to the submission of an application our regulators could
discourage us from pursuing strategic acquisitions or indicate that regulatory approvals may not be granted on terms that
would be acceptable to us, which could have the same effect of restricting our growth or reducing the benefit of any
acquisitions.
The success of future transactions will depend on our ability to successfully identify and consummate acquisitions of financial
services franchises that meet our investment objectives. Because of the intense competition for acquisition opportunities and
the limited number of potential targets, we may not be able to successfully consummate acquisitions on attractive terms.
There are significant risks associated with our strategy to identify and successfully consummate acquisitions. There are a
limited number of acquisition opportunities, and we expect to encounter intense competition from other banking
organizations competing for acquisitions and also from other investment funds and entities looking to acquire financial
institutions and financial services franchises. Many of these entities are well established and have extensive experience in
identifying and consummating acquisitions directly or through affiliates. Many of these competitors possess ongoing banking
operations with greater financial, technical, human and other resources and access to capital than we do, which could limit
the acquisition opportunities we pursue. Our competitors may be able to achieve greater cost savings, through consolidating
operations or otherwise, than we could. These competitive limitations give others an advantage in pursuing certain
acquisitions. In addition, increased competition may drive up the prices for the acquisitions we pursue and make the other
acquisition terms more onerous, which would make the identification and successful consummation of those acquisitions less
attractive to us. Competitors may be willing to pay more for acquisitions than we believe are justified, which could result in
us having to pay more for them than we prefer or to forego the opportunity. The trading price of our common stock and of the
stock of other potential acquirers may affect our ability to offer a competitive price for acquisitions where stock is proposed
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as acquisition consideration. As a result of the foregoing, we may be unable to successfully identify and consummate
acquisitions on attractive terms, or at all, that are necessary to grow our business.
To the extent that we are unable to identify and consummate attractive acquisitions, or continue to increase loans through
organic loan growth, we may be unable to successfully implement our growth strategy, which could materially and adversely
affect us.
We intend to continue to grow our business through organic loan growth and strategic acquisitions of financial services
franchises. Previous availability of attractive acquisition targets may not be indicative of future acquisition opportunities, and
we may be unable to identify any acquisition targets that meet our investment objectives. As our acquired loan portfolio,
which generally produces higher yields than our originated loans due to loan discounts and accretable yield, is paid down, we
expect downward pressure on our income to the extent that the runoff is not replaced with other high-yielding loans. As a
result of the foregoing, if we are unable to replace loans in our existing portfolio with comparable high-yielding loans, we
could be materially and adversely affected. We could also be materially and adversely affected if we choose to pursue riskier
higher-yielding loans that fail to perform. As a result of the COVID-19 pandemic and the ensuing economic uncertainty, our
ability to develop consistent organic loan growth has been challenged as the Company continues to take a very careful
approach to extending new credit.
Projected operating results for businesses acquired by us may be inaccurate and may vary significantly from actual results.
To the extent that we make acquisitions that involve distressed assets, we may not be able to realize the value we predict from
these assets or make sufficient provision for future losses in the value of, or accurately estimate the future write-downs to be
taken in respect of, these assets.
We will generally establish the pricing of transactions and the capital structure of financial services franchises to be acquired
by us on the basis of financial projections for such financial services franchises. In general, projected operating results will be
based on the judgment of our management team. In all cases, projections are only estimates of future results that are based
upon assumptions made at the time that the projections are developed and the projected results may vary significantly from
actual results. General economic, political and market conditions can have a material adverse impact on the reliability of such
projections. In the event that the projections made in connection with our acquisitions, or future projections with respect to
new acquisitions, are not accurate, such inaccuracies could materially and adversely affect us.
Delinquencies and losses in the loan portfolios and other assets we acquire may exceed our initial forecasts developed during
our due diligence investigation prior to acquisition and, thus, produce lower returns than we believed our purchase price
supported. Furthermore, our due diligence investigation may not reveal all material issues. If, during the diligence process,
we fail to identify all relevant issues related to an acquisition, we may be forced to later write-down or write off assets,
restructure our operations, or incur impairment or other charges that could result in significant losses. Any of these events
could materially and adversely affect us. Economic conditions may create an uncertain environment with respect to asset
valuations and there is no certainty that we will be able to sell assets or institutions after we acquire them if we determine it
would be in our best interests to do so. In addition, there may be limited liquidity for certain asset classes we hold, including
commercial real estate and construction and development loans. Any of the foregoing matters could materially and adversely
affect us.
We face risks due to our mortgage banking activities that could negatively impact net income and profitability.
We sell a majority of the mortgage loans that we originate. The sale of these loans generates non-interest income and can be a
source of liquidity for the Bank. Disruption in the secondary market for residential mortgage loans as well as declines in real
estate values could result in one or more of the following:
• our inability to sell mortgage loans on the secondary market, which could negatively impact our liquidity position;
• declines in real estate values could decrease the potential of mortgage originations, which could negatively impact
our earnings;
• if it is determined that loans were made in breach of our representations and warranties to the secondary market, we
could incur losses associated with the loans;
31
• increased compliance requirements, including with respect to the CARES Act, could result in higher compliance
costs, higher foreclosure proceedings or lower loan origination volume, all which could negatively impact future
earnings; and
• a rise in interest rates could cause a decline in mortgage originations, which could negatively impact our earnings.
Our use of appraisals in deciding whether to make loans secured by real property does not ensure that the value of the real
property collateral will be sufficient to repay our loans.
In considering whether to make a loan secured by real property, we require an appraisal of the property. However, an
appraisal is only an estimate of the value of the property at the time the appraisal is made and requires the exercise of a
considerable degree of judgment. If the appraisal does not accurately reflect the amount that may be obtained upon sale or
foreclosure of the property, whether due to a decline in property value after the date of the original appraisal or defective
preparation of the appraisal, we may not realize an amount equal to the indebtedness secured by the property and as a result,
we may suffer losses. This risk could be intensified by the COVID-19 pandemic, which may negatively impact commercial
real estate values, particularly hospitality and leisure, office and retail properties. Residential real estate may also be
negatively impacted by higher unemployment driven in part by the pandemic.
Risks Relating to the Regulation of Our Industry
We operate in a highly regulated environment and the laws and regulations that govern our operations, corporate
governance, executive compensation and accounting principles, or changes in them, or our failure to comply with them,
could materially and adversely affect us.
We are subject to extensive regulation, supervision, and legislation by federal and state regulators and bodies that govern
almost all aspects of our operations. Intended to protect clients, depositors and the DIF, these laws and regulations, among
other matters, prescribe minimum capital requirements, impose limitations on the business activities in which we can engage
(including foreclosure and collection practices), limit the dividends or distributions that we can pay, restrict the ability of
institutions to guarantee our debt, and impose certain specific accounting requirements on us that may be more restrictive and
may result in greater or earlier charges to earnings or reductions in our capital than GAAP. Compliance with laws and
regulations, including the effects of the Dodd Frank Act Wall Street Reform and Consumer Protection Act of 2010, can be
difficult and costly, and changes to laws and regulations often impose additional compliance costs. Our failure to comply
with these laws and regulations, even if the failure follows good faith effort or reflects a difference in interpretation, could
subject us to restrictions on our business activities, fines and other penalties, any of which could materially and adversely
affect us. Further, any new laws, rules and regulations could make compliance more difficult or expensive and also materially
and adversely affect us.
The FDIC’s restoration plan for the DIF and any related increased assessment rates could materially and adversely affect us.
The FDIC insures deposits at FDIC-insured depository institutions, such as our subsidiary bank, up to applicable limits. The
amount of a particular institution’s deposit insurance assessment is based on that institution’s risk classification under an
FDIC risk-based assessment system. An institution’s risk classification is assigned based on its capital levels and the level of
supervisory concern the institution poses to its regulators. If current assessments imposed by the FDIC are insufficient for the
DIF to meet its funding requirements, there may need to be further special assessments or increases in deposit insurance
premiums. We are generally unable to control the amount of premiums that we are required to pay for FDIC insurance. Any
future additional assessments, increases or required prepayments in FDIC insurance premiums may materially and adversely
affect us, including by reducing our profitability or limiting our ability to pursue certain business opportunities.
Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws and
regulations, and our failure to comply with any supervisory actions to which we become subject as a result of such
examinations could materially and adversely affect us.
Federal and state banking agencies periodically conduct examinations of our business, including compliance with laws and
regulations. If, as a result of an examination, a federal or state banking agency were to determine that the financial condition,
capital resources, asset quality, earnings prospects, management, liquidity or other aspects of any of our operations had
32
become unsatisfactory, or that we or our management was in violation of any law or regulation, it may take a number of
different remedial actions as it deems appropriate. These actions include the power to enjoin “unsafe or unsound” practices,
to require affirmative actions to correct any conditions resulting from any violation or practice, to issue an administrative
order that can be judicially enforced, to direct an increase in our capital, to restrict our growth, to assess civil monetary
penalties against our officers or directors, to remove officers and directors and, if it is concluded that such conditions cannot
be corrected or there is an imminent risk of loss to depositors, to terminate our deposit insurance. If we become subject to
such regulatory actions, we could be materially and adversely affected.
We are subject to the Community Reinvestment Act and fair lending laws, and failure to comply with these laws could lead to
a wide variety of sanctions.
The CRA, the Equal Credit Opportunity Act, the Fair Housing Act and other fair lending laws and regulations impose
nondiscriminatory lending requirements on financial institutions. The Department of Justice and other federal agencies are
responsible for enforcing these laws and regulations. A successful challenge to an institution’s performance under the CRA or
fair lending laws and regulations could result in a wide variety of sanctions, including damages and civil money penalties,
injunctive relief, restrictions on mergers and acquisitions activity, and restrictions on expansion activity. Private parties may
also have the ability to challenge an institution’s performance under fair lending laws in private class action litigation.
The Federal Reserve may require us to commit capital resources to support our subsidiary bank.
As a matter of policy, the Federal Reserve, which examines us and our subsidiaries, expects a bank holding company to act as
a source of financial and managerial strength to a subsidiary bank and to commit resources to support such subsidiary bank.
Under the “source of strength” doctrine, the Federal Reserve may require a bank holding company to make capital injections
into a troubled subsidiary bank and may charge the bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to such a subsidiary bank. In addition, the Dodd-Frank Act directs the federal bank regulators to
require that all companies that directly or indirectly control an insured depository institution serve as a source of strength for
the institution. Under this requirement, we could be required to provide financial assistance to our subsidiary bank should our
subsidiary bank experience financial distress.
A capital injection may be required at times when we do not have the resources to provide it and therefore we may be
required to borrow the funds or raise additional equity capital from third parties. Any loans by a holding company to its
subsidiary bank are subordinate in right of payment to deposits and to certain other indebtedness of the subsidiary bank. In
the event of a bank holding company’s bankruptcy, the bankruptcy trustee will assume any commitment by the holding
company to a federal bank regulatory agency to maintain the capital of a subsidiary bank. Moreover, bankruptcy law provides
that claims based on any such commitment will be entitled to a priority of payment over the claims of the holding company’s
general unsecured creditors, including the holders of its indebtedness. Any financing that must be done by the holding
company in order to make the required capital injection may be difficult and expensive and may not be available on attractive
terms, or at all, which likely would have a material adverse effect on us.
We face a risk of noncompliance and enforcement action with the Bank Secrecy Act and other anti-money laundering statutes
and regulations.
The federal Bank Secrecy Act, the USA PATRIOT Act and other laws and regulations require financial institutions, among
other duties, to institute and maintain an effective anti-money laundering program and file suspicious activity and currency
transaction reports as appropriate. The federal Financial Crimes Enforcement Network, established by the U.S. Treasury
Department to administer the Bank Secrecy Act, is authorized to impose significant civil money penalties for violations of
those requirements, and engages in coordinated enforcement efforts with the individual federal banking regulators, as well as
the Department of Justice, Drug Enforcement Administration, and Internal Revenue Service. There is also increased scrutiny
of compliance with the rules enforced by the Office of Foreign Assets Control. If our policies, procedures and systems are
deemed deficient or the policies, procedures and systems of the financial institutions that we may acquire in the future are
deficient, we would be subject to liability, including fines and regulatory actions (such as restrictions on our ability to pay
dividends and the necessity to obtain regulatory approvals to proceed with certain aspects of our business plan, including our
acquisition plans), which could materially and adversely affect us. Failure to maintain and implement adequate programs to
combat money laundering and terrorist financing could also have serious reputational consequences for us.
33
Federal, state and local consumer lending laws may restrict our ability to originate certain mortgage loans or increase our
risk of liability with respect to such loans and could increase our cost of doing business.
Federal, state and local laws have been adopted that are intended to eliminate certain lending practices considered
“predatory.” These laws prohibit practices such as steering borrowers away from more affordable products, selling
unnecessary insurance to borrowers, repeatedly refinancing loans and making loans without a reasonable expectation that the
borrowers will be able to repay the loans irrespective of the value of the underlying property. It is our policy not to make
predatory loans, but these laws create the potential for liability with respect to our lending and loan investment activities.
They increase our cost of doing business and, ultimately, may prevent us from making certain loans or cause us to reduce the
average percentage rate or the points and fees on loans that we do make.
Our ability to pay dividends is subject to regulatory limitations and our bank subsidiary’s ability to pay dividends to us is
also subject to regulatory limitations.
Our ability to declare and pay dividends depends both on the ability of our bank subsidiary to pay dividends to us and on
certain federal regulatory considerations, including the guidelines of the Federal Reserve regarding capital adequacy and
dividends. Because we are a separate legal entity from our bank subsidiary and we do not have significant operations of our
own, any dividends paid by us to our shareholders would have to be paid from funds at the holding company level that are
legally available therefor. However, as a bank holding company, we are subject to general regulatory restrictions on the
payment of cash dividends. Federal bank regulatory agencies have the authority to prohibit bank holding companies from
engaging in unsafe or unsound practices in conducting their business, which depending on the financial condition and
liquidity of the holding company at the time, could include the payment of dividends. Additionally, various federal and state
statutory provisions limit the amount of dividends that our bank subsidiary can pay to us as its holding company without
regulatory approval. Finally, holders of our common stock are only entitled to receive such dividends as our board of
directors may declare in its unilateral discretion. Dividends are paid out of funds legally available for such purpose based on
a variety of considerations, including, without limitation, our historical and projected financial condition, liquidity and results
of operations, capital levels, tax considerations, statutory and regulatory prohibitions and other limitations, general economic
conditions and other factors deemed relevant by our board of directors. Accordingly, we may not pay the amount of dividends
referenced in our current intention above, or any dividends at all, to our shareholders in the future.
Tax legislation initiatives or challenges to our tax positions could adversely affect our results of operations and financial
condition.
We operate in multiple jurisdictions, and we are subject to tax laws and regulations of the U.S. federal, state and local
governments. From time to time, legislative initiatives may be adopted, which may impact our effective tax rate and could
adversely affect our deferred tax assets, tax positions and/or our tax liabilities. In addition, U.S. federal, state and local tax
laws and regulations are extremely complex and subject to varying interpretations. There can be no assurance that our
historical tax positions will not be challenged by relevant tax authorities or that we would be successful in defending our
positions in connection with any such challenge.
Item 1B. UNRESOLVED STAFF COMMENTS.
None
Item 2. PROPERTIES.
Our principal executive offices are located in the Denver Tech Center area immediately south of Denver, Colorado. We also
have approximately 70,000 square feet of office and operations space in Kansas City, Missouri. At December 31, 2021, we
operated 40 banking centers in Colorado, 34 in Kansas and Missouri, two in Texas, one in Utah and four in New Mexico. Of
these banking centers, 61 were owned and 20 locations were leased.
34
Item 3. LEGAL PROCEEDINGS.
From time to time, we are a party to various litigation matters incidental to the conduct of our business. We do not believe
that any of our pending legal proceedings, individually or in the aggregate, will have a material adverse effect on our
business, prospects, financial condition, results of operations or liquidity.
Item 4. MINE SAFETY DISCLOSURES.
None.
PART II
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
Market for Registrant’s Common Equity
Shares of the Company’s common stock are traded on the New York Stock Exchange (“NYSE”) under the symbol “NBHC”.
The Company had 171 shareholders of record as of February 21, 2022. Management estimates that the number of beneficial
owners is significantly greater.
35
Performance Graph
The following graph presents a comparison of the Company’s performance to the indices named below. It assumes $100
invested on December 31, 2016, with dividends invested on a total return basis.
Total Return Performance
NBHC
KBW Regional Banking Index
Russell 2000 Index
e
u
l
a
V
x
e
d
n
I
190
185
180
175
170
165
160
155
150
145
140
135
130
125
120
115
110
105
100
95
90
85
80
75
70
12/31/16
12/31/17
12/31/18
12/31/19
12/31/20
12/31/21
Index
NBHC
KBW Regional Banking Index
Russell 2000 Index
12/31/16
100.00
100.00
100.00
12/31/17
102.77
101.81
114.63
12/31/18
99.24
84.00
101.99
12/31/19
115.67
104.05
127.98
12/31/20
110.51
95.02
153.49
12/31/21
151.45
129.84
176.18
Period Ending
36
The following table sets forth information about our repurchases of our common stock during the fourth quarter of 2021:
Period
October 1 - October 31, 2021(1)
November 1 - November 30, 2021(2)
December 1 - December 31, 2021
Total
of shares purchased paid per share
42.91
5,102 $
45.37
43.49
44.21
152,001
237,795
394,898
or programs
— $
147,204
237,795
384,999
Total number
Average price announced plans
Total number of
shares purchased
as part of publicly
Maximum
approximate dollar
value of shares
that may yet be
purchased under the
plans or programs (3)
55,640,399
48,961,068
38,618,179
(1) Represents shares purchased other than through publicly announced plans purchased pursuant to the Company’s stock
incentive plans at the then current market value in satisfaction of stock option exercise prices, settlements of restricted
stock and tax withholdings.
(2) Of the shares repurchased in November 2021, 4,797 shares were purchased other than through publicly announced
plans. These shares were purchased pursuant to the Company’s stock incentive plans at the then current market value in
satisfaction of stock option exercise prices, settlements of restricted stock and tax withholdings.
(3) 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. The remaining authorization under the new program as of December 31, 2021 was $38.6
million.
Securities Authorized for Issuance under Equity Compensation Plans
During the second quarter of 2014, shareholders approved the 2014 Omnibus Incentive Plan (the “2014 Plan”). Under the
2014 Plan, the Compensation Committee of the Board of Directors has the authority to grant, from time to time, awards of
options, stock appreciation rights, restricted stock, restricted stock units, performance units, other stock-based awards, or any
combination thereof to eligible persons. As of December 31, 2021, the aggregate number of Company common stock
available for issuance under the 2014 Plan was 4,048,761 shares.
During the second quarter of 2015, shareholders approved the Company’s 2014 Employee Stock Purchase Plan (“ESPP”).
The ESPP allows employees to purchase shares of common stock through payroll deductions up to a limit of $25,000 per
calendar year or 2,000 shares per offering period. The price an employee pays for shares is 90% of the fair market value of
Company common stock on the last day of the offering period. As of December 31, 2021, the aggregate number of Company
common stock available for issuance under the ESPP was 281,896 shares.
See note 16 to the consolidated financial statements for further detail related to these equity compensation plans.
Plan Category
Equity plans approved by security holders
Equity plans not approved by security holders
Total
Item 6. SELECTED FINANCIAL DATA.
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
695,960 $
—
695,960 $
28.19
—
28.19
Number of securities
remaining available for
future issuance under
equity compensation
plans
4,330,657
—
4,330,657
The following table sets forth a summary of selected historical financial information derived from our audited consolidated
financial statements as of and for the five years ended December 31, 2021. This information should be read together with the
related notes thereto as well as “Management’s Discussion and Analysis of Financial Condition and Results of Operations”
37
included elsewhere in this annual report. Such information is not necessarily indicative of anticipated future results. All
amounts are presented in thousands, except share and per share data, or as otherwise noted.
Summary of Selected Historical Consolidated Financial Data
Consolidated Statements of Financial Condition Data:
Cash and cash equivalents
Investment securities available-for-sale (at fair
value)
Investment securities held-to-maturity
Non-marketable securities
Loans (1)
Allowance for credit losses
Loans, net
Loans held for sale
Other real estate owned
Premises and equipment, net
Goodwill and other intangible assets, net
Other assets
Total assets
Deposits
Long-term debt, net
Other liabilities
Total liabilities
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31, December 31, December 31, December 31, December 31,
2019
110,190 $
$ 845,695 $ 605,565 $
2018
109,556 $
2017
257,364
2021
2020
638,249
182,884
29,751
4,415,406
(39,064)
4,376,342
117,444
7,300
112,151
126,388
194,813
661,955
376,615
16,493
4,353,726
(59,777)
4,293,949
247,813
4,730
106,982
132,955
212,893
791,102
235,398
27,555
4,092,308
(35,692)
4,056,616
48,120
10,596
109,986
128,497
159,240
691,847
609,012
50,740
4,513,383
(49,694)
4,463,689
139,142
7,005
96,747
127,349
182,785
855,345
258,730
15,030
3,178,947
(31,264)
3,147,683
4,629
10,491
93,708
61,237
139,248
$ 7,214,011 $ 6,659,950 $ 5,895,512 $ 5,676,666 $ 4,843,465
$ 6,228,173 $ 5,676,232 $ 4,737,132 $ 4,535,621 $ 3,979,559
—
331,499
4,311,058
532,407
$ 7,214,011 $ 6,659,950 $ 5,895,512 $ 5,676,666 $ 4,843,465
39,478
106,254
6,373,905
840,106
—
446,039
4,981,660
695,006
—
391,460
5,128,592
766,920
—
163,027
5,839,259
820,691
(1) Total loans are net of unearned discounts and deferred fees and costs.
38
Consolidated Statements of Operations Data:
Interest income
Interest expense
Net interest income
Provision (release) expense for loan losses
Net interest income after provision for loan
losses
Non-interest income
Non-interest expense
Income before income taxes
Income tax expense
Net income
Share Information:
Earnings per share, basic
Earnings per share, diluted
Dividends paid
Book value per share
Tangible common book value per share(1)
Total shareholders' equity to total assets
Tangible common equity to tangible assets(1)
Weighted average common shares outstanding,
As of and for the years ended
$
December 31, December 31, December 31, December 31, December 31,
2019
242,601 $
36,771
205,830
11,643
2018
221,391 $
23,954
197,437
5,197
2020
218,002 $
25,056
192,946
17,630
2021
200,965 $
13,821
187,144
(9,293)
2017
164,421
18,115
146,306
12,972
$
$
196,437
110,364
191,830
114,971
21,365
93,606 $
175,316
140,258
206,177
109,397
20,806
88,591 $
194,187
82,752
180,745
96,194
15,829
80,365 $
192,240
70,775
189,334
73,681
12,230
61,451 $
3.04 $
3.01
0.87
28.04
24.33
11.65%
10.26%
2.87 $
2.85
0.80
26.79
23.09
12.32%
10.80%
2.57 $
2.55
0.75
24.60
20.89
13.01%
11.27%
2.00 $
1.95
0.54
22.59
18.77
12.24%
10.39%
133,334
39,205
136,677
35,862
21,283
14,579
0.54
0.53
0.34
19.81
17.94
10.99%
10.06%
basic
30,727,566 30,857,086 31,175,825 30,748,234 26,928,763
Weighted average common shares outstanding,
diluted
Common shares outstanding
31,068,159 31,075,857 31,530,817 31,430,074 27,709,659
29,958,764 30,634,291 31,176,627 30,769,063 26,875,585
(1) Tangible book value per share and tangible common equity to tangible assets are non-GAAP financial measures. We
believe that the most directly comparable GAAP financial measures are book value per share and total shareholders’
equity to total assets. See the reconciliation under “About Non-GAAP Financial Measures.”
39
Key Ratios
Return on average assets
Return on average tangible assets(1)
Return on average equity
Return on average tangible common equity(1)
Loan to deposit ratio (end of period)
Non-interest bearing deposits to total deposits (end
of period)
Net interest margin(2)
Net interest margin FTE(1)(2)(3)
Interest rate spread FTE(3)(4)
Yield on earning assets(5)
Yield on earning assets FTE(1)(2)(3)
Cost of interest bearing liabilities
Cost of deposits
Non-interest income to total revenue FTE(3)
Non-interest expense to average assets
Efficiency ratio
Efficiency ratio FTE(1)(3)
Total Loans Asset Quality Data(6)(7)(8)
Non-performing loans to total loans
Non-performing loans to total loans excluding PPP
loans
Non-performing assets to total loans and OREO
Non-performing assets to total loans and OREO
excluding PPP loans
Allowance for credit losses to total loans
Allowance for credit losses to total loans excluding
As of and for the years ended
December 31, December 31, December 31, December 31, December 31,
2019
1.38%
1.42%
10.89%
13.07%
93.21%
2021
1.33%
1.37%
11.06%
12.87%
72.47%
2020
1.40%
1.44%
11.24%
13.27%
76.70%
2018
1.10%
1.15%
9.28%
11.60%
90.23%
2017
0.31%
0.38%
2.67%
3.61%
80.00%
40.24%
2.87%
2.95%
2.79%
3.08%
3.16%
0.37%
0.23%
36.46%
2.73%
64.08%
62.99%
37.19%
3.33%
3.42%
3.21%
3.76%
3.85%
0.64%
0.45%
41.46%
3.26%
61.52%
60.59%
25.01%
3.83%
3.93%
3.65%
4.52%
4.61%
0.96%
0.64%
28.18%
3.10%
62.22%
61.15%
23.64%
3.85%
3.93%
3.77%
4.31%
4.40%
0.63%
0.45%
25.95%
3.38%
69.78%
68.64%
22.68%
3.36%
3.50%
3.35%
3.78%
3.91%
0.56%
0.41%
20.49%
2.90%
70.80%
68.63%
0.24%
0.47%
0.49%
0.60%
0.66%
0.24%
0.39%
0.40%
1.10%
0.49%
0.58%
0.60%
1.37%
0.49%
0.66%
0.66%
0.88%
0.60%
0.85%
0.85%
0.87%
0.66%
0.99%
0.99%
0.98%
PPP loans
1.11%
Allowance for credit losses to non-performing loans 458.77%
0.03%
Net charge-offs to average loans
1.43%
293.21%
0.06%
0.88%
179.62%
0.19%
0.87%
145.94%
0.02%
0.98%
148.88%
0.36%
(1) Ratio represents a non-GAAP financial measure. See non-GAAP reconciliation below.
(2) Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average
interest earning assets.
(3) Presented on a fully taxable equivalent (“FTE”) basis using the statutory rate of 21% for 2021, 2020, 2019 and 2018 and 35% for
2017. The taxable equivalent adjustments included above are $5,161, $5,103, $5,065, $4,482 and $5,852 for the years ended 2021,
2020, 2019, 2018, and 2017, respectively.
(4) Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average
(5)
cost of interest bearing liabilities.
Interest earning assets include assets that earn interest/accretion or dividends. Any market value adjustments on investment
securities or loans are excluded from interest-earning assets.
(6) Non-performing loans consist of non-accruing loans and restructured loans on non-accrual.
(7) Non-performing assets include non-performing loans, other real estate owned and other repossessed assets.
(8) Total loans are net of unearned discounts and fees.
40
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 (FTE)” 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.
