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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
10-Q
 
 
QUARTERLY
 
REPORT PURSUANT TO SECTION 13 OR 15(d) OF
 
THE SECURITIES EXCHANGE ACT
 
OF 1934
 
For the quarterly period ended
September 30, 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
001-39028
 
CROSSFIRST BANKSHARES, INC.
 
(Exact Name of Registrant as Specified in its Charter)
Kansas
26-3212879
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
11440 Tomahawk Creek Parkway
Leawood
,
KS
66211
(Address of principal executive offices)
(Zip Code)
(
913
)
312-6822
 
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
 
Title of each class
Trading Symbol
Name of each exchange on which registered
Common Stock, par value $0.01 per share
CFB
The Nasdaq Stock Market LLC
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 (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
 
Yes
 
 
No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting
company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange
 
Act.
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
 
Act). Yes
 
 
No
 
As of November 1, 2021, the registrant had
50,918,788
 
shares of common stock, par value $0.01, outstanding.
 
2
CrossFirst Bankshares, Inc.
Form 10-Q for the Quarter Ended September 30, 2021
 
Index
Part I. Financial Information
Item 1. Financial Statements
Forward-Looking Information
4
5
6
7
9
Notes to Consolidated Financial Statements (unaudited)
10
13
14
18
30
30
31
31
32
34
34
38
38
38
Item 2. Management’s Discussion and Analysis of Financial Condition
 
and Results of Operations
39
41
41
45
47
48
49
49
49
50
53
55
57
57
57
58
59
60
Part II. Other Information
60
60
61
62
63
 
3
Forward-Looking Information
This report may contain forward-looking statements that reflect our current views with respect to, among other things, future
events and our financial performance. These statements are often, but not always, made through the use of words or phrases such as
“may,” “might,” “should,” “could,” “predict,” “potential,” “believe,” “expect,” “continue,” “will,” “anticipate,” “seek,” “estimate,”
“intend,” “plan,” “strive,” “projection,” “goal,” “target,” “outlook,” “aim,” “would,” “annualized” and “outlook,” or the negative
 
version
of those words or other comparable words or phrases of a future or forward-looking nature.
 
These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about
our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently
uncertain and beyond our control. Accordingly, we caution
 
you that any such forward-looking statements are not guarantees of future
performance and are subject to risks, assumptions, estimates and uncertainties that are difficult to predict.
 
Although we believe that the
expectations reflected in these forward-looking statements are reasonable as of the date made, actual results may prove to be materially
different from the results expressed or implied by the forward-looking statements. Such possible events or factors include: risks
associated with the current outbreak of the novel coronavirus, or the COVID-19 pandemic, changes in economic conditions
 
in the
Company’s market area, changes in policies by regulatory agencies, governmental legislation and regulation, fluctuations in interest
rates, changes in liquidity requirements, demand for loans in the Company’s market area, changes in accounting and
 
tax principles,
estimates made on income taxes, competition with other entities that offer financial services, cybersecurity threats, and
 
such other
factors as discussed in our Annual Report on Form 10-K for the fiscal
 
year ended December 31, 2020, filed with the Securities and
Exchange Commission (“SEC”) on February 26, 2021, any subsequent quarterly report on Form 10-Q as well as in our other filings with
the SEC.
 
We undertake no obligation to revise or publicly release the results of any revision to these forward-looking statements, except as
required by law. Given these risks and uncertainties, readers are cautioned not to place undue reliance on such forward-looking
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
4
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED BALANCE SHEETS
September 30, 2021
December 31, 2020
(Unaudited)
(Dollars in thousands)
Assets
Cash and cash equivalents
$
316,722
$
408,810
Available-for-sale securities - taxable
168,182
177,238
Available-for-sale securities - tax-exempt
539,924
477,350
Loans, net of allowance for loan losses of $
64,152
 
and $
75,295
 
at September 30,
2021 and December 31, 2020, respectively
4,168,965
4,366,602
Premises and equipment, net
66,598
70,509
Restricted equity securities
12,885
15,543
Interest receivable
15,928
17,236
Foreclosed assets held for sale
1,148
2,347
Bank-owned life insurance
67,104
67,498
Other
43,695
56,170
Total assets
$
5,401,151
$
5,659,303
Liabilities and stockholders’
 