41
A reconciliation of our GAAP financial measures to the comparable non-GAAP financial measures is as follows:
Tangible Common Book Value Ratios
December 31, December 31, December 31, December 31, December 31,
Total shareholders’ equity
Less: goodwill and core deposit intangible assets,
net
Add: deferred tax liability related to goodwill
Tangible common equity (non-GAAP)
$
$
2021
840,106 $
2020
820,691 $
2019
766,920 $
2018
695,006 $
2017
532,407
(121,392)
10,070
728,784 $
(122,575)
9,155
707,271 $
(123,758)
8,241
651,403 $
(124,941)
7,327
577,392 $
(61,237)
10,873
482,043
Total assets
Less: goodwill and core deposit intangible assets,
net
Add: deferred tax liability related to goodwill
Tangible assets (non-GAAP)
Tangible common equity to tangible assets
calculations:
Total shareholders' equity to total assets
Less: impact of goodwill and core deposit
intangible assets, net
Tangible common equity to tangible assets (non-
GAAP)
Tangible common book value per share
calculations:
Tangible common equity (non-GAAP)
Divided by: ending shares outstanding
Tangible common book value per share (non-
GAAP)
Tangible common book value per share,
excluding accumulated other comprehensive
loss (income) calculations:
Tangible common equity (non-GAAP)
Accumulated other comprehensive loss (income),
net of tax
Tangible common book value, excluding
accumulated other comprehensive loss (income),
net of tax (non-GAAP)
Divided by: ending shares outstanding
Tangible common book value per share, excluding
accumulated other comprehensive loss (income),
net of tax (non-GAAP)
$ 7,214,011 $ 6,659,950 $ 5,895,512 $ 5,676,666 $ 4,843,465
(121,392)
10,070
(61,237)
10,873
$ 7,102,689 $ 6,546,530 $ 5,779,995 $ 5,559,052 $ 4,793,101
(124,941)
7,327
(122,575)
9,155
(123,758)
8,241
11.65%
12.32%
13.01%
12.24%
10.99%
(1.39)%
(1.52)%
(1.74)%
(1.85)%
(0.93)%
10.26%
10.80%
11.27%
10.39%
10.06%
728,784 $
$
29,958,764
707,271 $
651,403 $
577,392 $
30,634,291
31,176,627
30,769,063
482,043
26,875,585
$
24.33 $
23.09 $
20.89 $
18.77 $
17.94
$
728,784 $
707,271 $
651,403 $
577,392 $
482,043
6,963
(9,766)
(2,062)
11,275
6,242
735,747
29,958,764
697,505
30,634,291
649,341
31,176,627
588,667
30,769,063
488,285
26,875,585
$
24.56 $
22.77 $
20.83 $
19.13 $
18.17
42
Return on Average Tangible Assets and Return on Average Tangible Equity
Net income
Add: impact of core deposit intangible
amortization expense, after tax
Net income adjusted for impact of core deposit
intangible amortization expense, after tax
Average assets
Less: average goodwill and core deposit
intangible asset, net of deferred tax liability
related to goodwill
Average tangible assets (non-GAAP)
Average shareholders' equity
Less: average goodwill and core deposit
intangible asset, net of deferred tax liability
related to goodwill
Average tangible common equity (non-GAAP)
$
Return on average assets
Return on average tangible assets (non-GAAP)
Return on average equity
Return on average tangible common equity (non-
As of and for the years ended
December 31, December 31, December 31, December 31, December 31,
2019
80,365 $
2018
61,451 $
2020
88,591 $
2021
93,606 $
2017
14,579
$
909
910
899
1,649
3,259
$
94,515 $
89,501 $
81,264 $
63,100 $
17,838
$ 7,020,111 $ 6,326,268 $ 5,837,121 $ 5,607,532 $ 4,705,241
(111,944)
(52,958)
$ 6,908,167 $ 6,212,237 $ 5,721,017 $ 5,488,986 $ 4,652,283
(114,031)
(116,104)
(118,546)
$
846,539 $
788,286 $
737,923 $
662,420 $
546,716
(111,944)
734,595 $
(114,031)
674,255 $
(116,104)
621,819 $
(118,546)
543,874 $
(52,958)
493,758
1.33%
1.37%
11.06%
1.40%
1.44%
11.24%
1.38%
1.42%
10.89%
1.10%
1.15%
9.28%
0.31%
0.38%
2.67%
GAAP)
12.87%
13.27%
13.07%
11.60%
3.61%
Fully Taxable Equivalent Yield on Earning Assets and Net Interest Margin
Interest income
Add: impact of taxable equivalent adjustment
Interest income FTE (non-GAAP)
As of and for the years ended
December 31, December 31, December 31, December 31, December 31,
2019
242,601 $
5,065
247,666 $
2018
221,391 $
4,482
225,873 $
2020
218,002 $
5,103
223,105 $
2021
200,965 $
5,161
206,126 $
2017
164,421
5,852
170,273
$
$
Net interest income
Add: impact of taxable equivalent adjustment
Net interest income FTE (non-GAAP)
$
$
187,144 $
5,161
192,305 $
192,946 $
5,103
198,049 $
205,830 $
5,065
210,895 $
197,437 $
4,482
201,919 $
146,306
5,852
152,158
Average earning assets
Yield on earning assets
Yield on earning assets FTE (non-GAAP)
Net interest margin
Net interest margin FTE (non-GAAP)
$ 6,521,300 $ 5,795,864 $ 5,368,073 $ 5,131,694 $ 4,353,320
3.78%
3.91%
3.36%
3.50%
3.08%
3.16%
2.87%
2.95%
3.76%
3.85%
3.33%
3.42%
4.52%
4.61%
3.83%
3.93%
4.31%
4.40%
3.85%
3.93%
43
Efficiency Ratio
December 31,
$
Net interest income
Add: impact of taxable equivalent adjustment
$
Net interest income, FTE (non-GAAP)
2021
187,144
5,161
192,305
$
$
December 31,
As of and for the years ended
December 31,
2019
205,830 $
5,065
210,895 $
2020
192,946 $
5,103
198,049 $
December 31,
2018
197,437 $
4,482
201,919 $
December 31,
2017
146,306
5,852
152,158
Non-interest income
$
110,364
$
140,258 $
82,752 $
70,775 $
39,205
Non-interest expense
$
Less: core deposit intangible asset amortization
Non-interest expense, adjusted for core deposit
intangible asset amortization (non-GAAP)
$
191,830
(1,183)
$
206,177 $
(1,183)
180,745 $
(1,183)
189,334 $
(2,170)
136,677
(5,342)
190,647
$
204,994 $
179,562 $
187,164 $
131,335
Efficiency ratio
Efficiency ratio FTE (non-GAAP)
64.08%
62.99%
61.52%
60.59%
62.22%
61.15%
69.78%
68.64%
70.80%
68.63%
44
Item 7. 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 years ended December 31, 2021,
2020, and 2019, and with the other financial and statistical data presented in this annual report. 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” and “Risk Factors” and should be read herewith.
Management’s discussion focuses on 2021 results compared to 2020. For a discussion of 2020 results compared to 2019,
refer to the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
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.
Additionally, we are innovating and building strategic partnerships with the goal of delivering a comprehensive digital
financial ecosystem for our clients. We are focused on providing small and medium-sized businesses with alternative digital
access to address borrowing, depository and cash management needs, while also providing information management and
access to blockchain payment tools, under the safety of a regulated bank. We believe that our established presence in our core
markets of Colorado, the greater Kansas City region, Texas, Utah and New Mexico, as well as our ongoing investment in
digital and blockchain solutions position us well for growth opportunities. As of December 31, 2021, we had $7.2 billion in
assets, $4.5 billion in loans, $6.2 billion in deposits and $0.8 billion in equity.
Operating Highlights and Key Challenges
Profitability and returns
• Net income increased $5.0 million, or 5.7%, to a record $93.6 million, as of December 31, 2021, compared to the
prior year.
• The return on average tangible assets was 1.37% for 2021, compared to 1.44% for 2020.
• The return on average tangible common equity was 12.87% for 2021, compared to 13.27% for 2020.
Strategic execution
• Announced plans to design a financial eco-system, 2UniFi, for small and medium-sized businesses that we believe
will increase access to financial services while reducing the costs of banking services. We believe the expansion into
the digital financial ecosystem through our platform will provide an expanded revenue base, new sources of fee
income and drive growth in our low cost deposit base on a national scale.
• Strategically invested in two fintech firms including $20.0 million in Finstro Global Holdings, Inc. and $2.0 million
in Figure Technologies. We will continue to invest with fintech solution providers to support our ecosystem
buildout, support our core bank products and offerings, and to leverage efficiencies and technological solutions in
our shared services areas.
• 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. Banking center consolidation-related income of $4.6 million was recorded in other non-interest income,
and banking center consolidation-related expense of $1.6 million was recorded in other non-interest expense during
the year ended December 31, 2021.
45
• 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 year ended December 31, 2021, the Company sold mortgage servicing rights of $10.5 million generating
a gain of $1.3 million included in mortgage banking income in the consolidated statements of operation.
• Repurchased 912,213 shares for $36.4 million at a weighted average price per share of $39.88 during the year ended
December 31, 2021.
• During 2021, the Company entered into a subordinated note purchase agreement to issue and sell a fixed-to-floating
rate note totaling $40.0 million at December 31, 2021. The balance on the note at December 31, 2021, net of
issuance costs totaling $0.5 million, totaled $39.5 million. The initial interest rate of the note is 3.00% until
November 15, 2026. The Company intends to use the net proceeds from the sale of the note for general corporate
purposes.
Loan portfolio
• Loans outstanding totaled $4.5 billion, increasing $159.7 million, or 3.7%, from the prior year, largely due to higher
commercial and industrial loans of $203.8 million, or 16.0%.
• Loan originations during the year ended December 31, 2021 totaled a record $1.5 billion, led by commercial loan
originations totaling $1.1 billion, including PPP loan originations of $121.1 million.
• During 2021, the Company successfully executed PPP loan forgiveness for our clients with a decrease in PPP loan
balances of $154.4 million to $21.7 million as of December 31, 2021.
• COVID-related loan modifications totaled $5.3 million at December 31, 2021, down from $173.6 million at
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 1.10% of total loans at December 31, 2021, compared to 1.37% at December 31,
2020.
• During the year ended December 31, 2021, the Company recorded a provision release of $9.3 million, which
included a provision release of $8.8 million for funded loans and a provision release of $0.5 million for unfunded
loan commitments. During the year ended December 31, 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.
• Net charge-offs of $1.3 million and $2.7 million were recorded during 2021 and 2020, respectively. Net charge-offs
to average total loans totaled 0.03% and 0.06% for 2021 and 2020, respectively.
• Credit quality remained strong, as non-performing loans (comprised of non-accrual loans and non-accrual troubled
debt restructured loans) decreased to 0.24% of total loans at December 31, 2021, compared to 0.47% at December
31, 2020. Non-performing assets to total loans and OREO totaled 0.39% at December 31, 2021, compared to 0.58%
at December 31, 2020.
Client deposit funded balance sheet
.9
• Average transaction deposits for the fourth quarter of 2021 totaled $5.3 billion, increasing 14.2%, compared to $4.6
billion for the same period in the prior year.
• Average total deposits for the fourth quarter of 2021 totaled $6.2 billion, increasing 8.9%, compared to $5.7 billion
for the same period in the prior year.
• The mix of transaction deposits to total deposits improved 390 basis points to 86.5% at December 31, 2021, from
82.6% at December 31, 2020.
• Cost of deposits totaled 0.23% for the year ended December 31, 2021, decreasing 22 basis points, compared to the
year ended December 31, 2020.
46
Revenues
• Fully taxable equivalent net interest income totaled $192.3 million for the year ended December 31, 2021 a decrease
of $5.7 million, or 2.9%, compared to the prior year due to a decrease in average loan balances and the interest rate
actions taken by the Federal Reserve during 2020.
• The FTE net interest margin narrowed 47 basis points from the prior year to 2.95% for the year ended December 31,
2021 due to lower earning asset yields. The yield on earning assets decreased 69 basis points, driven by the remix of
assets into lower-yielding cash balances. The cost of funds decreased 22 basis points to 0.23%.
• Non-interest income totaled $110.4 million during 2021, decreasing $29.9 million, or 21.3%, from 2020, driven by
$39.0 million lower mortgage banking income due to slower refinance activity in 2021 and competition driving
tighter gain on sale margins. During 2021, service charges and bank card fees increased a combined $2.2 million.
• Other non-interest income increased $7.5 million due to $4.6 million of gains from banking center consolidation-
related income and $3.0 million of unrealized gains from equity method investments during 2021.
Expenses
• Non-interest expense totaled $191.8 million during 2021, representing a decrease of $14.3 million, or 7.0%, from
2020, primarily driven by lower mortgage-related compensation as well as the Company’s strategic efforts to
improve operating efficiencies.
• Occupancy and equipment decreased $2.2 million during 2021, compared to 2020, largely due to efficiencies gained
from banking center consolidations. Banking center consolidation-related expense totaling $1.6 million was recorded
during 2021, compared to $2.3 million during 2020.
• During the year ended December 31, 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
• Income tax expense totaled $21.4 million during 2021, compared to $20.8 million during 2020. Tax expense was
lowered by $0.6 million of tax benefit and $0.1 million of tax expense from stock compensation activity during 2021
and 2020, respectively. Adjusting for the stock compensation activity, the 2021 and 2020 effective tax rates were
19.1% and 19.0%, respectively.
Strong capital position
• Capital ratios continue to be strong and in excess of federal bank regulatory agency “well capitalized” thresholds. At
December 31, 2021, our consolidated tier 1 leverage ratio was 10.39%, and our common equity tier 1 and
consolidated tier 1 risk based capital ratios were 14.26%.
• At December 31, 2021, common book value per share was $28.04. The tangible common book value per share
increased $1.24 to $24.33 at December 31, 2021, compared to December 31, 2020, as the Company’s earnings
outpaced share repurchases and dividends.
• The Bank maintains ample liquidity with excess cash liquidity of $372 million and access to $2.7 billion in readily
available funds.
Key Challenges
There are a number of significant challenges confronting us and our industry. We face continual challenges implementing our
business strategy. These include growing our assets, particularly loans, and deposits amidst intense competition, changing
interest rates, adhering to changes in the regulatory environment and identifying and consummating disciplined acquisition
and other expansionary opportunities in a very competitive environment.
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
47
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 how long new outbreaks of COVID-19 cases will have a continued
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 December 31, 2021, the Company had low exposure to industries highly impacted by the COVID-19 pandemic. Within
the commercial loan segment, restaurants were 5.7%, retailers 2.7%, hospital/medical 6.8% and oil and gas 0.7% of total
loans. Within the commercial real estate non-owner occupied loan segment, hotel and lodging was 4.1%, 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 1.0% of total loans. We have maintained
relationships with food and agribusiness clients that generally possess low leverage and, correspondingly, low bank debt to
assets, minimizing any potential credit losses in the future.
The extraordinary government measures enacted during the COVID-19 pandemic have generated unprecedented levels of
economic stimulus funding and have produced high levels of cash liquidity within the banking industry. Our cash balances
total $845.7 million at December 31, 2021 and have increased $240.1 million from December 31, 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 at
December 31, 2021 and increased $262.3 million, or 25.3%, compared to December 31, 2020. At December 31, 2021, our
loans outstanding totaled $4.5 billion, increasing $159.7 million, or 3.7%, compared to December 31, 2020. During the year
ended December 31, 2021, our weighted average rate on new loans funded at the time of origination was 3.51%, compared to
the weighted average yield of our originated loan portfolio of 3.98% (FTE). Our net interest income has been impacted by
lower average loan balances and 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.
Application of Critical Accounting Policies and Significant Estimates
We use accounting principles and methods that conform to GAAP and general banking practices. We are required to apply
significant judgment and make material estimates in the preparation of our financial statements and with regard to various
accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual
measurement is not possible or practical. The most significant of these estimates relate to the determination of the allowance
48
for credit losses. See additional discussion of our ACL policy in note 2 – Summary of Significant Accounting Policies in the
notes to our consolidated financial statements for the year ended December 31, 2021.
The determination of the ACL, which represents management’s estimate of lifetime credit losses inherent in our loan
portfolio at the balance sheet date, involves a high degree of judgment and complexity. The Company estimates the collective
ACL by first disaggregating the loan portfolio into segments based upon broad characteristics such as primary use and
underlying collateral. Within these segments, the portfolio is further disaggregated into classes of loans with similar attributes
and risk characteristics. The collective ACL is determined at the class level, analyzing loss history based upon specific loss
drivers and risk factors affecting each loan class. The Company utilizes a discounted cash flow (“DCF”) model that
incorporates forecasts of certain national macroeconomic factors (reasonable and supportable forecasts) which drive the
losses predicted in establishing the Company’s collective ACL. Management accounts for the inherent uncertainty of the
underlying economic forecast by reviewing and weighting alternate forecast scenarios. For periods beyond the reasonable and
supportable forecast period, the Company reverts to historical long-term average loss rates on a straight-line basis.
Additionally, the collective ACL calculation includes subjective adjustments for qualitative risk factors that are likely to
cause estimated credit losses to differ from historical experience. Changes in these assumptions, estimates or the conditions
surrounding them may have a material impact on our financial condition. For further discussion of the ACL, see notes 2 and 7
to our consolidated financial statements.
Future Accounting Pronouncements
In March 2020, the FASB 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 LIBOR or any other
reference rate that is expected to be discontinued. To address reference rate reform, the Company established a LIBOR
transition subcommittee in January of 2020 to identify exposure to reference rates within loan and derivative contracts. The
Company had no exposure to LIBOR tenors that were discontinued as of January 1, 2022. For tenors expiring on future dates
the Company is working to ensure all documentation includes contingency terms, if necessary, that may be utilized at such
time when the LIBOR is discontinued. Beginning January 1, 2022, the Company no longer originates loans using LIBOR as a
reference rate. The Company has assessed, and will continue to evaluate, the impact from ASU 2020-04 and does not expect
the adoption of ASU 2020-04, or any updates issued to date, to have a material impact on its financial statements.
Financial Condition
Total assets were $7.2 billion at December 31, 2021, compared to $6.7 billion at December 31, 2020, an increase of $554.1
million, or 8.3%. Cash and cash equivalents increased $240.1 million, and total loans increased $159.7 million, or 3.7%.
During 2021, lower cost demand, savings and money market deposits (“transaction deposits”) increased $0.7 billion, or
15.0%, compared to the prior year, as we 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
loan growth.
Investment securities
Available-for-sale
Total investment securities available-for-sale were $691.8 million at December 31, 2021, compared to $662.0 million at
December 31, 2020, an increase of $29.9 million, or 4.52%. During 2021 and 2020, purchases of available-for-sale securities
totaled $288.6 million and $286.1 million, respectively. Maturities and paydowns of available-for-sale securities during 2021
and 2020 totaled $235.9 million and $271.5 million, respectively. There were no sales of available-for-sale securities during
2021 or 2020.
49
Available-for-sale investment securities are summarized as follows as of the dates indicated:
December 31, 2021
December 31, 2020
Amortized
cost
Fair
value
Weighted
Percent of average Amortized
portfolio
yield
cost
Fair
value
Weighted
Percent of average
portfolio
yield
Mortgage-backed securities:
Residential mortgage pass-
through securities issued or
guaranteed by U.S.
Government agencies
or sponsored enterprises
Other residential MBS
issued or guaranteed by
U.S. Government agencies
or sponsored enterprises
Municipal securities
Corporate debt
Other securities
Total investment securities
available-for-sale
$ 231,523 $ 227,696
32.9% 1.38% $ 193,424 $ 196,334
29.6% 1.36%
467,490
230
2,000
469
461,334
237
2,111
469
66.7% 1.47%
0.0% 3.17%
0.3% 5.80%
0.1% 0.00%
454,345
362
2,000
469
462,779
375
1,998
469
69.9% 1.45%
0.1% 3.46%
0.3% 5.83%
0.1% 0.00%
$ 701,712 $ 691,847 100.0% 1.46% $ 650,600 $ 661,955 100.0% 1.44%
As of December 31, 2021 and 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 Federal Home Loan
Mortgage Corporation (“FHLMC”), Federal National Mortgage Association (“FNMA”) and Government National Mortgage
Association (“GNMA”) securities. The other mortgage-backed securities (“MBS”) are comprised of securities backed by
FHLMC, FNMA and GNMA securities.
Mortgage-backed securities may have actual maturities that differ from contractual maturities depending on the repayment
characteristics and experience of the underlying financial instruments. The estimated weighted average life of the available-
for-sale mortgage-backed securities portfolio was 4.2 years and 2.7 years at December 31, 2021 and December 31, 2020,
respectively. This estimate is based on assumptions and actual results may differ. At December 31, 2021 and December 31,
2020, the duration of the total available-for-sale investment portfolio was 3.8 years and 2.6 years, respectively.
At December 31, 2021 and 2020, adjustable rate securities comprised 1.7% and 2.3%, respectively, of the available-for-sale
mortgage-backed security 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 1.70% per annum and 2.00% per annum at December
31, 2021 and 2020, respectively.
The available-for-sale investment portfolio included $3.4 million of unrealized gains and $13.3 million of unrealized losses at
December 31, 2021. At December 31, 2020, the available-for-sale investment portfolio included $11.7 million of unrealized
gains and $0.4 million of unrealized losses. We believe any unrealized losses are a result of prevailing interest rates, and as
such, we do not believe that any of the securities with unrealized losses were impaired. Management believes that default of
the available-for-sale securities is highly unlikely. FHLMC, FNMA and GNMA guaranteed mortgage-backed securities have
a long history of zero credit losses, an explicit guarantee by the U.S. government (although limited for FNMA and FHLMC
securities) and yields that generally trade based on market views of prepayment and liquidity risk rather than credit risk.
Held-to-maturity
At December 31, 2021, we held $609.0 million of held-to-maturity investment securities, compared to $376.6 million at
December 31, 2020, an increase of $232.4 million, or 61.7%. Purchases of held-to-maturity securities totaled $397.8 million
and $284.2 million during 2021 and 2020, respectively. Maturities and paydowns of held-to-maturity securities totaled $161.9
million and $88.1 million during 2021 and 2020, respectively.
50
Held-to-maturity investment securities are summarized as follows as of the dates indicated:
December 31, 2021
December 31, 2020
Amortized Fair
value
cost
Weighted
Percent of average Amortized
portfolio
yield
cost
Weighted
Percent of average
portfolio
yield
Fair
value
Mortgage-backed securities:
Residential mortgage pass-through securities
issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Other residential MBS issued or guaranteed
by U.S. Government agencies or
sponsored enterprises
Total investment securities held-to-
$ 312,916 $ 309,614
51.4%
1.56% $ 306,187 $ 310,930
81.3%
1.39%
296,096
289,646
48.6%
1.25%
70,428
70,761
18.7%
0.41%
maturity
$ 609,012 $ 599,260
100.0%
1.41% $ 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 $2.2 million and $5.3 million of unrealized gains and
$11.9 million and $0.3 million of unrealized losses at December 31, 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 December 31, 2021 and December 31, 2020 was 4.1 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 portfolio was 3.8 years and 2.4 years as of December 30, 2021 and December 31, 2020, respectively.
Residential mortgage pass-through investments due after one year but within five years had a weighted average yield of
3.35% at December 31, 2021. Those due after five years but within 10 years had a weighted average yield of 1.91%, and
those due after 10 years had a weighted average yield of 1.26% at December 31, 2021. Other residential MBS held-to-
maturity investments due after five years but within 10 years had a weighted average yield of 1.64%, and those due after 10
years had a weighted average yield of 1.23%.
Non-marketable securities
During 2021, the Company updated its asset classifications to include certain financial instruments previously included in
other assets within non-marketable securities in the statements of financial condition.
Non-marketable securities totaled $50.7 million and $22.1 million at December 31, 2021 and 2020, respectively, and included
FRB stock, FHLB stock and other non-marketable securities. At December 31, 2021, other non-marketable securities totaled
$36.2 million and consisted of equity method investments and convertible preferred stock without readily determinable fair
values. During the years ended December 31, 2021 and 2020, purchases of non-marketable securities totaled $27.7 million
and $4.1 million, respectively. Included in the purchases during 2021 were investments in two fintech firms, Finstro Global
Holdings, Inc. of $20.0 million and Figure Technologies of $2.0 million. The Company will continue to invest with fintech
solution providers to support our ecosystem buildout, support our core bank products and offerings, and to leverage
efficiencies and technological solutions in our shared services areas. At December 31, 2020, the Company held $5.6 million
of equity method investments.
51
At December 31, 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 December 31, 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:
December 31, 2021
December 31, 2020
December 31, 2021 vs.
December 31, 2020
% Change
Originated:
Commercial:
Commercial and industrial
Municipal and non-profit
Owner-occupied commercial real estate
Food and agribusiness
PPP loans(1)
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total originated
Acquired:
Commercial:
Commercial and industrial
Municipal and non-profit
Owner-occupied commercial real estate
Food and agribusiness
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total acquired
Total loans
$
$
1,458,218 $
928,705
503,663
200,412
21,677
3,112,675
611,765
616,135
17,336
4,357,911
16,252
340
29,973
3,177
49,742
52,964
52,521
245
155,472
4,513,383 $
1,248,530
870,410
464,417
205,189
176,106
2,964,652
542,642
581,555
18,581
4,107,430
22,102
381
51,821
5,108
79,412
89,354
77,105
425
246,296
4,353,726
16.8%
6.7%
8.5%
(2.3)%
(87.7)%
5.0%
12.7%
5.9%
(6.7)%
6.1%
(26.5)%
(10.8)%
(42.2)%
(37.8)%
(37.4)%
(40.7)%
(31.9)%
(42.4)%
(36.9)%
3.7%
(1) PPP loan balances are net of fees and costs and include principal totaling $22,300 and $179,531 as of December 31,
2021 and 2020, respectively.
The Company maintains a granular and well-diversified loan portfolio with self-imposed concentration limits. Our loan
portfolio increased $159.7 million, or 3.7%, from December 31, 2020. Excluding PPP loans, total loans increased $314.1
million or 7.5%, led by commercial loan growth of $272.8 million, or 9.5%. New loan originations during the year ended
December 31, 2021 totaled a record $1.5 billion, led by commercial loan originations of $1.1 billion including PPP loan
originations of $121.1 million.
Our commercial and industrial loan portfolio is comprised of diverse industry segments. At December 31, 2021, these
segments included finance and financial services, primarily lender finance loans of $183.7 million, hospital/medical loans of
$307.1 million, manufacturing-related loans of $117.0 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 $203.6 million and were 24.9% of the Company’s risk based capital. Crop and livestock loans represent 1.0% of total
loans.
52
Non-owner occupied CRE loans were 81.5% of the Company’s risk based capital, or 14.7% of total loans, and no specific
property type comprised more than 5.0% of total loans. The Company maintains very little exposure to non-owner occupied
CRE retail properties, comprising 1.5% of total loans. Multi-family loans totaled $93.2 million, or 2.1% of total loans as of
December 31, 2021.
When considering the loan portfolio in its entirety, 75.1% of loans were located within our footprint of Colorado, the greater
Kansas City region, Texas, Utah and New Mexico as of December 31, 2021, based on the domicile of the borrower or, in the
case of collateral-dependent loans, the geographical location of the collateral.
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 a record $1.5 billion over the past 12
months, led by commercial loan originations of $1.1 billion, 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 tables represent new loan originations during 2021 and 2020:
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Fourth quarter Third quarter Second quarter First quarter
2021
2021
2021
2021
Total
2021
$
229,529 $ 196,289 $
101,450
28,914
11,016
—
370,909
46,128
55,873
2,524
43,516
53,445
8,442
—
301,692
55,392
54,442
1,810
$
475,434 $ 413,336 $
147,030 $ 23,390 $ 596,238
178,096
7,999
25,131
157,677
48,225
27,093
36,310
(10,104)
26,956
121,141
121,141
—
1,089,462
169,519
247,342
209,247
49,195
58,532
238,422
74,145
53,962
7,954
1,353
2,267
362,103 $ 294,212 $ 1,545,085
Included in originations are net fundings (paydowns) under revolving lines of credit of $138,777, $29,154, $59,520 and
($26,395) as of the fourth, third, second and first quarter of 2021, respectively.
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Fourth quarter Third quarter Second quarter First quarter
2020
2020
2020
2020
Total
2020
$
96,625 $
25,348
36,085
19,191
—
177,249
52,018
41,355
1,858
11,354 $
6,083
23,758
13,876
122
55,193
24,937
49,786
2,980
$
272,480 $ 132,896 $
(8,726) $ 118,999 $ 218,252
95,078
13,968
49,679
119,293
37,372
22,078
15,800
(6,787)
(10,480)
358,920
—
358,798
807,343
163,552
411,349
176,739
80,792
18,992
166,438
46,273
29,024
9,364
2,320
2,206
461,571 $ 292,937 $ 1,159,884
Included in originations are net fundings (paydowns) under revolving lines of credit of $50,982, ($27,899), ($55,826) and
$48,789 as of the fourth, third, second and first quarter of 2020, respectively.
53
The tables below show the contractual maturities of our loans for the dates indicated:
Due within
1 year
December 31, 2021
Due after 1 but Due after 5 but
within 5 years
within 15 years
Due after
15 Years
Total
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total loans
$
$
140,715 $ 1,099,955 $
23,827
40,510
79,507
2,437
286,996
200,042
12,605
3,504
112,022
160,853
107,799
19,240
1,499,869
316,473
30,233
11,507
503,147 $ 1,858,082 $ 1,416,414 $
226,793 $
559,493
266,664
11,193
—
1,064,143
147,783
201,918
2,570
233,703
65,609
5,090
—
311,409
431
423,900
—
7,007 $ 1,474,470
929,045
533,636
203,589
21,677
3,162,417
664,729
668,656
17,581
735,740 $ 4,513,383
Due within
1 year
December 31, 2020
Due after 1 but Due after 5 but
within 5 years
within 15 years
Due after
15 Years
Total
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total loans
$
$
109,586 $
42,222
24,510
80,691
—
257,009
72,486
18,569
5,167
927,881 $
164,994
177,311
105,815
176,106
1,552,107
426,291
36,747
10,886
353,231 $ 2,026,031 $ 1,279,149 $
230,431 $
391,069
238,135
17,432
—
877,067
129,963
269,166
2,953
272,506
76,283
6,359
—
357,882
3,256
334,177
—
2,734 $ 1,270,632
870,791
516,239
210,297
176,106
3,044,065
631,996
658,659
19,006
695,315 $ 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:
Fixed
December 31, 2021
Variable
Total
Balance
Weighted
average rate
Balance
Weighted
average rate
Balance
Weighted
average rate
Commercial
Commercial and industrial
Municipal and non-profit(1)
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total loans with > 1 year maturity
$
460,795
881,339
293,190
49,303
19,239
1,703,866
214,463
360,648
11,567
$ 2,290,544
4.18% $ 872,961
23,879
3.37%
199,936
4.70%
74,779
5.21%
—
1.00%
1,171,555
3.88%
250,224
4.28%
295,403
3.45%
4.37%
2,510
3.85% $ 1,719,692
3.41% $ 1,333,756
905,218
2.76%
493,126
3.75%
124,082
3.95%
—
19,239
2,875,421
3.49%
464,687
3.51%
656,051
4.00%
3.52%
14,077
3.58% $ 4,010,236
3.67%
3.35%
4.45%
4.45%
1.00%
3.72%
3.86%
3.70%
4.21%
3.74%
54
Commercial
Fixed
December 31, 2020
Variable
Total
Balance
Weighted
average rate
Balance
Weighted
average rate
Balance
Weighted
average rate
Commercial and industrial
Municipal and non-profit(1)
Owner occupied commercial real estate
Food and agribusiness
PPP loans
Total commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total loans with > 1 year maturity
$ 320,745
803,350
261,406
57,360
176,106
1,618,967
253,879
298,759
11,384
$ 2,182,989
4.68%
3.55%
4.82%
5.02%
1.00%
3.79%
4.65%
3.60%
4.92%
3.86%
$ 840,301
25,219
230,323
72,246
—
1,168,089
305,631
341,332
2,455
$ 1,817,507
3.11% $ 1,161,046
828,569
2.83%
491,729
3.88%
129,606
3.67%
176,106
—
2,787,056
3.29%
559,510
3.42%
640,091
4.14%
3.50%
13,839
3.47% $ 4,000,496
3.54%
3.53%
4.51%
4.27%
1.00%
3.58%
3.98%
3.89%
4.66%
3.68%
(1) Included in municipal and non-profit fixed rate loans are loans totaling $343,089 and $387,105 that have been swapped
to variable rates at current market pricing at December 31, 2021 and 2020, respectively. Included in the municipal and
non-profit segment are tax exempt loans totaling $746,508 and $711,582 with an FTE weighted average rate of 3.97%
and 4.03% at December 31, 2021 and 2020, respectively.
Asset quality
Asset quality is fundamental to our success and remains a strong point, driven by our disciplined adherence to our self-
imposed concentration limits across industry sector and real estate property type. Accordingly, for the origination of loans, we
have established a credit policy that allows for responsive, yet controlled lending with credit approval requirements that are
scaled to loan size. Within the scope of the credit policy, each prospective loan is reviewed in order to determine the
appropriateness and the adequacy of the loan characteristics and the security or collateral prior to making a loan. We have
established underwriting standards and loan origination procedures that require appropriate documentation, including
financial data and credit reports. For loans secured by real property, we require property appraisals, title insurance or a title
opinion, hazard insurance and flood insurance, in each case where appropriate.
Additionally, we have implemented procedures to timely identify loans that may become problematic in order to ensure the
most beneficial resolution for the Company. Asset quality is monitored by our credit risk management department and
evaluated based on quantitative and subjective factors such as the timeliness of contractual payments received. Additional
factors that are considered, particularly with commercial loans over $500,000, include the financial condition and liquidity of
individual borrowers and guarantors, if any, and the value of our collateral. To facilitate the oversight of asset quality, loans
are categorized based on the number of days past due and on an internal risk rating system, and both are discussed in more
detail below.
Our 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. Loans that
are perceived to have acceptable risk are categorized as “Pass” loans. “Special mention” loans represent loans that have
potential credit weaknesses that deserve close attention. Special mention loans include borrowers that have potential
weaknesses or unwarranted risks that, unless corrected, may threaten the borrower's ability to meet debt service requirements.
However, these borrowers are still believed to have the ability to respond to and resolve the financial issues that threaten their
financial situation. Loans classified as “Substandard” have a well-defined credit weakness and are inadequately protected by
the current paying capacity of the obligor or of the collateral pledged, if any. Although these loans are identified as potential
problem loans, they may never become non-performing. Substandard loans have a distinct possibility of loss if the
deficiencies are not corrected. “Doubtful” loans are loans that management believes that collection of payments in
accordance with the terms of the loan agreement are highly questionable and improbable. Doubtful loans are deemed
impaired and put on non-accrual status.
55
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 and OREO. Interest income that would have been recorded had non-
accrual loans performed in accordance with their original contract terms during 2021 and 2020 was $0.8 million and $1.2
million, respectively.
Past due status is monitored as an indicator of credit deterioration. Loans are considered past due or delinquent when the
contractual principal or interest due in accordance with the terms of the loan agreement remains unpaid after the due date of
the scheduled payment. Loans that are 90 days or more past due are put on non-accrual status unless the loan is well secured
and in the process of collection.
The following table sets forth the non-performing assets and past due loans as of the dates presented:
December 31, 2021 December 31, 2020 December 31, 2019 December 31, 2018 December 31, 2017
Non-accrual loans:
Non-accrual loans, excluding
restructured loans
$
Restructured loans on non-accrual
Non-performing loans
OREO
Other repossessed assets
Total non-performing assets
$
Loans 30-89 days past due and
8,466 $
2,366
10,832
7,005
—
17,837 $
12,190 $
8,197
20,387
4,730
17
25,134 $
16,894 $
4,854
21,748
7,300
—
29,048 $
21,017 $
3,439
24,456
10,596
—
35,052 $
13,745
7,255
21,000
10,491
—
31,491
still accruing interest
$
1,687 $
968 $
6,349 $
5,066 $
5,124
Loans 90 days or more past due
and still accruing interest
Non-accrual loans
Total past due and non-accrual
loans
Accruing restructured loans
Allowance for credit losses
Non-performing loans to total
loans
420
10,832
162
20,387
1,662
21,748
1,047
24,456
$
$
12,939 $
7,186 $
49,694
21,517 $
13,945 $
59,777
29,759 $
6,885 $
39,064
30,569 $
5,944 $
35,692
25,407
21,000
51,531
8,461
31,264
0.24%
0.47%
0.49%
0.60%
0.66%
Total 90 days past due and still
accruing interest and non-accrual
loans to total loans
Total non-performing assets to
total loans and OREO
ACL to non-performing loans
0.25%
0.47%
0.53%
0.62%
1.46%
0.39%
458.77%
0.58%
293.21%
0.66%
179.62%
0.85%
145.94%
0.99%
148.88%
During 2021, total non-performing loans decreased $9.6 million, or 46.9%, from December 31, 2020. During 2021, accruing
TDRs decreased $6.8 million, or 48.5%. OREO increased $2.3 million, or 48.1%, to $7.0 million at December 31, 2021,
compared to December 31, 2020 primarily related to one previously acquired loan.
56
Loans 30-89 days past due and still accruing interest increased $0.7 million from December 31, 2020 to December 31, 2021,
and loans 90 days or more past due and still accruing interest increased $0.3 million from December 31, 2020 to December
31, 2021.
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 19 loans totaling $9.9 million during the year ended December 31, 2021 and 510 loans totaling
$519.0 million during the year ended December 31, 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, paying interest only, at December 31, 2021
totaled $5.3 million. At December 31, 2021, $206 thousand of loan modifications related to COVID-19 were a subsequent
modification, and one loan totaling $206 thousand was classified as non-accrual. 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 $45.4 million, or
26.2%, were a subsequent modification.
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:
Commercial
Commercial and industrial
Owner occupied commercial real estate
Food and agribusiness
Municipal and non-profit
Non-owner occupied
commercial real estate
Construction
Acquisition and development
Multifamily
Non-owner occupied
Residential real estate
Consumer
Senior lien
Junior lien
Consumer
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
57
• the impact current economic conditions may have on the borrower’s financial condition and liquidity or the value
of the collateral.
The collective resulting ACL for loans is calculated as the sum of the general reserves, specific reserves on individually
evaluated loans, and qualitative factor adjustments. While these amounts are calculated by individual loan or on a pool basis
by segment and class, the entire ACL is available for any loan that, in our judgment, should be charged-off. The
determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are subject
to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact on our
financial condition, liquidity or results of operations.
Net charge-offs on loans during the year ended December 31, 2021 totaled $1.3 million, or 0.03% of total loans. During the
year ended December 31, 2021, the Company recorded a provision release of $9.3 million, which included a provision
release of $8.8 million for funded loans and a provision release of $0.5 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.
Specific reserves on loans totaled $1.6 million at December 31, 2021.
Net charge-offs on loans during the year ended December 31, 2020 totaled $2.7 million, or 0.06% of total loans. During the
year ended December 31, 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. Specific reserves on loans totaled $1.9 million at December 31, 2020.
The Company has elected to exclude accrued interest receivable (“AIR”) from the ACL calculation. When a loan is placed on
non-accrual, any recorded AIR is reversed against interest income. As of December 31, 2021 and December 31, 2020, AIR
from loans totaled $15.7 million and $16.7 million, respectively.
Total ACL
After considering the above mentioned factors, we believe that the ACL of $49.7 million is adequate to cover estimated
lifetime losses inherent in the loan portfolio at December 31, 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.
58
The following schedule presents, by class stratification, the changes in the ACL during the years listed:
December 31, 2021
%
December 31, 2020
%
As of and for the years ended
December 31, 2019
%
December 31, 2018
%
Total loans
59,777
$
—
NCOs(1) Total loans
39,064
$
5,836
NCOs(1) Total loans
35,692
$
—
NCOs(1) Total loans
31,264
$
—
NCOs(1) Total loans
29,174
$
—
December 31, 2017
%
NCOs(1)
Beginning balance
Cumulative effect adjustment(2)
Charge-offs:
Commercial
Commercial real estate non-
owner occupied
Residential real estate
Consumer
Total charge-offs
Recoveries
Net charge-offs
Provision (release) expense
for loan losses
Ending allowance for credit losses $
Ratio of ACL to total loans
outstanding at period end
Ratio of ACL to total loans
outstanding, excluding PPP loans
at period end
(1,171)
0.02%
(2,023)
0.04%
(7,422)
0.17%
(895)
0.00%
(10,342)
0.34%
—
(24)
(621)
(1,816)
552
(1,264)
(8,819)
49,694
1.10%
0.00%
0.00%
0.01%
0.03%
(412)
(67)
(726)
(3,228)
571
(2,657)
17,534
0.01%
0.00%
0.01%
0.06%
(116)
(124)
(937)
(8,599)
328
(8,271)
11,643
0.00%
0.00%
0.02%
0.19%
(11)
(118)
(1,134)
(2,158)
1,389
(769)
5,197
0.00%
0.00%
0.02%
0.02%
—
(236)
(737)
(11,315)
433
(10,882)
12,972
0.00%
0.00%
0.02%
0.36%
$
59,777
$
39,064
$
35,692
$
31,264
1.37%
0.88%
0.87%
0.98%
1.11%
1.43%
0.88%
0.87%
0.98%
Ratio of ACL to total non-
performing loans at period end
Total loans
Average total loans outstanding
during the period
Average total loans outstanding,
excluding PPP loans during the
period
Non-performing loans
458.77%
$ 4,513,383
293.21%
$ 4,353,726
179.62%
$ 4,415,406
145.94%
$ 4,092,308
148.88%
$ 3,178,947
4,358,707
4,578,894
4,288,226
3,819,603
3,029,446
4,224,607
4,352,984
4,288,226
3,819,603
3,029,446
10,832
20,387
21,748
24,456
21,000
(1) Ratio of net charge-offs to average total loans.
(2) Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial
Instruments.
59
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:
December 31, 2021
Total loans
% of total loans
Related ACL
Commercial
PPP loans(1)
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
$
$
3,140,740
21,677
664,729
668,656
17,581
4,513,383
69.6% $
0.5%
14.7%
14.8%
0.4%
100.0% $
(1) PPP loans are fully guaranteed by the SBA.
December 31, 2020
Total loans
% of total loans
Related ACL
Commercial
PPP loans(1)
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
$
$
2,867,959
176,106
631,996
658,659
19,006
4,353,726
66.0% $
4.0%
14.5%
15.1%
0.4%
100.0% $
(1) PPP loans are fully guaranteed by the SBA.
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
$
$
$
$
$
$
December 31, 2019
Total loans
% of total loans
Related ACL
2,992,307
630,906
770,417
21,776
4,415,406
67.8% $
14.3%
17.4%
0.5%
100.0% $
December 31, 2018
Total loans
% of total loans
Related ACL
2,644,571
592,212
830,815
24,710
4,092,308
64.6% $
14.5%
20.3%
0.6%
100.0% $
December 31, 2017
Total loans
% of total loans
Related ACL
1,874,605
563,049
716,237
25,056
3,178,947
59.0% $
17.7%
22.5%
0.8%
100.0% $
60
ACL as a %
of total ACL
62.9%
0.0%
20.2%
16.2%
0.7%
100.0%
31,256
—
10,033
8,056
349
49,694
ACL as a %
of total ACL
50.8%
0.0%
29.2%
19.2%
0.8%
100.0%
30,376
—
17,448
11,492
461
59,777
ACL as a %
of total ACL
77.9%
12.4%
8.9%
0.8%
100.0%
30,442
4,850
3,468
304
39,064
ACL as a %
of total ACL
76.1%
12.3%
10.6%
1.0%
100.0%
27,137
4,406
3,800
349
35,692
ACL as a %
of total ACL
68.4%
17.9%
12.7%
1.0%
100.0%
21,385
5,609
3,965
305
31,264
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 December 31, 2021 and 2020:
Increase (decrease)
Non-interest bearing demand deposits
Interest bearing demand deposits
Savings accounts
Money market accounts
Total transaction deposits
Time deposits < $250,000
Time deposits > $250,000
Total time deposits
Total deposits
Amount
December 31, 2021
December 31, 2020
$ 2,506,265
555,401
774,559
1,558,032
5,394,257
703,741
130,175
833,916
% Change
40.2% $ 2,111,045 37.1% $ 395,220 18.7%
8.0%
514,286
9.1%
19.7%
646,829 11.4%
9.9%
1,417,940 25.0%
15.0%
4,690,100 82.6%
(14.2)%
820,229 14.5%
(21.5)%
165,903
2.9%
(15.4)%
986,132 17.4%
9.7%
41,115
127,730
140,092
704,157
(116,488)
(35,728)
(152,216)
$ 6,228,173 100.0% $ 5,676,232 100.0% $ 551,941
8.9%
12.4%
25.0%
86.5%
11.4%
2.1%
13.5%
The following table shows uninsured time deposits by scheduled maturity as of December 31, 2021:
Three months or less
Over 3 months through 6 months
Over 6 months through 12 months
Thereafter
Total uninsured time deposits
$
December 31, 2021
14,340
4,538
17,027
21,520
57,425
$
At December 31, 2021 and 2020, time deposits that were scheduled to mature within 12 months totaled $555.4 million and
$659.5 million, respectively. Of the time deposits scheduled to mature within 12 months at December 31, 2021, $81.4 million
were in denominations of $250,000 or more, and $474.0 million were in denominations less than $250,000. The aggregate
amount of time deposits that exceeded the FDIC insurance limit was $57.4 million at December 31, 2021. Note 12 to the
consolidated financial statements provides a maturity schedule of time deposits outstanding at December 31, 2021.
Long-term debt
During the fourth quarter of 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 balance on the note at December 31, 2021, net of long-term debt
issuance costs totaling $0.5 million, totaled $39.5 million. Interest expense totaling $183.3 thousand was recorded within
other liabilities in the consolidated statements of financial condition during the year ended December 31, 2021.
The note is subordinated, unsecured and matures on November 15, 2031. Payments consist of interest only. 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.
61
Other borrowings
As of December 31, 2021 and 2020, the Bank sold securities under agreements to repurchase totaling $22.8 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 December 31, 2021. The Bank utilizes its FHLB line of credit as a
funding mechanism for originated loans and loans held for sale. At December 31, 2021 and 2020, the Bank had no
outstanding borrowings with the FHLB. The Bank may pledge investment securities and loans as collateral for FHLB
advances. There were no investment securities pledged at December 31, 2021 or 2020. Loans pledged were $1.3 billion at
December 31, 2021 and $1.2 billion at December 31, 2020. The Company incurred no interest expense related to FHLB
advances or other short-term borrowings for the year ended December 31, 2021, compared to $1.3 million for the year ended
December 31, 2020.
Regulatory Capital
Our subsidiary bank and the holding company are subject to the regulatory capital adequacy requirements of the Federal
Reserve Board and the FDIC, as applicable. Failure to meet the minimum capital requirements can initiate certain mandatory
and possibly further discretionary actions by regulators that could have a material adverse effect on us. At December 31, 2021
and 2020, our subsidiary bank and the consolidated holding company exceeded all capital ratio requirements under prompt
corrective action and other regulatory requirements, as further detailed in note 14 of our consolidated financial statements.
Results of Operations
Our net income depends largely on net interest income, which is the difference between interest income from interest earning
assets and interest expense on interest bearing liabilities. Our results of operations are also affected by provisions for 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.
Overview of results of operations
Net income totaled a record $93.6 million, or $3.01 per diluted share, during 2021, compared to net income of $88.6 million,
or $2.85 per diluted share, during 2020. The return on average tangible assets was 1.37% and 1.44% during the years ended
December 31, 2021 and 2020, respectively, and the return on average tangible common equity was 12.87% and 13.27%,
respectively.
Net interest income
We regularly review net interest income metrics to provide us with indicators of how the various components of net interest
income are performing. We regularly review: (i) our loan mix and the yield on loans; (ii) the investment portfolio and the
related yields; (iii) our deposit mix and the cost of deposits; and (iv) net interest income simulations for various forecast
periods.
62
The table below presents the components of net interest income on a FTE basis for the years ended December 31, 2021, 2020
and 2019. 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 year ended
December 31, 2021
For the year ended
December 31, 2020
For the year ended
December 31, 2019
Average
balance
Interest
Average
rate
Average
balance
Interest
Average
rate
Average
balance
Interest
Average
rate
Interest earning assets:
Originated loans FTE(1)(2)(3)
Acquired loans
Loans held for sale
Investment securities available-
for-sale
Investment securities held-to-
maturity
Other securities
Interest earning deposits and
securities purchased under
agreements to resell
Total interest earning assets
FTE(2)
Cash and due from banks
Other assets
Allowance for credit losses
Total assets
Interest bearing liabilities:
Interest bearing demand, savings
and money market deposits
Time deposits
Securities sold under agreements
to repurchase
Long-term debt, net
Federal Home Loan Bank
$ 4,129,684 $ 164,527 3.98% $ 4,237,091 $ 171,592 4.05% $ 3,838,229 $ 183,502 4.78%
35,992 8.12%
4,407 3.89%
27,909 9.31%
5,628 3.04%
17,340 8.58%
5,110 2.86%
443,025
113,183
299,901
185,182
202,174
178,373
667,859
10,014 1.50%
591,870
11,406 1.93%
713,686
15,472 2.17%
576,343
15,032
7,311 1.27%
838 5.57%
248,006
26,903
5,099 2.06%
1,157 4.30%
207,784
28,060
5,825 2.80%
1,770 6.31%
751,835
986 0.13%
206,911
314 0.15%
24,106
698 2.90%
$ 6,521,300 $ 206,126 3.16% $ 5,795,864 $ 223,105 3.85% $ 5,368,073 $ 247,666 4.61%
78,979
472,775
(52,943)
$ 7,020,111
74,461
511,721
(55,778)
$ 6,326,268
76,788
430,402
(38,142)
$ 5,837,121
$ 2,772,091 $
914,837
6,240 0.23% $ 2,730,857 $
1,038,107
7,362 0.80%
8,605 0.32% $ 2,426,963 $ 13,277 0.55%
16,526 1.54%
1,074,506
15,024 1.45%
20,338
6,200
23 0.11%
196 3.16%
28,585
—
132 0.46%
— 0.00%
60,445
—
668 1.11%
— 0.00%
6,300 2.34%
advances
Total interest bearing liabilities $ 3,713,466 $ 13,821 0.37% $ 3,892,967 $ 25,056 0.64% $ 3,831,121 $ 36,771 0.96%
1,295 1.36%
— 0.00%
269,207
95,418
—
Demand deposits
Other liabilities
Total liabilities
Shareholders' equity
Total liabilities and shareholders'
equity
2,355,171
104,935
6,173,572
846,539
$ 7,020,111
1,497,940
147,075
5,537,982
788,286
1,159,080
108,997
5,099,198
737,923
$ 6,326,268
$ 5,837,121
Net interest income FTE(2)
Interest rate spread FTE(2)
Net interest earning assets
Net interest margin FTE(2)
Average transaction deposits
Average total deposits
Ratio of average interest earning
$ 192,305
$ 198,049
$ 210,895
$ 2,807,834
$ 1,902,897
$ 1,536,952
2.79%
3.21%
2.95%
3.42%
$ 5,127,262
6,042,099
$ 4,228,797
5,266,904
$ 3,586,043
4,660,549
3.65%
3.93%
assets to average interest bearing
liabilities
175.61%
148.88%
140.12%
(1) Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2) Presented on an FTE basis using the statutory tax rate of 21% for all periods presented. The taxable equivalent adjustments included above
are $5,161, $5,103 and $5,065 for the years ended 2021, 2020 and 2019, respectively.
(3) Loan fees included in interest income totaled $18,207, $15,713 and $6,328 during 2021, 2020 and 2019, respectively.
63
Net interest income totaled $187.1 million, $192.9 million and $205.8 million during the years ended 2021, 2020 and 2019,
respectively. Net interest income on an FTE basis totaled $192.3 million, $198.0 million and $210.9 million during the years
ended 2021, 2020 and 2019, respectively. The yield on earning assets decreased 69 basis points, led by a decrease in the
originated portfolio yields due to a remix of assets into lower-yielding cash balances and interest rate actions taken by the
Federal Reserve during 2020. During 2021, the cost of funds decreased 22 basis points, compared to the prior year.
Average loans comprised $4.3 billion, or 66.4%, of total average interest earning assets during 2021, compared to $4.5
billion, or 78.3%, during 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. During 2021, loan
originations totaled $1.5 billion.
Average investment securities comprised 19.1% and 14.5% of total interest earning assets during 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 interest bearing cash balances totaled $751.8 million during 2021, compared to $206.9
million during 2020.
Average balances of interest bearing liabilities decreased $179.5 million during 2021, compared to 2020. The decrease was
driven by time deposits totaling $123.3 million, FHLB advances totaling $95.4 million and securities sold under agreements
to repurchase totaling $8.2 million. The decrease was partially offset by increases in interest bearing demand, savings and
money market deposits totaling $41.2 million and long-term debt totaling $6.2 million.
Total interest expense related to interest bearing liabilities was $13.8 million and $25.1 million during 2021 and 2020,
respectively, at an average cost of 0.37% and 0.64% during 2021 and 2020, respectively. Additionally, the cost of deposits
decreased 22 basis points to 0.23% during 2021, compared to 0.45% during 2020, due to the decline in short-term interest
rates as a result of interest rate actions taken by the Federal Reserve.
64
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 2021, 2020 and
2019:
Interest income:
Originated loans FTE(1)(2)(3)
Acquired loans
Loans held for sale
Investment securities available-for-sale
Investment securities held-to-maturity
Other securities
Interest earning deposits and securities
purchased under agreements to resell
Total interest income
Interest expense:
The year ended December 31, 2021
compared to
the year ended December 31, 2020
Increase (decrease) due to
The year ended December 31, 2020
compared to
the year ended December 31, 2019
Increase (decrease) due to
Volume Rate
Net
Volume
Rate
Net
$ (4,279)
(8,382)
(195)
1,139
4,165
(662)
$ (2,786) $ (7,065) $ 16,153
(13,319)
(10,569)
2,188
(518)
(2,348)
(1,392)
827
2,212
(50)
(319)
(2,187)
(323)
(2,531)
(1,953)
343
$ (28,063) $ (11,910)
(8,083)
1,221
(4,066)
(726)
(613)
5,236
(967)
(1,718)
(1,553)
(563)
715
$ (7,499)
(43)
672
$ (9,480) $ (16,979) $
277
3,728
(661)
(384)
$ (28,289) $ (24,561)
Interest bearing demand, savings and money
market deposits
Time deposits
Securities sold under agreements to repurchase
Long-term debt, net
Federal Home Loan Bank advances
Total interest expense
Net change in net interest income
$
93
(992)
(9)
196
—
(712)
$ (6,787)
$ (2,458) $ (2,365) $
(6,670)
(100)
—
(1,295)
(10,523)
$ 1,043 $ (5,744) $
(7,662)
(109)
196
(1,295)
(11,235)
958
(527)
(147)
—
(2,359)
(2,075)
5,803
$ (5,630) $ (4,672)
(1,502)
(536)
—
(5,005)
(11,715)
$ (18,649) $ (12,846)
(975)
(389)
—
(2,646)
(9,640)
(1) Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2) Presented on a fully taxable equivalent basis using the statutory tax rate of 21% for all periods presented. The taxable
equivalent adjustments included above are $5,161, $5,103 and $5,065 for the years ended 2021, 2020 and 2019,
respectively.
(3) Loan fees included in interest income totaled $18,207, $15,713 and $6,328 for the years ended December 31, 2021,
2020 and 2019, respectively.
Below is a breakdown of average deposits and the average rates paid during the periods indicated:
For the three months ended
For the years ended
December 31, 2021
December 31, 2020
December 31, 2021
December 31, 2020
Average
balance
Average
rate
paid
Average
balance
Average
rate
paid
Average
balance
Average
rate
paid
Average
balance
Average
rate
paid
Non-interest bearing demand $ 2,459,063 0.00% $ 1,898,171 0.00% $ 2,355,171 0.00% $ 1,497,940 0.00%
821,813 0.23%
660,817
Interest bearing demand
0.17%
0.21%
1,318,764 0.41%
1,459,528
Money market accounts
0.25%
0.31%
590,280 0.23%
626,252
Savings accounts
0.16%
0.18%
1.16%
0.61%
Time deposits
1,038,107 1.45%
1,008,297
0.33% $ 6,042,099 0.23% $ 5,266,904 0.45%
0.18% $ 5,653,065
Total average deposits
548,612 0.20%
1,506,274 0.27%
717,205 0.16%
914,837 0.80%
547,740
1,549,844
749,978
851,779
$ 6,158,404
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.
65
The Company recorded a provision release of $9.3 million for the year ended December 31, 2021, which included a provision
release of $8.8 million for funded loans and a provision release of $0.5 million for unfunded loan commitments, driven by
strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. During the year ended
December 31, 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 1.10% of total loans at December 31, 2021, compared to 1.37% at December 31,
2020. Excluding PPP loans, the allowance for credit losses totaled 1.11% of loans at December 31, 2021, compared to 1.43%
at December 31, 2020.