equity
Deposits
Noninterest-bearing
$
960,999
$
718,459
Savings, NOW and money market
2,774,477
2,932,799
Time
701,121
1,043,482
Total deposits
4,436,597
4,694,740
Federal funds purchased and repurchase agreements
-
2,306
Federal Home Loan Bank advances
276,600
293,100
Other borrowings
997
963
Interest payable and other liabilities
34,550
43,766
Total liabilities
4,748,744
5,034,875
Stockholders’ equity
Common stock, $
0.01
 
par value:
 
 
authorized -
200,000,000
 
shares, issued -
52,576,504
 
and
52,289,129
 
shares at
September 30, 2021 and December 31, 2020, respectively
526
523
Treasury stock, at cost:
 
 
1,573,806
 
and
609,613
 
shares held at September 30, 2021 and December 31, 2020,
respectively
(20,000)
(6,061)
Additional paid-in capital
525,676
522,911
Retained earnings
126,299
77,652
Accumulated other comprehensive income
19,906
29,403
Total stockholders’ equity
652,407
624,428
Total liabilities and stockholders’
 
equity
$
5,401,151
$
5,659,303
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
5
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(Dollars in thousands except per share data)
Interest Income
Loans, including fees
$
42,664
$
43,929
$
130,268
$
138,591
Available-for-sale securities - taxable
803
1,042
2,423
4,174
Available-for-sale securities - tax-exempt
3,562
3,186
10,410
9,758
Deposits with financial institutions
121
47
359
583
Dividends on bank stocks
161
248
488
808
Total interest income
47,311
48,452
143,948
153,914
Interest Expense
Deposits
4,211
7,298
14,789
29,975
Fed funds purchased and repurchase agreements
-
54
3
162
Federal Home Loan Bank Advances
1,275
1,749
3,838
4,980
Other borrowings
24
24
72
85
Total interest expense
5,510
9,125
18,702
35,202
Net Interest Income
41,801
39,327
125,246
118,712
Provision for Loan Losses
(10,000)
10,875
1,000
45,825
Net Interest Income after Provision for Loan Losses
51,801
28,452
124,246
72,887
Non-Interest Income (Loss)
 
 
 
 
Service charges and fees on customer accounts
1,196
792
3,330
1,947
Realized gains on available-for-sale securities
1,046
1,012
1,043
1,725
Unrealized gains (losses), net on equity securities
 
(6,210)
-
(6,243)
53
Income from bank-owned life insurance
427
464
3,088
1,373
Swap fees and credit valuation adjustments, net
31
121
156
80
ATM and credit card interchange income
1,735
1,482
5,569
2,863
Other non-interest income
670
192
1,921
751
Total non-interest income (loss)
(1,105)
4,063
8,864
8,792
Non-Interest Expense
Salaries and employee benefits
15,399
14,628
44,612
43,022
Occupancy
2,416
2,144
7,307
6,274
Professional fees
618
1,132
2,538
3,098
Deposit insurance premiums
927
1,096
2,995
3,151
Data processing
700
652
2,136
2,065
Advertising
596
147
1,334
870
Software and communication
999
959
3,098
2,772
Foreclosed assets, net
(35)
20
680
1,174
Goodwill impairment
-
-
-
7,397
Other non-interest expense
2,416
2,233
7,967
6,421
Total non-interest expense
24,036
23,011
72,667
76,244
Net Income Before Taxes
26,660
9,504
60,443
5,435
Income tax expense
5,660
1,498
11,831
928
Net Income
$
21,000
$
8,006
$
48,612
$
4,507
Basic Earnings Per Share
$
0.41
$
0.15
$
0.95
$
0.09
Diluted Earnings Per Share
$
0.41
$
0.15
$
0.93
$
0.09
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
6
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - UNAUDITED
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(Dollars in thousands)
Net Income
$
21,000
$
8,006
$
48,612
$
4,507
Other Comprehensive Income (Loss)
Unrealized gain (loss) on available-for-sale securities
(7,989)
1,923
(11,532)
14,073
Less: income tax expense (benefit)
(1,956)
472
(2,823)
3,440
Unrealized gain (loss) on available-for-sale securities, net of
income tax
(6,033)
1,451
(8,709)
10,633
Reclassification adjustment for realized gains included in income
1,046
1,012
1,043
1,725
Less: income tax expense
256
248
255
422
Less: reclassification adjustment for realized gains included in
income, net of income tax
790
764
788
1,303
Other comprehensive income (loss)
(6,823)
687
(9,497)
9,330
Comprehensive Income
$
14,177
$
8,693
$
39,115
$
13,837
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
7
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY - UNAUDITED
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2020
52,167,573
$
521
$
521,133
$
61,344
$
25,094
$
-
$
608,092
Net income
-
-
-
8,006
-
-
8,006
Change in unrealized appreciation on
available-for-sale securities
-
-
-
-
687
-
687
Issuance of shares from equity-based awards
28,205
-
(115)
-
-
-
(115)
Employee receivables from sale of stock
-
-
1
5
-
-
6
Stock-based compensation
-
-
1,207
-
-
-
1,207
Balance at September 30, 2020
52,195,778
$
521
$
522,226
$
69,355
$
25,781
$
-
$
617,883
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at June 30, 2021
50,958,680
$
525
$
524,637
$
105,299
$
26,729
$
(20,000)
$
637,190
Net income
-
-
-
21,000
-
-
21,000
Change in unrealized depreciation of available-
for-sale securities
-
-
-
-
(6,823)
-
(6,823)
Issuance of shares from equity-based awards
44,018
1
(110)
-
-
-
(109)
Stock-based compensation
-
-
1,149
-
-
-
1,149
Balance September 30, 2021
51,002,698
$
526
$
525,676
$
126,299
$
19,906
$
(20,000)
$
652,407
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
8
Common Stock
Additional
Paid-in
Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2019
51,969,203
$
520
$
519,870
$
64,803
$
16,451
$
-
$
601,644
Net income
-
-
-
4,507
-
-
4,507
Change in unrealized appreciation on
available-for-sale securities
-
-
-
-
9,330
-
9,330
Issuance of shares from equity-based awards
226,575
1
(869)
-
-
-
(868)
Employee receivables from sale of stock
-
-
2
45
-
-
47
Stock-based compensation
-
-
3,223
-
-
-
3,223
Balance at September 30, 2020
52,195,778
$
521
$
522,226
$
69,355
$
25,781
$
-
$
617,883
Common Stock
Additional
Paid-in Capital
Retained
Earnings
Accumulated Other
Comprehensive
Income
Treasury Stock
Total
Shares
Amount
(Dollars in thousands)
Balance at December 31, 2020
51,679,516
$
523
$
522,911
$
77,652
$
29,403
$
(6,061)
$
624,428
Net income
-
-
-
48,612
-
-
48,612
Change in unrealized depreciation of available-
for-sale securities
-
-
-
-
(9,497)
-
(9,497)
Issuance of shares from equity-based awards
287,375
3
(608)
-
-
-
(605)
Open market common share repurchases
(964,193)
-
-
-
-
(13,939)
(13,939)
Employee receivables from sale of stock
-
-
-
35
-
-
35
Stock-based compensation
-
-
3,373
-
-
-
3,373
Balance September 30, 2021
51,002,698
$
526
$
525,676
$
126,299
$
19,906
$
(20,000)
$
652,407
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
See Notes to Consolidated Financial Statements (unaudited)
9
CROSSFIRST BANKSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
Nine Months Ended
September 30,
2021
2020
(Dollars in thousands)
Operating Activities
Net income
$
48,612
$
4,507
Items not requiring (providing) cash
 
 
Depreciation and amortization
3,993
3,888
Provision for loan losses
1,000
45,825
Accretion of discounts and amortization of premiums on securities
3,876
4,632
Equity based compensation
3,373
3,223
Foreclosed asset impairment
630
1,270
Deferred income taxes
2,233
(5,098)
Net increase in bank owned life insurance
(3,088)
(1,373)
Net recognized gains (losses) on equity securities
6,243
(53)
Net realized gains on available-for-sale securities
(1,043)
(1,725)
Goodwill impairment
-
7,397
Changes in
Interest receivable
1,308
(3,287)
Other assets
(1,753)
(1,472)
Other liabilities
(541)
(4,546)
Net cash provided by operating activities
64,843
53,188
Investing Activities
 