Non-interest income
The table below details the components of non-interest income for the years presented:
Service charges
Bank card fees
Mortgage banking income
Bank-owned life insurance income
Other non-interest income
OREO-related income
Total non-interest income
For the years ended December 31,
2019
2021
2020
$ 14,894 $ 14,962 $ 17,895
14,595
15,446
17,693
42,346
102,384
63,360
1,713
2,360
2,208
5,888
4,719
12,174
315
387
35
$ 110,364 $ 140,258 $ 82,752
2021 vs 2020
Increase (decrease)
Amount % Change
2020 vs 2019
Increase (decrease)
Amount % Change
(16.4)%
5.8 %
141.8 %
37.8 %
(19.9)%
22.9 %
69.5 %
(0.5)% $ (2,933)
851
14.5 %
60,038
(38.1)%
647
(6.4)%
(1,169)
158.0 %
(91.0)%
72
(21.3)% $ 57,506
$
(68)
2,247
(39,024)
(152)
7,455
(352)
$ (29,894)
Non-interest income totaled $110.4 million for the year ended December 31, 2021, compared to $140.3 million for the year
ended December 31, 2020. The decrease was driven by $39.0 million lower mortgage banking income due to slower
refinance activity in 2021 and competition driving tighter gain on sale margins. Included in mortgage banking income was a
$1.3 million gain from the sale of mortgage servicing rights during 2021. Other non-interest income increased $7.5 million
during 2021 due to $4.6 million of banking center consolidation-related income and $3.0 million of unrealized gains from
equity method investments. Bank card fees increased $2.2 million due to changes in consumer behavior.
Non-interest expense
The table below details the components of non-interest expense for the years presented:
Salaries and benefits
Occupancy and equipment
Telecommunications and data processing
Marketing and business development
FDIC deposit insurance
Bank card expenses
Professional fees
Other non-interest expense
Problem asset workout
Gain on OREO sales, net
Core deposit intangible asset amortization
Banking center consolidation-related
For the years ended December 31,
2021 vs 2020
Increase (decrease)
2020 vs 2019
Increase (decrease)
2021
$ 127,504
25,283
9,310
2,509
1,850
5,177
5,423
10,414
2,063
(475)
1,183
2020
$ 141,170
27,473
9,042
2,802
1,168
4,388
2,946
10,547
3,148
(38)
1,183
2019
$ 122,732
27,336
8,754
3,897
1,049
4,780
3,256
10,867
3,186
(7,193)
1,183
Amount
% Change
Amount
$ (13,666)
(2,190)
268
(293)
682
789
2,477
(133)
(1,085)
437
—
(9.7)% $
(8.0)%
3.0 %
(10.5)%
58.4 %
18.0 %
84.1 %
(1.3)%
(34.5)%
>100.0%
—
18,438
137
288
(1,095)
119
(392)
(310)
(320)
(38)
(7,155)
—
% Change
15.0 %
0.5 %
3.3 %
(28.1)%
11.3 %
(8.2)%
(9.5)%
(2.9)%
(1.2)%
(99.5)%
—
expense
Total non-interest expense
1,589
$ 191,830
2,348
$ 206,177
898
$ 180,745
(759)
$ (14,347)
(32.3)%
(7.0)% $
1,450
25,432
161.5 %
14.1 %
66
During the year ended December 31, 2021, non-interest expense decreased $14.3 million, or 7.0%, compared to the year
ended December 31, 2020, primarily due to lower mortgage-related compensation as well as the Company’s strategic efforts
to improve operating efficiency. Salaries and benefits decreased $13.7 million primarily due to lower mortgage banking
related compensation. Included in 2021 were $2.5 million of transaction-related professional fees for the investments in
Finstro Global Holdings, Inc. and Figure Technologies. Occupancy and equipment decreased $2.2 million largely due to
efficiencies gained from banking center consolidations. Problem asset workout expense decreased $1.1 million, and gain on
sale of OREO increased $0.4 million.
Income taxes
Income taxes are accounted for in accordance with ASC Topic 740. Under this guidance, deferred income taxes are
determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and
liabilities given the provisions of enacted tax laws. ASC Topic 740 requires the establishment of a valuation allowance
against the net deferred tax asset unless it is more-likely-than-not that the tax benefit of the deferred tax asset will be realized.
For purposes of projecting whether the deferred tax asset will be realized, we consider tax regulations of the jurisdictions in
which we operate, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating
results, or the ability to implement tax planning strategies varies, adjustments to the carrying value of the deferred tax assets
may be required. We believe that it is more likely than not that the results of future operations will generate sufficient taxable
income to realize the deferred tax assets.
Income tax expense totaled $21.4 million during 2021, compared to $20.8 million during 2020. Included in income tax
expense was $0.6 million of tax benefit and $0.1 million of tax expense from stock compensation activity during 2021 and
2020, respectively. Adjusting for the stock compensation activity, the effective tax rate for 2021 was 19.1% compared to an
adjusted rate of 19.0% for 2020. As of December 31, 2021, our marginal tax rate (the rate we pay on each incremental dollar
of earnings) was approximately 23%. However, our effective tax rate (income tax expense divided by income before income
taxes) for a given period differs from our marginal rate largely due to income and expense items that are non-taxable or non-
deductible in the calculation of income tax expense. The lower effective tax rate compared to the federal statutory tax rate
was primarily due to interest income from tax-exempt lending, bank-owned life insurance income, and the relationship of
these items to pre-tax income.
Liquidity and Capital Resources
Liquidity
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. Management believes that the Company's excess cash, borrowing capacity and access to sufficient sources of
capital are adequate to meet its short-term and long-term liquidity needs in the foreseeable future. Our primary sources of
funds 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, and we
may utilize any combination of these funding sources for long-term liquidity needs if deemed prudent.
67
On-balance sheet liquidity is represented by our cash and cash equivalents and unencumbered investment securities, and is
detailed in the table below as of December 31, 2021 and 2020:
Cash and due from banks
Interest bearing bank deposits
Unencumbered investment securities, at fair value
Total
$
December 31, 2021 December 31, 2020
605,065
500
513,945
1,119,510
845,195
500
781,166
1,626,861
$
$
$
Total on-balance sheet liquidity increased $507.4 million from December 31, 2020 to December 31, 2021, primarily driven
by strong deposit growth.
Through our relationship with the FHLB, the Bank may pledge qualifying loans and investment securities allowing us to
obtain additional liquidity through FHLB advances and lines of credit. There were no investment securities pledged at
December 31, 2021 or 2020. The Bank had loans pledged as collateral for FHLB advances of $1.3 billion at December 31,
2021 and $1.2 billion at December 31, 2020. FHLB advances, lines of credit and other short-term borrowing availability
totaled $0.9 billion at December 31, 2021. The Bank can obtain additional liquidity through the FHLB facility, if required,
and also has access to federal funds lines of credit with correspondent banks.
During 2021, the Company entered into a subordinated note purchase agreement to issue and sell a fixed-to-floating note.
The Company intends to use the net proceeds from the sale of the note for general corporate purposes. The note is not subject
to redemption at the option of the holder.
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
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 December 31, 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 December 31, 2021, inclusive of pre-tax net unrealized gains of $3.4 million on the available-for-sale securities
portfolio. Additionally, our held-to-maturity securities portfolio had $2.2 million of pre-tax net unrealized gains at December
31, 2021. The gross unrealized gains and losses are detailed in note 4 of our consolidated financial statements. As of
December 31, 2021, our investment securities portfolio consisted primarily of MBS, all of which were issued or guaranteed
by U.S. Government agencies or sponsored enterprises. The anticipated repayments and marketability of these securities offer
substantial resources and flexibility to meet new loan demand, reinvest in the investment securities portfolio, or provide
optionality for reductions in our deposit funding base.
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 December 31, 2021, $555.4 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.
We enter into contractual obligations that require a future cash settlement. These may include operating lease obligations,
purchase obligations, time deposits and issuance of long-term debt. For the year ended December 31, 2021, contractual
obligations totaled $924.6 million with $576.1 million estimated to be paid within one year. Included within those contractual
obligations were time deposits totaling $833.9 million, with $555.4 million of that estimated to be paid within one year.
68
Capital
Under the Basel III requirements, at December 31, 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 14 in our consolidated financial statements.
Our shareholders' equity is impacted by earnings, changes in unrealized gains and losses on securities, net of tax, stock-based
compensation activity, share repurchases 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 2021, the Company repurchased 912,213 shares for $36.4 million at a weighted average price per
share of $39.88. The remaining authorization under the new program as of December 31, 2021 was $38.6 million.
On January 20, 2022, our Board of Directors declared a quarterly dividend of $0.23 per common share, payable on March 15,
2022 to shareholders of record at the close of business on February 25, 2022.
Asset/Liability Management and Interest Rate Risk
Management and the Board of Directors are responsible for managing interest rate risk and employing risk management
policies that monitor and limit this exposure. Interest rate risk is measured using net interest income simulations and market
value of portfolio equity analyses. These analyses use various assumptions, including the nature and timing of interest rate
changes, yield curve shape, prepayments on loans and securities, deposit decay rates, pricing decisions on loans and deposits,
and reinvestment/replacement of asset and liability cash flows.
The principal objective of the Company's asset and liability management function is to evaluate the interest rate risk within
the balance sheet and pursue a controlled assumption of interest rate risk while maximizing earnings and preserving adequate
levels of liquidity and capital. The asset and liability management function is under the guidance of the Asset Liability
Committee with direction from the Board of Directors. The Asset Liability Committee meets monthly to review, among other
things, the sensitivity of the Company's assets and liabilities to interest rate changes, local and national market conditions and
rates. The Asset Liability Committee also reviews the liquidity, capital, deposit mix, loan mix and investment positions of the
Company.
Instantaneous parallel rate shift scenarios are modeled and utilized to evaluate risk and establish exposure limits for
acceptable changes in net interest margin. These scenarios, known as rate shocks, simulate an instantaneous change in interest
rates and utilize various assumptions, including, but not limited to, prepayments on loans and securities, deposit decay rates,
pricing decisions on loans and deposits, reinvestment and replacement of asset and liability cash flows.
We also analyze the economic value of equity as a secondary measure of interest rate risk. This is a complementary measure
to net interest income where the calculated value is the result of the market value of assets less the market value of liabilities.
The economic value of equity is a longer term view of interest rate risk because it measures the present value of the future
cash flows. The impact of changes in interest rates on this calculation is analyzed for the risk to our future earnings and is
used in conjunction with the analyses on net interest income.
69
Our interest rate risk model indicated that the Company was asset sensitive in terms of interest rate sensitivity at December
31, 2021 and 2020. During the year ended December 31, 2021, our asset sensitivity decreased slightly 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 and a 25 basis point decrease in interest rates on net interest income based on the interest rate
risk model at December 31, 2021 and 2020:
Hypothetical
shift in interest
rates (in bps)
200
100
(25)
% change in projected net interest income
December 31, 2021
December 31, 2020
11.12%
5.37%
(0.67)%
14.22%
7.46%
(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 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 86.5% of
total deposits at December 31, 2021, compared to 82.6% at December 31, 2020. We currently have no brokered time
deposits.
Impact of Inflation and Changing Prices
The primary impact of inflation on our operations is reflected in increasing operating costs and non-interest expense. Unlike
most industrial companies, virtually all of our assets and liabilities are monetary in nature. As a result, changes in interest
rates have a more significant impact on our performance than do changes in the general rate of inflation and changes in
prices. Interest rate changes do not necessarily move in the same direction, nor have the same magnitude, as changes in the
prices of goods and services. Although not as critical to the banking industry as many other industries, inflationary factors
may have some impact on our ability to grow, total assets, earnings and capital levels. We do not expect inflation to be a
significant factor in our financial results in the near future. To help curb inflation, the Federal Reserve has indicated that they
will more than likely increase interest rates during the first quarter of 2022.
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
December 31, 2021 and 2020, we had loan commitments totaling $992.5 million and $848.6 million, respectively, and
standby letters of credit that totaled $7.3 million for both 2021 and 2020. Unused commitments do not necessarily represent
future credit exposure or cash requirements, as commitments often expire without being drawn upon. We do not anticipate
any material losses arising from commitments or contingent liabilities, and we do not believe that there are any material
commitments to extend credit that represent risks of an unusual nature.
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information called for by this item is provided under the caption Asset/Liability Management and Interest Rate Risk in
Part I, Item 2-Management's Discussion and Analysis of Financial Condition and Results of Operations and is incorporated
herein by reference.
70
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Index to Financial Statements
Report of Independent Registered Public Accounting Firm (KPMG, LLP, Kansas City, MO - PCAOB ID 185)
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Page
71
74
75
76
77
78
79
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
National Bank Holdings Corporation:
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated statements of financial condition of National Bank Holdings Corporation
and subsidiaries (the Company) as of December 31, 2021and 2020, the related consolidated statements of operations,
comprehensive income, changes in shareholders’ equity, and cash flows for each of the years in the three-year period ended
December 31, 2021, and the related notes (collectively, the consolidated financial statements). In our opinion, the
consolidated financial statements present fairly, in all material respects, the financial position of the Company as of
December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the three-year period
ended December 31, 2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission, and our report dated February 23, 2022 expressed an unqualified opinion on the effectiveness of the Company’s
internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 3 to the consolidated financial statements, the Company has changed its method of accounting for the
recognition and measurement of credit losses as of January 1, 2020 due to the adoption of ASC Topic 326, Financial
Instruments - Credit Losses.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the
PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws
and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond
to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included evaluating the accounting principles used and significant
71
estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We
believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial
statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or
disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the
consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below,
providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Allowance for credit losses for loans individually evaluated on a collective basis
As discussed in Note 3 to the consolidated financial statements, the Company adopted ASU No. 2016-13, Financial
Instruments – Credit Losses (ASC Topic 326), as of January 1, 2020. As discussed in Note 7 to the consolidated
financial statements, the allowance for credit losses related to loans collectively evaluated for impairment (the
collective ACL) was $48.1 million of a total ACL of $49.7 million as of December 31, 2021. The Company
estimated the December 31, 2021 collective ACL by first disaggregating the loan portfolio into segments based upon
broad characteristics such as primary use and underlying collateral. Within these segments, the portfolio was further
disaggregated into classes of loans with similar attributes and risk characteristics. The 2021 collective ACL was
determined at the class level, analyzing loss history based upon specific loss drivers and risk factors affecting each
loan class. The Company utilized a discounted cash flow (DCF) model developed within a third-party software tool
to establish expected lifetime credit losses for the loan portfolio. The 2021 collective ACL was 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 macroeconomic factors (reasonable and supportable forecasts) which drive correlated
Probability of Default (“PD”) and Loss Given Default (“LGD”) rates, which in turn, drive the losses predicted in
establishing the Company’s 2021 collective ACL. Management accounts for the inherent uncertainty of the
underlying economic forecast by reviewing and weighting alternate forecast scenarios. PD and LGD rates along
with prepayment rates and loss recovery time delays are determined at a loan class level making use of both internal
and peer historical loss rate data. For periods beyond the reasonable and supportable forecast period, the Company
reverts to historical long-term average loss rates on a straight-line basis. The length of the forecast period spans four
quarters. The length of the reversion period is based on management’s assessment of the length and pattern of the
current economic cycle and typically ranges from four to eight quarters. Additionally, the 2021 collective ACL
calculation includes subjective adjustments for qualitative risk factors that are likely to cause estimated credit losses
to differ from historical experience.
We identified the assessment of the 2021 collective ACL as a critical audit matter. A high degree of audit effort,
including specialized skills and knowledge in the industry, and subjective and complex auditor judgment was
involved in the assessment of the 2021 collective ACL. Specifically, the assessment encompassed the evaluation of
the 2021 collective ACL methodology, including (1) the DCF model and significant assumptions: PD, LGD,
prepayment rates, discount rates, loss recovery time delays, the use of peer data, portfolio segmentation, the length
and weighting of the reasonable and supportable forecast and the reversion period, and (2) the qualitative risk
factors. The assessment also included an evaluation of the conceptual soundness and performance of the underlying
models and assumptions. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence
obtained.
The following are the primary procedures we performed to address this critical audit matter. We evaluated the design
and tested the operating effectiveness of certain internal controls related to the Company’s measurement of the 2021
collective ACL estimate, including controls over the:
development of the 2021 collective ACL methodology
72
continued use and appropriateness of changes made to the DCF model
performance monitoring of the DCF model
identification and determination of the significant assumptions used in the DCF model
continued use and appropriateness of changes made to the qualitative factors, including the significant
assumptions used in the measurement of the qualitative factors
analysis of the overall ACL results, trends, and ratios.
We evaluated the Company’s process to develop the 2021 collective ACL estimate by testing certain sources of data,
factors, and significant assumptions that the Company used, and considered the relevance and reliability of such
data, factors, and significant assumptions, including an evaluation of whether additional factors or alternative
assumptions should be used. In addition, we involved credit risk professionals with specialized skills and
knowledge, who assisted in:
evaluating the Company’s 2021 collective ACL methodology for compliance with U.S. generally accepted
accounting principles
assessing the conceptual soundness and performance testing of the DCF model by inspecting the model
documentation to determine whether the models are suitable for their intended use
evaluating judgments made by the Company in the continued use and appropriateness of changes made to
the PD, LGD, prepayment rates, loss recovery time delays, use of peer data, and the reversion period
assumptions by comparing them to relevant Company-specific metrics and trends, and the applicable
industry and regulatory practices
evaluating the selection of methodology used to develop the economic forecast scenarios, including the
weighting of the scenarios, and underlying assumptions, by comparing it to the Company’s business
environment and relevant industry practices
determining whether the loan portfolio is segmented by similar risk characteristics by comparing to the
Company’s business environment and relevant industry practices
evaluating the methodology used to develop the qualitative factors and the effect of those factors on the
2021 collective ACL compared with relevant credit risk factors and consistency with credit trends and
identified limitations of the underlying DCF model.
We also assessed the sufficiency of the audit evidence obtained related to the 2021 collective ACL estimate by
evaluating the:
cumulative results of the audit procedures
qualitative aspects of the Company’s accounting practices
potential bias in the accounting estimates.
We have served as the Company’s auditor since 2010.
Kansas City, Missouri
February 23, 2022
73
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
December 31, 2021 and 2020
(In thousands, except share and per share data)
ASSETS
Cash and due from banks
Interest bearing bank deposits
Cash and cash equivalents
Investment securities available-for-sale (at fair value)
Investment securities held-to-maturity (fair value of $599,260 and $381,691 at
December 31, 2021 and December 31, 2020, respectively)
Non-marketable securities
Loans
Allowance for credit losses
Loans, net
Loans held for sale
Other real estate owned
Premises and equipment, net
Goodwill
Intangible assets, net
Other assets
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Liabilities:
Deposits:
Non-interest bearing demand deposits
Interest bearing demand deposits
Savings and money market
Time deposits
Total deposits
Securities sold under agreements to repurchase
Long-term debt, net
Other liabilities
Total liabilities
Shareholders’ equity:
Common stock, par value $0.01 per share: 400,000,000 shares authorized;
51,487,907 and 51,487,907 shares issued; 29,958,764 and 30,634,291 shares
outstanding at December 31, 2021 and December 31, 2020, respectively
Additional paid-in capital
Retained earnings
Treasury stock of 21,384,676 and 20,686,986 shares at December 31, 2021 and
December 31, 2020, respectively, at cost
Accumulated other comprehensive (loss) income, net of tax
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31, 2021 December 31, 2020
$
$
845,195
500
845,695
691,847
609,012
50,740
4,513,383
(49,694)
4,463,689
139,142
7,005
96,747
115,027
12,322
182,785
7,214,011
2,506,265
555,401
2,332,591
833,916
6,228,173
22,768
39,478
83,486
6,373,905
$
$
515
1,014,294
289,876
(457,616)
(6,963)
840,106
7,214,011
$
$
$
$
605,065
500
605,565
661,955
376,615
22,073
4,353,726
(59,777)
4,293,949
247,813
4,730
106,982
115,027
17,928
207,313
6,659,950
2,111,045
514,286
2,064,769
986,132
5,676,232
22,897
—
140,130
5,839,259
515
1,011,362
223,175
(424,127)
9,766
820,691
6,659,950
See accompanying notes to the consolidated financial statements.
74
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
For the Years Ended December 31, 2021, 2020 and 2019
(In thousands, except share and per share data)
Interest and dividend income:
Interest and fees on loans
Interest and dividends on investment securities
Dividends on non-marketable securities
Interest on interest-bearing bank deposits
Total interest and dividend income
Interest expense:
Interest on deposits
Interest on borrowings
Total interest expense
Net interest income before provision for loan losses
Provision (release) expense for loan losses
Net interest income after provision for loan losses
Non-interest income:
Service charges
Bank card fees
Mortgage banking income
Bank-owned life insurance income
Other non-interest income
OREO-related income
Total non-interest income
Non-interest expense:
Salaries and benefits
Occupancy and equipment
Telecommunications and data processing
Marketing and business development
FDIC deposit insurance
Bank card expenses
Professional fees
Other non-interest expense
Problem asset workout
Gain on OREO sales, net
Core deposit intangible asset amortization
Banking center consolidation-related expense
Total non-interest expense
Income before income taxes
Income tax expense
Net income
Earnings per share—basic
Earnings per share—diluted
Weighted average number of common shares outstanding:
Basic
Diluted
$
$
$
2021
2020
2019
181,816
17,325
838
986
200,965
13,602
219
13,821
187,144
(9,293)
196,437
14,894
17,693
63,360
2,208
12,174
35
110,364
127,504
25,283
9,310
2,509
1,850
5,177
5,423
10,414
2,063
(475)
1,183
1,589
191,830
114,971
21,365
93,606
3.04
3.01
$
$
$
200,026
16,505
1,157
314
218,002
23,629
1,427
25,056
192,946
17,630
175,316
14,962
15,446
102,384
2,360
4,719
387
140,258
141,170
27,473
9,042
2,802
1,168
4,388
2,946
10,547
3,148
(38)
1,183
2,348
206,177
109,397
20,806
88,591
2.87
2.85
$
$
$
218,836
21,297
1,770
698
242,601
29,803
6,968
36,771
205,830
11,643
194,187
17,895
14,595
42,346
1,713
5,888
315
82,752
122,732
27,336
8,754
3,897
1,049
4,780
3,256
10,867
3,186
(7,193)
1,183
898
180,745
96,194
15,829
80,365
2.57
2.55
30,727,566
31,068,159
30,857,086
31,075,857
31,175,825
31,530,817
See accompanying notes to the consolidated financial statements.
75
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Comprehensive Income
For the Years Ended December 31, 2021, 2020 and 2019
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Securities available-for-sale:
2021
93,606
$
2020
88,591
$
2019
80,365
$
Net unrealized (losses) gains arising during the period, net of tax benefit
(expense) of $5,034, ($2,634), and ($4,510) for the years ended 2021,
2020 and 2019, respectively.
Less: amortization of net unrealized holding gains to income, net of tax
benefit of $168, $248, and $320 for the years ended 2021, 2020 and
2019, respectively.
Other comprehensive (loss) income
Comprehensive income
(16,186)
8,482
14,352
(543)
(16,729)
76,877
$
$
(778)
7,704
96,295
$
(1,015)
13,337
93,702
See accompanying notes to the consolidated financial statements.
76
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
For the Years Ended 2021, 2020 and 2019
(In thousands, except share and per share data)
Accumulated
Common
stock
Additional
paid-in
capital
Retained
earnings
other
comprehensive
income (loss), net
515 $ 1,014,399 $
—
—
—
—
—
4,869
106,990 $
256
80,365
—
Treasury
stock
(415,623) $
—
—
—
(11,275) $
—
—
—
Total
695,006
256
80,365
4,869
Balance, December 31, 2018
Cumulative effect adjustment(1)
Net income
Stock-based compensation
Issuance of stock under purchase and equity
compensation plans, including gain on reissuance
of treasury stock of $6,010, net
Cash dividends declared ($0.75 per share)
Other comprehensive income
Balance, December 31, 2019
Cumulative effect adjustment(2)
Net income
Stock-based compensation
Issuance of stock under purchase and equity
compensation plans, including gain on reissuance
of treasury stock of $1,588, net
Repurchase of 734,117 shares
Cash dividends declared ($0.80 per share)
Other comprehensive income
Balance, December 31, 2020
Net income
Stock-based compensation
Issuance of stock under purchase and equity
compensation plans, including gain on reissuance
of treasury stock of $4,661, net
Repurchase of 912,213 shares
Cash dividends declared ($0.87 per share)
Other comprehensive loss
Balance, December 31, 2021
$
$
$
$
$
$
(10,045)
—
—
—
—
—
515 $ 1,009,223 $
— $
— $
—
—
5,299
—
—
(23,529)
—
164,082 $
(4,623) $
88,591
—
6,661
—
—
(408,962) $
— $
—
—
—
—
13,337
2,062 $
— $
—
—
(3,384)
(23,529)
13,337
766,920
(4,623)
88,591
5,299
(3,160)
—
—
—
—
—
—
—
515 $ 1,011,362 $
— $
— $
—
5,541
—
—
(24,875)
—
223,175 $
93,606 $
—
4,311
(19,476)
—
—
(424,127) $
— $
—
—
—
—
7,704
9,766 $
— $
—
1,151
(19,476)
(24,875)
7,704
820,691
93,606
5,541
—
—
—
—
515 $ 1,014,294 $
(2,609)
—
—
—
—
—
(26,905)
—
289,876 $
2,911
(36,400)
—
—
(457,616) $
—
—
—
(16,729)
(6,963) $
302
(36,400)
(26,905)
(16,729)
840,106
(1) Related to the adoption of Accounting Standards Update No. 2016-02, Leases. Refer to note 3 – Recent Accounting
Pronouncements of our consolidated financial statements for further details.
(2) Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial
Instruments. Refer to note 3 – Recent Accounting Pronouncements of our consolidated financial statements for further
details.
See accompanying notes to the consolidated financial statements.