 
Net change in loans
196,637
(652,251)
Purchases of available-for-sale securities
(168,705)
(35,326)
Proceeds from maturities of available-for-sale securities
83,546
102,529
Proceeds from sale of available-for-sale securities
15,923
31,810
Proceeds from the sale of foreclosed assets
628
-
Purchase of premises and equipment
(671)
(4,849)
Proceeds from the sale of premises and equipment and related insurance claims
547
121
Purchase of restricted equity securities
-
(2,839)
Proceeds from sale of restricted equity securities
3,143
-
Proceeds from death benefit on bank owned life insurance
3,483
-
Net cash provided by (used in) investing activities
134,531
(560,805)
Financing Activities
 
 
Net increase in demand deposits, savings, NOW and money market accounts
84,218
667,849
Net decrease in time deposits
(342,361)
(99,060)
Net decrease in fed funds purchased and repurchase agreements
(2,306)
(1,390)
Proceeds from Federal Home Loan Bank advances
-
138,000
Repayment of Federal Home Loan Bank advances
(16,500)
(160,643)
Issuance of common shares, net of issuance cost
3
-
Proceeds from employee stock purchase plan
172
-
Repurchase of common stock
(13,939)
-
Acquisition of common stock for tax withholding obligations
(784)
(869)
Net decrease in employee receivables
35
46
Net cash provided by (used in) financing activities
(291,462)
543,933
Increase (Decrease) in Cash and Cash Equivalents
(92,088)
36,316
Cash and Cash Equivalents, Beginning of Period
408,810
187,320
Cash and Cash Equivalents, End of Period
$
316,722
$
223,636
Supplemental Cash Flows Information
Interest paid
$
19,402
$
37,238
Income taxes paid
$
8,370
$
7,335
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
10
Note 1: Nature of Operations and Summary of Significant Accounting Policies
Organization and Nature of Operations
CrossFirst Bankshares, Inc. (the “Company”) is a bank holding company whose principal activities are the ownership and
management of its wholly-owned subsidiary, CrossFirst Bank (the “Bank”). In addition, the Bank has
three
 
subsidiaries including
CrossFirst Investments, Inc. (“CFI”) that holds investments in marketable securities, CFBSA
 
I, LLC that holds foreclosed assets and
CFBSA II, LLC that holds foreclosed assets.
The Bank is primarily engaged in providing a full range of banking and financial services to individual and corporate customers
through its branches in: (i) Leawood, Kansas; (ii) Wichita, Kansas; (iii) Kansas City, Missouri; (iv) Oklahoma City, Oklahoma; (v)
Tulsa, Oklahoma; (vi) Dallas, Texas; (vii) Frisco, Texas; and (viii) Phoenix,
 
Arizona.
Basis of Presentation
The Company’s accounting and reporting policies conform to accounting principles generally accepted in the United States
(“GAAP”). The consolidated financial statements include the accounts of the Company, the Bank, CFI, CFBSA
 
I, LLC and CFBSA II,
LLC. All significant intercompany accounts and transactions
 
have been eliminated in consolidation.
The consolidated interim financial statements are unaudited and certain information and footnote disclosures presented in
accordance with GAAP have been condensed or omitted and should be read in conjunction with the Company’s
 
consolidated financial
statements and footnotes included in the Company’s
 
Annual Report on Form 10-K for the year ended December 31, 2020 (the “2020
Form 10-K”), filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2021.
 
In the opinion of management, the interim financial statements include all adjustments which are of a normal, recurring nature
necessary for the fair presentation of the financial position, results of operations, and cash flows of the Company and the disclosures
made are adequate to make the interim financial information not misleading. The consolidated financial statements have been prepared
in accordance with GAAP for interim financial information and the instructions to
 
Form 10-Q adopted by the SEC.
No significant changes in the accounting policies of the Company occurred since December 31, 2020, the most recent date
financial statements were provided within the Company’s 2020 Form 10-K. Operating results for the interim periods disclosed herein are
not necessarily indicative of the results that may be expected for a full year or any future period.
Use of Estimates
The Company identified accounting policies and estimates that, due to the difficult, subjective or complex judgments and
assumptions inherent in those policies and estimates and the potential sensitivity of the Company’s financial
 
statements to those
judgments and assumptions, are critical to an understanding of the Company’s financial condition and results of
 
operations. Actual
results could differ from those estimates. In particular, the novel coronavirus (“COVID-19”) pandemic and resulting impacts to
economic conditions, as well as adverse impacts to the Company’s operations, may impact future estimates.
 