77
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2021, 2020 and 2019
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
2021
For the year ended December 31,
2020
2019
$
93,606
$
88,591
$
80,365
Provision (release) expense for loan losses
Provision (release) expense for mortgage loan repurchases
Depreciation and amortization
Change in current income tax receivable
Change in deferred income taxes
Net excess tax (benefit) expense from stock-based compensation
Discount accretion, net of premium amortization on securities
Loan accretion
Gain on sale of mortgages, net
Origination of loans held for sale, net of repayments
Proceeds from sales of loans held for sale
Bank-owned life insurance income
Gain on the sale of other real estate owned, net
(Income) loss from non-marketable securities
Originations of mortgage serving rights
Proceeds from sales of mortgage servicing rights
Gain on sale of mortgage servicing rights
(Recovery) impairment of mortgage servicing rights
Impairment on other real estate owned
Impairment on fixed assets related to banking center consolidations
Gain on sale of fixed assets
Gain from banking center divestiture
Stock-based compensation
Operating lease payments
Change in other assets
Change in other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Proceeds from non-marketable securities
Proceeds from maturities of investment securities available-for-sale
Proceeds from maturities of investment securities held-to-maturity
Proceeds from sales of investment securities available-for-sale
Proceeds from sales of other real estate owned
Purchase of non-marketable securities
Purchase of investment securities available-for-sale
Purchase of investment securities held-to-maturity
Sales (purchases) of premises and equipment, net
Net (increase) decrease in loans
Purchase of bank-owned life insurance
Net cash used in investing activities
Cash flows from financing activities:
Net increase in deposits
Net decrease in repurchase agreements and other short-term borrowings
Proceeds from long-term debt
Payment of long-term debt issuance costs
Advances from FHLB
FHLB repayments
Issuance of stock under purchase and equity compensation plans
Proceeds from exercise of stock options
Payment of dividends
Repurchase of common stock
Net cash provided by financing activities
Increase in cash, cash equivalents and restricted cash(1)
Cash, cash equivalents and restricted cash at beginning of the year(1)
Cash, cash equivalents and restricted cash at end of period(1)
Supplemental disclosure of cash flow information during the period:
Cash paid for interest
Net tax payment
Supplemental schedule of non-cash activities:
Loans transferred to other real estate owned at fair value
(Decrease) increase in loans purchased but not settled
Loans transferred from loans held for sale to loans
Lease right-of-use assets obtained
(9,293)
(108)
13,585
1,045
(226)
(644)
4,335
(6,582)
(56,946)
(1,867,734)
2,041,158
(2,208)
(475)
(2,985)
(7,882)
11,375
(1,290)
(740)
799
1,553
(3,768)
(778)
5,541
(5,099)
24,225
(50,962)
179,502
2,006
235,860
161,923
—
1,917
(27,688)
(288,580)
(397,758)
5,146
(166,662)
—
(473,836)
552,719
(129)
40,000
(535)
—
—
(2,267)
2,489
(26,888)
(36,400)
528,989
234,655
615,565
850,220
16,638
15,389
4,516
—
7,807
—
$
$
17,630
662
14,449
(2,371)
3,477
51
3,374
(11,694)
(98,250)
(2,376,660)
2,348,166
(2,360)
(38)
406
(10,354)
—
—
751
470
1,631
—
—
5,299
(5,414)
(18,073)
34,045
(6,212)
13,709
271,508
88,071
—
3,671
(4,107)
(286,130)
(284,170)
(4,352)
49,209
—
(152,591)
939,100
(34,038)
—
—
947,431
(1,155,106)
(749)
1,832
(24,816)
(19,476)
654,178
495,375
120,190
615,565
27,622
22,111
1,533
(16,351)
3,625
—
$
$
11,643
(366)
15,038
1,955
8,793
(2,160)
2,047
(15,590)
(39,922)
(1,317,547)
1,289,877
(1,713)
(7,193)
298
(27)
—
—
129
1,082
898
—
—
4,869
(5,294)
670
16,391
44,243
14,737
195,467
60,948
20,378
12,112
(18,700)
(45,745)
(10,201)
(11,204)
(312,844)
(20,000)
(115,052)
201,511
(9,112)
—
—
1,477,447
(1,571,432)
(6,229)
2,788
(23,530)
—
71,443
634
119,556
120,190
34,458
9,271
2,705
7,372
1,732
(30,474)
$
$
(1)
Included in restricted cash at December 31, 2021, 2020 and 2019 is $4.5 million, $10.0 million and $10.0 million, respectively, placed in escrow for certain potential
liabilities, for which the Company is indemnified, resulting from a previous acquisition. The restricted cash is included in other assets in the Company’s consolidated
statements of financial condition.
See accompanying notes to the consolidated financial statements.
78
NATIONAL BANK HOLDINGS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2021, 2020 and 2019
Note 1 Basis of Presentation
National Bank Holdings Corporation is a bank holding company that was incorporated in the State of Delaware in 2009. The
Company is headquartered in Greenwood Village, Colorado, and its primary operations are conducted through its wholly
owned subsidiary, NBH 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 December 31, 2021, located primarily in Colorado, the greater Kansas City region, Texas, Utah and New Mexico, as well
as through online and mobile banking products and services.
The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiary,
NBH Bank. The accompanying 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. The 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
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 period presentations have been
reclassified to conform to the current period presentations. Refer to note 5 for further discussion. All amounts are in
thousands, except share data and per 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. 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 how long new
outbreaks of COVID-19 cases will have a continued 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.
Note 2 Summary of Significant Accounting Policies
a) Cash and cash equivalents—Cash and cash equivalents include cash, cash items, amounts due from other banks, amounts
due from the Federal Reserve Bank of Kansas City, federal funds sold, and interest-bearing bank deposits.
79
b) Investment securities—Investment securities may be classified in three categories: trading, available-for-sale or held-to-
maturity. Management determines the appropriate classification at the time of purchase and reevaluates the classification at
each reporting period. Any sales of available-for-sale securities are for the purpose of executing the Company’s asset/liability
management strategy, reducing borrowings, funding loan growth, providing liquidity, or eliminating a perceived credit risk in
a specific security. Held-to-maturity securities are carried at amortized cost, and the available-for-sale securities are carried at
estimated fair value. Unrealized gains or losses on securities available-for-sale are reported as accumulated other
comprehensive income (loss) (“AOCI”), a component of shareholders’ equity, net of income tax. Gains and losses realized
upon sales of securities are calculated using the specific identification method. Premiums and discounts are amortized to
interest income over the estimated lives of the securities. Prepayment experience is periodically evaluated and a
determination made regarding the appropriate estimate of the future rates of prepayment. When a change in a bond’s
estimated remaining life is necessary, a corresponding adjustment is made in the related premium amortization or discount
accretion. Purchases and sales of securities, including any corresponding gains or losses, are recognized on a trade-date basis
and a receivable or payable is recognized for pending transaction settlements.
Management evaluates all investments in an unrealized loss position on a quarterly basis, and more frequently when
economic or market conditions warrant such evaluation. If the Company has the intent to sell the security or it is more likely
than not that the Company will be required to sell the security, the security is written down to fair value and the entire loss is
recorded in earnings. If either of the above criteria is not met, we evaluate whether the decline in fair value is the result of
credit losses or other factors. In making the assessment, we may consider various factors including the extent to which fair
value is less than amortized cost, performance on any underlying collateral, downgrades in the ratings of the security by a
rating agency, the failure of the issuer to make scheduled interest or principal payments and adverse conditions specifically
related to the security. If the assessment indicates that a credit loss exists, the present value of cash flows expected to be
collected are compared to the amortized cost basis of the security and any excess is recorded as an allowance for credit loss.
When the loss is not considered a result of credit loss, the cost basis of the security is written down to fair value, with the loss
charge recognized in AOCI. The Company does not measure expected credit losses for U.S. agency-backed held-to-maturity
securities, since the risk of nonpayment of the amortized cost basis is zero. Credit losses are not estimated for AIR from
investment securities as interest deemed uncollectible is written off through interest income.
Prior to the adoption of ASU 2016-13, declines in the fair value of held-to-maturity and available-for-sale securities below
their cost that were deemed to be other-than-temporarily impaired were reflected in earnings as realized losses. In estimating
other-than-temporary-impairment prior to January 1, 2020, the Company considered, among other things, the severity and
duration of the unrealized loss position; adverse conditions specifically related to the security; changes in expected future
cash flows; downgrades in the rating of the security by a rating agency; the failure of the issuer to make scheduled interest or
principal payments; whether the Company had the intent to sell the security; and whether it was more likely than not that the
Company would be required to sell the security.
c) Non-marketable securities— Non-marketable securities include FRB stock, 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. Equity
method investments are periodically evaluated for impairment. If impairment is deemed other than temporary, the Company
will reduce the carrying value of the investment to the extent it is not recoverable. 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.
d) Loans receivable—Loans receivable include loans originated by the Company and loans that are acquired through
acquisitions. Loans originated by the Company are carried at the principal amount outstanding, net of premiums, discounts,
unearned income and deferred loan fees and costs. Loan fees and certain costs of originating loans are deferred and the net
amount is amortized over the contractual life of the related loans. Acquired loans are initially recorded at fair value. Non-
refundable loan origination and commitment fees, net of direct costs of originating or acquiring loans, and fair value
adjustments for acquired loans, are deferred and recognized over the remaining lives of the related loans in accordance with
ASC 310-20.
80
Estimated fair values of acquired loans are based on a discounted cash flow methodology that considers various factors
including the type of loan and related collateral, the expected timing of cash flows, classification status, fixed or variable
interest rate, term of loan and whether or not the loan is amortizing, and a discount rate reflecting the Company’s assessment
of risk inherent in the cash flow estimates. Discounts created when the loans are recorded at their estimated fair values at
acquisition are accreted over the remaining term of the loan as an adjustment to the related loan’s yield. Similar to originated
loans described below, the accrual of interest income on acquired loans is discontinued when the collection of principal or
interest, in whole or in part, is doubtful.
Interest income on acquired loans and interest income on loans originated by the Company is accrued and credited to income
as it is earned using the interest method based on daily balances of the principal amount outstanding. However, interest is
generally not accrued on loans 90 days or more past due, unless they are well secured and in the process of collection.
Additionally, in certain situations, loans that are not contractually past due may be placed on non-accrual status due to the
continued failure to adhere to contractual payment terms by the borrower coupled with other pertinent factors, such as
insufficient collateral value or deficient primary and secondary sources of repayment. Accrued interest receivable is reversed
when a loan is placed on non-accrual status and payments received generally reduce the carrying value of the loan. Interest is
not accrued while a loan is on non-accrual status and interest income is generally recognized on a cash basis only after
payment in full of the past due principal and collection of principal outstanding is reasonably assured. A loan may be placed
back on accrual status if all contractual payments have been received, or sooner under certain conditions and collection of
future principal and interest payments is no longer doubtful.
In the event of borrower default, the Company 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 “troubled debt
restructurings” and are identified in accordance with ASC 310-40.
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 if the borrower has been adversely
impacted by COVID-19 and was current on their loan payments. The Company has modified loans due to the effects of the
COVID-19 pandemic that were not classified as TDRs. Modifications include deferral of principal as well as full-payment
deferral for a period ranging from three months to one year.
e) 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 Company estimates fair value based on quoted market prices for similar loans in the secondary
market. Gains or losses are recognized upon sale and are included as a component of mortgage banking income in the
consolidated statements of operations. Loans held for sale have primarily been fixed rate single-family residential mortgage
loans under contract to be sold in the secondary market. In most cases, loans in this category are sold within 45 days.
Currently, conventional loans in states where the bank has market presence may be sold with servicing retained or with
servicing released. Government loans and conventional loans in states where the bank does not have a market presence are
generally sold with servicing released. Under limited circumstances, buyers may have recourse to return a purchased loan to
the Company. Recourse conditions may include early payoff, early payment default, breach of representations or warranties,
or documentation deficiencies in the underwriting process.
The Company enters into commitments to originate residential mortgage loans whereby the interest rate on the loan is
determined prior to funding (i.e. interest rate lock commitments). Such interest rate lock commitments on mortgage loans to
be sold in the secondary market are considered to be derivatives. To protect against the price risk inherent in residential
mortgage loan commitments, the Company utilizes both "best efforts" and "mandatory delivery" forward loan sale
commitments to mitigate the risk of potential increases or decreases in the values of loans that would result from the change
in market rates for such loans. The Company manages the interest rate risk on interest rate lock commitments by entering into
forward sale contracts of mortgage backed securities. Such contracts are accounted for as derivatives and are recorded at fair
value as derivative assets or liabilities. They are carried in the consolidated statements of financial condition within other
assets or other liabilities, and changes in fair value are recorded net as a component of mortgage banking income in the
consolidated statements of operations. The gross gains on loan sales are recognized based on new loan commitments with
adjustment for price and pair-off activity. Commission expenses on loans held for sale are recognized based on loans closed.
81
f) Allowance for credit losses—The Company adopted ASU 2016-13, Measurement of Credit Losses on Financial
Instruments, effective January 1, 2020.
The ACL represents management’s estimate of lifetime credit losses inherent in loans as of the balance sheet date. The
Company measures expected credit losses for loans on a pooled basis when similar risk characteristics exist. The Company
has identified four primary loan segments that are further stratified into 11 loan classes to provide more granularity in
analyzing loss history based upon specific loss drivers and risk factors affecting each loan class. Generally, the underlying
risk of loss for each of these loan classes 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. Those
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.
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 adjusted for estimated prepayment rates and loss recovery timing
delays. The model incorporates forecasts of certain national macroeconomic factors, including unemployment rates, HPI,
retail sales and GDP, which drive correlated probability of default (“PD”) and loss given default (“LGD”) rates. PD and
LGD, in turn, drive the losses predicted in establishing our ACL. PD and LGD rates along with prepayment rates and loss
recovery time delays are determined at a loan class level making use of both internal and peer historical loss rate data. 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. The length of the forecast period spans four quarters. The length of the reversion period is based
on management’s assessment of the length and pattern of the current economic cycle and typically ranges from four to eight
quarters.
Management accounts for the inherent uncertainty of the underlying economic forecast by reviewing and weighting alternate
forecast scenarios. Additionally, the ACL calculation includes subjective adjustments for qualitative risk factors that are likely
to cause estimated credit losses to differ from historical experience. These qualitative adjustments may increase or reduce
reserve levels and include adjustments for lending management experience and risk tolerance, loan review and audit results,
asset quality and portfolio trends, loan portfolio growth and industry concentrations. The Company has elected to exclude
AIR from the allowance for credit losses calculation. When a loan is placed on non-accrual, any recorded AIR is reversed
against interest income.
The determination and application of the ACL accounting policy involves judgments, estimates, and uncertainties that are
subject to change. Changes in these assumptions, estimates or the conditions surrounding them may have a material impact
on our financial condition, liquidity or results of operations. Various regulatory agencies, as an integral part of the
examination process, periodically review the ACL. Such agencies may require the Company to recognize additions to the
ACL or reserve increases to adversely graded classified loans based on their judgments about information available to them at
the time of their examinations.
The ACL is decreased by net charge-offs and is increased by provisions for loan losses that are charged to the statements of
operations. Charge-offs, if any, are typically measured for each loan based on a thorough analysis of the most probable source
of repayment, such as the present value of the loan’s expected future cash flows, the loan’s estimated fair value, or the
estimated fair value of the underlying collateral less costs of disposition for collateral-dependent loans. When it is determined
that specific loans, or portions thereof, are uncollectible, these amounts are charged off against the ACL.
The Company uses an internal risk rating system to indicate credit quality in the loan portfolio. The risk rating system is
applied to all loans and uses a series of grades, which reflect management’s assessment of the risk attributable to loans based
on an analysis of the borrower’s financial condition and ability to meet contractual debt service requirements. Loans that
management perceives to have acceptable risk are categorized as “Pass” loans. The “Special Mention” loans represent loans
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that have potential credit weaknesses that deserve management’s close attention. Special mention loans include borrowers
that have potential weaknesses or unwarranted risks that, unless corrected, may threaten the borrower’s ability to meet debt
requirements. However, these borrowers are still believed to have the ability to respond to and resolve the financial issues
that threaten their financial situation. Loans classified as “Substandard” are inadequately protected by the current sound
worth and paying capacity of the obligor or of the collateral pledged, if any. Substandard loans have a distinct possibility of
loss if the deficiencies are not corrected. “Doubtful” loans are loans that management believes the collection of payments in
accordance with the terms of the loan agreement is highly questionable and improbable. Credit quality indicators are
reviewed and updated in accordance with internal policy based on loan balance and risk rating. Interest accrual is
discontinued on doubtful loans and certain substandard loans.
Unfunded loan commitments
In addition to the ACL for funded loans, the Company maintains reserves to cover the risk of loss associated with off-balance
sheet unfunded loan commitments. The allowance for off-balance sheet credit losses is maintained within the other liabilities
in the statements of financial condition. Under the CECL framework, adjustments to this liability are recorded as provision
for credit losses in the statements of operations. Unfunded loan commitment balances are evaluated by loan class and further
segregated by revolving and non-revolving commitments. In order to establish the required level of reserve, the Company
applies average historical utilization rates and ACL loan model loss rates for each loan class to the outstanding unfunded
commitment balances.
Prior to the adoption of ASU 2016-13, the Company’s determination of the allowance took into consideration, among other
matters, the estimated fair value of the underlying collateral, economic conditions, historical net loan losses, the estimated
loss emergence period, estimated default rates, any declines in cash flow assumptions from acquisitions, loan structures,
growth factors and other elements that warrant recognition.
Under the prior incurred loss methodology, the Company routinely evaluated adversely risk-rated credits for impairment.
Impairment, if any, was typically measured for each loan based on a thorough analysis of the most probable source of
repayment, including the present value of the loan’s expected future cash flows, the loan’s estimated fair value, or the
estimated fair value of the underlying collateral less costs of disposition for collateral dependent loans. General allowances
were established for loans with similar characteristics. In this process, general allowance factors were based on an analysis of
historical loss and recovery experience, if any, related to originated and acquired loans, as well as certain industry experience,
with adjustments made for qualitative or environmental factors that were likely to cause estimated credit losses to differ from
historical experience. To the extent that the data supporting such factors had limitations, management’s judgment and
experience played a key role in determining the allowance estimates.
g) Premises and equipment—With the exception of premises and equipment acquired through business combinations, which
are initially measured and recorded at fair value, purchased land, buildings and equipment are carried at cost, including
capitalized interest when appropriate, less accumulated depreciation. Depreciation is computed using the straight-line method
over the estimated useful life of the asset. The Company generally assigns depreciable lives of 39 years for buildings, 7 to 15
years for building improvements, and 3 to 7 years for equipment. Leasehold improvements are amortized over the shorter of
their estimated useful lives or remaining lease terms. Maintenance and repairs are charged to non-interest expense as
incurred. The Company reviews premises and equipment whenever events or changes in circumstances indicate that the
carrying amount of the asset may not be recoverable. An impairment loss is recognized when the sum of the undiscounted
future net cash flows expected to result from the use of the asset and its eventual disposal is less than its carrying amount.
Property and equipment that meet the held-for-sale criteria is recorded at the lower of its carrying amount or fair value less
cost to sell and depreciation is ceased.
h) Goodwill and intangible assets—Goodwill is established and recorded if the consideration given during an acquisition
transaction exceeds the fair value of the net assets received. Goodwill has an indefinite useful life and is not amortized, but is
evaluated annually for potential impairment, or when events or circumstances indicate that it is more likely than not that the
fair value of the reporting unit is less than its carrying amount. Such events or circumstances may include deterioration in
general economic conditions, deterioration in industry or market conditions, an increased competitive environment, a decline
in market-dependent multiples or metrics, declining financial performance, entity-specific events or circumstances or a
sustained decrease in share price (either in absolute terms or relative to peers). If the Company determines, based upon the
83
qualitative assessment, that it is more likely than not that the fair value of the reporting unit is greater than the carrying
amount no additional procedures are performed; however, if the Company determines that it is more likely than not that the
fair value of the reporting unit is less than the carrying amount the Company will compare the fair value of the reporting unit
to its carrying amount. Any excess of the carrying amount over fair value would indicate a potential impairment and the
Company would proceed to perform an additional test to determine whether goodwill has been impaired and calculate the
amount of that impairment.
Intangible assets that have finite useful lives, such as core deposit intangibles, are amortized over their estimated useful lives.
The Company’s core deposit intangible assets represent the value of the anticipated future cost savings that will result from
the acquired core deposit relationships versus an alternative source of funding. Judgment may be used in assessing goodwill
and intangible assets for impairment. Estimates of fair value are based on projections of revenues, operating costs and cash
flows of the reporting unit considering historical and anticipated future results, general economic and market conditions, as
well as the impact of planned business or operational strategies. The valuations use a combination of present value techniques
to measure fair value considering market factors. Additionally, judgment is used in determining the useful lives of finite-lived
intangible assets. Adverse changes in the economic environment, operations of the reporting unit, or changes in judgments
and projections could result in a significantly different estimate of the fair value of the reporting unit and could result in an
impairment of goodwill and/or intangible assets.
MSRs associated with loans originated and sold, where servicing is retained, are initially capitalized at fair value and
included in intangible assets in the consolidated statements of financial condition. For subsequent measurement purposes, the
Company measures servicing assets based on the lower of cost or market using the amortization method. The values of these
capitalized servicing rights are amortized as an offset to the loan servicing income earned in relation to the servicing revenue
expected to be earned. The carrying values of these rights are reviewed quarterly for impairment based on the fair value of
those assets. For purposes of impairment evaluation and measurement, management stratifies MSRs based on the
predominant risk characteristics of the underlying loans, including loan type and loan term. If, by individual stratum, the
carrying amount of these MSRs exceeds fair value, a valuation allowance is established and the impairment is recognized in
mortgage banking income. If the fair value of impaired MSRs subsequently increases, management recognizes the increase in
fair value in current period mortgage banking income and, through a reduction in the valuation allowance, adjusts the
carrying value of the MSRs to a level not in excess of amortized cost.
i) Reserve for Mortgage Loan Repurchase Losses–The Company sells mortgage loans to various third parties, including
government-sponsored entities, under contractual provisions that include various representations and warranties that typically
cover ownership of the loan, compliance with loan criteria set forth in the applicable agreement, validity of the lien securing
the loan, absence of delinquent taxes or liens against the property securing the loan, and similar matters. The Company may
be required to repurchase the mortgage loans with identified defects, indemnify the investor or insurer, or reimburse the
investor for credit loss incurred on the loan (collectively “repurchase”) in the event of a material breach of such contractual
representations or warranties. Risk associated with potential repurchases or other forms of settlement is managed through
underwriting and quality assurance practices.
The Company establishes mortgage repurchase reserves related to various representations and warranties that reflect
management’s estimate of losses based on a combination of factors. Such factors incorporate actual and historic loss history,
delinquency trends in the portfolio and economic conditions. The Company establishes a reserve at the time loans are sold
and updates the reserve estimate quarterly during the estimated loan life. The repurchase reserve is included in other
liabilities in the consolidated statements of financial condition.
j) Other real estate owned—OREO consists of property that has been foreclosed on or repossessed by deed in lieu of
foreclosure. The assets are initially recorded at the fair value of the collateral less estimated costs to sell, with any initial
valuation adjustments charged to the ACL. Subsequent downward valuation adjustments, if any, in addition to gains and
losses realized on sales and net operating expenses, are recorded in non-interest expense. Costs associated with maintaining
property, such as utilities and maintenance, are charged to expense in the period in which they occur, while costs relating to
the development and improvement of property are capitalized to the extent the balance does not exceed fair value. All OREO
acquired through acquisition is recorded at fair value, less cost to sell, at the date of acquisition.
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k) Bank-owned life insurance—The Company is the owner and beneficiary of bank-owned life insurance ("BOLI”) policies
that it purchased on certain associates of the Company. The BOLI is carried at net realizable value with changes in net
realizable value recorded in non-interest income in the consolidated statements of operations.
l) Securities purchased under agreements to resell and securities sold under agreements to repurchase—The Company
periodically enters into purchases or sales of securities under agreements to resell or repurchase as of a specified future date.
The securities purchased under agreements to resell are accounted for as collateralized financing transactions and are
reflected as an asset in the consolidated statements of financial condition. The securities pledged by the counterparties are
held by a third party custodian and valued daily. The Company may require additional collateral to ensure full
collateralization for these transactions. The repurchase agreements are considered financing agreements and the obligation to
repurchase assets sold is reflected as a liability in the consolidated statements of financial condition of the Company. The
repurchase agreements are collateralized by debt securities that are under the control of the Company.
m) Stock-based compensation—The Company accounts for stock-based compensation in accordance with ASC Topic 718.
The Company grants stock-based awards including stock options, restricted stock and performance stock units. Stock option
grants are for a fixed number of common shares and are issued at exercise prices which are not less than the fair value of a
share of stock at the date of grant. The options vest over a time period stated in each option agreement and may be subject to
other performance vesting conditions, which require the related compensation expense to be recorded ratably over the
requisite service period starting when such conditions become probable. Restricted stock is granted for a fixed number of
shares, the transferability of which is restricted until such shares become vested according to the terms in the award
agreement. Restricted shares may have multiple vesting qualifications, which can include time vesting of a set portion of the
restricted shares and performance criterion, such as market criteria that are tied to specified market conditions of the
Company’s common stock price and performance targets tied to the Company’s earnings per share.
The fair value of stock options is measured using a Black-Scholes model. The fair value of time-based restricted stock awards
and performance stock units with performance based vesting criteria is based on the Company’s stock price on the date of
grant. The fair value of performance stock units with market-based vesting criteria is measured using a Monte Carlo
simulation model. Compensation expense for the portion of the awards that contain performance and service vesting
conditions is recognized over the requisite service period based on the fair value of the awards on the grant date.
Compensation expense for the portion of the awards that contain a market vesting condition is recognized over the derived
service period based on the fair value of the awards on the grant date. The amortization of stock-based compensation reflects
any estimated forfeitures, and the expense realized in subsequent periods may be adjusted to reflect the actual forfeitures
realized. The outstanding stock options primarily carry a maximum contractual term of ten years. To the extent that any
award is forfeited, surrendered, terminated, expires, or lapses without being vested or exercised, the shares of stock subject to
such award not delivered are again made available for awards under the Plan.
Excess tax benefits and tax deficiencies (including tax benefits of dividends on share-based payment awards) are recognized
in the consolidated statements of operations as a component of income tax expense or benefit and are classified as an
operating activity within the Company’s consolidated statements of cash flows. The tax effects of exercised, expired or vested
awards are treated as discrete items in the reporting period in which they occur and may result in increased volatility in our
effective tax rate. Cash paid by the Company when directly withholding shares for tax withholding purposes is classified as a
financing activity in the consolidated statements of cash flows.
n) Income taxes—The Company and its subsidiaries file U.S. federal and certain state income tax returns on a consolidated
basis. Additionally, the Company and its subsidiaries file separate state income tax returns with various state jurisdictions.
The provision for income taxes includes the income tax balances of the Company and all of its subsidiaries.
Deferred tax assets and liabilities are recognized for temporary differences between the financial reporting basis and the tax
basis of the Company’s assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or
settled. Deferred tax assets and liabilities are adjusted for the effects of changes in tax rates in the period of change. The
Company establishes a valuation allowance when management believes, based on the weight of available evidence, it is more
likely than not that some portion of the deferred tax assets will not be realized.
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The Company recognizes and measures income tax benefits based upon a two-step model: 1) a tax position must be more
likely than not to be sustained based solely on its technical merits in order to be recognized; and 2) the benefit is measured as
the largest dollar amount of that position that is more likely than not to be sustained upon settlement. The difference between
the benefit recognized for a position in this model and the tax benefit claimed on a tax return is treated as an unrecognized tax
benefit. The Company recognizes income tax related interest and penalties in other non-interest expense.
o) Earnings per share—The Company applies the two-class method of computing earnings per share as certain of the
Company's restricted shares are entitled to non-forfeitable dividends and are therefore considered to be a class of
participating securities. The two-class method allocates income according to dividends declared and participation rights in
undistributed income. Basic earnings per share is computed by dividing income allocated to common shareholders by the
weighted average number of common shares outstanding during each period. Diluted income per common share is computed
by dividing income allocated to common shareholders by the weighted average common shares outstanding during the
period, plus amounts representing the dilutive effect of stock options outstanding, certain unvested restricted shares, or other
contracts to issue common shares (“common stock equivalents”) using the treasury stock method. Common stock equivalents
are excluded from the computation of diluted earnings per common share in periods in which they have an anti-dilutive
effect.
p) Interest Rate Swap Derivatives—The Company carries all derivatives in the statement of financial condition at fair value.
All derivative instruments are recognized as either assets or liabilities depending on the rights or obligations under the
contracts. All gains and losses on the derivatives due to changes in fair value are recognized in earnings each period.
The Company offers interest rate swap products to certain of its clients to manage potential changes in interest rates. Each
contract between the Company and a client is offset with a contract between the Company and an institutional counterparty,
thus minimizing the Company's exposure to rate changes. The Company's portfolio consists of a “matched book,” and as
such, changes in fair value of the swap pairs will largely offset in earnings. In accordance with applicable accounting
guidance, if certain conditions are met, a derivative may be designated as (1) a hedge of the exposure to changes in the fair
value of a recognized asset or liability, or of an unrecognized firm commitment, that are attributable to a particular risk
(referred to as a fair value hedge) or (2) a hedge of the exposure to variability in the cash flows of a recognized asset or
liability, or of a forecasted transaction, that is attributable to a particular risk (referred to as a cash flow hedge). The Company
documents all hedging relationships at the inception of each hedging relationship and uses industry accepted methodologies
and ranges to determine the effectiveness of each hedge. The fair value of the hedged item is calculated using the estimated
future cash flows of the hedged item and applying discount rates equal to the market interest rate for the hedged item at the
inception of the hedging relationship (inception benchmark interest rate plus an inception credit spread), adjusted for changes
in the designated benchmark interest rate thereafter.
q) Treasury stock —When the Company acquires treasury stock, the sum of the consideration paid and direct transaction
costs after tax is recognized as a deduction from equity. The cost basis for the reissuance of treasury stock is determined
using a first-in, first-out basis. To the extent that the reissuance price is more than the cost basis (gain), the excess is recorded
as an increase to additional paid-in capital in the consolidated statements of financial condition. If the reissuance price is less
than the cost basis (loss), the difference is recorded to additional paid-in capital to the extent there is a cumulative treasury
stock paid-in capital balance. Any loss in excess of the cumulative treasury stock paid-in capital balance is charged to
retained earnings.
r) Acquisition activities—The Company accounts for business combinations under the acquisition method of accounting.