The allowance for loan
losses, deferred tax asset, and fair value of financial instruments are particularly susceptible to significant change.
Cash Equivalents
The Company had $
253
 
million of cash and cash equivalents at the Federal Reserve Bank of Kansas City as of September 30,
2021. The reserve required at September 30, 2021 was $
0
.
Coronavirus Aid, Relief, and Economic Security Act (“CARES
 
Act”)
The CARES Act gave financial institutions the right to elect
 
to suspend GAAP principles and regulatory determinations for loan
modifications relating to COVID-19 that would otherwise be categorized as troubled debt restructurings (“TDRs”) from March 1, 2020,
through December 31, 2020. On December 27, 2020, the Consolidated Appropriations
 
Act, 2021 was signed into law, which extended
the period during which the Company may suspend GAAP principles and regulatory determinations for loan modifications relating
 
to
 
 
Notes to Consolidated Financial Statements (unaudited)
11
COVID-19 that would otherwise be categorized as TDRs through January 1, 2022.
 
The Company elected to apply the guidance starting
in the first quarter of 2020.
Changes Affecting Comparability
Beginning with the quarter ended March 31, 2021, the Company consolidated the “Goodwill and other intangible assets,
 
net” into
“other assets” within the Consolidated Balance Sheets. The consolidation was due to the immateriality of the remaining intangible
assets. The change had no impact on net income.
For the quarter ended September 30, 2021, the Company broke out “unrealized gains (losses), net on equity securities”
 
that was
previously consolidated in “other non-interest income”.
 
As a result, changes within the Consolidated Statements of Income in the prior
periods were made to conform to the current period presentation. The changes provided additional detail
 
about the Company’s
operations. The changes had no impact on net income.
Emerging Growth Company (“EGC”)
The Company is currently an EGC. An EGC may take advantage of reduced
 
reporting requirements and is relieved of certain
other significant requirements that are otherwise generally applicable to public companies.
 
Among the reductions and reliefs, the
Company elected to extend the transition period for complying with new or revised accounting standards affecting public companies.
This means that the financial statements the Company files or furnishes will not be subject to all new or revised accounting standards
generally applicable to public companies for the transition period for so long as the Company remains an EGC or until the Company
affirmatively and irrevocably opts out of the extended transition period under the JOBS
 
Act.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
12
Recent Accounting Pronouncements
The following table provides information about Accounting Standard Updates (“ASUs”) the Company
 
anticipates to adopt in the
future:
Standard
Anticipated
Date of
Adoption
Description
Effect on Financial Statements or Other Significant Matters
ASU 2016-13
Financial
Instruments-
Credit Losses
If the Company
maintains its
EGC status, the
Company is not
required to
implement this
standard until
January 2023.
 
The Company
expects to
implement this
standard on
January 1, 2022.
Requires an entity to
utilize a new
impairment model
known as the current
expected credit loss
("CECL") model to
estimate its lifetime
expected credit loss
and record an
allowance that, when
deducted from
amortized cost basis
of the financial asset,
presents the net
amount expected to
be collected on the
financial asset.
The Company established a committee to formulate and oversee the
implementation process including selection, implementation and testing of
third-party software.
The Company began parallel processing with the existing allowance for loan
losses model during the first quarter of 2019 recalibrating inputs as
necessary. The Company is formulating changes to policies, procedures,
disclosures and internal controls that will be necessary to transition to the
new standard. A
 
third-party completed validation of the completeness,
accuracy and reasonableness of the model in the fourth quarter of 2021.
 
The Company plans to use a loss-rate ("cohort") method to estimate the
expected allowance for credit losses ("ACL") for all loan pools. Upon
adoption in 2022, a cumulative-effect adjustment for the change in the
 
ACL
will be recognized in retained earnings. Based on our forecasted economic
conditions and portfolio balances at September 30, 2021, the adoption of the
standard could result in an overall cumulative-effect adjustment of up to a
5% change in the ACL, as compared to our current reserve levels.
 
These
results include the adoption of a forecast based on several economic
assumptions, including unemployment rates and management judgments.
 
Adoption will not materially impact reporting for debt securities as the
Company does not currently own held-to-maturity debt securities within the
scope of ASU 2016-13.
The actual impact could be significantly affected by the composition,
characteristics, and quality of the underlying loan portfolio and economic
assumptions at the time of adoption.
The Company does not expect the adoption to have a significant impact on
capital or capital ratios and will continue to evaluate the impact the adoption
of ASU 2016-13 will have on the Company's consolidated financial
statements.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
13
Standard
Anticipated
Date of
Adoption
Description
Effect on Financial Statements or Other Significant Matters
ASU 2016-02
Leases (Topic
842)
The Company
expects to
implement this
standard on
January 1, 2022.
Requires lessees and lessors
to recognize lease assets and
lease liabilities on the balance
sheet and disclose key
information about leasing
arrangements.
The update requires lessees
and lessors to recognize and
measure leases at the
beginning of the earliest
period presented using a
modified retrospective
approach with the option to
elect certain practical
expedients. The update will
also increase disclosures
around leases, including
qualitative and specific
quantitative measures.
The Company expects to apply the update as of the beginning of
the period of adoption and the Company does not plan to restate
comparative periods. The Company expects to elect certain
optional practical expedients.
The Company gathered all potential lease and embedded lease
agreements and is evaluating the applicability and impact to the
financial statements.
The Company’s current operating leases relate primarily to four
branch locations. Based on the current leases, the Company
anticipates recognizing a lease liability and related right-to-use
asset on its balance sheet, with an immaterial impact to its income
statement compared to the current lease accounting model.
However, the ultimate impact of the standard will depend on the
Company's lease portfolio as of the adoption date.
Note 2: Earnings Per Share
The following table presents the computation of basic and diluted earnings per share:
Three Months Ended
Nine Months Ended
September 30,
September 30,
2021
2020
2021
2020
(Dollars in thousands except per share data)
Earnings per Share
Net income available to common stockholders
$
21,000
$
8,006
$
48,612
$
4,507
Weighted average common shares
50,990,113
52,136,286
51,368,957
52,104,372
Earnings per share
$
0.41
$
0.15
$
0.95
$
0.09
Diluted Earnings per Share
Net income available to common stockholders
$
21,000
$
8,006
$
48,612
$
4,507
Weighted average common shares
50,990,113
52,136,286
51,368,957
52,104,372
Effect of dilutive shares
615,608
423,840
699,257
463,219
Weighted average dilutive common shares
51,605,721
52,560,126
52,068,214
52,567,591
Diluted earnings per share
$
0.41
$
0.15
$
0.93
$
0.09
Stock-based awards not included because to do so would be
antidilutive
587,200
1,214,433
657,887
1,053,393
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
14
Note 3: Securities
The amortized cost and approximate fair values, together with gross unrealized gains and losses, of period end available-for-sale
securities consisted of the following:
 
September 30, 2021
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
132,059
$
2,326
$
1,421
$
132,964
Collateralized mortgage obligations - GSE residential
22,122
498
16
22,604
State and political subdivisions
523,324
27,922
2,968
548,278
Corporate bonds
4,242
85
67
4,260
Total available-for-sale securities
$
681,747
$
30,831
$
4,472
$
708,106
December 31, 2020
Amortized
Cost
Gross
Unrealized
Gains
Gross
Unrealized
Losses
Approximate
Fair Value
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
$
104,839
$
4,277
$
-
$
109,116
Collateralized mortgage obligations - GSE residential
52,070
984
42
53,012
State and political subdivisions
454,486
33,642
31
488,097
Corporate bonds
4,259
104
-
4,363
Total available-for-sale securities
$
615,654
$
39,007
$
73
$
654,588
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
15
The amortized cost and fair value of available-for-sale securities at September 30, 2021, by contractual maturity, are shown
below:
 