Assets acquired and liabilities assumed are measured and recorded at fair value at the date of acquisition, including
identifiable intangible assets. If the fair value of net assets acquired exceeds the fair value of consideration paid, a bargain
purchase gain is recognized at the date of acquisition. Conversely, if the consideration paid exceeds the fair value of the net
assets acquired, goodwill is recognized at the acquisition date. Fair values are subject to refinement for up to a maximum of
one year after the closing date of an acquisition as information relative to closing date fair values becomes available.
Adjustments recorded to the acquired assets and liabilities assumed are applied prospectively in accordance with Accounting
Standards Codification (“ASC”) Topic 805. The determination of the fair value of loans acquired takes into account credit
quality deterioration and probability of loss; therefore, the related ACL is not carried forward at the time of acquisition.
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Identifiable intangible assets are recognized separately if they arise from contractual or other legal rights or if they are
separable (i.e., capable of being sold, transferred, licensed, rented, or exchanged separately from the entity). Deposit
liabilities and the related depositor relationship intangible assets, known as the core deposit intangible assets, may be
exchanged in observable exchange transactions. As a result, the core deposit intangible asset is considered identifiable,
because the separability criterion has been met.
Note 3 Recent Accounting Pronouncements
Leases—In February 2016, the FASB issued ASU 2016-02, Leases. The guidance in ASU 2016-02 supersedes the lease
recognition requirements in ASC Topic 840, Leases. The new standard established a right-of-use (“ROU”) model that
requires a lessee to record a ROU asset and lease liability on the balance sheet for all leases with terms longer than 12
months. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in
the income statements. ASU 2016-02 became effective for the Company on January 1, 2019 and initially required transition
using a modified retrospective approach for leases existing at, or entered into after, the beginning of the earliest comparative
period presented in the financial statements. In July 2018, the FASB issued ASU 2018-11 which, among other things,
provided an additional transition method that allows entities to not apply the guidance in ASU 2016-02 in the comparative
periods presented in the financial statements and instead recognize a cumulative-effect adjustment to the opening balance of
retained earnings in the period of adoption. We elected to apply certain practical expedients provided under ASU 2016-02
whereby we will not reassess (i) whether any expired or existing contracts are or contain leases, (ii) the lease classification for
any expired or existing leases and (iii) initial direct costs for any existing leases. We also did not apply the recognition
requirements of ASU 2016-02 to any short-term leases (as defined by related accounting guidance). The updates did not
significantly change lease accounting requirements applicable to lessors and did not significantly impact our financial
statements in relation to contracts whereby we act as a lessor. We applied the modified-retrospective transition approach
prescribed by ASU 2018-11. Upon adoption of ASU 2016-02 and ASU 2018-11 on January 1, 2019, we recognized right-of-
use assets and related lease liabilities totaling $30.5 million with a cumulative-effect adjustment to beginning retained
earnings of $0.3 million, after tax.
Financial Instruments - Credit Losses—In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on
Financial Instruments. This update replaces the current incurred loss methodology for recognizing credit losses with a CECL
model, which requires the measurement of all expected credit losses for financial assets held at the reporting date based on
historical experience, current conditions, and reasonable and supportable forecasts. This amendment broadens the
information that an entity must consider in developing its expected credit loss estimates. Additionally, the update amends the
accounting for credit losses for available-for-sale debt securities and purchased financial assets with a more-than-insignificant
amount of credit deterioration since origination. This update requires enhanced disclosures to help investors and other
financial statement users better understand significant estimates and judgments used in estimating credit losses, as well as the
credit quality and underwriting standards of a company’s loan portfolio. We adopted ASU 2016-13 on January 1, 2020 using
a modified retrospective approach. Results for reporting periods beginning after January 1, 2020 are presented under ASU
2016-13 while prior period amounts continue to be reported in accordance with previously applicable GAAP. Upon adoption,
the Company recognized a $5.8 million increase in the allowance for credit losses with a corresponding reduction to retained
earnings, net of tax, of $4.6 million. Since the investment securities portfolio was comprised of mortgage-backed securities
issued by government sponsored entities as of January 1, 2020, no credit loss allowance was required upon adoption.
Other Pronouncements— The Company adopted ASU 2017-04, Intangibles - Goodwill and Other (Topic 350): Simplifying
the Test for Goodwill Impairment and ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework-Changes
to the Disclosure Requirements for Fair Value Measurement with no material impact on its financial statements.
Note 4 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 December 31, 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.
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Available-for-sale
Available-for-sale securities are summarized as follows as of the dates indicated:
Mortgage-backed securities:
Residential mortgage pass-through securities issued or
guaranteed by U.S. Government agencies or sponsored
enterprises
Other residential MBS issued or guaranteed by U.S.
Government agencies or sponsored enterprises
Municipal securities
Corporate debt
Other securities
Total investment securities available-for-sale
Mortgage-backed securities:
Residential mortgage pass-through securities issued or
guaranteed by U.S. Government agencies or sponsored
enterprises
Other residential MBS issued or guaranteed by U.S.
Government agencies or sponsored enterprises
Municipal securities
Corporate debt
Other securities
Total investment securities available-for-sale
$
Amortized
Gross
Gross
cost
unrealized gains unrealized losses
Fair value
December 31, 2021
$
231,523 $
1,436 $
(5,263) $ 227,696
467,490
230
2,000
469
701,712 $
$
1,889
7
111
—
3,443 $
(8,045)
—
—
—
461,334
237
2,111
469
(13,308) $ 691,847
Amortized
Gross
Gross
cost
unrealized gains unrealized losses
Fair value
December 31, 2020
$
193,424 $
2,952 $
(42) $ 196,334
454,345
362
2,000
469
650,600 $
8,778
13
—
—
11,743 $
(344)
—
(2)
—
462,779
375
1,998
469
(388) $ 661,955
During 2021 and 2020, purchases of available-for-sale securities totaled $288.6 million and $286.1 million, respectively.
Maturities and paydowns of available-for-sale securities during 2021 and 2020 totaled $235.9 million and $271.5 million,
respectively. There were no sales of available-for-sale securities during 2021 or 2020.
At December 31, 2021 and 2020, the Company’s available-for-sale investment portfolio was primarily comprised of
mortgage-backed securities, and all mortgage-backed securities were backed by GSE collateral such as FHLMC and FNMA
and the government owned agency GNMA.
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The tables below summarize the available-for-sale securities with unrealized losses as of the dates shown, along with the
length of the impairment period:
Mortgage-backed securities:
Residential mortgage pass-through securities
issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Other residential MBS issued or guaranteed by
U.S. Government agencies or sponsored
enterprises
Total
Less than 12 months
Fair
value
Unrealized
losses
December 31, 2021
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
$ 163,579
$ (4,404) $ 22,852 $
(859) $ 186,431 $ (5,263)
237,759
$ 401,338
(5,593)
(8,045)
(2,452)
$ (9,997) $ 71,602 $ (3,311) $ 472,940 $ (13,308)
286,509
48,750
Mortgage-backed securities:
Residential mortgage pass-through securities
issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Other residential MBS issued or guaranteed by
U.S. Government agencies or sponsored
enterprises
Corporate debt
Total
Less than 12 months
December 31, 2020
12 months or more
Total
Fair
value
Unrealized Fair
value
losses
Unrealized
losses
Fair
value
Unrealized
losses
$ 26,878 $
(42)
$
1 $
—
$ 26,879 $
(42)
95,888
1,998
$ 124,764 $
(328)
(2)
(372)
2,138
—
$ 2,139 $
(16)
—
(16)
98,026
1,998
$ 126,903 $
(344)
(2)
(388)
Management evaluated all of the available-for-sale securities in an unrealized loss position at December 31, 2021 and
December 31, 2020. The portfolio included 49 securities, which were in an unrealized loss position at December 31, 2021,
compared to 22 securities at December 31, 2020. The unrealized losses in the Company’s investment portfolio at December
31, 2021 and 2020 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 $363.4 million and $385.8 million at December 31, 2021 and 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 December 31,
2021 or 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 December 31, 2021, municipal securities with an
amortized cost and fair value of $0.2 million were due between one to five years. Corporate debt securities with an amortized
cost of $2.0 million and fair value of $2.1 million were due after five years through ten years. Other securities with an
amortized cost and fair value of $0.5 million as of December 31, 2021 have no stated contractual maturity date.
As of December 31, 2021 and December 31, 2020, 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:
December 31, 2021
Gross
Gross
unrealized unrealized
gains
losses
Fair value
Amortized
cost
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed by
U.S. Government agencies or sponsored enterprises
$ 312,916
$ 2,061 $ (5,363) $ 309,614
Other residential MBS issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Total investment securities held-to-maturity
296,096
$ 609,012
122
289,646
(6,572)
$ 2,183 $ (11,935) $ 599,260
December 31, 2020
Gross
Gross
unrealized unrealized
gains
losses
Fair value
Amortized
cost
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
Total investment securities held-to-maturity
70,428
$ 376,615
396
$ 5,336 $
(63)
70,761
(260) $ 381,691
During 2021 and 2020, purchases of held-to-maturity securities totaled $397.8 million and $284.2 million, respectively.
Maturities and paydowns of held-to-maturity securities totaled $161.9 million and $88.1 million during 2021 and 2020,
respectively.
The held-to-maturity portfolio included 48 securities which were in an unrealized loss position at December 31, 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:
Mortgage-backed securities:
Residential mortgage pass-through securities
issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Other residential MBS issued or guaranteed by
U.S. Government agencies or sponsored
enterprises
Total
Less than 12 months
Fair
value
Unrealized
losses
December 31, 2021
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
$ 197,095
$ (3,499) $ 45,353 $ (1,864)
$ 242,448 $ (5,363)
(6,572)
—
$ (10,071) $ 45,353 $ (1,864)
—
276,098
(6,572)
$ 518,546 $ (11,935)
276,098
$ 473,193
90
Mortgage-backed securities:
Residential mortgage pass-through securities
issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Other residential MBS issued or guaranteed by
U.S. Government agencies or sponsored
enterprises
Total
Less than 12 months
Fair
value
Unrealized
losses
December 31, 2020
12 months or more
Fair
value
Unrealized
losses
Total
Fair
value
Unrealized
losses
$ 53,453 $
(197) $
—
$
—
$ 53,453 $
(197)
19,554
(63)
$ 73,007 $
(260) $
—
—
$
—
—
19,554
$ 73,007 $
(63)
(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 $147.3 million and $140.6 million at December 31, 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 December 31, 2021 or 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 December 31, 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 5 Non-marketable Securities
During 2021, the Company updated its asset classifications to include certain financial instruments previously included in
other assets within non-marketable securities in the statements of financial condition.
Non-marketable securities totaled $50.7 million and $22.1 million at December 31, 2021 and 2020, respectively, and included
FRB stock, FHLB stock and other non-marketable securities. At December 31, 2021, other non-marketable securities totaled
$36.2 million and consisted of equity method investments totaling $16.2 million and convertible preferred stock without
readily determinable fair values totaling $20.0 million. During the years ended December 31, 2021 and 2020, purchases of
non-marketable securities totaled $27.7 million and $4.1 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 equity method investments.
At December 31, 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.
91
Note 6 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 $9.4 million and $16.2 million at December 31,
2021 and 2020, respectively. Included in commercial loans are fully-guaranteed loans originated as part of the SBA’s
Paycheck Protection Program of which $21.7 million and $176.1 million, net of fees and costs, were outstanding at
December 31, 2021 and 2020, respectively.
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
December 31, 2021
Total loans
% of total
3,162,417
664,729
668,656
17,581
4,513,383
70.1%
14.7%
14.8%
0.4%
100.0%
December 31, 2020
Total loans
% of total
3,044,065
631,996
658,659
19,006
4,353,726
70.0%
14.5%
15.1%
0.4%
100.0%
$
$
$
$
Information about delinquent and non-accrual loans is shown in the following tables at December 31, 2021 and 2020:
December 31, 2021
Greater
than 90 days
Total past
30-89 days
past due and past due and Non-accrual due and
accruing
accruing
non-accrual
loans
Current
Total loans
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
Total commercial
$
481 $
202
207
89
979
— $
—
—
—
—
1,490 $
—
4,525
64
6,079
1,971
202
4,732
153
7,058
$ 1,494,176 $ 1,496,147
929,045
533,636
203,589
3,162,417
928,843
528,904
203,436
3,155,359
Commercial real estate non-owner occupied:
Construction
Acquisition/development
Multifamily
Non-owner occupied
Total commercial real estate
Residential real estate:
Senior lien
Junior lien
Total residential real estate
Consumer
Total loans
—
—
—
94
94
—
—
—
217
217
—
—
—
121
121
—
—
—
432
432
86,126
9,609
92,174
476,388
664,297
86,126
9,609
92,174
476,820
664,729
198
—
198
5
4,848
553
5,401
48
420 $ 10,832 $ 12,939
4,251
374
4,625
7
609,780
53,475
663,255
17,533
614,628
54,028
668,656
17,581
$ 4,500,444 $ 4,513,383
399
179
578
36
1,687 $
$
92
Non-accrual loans
with a related
allowance for
credit loss
December 31, 2021
Non-accrual loans
with no related
allowance for
credit loss
Non-accrual
loans
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
Total commercial
Commercial real estate non-owner occupied:
Construction
Acquisition/development
Multifamily
Non-owner occupied
Total commercial real estate
Residential real estate:
Senior lien
Junior lien
Total residential real estate
Consumer
Total loans
$
$
1,490
—
4,525
64
6,079
—
—
—
121
121
3,274
374
3,648
7
9,855
$
$
December 31, 2020
Greater
than 90 days
Total past
30-89 days
past due and past due and Non-accrual due and
accruing
accruing
non-accrual
loans
—
—
—
—
—
—
—
—
—
—
977
—
977
—
977
$
$
1,490
—
4,525
64
6,079
—
—
—
121
121
4,251
374
4,625
7
10,832
Current
Total loans
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
Total commercial
Commercial real estate non-owner occupied:
Construction
Acquisition/development
Multifamily
Non-owner occupied
Total commercial real estate
Residential real estate:
Senior lien
Junior lien
Total residential real estate
Consumer
Total loans
$
170 $
—
—
146
316
—
—
—
—
—
527
95
622
30
$
968 $
— $
—
—
—
—
6,312
—
5,450
422
12,184
$
6,482 $ 1,440,256
870,791
510,789
209,729
3,031,565
—
5,450
568
12,500
$ 1,446,738
870,791
516,239
210,297
3,044,065
—
—
—
—
—
—
6
1,523
135
1,664
—
6
1,523
135
1,664
91,125
24,665
67,233
447,309
630,332
91,125
24,671
68,756
447,444
631,996
160
—
160
2
5,820
709
6,529
10
162 $ 20,387
6,507
804
7,311
42
577,764
73,584
651,348
18,964
$ 21,517 $ 4,332,209
584,271
74,388
658,659
19,006
$ 4,353,726
93
Commercial:
Commercial and industrial
Municipal and non-profit
Owner occupied commercial real estate
Food and agribusiness
Total commercial
Commercial real estate non-owner occupied:
Construction
Acquisition/development
Multifamily
Non-owner occupied
Total commercial real estate
Residential real estate:
Senior lien
Junior lien
Total residential real estate
Consumer
Total loans
Non-accrual loans
with a related
allowance for
credit loss
December 31, 2020
Non-accrual loans
with no related
allowance for
credit loss
Non-accrual
loans
$
$
$
6,080
—
2,698
88
8,866
—
6
—
135
141
4,158
709
4,867
10
13,884
$
232
—
2,752
334
3,318
—
—
1,523
—
1,523
1,662
—
1,662
—
6,503
$
$
6,312
—
5,450
422
12,184
—
6
1,523
135
1,664
5,820
709
6,529
10
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
TDRs on non-accrual status. There was no interest income recognized from non-accrual loans during the years ended
December 31, 2021 and 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.
94
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 December 31, 2021 and 2020:
2021
2020
Origination year
2018
2019
2017
Prior
Revolving Revolving
loans
loans
amortized converted
cost basis
to term
Total
December 31, 2021
Commercial:
Commercial and industrial:
Pass
Special mention
Substandard
Doubtful
$
Total commercial and industrial
Municipal and non-profit:
Pass
Total municipal and non-profit
Owner occupied commercial real estate:
Pass
Special mention
Substandard
Doubtful
Total owner occupied commercial
real estate
Food and agribusiness:
Pass
Special mention
Substandard
Total food and agribusiness
Total commercial
Commercial real estate non-owner
occupied:
Construction:
Pass
Total construction
Acquisition/development:
Pass
Total acquisition/development
Multifamily:
Pass
Special mention
Total multifamily
Non-owner occupied
Pass
Special mention
Substandard
Total non-owner occupied
Total commercial real estate non-
owner occupied
Residential real estate:
Senior lien
Pass
Special mention
Substandard
Total senior lien
Junior lien
Pass
Special mention
Substandard
Total junior lien
Total residential real estate
Consumer
Pass
Substandard
Total consumer
Total loans
424,813 $ 155,268 $ 146,420 $ 128,002 $
3,446
744
54
132,246
1,122
99
375
156,864
—
—
—
424,813
2,000
89
—
148,509
49,408 $
22,654
10,399
49
82,510
18,529 $ 519,678 $
1,824
105
—
521,607
4,440
303
101
23,373
5,975 $ 1,448,093
35,736
11,739
579
1,496,147
250
—
—
6,225
234,827
234,827
93,310
93,310
69,509
69,509
81,175
81,175
147,115
147,115
302,574
302,574
535
535
—
—
929,045
929,045
122,641
—
—
—
81,072
—
1,192
389
84,359
9,155
1,527
550
71,183
3,864
—
—
48,086
1,429
220
—
77,100
13,443
2,028
44
13,666
—
—
—
1,688
—
—
—
499,795
27,891
4,967
983
122,641
82,653
95,591
75,047
49,735
92,615
13,666
1,688
533,636
11,245
—
—
11,245
793,526
20,606
4,670
—
25,276
358,103
6,966
1,234
—
8,200
321,809
21,427
—
—
21,427
309,895
2,443
—
259
2,702
282,062
24,047
215
578
24,840
443,402
107,978
1,897
—
109,875
645,683
24
—
—
24
7,937
194,736
8,016
837
203,589
3,162,417
39,584
39,584
10,047
10,047
29,496
29,496
—
—
222
222
—
—
6,777
6,777
1,691
1,691
385
385
766
766
1,830
1,830
30
30
4,907
4,907
3,101
—
3,101
32,619
—
32,619
2,184
—
2,184
15,977
—
15,977
193
—
193
37,713
387
38,100
59,060
—
—
59,060
58,964
—
—
58,964
122,452
5,747
—
128,199
18,425
5,584
729
24,738
92,349
9,745
—
102,094
95,265
3,898
4,045
103,208
—
—
—
—
—
557
—
—
557
—
—
—
—
—
—
—
—
—
—
—
86,126
86,126
9,609
9,609
91,787
387
92,174
447,072
24,974
4,774
476,820
103,436
102,015
160,645
42,545
102,539
146,215
7,334
—
664,729
223,120
—
44
223,164
100,476
—
325
100,801
1,320
—
—
1,320
224,484
2,150
—
19
2,169
102,970
38,696
—
684
39,380
2,731
—
—
2,731
42,111
21,889
—
318
22,207
1,639
—
62
1,701
23,908
29,554
—
299
29,853
177,051
290
3,416
180,757
951
—
131
1,082
30,935
3,209
—
221
3,430
184,187
18,278
—
—
18,278
40,921
24
—
40,945
59,223
8,815
—
8,815
2,653
—
2,653
$ 1,130,261 $ 566,616 $ 525,806 $ 376,979 $ 415,667 $ 774,367 $ 714,893 $
3,528
—
3,528
1,241
—
1,241
631
—
631
557
6
563
131
—
131
188
—
—
188
328
322
—
650
838
609,252
290
5,086
614,628
53,249
346
433
54,028
668,656
19
—
19
17,575
6
17,581
8,794 $ 4,513,383
95
2020
2019
Origination year
2017
2018
2016
Prior
Revolving Revolving
loans
loans
amortized converted
cost basis
to term
Total
December 31, 2020
$ 372,041 $ 212,388 $ 189,753 $
7,381
925
34
198,093
1,445
1,238
—
215,071
—
23
—
372,064
93,822 $
4,845
11,885
456
111,008
15,145 $
5,810
56
—
21,011
17,662 $ 499,283 $
2,329
1,341
29
502,982
729
4,840
809
24,040
991 $ 1,401,085
24,017
20,308
1,328
1,446,738
1,478
—
—
2,469
131,961
131,961
91,911
91,911
125,247
125,247
156,275
156,275
124,269
124,269
238,453
238,453
2,675
2,675
—
—
870,791
870,791
Commercial:
Commercial and industrial:
Pass
Special mention
Substandard
Doubtful
Total commercial and industrial
Municipal and non-profit:
Pass
Total municipal and non-profit
Owner occupied commercial real estate:
Pass
Special mention
Substandard
Doubtful
100,791
1,581
—
—
107,558
2,236
1,988
511
90,398
2,714
6,211
—
53,131
544
251
—
32,648
3,254
93
—
87,758
19,341
3,802
28
1,401
—
—
—
—
—
—
—
473,685
29,670
12,345
539
Total owner occupied commercial
real estate
Food and agribusiness:
Pass
Special mention
Substandard
Total food and agribusiness
Total commercial
Commercial real estate non-owner
occupied:
Construction:
Pass
Special mention
Total construction
Acquisition/development:
Pass
Special mention
Substandard
Total acquisition/development
Multifamily:
Pass
Special mention
Substandard
Total multifamily
Non-owner occupied
Pass
Special mention
Substandard
Total non-owner occupied
Total commercial real estate non-
owner occupied
Residential real estate:
Senior lien
Pass
Special mention
Substandard
Total senior lien
Junior lien
Pass
Special mention
Substandard
Total junior lien
Total residential real estate
Consumer:
Pass
Substandard
Total consumer
Total loans
102,372
112,293
99,323
53,926
35,995
110,929
1,401
—
516,239
28,139
—
—
28,139
634,536
9,198
—
—
9,198
428,473
20,242
—
—
20,242
442,905
7,198
—
302
7,500
328,709
9,556
—
—
9,556
190,831
28,330
222
977
29,529
402,951
106,007
—
—
106,007
613,065
126
—
—
126
2,595
208,796
222
1,279
210,297
3,044,065
15,841
392
16,233
49,658
—
49,658
17,349
—
17,349
4,072
—
4,072
8,373
34
—
8,407
—
—
—
4,559
—
—
4,559
212
—
—
212
18,050
—
—
18,050
—
—
—
2,006
—
2,006
1,807
—
1,807
3,694
253
41
3,988
4,990
436
1,523
6,949
11
—
—
11
—
—
—
—
—
—
—
—
—
—
—
—
90,733
392
91,125
24,343
287
41
24,671
66,797
436
1,523
68,756
1,947
—
—
1,947
137
—
—
137
25,362
5,841
779
31,982
86,975
22,737
—
109,712
26,613
—
3,937
30,550
118,144
3,662
370
122,176
3,083
100
—
3,183
643
—
—
643
404,490
37,868
5,086
447,444
3,762
—
—
3,762
29,738
—
—
29,738
51,445
70
—
51,515
1,997
—
—
1,997
13,670
—
—
13,670
92,225
5,458
—
97,683
101,248
163,008
51,415
122,403
53,159
133,113
5,200
2,450
631,996
129,551
—
95
129,646
3,479
—
—
3,479
133,125
76,504
—
818
77,322
4,217
—
112
4,329
81,651
36,493
—
20
36,513
2,553
—
101
2,654
39,167
47,887
—
1,232
49,119
1,775
—
177
1,952
51,071
88,358
—
550
88,908
173,091
463
4,107
177,661
1,226
—
55
1,281
90,189
3,760
21
287
4,068
181,729
24,884
—
—
24,884
55,860
341
—
56,201
81,085
9,777
—
9,777
2,700
—
2,700
$ 878,686 $ 676,480 $ 535,198 $ 502,672 $ 334,510 $ 718,424 $ 702,050 $
1,674
37
1,711
3,348
—
3,348
623
8
631
489
—
489
329
2
331
218
—
—
218
365
—
59
424
642
576,986
463
6,822
584,271
73,235
362
791
74,388
658,659
19
—
19
18,959
47
19,006
5,706 $ 4,353,726
96
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 December 31, 2021 and 2020:
Commercial
Commercial and industrial
Owner-occupied commercial real estate
Total Commercial
Residential real estate
Senior lien
Total residential real estate
Total loans
Commercial
Commercial and industrial
Owner-occupied commercial real estate
Food and agribusiness
Total Commercial
Commercial real estate non owner-occupied
Acquisition/development
Multifamily
Total commercial real estate
Residential real estate
Senior lien
Total residential real estate
Total loans
Real property
Business assets
Total amortized
cost basis
December 31, 2021
$
$
$
$
3,270
4,012
7,282
2,212
2,212
9,494
$
$
1,261
255
1,516
—
—
1,516
December 31, 2020
Real property
Business assets
7,579
3,701
334
11,614
1,573
1,523
3,096
2,021
2,021
16,731
$
$
3,005
284
—
3,289
—
—
—
—
—
3,289
$
$
$
$
4,531
4,267
8,798
2,212
2,212
11,010
Total amortized
cost basis
10,584
3,985
334
14,903
1,573
1,523
3,096
2,021
2,021
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 19 loans totaling
$9.9 million during the year ended December 31, 2021 and 510 loans totaling $519.0 million during the year ended
December 31, 2020, due to the effects of the COVID-19 pandemic, that were not classified as TDRs. Modified loans that
97
remained on a payment deferral plan, paying interest only, at December 31, 2021 totaled $5.3 million, or 0.1% of the total
loan population. At December 31, 2021, $206 thousand of loan modifications related to COVID-19 were a subsequent
modification and one loan totaling $206 thousand was classified as non-accrual. 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 2021, the Company restructured four loans with an amortized cost basis of $1.1 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 December 31, 2021 and
2020:
December 31, 2021
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total
$
$
$
$
Amortized
cost basis
Unpaid
Average year-to-date
amortized cost basis principal balance
4,472 $
767
2,468
—
7,707 $
4,417 $
892
2,781
—
8,090 $
4,066 $
725
2,395
—
7,186 $
December 31, 2020
Amortized
cost basis
Unpaid
Average year-to-date
amortized cost basis principal balance
9,544 $
2,351
2,185
37
14,117 $
9,978 $
4,105
2,922
37
17,042 $
9,387 $
2,400
2,121
37
13,945 $
Unfunded commitments
to fund TDRs
Unfunded commitments
to fund TDRs
—
—
—
—
—
150
—
12
—
162
The following table summarizes the Company’s carrying value of non-accrual TDRs as of December 31, 2021 and 2020:
Commercial
Commercial real estate non-owner occupied
Residential real estate
Consumer
Total non-accruing TDRs
December 31, 2021
December 31, 2020
$
$
644 $
117
1,605
—
2,366 $
3,397
1,644
3,156
—
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 no TDRs that were modified within the past 12 months and had defaulted on their
restructured terms during the year ended December 31, 2021. During 2020, the Company had three TDRs totaling $3.4
million that had been modified within the prior 12 months and 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.