September 30, 2021
Within
After One to
After Five to
After
One Year
Five Years
Ten Years
Ten Years
Total
(Dollars in thousands)
Available-for-sale securities
Mortgage-backed - GSE residential
(1)
Amortized cost
$
-
$
40
$
148
$
131,871
$
132,059
Estimated fair value
$
-
$
41
$
159
$
132,764
$
132,964
Weighted average yield
(2)
0.00
%
4.68
%
3.96
%
1.60
%
1.60
%
Collateralized mortgage obligations -
GSE residential
(1)
Amortized cost
$
-
$
-
$
2,438
$
19,684
$
22,122
Estimated fair value
$
-
$
-
$
2,608
$
19,996
$
22,604
Weighted average yield
(2)
0.00
%
0.00
%
2.77
%
1.16
%
1.34
%
State and political subdivisions
Amortized cost
$
522
$
6,115
$
78,231
$
438,456
$
523,324
Estimated fair value
$
524
$
6,319
$
84,402
$
457,033
$
548,278
Weighted average yield
(2)
3.25
%
3.88
%
3.35
%
2.76
%
2.86
%
Corporate bonds
Amortized cost
$
-
$
355
$
3,887
$
-
$
4,242
Estimated fair value
$
-
$
360
$
3,900
$
-
$
4,260
Weighted average yield
(2)
0.00
%
4.22
%
4.54
%
0.00
%
4.52
%
Total available-for-sale securities
Amortized cost
$
522
$
6,510
$
84,704
$
590,011
$
681,747
Estimated fair value
$
524
$
6,720
$
91,069
$
609,793
$
708,106
Weighted average yield
(2)
3.25
%
3.90
%
3.39
%
2.44
%
2.58
%
(1)
 
Actual maturities may differ from contractual maturities because issuers may have the rights to call or prepay obligations with or
without prepayment penalties.
(2)
Yields are calculated based on amortized cost.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
16
The following tables show the number of securities, unrealized loss, and fair value of the Company’s investments with unrealized
losses that are not deemed to be other-than-temporarily impaired (“OTTI”), aggregated by investment class and length of time that
individual securities have been in a continuous unrealized loss position at September 30, 2021 and December 31, 2020:
 
September 30, 2021
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
70,590
$
1,421
15
$
-
$
-
-
$
70,590
$
1,421
15
Collateralized
mortgage obligations
- GSE residential
1,561
15
3
161
1
1
1,722
16
4
State and political
subdivisions
99,890
2,964
62
1,101
4
3
100,991
2,968
65
Corporate bonds
3,433
67
1
-
-
-
3,433
67
1
Total temporarily
impaired securities
$
175,474
$
4,467
81
$
1,262
$
5
4
$
176,736
$
4,472
85
December 31, 2020
Less than 12 Months
12 Months or More
Total
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
Fair Value
Unrealized
Losses
Number of
Securities
(Dollars in thousands)
Available-for-sale
securities
Mortgage-backed -
GSE residential
$
-
$
-
-
$
-
$
-
-
$
-
$
-
-
Collateralized
mortgage obligations
- GSE residential
9,933
42
5
-
-
-
9,933
42
5
State and political
subdivisions
8,525
31
8
25
-
1
8,550
31
9
Corporate bonds
-
-
-
-
-
-
-
-
-
Total temporarily
impaired securities
$
18,458
$
73
13
$
25
$
-
1
$
18,483
$
73
14
The Company expects to recover the amortized cost basis over the term of the securities. The Company does not intend to sell the
investments and it is not more likely than not the Company will be required to sell the investments before recovery of their amortized
cost basis, which may be maturity.
The following tables show the gross gains and losses on securities that matured or were sold:
 
For the Three Months Ended
For the Nine Months Ended
September 30, 2021
September 30, 2021
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
 