98
Note 7 Allowance for Credit Losses
The tables below detail the Company’s allowance for credit losses as of the dates shown:
Year ended December 31, 2021
Non-owner
occupied
commercial
real estate
Residential
real estate
Consumer
Total
Beginning balance
Charge-offs
Recoveries
Provision expense (release) for loan losses
Ending balance
$
30,376 $
(1,171)
371
1,680
31,256 $
17,448 $
—
7
(7,422)
10,033 $
11,492 $
(24)
48
(3,460)
8,056 $
461 $
(621)
126
383
349 $
59,777
(1,816)
552
(8,819)
49,694
Commercial
$
Beginning balance
Cumulative effect adjustment(1)
Charge-offs
Recoveries
Provision expense for loan losses
Ending balance
Year ended December 31, 2020
Non-owner
occupied
commercial
real estate
Residential
real estate
Consumer
Total
Commercial
$
30,442 $
(1,299)
(2,023)
394
2,862
30,376 $
4,850 $
1,666
(412)
—
11,344
17,448 $
3,468 $
5,314
(67)
32
2,745
11,492 $
304 $
155
(726)
145
583
461 $
39,064
5,836
(3,228)
571
17,534
59,777
$
(1) Related to the adoption of Accounting Standards Update No. 2016-13, Measurement of Credit Losses on Financial
Instruments. Refer to note 3 – Recent Accounting Pronouncements of our consolidated financial statements for further
details.
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.
Net charge-offs on loans during the year ended December 31, 2021 were $1.3 million. The Company recorded a provision
release of $9.3 million during 2021, which included a provision release of $8.8 million for funded loans and a provision
release of $0.5 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 year ended December 31, 2020 were $2.7 million. The Company recorded total provision
expense of $17.6 million during 2020, 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 December 31, 2021 and
December 31, 2020, AIR from loans totaled $15.7 million and $16.7 million, respectively.
99
Note 8 Leases
Right-of-use (“ROU”) lease assets totaled $19.7 million and $25.4 million as of December 31, 2021 and 2020, respectively,
and were included in other assets in the consolidated statements of financial condition. The related lease liabilities totaled
$20.3 million and $26.0 million as of December 31, 2021 and 2020, respectively, and were included in other liabilities in the
consolidated statements of financial condition.
The Company has operating leases for banking centers, corporate offices and ATM locations, with remaining lease terms
ranging from one year to ten years. The Company only included reasonably certain renewal options in the lease terms. The
weighted-average remaining lease term for our operating leases was 4.7 years and 5.4 years at December 31, 2021 and 2020,
respectively. As of December 31, 2021 and 2020, the weighted-average discount rate were 3.25% and 3.36%, respectively,
utilizing the Company’s incremental FHLB borrowing rate for borrowings of a similar term at the date of lease
commencement.
Rent expense totaled $5.1 million and $5.7 million for the years ended December 31, 2021 and 2020, respectively, and was
recorded within occupancy and equipment in the consolidated statements of operations. Lease payments do not include non-
lease components such as real estate taxes, insurance and common area maintenance.
Below is a summary of undiscounted future minimum lease payments as of December 31, 2021:
Years ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total lease payments
Less: Imputed interest
Present value of operating lease liabilities
Note 9 Premises and Equipment
Premises and equipment consisted of the following at December 31, 2021 and 2020:
Land
Buildings and improvements
Equipment
Total premises and equipment, at cost
Less: accumulated depreciation and amortization
Premises and equipment, net
Amount
4,511
4,171
3,741
2,985
1,967
10,174
27,549
(7,296)
20,253
$
$
December 31, 2021 December 31, 2020
33,149
$
92,463
60,205
185,817
(78,835)
106,982
30,556 $
86,201
63,553
180,310
(83,563)
96,747 $
$
The Company recorded $7.3 million, $8.1 million and $8.2 million of depreciation expense during 2021, 2020 and 2019,
respectively, as a component of occupancy and equipment expense in the consolidated statements of operations. The
Company disposed of $13.7 million, $3.6 million and $0.0 million of premises and equipment, net, during 2021, 2020 and
2019, respectively. The company recorded gains on sale of premises and equipment totaling $3.8 million and $0.3 million
during the years ended December 31, 2021 and 2020, respectively, within other non-interest income in the consolidated
statements of operations. During 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 at the time of impairment.
During 2020, the Company recognized $1.6 million of impairments from the consolidation of 12 banking centers classified as
held-for-sale totaling $8.0 million.
100
Note 10 Other Real Estate Owned
A summary of the activity in OREO during 2021 and 2020 is as follows:
Beginning balance
Transfers from loan portfolio, at fair value
Impairments
Sales
Ending balance
For the years ended December 31,
2021
2020
$
$
4,730 $
4,516
(799)
(1,442)
7,005
$
7,300
1,533
(470)
(3,633)
4,730
During the year ended December 31, 2021 and 2020, the Company sold OREO properties with net book balances of $1.4
million and $3.6 million, respectively. Sales of OREO properties resulted in net OREO gains of $475 thousand and $38
thousand which were included within gain on OREO sales, net in the consolidated statements of operations for the years
ended December 31, 2021 and 2020, respectively.
Note 11 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 years ended December 31, 2021 or December 31, 2020.
The gross carrying amount of the core deposit intangibles and the associated accumulated amortization at December 31, 2021
and December 31, 2020, are presented as follows:
Gross
carrying
amount
December 31, 2021
Accumulated
amortization
Net
carrying
amount
Gross
carrying
amount
December 31, 2020
Accumulated
amortization
Net
carrying
amount
Core deposit intangible
$
48,834 $
(42,469) $
6,365 $
48,834 $
(41,286) $
7,548
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 $1.2 million for the years ended December 31, 2021, 2020 and 2019.
The following table shows the estimated future amortization expense for the core deposit intangibles as of December 31,
2021:
Years ending December 31,
2022
2023
2024
2025
2026
$
Amount
1,127
1,048
1,048
1,048
1,048
101
Mortgage servicing rights
MSRs represent rights to service loans originated by the Company and sold to government-sponsored enterprises including
FHLMC, FNMA, GNMA and FHLB and are included in other assets in the consolidated statements of financial condition.
Mortgage loans serviced for others were $0.7 billion at December 31, 2021 and $1.4 billion at December 31, 2020.
Below are the changes in the MSRs for the years presented:
Beginning balance
Originations
Sales
Recovery (impairment)
Amortization
Ending balance
Fair value of mortgage servicing rights
For the years ended December 31,
2021
2020
$
$
10,380 $
7,881
(10,499)
740
(2,545)
5,957
7,729
$
2,630
10,354
—
(751)
(1,853)
10,380
11,542
During the year ended December 31, 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 9.3% to 14.5% for the December 31, 2021 valuation. Discount rates ranged from 9.5% to
10.5%, and the constant prepayment speed ranged from 15.4% to 21.3% for the December 31, 2020 valuation. Included in
mortgage banking income in the consolidated statements of operations was servicing income of $3.5 million and $1.7 million
for the years ended December 31, 2021 and 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.
The following table shows the estimated future amortization expense for the MSRs as of December 31, 2021:
Years ending December 31,
2022
2023
2024
2025
2026
$
Amount
813
702
606
524
453
102
Note 12 Deposits
Total deposits were $6.2 billion and $5.7 billion at December 31, 2021 and 2020, respectively. Time deposits were $0.8
billion and $1.0 billion at December 31, 2021 and 2020, respectively. The following table summarizes the Company’s time
deposits by remaining contractual maturity:
Years ending December 31,
2022
2023
2024
2025
2026
Thereafter
Total time deposits
$
$
Amount
555,361
197,026
50,617
27,882
2,445
585
833,916
The Company incurred interest expense on deposits as follows during the years indicated:
Interest bearing demand deposits
Money market accounts
Savings accounts
Time deposits
Total
$
$
For the years ended December 31,
2020
1,921 $
5,342
1,342
15,024
23,629 $
2021
1,088 $
3,995
1,157
7,362
13,602 $
2019
1,514
9,046
2,717
16,526
29,803
The Federal Reserve System requires cash balances to be maintained at the FRB based on certain deposit levels. There was
no minimum reserve requirement for the Bank at December 31, 2021.
Note 13 Borrowings
Borrowings consist of securities sold under agreements to repurchase, subordinated debt and FHLB advances.
Securities sold under agreements to repurchase
The following table sets forth selected information regarding repurchase agreements during 2021, 2020 and 2019:
Maximum amount of outstanding agreements at any month end during the period
Average amount outstanding during the period
Weighted average interest rate for the period
2021
As of and for the years ended December 31,
2020
$ 23,574 $ 54,489 $ 68,600
60,445
1.11%
30,355
0.45%
20,338
0.11%
2019
The Company enters into repurchase agreements to facilitate the needs of its clients. As of December 31, 2021, 2020 and
2019, the Company sold securities under agreements to repurchase totaling $22.8 million, $22.9 million and $56.9 million,
respectively. The Company pledged mortgage-backed securities with a fair value of approximately $28.8 million, $27.7
million and $65.6 million, as of December 31, 2021, 2020 and 2019, 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 December 31, 2021, 2020 and 2019, the Company had $6.1 million, $2.1 million and $7.0
million, respectively, of excess collateral pledged for repurchase agreements.
The vast majority of the Company’s repurchase agreements are overnight transactions with clients that mature the day after
the transaction. At December 31, 2021, 2020 and 2019, none of the Company’s repurchase agreements were for periods
longer than one day. The repurchase agreements are subject to a master netting arrangement; however, the Company has not
offset any of the amounts shown in the consolidated financial statements.
103
Long-term debt
During the fourth quarter of 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 balance on the note at December 31, 2021, net of long-term debt
issuance costs totaling $0.5 million, totaled $39.5 million. Interest expense totaling $183.3 thousand was recorded within
other liabilities in the consolidated statements of financial condition during the year ended December 31, 2021.
The note is subordinated, unsecured and matures on November 15, 2031. Payments consist of interest only. 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.
Federal Home Loan Bank advances
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 December 31, 2021. At December 31, 2021 and 2020, the Bank had no outstanding borrowings from
the FHLB. At December 31, 2019, the Bank had $192.7 million in line of credit advances from the FHLB that matured within
a day. At December 31, 2019, the Bank had $15.0 million in term advances from the FHLB with fixed interest rates between
1.55% - 2.33% and maturity dates of 2020 - 2021.
The Bank may have investment securities and loans pledged as collateral for FHLB advances. There were no investment
securities pledged at December 31, 2021 or 2020. At December 31, 2019, investment securities pledged were $17.6 million.
Loans pledged were $1.3 billion, $1.2 billion and $1.5 billion at December 31, 2021, 2020 and 2019, respectively. There was
no interest expense related to FHLB advances and other short-term borrowings for the year ended December 31, 2021,
compared to $1.3 million and $6.3 million for the years ended December 31, 2020 and 2019, respectively.
Note 14 Regulatory Capital
As a bank holding company that has elected to be treated as a financial holding company, the Company and NBH Bank is
subject to regulatory capital adequacy requirements implemented by the Federal Reserve, including maintaining capital
positions at the “well-capitalized” level. The federal banking agencies have risk-based capital adequacy regulations intended
to provide a measure of capital adequacy that reflects the degree of risk associated with a banking organization’s operations.
Under these regulations, assets are assigned to one of several risk categories, and nominal dollar amounts of assets and credit
equivalent amounts of off-balance-sheet items are multiplied by a risk-adjustment percentage for the category.
104
Under the Basel III requirements, at December 31, 2021 and 2020, the Company and the Bank met all capital requirements,
including the capital conservation buffer of 2.5%. The Company and Bank had regulatory capital ratios in excess of the levels
established for well-capitalized institutions, as detailed in the tables below:
Tier 1 leverage ratio:
Consolidated
NBH Bank
Common equity tier 1 risk based capital:
Consolidated
NBH Bank
Tier 1 risk based capital ratio:
Consolidated
NBH Bank
Total risk based capital ratio:
Consolidated
NBH Bank
Tier 1 leverage ratio:
Consolidated
NBH Bank
Common equity tier 1 risk based capital:
Consolidated
NBH Bank
Tier 1 risk based capital ratio:
Consolidated
NBH Bank
Total risk based capital ratio:
Consolidated
NBH Bank
December 31, 2021
Required to be
well capitalized under
prompt corrective
action provisions
Required to be
considered
adequately
capitalized(1)
Ratio
Amount
Ratio
Amount
Ratio
Actual
Amount
10.4%
9.1%
14.3%
12.5%
14.3%
12.5%
15.9%
13.4%
$
$
$
$
731,087
637,115
731,087
637,115
731,087
637,115
N/A
5.0%
N/A
6.5%
N/A
8.0%
816,117
682,145
N/A
10.0%
N/A
350,584
N/A
331,427
N/A
407,910
4.0%
4.0%
7.0%
7.0%
8.5%
8.5%
N/A
509,888
10.5%
10.5%
$
$
$
$
$
$
$
$
281,463
280,467
358,813
356,921
435,701
433,404
538,219
535,382
December 31, 2020
Required to be
well capitalized under
prompt corrective
action provisions
Required to be
considered
adequately
capitalized(1)
Ratio
Amount
Ratio
Amount
Ratio
Actual
Amount
10.7%
9.2%
14.7%
12.7%
14.7%
12.7%
15.8%
13.8%
$
$
$
$
696,311
600,622
696,311
600,622
696,311
600,622
N/A
5.0%
N/A
6.5%
N/A
8.0%
749,899
654,209
N/A
10.0%
N/A
325,447
N/A
307,631
N/A
378,623
4.0%
4.0%
7.0%
7.0%
8.5%
8.5%
N/A
473,279
10.5%
10.5%
$
$
$
$
$
$
$
$
260,370
260,358
331,632
331,295
402,696
402,287
497,448
496,943
(1) Includes the capital conservation buffer of 2.5%.
Note 15 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.
105
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.
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 years ended December 31, 2021, 2020 and 2019.
Non-interest income
In-scope of Topic 606:
Service charges and other fees
Bank card fees
Non-interest income (in-scope of Topic 606)
Non-interest income (out-of-scope of Topic 606)
Total non-interest income
Non-interest expense
In-scope of Topic 606:
Gain on OREO sales, net
Total revenue in-scope of Topic 606
Contract acquisition costs
For the years ended December 31,
2021
2020
2019
$
$
$
$
18,066
17,693
35,759
69,975
105,734
475
36,234
$
$
$
$
16,913
15,446
32,359
107,899
140,258
38
32,397
$
$
$
19,720
14,595
34,315
48,437
82,752
7,193
41,508
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 16 Stock-based Compensation and Benefits
The Company provides stock-based compensation in accordance with shareholder-approved plans. In 2014, shareholders
approved the 2014 Omnibus Incentive Plan (the "2014 Plan"). The 2014 Plan replaces the NBH Holdings Corp. 2009 Equity
Incentive Plan (the "Prior Plan"), pursuant to which the Company granted equity awards prior to the approval of the 2014
Plan. Pursuant to the 2014 Plan, the Compensation Committee of the Board of Directors has the authority to grant, from time
to time, awards of stock options, stock appreciation rights, restricted stock, restricted stock units, performance units, other
stock-based awards, or any combination thereof to eligible persons.
As of December 31, 2021, the aggregate number of Class A common stock available for issuance under the 2014 Plan is
4,048,761 shares. Any shares that are subject to stock options or stock appreciation rights under the 2014 Plan will be
counted against the amount available for issuance as one share for every one share granted, and any shares that are subject to
awards under the 2014 Plan other than stock options or stock appreciation rights will be counted against the amount available
for issuance as 3.25 shares for every one share granted. The 2014 Plan provides for recycling of shares from both the Prior
Plan and the 2014 Plan, the terms of which are further described in the Company's Proxy Statement for its 2014 Annual
Meeting of Shareholders. Upon an option exercise, it is the Company’s policy to issue shares from treasury stock.
106
To date, the Company has issued stock options, restricted stock and performance stock units under the plans. The
Compensation Committee sets the option exercise price at the time of grant, but in no case is the exercise price less than the
fair market value of a share of stock at the date of grant.
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.
Below are the weighted average assumptions used in the Black-Scholes option pricing model to determine fair value of the
Company’s stock options granted in 2021, 2020 and 2019:
Weighted average fair value
Weighted average risk-free interest rate (1)
Expected volatility (2)
Expected term (years) (3)
Dividend yield (4)
$
$
$
2021
9.65
1.14%
30.54%
6.04
2.09%
2020
3.37
0.44%
25.08%
6.04
3.44%
2019
6.31
2.35%
20.56%
6.05
2.00%
(1) The risk-free rate for the expected term of the options was based on the U.S. Treasury yield curve at the date of grant
and based on the expected term.
(2) Expected volatility was calculated using historical volatility of the Company’s stock price for a period commensurate
with the expected term of the options.
(3) The expected term was estimated to be the average of the contractual vesting term and time to expiration.
(4) The dividend yield was calculated in accordance with the Company’s dividend policy at the time of grant.
The Company issued stock options in accordance with the 2014 Plan during 2021. The following table summarizes stock
option activity for 2021:
Outstanding at December 31, 2020
Granted
Exercised
Forfeited
Outstanding at December 31, 2021
Options exercisable at December 31, 2021
Options vested and expected to vest
Weighted
average
exercise
Options
price
Weighted
average
remaining
contractual Aggregate
intrinsic
value
term in
years
768,129 $ 26.35
40.18
82,587
25.00
(128,551)
27.80
(26,205)
28.19
695,960
26.94
440,806
28.07
677,858
6.91 $ 5,224
6.57 $ 10,964
7,492
5.49
10,756
6.51
Stock option expense is a component of salaries and benefits in the consolidated statements of operations and totaled $0.9
million, $1.0 million and $0.7 million for 2021, 2020 and 2019, respectively. At December 31, 2021, there was $0.4 million
of total unrecognized compensation cost related to non-vested stock options granted under the plans. The cost is expected to
be recognized over a weighted average period of 2.0 years.
107
The following table summarizes the Company’s outstanding stock options:
Options outstanding
Weighted average
Options exercisable
Number
outstanding
remaining contractual
life (years)
Weighted average
exercise price
Number
exercisable
Weighted average
exercise price
159,208
193,046
89,409
172,080
82,217
3.35 $
8.24
6.25
6.57
9.22
19.22
23.13
32.56
34.14
40.24
159,208 $
60,728
87,455
132,133
1,282
19.22
23.14
32.62
34.12
40.51
$
Range of exercise price
18.00 - 22.99
23.00 - 27.99
28.00 - 32.99
33.00 - 37.99
38.00 and above
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
During the years ended December 2021, 2020 and 2019, the Company granted 52,526, 68,498, and 60,781 performance stock
units in accordance with the 2014 Plan, respectively. 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 is compared to the respective ROTA of companies comprising the KBW Regional Index. At the end of
the measurement period, the Company’s ranking will be averaged to determine the shares awarded. The fair value of the
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 2021 and 2020, the Company awarded an additional 30,024 and 17,852 units due to
final performance results related to performance stock units granted in 2018 and 2017, respectively.
108
The following table summarizes restricted stock and performance stock unit activity during 2021 and 2020:
Unvested at December 31, 2019
Granted
Adjustment due to performance
Vested
Forfeited
Unvested at December 31, 2020
Granted
Adjustment due to performance
Vested
Forfeited
Unvested at December 31, 2021
Restricted
stock shares
Weighted
average grant-
date fair value
34.19
23.94
—
32.60
29.25
27.42
39.99
—
29.78
29.54
33.40
122,198 $
127,400
—
(69,444)
(13,524)
166,630 $
89,351
—
(90,645)
(20,869)
144,467 $
Weighted
Performance
stock units
average grant-
date fair value
31.19
26.74
33.22
33.22
29.52
29.21
37.01
30.38
30.38
28.96
31.36
158,874 $
68,498
17,852
(53,540)
(6,847)
184,837 $
52,526
30,024
(90,016)
(16,977)
160,394 $
As of December 31, 2021, the total unrecognized compensation cost related to the non-vested restricted stock awards and
performance stock units totaled $2.3 million and $2.4 million, respectively, and is expected to be recognized over a weighted
average period of approximately 2.0 years and 1.8 years, respectively. Expense related to non-vested restricted stock awards
totaled $2.7 million, $2.5 million and $2.2 million during 2021, 2020 and 2019, respectively. Expense related to non-vested
performance stock units totaled $2.0 million, $1.8 million and $2.0 million during 2021, 2020 and 2019, respectively.
Expense related to non-vested restricted stock awards and units is a component of salaries and benefits in the Company’s
consolidated statements of operations.
Employee stock purchase plan
The 2014 Employee Stock Purchase Plan (“ESPP”) is intended to be a qualified plan within the meaning of Section 423 of
the Internal Revenue Code of 1986 and allows eligible employees to purchase shares of common stock 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 December 31, 2021.
Under the ESPP, employees purchased 20,980 shares and 23,212 shares during 2021 and 2020, respectively.
Note 17 Common Stock
The Company had 29,958,764 and 30,634,291 shares of Class A common stock outstanding at December 31, 2021 and 2020,
respectively. Additionally, the Company had 144,467 and 166,630 shares outstanding at December 31, 2021 and 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 2021, the Company repurchased 912,213 shares for $36.4 million at a weighted average price per share of
$39.88. The remaining authorization under the current program as of December 31, 2021 was $38.6 million.
109
Note 18 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 16.
The Company had 29,958,764 and 30,634,291 shares of Class A common stock outstanding as of December 31, 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 2021, 2020 and 2019.
The following table illustrates the computation of basic and diluted earnings per share for 2021, 2020 and 2019:
For the years ended December 31,
2020
88,591 $
(130)
88,461 $
2021
93,606 $
(133)
93,473 $
2019
80,365
(94)
80,271
31,175,825
354,992
Net income
Less: income allocated to participating securities
Income allocated to common shareholders
$
$
Weighted average shares outstanding for basic earnings per common share
Dilutive effect of equity awards
30,727,566
340,593
30,857,086
218,771
Weighted average shares outstanding for diluted earnings per common
share
Basic earnings per share
Diluted earnings per share
31,068,159
31,075,857
$
3.04 $
3.01
31,530,817
2.57
2.55
2.87 $
2.85
The Company had 695,960, 768,129 and 657,114 outstanding stock options to purchase common stock at weighted average
exercise prices of $28.19, $26.35 and $26.69 per share at December 31, 2021, 2020 and 2019, 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 304,861, 351,467 and 281,072 unvested restricted
shares and performance stock units issued as of December 31, 2021, 2020 and 2019, 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 19 Income Taxes
Income tax expense attributable to income before taxes was $21.4 million, $20.8 million and $15.8 million for 2021, 2020
and 2019, respectively. Included in income tax was $0.6 million of tax benefit, $51 thousand of tax expense and $2.2 million
of tax benefit from stock compensation activity during 2021, 2020 and 2019, respectively.
110
(a) Income taxes
Total income taxes for 2021, 2020 and 2019 were allocated as follows:
Current expense:
U.S. federal
State and local
Total current income tax expense
Deferred expense:
U.S. federal
State and local
Total deferred income tax expense
Income tax expense
(b) Tax Rate Reconciliation
For the years ended December 31,
2019
2020
2021
$ 13,746 $ 16,460 $
2,643
16,389
3,255
19,715
8,947
2,280
11,227
4,327
649
4,976
4,115
487
4,602
$ 21,365 $ 20,806 $ 15,829
560
531
1,091
The reconciliation between the income tax expenses and the amounts computed by applying the U.S. federal income tax rate
to pretax income is as follows:
For the years ended December 31,
2019
2020
2021
$ 24,144 $ 22,974 $ 20,201
2,186
(4,354)
(475)
(1,925)
253
(57)
$ 21,365 $ 20,806 $ 15,829
2,601
(4,862)
(603)
(733)
852
(34)
2,991
(4,628)
(575)
43
388
(387)
Income tax at federal statutory rates (21%)
State income taxes, net of federal benefits
Tax-exempt loan interest income
Bank-owned life insurance income
Stock-based compensation
Non-deductible compensation
Other
Income tax expense
111
(c) Significant Components of Deferred Taxes
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax
liabilities at December 31, 2021 and 2020 are presented below:
Deferred tax assets:
Excess tax basis of acquired loans over carrying value
Allowance for credit losses
Other real estate owned
Accrued stock-based compensation
Accrued compensation
Capitalized start-up costs
Accrued expenses
Net deferred loan fees
Net operating loss
Lease liability
Net unrealized losses on investment securities
Other
Total deferred tax assets
Deferred tax liabilities:
Intangible assets
Net unrealized gains on investment securities
Premises and equipment
Right of use assets
Prepaid expenses
Mortgage servicing rights
Other
Total deferred tax liabilities
Net deferred tax asset
December 31, 2021 December 31, 2020
$
679 $
11,806
645
1,384
4,355
1,223
316
1,021
573
4,811
2,169
1,791
30,773
(4,822)
—
(1,858)
(4,674)
(255)
(1,415)
(59)
(13,083)
17,690 $
$
966
14,154
634
2,070
3,674
1,540
532
1,015
641
6,154
—
2,025
33,405
(2,563)
(3,033)
(1,599)
(6,015)
(229)
(2,458)
(44)
(15,941)
17,464
At December 31, 2021, the Company had federal and state net operating loss carryovers (“NOLs”) of $2.2 million and $3.2
million, respectively, which are available to offset future taxable income. The federal NOLs expire in varying amounts
through 2034, and the state NOLs expire in varying amounts between 2026 and 2034. While these NOLs are subject to
certain restrictions on the amount that can be utilized per year, the Company does not expect any tax attribute carryovers to
expire before they are utilized.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the
generation of future taxable income during the periods in which those temporary differences become deductible.
Management considers the scheduled reversal of deferred tax liabilities, if any (including the impact of available
carryforward periods), projected future taxable income, and tax-planning strategies in making this assessment. For the years
ended December 31, 2021 and 2020, management believes a valuation allowance on the deferred tax asset is not necessary
based on the current and future projected earnings of the Company. The Company has no ASC 740-10 unrecognized tax
benefits recorded as of December 31, 2021 and 2020 and does not expect the total amount of unrecognized tax benefits to
significantly increase within the next 12 months. The Company and its subsidiary bank are subject to income tax by federal,
state and local government taxing authorities. The Company is not currently subject to any open income tax examinations;
however, the Company’s tax returns for the years ended December 31, 2018 through 2021 remain subject to examination by
U.S. federal income tax authorities. The years open to examination by state and local government authorities vary by
jurisdiction.
112
Note 20 Derivatives
Risk management objective of using derivatives
The Company is exposed to certain risks arising from both its business operations and economic conditions. The Company
has established policies stipulating that neither carrying value nor fair value at risk should exceed established guidelines. The
Company has designed strategies to confine these risks within the established limits and identify appropriate trade-offs in the
financial structure of its balance sheet. These strategies include the use of derivative financial instruments to help achieve the
desired balance sheet repricing structure while meeting the desired objectives of its clients. Currently the Company employs
certain interest rate swaps that are designated as fair value hedges 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.
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 December 31, 2021 and 2020.
Information about the valuation methods used to measure fair value is provided in note 22.
Derivatives designated as hedging
instruments:
Balance Sheet
location
Asset derivatives fair value
December 31,
2021
2020
December 31, Balance Sheet
Location
Liability derivatives fair value
December 31,
December 31,
2020
2021
Interest rate products
Other assets $
477 $
— Other liabilities $
12,221 $
38,884
Total derivatives designated as
hedging instruments
Derivatives not designated as hedging
instruments:
$
477 $
—
$
12,221 $
38,884
Interest rate products
Interest rate lock commitments
Forward contracts
Other assets $
Other assets
Other assets
8,321 $
1,792
91
18,149 Other liabilities $
7,001 Other liabilities
— Other liabilities
8,329 $
197
266
18,176
298
2,622
Total derivatives not designated
as hedging instruments
Fair value hedges
$
10,204 $
25,150
$
8,792 $
21,096
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 December 31, 2021, the Company had interest rate swaps with a notional amount of
$343.1 million that were designated as fair value hedges. These interest rate swaps were associated with $345.2 million of the
Company’s fixed-rate loans included in loans receivable in the statements of financial condition as of December 31, 2021,
before a gain of $16.1 million from the fair value hedge adjustment in the carrying amount.
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 $389.9 million of the Company’s fixed-rate
loans as of December 31, 2020, excluding a gain of $40.1 million from the fair value hedge adjustment in the carrying
amount.
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.
113
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 December 31, 2021, the Company had matched interest rate swap transactions with an aggregate notional amount of
$394.4 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 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 in 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 $110.0 million and forward contracts with a
notional value of $198.3 million at December 31, 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 on the consolidated statements of
operations for 2021 and 2020:
Derivatives in fair value
hedging relationships
Interest rate products
Hedged items
Interest rate products
Location of gain (loss)
recognized in income on
derivatives
Amount of gain recognized in income on derivatives
For the years ended December 31,
2021
2020
Interest and fees on loans
$
4,568 $
4,405
Location of gain (loss)
recognized in income on
hedged items
Amount of loss recognized in income on hedged items
For the years ended December 31,
2021
2020
Interest and fees on loans
$
(3,026) $
(6,376)
114
Derivatives not designated
as hedging instruments
Interest rate products
Interest rate lock commitments
Forward contracts
Total
Location of gain (loss)
recognized in income on
derivatives
Amount of gain (loss) recognized in income on derivatives
For the years ended December 31,
2021
2020
Other non-interest expense
Mortgage banking income
Mortgage banking income
$
$
23 $
(6,852)
2,447
(4,382) $
(7)
7,218
(2,339)
4,872
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 December 31, 2021, the termination value of derivatives in a net liability position related to these agreements was
$20.8 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 December 31, 2021, the
Company had posted $21.6 million in eligible collateral. If the Company had breached any of these provisions at December
31, 2021, it could have been required to settle its obligations under the agreements at the termination value.
Note 21 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 December 31, 2021 and 2020 were as follows:
Commitments to fund loans
Unfunded commitments under lines of credit
Commercial and standby letters of credit
Total unfunded commitments
December 31, 2021 December 31, 2020
311,237
$
537,325
7,320
855,882
462,151 $
530,397
7,321
999,869 $
$
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
115
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 year ended
December 31, 2021 and 2020 totaling $0.5 million and $0.5 million, respectively, were primarily driven by early payoffs. The
Company recorded a repurchase reserve of $2.1 million and $2.7 million at December 31, 2021 and 2020, respectively, which
is included in other liabilities in the consolidated statements of financial condition.
The following table summarizes mortgage repurchase reserve activity for the periods presented:
Beginning balance
Provision (released from) charged to operating expense, net
Charge-offs
Ending balance
For the years ended December 31,
2020
2021
$
$
2,741 $
(108)
(531)
2,102 $
2,589
662
(510)
2,741
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 22 Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to disclose
the fair value of its financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date. For disclosure purposes, the
Company groups its financial and non-financial assets and liabilities into three different levels based on the nature of the
instrument and the availability and reliability of the information that is used to determine fair value. The three levels are
defined as follows:
• Level 1—Includes assets or liabilities in which the valuation methodologies are based on unadjusted quoted prices
in active markets for identical assets or liabilities.
• Level 2—Includes assets or liabilities in which the inputs to the valuation methodologies are based on similar assets
or liabilities in inactive markets, quoted prices for identical or similar assets or liabilities in inactive markets, and
inputs other than quoted prices that are observable, such as interest rates, yield curves, volatilities, prepayment
speeds, and other inputs obtained from observable market input.
• Level 3—Includes assets or liabilities in which the inputs to the valuation methodology are based on at least one
significant assumption that is not observable in the marketplace. These valuations may rely on management’s
judgment and may include internally-developed model-based valuation techniques.
Level 1 inputs are considered to be the most transparent and reliable and level 3 inputs are considered to be the least
transparent and reliable. The Company assumes the use of the principal market to conduct a transaction of each particular
asset or liability being measured and then considers the assumptions that market participants would use when pricing the
116
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 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 December 31, 2021 and 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 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 86.7% 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
117
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 December 31, 2021 and
2020, in the consolidated statements of financial condition utilizing the hierarchy structure described above:
Assets:
Investment securities available-for-sale:
Mortgage-backed securities:
Residential mortgage pass-through securities issued or guaranteed
by U.S. Government agencies or sponsored enterprises
$
— $ 227,696 $
— $ 227,696
Level 1
Level 2
Level 3
Total
December 31, 2021
Other residential MBS issued or guaranteed by U.S. Government
agencies or sponsored enterprises
Municipal securities
Corporate debt
Loans held for sale
Interest rate swap derivatives
Mortgage banking derivatives
Total assets at fair value
Liabilities:
Interest rate swap derivatives
Mortgage banking derivatives
Total liabilities at fair value
Assets:
Investment securities available-for-sale:
Mortgage-backed securities:
461,334
237
2,111
139,142
8,798
—
461,334
—
237
—
2,111
—
139,142
—
8,798
—
—
1,883
— $ 839,318 $ 1,883 $ 841,201
—
—
—
—
—
1,883
$
$ — $ 20,550 $ — $ 20,550
463
463
463 $ 21,013
—
— $ 20,550 $
—
$
Level 1
Level 2
Level 3
Total
December 31, 2020
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
Municipal securities
Corporate debt
Loans held for sale
Interest rate swap derivatives
Mortgage banking derivatives
Total assets at fair value
Liabilities:
Interest rate swap derivatives
Mortgage banking derivatives
Total liabilities at fair value
462,779
318
1,998
247,813
18,149
—
462,779
—
318
—
1,998
—
247,813
—
18,149
—
7,001
—
— $ 927,391 $ 7,001 $ 934,392
—
—
—
—
—
7,001
$
$ — $ 57,060 $ — $ 57,060
2,920
—
— $ 57,060 $ 2,920 $ 59,980
2,920
—
$
The table below details the changes in level 3 financial instruments during 2021:
Balance at December 31, 2020
Loss included in earnings, net
Fees and costs included in earnings, net
Balance at December 31, 2021
118
Mortgage banking
derivatives, net
$
$
4,081
(4,405)
1,744
1,420
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% - 15%, with a weighted average discount rate of 8.3%, 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 December
31, 2021, the Company recorded a specific reserve of $1.6 million related to six loans with a carrying balance of $5.1 million.
At December 31, 2020, the Company recorded a specific reserve of $1.9 million related to seven loans with a carrying
balance of $7.5 million.
OREO—OREO is recorded at the fair value of the collateral less estimated selling costs using a range of 6% - 10% with a
weighted average discount rate of 7.2%. The estimated fair values of OREO are updated periodically and further write-downs
may be taken to reflect a new basis. The Company recognized $0.8 million and $0.5 million of OREO impairments in its
consolidated statements of operations during 2021 and 2020, respectively. The fair values of OREO are derived from third
party price opinions or appraisals that generally use an income approach or a market value approach. If reasonable
comparable appraisals are not available, then 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 discount rate of 9.5% at
December 31, 2021 and a prepayment speed assumption range from 9.3% to 14.5% with a weighted average rate of 9.4% at
December 31, 2021 as inputs. At December 31, 2020, discount rates ranged from 9.5% to 10.5% with a weighted average
discount rate of 9.5% and prepayment speed assumption range from 15.4% to 21.3% with a weighted average rate of 15.8%.
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 2021 compared to
$0.8 million of impairment during 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 2021, the Company completed the previously announced consolidation of 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 which considers current local commercial real estate
market conditions and 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. 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 during the year ended December 31, 2021. During 2020, the Company
recognized $1.6 million of impairments in its consolidated statements of operations related to premises and equipment
classified as held-for-sale totaling $8.0 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.
119
The tables below provide information regarding losses from the assets recorded at fair value on a non-recurring basis at
December 31, 2021 and 2020.
December 31, 2021
Individually evaluated loans
Other real estate owned
Premises and equipment
Total
Individually evaluated loans
Other real estate owned
Premises and equipment
Mortgage servicing rights
Total
$
$
$
$
Total
14,083 $
7,005
6,032
27,120 $
Losses from fair value changes
1,816
799
1,552
4,167
December 31, 2020
Total
Losses from fair value changes
3,228
470
1,631
751
6,080
25,480 $
4,730
8,024
10,380
48,614 $
The Company did not record any liabilities measured at fair value on a non-recurring basis during 2021 and 2020.
Note 23 Fair Value of Financial Instruments
The fair value of a financial instrument is the amount that would be exchanged between willing parties, other than in a forced
liquidation. Fair value is determined based upon quoted market prices to the extent possible; however, in many instances,
there are no quoted market prices for the Company’s various financial instruments. In cases where quoted market prices are
not available, fair values are based on estimates using present value or other valuation techniques that may be significantly
impacted by the assumptions used, including the discount rate and estimates of future cash flows. Changes in any of these
assumptions could significantly affect the fair value estimates. The fair value of the financial instruments listed below does
not reflect a premium or discount that could result from offering all of the Company’s holdings of financial instruments at
one time, nor does it reflect the underlying value of the Company, as ASC Topic 825 excludes certain financial instruments
and all non-financial instruments from its disclosure requirements. The estimated fair value amounts have been determined
by the Company using available market information and appropriate valuation methodologies and are based on the exit price
concept within ASC Topic 825 and applied to this disclosure on a prospective basis. Considerable judgment is required to
interpret market data in order to develop the estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current market exchange.
120
The fair value of financial instruments at December 31, 2021 and 2020 are set forth below:
ASSETS
hierarchy
Level in fair value
measurement
December 31, 2021
December 31, 2020
Carrying
amount
Estimated
fair value
Carrying
amount
Estimated
fair value
Cash and cash equivalents
Mortgage-backed securities—residential mortgage
pass-through securities issued or guaranteed by U.S.
Government agencies or sponsored enterprises
available-for-sale
Mortgage-backed securities—other residential
mortgage-backed securities issued or guaranteed by
U.S. Government agencies or sponsored enterprises
available-for-sale
Municipal securities available-for-sale
Municipal securities available-for-sale
Corporate debt
Other available-for-sale securities
Mortgage-backed securities—residential mortgage
pass-through securities issued or guaranteed by U.S.
Government agencies or sponsored enterprises held-
to-maturity
Mortgage-backed securities—other residential
mortgage-backed securities issued or guaranteed by
U.S. Government agencies or sponsored enterprises
held-to-maturity
Non-marketable securities
Loans receivable
Loans held for sale
Accrued interest receivable
Interest rate swap derivatives
Mortgage banking derivatives
LIABILITIES
Deposit transaction accounts
Time deposits
Securities sold under agreements to repurchase
Long-term debt
Accrued interest payable
Interest rate swap derivatives
Mortgage banking derivatives
Level 1
$ 845,695 $ 845,695 $ 605,565 $ 605,565
Level 2
227,696
227,696
196,334
196,334
Level 2
Level 2
Level 3
Level 2
Level 3
461,334
237
—
2,111
469
461,334
237
—
2,111
469
462,779
318
57
1,998
469
462,779
318
57
1,998
469
Level 2
312,916
309,614
306,187
310,930
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 3
Level 2
Level 2
Level 2
Level 2
Level 2
Level 2
Level 3
296,096
14,533
4,513,383
139,142
17,848
8,798
1,883
5,394,257
833,916
22,768
40,000
3,944
20,550
463
289,646
14,533
4,540,847
139,142
17,848
8,798
1,883
5,394,257
833,163
22,768
40,000
3,944
20,550
463
70,428
16,493
4,353,726
247,813
18,795
18,149
7,001
4,690,100
986,132
22,897
—
6,762
57,060
2,920
70,761
16,493
4,511,357
247,813
18,795
18,149
7,001
4,690,100
993,070
22,897
—
6,762
57,060
2,920
121
Note 24 Parent Company Only Financial Statements
Parent company only financial information for National Bank Holdings Corporation is summarized as follows:
Condensed Statements of Financial Condition
ASSETS
Cash and cash equivalents
Non-marketable securities
Investment in subsidiaries
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Long-term debt, net
Other liabilities
Total liabilities
Shareholders’ equity
Total liabilities and shareholders’ equity
December 31, 2021 December 31, 2020
$
$
$
$
107,154
24,178
746,135
7,366
884,833
39,478
5,249
44,727
840,106
884,833
$
$
$
$
91,402
58
725,002
14,751
831,213
—
10,522
10,522
820,691
831,213
Condensed Statements of Operations
For the years ended December 31,
2021
2020
2019
Income
Equity in undistributed earnings of subsidiaries
Distributions from subsidiaries
Income from non-marketable securities
Total income
Expenses
Interest expense
Salaries and benefits
Other expenses
Total expenses
Income before income taxes
Income tax benefit
Net income
$
37,866
63,000
553
101,419
$ 67,416
27,200
—
94,616
$ 28,133
55,725
—
83,858
197
5,622
5,042
10,861
90,558
(3,048)
93,606
—
5,136
2,621
7,757
86,859
(1,732)
$ 88,591
—
4,925
2,463
7,388
76,470
(3,895)
$ 80,365
$
122
Condensed Statements of Cash Flows
For the years ended December 31,
2019
2020
2021
$ 93,606 $ 88,591 $ 80,365
(28,133)
4,869
(2,160)
—
5,045
59,986
(37,866)
5,541
(644)
13
(3,747)
56,903
(67,416)
5,299
51
—
3,074
29,599
(23,025)
(23,025)
—
—
—
—
40,000
(535)
(2,267)
2,489
(26,888)
(36,400)
(23,601)
10,277
101,402
—
—
—
—
(6,229)
(749)
2,788
1,832
(23,530)
(24,816)
—
(19,476)
(26,971)
(43,209)
33,015
(13,610)
81,997
115,012
$ 111,679 $ 101,402 $ 115,012
Cash flows from operating activities:
Net income
Equity in undistributed earnings of subsidiaries
Stock-based compensation expense
Net excess tax (benefit) expense from stock-based compensation
Amortization
Other
Net cash provided by operating activities
Cash flows from investing activities:
Purchase of non-marketable securities
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from issuance of long-term debt
Payments of long-term debt issuance costs
Issuance of stock under purchase and equity compensation plans
Proceeds from exercise of stock options
Payment of dividends
Repurchase of shares
Net cash used in financing activities
Net increase (decrease) in cash, cash equivalents and restricted cash
Cash, cash equivalents and restricted cash at beginning of the year
Cash, cash equivalents and restricted cash at end of the year
123
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURES.
There were no changes in or disagreements with accountants on accounting and financial disclosures.
Item 9A. CONTROLS AND PROCEDURES.
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Our management, with the participation of our principal executive officer and principal financial officer, conducted an
evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the
Securities Exchange Act of 1934, as of December 31, 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 December 31, 2021.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Our management, with the participation of our principal executive officer
and principal financial officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as
of December 31, 2021 based on the framework in Internal Control—Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, our management concluded that our
internal control over financial reporting was effective as of December 31, 2021. KPMG LLP, the independent registered
public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has
issued a report on our internal control over financial reporting as of December 31, 2021, which report is included in this Item
9A below.
Changes in Internal Control Over Financial Reporting
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.
124
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors
National Bank Holdings Corporation:
Opinion on Internal Control Over Financial Reporting
We have audited National Bank Holdings Corporation and subsidiaries' (the Company) internal control over financial
reporting as of December 31, 2021, based on criteria established in Internal Control – Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all
material respects, effective internal control over financial reporting as of December 31, 2021, based on criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2021 and 2020, the related
consolidated statements of operations, comprehensive income, changes in shareholders’ equity, and cash flows for each of
the years in the three-year period ended December 31, 2021, and the related notes (collectively, the consolidated financial
statements), and our report dated February 23, 2022 expressed an unqualified opinion on those consolidated financial
statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's
Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in
all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and
operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our
opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
125
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Kansas City, Missouri
February 23, 2022
126
Item 9B. OTHER INFORMATION.
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our
2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
The Company's Supplemental Code of Ethics for CEO and Senior Financial Officers, which applies to the CEO, Chief
Financial Officer and Principal Accounting Officer, is available at www.nationalbankholdings.com. Amendments to, and
waivers of, the code of ethics are publicly disclosed as required by applicable law, regulation or rule.
Item 11. EXECUTIVE COMPENSATION.
The Information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our
2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED SHAREHOLDER MATTERS.
The Information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our
2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE.
The Information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our
2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The Information required by this Item is incorporated herein by reference to our Proxy Statement (Schedule 14A) for our
2022 Annual Meeting of Shareholders to be filed with the SEC within 120 days of our fiscal year-end.
127
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
(a) The following documents are filed as a part of this report:
(1) Financial Statements:
Consolidated Statements of Financial Condition
Consolidated Statements of Operations
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
(2) Financial Statement Schedules:
Page
74
75
76
77
78
79
All schedules are omitted as such information is inapplicable or is included in the financial statements.
(b) The exhibits filed as part of this report and exhibits incorporated herein by reference to other documents are listed
below:
Exhibit No Description
2.1*
3.1
3.2
4.1
4.2
4.3
10.1
10.2
Agreement and Plan Merger, dated as of June 23, 2017, by and among Peoples, Inc., National Bank
Holdings Corporation, the Significant Stockholders (as defined herein) and Winton A. Winter, Jr.,
solely in his capacity as the Holders’ Representative (incorporated herein by reference to Exhibit 2.1
to our Form 8-K dated June 23, 2017 and filed on June 27, 2017)
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 on August
22, 2012)
Second Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.2 to our Form
10-Q, filed on November 7, 2014)
Specimen common stock certificate (incorporated herein by reference to Exhibit 4.1 to our Form S-1
Registration Statement (Registration No. 333-177971), filed on August 22, 2012)
Description of Capital Stock (incorporated herein by reference to Exhibit 4.2 to our Form 10-K, filed
on February 26, 2020)
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)
Form of Indemnification Agreement by and between NBH Holdings Corp. and each of its directors
and executive officers (incorporated herein by reference to Exhibit 10.6 to our Form S-1 Registration
Statement (Registration Statement No. 333-177971), filed on September 10, 2012)˄
Employment Agreement, dated May 22, 2010, by and between G. Timothy Laney and NBH Holdings
Corp. (incorporated herein by reference to Exhibit 10.1 to our Form S-1 Registration Statement
(Registration Statement No. 333-177971), filed on September 10, 2012)˄
128
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
First Amendment to Employment Agreement, dated November 17, 2015, by and between G. Timothy
Laney and National Bank Holdings Corporation (incorporated herein by reference to Exhibit 10.2 to
our Form 8-K, filed on November 20, 2015)˄
Amended and Restated Employment Agreement, dated November 17, 2015, by and between Richard
U. Newfield, Jr. and National Bank Holdings Corporation (incorporated herein by reference to
Exhibit 10.4 to our Form 8-K, filed on November 20, 2015)˄
Employment Agreement, dated November 17, 2015, by and between Zsolt K. Besskó and National
Bank Holdings Corporation (incorporated herein by reference to Exhibit 10.5 to our Form 8-K, filed
on November 20, 2015)˄
Employment Agreement, dated May 2, 2018, by and between Aldis Birkans and National Bank
Holdings Corporation (incorporated herein by reference to Exhibit 10.2 to our Form 8-K, filed on
May 2, 2018)˄
Transition Agreement, dated May 5, 2020, by and between National Bank Holdings Corporation and
Zsolt K. Besskó (incorporated herein by reference to Exhibit 10.1 to our Form 8-K, filed on May 5,
2020) ˄
Employment Agreement, dated May 5, 2020, by and between National Bank Holdings Corporation
and Angela N. Petrucci (incorporated herein by reference to Exhibit 10.2 to our Form 10-Q, filed on
August 5, 2020) ˄
Change of Control Agreement applicable to executive officers not party to an employee agreement
(incorporated herein by reference to Exhibit 10.17 to our form 10-K, filed on February 28, 2018)˄
Support Agreement, dated as of June 23, 2017, by and among Peoples, Inc., National Bank Holdings
Corporation and the undersigned stockholders of Peoples, Inc. (incorporated herein by reference to
Exhibit 10.1 to our Form 8-K dated June 23, 2017 and filed on June 27, 2017)
NBH Holdings Corp. 2009 Equity Incentive Plan (incorporated herein by reference to Exhibit 10.2 to
our Form S-1 Registration Statement (Registration No. 333-177971), filed on November 14, 2011)˄
Amendment to the NBH Holdings Corp. 2009 Equity Incentive Plan dated February 22, 2017
(incorporated herein by reference to Exhibit 10.10 to our form 10-K, filed on February 24, 2017)˄
National Bank Holdings Corporation Employee Stock Purchase Plan (incorporated herein by
reference to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed on March
30, 2015)˄
National Bank Holdings Corporation 2014 Omnibus Incentive Plan (incorporated herein by reference
to Annex A to the Company’s Definitive Proxy Statement on Schedule 14A, filed on March 31,
2014)˄
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Performance Stock Unit
Award Agreement (For Management) (incorporated herein by reference to Exhibit 10.13 to our Form
10-K, filed on March 1, 2019)˄
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Restricted Stock Award
Agreement (For Management) (incorporated herein by reference to Exhibit 10.14 to our Form 10-K,
filed on March 1, 2019)˄
129
10.17
10.18
10.19
10.20
10.21
21.1
23.1
31.1
31.2
32
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Nonqualified Stock
Option Agreement (For Management) (incorporated herein by reference to Exhibit 10.15 to our Form
10-K, filed on March 1, 2019)˄
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Restricted Stock Award
Agreement (For Non-Employee Directors) (incorporated herein by reference to Exhibit 10.4 to our
Form 10-Q, filed on May 9, 2014)˄
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Performance Stock Unit
Award Agreement (TSR) (For Management) (incorporated herein by reference to Exhibit 10.3 to our
Form 10-Q, filed on August 5, 2020)˄
Form of National Bank Holdings Corporation 2014 Omnibus Incentive Plan Performance Stock Unit
Award Agreement (ROTA) (For Management) (incorporated herein by reference to Exhibit 10.4 to
our Form 10-Q, filed on August 5, 2020)˄
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)
Subsidiaries of National Bank Holdings Corporation
Consent of KPMG LLP
Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
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
101.SCH
101.CAL
101.DEF
101.LAB
101.PRE
104
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XBRL tags are embedded within the Inline XBRL document.
XBRL Taxonomy Extension Schema
XBRL Taxonomy Extension Calculation
XBRL Taxonomy Extension Definition
XBRL Taxonomy Extension Labels
XBRL Taxonomy Extension Presentation
Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
* Schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule
or exhibit will be furnished supplementally to the Securities and Exchange Commission upon request.
Indicates a management contract or compensatory plan.
˄
130
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on February 23, 2022, on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
National Bank Holdings Corporation
By
/s/ G. Timothy Laney
G. Timothy Laney
Chairman, President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 23, 2022,
by the following persons on behalf of the registrant and in the capacities indicated.
131
/s/ G. TIMOTHY LANEY
G. Timothy Laney
Chairman, President and Chief Executive Officer
(principal executive officer)
/s/ ALDIS BIRKANS
Aldis Birkans
Chief Financial Officer
(principal financial officer)
/s/ NICOLE VAN DENABEELE
Nicole Van Denabeele
Chief Accounting Officer
(principal accounting officer)
/s/ RALPH W. CLERMONT
Ralph W. Clermont, Lead Director
/s/ ROBERT E. DEAN
Robert E. Dean, Director
/s/ ALKA GUPTA
Alka Gupta, Director
/s/ FRED J. JOSEPH
Fred J. Joseph, Director
/s/ PATRICK G. SOBERS
Patrick G. Sobers, Director
/s/ MICHO F. SPRING
Micho F. Spring, Director
/s/ BURNEY S. WARREN, III
Burney S. Warren, III, Director
/s/ ART ZEILE
Art Zeile, Director
132
Corporate Headquarters
National Bank Holdings Corporation
7800 East Orchard Road, Suite 300
Greenwood Village, CO 80111
Tel: 720.554.6640
www.nationalbankholdings.com
Stock Exchange Listings
NYSE
Symbol: NBHC
Independent Accountants
KPMG LLP
Kansas City, MO
Transfer Agent, Registrar and
Dividend Disbursing Agent
Equiniti (EQ Shareowner Services)
1110 Centre Pointe Curve, Suite 101
Mendota Heights, MN 55120
Tel (Inside US): 800-468-9716
Tel (Outside US): 651-450-4064
www.equiniti.com
A LETTER FROM OUR CHAIRMAN, PRESIDENT AND CEO
TIM LANEY
FELLOW SHAREHOLDERS,
2021 was a year of strengthening existing connections,
On another important front, we helped our clients
forging new ones, and creating innovative ways to
secure their dream homes with mortgage production
connect with our clients, associates and communities.
of $2.2 billion.
NBHC Total Shareholder Returns1, 2
December 31, 2016 through December 31, 2021
As a result, we achieved record earnings for the fourth
consecutive year, all while maintaining exceptional credit
quality. This is a testament to our commitment to deliver
common sense banking by building lasting relationships
based on the principles of fairness and simplicity. During
2021, we also announced our strategic intent to build
2UniFiSM, a comprehensive and fully digital ecosystem to
support the financial and information needs of small and
medium-sized businesses.
60%
50%
40%
30%
20%
10%
0%
-10%
-20%
-30%
-40%
-50%
Financial highlights for the twelve months ended
2017
2018
2019
2020
2021
December 31, 2021 include:
NBHC
KBW Regional Banking Index (KRX) 1
• Record net income of $93.6 million and earnings
We believe that it is important to provide our clients
per share of $3.01
with options for how they address their financial needs.
• Full year net charge-offs of only three basis points
To that end, we are building a comprehensive, easy-to-
• Record loan originations of $1.5 billion
use, digital financial marketplace for small and medium-
sized businesses. 2UniFiSM will emerge as a national
We were pleased to be recognized again as one
ecosystem providing access to a broad array of financial
of Fortune’s 100 Fastest Growing Companies and
services, real-time information and blockchain payment
among the top public companies for shareholder value
creation. Newsweek named us the #1 Best Small Bank
in Colorado for 2021, and Bank Director ranked us #9
in the Best Small Regional Banks for 2022. Further, our
shareholder return continues to outperform the KBW
Regional Banking Index. In 2021, we also completed
$36.4 million of share repurchases, which amounts to
over 900,000 shares. Simply put, I am proud that our
financial performance is providing meaningful returns
for our shareholders.
In 2021, our banking teams were active
in our
communities, meeting in person with our clients and
prospective clients, working together to navigate the
ever-changing environment. We generated new loan
originations of $1.5 billion, helping our clients and
communities move beyond the pandemic. Additionally,
we worked with our clients who participated in the SBA’s
Paycheck Protection Program to achieve forgiveness
SM
Enriched/timely information
Access to working capital/term debt
Reduction in cost
Fun and easy to use
Financial inclusion
of these loans. These funds helped hundreds of small
tools within a secure, safe and regulated platform.
and medium-sized businesses secure their payrolls and
Our goal is to reduce stress and save business owners
support their employees through challenging times.
both time and money by addressing their borrowing,
1Total Shareholder Return measured based on security and index market close prices and dividends re-invested into the same security or index.
2Past results are not a guarantee of future performance.
ABOUT NATIONAL BANK HOLDINGS CORPORATION
National Bank Holdings Corporation is a bank holding company created to build a leading community bank franchise
delivering high-quality client service and committed to stakeholder results. Through its bank subsidiary, NBH Bank,
National Bank Holdings Corporation operates a network of 81 banking centers1. Our core markets are Colorado, the
greater Kansas City region, Texas, Utah and New Mexico. More information about National Bank Holdings Corporation
can be found at www.nationalbankholdings.com.
51.5%
29.8%
OUR FAMILY OF BRANDS 2
NBH Bank operates under one charter with the following brand names:
Community Banks of Colorado and Community Banks Mortgage, a division
of NBH Bank in Colorado, Bank Midwest and Bank Midwest Mortgage in
Kansas and Missouri, and Hillcrest Bank and Hillcrest Bank Mortgage in
Texas, Utah and New Mexico.
Headquartered in
Denver, Colorado
LOCATIONS AND
MARKET SHARE
1
COMMUNITY BANKS
OF COLORADO
Largest publicly traded bank
headquartered in Colorado
Ranks 3rd in market share of
Colorado headquartered banks
40 banking centers
1% deposit market share across
Colorado
BANK MIDWEST
Ranks 8th in banking centers in
Kansas City MSA
34 banking centers
3% deposit market share in
Kansas City MSA
HILLCREST BANK
7 locations, including 2
commercial offices located
in Austin, TX, Dallas TX; and
5 banking centers located in
Albuquerque, NM, Taos, NM
and Salt Lake City, UT
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1Financial information and rank as of June 30, 2021 per S&P Global. NBH banking centers as of December 31, 2021. 2NBH Bank, Community Banks of Colorado, Bank Midwest,
Hillcrest Bank, and the corresponding logo marks, are registered trademarks and service marks, as applicable, of National Bank Holdings Corporation.
Where common sense lives.®
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CONNECTING WITH OUR
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