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
(Dollars in thousands)
Available-for-sale securities
$
1,125
$
79
$
1,046
$
1,151
$
108
$
1,043
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
17
For the Three Months Ended
For the Nine Months Ended
September 30, 2020
September 30, 2020
Gross
Realized
Gains
Gross
Realized
Losses
Net
Realized
Gain
Gross
Realized
Gains
(1)
Gross
Realized
Losses
Net
Realized
Gain
(Dollars in thousands)
Available-for-sale securities
$
1,025
$
13
$
1,012
$
1,785
$
60
$
1,725
(1)
The gross gains for the nine-months ended September 30, 2020, included $
75
 
thousand related to a previously disclosed OTTI
municipal security that was settled in 2020.
Equity Securities
Equity securities consist of a $
2
 
million investment in a Community Reinvestment
 
Act (“CRA”) mutual fund, a $
308
 
thousand
private equity investment and a $
5
 
million privately-held security acquired in the fourth quarter of 2020 as part of a debt restructuring.
Equity securities are included in “other assets” on the Consolidated Balance Sheets.
The privately-held security was acquired in partial satisfaction of debts previously contracted at an initial value of $
11
 
million.
The Company elected a measurement alternative that allows the security to remain at cost until an impairment is identified
 
or an
observable price change for an identical or similar investment of the same issuer occurs. Impairment is recorded when there is evidence
that the expected fair value of the investment has declined to below the recorded cost. During the third quarter of 2021, qualitative
impairment factors required the Company to update the equity’s fair market value and the Company recorded a $
6
 
million unrealized
loss on the equity security due to a reduction in its fair market value.
 
The following is a summary of the unrealized and realized gains and losses recognized in net income on equity securities:
 
Three Months Ended
Nine Months Ended
September 30,
 
September 30,
 
2021
2020
2021
2020
(Dollars in thousands)
Net gains (losses) recognized during the reporting period on equity securities
$
(6,210)
$
-
$
(6,243)
$
53
Less: net gains recognized during the reporting period on equity securities sold
during the reporting period
-
-
-
-
Unrealized gain (losses) recognized during the reporting period on equity
securities still held at the reporting date
$
(6,210)
$
-
$
(6,243)
$
53
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
18
Note 4:
 
Loans and Allowance for Loan Losses (“ALLL”)
Categories of loans at September 30, 2021 and December 31, 2020 include:
 
September 30, 2021
December 31, 2020
(Dollars in thousands)
Commercial
$
1,305,536
$
1,338,757
Energy
296,365
345,233
Commercial real estate
1,266,694
1,179,534
Construction and land development
585,134
563,144
Residential and multifamily real estate
620,877
680,932
Paycheck Protection Program (“PPP”)
109,465
292,230
Consumer
62,113
55,270
Gross loans
4,246,184
4,455,100
Less: Allowance for loan losses
64,152
75,295
Less: Net deferred loan fees and costs
13,067
13,203
Net loans
$
4,168,965
$
4,366,602
Allowance for Loan Losses
The ALLL is established
 
as losses are estimated to have occurred through a provision for loan losses charged to income. Loan losses are charged against
 
the allowance when
management believes the loan balance is not collectible. Subsequent recoveries, if any, are credited to the allowance.
The ALLL is evaluated
 
on a regular basis by management and is based upon management’s periodic review of its ability to collect the loans considering historical
 
experience,
the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying
 
collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates that are susceptible
 
to significant revision as more information becomes available.
The ALLL consists
 
of allocated and general components. The allocated component relates to loans that are classified as
 
impaired. For those loans that are classified as
impaired, an allowance is established when the discounted cash flows (or collateral value or observable market price) of the impaired loan is lower than the carrying
 
value of that
loan. The general component covers all loans on accrual and is based on historical charge-off experience and expected loss
 
given default derived from the Company’s internal risk
rating process and loan categories. Other adjustments may be made to the allowance for pools of loans after an assessment of internal or external influences
 
on credit quality that are
not fully reflected in the historical loss or risk rating data.
The Company evaluates the loan risk grading system definitions, portfolio segment definitions and
 
ALLL methodology on an ongoing basis. No changes to loan definitions,
segmentation, and ALLL
 
methodology occurred during the third quarter of 2021.
The following tables summarize the activity in the ALLL
 
by portfolio segment and disaggregated based on the Company’s impairment methodology. The allocation in one
portfolio segment does not preclude its availability to absorb losses in other segments:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes to Consolidated Financial Statements (unaudited)
19
Commercial
Energy
Commercial
Real Estate
Construction and
Land
Development
Residential and
Multifamily
Real Estate
PPP
Consumer
Total
(Dollars in thousands)
Three Months Ended September 30, 2021
Allowance for loan losses
Beginning balance
$
28,433
$
17,849
$
19,181
$
3,885
$
5,826
$